<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
CLASS A AND CLASS B SHARES
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<TABLE>
<S> <C>
SAFECO STOCK FUNDS
Growth Fund............................................................. 2
Equity Fund............................................................. 8
Income Fund............................................................. 13
Northwest Fund.......................................................... 19
Balanced Fund........................................................... 24
International Stock Fund................................................ 31
Small Company Stock Fund................................................ 37
U.S. Value Fund......................................................... 42
SAFECO BOND FUNDS
High-Yield Bond Fund.................................................... 47
Intermediate-Term U.S. Treasury Fund.................................... 55
Managed Bond Fund....................................................... 58
SAFECO TAX-EXEMPT BOND FUNDS
Municipal Bond Fund..................................................... 63
California Tax-Free Income Fund......................................... 63
Washington State Municipal Bond Fund.................................... 75
SAFECO MONEY MARKET FUND
Money Market Fund....................................................... 79
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year the fund returned 49.61% for Class A shares and 48.70% for Class
B shares, not including the effects of sales charges, while the average growth
fund returned 28.08%. SAFECO Growth Fund finished 1997 in the top echelon of
stock Mutual Funds. It was number five for Class A and eight for Class B of the
820 growth fund classes tracked by Lipper Analytical Services for the one year
just ended.
The fund also outperformed the S&P 500 and Russell 2000 Indexes for
[PHOTO OF THOMAS M. MAGUIRE]
the year ended December 31. The broad market indicator returned 33.36%
and the small-cap benchmark climbed 22.36%, respectively.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL WITH SALES WITHOUT
TOTAL RETURN CHARGE SALES CHARGE
FOR THE PERIODS ENDED
DECEMBER 31, 1997 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 42.88% 21.63% 17.91% 49.61% 22.75% 18.45%
Class B 43.70% 22.38% 18.36% 48.70% 22.56% 18.36%
Investment Value SAFECO SAFECO
With Sales Charge Growth Fund Growth Fund S&P 500
Class A Class B Index
12/31/87 $9,550 $10,000 $10,000
01/31/88 9,550 10,000 10,421
02/28/88 9,700 10,157 10,907
03/31/88 10,543 11,040 10,570
04/30/88 10,636 11,138 10,687
05/31/88 10,493 10,987 10,780
06/30/88 11,138 11,663 11,275
07/31/88 11,109 11,633 11,232
08/31/88 10,921 11,436 10,850
09/30/88 11,460 12,000 11,312
10/31/88 11,460 12,000 11,627
11/30/88 11,475 12,016 11,460
12/31/88 11,661 12,210 11,661
01/31/89 11,661 12,210 12,515
02/28/89 11,987 12,551 12,203
03/31/89 12,289 12,868 12,487
04/30/89 12,289 12,868 13,135
05/31/89 12,789 13,391 13,667
06/30/89 13,072 13,688 13,589
07/31/89 13,072 13,688 14,817
08/31/89 13,654 14,297 15,107
09/30/89 14,352 15,028 15,045
10/31/89 13,810 14,461 14,696
11/30/89 13,768 14,417 14,996
12/31/89 13,898 14,553 15,356
01/31/90 12,551 13,143 14,325
02/28/90 12,894 13,502 14,510
03/31/90 13,672 14,317 14,895
04/30/90 13,731 14,378 14,522
05/31/90 15,138 15,851 15,938
06/30/90 14,626 15,315 15,830
07/31/90 14,911 15,613 15,779
08/31/90 12,339 12,921 14,353
09/30/90 10,955 11,472 13,654
10/31/90 10,218 10,699 13,595
11/30/90 10,975 11,492 14,473
12/31/90 11,819 12,376 14,877
01/31/91 13,000 13,612 15,526
02/28/91 14,791 15,488 16,636
03/31/91 15,514 16,245 17,038
04/30/91 16,262 17,028 17,079
05/31/91 17,335 18,152 17,817
06/30/91 16,301 17,070 17,001
