<PAGE> 1
September 30, 1996
[Photo of Mt. Shuksan, Washington]
ANNUAL REPORT
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Balanced Fund
SAFECO Small Company Stock Fund
[SAFECO MUTUAL FUNDS LOGO]
<PAGE> 2
LETTER FROM THE PRESIDENT
September 30, 1996
[PHOTO OF DAVID F. HILL]
DEAR SHAREHOLDER:
Ambiguous economic indicators seemed to fuel investor unease, resulting in
significant volatility in the financial markets over the last six months. Still,
the net effect on the major asset classes was unsurprising: The broad stock
market as measured by the S&P rose, bond values declined slightly, and money
rates were relatively unchanged.
Those who had bailed out of the stock market in fear of the "coming
decline" missed out. Those of you who followed the rule of staying in the stock
market, but only with money that you can tolerate moving up and down, were
rewarded.
The S&P was up and down, and down severely in July, but finished the six
months with a 7.71% gain.
While some market watchers heralded the July downturn as the end of the
long-running bull market, it was not the case. The Dow Jones Industrial Average,
closed the third quarter flirting with the 6000 barrier. And the S&P's latest
12-month return of 20.31% is far ahead of 14.95%, its average annual return over
the last ten years. It is unrealistic to expect the stock market to continue to
outgain its historical averages year after year. For that reason we advise that
the money you need for nearer-term goals be invested in more stable investments.
Small stocks proved more volatile than the larger market--gaining more
in 1995 and giving back more in 1996. The Russell Small Company Index was up
15.79%, and NASDAQ gained 17.57% compared to the S&P's 20.31% gain for the year
ended September 30. Returning 8.94%, international stocks as measured by the
EAFE Index continued to substantially lag the U.S. market.
Bond index returns were generally below their 10-year average annual
return.
Interest rates continued to rise during the six-month period, but the
increase was less dramatic than that experienced in the first quarter of 1996.
Thirty-year U.S. Treasury yields went from 6.67% on March 31 to 6.92% on
September 30. Since June, rates have gyrated within a fairly narrow
<PAGE> 3
range, and the third quarter ended with interest rates basically unchanged.
At this writing, bonds are earning their coupons and holding their values.
This is what we want from bonds--income and relative stability of principal.
Municipal bonds, long suppressed by cries for flat taxes, outperformed
Treasury bonds during the last six months as the flat-tax advocates were
eliminated from political contention.
While the economy so far in 1996 has been more robust than we expected,
its overall pace of growth has been modest, and recently has shown signs of
moderating further.
Despite rising nearly one full percentage point since January, interest
rates remain near 30-year lows--levels that are more likely to contribute to
growing, not to slowing the economy. Meanwhile, the inflation rate, which is
reasonably low by historical standards, is slowly increasing. And, the Fed has
declined to raise interest rates to brake the economy. We can only assume the
Fed is watching to see if today's higher interest rates will adequately slow
economic growth, effectively exorcising the specter of inflation.
TABLE OF CONTENTS
<TABLE>
<S> <C>
SAFECO Growth Fund .................................................... 6
SAFECO Equity Fund .................................................... 12
SAFECO Income Fund .................................................... 17
SAFECO Northwest Fund ................................................. 23
SAFECO International Stock Fund ....................................... 28
SAFECO Balanced Fund .................................................. 36
SAFECO Small Company Stock Fund ....................................... 42
Financial Statements .................................................. 46
Notes to Financial Statements ......................................... 52
</TABLE>
Our view on the economy is that we will see a slowing of GDP growth in
1997 and that inflation will remain under control. The year 1997 could be quite
similar to 1996.
And, while we will manage your portfolios with due care and caution given
the current environment, our philosophy on investing has little to do with our
economic outlook. Fund investors should select their investments based on their
objectives, their time horizons and their comfort level.
/s/ David F. Hill, President
- ------------------------------
David F. Hill, President
-1-
<PAGE> 4
PERFORMANCE INFORMATION
SEPTEMBER 30, 1996
SAFECO GROWTH FUND - SAFECO EQUITY FUND - SAFECO INCOME FUND
ILLUSTRATION OF A $10,000 INVESTMENT
INVESTMENT VALUE
AS OF SEPTEMBER 30, 1996
------------------------
<TABLE>
<S> <C>
SAFECO EQUITY FUND $43,441
SAFECO GROWTH FUND $35,562
SAFECO INCOME FUND: $28,182
S&P 500 INDEX: (W/DIVIDENDS) $40,348
</TABLE>
<PAGE> 5
EQUITY FUND
<TABLE>
<CAPTION>
Equity S&P
------ ------
<S> <C> <C>
09/30/86 10,000 10,000
10/31/86 10,335 10,577
11/30/86 10,335 10,834
12/31/86 10,377 10,558
01/31/87 11,411 11,980
02/28/87 11,411 12,453
03/31/87 12,190 12,812
04/30/87 11,978 12,698
05/31/87 11,978 12,809
06/30/87 12,267 13,456
07/31/87 13,240 14,138
08/31/87 13,240 14,665
09/30/87 13,627 14,344
10/31/87 9,698 11,254
11/30/87 9,698 10,327
12/31/87 9,646 11,113
01/31/88 9,646 11,580
02/28/88 10,462 12,117
03/31/88 11,279 11,744
04/30/88 11,257 11,874
05/31/88 11,093 11,975
06/30/88 11,595 12,525
07/31/88 11,526 12,477
08/31/88 11,333 12,054
09/30/88 11,867 12,568
10/31/88 11,867 12,917
11/30/88 12,076 12,732
12/31/88 12,086 12,954
01/31/89 12,086 13,900
02/28/89 12,906 13,553
03/31/89 12,922 13,869
04/30/89 12,922 14,589
05/31/89 13,716 15,108
06/30/89 14,221 15,093
07/31/89 14,221 16,455
08/31/89 15,487 16,776
09/30/89 15,679 16,707
10/31/89 15,710 16,319
11/30/89 15,819 16,650
12/31/89 16,412 17,050
01/31/90 15,050 15,906
02/28/90 15,191 16,113
03/31/90 15,754 16,540
04/30/90 15,298 16,128
05/31/90 16,776 17,697
06/30/90 16,750 17,579
07/31/90 16,450 17,522
08/31/90 14,713 15,940
09/30/90 13,996 15,165
10/31/90 13,698 15,102
11/30/90 14,445 16,076
12/31/90 15,006 16,523
01/31/91 15,775 17,240
02/28/91 16,712 18,471
03/31/91 17,184 18,918
04/30/91 17,536 18,963
05/31/91 18,241 19,779
06/30/91 17,070 18,873
07/31/91 18,215 19,752
08/31/91 18,501 20,220
09/30/91 18,250 19,883
10/31/91 18,549 20,149
11/30/91 17,388 19,339
12/31/91 19,194 21,548
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
01/31/92 20,336 21,147
02/28/92 20,680 21,422
03/31/92 19,751 21,006
04/30/92 19,914 21,622
05/31/92 19,732 21,727
06/30/92 18,308 21,404
07/31/92 19,056 22,277
08/31/92 18,271 21,820
09/30/92 18,324 22,078
10/31/92 19,209 22,154
11/30/92 20,478 22,906
12/31/92 20,972 23,187
01/31/93 21,667 23,381
02/28/93 21,686 23,699
03/31/93 22,851 24,199
04/30/93 22,329 23,614
05/31/93 24,167 24,244
06/30/93 24,266 24,315
07/31/93 23,935 24,217
08/31/93 25,276 25,134
09/30/93 25,979 24,935
10/31/93 26,663 25,451
11/30/93 26,808 25,209
12/31/93 27,454 25,514
01/31/94 29,100 26,382
02/28/94 28,371 25,667
03/31/94 27,281 24,550
04/30/94 28,159 24,864
05/31/94 28,975 25,272
06/30/94 27,931 24,653
07/31/94 28,646 25,462
08/31/94 30,389 26,503
09/30/94 30,269 25,856
10/31/94 30,835 26,436
11/30/94 30,225 25,473
12/31/94 30,182 25,850
01/31/95 30,402 26,520
02/28/95 31,197 27,551
03/31/95 31,450 28,364
04/30/95 32,294 29,198
05/31/95 33,115 30,363
06/30/95 33,936 31,068
07/31/95 34,472 32,096
08/31/95 35,432 32,176
09/30/95 36,803 33,534
10/31/95 36,346 33,413
11/30/95 37,524 34,880
12/31/95 37,805 35,553
01/31/96 38,816 36,762
02/28/96 39,162 37,104
03/31/96 39,564 37,460
04/30/96 40,405 38,012
05/31/96 41,346 38,991
06/30/96 42,111 39,139
07/31/96 40,495 37,411
08/31/96 40,918 38,201
09/30/96 43,441 40,348
</TABLE>
<PAGE> 7
GROWTH FUND
<TABLE>
<CAPTION>
Growth S&P
------ ------
<S> <C> <C>
09/30/86 10,000 10,000
10/31/86 10,399 10,577
11/30/86 10,399 10,834
12/31/86 10,362 10,558
01/31/87 10,181 11,980
02/28/87 11,402 12,453
03/31/87 12,289 12,812
04/30/87 12,097 12,698
05/31/87 12,097 12,809
06/30/87 12,133 13,456
07/31/87 12,528 14,138
08/31/87 13,121 14,665
09/30/87 13,582 14,344
10/31/87 10,446 11,254
11/30/87 10,446 10,327
12/31/87 10,894 11,113
01/31/88 10,894 11,580
02/28/88 11,065 12,117
03/31/88 12,026 11,744
04/30/88 12,133 11,874
05/31/88 11,969 11,975
06/30/88 12,705 12,525
07/31/88 12,672 12,477
08/31/88 12,458 12,054
09/30/88 13,073 12,568
10/31/88 13,073 12,917
11/30/88 13,090 12,732
12/31/88 13,302 12,954
01/31/89 13,302 13,900
02/28/89 13,673 13,553
03/31/89 14,018 13,869
04/30/89 14,018 14,589
05/31/89 14,588 15,108
06/30/89 14,912 15,093
07/31/89 14,912 16,455
08/31/89 15,575 16,776
09/30/89 16,371 16,707
10/31/89 15,753 16,319
11/30/89 15,706 16,650
12/31/89 15,854 17,050
01/31/90 14,317 15,906
02/28/90 14,709 16,113
03/31/90 15,596 16,540
04/30/90 15,663 16,128
05/31/90 17,268 17,697
06/30/90 16,684 17,579
07/31/90 17,009 17,522
08/31/90 14,075 15,940
09/30/90 12,497 15,165
10/31/90 11,656 15,102
11/30/90 12,519 16,076
12/31/90 13,482 16,523
01/31/91 14,829 17,240
02/28/91 16,872 18,471
03/31/91 17,697 18,918
04/30/91 18,550 18,963
05/31/91 19,774 19,779
06/30/91 18,595 18,873
07/31/91 20,336 19,752
08/31/91 21,144 20,220
09/30/91 21,272 19,883
10/31/91 21,912 20,149
11/30/91 20,064 19,339
12/31/91 21,928 21,548
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
01/31/92 23,532 21,147
02/28/92 23,365 21,422
03/31/92 21,628 21,006
04/30/92 20,287 21,622
05/31/92 19,784 21,727
06/30/92 18,263 21,404
07/31/92 19,030 22,277
08/31/92 17,952 21,820
09/30/92 17,479 22,078
10/31/92 18,216 22,154
11/30/92 20,517 22,906
12/31/92 21,255 23,187
01/31/93 22,142 23,381
02/28/93 20,667 23,699
03/31/93 21,480 24,199
04/30/93 20,154 23,614
05/31/93 21,192 24,244
06/30/93 21,855 24,315
07/31/93 21,780 24,217
08/31/93 23,180 25,134
09/30/93 24,196 24,935
10/31/93 24,814 25,451
11/30/93 23,768 25,209
12/31/93 25,971 25,514
01/31/94 27,369 26,382
02/28/94 26,061 25,667
03/31/94 24,754 24,550
04/30/94 25,414 24,864
05/31/94 25,647 25,272
06/30/94 23,744 24,653
07/31/94 24,275 25,462
08/31/94 25,790 26,503
09/30/94 25,136 25,856
10/31/94 25,497 26,436
11/30/94 24,803 25,473
12/31/94 25,550 25,850
01/31/95 25,157 26,520
02/28/95 26,540 27,551
03/31/95 26,438 28,364
04/30/95 26,569 29,198
05/31/95 27,631 30,363
06/30/95 29,304 31,068
07/31/95 30,339 32,096
08/31/95 30,237 32,176
09/30/95 31,150 33,534
10/31/95 31,013 33,413
11/30/95 31,328 34,880
12/31/95 32,219 35,553
01/31/96 33,412 36,762
02/28/96 34,665 37,104
03/31/96 34,136 37,460
04/30/96 35,588 38,012
05/31/96 37,100 38,991
06/30/96 35,489 39,139
07/31/96 31,988 37,411
08/31/96 33,897 38,201
09/30/96 35,562 40,348
</TABLE>
<PAGE> 9
INCOME FUND
<TABLE>
<CAPTION>
Income S&P
------ ------
<S> <C> <C>
09/30/86 10,000 10,000
10/31/86 10,373 10,577
11/30/86 10,373 10,834
12/31/86 10,564 10,558
01/31/87 11,296 11,980
02/28/87 11,296 12,453
03/31/87 11,669 12,812
04/30/87 11,447 12,698
05/31/87 11,447 12,809
06/30/87 11,461 13,456
07/31/87 12,148 14,138
08/31/87 12,148 14,665
09/30/87 12,516 14,344
10/31/87 9,855 11,254
11/30/87 9,855 10,327
12/31/87 9,805 11,113
01/31/88 9,805 11,580
02/28/88 10,410 12,117
03/31/88 10,786 11,744
04/30/88 10,786 11,874
05/31/88 10,904 11,975
06/30/88 11,425 12,525
07/31/88 11,448 12,477
08/31/88 11,257 12,054
09/30/88 11,581 12,568
10/31/88 11,581 12,917
11/30/88 11,759 12,732
12/31/88 11,667 12,954
01/31/89 11,667 13,900
02/28/89 12,191 13,553
03/31/89 12,244 13,869
04/30/89 12,244 14,589
05/31/89 12,709 15,108
06/30/89 13,106 15,093
07/31/89 13,106 16,455
08/31/89 13,897 16,776
09/30/89 14,013 16,707
10/31/89 13,485 16,319
11/30/89 13,638 16,650
12/31/89 13,908 17,050
01/31/90 13,206 15,906
02/28/90 13,266 16,113
03/31/90 13,367 16,540
04/30/90 12,866 16,128
05/31/90 13,543 17,697
06/30/90 13,488 17,579
07/31/90 13,248 17,522
08/31/90 12,266 15,940
09/30/90 11,762 15,165
10/31/90 11,479 15,102
11/30/90 12,182 16,076
12/31/90 12,413 16,523
01/31/91 12,896 17,240
02/28/91 13,638 18,471
03/31/91 13,845 18,918
04/30/91 13,996 18,963
05/31/91 14,419 19,779
06/30/91 14,056 18,873
07/31/91 14,456 19,752
08/31/91 14,894 20,220
09/30/91 14,871 19,883
10/31/91 15,026 20,149
11/30/91 14,406 19,339
12/31/91 15,299 21,548
</TABLE>
<PAGE> 10
<TABLE>
<S> <C> <C>
01/31/92 15,417 21,147
02/28/92 15,466 21,422
03/31/92 15,317 21,006
04/30/92 15,764 21,622
05/31/92 15,913 21,727
06/30/92 15,971 21,404
07/31/92 16,565 22,277
08/31/92 16,444 21,820
09/30/92 16,619 22,078
10/31/92 16,313 22,154
11/30/92 16,731 22,906
12/31/92 17,054 23,187
01/31/93 17,426 23,381
02/28/93 17,757 23,699
03/31/93 18,359 24,199
04/30/93 18,108 23,614
05/31/93 18,348 24,244
06/30/93 18,443 24,315
07/31/93 18,348 24,217
08/31/93 18,951 25,134
09/30/93 19,003 24,935
10/31/93 19,335 25,451
11/30/93 19,100 25,209
12/31/93 19,195 25,514
01/31/94 19,821 26,382
02/28/94 19,378 25,667
03/31/94 18,702 24,550
04/30/94 18,921 24,864
05/31/94 18,932 25,272
06/30/94 18,654 24,653
07/31/94 19,229 25,462
08/31/94 19,838 26,503
09/30/94 19,569 25,856
10/31/94 19,535 26,436
11/30/94 18,843 25,473
12/31/94 18,985 25,850
01/31/95 19,467 26,520
02/28/95 20,075 27,551
03/31/95 20,644 28,364
04/30/95 21,086 29,198
05/31/95 21,701 30,363
06/30/95 21,969 31,068
07/31/95 22,826 32,096
08/31/95 22,991 32,176
09/30/95 23,687 33,534
10/31/95 23,427 33,413
11/30/95 24,245 34,880
12/31/95 24,748 35,553
01/31/96 25,540 36,762
02/28/96 25,602 37,104
03/31/96 25,906 37,460
04/30/96 26,008 38,012
05/31/96 26,868 38,991
06/30/96 27,205 39,139
07/31/96 26,439 37,411
08/31/96 26,937 38,201
09/30/96 28,182 40,348
</TABLE>
The performance graphs compare a hypothetical $10,000 investment in each
Fund to a hypothetical investment in a relevant market index. The relevant
indexes shown are as follows:
- - Standard & Poor's 500 Index (S&P 500) -- an index measuring the
performance of 500 large-cap U.S. stocks
- - Northwest 50(TM) Index -- an index measuring the performance of 50
companies doing business in the Pacific Northwest
The indexes are unmanaged and assume reinvestment of all dividends, and, unlike
the Funds, do not reflect the payment of investment advisory fees and other
expenses associated with an investment in the Funds. Fund total return assumes
the reinvestment of all dividends and capital gain distributions. Returns are
historical and not predictive of future performance.
