<PAGE> 1
December 31, 1996
[PHOTO MT. SHUKSAN, WASHINGTON]
ANNUAL
REPORT
[GRAPHIC]
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(R) MUTUAL FUNDS LOGO]
<PAGE> 2
================================================================================
LETTER FROM THE PRESIDENT
December 31, 1996
[PHOTO DAVID F. HILL]
DEAR SHAREHOLDER:
SAFECO Mutual Funds have changed their fiscal year to coincide with the
calendar year, and so we present to you our annual report for 1996.
We entered 1996 with rather modest expectations for the equity markets and
look what happened. The S&P 500 gained 22.94% on the heels of it's astonishing
37.50% growth in 1995.
The good news is, investors who had the conviction to stay invested in
common stocks were amply rewarded. For the second straight year, we're glad to
have been "in" the market, rather than "out".
The bad news is that such market conditions can cause amnesia--amnesia
when it comes to the volatile nature of the stock market (the S&P 500 delivered
1.32% in 1994), and forgetfulness regarding the diversification that bonds and
money market funds provide.
The neglected cousins of 1996 were the bond markets. Bonds struggled
through the year--despite the fact inflation remained at bay--reversing
directions and ultimately delivering lackluster total returns. The broader
market as measured by Lehman Brothers Government/Corporate Index returned 2.90%
for the year.
Three elements seem to be props for the stock market. Inflation has
remained in control, corporate earnings have continued to grow and there has
been a fundamental shift in the way individuals invest. Investors are
increasingly recognizing the superior long-term potential of stocks, at the same
time they are taking control of more of their retirement savings.
While the shift from traditional company-controlled pensions to
employee-directed plans such as 401(k)s seems irreversible, it doesn't seem
possible for the stock market to sustain its present level of growth.
Still, we believe common stocks offer the potential for superior long-term
returns as they have over the past 70 years. At the same time, we remind you of
the historical level of stock market returns. Over the last 20 years, the S&P
500 has averaged 14%, not 23% or 38% as reflected in the performance of the past
two years.
2
<PAGE> 3
All in all, our 1997 outlook is that the financial markets will do "okay."
We anticipate bonds will return their current interest rate, and be without big
gains or losses. But then, people should buy bonds for that stream of interest
anyway.
Stocks will have a more difficult time, especially if corporate earnings
fail to meet expectations. Nonetheless, there are always opportunities for stock
pickers. And that's what we do best.
/s/ David F. Hill
David F. Hill, President
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SAFECO GROWTH FUND ................. 6
SAFECO EQUITY FUND ................. 11
SAFECO INCOME FUND ................. 16
SAFECO NORTHWEST FUND .............. 22
SAFECO INTERNATIONAL STOCK FUND..... 26
SAFECO BALANCED FUND ............... 33
SAFECO SMALL COMPANY STOCK FUND..... 39
FINANCIAL STATEMENTS ............... 44
NOTES TO FINANCIAL STATEMENTS....... 54
</TABLE>
-1-
<PAGE> 4
PERFORMANCE INFORMATION
DECEMBER 31, 1996
NO-LOAD CLASS
SAFECO GROWTH FUND -- SAFECO EQUITY FUND -- SAFECO INCOME FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT VALUE AS OF DEC. 31, 1996
-------------------------------------------------------------------------------------------------
SAFECO EQUITY FUND SAFECO GROWTH FUND SAFECO INCOME FUND S&P 500
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/86 10000 10000 10000 10000
11261 10000 10833 11347
11261 11200 10833 11795
12030 12071 11190 12136
11820 11882 10978 12028
11820 11882 10978 12132
12106 11918 10991 12745
13066 12306 11650 13391
13066 12888 11650 13891
13449 13341 12003 13586
9570 10260 9451 10660
9570 10260 9451 9782
12/87 9520 10701 9403 10526
9520 10701 9403 10969
10325 10869 9983 11480
11109 11813 10343 11125
11109 11918 10343 11249
10947 11757 10457 11347
11443 12480 10956 11868
11375 12448 10979 11823
11185 12237 10795 11421
11711 12841 11106 11907
11711 12841 11106 12238
11918 12858 11276 12063
12/88 11927 13066 11188 12274
11927 13066 11188 13173
12737 13431 11691 12845
12752 13770 11742 13144
12752 13770 11742 13826
13536 14330 12188 14386
14034 14647 12568 14304
14034 14647 12568 15596
15284 15299 13327 15901
15474 16081 13439 15836
15504 15474 12932 15469
15611 15427 13079 15784
12/89 16197 15573 13338 16163
14852 14063 12664 15079
14991 14448 12722 15273
15548 15320 12819 15678
15098 15385 12338 15286
16556 16962 12987 16776
16530 16388 12935 16662
16234 16707 12704 16609
14520 13826 11763 15107
13813 12275 11280 14372
13518 11449 11009 14310
14255 12297 11682 15234
12/90 14809 13243 11904 15659
15568 14566 12367 16342
16493 16573 13079 17511
16959 17383 13278 17934
17306 18221 13422 17977
18002 19424 13827 18754
16846 18266 13479 17895
17976 19975 13863 18729
18258 20769 14283 19173
18010 20895 14261 18853
18305 21524 14410 19105
17160 19708 13815 18335
12/91 18942 21539 14672 20433
20069 23115 14785 20053
20409 22950 14832 20314
19491 21245 14689 19917
19653 19927 15118 20503
19473 19433 15261 20604
18068 17939 15316 20297
18805 18692 15885 21127
18032 17633 15770 20694
18084 17169 15937 20938
18957 17893 15644 21010
20209 20153 16045 21723
12/92 20697 20878 16355 21990
21382 21750 16712 22173
21401 20300 17029 22475
22551 21099 17606 22949
22036 19797 17365 22395
23850 20816 17596 22992
23947 21467 17687 23059
23621 21393 17596 22966
24944 22769 18173 23836
25638 23767 18224 23653
26313 24374 18542 24142
26456 23346 18316 23913
12/93 27094 25510 18407 24202
28718 26884 19008 25025
27998 25599 18583 24347
26923 24315 17935 23288
27790 24963 18145 23586
28594 25192 18155 23970
27565 23323 17889 23383
28270 23844 18441 24150
29990 25332 19024 25138
29872 24690 18766 24524
30431 25045 18734 25074
29829 24363 18070 24161
12/94 29786 25096 18206 24519
30003 24710 18668 25154
30787 26069 19252 26132
31038 25969 19798 26903
31870 26097 20221 27694
32680 27141 20811 28818
33491 28784 21068 29487
34020 29801 21890 30463
34967 29701 22048 30539
36320 30598 22716 31828
35869 30463 22466 31713
37032 30772 23251 33102
12/95 37309 31648 23733 33741
38307 32820 24492 34889
38648 34050 24552 35213
39044 33531 24844 35551
39875 34957 24941 36075
40804 36442 25766 37003
41559 34859 26089 37145
39964 31420 25354 35504
40381 33296 25832 36254
42871 34932 27026 38293
44251 35678 28025 39348
47577 37057 29495 42320
12/96 46639 38895 29428 41482
</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> 5
SAFECO NORTHWEST FUND*
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT VALUE AS OF DEC. 31, 1996
------------------------------------------------------------------------
SAFEC0 NORTHWEST NORTHWEST 50(TM) S&P 500
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2/91 10000 10000 10000
10224 10409 10242
10523 10666 10267
10882 11305 10710
10246 10552 10220
10856 11063 10696
11307 11510 10949
11029 11292 10766
10919 11285 10911
10247 10836 10471
12/91 11493 12133 11669
11988 12767 11452
12373 12958 11601
12101 12545 11375
11676 11973 11709
11797 11865 11766
11425 11450 11591
11688 11567 12065
11374 11250 11818
11848 11693 11957
12244 12156 11998
12761 12701 12406
12/92 13111 12725 12558
13163 12821 12663
12518 12420 12835
13007 12932 13106
12476 12641 12789
12747 12953 13130
12627 12675 13169
12523 12220 13116
12877 12721 13612
12868 12434 13508
13034 12881 13787
13086 13158 13656
12/93 13246 13334 13821
13480 13737 14291
13821 13941 13904
13235 13449 13299
13203 13409 13470
13406 13611 13689
13063 13198 13354
13255 13300 13792
13851 14068 14356
13535 13530 14005
13406 13449 14319
13073 13209 13798
12/94 13040 13281 14002
13202 13224 14365
13535 13668 14924
13987 14102 15364
14170 14526 15816
14386 14528 16458
15095 15409 16840
15882 15993 17397
16022 16299 17440
16108 16897 18176
15918 16507 18111
15884 16753 18904
12/95 15671 16957 19269
15820 17518 19924
16302 17921 20110
17289 17826 20303
17759 18898 20602
18057 19204 21132
17681 19123 21213
16843 18188 20276
17383 19088 20704
17656 19583 21868
17207 19446 22471
17963 20852 24168
12/96 18027 21348 23689
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
10 YEAR OR
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SAFECO Growth Fund 22.90% 12.55% 14.55%
SAFECO Equity Fund 25.01% 19.75% 16.65%
SAFECO Income Fund 23.99% 14.94% 11.40%
S&P 500 Index 22.94% 15.21% 15.29%
- --------------------------------------------------------------------------------
SAFECO Northwest Fund 15.04% 9.42% 10.63%*
Composite NW 50TM Index 25.89% 11.96% 13.88%*
S&P 500 Index 22.94% 15.21% 15.93%*
- --------------------------------------------------------------------------------
</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> 6
PERFORMANCE INFORMATION
DECEMBER 31, 1996
NO-LOAD CLASS
SAFECO INTERNATIONAL STOCK FUND*
<TABLE>
<CAPTION>
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
INVESTMENT VALUE AS OF DEC. 31, 1996
----------------------------------------------------
SAFECO INTERNATIONAL STOCK FUND MSCI EAFE(TM)
- -------------------------------------------------------------------
<S> <C> <C>
1/96 10000 10000
2/96 9940 10036
3/96 10040 10252
4/96 10290 10553
5/96 10250 10361
6/96 10240 10422
7/96 9840 10120
8/96 10240 10145
9/96 10454 10417
10/96 10585 10313
11/96 11249 10725
12/96 11423 10590
</TABLE>
SAFECO BALANCED FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT VALUE AS OF DEC. 31, 1996
----------------------------------------------
60% S&P
40% LEHMAN BROTHERS
SAFECO BALANCED FUND GOVERNMENT CORPORATE
- ----------------------------------------------------------------------
<S> <C> <C>
1/96 10000 10000
2/96 9950 9971
3/96 10017 9995
4/96 10077 10056
5/96 10218 10204
6/96 10345 10282
7/96 10112 10019
8/96 10243 10136
9/96 10599 10550
10/96 10813 10823
11/96 11272 11393
12/96 11140 11207
</TABLE>
* Graph, index, and average annual return data for the SAFECO International,
Balanced and Small Company Funds is measured from January 31, 1996, inception
date of the funds.
-4-
<PAGE> 7
================================================================================
SAFECO SMALL COMPANY STOCK FUND*
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESTMENT VALUE AS OF DEC. 31, 1996
-----------------------------------------------
SAFECO SMALL COMPANY STOCK RUSSELL 2000
- ----------------------------------------------------------------------
<S> <C> <C>
1/96 10000 10000
2/96 10150 10312
3/96 10490 10522
4/96 11550 11084
5/96 12350 11521
6/96 12030 11048
7/96 11220 10083
8/96 11910 10668
9/96 12183 11085
10/96 12162 10914
11/96 12024 11364
12/96 12501 11662
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SINCE INCEPTION ON
TOTAL RETURN JANUARY 31, 1996
- --------------------------------------------------------------------------------
<S> <C>
SAFECO International Stock Fund 14.23%
MSCI EAFE(TM) 5.90%
- --------------------------------------------------------------------------------
SAFECO Balanced Fund 11.40%
60% S&P 500 and 40% Lehman Brothers Government/Corporate 12.07%
- --------------------------------------------------------------------------------
SAFECO Small Company Stock Fund 25.01%
Russell 2000 16.62%
- --------------------------------------------------------------------------------
</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:
- - Morgan Stanley Capital International European, Australia and Far East Index
(MSCI EAFE)--a widely accepted international index
- - Standard & Poors 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> 8
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
DECEMBER 31, 1996
[PHOTO THOMAS M. MAGUIRE]
For the year ended December 31, 1996 SAFECO Growth Fund returned 22.90%.
Meanwhile, the average growth fund returned 19.24%, according to Lipper
Analytical Services, and the unmanaged S&P 500 returned 22.94%.
It has been two great years for big companies as evidenced by terrific
back-to-back gains in the S&P Index. But, the more exciting news is that SAFECO
Growth Fund, with its portfolio of non-S&P companies, kept right up with the
index and surpassed its peer group.
This is exciting because while the S&P stocks appear high priced, smaller
company valuations--including many stocks held by Growth Fund--remain quite
reasonable.
Our performance is attributable to one thing, stock selection. Over the
past year, we were able to increase holdings in companies with great earnings
growth potential at good valuations and benefit by them--AMRION, a vitamin
supplement company DAMARK INTERNATIONAL, a catalog retailer; ULTRAK, closed
circuit television and PHILIP MORRIS.
And while the companies in our portfolio may seem widely diverse, they
actually have common characteristics--good earnings, good valuations, and good
fundamentals.
Drugs & hospital supply companies remain our largest industry group at 18%
of net assets. People will use medical products and services regardless of what
the economy is doing. And, in most cases, their use will increase as the
population ages. In fact, aging and increasing pressure to cut medical costs is
growing the market for LIFELINE SYSTEMS in-home monitoring.
-6-
<PAGE> 9
================================================================================
Another one of our healthcare stocks, PENEDERM, an emerging pharmaceutical
company, posted gains with its first drug approval.
My other activity in healthcare was to eliminate our stake in HEALTH
SYSTEMS INTERNATIONAL, and to expand our position in UNITED DENTAL CARE, a
dental HMO.
SEAGATE, a producer of high-end disc drives with a great balance sheet and
cash flow, performed magnificently. We sold a portion of our position to lock in
those gains. Taken together Seagate, MICROS SYSTEMS (the leading point-of-sale
company serving the hospitality industry) and small holdings in OPTIMAL ROBOTICS
CORP. and COMPUTER HORIZONS bring our holdings in computer systems to 16% of net
assets.
As I stated earlier, I see the S&P as highly priced in comparison to
smaller company averages. However, the Growth Fund is predominantly invested in
fundamentally sound companies with excellent prospects at very reasonable
valuations. I think the
(Continued on next page.)
HIGHLIGHTS
SAFECO
GROWTH FUND
AS OF DECEMBER 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[GROWTH PIE CHART]
(1) Large: 16% ($4 Bil. and above.)
(2) Medium: 1% ($1 Bil. - $4 Bil.)
(3) Small: 82% (Less than $1 Bil.)
(4) Cash and Other: 1%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[GROWTH TOP 5 CHART]
Drugs & Hospital Supplies: 18%
Computer Systems: 16%
Building Materials 10%
Food & Tobacco: 8%
Retail - Specialty: 7%
-7-
<PAGE> 10
================================================================================
HIGHLIGHTS (CONTINUED)
SAFECO GROWTH FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT
TOP TEN HOLDINGS NET ASSETS
- --------------------------------------------------------
<S> <C>
Seagate Technology, Inc. ................ 8.4%
(Magnetic Disk Manufacturer)
Philip Morris Cos., Inc. ................ 7.5%
(Food, Beverage & Tobacco Company)
MICROS Systems, Inc. .................... 6.2%
(Electronic Cash Register Manufacturer)
American Buildings Co. .................. 5.2%
(Construction Products Company)
Penederm, Inc. .......................... 4.6%
(Drug Delivery System)
Lifeline Systems, Inc. .................. 4.5%
(Medical Instruments)
First Financial Caribbean Corp. (ADR) ... 3.5%
(Mortgage Bank)
Damark International, Inc. .............. 3.2%
(Retail Marketer)
Harolds Stores, Inc. .................... 2.8%
(Specialty Retailer)
Datascope Corp. ......................... 2.7%
(Medical Equipment Manufacturer)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. to Dec.) COST (000'S)
- --------------------------------------------------------
<S> <C>
Alternative Resources Corp. ............. $4,503
Damark International, Inc. .............. 4,343
United Dental Care, Inc. ................ 3,978
Youth Services International, Inc........ 2,515
Amrion, Inc. ............................ 1,974
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000'S)
- ----------------------------------------------------------
<S> <C>
Canandaigua Wine Co., Inc. ............. $4,675
*Health Systems International, Inc. .... 4,490
Ultrak, Inc. ........................... 4,032
*Family Golf Centers, Inc. ............. 3,922
Credit Acceptance Corp. ................ 3,122
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio
REPORT FROM THE
GROWTH FUND MANAGER
(CONTINUED)
result of our "stock picking" is that the Fund is in good shape no matter which
sector 1997 favors; and is in even better shape should small companies return to
favor.