07/31/91 17,827 18,667 17,793
08/31/91 18,536 19,409 18,215
09/30/91 18,648 19,527 17,911
10/31/91 19,209 20,114 18,151
11/30/91 17,589 18,417 17,419
12/31/91 19,223 20,129 19,412
01/31/92 20,630 21,602 19,051
02/28/92 20,483 21,448 19,299
03/31/92 18,960 19,854 18,922
04/30/92 17,784 18,622 19,479
05/31/92 17,343 18,161 19,574
06/30/92 16,010 16,765 19,282
07/31/92 16,682 17,468 20,071
08/31/92 15,737 16,479 19,660
09/30/92 15,323 16,045 19,892
10/31/92 15,969 16,722 19,960
11/30/92 17,986 18,833 20,638
12/31/92 18,633 19,511 20,891
01/31/93 19,411 20,325 21,065
02/28/93 18,117 18,971 21,352
03/31/93 18,830 19,717 21,803
04/30/93 17,668 18,501 21,276
05/31/93 18,578 19,453 21,843
06/30/93 19,159 20,061 21,907
07/31/93 19,093 19,993 21,819
08/31/93 20,320 21,278 22,645
09/30/93 21,212 22,211 22,471
10/31/93 21,753 22,778 22,936
11/30/93 20,836 21,818 22,718
12/31/93 22,767 23,840 22,993
01/31/94 23,993 25,123 23,775
02/28/94 22,846 23,923 23,131
03/31/94 21,700 22,723 22,124
04/30/94 22,279 23,329 22,408
05/31/94 22,483 23,543 22,773
06/30/94 20,815 21,796 22,215
07/31/94 21,280 22,283 22,944
08/31/94 22,608 23,673 23,882
09/30/94 22,035 23,073 23,299
10/31/94 22,352 23,405 23,821
11/30/94 21,743 22,768 22,954
12/31/94 22,398 23,453 23,294
01/31/95 22,053 23,092 23,897
02/28/95 23,266 24,362 24,827
03/31/95 23,176 24,268 25,559
04/30/95 23,291 24,389 26,310
05/31/95 24,223 25,364 27,379
06/30/95 25,689 26,900 28,014
07/31/95 26,596 27,849 28,941
08/31/95 26,507 27,756 29,013
09/30/95 27,308 28,594 30,238
10/31/95 27,187 28,468 30,129
11/30/95 27,463 28,757 31,449
12/31/95 28,244 29,575 32,056
01/31/96 29,291 30,671 33,145
02/28/96 30,389 31,821 33,454
03/31/96 29,925 31,335 33,775
04/30/96 31,198 32,668 34,272
05/31/96 32,524 34,056 35,155
06/30/96 31,111 32,577 35,289
07/31/96 28,042 29,363 33,730
08/31/96 29,716 31,116 34,443
09/30/96 31,175 32,644 36,380
10/31/96 31,841 33,321 37,383
11/30/96 33,072 34,588 40,206
12/31/96 34,713 36,285 39,409
01/31/97 37,679 39,369 41,868
02/28/97 36,676 38,298 42,199
03/31/97 35,367 36,906 40,469
04/30/97 33,710 35,171 42,881
05/31/97 38,824 40,483 45,488
06/30/97 42,036 43,803 47,526
07/31/97 44,490 46,331 51,307
08/31/97 46,065 47,937 48,434
09/30/97 49,768 51,750 51,087
10/30/97 48,316 50,229 49,383
11/30/97 50,954 52,928 51,667
12/31/97 51,934 53,954 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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 $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
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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE GROWTH FUND MANAGER
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.
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.
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>
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.
- 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
23.56% for Class A shares and 22.93% for Class B shares, not including the
effects of sales charges, while the average growth and income fund peer returned
26.96%, according to Lipper Analytical Services. The S&P 500 returned 33.36%.
[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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL WITH SALES WITHOUT
TOTAL RETURN CHARGE SALES CHARGE
FOR THE PERIODS ENDED
DECEMBER 31, 1997 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 18.00% 21.60% 19.18% 23.56% 22.73% 19.73%
Class B 17.93% 22.36% 19.64% 22.93% 22.54% 19.64%
Investment Value SAFECO SAFECO
With Sales Charge Equity Fund Equity Fund S&P 500
Class A Class B Index
12/31/87 $9,550 $10,000 $10,000
01/31/88 9,550 10,000 10,421
02/28/88 10,358 10,846 10,907
03/31/88 11,145 11,670 10,570
04/30/88 11,145 11,670 10,687
