<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
STOCK FUNDS
NO-LOAD CLASS
---------
<TABLE>
<S> <C>
SAFECO Growth Fund ....................................................... 2
SAFECO Equity Fund ....................................................... 8
SAFECO Income Fund ...................................................... 13
SAFECO Northwest Fund ................................................... 19
SAFECO International Fund ............................................... 24
SAFECO Balanced Fund .................................................... 30
SAFECO Small Company Fund ............................................... 37
SAFECO U.S. Value Fund .................................................. 42
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Returning 49.96% for the year while the average growth fund returned
28.08%, SAFECO Growth Fund finished 1997 in the top echelon of stock
Mutual Funds. It was number four of the 820 growth funds tracked by Lipper
Analytical Services for the one year just ended. (The fund was 27 of 511 funds
for the three years, 33 of 311 for the five years and 33 of 181 for the 10 years
ended December 31, 1997.) [PHOTO OF THOMAS M. MAGUIRE]
The fund also outperformed the S&P 500 and Russell 2000 indexes for
the year ended December 31. The broad market indicator returned 33.36%
and the small-cap benchmark climbed 22.36%, respectively.
Contributing to the Growth Fund's success in 1997 were our radio stocks, the
acquisitions of several companies we owned, and an underweighting in technology.
Our overall success is due to one thing: stock picking.
Its good performance discovered, money poured into SAFECO Growth. Assets grew
from $262 million at June 30, 1997 to
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 49.96%
5 Year 22.81%
10 Year 18.48%
Investment Value
SAFECO Growth Fund: $54,510
S&P 500 Index: $52,553
SAFECO Growth Fund S&P 500 Index
12/31/87 $10,000 $10,000
1/31/88 10,000 10,421
2/28/88 10,157 10,907
3/31/88 11,040 10,570
4/30/88 11,138 10,687
5/31/88 10,987 10,780
6/30/88 11,663 11,275
7/31/88 11,633 11,232
8/31/88 11,436 10,850
9/30/88 12,000 11,312
10/31/88 12,000 11,627
11/30/88 12,016 11,460
12/31/88 12,210 11,661
1/31/89 12,210 12,515
2/28/89 12,551 12,203
3/31/89 12,868 12,487
4/30/89 12,868 13,135
5/31/89 13,391 13,667
6/30/89 13,688 13,589
7/31/89 13,688 14,817
8/31/89 14,297 15,107
9/30/89 15,028 15,045
10/31/89 14,461 14,696
11/30/89 14,417 14,996
12/31/89 14,553 15,356
1/31/90 13,143 14,325
2/28/90 13,502 14,510
3/31/90 14,317 14,895
4/30/90 14,378 14,522
5/31/90 15,851 15,938
6/30/90 15,315 15,830
7/31/90 15,613 15,779
8/31/90 12,921 14,353
9/30/90 11,472 13,654
10/31/90 10,699 13,595
11/30/90 11,492 14,473
12/31/90 12,376 14,877
1/31/91 13,612 15,526
2/28/91 15,488 16,636
3/31/91 16,245 17,038
4/30/91 17,028 17,079
5/31/91 18,152 17,817
6/30/91 17,070 17,001
7/31/91 18,667 17,793
8/31/91 19,409 18,215
9/30/91 19,527 17,911
10/31/91 20,114 18,151
11/30/91 18,417 17,419
12/31/91 20,129 19,412
1/31/92 21,602 19,051
2/28/92 21,448 19,299
3/31/92 19,854 18,922
4/30/92 18,622 19,479
5/31/92 18,161 19,574
6/30/92 16,765 19,282
7/31/92 17,468 20,071
8/31/92 16,479 19,660
9/30/92 16,045 19,892
10/31/92 16,722 19,960
11/30/92 18,833 20,638
12/31/92 19,511 20,891
1/31/93 20,325 21,065
2/28/93 18,971 21,352
3/31/93 19,717 21,803
4/30/93 18,501 21,276
5/31/93 19,453 21,843
6/30/93 20,061 21,907
7/31/93 19,993 21,819
8/31/93 21,278 22,645
9/30/93 22,211 22,471
10/31/93 22,778 22,936
11/30/93 21,818 22,718
12/31/93 23,840 22,993
1/31/94 25,123 23,775
2/28/94 23,923 23,131
3/31/94 22,723 22,124
4/30/94 23,329 22,408
5/31/94 23,543 22,773
6/30/94 21,796 22,215
7/31/94 22,283 22,944
8/31/94 23,673 23,882
9/30/94 23,073 23,299
10/31/94 23,405 23,821
11/30/94 22,768 22,954
12/31/94 23,453 23,294
1/31/95 23,092 23,897
2/28/95 24,362 24,827
3/31/95 24,268 25,559
4/30/95 24,389 26,310
5/31/95 25,364 27,379
6/30/95 26,900 28,014
7/31/95 27,849 28,941
8/31/95 27,756 29,013
9/30/95 28,594 30,238
10/31/95 28,468 30,129
11/30/95 28,757 31,449
12/31/95 29,575 32,056
1/31/96 30,671 33,145
2/28/96 31,821 33,454
3/31/96 31,335 33,775
4/30/96 32,668 34,272
5/31/96 34,056 35,155
6/30/96 32,577 35,289
7/31/96 29,363 33,730
8/31/96 31,116 34,443
9/30/96 32,644 36,380
10/31/96 33,342 37,383
11/30/96 34,631 40,206
12/31/96 36,348 39,409
1/31/97 39,476 41,868
2/28/97 38,426 42,199
3/31/97 37,077 40,469
4/30/97 35,363 42,881
5/31/97 40,718 45,488
6/30/97 44,102 47,526
7/31/97 46,673 51,307
8/31/97 48,343 48,434
9/30/97 52,241 51,087
10/30/97 51,278 49,383
11/30/97 53,505 51,667
12/31/97 54,510 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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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- ------------------------------------------------------------------
$644 million at year end. I used the new money to start some new positions and
add to old favorites. Most importantly, I was able to keep up performance as the
new money came in.
I bought Philip Morris, Avon and Boston Scientific (medical technology). The
advantage of investing in these larger cap stocks is that the money goes right
to work and is readily accessible when more intriguing opportunities arise.
I started a new position in Green Tree Financial, a company the fund has
owned in the past. Green Tree's price had fallen on two counts. Wall Street
didn't like its accounting and the entire sub-prime lending sector was under
pressure. Green Tree's core business is financing manufactured housing, but it
is branching into other areas of lending.
I sold Jackson Hewitt, on the news that it would be acquired. The stock
traded up so high, it seemed there was no place left for it to go. By selling
it, I sold the downside risk that's inherently higher in highly-valued
securities.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Green Tree Financial Corp. ........................................ 5.8%
(Financial Services Company)
Chancellor Media Corp. ............................................. 5.3
(Radio Stations)
Family Golf Centers, Inc. .......................................... 5.2
(Golf Recreation Centers)
MICROS Systems, Inc. ............................................... 4.7
(Specialty Software Company)
United Stationers, Inc. ............................................ 4.2
(Office Products Distribution)
Avon Products, Inc. ................................................ 4.1
(Beauty Care Products)
Philip Morris Cos., Inc. ........................................... 3.4
(Food, Beverage & Tobacco Company)
SFX Broadcasting, Inc. (Class A) .................................... 2.7
(Radio Stations)
Tetra Technologies, Inc. ........................................... 2.3
(Specialty Chemicals)
Danka Business Systems (ADR) ........................................ 2.3
(Office Products Distribution & Service)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Green Tree Financial Corp. ........................................ $41,171
Family Golf Centers, Inc. .......................................... 28,919
Avon Products, Inc. ................................................ 25,003
United Stationers, Inc. ............................................ 22,186
Philip Morris Cos., Inc. ........................................... 16,694
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Jackson Hewitt, Inc. ............................................. $22,366
*RJR Nabisco Holdings Corp. ........................................ 13,678
Stage Stores, Inc. .................................................. 7,996
*Melamine Chemicals, Inc. ........................................... 4,914
Datascope Corp. ..................................................... 4,794
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Health Care (Medical Products & Supplies) ........................... 13%
Broadcasting (Television, Radio & Cable) ............................. 10
Office Equipment & Supplies ........................................... 7
Leisure Time (Products) ............................................... 7
Financial (Miscellaneous) ............................................. 6
- -------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 3 -
<PAGE>
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- --------------------------------------------------------------------------------
REPORT FROM THE GROWTH FUND MANAGER
Jackson Hewitt wasn't our only stock to rise on acquisition news.
INBRANDS, SFX Broadcasting, American Radio and Suburban Ostomy, all
climbed for the same reason.
My favorite stocks continue to be those that haven't yet been discovered and
because they are "unfound" they have ample room to appreciate. Currently they
include Family Golf Centers (driving range facilities), MICROS Systems (point of
sale inventory systems), Tetra Technologies (recycles chemical waste into
specialty chemicals) and United Stationers (office product distributor).
Despite the fact SAFECO Growth Fund has been discovered, I remain
the same. And I will keep investing with the same attitude I've held
for all these years: think "outside of the box". I'll keep trying to
think and invest creatively and doing that, I hope to uncover and take
opportunities that others fail to see.
/s/ THOMAS M. MAGUIRE
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.
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.) 16%
Medium: ($1 Bil. - $4 Bil.) 11%
Small: (Less than $1 Bil.) 71%
Cash and Other: 2%
</TABLE>
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.0%
AIR FREIGHT - 0.0%
5,000 *Dynamex, Inc. ...................................... $ 56
BROADCASTING (TELEVISION, RADIO & CABLE) - 9.5%
186,100 *American Radio Systems Corp. ........................ 9,921
456,549 *Chancellor Media Corp. ............................. 34,070
215,600 *SFX Broadcasting, Inc. (Class A) ................... 17,302
BUILDING MATERIALS - 0.2%
64,600 *ABT Building Products Corp. ......................... 1,163
CHEMICALS - 0.3%
110,300 Spartech Corp. ....................................... 1,668
CHEMICALS (SPECIALTY) - 2.3%
709,800 *+Tetra Technologies, Inc. .......................... 14,950
COMMUNICATIONS EQUIPMENT - 0.1%
32,500 *NewCom, Inc. .......................................... 479
COMPUTERS (HARDWARE) - 5.0%
45,000 *Equitrac Corp. ........................................ 810
669,014 *+MICROS Systems, Inc. .............................. 30,106
128,000 *Optimal Robotics Corp. ................................ 976
COMPUTERS (PERIPHERALS) - 0.6%
338,400 *Tier Technologies, Inc. ............................. 3,638
COMPUTERS (SOFTWARE & SERVICES) - 1.3%
84,080 *Affiliated Computer Services, Inc. .................. 2,212
415,000 *+Phoenix International Ltd., Inc. ................... 6,121
CONSUMER FINANCE - 1.7%
437,200 *Doral Financial Corp. .............................. 11,094
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.3%
221,000 *Celebrity, Inc. ....................................... 304
92,000 *Media Arts Group, Inc. .............................. 1,380
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
DISTRIBUTORS (FOOD & HEALTH) - 2.5%
401,300 *Nu Skin Asia Pacific, Inc. (Class A) .............. $ 7,324
728,200 +Weider Nutrition International, Inc. ................ 9,057
ELECTRICAL EQUIPMENT - 0.3%
204,000 *Ultrak, Inc. ........................................ 1,874
ENGINEERING & CONSTRUCTION - 1.5%
360,400 *+American Buildings Co. ............................. 9,100
43,800 *Diamond Home Services, Inc. ........................... 312
FINANCIAL (DIVERSIFIED) - 0.3%
274,475 *Credit Acceptance Corp. ............................. 2,127
FINANCIAL (MISCELLANEOUS) - 5.8%
1,430,000 Green Tree Financial Corp. .......................... 37,448
FOODS - 0.2%
99,000 *Authentic Specialty Foods, Inc. ..................... 1,349
FOOTWEAR - 0.1%
48,000 *Rocky Shoes & Boots, Inc. ............................. 732
HEALTH CARE (DIVERSIFIED) - 0.4%
144,500 *Anesta Corp. ........................................ 2,366
42,000 *OrthAlliance, Inc. (Class A) .......................... 383
HEALTH CARE (DRUGS--GENERAL) - 0.8%
406,800 *+Nastech Pharmaceutical Co., Inc. ................... 5,288
HEALTH CARE (DRUGS--PHARMACEUTICALS) - 3.9%
160,800 *Andrx Corp. ......................................... 5,507
255,000 *Ethical Holdings, PLC (ADR) ........................... 797
199,700 *Faulding, Inc. ...................................... 2,683
286,900 *Gensia, Inc. ........................................ 1,668
112,500 Mylan Laboratories, Inc. ............................. 2,355
462,200 *Serologicals Corp. ................................. 12,017
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.1%
13,363 *Amsurg, Corp. (Class A) ............................... 100
86,103 *Amsurg, Corp. (Class B) ............................... 667
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (LONG TERM CARE) - 1.8%
406,100 *Res-Care, Inc. .................................... $11,777
HEALTH CARE (MANAGED CARE) - 0.6%
326,900 +First Commonwealth, Inc. ............................ 3,841
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 12.5%
265,000 *Anika Therapeutics, Inc. ............................ 2,468
225,000 *Boston Scientific Corp. ............................ 10,322
270,100 *Datascope Corp. ..................................... 6,989
209,300 Dentsply International, Inc. ......................... 6,384
166,000 *EDAP TMS S.A. (ADR) ................................. 1,162
833,200 *Haemonetics Corp. .................................. 11,665
523,850 *+Lifeline Systems, Inc. ............................ 13,162
337,100 *PolyMedica Industries, Inc. ......................... 3,287
326,300 *Quidel Corp. ........................................ 1,183
42,300 *ResMed, Inc. ........................................ 1,190
433,650 *Sano Corp. ......................................... 14,365
690,000 *+Suburban Ostomy Supply Co., Inc. ................... 8,021
162,000 *UroQuest Medical Corp. ................................ 425
HEALTH CARE (SPECIALIZED SERVICES) - 1.4%
182,300 *American Healthcorp, Inc. ........................... 1,276
143,000 *Laboratory Specialists of America, Inc. ............... 661
533,600 *Prime Medical Services, Inc. ........................ 7,370
HOMEBUILDING - 0.1%
57,187 *American Homestar Corp. ............................... 944
HOUSEHOLD FURNITURE & APPLIANCES - 0.8%
619,100 *International Comfort Products Corp. ................ 5,185
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.2%
328,500 *U.S. Home & Garden, Inc. ............................ 1,355
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HOUSEWARES - 1.1%
293,200 *Home Products International, Inc. ................. $ 3,445
357,720 Lifetime Hoan Corp. .................................. 3,532
INSURANCE (LIFE/HEALTH) - 0.0%
4,100 *ESG Re, Limited ........................................ 96
INVESTMENT BANKING/BROKERAGE - 0.9%
202,500 *AmeriTrade Holding Corp. ............................ 5,923
LEISURE TIME (PRODUCTS) - 6.6%
465,000 *+American Coin Merchandising, Inc. .................. 8,196
1,061,050 *+Family Golf Centers, Inc. ......................... 33,290
90,200 *Toymax International, Inc. ............................ 778
LODGING-HOTELS - 0.6%
302,500 *Suburban Lodges of America, Inc. .................... 4,027
MACHINERY (DIVERSIFIED) - 1.4%
394,100 Chart Industries, Inc. ............................... 8,991
MANUFACTURING (DIVERSIFIED) - 0.0%
75,600 *ITC Learning Corp. .................................... 274
MANUFACTURING (SPECIALIZED) - 0.2%
140,413 *Intermagnetics General Corp. ........................ 1,132
NATURAL GAS - 0.1%
108,000 Virginia Gas Co. ....................................... 918
OFFICE EQUIPMENT & SUPPLIES - 7.0%
81,600 *Asia Pacific Wire & Cable Corp. Ltd. .................. 587
930,700 Danka Business Systems (ADR) ........................ 14,833
244,500 *+Open Plan Systems, Inc. .............................. 795
186,200 *TRM Copy Centers Corp. .............................. 1,653
560,800 *United Stationers, Inc. ............................ 26,989
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PERSONAL CARE - 5.3%
435,000 Avon Products, Inc. ................................ $26,698
727,700 *+Penederm, Inc. ..................................... 7,277
REAL ESTATE INVESTMENT TRUST - 0.7%
98,000 CCA Prison Realty Trust .............................. 4,373
RESTAURANTS - 0.8%
170,300 Apple South, Inc. .................................... 2,235
344,000 *Rare Hospitality International, Inc. ................ 3,096
RETAIL (DEPARTMENT STORES) - 1.2%
452,500 *Marks Brothers Jewelers, Inc. ....................... 7,467
RETAIL (FOOD CHAINS) - 3.3%
506,100 American Stores Co. ................................. 10,407
898,279 *NPC International, Inc. ............................ 10,892
RETAIL (HOME SHOPPING) - 0.7%
480,200 *+Damark International, Inc. ......................... 4,682
RETAIL (SPECIALTY) - 2.0%
354,300 *+Funco, Inc. ........................................ 5,270
78,200 *Garden Ridge Corp. .................................. 1,115
498,000 Helig-Meyers Co. ..................................... 5,976
309,400 *West Coast Entertainment Corp. ........................ 464
RETAIL (SPECIALTY-APPAREL) - 3.3%
348,400 *+Concepts Direct, Inc. .............................. 7,316
516,394 *+Harold's Stores, Inc. .............................. 3,517
273,034 *Stage Stores, Inc. ................................. 10,205
SERVICES (ADVERTISING/MARKETING) - 1.7%
183,400 *ACI Telecentrics, Inc. ................................ 642
651,500 *APAC Teleservices, Inc. ............................. 8,795
85,550 LCS Industries, Inc. ................................. 1,240
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SERVICES (COMMERCIAL & CONSUMER) - 2.7%
310,000 *FirstService Corp. ................................ $ 2,325
41,300 *IntelliQuest Information Group, Inc. .................. 547
31,500 *NCO Group, Inc. ....................................... 811
515,238 *+Rent-Way, Inc. ..................................... 9,532
131,000 *Renters Choice, Inc. ................................ 2,686
99,000 *UBICS, Inc. ......................................... 1,485
SERVICES (DATA PROCESSING) - 0.3%
167,000 *Vanstar Corp. ....................................... 1,889
TEXTILES (APPAREL) - 0.1%
56,500 *Sport-Haley, Inc. ..................................... 622
TOBACCO - 3.4%
488,000 Philip Morris Cos., Inc. ............................ 22,113
------
TOTAL COMMON STOCKS ................................................. 631,572
------
WARRANTS - 0.0%
COMPUTERS (PERIPHERALS) - 0.0%
32,500 *NewCom, Inc. ......................................... 126
------
TOTAL WARRANTS .......................................................... 126
------
TEMPORARY INVESTMENTS - 0.7%
INVESTMENT COMPANIES:
$4,286,756 SSgA Prime Money Market Portfolio .................... 4,287
------
TOTAL TEMPORARY INVESTMENTS ........................................... 4,287
------
TOTAL INVESTMENTS - 98.7% ........................................... 635,985
Other Assets, less Liabilities ........................................ 8,055
------
NET ASSETS ......................................................... $644,040
------
------
- -----------------------------------------------------------------------------
</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
- 7 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO EQUITY FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Equity ended the fourth quarter ahead of its peer funds, but
finished the year behind the growth and income fund pack. For the year,
the Fund returned 24.21% while the average growth and income fund peer returned
26.96%, according to Lipper Analytical Services. The S&P 500 returned 33.36%.
(For the five and ten years ended December 31, 1997, your fund's average
return's, 22.86% and 19.79%, respectively, remain ahead of the peer group's
18.06% and 16.03%, and the S&P 500's 20.25% and 18.02%.)