-2-
<PAGE> 11
SAFECO NORTHWEST FUND
ILLUSTRATION OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
INVESTMENT VALUE
AS OF SEPTEMBER 30, 1996
------------------------
<S> <C>
SAFECO NORTHWEST FUND: $17,656
NORTHWEST 50(TM) INDEX: (W/DIVIDENDS) $19,583
S&P 500 INDEX: (W/DIVIDENDS) $21,845
</TABLE>
<PAGE> 12
NORTHWEST FUND
<TABLE>
<CAPTION>
NW 50
NW S&P Index
------ ------ ------
<S> <C> <C> <C>
02/28/91 10,000 10,000 10,000
03/31/91 10,224 10,242 10,409
04/30/91 10,523 10,267 10,666
05/31/91 10,882 10,708 11,305
06/30/91 10,246 10,218 10,552
07/31/91 10,856 10,694 11,063
08/31/91 11,307 10,947 11,510
09/30/91 11,029 10,764 11,292
10/31/91 10,919 10,909 11,285
11/30/91 10,247 10,470 10,836
12/31/91 11,493 11,666 12,133
01/31/92 11,988 11,449 12,767
02/28/92 12,373 11,598 12,958
03/31/92 12,101 11,373 12,545
04/30/92 11,676 11,706 11,973
05/31/92 11,797 11,763 11,865
06/30/92 11,425 11,588 11,450
07/31/92 11,688 12,061 11,567
08/31/92 11,374 11,813 11,250
09/30/92 11,848 11,953 11,693
10/31/92 12,244 11,994 12,156
11/30/92 12,761 12,401 12,701
12/31/92 13,111 12,553 12,725
01/31/93 13,163 12,658 12,821
02/28/93 12,518 12,831 12,420
03/31/93 13,007 13,101 12,932
04/30/93 12,476 12,785 12,641
05/31/93 12,747 13,126 12,953
06/30/93 12,627 13,164 12,675
07/31/93 12,523 13,111 12,220
08/31/93 12,877 13,607 12,721
09/30/93 12,868 13,500 12,434
10/31/93 13,034 13,779 12,881
11/30/93 13,086 13,648 13,158
12/31/93 13,246 13,813 13,334
01/31/94 13,480 14,283 13,737
02/28/94 13,821 13,896 13,941
03/31/94 13,235 13,291 13,449
04/30/94 13,203 13,462 13,409
05/31/94 13,406 13,682 13,611
06/30/94 13,063 13,347 13,198
07/31/94 13,255 13,785 13,300
08/31/94 13,851 14,349 14,068
09/30/94 13,535 13,999 13,530
10/31/94 13,406 14,312 13,449
11/30/94 13,073 13,791 13,209
12/31/94 13,040 13,995 13,281
01/31/95 13,202 14,358 13,224
02/28/95 13,535 14,916 13,668
03/31/95 13,987 15,356 14,102
04/30/95 14,170 15,808 14,526
05/31/95 14,386 16,439 14,528
06/30/95 15,095 16,820 15,409
07/31/95 15,882 17,377 15,993
08/31/95 16,022 17,420 16,299
09/30/95 16,108 18,155 16,897
10/31/95 15,918 18,090 16,507
11/30/95 15,884 18,884 16,753
12/31/95 15,671 19,248 16,957
01/31/96 15,820 19,903 17,518
02/28/96 16,302 20,088 17,921
03/31/96 17,289 20,281 17,826
04/30/96 17,759 20,580 18,898
05/31/96 18,057 21,109 19,204
06/30/96 17,681 21,190 19,123
07/31/96 16,843 20,254 18,188
08/31/96 17,383 20,682 19,088
09/30/96 17,656 21,845 19,583
</TABLE>
<TABLE>
<CAPTION>
10 Year or
AVERAGE ANNUAL TOTAL RETURN 1 Year 5 Year Since Inception
- --------------------------- ------ ------ ---------------
<S> <C> <C> <C>
SAFECO Growth Fund 14.16% 10.82% 13.53%
SAFECO Equity Fund 18.04% 18.94% 15.82%
SAFECO Income Fund 18.98% 13.64% 10.92%
S&P 500 Index 20.31% 15.19% 14.95%
SAFECO Northwest Fund 9.61% 9.87% 10.72%*
Composite NW 50(TM) Index 15.89% 11.64% 12.79%*
S&P 500 Index 20.31% 15.19% 15.02%*
</TABLE>
* Graph, index, and average annual return data for the SAFECO Northwest Fund is
measured from February 28, 1991. Inception date was February 7, 1991.
-3-
<PAGE> 13
PERFORMANCE INFORMATION
SEPTEMBER 30, 1996
SAFECO INTERNATIONAL FUND
ILLUSTRATION OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
INVESTMENT VALUE
AS OF SEPTEMBER 30, 1996
------------------------
<S> <C>
SAFECO INTERNATIONAL FUND: $10,454
EAFE: $10,416
</TABLE>
SAFECO BALANCED FUND
ILLUSTRATION OF A $10,000 INVESTMENT
<TABLE>
<CAPTION>
INVESTMENT VALUE
AS OF SEPTEMBER 30, 1996
------------------------
<S> <C>
SAFECO BALANCE FUND: $10,599
60% S&P/40% LEHMAN BROTHERS
GOVERNMENT/CORPORATE INDEX: $10,551
</TABLE>
<PAGE> 14
INTERNATIONAL FUND
<TABLE>
<CAPTION>
EAFE International
------ -------------
<S> <C> <C>
01/31/96 10,000 10,000
02/28/96 10,036 9,940
03/31/96 10,252 10,040
04/30/96 10,552 10,290
05/31/96 10,361 10,250
06/30/96 10,422 10,240
07/31/96 10,120 9,840
08/31/96 10,144 10,240
09/30/96 10,416 10,454
</TABLE>
<PAGE> 15
BALANCED FUND
<TABLE>
<CAPTION>
S&P - Lehman Balanced Fund
------------ -------------
<S> <C> <C>
01/31/96 10,000 10,000
02/28/96 9,971 9,950
03/31/96 9,995 10,017
04/30/96 10,056 10,077
05/31/96 10,204 10,218
06/30/96 10,282 10,345
07/31/96 10,019 10,112
08/31/96 10,137 10,243
09/30/96 10,551 10,599
</TABLE>
-4-
<PAGE> 16
SAFECO Small Company Stock Fund
Illustration of a $10,000 Investment
<TABLE>
<CAPTION>
Investment Value
As of September 30, 1996
------------------------
<S> <C>
SAFECO Small Company Stock Fund: $12,183
Russell 2000: $11,085
</TABLE>
<PAGE> 17
SMALL COMPANY FUND
<TABLE>
<CAPTION>
Russell 2000 Small Co.
------------ ---------
<S> <C> <C>
01/31/96 10,000 10,000
02/28/96 10,312 10,150
03/31/96 10,522 10,490
04/30/96 11,084 11,550
05/31/96 11,521 12,350
06/30/96 11,048 12,030
07/31/96 10,083 11,220
08/31/96 10,668 11,910
09/30/96 11,085 12,183
<CAPTION>
- --------------------------------------------------------
SINCE INCEPTION ON
TOTAL RETURN JANUARY 31, 1996
- --------------------------------------------------------
<S> <C>
SAFECO International Stock Fund 4.54%
EAFE 4.16%
- --------------------------------------------------------
SAFECO Balanced Fund 5.99%
60% S&P and 40% Lehman Brothers
Government/Corporate 5.51%
- --------------------------------------------------------
SAFECO Small Company Fund 21.83%
Russell 2000 10.85%
- --------------------------------------------------------
</TABLE>
[S]
The performance graphs compare a hypothetical $10,000 investment in
each Fund to a hypothetical investment in a relevant market index. The relevant
indexes shown are as follows:
- -- European, Asian and Far East Index (EAFE) -- widely accepted
international index
- -- Standard & Poor's 500 (60%) and Lehman Brothers Government/Corporate
(40%) -- a blended index weighted 60% to a broad-based stock index and
40% to a bond index
- -- Russell 2000 -- an index measuring the performance of 2000 small
company stocks
The indexes are unmanaged and assume reinvestment of all dividends, and,
unlike the Funds, do not reflect the payment of investment advisory fees and
other expenses associated with an investment in the Funds. Fund total return
assumes the reinvestment of all dividends and capital gain distributions.
Returns are historical and not predictive of future performance.
-5-
<PAGE> 18
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
SEPTEMBER 30, 1996
For the year ended September 30, 1996, SAFECO Growth returned 14.16%
while, according to Lipper, the average growth fund returned 15.89%. The
unmanaged S&P 500 returned 20.31% for the year just ended.
We entered the six-month reporting period ahead of the Index and the peer
group. Stumbles of specific stocks and the languishing of small company stocks
in the summer caused the Fund to trail for the 12-month period. Still, we
remained within 1.73% of the peer group.
The good news is this: As prices declined, the Growth Fund was able to do
some bargain hunting. PENEDERM, an emerging pharmaceutical company with products
in late-stage development and collaborations with major companies, had its share
price cut when the FDA delayed approval of one of its drugs. The Growth Fund
happily bought more.
After capturing a larger share of the varietal wine market, CANANDAIGUA
WINE raised its prices (and earnings) when higher grape costs squeezed margins.
We reduced some of, but not all, our stake in HEALTH SYSTEMS INTERNATIONAL and
DATASCOPE. Datascope, the leading manufacturer of cardiac assist systems used
during open-heart surgery, suffered increased competition. As the company
battled for market share, its margins and then its stock price fell.
Business got tougher for Health Systems International as well. However, if
the HMO is successful in its plans to merge with FOUNDATION HEALTH, they will
forge a strong competitive force. These are good companies that have simply had
problems, delaying the realization of their potential.
We also bought more MICROS. Now our number two holding, MICROS Systems, is
the leading point-of-sale company serving the hospitality industry. After
missing earnings estimates, MICROS has tightened its belt and that is taking its
stock higher.
-6-
<PAGE> 19
Taken together, MICROS, Seagate (a producer of high-end disk drives with a
great balance sheet and cash flow) and a small holding in COMPUTER HORIZONS now
comprise 15% of net assets.
I increased holdings in three other stocks which have great earnings
growth potential and valuation: AMERICAN BUILDINGS, FIBREBOARD and LIFELINE
SYSTEMS. Fibreboard continues to make acquisitions in the building products area
that add to, rather than dilute, its earning stream. American Buildings designs
metal building structures which are cheap to build and simple to install.
Lifeline Systems provides in-home monitoring services to elderly, disabled
and medically at-risk individuals. As the population ages and pressure to cut
medical costs grows, the market for this product increases.
[PHOTO OF THOMAS M. MAGUIRE]
Lifeline, Penederm, Datascope and Health Systems International among them,
drug and hospital supply companies now comprise 16% of net assets. People will
use these products and services regardless of what the economy is doing. And, in
most cases, their use will increase as the population ages.
I sold CENTRAL PARKING after it doubled and added CREDIT ACCEPTANCE which
is a specialized financial services company providing funding and collection
services to automobile dealers. Thinking FAMILY GOLF would decline with the
small company market, I sold a portion of our holdings and bought again at lower
prices.
My overriding concern is to pick stocks with great long-term prospects for
capital appreciation. Over the last six months I have been able to build large
positions in
(Continued on next page.)
-7-
<PAGE> 20
HIGHLIGHTS
SAFECO
GROWTH FUND
AS OF SEPTEMBER 30, 1996
Net Asset Capitalization Weightings
As a Percent of Net Assets
as of September 30, 1996
[ PIE CHART ]
<TABLE>
<S> <C>
1. Large: 14% ($4 Bil. and above.)
2. Medium: 3% ($1 Bil. - $4 Bil.)
3. Small: 83% (Less than $1 Bil.)
</TABLE>
Top Five Industries
As a Percent of Net Assets
as of September 30, 1996
[ BAR CHART ]
<TABLE>
<S> <C>
Drugs & Hospital Supplies: 16%
Computer Systems: 15%
Financial Services: 9%
Food & Tobacco: 7%
Building Materials: 7%
</TABLE>
REPORT FROM THE
GROWTH FUND MANAGER
(Continued)
fundamentally sound companies with excellent prospects at very reasonable
valuations. I think we have a fund that is in really good shape for the long
term.
/s/ Thomas M. Maguire
- -----------------------
Thomas M. Maguire,
Growth Fund Manager
- ----------------
After completing his M.B.A. at the University of Washington, Thomas 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.
-8-
<PAGE> 21
PORTFOLIO OF INVESTMENTS
SAFECO
GROWTH FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------- -------------
<S> <C> <C>
COMMON STOCKS - 99.8%
BEVERAGES - 4.1%
355,300 (b) Canandaigua Wine Co., Inc. ...................... $ 7,372
BUILDING MATERIALS - 7.3%
98,800 (b) ABT Building Products Corp. ..................... 1,976
168,000 (b) AMRE, Inc. 2,331
27,000 (b) Diamond Home Services, Inc. ..................... 783
228,000 (b) Fibreboard Corp. ................................ 7,980
CHEMICALS - 1.1%
24,600 Cambrex Corp. ................................... 833
188,200 (b) Melamine Chemicals, Inc. ....................... 1,176
COMPUTER SOFTWARE - 1.6%
159,300 (b) Phoenix International Ltd., Inc. ................ 2,788
COMPUTER SYSTEMS - 15.1%
65,400 (b) Computer Horizons Corp. ......................... 1,864
415,214 (b)+ MICROS Systems, Inc. ............................ 12,249
233,984 (b) Seagate Technology, Inc. ........................ 13,074
CONSTRUCTION & ENGINEERING - 5.2%
355,100 (b)+ American Buildings Co. .......................... 9,410
CONSUMER PRODUCTS & SUPPLIERS - 0.4%
202,000 (b) Celebrity, Inc. ................................. 707
DRUGS & HOSPITAL SUPPLIES - 16.1%
50,000 (b) Andrx Corp. ..................................... 663
70,000 (b) Anesta Corp. .................................... 989
80,000 (b) Autonomous Technologies Corp. ................... 330
264,200 (b) Datascope Corp. ................................. 4,557
255,000 (b) Ethical Holdings, plc (ADR) ..................... 1,785
503,550 (b)+ Lifeline Systems, Inc. .......................... 9,442
255,200 + Medex, Inc. ..................................... 3,732
200,800 (b) Molecular Devices Corp. ......................... 2,108
693,667 (b)+ Penederm, Inc. .................................. 4,682
14,800 (b) ResMed, Inc. .................................... 292
45,900 (b) Zonagen, Inc. ................................... 410
</TABLE>
HIGHLIGHTS (Continued)
SAFECO GROWTH FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ---------------- ----------
<S> <C>
Seagate Technology, Inc. ............................................ 7.3%
(Magnetic Disk Manufacturer)
MICROS Systems, Inc. ................................................ 6.8%
(Electronic Cash Register Manufacturer)
Philip Morris Cos., Inc. ............................................ 6.5%
(Food, Beverage & Tobacco Company)
Lifeline Systems, Inc. .............................................. 5.3%
(Medical Instruments)
American Buildings Co. .............................................. 5.2%
(Construction Products Company)
Fibreboard Corp. .................................................... 4.4%
(Construction Products Company)
Canandaigua Wine Co., Inc. .......................................... 4.1%
(Wine Manufacturer/Distributor)
Credit Acceptance Corp. ............................................. 3.3%
(Automobile Financing)
First Financial Caribbean Corp. (ADR) ............................... 3.0%
(Mortgage Bank)
Harold's Stores, Inc. ............................................... 2.9%
(Specialty Retailer)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- ------------------ ----
<S> <C>
Lifeline Systems, Inc. ............................... $6,030,286
Garden Botanika, Inc. ................................ 5,854,049
Family Golf Centers, Inc. ............................ 5,702,751
Credit Acceptance Corp. .............................. 5,638,343
American Buildings Co. ............................... 4,904,695
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- ---------------- --------
<S> <C>
*Central Parking Corp. ............................. $11,549,965
*Chevron Corp. ..................................... 10,000,466
*Mobil Corp. ....................................... 9,034,899
*Kimberly-Clark Corp. .............................. 8,751,834
Datascope Corp. .................................... 4,140,009
</TABLE>
- --------
*Security sold, no longer in portfolio.