/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> 11
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -----------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 98.5%
BEVERAGES - 2.4%
166,829 - Canandaigua Wine Co., Inc. ..... $ 4,755
BUILDING MATERIALS - 9.7%
118,600 - ABT Building
Products Corp. ................. 2,965
428,800 -+ American Buildings Co. ......... 10,238
35,300 - Diamond Home Services, Inc. .... 971
147,000 - Fibreboard Corp. ............... 4,961
CHEMICALS - 1.2%
80,200 AT Plastics, Inc. .............. 792
196,400 - Melamine Chemicals, Inc. ....... 1,620
COMMERCIAL SERVICES - 1.6%
201,625 - Youth Services
International, Inc. ............ 3,075
COMPUTER SERVICES - 3.3%
269,100 - Alternative Resources Corp. .... 4,676
95,100 LCS Industries, Inc. ........... 1,379
32,500 - ONTRACK Data
International, Inc. ............ 488
COMPUTER SOFTWARE - 1.4%
159,300 - Phoenix International
Ltd., Inc. ..................... 2,748
COMPUTER SYSTEMS - 16.1%
60,400 - Computer Horizons Corp. ........ 2,325
393,914 - MICROS Systems, Inc. ........... 12,113
128,000 - Optimal Robotics Corp. ......... 608
417,968 - Seagate Technology, Inc. ....... 16,510
CONSUMER PRODUCTS & SUPPLIERS - 0.4%
221,000 - Celebrity, Inc. ................ 787
DRUGS & HOSPITAL SUPPLIES - 17.7%
168,300 - Andrx Corp. .................... 2,714
70,000 - Anesta Corp. ................... 1,347
80,000 - Autonomous Technologies
Corp. .......................... 320
264,200 - Datascope Corp. ................ 5,284
255,000 - Ethical Holdings, plc (ADR) .... 1,482
503,550 -+ Lifeline Systems, Inc. ......... 8,812
197,400 Medex, Inc. .................... 4,590
723,600 -+ Penederm, Inc. ................. 8,955
31,300 - ResMed, Inc. ................... 689
44,600 - Zonagen, Inc. .................. 418
ELECTRONICS - 3.1%
105,060 - Intermagnetics
General Corp. .................. 1,261
91,900 - JPM Co. ........................ 1,608
102,625 - Ultrak, Inc. ................... 3,130
FINANCIAL SERVICES - 6.1%
32,416 Cole Taylor Financial
Group, Inc. .................... 859
100,600 - Credit Acceptance Corp. ........ 2,364
210,100 - First Enterprise Financial
Group, Inc. .................... 1,970
247,600 First Financial Caribbean
Corp. (ADR) .................... 6,871
FOOD & TOBACCO - 7.5%
130,000 Philip Morris Cos., Inc. ....... 14,641
HEALTH CARE - 3.0%
22,600 - Amrion, Inc. ................... 511
32,500 - MedQuist, Inc. ................. 804
152,000 - United Dental Care, Inc. ....... 4,617
HOMEBUILDING - 0.5%
42,500 - American Homestar Corp. ........ 967
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-9-
<PAGE> 12
================================================================================
PORTFOLIO OF INVESTMENTS (CONTINUED)
SAFECO GROWTH FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------------------
<S> <C>
HOSPITAL MANAGEMENT - 0.1%
98,000 - Laboratory Specialists
of America, Inc. ............. $ 294
HOUSEHOLD PRODUCTS - 2.2%
325,200 - Lifetime Hoan Corp. ........... 3,821
150,000 - Media Arts Group, Inc. ........ 384
LEISURE TIME - 0.0%
80,000 - Laser Storm, Inc. ............. 80
MANUFACTURING - 2.3%
75,600 - Industrial Training Corp. ..... 425
325,500 - Maverick Tube Corp. ........... 4,150
OFFICE EQUIPMENT & SUPPLIES - 1.1%
244,500 -+ Open Plan Systems, Inc. ....... 2,139
POLLUTION CONTROL - 2.0%
156,000 - Tetra Technologies, Inc. ...... 3,939
RESTAURANTS - 2.9%
617,900 - NPC International, Inc. ....... 5,098
92,400 - New York Bagel Enterprises .... 566
RETAIL - 6.0%
659,300 -+ Damark International, Inc. .... 6,263
379,423 -+ Harolds Stores, Inc. .......... 5,454
RETAIL - SPECIALTY - 7.3%
82,600 Aaron Rents, Inc. ............. 981
500,000 -+ American Coin
Merchandising, Inc. ........... 2,500
8,500 - Funco, Inc. ................... 71
147,200 - Garden Botanika, Inc. ......... 1,766
163,000 - Garden Ridge Corp. ............ 1,406
362,200 -+ Rent-Way, Inc. ................ 3,486
76,600 - The Dress Barn, Inc. .......... 1,149
67,500 - Video Update, Inc. (Class A) .. 266
300,400 - West Coast
Entertainment Corp. .......... 2,629
TELECOMMUNICATIONS - 0.6%
183,400 - ACI Telecentrics, Inc. ........ 1,123
--------
TOTAL COMMON STOCKS ...................................... 193,215
--------
WARRANTS - 0.0%
LEISURE TIME - 0.0%
80,000 - Laser Storm, Inc. ............. 25
--------
TOTAL WARRANTS ........................................... 25
--------
TEMPORARY INVESTMENTS - 1.0%
INVESTMENT COMPANIES:
$1,903,185 Short-Term Investments Co.
(Prime Portfolio) .............. 1,903
--------
TOTAL TEMPORARY INVESTMENTS .............................. 1,903
--------
TOTAL INVESTMENTS - 99.5% ................................ 195,143
Other Assets, less Liabilities ........................... 920
--------
NET ASSETS ............................................... $196,063
========
</TABLE>
- --------------------------------------------------------------------------------
- - Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Funds investment advisor controls 5% or more of the outstand- ing voting
shares of the company).
SEE NOTES TO FINANCIAL STATEMENTS
-10-
<PAGE> 13
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
DECEMBER 31, 1996
[PHOTO RICH MEAGLEY]
It was another great year for SAFECO Equity Investors. Your Fund returned
25.01% for the 12 months ended December 31 while the S&P returned 22.94%, and
the average growth and income fund returned 20.78% according to Lipper
Analytical Services.
The Fund's success was due to staying our course--that is, focusing on
well-run companies with long-term growth records at good prices and disciplined
selling. The 1996 stock market favored both the type of stocks we favor and the
industries in which we were most heavily invested. Our choices in technology,
our overweighting in financials (especially CHASE MANHATTAN), and our subsequent
underweighting in utilities and oils, enabled us to outperform both our peers
and the S&P.
Setting buy targets and keeping companies in my sights was especially
fruitful in the technology arena. We bought ORACLE (database software) when it
came into our range and it took off so strongly, I've taken some profits.
SEAGATE (high-end disc drives) was another big purchase and gainer. Positions we
had established earlier in INTEL (computer processor chips) and MICROSOFT
(software) have also performed well.
Equipment manufacturers MOTOROLA, HEWLETT PACKARD and EDS complete the
list of our technology holdings. Combined, our computer hardware and software
stocks now account for 8.4% of net assets and every name we own is well known.
As I set a buy price, so I set a sell price, and 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 "turn-down" 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
(Continued on next page.)
-11-
<PAGE> 14
================================================================================
HIGHLIGHTS
SAFECO
EQUITY FUND
AS OF DECEMBER 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[EQUITY PIE CHART ]
(1) Large: 88% ($4 Bil. and above.)
(2) Medium: 8% ($1 Bil. - $4 Bil.)
(3) Small: 0% (Less than $1 Bil.)
(4) Cash and Other: 4%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[EQUITY FUND BAR CHART]
Petroleum & Petroleum Services: 9%
Drugs & Hospital Supplies: 8%
Electrical Equipment & Electronics: 8%
Banking & Finance: 7%
Financial Services: 6%
REPORT FROM THE
EQUITY FUND MANAGER
(Continued)
ability and a decent dividend are particularly attractive to me. Those qualities
can support return, especially in times when missed earnings are likely to drag
down share prices.
For those reasons I added to our oil stocks and I eliminated the CENTURY
TELEPHONE, swapping it for BELL ATLANTIC which has a much better yield and,
pending the merger with NYNEX, savings potential.
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 CITICORP when it hit our target. And I lightened our insurance
holdings from five companies to two in favor of other financials with higher
growth potential. One is credit card provider ADVANTA CORP.
BLOCKBUSTER'S lackluster performance returned its parent, VIACOM, to our
price range and I bought more of it. I like its new management and its
international growth potential.
Of late, no industries have been distinctly attractive, and so our
purchases have been widely distributed. The most recent
-12-
<PAGE> 15
================================================================================
additions to the portfolio include ELECTRONIC DATA SYSTEMS, ALLIED SIGNAL,
PACIFICCARE, JOHNSON AND JOHNSON, TEXACO and AMERICAN STORES.
The fact the market seems precariously high, has not caused me to alter my
strategy. I'm still striving for consistency, discipline and execution.
Equity Fund's portfolio is about 90 percent large capitalization companies
(over $4 billion). This is no surprise. The type of company I'm looking
for--well-run companies with long-term, proven growth records--tend to grow into
large companies.
While I won't speculate on the market, I will predict with absolute
confidence that my investment style will remain the same. And, my personal
belief is that performance will follow.
/s/ Richard Meagley
Richard 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.
HIGHLIGHTS (CONTINUED)
SAFECO EQUITY FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------
<S> <C>
Chase Manhattan Corp................. 5.1%
(Bank)
Mobil Corp........................... 2.6%
(Oil/Gas Exploration & Production)
Viacom, Inc.......................... 2.5%
(Entertainment & Communication)
AMP, Inc............................. 2.5%
(Electrical Equipment Manufacturer)
Exxon Corp........................... 2.3%
(Oil/Gas Exploration & Production)
Bell Atlantic Corp................... 2.3%
(Telephone Company)
Philip Morris Cos., Inc.............. 2.2%
(Food, Beverage & Tobacco Company)
NationsBank Corp..................... 2.2%
(Bank)
Bristol-Myers Squibb Co.............. 2.2%
(Pharmaceuticals)
AT&T Corp............................ 2.2%
(Telephone Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. to Dec.) COST (000'S)
- ----------------------------------------------------
<S> <C>
PacifiCare Health Systems, Inc. $18,859
Electronic Data Systems Corp. . 18,461
American Stores Co. ........... 18,122
Texaco, Inc. .................. 17,412
Johnson & Johnson ............. 12,794
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000'S)
- ----------------------------------------------------
<S> <C>
*Union Pacific Corp. ............... $12,052
*Century Telephone Enterprise Co. .. 9,633
Seagate Technology, Inc. ........... 8,675
Intel Corp. ........................ 7,380
SmithKline Beecham. plc (ADR) ...... 6,899
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio.
-13-
<PAGE> 16
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -----------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 96.1%
AUTOS & AUTO PARTS - 2.2%
590,000 Echlin, Inc............................. $18,659
BANKING & FINANCE - 7.3%
485,400 Chase Manhattan Corp. .................. 43,322
195,000 NationsBank Corp........................ 19,061
BEVERAGES - 2.1%
615,000 PepsiCo, Inc............................ 17,989
BROADCAST MEDIA - 4.1%
600,000(-) Viacom, Inc. (Class B) ................. 20,925
205,000 Walt Disney Co.......................... 14,273
CHEMICALS - 1.9%
175,000 Du Pont (E.I.) de Nemours
& Co.................................... 16,516
COMPUTER SOFTWARE - 4.8%
400,000 Electronic Data
Systems Corp............................ 17,300
165,000(-) Microsoft Corp.......................... 13,633
250,000(-) Oracle Corp............................. 10,437
COMPUTER SYSTEMS - 3.6%
305,000 Hewlett-Packard Co...................... 15,326
380,000(-) Seagate Technology, Inc................. 15,010
DRUGS & HOSPITAL SUPPLIES - 8.2%
315,000 American Home
Products Corp........................... 18,467
175,000 Bristol-Myers Squibb Co................. 19,031
210,000 Schering-Plough Corp.................... 13,597
275,000 SmithKline
Beecham, plc (ADR)...................... 18,700
ELECTRIC UTILITY - 2.0%
760,000 Houston Industries, Inc. ............... 17,195
ELECTRICAL EQUIPMENT & ELECTRONICS - 7.6%
545,000 AMP, Inc................................ 20,914
175,000 General Electric Co..................... 17,303
100,000 Intel Corp.............................. 13,094
220,000 Motorola, Inc........................... 13,502
FINANCIAL SERVICES - 6.2%
430,000 Advanta Corp. (Class B) ................ 17,576
160,000 Federal Home Loan
Mortgage Corp........................... 17,620
475,000 Federal National Mortgage Association .. 17,694
FOOD & TOBACCO - 4.2%
320,000 ConAgra, Inc............................ 15,920
170,000 Philip Morris Cos., Inc................. 19,146
HEALTHCARE - 1.5%
250,000 Johnson & Johnson....................... 12,437
HOSPITAL MANAGEMENT - 2.2%
221,300(-) PacifiCare Health Systems,
Inc. (Class B).......................... 18,866
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-14-
<PAGE> 17
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO EQUITY FUND
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -----------------------------------------------------------------------
<S> <C>
HOUSEHOLD PRODUCTS - 3.9%
170,000 Colgate-Palmolive Co................... $ 15,682
185,000 Kimberly-Clark Corp.................... 17,621
INSURANCE - 3.8%
130,000 American International
Group, Inc............................. 14,073
275,000 ITT Hartford Group, Inc. .............. 18,563
MANUFACTURING - 2.0%
250,000 AlliedSignal, Inc...................... 16,750
14,000 Dover Corp............................. 704
PAPER & FOREST PRODUCTS - 1.8%
216,500 Willamette Industries, Inc............. 15,074
PETROLEUM & PETROLEUM SERVICES - 8.6%
200,000 Exxon Corp............................. 19,600
180,000 Mobil Corp............................. 22,005
87,000 Royal Dutch Petroleum
Co. (ADR).............................. 14,855
175,000 Texaco, Inc............................ 17,172
POLLUTION CONTROL - 1.9%
625,000 Browning-Ferris Industries,
Inc.................................... 16,406
RETAIL - 3.8%
347,500 May Department
Stores Co............ ................. 16,246
725,000 Wal-Mart Stores, Inc................... 16,584
RETAIL - GROCERS - 4.2%
476,000 Albertson's, Inc....................... 16,958
450,000 American Stores Co..................... 18,394
TELECOMMUNICATIONS - 2.2%
435,000 AT&T Corp.............................. 18,923
TRANSPORTATION - 1.8%
175,000 Burlington Northern
Santa Fe............................... 15,116
UTILITIES - TELEPHONE - 4.2%
300,000 Bell Atlantic Corp..................... 19,425
360,000 GTE Corp............................... 16,380
--------
TOTAL COMMON STOCKS................................ 820,044
--------
TEMPORARY INVESTMENTS - 4.7%
U.S. AGENCY NOTES:
$39,855,000 Federal Home
Loan Mortgage Corp.
5.70%, due 1/02/97..................... 39,849
--------
TOTAL TEMPORARY INVESTMENTS........................ 39,849
--------
TOTAL INVESTMENTS - 100.8%......................... 859,893
Liabilities, less Other Assets..................... (6,813)
--------
NET ASSETS ........................................ $853,080
========
</TABLE>
- --------------------------------------------------------------------------------
(-) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
-15-
<PAGE> 18
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
December 31, 1996
[PHOTO THOMAS RATH]
Thomas Rath
1996 was a great year for SAFECO Income Fund. Your fund returned 23.99%
surpassing the S&P which returned 22.94% and the equity-income peer group which
returned, on average, 18.83% according to Lipper Analytical Services.