05/31/88 10,982 11,500 10,780
06/30/88 11,479 12,020 11,275
07/31/88 11,411 11,949 11,232
08/31/88 11,221 11,749 10,850
09/30/88 11,749 12,303 11,312
10/31/88 11,749 12,303 11,627
11/30/88 11,956 12,519 11,460
12/31/88 11,966 12,529 11,661
01/31/89 11,966 12,529 12,515
02/28/89 12,777 13,379 12,203
03/31/89 12,793 13,396 12,487
04/30/89 12,793 13,396 13,135
05/31/89 13,579 14,219 13,667
06/30/89 14,079 14,743 13,589
07/31/89 14,079 14,743 14,817
08/31/89 15,333 16,055 15,107
09/30/89 15,523 16,255 15,045
10/31/89 15,554 16,287 14,696
11/30/89 15,661 16,399 14,996
12/31/89 16,249 17,014 15,356
01/31/90 14,900 15,602 14,325
02/28/90 15,039 15,748 14,510
03/31/90 15,597 16,332 14,895
04/30/90 15,146 15,860 14,522
05/31/90 16,609 17,392 15,938
06/30/90 16,583 17,364 15,830
07/31/90 16,286 17,053 15,779
08/31/90 14,567 15,253 14,353
09/30/90 13,857 14,510 13,654
10/31/90 13,561 14,200 13,595
11/30/90 14,301 14,975 14,473
12/31/90 14,856 15,556 14,877
01/31/91 15,618 16,354 15,526
02/28/91 16,546 17,325 16,636
03/31/91 17,013 17,814 17,038
04/30/91 17,362 18,180 17,079
05/31/91 18,059 18,910 17,817
06/30/91 16,900 17,696 17,001
07/31/91 18,033 18,883 17,793
08/31/91 18,316 19,180 18,215
09/30/91 18,068 18,920 17,911
10/31/91 18,364 19,229 18,151
11/30/91 17,215 18,026 17,419
12/31/91 19,003 19,898 19,412
01/31/92 20,133 21,082 19,051
02/28/92 20,474 21,439 19,299
03/31/92 19,554 20,475 18,922
04/30/92 19,716 20,645 19,479
05/31/92 19,536 20,456 19,574
06/30/92 18,125 18,980 19,282
07/31/92 18,866 19,755 20,071
08/31/92 18,089 18,942 19,660
09/30/92 18,142 18,997 19,892
10/31/92 19,017 19,913 19,960
11/30/92 20,274 21,229 20,638
12/31/92 20,763 21,741 20,891
01/31/93 21,451 22,461 21,065
02/28/93 21,470 22,481 21,352
03/31/93 22,623 23,690 21,803
04/30/93 22,106 23,148 21,276
05/31/93 23,926 25,054 21,843
06/30/93 24,024 25,156 21,907
07/31/93 23,697 24,813 21,819
08/31/93 25,024 26,203 22,645
09/30/93 25,720 26,932 22,471
10/31/93 26,397 27,641 22,936
11/30/93 26,541 27,791 22,718
12/31/93 27,181 28,461 22,993
01/31/94 28,810 30,167 23,775
02/28/94 28,088 29,412 23,131
03/31/94 27,009 28,282 22,124
04/30/94 27,879 29,192 22,408
05/31/94 28,686 30,038 22,773
06/30/94 27,653 28,956 22,215
07/31/94 28,360 29,696 22,944
08/31/94 30,086 31,503 23,882
09/30/94 29,967 31,379 23,299
10/31/94 30,528 31,967 23,821
11/30/94 29,924 31,334 22,954
12/31/94 29,881 31,289 23,294
01/31/95 30,099 31,518 23,897
02/28/95 30,886 32,341 24,827
03/31/95 31,137 32,604 25,559
04/30/95 31,972 33,478 26,310
05/31/95 32,785 34,330 27,379
06/30/95 33,598 35,181 28,014
07/31/95 34,129 35,737 28,941
08/31/95 35,079 36,732 29,013
09/30/95 36,436 38,153 30,238
10/31/95 35,984 37,680 30,129
11/30/95 37,150 38,901 31,449
12/31/95 37,429 39,192 32,056
01/31/96 38,430 40,240 33,145
02/28/96 38,771 40,598 33,454
03/31/96 39,169 41,015 33,775
04/30/96 40,003 41,888 34,272
05/31/96 40,934 42,863 35,155
06/30/96 41,692 43,656 35,289
07/31/96 40,092 41,981 33,730
08/31/96 40,510 42,419 34,443
09/30/96 43,008 45,035 36,380
10/31/96 44,392 46,427 37,383
11/30/96 47,730 49,894 40,206
12/31/96 46,785 48,865 39,409
01/31/97 49,460 51,661 41,868
02/28/97 49,657 51,838 42,199
03/31/97 47,650 49,704 40,469
04/30/97 49,004 51,088 42,881
05/31/97 52,248 54,445 45,488
06/30/97 54,325 56,612 47,526
07/31/97 58,001 60,411 51,307
08/31/97 54,947 57,230 48,434
09/30/97 56,906 59,251 51,087
10/30/97 54,330 56,511 49,383
11/30/97 56,822 59,074 51,667
12/31/97 57,807 60,070 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 8 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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 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.
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.