-9-
<PAGE> 22
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO GROWTH FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------- ------------
<S> <C> <C>
ELECTRONICS - 4.6%
105,060 (b) Intermagnetics General Corp. ............. $ 1,458
205,700 (b) JPM Co. .................................. 1,928
179,000 (b) Ultrak, Inc. ............................. 4,923
FINANCIAL SERVICES - 8.5%
217,700 (b) Credit Acceptance Corp. .................. 5,987
32,416 Cole Taylor Financial
Group, Inc. .............................. 972
282,100 (b)+ First Enterprise
Financial Group, Inc. .................... 2,821
247,600 First Financial
Caribbean Corp. (ADR) .................... 5,323
16,000 (b) Ugly Duckling Corp. ...................... 214
FOOD & TOBACCO - 7.2%
130,000 Philip Morris Cos., Inc. ................. 11,668
108,675 (b)+ Thorn Apple Valley, Inc. ................. 1,291
HEALTH CARE - 3.8%
53,500 (b) Amrion, Inc. ............................. 1,144
185,000 (b) Health Systems
International, Inc. ...................... 5,249
21,000 (b) MedQuist, Inc. ........................... 425
HOMEBUILDING - 0.6%
42,500 (b) American Homestar Corp.................... 1,033
HOSPITAL MANAGEMENT - 0.0%
17,500 (b) Laboratory Specialists of
America, Inc.............................. 46
HOUSEHOLD PRODUCTS - 2.0%
325,200 (b) Lifetime Hoan Corp. ...................... $ 3,333
150,000 (b) Media Arts Group, Inc. ................... 206
LEISURE TIME - 2.3%
130,400 (b) Family Golf Centers, Inc. ................. 3,782
80,000 (b) Laser Storm, Inc. Common ................. 180
80,000 (b) Laser Storm, Inc. Warrants................ 100
MANUFACTURING - 2.4%
75,600 (b) Industrial Training Corp.................. 491
272,500 (b) Maverick Tube Corp. ...................... 3,815
OFFICE EQUIPMENT & SUPPLIES - 1.3%
236,100 (b)+ Open Plan Systems, Inc.................... 2,302
POLLUTION CONTROL - 1.6%
156,000 (b) Tetra Technologies, Inc................... 2,867
RESTAURANTS - 2.8%
92,400 (b) New York Bagel Enterprises ............... 832
535,600 (b) NPC International, Inc. .................. 4,218
RETAIL - 4.4%
206,000 (b) Damark International, Inc. ............... 2,652
370,823 (b)+ Harold's Stores, Inc. .................... 5,284
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-10-
<PAGE> 23
<TABLE>
<S> <C> <C>
RETAIL - SPECIALTY - 6.9%
92,600 - Aaron Rents, Inc. .................... $791,204
500,000 - American Coin
Merchandising, Inc. .................. 3,000
188,500 - Garden Botanika, Inc. ................ 2,121
19,200 - Renters Choice, Inc. ................. 360
212,600 - Rent-Way, Inc. ....................... 2,684
293,900 - West Coast
Entertainment Corp. .................. 2,976
TELECOMMUNICATIONS - 0.5%
70,000 - EIS International, Inc................ 980
TOTAL COMMON STOCKS 179,402
-------
TEMPORARY INVESTMENTS - 0.9%
Investment Companies:
1,653,859 Temporary Investments Co.
(Prime Portfolio) 1,654
-----
TOTAL TEMPORARY INVESTMENTS 1,654
-----
TOTAL INVESTMENTS - 100.7% 181,056
Liabilities, less Other Assets (1,282)
-------
NET ASSETS $179,774
========
</TABLE>
(b) Non-income producing security.
+ Affiliated issure as defined by the Investment Company Act of 1940
(the Fund's investment advisor controls 5% or more of the
outstanding voting shares of the Company).
SEE NOTES TO FINANCIAL STATEMENTS
-11-
<PAGE> 24
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
SEPTEMBER 30, 1996
Up 18.04% for the 12 months ended September 30, SAFECO Equity Fund is
ahead of its peer group, but slightly behind the S&P 500. For the six months,
your fund beat both the broad market and the peer group. The Fund returned
9.80%, for the half-year ended September 30. For the same period, the Lipper
average total return for growth and income funds was 6.37%, and the S&P 500 was
up 7.71%. The Fund's 12-month total return lagged the S&P due to the 43% price
decline that ADVANCED MICRO DEVICES suffered in the fourth quarter of 1995. We
sold the stock early in 1996.
The Fund's success in the last six months is due mainly to picking up
excellent companies at good prices. Setting buy targets and keeping companies in
my sights were especially fruitful in the technology arena in the last six
months.
ORACLE (database software) came into range in April. We bought, and it
took off so strongly that I've taken some profits. SEAGATE (high-end disk
drives) was another big purchase during the second quarter.
[PHOTO OF RICH MEAGLEY]
Positions we had established earlier also did well: INTEL (computer
processor chips) experienced a 68% gain, and our shares in MICROSOFT (software)
climbed 28% over the six months. Equipment manufacturers MOTOROLA and
HEWLETT-PACKARD complete the list of our other technology holdings. Combined,
our computer hardware and software stocks now account for 8% of net assets and
every name we own is a world-class company.
As I set a buy price, so I set a sell price, and I sell when a stock rises
to it. Such was the case with WARNER-LAMBERT. I took profits there and moved
into BRISTOL-MYERS. I think Bristol can grow faster than its price currently
reflects. It has a new CFO with ambitious cost-cutting plans, new drugs coming
to market and an expanding sales force.
I bought SMITHKLINE after its price fell on a "turndown" by the Food and
Drug Administration. SmithKline has lots of drugs pending approval, and an
improving over-the-counter business.
Frankly, I'm currently concerned about corporate earnings matching
expectations. Hence, companies with cost-cutting ability and a decent dividend
are particularly attractive to me. Those qualities can support return,
especially in times when
-12-
<PAGE> 25
missed earnings are likely to drag down share prices.
The petroleum companies, which comprise our fourth largest industry
sector, provide good yields and cost-cutting potential.
I anticipate savings from BURLINGTON NORTHERN'S merger with SANTA FE and,
if it's approved, BELL-ATLANTIC'S union with NYNEX. Merger-inspired cost cutting
continues at KIMBERLY-CLARK and CHASE MANHATTAN. In fact, things are proceeding
so well at Chase, I bought more, making it our largest holding.
I sold all the CITICORP when it hit our target. And I lightened our
insurance holdings from five companies to two in favor of other financial
institutions with higher growth potential. One such company is credit card
provider ADVANTA CORP.
I swapped out of SALOMON to build a position in FEDERAL HOME LOAN MORTGAGE
CORP. (Freddie Mac). We also own FEDERAL NATIONAL MORTGAGE ASSOCIATION (Fannie
Mae), which means we own the market for residential mortgages, and it's growing
strongly.
BLOCKBUSTER'S lackluster performance returned its parent, VIACOM, to our
price range, and I bought more of it. I still like its potential, especially for
international growth.
(Continued on next page.)
HIGHLIGHTS
SAFECO
EQUITY FUND
AS OF SEPTEMBER 30, 1996
Net Asset Capitalization Weightings
As a Percent of Net Assets
as of September 30, 1996
[PIE CHART]
<TABLE>
<C> <C>
1. Large: 90% ($4 Bil. and above)
2. Medium: 7% ($1 Bil. - $4 Bil.)
3. Cash and Other: 3%
</TABLE>
Top Five Industries
As a Percent of Net Assets
as of September 30, 1996
[BAR CHART]
<TABLE>
<S> <C>
Drugs & Hospital Supplies: 9%
Banking & Finance: 8%
Financial Services: 8%
Petroleum & Petroleum
Services: 7%
Utilities-Telephone: 6%
</TABLE>
-13-
<PAGE> 26
HIGHLIGHTS (Continued)
SAFECO EQUITY FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ---------------- ----------
<S> <C>
Chase Manhattan Corp. ............................................... 5.4%
(Bank)
SmithKline Beecham, plc (ADR) ....................................... 3.2%
(Pharmaceutical Company)
Federal National Mortgage Association ............................... 3.0%
(Mortgage Broker)
NationsBank Corp. ................................................... 2.8%
(Bank)
Viacom, Inc. ........................................................ 2.6%
(Entertainment & Communication)
Kimberly-Clark Corp. ................................................ 2.6%
(Manufacturing & Marketing
Personal Care Products)
ConAgra, Inc. ....................................................... 2.6%
(Agricultural Products)
Mobil Corp. ......................................................... 2.6%
(Oil/Gas Exploration & Production)
General Electric Co. ................................................ 2.5%
(Manufacturing & Communication)
Philip Morris Cos., Inc. ............................................ 2.5%
(Food, Beverages & Tobacco Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- ------------------ ----
<S> <C>
SmithKline Beecham, plc (ADR) ........................ $19,102,511
Seagate Technology, Inc. ............................. 17,219,858
AMP, Inc. ............................................ 16,404,273
Bristol-Myers Squibb Co. ............................. 16,204,438
Advanta Corp. ........................................ 16,188,244
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- -------------- --------
<S> <C>
*Salomon, Inc. ...................................... $21,116,204
*Citicorp ........................................... 17,373,974
*Warner-Lambert Co. ................................. 16,000,670
*Texaco, Inc. ....................................... 14,762,362
*American General Corp. ............................. 13,324,838
</TABLE>
- --------------
*Security sold, no longer in portfolio.
REPORT FROM THE
EQUITY FUND MANAGER
(Continued)
Other significant holdings fit our high-quality criteria: CONAGRA, which
operates along the entire food chain, and PEPSICO, which focuses on fast and
convenient food, are classic growth and income stocks. AMP (electronic
connection devices) is another great company. Already about three times as large
as its nearest competitor, AMP is gaining market share in a growing industry.
Equity Fund's portfolio is about 90 percent large capitalization companies
(over $4 billion). This is no surprise. The type of companies I'm looking for --
well-run companies with long-term, proven growth records -- tend to become large
companies.
What the future holds for the stock market, or even what this portfolio
will hold six months from now, I can't say. However, I will predict with
absolute confidence that our investment style will remain the same. And, it is
my ardent belief that performance will follow.
/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, and is a
Chartered Financial Analyst.
- -14-
<PAGE> 27
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000'S)
- ---------------- ------------
<S> <C> <C>
COMMON STOCKS - 97.0%
AUTOS & AUTO PARTS - 2.2%
510,000 Echlin, Inc. ........................... $16,001
BANKING & FINANCE - 8.1%
485,400 Chase Manhattan Corp. .................. 38,893
230,000 NationsBank Corp. ...................... 19,981
BEVERAGES - 1.9%
500,000 PepsiCo, Inc. .......................... 14,125
BROADCAST MEDIA - 4.8%
535,000(b) Viacom, Inc. (Class B) ................. 18,992
250,000 Walt Disney Co. ........................ 15,844
CHEMICALS - 2.1%
175,000 Du Pont (E.I.) De Nemours & Co.......... 15,444
COMPUTER SOFTWARE - 3.6%
100,000(b) Microsoft Corp. ........................ 13,187
300,000(b) Oracle Corp. ........................... 12,769
COMPUTER SYSTEMS - 4.3%
285,000 Hewlett-Packard Co. .................... 13,894
310,000(b) Seagate Technology, Inc. ............... 17,321
DRUGS & HOSPITAL SUPPLIES - 9.4%
200,000 American Home
Products Corp. ......................... 12,750
175,000 Bristol-Myers Squibb Co. ............... 16,866
256,000 Schering-Plough Corp. .................. 15,744
30,000 SmithKline Beecham, plc (ADR)........... 23,133
ELECTRICAL EQUIPMENT - 4.7%
415,000 AMP, Inc. .............................. 16,081
200,000 General Electric Co. ................... 18,200
ELECTRONICS - 3.7%
160,000 Intel Corp. ............................ 15,270
220,000 Motorola, Inc. ......................... 11,357
FINANCIAL SERVICES - 7.6%
365,000 Advanta Corp. (Class B) ................ 15,604
180,000 Federal Home Loan Mortgage Corp. ....... 17,617
620,000 Federal National Mortgage Association .. 21,622
FOOD & TOBACCO - 5.1%
384,162 ConAgra, Inc. .......................... 18,920
200,000 Philip Morris Cos., Inc. ............... 17,950
HOUSEHOLD PRODUCTS - 4.9%
191,000 Colgate-Palmolive Co. .................. 16,593
215,100 Kimberly-Clark Corp. ................... 18,956
INSURANCE - 4.0%
142,000 American International Group, Inc. ..... 14,306
250,000 ITT Hartford Group, Inc. ............... 14,750
MANUFACTURING - 0.6%
64,500 AlliedSignal, Inc. ..................... 4,249
PAPER & FOREST PRODUCTS - 1.6%
180,000 Willamette Industries, Inc. ............ 11,790
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-15-
<PAGE> 28
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO EQUITY FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000'S)
- ---------------- ------------
<S> <C> <C>
PETROLEUM & PETROLEUM SERVICES - 6.8%
200,000 Exxon Corp. ............................ $ 16,650
162,000 Mobil Corp. ............................ 18,751
87,000 Royal Dutch Petroleum Co. (ADR) ........ 13,583
POLLUTION CONTROL - 2.0%
575,000 Browning-Ferris Industries, Inc. ....... 14,375
RETAIL - 5.5%
289,000 Albertson's, Inc. ...................... 12,174
301,000 May Department Stores Co. .............. 14,636
500,000 Wal-Mart Stores, Inc. .................. 13,188
TELECOMMUNICATIONS - 2.4%
335,000 AT&T Corp. ............................. 17,504
TRANSPORTATION - 4.2%
175,000 Burlington Northern Santa Fe ........... 14,766
210,000 Union Pacific Corp. .................... 15,383
UTILITIES-ELECTRIC DISTRIBUTION - 2.0%
647,400 Houston Industries, Inc. ............... 14,324
UTILITIES-TELEPHONE - 5.5%
250,000 Bell Atlantic Corp. .................... 14,969
284,200 Century Telephone Enterprises .......... 9,769
403,400 GTE Corp. .............................. 15,531
--------
TOTAL COMMON STOCKS 703,812
--------
TEMPORARY INVESTMENTS - 6.3%
U.S. AGENCY NOTES:
$45,985,000 Federal Home Loan Mortgage Corp.
5.70%, due 10/01/96.................... 45,985
--------
TOTAL TEMPORARY INVESTMENTS 45,985
--------
TOTAL INVESTMENTS - 103.3%.................................. 749,797
Liabilities, less Other Assets.............................. (23,817)
--------
NET ASSETS.................................................. $725,980
========
</TABLE>
- ---------
(b) Non-income producing security
SEE NOTES TO FINANCIAL STATEMENTS
-16-
<PAGE> 29
REPORT FROM THE FUND MANAGER
SAFECO Income Fund
September 30, 1996
It has been a great year for the SAFECO Income Fund. For the 12 months
ended September 30, 1996, the Fund returned 18.98% compared to 16.83%, the
average return of 176 equity-income funds reported by Lipper. Furthermore, in
the past six months the Fund has beat the peer group and the S&P. SAFECO Income
returned 8.78%, versus 7.71% for the S&P 500 and 5.57% for the average
equity-income fund according to Lipper.
I set two goals when I took over SAFECO Income Fund six
months ago. One, to maintain the Fund's premium yield and resiliency in down
markets, and two, to participate more fully in periods of growth in the markets.
With those objectives, the portfolio has gone through a bit of a face-lift. The
holdings of the portfolio have been tailored for more capital appreciation
potential, while the yield and down market protection have been preserved by
maintaining a fairly high level of convertible securities (35.1% of assets at
September 30). Those convertibles helped us beat the S&P's yield, but also kept
us slightly behind its total return for the 12-month period.
[PHOTO OF THOMAS RATH]
I have reduced significantly the portfolio's exposure to banks, railways,
and real estate investment trusts and replaced these with issues in more
consistent growth areas, such as technology and non-bank financials.
On the technology side, one computer services convertible I have been very
pleased with is FIRST FINANCIAL MANAGEMENT. This security pays a 5% coupon and
is convertible into FIRST DATA CORP., a company with dominant market share in
the fast growing industry of credit card processing. Credit card usage is
growing at a brisk pace, and I expect this company to grow with it.
Another company I am very bullish on is SEAGATE TECHNOLOGY, which through
the three securities that are convertible to Seagate stock comprises our largest
holding. Seagate dominates the high-end disk-drive market and I believe the
future demand for digital storage devices is very
(Continued on next page.)
-17-
<PAGE> 30
HIGHLIGHTS
SAFECO
INCOME FUND
As of September 30, 1996
Net Asset Capitalization Weightings
(of Common & Preferred Stocks)
As a Percent of Net Assets
As of September 30, 1996
[PIE CHART]
1. Large: 49% ($4 Bil. and Above.)
2. Medium: 3% ($1 Bil. - $4 Bil.)
3. Preferred Stocks: 16%
4. Small: 12% (Less than $1 Bil.)
5. Bonds: 19%
6. Cash and Other 1%
Top Five Industries
As a Percent of Net Assets
as of September 30, 1996
[BAR CHART]
<TABLE>
<S> <C>
Petroleum & Petroleum Services: 9%
Banking & Finance: 7%
Computer Systems: 7%
Food & Tobacco: 7%
Retail: 6%
</TABLE>
REPORT FROM THE
INCOME FUND MANAGER
(Continued)
exciting. Seagate has a very strong balance sheet, generates good cash flow, and
is trading at a low nine times earnings.
Smaller positions in other technology stocks with consistent growth and
reasonable prices have also been added to the portfolio. Examples of these
include MICROS SYSTEMS (point-of-sale technology) at 1.3% of assets;
HEWLETT-PACKARD, 0.9% of net assets; and 3COM (local area networks) at 0.9% of
net assets.
In the financial sector, I have reduced the bank holdings and added
nonbank financials such as FEDERAL NATIONAL MORTGAGE and MEDALLION FINANCIAL. In
addition, I sold the higher-yielding insurance issues in HARTFORD STEAM BOILER
INSPECTION and AMERICAN GENERAL, and have replaced them with ITT HARTFORD and
AMERICAN BANKERS INSURANCE GROUP. I have been very pleased with these stocks as
they contributed gains of 22% and 18% respectively.
My approach to asset management is to find stocks of companies with the
ability to grow earnings at a faster pace than the broader market and that are
trading at reasonable prices. The companies I like tend to have high
-18-
<PAGE> 31
market shares, strong balance sheets, good levels of cash flow, and are
participating in growing industries.
While I cannot predict the direction of the market, conditions should stay
favorable as long as inflation remains subdued and economic growth stays in the
desirable range of 2%-4%. Regardless of the market environment, I believe you
have a diversified portfolio positioned to benefit from a strong market while
maintaining its reputation for above average current income and excellent
performance in down markets.
