<PAGE>
Semiannual Report
June 30, 1998
[SAFECO LOGO]
SAFECO MUTUAL FUNDS
STOCK FUNDS
NO-LOAD CLASS
---------
<TABLE>
<S> <C>
Growth Fund .............................................................. 2
Equity Fund .............................................................. 9
Income Fund ............................................................. 14
Northwest Fund .......................................................... 20
International Fund ...................................................... 25
Balanced Fund ........................................................... 31
Small Company Fund ...................................................... 37
U.S. Value Fund ......................................................... 42
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Growth Fund remains in the top echelon of stock mutual funds
and ahead of the broad market. Returning 44.63% for the 12 months ending
June 30, the Fund outperformed the S&P 500 Index, the Russell 2000 Index and its
peer funds. The S&P returned 30.15% and the Russell small-cap benchmark climbed
16.79% while the average growth fund delivered 25.38% according to Lipper
Analytical Services, Inc. [PHOTO OF THOMAS M. MAGUIRE]
Lipper ranks SAFECO Growth in the top 3% of growth funds for the one,
three and five years ended June 30, 1998. (The fund was 19 of 884 growth
funds for the year ended June 30, 1998; 16 of 560 funds for the three
years; 10 of 338 for the five years; and 39 of 181 for the 10 years.)
Despite being down for the quarter (-1.05%), the fund delivered 17.02% for
the latest six months. The average growth fund, as measured by Lipper, went up
1.85% for the quarter and 15.11% year to date. But over longer time periods I'm
more optimistic.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 44.63%
5 Year 26.03%
10 Year 18.52%
</TABLE>
INVESTMENT VALUE
SAFECO GROWTH FUND: $54,691
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO GROWTH FUND S&P 500 INDEX
<S> <C> <C>
6/30/88 $10,000 $10,000
7/31/88 9,974 9,962
8/31/88 9,805 9,623
9/30/88 10,289 10,033
10/31/88 10,289 10,312
11/30/88 10,303 10,165
12/31/88 10,470 10,343
1/31/89 10,470 11,100
2/28/89 10,762 10,823
3/31/89 11,033 11,075
4/30/89 11,033 11,650
5/31/89 11,482 12,122
6/30/89 11,736 12,053
7/31/89 11,736 13,141
8/31/89 12,259 13,399
9/30/89 12,885 13,344
10/31/89 12,399 13,034
11/30/89 12,362 13,300
12/31/89 12,478 13,620
1/31/90 11,269 12,706
2/28/90 11,577 12,870
3/31/90 12,276 13,211
4/30/90 12,328 12,880
5/31/90 13,591 14,136
6/30/90 13,132 14,040
7/31/90 13,387 13,995
8/31/90 11,078 12,730
9/30/90 9,836 12,110
10/31/90 9,174 12,058
11/30/90 9,854 12,837
12/31/90 10,611 13,195
1/31/91 11,671 13,770
2/28/91 13,279 14,755
3/31/91 13,929 15,112
4/30/91 14,601 15,148
5/31/91 15,564 15,803
6/30/91 14,636 15,079
7/31/91 16,006 15,782
8/31/91 16,642 16,156
9/30/91 16,743 15,886
10/31/91 17,247 16,099
11/30/91 15,792 15,450
12/31/91 17,259 17,217
1/31/92 18,522 16,897
2/28/92 18,390 17,117
3/31/92 17,023 16,783
4/30/92 15,967 17,276
5/31/92 15,572 17,361
6/30/92 14,374 17,102
7/31/92 14,978 17,802
8/31/92 14,129 17,437
9/30/92 13,757 17,643
10/31/92 14,338 17,703
11/30/92 16,148 18,304
12/31/92 16,729 18,529
1/31/93 17,428 18,684
2/28/93 16,266 18,938
3/31/93 16,906 19,338
4/30/93 15,863 18,870
5/31/93 16,680 19,374
6/30/93 17,201 19,430
7/31/93 17,142 19,352
8/31/93 18,244 20,085
9/30/93 19,044 19,931
10/31/93 19,530 20,343
11/30/93 18,707 20,150
12/31/93 20,441 20,394
1/31/94 21,541 21,087
2/28/94 20,512 20,515
3/31/94 19,483 19,623
4/30/94 20,003 19,874
5/31/94 20,186 20,198
6/30/94 18,688 19,703
7/31/94 19,106 20,350
8/31/94 20,298 21,182
9/30/94 19,784 20,665
10/31/94 20,068 21,128
11/30/94 19,522 20,359
12/31/94 20,109 20,660
1/31/95 19,800 21,195
2/28/95 20,889 22,020
3/31/95 20,808 22,669
4/30/95 20,912 23,336
5/31/95 21,748 24,283
6/30/95 23,065 24,847
7/31/95 23,879 25,669
8/31/95 23,799 25,733
9/30/95 24,518 26,819
10/31/95 24,409 26,723
11/30/95 24,657 27,893
12/31/95 25,359 28,431
1/31/96 26,298 29,398
2/28/96 27,284 29,672
3/31/96 26,868 29,956
4/30/96 28,011 30,398
5/31/96 29,201 31,180
6/30/96 27,932 31,299
7/31/96 25,177 29,917
8/31/96 26,680 30,549
9/30/96 27,990 32,267
10/31/96 28,588 33,156
11/30/96 29,693 35,660
12/31/96 31,166 34,954
1/31/97 33,848 37,135
2/28/97 32,948 37,428
3/31/97 31,791 35,894
4/30/97 30,321 38,033
5/31/97 34,913 40,345
6/30/97 37,815 42,153
7/31/97 40,018 45,506
8/31/97 41,451 42,958
9/30/97 44,793 45,311
10/30/97 43,967 43,800
11/30/97 45,877 45,825
12/31/97 46,738 46,612
1/31/98 47,300 47,127
2/28/98 52,068 50,524
3/31/98 55,274 53,109
4/30/98 57,418 53,643
5/31/98 54,733 52,722
6/30/98 54,691 54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 2 -
<PAGE>
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Our performance, the Fund's volatility, and the fact that we are often out of
step with the rest of the market are due to one thing: eclectic stock picking.
Because its good performance was discovered, SAFECO Growth experienced
tremendous asset growth and a drop in its expense ratio. Assets grew from $262
million at June 30, 1997, to $1.6 billion at June 30, 1998.
Because of the cash inflow, I bought some larger caps, notably: Avon, Green
Tree Financial, American Home Products, Philip Morris and Kimberly-Clark. The
advantage of investing in these larger companies is that I can acquire enough
stock to make a difference in the Fund's performance. Additionally, the money
goes right to work and is readily accessible when more intriguing opportunities
arise.
Green Tree, a manufactured housing financier that the Fund has owned in the
past, contributed tremendously to the Fund's success so far in 1998. Its stock
fell on an accounting controversy and we acquired it on the cheap.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Green Tree Financial Corp. ........................................ 7.5%
(Financial Services Company)
Chancellor Media Corp. ............................................. 6.8
(Radio Stations)
Philip Morris Cos., Inc. ........................................... 4.9
(Food, Beverage & Tobacco Company)
Corrections Corp. of America ........................................ 3.9
(Correctional Institution Management)
Dura Pharmaceuticals, Inc. ......................................... 3.6
(Pharmaceuticals)
Emmis Broadcasting Corp. (Class A) .................................. 3.5
(Radio Stations)
MICROS Systems, Inc. ............................................... 2.7
(Specialty Software Company)
Beckman Coulter, Inc. .............................................. 2.7
(Medical Instruments Manufacturer)
Family Golf Centers, Inc. .......................................... 2.7
(Golf Recreation Centers)
United Stationers, Inc. ............................................ 2.6
(Office Products Distribution)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ............................................ $68,488
Corrections Corp. of America ........................................ 67,890
Dura Pharmaceuticals, Inc. ......................................... 64,582
Philip Morris Cos., Inc. ........................................... 62,997
Kimberly-Clark Corp. ............................................... 51,366
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Kimberly-Clark Corp. .............................................. $24,989
*Elan Corp., plc (ADR) .............................................. 16,814
*First Data Corp. .................................................. 16,762
*Res-Care, Inc. .................................................... 14,719
*Boston Scientific Corp. ........................................... 14,712
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Broadcasting (Television, Radio & Cable) ............................ 11%
Financial (Miscellaneous) ............................................. 8
Health Care (Medical Products & Supplies) ............................. 6
Tobacco ............................................................... 5
Services (Commercial & Consumer) ...................................... 5
- -------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 3 -
<PAGE>
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- --------------------------------------------------------------------------------
REPORT FROM THE GROWTH FUND MANAGER
Then, due to an agreement to merge with Conseco, it climbed to be
one of last quarter's top-performers on the New York Stock Exchange.
We started buying Avon after its price fell on near-term earnings
concerns. Its long-term focus on cost cutting gives it a great outlook for
earnings growth. Indeed, year to date the stock is up 27% versus the S&P's 18%.
We bought American Home Products when its stock lost weight on a problem with
its diet drugs. Over the last six months, the stock gained 35% versus the S&P
500's 18%. A practiced acquirer, American Home recently announced a merger with
Monsanto that further solidifies its scientific nature and greatly enhances its
long-term growth prospects.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Large: ($4 Bil. and above) 27%
Medium: ($1 Bil. - $4 Bil.) 19%
Small: (Less than $1 Bil.) 54%
</TABLE>
I like larger caps only when I smell value in them, and that usually arises
from a controversy. My preferred stocks continue to be those that are
undiscovered with ample room to appreciate. My current favorites include:
Family Golf (a consolidator of driving range facilities that has
essentially acquired all its major competition), Dura Pharmaceutical
(a smaller pharmaceutical that has created a niche in respiratory
drugs), MICROS Systems (a point of sale inventory systems provider that is
simultaneously cutting costs and expanding its product line and customer base),
United Stationers (the largest player in the consistent business of office
product distribution) and Corrections Corp (the largest private operator of
prisons).
As your fund manager, I am working to invest creatively, keep up our good
results, be thankful when things go well, and remember that nothing lasts
forever.
Thomas M. Maguire
- -------------------------------
After completing his M.B.A. at the University of Washington, Thomas M. Maguire
joined the company as an equity analyst in 1981 and today is a Vice President.
From 1984 to 1989, he co-managed the SAFECO Equity Fund.
- 4 -
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.2%
AUTOMOBILES - 0.2%
363,900 *Miller Industries, Inc. .......................... $ 2,820
AUTO PARTS & EQUIPMENT - 0.4%
607,000 *+Precision Auto Care, Inc. ......................... 5,994
BANKS (MAJOR REGIONAL) - 0.7%
405,405 Provident Bankshares Corp. ......................... 11,959
BIOTECHNOLOGY - 0.3%
338,700 *CryoLife, Inc. ..................................... 5,335
BROADCASTING (TELEVISION, RADIO & CABLE) - 10.6%
186,100 *American Tower Corp. (Class A) ...................... 4,641
2,266,898 *Chancellor Media Corp. ........................... 112,566
1,208,700 *+Emmis Broadcasting Corp. (Class A) ................ 57,791
BUILDING MATERIALS - 0.3%
475,100 *Hospitality Worldwide Services ...................... 4,276
CHEMICALS (SPECIALTY) - 0.7%
709,800 *+Tetra Technologies, Inc. ......................... 11,712
COMMUNICATIONS EQUIPMENT - 2.2%
100,000 *Advanced Commmunication Systems, Inc. .............. 1,244
218,000 *DSC Communications Corp. ........................... 6,540
155,700 *NewCom, Inc. ....................................... 1,479
353,000 Scientific-Atlanta, Inc. ............................ 8,957
48,100 Tyler Corp. ........................................... 496
577,300 *World Access, Inc. ................................ 17,319
COMPUTERS (HARDWARE) - 3.0%
146,200 *Equitrac Corp. ..................................... 2,906
1,338,028 *+MICROS Systems, Inc. ............................. 44,280
128,000 *Optimal Robotics Corp. ............................. 1,504
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMPUTERS (PERIPHERALS) - 0.5%
303,500 *Quantum Corp. .................................... $ 6,298
100,000 *Seagate Technology, Inc. ........................... 2,381
COMPUTERS (SOFTWARE & SERVICES) - 1.7%
43,479 *Affiliated Computer Services, Inc. ................. 1,674
1,203,400 *Discreet Logic, Inc. .............................. 13,990
622,500 *+Phoenix International Ltd., Inc. ................. 10,116
295,400 *TRO Learning, Inc. ................................. 2,566
CONSUMER FINANCE - 0.8%
655,300 Doral Financial Corp. .............................. 11,468
118,000 *+Waterside Capital Corp. ........................... 1,342
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.5%
250,500 *Action Performance Cos., Inc. ...................... 8,063
221,000 *Celebrity, Inc. ...................................... 262
CONTAINERS (METAL & GLASS) - 0.1%
221,400 *Ontro, Inc. .......................................... 858
DISTRIBUTORS (FOOD & HEALTH) - 2.6%
1,557,400 *Nu Skin Enterprises, Inc. (Class A) ................ 30,369
728,200 +Weider Nutrition International, Inc. .............. 12,379
DRUGS & HOSPITAL SUPPLY - 0.5%
335,500 *Zonagen, Inc. ...................................... 7,360
ELECTRICAL EQUIPMENT - 1.0%
389,900 *Kent Electronics Corp. ............................. 7,140
424,300 *+PCD, Inc. ......................................... 7,266
189,000 *Ultrak, Inc. ....................................... 1,607
ENGINEERING & CONSTRUCTION - 1.0%
360,400 *+American Buildings Co. ........................... 10,722
393,300 *Morrison Knudsen Corp. ............................. 5,531
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 1.4%
376,400 *Championship Auto Racing Teams, Inc. ............. $ 6,869
335,600 *SFX Entertainment, Inc. (Class A) .................. 15,396
FINANCIAL (DIVERSIFIED) - 0.7%
483,600 *+BNC Mortgage, Inc. ................................ 5,320
274,475 *Credit Acceptance Corp. ............................ 2,333
444,700 United Panam Financial Corp. ........................ 4,558
FINANCIAL (MISCELLANEOUS) - 7.5%
2,898,500 Green Tree Financial Corp. ........................ 124,092
FOOTWEAR - 0.0%
48,000 *Rocky Shoes & Boots, Inc. ............................ 684
HEALTH CARE (DIVERSIFIED) - 2.1%
566,100 American Home Products Corp. ....................... 29,296
331,500 *Anesta Corp. ....................................... 4,786
42,000 *OrthAlliance, Inc. (Class A) .......................... 609
HEALTH CARE (DRUGS-GENERAL) - 3.9%
2,665,700 *+Dura Pharmaceuticals, Inc. ....................... 59,645
609,000 *+Nastech Pharmaceutical Co., Inc. .................. 4,948
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.5%
162,300 *Andrx Corp. ........................................ 5,965
436,900 *Gensia, Inc. ....................................... 1,748
162,500 Mylan Laboratories, Inc. ............................ 4,885
142,800 *PharmaPrint, Inc. .................................. 1,464
408,500 *Serologicals Corp. ................................ 13,174
255,000 *SuperGen, Inc. ..................................... 2,566
332,100 Teva Pharmaceutical Industries, Ltd. (ADR) .......... 11,686
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.0%
13,363 *AmSurg Corp. (Class A) ................................ 102
86,103 *AmSurg Corp. (Class B) ................................ 603
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MANAGED CARE) - 0.3%
37,500 *Birner Dental Management Services, Inc. ........... $ 234
356,400 +First Commonwealth, Inc. ........................... 5,346
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 5.9%
246,400 *Anika Therapeutics, Inc. ........................... 3,604
758,800 *Beckman Coulter, Inc. ............................. 44,200
270,100 *Datascope Corp. .................................... 7,175
209,300 Dentsply International, Inc. ........................ 5,233
305,200 *EDAP TMS S.A. (ADR) ................................. 1,431
920,200 *Haemonetics Corp. ................................. 14,723
514,450 *+Lifeline Systems, Inc. ............................ 9,517
886,000 *+PolyMedica Industries, Inc. 7,974
552,800 *Quidel Corp. ....................................... 1,728
138,900 *Senetek, plc (ADR) .................................... 486
156,100 *Urologix, Inc. ..................................... 1,327
162,000 *UroQuest Medical Corp. ............................... 425
HEALTH CARE (SPECIALIZED SERVICES) - 0.5%
282,300 *American Healthcorp, Inc. . 2,788
183,000 *Laboratory Specialists of America, Inc. .............. 858
533,600 *Prime Medical Services, Inc. ....................... 5,003
HOMEBUILDING - 0.1%
57,187 *American Homestar Corp. ............................ 1,369
HOUSEHOLD FURNITURE & APPLIANCES - 0.4%
585,900 *International Comfort Products Corp. ............... 7,104
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.6%
545,000 Kimberly-Clark Corp. ............................... 25,002
311,500 *U.S. Home & Garden, Inc. ........................... 2,005
HOUSEWARES - 0.2%
293,200 *Home Products International, Inc. .................. 3,408
INSURANCE (LIFE-HEALTH) - 0.5%
170,000 Conseco, Inc. ....................................... 7,948
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INVESTMENT BANKING/BROKERAGE - 0.3%
217,200 *E*TRADE Group, Inc. .............................. $ 4,982
LEISURE TIME (PRODUCTS) - 3.0%
250,000 *American Coin Merchandising, Inc. .................. 4,938
1,732,875 *+Family Golf Centers, Inc. ........................ 43,863
90,200 *Toymax International, Inc. ........................... 620
LODGING (HOTELS) - 1.4%
1,528,600 *+Suburban Lodges of America, Inc. ................. 23,120
MACHINERY (DIVERSIFIED) - 1.5%
690,700 Chart Industries, Inc. ............................. 16,490
210,800 *Innovative Valve Technologies, Inc. ................ 1,555
836,500 *+ITEQ, Inc. ........................................ 6,221
MANUFACTURING (DIVERSIFIED) - 1.6%
75,600 *ITC Learning Corp. ................................... 491
40,000 *Maverick Tube Corp. .................................. 465
439,100 +Nortek, Inc. ...................................... 13,502
422,850 *+Recovery Engineering, Inc. ........................ 8,906
246,000 *SurModics, Inc. .................................... 2,891
MANUFACTURING (SPECIALIZED) - 1.4%
213,000 Diebold, Inc. ....................................... 6,150
414,000 *+Teardrop Golf Co. ................................. 4,140
695,700 +Telco Systems, Inc. ................................ 9,870
218,600 *Zomax Optical Media, Inc. . 3,361
NATURAL GAS - 0.0%
108,000 Virginia Gas Co. ...................................... 662
OFFICE EQUIPMENT & SUPPLIES - 3.6%
81,600 *Asia Pacific Wire & Cable Corp., Ltd. ................ 428
367,000 Danka Business Systems (ADR) 4,335
244,500 *+Open Plan Systems, Inc. ............................. 565
698,400 *+TRM Copy Centers Corp. ............................ 9,952
668,800 *United Stationers, Inc. ........................... 43,305
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PERSONAL CARE - 3.3%
475,000 Avon Products, Inc. ............................... $36,813
188,100 *French Fragrances, Inc. ............................ 2,939
727,700 *+Penederm, Inc. ................................... 14,554
REAL ESTATE INVESTMENT TRUST - 4.8%
493,500 CCA Prison Realty Trust ............................. 15,113
2,714,500 *Corrections Corp. of America ....................... 63,791
RESTAURANTS - 1.6%
358,300 Apple South, Inc. ................................... 4,680
446,500 *Rainforest Cafe, Inc. .............................. 6,195
464,300 *Rare Hospitality International, Inc. ............... 6,819
493,000 *+Schlotzsky's, Inc. ................................ 7,888
RETAIL (BUILDING SUPPLIES) - 0.8%
569,800 *Eagle Hardware & Garden, Inc. ..................... 13,177
RETAIL (DEPARTMENT STORES) - 0.8%
179,400 *Marks Brothers Jewelers, Inc. ...................... 3,498
266,300 *Rainbow Rentals, Inc. .............................. 2,829
338,500 *Value City Department Stores, Inc. ................. 7,109
RETAIL (DISCOUNTERS) - 0.1%
354,998 *Filene's Basement Corp. ............................ 1,936
RETAIL (FOOD CHAINS) - 2.3%
1,056,100 American Stores Co. ................................ 25,544
933,279 *NPC International, Inc. ........................... 11,433
RETAIL (GENERAL MERCHANDISE) - 0.3%
60,000 *Happy Kids, Inc. ..................................... 825
264,075 Phillips-Van Heusen Corp. ........................... 3,895
RETAIL (HOME SHOPPING) - 0.4%
734,900 *+Damark International, Inc. ........................ 6,247
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (SPECIALTY) - 0.9%
229,300 *1-800 Contacts, Inc. ............................. $ 3,497
354,300 *+Funco, Inc. ....................................... 5,004
148,200 *Garden Ridge Corp. ................................. 2,871
85,000 *Travis Boats & Motors, Inc. ........................ 2,083
309,400 *West Coast Entertainment Corp. ....................... 522
RETAIL (SPECIALTY-APPAREL) - 2.0%
479,500 *+Concepts Direct, Inc. ............................. 7,312
542,213 *+Harold's Stores, Inc. ............................. 4,134
470,634 *Stage Stores, Inc. ................................ 21,296
SERVICES (ADVERTISING/MARKETING) - 0.4%
183,400 *ACI Telecentrics, Inc. ............................... 115
828,800 *APAC Teleservices, Inc. ............................ 4,843
85,550 LCS Industries, Inc. ................................ 1,251
SERVICES (COMMERCIAL & CONSUMER) - 4.9%
347,400 *Bluegreen Corp. .................................... 3,061
700,200 *+Compass International Services Corp. .............. 6,652
310,000 *FirstService Corp. ................................. 3,953
839,900 *+IntelliQuest Information Group, Inc. .............. 8,399
1,522,600 *NCO Group, Inc. ................................... 33,497
38,000 *Rent-Way, Inc. ..................................... 1,159
587,600 *Renters Choice, Inc. .............................. 16,673
280,000 SunSource, Inc. ..................................... 6,090
88,700 *UBICS, Inc. ........................................ 1,220
SERVICES (DATA PROCESSING) - 0.3%
378,100 *Vanstar Corp. ...................................... 5,506
SERVICES (EMPLOYMENT) - 0.7%
257,900 *ACSYS, Inc. ........................................ 3,546
170,000 *Alternative Resources Corp. ........................ 2,104
898,600 *+Hall, Kinion & Associates, Inc. ................... 6,009
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.6%
2,027,000 *CellStar Corp. ................................. $ 26,224
TELECOMMUNICATIONS (EQUIPMENTL) - 0.2%
174,500 Natural Microsystems Corp. .......................... 2,792
TELEPHONE - 0.4%
601,900 *+Innotrac Corp. .................................... 5,718
TOBACCO - 4.9%
2,063,000 Philip Morris Cos., Inc. ........................... 81,232
-------
TOTAL COMMON STOCKS ............................................... 1,615,688
-------
WARRANTS - 0.0%
COMPUTERS (PERIPHERALS) - 0.0%
32,500 *NewCom, Inc. .......................................... 81
CONTAINERS (METAL & GLASS) - 0.0%
221,400 *Ontro, Inc. .......................................... 152
-------
TOTAL WARRANTS .......................................................... 233
-------
TEMPORARY INVESTMENTS - 2.5%
COMMERCIAL PAPER:
$41,683,000 Countrywide Funding 6.35%, due 7/01/98 .............. 41,683
-------
TOTAL TEMPORARY INVESTMENTS .......................................... 41,683
-------
TOTAL INVESTMENTS - 100.7% ........................................ 1,657,604
Liabilities, less Other Assets ..................................... (11,792)
-------
NET ASSETS ....................................................... $1,645,812
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund
controls 5% or more of the outstanding voting shares of the company).