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>
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 26.15% for Class
A shares and 25.35% for Class B shares, not including the effects of
sales charges, 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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 20.48% 16.73% 14.19% 26.15% 17.81% 14.72%
Class B 20.35% 17.39% 14.62% 25.35% 17.60% 14.62%
Investment Value SAFECO SAFECO
With Sales Charge Income Fund Income Fund S&P 500
Class A Class B Index
12/31/87 $9,550 $10,000 $10,000
01/31/88 9,550 10,000 10,421
02/28/88 10,139 10,617 10,907
03/31/88 10,505 11,000 10,570
04/30/88 10,505 11,000 10,687
05/31/88 10,620 11,120 10,780
06/30/88 11,127 11,651 11,275
07/31/88 11,150 11,676 11,232
08/31/88 10,964 11,481 10,850
09/30/88 11,279 11,811 11,312
10/31/88 11,279 11,811 11,627
11/30/88 11,453 11,992 11,460
12/31/88 11,363 11,898 11,661
01/31/89 11,363 11,898 12,515
02/28/89 11,874 12,433 12,203
03/31/89 11,925 12,487 12,487
04/30/89 11,925 12,487 13,135
05/31/89 12,378 12,961 13,667
06/30/89 12,765 13,366 13,589
07/31/89 12,765 13,366 14,817
08/31/89 13,535 14,173 15,107
09/30/89 13,649 14,292 15,045
10/31/89 13,134 13,753 14,696
11/30/89 13,283 13,909 14,996
12/31/89 13,546 14,185 15,356
01/31/90 12,862 13,468 14,325
02/28/90 12,921 13,530 14,510
03/31/90 13,019 13,633 14,895
04/30/90 12,531 13,121 14,522
05/31/90 13,190 13,812 15,938
06/30/90 13,137 13,756 15,830
07/31/90 12,903 13,511 15,779
08/31/90 11,947 12,510 14,353
09/30/90 11,456 11,996 13,654
10/31/90 11,181 11,707 13,595
11/30/90 11,865 12,424 14,473
12/31/90 12,090 12,659 14,877
01/31/91 12,560 13,152 15,526
02/28/91 13,283 13,909 16,636
03/31/91 13,485 14,120 17,038
04/30/91 13,631 14,274 17,079
05/31/91 14,043 14,705 17,817
06/30/91 13,690 14,335 17,001
07/31/91 14,080 14,743 17,793
08/31/91 14,506 15,190 18,215
09/30/91 14,484 15,167 17,911
10/31/91 14,635 15,325 18,151
11/30/91 14,031 14,692 17,419
12/31/91 14,901 15,603 19,412
01/31/92 15,016 15,723 19,051
02/28/92 15,064 15,773 19,299
03/31/92 14,918 15,621 18,922
04/30/92 15,354 16,077 19,479
05/31/92 15,499 16,229 19,574
06/30/92 15,555 16,288 19,282
07/31/92 16,134 16,894 20,071
08/31/92 16,016 16,771 19,660
09/30/92 16,187 16,949 19,892
10/31/92 15,888 16,637 19,960
11/30/92 16,296 17,064 20,638
12/31/92 16,610 17,393 20,891
01/31/93 16,973 17,773 21,065
02/28/93 17,295 18,110 21,352
03/31/93 17,881 18,723 21,803
04/30/93 17,637 18,468 21,276
05/31/93 17,871 18,713 21,843
06/30/93 17,963 18,810 21,907
07/31/93 17,871 18,713 21,819
08/31/93 18,457 19,327 22,645
09/30/93 18,509 19,381 22,471
10/31/93 18,831 19,719 22,936
11/30/93 18,602 19,479 22,718
12/31/93 18,695 19,576 22,993
01/31/94 19,305 20,215 23,775
02/28/94 18,874 19,763 23,131
03/31/94 18,215 19,074 22,124
04/30/94 18,428 19,297 22,408
05/31/94 18,439 19,308 22,773
06/30/94 18,168 19,025 22,215
07/31/94 18,729 19,611 22,944
08/31/94 19,321 20,232 23,882
09/30/94 19,060 19,958 23,299
10/31/94 19,026 19,923 23,821
11/30/94 18,352 19,217 22,954
12/31/94 18,491 19,362 23,294
01/31/95 18,960 19,854 23,897
02/28/95 19,553 20,474 24,827
03/31/95 20,107 21,055 25,559
04/30/95 20,537 21,505 26,310
05/31/95 21,136 22,132 27,379
06/30/95 21,397 22,406 28,014
07/31/95 22,232 23,280 28,941
08/31/95 22,392 23,448 29,013
09/30/95 23,071 24,158 30,238
10/31/95 22,817 23,892 30,129
11/30/95 23,614 24,727 31,449
12/31/95 24,104 25,240 32,056
01/31/96 24,875 26,047 33,145
02/28/96 24,936 26,111 33,454
03/31/96 25,232 26,421 33,775
04/30/96 25,331 26,524 34,272
05/31/96 26,169 27,402 35,155
06/30/96 26,497 27,745 35,289
07/31/96 25,750 26,964 33,730
08/31/96 26,236 27,472 34,443
09/30/96 27,448 28,742 36,380
10/31/96 28,449 29,775 37,383
11/30/96 29,956 31,325 40,206
12/31/96 29,878 31,213 39,409
01/31/97 31,065 32,454 41,868
02/28/97 31,107 32,484 42,199
03/31/97 29,939 31,253 40,469
04/30/97 30,365 31,668 42,881
05/31/97 32,538 33,909 45,488
06/30/97 33,880 35,276 47,526
07/31/97 35,708 37,155 51,307
08/31/97 35,151 36,573 48,434
09/30/97 36,727 38,175 51,087
10/30/97 35,177 36,545 49,383
11/30/97 36,770 38,175 51,667
12/31/97 37,693 39,125 52,553
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. 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
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.