/s/ Thomas Rath
- -----------------------
Thomas Rath
Income Fund Manager
- -------
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.
HIGHLIGHTS (Continued)
SAFECO INCOME FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ---------------- ----------
<S> <C>
Philip Morris Cos., Inc. ........... 4.5%
(Food, Beverage & Tobacco Company)
American Home Products Corp. ....... 3.4%
(Pharmaceuticals)
GTE Corp. .......................... 3.0%
(Telephone Company)
Texaco, Inc. ....................... 2.8%
(Oil Company)
First Financial Management
5.00%, due 12/15/99 .............. 2.6%
(Information Processor)
GATX Corp. $3.875 Cumulative
Convertible ...................... 2.4%
(Railway & Terminal Operator)
Royal Dutch Petroleum Co. .......... 2.4%
(Oil Company)
ITT Hartford Group, Inc. ........... 2.3%
(Insurance Company)
Kimberly-Clark Corp. ............... 2.2%
(Manufacturing & Marketing
Personal Care Products)
Chase Manhattan Corp. .............. 2.2%
(Bank)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- ------------------ ----
<S> <C>
Philip Morris Cos., Inc. ............................ $11,795,513
First Financial Management
5.00%, due 12/15/99 ............................... 5,982,000
Medallion Financial Corp. ........................... 4,928,240
ITT Hartford Group, Inc. ............................ 4,819,730
Chase Manhattan Corp. ............................... 4,754,564
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- --------------- --------
<S> <C>
*Weyerhaeuser Co. .................................... $6,745,735
*BankAmerica Corp. ................................... 5,664,402
*Union Pacific Corp. ................................. 5,438,111
*Polaris Industries, Inc. ............................ 4,702,108
*American General Corp. .............................. 4,252,426
</TABLE>
- --------
*Security sold, no longer in portfolio.
-19-
<PAGE> 32
PORTFOLIO OF INVESTMENTS
SAFECO Income Fund
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000'S)
- ---------------- ------------
<S> <C> <C>
COMMON STOCKS - 64.3%
BANKING & FINANCE - 5.2%
35,000 Boatmen's Bancshares, Inc. ............. $ 1,956
70,000 Chase Manhattan Corp. .................. 5,609
46,100 Norwest Corp. .......................... 1,884
105,000 US Bancorp ............................. 4,147
COMMERCIAL SERVICES - 1.2%
118,600 American List Corp. .................... 3,217
COMPUTER SERVICES - 1.2%
65,000 Keane, Inc. ............................ 3,120
COMPUTER SYSTEMS - 2.2%
50,000 Hewlett-Packard Co. .................... 2,438
114,000 (b)+MICROS Systems, Inc. ................... 3,363
CONGLOMERATES - 2.2%
80,000 Minnesota Mining &
Manufacturing Co........................ 5,590
COSMETICS - 0.4%
25,000 International Flavors &
Fragrances, Inc......................... 1,091
DRUGS & HOSPITAL SUPPLIES - 4.2%
140,000 American Home
Products Corp. ......................... 8,925
30,000 Merck and Co., Inc. .................... 2,111
ELECTRICAL EQUIPMENT & ELECTRONICS - 3.4%
110,000 AMP, Inc. .............................. 4,262
50,000 General Electric Co. ................... 4,550
FINANCIAL SERVICES - 5.0%
140,000 Federal National
Mortgage Association ................... $ 4,882
100,000 H&R Block, Inc. ........................ 2,975
350,000 (b) Medallion Financial Corp. .............. 5,075
FOOD & TOBACCO - 6.2%
90,000 ConAgra, Inc. .......................... 4,432
130,000 Philip Morris Cos., Inc. ............... 11,668
HOUSEHOLD PRODUCTS - 4.2%
60,000 Colgate-Palmolive Co. .................. 5,212
65,000 Kimberly-Clark Corp. ................... 5,728
INSURANCE - 2.3%
100,000 ITT Hartford Group, Inc. ............... 5,900
LEISURE TIME - 1.7%
230,000 Sturm, Ruger & Co., Inc. ............... 4,514
PETROLEUM & PETROLEUM SERVICES - 7.7%
50,000 Exxon Corp. ............................ 4,162
20,000 Mobil Corp. ............................ 2,315
40,000 Royal Dutch
Petroleum Co. (ADR) .................... 6,245
80,000 Texaco, Inc. ........................... 7,360
POLLUTION CONTROL - 2.1%
275,900 Landauer, Inc. ......................... 5,484
REAL ESTATE INVESTMENT TRUSTS - 1.7%
148,600 Omega Healthcare
Investors, Inc.......................... 4,458
RETAIL - 3.7%
45,000 J.C. Penney Co., Inc. .................. 2,436
90,000 May Department Stores Co. .............. 4,376
62,039 Sears, Roebuck & Co. ................... 2,776
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-20-
<PAGE> 33
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000'S)
- ---------------- ------------
<S> <C> <C>
RETAIL - GROCERS - 1.1%
70,000 American Stores Co. .................... $2,800
TELECOMMUNICATIONS - 0.8%
40,000 AT&T Corp. ............................. 2,090
UTILITIES - ELECTRIC - 3.6%
220,000 Houston Industries, Inc. ............... 4,868
125,000 NIPSCO Industries, Inc. ................ 4,469
UTILITIES - GAS DISTRIBUTION - 1.2%
135,000 Northwest Natural Gas Co................ 3,105
UTILITIES - TELEPHONE - 3.0%
200,000 GTE Corp. .............................. 7,700
--------
TOTAL COMMON STOCKS 167,293
--------
PREFERRED STOCKS - 15.7%
BANKING & FINANCE - 2.0%
35,300 Washington Mutual Savings Bank
Series C 6.00% Convertible.............. 5,171
COMPUTER SERVICES - 1.5%
75,000 # Vanstar Financing Trust
6.75% Convertible....................... 3,881
CONTAINERS - 1.8%
100,000 Crown Cork & Seal
4.50% due,
6/21/01 Convertible..................... 4,600
FINANCIAL - MISC. - 1.7%
110,000 Advanta Corp.
Class B Series 95 SAILS................. 4,593
FOOD & TOBACCO - 0.6%
300,000 RJR Nabisco Holdings Corp.
$0.835 Convertible...................... 1,613
INSURANCE - 1.2%
52,000 American Bankers Insurance
Series B Convertible.................... $43,068
PAPER & FOREST PRODUCTS - 1.3%
70,400 James River Corp. of Virginia
$3.375 Cumulative Convertible
Exchangeable............................ 3,344
POLLUTION CONTROL - 1.8%
160,000 Browning Ferris Industries, Inc.
7.25% "ACES"............................ 4,560
TRANSPORTATION - 3.8%
110,000 GATX Corp. $3.875 Cumulative
Convertible............................. 6,270
37,000 Interpool, Inc.
5.75% Convertible....................... 3,695
--------
TOTAL PREFERRED STOCKS 40,795
--------
</TABLE>
<TABLE>
<S> <C> <C>
CORPORATE BONDS - 19.4%
CONVERTIBLE SUBORDINATED DEBENTURES:
COMPUTER SERVICES - 2.6%
$3,500,000 First Financial Management
5.00%, due 12/15/99................... 6,755
COMPUTER SYSTEMS - 5.0%
4,350,000 Conner Peripherals
6.75%, due 3/01/01.................... 4,616
3,000,000 Conner Peripherals
6.50%, due 3/01/02.................... 3,412
2,200,000 Seagate Technology, Inc.
5.00%, due 11/01/03................... 4,870
DRUGS & HOSPITAL SUPPLIES - 0.9%
2,400,000 Bindley Western Industries, Inc.
6.50%, due 10/01/02................... 2,484
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-21-
<PAGE> 34
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INCOME FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------- -------------
ELECTRICAL EQUIPMENT - 2.0%
<S> <C> <C>
$4,932,000 Cooper Industries, Inc.
7.05%, due 1/01/15.................. $ 5,351
ELECTRONICS - 2.1%
2,500,000 # Altera Corp.
5.75%, due 6/15/02 (144A) 2,972
2,500,000 # Xilinx, Inc.
5.25%, due 11/01/02 (144A).......... 2,413
PAPER & FOREST PRODUCTS - 0.8%
2,115,000 Repap Enterprises, Inc.
8.50%, due 8/01/97 (ADR)............ 2,067
PETROLEUM & PETROLEUM SERVICES - 1.4%
2,500,000 Pennzoil Co.
6.50%, due 1/15/03.................. 3,716
PUBLISHING - 1.0%
3,000,000 Thomas Nelson, Inc.
5.75%, due 11/30/99................. 2,730
RETAIL - 2.0%
2,500,000 Home Depot, Inc.
3.25%, due 10/01/01................. 2,541
2,500,000 Price/Costco, Inc.
6.75%, due 3/01/01.................. 2,625
TELECOMMUNICATION EQUIPMENT - 1.0%
1,300,000 # 3Com Corp.
10.25%, due 11/01/01................ 2,514
TRANSPORTATION - 0.6%
1,605,000 Alaska Air Group, Inc.
6.875%, due 6/15/14 ................ 1,467
--------
TOTAL CORPORATE BONDS ......................................... 50,533
--------
TEMPORARY INVESTMENTS - 3.3%
Investment Companies:
$8,741,106 Short-Term Investments Co.
(Prime Portfolio)................... $ 8,741
TOTAL TEMPORARY INVESTMENTS 8,741
--------
TOTAL INVESTMENTS - 102.7% 267,362
Liabilities, less Other Assets.................................. (7,139)
--------
NET ASSETS...................................................... $260,223
========
</TABLE>
- ------
(b) 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". At September 30, 1996, such securities
are as follows: Altera Corp., 5.75%, acquired 6/5/96 for $2,695,000, due
6/15/02; Vanstar Financing Trust, 6.75% Convertible, acquired 9/27/96 for
$3,787,500; Xilinx, Inc., at 5.25%, acquired 4/1/96 for $2,356,250, due
11/1/02; and 3Com Corp., 12.25%, acquired 7/23/96 for $1,755,250, due
11/01/01. The total value of these restricted securities represents 4.5%
of Net Assets.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Fund's investment advisor controls 5% or more of the outstanding voting
shares of the Company).
SEE NOTES TO FINANCIAL STATEMENTS
-22-
<PAGE> 35
REPORT FROM THE FUND MANAGER
SAFECO Northwest Fund
September 30, 1996
For the 12 months ended September 30, the SAFECO Northwest Fund
returned 9.61%, while the Northwest 50(TM) Index returned 15.89%. Year to date,
the Fund is up 12.66% compared to 15.48% for the Northwest 50(TM) Index.
Some of the industries I bought for long-term growth went through some
growing pains, which affected the Fund's performance. Experiencing the greatest
difficulties were the craft beer sector and the assisted-living industry.
REDHOOK ALE, 2.7% of net assets, felt the pinch of a barrelage slowdown
this past summer and, as a result, will not make earnings estimates. PYRAMID
BREWING, 1.3% of assets, is fighting for limited shelf space in the competitive
beer market. While overall beer consumption is slowing, craft beer drinking
(previously known as microbrews) is expected to increase rapidly in the coming
years.
Assisted-living provider EMERITUS CORPORATION, which is 3.6% of net
assets, has experienced higher than anticipated costs as it has exceeded its
expansion plans while trying to maintain a high level of service quality. REGENT
ASSISTED LIVING, which is a premium-priced assisted-living facility that also
provides Alzheimer care, has suffered similar growth issues. However, the
fastest growing population in the nation is 85 and older, so I remain positive
about the potential of this sector.
[PHOTO OF CHARLES R. DRIGGS]
GARDEN BOTANIKA, 1.81% of net assets, is a retail distributor of
natural cosmetic products which has also experienced some growth problems.
Garden Botanika has increased its store count to 168 across 31 states, but has
experienced slow same-store sales. However, the company still has good
fundamentals and recently aligned with Westin Hotels to distribute its products.
I am still waiting for SCHNITZER STEEL to forge ahead. This scrap steel
recycler is making significant inroads in the Korean automobile and appliance
manufacturing market but has yet to see its stock price "salvage" big gains. Its
operations are also environmentally correct -- a fact that should help its
growth in the future.
(Continued on next page.)
- 23 -
<PAGE> 36
HIGHLIGHTS
SAFECO NORTHWEST FUND
As of September 30, 1996
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1996
[PIE CHART]
- --------------------------------------------------------------------------------
<C> <C>
Large ($4 Bil. and above) ................... 27 %
Medium ($1 Bil. - $4 Bil) ................... 8 %
Small (Less than $1 Bil) .................... 70 %
Cash and Other ............................ (5)%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1996
[BAR CHART]
- --------------------------------------------------------------------------------
<S> <C>
Banks ..................................... 12%
Savings & Loans/Savings Banks ............. 11%
Retail - Other ............................ 9%
Electrical Equipment & Electronics ........ 8%
Computer Software ......................... 7%
</TABLE>
REPORT FROM THE
NORTHWEST FUND MANAGER
(Continued)
I sold UNIVAR for a nice 40% gain after management announced a
successful takeover bid from European joint owner Royal Pakhoed N.V. I also
eliminated PARAGON TRADE BRANDS for two reasons: they are now headquartered in
Atlanta and the competition in the feminine hygiene market is growing extremely
fast.
Banks, our largest industry sector, continue to perform strongly. As a
whole, they are up over 23% for the year, compared to 13.5% for the S&P 500. Big
player WASHINGTON MUTUAL SAVINGS BANK, my second largest holding at 5.6% of net
assets, contributed 36.9% return to the portfolio this year. Smaller rural banks
SECURITY BANCORP and WEST COAST BANCORP also performed very well while remaining
excellent takeover candidates, and CASCADE BANCORP, 1.4% of assets, has more
than tripled in value since I acquired it.
Northwest behemoths BOEING and MICROSOFT, which collectively represent
11.5% of assets, continued to climb. Boeing is seeing some big orders from both
domestic and international air carriers and Microsoft continues to plan how it
will use the Internet to grow market share in the 21st century.
- 24 -
<PAGE> 37
One new technology issue I purchased is PACIFIC AEROSPACE & ELECTRONICS
(formerly known as PCT Holdings), out of Wenatchee, Washington. This company
produces stainless steel corrosion and leak proof materials for products such as
missiles, submarines, and pacemakers. They are working closely with Boeing on
the space station program and seem poised to grow their earnings at a brisk
pace.
The Northwest economy is performing very well with anticipated growth
rates 20%-25% higher than the U.S. as a whole. Boeing is hiring again and
production throughout the entire region should stay healthy. While maintaining
my long-term approach to finding solid companies, I have added some names with
more near-term growth potential and I believe your Fund is poised to benefit
from a strong regional economy.
/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.
HIGHLIGHTS (Continued)
SAFECO NORTHWEST FUND
September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Boeing Co. ...................................................... 5.9%
(Aerospace)
Washington Mutual Savings Bank .................................. 5.6%
(Savings & Loan)
Microsoft Corp. ................................................. 5.6%
(Personal Computer Software)
Schnitzer Steel Industries, Inc. ................................ 5.4%
(Steel Manufacturing)
US Bancorp ...................................................... 5.0%
(Bank)
Price/Costco, Inc. .............................................. 4.0%
(Wholesale Membership Warehouse)
Emeritus Corp. .................................................. 3.6%
(Health Care)
Albertsons, Inc. ................................................ 3.4%
(Retail Grocer)
Sterling Financial Corp. ........................................ 3.3%
(Savings & Loan Holding Co.)
Longview Fibre Co. .............................................. 3.2%
(Forestry)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- --------------------------------------------------------------------------------
<S> <C>
Garden Botanika, Inc. ........................................... $1,262,431
Rochester Gas & Electric Corp. .................................. 1,151,100
Schnitzer Steel Industries, Inc. ................................ 713,750
Redhook Ale Brewery, Inc. ....................................... 540,740
Coffee People, Inc. ............................................. 507,325
</TABLE>
<TABLE>
<CAPTION>
SALES
(April to Sept.) PROCEEDS
- --------------------------------------------------------------------------------
<S> <C>
*Univar Corp. ................................................... $1,487,020
*Paragon Trade Brands, Inc. ..................................... 1,164,934
US Bancorp ...................................................... 759,375
</TABLE>
*Security sold, no longer in portfolio.