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the latest quarter and year-to-date, SAFECO Equity Fund delivered
0.84% and 14.19%, respectively, outpacing the 0.27% and 12.11% returns
posted by the Lipper Analytical Services, Inc. Growth and Income peer group.
However, it underperformed compared to the 3.30% and 17.70% posted by the S&P
500 Index. For the 12 months, the Fund returned 21.83%, lagging the peer group's
return of 22.86%. [PHOTO OF RICH MEAGLEY]
The Fund outpaced its peer funds in the latest periods because the Lipper
group, as a whole, owns more small to mid-cap companies, which clearly
underperformed the S&P 500.
The Fund lagged the S&P 500 because we have a lower price/earnings
ratio (P/E). Within the S&P 500, higher P/E stocks outperformed lower P/E
stocks.
Even though our orientation to value caused the Fund to lag the index, I
really like the overall strength of our lower-priced, aiming-for-predictable
portfolio. Admission standards for stocks in the Equity Fund are stringent
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 21.83%
5 Year 22.53%
10 Year 19.18%
</TABLE>
INVESTMENT VALUE
SAFECO EQUITY FUND: $57,811
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO EQUITY FUND S&P 500 INDEX
<S> <C> <C>
06/30/88 $10,000 $10,000
07/31/88 9,941 9,962
08/31/88 9,775 9,623
09/30/88 10,235 10,033
10/31/88 10,235 10,312
11/30/88 10,415 10,165
12/31/88 10,424 10,343
01/31/89 10,424 11,100
02/28/89 11,131 10,823
03/31/89 11,144 11,075
04/30/89 11,144 11,650
05/31/89 11,829 12,122
06/30/89 12,265 12,053
07/31/89 12,265 13,141
08/31/89 13,357 13,399
09/30/89 13,523 13,344
10/31/89 13,550 13,034
11/30/89 13,643 13,300
12/31/89 14,155 13,620
01/31/90 12,980 12,706
02/28/90 13,101 12,870
03/31/90 13,587 13,211
04/30/90 13,194 12,880
05/31/90 14,469 14,136
06/30/90 14,446 14,040
07/31/90 14,187 13,995
08/31/90 12,689 12,730
09/30/90 12,071 12,110
10/31/90 11,814 12,058
11/30/90 12,458 12,837
12/31/90 12,942 13,195
01/31/91 13,606 13,770
02/28/91 14,414 14,755
03/31/91 14,820 15,112
04/30/91 15,124 15,148
05/31/91 15,732 15,803
06/30/91 14,722 15,079
07/31/91 15,709 15,782
08/31/91 15,956 16,156
09/30/91 15,740 15,886
10/31/91 15,998 16,099
11/30/91 14,997 15,450
12/31/91 16,554 17,217
01/31/92 17,539 16,897
02/28/92 17,836 17,117
03/31/92 17,034 16,783
04/30/92 17,175 17,276
05/31/92 17,018 17,361
06/30/92 15,790 17,102
07/31/92 16,435 17,802
08/31/92 15,758 17,437
09/30/92 15,804 17,643
10/31/92 16,567 17,703
11/30/92 17,661 18,304
12/31/92 18,087 18,529
01/31/93 18,686 18,684
02/28/93 18,703 18,938
03/31/93 19,708 19,338
04/30/93 19,258 18,870
05/31/93 20,843 19,374
06/30/93 20,928 19,430
07/31/93 20,643 19,352
08/31/93 21,799 20,085
09/30/93 22,406 19,931
10/31/93 22,995 20,343
11/30/93 23,121 20,150
12/31/93 23,678 20,394
01/31/94 25,097 21,087
02/28/94 24,468 20,515
03/31/94 23,529 19,623
04/30/94 24,286 19,874
05/31/94 24,989 20,198
06/30/94 24,090 19,703
07/31/94 24,705 20,350
08/31/94 26,209 21,182
09/30/94 26,106 20,665
10/31/94 26,594 21,128
11/30/94 26,068 20,359
12/31/94 26,030 20,660
01/31/95 26,221 21,195
02/28/95 26,906 22,020
03/31/95 27,124 22,669
04/30/95 27,852 23,336
05/31/95 28,560 24,283
06/30/95 29,268 24,847
07/31/95 29,730 25,669
08/31/95 30,558 25,733
09/30/95 31,741 26,819
10/31/95 31,347 26,723
11/30/95 32,363 27,893
12/31/95 32,605 28,431
01/31/96 33,477 29,398
02/28/96 33,775 29,672
03/31/96 34,122 29,956
04/30/96 34,848 30,398
05/31/96 35,659 31,180
06/30/96 36,319 31,299
07/31/96 34,925 29,917
08/31/96 35,290 30,549
09/30/96 37,466 32,267
10/31/96 38,672 33,156
11/30/96 41,579 35,660
12/31/96 40,759 34,954
01/31/97 43,116 37,135
02/28/97 43,288 37,428
03/31/97 41,552 35,894
04/30/97 42,759 38,033
05/31/97 45,591 40,345
06/30/97 47,453 42,153
07/31/97 50,665 45,506
08/31/97 48,046 42,958
09/30/97 49,778 45,311
10/30/97 48,192 43,800
11/30/97 49,753 45,825
12/31/97 50,625 46,612
01/31/98 51,402 47,127
02/28/98 55,470 50,524
03/31/98 57,330 53,109
04/30/98 57,434 53,643
05/31/98 56,370 52,722
06/30/98 57,811 54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE EQUITY FUND MANAGER
enough that I have confidence in our holdings, especially in the event of a
market downturn.
Two new names were admitted to the Fund during the quarter Travelers and
Washington Mutual. I intend to hold both for a long time, as both of them are
quality acquirers in consolidating industries. Purchased at slightly less than
13 times its estimated 1999 earnings in a market that is trading at over 21
times the 1999 earnings, Washington Mutual is a sound way for us to participate
in the consolidation of the savings and loan industry.
We paid 15 times Traveler's expected earnings estimate. I bought it after it
announced it would merge with Citicorp to form CitiGroup. In addition to
attractive near-term value, Travelers has the long-term potential to cross-sell
its insurance and investor services to Citicorp's banking and credit clientele
and vice versa for Citicorp.
I let go of First Data because I fear that consolidation of the financial
service sector will hurt their core business--the processing of merchant
transactions. Other positions eliminated during the most recent quarter include
Columbia/HCA, PacifiCare Health Systems, and Electronic Data Systems, which I
did to further improve the quality of our holdings and to decrease the
volatility of our returns.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.5%
(Bank)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Microsoft Corp. .................................................... 2.8
(Personal Computer Software)
Abbott Laboratories ................................................. 2.8
(Health Care Products)
Johnson & Johnson ................................................... 2.8
(Health Care Products)
Kimberly-Clark Corp. ............................................... 2.7
(Manufacturing & Marketing Personal Care Products)
Merck & Co., Inc. .................................................. 2.7
(Health Care Products)
Federal National Mortgage Association ............................... 2.6
(Mortgage Loan Banker)
Exxon Corp. ........................................................ 2.5
(Oil/Gas Exploration & Production)
Travelers Group, Inc. .............................................. 2.4
(Insurance Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Travelers Group, Inc. ............................................. $46,527
Abbott Laboratories ................................................. 45,417
Proctor & Gamble Co. ............................................... 30,932
Washington Mutual, Inc. ............................................ 28,197
U.S. Bancorp ........................................................ 24,798
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Houston Industries, Inc. ......................................... $33,294
*Echlin, Inc. ...................................................... 27,667
*First Data Corp. .................................................. 26,602
*SmithKline Beecham, plc (ADR) ...................................... 23,829
American Home Products Corp. ....................................... 22,429
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Health Care (Diversified) ............................................... 9%
Insurance (Multi-Line) ................................................... 7
Oil (International Integrated) ........................................... 7
Household Products (Non-Durables) ........................................ 5
Financial (Diversified) .................................................. 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
While my intent is to build a portfolio of companies that I can
comfortably hold through thick and thin, I am sensitive to the fact
that valuation matters. Hence, I sold the fourth position, Houston,
because it had reached our target price.
I also sold part of Microsoft, Wal-Mart, General Electric, DuPont, PepsiCo
and American Home Products when these companies began to look expensive. On the
flip side, I added to our holdings in Hewlett-Packard, Dover, Fannie Mae, Intel
and Bell Atlantic when their prices looked right.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Large: ($4 Bil. and above) 95%
Medium: ($1 Bil. - $4 Bil.) 1%
Cash and Other: 4%
</TABLE>
The theme to all this, which is evidenced in our portfolio and in our low
turnover, is that we are long-term investors, holding above-average companies in
more predictable industries. For example, there are currently no
technical or cyclical companies in our top ten.
The market is expensive, which has made me a very cost- and
quality-conscious manager. I am making a concerted effort not to pay too much
for a stock in a market that seems overpriced, or reach too far in a market that
seems precipitous. I am holding companies I want to own--companies whose
long-term outlooks give me solace.
Rich Meagley
- -------------------------------
Rich Meagley joined SAFECO in 1983. After advancing from analyst to Northwest
Fund Manager, he left the company. He re-joined in January 1995 as Equity Fund
Manager. He holds an M.B.A. from the University of Washington, and is a
Chartered Financial Analyst.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 96.2%
AEROSPACE/DEFENSE - 4.3%
900,000 Boeing Co. ........................................ $40,106
360,000 Lockheed Martin Corp. .............................. 38,115
BANKS (MAJOR REGIONAL) - 3.9%
575,000 NationsBank Corp. .................................. 43,988
652,200 U.S. Bancorp ........................................ 28,045
BANKS (MONEY CENTER) - 3.5%
850,000 Chase Manhattan Corp. .............................. 64,175
BEVERAGES (ALCOHOLIC) - 2.3%
875,000 Anheuser-Busch Co., Inc. ........................... 41,289
BEVERAGES (NON-ALCOHOLIC) - 1.2%
530,000 PepsiCo, Inc. ...................................... 21,829
CHEMICALS - 3.9%
450,000 Du Pont (E.I.) de Nemours & Co. .................... 33,581
799,600 Praxair, Inc. ...................................... 37,431
COMMUNICATIONS EQUIPMENT - 1.5%
525,000 Motorola, Inc. ..................................... 27,595
COMPUTERS (HARDWARE) - 3.7%
610,000 Hewlett-Packard Co. ................................ 36,524
275,000 International Business Machines Corp. .............. 31,573
COMPUTERS (NETWORKING) - 1.0%
585,000 *3Com Corp. ........................................ 17,952
COMPUTERS (SOFTWARE & SERVICES) - 2.8%
475,000 *Microsoft Corp. ................................... 51,478
ELECTRICAL EQUIPMENT - 2.2%
435,000 General Electric Co. ............................... 39,585
ELECTRONICS (SEMICONDUCTORS) - 2.2%
550,000 Intel Corp. ........................................ 40,769
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 2.1%
365,000 Walt Disney Co. ................................... $38,348
FINANCIAL (DIVERSIFIED) - 4.6%
800,000 Federal Home Loan Mortgage Corp. ................... 37,650
785,000 Federal National Mortgage Association ............... 47,689
HEALTH CARE (DIVERSIFIED) - 9.3%
1,250,000 Abbott Laboratories ................................. 51,094
700,000 American Home Products Corp. ....................... 36,225
285,000 Bristol-Myers Squibb Co. ........................... 32,757
690,000 Johnson & Johnson ................................... 50,888
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.7%
365,000 Merck & Co., Inc. .................................. 48,819
HOUSEHOLD PRODUCTS (NON-DURABLES) - 4.7%
1,100,000 Kimberly-Clark Corp. ............................... 50,463
390,000 Procter & Gamble Co. ............................... 35,514
INSURANCE (MULTI-LINE) - 7.1%
217,000 American International Group, Inc. ................. 31,682
475,000 Hartford Financial Services Group, Inc. ............ 54,328
740,000 Travelers Group, Inc. .............................. 44,863
MANUFACTURING (DIVERSIFIED) - 3.9%
1,000,000 AlliedSignal, Inc. ................................. 44,375
820,000 Dover Corp. ........................................ 28,085
OIL (DOMESTIC INTEGRATED) - 2.2%
535,000 Mobil Corp. ........................................ 40,994
OIL (INTERNATIONAL INTEGRATED) - 6.5%
635,000 Exxon Corp. ........................................ 45,283
600,000 Royal Dutch Petroleum Co. (ADR) ..................... 32,888
700,000 Texaco, Inc. ....................................... 41,781
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 1.1%
300,000 Schlumberger Ltd. ................................. $20,494
PAPER & FOREST PRODUCTS - 1.0%
548,000 Willamette Industries, Inc. ........................ 17,536
RAILROADS - 2.0%
370,000 Burlington Northern Santa Fe Corp. ................. 36,329
RETAIL (DEPARTMENT STORES) - 1.4%
400,000 May Department Stores Co. ........................... 26,200
RETAIL (FOOD CHAINS) - 3.8%
550,000 Albertson's, Inc. .................................. 28,497
1,700,000 American Stores Co. ................................ 41,119
RETAIL (GENERAL MERCHANDISE) - 1.4%
435,000 Wal-Mart Stores, Inc. .............................. 26,426
SAVINGS & LOANS- 1.4%
600,000 Washington Mutual, Inc. ............................ 26,063
SERVICES (DATA PROCESSING) - 1.2%
300,000 Automatic Data Processing, Inc. .................... 21,862
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.7%
550,000 AT&T Corp. ...................................... $ 31,419
TELEPHONE - 3.5%
800,000 Bell Atlantic Corp. ................................ 36,500
500,000 GTE Corp. .......................................... 27,812
TOBACCO - 2.1%
1,000,000 Philip Morris Cos., Inc. ........................... 39,375
-------
TOTAL COMMON STOCKS ............................................... 1,767,393
-------
TEMPORARY INVESTMENTS - 3.7%
COMMERCIAL PAPER:
$68,750,000 Lehman Brothers Holdings, Inc. 6.40%, due 7/01/98 ... 68,750
-------
TOTAL TEMPORARY INVESTMENTS .......................................... 68,750
-------
TOTAL INVESTMENTS - 99.9% ......................................... 1,836,143
Other Assets, less Liabilities ........................................ 2,230
-------
NET ASSETS ....................................................... $1,838,373
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 13 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Income Fund continues to perform very well with total returns
that exceed its peer funds for the quarter, six months and year ending
June 30, 1998.
In the second quarter, six and 12 months just ended, the Fund returned .61%,
12.50% and 25.41%, respectively. That exceeds -.97%, 9.13% and 20.95%, the
comparable returns for the average equity-income fund reported by Lipper
Analytical Services, Inc. For the same three periods, the S&P 500 returned
3.30%, 17.70% and 30.15%. [PHOTO OF THOMAS RATH]
While the Fund didn't match the S&P 500 (due to its non-stock
investments), it continues to produce superior risk-adjusted returns. The
Fund's beta (a measure of price volatility relative to the S&P 500) of
.71 indicates that the Fund's volatility is 71% percent that of the S&P 500.