It was a year in which companies with predictable earnings growth did
well, as they typically do in slow-growth, low-inflation economies such as the
one we're experiencing. In general, our success was due to recognizing the
environment we're investing in and investing appropriately. Specific picks that
enabled us to beat the S&P and peer group included HEWLETT PACKARD, GE, PHILIP
MORRIS, AMERICAN BANKERS INSURANCE, ITT HARTFORD, ALTERA and SEAGATE.
While large, stable, dividend-paying companies continue to predominate the
Income Fund, I have tailored the portfolio for more capital appreciation
potential. I have also maintained a fairly high level of convertible securities
(28% of assets at year end) to preserve yield and down market protection.
To enhance return potential, I've added some smaller positions in
technology stocks. That's made SAFECO Income unique among equity-income funds.
While most our peers eschew technology stocks (which are volatile and hard to
understand) we have 11% of net assets invested in computer services and systems.
Such stocks currently represent 11.5% of the S&P Index and post average annual
revenue and earnings growth rates ranging from 15% to 35%. It's my view that a
manager can't afford not to invest here.
Choosing these technology stocks, I look for the same qualities I look for
in any stock--consistent growth and reasonable prices. I follow key trends in
the industry and invest only in companies that drive or move in concert with
them. These companies are typically the dominant players in growing markets.
Examples of these include: Seagate (high-end disc-drives), MICROS SYSTEMS,
(point-of-sale technology), 3-COM (local area networks), Altera and XILINX
(programmable logic devices). We actually no longer own Altera. I sold the
position after it surpassed our target price and added to the Xilinx
convertible.
Convertibles, with their high yields and lower volatility, are a less
treacherous way to invest in
-16-
<PAGE> 19
================================================================================
technology than stocks. In fact, the calling of three securities that converted
into SEAGATE TECHNOLOGY stock, created gains for the portfolio. Seagate
dominates the growing digital storage market.
Another substantial convertible position is FIRST FINANCIAL MANAGEMENT. It
pays a 5% yield and is convertible into FIRST DATA CORP., a company with
majority market share in the fast growing industry of credit card processing.
I have reduced the banks and added non-bank financials such as FEDERAL
NATIONAL MORTGAGE and MEDALLION FINANCIAL. I've been especially pleased with the
contributions ITT Hartford and American Bankers Insurance Group have made to the
portfolio.
I added a position in LANDAUER, a maker of radiation detection equipment.
While Landauer is not an exciting name, it carries a high yield, has a history
of increasing dividends and is the leader in its market.
My approach is to find stocks of companies that can grow earnings at a
faster pace than the broader market, that are trading at reasonable prices. The
companies I like tend to have high market shares, strong balance sheets, good
levels of cash flow and
(Continued on next page.)
HIGHLIGHTS
SAFECO
INCOME FUND
As of December 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
AS OF DECEMBER 31, 1996
- -----------------------------------
[Pie Chart Here]
1 Large: 53% ($4 Bil. and above.)
2 Medium: 5% ($1 Bil. -$4 Bil.)
3 Small 11% (Less than $1 Bil.)
4 Preferred Stock: 16%
5 Corporate Bonds: 12%
6 Cash and Other Assets: 3%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS
AS OF DECEMBER 31, 1996
- -----------------------------------
Petroleum & Petroleum Services: 8%
Banking & Finance: 7%
Food & Tobacco: 7%
Financial Services: 6%
Computer Services: 6%
-17-
<PAGE> 20
================================================================================
HIGHLIGHTS (Continued)
SAFECO INCOME FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ---------------------------------------------------
<S> <C>
Philip Morris Cos., Inc............. 5.0%
(Food, Beverage & Tobacco Company)
Seagate Technology, Inc............. 3.4%
(Magnetic Disk Manufacturer)
GTE Corp............................ 3.1%
(Telephone Company)
American Home Products Corp......... 2.8%
(Pharmaceuticals)
Texaco, Inc......................... 2.7%
(Oil Company)
First Financial Management
5.00%, due 12/15/99 .............. 2.7%
(Information Processor)
Landauer, Inc....................... 2.3%
(Pollution Control)
ITT Hartford Group, Inc............. 2.3%
(Insurance Company)
GATX Corp. $3.875 Cumulative
Convertible ...................... 2.2%
(Railway & Terminal Operator)
Chase Manhattan Corp................ 2.2%
(Bank)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. to Dec.) COST (000's)
- -----------------------------------------------------
<S> <C>
Salomon, Inc 6.25% Exchangeable ...... $4,605
J.C. Penney Co., Inc. ................ 3,566
Xilinx, Inc. 5.25%, due 11/1/02
(144A) ............................... 2,953
Electronic Data Systems Corp. ........ 2,775
Nuevo Energy Co. $2.875 Cvt. ......... 2,257
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000's)
- -------------------------------------------------------
<S> <C>
Seagate Technology, Inc. ............ $6,093
*Altera Corp. 5.75%,
due 6/15/02 (144A) ................ 3,953
Sturm Ruger & Co., Inc. ............. 2,652
Cooper Industries, Inc. 7.05%,
due 1/01/15 ....................... 2,651
*Price/Costco, Inc. 6.75%, due
3/1/01 .............................. 2,621
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio.
REPORT FROM THE
INCOME FUND MANAGER
(Continued)
dividends, and are the dominant players in growing industries.
The stock market has had two great years back-to-back, and given current
stock prices relative to earnings, I don't expect a third. I anticipate a
slowing of returns for 1997. The deciding factors will be corporate earnings and
the level of interest rates.
Regardless of the market environment, in SAFECO Income you have a
diversified portfolio positioned for total return--both income and capital
appreciation. Your Fund is structured to advance with the market while
delivering above the average current income--income that can help hold up
returns should the market falter.
/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.
-18-
<PAGE> 21
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------
<S> <C>
COMMON STOCKS - 68.8%
Banking & Finance - 7.3%
35,000 Boatmen's Bancshares, Inc........ $ 2,257
70,000 Chase Manhattan Corp............. 6,247
46,100 Norwest Corp..................... 2,005
105,000 US Bancorp....................... 4,718
136,642 Washington Mutual
Savings Bank..................... 5,918
Commercial Services - 1.5%
139,000 American List Corp............... 4,222
Computer Services - 1.2%
110,000 - Keane, Inc....................... 3,493
Computer Software - 0.9%
60,000 Electronic Data
Systems Corp..................... 2,595
Computer Systems - 5.5%
50,000 Hewlett-Packard Co............... 2,512
114,000 - MICROS Systems, Inc.............. 3,505
250,219 - Seagate Technology, I.c.......... 9,884
Conglomerates - 1.9%
65,000 Minnesota Mining &
Manufacturing Co................. 5,387
Cosmetics - 0.8%
54,600 International Flavors &
Fragrances, Inc.................. 2,457
Drugs & Hospital Supplies - 3.6%
140,000 American Home
Products Corp.................... 8,207
30,000 Merck and Co., Inc............... 2,377
Electric Utility - 3.4%
220,000 Houston Industries, Inc.......... 4,978
125,000 NIPSCO Industries, Inc........... 4,953
Electrical Equipment & Electronics - 3.8%
155,000 AMP, Inc......................... 5,948
50,000 General Electric Co.............. 4,944
Financial Services - 4.1%
140,000 Federal National
Mortgage Association 5,215
100,000 H&R Block, Inc................... 2,900
250,000 Medallion Financial Corp......... 3,813
Food & Tobacco - 6.6%
90,000 ConAgra, Inc..................... 4,478
130,000 Philip Morris Cos., Inc.......... 14,641
Household Products - 3.8%
60,000 Colgate-Palmolive Co............. 5,535
57,500 Kimberly-Clark Corp.............. 5,477
Insurance - 2.3%
100,000 ITT Hartford Group, Inc.......... 6,750
Leisure Time - 0.6%
85,000 Sturm, Ruger & Co., Inc.......... 1,647
Petroleum & Petroleum Services - 6.7%
50,000 Exxon Corp....................... 4,900
20,000 Mobil Corp....................... 2,445
25,000 Royal Dutch
Petroleum Co. (ADR).............. 4,269
80,000 Texaco, Inc...................... 7,850
Pollution Control - 2.3%
275,900 Landauer, Inc.................... 6,760
Real Estate Investment Trusts - 1.7%
148,600 Omega Healthcare
Investors, Inc................... 4,941
Retail - 4.4%
115,000 J.C. Penney Co., Inc............. 5,606
90,000 May Department Stores Co......... 4,208
62,039 Sears, Roebuck & Co.............. 2,862
Retail - Grocers - 1.0%
70,000 American Stores Co. ............. 2,861
Telecommunications - 1.2%
80,000 AT&T Corp. ........................ 3,480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-19-
<PAGE> 22
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO Income Fund
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------
<S> <C>
UTILITIES - GAS - 1.1%
135,000 Northwest Natural Gas Co......... $ 3,240
UTILITIES - TELEPHONE - 3.1%
200,000 GTE Corp......................... 9,100
--------
TOTAL COMMON STOCKS............................ 199,585
--------
PREFERRED STOCKS - 16.2%
COMPUTER SERVICES - 2.0%
115,000# Vanstar Financing Trust
6.75% Convertible (144A) ........ 5,951
CONTAINERS - 1.8%
100,000 Crown Cork & Seal
4.50% Convertible................ 5,200
FINANCIAL SERVICES - 2.1%
150,000 Advanta Corp.
Class B Series
95 SAILS......................... 6,075
FOOD & TOBACCO - 0.7%
300,000 RJR Nabisco Holdings Corp.
$0.835 Convertible............... 2,025
INSURANCE - 1.1%
52,000 American Bankers Insurance
Series B Convertible............. 3,107
OIL & GAS - 0.8%
44,800 Nuevo Energy Co.
$2.875 Convertible............... 2,403
PAPER & FOREST PRODUCTS - 1.0%
55,000 James River Corp. of Virginia
$3.375 Cumulative Convertible
Exchangeable.......... .......... 2,826
POLLUTION CONTROL - 1.6%
160,000 Browning Ferris Industries, Inc.
7.25% "ACES" .................... 4,560
TRANSPORTATION - 3.5%
110,000 GATX Corp. $3.875 Cumulative
Convertible...................... $ 6,421
37,000 Interpool, Inc.
5.75% Convertible................ 3,774
UTILITIES - TELEPHONE - 1.6%
80,400 Salomon, Inc. 6.25%
Exchangeable Convertible to
Cincinnati Bell, Inc............. 4,844
--------
TOTAL PREFERRED STOCKS......................... 47,186
--------
CORPORATE BONDS - 11.7%
CONVERTIBLE SUBORDINATED DEBENTURES:
COMPUTER SERVICES - 2.7%
$4,500,000 First Financial Management
5.00%, due 12/15/99
Convertible to First Data Corp.... 7,757
DRUGS & HOSPITAL SUPPLIES - 0.9%
2,400,000 Bindley Western
Industries, Inc.
6.50%, due 10/01/02.............. 2,556
ELECTRICAL EQUIPMENT - 0.9%
2,500,000 Cooper Industries, Inc.
7.05%, due 1/01/15............... 2,625
ELECTRONICS - 1.8% 5,250,000 # XILINX, INC.
5.25%, due 11/01/02 (144A)....... 5,198
PAPER & FOREST PRODUCTS - 0.7%
2,115,000 Repap Enterprises, Inc.
8.50%, due 8/01/97
(EuroDollar)..................... 2,041
PETROLEUM & PETROLEUM SERVICES - 1.3%
2,500,000 Pennzoil Co.
6.50%, due 1/15/03............... 3,856
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-20-
<PAGE> 23
PORTFOLIO OF INVESTMENTS (CONTINUED)
SAFECO INCOME FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------
<S> <C>
Publishing - 1.1%
$3,000,000 Thomas Nelson, Inc.
5.75%, due 11/30/99 ........... $ 3,023
Retail - 0.8%
2,500,000 Home Depot, Inc.
3.25%, due 10/01/01............ 2,434
Telecommunication Equipment - 1.0%
1,300,000# 3Com Corp. 10.25%,
due 11/01/01 (144A)............ 2,884
Transportation - 0.5%
1,605,000 Alaska Air Group, Inc. 6.875%,
due 6/15/14.................... 1,521
--------
TOTAL CORPORATE BONDS........................ 33,895
--------
TEMPORARY INVESTMENTS - 3.3%
Investment Companies:
$ 9,717,004 Short-Term Investments Co.
(Prime Portfolio)................ 9,717
--------
TOTAL TEMPORARY INVESTMENTS.................. 9,717
--------
TOTAL INVESTMENTS - 100.0%................... 290,383
Liabilities, less Other Assets............... (110)
--------
NET ASSETS................................... $290,273
========
</TABLE>
- --------------------------------------------------------------------------------
(-) Non-income producing security.
# Securities are exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer". At December 31, 1996, such securities are Vanstar
Financing Trust (144A) at 6.75%, acquired 9/27/96, Xilinx, Inc. (144A) at
5.25%, acquired 4/01/96, due 11/01/02 and 3Com Corp. (144A) at 10.25%,
acquired 7/23/96, due 11/01/01. The total cost of such securities is
$12,925,875 and total value is 4.8% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
-21-
<PAGE> 24
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
DECEMBER 31, 1996
[PHOTO CHARLES R. DRIGGS]
The SAFECO Northwest Fund returned 15.04% for the year ended December 31,
1996 compared to 25.89% for the Northwest 50 Index(TM). The portfolio's heavy
weighting in very small companies held the Fund's performance below its peer
funds and benchmark index.
1996 proved to be a year in which larger company stocks outperformed. By
October we were realigning the Fund toward larger stocks. We fully eliminated 11
small company positions and cut two more by half. We added eight new, larger cap
names, among them STARBUCKS, SEQUENT COMPUTER (high-performance computer
systems), PRECISION CASTPARTS (Boeing supplier); AMP (computer connectors); and
INTEL (computer chips).
The shift in investments was in the area of market capitalization, not
industry sector as I still expect banks and financials to outperform. 23% of net
assets remain invested in these sectors. The Portfolio currently has 49% of net
assets invested in companies over $1 billion.
We anticipate employment in the Northwest will be well above the U.S.
average as Boeing adds 5,000 jobs in 1997 (on top of 13,000 in 1996) and
Microsoft's Redmond Campus grows from 9,000 to 11,000 employees. Furthermore, we
expect personal income gains in the Northwest should approach 7%, versus 5.3%
for the United States. After all, Boeing pays an average salary of $49,000 and
Microsoft $59,000.
Economic growth (GDP) should average 3.3% for the West over the next three
years and 2.0% for the U.S.
This regional strength bodes particularly well for the companies in our
portfolio that provide
-22-
<PAGE> 25
================================================================================
goods and services locally. All in all, the Northwest is a fine place to invest
and we're stocked up on the region's premiere companies.
/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
SAFECO
NORTHWEST FUND
AS OF DECEMBER 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[NORTHWEST PIE CHART]
(1) Large: 34% ($4 Bil. and above.)
(2) Medium: 15% ($1 Bil. - $4 Bil.)
(3) Small: 47% (Less than $1 Bil.)
(4) Cash and Other Assets: 4%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[NORTHWEST BAR CHART]
<TABLE>
<S> <C>
Savings & Loans/Savings Banks: 12%
Electrical Equipment & Electronics: 11%
Banking: 11%
Retail: 8%
Computer Software: 8%
</TABLE>
-23-
<PAGE> 26
================================================================================
HIGHLIGHTS (CONTINUED)
SAFECO NORTHWEST FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ----------------------------------------------------------------------
<S> <C>
Microsoft Corp. ......................... 6.9%
(Personal Computer Software)
US Bancorp .............................. 5.6%
(Bank)
Boeing Co. .............................. 5.4%
(Aerospace)
Schnitzer Steel Industries, Inc. ........ 4.7%
(Steel Manufacturing)
Washington Mutual Savings Bank .......... 4.5%
(Savings & Loan)
Price/Costco, Inc. ...................... 3.9%
(Wholesale Membership Warehouse)
Sterling Financial Corp. ................ 3.4%
(Savings & Loan Holding Co.)