- 25 -
<PAGE> 38
PORTFOLIO OF INVESTMENTS
SAFECO Northwest Fund
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 104.7%
AEROSPACE - 5.9%
26,900 Boeing Co. .............................. $2,542
APPAREL MANUFACTURING - 2.8%
10,000 NIKE, Inc. .............................. 1,215
AUTOS - 3.1%
104,000 (b) Monaco Coach Corp. ...................... 1,326
BANKS - 12.2%
26,620 (b) Cascade Bancorp ......................... 606
33,000 Interwest Bancorp, Inc. ................. 974
67,500 Northrim Bank ........................... 591
15,800 Security Bank Holding Co. ............... 130
55,000 US Bancorp .............................. 2,173
41,580 West Coast Bancorp, Inc. ................ 816
BEVERAGES - 4.1%
87,300 (b) Pyramid Brewing, Inc. ................... 578
54,200 (b) Redhook Ale Brewery, Inc. ............... 1,179
BUILDING MATERIALS - 3.6%
61,000 (b) BMC West Corp. .......................... 846
40,000 TJ International, Inc. 730
CHEMICALS - 1.2%
129,800 (b) Consep, Inc. ............................ 519
COMMERCIAL SERVICES - 1.4%
39,000 (b) Barrett Business Services ............... 624
COMPUTER SOFTWARE - 6.6%
28,300 (b) Analogy, Inc. ........................... 134
27,500 (b) Mentor Graphics Corp. ................... 244
18,300 (b) Microsoft Corp. ......................... 2,413
10,000 (b) ThrustMaster, Inc. ...................... 54
DRUGS & HOSPITAL SUPPLIES - 1.0%
30,600 (b) Epitope, Inc. ........................... 425
ELECTRICAL EQUIPMENT & ELECTRONICS - 7.6%
91,000 (b) FLIR Systems, Inc. ...................... 1,194
43,000 (b) Lattice Semiconductor Corp. ............. 1,242
12,000 (b) Merix Corp. ............................. 231
77,000 (b) Pacific Aerospace &
Electronics Common ...................... 192
77,000 (b) Pacific Aerospace &
Electronics Warrants .................... 34
21,700 (b) Praegitzer Industries, Inc. ............. 206
15,000 (b) Semitool, Inc. .......................... 178
FOOD - 2.6%
140,100 (b) Wholesome &
Hearty Foods, Inc. ...................... 1,121
HEALTH CARE - 5.5 %
29,200 (b) Assisted Living Concepts, Inc. .......... 555
98,000 (b) Emeritus Corp. .......................... 1,544
52,000 (b) Regent Assisted Living, Inc. ............ 273
MACHINERY - 1.5%
74,000 (b) Flow International Corp. ................ 638
METALS - 6.2%
23,100 Oregon Steel Mills, Inc. ................ 355
80,000 Schnitzer Steel Industries, Inc. ........ 2,320
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 26 -
<PAGE> 39
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO NORTHWEST FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
PAPER & FOREST PRODUCTS - 3.2%
88,500 Longview Fibre Co. ...................... $ 1,394
POLLUTION CONTROL - 0.3%
77,400 (b) R-B Rubber Products, Inc. ............... 145
RETAIL - GROCERS - 5.6%
35,000 (b) Albertson's, Inc. ....................... 1,474
66,000 (b) Carr-Gottstein Foods Co ................. 272
19,284 Quality Food Centers, Inc ............... 670
RETAIL - OTHER - 8.9%
60,000 (b) Hollywood Entertainment Corp. ........... 1,230
24,600 Nordstrom, Inc. ......................... 935
83,500 (b) Price/Costco, Inc. ...................... 1,712
RETAIL - SPECIALTY - 4.8%
138,450 (b) Egghead, Inc. ........................... 831
69,700 (b) Garden Botanika, Inc. ................... 784
55,800 (b) Coffee People, Inc. ..................... 488
SAVINGS & LOANS / SAVINGS BANKS - 10.5%
24,000 Security Bancorp ........................ 687
106,000 (b) Sterling Financial Corp. ................ 1,444
65,200 Washington Mutual Savings ............... 2,429
TRANSPORTATION - 3.0%
15,500 Airborne Freight Corp. .................. 331
164,000 (b) Arrow Transportation Co. ................ 143
18,600 Expeditors International ................ 656
14,000 Greenbrier Companies, Inc ............... 161
UTILITIES - GAS 3.1%
15,400 Cascade Natural Gas Corp. ............... 252
60,000 Rochester Gas & Electric Co. ............ 1,095
-------
TOTAL COMMON STOCKS ........................................... 45,335
-------
TEMPORARY INVESTMENTS - 2.3%
INVESTMENT COMPANIES:
$989,155 Short-Term Investments Co.
(Prime Portfolio) ....................... 989
-------
TOTAL TEMPORARY INVESTMENTS ................................... 989
-------
TOTAL INVESTMENTS - 107.0% .................................... 46,324
Liabilities, less Other Assets ................................ (2,996)
-------
NET ASSETS .................................................... $43,328
=======
</TABLE>
- ----------
(b) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE> 40
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
September 30, 1996
For the six-month period ended September 30,1996, the SAFECO
International Stock Fund returned 4.12%, while the Morgan Stanley Europe
Australia and Far East (EAFE) Index returned 1.61%.
For the eight-month period from inception on January 31 to September
30, 1996, the SAFECO International Stock Fund returned 4.54%, slightly
outperforming the EAFE return of 4.16%.
The portfolio's holdings are spread across themes determined by our
investment team. These themes are derived from social, demographic, economic,
technological and other trends that provide above-average growth opportunities.
Healthcare Needs has been the thematic star year-to-date. Swiss-based
companies CIBA-GEIGY and SANDOZ had exceptionally strong performances after the
markets responded positively to their announced merger plans. UK healthcare
company, ZENECA, has provided good returns on the basis of rising profits and
encouraging sales growth.
Positive Banking Environment has been a rewarding theme this year in
light of the ongoing low interest-rate environment. We have recently added Hong
Kong-quoted HSBC HOLDINGS plc to this group.
The Cyclical Recovery in Paper/Print Industries theme has done well in
1996, with strong performances registered by Swedish-quoted companies ASSIDOMAN
and STORA KOPPARBERGS. Finland-based UPM-KYMMENE, which is the number one
forestry company in Europe, has had a relatively good year, especially in light
of the difficult conditions that currently exist in the European and U.S. paper
markets.
On the other hand, the Increased Consumer Spending in the Pacific Basin
theme has been particularly hit by political
- 28 -
<PAGE> 41
instability in Indonesia during the middle part of the year. Some of concerns
about Indonesia have receded in recent months, and the local market is showing
some signs of rebounding.
Early in the year international equity markets were mixed. Continental
European equity markets were generally positive, whereas their Pacific-Rim
counterparts were more volatile.
In July, international markets weakened in reaction to the volatility
on Wall Street. Nevertheless, by September most markets had recovered from this
unwarranted reaction.
The UK market had a strong surge over the last three months as good
corporate earnings reports provided support for valuations. Political
considerations will remain in focus in the UK over the coming months as it now
looks likely the general election will be held in May 1997. Otherwise, the
(Continued on next page.)
HIGHLIGHTS
SAFECO INTERNATIONAL
STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE THEMES NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Positive Banking Environment ..................................... 12%
Undervalued Asset Profile ........................................ 12%
Healthcare Needs ................................................. 10%
Multimedia Opportunities ......................................... 10%
Global Cyclical Recovery ......................................... 9%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE COUNTRIES
AS A PERCENT OF NET ASSETS
AS OF SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<S> <C>
United Kingdom ..................................... 29%
Netherlands ........................................ 11%
Switzerland ........................................ 9%
Australia .......................................... 8%
Singapore .......................................... 8%
</TABLE>
- 29 -
<PAGE> 42
HIGHLIGHTS (Continued)
SAFECO INTERNATIONAL
STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Ciba-Geigy AG ................................................... 3.0%
(Pharmaceuticals)
National Australia Bank, Ltd. ................................... 3.0%
(Banking & Finance)
Elsevier NV ..................................................... 2.6%
(Publishing)
B.A.T. Industries, plc .......................................... 2.4%
(Tobacco & Financial Services)
Singapore Press Holdings, Ltd. .................................. 2.4%
(Publishing)
ABN Amro Holdings NV ............................................ 2.2%
(Banking & Finance)
Hanjaya Mandala Sampoerna ....................................... 2.2%
(Tobacco)
News Corp., Ltd. ................................................ 2.2%
(Telephone Company)
Development Bank of Singapore, Ltd. ............................. 2.2%
(Banking & Finance)
Siebe, plc ...................................................... 2.1%
(Industrial & Electronic Equipment)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- --------------------------------------------------------------------------------
<S> <C>
Premier Farnell, plc ............................................ $132,184
Alusuisse-Lonza Holding AG ...................................... 87,304
HSBC Holdings, plc .............................................. 86,249
Pharmacia & Upjohn, Inc. ........................................ 80,563
Shell Transportation & Trading Co., plc ......................... 69,666
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- --------------------------------------------------------------------------------
<S> <C>
*Telefonaktiebolaget LM Ericsson ................................ $101,213
*Thorn EMI, plc ................................................. 90,864
*British Airways, plc ........................................... 73,797
*Bank of Scotland ............................................... 69,411
Philips Electronics NV .......................................... 56,384
</TABLE>
- ----------
*Security sold, no longer in portfolio.
REPORT FROM THE
INTERNATIONAL
STOCK FUND MANAGER
(Continued)
outlook remains positive following a strong series of corporate announcements, a
benign interest-rate environment and relatively undemanding market valuations.
High levels of institutional cash should provide further support.
Over the reporting period, performances in Continental European equity
markets were mixed, with the Scandinavian markets of Sweden and Finland
outperforming the core markets. In September, the European markets rallied,
principally driven by the better outlook for U.S. interest rates and a much
better feeling on the Economic Monetary Union.
European equity markets should also benefit from the management
objective of increasing shareholder value which is slowly being engendered in
some of the larger companies in the region.
- 30 -
<PAGE> 43
There is little in Japan that would cause us to change our current
negative view on Japanese companies. Despite the market having receded 45% over
the last seven years since its peak in 1989, valuations there remain
uncompelling.
In the rest of the Far East/Pacific, there was little consistency
across the various markets. Some foreign buyers are becoming reluctant to
redirect funds to the region because performance over the past few years has
been disappointing.
The smaller countries in the Pacific Basin continue to grow at rates
far exceeding that of Organization for Economic Cooperation and Development
(larger) economies. Their rapid economic growth provides a positive environment
for companies which can increase business, while retaining profit margins. We
remain positive on the region, and we anticipate these markets moving strongly
ahead once they make the decisive turn from the relatively bearish conditions
prevailing over the last years.
Bank of Ireland
Asset Management (U.S.) Limited
The Bank of Ireland Asset Management (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.
- 31 -
<PAGE> 44
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 95.7%
AUSTRALIA - 8.2%
11,500 Broken Hill
Proprietary Co., Ltd. ..................... $147
(Metals & Mining)
24,000 National Australia Bank, Ltd. ............. 253
(Banking & Finance)
35,100 News Corp., Ltd. .......................... 184
(Television & Publishing)
18,100 WMC, Ltd. ................................. 116
(Metals & Mining)
FINLAND - 0.9%
3,750 Kymmene Oy ................................ 78
(Paper & Forest Products)
FRANCE - 1.4%
750 Elf Aquitaine ............................. 59
(Oil & Gas)
1,200 Michelin "B" .............................. 61
(Tire & Rubber)
GERMANY - 4.9%
4,150 Hoechst AG ................................ 151
(Chemicals)
345 Mannesmann AG ............................. 129
(Machinery & Engineering)
1,530 Siemens AG ................................ 81
(Electrical Equipment & Electronics)
1,165 Veba AG ................................... 61
(Utilities - Electric)
HONG KONG - 1.1%
5,000 HSBC Holdings, plc ........................ 93
(Banking & Finance)
INDONESIA - 5.0%
33,000 Gudang Garam .............................. 124
(Tobacco)
19,000 Hanjaya Mandala Sampoerna ................. 185
(Tobacco)
12,000 Hero Supermarket .......................... 8
(Retail - Grocery)
33,000 Indocement Tunggal Perkasa ................ 52
(Building Materials)
31,000 Mayora Indah .............................. 13
(Food-Processing)
28,500 Telekomunikasi Indonesia .................. 44
(Telecommunications)
IRELAND - 1.9%
7,320 Allied Irish Bank, plc .................... 43
(Banking & Finance)
42,900 Smurfit (Jefferson) Group ................. 115
(Paper Products)
ITALY - 1.0%
25,960 Stet-Societa Finanz Telefon ............... 90
(Telecommunications)
JAPAN - 2.1%
9,000 Canon, Inc. ............................... 177
(Office Equipment)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 32 -
<PAGE> 45
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
MALAYSIA - 4.4%
23,000 DCB Holdings Berhad ....................... $ 79
(Banking & Finance)
14,000 Hume Industries ........................... 74
(Building Materials)
37,000 Sime Darby Berhad ......................... 122
(Conglomerates)
13,000 United Engineers, Ltd. .................... 101
(Construction)
MEXICO - 0.8%
32,000 Grupo Financiero Banamex
Accival Series B .......................... 69
(Banking & Finance)
NETHERLANDS - 10.6%
3,447 ABN Amro Holdings NV ...................... 191
(Banking & Finance)
560 DSM NV .................................... 55
(Chemicals)
13,450 Elsevier NV ............................... 222
(Publishing)
4,907 Internationale Nederlanden
Groep NV .................................. 153
(Banking & Finance)
1,710 Koninklijke PTT Nederland NV .............. 59
(Commercial Services)
730 Nutricia Verenigde
Bedrijven NV .............................. 96
(Food-Processing)
1,250 Philips Electronics NV .................... 45
(Electronics)
530 Royal Dutch Petroleum ..................... 83
(Oil/Gas)
SINGAPORE - 8.0%
19,000 City Developments, Ltd. ................... 162
(Real Estate)
15,000 Development Bank of
Singapore, Ltd. ........................... 184
(Banking & Finance)
12,800 Fraser & Neave, Ltd. ...................... 132
(Beverages)
11,000 Singapore Press Holdings, Ltd. ............ 201
(Publishing)
SPAIN - 2.5%
1,180 Banco Santander SA ........................ 61
(Banking & Finance)
7,530 Iberdrola SA .............................. 73
(Utilities - Electronic)
2,340 Repsol SA ................................. 77
(Petroleum & Petroleum Services)
SWEDEN - 1.6%
1,700 AssiDoman AB .............................. 41
(Paper & Forest Products)
2,000 Pharmacia & Upjohn, Inc. .................. 83
(Pharmaceuticals)
1,150 Stora Kopparbergs Bergslags
Akliebolag ................................ 15
(Paper & Forest Products)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 33 -
<PAGE> 46
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
SWITZERLAND - 9.0%
222 Alusuisse-Lonza Holding AG ................ $166
(Holding Co. - Diversified)
202 Ciba-Geigy AG ............................. 258
(Pharmaceuticals)
16 Roche Holding AG .......................... 118
(Pharmaceuticals)
68 Sandoz AG-R ............................... 81
(Pharmaceuticals)
135 Schweizerische Rueckversicherungs-
Gesellschaft .............................. 142
(Insurance)
THAILAND - 3.2%
13,000 Bangkok Bank Public Co., Ltd. ............. 171
(Banking & Finance)
10,000 Thai Farmers Bank
Public Co., Ltd. Common ................... 105
(Banking & Finance)
1,125 Thai Farmers Bank
Public Co., Ltd. Warrants ................. 1
(Banking & Finance)
UNITED KINGDOM - 29.1%
30,230 B.A.T. Industries, plc .................... 202
(Tobacco)
20,700 BTR, plc .................................. 87
(Building Products,
Equipment, Consumer Goods)
12,150 Barclays, plc ............................. 178
(Banking & Finance)
7,000 Cable & Wireless, plc ..................... 49
(Telecommunications)
15,430 Cadbury Schweppes, plc .................... 124
(Beverages)
10,500 Chubb Security, plc ....................... 52
(Electronic Security Systems)
3,000 Coats Viyella, plc ........................ 7
(Textiles)
5,195 EMI Group, plc ............................ 108
(Textiles)
9,040 General Accident, plc ..................... 96
(Insurance)
13,350 General Electric Co., plc ................. 83
(Electronics)
10,800 Granada Group, plc ........................ 144
(Leisure)
10,400 Grand Metropolitan, plc ................... 77
(Wine & Spirits, Food)
21,070 Ladbroke Group, plc ....................... 69
(Hotels & Property Management)
22,740 Lloyds Bank, plc .......................... 134
(Banking & Finance)
8,470 Medeva, plc ............................... 34
(Pharmaceuticals)
12,250 Premier Farnell, plc ...................... 128
(Electronics)
14,720 Prudential Corp., plc ..................... 103
(Insurance)
18,210 Safeway, plc .............................. 93
(Retail - Grocery)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE> 47
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM (CONTINUED)
14,790 Scottish Power, plc ....................... $ 71
(Utilities - Electric)
8,300 Shell Transportation &
Trading Co., plc .......................... 126
(Utilities - Electric)
11,550 Siebe, plc ................................ 182
(Industrial & Electronic
Equipment)
14,700 TI Group, plc ............................. 134
(Engineering)
15,910 Vodafone Group, plc ....................... 55
(Telecommunications)
5,650 Zeneca Group, plc ......................... 140
(Pharmaceuticals)
------
TOTAL COMMON STOCKS ............................................. $8,160
------
TOTAL INVESTMENTS - 95.7% ....................................... 8,160
------
Domestic Cash ................................................... 77
Foreign Currency ................................................ 117
Other Assets, less Liabilities .................................. 169
------
363
------
NET ASSETS ...................................................... $8,523
======
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Banking & Finance ................................................. 19.0%
Beverages ......................................................... 3.0%
Building Materials ................................................ 1.5%
Construction & Engineering ........................................ 1.2%
Chemicals ......................................................... 2.4%
Commercial Services ............................................... 0.7%
Electrical Equipment & Electronics ................................ 3.8%
Entertainment ..................................................... 1.3%
Financial Services ................................................ 1.1%
Food .............................................................. 1.3%
Holding Company -- Diversified .................................... 4.4%
Insurance ......................................................... 4.0%
Leisure Time ...................................................... 2.5%
Machinery -- Diversified .......................................... 3.6%
Manufacturing ..................................................... 1.6%
Metals ............................................................ 3.1%
Office Equipment & Supplies ....................................... 2.1%
Oil & Gas ......................................................... 0.7%
Paper & Forest Products ........................................... 1.6%
Paper Products & Supplies ......................................... 1.3%
Petroleum & Petroleum Services .................................... 4.1%
Pharmaceuticals ................................................... 8.4%
Publishing ........................................................ 7.1%
Real Estate ....................................................... 1.9%
Retail - Grocers .................................................. 1.2%
Security .......................................................... 0.6%
Telecommunications ................................................ 2.8%
Textile ........................................................... 0.1%
Tire & Rubber ..................................................... 0.7%
Tobacco ........................................................... 6.0%
Electric Utility .................................................. 1.7%
Wine & Spirits .................................................... 0.9%
=====
Total ............................................................. 95.7%
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE> 48
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
September 30, 1996
[PHOTO OF REX BENTLEY]
[PHOTO OF MICHAEL KNEBEL]
The SAFECO Balanced Fund completed its first two full quarters with a
strong performance. For the six months ended September 30, 1966, the SAFECO
Balanced Fund returned 5.81% compared to the peer group's return of 5.18% and a
combined stock (60%) and bond (40%) index return of 5.56%. For the period from
inception (January 31, 1996) to September 30, 1996, the Fund returned 5.99%,
slightly outperforming the index, which returned 5.51% for the same period.