[PHOTO OF RICH MEAGLEY]
I run Equity Fund for no surprises--and contrary to my intent, the
first three quarters of 1997 delivered several unwanted ones. Trouble at
a number of companies in our portfolio held our performance below our peers.
During the fourth quarter we let go of two of them, Advanta and Viacom, in
favor of stocks with greater earnings predictability.
Within the Viacom organization, Blockbuster had continued to languish. Unable
to overcome competition for leisure time
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 24.21%
5 Year 22.86%
10 Year 19.79%
Investment Value
SAFECO Equity Fund: $60,853
S&P 500 Index: $52,553
SAFECO Equity Fund S&P 500 Index
12/31/87 $10,000 $10,000
01/31/88 10,000 10,421
02/28/88 10,846 10,907
03/31/88 11,670 10,570
04/30/88 11,670 10,687
05/31/88 11,500 10,780
06/30/88 12,020 11,275
07/31/88 11,949 11,232
08/31/88 11,749 10,850
09/30/88 12,303 11,312
10/31/88 12,303 11,627
11/30/88 12,519 11,460
12/31/88 12,529 11,661
01/31/89 12,529 12,515
02/28/89 13,379 12,203
03/31/89 13,396 12,487
04/30/89 13,396 13,135
05/31/89 14,219 13,667
06/30/89 14,743 13,589
07/31/89 14,743 14,817
08/31/89 16,055 15,107
09/30/89 16,255 15,045
10/31/89 16,287 14,696
11/30/89 16,399 14,996
12/31/89 17,014 15,356
01/31/90 15,602 14,325
02/28/90 15,748 14,510
03/31/90 16,332 14,895
04/30/90 15,860 14,522
05/31/90 17,392 15,938
06/30/90 17,364 15,830
07/31/90 17,053 15,779
08/31/90 15,253 14,353
09/30/90 14,510 13,654
10/31/90 14,200 13,595
11/30/90 14,975 14,473
12/31/90 15,556 14,877
01/31/91 16,354 15,526
02/28/91 17,325 16,636
03/31/91 17,814 17,038
04/30/91 18,180 17,079
05/31/91 18,910 17,817
06/30/91 17,696 17,001
07/31/91 18,883 17,793
08/31/91 19,180 18,215
09/30/91 18,920 17,911
10/31/91 19,229 18,151
11/30/91 18,026 17,419
12/31/91 19,898 19,412
01/31/92 21,082 19,051
02/28/92 21,439 19,299
03/31/92 20,475 18,922
04/30/92 20,645 19,479
05/31/92 20,456 19,574
06/30/92 18,980 19,282
07/31/92 19,755 20,071
08/31/92 18,942 19,660
09/30/92 18,997 19,892
10/31/92 19,913 19,960
11/30/92 21,229 20,638
12/31/92 21,741 20,891
01/31/93 22,461 21,065
02/28/93 22,481 21,352
03/31/93 23,690 21,803
04/30/93 23,148 21,276
05/31/93 25,054 21,843
06/30/93 25,156 21,907
07/31/93 24,813 21,819
08/31/93 26,203 22,645
09/30/93 26,932 22,471
10/31/93 27,641 22,936
11/30/93 27,791 22,718
12/31/93 28,461 22,993
01/31/94 30,167 23,775
02/28/94 29,412 23,131
03/31/94 28,282 22,124
04/30/94 29,192 22,408
05/31/94 30,038 22,773
06/30/94 28,956 22,215
07/31/94 29,696 22,944
08/31/94 31,503 23,882
09/30/94 31,379 23,299
10/31/94 31,967 23,821
11/30/94 31,334 22,954
12/31/94 31,289 23,294
01/31/95 31,518 23,897
02/28/95 32,341 24,827
03/31/95 32,604 25,559
04/30/95 33,478 26,310
05/31/95 34,330 27,379
06/30/95 35,181 28,014
07/31/95 35,737 28,941
08/31/95 36,732 29,013
09/30/95 38,153 30,238
10/31/95 37,680 30,129
11/30/95 38,901 31,449
12/31/95 39,192 32,056
01/31/96 40,240 33,145
02/28/96 40,598 33,454
03/31/96 41,015 33,775
04/30/96 41,888 34,272
05/31/96 42,863 35,155
06/30/96 43,656 35,289
07/31/96 41,981 33,730
08/31/96 42,419 34,443
09/30/96 45,035 36,380
10/31/96 46,484 37,383
11/30/96 49,979 40,206
12/31/96 48,993 39,409
01/31/97 51,826 41,868
02/28/97 52,033 42,199
03/31/97 49,946 40,469
04/30/97 51,397 42,881
05/31/97 54,802 45,488
06/30/97 57,040 47,526
07/31/97 60,900 51,307
08/31/97 57,752 48,434
09/30/97 59,834 51,087
10/30/97 57,928 49,383
11/30/97 59,804 51,667
12/31/97 60,853 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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.
- 8 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
attention, the video division made Viacom a "B-grade" stock and we took it off
our list.
Advanta effectively became a higher risk stock by aggressively offering low
introductory rates in its pursuit of market share. The company soon accumulated
$10 billion in credit card receivables issued to what turned out to be higher
risk users.
Mid year, PacifiCare discovered the HMO it acquired, FHP, was in poorer
financial shape than anticipated. That news sent the stock reeling. We held our
position, looking for a come back. Instead the picture grew darker and the stock
blew up a second time.
Even though we outperformed our peers in the fourth quarter, trouble in
technology stocks took a toll on overall returns. High-profile tech stocks
started to miss their numbers. Oracle's stock, off 41% for the quarter, was
brutalized as the company missed earning estimates for the first time in half a
decade. Intel, off 24%, was also punished for disappointing earnings, as were
3Com and First Data, down 35% and 31%, respectively.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.1%
(Bank)
Johnson & Johnson ................................................... 3.1
(Health Care Products)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Kimberly-Clark Corp. ............................................... 3.0
(Manufacturing & Marketing Personal Care Products)
Federal National Mortgage Association ............................... 2.8
(Mortgage Loan Banker)
American Home Products Corp. ....................................... 2.6
(Pharmaceuticals)
AlliedSignal, Inc. ................................................. 2.6
(Aerospace Products Manufacturer)
Merck & Co., Inc. .................................................. 2.6
(Health Care Products)
Anheuser-Busch Companies, Inc. ..................................... 2.4
(Brewery)
Walt Disney Co. .................................................... 2.4
(Entertainment Company)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Anheuser-Busch Companies, Inc. .................................... $36,111
Merck & Co., Inc. .................................................. 35,464
International Business Machines Corp. .............................. 29,699
Boeing Co. ......................................................... 27,501
Automatic Data Processing, Inc. .................................... 23,937
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*AMP, Inc. ........................................................ $32,258
*Viacom, Inc. (Class B) ............................................. 29,223
Chase Manhattan Corp. .............................................. 26,236
SmithKline Beecham, plc (ADR) ....................................... 18,329
*Advanta Corp. (Class B) ............................................ 16,006
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Health Care (Diversified) ............................................... 7%
Oil (International Integrated) ........................................... 6
Financial (Diversified) .................................................. 5
Manufacturing (Diversified) .............................................. 5
Services (Data Processing) ............................................... 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE EQUITY FUND MANAGER
I worked the downdraft in First Data to our advantage, selling
when its share price began to slip and buying it back later at a
lower price. This company's business, credit card processing, is
becoming more crowded, but First Data is still the dominant player.
Electronic Data Systems, a data processing outsourcing company we own, ended
the quarter on an up note. The company stumbled earlier this year and then
languished as the quick fix it promised failed to occur. Finally after six
quarters of our owning EDS, it beat expectations and the stock took off.
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) 94%
Medium: ($1 Bil. - $4 Bil.) 3%
Cash and Other: 3%
</TABLE>
I believe more than ever that our strategy is the right one. To make our
50-name portfolio excel in a market that can't tolerate bad news, I am working
to incorporate greater predictability into our equation. I am carefully
considering the sectors in which we invest, and raising the standards for
admission to our portfolio. For example, it's easier to predict Fannie Mae's
earnings than it is to predict Oracle's.
Thus the theme to our purchases and sales, and subsequently to our fourth
quarter come-back is predictablity. I have added to our stake in
companies whose earnings I have higher conviction: Fannie Mae,
Johnson & Johnson, AlliedSignal and GE. Those additions and good
runs by the same companies have reshaped our top ten holdings.
Conversely, we are less invested in companies with less predictable
earnings--mainly technology and HMOs. Furthermore, I changed the tone of the
technology we do own to more blue chip by adding to Microsoft and Intel.
All said, our year ended on an up note. Even better, its a long-term game. In
longer terms, Equity Fund remains well ahead. And, in golf terms: We're going
forward working to get up, get down, stay out of trouble and go on to the next
holding.
/s/ RICH MEAGLEY
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.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.0%
AEROSPACE/DEFENSE - 3.9%
525,000 Boeing Co. ......................................... $25,692
335,000 Lockheed Martin Corp. ............................... 32,997
AUTO PARTS & EQUIPMENT - 1.3%
550,000 Echlin, Inc. ........................................ 19,903
BANKS (MAJOR REGIONAL) - 2.3%
575,000 NationsBank Corp. ................................... 34,967
BANKS (MONEY CENTER) - 3.1%
425,000 Chase Manhattan Corp. ............................... 46,537
BEVERAGES (ALCOHOLIC) - 2.4%
825,000 Anheuser-Busch Co., Inc. ............................ 36,300
BEVERAGES (NON-ALCOHOLIC) - 1.2%
500,000 PepsiCo, Inc. ....................................... 18,219
CHEMICALS - 3.2%
500,000 Du Pont (E.I.) de Nemours & Co. ..................... 30,031
400,000 Praxair, Inc. ....................................... 18,000
COMPUTERS (HARDWARE) - 3.7%
435,000 Hewlett-Packard Co. ................................. 27,187
280,000 International Business Machines Corp. ............... 29,277
COMPUTERS (NETWORKING) - 1.2%
500,000 *3Com Corp. ......................................... 17,469
COMPUTERS (SOFTWARE & SERVICES) - 3.0%
250,000 *Microsoft Corp. .................................... 32,313
600,000 Oracle Corp. ........................................ 13,388
ELECTRIC COMPANIES - 2.0%
1,150,000 Houston Industries, Inc. ............................ 30,691
ELECTRICAL EQUIPMENT - 2.3%
485,000 General Electric Co. ................................ 35,587
ELECTRICAL EQUIPMENT & ELECTRONICS - 0.9%
250,000 Motorola, Inc. ...................................... 14,266
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS (SEMICONDUCTORS) - 2.0%
425,000 Intel Corp. ........................................ $29,856
ENTERTAINMENT - 2.4%
365,000 Walt Disney Co. ..................................... 36,158
FINANCIAL (DIVERSIFIED) - 4.9%
750,000 Federal Home Loan Mortgage Corp. .................... 31,453
725,000 Federal National Mortgage Association ............... 41,370
HEALTH CARE (DIVERSIFIED) - 7.3%
510,000 American Home Products Corp. ........................ 39,015
260,000 Bristol-Myers Squibb Co. ............................ 24,603
690,000 Johnson & Johnson ................................... 45,454
HEALTH CARE (DRUGS--PHARMACEUTICALS) - 4.0%
365,000 Merck and Co., Inc. ................................. 38,781
400,000 SmithKline Beecham, plc. (ADR) ...................... 20,575
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.3%
650,000 Columbia/HCA Healthcare Corp. ....................... 19,256
HEALTH CARE (MANAGED CARE) - 1.0%
300,000 *PacifiCare Health Systems, Inc. (Class B) .......... 15,713
HOUSEHOLD PRODUCTS (NON-DURABLES) - 3.0%
900,000 Kimberly-Clark Corp. ................................ 44,381
INSURANCE (MULTI-LINE) - 4.4%
195,000 American International Group, Inc. .................. 21,206
475,000 Hartford Financial Services Group, Inc. ............. 44,442
MANUFACTURING (DIVERSIFIED) - 4.7%
1,000,000 AlliedSignal, Inc. .................................. 38,938
884,000 Dover Corp. ......................................... 31,935
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (DOMESTIC INTEGRATED) - 2.4%
500,000 Mobil Corp. ........................................ $36,094
OIL (INTERNATIONAL INTEGRATED) - 6.0%
520,000 Exxon Corp. ......................................... 31,818
450,000 Royal Dutch Petroleum Co. (ADR) ..................... 24,384
625,000 Texaco, Inc. ........................................ 33,984
PAPER & FOREST PRODUCTS - 1.2%
548,000 Willamette Industries, Inc. ......................... 17,639
RAILROADS - 2.2%
350,000 Burlington Northern Santa Fe ........................ 32,528
RETAIL (DEPARTMENT STORES) - 1.8%
500,000 May Department Stores Co. ........................... 26,344
RETAIL (FOOD CHAINS) - 4.4%
660,000 Albertson's, Inc. ................................... 31,268
1,700,000 American Stores Co. ................................. 34,956
RETAIL (GENERAL MERCHANDISE) - 1.7%
635,000 Wal-Mart Stores, Inc. ............................... 25,043
SERVICES (DATA PROCESSING) - 4.5%
425,000 Automatic Data Processing, Inc. ..................... 26,084
400,000 Electronic Data Systems Corp. ....................... 17,575
800,000 First Data Corp. .................................... 23,400
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.5%
375,000 AT&T Corp. ....................................... $ 22,969
TELEPHONE - 3.6%
300,000 Bell Atlantic Corp. ................................. 27,300
500,000 GTE Corp. ........................................... 26,125
TOBACCO - 2.2%
715,000 Philip Morris Cos., Inc. ............................ 32,398
-------
TOTAL COMMON STOCKS ............................................... 1,455,869
-------
TEMPORARY INVESTMENTS - 3.1%
CONSUMER (FINANCE)
$46,965,218 Associates Corp. of North America
6.73%, due 1/02/98 .................................. 46,965
-------
TOTAL TEMPORARY INVESTMENTS .......................................... 46,965
-------
TOTAL INVESTMENTS - 100.1% ........................................ 1,502,834
Liabilities, less Other Assets ...................................... (1,824)
-------
NET ASSETS ....................................................... $1,501,010
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Income Fund ended 1997 with a total return of 26.43%, slightly
trailing the Lipper Analytical Services Equity-Income category at 27.51%.
As equity income funds typically do in a strong up market, the Fund (and its
peers) underperformed the S&P 500 which returned 33.36%. The higher-
income-producing securities held by SAFECO Income in the form of convertible
bonds and preferred stocks, tend to underperform stocks (which make up the S&P)
in a rising market. They also lower the Fund's risk profile as they tend
to hold up better than stocks in a down market.
[PHOTO OF THOMAS RATH]
After a slow start in the first quarter of 1997, the Fund outperformed
in the year's last three quarters. American Home Products (AHP) provided a small
boost in the latest quarter. I had increased our stake in AHP after its share
price fell on liability concerns. I also purchased more shares in American
Stores, a food and drug store chain, when its price fell on missed earnings.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 26.43%
5 Year 17.87%
10 Year 14.75%
Investment Value
SAFECO Income Fund: $39,568
S&P 500 Index: $52,553
SAFECO Income Fund S&P 500 Index
12/31/87 $10,000 $10,000
01/31/88 10,000 10,421
02/28/88 10,617 10,907
03/31/88 11,000 10,570
04/30/88 11,000 10,687
05/31/88 11,120 10,780
06/30/88 11,651 11,275
07/31/88 11,676 11,232
08/31/88 11,481 10,850
09/30/88 11,811 11,312
10/31/88 11,811 11,627
11/30/88 11,992 11,460
12/31/88 11,898 11,661
01/31/89 11,898 12,515
02/28/89 12,433 12,203
03/31/89 12,487 12,487
04/30/89 12,487 13,135
05/31/89 12,961 13,667
06/30/89 13,366 13,589
07/31/89 13,366 14,817
08/31/89 14,173 15,107
09/30/89 14,292 15,045
10/31/89 13,753 14,696
11/30/89 13,909 14,996
12/31/89 14,185 15,356
01/31/90 13,468 14,325
02/28/90 13,530 14,510
03/31/90 13,633 14,895
04/30/90 13,121 14,522
05/31/90 13,812 15,938
06/30/90 13,756 15,830
07/31/90 13,511 15,779
08/31/90 12,510 14,353
09/30/90 11,996 13,654
10/31/90 11,707 13,595
11/30/90 12,424 14,473
12/31/90 12,659 14,877
01/31/91 13,152 15,526
02/28/91 13,909 16,636
03/31/91 14,120 17,038
04/30/91 14,274 17,079
05/31/91 14,705 17,817
06/30/91 14,335 17,001
07/31/91 14,743 17,793
08/31/91 15,190 18,215
09/30/91 15,167 17,911
10/31/91 15,325 18,151
11/30/91 14,692 17,419
12/31/91 15,603 19,412
01/31/92 15,723 19,051
02/28/92 15,773 19,299
03/31/92 15,621 18,922
04/30/92 16,077 19,479
05/31/92 16,229 19,574
06/30/92 16,288 19,282
07/31/92 16,894 20,071
08/31/92 16,771 19,660
09/30/92 16,949 19,892
10/31/92 16,637 19,960
11/30/92 17,064 20,638
12/31/92 17,393 20,891
01/31/93 17,773 21,065
02/28/93 18,110 21,352
03/31/93 18,723 21,803
04/30/93 18,468 21,276
05/31/93 18,713 21,843
06/30/93 18,810 21,907
07/31/93 18,713 21,819
08/31/93 19,327 22,645
09/30/93 19,381 22,471
10/31/93 19,719 22,936
11/30/93 19,479 22,718
12/31/93 19,576 22,993
01/31/94 20,215 23,775
02/28/94 19,763 23,131
03/31/94 19,074 22,124
04/30/94 19,297 22,408
05/31/94 19,308 22,773
06/30/94 19,025 22,215
07/31/94 19,611 22,944
08/31/94 20,232 23,882
09/30/94 19,958 23,299
10/31/94 19,923 23,821
11/30/94 19,217 22,954
12/31/94 19,362 23,294
01/31/95 19,854 23,897
02/28/95 20,474 24,827
03/31/95 21,055 25,559
04/30/95 21,505 26,310
05/31/95 22,132 27,379
06/30/95 22,406 28,014
07/31/95 23,280 28,941
08/31/95 23,448 29,013
09/30/95 24,158 30,238
10/31/95 23,892 30,129
11/30/95 24,727 31,449
12/31/95 25,240 32,056
01/31/96 26,047 33,145
02/28/96 26,111 33,454
03/31/96 26,421 33,775
04/30/96 26,524 34,272
05/31/96 27,402 35,155
06/30/96 27,745 35,289
07/31/96 26,964 33,730
08/31/96 27,472 34,443
09/30/96 28,742 36,380
10/31/96 29,804 37,383
11/30/96 31,368 40,206
12/31/96 31,296 39,409
01/31/97 32,525 41,868
02/28/97 32,570 42,199
03/31/97 31,375 40,469
04/30/97 31,807 42,881
05/31/97 34,089 45,488
06/30/97 35,493 47,526
07/31/97 37,432 51,307
08/31/97 36,861 48,434
09/30/97 38,505 51,087
10/30/97 37,234 49,383
11/30/97 38,580 51,667
12/31/97 39,568 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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.
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INCOME FUND MANAGER
Despite the fact both these domestic companies experienced dips in the last
six months, I am content to hold them because their revenues are less tied to
foreign countries at a time when international exposure is not so desirable. I
also currently like smaller domestic companies more than larger ones.
One of them, Chancellor Media, was the largest contributor to our performance
in the latest three quarters. (This radio station holding company actually grew
from small to mid cap on us.) Through appreciation, acquisitions and mergers,
the share price of AMFM has doubled since we bought it. And best of all, the
Chancellor convertible we hold pays a 7% dividend.