Albertson's, Inc. ....................... 2.8%
(Retail Grocer)
Intel Corp. ............................. 2.7%
(Microcomputer Components
Manufacturer)
NIKE, Inc. .............................. 2.7%
(Athletic & Leisure Footware & Apparel)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. to Dec.) COST (000'S)
- -----------------------------------------------------
<S> <C>
Intel Corp. ............. $1,123
AMP, Inc. ............... 1,037
Precision Castparts Corp. 977
Starbucks Corp. ......... 931
Houston Industries, Inc. 858
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000'S)
- -------------------------------------------------------------
<S> <C>
*Rochester Gas & Electric Corp. $1,091
Lattice Semiconductor Corp. ... 904
*Wholesome & Hearty Foods, Inc. 885
Washington Mutual Savings Bank 769
*BMC West Corp. ............... 747
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio.
PORTFOLIO OF INVESTMENTS
SAFECO Northwest Fund
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE(000'S)
- --------------------------------------------------------------
<S> <C>
COMMON STOCKS - 96.0%
AEROSPACE - 7.7%
22,100 Boeing Co ........................... $2,351
21,000 Precision Castparts Corp. ........... 1,042
AIR TRANSPORT - 1.6%
30,000 Airborne Freight Corp. .............. 701
APPAREL MANUFACTURING - 2.7%
20,000 NIKE, Inc. .......................... 1,195
AUTOS - 2.0%
54,000 - Monaco Coach Corp. .................. 878
BANKING - 10.9%
26,620 - Cascade Bancorp ..................... 559
72,300 Northrim Bank ....................... 678
15,800 Security Bank Holding Co. ........... 134
55,000 US Bancorp. ......................... 2,472
51,975 West Coast Bancorp, Inc. ............ 942
BEVERAGES - 1.3%
58,200 - Redhook Ale Brewery, Inc. ........... 560
BUILDING MATERIALS - 2.1%
40,000 TJ International, Inc. .............. 930
CHEMICALS - 1.7%
253,200 - Consep, Inc. ........................ 760
COMMERCIAL SERVICES - 1.0%
29,000 - Barrett Business
Services, Inc. ..................... 442
COMPUTER SOFTWARE - 8.0%
28,300 - Analogy, Inc. ....................... 127
27,500 - Mentor Graphics Corp. ............... 268
36,600 - Microsoft Corp. ..................... 3,024
10,000 - ThrustMaster, Inc. .................. 76
COMPUTER SYSTEMS - 0.9%
21,000 Sequent Computer
Systems, Inc. ...................... 373
ELECTRIC UTILITY - 3.8%
40,000 Houston Industries, Inc. ............ 905
12,000 LG&E Energy Corp. ................... 294
12,000 Public Service Company of Colorado .. 467
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-24-
<PAGE> 27
================================================================================
PORTFOLIO OF INVESTMENTS(Continued)
SAFECO NORTHWEST FUND
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------
<S> <C>
ELECTRICAL EQUIPMENT & ELECTRONICS - 11.1%
29,000 AMP, Inc. ..................... $ 1,113
76,600 - Flir Systems, Inc. ............ 1,053
9,200 Intel Corp. ................... 1,205
23,000 - Lattice Semiconductor Corp. ... 1,058
77,000 - Pacific Aerospace &
Electronics, Inc. ............. 226
21,700 - Praegitzer Industries, Inc. ... 222
HEALTH CARE - 2.5%
29,200 - Assisted Living Concepts, Inc.. 445
49,000 - Emeritus Corp. ................ 662
METALS - 5.5%
23,100 Oregon Steel Mills, Inc. ...... 387
80,000 Schnitzer Steel
Industries, Inc. .............. 2,050
PAPER & FOREST PRODUCTS - 2.0%
48,500 Longview Fibre Co. ............ 891
POLLUTION CONTROL - 0.3%
88,000 - R-B Rubber Products, Inc. ..... 148
RETAIL - GROCERS - 3.6%
35,000 Albertson's, Inc. ............. 1,247
66,000 - Carr-Gottstein Foods Co. ...... 248
2,284 - Quality Food Centers, Inc. .... 77
RETAIL - 8.4%
60,000 - Hollywood Entertainment
Corp. ......................... 1,110
24,600 Nordstrom, Inc. ............... 872
68,000 - Price/Costco, Inc. ............ 1,709
RETAIL - SPECIALTY - 3.5%
138,450 - Egghead, Inc. ................. 727
28,000 - Starbucks Corp. ............... 801
SAVINGS & LOANS / SAVINGS BANKS - 11.9%
33,000 Interwest Savings Bank ........ $ 1,064
24,000 Security Bancorp. ............. 708
106,000 - Sterling Financial Corp. ...... 1,497
45,200 Washington Mutual
Savings Bank. ................. 1,958
TRANSPORTATION - 2.3%
37,200 Expeditors International of
Washington, Inc. .............. 856
14,000 Greenbrier Cos., Inc. ........ 145
UTILITIES - GAS - 1.2%
30,400 Cascade Natural Gas Corp. ..... 517
-------
TOTAL COMMON STOCKS ....................... 42,174
-------
WARRANTS - 0.1%
ELECTRICAL EQUIPMENT & ELECTRONICS - 0.1%
77,000 - Pacific Aerospace &
Electronics, Inc. ............. 48
-------
TOTAL WARRANTS ............................ 48
-------
TEMPORARY INVESTMENTS - 2.6%
INVESTMENT COMPANIES:
$1,129,106 Short-Term Investments Co.
(Prime Portfolio) ............. 1,129
-------
TOTAL TEMPORARY INVESTMENTS ............... 1,129
-------
TOTAL INVESTMENTS - 98.7% ................. 43,351
Other Assets, less Liabilities ............ 595
-------
NET ASSETS ................................ $43,946
=======
</TABLE>
- --------------------------------------------------------------------------------
(-) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
-25-
<PAGE> 28
================================================================================
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
DECEMBER 31, 1996
For the eleven months from inception on January 31 to December 31, the
SAFECO International Stock Fund returned 14.23%. The Morgan Stanley EAFE index
returned 5.90% for the same period.
For the fourth quarter, the International Fund returned 9.27% while the
EAFE Index returned 1.67% and the average international fund returned 3.85%,
according to Lipper.
The Fund's strong outperformance for the period came from solid gains in
virtually all themes (strategic investment opportunities). Among the better
performing themes were Telecommunications, Positive Banking Environment,
Personal Savings Products, Healthcare, Restructuring Opportunities and Leisure
Activities. The only disappointments were those directed at opportunities in the
developing markets in the Pacific Basin.
The limited hedging program, which remains in place, protected the Fund
against the impact of the strengthening U.S. dollar throughout the period and
our limited investments in Japan further contributed to the Fund outperforming
the index.
1996 as a whole was a year of strength in international equity markets with
only two markets within the EAFE Index producing negative returns either in
local currency or U.S. dollar terms--Japan and Singapore. However, given the
large weighting of the Japanese market in the index--38% at year end--its
sizable underperformance tolled heavily on the overall EAFE return for the year.
In the U.K., strong returns in the second half of the year more than made
up for a relatively poor first half. The continued strong earnings
announcements, the improving domestic economy and the rise in U.S. stock values
all helped to drive the market to an all-time high by year end. The local
currency return was greatly enhanced by the particularly strong rise in Sterling
against the U.S. dollar over the year--an exception to the general strengthening
of the dollar against most other international currencies.
-26-
<PAGE> 29
================================================================================
In continental Europe, the four largest markets, Germany, France,
Netherlands and Switzerland, all performed strongly with returns in excess of
20% in local currency terms. While conversion of these returns into U.S. dollar
terms was impacted to different degrees by the strength of the dollar, the
largest of the currency movements was for the Swiss franc which weakened by
almost 15% over the year. Among the smaller European markets, Spain and Sweden
also produced very strong returns while Italy, although still in positive
territory, was among the poorest performing. These performances were achieved
despite the general sluggishness of the respective economies and were
attributable to particularly strong gains achieved by individual stocks and
sectors.
In the Far East, returns were mixed with Malaysia, Hong Kong, Indonesia and
the Philippines well into positive territory. Singapore
(Continued on next page.)
HIGHLIGHTS
SAFECO
INTERNATIONAL
STOCK FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- --------------------------------------------------
<S> <C>
Banking & Finance ..................... 19%
Pharmaceuticals ....................... 10%
Publishing ............................ 6%
Holding Co. Diversified................ 6%
Tobacco ............................... 6%
</TABLE>
TOP FIVE COUNTRIES
AS A PERCENT OF NET ASSETS
AS OF DECEMBER 31, 1996
- --------------------------------------------------
<TABLE>
<S> <C>
United Kingdom: 31%
Netherlands: 10% [CHART]
Switzerland: 9%
Australia: 8%
Singapore: 8%
</TABLE>
-27-
<PAGE> 30
================================================================================
HIGHLIGHTS(CONTINUED)
SAFECO INTERNATIONAL
STOCK FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- ---------------------------------------------------------------------
<S> <C>
Novartis AG ............................. 4.0%
(Pharmaceuticals)
National Australia Bank, Ltd. ........... 3.0%
(Banking & Finance)
B.A.T. Industries, plc .................. 2.6%
(Tobacco)
ABN Amro Holdings NV .................... 2.3%
(Banking & Finance)
Singapore Press Holdings, Ltd. .......... 2.2%
(Publishing)
Siebe, plc .............................. 2.2%
(Industrial & Electronic Equipment)
Zeneca Group, plc ....................... 2.2%
(Pharmaceuticals)
Development Bank of Singapore, Ltd. ..... 2.1%
(Banking & Finance)
Canon, Inc. ............................. 2.1%
(Office Equipment)
Elsevier NV ............................. 2.1%
(Publishing)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. To Dec.) COST (000'S)
- ------------------------------------------------
<S> <C>
Glaxo Wellcome, plc .............. $145
Ciba-Geigy AG .................... 117
Zeneca Group, plc ................ 89
Granada Group, plc ............... 70
Royal PTT Nederland NV ........... 69
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000'S)
- ----------------------------------------------------------------------
<S> <C>
*General Accident, plc ............... $133
Repsol SA ............................ 60
*Philips Electronics NV .............. 49
*ENI SpA ............................. 46
*AssiDoman AB ........................ 41
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio.
REPORT FROM THE
INTERNATIONAL
STOCK FUND MANAGER
(CONTINUED)
was modestly negative while Japan and Thailand were the major losers.
The Japanese market continued to cause concern for both domestic and
international investors and the poor local currency return was further
exacerbated for U.S. investors by the sharp decline of the yen against the
dollar.
Thailand was beset by civil unrest in the second half of the year and a
less than satisfactory outcome to the December election did little to restore
confidence to the market.
Hong Kong proved, once again, to be one of the better performers but
concerns remain over a greatly overheated real estate sector and the nature of
the business environment after the Chinese takeover on July 1, 1997.
Indonesian political uncertainty earlier in the year subsided and the
market recovered strongly in the latter stages. Modest performance in Australia
was enhanced by the additional gains from the strengthening Australian dollar
against its U.S. counterpart.
-28-
<PAGE> 31
================================================================================
The strength of the international equity markets in 1996 was achieved in a
period of stable or falling interest rates, low inflation and strong earnings
growth. Much of the same factors remain in place as we enter the new year.
In continental Europe, much of the focus will be on the decisions and
impact surrounding the European Monetary Unit (EMU), which is to be established
in 1999. Tight fiscal constraints will be required of the countries gaining
admission which may lead to an extended period of low growth, particularly in
Germany. While the outlook for earnings growth in the U.K. remains positive, the
upcoming general election and the possibility of an interest rate rise,
triggered by a robust domestic economy, may influence the market.
In the Pacific Rim, Japan continues to have problems, and while there is
some evidence of a recovery, economic fundamentals and domestic investor
confidence remain in tatters. Hong Kong is due to change to Chinese control on
July 1 and the impact of this unique event will be watched eagerly. Many of the
other economies continue to experience strong growth and the respective markets
should reflect this. However, these markets will be susceptible to developments
in other global markets.
While returns in the coming year are unlikely to match those of the period
just ended, we remain satisfied with the structure of the portfolio from a
fundamental, value-oriented prospective. We will continue with a fully invested
posture, with the major emphasis on holdings in the U.K., the core continental
European markets and the Pacific Basin, sans Japan.
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.