Over the same three-year period, the Fund's average annual total return (25.71%)
has been 85% that of S&P's (30.19%). In short, Income Fund shareholders have
gotten 85% of the S&P 500's return for 71% of the risk.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 25.41%
5 Year 18.80%
10 Year 14.34%
</TABLE>
INVESTMENT VALUE
SAFECO INCOME FUND: $38,204
S&P 500 INDEX: $54,863
<TABLE>
<CAPTION>
SAFECO S&P 500
INCOME FUND INDEX
<S> <C> <C>
06/30/88 $10,000 $10,000
07/31/88 10,021 9,962
08/31/88 9,853 9,623
09/30/88 10,137 10,033
10/31/88 10,137 10,312
11/30/88 10,293 10,165
12/31/88 10,212 10,343
01/31/89 10,212 11,100
02/28/89 10,671 10,823
03/31/89 10,717 11,075
04/30/89 10,717 11,650
05/31/89 11,124 12,122
06/30/89 11,472 12,053
07/31/89 11,472 13,141
08/31/89 12,164 13,399
09/30/89 12,266 13,344
10/31/89 11,803 13,034
11/30/89 11,938 13,300
12/31/89 12,174 13,620
01/31/90 11,559 12,706
02/28/90 11,612 12,870
03/31/90 11,700 13,211
04/30/90 11,282 12,880
05/31/90 11,854 14,136
06/30/90 11,807 14,040
07/31/90 11,596 13,995
08/31/90 10,737 12,730
09/30/90 10,296 12,110
10/31/90 10,048 12,058
11/30/90 10,663 12,837
12/31/90 10,865 13,195
01/31/91 11,288 13,770
02/28/91 11,938 14,755
03/31/91 12,119 15,112
04/30/91 12,251 15,148
05/31/91 12,621 15,803
06/30/91 12,303 15,079
07/31/91 12,653 15,782
08/31/91 13,037 16,156
09/30/91 13,017 15,886
10/31/91 13,152 16,099
11/30/91 12,610 15,450
12/31/91 13,392 17,217
01/31/92 13,495 16,897
02/28/92 13,538 17,117
03/31/92 13,407 16,783
04/30/92 13,799 17,276
05/31/92 13,929 17,361
06/30/92 13,980 17,102
07/31/92 14,499 17,802
08/31/92 14,394 17,437
09/30/92 14,547 17,643
10/31/92 14,279 17,703
11/30/92 14,645 18,304
12/31/92 14,928 18,529
01/31/93 15,253 18,684
02/28/93 15,543 18,938
03/31/93 16,069 19,338
04/30/93 15,850 18,870
05/31/93 16,060 19,374
06/30/93 16,144 19,430
07/31/93 16,060 19,352
08/31/93 16,588 20,085
09/30/93 16,834 19,931
10/31/93 16,924 20,343
11/30/93 16,718 20,150
12/31/93 16,801 20,394
01/31/94 17,350 21,087
02/28/94 16,962 20,515
03/31/94 16,370 19,623
04/30/94 16,561 19,874
05/31/94 16,571 20,198
06/30/94 16,328 19,703
07/31/94 16,832 20,350
08/31/94 17,364 21,182
09/30/94 17,129 20,665
10/31/94 17,099 21,128
11/30/94 16,493 20,359
12/31/94 16,618 20,660
01/31/95 17,039 21,195
02/28/95 17,572 22,020
03/31/95 18,070 22,669
04/30/95 18,456 23,336
05/31/95 18,995 24,283
06/30/95 19,230 24,847
07/31/95 19,980 25,669
08/31/95 20,124 25,733
09/30/95 20,734 26,819
10/31/95 20,506 26,723
11/30/95 21,222 27,893
12/31/95 21,662 28,431
01/31/96 22,355 29,398
02/28/96 22,410 29,672
03/31/96 22,676 29,956
04/30/96 22,765 30,398
05/31/96 23,518 31,180
06/30/96 23,813 31,299
07/31/96 23,142 29,917
08/31/96 23,578 30,549
09/30/96 24,668 32,267
10/31/96 25,579 33,158
11/30/96 26,922 35,660
12/31/96 26,860 34,954
01/31/97 27,915 37,135
02/28/97 27,953 37,428
03/31/97 26,927 35,894
04/30/97 27,299 38,033
05/31/97 29,257 40,345
06/30/97 30,462 42,153
07/31/97 32,126 45,506
08/31/97 31,636 42,958
09/30/97 33,047 45,311
10/30/97 31,957 43,800
11/30/97 33,112 45,825
12/31/97 33,959 46,612
01/31/98 34,500 47,127
02/28/98 36,461 50,524
03/31/98 37,971 53,109
04/30/98 38,257 53,643
05/31/98 37,428 52,722
06/30/98 38,204 54,863
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
I cut back American Home Products, formerly the largest holding of the Fund,
to a normal position size, 2.5% of net assets. Having appreciated 42% in nine
months, the stock's upside potential became less compelling.
Conversely, I increased two of our holdings, CCA Prison Real Estate
Investment Trust (REIT) and Chancellor Media convertible preferred, to 5.1% and
5.3%, respectively, of net assets when they declined on reasons unrelated to
their business prospects. I further increased our stake in radio broadcasting,
an industry on which I am very positive, by buying Emmis Broadcasting on a
secondary offering. It was very cheap relative to its peers.
I established several other new positions. I bought Hewlett-Packard and SCI
Systems convertible debentures when the stocks declined in sympathy with the
tech sector to prices that I thought represented excellent value. I purchased
Suburban Lodges because I judged the stock to have very little downside risk and
tremendous upside potential.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp.
7.00% Convertible ................................................ 5.3%
(Radio Stations)
CCA Prison Realty Trust ............................................. 5.1
(Correctional Facilities Leasing)
Family Golf Centers, Inc. Cvt.
5.75%, due 10/15/04 ............................................... 4.2
(Golf Recreation Centers)
Green Tree Financial Corp. ......................................... 3.7
(Financial Services Company)
Merrill Lynch & Co.
7.875%, Cvt. ..................................................... 3.6
(Financial Management)
MICROS Systems, Inc. ............................................... 3.0
(Specialty Software Company)
American Home Products Corp. ....................................... 2.5
(Pharmaceuticals)
Chase Manhattan Corp. .............................................. 2.5
(Bank)
Central Parking (144A)
5.25% Convertible ................................................. 2.4
(Parking Services)
GATX Corp. ......................................................... 2.3
(Railway & Terminal Operator)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
CCA Prison Realty Trust ............................................ $16,231
Merrill Lynch & Co. 7.875%, Cvt. ................................... 13,728
Central Parking (144A) 5.25%, Cvt. ................................. 11,810
SCI Systems, Inc. (144A)
5.00%, due 5/01/06 ................................................ 10,921
CCA Prison Realty Trust
8.00% Series A Pfd ................................................. 8,000
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
American Home Products Corp. ...................................... $11,029
*U.S. Bancorp ....................................................... 10,067
*First Data Corp. ................................................... 8,669
Family Golf Centers, Inc.
5.75%, due 10/15/04 ................................................ 7,224
*Xilinx, Inc. 5.25%, due 11/01/02 .................................... 7,220
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Real Estate Investment Trust ............................................ 8%
Broadcasting (Television, Radio & Cable) ................................. 7
Financial (Diversified) .................................................. 6
Oil (International Integrated) ........................................... 5
Leisure Time (Products) .................................................. 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INCOME FUND MANAGER
Finally, I established a new position in Newell Financial
convertible preferred because the stock looked cheap relative to its
three-year growth prospects and to other companies in the housewares
sector.
Five holdings were eliminated from the portfolio. I sold Home
Depot convertible and U.S. Bancorp stock for attractive gains after both
companies' stock appreciated to lofty valuation levels. I sold Adaptec, after
having purchased it just last quarter, because of deteriorating prospects for
the company. I sold First Data and Northwest Natural Gas for similar
reasons--lackluster prospects.
As of quarter end, the Income Fund was composed of 66% common stocks, 18%
preferred stock, 10% convertible bonds and 6% cash equivalents. Of the common
stock portion, 7% is invested in Real Estate Investment Trust (REIT) stocks.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Common Stocks
Large ($4 Bil. and above) 42%
Medium ($1 Bil. - $4 Bil.) 8%
Small (Less than $1 Bil.) 16%
Preferred Stocks 18%
Corporate Bonds 10%
Cash and Other 6%
</TABLE>
On the whole, I would say that the portfolio is more defensively positioned
now than it was six months ago, or any other time during my tenure as portfolio
manager. I continue to believe that there is very little margin of
safety built into current stock market valuations. I think the
primary source of risk to these valuations is earnings, more
specifically, disappointing earnings at some of the large
multinationals in the S&P 500.
The fund is still positioned to deliver a yield that is higher than the S&P
500. We are invested with exposure to domestic companies and to small- and
mid-capitalization stocks and convertibles, areas that I believe will tend to
outperform over the next 12 months or so. As always, I continue to focus on
investing in higher quality companies with growing revenues and earnings as long
as they are selling at reasonable prices.
Thomas Rath
- -------------------------------
In addition to being an equity and convertible securities portfolio manager at
SAFECO, Rath has been an analyst and portfolio manager at First Interstate Bank
and a principal at Meridian Capital Management. He holds an MBA from the
University of Washington and is a Chartered Financial Analyst.
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 66.4%
AEROSPACE/DEFENSE - 1.3%
60,000 Lockheed Martin Corp. ............................. $ 6,353
BANKS (MAJOR REGIONAL) - 2.3%
99,111 NationsBank Corp. ................................... 7,582
92,200 Norwest Corp. ....................................... 3,446
BANKS (MONEY CENTER) - 2.5%
160,000 Chase Manhattan Corp. .............................. 12,080
BEVERAGES (ALCOHOLIC) - 1.8%
180,600 Anheuser-Busch Co., Inc. ............................ 8,522
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.5%
148,000 *Emmis Broadcasting Corp. (Class A) .................. 7,076
COMPUTERS (HARDWARE) - 4.0%
80,500 Hewlett-Packard Co. ................................. 4,820
437,100 *MICROS Systems, Inc. .............................. 14,465
ELECTRIC COMPANIES - 1.5%
250,000 NIPSCO Industries, Inc. ............................. 7,000
ELECTRICAL EQUIPMENT - 1.9%
105,000 AMP, Inc. ........................................... 3,609
60,000 General Electric Co. ................................ 5,460
FINANCIAL (DIVERSIFIED) - 1.9%
70,000 Federal National Mortgage Association ................ 4,253
175,100 Medallion Financial Corp. ........................... 4,815
FINANCIAL (MISCELLANEOUS) - 3.7%
410,000 Green Tree Financial Corp. .......................... 17,553
FOODS - 0.7%
110,000 *ConAgra, Inc. ...................................... 3,486
HEALTH CARE (DIVERSIFIED) - 2.5%
235,000 American Home Products Corp. ....................... 12,161
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DRUGS-GENERAL) - 1.0%
208,000 Dura Pharmaceuticals, Inc. ......................... $ 4,654
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 1.3%
45,000 Merck & Co., Inc. ................................... 6,019
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.8%
144,600 Beckman Coulter, Inc. ............................... 8,423
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.7%
180,000 Kimberly-Clark Corp. ................................ 8,258
INSURANCE (MULTI-LINE) - 1.7%
70,000 Hartford Financial Services Group, Inc. ............. 8,006
LEISURE TIME (PRODUCTS) - 0.4%
114,900 Sturm, Ruger & Co., Inc. ............................ 1,925
LODGING (HOTELS) - 0.9%
285,000 *Suburban Lodges of America, Inc. ................... 4,311
MANUFACTURING (DIVERSIFIED) - 0.9%
55,000 Minnesota Mining & Manufacturing Co. ................ 4,520
OFFICE EQUIPMENT & SUPPLIES - 1.0%
440,000 Unisource Worldwide, Inc. ........................... 4,758
OIL (DOMESTIC INTEGRATED) - 2.2%
140,000 Mobil Corp. ........................................ 10,727
OIL (INTERNATIONAL INTEGRATED) - 4.6%
100,000 Exxon Corp. ......................................... 7,131
100,000 Royal Dutch Petroleum Co. (ADR) ...................... 5,481
160,000 Texaco, Inc. ........................................ 9,550
PAPER & FOREST PRODUCTS - 0.7%
70,000 Weyerhaeuser Co. .................................... 3,233
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PERSONAL CARE - 1.1%
70,000 Avon Products, Inc. ............................... $ 5,425
RAILROADS - 2.3%
252,868 GATX Corp. ......................................... 11,095
REAL ESTATE INVESTMENT TRUST - 7.1%
790,900 CCA Prison Realty Trust ............................. 24,221
155,000 First Industrial Realty Trust, Inc. ................. 4,931
185,000 Liberty Property Trust ............................... 4,729
RETAIL (DEPARTMENT STORES) - 1.8%
120,000 J.C. Penney Co., Inc. ............................... 8,677
RETAIL (FOOD CHAINS) - 1.0%
191,000 American Stores Co. ................................. 4,620
SAVINGS & LOANS - 1.5%
171,000 Washington Mutual, Inc. ............................. 7,428
SERVICES (DATA PROCESSING) - 2.0%
135,000 Automatic Data Processing, Inc. ..................... 9,838
TELEPHONE - 1.9%
160,000 GTE Corp. ........................................... 8,900
TOBACCO - 2.2%
268,300 Philip Morris Cos., Inc. ........................... 10,564
WASTE MANAGEMENT - 1.7%
275,900 Landauer, Inc. ...................................... 8,243
------
TOTAL COMMON STOCKS ................................................. 318,348
------
PREFERRED STOCKS - 17.7%
BROADCASTING (TELEVISION, RADIO & CABLE) - 5.3%
180,000 Chancellor Media Corp.
7.00% Convertible ................................... 25,290
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMPUTERS (NETWORKING) - 0.9%
100,000 #Vanstar Financing Trust (144A) 6.75% Convertible (acquired
9/27/97) ........................................... $ 4,075
CONTAINERS (METAL & GLASS) - 1.7%
177,000 Crown Cork & Seal
4.50% Convertible .................................... 7,921
CONTAINERS & PACKAGING - 0.7%
40,500 Newell Financial Trust
5.25% Convertible .................................... 2,354
20,000 #Newell Financial Trust (144A) 5.25% Convertible (acquired
6/29/98) ............................................. 1,163
FINANCIAL (DIVERSIFIED) - 3.6%
245,000 Merrill Lynch & Co.
7.875% Covertible ................................... 17,150
OIL & GAS (EXPLORATION & PRODUCTION) - 0.2%
19,600 Nuevo Energy Co.
$2.875 Convertible ..................................... 895
REAL ESTATE INVESTMENT TRUST - 1.3%
280,000 CCA Prison Realty Trust
8.00% Series A Pfd ................................... 6,457
SERVICES (COMMERCIAL & CONSTRUCTION) - 2.3%
456,200 #Central Parking (144A)
5.25% Convertible (acquired 3/18/98) ................ 11,291
TELEPHONE - 1.7%
148,000 Salomon, Inc.
6.25% Exchangeable Convertible to Cincinnati Bell,
Inc. ................................................ 8,279
------
TOTAL PREFERRED STOCKS ............................................... 84,875
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 10.2%
CONVERTIBLE SUBORDINATED DEBENTURES:
COMPUTERS (PERIPHERALS) - 1.7%
$ 8,500,000 Quantum Corp.
7.00%, due 8/01/04 ................................. $ 8,118
ELECTRICAL EQUIPMENT - 2.2%
6,500,000 #SCI Systems, Inc. (144A)
5.00%, due 5/01/06 (acquired 4/15/98) ............... 10,676
EQUIPMENT (SEMICONDUCTORS) - 1.3%
8,000,000 #Cymer, Inc. (144A)
7.25%, due 8/05/00 Step Bond (acquired 10/02/97) ..... 6,050
INSURANCE (MULTI-LINE) - 0.9%
4,750,000 Loews Corp.
3.125%, due 9/15/07 .................................. 4,388
LEISURE TIME (PRODUCTS) - 4.1%
16,400,000 #Family Golf Centers, Inc. (144A) 5.75%, due 10/15/04
(acquired 10/10/97) ................................. 19,905
------
TOTAL CORPORATE BONDS ................................................ 49,137
------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 6.0%
COMMERCIAL PAPER:
$ 5,806,000 Countrywide Funding Corp. 6.35%, due 7/01/98 ....... $ 5,806
22,250,000 Lehman Brothers Holdings, Inc. 6.40%, due 7/01/98 ... 22,250
INVESTMENT COMPANIES:
993,043 SSgA Prime Money Market Portfolio ...................... 993
------
TOTAL TEMPORARY INVESTMENTS .......................................... 29,049
------
TOTAL INVESTMENTS - 100.3% .......................................... 481,409
Liabilities, less Other Assets ...................................... (1,508)
------
NET ASSETS ......................................................... $479,901
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
# Securities are exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer". The total cost of such securities is $52,761,430 and
total value is 11.1% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 19 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the quarter ended June 30, 1998, the SAFECO Northwest Fund
returned -2.87% while the average growth fund returned 1.85%, according
to Lipper Analytical Services, Inc. For the six months, the fund returned 7.45%
versus the Lipper average of 15.11%. For the latest 12 months the Fund was at
17.30% and the peer group at 25.38%. The WM Group Northwest 50 Index returned
0.74% for the quarter, 15.87% for the six months and 26.80% for the one year.
[PHOTO OF WILLIAM B. WHITLOW]
The reasons for our underperformance involve the nature of our
investing universe. Tech stocks and Asia-affected stocks did poorly, and
the Northwest economy has more tech stocks and roughly twice the Asian exposure
of other regions. Further exacerbating the situation is our ownership of a lot
of small-cap stocks, which also did poorly. (In the latest quarter, the Russell
2000 Index, which has a median market cap of $395 million versus the Fund's $516
million, tumbled 4.6%.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 17.30%
5 Year 15.00%
Since Inception* 13.66%
</TABLE>
*The Funds inception was February 7, 1991. Graph and average
annual return comparison begins February 28, 1991.