Another small company contribution came from CCA Prison Realty (PZN). This
REIT has moved from $21 to $45 a share since we purchased it in July. PZN pays
an attractive dividend and positions us to participate in the prison
privatization trend.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Family Golf Centers, Inc. Cvt. 5.75%, due 10/15/04 ................. 5.2%
(Golf Recreation Centers)
Chancellor Media Corp. 7.00% Convertible 4.5
(Radio Stations)
American Home Products Corp. ....................................... 4.4
(Pharmaceuticals)
CCA Prison Realty Trust ............................................. 3.4
(Correctional Facilities Leasing)
MICROS Systems, Inc. ............................................... 2.9
(Specialty Software Company)
Mobil Corp. ........................................................ 2.5
(Oil/Gas Exploration & Production)
Green Tree Financial Corp. ......................................... 2.4
(Financial Services Company)
J.C. Penney Co., Inc. .............................................. 2.4
(Department Store)
GATX Corp. ......................................................... 2.3
(Railway & Terminal Operator)
U.S. Bancorp ........................................................ 2.2
(Bank)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Family Golf Centers, Inc. Cvt.
5.75%, due 10/15/04 .............................................. $20,190
Green Tree Financial Corp. ......................................... 10,701
Quantum Corp. 7.00%, due 8/01/04 ..................................... 9,090
Xilinx, Inc. (144A) 5.25%, due 11/01/02 .............................. 8,261
Cymer, Inc. (144A) 7.25%, due 8/05/00 (Step Bond) .................... 8,250
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*RJR Nabisco Holdings Corp. ........................................ $8,665
*Stage Stores, Inc. ................................................. 7,157
*Browning Ferris Industries, Inc. 7.25% "ACES" ....................... 5,334
*Advanta Corp. (Class B) Series 95 SAILS ............................. 5,137
*Omega Healthcare Investors, Inc. ................................... 4,860
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Leisure Time (Products) ................................................. 6%
Real Estate Investment Trust ............................................. 6
Health Care (Diversified) ................................................ 6
Oil (International Integrated) ........................................... 5
Broadcasting (Television, Radio & Cable) ................................. 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Through Family Golf Center's 5.75% convertible, SAFECO Income
Fund is holding a great small company in a way that fits our
conservative risk/reward profile. I made Family Golf our largest
position because, I believe it can grow tremendously over the next
couple years. This company acquires and improves golf driving
ranges.
I'm substantially invested in integrated international oil producers, a
long-standing, high-yielding staple of equity-income funds. I believe these
stocks reduce the overall risk of our portfolio because they tend to be less
volatile than the market as a whole.
I took our gain in RJR Nabisco and reduced exposure to tobacco stocks because
the tobacco settlement process had become more politicized. In my estimation, a
politically negotiated settlement--which is what's happening--is more difficult
to analyze than a solution determined on a case-by-case basis in the courts.
We're invested in technology, albeit conservatively, in an amount comparable
to the S&P 500. Compared to the broad market, our tech companies
have lower exposure to Asia and are less cyclical. As well, many of
our investments are held in convertible debt securities.
The fund remains fully invested in domestically-oriented
companies, and that's attractive given today's environment. I
believe the biggest risk in the market right now is the damage an Asian
recession could do. I anticipate the Asian economies will experience serious
recessions and I think our domestic economy will slow because of it. Slow, but
not recede--and, that is why I'm continuing to invest at home. Overall, the
outlook for our markets, and your Fund, remains constructive.
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) 52%
Medium: ($1 Bil. - $4 Bil.) 8%
Small: (Less than $1 Bil.) 13%
Preferred Stocks: 11%
Corporate Bonds: 15%
Cash and Other: 1%
</TABLE>
/s/ THOMAS RATH
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.
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 73.1%
AEROSPACE/DEFENSE - 1.8%
75,000 Lockheed Martin Corp. .............................. $ 7,387
BANKS (MAJOR REGIONAL) - 2.4%
45,000 Barnett Banks, Inc. .................................. 3,234
45,674 NationsBank Corp. .................................... 2,778
92,200 Norwest Corp. ........................................ 3,561
BANKS (MONEY CENTER) - 1.9%
70,000 Chase Manhattan Corp. ................................ 7,665
BANKS (REGIONAL) - 2.2%
79,275 U.S. Bancorp ......................................... 8,874
BEVERAGES (ALCOHOLIC) - 1.4%
125,000 Anheuser-Busch Co., Inc. ............................. 5,500
CHEMICALS (SPECIALTY) - 1.0%
74,600 International Flavors & Fragrances, Inc. ............. 3,842
COMPUTERS (HARDWARE) - 2.9%
262,200 *MICROS Systems, Inc. ............................... 11,799
ELECTRIC COMPANIES - 2.6%
160,000 Houston Industries, Inc. ............................. 4,270
125,000 NIPSCO Industries, Inc. .............................. 6,180
ELECTRICAL EQUIPMENT - 2.2%
105,000 AMP, Inc. ............................................ 4,410
60,000 General Electric Co. ................................. 4,403
FINANCIAL (DIVERSIFIED) - 2.5%
70,000 Federal National Mortgage Association ................ 3,994
277,500 Medallion Financial Corp. ............................ 6,105
FINANCIAL (MISC.) - 2.4%
370,000 Green Tree Financial Corp. ........................... 9,689
FOODS - 1.6%
27,400 CPC International, Inc. .............................. 2,952
110,000 *ConAgra, Inc. ....................................... 3,609
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DIVERSIFIED) - 5.6%
230,000 American Home Products Corp. ....................... $17,595
50,000 Bristrol-Myers Squibb Co. ............................ 4,731
HEALTH CARE (DRUGS--PHARMACEUTICALS) - 1.2%
45,000 Merck and Co., Inc. .................................. 4,781
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.8%
150,000 Kimberly-Clark Corp. ................................. 7,397
INSURANCE (MULTI-LINE) - 1.6%
70,000 Hartford Financial Services Group, Inc. .............. 6,549
LEISURE TIME (PRODUCTS) - 1.0%
215,000 Sturm, Ruger & Co., Inc. ............................. 3,964
MANUFACTURING (DIVERSIFIED) - 1.1%
55,000 Minnesota Mining & Manufacturing Co. ................. 4,513
NATURAL GAS - 1.0%
135,000 Northwest Natural Gas Co. . 4,185
OFFICE EQUIPMENT & SUPPLIES - 1.5%
440,000 Unisource Worldwide, Inc. ............................ 6,270
OIL (DOMESTIC INTEGRATED) - 2.5%
140,000 Mobil Corp. ......................................... 10,106
OIL (INTERNATIONAL INTEGRATED) - 5.0%
100,000 Exxon Corp. .......................................... 6,119
100,000 Royal Dutch Petroleum Co. (ADR) ...................... 5,419
160,000 Texaco, Inc. ......................................... 8,700
PAPER & FOREST PRODUCTS - 0.8%
70,000 Weyerhaeuser Co. ..................................... 3,434
PERSONAL CARE - 1.1%
70,000 Avon Products, Inc. .................................. 4,296
RAILROADS - 2.3%
126,434 GATX Corp. ........................................... 9,174
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
REAL ESTATE INVESTMENT TRUST - 5.6%
307,100 CCA Prison Realty Trust ........................... $ 13,704
125,000 First Industrial Realty Trust, Inc. .................. 4,516
150,000 Liberty Property Trust ............................... 4,284
RETAIL (DEPARTMENT STORES) - 2.4%
160,000 J.C. Penney Co., Inc. ................................ 9,650
RETAIL (FOOD CHAINS) - 1.0%
191,000 American Stores Co. .................................. 3,928
SAVINGS & LOAN COMPANIES - 1.8%
114,000 Washington Mutual Savings Bank ....................... 7,275
SERVICES (COMMERCIAL & CONSUMER) - 1.9%
275,900 Landauer, Inc. ....................................... 7,725
SERVICES (DATA PROCESSING) - 3.8%
135,000 Automatic Data Processing, Inc. ...................... 8,286
252,815 First Data Corp. ..................................... 7,395
TELECOMMUNICATIONS (LONG DISTANCE) - 1.1%
70,000 AT&T Corp. ........................................... 4,288
TELEPHONE - 2.1%
160,000 GTE Corp. ............................................ 8,360
TOBACCO - 2.0%
179,000 Philip Morris Cos., Inc. ............................. 8,112
------
TOTAL COMMON STOCKS ................................................. 295,008
------
PREFERRED STOCKS - 10.9%
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.5%
170,000 Chancellor Media Corp. 7.00% Convertible ............ 18,275
COMPUTERS (NETWORKING) - 0.9%
100,000 #Vanstar Financing Trust 6.75% Convertible (144A) (acquired
9/27/97) ............................................. 3,700
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CONTAINERS (METAL & GLASS) - 2.1%
177,000 Crown Cork & Seal 4.50% Convertible ................ $ 8,319
INSURANCE (LIFE/HEALTH) - 1.2%
52,000 American Banks Insurance Series B Convertible ........ 4,836
OIL & GAS (EXPLORATION & PRODUCTION) - 0.5%
44,800 Nuevo Energy Co. $2.875 Convertible .................. 2,195
TELEPHONE - 1.7%
115,400 Salomon, Inc. 6.25% Exchangeable Convertible to Cincinnati
Bell, Inc. ........................................... 6,838
------
TOTAL PREFERRED STOCKS ............................................... 44,163
------
CORPORATE BONDS - 14.5%
CONVERTIBLE SUBORDINATED DEBENTURES:
COMPUTERS (HARDWARE) - 1.0%
$4,500,000 HMT Technology 5.75%, due 1/15/04 .................... 3,943
COMPUTERS (PERIPHERALS) - 1.9%
8,500,000 Quantum Corp. 7.00%, due 8/01/04 ..................... 7,948
ELECTRONICS - 1.8%
7,500,000 #Xilinx, Inc. (144A) (acquired 10/09/97) 5.25%, due
11/01/02 ............................................. 7,266
EQUIPMENT (SEMICONDUCTORS) - 1.5%
8,000,000 #Cymer, Inc. (144A) (acquired 10/02/97) 7.25%, due 8/05/00
(Step Bond) .......................................... 5,960
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
LEISURE TIME (PRODUCTS) - 5.2%
$20,000,000 #Family Golf Centers, Inc. (144A) (acquired 10/10/97) 5.75%,
due 10/15/04 ....................................... $21,125
OFFICE EQUIPMENT & SUPPLIES - 0.9%
4,000,000 Corporate Express, Inc. 4.50%, due 7/01/00 ........... 3,535
OIL (DOMESTIC INTEGRATED) - 1.2%
2,500,000 Pennzoil Co. 6.50%, due 1/15/03 ...................... 4,681
RETAIL (BUILDING SUPPLIES) - 1.0%
3,000,000 Home Depot, Inc. 3.25%, due 10/01/01 ................. 4,016
------
TOTAL CORPORATE BONDS ................................................ 58,474
------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 1.7%
INVESTMENT COMPANIES:
$6,882,524 SSgA Prime Money Market Portfolio .................. $ 6,883
------
TOTAL TEMPORARY INVESTMENTS ........................................... 6,883
------
TOTAL INVESTMENTS - 100.2% .......................................... 404,528
Liabilities, Less Other Assets ...................................... (1,003)
------
NET ASSETS ......................................................... $403,525
------
------
- -----------------------------------------------------------------------------
</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 $40,663,545 and
total value is 9.4% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Returning 31.12%, SAFECO Northwest Fund finished 1997 well ahead of
its peer funds and slightly behind the broad market. Respectively, the
average growth fund delivered 28.08% as measured by Lipper Analytical Servcies
and the S&P 500 returned 33.36%.
The Fund was outpacing the S&P 500 going into the fourth quarter, but fell
behind during the Asian crisis.
[PHOTO OF WILLIAM B. WHITLOW]
Asia was the biggest factor in the entire market's fourth quarter
performance, with the Northwest Market being hardest hit. No region has a
larger stake in exporting, and most of that involves the Pacific Rim. And
because the Northwest Fund has substantial exposure to exporting, the
Asia epidemic affected our portfolio as well.
Boeing, Schnitzer Steel, Lattice Semiconductor and Expeditors all suffered
with the Asian Flu. Innova declined on the perception that developing countries
would be less able to buy their wireless technology. In all
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 31.12%
5 Year 12.51%
Since Inception* 13.53%
Investment Value
SAFECO Northwest Fund: $23,802
S&P 500 Index: $31,591
Composite NW 50 Index: $28,622
SAFECO Northwest Fund S&P 500 Index
02/28/91 $10,000 $10,000
03/31/91 10,295 10,242
04/30/91 10,597 10,267
05/31/91 10,958 10,710
06/30/91 10,317 10,220
07/31/91 10,932 10,696
08/31/91 11,385 10,949
09/30/91 11,106 10,766
10/31/91 10,995 10,911
11/30/91 10,318 10,471
12/31/91 11,573 11,669
01/31/92 12,072 11,452
02/28/92 12,459 11,601
03/31/92 12,185 11,375
04/30/92 11,757 11,709
05/31/92 11,879 11,766
06/30/92 11,504 11,591
07/31/92 11,769 12,065
08/31/92 11,453 11,818
09/30/92 11,931 11,957
10/31/92 12,329 11,998
11/30/92 12,850 12,406
12/31/92 13,202 12,558
01/31/93 13,255 12,663
02/28/93 12,605 12,835
03/31/93 13,097 13,106
04/30/93 12,563 12,789
05/31/93 12,835 13,130
06/30/93 12,715 13,169
07/31/93 12,610 13,116
08/31/93 12,966 13,612
09/30/93 12,957 13,508
10/31/93 13,125 13,787
11/30/93 13,178 13,656
12/31/93 13,338 13,821
01/31/94 13,574 14,291
02/28/94 13,917 13,904
03/31/94 13,327 13,299
04/30/94 13,295 13,470
05/31/94 13,499 13,689
06/30/94 13,154 13,354
07/31/94 13,347 13,792
08/31/94 13,948 14,356
09/30/94 13,629 14,005
10/31/94 13,499 14,319
11/30/94 13,164 13,798
12/31/94 13,131 14,002
01/31/95 13,294 14,365
02/28/95 13,629 14,924
03/31/95 14,085 15,364
04/30/95 14,269 15,816
05/31/95 14,486 16,458
06/30/95 15,200 16,840
07/31/95 15,992 17,397
08/31/95 16,133 17,440
09/30/95 16,220 18,176
10/31/95 16,029 18,111
11/30/95 15,995 18,904
12/31/95 15,780 19,269
01/31/96 15,930 19,924
02/28/96 16,415 20,110
03/31/96 17,409 20,303
04/30/96 17,882 20,602
05/31/96 18,183 21,132
06/30/96 17,804 21,213
07/31/96 16,960 20,276
08/31/96 17,503 20,704
09/30/96 17,778 21,868
10/31/96 17,327 22,471
11/30/96 18,088 24,168
12/31/96 18,153 23,689
01/31/97 19,469 25,168
02/28/97 19,481 25,366
03/31/97 18,656 24,326
04/30/97 19,327 25,776
05/31/97 20,617 27,343
06/30/97 21,804 28,568
07/31/97 23,675 30,841
08/31/97 23,055 29,115
09/30/97 24,203 30,709
10/30/97 23,068 29,685
11/30/97 24,074 31,058
12/31/97 23,802 31,591
*The Funds inception was February 7, 1991.
Graph and average annual return comparison begins February 28, 1991.
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C>
1 Year
5 Year
Since Inception*
Investment Value
SAFECO Northwest Fund: $23,802
S&P 500 Index: $31,591
Composite NW 50 Index: $28,622
Composite NW 50 Index
Index
02/28/91 $10,000
03/31/91 10,409
04/30/91 10,666
05/31/91 11,305
06/30/91 10,552
07/31/91 11,063
08/31/91 11,510
09/30/91 11,292
10/31/91 11,285
11/30/91 10,836
12/31/91 12,133
01/31/92 12,767
02/28/92 12,958
03/31/92 12,545
04/30/92 11,973
05/31/92 11,865
06/30/92 11,450
07/31/92 11,567
08/31/92 11,250
09/30/92 11,693
10/31/92 12,156
11/30/92 12,701
12/31/92 12,725
01/31/93 12,821
02/28/93 12,420
03/31/93 12,932
04/30/93 12,641
05/31/93 12,953
06/30/93 12,675
07/31/93 12,220
08/31/93 12,721
09/30/93 12,434
10/31/93 12,881
11/30/93 13,158
12/31/93 13,334
01/31/94 13,737
02/28/94 13,941
03/31/94 13,449
04/30/94 13,409
05/31/94 13,611
06/30/94 13,198
07/31/94 13,300
08/31/94 14,068
09/30/94 13,530
10/31/94 13,449
11/30/94 13,209
12/31/94 13,281
01/31/95 13,224
02/28/95 13,668
03/31/95 14,102
04/30/95 14,526
05/31/95 14,528
06/30/95 15,409
07/31/95 15,993
08/31/95 16,299
09/30/95 16,897
10/31/95 16,507
11/30/95 16,753
12/31/95 16,957
01/31/96 17,518
02/28/96 17,921
03/31/96 17,826
04/30/96 18,898
05/31/96 19,204
06/30/96 19,123
07/31/96 18,188
08/31/96 19,088
09/30/96 19,583
10/31/96 19,446
11/30/96 20,852
12/31/96 21,348
01/31/97 22,302
02/28/97 22,719
03/31/97 22,097
04/30/97 23,084
05/31/97 24,975
06/30/97 26,156
07/31/97 28,542
08/31/97 27,620
09/30/97 29,553
10/30/97 27,603
11/30/97 29,281
12/31/97 28,622
*The Funds inception was February 7, 1991.
Graph and average annual return comparison begins February 28, 1991.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE NORTHWEST FUND MANAGER
these cases the problems are more perceived than real. In other words it's
expectations, not orders, that are off.
And while exports were the wrong place to be in the fourth quarter, I'm
convinced they are an important place to be invested long-term. In fact, I added
to our holdings in both Expeditors and Innova after their share prices dropped.
Innova, with only 6% of its business tied to Asia, was simply too cheap to pass
up. And, Expeditors is a net importer of goods. A stronger US dollar should
actually increase its business.
Our best fourth-quarter performers were companies that do business locally.
Regional banks prospered. QFC, Fred Meyer, Albertson's and Costco all posted
substantial gains. I sold QFC on the news that Fred Meyer would acquire the
grocery chain. Had I kept both names we would have had 9% of net assets invested
in the new company.
I sold Assisted Living Concepts for the gain, and I sold PacifiCare for the
tax write off. I
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 4.8%
(Personal Computer Software)
Boeing Co. ......................................................... 4.2
(Aerospace)
Albertson's, Inc. .................................................. 4.1
(Retail Grocer)
Fred Meyer, Inc. ................................................... 4.1
(Department Store)
Expeditors International of Washington, Inc. ....................... 4.1
(Freight Forwarding)
Alaska Air Group, Inc. ............................................. 3.9
(Airlines)
Costco Companies, Inc. ............................................. 3.9
(Wholesale Membership Warehouse)
Starbucks Corp. .................................................... 3.8
(Beverage Retailer)
Schnitzer Steel Industries, Inc. ................................... 3.8
(Steel Manufacturing)
Eagle Hardware & Garden, Inc. ...................................... 3.7
(Home Improvement Center)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Eagle Hardware & Garden, Inc. ...................................... $2,504
Innova Corp. ........................................................ 2,465
Quality Food Centers, Inc. .......................................... 2,074
Fred Meyer, Inc. .................................................... 2,012
Penwest Ltd. ........................................................ 1,814
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*Quality Food Centers, Inc. ........................................ $3,380
*PacifiCare Health Systems, Inc. (Class B) ........................... 1,541
*Precision Castparts Corp. .......................................... 1,400
*AMP, Inc. .......................................................... 1,375
*Houston Industries, Inc. ........................................... 1,344
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Savings & Loan Companies ............................................... 10%
Computers (Software & Services) .......................................... 7
Computers (Hardware) ..................................................... 5
Electronics (Semiconductors) ............................................. 5
Health Care (Medical Products & Supplies) ................................ 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 20 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
bought PacifiCare's stock after it blew-up in June, anticipating a
swift recovery for the HMO. Unfortunately, the stock tumbled a
second time when it became clear PacifiCare's merger with FHP wasn't
going well.