The S&P 500 climbed 7.71% over the last six months. The roughest spot
in this ascent was marked by a 4.4% decline in July. Interest rates ticked
upward during the period, causing the bond market to experience a slow slide in
value. Thirty-year U.S. Treasury yields went from 6.67% on March 31, to 6.92% on
September 30, and the Lehman Brothers Government/Corporate Bond Index returned
2.25% for the six months ending then.
Over the past six months, our asset allocation has remained
substantially unchanged, with stocks representing 54.8% of assets, bonds 39.2%,
and cash 4.0%. At 54.8%, equities are toward the lower end of our 50%-70% range.
With the stock market continually setting new all-time highs, we think this
asset allocation is appropriate.
Within equities, groups that performed well last quarter included basic
materials, health care, and financial.
One stock we would like to highlight is DURACELL, and one point we want
to make doing so is that we generally do not purchase "potential takeover"
stocks. Takeover candidates usually have a premium price and look expensive
relative to other opportunities.
-36-
<PAGE> 49
We purchased Duracell in late August, because we believed that its
battery business was attractive, that management was initiating the necessary
changes to capitalize on the franchise, and that the stock represented good
value relative to our outlook for earnings. Two weeks after our purchase, we
were pleasantly surprised that the management of Gillette had reached a similar
conclusion and agreed to purchase Duracell at a price 25% higher than we had
paid.
We continue to invest in large capitalization, value-oriented stocks.
Recent equity purchases include PEPSICO, HEWLETT-PACKARD, CRANE CO. and
BRISTOL-MYERS SQUIBB. To make room for these purchases, positions in MINNESOTA
MINING & MANUFACTURING, DURACELL, and ORACLE were sold.
PepsiCo has been under pressure due to overseas expansion expenses. We
liked its price, and its domestic cola beverage and snack food franchise.
(Continued on next page.)
HIGHLIGHTS
SAFECO
BALANCED FUND
As of September 30, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1996
[PIE CHART]
1) Large: 46% ($4Bil. and above.)
2) Medium: 8% ($1 Bil. - $4 Bil.)
3) Small: 1% (Less than $1 Bil.)
4) Corporate Bonds: 13%
5) U.S. Government Securities: 26%
6) Cash and Other: 6%
TOP FIVE INDUSTRIES
(Common Stocks)
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1996
[VERTICAL BAR CHART]
<TABLE>
<S> <C>
Drugs & Hospital Supplies: 5%
Food & Tobacco: 4%
Banking & Finance: 4%
Electrical Equipment & Electronics: 3%
Household Products: 3%
</TABLE>
-37-
<PAGE> 50
HIGHLIGHTS (Continued)
SAFECO BALANCED FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -----------------------------------------------------------------
<S> <C>
U.S. Treasury Notes ............................... 26.0%
SmithKline Beecham, plc (ADR) ..................... 1.7%
(Pharmaceutical Company)
Kimberly-Clark Corp. .............................. 1.7%
(Personal Care Products)
NationsBank Corp. ................................. 1.6%
(Bank)
General Electric Co. .............................. 1.5%
(Manufacturing & Communication)
ITT Hartford Group, Inc. .......................... 1.5%
(Insurance Company)
Philip Morris Cos., Inc. .......................... 1.5%
(Food, Beverage, &
Tobacco Company)
Atlantic Richfield Co. ............................ 1.5%
(Oil Company)
BankAmerica Corp. ................................. 1.4%
9.5%, due 4/01/01
(Bank)
Household Financial Corp. ......................... 1.4%
9%, due 9/28/00
(Financial Services)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- -----------------------------------------------------------------
<S> <C>
U.S. Government Securities ........................ $3,217,698
Norwest Corp. (MTN)
6.25%, due 3/15/01 .............................. 97,744
Associates Corp. of North America
6.625%, due 5/15/01 ............................. 97,689
Seagate Technology, Inc. .......................... 83,006
Armstrong World Industries, Inc. .................. 75,866
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- -----------------------------------------------------------------
<S> <C>
U.S. Government Securities ........................ $3,020,603
*Minnesota Mining &
Manufacturing Co. ............................... 88,810
*Occidental Petroleum Corp. ....................... 86,205
*CSX Corp. ........................................ 85,409
*Duracell International, Inc. ..................... 81,127
</TABLE>
*Security sold, no longer in portfolio.
REPORT FROM THE
BALANCED FUND
MANAGERS (Continued)
Hewlett-Packard dominates the computer printer business, which leads to
future sales -- ink cartridges and supplies. We snapped up HP after it fell 10%
on bad news.
Crane Co. is a capital goods company that we think is underfollowed,
underowned and undervalued. Crane dominates it business, which is helping metals
companies improve efficiency.
Bristol-Myers is a big pharmaceutical that's had a below-standard
growth rate and below-average price. We think Bristol is about to catch up.
At quarter end, the equity portion of the Fund had a price earnings
ratio of 14.0 based on 1997 estimated earnings and a current dividend yield of
2.7%. This compares favorably to the price earnings ratio and dividend yield for
the S&P 500 of 16.1 and 2.2% respectively.
-38-
<PAGE> 51
In the fixed income portion of the portfolio, we continue to emphasize
intermediate-term, high-quality bonds. Approximately two-thirds of the bond
assets are held in U.S. Treasury obligations, with government agency and
high-quality corporate debt making up the
Because interest rates continued to rise during the six-month period,
the Fund benefited from our decision to reduce the average maturity of the bond
portfolio. Maintaining average maturity at under three years, we managed to
insulate the Fund from the negative effect rising rates have on bond prices.
We'll maintain this defensive, short-maturity posture until we perceive
the kind of economic signals which will enable rates to resume their downward
trend. In conclusion, we are pleased with the performance of both the equity and
fixed income portions of the Balanced Fund and believe we are well positioned to
capitalize on opportunities in the financial markets.
/s/ Rex L. Bentley
- -----------------------------
Rex L. Bentley, Stocks
/s/ Michael C. Knebel
- -----------------------------
Michael C. Knebel, Bonds
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Michael Knebel oversees SAFECO Corporation's entire taxable bond operation. He
has 13 years investment experience, an MBA from the University of Minnesota and
is a Chartered Financial Analyst.
-39-
<PAGE> 52
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT* VALUE (000'S)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 54.8%
AUTOS & AUTO PARTS - 1.0%
2,600 Echlin, Inc. ............................... $ 82
BANKING & FINANCE - 3.5%
1,200 Chase Manhattan Corp. ...................... 96
600 J.P. Morgan & Co. .......................... 53
1,400 NationsBank Corp. .......................... 122
BEVERAGES - 1.8%
1,800 Anheuser-Busch
Companies, Inc. ............................ 68
2,500 PepsiCo, Inc. .............................. 71
BUILDING MATERIALS - 1.0%
1,300 Armstrong World
Industries, Inc. ........................... 80
CHEMICALS - 2.4%
1,200 Du Pont (E.I.) De Nemours
& Co. ...................................... 106
2,300 Nalco Chemical Co. ......................... 83
COMPUTER SYSTEMS - 2.1%
1,600 Hewlett-Packard Co. ........................ 78
1,600 (b) Seagate Technology, Inc. ................... 89
COSMETICS - 0.9%
1,400 Avon Products, Inc. ........................ 69
DRUGS & HOSPITAL SUPPLIES - 5.1%
1,600 American Home
Products Corp. ............................. 102
700 Bristol-Myers Squibb Co. ................... 67
1,500 Schering-Plough Corp. ...................... 92
2,200 SmithKline
Beecham, plc (ADR) ......................... 134
ELECTRICAL EQUIPMENT & ELECTRONICS - 3.4%
2,300 AMP, Inc. .................................. 89
1,300 General Electric Co. ....................... 118
1,200 Motorola, Inc. ............................. 62
FINANCIAL SERVICES - 2.5%
1,700 Federal National
Mortgage Association ....................... $ 59
1,500 H & R Block, Inc. .......................... 45
2,700 MBNA Corp. ................................. 94
FOOD & TOBACCO - 3.7%
1,100 CPC International, Inc. .................... 82
1,800 ConAgra, Inc. .............................. 89
1,300 Philip Morris Cos., Inc. ................... 117
HOUSEHOLD PRODUCTS - 3.0%
1,200 Colgate-Palmolive Co. ...................... 104
1,500 Kimberly-Clark Corp. ....................... 132
INDUSTRIAL PRODUCTS & SUPPLIES - 1.1%
2,200 Corning, Inc. .............................. 86
INSURANCE - 2.4%
1,800 American General Corp. ..................... 68
2,000 ITT Hartford Group, Inc. ................... 118
MACHINERY DIVERSIFIED - 1.0%
1,800 Briggs & Stratton Corp. .................... 80
MANUFACTURING - 2.4%
800 AlliedSignal, Inc. ......................... 53
1,600 Crane Co. .................................. 71
1,000 Harsco Corp. ............................... 63
METALS - 0.5%
700 Aluminum Co. of America .................... 41
OIL & GAS - 1.6%
1,000 Amoco Corp. ................................ 71
1,100 Tenneco, Inc. .............................. 55
PETROLEUM & PETROLEUM SERVICES - 2.8%
900 Atlantic Richfield Co. ..................... 115
900 Mobil Corp. ................................ 104
PHARMACEUTICALS - 0.9%
1,500 Abbott Laboratories ........................ 74
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-40-
<PAGE> 53
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO BALANCED FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT* VALUE (000'S)
- -----------------------------------------------------------------------------
<S> <C>
POLLUTION CONTROL - 1.1%
3,500 Browning-Ferris
Industries, Inc. ............................. $ 88
RETAIL - 2.3%
1,600 J.C. Penny Co., Inc. ......................... 87
1,900 May Department Stores Co...................... 92
RETAIL - GROCERS - 0.8%
1,600 American Stores Co. .......................... 64
TELECOMMUNICATIONS - 1.3%
2,000 AT&T Corp. ................................... 105
TEXTILES - 0.7%
1,300 Springs Industries, Inc. ..................... 57
TRANSPORTATION - 1.4%
2,000 Airborne Freight Corp. ....................... 43
800 Union Pacific Corp. .......................... 59
UTILITIES - ELECTRIC - 2.5%
2,600 NIPSCO Industries, Inc. ...................... 93
4,700 Houston Industries, Inc. ..................... 104
UTILITIES - TELEPHONE - 1.6%
700 Bell Atlantic Corp. .......................... 42
2,100 GTE Corp. .................................... 81
------
TOTAL COMMON STOCKS ..... .................................... 4,297
CORPORATE BONDS - 12.8%
(000'S)
AUTOS - 1.2%
100 General Motors Acceptance Corp.
6.625%, due 10/01/02 ......................... 98
BANKING & FINANCE - 2.6%
100 BankAmerica Corp.
9.50%, due 4/01/01 ........................... 110
100 Norwest Corp. (MTN)
6.25%, due 3/15/01 ........................... 98
ENTERTAINMENT - 1.3%
100 Walt Disney Co.
6.375%, due 3/30/01 .......................... 98
FINANCE - AUTO - 1.3%
100 Ford Motor Credit Note
6.25%, due 11/8/00 ........................... $ 98
FINANCE - MISC - 5.2%
Associates Corp. of
North America
100 7.02%, due 5/15/01 ........................... 102
100 6.625%, due 5/15/01 .......................... 99
100 Household Financial Corp.
9.00%, due 9/28/01 ........................... 108
100 International Lease Finance Corp.
6.20%, due 5/01/00 ........................... 98
UTILITIES - ELECTRIC - 1.2%
100 Southern California Edison Co.
5.875%, due 1/15/01 .......................... 96
------
TOTAL CORPORATE BONDS ........................................ 1,005
------
U.S. GOVERNMENT SECURITIES - 26.4%
U.S TREASURY NOTES - 26.0%
110 7.50%, due 2/15/05 ........................... 116
1,490 7.25%, due 11/15/96 .......................... 1,494
125 7.25%, due 8//15/04 .......................... 129
300 6.00%, due 10/15/99 .......................... 298
U.S TREASURY PRINCIPAL STRIPS - 0.4%
50 0.00%, due 8/15/05 ........................... 27
------
TOTAL U.S GOVERNMENT SECURITIES .............................. 2,064
------
TEMPORARY INVESTMENTS - 4.0%
INVESTMENT COMPANIES:
315 Short-Term Investments Co.
(Prime Portfolio) ............................ 315
------
TOTAL TEMPORARY INVESTMENTS .................................. 315
------
TOTAL INVESTMENTS - 98.1% .................................... 7,681
Other Assets, less Liabilities ............................... 151
------
NET ASSETS ................................................... $7,832
======
</TABLE>
* Principal amount is in thousands.
(b) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
-41-
<PAGE> 54
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
September 30, 1996
[PHOTO OF GREG EISEN]
For the six months ended September 30, 1996, the SAFECO Small Company
Stock Fund enjoyed a generous 16.14% return, while the small company peer group
returned 9.83% according to Lipper. During the same period the Russell 2000
Index returned 5.36%, while the S&P 500 returned 7.71%. For the period from
inception (January 31, 1996) to September 30, 1996, the Fund returned 21.83%,
significantly outperforming the Index, which returned 10.85% for the same
period.
The Fund's outstanding performance is due in part to especially large
gains in two stocks which have since been sold -- Radisys and Sodak Gaming. Both
these names gained more than 100% during the period, and reached valuation
levels that seemed to warrant profit taking. A glance at the list of holdings
shows many other names that, since we bought them, have appreciated
significantly. I will continue selling such positions when they become fully
valued.
The market for small capitalization stocks was quite volatile during
the period. April and May were great months with high returns, followed by a
slackening in June and a severe correction by the third week of July. The
remainder of the return period saw small stocks recover the ground lost during
the correction.
The Fund participated in the market gain and hot IPO market of the
spring. The profits we took then, when valuations were high, offset the downward
pressure the market put on the Fund in June and July. The net result was that we
finished the six months ahead of our benchmark indices and our peer group.
The Fund remained diversified across the economy. Financial services
and technology are the two largest sectors represented.
The Fund's financial services exposure (13.5% of net assets) is spread
among different types of financial services businesses. For example, IMPERIAL
BANCORP, SJNB FINANCIAL CORP. and HANMI BANK are California-based small banks
with distinct niches.
-42-
<PAGE> 55
Automobile lending is represented by JAYHAWK ACCEPTANCE and FIRST
ENTERPRISE FINANCIAL. These two companies represent two different tiers of
credit quality in the so-called sub-prime lending field.
LITCHFIELD FINANCIAL finances land mortgages in rural areas suitable
for locating manufactured housing, while OCWEN FINANCIAL is engaged in the
acquisition and resolution of troubled loans.
Technology exposure is also diversified across a wide range of
technologies. Software companies are represented by SPSS, INC., RESEARCH
ENGINEERS, and INFERENCE CORP. These three produce software in the areas of
statistical analysis, engineering design, and computer "help desk" support.
Hardware-related businesses include MICROS SYSTEMS and PC SERVICE SOURCE. TRACOR
is a supplier of defense electronics to the military.
My largest purchase during the last 3 months is also the Fund's largest
holding, COLE NATIONAL. This retailer recently added Pearle to its vision
business.
I intend to keep the portfolio weighted to include exposure to
(Continued on next page.)
HIGHLIGHTS
SAFECO
SMALL COMPANY
STOCK FUND
As of September 30, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1996
[PIE CHART]
1) Small: 91% (Less than $1 Bil.)
2) Cash and Other: 9%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS AS OF SEPTEMBER 30, 1996
[VERTICAL BAR CHART]
<TABLE>
<S> <C>
Financial Services: 14%
Commercial Services: 12%
Transportation: 8%
Computer Software: 7%
Manufacturing: 6%
</TABLE>
-43-
<PAGE> 56
HIGHLIGHTS (Continued)
SAFECO SMALL
COMPANY STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
PERCENT
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Cole National Corp. (Class A) .......................... 3.4%
(Specialty Retailer)
Fibreboard Corp. ....................................... 3.3%
(Building & Construction Products)
PC Service Source, Inc. ................................ 3.2%
(Computer Systems)
Inference Corp. (Class A) .............................. 3.2%
(Network Software)
Tracor, Inc. ........................................... 3.1%
(Aerospace Electronics)
American List Corp. .................................... 3.1%
(Commercial Services)
Tasty Baking Co. ....................................... 3.0%
(Food Products Company)
First Enterprise Financial Group, Inc. ................. 2.9%
(Financial Services)
Lifetime Hoan Corp. .................................... 2.9%
(Household Products)
Jayhawk Acceptance Corp. ............................... 2.8%
(Financial Services)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(April to Sept.) COST
- ----------------------------------------------------------------------
<S> <C>
PC Service Source, Inc. ................................ $551,728
American List Corp. .................................... 405,372
Penederm, Inc. ......................................... 384,875
Lifetime Hoan Corp. .................................... 367,913
Cole National Corp. (Class A) .......................... 347,515
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(April to Sept.) PROCEEDS
- ----------------------------------------------------------------------
<S> <C>
*Radisys Corp. ......................................... $658,863
*Sodak Gaming, Inc. .................................... 457,313
*Caribiner International, Inc. ......................... 324,839
*Datascope Corp. ....................................... 297,266
*Credit Acceptance Corp. (Class A) ..................... 280,710
</TABLE>
*Security sold, no longer in portfolio.