INVESTMENT VALUE
SAFECO NORTHWEST FUND: $25,576
S&P 500 INDEX: $37,183
WM GROUP NW 50 INDEX: $33,162
<TABLE>
<CAPTION>
WM GROUP
SAFECO S&P 500 NW 50
NORTHWEST FUND INDEX INDEX
<S> <C> <C> <C>
02/28/91 $10,000 $10,000 $10,000
03/31/91 10,295 10,242 10,409
04/30/91 10,597 10,267 10,666
05/31/91 10,958 10,710 11,305
06/30/91 10,317 10,220 10,552
07/31/91 10,932 10,696 11,063
08/31/91 11,385 10,949 11,510
09/30/91 11,106 10,766 11,292
10/31/91 10,995 10,911 11,285
11/30/91 10,318 10,471 10,836
12/31/91 11,573 11,669 12,133
01/31/92 12,072 11,452 12,767
02/28/92 12,459 11,601 12,958
03/31/92 12,185 11,375 12,545
04/30/92 11,757 11,709 11,973
05/31/92 11,879 11,766 11,865
06/30/92 11,504 11,591 11,450
07/31/92 11,769 12,065 11,567
08/31/92 11,453 11,818 11,250
09/30/92 11,931 11,957 11,693
10/31/92 12,329 11,998 12,156
11/30/92 12,850 12,406 12,701
12/31/92 13,202 12,558 12,725
01/31/93 13,255 12,663 12,821
02/28/93 12,605 12,835 12,420
03/31/93 13,097 13,106 12,932
04/30/93 12,563 12,789 12,641
05/31/93 12,835 13,130 12,953
06/30/93 12,715 13,169 12,675
07/31/93 12,610 13,116 12,220
08/31/93 12,966 13,612 12,721
09/30/93 12,957 13,508 12,434
10/31/93 13,125 13,787 12,881
11/30/93 13,178 13,656 13,158
12/31/93 13,338 13,821 13,334
01/31/94 13,574 14,291 13,737
02/28/94 13,917 13,904 13,941
03/31/94 13,327 13,299 13,449
04/30/94 13,295 13,470 13,409
05/31/94 13,499 13,689 13,611
06/30/94 13,154 13,354 13,198
07/31/94 13,347 13,792 13,300
08/31/94 13,948 14,356 14,068
09/30/94 13,629 14,005 13,530
10/31/94 13,499 14,319 13,449
11/30/94 13,164 13,798 13,209
12/31/94 13,131 14,002 13,281
01/31/95 13,294 14,365 13,224
02/28/95 13,629 14,924 13,668
03/31/95 14,085 15,364 14,102
04/30/95 14,269 15,816 14,526
05/31/95 14,486 16,458 14,528
06/30/95 15,200 16,840 15,409
07/31/95 15,992 17,397 15,993
08/31/95 16,133 17,440 16,299
09/30/95 16,220 18,176 16,897
10/31/95 16,029 18,111 16,507
11/30/95 15,995 18,904 16,753
12/31/95 15,780 19,269 16,957
01/31/96 15,930 19,924 17,518
02/28/96 16,415 20,110 17,921
03/31/96 17,409 20,303 17,826
04/30/96 17,882 20,602 18,898
05/31/96 18,183 21,132 19,204
06/30/96 17,804 21,213 19,123
07/31/96 16,960 20,276 18,188
08/31/96 17,503 20,704 19,088
09/30/96 17,778 21,868 19,583
10/31/96 17,327 22,471 19,446
11/30/96 18,088 24,168 20,852
12/31/96 18,153 23,689 21,348
01/31/97 19,469 25,168 22,302
02/28/97 19,481 25,366 22,719
03/31/97 18,656 24,326 22,097
04/30/97 19,327 25,776 23,084
05/31/97 20,617 27,343 24,975
06/30/97 21,804 28,568 26,156
07/31/97 23,675 30,841 28,542
08/31/97 23,055 29,115 27,620
09/30/97 24,203 30,709 29,553
10/30/97 23,068 29,685 27,603
11/30/97 24,074 31,058 29,281
12/31/97 23,802 31,591 28,622
01/31/98 23,582 31,940 28,511
02/28/98 26,002 34,242 31,422
03/31/98 26,332 35,994 32,920
04/30/98 26,979 36,356 32,795
05/31/98 25,012 35,732 31,211
06/30/98 25,576 37,183 33,162
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 20 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Innova, a small, communications tech stock affected by Asia cascaded 67% over
the quarter as the yen declined, advancing the Japanese's competitive position.
Both Lattice Semiconductor and Sequent Computer suffered substantial declines
for the quarter (45% and 34%, respectively) as Asian orders dwindled. Boeing's
postponement of a major order further hurt Sequent. Boeing was down 9% for the
six months, but appears to be overcoming the problems created by their attempt
to increase production 140%--a difficult task for any management.
Seattle FilmWorks share price fell, so I bought more. I anticipate better
earnings and exciting new product developments going forward. I am not going to
sell these hard hit stocks. I think they represent a lot of potential. Eagle
Hardware did. We held it through hardware's hard times last year, and in the
last three months, it gained 31%.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 5.6%
(Personal Computer Software)
Eagle Hardware & Garden, Inc. ...................................... 5.2
(Home Improvement Center)
Physio-Control International Corp. ................................. 4.8
(Medical Equipment Manufacturer)
Costco Companies, Inc. ............................................. 4.3
(Wholesale Membership Warehouse)
Starbucks Corp. .................................................... 4.0
(Beverage Retailer)
Morrison Knudsen Corp. ............................................. 3.8
(Engineering & Construction Services)
Boeing Co. ......................................................... 3.4
(Aerospace)
Washington Mutual, Inc. ............................................ 3.3
(Savings & Loan)
Weyerhaeuser Co. ................................................... 3.3
(Forestry Products)
Expeditors International of Washington, Inc. ....................... 3.2
(Freight Forwarding)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Weyerhaeuser Co. ................................................... $2,394
Morrison Knudsen Corp. .............................................. 2,204
Seattle FilmWorks, Inc. ............................................. 1,773
Ambassadors International, Inc. ..................................... 1,575
Innova Corp. ........................................................ 1,402
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Alaska Air Group, Inc. ............................................ $3,597
Burlington Northern Santa Fe Corp. .................................. 1,430
*NIKE, Inc. ......................................................... 1,341
*Mentor Graphics Corp. .............................................. 1,305
Albertson's, Inc. ................................................... 1,170
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Savings & Loan Companies ............................................... 10%
Health Care (Medical Products & Supplies) ................................ 8
Computers (Software & Services) .......................................... 6
Banks (Major Regional) ................................................... 5
Retail (Building Supplies) ............................................... 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE NORTHWEST FUND MANAGER
We've also benefited from researching, visiting and buying
Morrison Knudsen before Wall Street discovered it. Rescued from
chapter 11, given a clean slate and honest management, this
construction engineering company is putting together positive
earnings.
Physio-Control (defibrillators) was up over 50% in the last quarter on the
news that it would be purchased by Medtronic. Microsoft did well, as usual, up
68% in the last six months. Starbuck's stock continues to perk, as it expands in
Europe, and Costco is doing well adding new services.
With lumber near the bottom of the cycle, I took a full position in
Weyerhaeuser. The company represented the best value in the group and has a new
CEO, from whom we expect good things.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Large ($4 Bil. and above) 39%
Medium ($1 Bil. - $4 Bil.) 3%
Small (Less than $1 Bil.) 58%
</TABLE>
I also bought Ambassadors International, a Spokane-based specialty travel
company, and Cavanaugh, a Spokane-based hotel chain. In addition, I participated
in the IPO of Washington Banking. My strategy here is to take small
positions of small banks in healthy economies.
In summary, I feel pretty shaken by the last six months, but
whole. I like the valuations of the 38 stocks that comprise the Fund
and their outlooks. Our outlook for the Northwest Economy is that it will slow,
but continue to outperform the nation. We don't know what toll Asia will take,
so we have limited our exposure there. I expect technology to become a bigger
component of our economy and offer more consistent growth as the sector matures.
It also seems to me, that smaller undervalued companies are bound to return to
favor and that good things come to those who wait.
William B. Whitlow
- -------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
re-joining SAFECO in April 1997 as Northwest Fund Manager, he was Director of
Research at Pacific Crest Securities. He holds a BA in chemistry from the U. of
Colorado and an MBA from the U. of Calif. at Berkeley. He is a CFA and a member
of the Washington State Governor's Council of Economic Advisors.
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 99.4%
AEROSPACE/DEFENSE - 3.4%
57,000 Boeing Co. ......................................... $2,540
AIR FREIGHT - 3.2%
53,000 Expeditors International of Washington, Inc. ........ 2,332
BANKS (DOMESTIC) - 1.2%
60,000 Heritage Financial Corp. .............................. 885
BANKS (MAJOR REGIONAL) - 5.3%
53,625 U.S. Bancorp ......................................... 2,306
65,962 West Coast Bancorp, Inc. ............................ 1,624
BANKS (REGIONAL) - 1.1%
59,000 *Washington Banking Co. ............................... 796
BIOTECHNOLOGY - 0.9%
98,000 *Corixa Corp. ......................................... 674
BUILDING MATERIALS - 2.8%
68,000 TJ International, Inc. .............................. 2,049
CHEMICALS (DIVERSIFIED) - 2.8%
68,000 Penford Corporation .................................. 2,057
COMMUNICATIONS (EQUIPMENT) - 3.5%
75,000 GST Telecommunications, Inc. ........................ 1,083
291,500 *Innova Corp. ....................................... 1,494
COMPUTERS (HARDWARE) - 4.4%
30,000 Hewlett-Packard Co. ................................. 1,796
125,000 *Sequent Computer Systems, Inc. ..................... 1,508
COMPUTERS (SOFTWARE & SERVICES) - 5.6%
38,500 *Microsoft Corp. .................................... 4,172
ELECTRONICS (SEMOCONDUCTORS) - 3.9%
31,000 Intel Corp. ......................................... 2,298
21,700 *Lattice Semiconductor Corp. .......................... 616
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENGINEERING & CONSTRUCTION - 3.8%
200,000 *Morrison Knudsen Corp. ............................ $2,813
HEALTH CARE (LONG TERM CARE) - 3.0%
189,000 *Emeritus Corp. ..................................... 2,233
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 7.9%
135,000 *Physio-Control International Corp. ................. 3,552
268,000 *Protocol Systems, Inc. ............................. 2,311
IRON & STEEL - 2.9%
90,000 Schnitzer Steel Industries, Inc. 2,126
LEISURE TIME (PRODUCTS) - 2.5%
60,000 *Ambassadors International, Inc. .................... 1,819
LODGING (HOTELS) - 1.6%
89,600 *Cavanaughs Hospitality Corp. ....................... 1,170
PAPER & FOREST PRODUCTS - 3.2%
52,000 Weyerhaeuser Co. .................................... 2,402
PHOTOGRAPHY/IMAGING - 3.1%
293,000 *Seattle FilmWorks, Inc. ............................ 2,262
RAILROADS - 0.6%
4,700 Burlington Northern Santa Fe Corp. .................... 461
RESTAURANTS - 4.0%
56,000 *Starbucks Corp. .................................... 2,993
RETAIL (BUILDING SUPPLIES) - 5.2%
167,000 *Eagle Hardware & Garden, Inc. ...................... 3,862
RETAIL (DEPARTMENT STORES) - 3.0%
53,000 *Fred Meyer, Inc. ................................... 2,253
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 2.4%
34,000 Albertson's, Inc. ................................. $ 1,762
RETAIL (GENERAL MERCHANDISE) - 4.3%
50,000 *Costco Companies, Inc. ............................. 3,153
SAVINGS & LOANS - 9.7%
30,000 InterWest Bancorp, Inc. ............................. 1,301
64,000 Riverview Bancorp, Inc. ............................. 1,064
84,000 *Sterling Financial Corp. ........................... 1,911
55,800 Washington Mutual, Inc. ............................. 2,424
19,829 WesterFed Financial Corp. ............................. 486
TELECOMMUNICATIONS (LONG DISTANCE) - 1.3%
158,000 *General Communications, Inc. (Class A) ................ 958
TELEPHONE - 2.8%
54,000 *NEXTLINK Communications, Inc. (Class A) ............. 2,044
-----
TOTAL COMMON STOCKS .................................................. 73,590
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 0.9%
INVESTMENT COMPANIES:
$674,495 SSgA Prime Money Market Portfolio ................... $ 674
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 674
-----
TOTAL INVESTMENTS - 100.3% ........................................... 74,264
Liabilities, less Other Assets ........................................ (265)
-----
NET ASSETS .......................................................... $73,999
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 24 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO International Stock Fund beat its peer funds and benchmark index
for the six and 12 months ended June 30, 1998. The fund returned 16.00% and
11.59% for the respective periods while the international funds tracked by
Lipper Analytical Services, Inc. returned 15.50% and 8.19%. For the six and 12
months, the EAFE index posted 15.10% and 4.55%.
Strength in our investing themes and cautiousness in approaching Asia helped
the portfolio outperform.
Stocks in Growth in Telecommunications, which comprise 8.82% of net assets,
were the largest contributors year to date. German-quoted Mannesmann, our
largest holding at 4.2% of net assets, reported ever-increasing earnings. Stocks
quoted in Leading Consumer Franchises also did quite well. Nestle (3.3% of net
assets) announced sales growth while analysts predict substantial cost savings
from recent acquisitions.
At 20% of net assets, Banking and Finance currently comprise
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 11.59%
Since Inception* 14.44%
</TABLE>
INVESTMENT VALUE
SAFECO INTERNATIONAL FUND: $13,854
EAFE INDEX: $12,265
<TABLE>
<CAPTION>
SAFECO EAFE
INTERNATIONAL FUND INDEX
<S> <C> <C>
01/30/96 $10,000 $10,000
02/28/96 9,940 9,650
03/31/96 10,040 9,808
04/30/96 10,290 9,543
05/31/96 10,250 9,896
06/30/96 10,240 10,540
07/31/96 9,840 11,121
08/31/96 10,240 11,301
09/30/96 10,454 10,457
10/31/96 10,585 11,042
11/30/96 11,249 10,194
12/31/96 11,423 10,090
01/30/97 11,382 10,178
02/28/97 11,534 10,630
03/31/97 11,463 11,299
04/30/97 11,514 11,633
05/31/97 12,050 11,711
06/30/97 12,414 11,640
07/31/97 12,850 11,715
08/31/97 11,747 11,044
09/30/97 12,556 11,662
10/30/97 11,514 10,766
11/30/97 11,585 10,656
12/31/97 11,943 10,749
01/30/98 12,203 11,241
02/28/98 13,013 11,962
03/31/98 13,522 12,330
04/30/98 13,594 12,413
05/31/98 13,719 12,339
06/30/98 13,854 12,265
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERNATIONAL STOCK FUND MANAGER
our largest sector. Good prospects for continued economic recovery buoyed by low
interest rates and expectations for further consolidation contributed to a run
up for European Financial stocks. Within the portfolio, Banco de Santander,
which announced it would acquire another Spanish bank, was a standout.
Stocks in Healthcare Needs had a good first quarter led by Zeneca, which
posted significant increases in profits and sales. Glaxo Wellcome advanced and
then retreated on the news that it would and then would not merge with
SmithKline Beecham.
Most of the portfolio's negative contributions came from stocks either quoted
in or with significant earnings' exposure to Asia.
The portfolio's hedging program remains in place and has added value over the
year to date. We maintain hedges against the Japanese yen, the German
deutschemark, the Swiss franc and the British pound.
Our largest concentration of equities (30.20% of net assets) is
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Mannesmann AG ...................................................... 4.2%
(Machinery & Engineering)
Internationale Nederladen Groep NV .................................. 4.1
(Banking & Finance)
Nestle SA ........................................................... 3.3
(Food)
Novartis AG ......................................................... 3.1
(Pharmaceuticals)
Schweizerische Rueckversicherungs- Gesellschaft ..................... 2.9
(Insurance)
Barclays, plc ....................................................... 2.8
(Banking & Finance)
B.A.T. Industries, plc .............................................. 2.7
(Tobacco)
Sony Corp. ......................................................... 2.7
(Audio/Video Products)
News Corp., Ltd. ................................................... 2.6
(Television & Publishing)
Canon, Inc. ........................................................ 2.6
(Office Equipment)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COUNTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
United Kingdom ......................................................... 30%
Japan ................................................................... 13
Switzerland ............................................................. 13
Germany ................................................................. 10
Netherlands ............................................................. 10
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Union Bank of Switzerland AG .......................................... $284
Alcatel Alsthom ........................................................ 216
Vivendi ................................................................ 205
Internationale Nederlanden Groep NV .................................... 197
Axa .................................................................... 192
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Novartis AG ........................................................... $261
Siemens AG ............................................................. 221
Schweizerische Rueckversicherungs- Gesellschaft ........................ 211
*BTR, plc .............................................................. 153
*General Electric Co., plc ............................................. 113
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 26 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
in the UK. Stocks there benefited by the lowest interest rate levels in more
than 30 years. The Bank of England gave the market a jolt at the beginning of
June with a surprise 25 basis points increase in rates. Also of interest, in the
UK the mid-cap sector continued its outperformance of large-cap stocks.
Low bond yields, the receding Asian crisis, a positive Wall Street backdrop,
surging liquidity as International managers cutback their allocations to Asia,
satisfactory corporate earnings and the prospect of further consolidation all
played a part in pushing the Continental European markets higher. Italy and
Spain performed especially well. Though interest-rate fears shadowed the start
of the second quarter, by May the continental markets were strong again.
Asian markets rebounded during February to have the majority of the year's
gains erased during April. Hong Kong was very weak in the second quarter with
two-thirds of announced company earnings coming in below expectations. Asian
markets remained on the downward spiral during June, dragged down by weaker
currencies, falling property prices, and an ever-rising number of non-performing
loans in the financial sector.
Sentiment regarding Japan remains somewhat negative, following uninspiring
Japanese government packages and the yen's continued weakening against the
dollar. However, we see signs of reform on the margins. Share buybacks, mergers
and acquisitions, together with corporate restructuring, gives us cause for
optimism about Japan on a company-by-company basis, and we currently have 13.4%
of net assets invested there. We will remain highly selective in our approach to
the rest of Asia.
Our focus remains primarily on European-quoted companies, particularly in the
telecom, pharmaceutical and financial sectors. We believe that in the short-term
these companies are best poised to outperform.
We will continue to maintain a fully invested portfolio using a fundamental,
value-oriented prospective.
Bank of Ireland
Asset Management (U.S.) Limited
- -------------------------------
The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee
is comprised of senior analysts and economists and headed by the company's chief
financial officer. BIAM has managed international equities since 1966 and began
managing U.S. funds in 1989.