The only position of any size I initiated in the last quarter was Protocol
Systems, a medical monitor supplier in Oregon. I like Protocol and I wanted to
keep our weighting in healthcare up.
By taking our gains in connector company AMP, I sold the only non-Northwest
company remaining in our portfolio. Every one of the 35 companies we
now own has operations in the Northwest.
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) 34%
Medium: ($1 Bil. - $4 Bil.) 10%
Small: (Less than $1 Bil.) 55%
Cash and Other: 1%
</TABLE>
I feel the portfolio is well positioned for 1998. One of the
analysts or I closely follow each company we own. And that's the way
it should be. After all, they're our neighbors.
/s/ WILLIAM B. WHITLOW
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.
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.9%
AEROSPACE/DEFENSE - 4.1%
57,000 Boeing Co. .......................................... $2,789
AIR FREIGHT - 4.1%
71,000 Expeditors International of Washington, Inc. ......... 2,734
AIRLINES - 3.9%
67,000 *Alaska Air Group, Inc. .............................. 2,596
BANKS (MAJOR REGIONAL) - 2.6%
65,962 West Coast Bancorp, Inc. ............................. 1,665
BANKS (REGIONAL) - 3.1%
18,875 U.S. Bancorp ......................................... 2,113
BIOTECHNOLOGY - 1.3%
98,000 Corixa Corp. ........................................... 876
BUILDING MATERIALS - 3.4%
93,000 TJ International, Inc. ............................... 2,302
CHEMICALS (DIVERSIFIED) - 3.1%
59,000 Penford Corporation .................................. 2,065
COMMUNICATIONS (EQUIPMENT) - 3.6%
157,000 *Innova Corp. ........................................ 2,394
COMPUTERS (HARDWARE) - 5.4%
30,000 Hewlett-Packard Co. .................................. 1,875
88,000 *Sequent Computer Systems, Inc. ...................... 1,760
COMPUTERS (SOFTWARE & SERVICES) - 6.6%
125,000 *Mentor Graphics Corp. ............................... 1,211
25,000 *Microsoft Corp. ..................................... 3,231
ELECTRONICS (SEMICONDUCTORS) - 5.4%
31,000 Intel Corp. .......................................... 2,178
30,700 *Lattice Semiconductor Corp. ......................... 1,454
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FOOTWEAR - 1.8%
30,000 NIKE, Inc. .......................................... $1,177
HEALTH CARE (LONG TERM CARE) - 3.6%
189,000 *Emeritus Corp. ...................................... 2,410
HEALTH CARE (MED. PRODUCTS & SUPPLIES) - 5.2%
142,000 *Physio-Control International Corp. .................. 2,254
123,000 *Protocol Systems, Inc. .............................. 1,238
IRON & STEEL - 3.8%
90,000 Schnitzer Steel Industries, Inc. ..................... 2,526
METALS MINING - 1.1%
23,000 *Oregon Metallurgical Corp. ............................ 768
PHOTOGRAPHY/IMAGING - 1.8%
106,000 *Seattle FilmWorks, Inc. ............................. 1,179
RAILROADS - 2.5%
18,000 Burlington Northern Santa Fe ......................... 1,673
RESTAURANTS - 3.7%
66,000 *Starbucks Corp. ..................................... 2,533
RETAIL (BUILDING SUPPLIES) - 3.7%
130,000 *Eagle Hardware & Garden, Inc. ....................... 2,519
RETAIL (DEPARTMENT STORES) - 4.1%
76,000 *Fred Meyer, Inc. .................................... 2,764
RETAIL (FOOD CHAINS) - 4.1%
58,500 Albertson's, Inc. .................................... 2,771
RETAIL (GENERAL MERCHANDISE) - 3.8%
58,000 *Costco Companies, Inc. .............................. 2,588
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SAVINGS & LOAN COMPANIES - 9.7%
33,000 InterWest Bancorp Inc. ............................ $ 1,246
6,200 Riverview Bancorp. Inc. ................................ 110
106,000 *Sterling Financial Corp. ............................ 2,305
37,200 Washington Mutual Savings Bank ....................... 2,374
19,829 WesterFed Financial Corp. .............................. 506
TELECOMMUNICATIONS (LONG DISTANCE) - 1.6%
158,000 *General Communications, Inc. (Class A) .............. 1,047
TELEPHONE - 1.8%
57,000 *NEXTLINK Communications, Inc. (Class A) ............. 1,215
-----
TOTAL COMMON STOCKS .................................................. 66,446
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 3.4%
INVESTMENT COMPANIES:
$2,310,750 SSgA Prime Money Market Portfolio .................. $ 2,311
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 2,311
-----
TOTAL INVESTMENTS - 102.3% ........................................... 68,757
Liabilities, less Other Assets ...................................... (1,564)
-----
NET ASSETS .......................................................... $67,193
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the 12 months ended December 31, 1997, SAFECO International Fund returned
4.55%, while the average international fund returned 7.27% according to Lipper
Analytical Services. Meanwhile, the MSCI EAFE (Morgan Stanley Capital
International Europe, Australasia, Far East Index) returned 1.78%.
With the notable exception of South East Asia and the Far East, global equity
markets performed strongly during 1997. Underpinning the strong performances was
the almost universal phenomenon of steady economic growth and low inflation.
Asia experienced a succession of economic and political upheavals during the
second half of the year that started in Thailand in May and continued across
South East Asia and into the Far East. The structural problems in the region
were exacerbated by the head-in-the-sand approach of political leaders whose
reactions to the problems have damaged, rather than restored, confidence in the
region.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 4.55%
Since Inception* 9.71%
Investment Value
SAFECO International Fund: $11,943
EAFE Index: $10,749
SAFECO International Fund EAFE Index
01/30/96 $10,000 $10,000
02/28/96 9,940 10,036
03/31/96 10,040 10,252
04/30/96 10,290 10,553
05/31/96 10,250 10,361
06/30/96 10,240 10,422
07/31/96 9,840 10,120
08/31/96 10,240 10,145
09/30/96 10,454 10,417
10/31/96 10,585 10,313
11/30/96 11,249 10,725
12/31/96 11,423 10,590
01/30/97 11,382 10,206
02/28/97 11,534 10,359
03/31/97 11,463 10,383
04/30/97 11,514 10,424
05/31/97 12,050 11,088
06/30/97 12,414 11,686
07/31/97 12,850 11,861
08/31/97 11,747 10,962
09/30/97 12,556 11,562
10/30/97 11,514 10,659
11/30/97 11,585 10,537
12/31/97 11,943 10,749
* Graph and average annual return data is measured
from January 31, 1996, inception date of the fund.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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.
- 24 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Europe in general did well during the year on the back of lower interest
rates, increasing signs of economic recovery and evidence that management was
paying greater attention to shareholders' interests. In the U.K. strong
corporate earnings results, particularly from the financial services sector, and
the expectation of corporate restructuring supported a solid year in the equity
market.
The prevailing low-interest rate environment has been one of the main
linchpins of equity market strength. Consequently, on a thematic basis, Positive
Banking Environment added significant value to the portfolio. U.K. quoted
Barclays Bank was the biggest contributor to the theme's overall performance.
Healthcare Needs was also a positive contributor. The top performer in this
theme was the fund's largest holding, Novartis. In its first full year since its
formation by the merger of Ciba Geigy and Sandoz, it became apparent that the
benefits of the alliance were having a much quicker-than-anticipated impact on
performance. Glaxo Wellcome was an impressive performer during 1977, even though
its best selling
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Novartis AG ........................................................ 5.3%
(Pharmaceuticals)
Schweizerische Rueckversicherungs- Gesellschaft ..................... 3.7
(Insurance)
B.A.T. Industries, plc .............................................. 3.0
(Tobacco)
Canon, Inc. ........................................................ 2.9
(Office Equipment)
Nestle SA ........................................................... 2.8
(Food)
Sony Corp. ......................................................... 2.7
(Audio/Video Products)
Honda Motor Co., Ltd. .............................................. 2.6
(Auto Manufacturer)
Takeda Chemical Industries .......................................... 2.6
(Health Care Products)
Barclays, plc ....................................................... 2.5
(Banking & Finance)
National Australia Bank, Ltd. ...................................... 2.5
(Banking & Finance)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COUNTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
United Kingdom ......................................................... 32%
Japan ................................................................... 17
Switzerland ............................................................. 15
Netherlands .............................................................. 8
Germany .................................................................. 7
<CAPTION>
TOP FIVE PURCHASES COST
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Sony Corp. ........................................................... $455
Takeda Chemical Industries ............................................. 420
Honda Motor Co., Ltd. ................................................. 351
Dai Nippon Printing Co., Ltd. ......................................... 201
Murata Manufacturing Co., Ltd. ........................................ 184
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
ABN Amro Holdings NV .................................................. $175
National Australia Bank, Ltd. ......................................... 148
Broken Hill Proprietary Co., Ltd. ..................................... 147
General Electric Co., plc .............................................. 115
*Allied Irish Bank, plc ................................................. 97
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERNATIONAL FUND MANAGER
drug, Zantac has come off patent. New drugs to treat asthma, AIDS, and migraines
are expected to increase Glaxo's sales.
Consumer-oriented stocks in Leading Consumer Franchises did well during the
year. The largest holding in this theme, B.A.T. Industries, announced a merger
between its finanical services divisions and Zurich Insurance group.
On the negative side, themes with companies quoted in, or with earnings
exposure to, South East Asia and the Pacific Basis suffered. Examples of these
are Infrastructural Development and Expanding Finanical Services in Developing
Markets and Increased Consumer Spending in the Pacific Basin.
While Asia is trying to shake off the hangover of its property binge, we are
unlikely to allocate any further funds to the region unless, and until, we see
an overwhelming and decisive policy responses by the various governments in the
region. We anticipate Asia's rehabilitation will be slow because its governments
have been reluctant to admit the extent of their problems.
However, despite the government's inaction, selective Japanese companies have
restructured their operations and delivered strong earnings growth.
Consequently, during the second half of 1997 we have invested in a number of
Japanese companies which on a relative valuation basis look attractive compared
to the global peers. We continue to monitor other Japanese companies for value
opportunities.
In Europe and the U.K. the push for European Monetary Union will continue to
play a strong role in 1998. As part of this, merger and acquisitions activity is
likely to remain strong. Financial stocks are most likely to benefit from the
moves but pharmaceuticals and telecommunications are also likely to remain high
on the list of good performing stocks.
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.
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.5%
AUSTRALIA - 5.5%
1,650 Broken Hill Proprietary Co., Ltd. ..................... $ 15
(Metals & Mining)
27,350 National Australia Bank, Ltd. . 382
(Banking & Finance)
55,550 News Corp., Ltd. ....................................... 307
(Television & Publishing)
41,800 Telstra Corp., Ltd. ..................................... 88
(Telecommunications)
16,100 WMC, Ltd. ............................................... 56
(Metals & Mining)
FRANCE - 2.7%
2,830 Michelin "B" ........................................... 143
(Tire & Rubber)
2,530 Total SA ............................................... 276
(Oil & Gas)
GERMANY - 7.3%
5,455 Hoechst AG ............................................. 191
(Chemicals)
750 Mannesmann AG .......................................... 380
(Machinery & Engineering)
3,430 Siemens AG ............................................. 203
(Electrical Equipment & Electronics)
3,495 VEBA AG ................................................ 238
(Utilities - Electric)
204 Viag AG ................................................ 110
(Manufacturing - Diversified)
HONG KONG - 1.6%
10,200 HSBC Holdings, plc ..................................... 252
(Banking & Finance)
INDONESIA - 0.9%
37,000 PT Gudang Garam ......................................... 57
(Tobacco)
54,500 PT Hanjaya Mandala Sampoerna ............................ 41
(Tobacco)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
72,000 PT Telekomunikasi Indonesia .......................... $ 39
(Telecommunications)
IRELAND - 0.8%
42,900 Smurfit (Jefferson) Group .............................. 121
(Paper Products)
ITALY - 1.7%
6,553 Ente Nazionale Idrocarburi SpA .......................... 37
(Oil & Gas)
36,133 Telecom Italia SpA ..................................... 231
(Telecommunications)
JAPAN - 16.5%
19,000 Canon, Inc. ............................................ 444
(Office Equipment)
9,000 Dai Nippon Printing Co., Ltd. .......................... 170
(Commercial Printing)
11,000 Honda Motor Co., Ltd. .................................. 405
(Automobiles)
11,000 Kao Corp. .............................................. 159
(Cosmetics & Toiletries)
700 Keyence Corp. .......................................... 104
(Electronics)
4,000 Murata Manufacturing Co., Ltd. ......................... 101
(Electronics)
2,000 Rohm Co., Ltd. ......................................... 205
(Electronics)
10,000 Shiseido Co., Ltd. ..................................... 137
(Cosmetics & Toiletries)
4,700 Sony Corp. ............................................. 419
(Audio/Video Products)
14,000 Takeda Chemical Industries ............................. 401
(Medical - Drugs)
MALAYSIA - 0.6%
16,000 Hume Industries Berhad .................................. 17
(Building Materials)
30,000 RHB Capital Berhad ...................................... 15
(Banking & Finance)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
45,000 Sime Darby Berhad ..................................... $ 43
(Conglomerates)
13,000 United Engineers, Ltd. .................................. 11
(Construction)
MEXICO - 0.7%
35,500 Grupo Financiero Series B .............................. 106
(Banking & Finance)
NETHERLANDS - 7.6%
9,198 ABN Amro Holdings NV ................................... 179
(Banking & Finance)
11,000 Elsevier NV ............................................ 178
(Publishing)
7,582 Internationale Nederlanden Groep NV .................... 320
(Banking & Finance)
3,975 Nutricia Vereenigde Bedrijven NV ....................... 121
(Food-Processing)
3,180 Royal Dutch Petroleum Co. .............................. 175
(Oil & Gas)
4,560 Royal PTT Nederland NV ................................. 191
(Commercial Services)
PHILIPPINES - 0.3%
35,300 San Miguel Corp. (Class B) .............................. 45
(Wine & Spirits, Food)
PORTUGAL - 0.2%
1,350 Electricidade de Portugal, S.A. ......................... 26
(Electric - Integrated)
SINGAPORE - 3.8%
27,000 City Developments, Ltd. ................................ 125
(Real Estate)
24,000 Development Bank of Singapore, Ltd. .................... 205
(Banking & Finance)
17,800 Fraser & Neave, Ltd. .................................... 77
(Beverages)
13,950 Singapore Press Holdings, Ltd. ......................... 175
(Publishing)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SPAIN - 1.4%
6,630 Banco Santander SA .................................... $221
(Banking & Finance)
SWITZERLAND - 15.0%
207 Alusuisse-Lonza Holding AG ............................. 199
(Holding Co. - Diversified)
287 Nestle SA .............................................. 431
(Food)
500 Novartis AG ............................................ 813
(Pharmaceuticals)
29 Roche Holding AG ....................................... 289
(Pharmaceuticals)
306 Schweizerische Rueckversicherungs-Gesellschaft ......... 574
(Insurance)
UNITED KINGDOM - 31.9%
51,030 B.A.T. Industries, plc ................................. 465
(Tobacco)
53,800 BTR, plc ............................................... 165
(Holding Co. - Diversified)
14,750 Barclays, plc .......................................... 392
(Banking & Finance)
20,050 Cable & Wireless, plc .................................. 176
(Telecommunications)
14,080 Cadbury Schweppes, plc ................................. 140
(Beverages)
20,800 Diageo, plc ............................................ 191
(Beverages)
6,601 EMI Group, plc .......................................... 57
(Leisure)
17,750 General Electric Co., plc .............................. 116
(Electronics)
12,500 Glaxo Wellcome, plc .................................... 296
(Pharmaceuticals)
20,350 Granada Group, plc ..................................... 314
(Leisure)
15,200 Kingfisher, plc ........................................ 212
(Retail - Drug Store)
24,740 Ladbroke Group, plc .................................... 107
(Hotels & Property Management)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
28,090 Lloyds Bank, plc .................................... $ 363
(Banking & Finance)
12,250 Premier Farnell, plc .................................... 89
(Electronics)
24,020 Prudential Corp., plc .................................. 279
(Insurance)
26,410 Safeway, plc ........................................... 150
(Retail - Grocery)
10,850 Scottish Power, plc ..................................... 96
(Utilities - Electric)
36,750 Shell Transport & Trading Co., plc ..................... 267
(Oil & Gas)
13,850 Siebe, plc ............................................. 260
(Industrial & Electronic Equipment)
23,100 TI Group, plc .......................................... 177
(Manufacturing)
37,210 Vodafone Group, plc .................................... 271
(Telecommunications)
8,995 Zeneca Group, plc ...................................... 316
(Pharmaceuticals)
-----
TOTAL COMMON STOCKS .................................................. 15,147
-----
PREFERRED STOCKS - 0.2%
AUSTRALIA - 0.2%
6,000 News Corp., Ltd. ........................................ 30
(Television & Publishing)
-----
TOTAL PREFERRED STOCKS ................................................... 30
-----
TOTAL INVESTMENTS - 98.7% ............................................ 15,177
-----
Domestic Cash .......................................... 321
Foreign Cash ............................................ 15
Liabilities, less Other
Assets ............................................... (133)
-----
203
-----
NET ASSETS .......................................................... $15,380
-----
-----
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Banking & Finance 15.8%
Pharmaceuticals 13.8
Electrical Equipment & Electronics 8.1
Telecommunications 6.5
Insurance 5.5
Food 5.1
Oil & Gas 4.9
Publishing 4.5
Tobacco 3.7
Automobiles 3.7
Leisure Time 3.1
Office Equipment & Supplies 2.9
Holding Company Diversified 2.7
Machinery - Diversified 2.5
Electric Utility 2.3
Cosmetics 1.9
Manufactring 1.9
Building Materials 1.8
Beverages 1.4
Retail - Drug Stores 1.4
Chemicals 1.2
Retail-Grocer 1.0
Tire & Rubber 0.9
Real Estate 0.8
Paper & Forest Products 0.8
Metals 0.5
----
98.7%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Balanced Fund returned 16.64% for the year ending December
31, 1997, while the average balanced fund returned 20.05% according to
Lipper Analytical Services. A 60%/40% composite of the S&P 500 and the
Lehman Government/Corporate index returned 23.65%.
There are three main reasons the SAFECO Balanced Fund underperformed
the average balanced fund. The latter two also explain why we lagged the
composite index. [PHOTO OF REX BENTLEY]
[PHOTO OF LYNETTE SAGVOLD]
First, stocks significantly outperformed bonds in 1997 and our equity
allocation, which ranged from 58% to 60%, was lower than that of the
average fund. This same allocation helped the fund outperform its peers
in the fourth quarter when bonds provided a better return than stocks. At
current stock valuations, we are not inclined to
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C>
1 Year 16.64%
Since Inception* 14.64%
Investment Value
SAFECO Balanced Fund: $12,993*
60% S&P/40% Lehman Brothers Government/Corporate Index: $13,858
60% S&P/40% Lehman Brothers
Government/Corporate Index
1/30/96 $10,000
2/28/96 9,971
3/31/96 9,995
4/30/96 10,056
5/31/96 10,204
6/30/96 10,282
7/31/96 10,019
8/31/96 10,136
9/30/96 10,550
10/31/96 10,823
11/30/96 11,393
12/31/96 11,207
1/30/97 11,632
2/28/97 11,697
3/31/97 11,354
4/30/97 11,826
5/31/97 12,302
6/30/97 12,691
7/31/97 13,452
8/31/97 12,940
9/30/97 13,447
10/30/97 13,264
11/30/97 13,660
12/31/97 13,858
* Graph and average annual return data is measured from January 31, 1996, inception date of the
fund.