-29-
<PAGE> 32
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000'S)
- ---------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 94.4%
AUSTRALIA - 7.5%
13,500 Broken Hill
Proprietary Co., Ltd. ............... $ 192
(Metals & Mining)
29,000 National Australia Bank, Ltd. ....... 342
(Banking & Finance)
35,100 News Corp., Ltd. .................... 186
(Television & Publishing)
22,100 WMC, Ltd. ........................... 140
(Metals & Mining)
FINLAND - 0.7%
3,750 Kymmene Oy Corp. .................... 78
(Paper & Forest Products)
FRANCE - 1.5%
900 Elf Aquitaine ...................... 81
(Oil & Gas)
1,630 Michelin "B" ....................... 87
(Tire & Rubber)
GERMANY - 5.4%
4,800 Hoechst AG ......................... 225
(Chemicals)
507 Mannesmann AG ...................... 218
(Machinery & Engineering)
1,990 Siemens AG ......................... 93
(Electrical Equipment & Electronics)
1,465 VEBA AG ............................ 84
(Utilities - Electric)
HONG KONG - 1.3%
6,600 HSBC Holdings, plc ................. 141
(Banking & Finance)
INDONESIA - 4.5%
33,000 PT Gudang Garam ..................... 142
(Tobacco)
38,000 PT Hanjaya Mandala
Sampoerna ........................... 203
(Tobacco)
12,000 PT Hero Supermarket ................. 9
(Retail - Grocery)
33,000 PT Indocement Tunggal
Perkasa (Building Materials) ........ 50
31,000 PT Mayora Indah ..................... 14
(Food-Processing)
56,500 PT Telekomunikasi Indonesia ......... 97
(Telecommunications)
IRELAND - 1.6%
8,680 Allied Irish Bank, plc .............. 57
(Banking & Finance)
42,900 Smurfit (Jefferson) Group ........... 125
(Paper Products)
ITALY - 1.0%
25,960 Stet-Societa Finanz Telefon ......... 117
(Telecommunications)
JAPAN - 2.1%
11,000 Canon, Inc. ......................... 242
(Office Equipment)
MALAYSIA - 4.9%
30,000 DCB Holdings Berhad ................. 103
(Banking & Finance)
16,000 Hume Industries Berhad .............. 101
(Building Materials)
45,000 Sime Darby Berhad ................... 177
(Conglomerates)
19,000 United Engineers, Ltd. .............. 171
(Construction)
MEXICO - 0.8%
42,000 Grupo Financiero Series B ........... 88
(Banking & Finance)
NETHERLANDS - 10.3%
4,137 ABN Amro Holdings NV ................ 266
(Banking & Finance)
840 DSM NV .............................. 82
(Chemicals)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-30-
<PAGE> 33
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERNATIONAL STOCK FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------------
<S> <C>
NETHERLANDS (CONTINUED)
14,150 Elsevier NV ......................... $ 237
(Publishing)
5,832 Internationale Nederlanden
Groep NV ............................ 208
(Banking & Finance)
920 Nutricia Vereenigde
Bedrijven NV ........................ 138
(Food-Processing)
655 Royal Dutch Petroleum Co. ........... 114
(Oil & Gas)
3,560 Royal PTT Nederland NV .............. 134
(Commercial Services)
PHILIPPINES - 0.7%
19,000 San Miguel Corp. (Class B) .......... 84
(Wine & Spirits, Food)
SINGAPORE - 7.5%
23,000 City Developments, Ltd. ............. 207
(Real Estate)
18,000 Development Bank of
Singapore, Ltd. ..................... 243
(Banking & Finance)
14,800 Fraser & Neave, Ltd. ................ 152
(Beverages)
12,950 Singapore Press Holdings, Ltd. ...... 255
(Publishing)
SPAIN - 2.0%
1,510 Banco Santander SA .................. 96
(Banking & Finance)
7,530 Iberdrola SA ........................ 106
(Utilities - Electric)
600 Repsol SA ........................... 23
(Oil & Gas)
SWEDEN - 0.9%
2,000 Pharmacia & Upjohn, Inc. ............ 81
(Pharmaceuticals)
1,650 Stora Kopparbergs ................... 23
(Paper & Forest Products)
SWITZERLAND - 8.8%
243 Alusuisse-Lonza Holding AG .......... 192
(Holding Co. - Diversified)
404 Novartis AG ......................... 459
(Pharmaceuticals)
21 Roche Holding AG .................... 162
(Pharmaceuticals)
182 Schweizerische Rueckversicherungs-
Gesellschaft ........................ 193
(Insurance)
THAILAND - 2.0%
15,000 Bangkok Bank Public Co., Ltd. ....... 145
(Banking & Finance)
14,000 Thai Farmers Bank
Public Co., Ltd. .................... 87
(Banking & Finance)
UNITED KINGDOM - 30.9%
36,230 B.A.T. Industries, plc .............. 297
(Tobacco)
26,400 BTR, plc 127
(Holding Co. - Diversified)
12,150 Barclays, plc ....................... 206
(Banking & Finance)
9,850 Cable & Wireless, plc ............... 81
(Telecommunications)
19,030 Cadbury Schweppes, plc .............. 159
(Beverages)
10,500 Chubb Security, plc ................. 58
(Electronic Security Systems)
8,195 EMI Group, plc ...................... 192
(Leisure)
16,950 General Electric Co., plc ........... 110
(Electronics)
8,650 Glaxo Wellcome, plc ................. 139
(Pharmaceuticals)
15,600 Granada Group, plc .................. 228
(Leisure)
13,850 Grand Metropolitan, plc ............. 108
(Wine & Spirits, Food)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-31-
<PAGE> 34
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- ---------------------------------------------------------------------
<S> <C>
UNITED KINGDOM (CONTINUED)
21,070 Ladbroke Group, plc ................ $ 82
(Hotels & Property Management)
27,240 Lloyds Bank, plc ................... 199
(Banking & Finance)
8,470 Medeva, plc ........................ 37
(Pharmaceuticals)
12,250 Premier Farnell, plc ............... 156
(Electronics)
18,020 Prudential Corp., plc .............. 150
(Insurance)
18,210 Safeway, plc ....................... 125
(Retail - Grocery)
20,290 Scottish Power, plc ................ 121
(Utilities - Electric)
10,300 Shell Transport &
Trading Co., plc ................... 176
(Oil & Gas)
13,850 Siebe, plc ......................... 254
(Industrial & Electronic
Equipment)
18,700 TI Group, plc ...................... 184
(Manufacturing)
21,910 Vodafone Group, plc ................ 91
(Telecommunications)
8,875 Zeneca Group, plc .................. 248
(Pharmaceuticals)
-------
TOTAL COMMON STOCKS $10,778
=======
PREFERRED STOCKS - 0.2%
AUSTRALIA - 0.2%
6000 News Corp., Ltd. ................... 27
(Television & Publishing)
-------
TOTAL PREFERRED STOCKS ............................... 27
-------
WARRANTS - 0.0%
THAILAND - 0.0%
1,125 Thai Farmers Bank
Public Co., Ltd. ................... 1
(Banking & Finance)
-------
TOTAL WARRANTS ....................................... $ 1
-------
TOTAL INVESTMENTS - 94.6% ............................ 10,806
DOMESTIC
Cash ........................................ 446
Foreign Cash ................................ 127
Other Assets, Less Liabilities .............. 44
-------
NET ASSETS ........................................... $11,423
=======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- --------------------------------------------------------------
<S> <C>
Banking & Finance 19.1%
Pharmaceuticals 9.9
Publishing 6.2
Holding Company-Diversified 5.8
Tobacco 5.6
Telecommunications 4.6
Leisure Time 4.4
Petroleum & Petroleum Services 4.2
Machinery-Diversified 4.1
Electrical Equipment & Electronics 3.1
Food 3.0
Insurance 3.0
Metals 2.9
Beverages 2.7
Chemicals 2.7
Office Equipment & Supplies 2.1
Manufacturing 2.1
Electric Utility 2.0
Paper & Forest Products 2.0
Real Estate 1.8
Building Materials 1.3
Retail-Grocers 1.2
Tire & Rubber 0.8
----
94.6%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-32-
<PAGE> 35
===============================================================================
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
DECEMBER 31, 1996
[PHOTO REX BENTLEY]
[PHOTO MICHAEL C. KNEBEL]
Since the Balanced Fund's inception, January 31, 1996 through December 31,
1996, it has returned 11.40%. This is slightly lower than 12.07%, the return on
a 60/40 mix of the S&P 500 and the Lehman Brothers Government Corporate Bond
Index.
Within the asset classes, our stocks performed better than the market as
measured by the S&P stock index while our bonds returned somewhat less than the
Lehman Government Corporate Bond Index.
At year end, our asset allocation was 56% stocks and 41% bonds. We remain
fully invested, with cash at just 3.7% of net assets. Although in hindsight, a
higher equity allocation would have been better in 1996, with the stock market
setting new all time highs and bonds having a difficult year, we are comfortable
with our asset mix at this time. Of course, we have the flexibility to increase
the equity exposure to a maximum of 70%, anytime we feel it's appropriate.
In the first half of 1996, economic activity grew faster than expected
which led to higher interest rates driven by concerns about inflation and a
potential tightening by the Federal Reserve Board. By the end of the year, as
evidence mounted that the economy was slowing, inflation concerns abated and
interest rates declined. Still, interest rates ended the year higher than they
began. Although bonds declined in price, coupon payments more than offset the
lower prices giving bonds a positive return for the year.
Throughout the year, the stock market performed exceptionally well. The
fourth quarter was the year's strongest with the S&P 500 rising 8.33%. This
(Continued on next page.
-33-
<PAGE> 36
================================================================================
HIGHLIGHTS
SAFECO
BALANCED FUND
AS OF DECEMBER 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[BALANCED FUND PIE CHART]
(1) Large: 47% ($4 Bil. and above)
(2) Medium: 7% ($1 Bil. - $4 Bil.)
(3) Small: 2% (Less than $1 Bil.)
(4) Corporate Bonds: 12%
(5) U.S. Government Securities: 29%
(6) Cash and Other Assets: 3%
<TABLE>
TOP FIVE INDUSTRIES
(Common Stock)
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[BALANCED FUND BAR CHART]
<S> <C>
Drugs & Hospital Supplies: 5%
Electrical Equipment & Electronics: 5%
Petroleum & Petroleum Services: 3%
Banking & Finance: 3%
Electric Utility: 3%
</TABLE>
REPORT FROM THE
BALANCED FUND
MANAGERS(CONTINUED)
brought the total return for the S&P for all 1996 to 22.94%, and 18.90% for the
eleven months since the inception of the SAFECO Balanced Fund.
The best performing stocks had three characteristics in common. First,
bigger was definitely better. Large capitalization stocks outperformed small
companies. Second, companies with the best earnings gains for 1996 also had the
best share price appreciation. Third, the most profitable companies as measured
by return on equity were among the strongest performers.
Our equity strategy focuses on finding undervalued securities within the
large capitalization universe of stocks. At year end, the stocks in the
portfolio had a price earnings ratio of 15 times the 1997 expected earnings
compared to the S&P price earnings ratio of 17.2 times. The dividend yield on
the stock portion of the portfolio was 2.5% compared to the market yield of
2.1%.
At this time consensus estimates call for the stocks we
-34-
<PAGE> 37
================================================================================
own to produce better earnings growth than the broad market, 11% versus 7%. We
share that belief: We think our stocks have better potential than the market,
and they sell at lower valuations.
Within the equity portion of the portfolio, we recently reduced the
weighting in the financial services sector. We had over-weighted here, but cut
back as these stocks have done very well. Over the past two years, they have
risen on average 44.5% per year while the S&P 500 advanced 30.2% per year. We
remain overweighted in capital goods and conglomerates where we find attractive
valuations.
We bought ALBERTSON'S, BELL ATLANTIC, ELECTRONIC DATA SYSTEMS and RAYTHEON
after fairly sharp price declines. Stocks sold include AMERICA GENERAL CORP.,
MBNA CORP. and JP MORGAN, all of which had appreciated substantially.
In the fixed income portion of the portfolio, we continue to emphasize
high-quality, intermediate bonds. Roughly two-thirds of
(Continued on next page.)
HIGHLIGHTS(CONTINUED)
SAFECO BALANCED FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- ------------------------------------------------------------------
<S> <C>
SmithKline Beecham, plc (ADR) ....... 1.8%
(Pharmaceuticals)
Mobil Corp. ......................... 1.7%
(Oil/Gas Exploration & Production)
NationsBank Corp. ................... 1.6%
(Bank)
Albertson's, Inc. ................... 1.6%
(Retail Grocer)
ITT Hartford Group, Inc. ............ 1.6%
(Insurance Company)
AMP, Inc. ........................... 1.6%
(Electrical Equipment Manufacturer)
American Home Products Corp. ........ 1.5%
(Pharmaceuticals)
General Electric Co. ................ 1.5%
(Manufacturing & Communication)
Atlantic Richfield Co. .............. 1.4%
(Oil Company)
Bell Atlantic Corp. ................. 1.3%
(Telephone Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Common Stock)
(Oct. to Dec.) COST (000'S)
- -----------------------------------------------------------------
<S> <C>
Albertson's, Inc. ...................... $134
Electronic Data Systems Corp. .......... 95
Advanta Corp. .......................... 70
International Flavors & Fragrances,
Inc. ................................. 70
Raytheon Co. ........................... 65
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Common Stock)
(Oct. to Dec) PROCEEDS (000'S)
- ---------------------------------------------------------------
<S> <C>
*MBNA Corp. ........................... $106
*American General Corp. ............... 71
*American Stores Co. .................. 68
*J.P. Morgan & Co. .................... 56
*AlliedSignal, Inc. ................... 52
</TABLE>
- --------------------------------------------------------------------------------
*Security sold, no longer in portfolio
-35-
<PAGE> 38
REPORT FROM THE
BALANCED FUND
MANAGERS(CONTINUED)
the bonds are U.S. Treasury obligations, with government agency and corporate
debt making up the rest. As rates declined in the fourth quarter of the year, we
increased the duration (sensitivity to interest rate changes) of the bond
portion of the portfolio from just under 2.1 to around 3.9. This compares to an
index duration of approximately 5.1.
Looking ahead to 1997, we expect current economic trends to continue with
Gross Domestic product (GDP) growing at 2.25%-2.50% and inflation increasing a
moderate 3%. This scenario should be attractive for financial assets as economic
growth will be fast enough to create jobs and enable companies to increase
earnings, but not so fast as to escalate inflation. There is some concern that
the weak economies of Europe and Japan could dampen the U.S. Economic growth.
Although we are optimistic about the outlook for stocks and bonds, we do not
anticipate that 1997 equity returns by the S&P 500 will match the 37.50% in 1995
or the 22.94% in 1996.
/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.
-36-
<PAGE> 39
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------
<S> <C>
COMMON STOCKS - 55.8%
AIR TRANSPORT - 0.6%
2,200 Airborne Freight Corp. ....... $ 51
AUTOS & AUTO PARTS - 1.0%
2,600 Echlin, Inc. ................. 82
BANKING & FINANCE - 2.9%
1,200 Chase Manhattan Corp. ........ 107
1,400 NationsBank Corp. ............ 137
BEVERAGES - 1.3%
3,700 PepsiCo, Inc. ................ 108
BEVERAGES - ALCOHOLIC - 0.8%
1,800 Anheuser-Busch
Companies, Inc. .............. 72
BUILDING MATERIALS - 1.1%
1,300 Armstrong World
Industries, Inc. ............. 90
CHEMICALS - 1.9%
800 DuPont (E.I.) De Nemours
& Co. ........................ 75
2,300 Nalco Chemical Co. ........... 83
COMPUTER SOFTWARE - 1.0%
2,000 Electronic Data Systems Corp.. 87
COMPUTER SYSTEMS - 2.1%
2,000 Hewlett-Packard Co. .......... 101
2,000- Seagate Technology, Inc. ..... 79
COSMETICS - 1.8%
1,400 Avon Products, Inc. .......... 80
1,600 International Flavors &
Fragrances, Inc. ............. 72
DRUGS & HOSPITAL SUPPLIES - 5.3%
2,200 American Home
Products Corp. ............... 129
700 Bristol-Myers Squibb Co. ..... 76
1,500 Schering-Plough Corp. ........ 97
2,200 SmithKline
Beecham, plc (ADR) ........... 150
ELECTRIC UTILITY - 2.5%
4,700 Houston Industries, Inc. ..... 106
2,600 NIPSO Industries, Inc. ....... 103
ELECTRICAL EQUIPMENT & ELECTRONICS - 4.8%
3,500 AMP, Inc ..................... 134
1,300 General Electric Co. ......... 129
1,200 Motorola, Inc. ............... 74
1,400 Raytheon Co. ................. 67
FINANCIAL SERVICES - 1.6%
1,800 Advanta Corp. ................ 74
1,700 Federal National
Mortgage Association.......... 63
FOOD - 1.0%
1,100 CPC International, Inc. ...... 85
FOOD & TOBACCO - 2.2%
1,800 ConAgra, Inc . ............... 89
900 Philip Morris Cos., Inc. ..... 101
HOUSEHOLD PRODUCTS - 2.2%
1,000 Colgate-Palmolive Co. ........ 92
1,000 Kimberly-Clark Corp. ......... 95
INDUSTRIAL PRODUCTS & SUPPLIES - 1.2%
2,200 Corning, Inc. ................ 102
INSURANCE - 1.6%
2,000 ITT Hartford Group, Inc. ..... 135
MACHINERY DIVERSIFIED - 0.9%
1,800 Briggs & Stratton Corp. ...... 79
MANUFACTURING - 1.6%
2,400 Crane Co. .................... 70
1,000 Harsco Corp. ................. 69
METALS - 0.5%
700 Aluminum Co. of America ...... 45
OIL & GAS - 1.6%
1,000 Amoco Corp. .................. 81
102 El Paso Natural Gas Co. ...... 5
1,100 Tenneco, In. ................. 50
PETROLEUM & PETROLEUM SERVICES - 3.1%
900 Atlantic Richfield Co. ....... 119
1,200 Mobil Corp. .................. 147
PHARMACEUTICALS - 1.0%
1,500 Abbott Laboratories .......... 76
POLLUTION CONTROL - 1.1%
3,500 Browning-Ferris
Industries, Inc .............. 92
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-37-
<PAGE> 40
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- --------------------------------------------------------------
<S> <C>
RETAIL - 2.2%
2,100 J.C. Penney Co., Inc.............. $ 102
1,900 May Department Stores Co.......... 89
RETAIL - GROCERS - 1.6%
3,800 Albertson's, Inc.................. 135
TELECOMMUNICATIONS - 1.3%
2,500 AT&T Corp......................... 109
TEXTILES - 0.7%
1,300 Springs Industries, Inc.
(Class A)......................... 56
TRANSPORTATION - 0.9%
1,300 Union Pacific Corp................ 78
UTILITIES - TELEPHONE - 2.4%
1,700 Bell Atlantic Corp................ 110
2,100 GTE Corp.......................... 96
------
TOTAL COMMON STOCKS .......................... 4,733
------
CORPORATE BONDS - 12.0%
AUTOS - 1.2%
$100,000 General Motors
Acceptance Corp.
6.625%, due 10/01/02..... ........ 99
BANKING & FINANCE - 3.6%
100,000 Associates Corp. of
North America
6.625%, due 5/15/01............... 100
100,000 BankAmerica Corp.
9.50%, due 4/01/01................ 111
100,000 Norwest Corp. (MTN)
6.25%, due 3/15/01................ 99
ELECTRIC UTILITY - 1.1%
100,000 Southern California Edison Co.
5.875%, due 1/15/01............... 97
ENTERTAINMENT - 1.2%
$100,000 Walt Disney Co.
6.375%, due 3/30/01............... $ 100
FINANCE - AUTO - 1.2%
100,000 Ford Motor Credit Note
6.25%, due 8/11/00................ 99
FINANCE - CONSUMER - 1.3%
100,000 Household Financial Corp.
9.00%, due 9/28/01................ 109
FINANCE - MISC - 2.4%
100,000 Associates Corp. of North America
7.02%, due 5/15/01................ 102
100,000 International Lease Finance Corp.