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.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
Net Asset Capitalization
Weightings
As a Percent of Net Assets
Common Stocks
<S> <C>
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>
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.
/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 30.79% for Class A shares and 29.93% for Class B shares, not
including the effects of sales charges, 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 Services 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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
OVERVIEW--CLASS A
AND CLASS B SHARES
AVERAGE ANNUAL TOTAL
RETURN FOR
THE PERIODS ENDED
DECEMBER 31, 1997 WITH SALES CHARGE WITHOUT SALES CHARGE
SINCE SINCE
1 YEAR 5 YEAR INCEPTION* 1 YEAR 5 YEAR INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 24.90% 11.41% 12.71% 30.79% 12.44% 13.48%
Class B 24.93% 11.99% 13.33% 29.93% 12.24% 13.33%
* The Funds inception was
February 7, 1991.
Graph and average annual
return comparison
begins February 28, 1991.
Investment Value SAFECO SAFECO
With Sales Charge Northwest Fund Northwest Fund S&P 500 NW 50
Class A Class B Index Index
02/28/91 $9,616 $10,000 $10,000 $10,000
03/31/91 9,832 10,295 10,242 10,409
04/30/91 10,120 10,597 10,267 10,666
05/31/91 10,465 10,958 10,710 11,305
06/30/91 9,853 10,317 10,220 10,552
07/31/91 10,440 10,932 10,696 11,063
08/31/91 10,873 11,385 10,949 11,510
09/30/91 10,606 11,106 10,766 11,292
10/31/91 10,500 10,995 10,911 11,285
11/30/91 9,854 10,318 10,471 10,836
12/31/91 11,052 11,573 11,669 12,133
01/31/92 11,529 12,072 11,452 12,767
02/28/92 11,898 12,459 11,601 12,958
03/31/92 11,637 12,185 11,375 12,545
04/30/92 11,228 11,757 11,709 11,973
05/31/92 11,345 11,879 11,766 11,865
06/30/92 10,987 11,504 11,591 11,450
07/31/92 11,240 11,769 12,065 11,567
08/31/92 10,938 11,453 11,818 11,250
09/30/92 11,394 11,931 11,957 11,693
10/31/92 11,774 12,329 11,998 12,156
11/30/92 12,272 12,850 12,406 12,701
12/31/92 12,608 13,202 12,558 12,725
01/31/93 12,658 13,255 12,663 12,821
02/28/93 12,037 12,605 12,835 12,420
03/31/93 12,508 13,097 13,106 12,932
04/30/93 11,997 12,563 12,789 12,641
05/31/93 12,258 12,835 13,130 12,953
06/30/93 12,143 12,715 13,169 12,675
07/31/93 12,042 12,610 13,116 12,220
08/31/93 12,383 12,966 13,612 12,721
09/30/93 12,374 12,957 13,508 12,434
10/31/93 12,534 13,125 13,787 12,881
11/30/93 12,585 13,178 13,656 13,158
12/31/93 12,738 13,338 13,821 13,334
01/31/94 12,963 13,574 14,291 13,737
02/28/94 13,290 13,917 13,904 13,941
03/31/94 12,728 13,327 13,299 13,449
04/30/94 12,697 13,295 13,470 13,409
05/31/94 12,892 13,499 13,689 13,611
06/30/94 12,562 13,154 13,354 13,198
07/31/94 12,746 13,347 13,792 13,300
08/31/94 13,320 13,948 14,356 14,068
09/30/94 13,016 13,629 14,005 13,530
10/31/94 12,892 13,499 14,319 13,449
11/30/94 12,571 13,164 13,798 13,209
12/31/94 12,540 13,131 14,002 13,281
01/31/95 12,695 13,294 14,365 13,224
02/28/95 13,016 13,629 14,924 13,668
03/31/95 13,451 14,085 15,364 14,102
04/30/95 13,627 14,269 15,816 14,526
05/31/95 13,834 14,486 16,458 14,528
06/30/95 14,516 15,200 16,840 15,409
07/31/95 15,273 15,992 17,397 15,993
08/31/95 15,407 16,133 17,440 16,299
09/30/95 15,490 16,220 18,176 16,897
10/31/95 15,307 16,029 18,111 16,507
11/30/95 15,275 15,995 18,904 16,753
12/31/95 15,070 15,780 19,269 16,957
01/31/96 15,213 15,930 19,924 17,518
02/28/96 15,677 16,415 20,110 17,921
03/31/96 16,625 17,409 20,303 17,826
04/30/96 17,078 17,882 20,602 18,898
05/31/96 17,365 18,183 21,132 19,204
06/30/96 17,003 17,804 21,213 19,123
07/31/96 16,197 16,960 20,276 18,188
08/31/96 16,716 17,503 20,704 19,088
09/30/96 16,978 17,778 21,868 19,583
10/31/96 16,547 17,314 22,471 19,446