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C>
1 Year
Since Inception*
Investment Value
SAFECO Balanced Fund: $12,993*
60% S&P/40% Lehman Brothers Government/Corporate Index: $13,858
SAFECO Balanced Fund
1/30/96 $10,000
2/28/96 9,950
3/31/96 10,017
4/30/96 10,077
5/31/96 10,218
6/30/96 10,345
7/31/96 10,112
8/31/96 10,243
9/30/96 10,599
10/31/96 10,813
11/30/96 11,272
12/31/96 11,140
1/30/97 11,473
2/28/97 11,567
3/31/97 11,163
4/30/97 11,414
5/31/97 11,896
6/30/97 12,209
7/31/97 12,905
8/31/97 12,420
9/30/97 12,760
10/30/97 12,621
11/30/97 12,834
12/31/97 12,993
* Graph and average annual return data is measured from January 31, 1996, inception date of the
fund.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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.
- 30 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
raise the equity allocation and are confident our target of 60% stocks
and 40% bonds is appropriate.
Second, the equity portion of the portfolio is underweighted in
financial stocks, which for the third consecutive year posted superior results.
Because financials have traded up so high, we are very comfortable limiting our
exposure to them.
Third, we purchased several stocks including Electronic Data Systems
(data outsourcing), American Stores (grocery/drugstore chain), and
Unisource Worldwide (paper distributor) as they declined on what we still
believe to be temporary setbacks. Even though these stocks continued to decline
after they were purchased, we believe they represent excellent value with
significant upside potential.
[PHOTO OF MICHAEL HUGHES]
On the whole, 1997 was another outstanding year for U.S.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Hartford Financial Services Group, Inc. ........................... 1.9%
(Insurance Company)
Chase Manhattan Corp. .............................................. 1.9
(Bank)
J.C. Penney Co., Inc. .............................................. 1.8
(Department Store)
American Home Products Corp. ....................................... 1.8
(Pharmaceuticals)
Amoco Corp. ........................................................ 1.7
(Oil/Gas Exploration & Production)
Mobil Corp. ........................................................ 1.7
(Oil/Gas Exploration & Production)
NationsBank Corp. .................................................. 1.6
(Bank)
Atlantic Richfield Co. ............................................. 1.6
(Oil/Gas Exploration & Production)
Merck & Co., Inc. .................................................. 1.6
(Health Care Products)
Avon Products, Inc. ................................................ 1.6
(Beauty Care Products)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(COMMON STOCKS)
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Banc One Corp. ....................................................... $228
Boeing Co. ............................................................ 223
General Signal Corp. .................................................. 205
Merck & Co., Inc. ..................................................... 201
International Paper Co. ............................................... 183
<CAPTION>
TOP FIVE SALES
(COMMON STOCKS) PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*SmithKline Beecham, plc (ADR) ........................................ $256
*Albertson's, Inc. .................................................... 210
*Raytheon Co. ......................................................... 173
*Schering-Plough Corp. ................................................ 171
*3Com Corp. ........................................................... 170
<CAPTION>
TOP FIVE INDUSTRIES PERCENT OF
(COMMON STOCKS) NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Oil (Domestic Integrated) ............................................... 5%
Manufacturing (Diversified) .............................................. 5
Electrical Equipment ..................................................... 5
Retail (Department Stores) ............................................... 3
Telephone ................................................................ 3
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE BALANCED FUND MANAGERS
financial markets. It was also peculiar, especially on the equity
side where the stock market's advance was quite narrow. About 50
stocks, or 10% of the index's 500 stocks, accounted for 63% of the
S&P 500's 33.36% return.
And, the year ended on a sober note. The technology sector, which
has had strong performance for some time, declined 12% last quarter on signs of
weakening demand and shrinking profit margins. Concern over financial problems
in Asia resulted in a one-day drop in U.S. equity prices of over 7%. Although
stocks recouped much of their losses the following day, it was another reminder
that stocks don't always go up.
We sold Bristol Myers Squibb, PepsiCo and Raytheon because they reached our
price targets. We sold Advanta and 3Com because of deteriorating fundamentals.
We purchased new positions in companies we think are well positioned in their
markets and selling at attractive valuations, including Boeing. The
airplane manufacturer has had major success in obtaining new orders,
but temporary production problems have restrained its stock price.
We bought Intel in December, after it had declined 30% from its
yearly high. We expect these and new positions in General Signal (a diversified
manufacturer of electrical equipment), Johnson & Johnson, and Praxair (supplier
of industrial gases) to improve the risk/return profile of your portfolio.
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) 49%
Medium: ($1 Bil. - $4 Bil.) 9%
Small: (Less than $1 Bil.) 2%
Corporate Bonds: 14%
Asset Backed Securities 4%
U.S. Government Securities: 20%
Cash and Other: 2%
</TABLE>
At year end, the stocks in the Fund sold at a 17% discount to the S&P 500's
P/E (price to earnings ratio) based on 1998 expected earnings per share. The
Fund's stocks had a 29% higher dividend yield than the S&P 500. And, we think
our stocks can produce roughly the same level of earnings growth as the S&P 500
stocks over time.
Bonds performed well in the fourth quarter, benefiting from a strong U.S.
dollar, turmoil in the
- 32 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Asian markets and continued low inflation. The yield curve remains very flat and
we are emphasizing intermediate-term maturities.
The fixed-income portion of the Balanced Fund has a sensitivity to interest
rates that is slightly higher than the general market. We are modestly
overweighted in high-quality corporate and mortgage-backed bonds and
underweighted in U.S. Treasury and Agency bonds.
While the investment environment remains quite good, there are reasons to be
cautious. We attempt to factor these variables into our decisions, keeping in
mind both the potential rewards, and the possible risks. We believe the Balanced
Fund is well positioned on both counts.
/s/ REX BENTLEY
Rex Bentley, Stocks
/s/ LYNETTE SAGVOLD
Lynette D. Sagvold, Stocks
/s/ MICHAEL HUGHES
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 4.0%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 2.1%
$200,000 FHLMC REMIC 1688
6.00%, due 10/15/07 ................................... $196
100,000 FNMA REMIC 1993-55
6.50%, due 2/25/05 ..................................... 101
CONSUMER (FINANCE) - 1.4%
119,787 AFG Receivables Trust
6.20%, due 2/15/03 ..................................... 120
75,000 Premier Auto Trust
6.20%, due 1/06/01 ...................................... 75
FINANCIAL (DIVERSIFIED) - 0.5%
75,000 FNMA (Class C)
6.74%, due 8/25/07 ...................................... 77
-----
TOTAL ASSET BACKED SECURITIES ........................................... 569
-----
COMMON STOCKS - 59.7%
AEROSPACE/DEFENSE - 1.5%
4,400 Boeing Co. ............................................ 215
BANKS (MAJOR REGIONAL) - 1.6%
3,800 NationsBank Corp. ..................................... 231
BANKS (MONEY CENTER) - 1.8%
2,400 Chase Manhattan Corp. ................................. 263
BANKS (REGIONAL) - 1.5%
4,000 Banc One Corp. ........................................ 217
BEVERAGES (ALCOHOLIC) - 1.5%
5,000 Anheuser-Busch Co., Inc. .............................. 220
BUILDING MATERIALS - 1.4%
2,600 Armstrong World Industries, Inc. ...................... 194
CHEMICALS - 1.3%
4,000 Praxair, Inc. ......................................... 180
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CHEMICALS (DIVERSIFIED) - 1.0%
3,400 BF Goodrich Co. ...................................... $141
COMPUTERS (HARDWARE) - 2.0%
2,400 Hewlett-Packard Co. ................................... 150
6,900 *Sequent Computer Systems, Inc. ....................... 138
ELECTRIC COMPANIES - 1.5%
4,200 NIPSCO Industries, Inc. ............................... 208
ELECTRICAL EQUIPMENT - 4.8%
4,900 AMP, Inc. ............................................. 206
1,700 General Electric Co. .................................. 125
5,100 General Signal Corp. .................................. 215
2,400 Motorola, Inc. ........................................ 137
ELECTRONICS (SEMICONDUCTORS) - 0.6%
1,200 Intel Corp. ............................................ 84
FINANCIAL (DIVERSIFIED) - 1.4%
3,400 Federal National Mortgage Association .................. 194
FOODS - 2.2%
1,800 CPC International, Inc. ............................... 194
3,600 ConAgra, Inc. ......................................... 118
HEALTH CARE (DIVERSIFIED) - 3.1%
3,300 American Home Products Corp. .......................... 253
2,800 Johnson & Johnson ...................................... 185
HEALTH CARE (DRUGS--PHARMACEUTICALS) - 1.6%
2,100 Merck and Co., Inc. ................................... 223
HEALTH CARE (MED PRODUCTS & SUPPLIES) - 0.9%
2,500 Baxter International, Inc. ............................ 126
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.5%
4,200 Kimberly-Clark Corp. .................................. 207
INSURANCE (MULTI-LINE) - 1.9%
2,900 Hartford Financial Services Group, Inc. ............... 271
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 4.5%
3,400 AlliedSignal, Inc. ................................... $132
4,800 Corning, Inc. ......................................... 178
3,800 Crane Co. ............................................. 165
3,900 Harsco Corp. .......................................... 168
OFFICE EQUIPMENT & SUPPLIES - 1.0%
10,000 Unisource Worldwide, Inc. ............................. 143
OIL (DOMESTIC INTEGRATED) - 4.9%
2,800 Amoco Corp. ........................................... 238
2,800 Atlantic Richfield Co. ................................ 224
3,300 Mobil Corp. ........................................... 238
PAPER & FOREST PRODUCTS - 1.1%
3,600 International Paper Co. ............................... 155
PERSONAL CARE - 1.5%
3,600 Avon Products, Inc. ................................... 221
RAILROADS - 1.0%
1,500 Burlington Northern
Santa Fe ............................................... 140
REAL ESTATE INVESTMENT TRUST - 1.2%
2,500 First Industrial Realty Trust, Inc. .................... 90
3,000 Liberty Property Trust .................................. 86
RETAIL (DEPARTMENT STORES) - 3.2%
4,300 J.C. Penney Co., Inc. ................................. 259
3,700 May Department Stores Co. ............................. 195
RETAIL (FOOD CHAINS) - 1.5%
10,400 American Stores Co. ................................... 214
SERVICES (DATA PROCESSING) - 2.7%
3,300 Automatic Data
Processing, Inc. ...................................... 203
4,200 Electronic Data Systems Corp. ......................... 185
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 3.1%
2,400 Bell Atlantic Corp. ................................. $ 218
4,200 GTE Corp. ............................................. 220
TOBACCO - 0.9%
2,700 Philip Morris Cos., Inc. .............................. 123
-----
TOTAL COMMON STOCKS ................................................... 8,490
-----
CORPORATE BONDS - 14.0%
BANKS (MAJOR REGIONAL) - 1.5%
$110,000 Midland Bank
7.65%, due 5/01/25 ..................................... 120
100,000 Norwest Corp. (MTN)
6.25%, due 3/15/01 ..................................... 100
BANKS (MONEY CENTER) - 1.5%
100,000 BankAmerica Corp.
9.50%, due 4/01/01 ..................................... 110
100,000 Citicorp
7.625%, due 5/01/05 .................................... 106
BUILDING MATERIALS - 0.5%
65,000 Hanson Overseas
6.75%, due 9/15/05 ...................................... 66
ELECTRIC COMPANIES - 0.4%
50,000 Oklahoma Gas & Electric
Energy Corp.
6.50%, due 7/15/17 ...................................... 51
ENGINEERING & CONSTRUCTION - 0.5%
75,000 Halliburton Co.
6.75%, due 2/01/27 ...................................... 79
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCE (DIVERSIFIED) - 2.9%
$100,000 Ford Motor Credit Co.
6.55%, due 9/10/02 .................................... $101
80,000 General Motors Acceptance Corp.
8.50%, due 1/01/03 ...................................... 87
100,000 Hertz Corp.
7.00%, due 7/01/04 ..................................... 103
50,000 Morgan Stanley Group, Inc.
6.375%, due 8/01/02 ..................................... 50
75,000 Student Loan Marketing Association
6.375%, due 2/11/00 ..................................... 75
FINANCIAL (MISCELLANEOUS) - 2.9%
95,000 Associates Corp. of North America
8.55%, due 7/15/09 ..................................... 110
100,000 Commercial Credit Co.
5.875%, due 1/15/03 ..................................... 98
95,000 McDonnel Douglas Finance Corp.
6.83%, due 5/21/01 ...................................... 97
100,000 Salomon Smith Barney Holding
6.625%, due 11/15/03 ................................... 100
INVESTMENT BANKING/BROKERAGE - 1.4%
100,000 Bear Stearns Companies, Inc.
6.75%, due 12/15/07 .................................... 101
100,000 Donaldson Lufkin & Jenrette
6.90%, due 10/01/07 .................................... 102
PETROLEUM & PETROLEUM SERVICES - 0.7%
100,000 Texaco Capital, Inc.
6.19%, due 7/09/03 ..................................... 100
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (GENERAL MERCHANDISE) - 0.7%
$ 100,000 Sears Roebuck Acceptance Corp.
6.90%, due 8/01/03 .................................. $ 103
RETAIL (SPECIALTY) - 0.4%
50,000 Bausch & Lomb, Inc.
6.56%, due 8/12/26 ...................................... 51
UTILITIES - 0.5%
75,000 Allegheny Generating Co.
5.625%, due 9/01/03 ..................................... 73
-----
TOTAL CORPORATE BONDS ................................................. 1,983
-----
U.S. GOVERNMENT SECURITIES - 19.9%
U.S. TREASURY NOTES - 19.9%
605,000 7.50%, due 11/15/16 .................................... 706
1,105,000 7.25%, due 8/15/04 ................................... 1,194
500,000 6.875%, due 3/31/00 .................................... 512
250,000 6.50%, due 10/15/06 .................................... 262
150,000 5.75%, due 12/31/98 .................................... 150
-----
TOTAL U.S. GOVERNMENT SECURITIES ...................................... 2,824
-----
TEMPORARY INVESTMENTS - 4.0%
INVESTMENT COMPANIES:
566,554 SSgA Prime Money Market Portfolio ...................... 567
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 567
-----
TOTAL INVESTMENTS - 101.6% ........................................... 14,433
-----
Liabilities, less Other Assets ........................................ (230)
-----
NET ASSETS .......................................................... $14,203
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 36 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the 12 months ended December 31, 1997, the SAFECO Small Company
Fund beat its peer funds and benchmark index. The Fund earned a return of
23.38%, versus the small company peer group average of 15.05% according to
Lipper Analytical Services. During the same period the Russell 2000 Index earned
22.36%.
The third quarter of 1997 saw a continuation of the strong rally in small
capitalization stocks which started in May 1997. (This rally ended just as
October began, and so the Fund actually lost 4.33% in the fourth quarter
of 1997, beating the average fund which gave up 5.66%.)
[PHOTO OF GREG EISEN]
The fund's outperformance is attributable to stock selection, banks and oil
service companies in particular. Some of the significant stock purchases we made
since our last report include:
Platinum Software, which is a developer of financial accounting software
packages, and is in a turnaround phase.
Circle International Group is an integrated freight forwarder
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 23.38%
Since Inception* 25.36%
Investment Value
SAFECO Small Company Fund: $15,423
Russell 2000 Index: $14,259
SAFECO Small Company Stock Fund Russell 2000
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
* Graph and average annual return data is measured
from January 31, 1996, inception date of the fund.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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 FUND MANAGER
that has already turned around its business. In spite of having to adjust to new
management, Circle was trading significantly cheaper than the competitors in the
industry, with just as bright an outlook.
Seattle FilmWorks is a direct marketing company that sells photo finishing
services to the public. Over the years FilmWorks has managed to grow its
business at a fast rate in a slow-growth industry by creative marketing. They
attract customers by providing value-added services to the basic photo finishing
product.
International Aircraft Investors leases used airframes on an operating lease
basis to airlines. Besides having experienced management, they have a close
relationship with one of the biggest names in aircraft leasing, International
Lease Finance (ILFC). International Aircraft uses this relationship to acquire
planes, usually already on lease, from ILFC.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Platinum Software Corp. ........................................... 4.3%
(Applications Software)
York Group, Inc. ................................................... 3.7
(Funeral Supplies)
Tracor, Inc. ....................................................... 3.5
(Aerospace Electronics)
Hooper Holmes, Inc. ................................................ 3.4
(Health Care Services)
Stage Stores, Inc. ................................................. 3.3
(Retail Store)
Craig Corp. (Class A) ............................................... 3.1
(Movie Theaters)
Staffmark, Inc. .................................................... 3.1
(Staffing Services)
MICROS Systems, Inc. ............................................... 3.0
(Specialty Software Company)
Vallen Corp. ....................................................... 2.8
(Safety Products)
Penederm, Inc. ..................................................... 2.8
(Drug Delivery System)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Platinum Software Corp. .............................................. $945
StaffMark, Inc. ....................................................... 619
Community Savings Bankshares, Inc. .................................... 606
International Aircraft Investors ....................................... 566
Seattle FilmWorks, Inc. ............................................... 562
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*1st United Bancorp ................................................... $503
*American Oilfield Divers, Inc. ....................................... 385
*Mesa Air Group, Inc. ................................................. 358
*Guest Supply, Inc. ................................................... 354
*Long Beach Financial Corp. ........................................... 353
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Services (Commercial & Consumer) ........................................ 7%
Computers (Software & Services) .......................................... 6
Health Care (Medical Products & Supplies) ................................ 6
Banks (Major Regional) ................................................... 6
Computers (Hardware) ..................................................... 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 38 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
1997 was a year in which returns of large capitalization stocks
outperformed small caps. However, I think our "small" slice of the
market is now positioned to take its turn as a leader. The small cap
sector looks to be cheaply priced on a price-to-earnings basis
relative to the large cap sector of stocks. In general smaller cap stocks,
especially the stocks held by this Fund, have lower exposure to international
sales than the market as a whole and large cap stocks in particular. This will
help if fears about Asia come to fruition.
Looking out to 1998, the fund will remain invested in small cap
stocks that we believe are good businesses at good values relative
to their earnings prospects, or are cheap by some other yardstick we
feel is appropriate. The Fund will remain broadly diversified across
the range of industry sectors.