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.4%
AUSTRALIA - 5.0%
24,900 National Australia Bank, Ltd. ........................ $328
(Banking & Finance)
59,600 News Corp., Ltd. ...................................... 485
(Television & Publishing)
41,800 Telstra Corp., Ltd. ................................... 107
(Telecommunications)
CANADA - 0.6%
1,800 Royal Bank of Canada ................................... 108
(Banking & Finance)
DENMARK - 0.5%
930 Tele Danmark AS-B ....................................... 89
(Telecommunications)
FRANCE - 6.2%
1,108 Alcatel Alsthom ........................................ 225
(Telecommunications)
1,730 Axa .................................................... 194
(Multi-Line Insurance)
2,830 Michelin "B" ........................................... 163
(Tire & Rubber)
2,530 Total SA ............................................... 329
(Oil & Gas)
1,094 Vivendi ................................................ 233
(Holding Co. - Diversified)
GERMANY - 9.8%
154 Bayerische Motoren Werke AG ............................ 155
(Automobiles)
2,570 Bayerische Vereinsbank AG .............................. 218
(Banking & Finance)
5,455 Hoechst AG ............................................. 274
(Chemicals)
7,500 Mannesmann AG .......................................... 771
(Machinery & Engineering)
3,915 VEBA AG ................................................ 263
(Utilities - Electric)
204 Viag AG ................................................ 140
(Manufacturing - Diversified)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HONG KONG - 1.1%
8,200 HSBC Holdings, plc .................................... $201
(Banking & Finance)
IRELAND - 0.1%
9,900 Smurfit (Jefferson) Group ............................... 29
(Paper Products)
ITALY - 2.1%
14,053 Ente Nazionale Idrocarburi SpA .......................... 92
(Oil & Gas)
39,933 Telecom Italia SpA ..................................... 294
(Telecommunications)
JAPAN - 13.4%
21,000 Canon, Inc. ........................................... 477
(Office Equipment)
9,000 Dai Nippon Printing Co., Ltd. ......................... 144
(Commercial Printing)
8,000 Honda Motor Co., Ltd. ................................. 285
(Automobiles)
11,000 Kao Corp. ............................................. 170
(Cosmetics & Toiletries)
900 Keyence Corp. .......................................... 98
(Electronics)
4,000 Murata Manufacturing Co., Ltd. ........................ 130
(Electronics)
2,000 Rohm Co., Ltd. ........................................ 206
(Electronics)
10,000 Shiseido Co., Ltd. .................................... 114
(Cosmetics & Toiletries)
5,700 Sony Corp. ............................................ 491
(Audio/Video Products)
14,000 Takeda Chemical Industries ............................. 373
(Medical - Drugs)
MALAYSIA - 0.2%
16,000 Hume Industries Berhad .................................. 12
(Building Materials)
45,000 Sime Darby Berhad ....................................... 31
(Conglomerates)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MEXICO - 0.3%
35,500 Grupo Financiero Series B ............................. $ 67
(Banking & Finance)
NETHERLANDS - 9.6%
7,148 ABN Amro Holdings NV ................................... 167
(Banking & Finance)
9,450 Elsevier NV ............................................ 143
(Publishing)
11,522 Internationale Nederlanden Groep NV .................... 755
(Banking & Finance)
3,275 Koninklijke Ahold NV ................................... 105
(Retail Grocery)
5,160 Koninklijke KPN NV ..................................... 199
(Telecommunications)
2,800 Koninklijke Numico NV ................................... 88
(Food)
3,480 Royal Dutch Petroleum Co. ............................. 193
(Oil & Gas)
5,160 TNT Post Group NV ...................................... 132
(Commercial Services)
PHILIPPINES - 0.2%
35,300 San Miguel Corp. (Class B) .............................. 46
(Wine & Spirits, Food)
PORTUGAL - 0.3%
2,175 Electricidade de Portugal, S.A. ........................ 51
(Electric - Integrated)
SINGAPORE - 2.1%
27,000 City Developments, Ltd. ................................ 75
(Real Estate)
31,200 Development Bank of Singapore, Ltd. ................... 173
(Banking & Finance)
17,800 Fraser & Neave, Ltd. ................................... 48
(Beverages)
13,972 Singapore Press Holdings, Ltd. ......................... 93
(Publishing)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SPAIN - 2.0%
13,260 Banco Santander SA .................................... $340
(Banking & Finance)
550 Telefonica S.A. ........................................ 25
(Telecommunications)
SWITZERLAND - 13.4%
142 Alusuisse-Lonza Holding AG ............................. 180
(Holding Co. - Diversified)
287 Nestle SA .............................................. 614
(Food)
344 Novartis AG ............................................ 572
(Pharmaceuticals)
25 Roche Holding AG ....................................... 246
(Pharmaceuticals)
211 Schweizerische Rueckversicherungs-Gesellschaft 534
(Insurance)
910 Union Bank of Switzerland AG ........................... 338
(Banking & Finance)
THAILAND - 0.3%
45,000 Bangkok Bank Public Co., Ltd. ........................... 56
(Banking & Finance)
UNITED KINGDOM - 30.2%
51,030 B.A.T. Industries, plc ................................. 509
(Tobacco)
17,950 Barclays, plc .......................................... 518
(Banking & Finance)
20,050 Cable & Wireless, plc .................................. 244
(Telecommunications)
12,530 Cadbury Schweppes, plc ................................. 194
(Beverages)
24,630 Diageo, plc ............................................ 293
(Beverages)
14,560 Glaxo Wellcome, plc .................................... 438
(Pharmaceuticals)
21,950 Granada Group, plc ..................................... 404
(Leisure)
8,550 Kingfisher, plc ........................................ 138
(Retail - Drug Store)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
31,340 Ladbroke Group, plc ................................. $ 173
(Hotels & Property Management)
28,090 Lloyds Bank, plc ....................................... 392
(Banking & Finance)
4,720 National Westminster Bank, plc .......................... 84
(Banking & Finance)
26,420 Prudential Corp., plc .................................. 348
(Insurance)
24,010 Safeway, plc ........................................... 158
(Retail - Grocery)
7,400 Scottish Power, plc ..................................... 65
(Utilities - Electric)
44,350 Shell Transport & Trading Co., plc ..................... 311
(Oil & Gas)
14,950 Siebe, plc ............................................. 299
(Industrial & Electronic Equipment)
23,100 TI Group, plc .......................................... 177
(Manufacturing)
35,720 Vodafone Group, plc .................................... 453
(Telecommunications)
9,465 Zeneca Group, plc ...................................... 405
(Pharmaceuticals)
-----
TOTAL COMMON STOCKS .................................................. 18,072
-----
TOTAL INVESTMENTS - 97.4% ............................................ 18,072
Domestic Cash .......................................... 666
Foreign Cash ............................................ 68
Liabilities, less Other
Assets ............................................... (257)
-----
477
-----
NET ASSETS .......................................................... $18,549
-----
-----
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Banking & Finance 20.2%
Pharmaceuticals 11.0
Telecommunications 8.8
Food 6.2
Insurance 5.8
Electrical Equipment & Electronics 5.0
Oil & Gas 5.0
Machinery - Diversified 4.2
Publishing 3.9
Automobiles 3.1
Leisure Time 3.1
Tobacco 2.7
Office Equipment & Supplies 2.6
Electric Utility 2.0
Manufacturing 1.7
Building Materials 1.7
Cosmetics 1.5
Chemicals 1.5
Construction & Engineering 1.3
Beverages 1.3
Holding Company Diversified 1.1
Tire & Rubber 0.9
Retail - Grocer 0.8
Retail - Drug Stores 0.7
Transportation 0.7
Real Estate 0.4
Paper & Forest Products 0.2
----
97.4%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 30 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the quarter, year-to-date and 12-month periods ended June 30, the
Balanced Fund returned -1.1%, 6.3% and 13.1%, respectively. This compares
unfavorably to the average balanced fund, which returned 1.2%, 8.9% and 17.6%
for the same periods, according to Lipper Analytical Services, Inc. A composite
60%/40% of the S&P 500 Index and the Lehman Government/ Corporate Index returned
3.02%, 12.29% and 22.60% for the quarter, year-to-date and 12-month periods,
respectively, ended June 30, 1998.
There are three main reasons the SAFECO Balanced Fund lagged other
balanced mutual funds and the composite index. All of them have to do
with our conservatism. [PHOTO OF REX BENTLEY]
In a period when the ideal asset mix was growth stocks, long bonds, and as
much equity exposure as possible, we owned value stocks, intermediate bonds and
had a mid-range equity allocation. While our strategy has underperformed
recently, there is ample historical evidence that our equity and fixed income
strategies produce better risk-adjusted returns over time, and we are
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 13.08%
Since Inception* 14.28%
</TABLE>
INVESTMENT VALUE
SAFECO BALANCED FUND: $13,806
60% S&P 500/40% LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX: $15,535
<TABLE>
<CAPTION>
60% S&P 500/40%
LEHMAN BROTHERS
GOVERNMENT/SAFECO CORPORATE
BALANCED FUND INDEX
<S> <C> <C>
01/30/96 $10,000 $10,000
02/28/96 9,950 9,971
03/31/96 10,017 9,995
04/30/96 10,077 10,056
05/31/96 10,218 10,204
06/30/96 10,345 10,282
07/31/96 10,112 10,019
08/31/96 10,243 10,136
09/30/96 10,599 10,550
10/31/96 10,813 10,823
11/30/96 11,272 11,393
12/31/96 11,140 11,207
01/30/97 11,473 11,632
02/28/97 11,567 11,697
03/31/97 11,163 11,354
04/30/97 11,414 11,826
05/31/97 11,896 12,302
06/30/97 12,209 12,691
07/31/97 12,905 13,452
08/31/97 12,420 12,940
09/30/97 12,760 13,447
10/30/97 12,621 13,264
11/30/97 12,834 13,660
12/31/97 12,993 13,858
01/31/98 13,083 14,028
02/28/98 13,654 14,623
03/31/98 13,964 15,090
04/30/98 13,885 15,212
05/31/98 13,761 15,105
06/30/98 13,806 15,535
</TABLE>
* Graph and average annual return comparison
begins January 31, 1996, inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE BALANCED FUND MANAGERS
confident they will again.
The biggest factor working against us was our equity investment style, which
favors low price/earnings ratios (P/E), high dividends and low price-to-book
value. As most of the S&P 500's gains over the past year have come from high P/E
stocks, funds using a growth style have produced much better returns than our
value style has delivered. (The report on the SAFECO U.S. Value Fund on page 42
provides a detailed discussion of how value stocks have lagged stocks with
growth characteristics by a wide margin.)
The second factor that worked against the relative returns for the
Balanced Fund is our fixed-income strategy. While we favor intermediate
maturities, long bonds provided considerably higher returns over the past
quarter and year as rates declined.
Our allocation to stocks of just below 60% (in an allowable range of
50% to 70% equities) also hurt us. While a more aggressive equity
[PHOTO OF LYNETTE SAGVOLD]
[PHOTO OF MICHAEL HUGHES]
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Hartford Financial Services Group, Inc. ........................... 1.9%
(Insurance Company)
Kimberely-Clark Corp. .............................................. 1.8
(Manufacturing & Marketing Personal Care Products)
Mobil Corp. ........................................................ 1.7
(Oil/Gas Exploration & Production)
Texaco, Inc. ....................................................... 1.6
(Oil/Gas Exploration & Production)
Boeing Co. ......................................................... 1.6
(Aerospace)
GTE Corp. .......................................................... 1.5
(Telecommunications)
Chase Manhattan Corp. .............................................. 1.5
(Bank)
Avon Products, Inc. ................................................ 1.5
(Beauty Care Products)
Anheuser-Busch Co., Inc. ........................................... 1.5
(Brewery)
Merck & Co., Inc. .................................................. 1.5
(Health Care Products)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(COMMON STOCKS)
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Texaco, Inc. ......................................................... $301
KeyCorp ................................................................ 258
Dean Foods Co. ........................................................ 221
American General Corp. ................................................ 215
Beckman Coulter, Inc. ................................................. 204
<CAPTION>
TOP FIVE SALES
(COMMON STOCKS) PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Amoco Corp. ......................................................... $290
*Bestfoods ............................................................. 255
*General Signal Corp. ................................................. 238
*Harsco Corp. ......................................................... 203
American Home Products Corp. .......................................... 197
<CAPTION>
TOP FIVE INDUSTRIES PERCENT OF
(COMMON STOCKS) NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Manufacturing (Diversified) ............................................. 4%
Telephone ................................................................ 4
Oil (Domestic Integrated) ................................................ 3
Health Care (Diversified) ................................................ 3
Foods .................................................................... 3
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 32 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
weighting would have improved our relative returns, we are
comfortable with this asset mix in a stock market that is selling at
21 times its expected earnings.
During the quarter, additions to the portfolio included: New York
Times Company, Century Telephone Enterprises, KeyCorp, Halliburton,
and Dean Foods. We deleted positions in Harsco, First Data Corp., Baxter
International, and Bestfoods.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Common Stocks
Large ($4 Bil. and above) 50%
Medium ($1 Bil. - $4 Bil.) 8%
Small (Less than $1 Bil.) 1%
Corporate Bonds 12%
Asset Backed Securities 6%
U.S. Government Securities 20%
Cash and Other 3%
</TABLE>
The swap out of Bestfoods and into Dean Foods is a good example of value
investing. While both companies are expected to grow around 12% over the long-
term, Dean Foods sells at a P/E of less than 18 times next year's earnings,
while Bestfoods' P/E was just over 26 times when we sold it. By purchasing Dean
Foods, we get the same expected growth rate at a 30% lower P/E.
In the fixed-income portion of the portfolio, we sold some holdings in the
very rich 10-year maturity sector of the yield curve and bought a higher
yielding combination of securities with maturities of two and 20 years. The swap
was essentially duration neutral.
We concentrated our holdings in issues insulated from the problems in Asia,
such as U.S. Treasuries and agency mortgage-backed securities and
notes. We also moved into and out of the investment-grade corporate
bonds as this sector cheapened, richened, and cheapened again
relative to U.S. Treasuries.
At quarter end, the fixed-income assets we held were 54% in U.S. Treasury
obligations, 31% in high-grade corporate bonds, 13% in mortgage-backed
securities, and 2% in AAA asset-backed securities. The effective duration was
5.6 years on June 30, 1998, slightly longer than the duration of the
Lehman Brothers Government/Corporate Bond Index at 5.5 years.
Rex Bentley, Stocks
Lynette D. Sagvold, Stocks
Michael Hughes, Bonds
- -------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a B.S. in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a Chartered Financial Analyst.
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 58.8%
AEROSPACE/DEFENSE - 1.6%
6,600 Boeing Co. ........................................... $294
BANKS (MAJOR REGIONAL) - 2.5%
6,300 KeyCorp ................................................ 224
3,100 NationsBank Corp. ..................................... 237
BANKS (MONEY CENTER) - 1.5%
3,600 Chase Manhattan Corp. ................................. 272
BANKS (REGIONAL) - 1.1%
3,630 Banc One Corp. ........................................ 204
BEVERAGES (ALCOHOLIC) - 1.4%
5,700 Anheuser-Busch Co., Inc. .............................. 269
BUILDING MATERIALS - 1.1%
3,100 Armstrong World Industries, Inc. 209
CHEMICALS - 1.4%
5,600 Praxair, Inc. ......................................... 262
COMMUNICATIONS EQUIPMENT - 1.1%
3,800 Motorola, Inc. ........................................ 200
COMPUTERS (HARDWARE) - 1.8%
4,000 Hewlett-Packard Co. ................................... 239
7,900 *Sequent Computer Systems, Inc. ........................ 95
COMPUTERS (PERIPHERALS) - 0.5%
4,700 *Quantum Corp. ......................................... 98
ELECTRIC COMPANIES - 2.3%
9,200 NIPSCO Industries, Inc. ............................... 258
3,700 New Century Energies, Inc. ............................ 168
ELECTRICAL EQUIPMENT - 0.6%
3,300 AMP, Inc. ............................................. 113
ELECTRONICS (SEMICONDUCTORS) - 1.0%
2,500 Intel Corp. ........................................... 185
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 2.3%
3,400 American General Corp. ............................... $242
3,000 Federal National Mortgage Association .................. 182
FOODS - 2.8%
8,100 ConAgra, Inc. ......................................... 257
4,600 Dean Foods Co. ........................................ 253
HEALTH CARE (DIVERSIFIED) - 2.9%
3,200 Abbott Laboratories .................................... 131
4,000 American Home Products Corp. . 207
2,800 Johnson & Johnson ...................................... 207
HEALTH CARE (DRUGS-MAJOR PHARMUCEUTICALS) - 1.4%
2,000 Merck & Co., Inc. ..................................... 267
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.3%
4,000 Beckman Coulter, Inc. ................................. 233
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.8%
7,100 Kimberly-Clark Corp. .................................. 326
INSURANCE (MULTI-LINE) - 1.9%
3,000 Hartford Financial Services Group, Inc. ............... 343
MANUFACTURING (DIVERSIFIED) - 4.3%
3,800 AlliedSignal, Inc. .................................... 169
6,600 Corning, Inc. ......................................... 229
4,500 Crane Co. ............................................. 219
2,100 Minnesota Mining & Manufacturing Co. .................. 173
OFFICE EQUIPMENT & SUPPLIES - 0.6%
10,000 Unisource Worldwide, Inc. ............................. 108
OIL (DOMESTIC INTEGRATED) - 3.1%
3,300 Atlantic Richfield Co. ................................ 258
4,100 Mobil Corp. ........................................... 314
OIL (INTERNATIONAL INTEGRATED) - 1.6%
5,000 Texaco, Inc. .......................................... 298
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 0.9%
3,600 Halliburton Co. .................................... $ 160
PAPER & FOREST PRODUCTS - 1.0%
4,400 International Paper Co. ............................... 189
PERSONAL CARE - 1.5%
3,500 Avon Products, Inc. ................................... 271
PUBLISHING (NEWSPAPERS) - 0.8%
2,000 New York Times Co. (Class A) ........................... 158
RAILROADS - 1.1%
2,100 Burlington Northern Santa Fe Corp. .................... 206
REAL ESTATE INVESTMENT TRUST - 1.2%
3,500 First Industrial Realty Trust, Inc. . 111
4,100 Liberty Property Trust ................................. 105
RETAIL (DEPARTMENT STORES) - 2.6%
3,600 J.C. Penney Co., Inc. ................................. 260
3,300 May Department Stores Co. ............................. 216
RETAIL (FOOD CHAINS) - 1.2%
9,500 American Stores Co. ................................... 230
SERVICES (DATA PROCESSING) - 2.1%
3,000 Automatic Data Processing, Inc. 219
4,200 Electronic Data Systems Corp. ......................... 168
TELEPHONE - 3.6%
4,800 Bell Atlantic Corp. ................................... 219
3,500 Century Telephone Enterprises, Inc. ................... 161
5,100 GTE Corp. ............................................. 284
TOBACCO - 0.9%
4,200 Philip Morris Cos., Inc. .............................. 165
-----
TOTAL COMMON STOCKS .................................................. 10,865
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 11.9%
BANKING & FINANCE - 0.6%
$100,000 Grand Metropolitan Investment Corp.
8.625%, due 8/15/01 ................................... $107
BANKS (MAJOR REGIONAL) - 0.5%
100,000 Norwest Corp. (MTN)
6.25%, due 3/15/01 ..................................... 101
BANKS (MONEY CENTER) - 1.2%
100,000 BankAmerica Corp.
9.50%, due 4/01/01 ..................................... 109
100,000 Citicorp
7.625%, due 5/01/05 .................................... 108
BANKS (REGIONAL) - 0.3%
60,000 U.S. Bancorp.
6.75%, due 10/15/05 ..................................... 62
BUILDING MATERIALS - 0.7%
125,000 Hanson Overseas
6.75%, due 9/15/05 ..................................... 129
ELECTRIC COMPANIES - 0.3%
50,000 Oklahoma Gas & Electric Energy Corp.
6.50%, due 7/15/17 ...................................... 52
ENGINEERING & CONSTRUCTION - 0.4%
75,000 Halliburton Co.
6.75%, due 2/01/27 ...................................... 82
FINANCE (CONSUMER) - 0.5%
85,000 Household Finance Corp.
7.25%, due 7/15/03 ...................................... 89
FINANCIAL (DIVERSIFIED) - 2.1%
80,000 General Motors Acceptance Corp.
6.875%, due 7/15/01 ..................................... 82
100,000 Hertz Corp.
7.00%, due 7/01/04 ..................................... 104
St. Paul Companies, Inc.
75,000 7.33%, due 8/18/06 ...................................... 81
110,000 7.05%, due 3/07/07 ..................................... 118
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (MISCELLANEOUS) - 1.1%
$100,000 Commercial Credit Co.
5.875%, due 1/15/03 .................................. $ 99
95,000 McDonnell Douglas Corp.
6.83%, due 5/21/01 ...................................... 97
INVESTMENT BANKING/BROKERAGE - 1.3%
130,000 Donaldson Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 .................................... 135
105,000 Lehman Brothers Holdings, Inc.
6.50%, due 4/15/08 ..................................... 105
PETROLEUM & PETROLEUM SERVICES - 0.5%
100,000 Texaco Capital, Inc.
6.19%, due 7/09/03 ..................................... 101
RETAIL (COMPUTERS & ELECTRONICS) - 1.1%
200,000 Tandy Corp.
6.95%, due 9/01/07 ..................................... 208
RETAIL (GENERAL MERCHANDISE) - 0.6%
100,000 Sears Roebuck Acceptance Corp.
6.90%, due 8/01/03 ..................................... 104
RETAIL (SPECIALTY) - 0.3%
50,000 Bausch & Lomb, Inc.
6.56%, due 8/12/26 ...................................... 51
UTILITIES - 0.4%
75,000 Allegheny Generating Co.