11/30/96 17,274 18,062 24,168 20,852
12/31/96 17,323 18,101 23,689 21,348
01/31/97 18,580 19,404 25,168 22,302
02/28/97 18,580 19,391 25,366 22,719
03/31/97 17,804 18,565 24,326 22,097
04/30/97 18,432 19,211 25,776 23,084
05/31/97 19,652 20,475 27,343 24,975
06/30/97 20,773 21,636 28,568 26,156
07/31/97 22,572 23,481 30,841 28,542
08/31/97 21,968 22,836 29,115 27,620
09/30/97 23,065 23,958 30,709 29,553
10/30/97 21,796 22,642 29,685 27,603
11/30/97 22,917 23,791 31,058 29,281
12/31/97 22,657 23,518 31,591 28,622
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. 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
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 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.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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 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 MANAGERS
SAFECO BALANCED FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Balanced Fund returned 16.29% for Class A shares and 15.21%
for Class B shares, not including the effects of sales charges, 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 under-performed
the average balanced fund. The latter two also explain why we lagged the
composite index. [PHOTO OF REX BENTLEY]
First, stocks significantly outperformed bonds in 1997 and our equity
allocation, which ranged from 58% to 60%, was lower than
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW --
CLASS A AND CLASS B SHARES WITH SALES WITHOUT
AVERAGE ANNUAL TOTAL RETURN CHARGE SALES CHARGE
FOR THE PERIODS ENDED SINCE SINCE
DECEMBER 31, 1997 1 YEAR INCEPTION* 1 YEAR INCEPTION*
<S> <C> <C> <C> <C>
Class A 11.05% 11.72% 16.29% 14.44%
Class B 10.21% 11.89% 15.21% 13.76%
*Graph and average annual return
comparison begins January 31, 1996,
inception date of the fund.
Investment Value
With Sales Charge 60% S&P 500/
SAFECO SAFECO 40% Lehman Brothers
Balanced Fund Balanced Fund Government/
Class A Class B Corporate Index
01/30/96 $9,550 $10,000 $10,000
02/28/96 $9,502 $9,950 $9,971
03/31/96 $9,566 $10,017 $9,995
04/30/96 $9,624 $10,077 $10,056
05/31/96 $9,758 $10,218 $10,204
06/30/96 $9,879 $10,345 $10,282
07/31/96 $9,657 $10,112 $10,019
08/31/96 $9,782 $10,243 $10,136
09/30/96 $10,122 $10,599 $10,550
10/31/96 $10,326 $10,803 $10,823
11/30/96 $10,765 $11,252 $11,393
12/31/96 $10,635 $11,112 $11,207
01/30/97 $10,953 $11,434 $11,632
02/28/97 $11,042 $11,517 $11,697
03/31/97 $10,654 $11,111 $11,354
04/30/97 $10,895 $11,351 $11,826
05/31/97 $11,345 $11,810 $12,302
06/30/97 $11,637 $12,096 $12,691
07/31/97 $12,302 $12,777 $13,452
08/31/97 $11,828 $12,274 $12,940
09/30/97 $12,149 $12,607 $13,447
10/30/97 $11,946 $12,386 $13,264
11/30/97 $12,220 $12,660 $13,660
12/31/97 $12,367 $12,403 $13,858
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 24 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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 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.
[PHOTO OF LYNETTE SAGVOLD]
[PHOTO OF MICHAEL HUGHES]
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
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>
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE BALANCED FUND MANAGERS
believe they represent excellent value with significant upside
potential.
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.
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.
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>
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.
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
- 26 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
strong U.S. dollar, turmoil in the 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.