REPORT FROM THE
SMALL COMPANY STOCK FUND
MANAGER (Continued)
the broad range of market sectors. Further, I intend for those sector
representatives to be superior companies purchased at attractive valuations. It
is my goal that the SAFECO Small Company Stock Fund will hold stocks in small
companies with prospects that appear above average, and prices that seem to
underestimate their potential.
/s/ Greg Eisen
- --------------------
Greg Eisen,
Small Company Stock
Fund Manager
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is a
certified public accountant and a Chartered Financial Analyst.
-44-
<PAGE> 57
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of September 30, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 91.2%
BANKING & FINANCE - 3.9%
20,000 (b) Hanmi Bank
(Los Angeles, CA) .................... $ 200
7,000 (b) Imperial Bancorp ..................... 206
5,000 SJNB Financial Corp. ................. 97
BEVERAGES - 1.4%
8,200 (b) Redhook Ale Brewery, Inc. ............ 178
BUILDING MATERIALS - 3.3%
12,100 (b) Fibreboard Corp. ..................... 423
COMMERCIAL SERVICES - 12.4%
20,500 (b) AMRE, Inc. ........................... 284
14,400 American List Corp. .................. 391
20,000 (b) Cotelligent Group, Inc. .............. 315
12,075 (b) Monro Muffler Brake, Inc. ............ 240
22,000 York Group, Inc. ..................... 352
COMPUTER SOFTWARE - 7.2%
23,000 (b) Inference Corp. (Class A) ............ 408
30,000 (b) Research Engineers, Inc. ............. 229
10,000 (b) SPSS, Inc. ........................... 277
COMPUTER SYSTEMS - 5.2%
8,50 0 (b)+MICROS Systems, Inc. ................. 251
45,500 (b) PC Service Source, Inc. .............. 409
DRUGS & HOSPITAL SUPPLIES - 1.3%
25,000 (b)+Penederm, Inc. ....................... 169
ELECTRICAL EQUIPMENT & ELECTRONICS - 3.8%
15,000 (b) Photran Corp. ........................ 92
19,100 (b) Tracor, Inc. ......................... 394
ENTERTAINMENT - 1.8%
50,000 (b) Q-Zar, Inc. .......................... 225
FINANCIAL SERVICES - 13.5%
37,500 (b)+First Enterprise Financial
Group, Inc. .......................... 375
8,600 First Financial Caribbean Corp. ...... 185
25,500 (b) Jayhawk Acceptance Corp. ............. 360
24,675 Litchfield Financial Corp. ........... 345
10,000 (b) Ocwen Financial Corp. ................ 204
14,500 (b) Rockford Industries, Inc. ............ 250
FOOD - 5.1
11,600 (b) JP Foodservice, Inc. ................. 275
30,000 Tasty Baking Co. ..................... 379
HOUSEHOLD PRODUCTS - 4.4%
14,500 (b) Guest Supply, Inc. ................... $ 192
36,100 (b) Lifetime Hoan Corp. .................. 370
MANUFACTURING - 5.9%
14,200 (b) ABC Rail Products Corp. .............. 288
22,500 (b) Lancer Corp. ......................... 290
26,000 (b) Stimsonite Corp. ..................... 176
METALS - 1.1%
30,000 (b) Republic Engineered
Steels, Inc. ......................... 135
MISCELLANEOUS - 1.4%
10,000 (b) Vallen Corp. ......................... 175
OFFICE EQUIPMENT - 1.0%
13,500 (b)+Open Plan Systems, Inc. .............. 132
PETROLEUM & PETROLEUM SERVICES - 4.8%
30,000 (b) Harcor Energy, Inc. .................. 165
8,000 (b) Seitel, Inc. ......................... 297
6,000 (b) Swift Energy Co. ..................... 144
RETAIL - SPECIALTY - 4.6%
19,000 (b) Cole National Corp. (Class A) ........ 440
11,900 (b) Rent-Way, Inc. ....................... 150
TRANSPORTATION - 7.5%
6,000 Airborne Freight Corp. ............... 128
7,000 Air Express International Corp. ...... 198
6,600 GATX Corp. ........................... 309
6,000 (b) Genesee & Wyoming, Inc. .............. 164
5,000 (b) Trico Marine Services, Inc. .......... 153
UTILITIES - GAS - 1.6%
9,000 Northwest Natural Gas Co. ............ 207
------
TOTAL COMMON STOCKS ...................................... 11,626
------
TEMPORARY INVESTMENTS - 12.0%
U. S. AGENCY NOTES:
$1,530,000 Federal Home Loan
Mortgage Corp.
5.70%, due 10/01/96 ................ 1,530
------
TOTAL TEMPORARY INVESTMENTS .............................. 1,530
-----
TOTAL INVESTMENTS - 103.2% ............................... 13,156
Liabilities, less Other Assets ........................... (404)
------
NET ASSETS ............................................... $12,752
=======
</TABLE>
(b) Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Fund's investment advisor controls 5% or more of the outstanding voting
shares of the Company).
SEE NOTES TO FINANCIAL STATEMENTS
-45-
<PAGE> 58
STATEMENTS OF ASSETS AND LIABILITIES
As of September 30, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands, Except Per-Share Amounts) FUND FUND FUND
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at Cost $159,435 $630,961 $217,322
======== ======== ========
Investments at Value
Unaffiliated Issuers 128,134 749,797 263,999
Affiliated Issuers 52,922 -- 3,363
-------- -------- --------
Total Investments at Value 181,056 749,797 267,362
Cash -- -- --
Receivables
Trust Shares Sold 349 2,142 598
Dividends and Interest 191 1,374 1,322
Investment Securities Sold 2,154 -- --
Forward Currency Contracts Open, Net -- -- --
Deferred Organization Expense -- -- --
-------- -------- --------
Total Assets 183,750 753,313 269,282
-------- -------- --------
LIABILITIES
Payables
Investment Securities Purchased 2,514 22,190 6,303
Dividends 1,147 4,382 2,514
Investment Advisory Fees 103 337 144
Trust Shares Redeemed 151 253 28
Organization Expense -- -- --
Other 61 171 70
-------- -------- --------
Total Liabilities 3,976 27,333 9,059
-------- -------- --------
Net Assets $179,774 $725,980 $260,223
======== ======== ========
No-Load Class:
Net Assets $179,574 $725,780 $260,023
Trust Shares Outstanding 11,627 45,782 12,979
-------- -------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 15.45 $ 15.85 $ 20.03
======== ======== ========
Class A:
Net Assets $ 100 $ 100 $ 100
Trust Shares Outstanding 6 6 5
-------- -------- --------
Net Asset Value, and Redemption
Price Per Share $ 15.45 $ 15.85 $ 20.03
======== ======== ========
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4.5%) $ 16.18 $ 16.60 $ 20.97
======== ======== ========
Class B:
Net Assets $ 100 $ 100 $ 100
Trust Shares Outstanding 6 6 5
-------- -------- --------
Net Asset Value, Offering Price Per Share $ 15.45 $ 15.85 $ 20.03
======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-46-
<PAGE> 59
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY
(In Thousands, Except Per-Share Amounts) FUND STOCK FUND FUND STOCK FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at Cost $37,496 $ 7,850 $ 7,423 $12,276
======= ======= ======= =======
Investments at Value
Unaffiliated Issuers 46,324 8,160 7,681 12,229
Affiliated Issuers -- -- -- 927
------- ------- ------- -------
Total Investments at Value 46,324 8,160 7,681 13,156
Cash -- 194 -- --
Receivables
Trust Shares Sold 258 210 217 268
Dividends and Interest 72 38 83 --
Investment Securities Sold -- -- 124 8
Forward Currency Contracts Open, Net -- 4 -- --
Deferred Organization Expense -- 17 17 17
------- ------- ------- -------
Total Assets 46,654 8,623 8,122 13,449
------- ------- ------- -------
LIABILITIES
Payables
Investment Securities Purchased 1,151 9 147 321
Dividends 1,088 33 51 335
Investment Advisory Fees 27 8 5 9
Trust Shares Redeemed 1,031 -- 58 --
Organization Expense -- 17 17 17
Other 29 33 12 15
------- ------- ------- -------
Total Liabilities 3,326 100 290 697
------- ------- ------- -------
Net Assets $43,328 $ 8,523 $ 7,832 $12,752
======= ======= ======= =======
No-Load Class:
Net Assets $43,128 $ 8,323 $ 7,632 $12,552
Trust Shares Outstanding 3,129 802 734 1,090
------- ------- ------- -------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 13.78 $ 10.39 $ 10.38 $ 11.51
======= ======= ======= =======
Class A:
Net Assets $ 100 $ 100 $ 100 $ 100
Trust Shares Outstanding 7 9 10 9
------- ------- ------- -------
Net Asset Value, and Redemption
Price Per Share $ 13.78 $ 10.39 $ 10.38 $ 11.51
======= ======= ======= =======
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4.5%) $ 14.43 $ 10.88 $ 10.87 $ 12.05
======= ======= ======= =======
Class B:
Net Assets $ 100 $ 100 $ 100 $ 100
Trust Shares Outstanding 7 9 10 9
------- ------- ------- -------
Net Asset Value, Offering Price Per Share $ 13.78 $ 10.39 $ 10.38 $ 11.51
======= ======= ======= =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-47-
<PAGE> 60
STATEMENTS OF OPERATIONS
For the Period Ended September 30, 1996*
<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 $20 in the International Fund) $ 1,398 $ 14,463 $ 7,818
Interest 191 1,829 2,574
-------- -------- --------
Total Investment Income 1,589 16,292 10,392
-------- -------- --------
EXPENSES
Investment Advisory Fees 1,260 3,752 1,597
Shareholder Servicing Fees 384 1,203 359
Loan Interest 123 -- --
Custodian Fees 26 27 15
Reports to Shareholders 24 86 30
Legal and Auditing Fees 18 31 19
Trustees' Fees 6 10 7
Amortization of Organization Expenses -- -- --
-------- -------- --------
Total Expenses 1,841 5,109 2,027
-------- -------- --------
NET INVESTMENT INCOME (LOSS) (252) 11,183 8,365
-------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers 29,417 77,448 22,848
Investments in Affiliated Issuers (2,655) -- --
Foreign Currency Transactions -- -- --
-------- -------- --------
Total Net Realized Gain (Loss) 26,762 77,448 22,848
Net Change in Unrealized Appreciation
(Depreciation) on:
Investments (1,973) 18,119 9,944
Foreign Currency Related Transactions -- -- --
-------- -------- --------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY 24,789 95,567 32,792
-------- -------- --------
Net Change in Net Assets
Resulting from Operations $ 24,537 $106,750 $ 41,157
======== ======== ========
</TABLE>
* For the Growth, Equity, Income, and Northwest Funds, represents the
year ended September 30, 1996. For the International, Balanced and
Small Company Funds, represents the period from January 31, 1996
(commencement of operations) to September 30, 1996.
SEE NOTES TO FINANCIAL STATEMENTS
-48-
<PAGE> 61
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY
(In Thousands) FUND STOCK FUND FUND STOCK FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes Withheld
of $20 in the International Fund) $ 431 $ 143 $ 72 $ 36
Interest 64 15 134 41
------- ------- ------- -------
Total Investment Income 495 158 206 77
------- ------- ------- -------
EXPENSES
Investment Advisory Fees 305 53 32 51
Shareholder Servicing Fees 105 9 4 13
Loan Interest -- -- -- 1
Custodian Fees 10 34 9 12
Reports to Shareholders 7 -- -- --
Legal and Auditing Fees 14 12 10 10
Trustees' Fees 5 2 2 2
Amortization of Organization Expenses 2 3 3 3
------- ------- ------- -------
Total Expenses 448 113 60 92
------- ------- ------- -------
NET INVESTMENT INCOME (LOSS) 47 45 146 (15)
------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers 5,695 (17) 5 723
Investments in Affiliated Issuers -- -- -- --
Foreign Currency Transactions -- 6 -- --
------- ------- ------- -------
Total Net Realized Gain (Loss) 5,695 (11) 5 723
Net Change in Unrealized Appreciation
(Depreciation) on:
Investments (1,961) 310 258 880
Foreign Currency Related Transactions -- 4 -- --
------- ------- ------- -------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY 3,734 303 263 1,603
------- ------- ------- -------
Net Change in Net Assets
Resulting from Operations $ 3,781 $ 348 $ 409 $ 1,588
======= ======= ======= =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-49-
<PAGE> 62
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO GROWTH FUND SAFECO EQUITY FUND
-------------------------- --------------------------
YEAR ENDED SEPTEMBER 30 YEAR ENDED SEPTEMBER 30
(In Thousands) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ (252) $ 552 $ 11,183 $ 12,311
Net Realized Gain from
Investments and Foreign
Currency Transactions 26,762 46,016 77,448 42,516
Net Change in Unrealized
Appreciation (Depreciation) (1,973) (10,634) 18,119 52,564
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 24,537 35,934 106,750 107,391
Net Equalization Credits (Debits) -- 2 -- 73
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (45) (557) (11,189) (12,378)
Net Realized Gain on
Investments (26,481) (46,001) (77,500) (42,473)
Net Trust Share Transactions
No-Load 5,080 30,997 109,137
133,164
Class A 100 -- 100 --
Class B 100 -- 100 --
--------- --------- --------- ---------
Total 5,280 30,997 109,337 133,164
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 3,291 20,375 127,398 185,777
NET ASSETS AT BEGINNING OF PERIOD 176,483 156,108 598,582 412,805
--------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 179,774 $ 176,483 $ 725,980 $ 598,582
========= ========= ========= =========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 22,451 26,526 17,984 29,460
Reinvestments 1,627 2,736 5,249 3,370
--------- --------- --------- ---------
24,078 29,262 23,233 32,830
Redemptions (23,589) (27,099) (16,536) (23,460)
--------- --------- --------- ---------
Net Change 489 2,163 6,697 9,370
========= ========= ========= =========
AMOUNTS:
Sales $ 372,215 $ 490,890 $ 289,961 $ 419,705
Reinvestments 25,225 43,424 82,876 50,729
--------- --------- --------- ---------
397,440 534,314 372,837 470,434
Redemptions (392,160) (503,317) (263,500) (337,270)
--------- --------- --------- ---------
Net Change $ 5,280 $ 30,997 $ 109,337 $ 133,164
========= ========= ========= =========
As of September 30, 1996
Trust Shares Authorized Unlimited Unlimited
Par Value Per Share $ .001 $ .001
Paid in Capital $158,158 $607,153
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-50-
<PAGE> 63
<TABLE>
<CAPTION>
SAFECO SAFECO
INCOME FUND NORTHWEST FUND
-------------------------- --------------------------
YEAR ENDED SEPTEMBER 30 YEAR ENDED SEPTMBER 30
(In Thousands) 1996 1995 1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 8,365 $ 8,954 $ 47 $ 112
Net Realized Gain from
Investments and Foreign
Currency Transactions 22,848 9,277 5,695 1,432
Net Change in Unrealized
Appreciation (Depreciation) 9,944 20,170 (1,961) 4,956
--------- --------- --------- ---------
Net Change in Net Assets
Resulting from Operations 41,157 38,401 3,781 6,500
Net Equalization Credits (Debits) -- (39) -- (1)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (8,374) (8,912) (48) (110)
Net Realized Gain on
Investments (22,837) (9,283) (5,695) (1,432)
Net Trust Share Transactions
No-Load 32,207 7,093 4,950 (1,200)
Class A 100 -- 100 --
Class B 100 -- 100 --
--------- --------- --------- ---------
Total 32,407 7,093 5,150 (1,200)
--------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 42,353 27,260 3,188 3,757
NET ASSETS AT BEGINNING OF PERIOD 217,870 190,610 40,140 36,383
--------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 260,223 $ 217,870 $ 43,328 $ 40,140
========= ========= ========= =========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 2,864 1,662 1,209 832
Reinvestments 1,374 833 323 84
--------- --------- --------- ---------
4,238 2,495 1,532 916
Redemptions (2,649) (2,145) (1,175) (1,019)
--------- --------- --------- ---------
Net Change 1,589 350 357 (103)
========= ========= ========= =========
AMOUNTS:
Sales $ 58,320 $ 30,024 $ 17,755 $ 11,348
Reinvestments 27,638 15,463 4,438 1,202
--------- --------- --------- ---------
85,958 45,487 22,193 12,550
Redemptions (53,551) (38,394) (17,043) (13,750)
--------- --------- --------- ---------
Net Change $ 32,407 $ 7,093 $ 5,150 $ (1,200)
========= ========= ========= =========
As of September 30, 1996
Trust Shares Authorized Unlimited Unlimited
Par Value Per Share $ .001 $ .001
Paid in Capital $210,180 $34,501
<CAPTION>
SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY
STOCK FUND FUND STOCK FUND
------------- -------- -------------
FOR THE PERIOD FROM JANUARY 31, 1996
(COMMENCEMENT OF OPERATIONS)
(In Thousands) TO SEPTEMBER 30, 1996
----------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Investment Income $ 45 $ 146 $ (15)
Net Realized Gain from
Investments and Foreign
Currency Transactions (11) 5 723
Net Change in Unrealized
Appreciation (Depreciation) 314 258 880
--------- --------- ---------
Net Change in Net Assets
Resulting from Operations 348 409 1,588
Net Equalization Credits (Debits) -- -- --
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (51) (146) --
Net Realized Gain on
Investments -- (5) (708)
Net Trust Share Transactions
No-Load 8,026 7,374 11,672
Class A 100 100 100
Class B 100 100 100
--------- --------- ---------
Total 8,226 7,574 11,872
--------- --------- ---------
TOTAL CHANGE IN NET ASSETS 8,523 7,832 12,752
NET ASSETS AT BEGINNING OF PERIOD -- -- --
--------- --------- ---------
NET ASSETS AT END OF PERIOD $ 8,523 $ 7,832 $ 12,752
========= ========= =========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 1,042 785 1,625
Reinvestments 2 3 32
--------- --------- ---------
1,044 788 1,657
Redemptions (224) (34) (549)
--------- --------- ---------
Net Change 820 754 1,108
========= ========= =========
AMOUNTS:
Sales $ 10,466 $ 7,893 $ 17,916
Reinvestments 18 31 373
--------- --------- ---------
10,484 7,924 18,289
Redemptions (2,258) (350) (6,417)
--------- --------- ---------
Net Change $ 8,226 $ 7,574 $ 11,872
========= ========= =========
As of September 30, 1996
Trust Shares Authorized Unlimited Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001
Paid in Capital $8,226 $7,574 $11,872
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-51-
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
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, SAFECO Northwest Fund, SAFECO
International Stock Fund, SAFECO Balanced Fund, and SAFECO Small Company Stock
Fund (together "the Funds").