5.625%, due 9/01/03 ..................................... 73
-----
TOTAL CORPORATE BONDS ................................................. 2,197
-----
U.S. GOVERNMENT SECURITIES - 20.5%
U.S. TREASURY NOTES - 20.5%
1,165,000 7.50%, due 11/15/16 .................................. 1,399
1,900,000 7.25%, due 8/15/04 ................................... 2,068
240,000 6.875%, due 3/31/00 .................................... 245
45,000 6.375%, due 9/30/01 ..................................... 46
25,000 5.75%, due 12/31/98 ..................................... 25
-----
TOTAL U.S. GOVERNMENT SECURITIES ...................................... 3,783
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 5.9%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 4.6%
$196,802 DLJ MTG 1998-CF1 A1A
6.14%, due 10/15/06 ................................. $ 197
200,000 FHLMC REMIC 1688
6.00%, due 10/15/07 .................................... 200
125,000 FNMA G93-33J
6.75%, due 6/25/22 ..................................... 129
100,000 FNMA REMIC 1993-23
6.70%, due 7/25/19 ..................................... 101
125,000 FNMA REMIC 1993-44PH
6.75%, due 5/25/19 ..................................... 128
100,000 FNMA REMIC 1993-55
6.50%, due 2/25/05 ..................................... 102
CONSUMER (FINANCE) - 0.9%
93,386 AFG Receivables Trust
6.20%, due 2/15/03 ...................................... 94
75,000 Premier Auto Trust
6.20%, due 1/06/01 ...................................... 75
FINANCIAL (DIVERSIFIED) - 0.4%
75,000 FNMA (Class C)
6.74%, due 8/25/07 ...................................... 79
-----
TOTAL ASSET BACKED SECURITIES ......................................... 1,105
-----
TEMPORARY INVESTMENTS - 2.5%
INVESTMENT COMPANIES:
469,897 SSgA Prime Money Market Portfolio ...................... 470
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 470
-----
TOTAL INVESTMENTS - 99.6% ............................................ 18,420
Other Assets, less Liabilities ........................................... 66
-----
NET ASSETS .......................................................... $18,486
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 36 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Small Company Stock Fund finished the six and twelve months
ending June 30, 1998, far ahead of its peers and benchmark index.
For the latest six months, the Fund earned 14.62%, more than double the 6.48%
return of the average small cap fund, according to Lipper Analytical Services,
Inc. and the 5.27% return according to Russell 2000 Index.
[PHOTO OF GREG EISEN]
For the last 12 months, the Fund earned a return of 31.30%, versus the
peer group's 17.68%. That placed the SAFECO Small Company Stock Fund in
the top 5% of its peer group, with a ranking of 24 of 526 funds for the
year ended June 30, 1998. The Russell 2000 Index returned 16.79%.
For the quarter just ended, the Fund performed near the average of the peer
group and its benchmark index (-4.23%, versus the peer group's -4.11% and the
Russell 2000 Index's -4.57%.)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 31.30%
Since Inception* 26.58%
</TABLE>
INVESTMENT VALUE
SAFECO SMALL COMPANY FUND: $17,677
RUSSELL 2000 INDEX: $15,010
<TABLE>
<CAPTION>
SAFECO SMALL RUSSELL
COMPANY FUND 2000 INDEX
<S> <C> <C>
01/30/96 $10,000 $10,000
02/28/96 10,150 10,312
03/31/96 10,490 10,522
04/30/96 11,550 11,084
05/31/96 12,350 11,521
06/30/96 12,030 11,048
07/31/96 11,220 10,083
08/31/96 11,910 10,668
09/30/96 12,183 11,085
10/31/96 12,162 10,914
11/30/96 12,024 11,364
12/31/96 12,501 11,662
01/30/97 12,606 11,895
02/28/97 12,342 11,606
03/31/97 11,918 11,058
04/30/97 11,675 11,089
05/31/97 12,786 12,324
06/30/97 13,464 12,852
07/31/97 14,385 13,452
08/31/97 14,670 13,756
09/30/97 16,121 14,760
10/30/97 15,538 14,103
11/30/97 15,443 14,007
12/31/97 15,423 14,259
01/31/98 15,325 14,042
02/28/98 16,886 15,095
03/31/98 18,458 15,729
04/30/98 19,119 15,815
05/31/98 18,078 14,967
06/30/98 17,677 15,010
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE SMALL COMPANY STOCK FUND MANAGER
The six and 12-month outperformance is due to large gains in numerous
individual stocks. In other words, the results are attributable to stock
selection. As of June 30, three of our stocks-- Penederm, Platinum Software, and
Ovid Technologies--were up 100% or better on a year-to-date basis. Each of these
was purchased in a large enough weighting to contribute meaningfully to the
return of the Fund. Many of our other picks had double-digit gains.
Penederm, already our largest position, increased substantially on the news
it would be purchased by Mylan. Platinum Software is simply a company with a
good product (enterprise software) that overcame poor management. Ovid, an
internet stock that aggregates and sells access to published medical
information, remains one of my favorites. The company is already profitable
building a great franchise and positioning itself as the gatekeeper to medical
information retrieval. Stage Stores, a retailer making cosmopolitan margins in
lower cost locations, also held its place in our top ten.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Penederm, Inc. .................................................... 5.3%
(Drug Delivery System)
Cole National Corp. (Class A) ....................................... 4.4
(Specialty Retailer)
Platinum Software Corp. ............................................ 4.2
(Applications Software)
Litchfield Financial Corp. ......................................... 3.9
(Financial Services)
Chart Industries, Inc. ............................................. 3.8
(Industrial Equipment)
Walker Interactive Systems, Inc. ................................... 3.5
(Software Services)
Stage Stores, Inc. ................................................. 3.4
(Retail Store)
Ovid Technologies, Inc. ............................................ 3.4
(Software Developer)
Zindart Limited (ADR) ............................................... 3.3
(Manufacturer)
Equitrac Corp. ..................................................... 3.1
(Computer System Solutions)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Walker Interactive Systems, Inc. ................................... $2,510
Pentegra Dental Group, Inc. ......................................... 2,095
Chart Industries, Inc. .............................................. 1,904
Zindart Limited (ADR) ................................................ 1,880
Innova Corp. ........................................................ 1,770
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Ocwen Asset Investment Corp. ...................................... $1,393
*Essex Property Trust, Inc. ......................................... 1,381
*Tracor, Inc. ....................................................... 1,324
*World Access, Inc. ................................................. 1,187
*Dynamex, Inc. ...................................................... 1,125
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Personal Care .......................................................... 11%
Computers (Software & Services) ......................................... 10
Manufacturing (Diversified) .............................................. 7
Health Care (Specialized Services) ....................................... 6
Health Care (Medical Products & Supplies) ................................ 6
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 38 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Litchfield Financial is new to our top holdings and has
consistent earnings growth. It is a financial services company that
specializes in rural land and time-share loans. I increase our
holdings with them each time the price moves into the range of what
I think represents good value.
Chart Industries manufactures gas containment tanks and related equipment. It
has currently come under some pressure, but has earnings growth and free cash
flow that look good for the long term. Furthermore, Chart's acquisition of a
similar UK company should soon add to earnings in what is already a profitable
business.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Mid-Cap ($1 billion - $4 billion) 3%
Small-Cap (under $1 billion) 90%
Large (over $750 million) 0%
Medium ($250 - $750 million) 19%
Small (under $250 million) 71%
Cash and Other 7%
</TABLE>
We witnessed a full 10% correction in the Russell 2000 Index from April 21st
to late June, something the large cap universe did not have to
endure.
Looking at the rest of 1998, the small cap sector is very well
positioned compared to large caps. As a group they are cheaper on
most valuation measures, and I believe they can grow earnings at a
faster rate than the S&P 500.
The Fund will remain invested in broadly diversified small cap stocks that we
believe are good businesses at good values relative to their earnings prospects,
or cheap by some other yardstick. It will also remain broadly diversified across
a range of industry sectors.
Greg Eisen
- -------------------------------
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is a
certified public accountant and a Chartered Financial Analyst.
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 88.2%
AEROSPACE/DEFENSE - 4.9%
147,750 *Hawker Pacific Aerospace ........................... $1,644
134,950 *International Aircraft Investors .................... 1,164
BANKS (MAJOR REGIONAL) - 0.1%
4,800 UnionBancorp, Inc. ..................................... 89
BANKS (REGIONAL) - 2.8%
40,300 *Cowlitz Bancorp ....................................... 484
49,459 *Hanmi Bank (Los Angeles, CA) .......................... 977
11,300 *VRB Bancorp ........................................... 113
BIOTECHNOLOGY - 0.3%
124,300 *Energy BioSystems Corp. .............................. 171
COMMUNICATIONS EQUIPMENT - 0.5%
55,500 *Innova Corp. ......................................... 284
COMPUTERS (HARDWARE) - 6.2%
89,600 *Equitrac Corp. ..................................... 1,781
37,600 *MICROS Systems, Inc. ............................... 1,244
42,600 *Optimal Robotics Corp. ............................... 500
COMPUTERS (SOFTWARE & SERVICES) - 10.0%
98,650 *Platinum Software Corp. ............................ 2,404
54,200 *SPSS, Inc. ......................................... 1,260
135,400 *Walker Interactive Systems, Inc. ................... 1,997
ELECTRICAL EQUIPMENT - 1.3%
111,000 *Integrated Sensor Solutions, Inc. .................... 590
22,570 *ZEVEX International, Inc. ............................ 161
FINANCIAL (DIVERSIFIED) - 6.2%
106,675 Litchfield Financial Corp. .......................... 2,240
84,100 *Ragen Mackenzie Group, Inc. ........................ 1,272
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.2%
32,800 Hooper Holmes, Inc. ................................. $ 689
500,000 *InnerDyne, Inc. .................................... 1,281
79,000 *Vallen Corp. ....................................... 1,570
HEALTH CARE (SPECIALIZED SERVICES) - 6.3%
80,900 *Ovid Technologies, Inc. ............................ 1,921
245,000 *Pentegra Dental Group, Inc. ........................ 1,684
INSURANCE (PROPERTY-CASUALTY) - 1.0%
49,500 *American Safety Insurance Group, Ltd. ................ 582
MACHINERY (DIVERSIFIED) - 3.8%
91,000 Chart Industries, Inc. .............................. 2,173
MANUFACTURING (DIVERSIFIED) - 7.5%
73,300 *Lancer Corp. ....................................... 1,182
187,000 *Plasma-Therm, Inc. ................................. 1,169
138,600 *Zindart Limited (ADR) ............................... 1,880
OIL & GAS (EXPLORATION & PRODUCTION) - 1.7%
134,700 Patina Oil & Gas Corp. ................................ 943
PERSONAL CARE - 10.7%
83,000 *French Fragrances, Inc. ............................ 1,297
150,400 *Penederm, Inc. ..................................... 3,008
75,900 *Styling Technology Corp. ........................... 1,746
PHOTOGRAPHY/IMAGING - 2.2%
164,200 *Seattle FilmWorks, Inc. ............................ 1,267
RETAIL (FOOD CHAINS) - 2.9%
115,000 Ingles Markets, Inc. ................................ 1,667
RETAIL (SPECIALTY) - 4.4%
61,900 *Cole National Corp. (Class A) ....................... 2,476
RETAIL (SPECIALTY-APPAREL) - 3.4%
43,000 *Stage Stores, Inc. ................................. 1,946
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SAVINGS & LOANS - 1.0%
16,825 Community Savings Bankshares, Inc. ................. $ 555
SERVICES (COMMERCIAL & CONSUMER) - 3.6%
39,515 *Monro Muffler Brake, Inc. ............................ 622
38,900 *StaffMark, Inc. .................................... 1,425
TEXTILES (HOME FURNISHINGS) - 1.2%
265,400 *Krause's Furniture, Inc. ............................. 697
-----
TOTAL COMMON STOCKS .................................................. 50,155
-----
PREFERRED STOCK - 2.2%
ENTERTAINMENT - 2.2%
112,000 *Craig Corp. (Class A) ............................... 1,253
-----
TOTAL PREFERRED STOCK ................................................. 1,253
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 6.7%
COMMERCIAL PAPER:
$3,782,000 Finova Capital Corp. 6.50%, due 7/01/98 ............ $ 3,782
INVESTMENT COMPANIES:
976 SSgA Prime Money Market Portfolio ........................ 1
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 3,783
-----
TOTAL INVESTMENTS - 97.1% ............................................ 55,191
Other Assets, less Liabilities ........................................ 1,674
-----
NET ASSETS .......................................................... $56,865
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 41 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. VALUE FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
It seemed that the more "value" orientation a Fund had, the worse the
fund performed in the second quarter compared to the S&P 500. Indeed, the
Value Fund lagged the S&P 500 by a wide margin, returning -3.67% and 7.36% for
the quarter and six-month periods ended June 30, 1998, respectively, compared to
the S&P 500's return of 3.30% and 17.70%, for the quarter and six-month periods
ended June 30, 1998, respectively.
[PHOTO OF REX BENTLEY]
The biggest factor working against us over the last quarter and year
has been our value investment style. Because most of the S&P 500's gains
have of late come from "growth" stocks, funds using a growth style produced much
the better returns. While our strategy has underperformed recently, there is
ample historical evidence that value investing produces better risk-adjusted
returns over time and we are confident that they will again.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS
ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 14.13%
Since Inception* 22.03%
</TABLE>
INVESTMENT VALUE
SAFECO U.S. VALUE FUND: $12,615
S&P 500 INDEX: $14,425
<TABLE>
<CAPTION>
SAFECO U.S. S&P 500
VALUE FUND INDEX
<S> <C> <C>
04/30/97 $10,000 $10,000
05/31/97 10,670 10,608
06/30/97 11,053 11,083
07/31/97 11,915 11,965
08/31/97 11,283 11,295
09/30/97 11,669 11,914
10/30/97 11,307 11,516
11/30/97 11,599 12,049
12/31/97 11,750 12,256
1/31/98 11,760 12,391
2/28/98 12,621 13,284
3/31/98 13,095 13,964
4/30/98 12,905 14,104
5/31/98 12,632 13,839
6/30/98 12,615 14,425
</TABLE>
*Graph and average annual return comparison begins April 30, 1997,
inception date of the fund.
The performance graph compares a hypothetical $10,000 investment in the Fund to
a hypothetical investment into a relevant market index. The index is unmanaged.
Past performance is not predictive of future performance. Investment return and
principal value may fluctuate so that shares, when redeemed, may be worth more
or less than their original cost.
- 42 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
There are three main measures used to determine if a portfolio is employing a
value style. They are: 1) a price/earnings ratio (P/E) lower than the market, 2)
a current yield higher than the market, 3) a lower than market price-to-book
value. Here's how the U.S. Value holdings and the S&P 500 differed based on
those attributes on June 30: the Fund's holdings had a P/E of 16.4 while the
market was priced at 22.1 times 1999 earnings estimates. The yield on the Fund's
holdings was 2.1% versus the index's 1.3%. The Funds holdings had an average
price to book ratio of 3.3% versus 4.3% for the S&P 500.
Stocks in the S&P 500 with classic value characteristics dramatically
underperformed in the three, six and 12-month periods. For the one year, S&P
stocks with P/Es less than 22 returned 15.3% while those with P/Es greater than
22 posted 46.4% returns. Stocks yielding above the S&P 500 average returned
13.7%. Stocks with lower than market price to book ratios returned just 13.6%.
[PHOTO OF LYNETTE SAGVOLD]
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Mobil Corp. ....................................................... 3.0%
(Oil/Gas Exploration & Production)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Boeing Co. ......................................................... 2.7
(Aerospace)
Texaco, Inc. ....................................................... 2.7
(Oil/Gas Exploration & Production)
Kimberly-Clark Corp. ............................................... 2.6
(Manufacturing & Marketing Personal Care Products)
GTE Corp. .......................................................... 2.6
(Telecommunications)
Avon Products, Inc. ................................................ 2.6
(Beauty Care Products)
NIPSCO Industries, Inc. ............................................ 2.5
(Utility Holdings Company)
Merck & Co., Inc. .................................................. 2.5
(Health Care Products)
J.C. Penney Co., Inc. .............................................. 2.4
(Department Store)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Texaco, Inc. ......................................................... $289
KeyCorp ................................................................ 232
Dean Foods Co. ........................................................ 221
American General Corp. ................................................ 215
Beckman Coulter, Inc. ................................................. 172
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Bestfoods ............................................................ $251
*Amoco Corp. .......................................................... 248
*General Signal Corp. ................................................. 226
*Harsco Corp. ......................................................... 181
*B.F. Goodrich Co. .................................................... 178
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Manufacturing (Diversified) ............................................. 7%
Telephone ................................................................ 6
Oil (Domestic Integrated) ................................................ 5
Health Care (Diversified) ................................................ 5
Retail (Department Stores) ............................................... 4
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE U.S. VALUE FUND MANAGERS
It is somewhat heartening to note that even though stocks with
high P/Es have been the market's best performers, our selection of
value stocks out-performed the value members of the S&P 500.
It seems, in general, that the higher the P/E the better a stock has
performed. This has led some market pundits to quip that valuations no longer
matter. We continue to believe that valuation, or price, does matter, and at
some point it will become extremely important. While we don't know when that
time will come, we believe it will be soon.
During the quarter, additions to the portfolio included New York Times
Company, Century Telephone Enterprises, KeyCorp, Halliburton, and Dean Foods. We
deleted positions in Harsco, First Data Corp., Baxter International, and
Bestfoods.
The swap out of Bestfoods and into Dean Foods is a good example of value
investing. While both companies are expected to grow around 12% over the long-
term, Dean Foods sells at a P/E of less than 18 times next year's
earnings, while Bestfoods' P/E was just over 26 times when we sold
it. By purchasing Dean Foods, we get the same expected growth rate
at a 30% lower P/E.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
Large ($4 Bil. and above) 82%
Medium ($1 Bil. - $4 Bil.) 13%
Small (Less than $1 Bil.) 2%
Cash & Other 3%
</TABLE>
We remain convinced that over time, owning less expensive stocks relative to
their future prospects will be more rewarding than owning expensive stocks. We
expect this to be true both on an absolute and on a risk-adjusted basis. Our
task is to find value in an expensive market environment, and to wait patiently.