6.20%, due 5/01/00................ 99
------
TOTAL CORPORATE BONDS ........................ 1,015
------
U.S. GOVERNMENT SECURITIES - 29.1%
U.S TREASURY NOTES - 28.8%
290,000 7.50%, due 2/15/05................ 310
245,000 7.25%, due 8/15/04................ 258
1,565,000 6.375%, due 9/30/01............... 1,574
300,000 6.00%, due 10/15/99............... 300
U.S TREASURY PRINCIPAL STRIPS - 0.3%
50,000 0.00%, due 8/15/05................ 29
------
TOTAL U.S. GOVERNMENT SECURITIES ............. 2,471
------
TEMPORARY INVESTMENTS - 3.7%
INVESTMENT COMPANIES:
313,399 Short-Term Investments Co.
(Prime Portfolio)................. 313
------
TOTAL TEMPORARY INVESTMENTS .................. 313
------
TOTAL INVESTMENTS - 100.6% ................... 8,532
Liabilities, less Other Assets................ (45)
------
NET ASSETS .................................. $8,487
======
</TABLE>
- --------------------------------------------------------------------------------
(-) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
-38-
<PAGE> 41
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
DECEMBER 31, 1996
[PHOTO GREG EISEN]
For the eleven months from its inception, January 31, 1996, to December 31,
1996, the SAFECO Small Company Stock Fund returned 25.01%, significantly
outperforming the Russell 2000 Index, which earned 16.62% for the same period
and the S&P 500, which returned 18.90%. For the quarter ended December 31, 1996,
the Fund earned a 2.61% return, while the small company peer group returned
2.48% according to Lipper Analytical Services.
The Fund's performance was enhanced by large gains in some significantly
weighted stocks in the portfolio. Financial services, small banks, commercial
services, technology and gaming issues contributed to the Fund's performance.
And, it is a remarkable success as large, not small, companies were the clear
winners in 1996. Witness the disparate returns of the Russell 2000 (a measure of
small companies) and the S&P 500.
Some of our latest purchases include: AIRBORNE FREIGHT CORP, CUSTOM CHROME,
SODAK GAMING, STAGE STORES, and ZURN INDUSTRIES.
Airborne is a well known name, providing express delivery of small packages
for primarily business customers. We purchased this stock when it traded down to
a low valuation.
Custom Chrome makes parts for the Harley Davidson line of motorcycles.
Harley has undergone a surge in popularity among riders willing to pay premium
prices for the ride of their dreams.
Sodak Gaming supplies slot machine equipment to tribal casinos all over the
USA, and is expanding distribution into Brazil. I sold this stock earlier this
year, but repurchased when the price fell significantly, as business prospects
still look good.
Stage Stores is a retailer selling department store quality merchandise in
small towns in the center of the country where there is less direct competition
and lower costs of operations.
Zurn Industries is a leading plumbing products company.
(Continued on next page.)
-39-
<PAGE> 42
================================================================================
HIGHLIGHTS
SAFECO
SMALL COMPANY STOCK FUND
AS OF DECEMBER 31, 1996
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[SMALL COMPANY PIE]
(1) Large-Cap: 0% (over $4 billion)
(2) Mid-Cap: 0% ($1 billion - $4 billion)
(3) Small-Cap: 95% (under $1 billion)
(a) Large: 2% (over 750 million)
(b) Medium: 36% ($250 - $750 million)
(c) Small: 57% (under $250 million)
(4) Cash & Other Assets: 5%
TOP FIVE INDUSTRIES
AS A PERCENT OF NET ASSETS AS OF DECEMBER 31, 1996
- --------------------------------------------------------------------------------
[SMALL COMPANY BAR]
<TABLE>
<S> <C>
Financial Services: 13%
Banks: 10%
Building Materials: 7%
Commercial Services: 7%
Manufacturing: 6%
</TABLE>
REPORT FROM THE
SMALL COMPANY STOCK FUND
MANAGER (CONTINUED)
We sold SAN JOSE NATIONAL BANK when it achieved our price target and added
two new banks to our portfolio. COLUMBIA BANKING SYSTEM is a community bank
based in Tacoma, Washington which is run by some experienced managers who have
come from other, larger banking companies. FIRST UNITED BANCORP is a community
bank based in Palm Beach County, Florida that is consolidating smaller community
banks and building a multi-county franchise in Palm Beach and the counties to
the north.
As I stated earlier, large capitalization stocks outperformed small cap
stocks, making 1996 the third consecutive year of underperformance by the small
capitalization category. Going into 1997, I think small capitalization stocks
are attractively priced compared to large capitalization issues. Earnings growth
is expected to slow in the large cap universe, and this could highlight the
superior earnings growth rates of small cap stocks.
-40-
<PAGE> 43
================================================================================
The Fund will remain essentially fully invested across the broad range of
market sectors, in stocks that present the opportunity to provide better than
average returns.
/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.
HIGHLIGHTS (Continued)
SAFECO SMALL
COMPANY STOCK FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PERCENT
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Lancer Corp.................... 4.0%
(Beverage Equipment
Manufacturer)
Penederm, Inc.................. 3.7%
(Drug Delivery System)
American List Corp............. 3.3%
(Commercial Services)
Lifetime Hoan Corp............. 3.3%
(Household Products)
York Group, Inc................ 3.2%
(Casket Manufacturer)
Cole National Corp. (Class A).. 3.0%
(Specialty Retailer)
Tracor, Inc.................... 3.0%
(Aerospace Electronics)
Vallen Corp.................... 2.8%
(Safety Products)
Jayhawk Acceptance Corp........ 2.8%
(Financial Services)
Stage Stores, Inc...............2.7%
(Retail Store)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Oct. to Dec.) COST (000'S)
- --------------------------------------------------------------------------------
<S> <C>
Stage Stores, Inc.............. $376
Zurn Industries, Inc........... 325
1st United Bancorp............. 283
American Buildings Co.......... 263
Columbia Banking System, Inc... 248
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES
(Oct. to Dec.) PROCEEDS (000'S)
- --------------------------------------------------------------------------------
<S> <C>
*Cotelligent Group, Inc........ $325
*Monro Muffler Brake, Inc...... 238
*Genesee & Wyoming, Inc........ 204
*Inference Corp................ 174
*Stimsonite Corp............... 156
</TABLE>
*Security sold, no longer in portfolio.
-41-
<PAGE> 44
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -----------------------------------------------------------------
<S> <C>
COMMON STOCKS - 95.3%
AIR TRANSPORT - 3.2%
9,000 Airborne Freight Corp. ................... $210
7,000 Air Express
International Corp. ...................... 226
BANKS - DOMESTIC - 10.2%
25,000 1st United Bancorp ....................... 325
16,000- Columbia Banking
System, Inc. ............................. 260
20,000- Hanmi Bank
(Los Angeles, CA) ........................ 240
10,500- Imperial Bancorp ......................... 252
20,000 UnionBancorp, Inc. ....................... 290
BUILDING MATERIALS - 7.4%
12,000- American Buildings Co. ................... 286
10,800- Fibreboard Corp. ......................... 365
13,000 Zurn Industries, Inc. .................... 340
COMMERCIAL SERVICES - 6.5%
14,400 American List Corp. ...................... 437
22,000 York Group, Inc. ......................... 429
COMPUTER SOFTWARE - 2.1%
10,000- SPSS, Inc. ............................... 279
COMPUTER SYSTEMS - 5.8%
8,500- MICROS Systems, Inc. ..................... 261
35,000- Optimal Robotics Corp. ................... 166
45,500- PC Service Source, Inc. .................. 353
DRUGS & HOSPITAL SUPPLIES - 3.7%
40,000- Penederm, Inc. ........................... 495
ELECTRONICS - 3.0%
19,100- Tracor, Inc. ............................. 406
ENTERTAINMENT - 1.5%
50,000- Q-Zar, Inc. .............................. 206
FINANCIAL - 12.6%
37,500- First Enterprise
Financial Group, Inc. .................... 352
8,600 First Financial Caribbean Corp. .......... 239
32,900- Jayhawk Acceptance Corp. ................. 370
24,675 Litchfield Financial Corp. ............... 364
7,000- Ocwen Financial Corp. .................... 187
14,500- Rockford Industries, Inc. ................ 181
FOOD - 4.5%
11,600- JP Foodservice, Inc. ..................... 323
20,000 Tasty Baking Co. ......................... 275
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-42-
<PAGE> 45
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of December 31, 1996
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL AMOUNT VALUE (000's)
- -------------------------------------------------------------------
<S> <C>
HOTELS - MOTELS - 0.2%
2,500- U.S. Franchise Systems, Inc.
(Class A) ................................ $ 25
HOUSEHOLD PRODUCTS - 5.2%
14,500- Guest Supply, Inc. ....................... 256
37,100- Lifetime Hoan Corp. ...................... 436
LEISURE TIME - 3.8%
14,000- Custom Chrome, Inc. ...................... 282
15,000- Sodak Gaming, Inc. ....................... 231
MANUFACTURING - 6.1%
14,200- ABC Rail Products Corp. .................. 282
26,000- Lancer Corp. ............................. 530
METALS - 0.4%
30,000- Republic Engineered Steels, Inc. ......... 56
MISCELLANEOUS - 2.8%
22,500- Vallen Corp. ............................. 374
OIL SERVICES - 1.8%
5,000- Trico Marine Services, Inc. .............. 240
PETROLEUM & PETROLEUM SERVICES - 4.8%
30,000- Harcor Energy, Inc. ...................... 146
8,000- Seitel, Inc. ............................. 320
6,000- Swift Energy Co. ......................... 179
RETAIL - DEPARTMENT STORES - 2.7%
20,000- Stage Stores, Inc. ....................... 365
RETAIL - SPECIALTY - 3.0%
15,500- Cole National Corp. (Class A) ............ 407
TRANSPORTATION - 2.4%
6,600 GATX Corp. ............................... 320
UTILITIES - GAS - 1.6%
9,000 Northwest Natural Gas Co. ................ 216
-------
TOTAL COMMON STOCKS .................................. 12,782
-------
TEMPORARY INVESTMENTS - 5.9%
INVESTMENT COMPANIES:
$673,838 Short-Term Investments Co.
(Prime Portfolio) ........................ 674
117,006 Short-Term Investments Co.
(Treasury Portfolio) ..................... 117
-------
TOTAL TEMPORARY INVESTMENTS .......................... 791
-------
TOTAL INVESTMENTS - 101.2% ........................... 13,573
Liabilities, less Other Assets ....................... (166)
-------
NET ASSETS ........................................... $13,407
=======
</TABLE>
- - Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
-43-
<PAGE> 46
================================================================================
STATEMENTS OF ASSETS AND LIABILITIES
As of December 31, 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 $155,983 $707,316 $226,221
======== ======== ========
Investments at Value
Unaffiliated Issuers 147,296 859,893 290,383
Affiliated Issuers 47,847 -- --
-------- -------- --------
Total Investments at Value 195,143 859,893 290,383
Cash -- 5 --
Receivables
Investment Securities Sold -- 4,857 --
Trust Shares Sold 1,246 4,115 647
Dividends and Interest 164 1,317 1,031
Forward Currency Contracts Closed -- -- --
Forward Currency Contracts Open, Net -- -- --
Deferred Organization Expense -- -- --
-------- -------- --------
Total Assets 196,553 870,187 292,061
LIABILITIES
Payables
Investment Securities Purchased -- 13,395 509
Dividends 126 1,906 930
Investment Advisory Fees 116 410 169
Trust Shares Redeemed 187 1,038 113
Notes Payable -- 170 --
Organization Expense -- -- --
Other 61 188 67
-------- -------- --------
Total Liabilities 490 17,107 1,788
-------- -------- --------
NET ASSETS $196,063 $853,080 $290,273
======== ======== ========
NO-LOAD CLASS:
Net Assets $195,760 $849,831 $289,968
Trust Shares Outstanding 11,534 51,183 13,726
-------- -------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 16.97 $ 16.60 $ 21.13
======== ======== ========
CLASS A:
Net Assets $ 187 $ 2,894 $ 193
Trust Shares Outstanding 11 174 9
-------- -------- --------
Net Asset Value and
Redemption Price Per Share $ 16.97 $ 16.62 $ 21.15
======== ======== ========
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4.5%) $ 17.77 $ 17.40 $ 22.15
======== ======== ========
CLASS B:
Net Assets $ 116 $ 355 $ 112
Trust Shares Outstanding 7 22 5
-------- -------- --------
Net Asset Value and
Offering Price Per Share* $ 16.94 $ 16.60 $ 21.12
======== ======== ========
</TABLE>
*Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 44 -
<PAGE> 47
================================================================================
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY
FUND STOCK FUND FUND STOCK FUND
- -----------------------------------------------------------------------
<S> <C> <C> <C>
$31,242 $ 9,641 $ 8,031 $12,050
======= ======= ======= =======
43,351 10,806 8,532 13,573
-- -- -- --
------- ------- ------- -------
43,351 10,806 8,532 13,573
-- 573 -- --
609 -- -- --
21 51 7 121
43 26 72 5
-- 53 -- --
-- 2 -- --
-- 16 16 16
------- ------- ------- -------
44,024 11,527 8,627 13,715
-- 9 -- --
-- 34 115 --
28 11 6 10
24 19 -- 276
-- -- -- --
-- 16 16 16
26 15 3 6
------- ------- ------- -------
78 104 140 308
------- ------- ------- -------
$43,946 $11,423 $ 8,487 $13,407
======= ======= ======= =======
$43,345 $11,157 $ 8,262 $13,169
3,081 988 772 1,115
------- ------- ------- -------
$ 14.07 $ 11.29 $ 10.70 $ 11.81
======= ======= ======= =======
$ 369 $ 154 $ 110 $ 135
26 14 10 11
------- ------- ------- -------
$ 14.06 $ 11.29 $ 10.69 $ 11.81
======= ======= ======= =======
$ 14.72 $ 11.82 $ 11.19 $ 12.37
======= ======= ======= =======
$ 232 $ 112 $ 115 $ 103
17 10 11 9
------- ------- ------- -------
$ 14.03 $ 11.28 $ 10.70 $ 11.79
======= ======= ======= =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE> 48
================================================================================
STATEMENTS OF OPERATIONS
For the Three-Month Period Ended December 31, 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 $3 in the International Fund) $ 204 $ 3,921 $ 2,155
Interest 20 674 501
-------- -------- --------
Total Investment Income 224 4,595 2,656
EXPENSES
Investment Advisory Fees 327 1,131 469
Transfer Agent Fees 99 378 123
Shareholder Service Fees (Note 1) -- 1 --
Distribution Fees - Class B (Note 1) -- 1 --
Legal and Auditing Fees 15 25 17
Custodian Fees 6 6 3
Reports to Shareholders 8 35 10
Trustees' Fees 1 6 2
Loan Interest 4 -- --
Amortization of Organization Expenses -- -- --
-------- -------- --------
Total Expenses Before Reimbursement 460 1,583 624
Expense Reimbursement -- -- --
-------- -------- --------
Total Expenses After Reimbursement 460 1,583 624
-------- -------- --------
NET INVESTMENT INCOME (LOSS) (236) 3,012 2,032
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY (NOTE 2)
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers 2,653 28,862 7,031
Investments in Affiliated Issuers 237 -- --
Foreign Currency Transactions -- -- --
-------- -------- --------
Total Net Realized Gain (Loss) 2,890 28,862 7,031
Net Change in Unrealized Appreciation
(Depreciation) on:
Investments 17,540 33,741 14,121
Foreign Currency Related Transactions -- -- --
-------- -------- --------
NET GAIN ON INVESTMENTS AND FOREIGN CURRENCY 20,430 62,603 21,152
-------- -------- --------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 20,194 $ 65,615 $ 23,184
======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 46 -
<PAGE> 49
<TABLE>
<CAPTION>
================================================================================
SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY
FUND STOCK FUND FUND STOCK FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 88 $ 24 $ 30 $ 21
12 6 61 8
------- ------- ------- -------
100 30 91 29
80 28 15 27
32 2 2 8
-- -- -- --
-- -- -- --
12 11 9 9
3 -- 3 3
3 1 1 1
1 -- -- --
3 -- -- --
-- 1 1 1
------- ------- ------- -------
134 43 31 49
-- (8) (6) (6)
------- ------- ------- -------
134 35 25 43
------- ------- ------- -------
(34) (5) 66 (14)
(2,374) 19 99 (278)
-- -- -- --
-- 68 -- --
------- ------- ------- -------
(2,374) 87 99 (278)
3,280 855 243 643
-- (2) -- --
------- ------- ------- -------
906 940 342 365
------- ------- ------- -------
$ 872 $ 935 $ 408 $ 351
======= ======= ======= =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 47 -
<PAGE> 50