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION
WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C>
1 Mid-Cap: ($1 billion - $4 billion) 6%
2 Small-Cap: (under $1 billion) 93%
a Large: (over $750 million) 10%
b Medium: ($250 - $750 million) 26%
c Small: (under $250 million) 57%
3 Cash and Other: 1%
</TABLE>
/s/ GREG EISEN
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 95.6%
AEROSPACE/DEFENSE - 2.3%
56,600 *International Aircraft Investors ..................... $531
AIR FREIGHT - 2.0%
6,000 Air Express International Corp. ........................ 183
12,750 Circle International Group, Inc. ....................... 292
BANKS (MAJOR REGIONAL) - 5.5%
9,750 BancFirst Corp. ........................................ 328
11,250 Independent Bankshares, Inc. ........................... 221
5,500 *Southwest Bancorp of Texas, Inc. ...................... 171
20,000 UnionBancorp, Inc. ..................................... 438
14,800 VRB Bancorp ............................................ 148
BANKS (REGIONAL) - 2.1%
27,475 *Hanmi Bank (Los Angeles, CA) .......................... 495
BIOTECHNOLOGY - 0.5%
37,000 *Energy BioSystems Corp. ............................... 120
COMMERCIAL SERVICES - 1.5%
26,634 Monro Muffler Brake, Inc. .............................. 383
COMPUTERS (HARDWARE) - 5.1%
12,600 *Equitrac Corp. ........................................ 227
15,300 *MICROS Systems, Inc. .................................. 689
35,000 *Optimal Robotics Corp. ................................ 267
COMPUTERS (SOFTWARE & SERVICES) - 6.4%
84,950 *Platinum Software Corp. ............................... 998
26,200 *SPSS, Inc. ............................................ 504
CONSUMER FINANCE - 1.9%
17,200 Doral Financial Corp. .................................. 436
DISTRIBUTORS (FOOD & HEALTH) - 2.2%
13,600 *JP Foodservice, Inc. .................................. 502
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRICAL EQUIPMENT - 1.5%
37,000 *ZEVEX International, Inc. ............................ $347
ELECTRONICS (DEFENSE) - 3.5%
27,100 *Tracor, Inc. .......................................... 823
ENGINEERING & CONSTRUCTION - 4.1%
12,000 *American Buildings Co. ................................ 303
20,500 Zurn Industries, Inc. .................................. 644
FINANCIAL (DIVERSIFIED) - 3.6%
24,675 Litchfield Financial Corp. ............................. 478
14,000 *Ocwen Financial Corp. ................................. 356
HEALTH CARE (MED. PRODUCTS & SUPPLIES) - 6.2%
54,000 Hooper Holmes, Inc. .................................... 786
31,400 *Vallen Corp. .......................................... 652
HEALTH CARE (SPECIALIZED SERVICES) - 2.6%
52,500 *Ovid Technologies, Inc. ............................... 604
HOUSEWARES - 1.7%
40,810 Lifetime Hoan Corp. .................................... 403
MACHINERY (DIVERSIFIED) - 2.0%
20,500 Chart Industries, Inc. ................................. 468
MANUFACTURING (DIVERSIFIED) - 2.4%
48,000 *Lancer Corp. .......................................... 552
OFFICE EQUIPMENT & SUPPLIES - 1.2%
20,000 Unisource Worldwide, Inc. .............................. 285
OIL & GAS (EXPLORATION & PRODUCTION) - 3.7%
69,200 Patina Oil & Gas Corp. ................................. 532
15,400 *Swift Energy Co. ...................................... 324
PERSONAL CARE - 4.9%
64,800 *Penederm, Inc. ........................................ 648
30,000 *Styling Technology Corp. .............................. 488
PHOTOGRAPHY/IMAGING - 2.8%
58,000 *Seattle FilmWorks, Inc. ............................... 645
RAILROADS - 2.7%
8,600 GATX Corp. ............................................. 624
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
REAL ESTATE-NON-AFFILIATED - 3.6%
7,700 Alexandria Real Estate Equities, Inc. ............... $ 243
28,850 Ocwen Asset Investment Corp. ........................... 591
RETAIL (SPECIALTY) - 2.5%
19,500 *Cole National Corp. (Class A) ......................... 584
RETAIL (SPECIALTY-APPAREL) - 3.3%
20,600 *Stage Stores, Inc. .................................... 770
SAVINGS & LOAN COMPANIES - 4.5%
16,800 *Columbia Banking System, Inc. ......................... 454
16,825 Community Savings Bankshares, Inc. ..................... 595
SERVICES (COMMERCIAL & CONSUMER) - 6.7%
22,500 *StaffMark, Inc. ....................................... 712
35,100 York Group, Inc. ....................................... 855
TRUCKS & PARTS - 2.6%
38,200 *Deflecta-Shield Corp .................................. 602
-----
TOTAL COMMON STOCKS .................................................. 22,301
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PREFERRED STOCK - 3.1%
ENTERTAINMENT - 3.1%
37,800 *Craig Corp. (Class A) .............................. $ 714
-----
TOTAL PREFERRED STOCK ................................................... 714
-----
TEMPORARY INVESTMENTS - 3.6%
INVESTMENT COMPANIES: - 3.6%
$847,934 SSgA Prime Money Market Portfolio ...................... 848
TOTAL TEMPORARY INVESTMENTS ............................................. 848
-----
TOTAL INVESTMENTS - 102.3% ........................................... 23,863
Liabilities, less Other Assets ........................................ (538)
-----
NET ASSETS .......................................................... $23,325
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 41 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. VALUE FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
On December 31, 1997, the SAFECO U.S. Value Fund completed its second
full calendar quarter. Since inception, April 30, 1997, the portfolio has
achieved a 17.50% return.
For the latest quarter, the U.S. Value Fund was basically flat, returning
0.69%. This is right in line with the Lipper Analytical Services average for
growth and income funds of 1.05%. (Lipper does not have a Value Fund Universe,
but we believe the growth and income category is a reasonable comparison
for the U.S. Value Fund.)
On the whole, 1997 was another outstanding year for U.S. financial
markets. It was also peculiar, especially on the equity side where the
stock market's advance was quite narrow. About 50 stocks, or 10% of the
index's 500 stocks, accounted for 63% of the S&P 500's 33.36% return.
[PHOTO OF REX BENTLEY]
[PHOTO OF LYNETTE SAGVOLD]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
TOTAL RETURN FOR THE PERIOD
ENDED DECEMBER 31, 1997
<S> <C> <C>
Since Inception* 17.50%
Investment Value
SAFECO U.S. Value Fund: $11,750
S&P 500 Index: $12,256
SAFECO U.S. Value Fund S&P
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
*Graph and total return comparison begins April 30, 1997, inception date of the
fund.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in 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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
And, the year ended on a sober note. The technology sector, which has had
strong performance for some time, declined 12% last quarter on signs of
weakening demand and shrinking profit margins. Concern over financial problems
in Asia resulted in a one-day drop in U.S. equity prices of over 7%. Although
stocks recouped much of their losses the following day, it was another reminder
that stocks don't always go up.
In fact, the characteristic that defines our value style of management is
selecting companies for their potential to generate better earnings growth than
the market, but buying them at a low price.
We purchased several stocks including Electronic Data Systems (data
outsourcing), American Stores (grocery/drugstore chain), and Unisource Worldwide
(paper distributor) as they declined on what we believe to be temporary
setbacks. We believe they represent excellent value with significant upside
potential.
New positions in other companies we think are well positioned in their
markets and selling at attractive valuations, include Boeing. The
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
American Home Products Corp. ...................................... 3.1%
(Pharmaceuticals)
Chase Manhattan Corp. .............................................. 3.0
(Bank)
NationsBank Corp. .................................................. 2.8
(Bank)
Mobil Corp. ........................................................ 2.8
(Oil/Gas Exploration & Production)
GTE Corp. .......................................................... 2.8
(Telecommunications)
Hartford Financial Services Group, Inc. ............................ 2.8
(Insurance Company)
J.C. Penney Co., Inc. .............................................. 2.8
(Department Store)
Atlantic Richfield Co. ............................................. 2.7
(Oil/Gas Exploration & Production)
Amoco Corp. ........................................................ 2.7
(Oil/Gas Exploration & Production)
Avon Products, Inc. ................................................ 2.7
(Beauty Care Products)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Banc One Corp. ....................................................... $253
Boeing Co. ............................................................ 235
General Signal Corp. .................................................. 229
International Paper Co. ............................................... 204
Merck & Co., Inc. ..................................................... 194
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
*SmithKline Beecham, plc (ADR) ........................................ $296
*Albertson's, Inc. .................................................... 251
*Echlin, Inc. ......................................................... 191
*Pepsico, Inc. ........................................................ 187
*Raytheon Co. ......................................................... 185
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Oil (Domestic Integrated) ............................................... 8%
Manufacturing (Diversified) .............................................. 7
Electrical Equipment ..................................................... 7
Health Care (Diversified) ................................................ 5
Retail (Department Stores) ............................................... 5
- ----------------------------------------------------------------------------
* Security sold, no longer in portfolio.
</TABLE>
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE U.S. VALUE FUND MANAGERS
airplane manufacturer has had major success in obtaining new orders,
but temporary production problems have restrained its stock price.
We bought Intel in December, after it had declined 30% from its
yearly high. We expect these and new positions in General Signal (a diversified
manufacturer of electrical equipment), Johnson & Johnson, and Praxair (supplier
of industrial gases) to improve the risk/return profile of your portfolio.
We sold Bristol Myers Squibb, PepsiCo and Raytheon because they reached our
price targets. We sold Advanta and 3Com because of deteriorating fundamentals.
The characteristics of the stocks in the U.S. Value Fund are very attractive
relative to the overall stock market as measured by the S&P 500. At year end,
the stocks in the Fund sold at a 17% discount to the S&P 500's P/E (price to
earnings ratio) based on 1998 expected earnings per share. The Fund's stocks had
a 29% higher dividend yield than the S&P 500. And, we think our
stocks can produce roughly the same level of earnings growth as the
S&P 500 stocks over time.
In short, our goal is to find and buy companies with better than
average prospects that are selling at discounted prices. We intend
to stay fully invested in companies that will pay you, the shareholder, in
dividends while we wait. We are confident that this approach will result in
superior investment performance over time, factoring in both risk and return.
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.) 15%
Small: (Less than $1 Bil.) 3%
</TABLE>
/s/ REX BENTLEY
Rex Bentley
/s/ LYNETTE D. SAGVOLD
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 100.2%
AEROSPACE/DEFENSE - 2.4%
4,600 Boeing Co. ............................................ $225
BANKS (MAJOR REGIONAL) - 2.8%
4,400 NationsBank Corp. ...................................... 267
BANKS (MONEY CENTER) - 3.0%
2,600 Chase Manhattan Corp. .................................. 285
BANKS (REGIONAL) - 2.5%
4,400 Banc One Corp. ......................................... 239
BEVERAGES (ALCOHOLIC) - 2.5%
5,300 Anheuser-Busch Co., Inc. ............................... 233
BUILDING MATERIALS - 2.1%
2,600 Armstrong World Industries, Inc. ....................... 194
CHEMICALS - 2.1%
4,500 Praxair, Inc. .......................................... 202
CHEMICALS (DIVERSIFIED) - 1.9%
4,300 BF Goodrich Co. ........................................ 178
COMPUTERS (HARDWARE) - 3.5%
3,000 Hewlett-Packard Co. .................................... 188
6,900 *Sequent Computer Systems, Inc. ........................ 138
ELECTRIC COMPANIES - 2.5%
4,800 NIPSCO Industries, Inc. ................................ 237
ELECTRICAL EQUIPMENT - 6.5%
5,500 AMP, Inc. .............................................. 231
2,000 General Electric Co. ................................... 146
5,600 General Signal Corp. ................................... 236
ELECTRICAL EQUIPMENT & ELECTRONICS - 1.7%
2,800 Motorola, Inc .......................................... 160
ELECTRONICS (SEMICONDUCTORS) - 1.0%
1,300 Intel Corp. ............................................. 91
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 2.4%
4,000 Federal National Mortgage Association ................. $228
FOODS - 3.8%
2,300 CPC International, Inc. ................................ 248
3,400 ConAgra, Inc. .......................................... 112
HEALTH CARE (DIVERSIFIED) - 5.4%
3,800 American Home Products Corp. ........................... 291
3,300 Johnson & Johnson ...................................... 217
HEALTH CARE (DRUGS--PHARMACEUTICALS) - 2.3%
2,000 Merck and Co., Inc. .................................... 213
HEALTH CARE (MED. PRODUCTS & SUPPLIES) - 1.6%
3,100 Baxter International, Inc. ............................. 156
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.6%
4,900 Kimberly-Clark Corp. ................................... 242
INSURANCE (MULTI-LINE) - 2.8%
2,800 Hartford Financial Services Group, Inc. ................ 262
MANUFACTURING (DIVERSIFIED) - 7.3%
3,500 AlliedSignal, Inc. ..................................... 136
4,900 Corning, Inc. .......................................... 182
4,500 Crane Co. .............................................. 195
4,100 Harsco Corp. ........................................... 177
OFFICE EQUIPMENT & SUPPLIES - 1.9%
12,900 Unisource Worldwide, Inc. .............................. 184
OIL (DOMESTIC INTEGRATED) - 8.3%
3,000 Amoco Corp. ............................................ 255
3,200 Atlantic Richfield Co. ................................. 256
3,700 Mobil Corp. ............................................ 267
PAPER & PAPER PRODUCTS - 1.8%
4,000 International Paper Co. ................................ 173
PERSONAL CARE - 2.7%
4,100 Avon Products, Inc. .................................... 252
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RAILROADS - 2.0%
2,000 Burlington Northern
Santa Fe .............................................. $186
REAL ESTATE INVESTMENT TRUST - 2.2%
2,900 First Industrial Realty Trust, Inc. .................... 105
3,500 Liberty Property Trust ................................. 100
RETAIL (DEPARTMENT STORES) - 5.2%
4,300 J.C. Penney Co., Inc. .................................. 259
4,300 May Department Stores Co. .............................. 227
RETAIL (FOOD CHAINS) - 2.5%
11,700 American Stores Co. .................................... 241
SERVICES (DATA PROCESSING) - 4.8%
3,900 Automatic Data Processing, Inc. ........................ 239
4,800 Electronic Data Systems Corp. .......................... 211
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 4.4%
1,600 Bell Atlantic Corp. .................................. $ 146
5,100 GTE Corp. .............................................. 266
TOBACCO - 1.7%
3,500 Philip Morris Cos., Inc. ............................... 159
----
TOTAL COMMON STOCKS ................................................... 9,435
----
TEMPORARY INVESTMENTS - 2.5%
INVESTMENT COMPANIES:
$231,741 SSgA Prime Money Market Portfolio ...................... 232
----
TOTAL TEMPORARY INVESTMENTS ............................................. 232
----
TOTAL INVESTMENTS - 102.7% ............................................ 9,667
Liabilities, less Other Assets ........................................ (250)
----
NET ASSETS ........................................................... $9,417
----
----
- -----------------------------------------------------------------------------
</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 December 31, 1997
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands, Except Per-Share Amounts) FUND FUND FUND
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 551,728 $ 1,173,735 $ 301,197
----------- ----------- -----------
----------- ----------- -----------
Investments, at Value
Unaffiliated Issuers 456,463 1,502,834 404,528
Affiliated Issuers 179,522 -- --
----------- ----------- -----------
Total Investments at Value 635,985 1,502,834 404,528
Cash -- 1 --
Receivables
Investment Securities Sold -- -- 209
Trust Shares Sold 13,991 2,645 925
Dividends and Interest 594 1,988 2,171
Forward Currency Contracts Open, Net -- -- --
Deferred Organization Expense -- -- --
----------- ----------- -----------
Total Assets 650,570 1,507,468 407,833
LIABILITIES
Payables
Investment Securities Purchased 1,980 -- 230
Trust Shares Redeemed 1,154 1,691 306
Dividends 2,927 3,725 3,446
Investment Advisory Fees 325 679 229
Organization Expense -- -- --
Other 144 363 97
----------- ----------- -----------
Total Liabilities 6,530 6,458 4,308
----------- ----------- -----------
NET ASSETS $ 644,040 $ 1,501,010 $ 403,525
----------- ----------- -----------
----------- ----------- -----------
NO-LOAD CLASS:
Net Assets $ 638,562 $ 1,490,198 $ 401,985
Trust Shares Outstanding 28,441 76,277 16,827
----------- ----------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 22.45 $ 19.54 $ 23.89
----------- ----------- -----------
----------- ----------- -----------
CLASS A:
Net Assets $ 4,076 $ 7,247 $ 742
Trust Shares Outstanding 182 371 31
----------- ----------- -----------
Net Asset Value and Redemption
Price Per Share $ 22.39 $ 19.55 $ 24.02
----------- ----------- -----------
----------- ----------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 23.45 $ 20.47 $ 25.15
----------- ----------- -----------
----------- ----------- -----------
CLASS B:
Net Assets $ 1,402 $ 3,565 $ 798
Trust Shares Outstanding 63 182 33
----------- ----------- -----------
Net Asset Value and Offering Price
Per Share* $ 22.19 $ 19.55 $ 23.95
----------- ----------- -----------
----------- ----------- -----------
- ---------------------------------------------------------------------------------
</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 $ 49,322 $ 13,853 $ 13,172 $ 19,598 $ 9,007
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
Investments, at Value
Unaffiliated Issuers 68,757 15,177 14,433 23,863 9,667
Affiliated Issuers -- -- -- -- --
----------- --------------- ----------- --------------- -----------
Total Investments at Value 68,757 15,177 14,433 23,863 9,667
Cash -- 336 -- -- --
Receivables
Investment Securities Sold -- -- 14 -- 18
Trust Shares Sold 251 24 13 99 6
Dividends and Interest 31 24 111 17 18
Forward Currency Contracts Open, Net -- 55 -- -- --
Deferred Organization Expense -- 12 12 12 17
----------- --------------- ----------- --------------- -----------
Total Assets 69,039 15,628 14,583 23,991 9,726
LIABILITIES
Payables
Investment Securities Purchased 946 -- -- 81 --
Trust Shares Redeemed 92 -- 1 339 6
Dividends 728 163 338 192 266
Investment Advisory Fees 46 15 10 18 6
Organization Expense -- 12 12 12 17
Other 34 58 19 24 14
----------- --------------- ----------- --------------- -----------
Total Liabilities 1,846 248 380 666 309
----------- --------------- ----------- --------------- -----------
NET ASSETS $ 67,193 $ 15,380 $ 14,203 $ 23,325 $ 9,417
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 64,635 $ 14,754 $ 13,667 $ 22,658 $ 9,063
Trust Shares Outstanding 3,734 1,283 1,177 1,592 810
----------- --------------- ----------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 17.31 $ 11.50 $ 11.61 $ 14.23 $ 11.19
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
CLASS A:
Net Assets $ 1,354 $ 295 $ 205 $ 271 $ 133
Trust Shares Outstanding 79 25 18 19 12
----------- --------------- ----------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 17.25 $ 11.55 $ 11.60 $ 14.21 $ 11.18
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 18.06 $ 12.09 $ 12.15 $ 14.88 $ 11.71
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
CLASS B:
Net Assets $ 1,204 $ 331 $ 331 $ 396 $ 221
Trust Shares Outstanding 70 29 29 28 20
----------- --------------- ----------- --------------- -----------
Net Asset Value and Offering Price
Per Share* $ 17.09 $ 11.53 $ 11.60 $ 14.07 $ 11.18
----------- --------------- ----------- --------------- -----------
----------- --------------- ----------- --------------- -----------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997*
<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 $33 in the
International Fund) $ 1,674 $ 22,322 $ 10,116
Interest 529 2,402 2,759
---------- ---------- ----------
Total Investment Income 2,203 24,724 12,875
EXPENSES
Investment Advisory Fees 2,120 6,481 2,285
Transfer Agent Fees 517 2,320 583
Shareholder Service Fees - Class A 3 12 1
- Class B 1 4 1
Distribution Fees - Class B 3 11 3
Legal and Auditing Fees 19 33 21
Custodian Fees 28 50 19
Reports to Shareholders 53 238 67
Trustees' Fees 5 8 5
Other Fees 22 4 1
Amortization of Organization Expenses -- -- --
---------- ---------- ----------
Total Expenses Before Reimbursement 2,771 9,161 2,986
Expense Reimbursement -- -- --
---------- ---------- ----------
Total Expenses After Reimbursement 2,771 9,161 2,986
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) (568) 15,563 9,889
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain from:
Investments in Unaffiliated Issuers 68,112 61,477 32,768
Investments in Affiliated Issuers 7,446 -- --
Foreign Currency Transactions -- -- --
---------- ---------- ----------
Total Net Realized Gain 75,558 61,477 32,768
Net Change in Unrealized Appreciation 45,096 176,522 39,169
---------- ---------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 120,654 237,999 71,937
---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 120,086 $ 253,562 $ 81,826
---------- ---------- ----------
---------- ---------- ----------
- ------------------------------------------------------------------------------
</TABLE>
* For the U.S. Value Fund, represents the period from April 30, 1997
(commencement of operations) to December 31, 1997.