- 27 -
<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
- 28 -
<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
- 29 -
<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
- 30 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the 12 months ended December 31, 1997, SAFECO International Fund returned
4.30% for Class A shares and 3.48% for Class B shares, not including the effects
of sales charges, 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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A -0.39% 6.93% 4.30% 9.53%
Class B -1.52% 7.01% 3.48% 8.96%
* Graph and average annual return
comparison begins January 31, 1996,
inception date of the fund.
Investment Value SAFECO SAFECO
With Sales Charge International International
Fund Class A Fund Class B EAFE Index
01/30/96 $9,550 $10,000 $10,000
02/28/96 9,493 9,940 10,034
03/31/96 9,588 10,040 10,247
04/30/96 9,827 10,290 10,545
05/31/96 9,789 10,250 10,351
06/30/96 9,779 10,240 10,409
07/31/96 9,397 9,840 10,105
08/31/96 9,779 10,240 10,127
09/30/96 9,984 10,454 10,396
10/31/96 10,099 10,565 10,290
11/30/96 10,733 11,229 10,699
12/31/96 10,901 11,391 10,561
01/30/97 10,863 11,340 10,192
02/28/97 11,007 11,482 10,358
03/31/97 10,930 11,411 10,396
04/30/97 10,978 11,451 10,451
05/31/97 11,481 11,966 11,131
06/30/97 11,828 12,320 11,745
07/31/97 12,243 12,744 11,935
08/31/97 11,201 11,643 11,044
09/30/97 11,954 12,421 11,662
10/30/97 10,872 11,290 10,766
11/30/97 11,027 11,441 10,656
12/31/97 11,370 11,388 10,749
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERNATIONAL FUND MANAGER
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.
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
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>
- 32 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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 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.
- 33 -
<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
- 34 -
<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
- 35 -
<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
- 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
23.21% for Class A shares and 22.23% for Class B shares, not including the
effects of sales charges, 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% for Class A shares
and 4.50% for Class B shares in the fourth quarter of 1997, beating the average
fund which gave up 5.66%.) [PHOTO OF GREG EISEN]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 17.66% 22.30% 23.21% 25.27%
Class B 17.23% 22.93% 22.23% 24.64%
*Graph and average annual return
comparison begins January 31, 1996,
inception date of the fund.
Investment Value SAFECO SAFECO
With Sales Charge Small Company Small Company Russell 2000
Fund Class A Fund Class B Index
01/30/96 $9,550 $10,000 $10,000
02/28/96 9,693 10,150 10,312
03/31/96 10,018 10,490 10,522
04/30/96 11,030 11,550 11,084
05/31/96 11,794 12,350 11,521
06/30/96 11,489 12,030 11,048
07/31/96 10,715 11,220 10,083
08/31/96 11,374 11,910 10,668
09/30/96 11,635 12,183 11,085
10/31/96 11,615 12,151 10,914
11/30/96 11,473 12,003 11,364
12/31/96 11,938 12,479 11,662
01/30/97 12,039 12,575 11,895
02/28/97 11,786 12,299 11,606
03/31/97 11,382 11,876 11,058
04/30/97 11,150 11,611 11,089
05/31/97 12,201 12,712 12,324
06/30/97 12,848 13,368 12,852
07/31/97 13,737 14,279 13,452
08/31/97 14,000 14,554 13,756
09/30/97 15,375 15,972 14,760
10/30/97 14,677 15,231 14,103
11/30/97 14,728 15,284 14,007
12/31/97 14,709 14,854 14,259
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. 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
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 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.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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.
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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET CAPITALIZATION
WEIGHTINGS
AS A PERCENT OF NET ASSETS
<S> <C> <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 return of 17.24% for Class A shares and 16.63% for Class B shares,
not including the effects of sales charges.
For the latest quarter, the U.S. Value Fund was basically flat,
returning 0.52% for Class A shares and 0.41% for Class B shares. 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.) [PHOTO OF REX BENTLEY]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN FOR THE WITH SALES CHARGE WITHOUT SALES CHARGE
PERIOD ENDED DECEMBER 31, 1997 SINCE INCEPTION* SINCE INCEPTION*
<S> <C> <C> <C>
Class A 11.96% 17.24%
Class B 11.63% 16.63%
Investment Value With Sales Charge
SAFECO SAFECO
U.S. Value Fund U.S. Vlaue Fund
Class A Class B S&P 500 Index
04/30/97 $9,550 $10,000 $10,000
05/31/97 10,190 10,660 10,608
06/30/97 10,558 11,041 11,083
07/31/97 11,371 11,882 11,965
08/31/97 10,768 11,241 11,295
09/30/97 11,139 11,616 11,914
10/30/97 10,678 11,135 11,516
11/30/97 11,052 11,525 12,049
12/31/97 11,196 11,163 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 Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 42 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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.