Rex Bentley
Lynette D. Sagvold
- -------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
- 44 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.0%
AEROSPACE/DEFENSE - 2.7%
6,500 Boeing Co. ........................................... $290
BANKS (MAJOR REGIONAL) - 4.0%
5,600 Keycorp ................................................ 199
3,100 NationsBank Corp. ..................................... 237
BANKS (MONEY CENTER) - 2.4%
3,400 Chase Manhattan Corp. ................................. 257
BANKS (REGIONAL) - 1.9%
3,640 Banc One Corp. ........................................ 203
BEVERAGES (ALCOHOLIC) - 2.3%
5,300 Anheuser-Busch Co., Inc. .............................. 250
BUILDING MATERIALS - 1.6%
2,600 Armstrong World Industries, Inc. 175
CHEMICALS - 2.1%
4,800 Praxair, Inc. ......................................... 225
COMMUNICATIONS EQUIPMENT - 1.8%
3,700 Motorola, Inc. ........................................ 194
COMPUTERS (HARDWARE) - 2.9%
3,900 Hewlett-Packard Co. ................................... 234
6,900 *Sequent Computer Systems, Inc. ........................ 83
COMPUTERS (PERIPHERALS) - 0.9%
4,700 *Quantum Corp. ......................................... 98
ELECTRIC COMPANIES - 3.8%
9,600 NIPSCO Industries, Inc. ............................... 269
3,200 New Century Energies, Inc. ............................ 145
ELECTRICAL EQUIPMENT - 1.1%
3,400 AMP, Inc. ............................................. 117
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS (SEMICONDUCTORS) - 1.6%
2,400 Intel Corp. .......................................... $178
FINANCIAL (DIVERSIFIED) - 3.9%
3,400 American General Corp. ................................ 242
3,000 Federal National Mortgage Association .................. 182
FOODS - 4.4%
7,000 ConAgra, Inc. ......................................... 222
4,600 Dean Foods Co. ........................................ 253
HEALTH CARE (DIVERSIFIED) - 5.1%
3,000 Abbott Laboratories .................................... 123
3,800 American Home Products Corp. . 197
3,100 Johnson & Johnson ...................................... 229
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.5%
2,000 Merck & Co., Inc. ..................................... 267
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.8%
3,400 Beckman Coulter, Inc. ................................. 198
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.6%
6,200 Kimberly-Clark Corp. .................................. 284
INSURANCE (MULTI-LINE) - 3.0%
2,800 Hartford Financial Services Group, Inc. ............... 320
MANUFACTURING (DIVERSIFIED) - 6.6%
3,500 AlliedSignal, Inc. .................................... 155
5,800 Corning, Inc. ......................................... 202
4,500 Crane Co. ............................................. 219
1,700 Minnesota Mining & Manufacturing Co. .................. 140
OFFICE EQUIPMENT & SUPPLIES - 1.3%
12,900 Unisource Worldwide, Inc. ............................. 139
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (DOMESTIC INTEGRATED) - 5.3%
3,200 Atlantic Richfield Co. ............................... $250
4,200 Mobil Corp. ........................................... 322
OIL (INTERNATIONAL INTEGRATED) - 2.6%
4,800 Texaco, Inc. .......................................... 286
OIL & GAS (DRILLING & EQUIPMENT) - 1.5%
3,600 Halliburton Co. ....................................... 160
PAPER & FOREST PRODUCTS - 1.6%
4,000 International Paper Co. ............................... 172
PERSONAL CARE - 2.6%
3,600 Avon Products, Inc. ................................... 279
PUBLISHING (NEWSPAPERS) - 1.5%
2,000 New York Times Co.
(Class A) .............................................. 159
RAILROADS - 1.8%
2,000 Burlington Northern Santa Fe Corp. .................... 196
REAL ESTATE INVESTMENT TRUST - 1.9%
2,900 First Industrial Realty Trust, Inc. .................... 92
4,300 Liberty Property Trust ................................. 110
RETAIL (DEPARTMENT STORES) - 4.4%
3,600 J.C. Penney Co., Inc. ................................. 260
3,300 May Department Stores Co. ............................. 216
RETAIL (FOOD CHAINS) - 1.9%
8,400 American Stores Co. ................................... 203
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SERVICES (DATA PROCESSING) - 3.9%
3,100 Automatic Data Processing, Inc. .................... $ 226
4,800 Electronic Data Systems Corp. ......................... 192
TELEPHONE - 6.1%
4,800 Bell Atlantic Corp. ................................... 219
3,500 Century Telephone Enterprises, Inc. ................... 161
5,100 GTE Corp. ............................................. 284
TOBACCO - 1.6%
4,300 Philip Morris Cos., Inc. .............................. 169
-----
TOTAL COMMON STOCKS .................................................. 10,482
-----
TEMPORARY INVESTMENTS - 3.6%
INVESTMENT COMPANIES:
$391,037 SSgA Prime Money Market Portfolio ...................... 391
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 391
-----
TOTAL INVESTMENTS - 100.6% ........................................... 10,873
Liabilities, less Other Assets ......................................... (66)
-----
NET ASSETS .......................................................... $10,807
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 46 -
<PAGE>
This page left blank intentionally.
- 47 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except Per-Share GROWTH EQUITY INCOME
Amounts) FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 1,505,823 $ 1,352,851 $ 367,578
----------- ----------- -----------
----------- ----------- -----------
Investments, at Value
Unaffiliated Issuers $ 1,211,196 $ 1,836,143 $ 481,409
Affiliated Issuers 446,408 -- --
----------- ----------- -----------
Total Investments at Value 1,657,604 1,836,143 481,409
Cash -- 1 --
Receivables
Investment Securities Sold 6,639 26,300 41
Trust Shares Sold 22,241 7,033 3,185
Dividends and Interest 1,369 2,100 2,003
Forward Currency Contracts Open, Net -- -- --
Deferred Organization Expense -- -- --
----------- ----------- -----------
Total Assets 1,687,853 1,871,577 486,638
LIABILITIES
Payables
Investment Securities Purchased 32,601 15,043 3,474
Trust Shares Redeemed 8,465 12,392 179
Dividends -- 4,526 2,738
Investment Advisory Fees 655 740 241
Organization Expense -- -- --
Other 320 503 105
----------- ----------- -----------
Total Liabilities 42,041 33,204 6,737
----------- ----------- -----------
NET ASSETS $ 1,645,812 $ 1,838,373 $ 479,901
----------- ----------- -----------
----------- ----------- -----------
NO-LOAD CLASS:
Net Assets $ 1,611,927 $ 1,786,754 $ 476,563
Trust Shares Outstanding 61,352 80,441 17,926
----------- ----------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 26.27 $ 22.21 $ 26.59
----------- ----------- -----------
----------- ----------- -----------
CLASS A:
Net Assets $ 24,172 $ 41,590 $ 1,673
Trust Shares Outstanding 921 1,871 63
----------- ----------- -----------
Net Asset Value and Redemption
Price Per Share $ 26.22 $ 22.23 $ 26.64
----------- ----------- -----------
----------- ----------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 27.47 $ 23.28 $ 27.90
----------- ----------- -----------
----------- ----------- -----------
CLASS B:
Net Assets $ 9,713 $ 10,029 $ 1,665
Trust Shares Outstanding 376 453 62
----------- ----------- -----------
Net Asset Value and Offering Price
Per Share* $ 25.85 $ 22.14 $ 26.67
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 48 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 55,528 $ 13,992 $ 17,155 $ 50,944 $ 9,959
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Investments, at Value
Unaffiliated Issuers $ 74,264 $ 18,072 $ 18,420 $ 55,191 $ 10,873
Affiliated Issuers -- -- -- -- --
----------- ----------- --------------- --------------- -----------
Total Investments at Value 74,264 18,072 18,420 55,191 10,873
Cash -- 734 -- -- --
Receivables
Investment Securities Sold 1,310 19 -- 63 --
Trust Shares Sold 25 35 76 2,431 49
Dividends and Interest 27 68 136 24 16
Forward Currency Contracts Open, Net -- 30 -- -- --
Deferred Organization Expense -- 10 10 10 15
----------- ----------- --------------- --------------- -----------
Total Assets 75,626 18,968 18,642 57,719 10,953
LIABILITIES
Payables
Investment Securities Purchased 1,527 356 -- 245 --
Trust Shares Redeemed 15 1 -- 611 84
Dividends -- -- 118 -- 29
Investment Advisory Fees 44 16 11 38 7
Organization Expense -- 11 11 11 16
Other 41 35 16 (51) 10
----------- ----------- --------------- --------------- -----------
Total Liabilities 1,627 419 156 854 146
----------- ----------- --------------- --------------- -----------
NET ASSETS $ 73,999 $ 18,549 $ 18,486 $ 56,865 $ 10,807
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 69,522 $ 17,527 $ 17,193 $ 54,646 $ 10,173
Trust Shares Outstanding 3,737 1,313 1,412 3,350 852
----------- ----------- --------------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 18.60 $ 13.34 $ 12.18 $ 16.31 $ 11.95
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS A:
Net Assets $ 2,009 $ 428 $ 501 $ 1,267 $ 168
Trust Shares Outstanding 109 32 41 78 14
----------- ----------- --------------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 18.48 $ 13.37 $ 12.18 $ 16.25 $ 11.94
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 19.35 $ 14.00 $ 12.75 $ 17.02 $ 12.50
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS B:
Net Assets $ 2,468 $ 594 $ 792 $ 952 $ 466
Trust Shares Outstanding 135 45 65 59 39
----------- ----------- --------------- --------------- -----------
Net Asset Value and Offering Price
Per Share* $ 18.26 $ 13.29 $ 12.18 $ 16.02 $ 11.92
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands) FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $23 in the
International Fund) $ 3,387 $ 13,213 $ 5,201
Interest 2,738 1,460 1,670
---------- ---------- ----------
Total Investment Income 6,125 14,673 6,871
EXPENSES
Investment Advisory 3,197 4,262 1,400
Transfer Agent 936 1,601 334
Shareholder Service - Class A 11 41 2
- Class B 6 8 1
Distribution - Class B 19 23 4
Legal and Auditing 9 15 10
Custodian 24 44 11
Reports to Shareholders 49 160 31
Trustees 4 7 4
Amortization of Organization
Expenses -- -- --
Other 35 127 30
---------- ---------- ----------
Total Expenses Before
Reimbursement 4,290 6,288 1,827
Expense Reimbursement -- -- --
---------- ---------- ----------
Total Expenses After Reimbursement 4,290 6,288 1,827
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) 1,835 8,385 5,044
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 61,028 57,481 35,976
Investments in Affiliated Issuers 2,060 -- --
Foreign Currency Transactions -- -- --
---------- ---------- ----------
Total Net Realized Gain
(Loss) 63,088 57,481 35,976
Net Change in Unrealized
Appreciation (Depreciation) 67,524 154,193 10,500
---------- ---------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 130,612 211,674 46,476
---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 132,447 $ 220,059 $ 51,520
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of $23 in the
International Fund) $ 161 $ 192 $ 106 $ 84 $ 109
Interest 31 9 220 140 7
---------- ------------- -------------- -------------- ----------
Total Investment Income 192 201 326 224 116
EXPENSES
Investment Advisory 272 94 62 192 38
Transfer Agent 96 24 21 54 9
Shareholder Service - Class A 2 -- 1 1 --
- Class B 2 1 1 1 1
Distribution - Class B 7 2 2 2 1
Legal and Auditing 8 7 7 7 5
Custodian 3 14 2 2 --
Reports to Shareholders 12 3 3 5 2
Trustees 3 3 3 2 3
Amortization of Organization
Expenses -- 2 2 2 2
Other 9 1 -- 14 --
---------- ------------- -------------- -------------- ----------
Total Expenses Before
Reimbursement 414 151 104 282 61
Expense Reimbursement -- (15) -- -- --
---------- ------------- -------------- -------------- ----------
Total Expenses After Reimbursement 414 136 104 282 61
---------- ------------- -------------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (222) 65 222 (58) 55
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 5,942 (462) 724 2,380 371
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- 175 -- -- --
---------- ------------- -------------- -------------- ----------
Total Net Realized Gain
(Loss) 5,942 (287) 724 2,380 371
Net Change in Unrealized
Appreciation (Depreciation) (699) 2,731 4 (18) 254
---------- ------------- -------------- -------------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 5,243 2,444 728 2,362 625
---------- ------------- -------------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,021 $ 2,509 $ 950 $ 2,304 $ 680
---------- ------------- -------------- -------------- ----------
---------- ------------- -------------- -------------- ----------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
--------------------------
SIX-MONTH
PERIOD
ENDED YEAR ENDED
JUNE 30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 1,835 $ (568)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 63,088 75,558
Net Change in Unrealized
Appreciation (Depreciation) 67,524 45,096
---------- -------------
Net Change in Net Assets
Resulting from Operations 132,447 120,086
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- --
- Class A -- --
- Class B -- --
Net Realized Gain on Investments
- No Load Class -- (74,345)
- Class A -- (487)
- Class B -- (167)
---------- -------------
Total -- (74,999)
NET TRUST SHARE TRANSACTIONS
No-Load Class 841,851 397,579
Class A 19,482 4,018
Class B 7,992 1,293
---------- -------------
Total 869,325 402,890
---------- -------------
TOTAL CHANGE IN NET ASSETS 1,001,772 447,977
NET ASSETS AT BEGINNING OF PERIOD 644,040 196,063
---------- -------------
NET ASSETS AT END OF PERIOD $1,645,812 $ 644,040
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 57,128 28,647
Reinvestments -- 3,210
Redemptions (23,164) (14,724)
---------- -------------
NET CHANGE 33,964 17,133
---------- -------------
---------- -------------
AMOUNTS:
Sales $1,465,633 $ 645,275
Reinvestments -- 72,072
Redemptions (596,308) (314,457)
---------- -------------
NET CHANGE $ 869,325 $ 402,890
---------- -------------
---------- -------------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INCOME FUND SAFECO NORTHWEST FUND
SAFECO EQUITY FUND -------------------------- --------------------------
----------------------------
SIX-MONTH SIX-MONTH
SIX-MONTH PERIOD PERIOD
PERIOD ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 8,385 $ 15,563 $ 5,044 $ 9,889 $ (222) $ (113)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 57,481 61,477 35,976 32,768 5,942 6,678
Net Change in Unrealized
Appreciation (Depreciation) 154,193 176,522 10,500 39,169 (699) 7,326
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 220,059 253,562 51,520 81,826 5,021 13,891
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (8,241) (15,501) (5,037) (9,866) -- --
- Class A (153) (35) (11) (10) -- --
- Class B -- (2) (6) (7) -- --
Net Realized Gain on Investments
- No Load Class -- (61,064) -- (32,644) -- (4,031)
- Class A -- (295) -- (57) -- (84)
- Class B -- (139) -- (65) -- (76)
------------- ------------ ----------- ------------ ----------- ------------
TOTAL (8,394) (77,036) (5,054) (42,649) -- (4,191)
NET TRUST SHARE TRANSACTIONS
No-Load Class 89,303 464,573 28,321 72,866 39 11,654
Class A 30,566 3,709 824 524 554 926
Class B 5,829 3,122 765 685 1,192 967
------------- ------------ ----------- ------------ ----------- ------------
TOTAL 125,698 471,404 29,910 74,075 1,785 13,547
------------- ------------ ----------- ------------ ----------- ------------
TOTAL CHANGE IN NET ASSETS 337,363 647,930 76,376 113,252 6,806 23,247
NET ASSETS AT BEGINNING OF PERIOD 1,501,010 853,080 403,525 290,273 67,193 43,946
------------- ------------ ----------- ------------ ----------- ------------
NET ASSETS AT END OF PERIOD $ 1,838,373 $ 1,501,010 $ 479,901 $ 403,525 $ 73,999 $ 67,193
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 15,487 36,752 2,590 4,060 634 1,888
Reinvestments 356 3,734 168 1,608 -- 200
Redemptions (9,908) (15,034) (1,599) (2,517) (535) (1,329)
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE 5,935 25,452 1,159 3,151 99 759
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
AMOUNTS:
Sales $ 329,448 $ 682,623 $ 66,531 $ 94,489 $ 11,620 $ 32,688
Reinvestments 7,883 72,547 4,467 38,272 -- 3,464
Redemptions (211,633) (283,766) (41,088) (58,686) (9,835) (22,605)
------------- ------------ ----------- ------------ ----------- ------------
NET CHANGE $ 125,698 $ 471,404 $ 29,910 $ 74,075 $ 1,785 $ 13,547
------------- ------------ ----------- ------------ ----------- ------------
------------- ------------ ----------- ------------ ----------- ------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND
--------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31
(In Thousands) 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 65 $ 78
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions (287) 258
Net Change in Unrealized
Appreciation (Depreciation) 2,731 213
------------- ----------
Net Change in Net Assets
Resulting from Operations 2,509 549
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- (364)
- Class A -- (5)
- Class B -- (4)
Net Realized Gain on Investments
- No Load Class -- (19)
- Class A -- --
- Class B -- (1)
------------- ----------
Total -- (393)
NET TRUST SHARE TRANSACTIONS
No-Load Class 375 3,437
Class A 84 142
Class B 201 222
------------- ----------
Total 660 3,801
------------- ----------
TOTAL CHANGE IN NET ASSETS 3,169 3,957
NET ASSETS AT BEGINNING OF PERIOD 15,380 11,423
------------- ----------
NET ASSETS AT END OF PERIOD $ 18,549 $ 15,380
------------- ----------
------------- ----------
- ---------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 546 932
Reinvestments -- 20
Redemptions (493) (627)
------------- ----------
NET CHANGE 53 325
------------- ----------
------------- ----------
AMOUNTS:
Sales $ 7,008 $ 10,948
Reinvestments -- 230
Redemptions (6,348) (7,377)
------------- ----------
NET CHANGE $ 660 $ 3,801
------------- ----------
------------- ----------
- ---------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 54 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO U.S. VALUE FUND
SAFECO SMALL FUND ---------------------------
SAFECO BALANCED FUND -------------------------- APRIL 30,
---------------------------- 1997
SIX-MONTH SIX-MONTH (COMMENCEMENT
SIX-MONTH PERIOD PERIOD OF
PERIOD ENDED YEAR ENDED ENDED YEAR ENDED ENDED OPERATIONS)
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 TO DEC. 31
1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 222 $ 328 $ (58) $ (75) $ 55 $ 71
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 724 637 2,380 909 371 386
Net Change in Unrealized
Appreciation (Depreciation) 4 760 (18) 2,742 254 660
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 950 1,725 2,304 3,576 680 1,117
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (213) (322) -- -- (54) (70)
- Class A (5) (4) -- -- (1) (1)
- Class B (4) (3) -- -- -- --
Net Realized Gain on Investments
- No Load Class -- (613) -- (540) -- (372)
- Class A -- (9) -- (7) -- (5)
- Class B -- (15) -- (9) -- (9)
------------- ------------ ----------- ------------ ----------- -------------
TOTAL (222) (966) -- (556) (55) (457)
NET TRUST SHARE TRANSACTIONS
No-Load Class 2,836 4,661 29,719 6,538 504 8,423
Class A 274 86 1,001 100 27 122
Class B 445 210 516 260 234 212
------------- ------------ ----------- ------------ ----------- -------------
TOTAL 3,555 4,957 31,236 6,898 765 8,757
------------- ------------ ----------- ------------ ----------- -------------
TOTAL CHANGE IN NET ASSETS 4,283 5,716 33,540 9,918 1,388 9,417
NET ASSETS AT BEGINNING OF PERIOD 14,203 8,487 23,325 13,407 9,417 --
------------- ------------ ----------- ------------ ----------- -------------
NET ASSETS AT END OF PERIOD $ 18,486 $ 14,203 $ 56,865 $ 23,325 $ 10,807 $ 9,417
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 513 555 6,105 1,808 178 946
Reinvestments 11 43 -- 26 2 15
Redemptions (230) (167) (4,349) (1,330) (117) (119)
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE 294 431 1,756 504 63 842
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
AMOUNTS:
Sales $ 6,178 $ 6,388 $ 104,866 $ 24,781 $ 2,138 $ 9,962
Reinvestments 130 495 -- 364 22 162
Redemptions (2,753) (1,926) (73,630) (18,247) (1,395) (1,367)
------------- ------------ ----------- ------------ ----------- -------------
NET CHANGE $ 3,555 $ 4,957 $ 31,236 $ 6,898 $ 765 $ 8,757
------------- ------------ ----------- ------------ ----------- -------------
------------- ------------ ----------- ------------ ----------- -------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 55 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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, SAFECO Small Company Stock Fund, and SAFECO U.S.
Value Fund (together "the Funds").
Effective September 30, 1996, the Trust began issuing two new 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 selling its shares at the annual rate
of .25% of the average daily net assets of the Advisor Class. Class B shares
also pay the distributor a distribution fee at the annual rate of .75% of the
average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make certain estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual results
could differ from these estimates.
- 56 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 (if any) 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. Income dividends and capital gain distributions are determined
in accordance with income tax regulation which may differ from generally
accepted accounting principles. These differences are primarily due to differing
treatments for foreign exchange contracts. Undistributed/ overdistributed net
investment income may include temporary financial reporting and tax basis
differences which will reverse in the subsequent year.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
- 57 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the
respective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
Reported net realized gains or losses from foreign currency transactions
arise from gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the International Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities, resulting from
changes in the exchange rate.