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 $33 in the
International Fund) $ 440 $ 274 $ 161 $ 105 $ 128
Interest 61 34 312 59 13
---------- -------------- ---------- -------------- ----------
Total Investment Income 501 308 473 164 141
EXPENSES
Investment Advisory Fees 416 153 87 151 43
Transfer Agent Fees 145 34 23 50 5
Shareholder Service Fees - Class A 2 1 1 -- --
- Class B 1 1 1 1 --
Distribution Fees - Class B 4 2 1 2 1
Legal and Auditing Fees 16 15 15 15 10
Custodian Fees 8 48 8 7 5
Reports to Shareholders 17 3 1 5 --
Trustees' Fees 4 4 4 4 3
Other Fees 1 1 -- -- --
Amortization of Organization Expenses -- 4 4 4 3
---------- -------------- ---------- -------------- ----------
Total Expenses Before Reimbursement 614 266 145 239 70
Expense Reimbursement -- (36) -- -- --
---------- -------------- ---------- -------------- ----------
Total Expenses After Reimbursement 614 230 145 239 70
---------- -------------- ---------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (113) 78 328 (75) 71
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain from:
Investments in Unaffiliated Issuers 6,678 18 637 909 386
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- 240 -- -- --
---------- -------------- ---------- -------------- ----------
Total Net Realized Gain 6,678 258 637 909 386
Net Change in Unrealized Appreciation 7,326 213 760 2,742 660
---------- -------------- ---------- -------------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 14,004 471 1,397 3,651 1,046
---------- -------------- ---------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 13,891 $ 549 $ 1,725 $ 3,576 $ 1,117
---------- -------------- ---------- -------------- ----------
---------- -------------- ---------- -------------- ----------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
---------------------------------------
THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
DEC. 31 DEC. 31 SEPT. 30
(In Thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (568) $ (236) $ (252)
Net Realized Gain on
Investments and Foreign
Currency Transactions 75,558 2,890 26,762
Net Change in Unrealized
Appreciation (Depreciation) 45,096 17,540 (1,973)
---------- ------------- ----------
Net Change in Net Assets
Resulting from Operations 120,086 20,194 24,537
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class -- -- (45)
- Class A -- -- --
- Class B -- -- --
Net Realized Gain on Investments
- No-Load Class (74,345) (2,644) (26,481)
- Class A (487) (3) --
- Class B (167) (2) --
---------- ------------- ----------
Total (74,999) (2,649) (26,526)
NET TRUST SHARE TRANSACTIONS
No-Load Class 397,579 (1,336) 5,080
Class A 4,018 74 100
Class B 1,293 6 100
---------- ------------- ----------
Total 402,890 (1,256) 5,280
---------- ------------- ----------
TOTAL CHANGE IN NET ASSETS 447,977 16,289 3,291
NET ASSETS AT BEGINNING OF PERIOD 196,063 179,774 176,483
---------- ------------- ----------
NET ASSETS AT END OF PERIOD $ 644,040 $ 196,063 $ 179,774
---------- ------------- ----------
---------- ------------- ----------
- ---------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 28,647 1,572 22,451
Reinvestments 3,210 148 1,627
Redemptions (14,724) (1,807) (23,589)
---------- ------------- ----------
NET CHANGE 17,133 (87) 489
---------- ------------- ----------
---------- ------------- ----------
AMOUNTS:
Sales $ 645,275 $ 25,444 $ 372,215
Reinvestments 72,072 2,522 25,225
Redemptions (314,457) (29,222) (392,160)
---------- ------------- ----------
NET CHANGE $ 402,890 $ (1,256) $ 5,280
---------- ------------- ----------
---------- ------------- ----------
- ---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO EQUITY FUND SAFECO INCOME FUND
------------------------------------------- -------------------------------------------
THREE-MONTH THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
DEC. 31 DEC. 31 SEPT. 30 DEC. 31 DEC. 31 SEPT. 30
1997 1996 1996 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 15,563 $ 3,012 $ 11,183 $ 9,889 $ 2,032 $ 8,365
Net Realized Gain on
Investments and Foreign
Currency Transactions 61,477 28,862 77,448 32,768 7,031 22,848
Net Change in Unrealized
Appreciation (Depreciation) 176,522 33,741 18,119 39,169 14,121 9,944
------------- ------------- ----------- ------------- ------------- -----------
Net Change in Net Assets
Resulting from Operations 253,562 65,615 106,750 81,826 23,184 41,157
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (15,501) (3,006) (11,189) (9,866) (2,028) (8,374)
- Class A (35) (7) -- (10) (1) --
- Class B (2) -- -- (7) (1) --
Net Realized Gain on Investments
- No-Load Class (61,064) (28,684) (77,500) (32,644) (7,033) (22,837)
- Class A (295) (98) -- (57) (5) --
- Class B (139) (12) -- (65) (3) --
------------- ------------- ----------- ------------- ------------- -----------
Total (77,036) (31,807) (88,689) (42,649) (9,071) (31,211)
NET TRUST SHARE TRANSACTIONS
No-Load Class 464,573 90,300 109,137 72,866 15,846 32,207
Class A 3,709 2,742 100 524 85 100
Class B 3,122 250 100 685 6 100
------------- ------------- ----------- ------------- ------------- -----------
Total 471,404 93,292 109,337 74,075 15,937 32,407
------------- ------------- ----------- ------------- ------------- -----------
TOTAL CHANGE IN NET ASSETS 647,930 127,100 127,398 113,252 30,050 42,353
NET ASSETS AT BEGINNING OF PERIOD 853,080 725,980 598,582 290,273 260,223 217,870
------------- ------------- ----------- ------------- ------------- -----------
NET ASSETS AT END OF PERIOD $ 1,501,010 $ 853,080 $ 725,980 $ 403,525 $ 290,273 $ 260,223
------------- ------------- ----------- ------------- ------------- -----------
------------- ------------- ----------- ------------- ------------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 36,752 6,132 17,984 4,060 869 2,864
Reinvestments 3,734 1,800 5,249 1,608 385 1,374
Redemptions (15,034) (2,347) (16,536) (2,517) (503) (2,649)
------------- ------------- ----------- ------------- ------------- -----------
NET CHANGE 25,452 5,585 6,697 3,151 751 1,589
------------- ------------- ----------- ------------- ------------- -----------
------------- ------------- ----------- ------------- ------------- -----------
AMOUNTS:
Sales $ 682,623 $ 102,959 $ 289,961 $ 94,489 $ 18,394 $ 58,320
Reinvestments 72,547 29,886 82,876 38,272 8,140 27,638
Redemptions (283,766) (39,553) (263,500) (58,686) (10,597) (53,551)
------------- ------------- ----------- ------------- ------------- -----------
NET CHANGE $ 471,404 $ 93,292 $ 109,337 $ 74,075 $ 15,937 $ 32,407
------------- ------------- ----------- ------------- ------------- -----------
------------- ------------- ----------- ------------- ------------- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO NORTHWEST FUND
---------------------------------------
THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED
DEC. 31 DEC. 31 SEPT. 30
(In Thousands) 1997 1996 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (113) $ (34) $ 47
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 6,678 (2,374) 5,695
Net Change in Unrealized
Appreciation (Depreciation) 7,326 3,280 (1,961)
---------- ------------- ----------
Net Change in Net Assets
Resulting from Operations 13,891 872 3,781
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class -- -- (48)
- Class A -- -- --
- Class B -- -- --
Net Realized Gain on Investments
- No-Load Class (4,031) -- (5,695)
- Class A (84) -- --
- Class B (76) -- --
---------- ------------- ----------
Total (4,191) -- (5,743)
NET TRUST SHARE TRANSACTIONS
No-Load Class 11,654 (632) 4,950
Class A 926 254 100
Class B 967 124 100
---------- ------------- ----------
Total 13,547 (254) 5,150
---------- ------------- ----------
TOTAL CHANGE IN NET ASSETS 23,247 618 3,188
NET ASSETS AT BEGINNING OF PERIOD 43,946 43,328 40,140
---------- ------------- ----------
NET ASSETS AT END OF PERIOD $ 67,193 $ 43,946 $ 43,328
---------- ------------- ----------
---------- ------------- ----------
- ---------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 1,888 196 1,209
Reinvestments 200 -- 323
Redemptions (1,329) (215) (1,175)
---------- ------------- ----------
NET CHANGE 759 (19) 357
---------- ------------- ----------
---------- ------------- ----------
AMOUNTS:
Sales $ 32,688 $ 2,692 $ 17,755
Reinvestments 3,464 -- 4,438
Redemptions (22,605) (2,946) (17,043)
---------- ------------- ----------
NET CHANGE $ 13,547 $ (254) $ 5,150
---------- ------------- ----------
---------- ------------- ----------
- ---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 54 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND SAFECO BALANCED FUND
------------------------------------------- -------------------------------------------
JAN. 31, 1996 JAN. 31, 1996
(COMMENCEMENT (COMMENCEMENT
THREE-MONTH OF THREE-MONTH OF
YEAR ENDED PERIOD ENDED OPERATIONS) YEAR ENDED PERIOD ENDED OPERATIONS)
DEC. 31 DEC. 31 TO SEPT. 30 DEC. 31 DEC. 31 TO SEPT. 30
1997 1996 1996 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 78 $ (5) $ 45 $ 328 $ 66 $ 146
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 258 87 (11) 637 99 5
Net Change in Unrealized
Appreciation (Depreciation) 213 853 314 760 243 258
------------ ------------ ------------- ------------ ------------ -------------
Net Change in Net Assets
Resulting from Operations 549 935 348 1,725 408 409
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (364) (62) (51) (322) (64) (146)
- Class A (5) (1) -- (4) (1) --
- Class B (4) -- -- (3) (1) --
Net Realized Gain on Investments
- No-Load Class (19) -- -- (613) (97) (5)
- Class A -- -- -- (9) (1) --
- Class B (1) -- -- (15) (1) --
------------ ------------ ------------- ------------ ------------ -------------
Total (393) (63) (51) (966) (165) (151)
NET TRUST SHARE TRANSACTIONS
No-Load Class 3,437 1,981 8,026 4,661 393 7,374
Class A 142 43 100 86 7 100
Class B 222 4 100 210 12 100
------------ ------------ ------------- ------------ ------------ -------------
Total 3,801 2,028 8,226 4,957 412 7,574
------------ ------------ ------------- ------------ ------------ -------------
TOTAL CHANGE IN NET ASSETS 3,957 2,900 8,523 5,716 655 7,832
NET ASSETS AT BEGINNING OF PERIOD 11,423 8,523 -- 8,487 7,832 --
------------ ------------ ------------- ------------ ------------ -------------
NET ASSETS AT END OF PERIOD $ 15,380 $ 11,423 $ 8,523 $ 14,203 $ 8,487 $ 7,832
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 932 219 1,042 555 43 785
Reinvestments 20 3 2 43 5 3
Redemptions (627) (30) (224) (167) (9) (34)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE 325 192 820 431 39 754
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
AMOUNTS:
Sales $ 10,948 $ 2,323 $ 10,466 $ 6,388 $ 459 $ 7,893
Reinvestments 230 29 18 495 50 31
Redemptions (7,377) (324) (2,258) (1,926) (97) (350)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE $ 3,801 $ 2,028 $ 8,226 $ 4,957 $ 412 $ 7,574
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 55 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO
U.S. VALUE
SAFECO SMALL COMPANY FUND FUND
---------------------------------------- ----------
JAN. 31, APRIL 30,
1996 1997
(COMMENCE- (COMMENCE-
THREE- MONTH MENT OF MENT OF
YEAR ENDED PERIOD ENDED OPERATIONS) OPERATIONS)
DEC. 31 DEC. 31 TO SEPT. 30 TO DEC. 31
(In Thousands) 1997 1996 1996 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (75) $ (14) $ (15) $ 71
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 909 (278) 723 386
Net Change in Unrealized
Appreciation (Depreciation) 2,742 643 880 660
---------- ------------- ----------- ----------
Net Change in Net Assets
Resulting from Operations 3,576 351 1,588 1,117
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class -- -- -- (70)
- Class A -- -- -- (1)
- Class B -- -- -- --
Net Realized Gain on Investments
- No-Load Class (540) -- (708) (372)
- Class A (7) -- -- (5)
- Class B (9) -- -- (9)
---------- ------------- ----------- ----------
Total (556) -- (708) (457)
NET TRUST SHARE TRANSACTIONS
No-Load Class 6,538 272 11,672 8,423
Class A 100 31 100 122
Class B 260 1 100 212
---------- ------------- ----------- ----------
Total 6,898 304 11,872 8,757
---------- ------------- ----------- ----------
TOTAL CHANGE IN NET ASSETS 9,918 655 12,752 9,417
NET ASSETS AT BEGINNING OF PERIOD 13,407 12,752 -- --
---------- ------------- ----------- ----------
NET ASSETS AT END OF PERIOD $ 23,325 $ 13,407 $ 12,752 $ 9,417
---------- ------------- ----------- ----------
---------- ------------- ----------- ----------
- -----------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 1,808 254 1,625 946
Reinvestments 26 (1) 32 15
Redemptions (1,330) (226) (549) (119)
---------- ------------- ----------- ----------
NET CHANGE 504 27 1,108 842
---------- ------------- ----------- ----------
---------- ------------- ----------- ----------
AMOUNTS:
Sales $ 24,781 $ 2,918 $ 17,916 $ 9,962
Reinvestments 364 (7) 373 162
Redemptions (18,247) (2,607) (6,417) (1,367)
---------- ------------- ----------- ----------
NET CHANGE $ 6,898 $ 304 $ 11,872 $ 8,757
---------- ------------- ----------- ----------
---------- ------------- ----------- ----------
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 56 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
The SAFECO Common Stock Trust ("Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of the SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO International Stock
Fund, SAFECO Balanced Fund, 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, Inc., as a service fee for selling its shares at
the annual rate of .25% of the average daily net assets of the Advisor Class.
Class B shares also pay the distributor a distribution fee at the annual rate of
.75% of the average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the 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 those estimates.
(Continued on next page.)
- 57 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SECURITY VALUATION. Investments in securities are valued at the last reported
sales price, unless there are no transactions in which case they are valued at
the last reported bid price. When valuations are not readily available,
securities are valued at fair value as determined in good faith by the board of
trustees. Temporary investments 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.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and
- 58 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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. Risks may arise upon entering into these
contracts from the potential
- 59 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASES* FOR THE YEAR ENDED
DECEMBER 31, 1997 $ 584,411 $ 807,409 $ 219,341 $ 40,419
------------- ---------- -------------- -----------
------------- ---------- -------------- -----------
SALES* FOR THE YEAR ENDED
DECEMBER 31, 1997 $ 266,606 $ 409,583 $ 174,263 $ 30,199
------------- ---------- -------------- -----------
------------- ---------- -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL COMPANY U.S. VALUE
(In Thousands) FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASES* FOR THE YEAR ENDED
DECEMBER 31, 1997** $ 7,093 $ 15,511 $ 16,781 $ 11,116
------------- ---------- -------------- -----------
------------- ---------- -------------- -----------
SALES* FOR THE YEAR ENDED
DECEMBER 31, 1997** $ 2,899 $ 11,264 $ 10,199 $ 2,726
------------- ---------- -------------- -----------
------------- ---------- -------------- -----------
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Excludes short-term securities. Purchases and sales for the Balanced Fund
include $6,534 and $6,263, respectively, of U.S. Government Securities.
** For the U.S. Value Fund, represents the period from April 30, 1997
(commencement of operations) to December 31, 1997.
- 60 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. COMPONENTS OF NET ASSETS
At December 31, 1997, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 123,906 $ 357,840 $ 112,011 $ 21,220
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (39,649) (28,741) (8,680) (1,785)
------------ ----------- -------------- -------
NET UNREALIZED APPRECIATION 84,257 329,099 103,331 19,435
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 559,783 1,171,911 300,194 47,758
------------ ----------- -------------- -------
NET ASSETS AT DECEMBER 31, 1997 $ 644,040 $ 1,501,010 $ 403,525 $ 67,193
------------ ----------- -------------- -------
------------ ----------- -------------- -------
</TABLE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
INTERNATIONAL BALANCED SMALL 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 $ 2,977 $ 1,466 $ 5,197 $ 901
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (1,598) (205) (932) (241)
------------ ----------- -------------- -------
NET UNREALIZED APPRECIATION 1,379 1,261 4,265 660
OVERDISTRIBUTED NET INVESTMENT INCOME (55) -- -- --
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 14,056 12,942 19,060 8,757
------------ ----------- -------------- -------
NET ASSETS AT DECEMBER 31, 1997 $ 15,380 $ 14,203 $ 23,325 $ 9,417
------------ ----------- -------------- -------
------------ ----------- -------------- -------
- ------------------------------------------------------------------------------------------------------
</TABLE>
- 61 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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.
- 62 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 arrangement with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term finanicing
needs. No balance was outstanding under these arrangements at December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Insurance Company of
America, owned 500,000 shares (14% of outstanding shares) of the Northwest Fund;
SAFECO Asset Management Company owned 692,635 shares (53%) of the International
Fund, 519,268 shares (44%) of the Balanced Fund, and 500,000 shares (60%) of the
U.S. Value Fund; and SAFECO Corporation owned 500,000 shares (31%) of the Small
Company 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 year ended December 31, 1997, 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 year ended December
31, 1997:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- ---------------------------------------------
<S> <C>
Growth Fund $1,576
Equity Fund 14,307
Income Fund 1,259
Northwest Fund 3,212
International Fund 259
Balanced Fund 124
Small Company Fund 171
U.S. Value Fund 56
- ---------------------------------------------
</TABLE>
- 63 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 year
ended December 31, 1997.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT MARKET VALUE
BEGINNING END OF DEC. 31
SECURITY OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Building Co. 429 -- (69) 360 -- $ 9,100
American Coin
Merchandising, Inc. 500 -- (35) 465 -- 8,196
Concepts Direct, Inc. -- 348 -- 348 -- 7,316
Damark International, Inc. 659 82 (261) 480 -- 4,682
Family Golf Centers, Inc. -- 1,154 (93) 1,061 -- 33,290
First Commonwealth, Inc. -- 327 -- 327 -- 3,841
Funco, Inc. 9 453 (108) 354 -- 5,270
Harold's Stores, Inc. 379 137 -- 516 -- 3,518
Lifeline Systems, Inc. 504 21 (1) 524 -- 13,162
MICROS Systems, Inc. 394 275 -- 669 -- 30,106
Nastech Pharmaceutical
Co., Inc. -- 407 -- 407 -- 5,288
Open Plan Systems, Inc. 244 -- -- 244 -- 795
Penederm, Inc. 724 4 -- 728 -- 7,277
Phoenix International
Ltd., Inc. 159 271 (15) 415 -- 6,121
Rent-Way, Inc. 362 290 (137) 515 -- 9,532
Suburban Ostomy Supply
Co., Inc. -- 690 -- 690 -- 8,021
Tetra Technologies, Inc. 156 730 (176) 710 -- 14,950
Weider Nutrition
International, Inc. -- 995 (267) 728 79 9,057
-------------
$179,522
-------------
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- 64 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. COMMITMENTS
At December 31, 1997, 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 DEC. 31, 1997 (DEPRECIATION)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
270 British Pound $ 439 01/26/98 $ 444 $ (5)
227 British Pound 382 02/24/98 372 10
415 German Marks 238 01/14/98 231 7
27,592 Japanese Yen 220 02/27/98 214 6
27,592 Japanese Yen 215 03/16/98 214 1
75,255 Japanese Yen 598 03/09/98 585 13
380 Swiss Francs 272 01/30/98 262 10
492 Swiss Francs 340 01/07/98 338 2
294 Swiss Francs 214 02/13/98 203 11
---
$ 55
---
---
- ------------------------------------------------------------------------------------------
</TABLE>
8. NET INVESTMENT LOSS
The Growth, Northwest, and Small Company Funds had net investment losses for
the year ended December 31, 1997. These amounts were netted against short-term
capital gains to reduce the short-term capital gain distributions made on
December 31, 1997.