================================================================================
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
Transfer Agent Fees 384 1,203 359
Legal and Auditing Fees 18 31 19
Custodian Fees 26 27 15
Reports to Shareholders 24 86 30
Trustees' Fees 6 10 7
Loan Interest 123 -- --
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 (Note 1)
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> 51
================================================================================
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY
FUND STOCK FUND FUND STOCK FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 431 $ 143 $ 72 $ 36
64 15 134 41
------- ------- ------- -------
495 158 206 77
305 53 32 51
105 9 4 13
14 12 10 10
10 34 9 12
7 -- -- --
5 2 2 2
-- -- -- 1
2 3 3 3
------- ------- ------- -------
448 113 60 92
------- ------- ------- -------
47 45 146 (15)
5,695 (17) 5 723
-- -- -- --
-- 6 -- --
------- ------- ------- -------
5,695 (11) 5 723
(1,961) 310 258 880
-- 4 -- --
------- ------- ------- -------
3,734 303 263 1,603
------- ------- ------- -------
$ 3,781 $ 348 $ 409 $ 1,588
======= ======= ======= =======
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 49 -
<PAGE> 52
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
---------------------------------------------
THREE-MONTH
PERIOD ENDED
DECEMBER 31 YEAR ENDED SEPTEMBER 30
(In Thousands) 1996 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (236) $ (252) $ 552
Net Realized Gain from
Investments and Foreign
Currency Transactions 2,890 26,762 46,016
Net Change in Unrealized
Appreciation (Depreciation) 17,540 (1,973) (10,634)
--------- --------- ---------
Net Change in Net Assets
Resulting from Operations 20,194 24,537 35,934
NET EQUALIZATION CREDITS (DEBITS) -- -- 2
Dividends to Shareholders from
Net Investment Income - No-Load Class -- (45) (557)
- Class A -- -- --
- Class B -- -- --
Net Realized Gain on Investments - No-Load Class (2,644) (26,481) (46,001)
- Class A (3) -- --
- Class B (2) -- --
--------- --------- ---------
Total (2,649) (26,526) (46,558)
NET TRUST SHARE TRANSACTIONS
No-Load Class (1,336) 5,080 30,997
Class A 74 100 --
Class B 6 100 --
--------- --------- ---------
Total (1,256) 5,280 30,997
--------- --------- ---------
TOTAL CHANGE IN NET ASSETS 16,289 3,291 20,375
NET ASSETS AT BEGINNING OF PERIOD 179,774 176,483 156,108
--------- --------- ---------
NET ASSETS AT END OF PERIOD $ 196,063 $ 179,774 $ 176,483
========= ========= =========
- -----------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 1,572 22,451 26,526
Reinvestments 148 1,627 2,736
Redemptions (1,807) (23,589) (27,099)
--------- --------- ---------
NET CHANGE (87) 489 2,163
========= ========= =========
AMOUNTS:
Sales $ 25,444 $ 372,215 $ 490,890
Reinvestments 2,522 25,225 43,424
Redemptions (29,222) (392,160) (503,317)
--------- --------- ---------
NET CHANGE $ (1,256) $ 5,280 $ 30,997
========= ========= =========
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 50 -
<PAGE> 53
================================================================================
<TABLE>
<CAPTION>
SAFECO EQUITY FUND SAFECO INCOME FUND
- ------------------------------------------------ ----------------------------------------------
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 YEAR ENDED SEPTEMBER 30 DECEMBER 31 YEAR ENDED SEPTEMBER 30
1996 1996 1995 1996 1996 1995
- ------------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3,012 $ 11,183 $ 12,311 $ 2,032 $ 8,365 $ 8,954
28,862 77,448 42,516 7,031 22,848 9,277
33,741 18,119 52,564 14,121 9,944 20,170
--------- --------- --------- --------- --------- ---------
65,615 106,750 107,391 23,184 41,157 38,401
-- -- 73 -- -- (39)
(3,006) (11,189) (12,378) (2,028) (8,374) (8,912)
(7) -- -- (1) -- --
-- -- -- (1) -- --
(28,684) (77,500) (42,473) (7,033) (22,837) (9,283)
(98) -- -- (5) -- --
(12) -- -- (3) -- --
--------- --------- --------- --------- --------- ---------
(31,807) (88,689) (54,851) (9,071) (31,211) (18,195)
90,300 109,137 133,164 15,846 32,207 7,093
2,742 100 -- 85 100 --
250 100 -- 6 100 --
--------- --------- --------- --------- --------- ---------
93,292 109,337 133,164 15,937 32,407 7,093
--------- --------- --------- --------- --------- ---------
127,100 127,398 185,777 30,050 42,353 27,260
725,980 598,582 412,805 260,223 217,870 190,610
--------- --------- --------- --------- --------- ---------
$ 853,080 $ 725,980 $ 598,582 $ 290,273 $ 260,223 $ 217,870
========= ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------
6,132 17,984 29,460 869 2,864 1,662
1,800 5,249 3,370 385 1,374 833
(2,347) (16,536) (23,460) (503) (2,649) (2,145)
--------- --------- --------- --------- --------- ---------
5,585 6,697 9,370 751 1,589 350
========= ========= ========= ========= ========= =========
$ 102,959 $ 289,961 $ 419,705 $ 18,394 $ 58,320 $ 30,024
29,886 82,876 50,729 8,140 27,638 15,463
(39,553) (263,500) (337,270) (10,597) (53,551) (38,394)
--------- --------- --------- --------- --------- ---------
$ 93,292 $ 109,337 $ 133,164 $ 15,937 $ 32,407 $ 7,093
========= ========= ========= ========= ========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE> 54
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
<TABLE>
<CAPTION>
SAFECO NORTHWEST FUND
-------------------------------------------
THREE-MONTH
PERIOD ENDED
DECEMBER 31 YEAR ENDED SEPTEMBER 30
(In Thousands) 1996 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (34) $ 47 $ 112
Net Realized Gain (Loss)from
Investments and Foreign
Currency Transactions (2,374) 5,695 1,432
Net Change in Unrealized
Appreciation (Depreciation) 3,280 (1,961) 4,956
-------- -------- --------
Net Change in Net Assets
Resulting from Operations 872 3,781 6,500
NET EQUALIZATION CREDITS (DEBITS) -- -- (1)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class -- (48) (110)
- Class A -- -- --
- Class B -- -- --
Net Realized Gain on Investments - No-Load Class -- (5,695) (1,432)
- Class A -- -- --
- Class B -- -- --
-------- -------- --------
Total -- (5,743) (1,542)
NET TRUST SHARE TRANSACTIONS
No-Load Class (632) 4,950 (1,200)
Class A 254 100 --
Class B 124 100 --
-------- -------- --------
Total (254) 5,150 (1,200)
-------- -------- --------
TOTAL CHANGE IN NET ASSETS 618 3,188 3,757
NET ASSETS AT BEGINNING OF PERIOD 43,328 40,140 36,383
-------- -------- --------
NET ASSETS AT END OF PERIOD $ 43,946 $ 43,328 $ 40,140
======== ======== ========
- ---------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 196 1,209 832
Reinvestments -- 323 84
Redemptions (215) (1,175) (1,019)
-------- -------- --------
NET CHANGE (19) 357 (103)
======== ======== ========
AMOUNTS:
Sales $ 2,692 $ 17,755 $ 11,348
Reinvestments -- 4,438 1,202
Redemptions (2,946) (17,043) (13,750)
-------- -------- --------
NET CHANGE $ (254) $ 5,150 $ (1,200)
======== ======== ========
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE> 55
================================================================================
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL SAFECO SMALL
STOCK FUND SAFECO BALANCED FUND COMPANY STOCK FUND
- --------------------------------- --------------------------------- ---------------------------------
THREE-MONTH JANUARY 31, 1996 THREE-MONTH JANUARY 31, 1996 THREE-MONTH JANUARY 31,1996
PERIOD ENDED (COMMENCEMENT PERIOD ENDED (COMMENCEMENT PERIOD ENDED (COMMENCEMENT
DECEMBER 31 OF OPERATIONS) TO DECEMBER 31 OF OPERATIONS) TO DECEMBER 31 OF OPERATIONS)TO
1996 SEPTEMBER 30, 1996 1996 SEPTEMBER 30, 1996 1996 SEPTEMBER 30, 1996
- ----------- ------------------ ------------ ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
$ (5) $ 45 $ 66 $ 146 $ (14) $ (15)
87 (11) 99 5 (278) 723
853 314 243 258 643 880
-------- -------- ------- ------- -------- --------
935 348 408 409 351 1,588
(62) (51) (64) (146) -- --
(1) -- (1) -- -- --
-- -- (1) -- -- --
-- -- (97) (5) -- (708)
-- -- (1) -- -- --
-- -- (1) -- -- --
-------- -------- ------- ------- -------- --------
(63) (51) (165) (151) -- (708)
1,981 8,026 393 7,374 272 11,672
43 100 7 100 31 100
4 100 12 100 1 100
-------- -------- ------- ------- -------- --------
2,028 8,226 412 7,574 304 11,872
-------- -------- ------- ------- -------- --------
2,900 8,523 655 7,832 655 12,752
8,523 -- 7,832 -- 12,752 --
-------- -------- ------- ------- -------- --------
$ 11,423 $ 8,523 $ 8,487 $ 7,832 $ 13,407 $ 12,752
======== ======== ======= ======= ======== ========
- ------------------------------------------------------------------------------------------------------
219 1,042 43 785 254 1,625
3 2 5 3 (1) 32
(30) (224) (9) (34) (226) (549)
-------- -------- ------- ------- -------- --------
192 820 39 754 27 1,108
======== ======== ======= ======= ======== ========
$ 2,323 $ 10,466 $ 459 $ 7,893 $ 2,918 $ 17,916
29 18 50 31 (7) 373
(324) (2,258) (97) (350) (2,607) (6,417)
-------- -------- ------- ------- -------- --------
$ 2,028 $ 8,226 $ 412 $ 7,574 $ 304 $ 11,872
======== ======== ======= ======= ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-53-
<PAGE> 56
================================================================================
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"). The Trust recently changed its fiscal year end from September 30, to
December 31.
Effective September 30, 1996, each of the Funds began issuing two additional
classes of shares -- Class A and Class B shares (collectively, "Advisor
Classes"). 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 advisors to shareholders and have associated
sales and distribution charges. Each class of shares represents an interest in
the net assets of the fund.
In connection with issuing the new Advisor Classes, the Funds adopted a Plan
of Distribution (the "Plan"). Under the Plan, each Advisor Class pays the
distributor, SAFECO Securities Corp., for servicing its shares at the annual
rate of .25% of the average daily net assets of the Advisor Class. Class B
shares also pay the distributor a distribution fee at the annual rate of .75% of
the average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the 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.
- 54 -
<PAGE> 57
================================================================================
NOTES TO FINANCIAL STATEMENTS(Continued)
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 purchased at par are valued at cost. All other
Temporary Investments are valued at amortized cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if any) is
recorded on the ex-dividend date 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 Growth, Northwest,
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
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
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.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
(Continued on next page)
- 55 -
<PAGE> 58
================================================================================
NOTES TO FINANCIAL STATEMENTS(Continued)
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the
respective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. Reported net realized
gains or losses from foreign currency transactions arise from gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the International Fund's books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities other than
investments in securities, resulting from changes in the exchange rate.
FOREIGN EXCHANGE CONTRACTS. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
International Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
objective of the International Fund's foreign currency hedging transactions is
to reduce the risk that the U.S. dollar value of the International Fund's
foreign currency denominated securities will decline in value due to changes in
foreign currency exchange rates. All foreign currency exchange contracts are
"marked-to-market" daily at the applicable translation rates resulting in
unrealized gains or losses. Realized and unrealized gains or losses on foreign
currency contracts are recorded on settlement date of the foreign currency
exchange contract and are included in the Statements of Assets and Liabilities
and the Statement of Operations. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
- 56 -
<PAGE> 59
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 THREE-MONTH
PERIOD ENDED DECEMBER 31, 1996
(excluding short-term securities) $ 38,232 $ 166,782 $ 26,515 $ 7,191
======== ========= ======== ========
SALES FOR THE THREE-MONTH
PERIOD ENDED DECEMBER 31, 1996
(excluding short-term securities) $ 44,824 $ 113,153 $ 25,614 $ 11,211
======== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY
(In Thousands) STOCK FUND STOCK FUND STOCK FUND
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases for the Three-Month
Period Ended December 31, 1996
(excluding short-term securities) $2,213 $2,644* $3,021
====== ====== ======
Sales for the Three-Month
Period Ended December 31, 1996
(excluding short-term securities) $ 441 $ 643 $2,229
====== ====== ======
</TABLE>
* Includes $1,908 of U.S. Government Securities
- 57 -
<PAGE> 60
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
4. COMPONENTS OF NET ASSETS
At December 31, 1996, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
Growth Equity Income Northwest
(In Thousands) Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 50,407 $ 165,556 $ 67,427 $ 14,710
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There Is an Excess of
Identified Cost Over Value (11,247) (12,979) (3,265) (2,601)
--------- --------- --------- --------
NET UNREALIZED APPRECIATION 39,160 152,577 64,162 12,109
ACCUMULATED NET REALIZED (LOSS)
ON INVESTMENT TRANSACTIONS* -- -- -- (2,374)
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 156,903 700,503 226,111 34,211
--------- --------- --------- --------
NET ASSETS AT DECEMBER 31, 1996 $ 196,063 $ 853,080 $ 290,273 $ 43,946
========= ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY
(In Thousands) STOCK FUND FUND STOCK FUND
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 1,430 $ 590 $ 2,165
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There Is an Excess of
Identified Cost Over Value (263) (89) (642)
-------- ------- --------
NET UNREALIZED APPRECIATION 1,167 501 1,523
ACCUMULATED NET REALIZED (LOSS)
ON INVESTMENT TRANSACTIONS* -- -- (278)
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 10,256 7,986 12,162
-------- ------- --------
NET ASSETS AT DECEMBER 31, 1996 $ 11,423 $ 8,487 $ 13,407
======== ======= ========
</TABLE>
* The above accumulated net realized losses on investment transactions
represent capital loss carryforwards for Federal income tax purposes, which
expire as follows
<TABLE>
<CAPTION>
Amounts Expiration Dates
-------- ----------------
<S> <C> <C>
Northwest Fund $(2,374) 2005
Small Company Stock Fund (278) 2005
</TABLE>
- 58 -
<PAGE> 61
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
5. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Funds. These fees are based on a percentage of each day's net assets, which, on
an annual basis, are as follows:
<TABLE>
<S> <C> <C> <C>
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
</TABLE>
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 transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates. Interest rates equivalent to
commercial bank interest rates are charged on loans over $100,000. No interest
is charged on loans under $100,000. At December 31, 1996, the Equity Fund had a
5.98% note payable of $170,000 to SAFECO Life Insurance Company of America. The
note was repaid January 2, 1997.
- 59 -
<PAGE> 62
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
AFFILIATE OWNERSHIP. At December 31, 1996, SAFECO Insurance Company of
America, owned 500,000 shares (16% of outstanding shares) of the Northwest Fund,
SAFECO Asset Management Company owned 500,000 shares (51%) of the International
Fund and 500,000 shares (65%) of the Balanced Fund, and SAFECO Corporation owned
500,000 shares (45%) 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 the affiliates and are being reimbursed by the Fund over the same
time period.
EXPENSE REIMBURSEMENT. During the period ended December 31, 1996, SAFECO
Asset Management Company voluntarily reimbursed certain expenses of the
Balanced, International, and Small Company Funds.
6. INVESTMENTS IN AFFILIATES
Each of the companies is listed below because the Growth Fund owned at least
5% of the company's voting securities during the three-month period ended
December 31, 1996.