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.
- 58 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions during the six-month period
ended June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands) PURCHASES* SALES**
- --------------------------------------------------------------------
<S> <C> <C>
Growth Fund $1,122,803 $269,193
Equity Fund 388,631 288,780
Income Fund 126,394 118,031
Northwest Fund 18,169 16,268
International Fund 2,776 2,144
Balanced Fund 9,008 5,664
Small Company Fund 44,814 18,780
U.S. Value Fund 3,138 2,714
- --------------------------------------------------------------------
</TABLE>
* Excludes short-term securities. Purchases for the Balanced Fund includes
$3,081 of U.S. Government Securities.
** Excludes short-term securities. Sales for the Balanced Fund includes $1,838
of U.S. Government Securities.
- 59 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. COMPONENTS OF NET ASSETS
At June 30, 1998, the components of net assets were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 264,446 $ 510,314 $ 124,292 $ 25,224
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (112,665) (27,022) (10,461) (6,488)
----------- ------------- -------------- --------------
NET UNREALIZED APPRECIATION 151,781 483,292 113,831 18,736
ACCUMULATED NET INVESTMENT INCOME (LOSS) 1,835 -- -- (222)
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS 63,088 57,481 35,976 5,942
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 1,429,109 1,297,600 330,094 49,543
----------- ------------- -------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 1,645,813 $ 1,838,373 $ 479,901 $ 73,999
----------- ------------- -------------- --------------
----------- ------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
SMALL
INTERNATIONAL BALANCED COMPANY U.S. VALUE
(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 $ 5,339 $ 1,712 $ 8,578 $ 1,334
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (1,227) (447) (4,331) (420)
----------- ------------- -------------- --------------
NET UNREALIZED APPRECIATION 4,112 1,265 4,247 914
ACCUMULATED NET INVESTMENT INCOME (LOSS) 10 -- (58) --
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS (287) 724 2,380 371
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 14,714 16,497 50,296 9,522
----------- ------------- -------------- --------------
NET ASSETS AT JUNE 30, 1998 $ 18,549 $ 18,486 $ 56,865 $ 10,807
----------- ------------- -------------- --------------
----------- ------------- -------------- --------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
- 60 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company receives investment
advisory fees from the Funds. These fees are based on a percentage of each day's
net assets, which, on an annual basis, are as follows:
<TABLE>
<S> <C>
GROWTH, EQUITY AND 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 AND U.S. VALUE FUNDS: INTERNATIONAL FUND:
First $250 million .75% First $250 million 1.10%
Next $250 million .65 Next $250 million 1.00
Over $500 million .55 Over $500 million .90
SMALL COMPANY FUND:
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 (U.S.) Limited for providing investment research and
advice to the International Fund.
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates. Interest rates equivalent to
commercial bank interest rates are charged on loans over $100,000. No interest
is charged on loans under $100,000.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has a line of credit arrangements with
- 61 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
certain financial institutions. Under these arrangements, $75 million is
available to meet short-term financing needs. No balance was outstanding under
these arrangement at June 30, 1998
AFFILIATE OWNERSHIP. At June 30, 1998, SAFECO Insurance Company of America,
owned 450,000 shares (11% of outstanding shares) of the Northwest Fund and
SAFECO Asset Management Company owned 688,168 shares (50%) of the International
Fund, 519,268 shares (34%) of the Balanced Fund, and 500,000 shares (55%) of the
U.S. Value Fund.
DEFERRED ORGANIZATION EXPENSE. Costs related to the organization of the
International, Balanced, Small Company and U.S. Value Funds have been deferred
and are being amortized to operations over a period of sixty months. These costs
were advanced by SAFECO Asset Management Company and are being reimbursed by the
Funds over a sixty-month period.
EXPENSE REIMBURSEMENT. During the quarter ended June 30, 1998, SAFECO Asset
Management Company voluntarily reimbursed certain expenses of the International
Fund.
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts in
dealer commissions from sales of Class A Shares during the six-month period
ended June 30, 1998:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- -----------------------------------------------------
<S> <C>
Growth Fund $ 56,204
Equity Fund 33,725
Income Fund 2,661
Northwest Fund 5,240
International Fund 195
Balanced Fund 3,937
Small Company Fund 1,309
U.S. Value Fund 102
- -----------------------------------------------------
</TABLE>
- 62 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliate of the Growth Fund because
the Fund owned at least 5% of the company's voting securities during the
six-month period ended June 30, 1998.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT MARKET VALUE
BEGINNING END OF JUNE 30
SECURITY OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Buildings Co. 360 -- -- 360 -- $ 10,722
BNC Mortgage, Inc. -- 484 -- 484 -- 5,320
Compass International
Services Corp. -- 700 -- 700 -- 6,652
Concepts Direct, Inc. 348 147 (16) 479 -- 7,312
Damark International, Inc. 480 255 -- 735 -- 6,247
Dura Pharmaceuticals, Inc. -- 2,666 -- 2,666 -- 59,645
Emmis Broadcasting Corp. -- 1,209 -- 1,209 -- 57,791
Family Golf Centers, Inc. 1,061 958 (286) 1,733 -- 43,863
First Commonwealth, Inc. 327 35 (6) 356 -- 5,346
Funco, Inc. 354 -- -- 354 -- 5,004
Hall, Kinion & Associates,
Inc. -- 899 -- 899 -- 6,009
Harold's Stores, Inc. 516 26 -- 542 -- 4,134
Innotrac Corp. -- 602 -- 602 -- 5,718
IntelliQuest Information
Group, Inc. 41 799 -- 840 -- 8,399
ITEQ, Inc. -- 837 -- 837 -- 6,221
Lifeline Systems, Inc. 524 -- (10) 514 -- 9,517
MICROS Systems, Inc. 669 669 -- 1,338 -- 44,280
Nastech Pharmaceutical Co.,
Inc. 407 202 -- 609 -- 4,948
Nortek, Inc. -- 439 -- 439 -- 13,502
Open Plan Systems, Inc. 244 -- -- 244 -- 565
PCD, Inc. -- 424 -- 424 -- 7,266
Penederm, Inc. 728 -- -- 728 -- 14,554
Phoenix International Ltd.,
Inc. 415 208 -- 623 -- 10,116
PolyMedica Industries, Inc. 337 549 -- 886 -- 7,974
Precision Auto Care, Inc. -- 607 -- 607 -- 5,994
Recovery Engineering, Inc. -- 423 -- 423 -- 8,906
Schlotzsky's, Inc. -- 504 (11) 493 -- 7,888
Suburban Lodges of America,
Inc. 303 1,226 -- 1,529 -- 23,120
TRM Copy Centers Corp. 186 512 -- 698 -- 9,952
Teardrop Golf Co. -- 414 -- 414 -- 4,140
Telco Systems, Inc. -- 696 -- 696 -- 9,870
Tetra Technologies, Inc. 710 -- -- 710 -- 11,712
Waterside Capital Corp. -- 118 -- 118 -- 1,342
Weider Nutrition
International, Inc. 728 -- -- 728 55 12,379
-------------
$446,408
-------------
-------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- 63 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. COMMITMENTS.
At June 30, 1998, the International Fund had open forward foreign currency
exchange contracts obligating it to receive or deliver the following foreign
currencies:
<TABLE>
<CAPTION>
(In Thousands)
U.S. DOLLAR UNREALIZED
CURRENCY IN EXCHANGE SETTLEMENT VALUE AS OF APPRECIATION
TO BE DELIVERED FOR DATE JUNE 30, 1998 (DEPRECIATION)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
143 British Pound $ 237 07/27/98 $ 238 $ (1)
442 German Marks 247 07/17/98 245 2
319 German Marks 179 09/25/98 178 1
23,339 Japanese Yen 170 09/09/98 170 --
25,273 Japanese Yen 186 08/28/98 184 2
26,561 Japanese Yen 200 08/18/98 193 7
26,151 Japanese Yen 183 09/16/98 191 (8)
27,823 Japanese Yen 217 07/13/98 201 16
295 Swiss Francs 202 08/13/98 196 6
870 Swiss Francs 574 07/07/98 574 --
313 Swiss Francs 212 07/31/98 207 5
--
$ 30
--
--
- ------------------------------------------------------------------------------------------
</TABLE>
- 64 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.45 $ 16.97 $ 15.45 $ 15.83 $ 17.37 $ 19.20
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) 0.03 (0.02) (0.02) (0.02) 0.07 (0.02)
Net Realized and Unrealized Gain
on Investments 3.79 8.50 1.77 2.24 4.07 0.78
---------------- -------- -------- --------- --------- ---------
Total from Investment
Operations 3.82 8.48 1.75 2.22 4.14 0.76
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- -- (0.07) --
Distributions from Realized Gains -- (3.00) (0.23) (2.60) (5.61) (2.59)
---------------- -------- -------- --------- --------- ---------
Total Distributions -- (3.00) (0.23) (2.60) (5.68) (2.59)
---------------- -------- -------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 26.27 $ 22.45 $ 16.97 $ 15.45 $ 15.83 $ 17.37
---------------- -------- -------- --------- --------- ---------
---------------- -------- -------- --------- --------- ---------
TOTAL RETURN 17.02%* 49.96% 11.35%* 14.16% 23.93% 3.88%
NET ASSETS AT END OF PERIOD (000'S) $1,611,927 $ 638,562 $ 195,760 $ 179,574 $ 176,483 $ 156,108
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 0.69%** 0.85% 0.99%** 1.02% 0.98% 0.95%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET
ASSETS 0.30%** (.17%) (.51%)** (.14%) .34% (.12%)
PORTFOLIO TURNOVER RATE 47.34%** 82.57% 82.93%** 124.79% 110.44% 71.18%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 65 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 19.54 $ 16.60 $ 15.85 $ 15.31 $ 13.89 $ 12.54
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.23 0.06 0.28 0.34 0.23
Net Realized and Unrealized Gain
on Investments 2.67 3.78 1.33 2.42 2.59 1.83
---------------- ---------------- -------- --------- --------- ---------
Total from Investment
Operations 2.77 4.01 1.39 2.70 2.93 2.06
LESS DISTRIBUTIONS
Dividends from Net Investment
Income (0.10) (0.23) (0.06) (0.28) (0.34) (0.23)
Distributions from Realized Gains -- (0.84) (0.58) (1.88) (1.17) (0.48)
---------------- ---------------- -------- --------- --------- ---------
Total Distributions (0.10) (1.07) (0.64) (2.16) (1.51) (0.71)
---------------- ---------------- -------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 22.21 $ 19.54 $ 16.60 $ 15.85 $ 15.31 $ 13.89
---------------- ---------------- -------- --------- --------- ---------
---------------- ---------------- -------- --------- --------- ---------
TOTAL RETURN 14.19%* 24.21% 8.79%* 18.04% 21.59% 16.51%
NET ASSETS AT END OF PERIOD (000'S) $1,786,754 $1,490,198 $ 849,831 $ 725,780 $ 598,582 $ 412,805
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 0.73%** 0.73% 0.78%** 0.79% 0.84% 0.85%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS 0.99%** 1.24% 1.48%** 1.74% 2.38% 1.72%
PORTFOLIO TURNOVER RATE 35.09%** 34.26% 59.34%** 74.07% 56.14% 33.33%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 66 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.89 $ 21.13 $ 20.03 $ 19.11 $ 17.25 $ 17.79
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.29 0.65 0.15 0.73 0.82 0.81
Net Realized and Unrealized Gain
on Investments 2.70 4.87 1.63 2.84 2.71 (0.30)
-------- -------- -------- --------- --------- ---------
Total from Investment
Operations 2.99 5.52 1.78 3.57 3.53 0.51
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.29) (0.65) (0.15) (0.73) (0.82) (0.81)
Distributions from Realized Gains -- (2.11) (0.53) (1.92) (0.85) (0.24)
-------- -------- -------- --------- --------- ---------
Total Distributions (0.29) (2.76) (0.68) (2.65) (1.67) (1.05)
-------- -------- -------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 26.59 $ 23.89 $ 21.13 $ 20.03 $ 19.11 $ 17.25
-------- -------- -------- --------- --------- ---------
-------- -------- -------- --------- --------- ---------
TOTAL RETURN 12.50%* 26.43% 8.89%* 18.98% 21.04% 2.98%
NET ASSETS AT END OF PERIOD (000'S) $ 476,563 $ 401,985 $ 289,968 $ 260,023 $ 217,870 $ 190,610
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 0.81%** 0.85% 0.89%** 0.86% 0.87% 0.86%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS 2.25%** 2.81% 2.89%** 3.56% 4.55% 4.59%
PORTFOLIO TURNOVER RATE 55.01%** 52.14% 37.84%** 50.11% 31.12% 19.30%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 67 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE THREE-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF
PERIOD $ 17.31 $ 14.07 $ 13.78 $ 14.41 $ 12.59 $ 12.34
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.05) (0.03) (0.01) 0.02 0.04 0.04
Net Realized and Unrealized Gain
(Loss) on Investments 1.34 4.41 0.30 1.32 2.35 0.59
-------- ------- -------- --------- --------- ---------
Total from Investment
Operations 1.29 4.38 0.29 1.34 2.39 0.63
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- (0.02) (0.04) (0.04)
Distributions from Realized Gains -- (1.14) -- (1.95) (0.53) (0.34)
-------- ------- -------- --------- --------- ---------
Total Distributions -- (1.14) -- (1.97) (0.57) (0.38)
-------- ------- -------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 18.60 $ 17.31 $ 14.07 $ 13.78 $ 14.41 $ 12.59
-------- ------- -------- --------- --------- ---------
-------- ------- -------- --------- --------- ---------
TOTAL RETURN 7.45%* 31.12% 2.10%* 9.61% 19.01% 5.19%
NET ASSETS AT END OF PERIOD (000'S) $ 69,522 $ 64,635 $ 43,345 $ 43,128 $ 40,140 $ 36,383
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 1.10%** 1.09% 1.25%** 1.07% 1.09% 1.06%
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET
ASSETS (0.57%)** (.19%) (.31%)** 0.11% 0.31% 0.33%
PORTFOLIO TURNOVER RATE 45.35%** 55.42% 67.32%** 35.69% 19.59% 18.46%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 68 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH FOR THE THREE-MONTH OF OPERATIONS)
PERIOD ENDED YEAR ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-------------------------------------------------------------------------
1998 1997 1996 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.50 $ 11.29 $ 10.39 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) .18 0.24 -- 0.06
Net Realized and Unrealized Gain
on Investments
and Foreign Currency
Transactions 1.66 0.28 0.96 0.39
------- ------ ------ -----
Total from Investment
Operations 1.84 0.52 0.96 0.45
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- (0.29) (0.06) (0.06)
Distributions from Realized Gains -- (0.02) -- --
------- ------ ------ -----
Total Distributions -- (0.31) (0.06) (0.06)
------- ------ ------ -----
NET ASSET VALUE AT END OF PERIOD $ 13.34 $ 11.50 $ 11.29 $ 10.39
------- ------ ------ -----
------- ------ ------ -----
TOTAL RETURN 16.00%* 4.55% 9.27%* 4.54%*
NET ASSETS AT END OF PERIOD (000'S) $ 17,527 $ 14,754 $ 11,157 $ 8,323
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 1.55%+** 1.63%+ 1.37%+** 2.36%**
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET ASSETS 1.41%** 0.58% (.19%)** .93%**
PORTFOLIO TURNOVER RATE 26.20%** 22.13% 18.51%** 15.73%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 1.73%, 1.89% and 1.68% for
the period ended June 30, 1998 and the periods ended December 31, 1997 and
1996, respectively.
- 69 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH FOR THE THREE-MONTH OF OPERATIONS)
PERIOD ENDED YEAR ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-------------------------------------------------------------------------
1998 1997 1996 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.61 $ 10.70 $ 10.38 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.16 0.32 0.08 0.21
Net Realized and Unrealized Gain
on Investments 0.57 1.45 0.45 0.39
------ ------ ------ ------
Total from Investment
Operations 0.73 1.77 0.53 0.60
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.16) (0.32) (0.08) (0.21)
Distributions from Realized Gains -- (0.54) (0.13) (0.01)
------ ------ ------ ------
Total Distributions (0.16) (0.86) (0.21) (0.22)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 12.18 $ 11.61 $ 10.70 $ 10.38
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN 6.25%* 16.64% 5.11%* 5.99%*
NET ASSETS AT END OF PERIOD (000'S) $ 17,193 $ 13,667 $ 8,262 $ 7,632
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 1.21%** 1.23% 1.16%+** 1.32%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS 2.72%** 2.85% 3.19%** 3.21%**
PORTFOLIO TURNOVER RATE 70.75%** 101.22% 36.10%** 143.87%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.52%.
- 70 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH FOR THE THREE-MONTH OF OPERATIONS)
PERIOD ENDED YEAR ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-------------------------------------------------------------------------
1998 1997 1996 1996
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.23 $ 11.81 $ 11.51 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.02) (0.04) (0.01) (0.01)
Net Realized and Unrealized Gain
on Investments 2.10 2.80 0.31 2.19
------- ------ ------ ------
Total from Investment
Operations 2.08 2.76 0.30 2.18
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- --
Distributions from Realized Gains -- (0.34) -- (0.67)
------- ------ ------ ------
Total Distributions -- (0.34) -- (0.67)
------- ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 16.31 $ 14.23 $ 11.81 $ 11.51
------- ------ ------ ------
------- ------ ------ ------
TOTAL RETURN 14.62%* 23.38% 2.61%* 21.83%*
NET ASSETS AT END OF PERIOD (000'S) $ 54,646 $ 22,658 $ 13,169 $ 12,552
RATIO OF EXPENSES TO AVERAGE NET
ASSETS 1.23%** 1.33% 1.35%+** 1.49%**
RATIO OF NET INVESTMENT INCOME
(LOSS) TO AVERAGE NET
ASSETS (.23%)** (.41%) (.44%)** (.24%)**
PORTFOLIO TURNOVER RATE 94.23%** 60.81% 73.47%** 91.03%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.58%.
- 71 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT
SIX-MONTH OF OPERATIONS)
PERIOD ENDED TO
JUNE 30 DECEMBER 31
-----------------------------------
1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.19 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.06 0.09
Net Realized and Unrealized Gain
on Investments 0.76 1.66
------- ------
Total from Investment
Operations 0.82 1.75
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.06) (0.09)
Distributions from Realized Gains -- (0.47)
------- ------
Total Distributions (0.06) (0.56)
------- ------
NET ASSET VALUE AT END OF PERIOD $ 11.95 $ 11.19
------- ------
------- ------
TOTAL RETURN* 7.36% 17.50%
NET ASSETS AT END OF PERIOD (000'S) $ 10,173 $ 9,063
RATIO OF EXPENSES TO AVERAGE NET
ASSETS** 1.15% 1.19%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS** 1.13% 1.26%
PORTFOLIO TURNOVER RATE** 54.57% 36.37%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 72 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
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
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
Chase Manhattan Bank
(International Fund)
CLIENT SERVICES*:
Monday-Friday,
5:30am-7:00pm, Pacific Time
NATIONWIDE: 1-800-624-5711
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
*All telephone calls are tape-recorded
for your protection.
FOR 24-HOUR AUTOMATED
PERFORMANCE INFORMATION
AND TRANSACTIONS:
NATIONWIDE: 1-800-835-4391
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
E-MAIL: [email protected]
GMF 659 8/98
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -TM- A trademark of SAFECO Corporation.