- 65 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 16.97 $ 15.45 $ 15.83 $ 17.37 $ 19.20 $ 13.98
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.02) (0.02) 0.07 (0.02) (0.02)
Net Realized and Unrealized Gain on
Investments 8.50 1.77 2.24 4.07 0.78 5.39
------- ------- --------- --------- --------- ---------
Total from Investment Operations 8.48 1.75 2.22 4.14 0.76 5.37
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- -- (0.07) -- --
Distributions from Realized Gains (3.00) (0.23) (2.60) (5.61) (2.59) (0.15)
------- ------- --------- --------- --------- ---------
Total Distributions (3.00) (0.23) (2.60) (5.68) (2.59) (0.15)
------- ------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 22.45 $ 16.97 $ 15.45 $ 15.83 $ 17.37 $ 19.20
------- ------- --------- --------- --------- ---------
------- ------- --------- --------- --------- ---------
TOTAL RETURN 49.96% 11.35%* 14.16% 23.93% 3.88% 38.43%
NET ASSETS AT END OF PERIOD (000'S) $ 638,562 $ 195,760 $ 179,574 $ 176,483 $ 156,108 $ 158,723
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.85% 0.99%** 1.02% 0.98% 0.95% 0.91%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.17%) (.51%)** (.14%) .34% (.12%) (.10%)
PORTFOLIO TURNOVER RATE 82.57% 82.93%** 124.79% 110.44% 71.18% 57.19%
AVERAGE COMMISSION RATE PAID $ 0.0520 $ 0.0477 $ 0.0548 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 66 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 16.97 $ 15.45 $ 16.94 $ 15.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.02) (0.08) (0.05)
Net Realized and Unrealized Gain on
Investments 8.44 1.77 8.33 1.77
------------- ------------- ------------- -------------
Total from Investment Operations 8.42 1.75 8.25 1.72
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- -- --
Distributions from Realized Gains (3.00) (0.23) (3.00) (0.23)
------------- ------------- ------------- -------------
Total Distributions (3.00) (0.23) (3.00) (0.23)
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 22.39 $ 16.97 $ 22.19 $ 16.94
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 49.61% 11.35%* 48.70% 11.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 4,076 $ 187 $ 1,402 $ 116
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.06% 1.12%** 1.88% 1.87%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.33%) (.58%)** (1.16%) (1.38%)**
PORTFOLIO TURNOVER RATE 82.57% 82.93%** 82.57% 82.93%**
AVERAGE COMMISSION RATE PAID $ 0.0520 $ 0.0477 $ 0.0520 $ 0.0477
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 67 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 16.60 $ 15.85 $ 15.31 $ 13.89 $ 12.54 $ 9.53
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.23 0.06 0.28 0.34 0.23 0.17
Net Realized and Unrealized Gain on
Investments 3.78 1.33 2.42 2.59 1.83 3.79
------- ------- --------- --------- --------- ---------
Total from Investment Operations 4.01 1.39 2.70 2.93 2.06 3.96
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.23) (0.06) (0.28) (0.34) (0.23) (0.17)
Distributions from Realized Gains (0.84) (0.58) (1.88) (1.17) (0.48) (0.78)
------- ------- --------- --------- --------- ---------
Total Distributions (1.07) (0.64) (2.16) (1.51) (0.71) (0.95)
------- ------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 19.54 $ 16.60 $ 15.85 $ 15.31 $ 13.89 $ 12.54
------- ------- --------- --------- --------- ---------
------- ------- --------- --------- --------- ---------
TOTAL RETURN 24.21% 8.79%* 18.04% 21.59% 16.51% 41.77%
NET ASSETS AT END OF PERIOD (000'S) $1,490,198 $ 849,831 $ 725,780 $ 598,582 $ 412,805 $ 148,894
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.73% 0.78%** 0.79% 0.84% 0.85% 0.94%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.24% 1.48%** 1.74% 2.38% 1.72% 1.50%
PORTFOLIO TURNOVER RATE 34.26% 59.34%** 74.07% 56.14% 33.33% 37.74%
AVERAGE COMMISSION RATE PAID $ 0.0573 $ 0.0571 $ 0.0587 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 68 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 16.62 $ 15.85 $ 16.60 $ 15.85
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.14 0.04 0.02 0.02
Net Realized and Unrealized Gain on
Investments 3.77 1.35 3.79 1.33
------------- ------------- ------------- -------------
Total from Investment Operations 3.91 1.39 3.81 1.35
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.14) (0.04) (0.02) (0.02)
Distributions from Realized Gains (0.84) (0.58) (0.84) (0.58)
------------- ------------- ------------- -------------
Total Distributions (0.98) (0.62) (0.86) (0.60)
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 19.55 $ 16.62 $ 19.55 $ 16.60
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 23.56% 8.78%* 22.93% 8.50%*
NET ASSETS AT END OF PERIOD (000'S) $ 7,247 $ 2,894 $ 3,565 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.24% 0.97%** 1.81% 1.75%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.74% 1.38%** 0.12% 0.51%**
PORTFOLIO TURNOVER RATE 34.26% 59.34%** 34.26% 59.34%**
AVERAGE COMMISSION RATE PAID $ 0.0573 $ 0.0571 $ 0.0573 $ 0.0571
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 69 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED SEPTEMBER 30
-----------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 21.13 $ 20.03 $ 19.11 $ 17.25 $ 17.79 $ 16.27
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.65 0.15 0.73 0.82 0.81 0.78
Net Realized and Unrealized Gain on
Investments 4.87 1.63 2.84 2.71 (0.30) 1.52
------- ------- --------- --------- --------- ---------
Total from Investment Operations 5.52 1.78 3.57 3.53 0.51 2.30
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.65) (0.15) (0.73) (0.82) (0.81) (0.78)
Distributions from Realized Gains (2.11) (0.53) (1.92) (0.85) (0.24) --
------- ------- --------- --------- --------- ---------
Total Distributions (2.76) (0.68) (2.65) (1.67) (1.05) (0.78)
------- ------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 23.89 $ 21.13 $ 20.03 $ 19.11 $ 17.25 $ 17.79
------- ------- --------- --------- --------- ---------
------- ------- --------- --------- --------- ---------
TOTAL RETURN 26.43% 8.89%* 18.98% 21.04% 2.98% 14.35%
NET ASSETS AT END OF PERIOD (000'S) $ 401,985 $ 289,968 $ 260,023 $ 217,870 $ 190,610 $ 203,019
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.85% 0.89%** 0.86% 0.87% 0.86% 0.90%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.81% 2.89%** 3.56% 4.55% 4.59% 4.55%
PORTFOLIO TURNOVER RATE 52.14% 37.84%** 50.11% 31.12% 19.30% 20.74%
AVERAGE COMMISSION RATE PAID $ 0.0569 $ 0.0573 $ 0.0591 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 70 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 21.15 $ 20.03 $ 21.12 $ 20.03
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.51 0.12 0.38 0.10
Net Realized and Unrealized Gain on
Investments 4.98 1.65 4.94 1.62
------------- ------------- ------------- -------------
Total from Investment Operations 5.49 1.77 5.32 1.72
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.51) (0.12) (0.38) (0.10)
Distributions from Realized Gains (2.11) (0.53) (2.11) (0.53)
------------- ------------- ------------- -------------
Total Distributions (2.62) (0.65) (2.49) (0.63)
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 24.02 $ 21.15 $ 23.95 $ 21.12
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 26.15% 8.85%* 25.35% 8.60%*
NET ASSETS AT END OF PERIOD (000'S) $ 742 $ 193 $ 798 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.14% 1.03%** 1.83% 1.79%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.50% 2.66%** 1.79% 1.99%**
PORTFOLIO TURNOVER RATE 52.14% 37.84%** 52.14% 37.84%**
AVERAGE COMMISSION RATE PAID $ 0.0569 $ 0.0573 $ 0.0569 $ 0.0573
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 71 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE THREE-MONTH NINE-MONTH
YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 SEPTEMBER 30 SEPTEMBER 30
--------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 14.07 $ 13.78 $ 14.41 $ 12.59 $ 12.34 $ 12.59
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.03) (0.01) 0.02 0.04 0.04 0.02
Net Realized and Unrealized Gain
(Loss) on Investments 4.41 0.30 1.32 2.35 0.59 (0.25)
------- ------- --------- --------- --------- -------
Total from Investment Operations 4.38 0.29 1.34 2.39 0.63 (0.23)
LESS DISTRIBUTIONS
Dividends from
Net Investment Income -- -- (0.02) (0.04) (0.04) (0.02)
Distributions from Realized Gains (1.14) -- (1.95) (0.53) (0.34) --
------- ------- --------- --------- --------- -------
Total Distributions (1.14) -- (1.97) (0.57) (0.38) (0.02)
------- ------- --------- --------- --------- -------
NET ASSET VALUE AT END OF PERIOD $ 17.31 $ 14.07 $ 13.78 $ 14.41 $ 12.59 $ 12.34
------- ------- --------- --------- --------- -------
------- ------- --------- --------- --------- -------
TOTAL RETURN 31.12% 2.10%* 9.61% 19.01% 5.19% (1.86%)*
NET ASSETS AT END OF PERIOD (000'S) $ 64,635 $ 43,345 $ 43,128 $ 40,140 $ 36,383 $ 39,631
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.09% 1.25%** 1.07% 1.09% 1.06% 1.11%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.19%) (.31%)** 0.11% 0.31% 0.33% 0.18%**
PORTFOLIO TURNOVER RATE 55.42% 67.32%** 35.69% 19.59% 18.46% 14.05%**
AVERAGE COMMISSION RATE PAID $ 0.0560 $ 0.0482 $ 0.0591 -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 72 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 14.06 $ 13.78 $ 14.03 $ 13.78
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) (0.01) (0.10) (0.03)
Net Realized and Unrealized Gain on
Investments 4.39 0.29 4.30 0.28
------------- ------------- ------------- -------------
Total from Investment Operations 4.33 0.28 4.20 0.25
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- -- --
Distributions from Realized Gains (1.14) -- (1.14) --
------------- ------------- ------------- -------------
Total Distributions (1.14) -- (1.14) --
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 17.25 $ 14.06 $ 17.09 $ 14.03
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 30.79% 2.03%* 29.93% 1.81%*
NET ASSETS AT END OF PERIOD (000'S) $ 1,354 $ 369 $ 1,204 $ 232
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.42% 1.40%** 2.09% 2.18%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.61%) (.39%)** (1.30%) (1.19%)**
PORTFOLIO TURNOVER RATE 55.42% 67.32%** 55.42% 67.32%**
AVERAGE COMMISSION RATE PAID $ 0.0560 $ 0.0482 $ 0.0560 $ 0.0482
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 73 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
FOR THE THREE-MONTH OF OPERATIONS)
YEAR ENDED PERIOD ENDED TO
DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------
1997 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.29 $ 10.39 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.24 -- 0.06
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.28 0.96 0.39
------- ------- -------
Total from Investment Operations 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 $ 11.50 $ 11.29 $ 10.39
------- ------- -------
------- ------- -------
TOTAL RETURN 4.55% 9.27%* 4.54%*
NET ASSETS AT END OF PERIOD (000'S) $ 14,754 $ 11,157 $ 8,323
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.63%+ 1.37%+** 2.36%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 0.58% (.19%)** 0.93%**
PORTFOLIO TURNOVER RATE 22.13% 18.51%** 15.73%**
AVERAGE COMMISSION RATE PAID $ 0.0246 $ 0.0223 $ 0.0225
- ------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 1.89% and 1.68% for the year
and period ended December 31, 1997 and 1996, respectively.
- 74 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.29 $ 10.39 $ 11.28 $ 10.39
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.20 -- 0.18 --
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.29 0.95 0.22 0.93
------------- ------------- ------------- -------------
Total from Investment Operations 0.49 0.95 0.40 0.93
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.21) (0.05) (0.13) (0.04)
Distributions from Realized Gains (0.02) -- (0.02) --
------------- ------------- ------------- -------------
Total Distributions (0.23) (0.05) (0.15) (0.04)
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 11.55 $ 11.29 $ 11.53 $ 11.28
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 4.30% 9.19%* 3.48% 8.96%*
NET ASSETS AT END OF PERIOD (000'S) $ 295 $ 154 $ 331 $ 112
RATIO OF EXPENSES TO AVERAGE NET
ASSETS++ 1.87% 1.41%** 2.64% 2.17%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 0.26% (.23%)** 0.51% (1.15%)**
PORTFOLIO TURNOVER RATE 22.13% 18.51%** 22.13% 18.51%**
AVERAGE COMMISSION RATE PAID $ 0.0246 $ 0.0223 $ 0.0246 $ 0.0223
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 2.13% and 1.72% for the year
and period ended December 31, 1997 and 1996, respectively, for Class A, and
2.90% and 2.47%, respectively, for Class B.
- 75 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
FOR THE THREE-MONTH OF OPERATIONS)
YEAR ENDED PERIOD ENDED TO
DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------
1997 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.70 $ 10.38 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.32 0.08 0.21
Net Realized and Unrealized Gain on
Investments 1.45 0.45 0.39
------- ------- -------
Total from Investment Operations 1.77 0.53 0.60
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.32) (0.08) (0.21)
Distributions from Realized Gains (0.54) (0.13) (0.01)
------- ------- -------
Total Distributions (0.86) (0.21) (0.22)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.61 $ 10.70 $ 10.38
------- ------- -------
------- ------- -------
TOTAL RETURN 16.64% 5.11%* 5.99%*
NET ASSETS AT END OF PERIOD (000'S) $ 13,667 $ 8,262 $ 7,632
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.23% 1.16%+** 1.32%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.85% 3.19%** 3.21%**
PORTFOLIO TURNOVER RATE 101.22% 36.10%** 143.87%**
AVERAGE COMMISSION RATE PAID $ 0.0521 $ 0.0548 $ 0.0560
- ------------------------------------------------------------------------------------------------
</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%.
- 76 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.69 $ 10.38 $ 10.70 $ 10.38
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.09 0.18 0.06
Net Realized and Unrealized Gain on
Investments 1.45 0.44 1.44 0.45
------------- ------------- ------------- -------------
Total from Investment Operations 1.73 0.53 1.62 0.51
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.28) (0.09) (0.18) (0.06)
Distributions from Realized Gains (0.54) (0.13) (0.54) (0.13)
------------- ------------- ------------- -------------
Total Distributions (0.82) (0.22) (0.72) (0.19)
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 11.60 $ 10.69 $ 11.60 $ 10.70
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 16.29% 5.07%* 15.21% 4.85%*
NET ASSETS AT END OF PERIOD (000'S) $ 205 $ 110 $ 331 $ 115
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.52% 1.35%++** 2.28% 2.11%++**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.55% 3.01%** 1.78% 2.23%**
PORTFOLIO TURNOVER RATE 101.22% 36.10%** 101.22% 36.10%**
AVERAGE COMMISSION RATE PAID $ 0.0521 $ 0.0548 $ 0.0521 $ 0.0548
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.70% and 2.46% for
Class A and Class B, respectively.
- 77 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
FOR THE THREE-MONTH OF OPERATIONS)
YEAR ENDED PERIOD ENDED TO
DECEMBER 31 DECEMBER 31 SEPTEMBER 30
------------------------------------------------------
1997 1996 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.81 $ 11.51 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.04) (0.01) (0.01)
Net Realized and Unrealized Gain on
Investments 2.80 0.31 2.19
------- ------- -------
Total from Investment Operations 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 $ 14.23 $ 11.81 $ 11.51
------- ------- -------
------- ------- -------
TOTAL RETURN 23.38% 2.61%* 21.83%*
NET ASSETS AT END OF PERIOD (000'S) $ 22,658 $ 13,169 $ 12,552
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.33% 1.35%+** 1.49%**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.41%) (.44%)** (.24%)**
PORTFOLIO TURNOVER RATE 60.81% 73.47%** 91.03%**
AVERAGE COMMISSION RATE PAID $ 0.0470 $ 0.0496 $ 0.0510
- ------------------------------------------------------------------------------------------------
</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%.
- 78 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
----------------------------- -----------------------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31
-------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.81 $ 11.51 $ 11.79 $ 11.51
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.06) (0.01) (0.10) (0.04)
Net Realized and Unrealized Gain on
Investments 2.80 0.31 2.72 0.32
------------- ------------- ------------- -------------
Total from Investment Operations 2.74 0.30 2.62 0.28
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- -- --
Distributions from Realized Gains (0.34) -- (0.34) --
------------- ------------- ------------- -------------
Total Distributions (0.34) -- (0.34) --
------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 14.21 $ 11.81 $ 14.07 $ 11.79
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
TOTAL RETURN+ 23.21% 2.61%* 22.23% 2.43%*
NET ASSETS AT END OF PERIOD (000'S) $ 271 $ 135 $ 396 $ 103
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.52% 1.42%++** 2.29% 2.18%++**
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.60%) (.50%)** (1.35%) (1.28%)**
PORTFOLIO TURNOVER RATE 60.81% 73.47%** 60.81% 73.47%**
AVERAGE COMMISSION RATE PAID $ 0.0470 $ 0.0496 $ 0.0470 $ 0.0496
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.62% and 2.41% for
Class A and Class B, respectively.
- 79 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
<TABLE>
<CAPTION>
NO-LOAD CLASS A CLASS B
---------------- ---------------- ----------------
APRIL 30, 1997 APRIL 30, 1997 APRIL 30, 1997
(COMMENCEMENT (COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS) OF OPERATIONS)
TO TO TO
DECEMBER 31 DECEMBER 31 DECEMBER 31
------------------------------------------------------
1997 1997 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.09 0.08 0.02
Net Realized and Unrealized Gain on
Investments 1.66 1.65 1.65
------- ------- -------
Total from Investment Operations 1.75 1.73 1.67
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.09) (0.08) (0.02)
Distributions from Realized Gains (0.47) (0.47) (0.47)
------- ------- -------
Total Distributions (0.56) (0.55) (0.49)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.19 $ 11.18 $ 11.18
------- ------- -------
------- ------- -------
TOTAL RETURN+ 17.50%* 17.34%* 16.63%*
NET ASSETS AT END OF PERIOD (000'S) $ 9,063 $ 133 $ 221
RATIO OF EXPENSES TO AVERAGE NET
ASSETS** 1.19% 1.48% 2.29%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 1.26% 1.03% 0.20%
PORTFOLIO TURNOVER RATE** 36.37% 36.37% 36.37%
AVERAGE COMMISSION RATE PAID $ 0.0372 $ 0.0372 $ 0.0372
- ------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 80 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Common Stock Trust
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments in securities, of the SAFECO Common
Stock Trust (comprising, respectively, the SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO International Stock
Fund, SAFECO Balanced Fund, SAFECO Small Company Stock Fund, and SAFECO U.S.
Value Fund) as of December 31, 1997, and the related statements of operations,
the statements of changes in net assets, and the financial highlights for each
of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the SAFECO Common Stock Trust at December
31, 1997, the results of their operations, the changes in their net assets, and
financial highlights for each of the periods indicated therein, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 81 -
<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)
INDEPENDENT AUDITORS:
Ernst & Young, LLP
FOR SHAREHOLDER SERVICE*:
Monday-Friday,
5:30am-7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
SEATTLE: (206) 545-7319
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
SEATTLE: (206) 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
E-MAIL: [email protected]
GMF 659 2/98
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -Registered Trademark-Registered trademark of SAFECO Corporation.