<TABLE>
<CAPTION>
(In Thousands)
SHARES AT SHARES AT MARKET VALUE
BEGINNING END DECEMBER 31
SECURITY OF PERIOD ADDITIONS REDUCTIONS OF PERIOD DIVIDENDS 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Building Co. 355 74 -- 429 -- $10,238
American Coin
Merchandising, Inc. 500 -- -- 500 -- 2,500
Damark International, Inc. 206 453 -- 659 -- 6,263
* First Enterprise Financial
Group, Inc. 282 -- (72) 210 -- --
Harold's Stores, Inc. 371 8 -- 379 -- 5,454
Lifeline Systems, Inc. 504 -- -- 504 -- 8,812
* MICROS Systems, Inc. 415 -- (21) 394 -- --
Open Plan Systems, Inc. 236 8 -- 244 -- 2,139
Penederm, Inc. 694 30 -- 724 -- 8,955
Rent -Way, Inc. 213 149 -- 362 -- 3,486
-------
$47,847
=======
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Company was not an affiliate at end of period.
- 60 -
<PAGE> 63
7. COMMITMENTS
At December 31, 1996, the International Fund had open forward foreign
currency exchange contracts obligating it to receive or 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 DECEMBER 31, 1996 (DEPRECIATION)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
408 Dutch Guilder $239 1/16/97 $235 $4
465 Dutch Guilder $267 3/5/97 269 (3)
510 Dutch Guilder $296 3/17/97 296 1
------
$2
======
</TABLE>
8. NET INVESTMENT LOSS
The Growth Fund had a net investment loss of $236,000. This amount was netted
against realized short-term capital gains to reduce the short-term capital gain
distributions paid on December 31, 1996. The Northwest Fund and Small Company
Stock Fund had net investment losses of $34,000 and $14,000, respectively. These
amounts were recorded as a reduction of paid-in capital.
- 61 -
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
-------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 15.45 $ 15.83 $ 17.37 $ 19.20 $ 13.98 $ 17.95
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.02) 0.07 (0.02) (0.02) (0.01)
Net Realized and Unrealized
Gain (Loss) on Investments 1.77 2.24 4.07 0.78 5.39 (3.15)
---------- ---------- --------- --------- --------- ---------
Total from
Investment Operations 1.75 2.22 4.14 0.76 5.37 (3.16)
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.07) -- -- --
Distributions from
Realized Gains (0.23) (2.60) (5.61) (2.59) (0.15) (0.81)
---------- ---------- --------- --------- --------- ---------
Total Distributions (0.23) (2.60) (5.68) (2.59) (0.15) (0.81)
---------- ---------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 16.97 $ 15.45 $ 15.83 $ 17.37 $ 19.20 $ 13.98
========== ========== ========= ========= ========= =========
TOTAL RETURN 11.35%* 14.16% 23.93% 3.88% 38.43% -17.83%
NET ASSETS AT
END OF PERIOD (000'S) $ 195,760 $ 179,574 $ 176,483 $ 156,108 $ 158,723 $ 127,897
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.99%** 1.02% 0.98% 0.95% 0.91% 0.91%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS -0.51%** -0.14% 0.34% -0.12% -0.10% -0.10%
PORTFOLIO TURNOVER RATE 82.93%** 124.79% 110.44% 71.18% 57.19% 85.38%
AVERAGE COMMISSION RATE PAID $ 0.0477 $ 0.0548 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 62 -
<PAGE> 65
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
------------ ------------
1996 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.45 $ 15.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.05)
Net Realized and Unrealized Gain
on Investments 1.77 1.77
---------- ----------
Total from Investment Operations 1.75 1.72
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- --
Distributions from Realized Gains (0.23) (0.23)
---------- ----------
Total Distributions (0.23) (0.23)
---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 16.97 $ 16.94
========== ==========
TOTAL RETURN+ 11.35%* 11.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 187 $ 116
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 1.12% 1.87%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** -0.58% -1.38%
PORTFOLIO TURNOVER RATE** 82.93% 82.93%
AVERAGE COMMISSION RATE PAID $ 0.0477 $ 0.0477
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.
- 63 -
<PAGE> 66
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 15.85 $ 15.31 $ 13.89 $ 12.54 $ 9.53 $ 10.38
Income From
Investment Operations
Net Investment Income 0.06 0.28 0.34 0.2 0.17 0.15
Net Realized and Unrealized
Gain (Loss) on Investments 1.33 2.42 2.59 1.83 3.79 (0.09)
----------- ----------- ----------- ----------- ----------- -----------
Total from
Investment Operations 1.39 2.70 2.93 2.06 3.96 0.06
Less Distributions
Dividends from
Net Investment Income (0.06) (0.28) (0.34) (0.23) (0.17) (0.15)
Distributions from
Realized Gains (0.58) (1.88) (1.17) (0.48) (0.78) (0.76)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.64) (2.16) (1.51) (0.71) (0.95) (0.91)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 16.60 $ 15.85 $ 15.31 $ 13.89 $ 12.54 $ 9.53
=========== =========== =========== =========== =========== ===========
TOTAL RETURN 8.79%* 18.04% 21.59% 16.51% 41.77% 0.41%
NET ASSETS AT
END OF PERIOD (000'S) $ 849,831 $ 725,780 $ 598,582 $ 412,805 $ 148,894 $ 74,383
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.78%** 0.79% 0.84% 0.85% 0.94% 0.96%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 1.48%** 1.74% 2.38% 1.72% 1.50% 1.34%
PORTFOLIO TURNOVER RATE 59.34%** 74.07% 56.14% 33.33% 37.74% 39.88%
AVERAGE COMMISSION RATE PAID $ 0.0571 $ 0.0587 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 64 -
<PAGE> 67
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
----------------------------------
1996 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.85 $ 15.85
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.04 0.02
Net Realized and Unrealized Gain
on Investments 1.35 1.33
----------- -----------
Total from Investment Operations 1.39 1.35
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.04) (0.02)
Distributions from Realized Gains (0.58) (0.58)
----------- -----------
Total Distributions (0.62) (0.60)
----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 16.62 $ 16.60
=========== ===========
TOTAL RETURN+ 8.78%* 8.50%*
NET ASSETS AT END OF PERIOD (000'S) $ 2,894 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 0.97% 1.75%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** 1.38% 0.51%
PORTFOLIO TURNOVER RATE** 59.34% 59.34%
AVERAGE COMMISSION RATE PAID $ 0.0571 $ 0.0571
- ----------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.
- 65 -
<PAGE> 68
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
----------------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 20.03 $ 19.11 $ 17.25 $ 17.79 $ 16.27 $ 15.35
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.15 0.73 0.82 0.81 0.78 0.80
Net Realized and Unrealized
Gain (Loss) on Investments 1.63 2.84 2.71 (0.30) 1.52 0.96
----------- ----------- ----------- ----------- ----------- -----------
Total from
Investment Operations 1.78 3.57 3.53 0.51 2.30 1.76
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.15) (0.73) (0.82) (0.81) (0.78) (0.80)
Distributions from
Realized Gains (0.53) (1.92) (0.85) (0.24) -- (0.04)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions (0.68) (2.65) (1.67) (1.05) (0.78) (0.84)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 21.13 $ 20.03 $ 19.11 $ 17.25 $ 17.79 $ 16.27
=========== =========== =========== =========== =========== ===========
TOTAL RETURN 8.89%* 18.98% 21.04% 2.98% 14.35% 11.75%
NET ASSETS AT
END OF PERIOD (000'S) $ 289,968 $ 260,023 $ 217,870 $ 190,610 $ 203,019 $ 181,582
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.89%** 0.86% 0.87% 0.86% 0.90% 0.90%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 2.89%** 3.56% 4.55% 4.59% 4.55% 5.06%
PORTFOLIO TURNOVER RATE 37.84%** 50.11% 31.12% 19.30% 20.74% 20.35%
AVERAGE COMMISSION RATE PAID $ 0.0573 $ 0.0591 -- -- -- --
</TABLE>
* Not annualized.
** Annualized.
- 66 -
<PAGE> 69
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
-------------------------------
1996 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 20.03 $ 20.03
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.12 0.10
Net Realized and Unrealized Gain
on Investments 1.65 1.62
---------- ----------
Total from Investment Operations 1.77 1.72
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.12) (0.10)
Distributions from Realized Gains (0.53) (0.53)
---------- ----------
Total Distributions (0.65) (0.63)
---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 21.15 $ 21.12
========== ==========
TOTAL RETURN+ 8.85%* 8.60%*
NET ASSETS AT END OF PERIOD (000'S) $ 193 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 1.03% 1.79%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** 2.66% 1.99%
PORTFOLIO TURNOVER RATE** 37.84% 37.84%
AVERAGE COMMISSION RATE PAID $ 0.0573 $ 0.0573
</TABLE>
* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.
- 67 -
<PAGE> 70
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED YEAR ENDED
DECEMBER 31 YEAR ENDED SEPTEMBER 30 SEPTEMBER 30 DECEMBER 31
-------------------------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.78 $ 14.41 $ 12.59 $ 12.34 $ 12.59 $ 11.37
INCOME FROM
INVESTMENT OPERATIONS
Net Investment
Income (Loss) (0.01) 0.02 0.04 0.04 0.02 0.06
Net Realized and
Unrealized Gain (Loss)
on Investments 0.30 1.32 2.35 0.59 (0.25) 1.53
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations 0.29 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 $ 14.07 $ 13.78 $ 14.41 $ 12.59 $ 12.34 $ 12.59
=========== =========== =========== =========== =========== ===========
TOTAL RETURN 2.10%* 9.61% 19.01% 5.19% -1.86%* 14.08%
NET ASSETS AT
END OF PERIOD (000'S) $ 43,345 $ 43,128 $ 40,140 $ 36,383 $ 39,631 $ 40,402
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.25%** 1.07% 1.09% 1.06% 1.11%** 1.11%
RATIO OF NET INVESTMENT
INCOME (LOSS) TO
AVERAGE NET ASSETS -0.31%** 0.11% 0.31% 0.33% 0.18%** 0.55%
PORTFOLIO TURNOVER RATE 67.32%** 35.69% 19.59% 18.46% 14.05%** 33.34%
AVERAGE COMMISSION
RATE PAID $ 0.0482 $ 0.0591 -- -- -- --
</TABLE>
* Not annualized.
** Annualized.
- 68 -
<PAGE> 71
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
THREE-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
-----------------------------------
1996 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.78 $ 13.78
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) (0.03)
Net Realized and Unrealized Gain
on Investments 0.29 0.28
---------- ----------
Total from Investment Operations 0.28 0.25
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- --
Distributions from Realized Gains -- --
---------- ----------
Total Distributions -- --
---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 14.06 $ 14.03
========== ==========
TOTAL RETURN+ 2.03%* 1.81%*
NET ASSETS AT END OF PERIOD (000'S) $ 369 $ 232
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 1.40% 2.18%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** -0.39% -1.19%
PORTFOLIO TURNOVER RATE** 67.32% 67.32%
AVERAGE COMMISSION RATE PAID $ 0.0482 $ 0.0482
- ------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.
-69-
<PAGE> 72
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
NO-LOAD CLASS CLASS A CLASS B
-------------------------------- ------------ ------------
JANUARY 31, 1996 THREE-MONTH THREE-MONTH
THREE-MONTH (COMMENCEMENT PERIOD ENDED PERIOD ENDED
PERIOD ENDED OF OPERATIONS) TO DECEMBER 31 DECEMBER 31
DECEMBER 31 SEPTEMBER 30, 1996 1996 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.39 $ 10.00 $ 10.39 $ 10.39
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) -- 0.06 -- --
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 0.96 0.39 0.95 0.93
------- ------- ------- -------
Total from Investment Operations 0.96 0.45 0.95 0.93
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.06) (0.06) (0.05) (0.04)
Distributions from Realized Gains -- -- -- --
------- ------- ------- -------
Total Distributions (0.06) (0.06) (0.05) (0.04)
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.29 $ 10.39 $ 11.29 $ 11.28
======= ======= ======= =======
TOTAL RETURN* 9.27% 4.54% 9.19%++ 8.96%++
NET ASSETS AT END OF PERIOD (000'S) $11,157 $ 8,323 $ 154 $ 112
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** 1.37%+ 2.36% 1.41%+ 2.17%+
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** -0.19% 0.93% -0.23% -1.15%
PORTFOLIO TURNOVER RATE** 18.51% 15.73% 18.51% 18.51%
AVERAGE COMMISSION RATE PAID $0.0223 $0.0225 $0.0223 $0.0223
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.68%, 1.72%, and 2.47% for the
No-Load Class, Class A, and Class B, respectively.
++ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
-70-
<PAGE> 73
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
<TABLE>
<CAPTION>
NO-LOAD CLASS CLASS A CLASS B
-------------------------------- ------------ ------------
JANUARY 31, 1996 THREE-MONTH THREE-MONTH
THREE-MONTH (COMMENCEMENT PERIOD ENDED PERIOD ENDED
PERIOD ENDED OF OPERATIONS) TO DECEMBER 31 DECEMBER 31
DECEMBER 31 SEPTEMBER 30, 1996 1996 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.38 $ 10.00 $ 10.38 $ 10.38
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.08 0.21 0.09 0.06
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 0.45 0.39 0.44 0.45
------- ------- ------- -------
Total from Investment Operations 0.53 0.60 0.53 0.51
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.08) (0.21) (0.09) (0.06)
Distributions from Realized Gains (0.13) (0.01) (0.13) (0.13)
------- ------- ------- -------
Total Distributions (0.21) (0.22) (0.22) (0.19)
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.70 $ 10.38 $ 10.69 $ 10.70
======= ======= ======= =======
TOTAL RETURN* 5.11% 5.99% 5.07%++ 4.85%++
NET ASSETS AT END OF PERIOD (000'S) $ 8,262 $ 7,632 $ 110 $ 115
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** 1.16%+ 1.32% 1.35%+ 2.11%+
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** 3.19% 3.21% 3.01% 2.23%
PORTFOLIO TURNOVER RATE** 36.10% 143.87% 36.10% 36.10%
AVERAGE COMMISSION RATE PAID $0.0548 $0.0560 $0.0548 $0.0548
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.52%, 1.70%, and 2.46% for the
No-Load Class, Class A, and Class B, respectively.
++ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
-71-
<PAGE> 74
================================================================================
NOTES TO FINANCIAL STATEMENTS (Continued)
9. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY STOCK FUND
<TABLE>
<CAPTION>
NO-LOAD CLASS CLASS A CLASS B
-------------------------------- ------------ ------------
JANUARY 31, 1996 THREE-MONTH THREE-MONTH
THREE-MONTH (COMMENCEMENT PERIOD ENDED PERIOD ENDED
PERIOD ENDED OF OPERATIONS) TO DECEMBER 31 DECEMBER 31
DECEMBER 31 SEPTEMBER 30, 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.51 $ 10.00 $ 11.51 $ 11.51
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.01) (0.01) (0.01) (0.04)
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions 0.31 2.19 0.31 0.32
------- ------- ------- -------
Total from Investment Operations 0.30 2.18 0.30 0.28
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.67) -- --
------- ------- ------- -------
Total Distributions -- (0.67) -- --
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.81 $ 11.51 $ 11.81 $ 11.79
======= ======= ======= =======
TOTAL RETURN* 2.61% 21.83% 2.61%++ 2.43%++
NET ASSETS AT END OF PERIOD (000's) $13,169 $12,552 $ 135 $ 103
RATIO OF EXPENSES TO
AVERAGE NET ASSETS** 1.35%+ 1.49% 1.42%+ 2.18%+
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS** -0.44% -0.24% -0.50% -1.28%
PORTFOLIO TURNOVER RATE** 73.47% 91.03% 73.47% 73.47%
AVERAGE COMMISSION RATE PAID $0.0496 $0.0510 $0.0496 $0.0496
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.58%, 1.62%, and 2.41% for the
No-Load Class, Class A, and Class B, respectively.
++ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
-72-
<PAGE> 75
================================================================================
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 December
31, 1996, and the related statements of operations, the statements of changes in
net assets, and the financial highlights for the periods indicated therein.
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
December 31, 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 December
31, 1996, the results of their operations, the changes in their net assets, and
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 31, 1997
-73-
<PAGE> 76
================================================================================
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.
-74-
<PAGE> 77
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
DEAF AND HARD OF HEARING
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
INTERNET:
http://networth.galt.com/safeco
E-MAIL: [email protected]
GMF 659 2/97
[RECYCLE SYMBOL] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