NEW CLASSES OF SHARES. Effective September 30, 1996, each of the Funds
began issuing two new classes of shares -- Class A and Class B shares. Unlike
the No-Load Class of shares (which are sold directly to the shareholder with no
associated sales or distribution charges), these new classes of shares are sold
by financial professionals to shareholders and have associated sales and
distribution charges. Each class of shares represents an interest in the net
assets of a Fund. Financial highlights (see note 9) are provided only for the
no-load class of shares since the new classes of shares were first issued on the
last day of the fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles, which permits management to make certain estimates and assumptions
at the date of the financial statements.
SECURITY VALUATION. 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. 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 value.
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.
-52-
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (Continued)
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if
any) is recorded on the ex-dividend date or upon receipt of ex-dividend
notification in the case of certain foreign securities. Interest is accrued on
short-term investments and bonds daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. For the International and
Small Company Funds, net investment income is declared as a dividend to
shareholders as of the last business day (ex-dividend date) of September and
December. For all other Funds net investment income is distributed as of the
last business day of March, June, September and December. Net realized gains on
investments, if any, are normally distributed to shareholders at the end of
September and December.
EQUALIZATION. During prior periods, the Funds 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, distributions of net investment income after
then are 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.
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
(Continued on next page.)
-53-
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (Continued)
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.
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 counter-parties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
-54-
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1996 $225,194 $489,558 $132,592 $16,225
======== ======== ======== =======
Sales for the Year
Ended September 30, 1996 $238,206 $452,753 $115,177 $14,592
======== ======== ======== =======
Purchases and Sales amounts exclude temporary investments which, at the time of
purchase, had a maturity of one year or less.
UNREALIZED APPRECIATION
(DEPRECIATION) AT SEPTEMBER 30, 1996
Aggregate Gross Unrealized Appreciation
for Investment Securities in Which There
Is an Excess of Value Over Identified Cost $ 36,050 $130,888 $ 53,674 $13,025
Aggregate Gross Unrealized Depreciation
for Investment Securities in Which There
Is an Excess of Identified Cost Over Value (14,429) (12,052) (3,634) (4,197)
-------- -------- -------- -------
Net Unrealized Appreciation $ 21,621 $118,836 $ 50,040 $ 8,828
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY
(In Thousands) STOCK FUND FUND STOCK FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PURCHASES FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(including $7,509 of U.S. Government
securities in the Balanced Fund) $ 8,537 $13,125 $14,865
======= ======= =======
SALES FOR THE PERIOD ENDED SEPTEMBER 30, 1996
(including $2,433 of U.S. Government
securities in the Balanced Fund) $ 670 $ 4,533 $ 4,843
======= ======= =======
Purchases and Sales amounts exclude temporary investments which, at the time of
purchase, had a maturity of one year or less.
UNREALIZED APPRECIATION
(DEPRECIATION) AT SEPTEMBER 30, 1996
Aggregate Gross Unrealized Appreciation
for Investment Securities in Which There
Is an Excess of Value Over Identified Cost $ 639 $ 394 $ 1,739
Aggregate Gross Unrealized Depreciation
for Investment Securities in Which There
Is an Excess of Identified Cost Over Value (329) (136) (858)
------- ------- -------
Net Unrealized Appreciation $ 310 $ 258 $ 881
======= ======= =======
</TABLE>
-55-
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS IN AFFILIATES
Each of the companies is listed below because the Fund owned or SAFECO
Asset Management Company controlled at least 5% of its voting securities during
the year ended September 30, 1996.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT VALUE
BEGINNING END SEPTEMBER 30,
SECURITY OF PERIOD ADDITIONS REDUCTIONS OF PERIOD DIVIDENDS 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SAFECO GROWTH FUND
American Buildings Co. -- 360 (5) 355 $ 9,410
American Coin
Merchandising, Inc. -- 548 (48) 500 -- 3,000
Open Plan Systems, Inc. -- 236 -- 236 -- 2,302
Lifeline Systems, Inc. -- 504 -- 504 -- 9,442
Harold's Stores 211 160 -- 371 -- 5,284
MICROS Systems, Inc. 257 158 -- 415 -- 12,249
First Enterprise
Financial Group, Inc. -- 297 (15) 282 -- 2,821
*Thorn Apple Valley, Inc. 313 -- (204) 109 -- --
Medex, Inc. 377 -- (122) 255 -- 3,732
Penederm, Inc. 165 529 -- 694 -- 4,682
*Speizman Industries, Inc. 165 -- (165) -- -- --
-------
$52,922
SAFECO INCOME FUND =======
MICROS Systems, Inc. -- 114 -- 114 -- $ 3,363
=======
SAFECO SMALL COMPANY
STOCK FUND
MICROS Systems, Inc. -- 9 -- 9 -- 251
Open Plan Systems, Inc. -- 14 -- 14 -- 132
Penederm, Inc. -- 25 -- 25 -- 169
First Enterprise
Financial Group, Inc. -- 38 -- 38 -- 375
-------
$ 927
=======
</TABLE>
* Company was not an affiliate at end of period.
-56-
<PAGE> 69
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. These fees are based on a percentage of
each day's net assets, which, on an annual basis, is as follows:
GROWTH, EQUITY & INCOME 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 FUND: INTERNATIONAL STOCK 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 STOCK FUND:
First $250 million .85%
Next $250 million .75
Over $500 million .65
SAFECO Asset Management Company pays sub-advisory fees to Bank of
Ireland Asset Management Company for providing investment research and advice to
the International Fund.
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.
No interest is charged on loans under $100,000.
AFFILIATE OWNERSHIP. At September 30, 1996, SAFECO Insurance Company of
America, a wholly owned subsidiary of SAFECO Corporation, owned 500,000 shares
of the Northwest Fund, SAFECO Asset
-57-
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (Continued)
Management Company owned 500,000 shares of the International and Balanced Funds,
and SAFECO Corporation owned 500,000 shares of the Small Company Fund.
DEFERRED ORGANIZATION EXPENSE. Costs related to the organization of the
International, Balanced, and Small Company Funds have been deferred and are
being amortized to operations over a period of sixty months. These costs were
advanced by SAFECO Asset Management Company and are being paid by the Fund over
the amortization period.
6. COMMITMENTS
At September 30, 1996, the International Fund had open forward foreign
currency exchange contracts obligating it to receive of deliver the following
foreign currencies (in thousands):
<TABLE>
<CAPTION>
U.S. DOLLAR UNREALIZED
CURRENCY IN EXCHANGE SETTLEMENT VALUE AS OF APPRECIATION
TO BE DELIVERED FOR DATE 9/30/96 (DEPRECIATION)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
444
Dutch Guilder $265 12/16/96 $261 $4
- ---------------------------------------------------------------------------------------
</TABLE>
7. NET INVESTMENT LOSS
The SAFECO Growth Fund and the SAFECO Small Company Stock Fund had net
investment losses for the year ended September 30, 1996, of $252,000 and
$15,000, respectively. These amounts were netted against realized short-term
capital gains to reduce the short-term capital gain distributions paid on
September 30, 1996.
8. ACCUMULATED CAPITAL LOSS
The International Fund had $11,000 of accumulated net realized losses
on investment transactions at September 30, 1996. For federal income tax
purposes, this represents a capital loss carryforward which will expire in the
year 2004.
-58-
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 15.83 $ 17.37 $ 19.20 $ 13.98 $ 17.95
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) 0.07 (0.02) (0.02) (0.01)
Net Realized and Unrealized
Gain (Loss) on Investments 2.24 4.07 0.78 5.39 (3.15)
-------- -------- -------- -------- --------
Total from
Investment Operations 2.22 4.14 0.76 5.37 (3.16)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- (0.07) -- -- --
Distributions from
Realized Gains (2.60) (5.61) (2.59) (0.15) (0.81)
-------- -------- -------- -------- --------
Total Distributions (2.60) (5.68) (2.59) (0.15) (0.81)
-------- -------- -------- -------- --------
Net Asset Value at End of Period 15.45 15.83 $ 17.37 $ 19.20 $ 13.98
======== ======== ======== ======== ========
Total Return 14.16% 23.93% 3.88% 38.43% -17.83%
NET ASSETS AT
END OF PERIOD (000'S OMITTED) $179,574 $176,483 $156,108 $158,723 $127,897
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.02% 0.98% 0.95% 0.91% 0.91%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS - 0.14% 0.34% - 0.12% -0.10% -0.10%
PORTFOLIO TURNOVER RATE 124.79% 110.44% 71.18% 57.19% 85.38%
AVERAGE COMMISSION RATE PAID $ 0.0548 -- -- -- --
- -------------------------------------------------------------------------------------------
</TABLE>
-59-
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-------------------------------
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 15.31 $ 13.89 $ 12.54 $ 9.53 $ 10.38
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.28 0.34 0.23 0.17 0.15
Net Realized and Unrealized
Gain (Loss) on Investments 2.42 2.59 1.83 3.79 (0.09)
-------- -------- -------- -------- -------
Total from Investment Operations 2.70 2.93 2.06 3.96 0.06
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.28) (0.34) (0.23) (0.17) (0.15)
Distributions from
Realized Gains (1.88) (1.17) (0.48) (0.78) (0.76)
-------- -------- -------- -------- -------
Total Distributions (2.16) (1.51) (0.71) (0.95) (0.91)
-------- -------- -------- -------- -------
Net Asset Value at End of Period $ 15.85 $ 15.31 $ 13.89 $ 12.54 $ 9.53
======== ======== ======== ======== =======
Total Return 18.04% 21.59% 16.51% 41.77% 0.41%
NET ASSETS AT
END OF PERIOD (000'S OMITTED) $725,780 $598,582 $412,805 $148,894 $74,383
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.79% 0.84% 0.85% 0.94% 0.96%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 1.74% 2.38% 1.72% 1.50% 1.34%
PORTFOLIO TURNOVER RATE 74.07% 56.14% 33.33% 37.74% 39.88%
AVERAGE COMMISSION RATE PAID $ 0.0587 -- -- -- --
- -----------------------------------------------------------------------------------------------
</TABLE>
-60-
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
-------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 19.11 $ 17.25 $ 17.79 $ 16.27 $ 15.35
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.73 0.82 0.81 0.78 0.80
Net Realized and Unrealized
Gain (Loss) on Investments 2.84 2.71 (0.30) 1.52 0.96
---------- -------- --------- -------- --------
Total from Investment Operations 3.57 3.53 0.51 2.30 1.76
---------- -------- --------- -------- --------
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.73) (0.82) (0.81) (0.78) (0.80)
Distributions from
Realized Gains (1.92) (0.85) (0.24) -- (0.04)
---------- -------- --------- -------- --------
Total Distributions (2.65) (1.67) (1.05) (0.78) (0.84)
---------- -------- --------- -------- --------
Net Asset Value at End of Period $ 20.03 $ 19.11 $ 17.25 $ 17.79 $ 16.27
========== ======== ========= ======== ========
Total Return 18.98% 21.04% 2.98% 14.35% 11.75%
NET ASSETS AT
END OF PERIOD (000'S OMITTED) $ 260,023 $217,870 $ 190,610 $203,019 $181,582
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.86% 0.87% 0.86% 0.90% 0.90%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 3.56% 4.55% 4.59% 4.55% 5.06%
PORTFOLIO TURNOVER RATE 50.11% 31.12% 19.30% 20.74% 20.35%
AVERAGE COMMISSION RATE PAID $ 0.0591 -- -- -- --
- --------------------------------------------------------------------------------------------------------
</TABLE>
-61-
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
1996+ 1995+ 1994+ 1993++ 1992+++
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $ 14.41 $ 12.59 $ 12.34 $ 12.59 $ 11.37
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.02 0.04 0.04 0.02 0.06
Net Realized and Unrealized
Gain (Loss) on Investments 1.32 2.35 0.59 (0.25) 1.53
--------- -------- -------- -------- --------
Total from Investment Operations 1.34 2.39 0.63 (0.23) 1.59
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.02) (0.04) (0.04) (0.02) (0.06)
Distributions from
Realized Gains (1.95) (0.53) (0.34) -- (0.31)
--------- -------- -------- -------- --------
Total Distributions (1.97) (0.57) (0.38) (0.02) (0.37)
--------- -------- -------- -------- --------
Net Asset Value at End of Period $ 13.78 $ 14.41 $ 12.59 $ 12.34 $ 12.59
========= ======== ========= ======== ========
Total Return 9.61% 19.01% 5.19% -1.86** 14.08%
Net Assets at
End of Period (000's omitted) $ 43,128 $ 40,140 $ 36,383 $ 39,631 $ 40,402
Ratio of Expenses to
Average Net Assets 1.07% 1.09% 1.06% 1.11%* 1.11%
Ratio of Net Investment Income
to Average Net Assets 0.11% 0.31% 0.33% 0.18%* 0.55%
Portfolio Turnover Rate 35.69% 19.59% 18.46% 14.05%* 33.34%
Average Commission Rate Paid $ 0.0591 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
** Not annualized.
* Annualized.
+ For the year ended September 30.
++ For the nine-month period ended September 30, 1993.
+++ For the year ended December 31, 1992.
-62-
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JANUARY 31, 1996
(COMMENCEMENT OF OPERATIONS) TO SEPTEMBER 30, 1996
--------------------------------------------------
SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY
STOCK FUND FUND STOCK FUND
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.06 0.21 (0.01)
Net Realized and Unrealized Gain
on Investments and Foreign
Currency Transactions 0.39 0.39 2.19
--------- --------- ---------
Total from Investment Operations 0.45 0.60 2.18
--------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.06) (0.21) --
Distributions from Realized Gains -- (0.01) (0.67)
--------- --------- ---------
Total Distributions (0.06) (0.22) (0.67)
--------- --------- ---------
Net Asset Value at End of Period $ 10.39 $ 10.38 $ 11.51
========= ========= =========
TOTAL RETURN** 4.54% 5.99% 21.83%
NET ASSETS AT END OF PERIOD (000'S OMITTED) $ 8,323 $ 7,632 $ 12,552
RATIO OF EXPENSES TO AVERAGE NET ASSETS* 2.36% 1.32% 1.49%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS* 0.93% 3.21% -0.24%
PORTFOLIO TURNOVER RATE* 15.73% 143.87% 91.03%
AVERAGE COMMISSION RATE PAID $ 0.0225 $ 0.0560 $ 0.0510
</TABLE>
* Annualized.
** Not annualized.
- 63 -
<PAGE> 76
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, SAFECO Northwest Fund, SAFECO International Stock
Fund, SAFECO Balanced Fund, and SAFECO Small Company Stock Fund) as of September
30, 1996. For the SAFECO Growth Fund, SAFECO Equity Fund, and SAFECO Income
Fund, we have audited the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 three years in the period ended
September 30, 1996, for the nine-month period ended September 30, 1993, and for
the year ended December 31, 1992. For the SAFECO International Stock Fund,
SAFECO Balanced Fund, and SAFECO Small Company Stock Fund, we have audited the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the period from January 31, 1996 (commencement of
operations) to September 30, 1996. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1996, by correspondence with the custodians 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, 1996, the results of their operations, the changes in
their net assets, and financial highlights for the periods referred to above, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Seattle, Washington
November 1, 1996
- 64 -
<PAGE> 77
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME
WITH LONG-TERM GROWTH
SAFECO Income Fund
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it carefully
before you invest or send money.
- 65 -
<PAGE> 78
SAFECO COMMON STOCK FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
U.S. Bank of Washington, N.A.
Chase Manhattan Bank
(International Stock Fund only)
FOR SHAREHOLDER SERVICE:
Monday-Friday,
5:30am - 7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
SEATTLE: 545-7319
TTY/TDD: 1-800-438-8718
FOR ACCOUNT INFORMATION,
YIELDS, PRICES AND
PERFORMANCE INFORMATION:
24 hours a day, 7 days a week
NATIONWIDE: 1-800-835-4391
SEATTLE: 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
HOME PAGE:
http://networth.galt.com/safeco
E-MAIL: [email protected]
GMF 659 11/96
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