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.
[PHOTO OF LYNETTE SAGVOLD]
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
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
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 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>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Strong domestic economic growth, and low inflation combined to provide
a favorable environment in which the high-yield market turned in another
year of excellent performance.
Total return for the SAFECO High-Yield Bond Fund for the year ended December
31, 1997 was 12.49% for Class A shares and 11.77% for Class B shares, not
including the effects of sales charges, slightly under both the average
high yield fund, which according to Lipper Analytical Services, returned
12.96%, and the Merrill Lynch High-Yield Master Index, which returned
12.83%. [PHOTO OF ROBERT KERN]
The portfolio is structured for total return and somewhat similarly to the
broad high-yield market which accounts for our returns being in-line with the
index.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
OVERVIEW--CLASS A
AND CLASS B SHARES
AVERAGE ANNUAL TOTAL
RETURN FOR
THE PERIODS ENDED
DECEMBER 31, 1997 WITH SALES CHARGE WITHOUT SALES CHARGE
SINCE SINCE
1 YEAR 5 YEAR INCEPTION* 1 YEAR 5 YEAR INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 7.43% 9.40% 9.11% 12.49% 10.41% 9.65%
Class B 6.77% 10.00% 9.58% 11.77% 10.27% 9.58%
SAFECO SAFECO
Investment Value High-Yield Bond High-Yield Bond Merrill Lynch
With Sales Charge Fund Class A Fund Class B High-Yield Index
09/30/88 $9,583 $10,000 $10,000
10/31/88 $9,699 $10,156 $10,144
11/30/88 $9,699 $10,156 $10,163
12/31/88 $9,809 $10,271 $10,207
01/31/89 $9,965 $10,435 $10,374
02/28/89 $10,000 $10,471 $10,436
03/31/89 $9,936 $10,404 $10,395
04/30/89 $9,881 $10,346 $10,399
05/31/89 $10,036 $10,509 $10,595
06/30/89 $10,174 $10,653 $10,757
07/31/89 $10,234 $10,716 $10,800
08/31/89 $10,216 $10,697 $10,850
09/30/89 $10,168 $10,647 $10,736
10/31/89 $10,034 $10,507 $10,470
11/30/89 $10,016 $10,488 $10,485
12/31/89 $10,003 $10,475 $10,443
01/31/90 $9,855 $10,319 $10,161
02/28/90 $9,656 $10,111 $10,007
03/31/90 $9,852 $10,316 $10,196
04/30/90 $9,910 $10,377 $10,259
05/31/90 $10,105 $10,582 $10,430
06/30/90 $10,220 $10,702 $10,692
07/31/90 $10,455 $10,947 $10,961
08/31/90 $10,135 $10,612 $10,460
09/30/90 $9,756 $10,216 $10,030
10/31/90 $9,443 $9,888 $9,736
11/30/90 $9,547 $9,997 $9,838
12/31/90 $9,644 $10,098 $9,987
01/31/91 $9,592 $10,044 $10,192
02/28/91 $9,988 $10,459 $11,076
03/31/91 $10,341 $10,828 $11,625
04/30/91 $10,657 $11,159 $12,026
05/31/91 $10,784 $11,292 $12,073
06/30/91 $10,901 $11,415 $12,347
07/31/91 $11,142 $11,667 $12,678
08/31/91 $11,359 $11,894 $12,970
09/30/91 $11,530 $12,073 $13,153
10/31/91 $11,796 $12,352 $13,600
11/30/91 $11,944 $12,507 $13,746
12/31/91 $11,987 $12,551 $13,899
01/31/92 $12,319 $12,900 $14,369
02/28/92 $12,534 $13,124 $14,732
03/31/92 $12,668 $13,265 $14,939
04/30/92 $12,661 $13,257 $15,017
05/31/92 $12,832 $13,436 $15,239
06/30/92 $12,997 $13,610 $15,414
07/31/92 $13,221 $13,844 $15,714
08/31/92 $13,385 $14,015 $15,914
09/30/92 $13,550 $14,188 $16,083
10/31/92 $13,284 $13,910 $15,876
11/30/92 $13,509 $14,145 $16,119
12/31/92 $13,649 $14,292 $16,324
01/31/93 $14,022 $14,683 $16,713
02/28/93 $14,300 $14,974 $17,012
03/31/93 $14,543 $15,229 $17,301
04/30/93 $14,649 $15,339 $17,420
05/31/93 $14,870 $15,571 $17,646
06/30/93 $15,152 $15,866 $17,975
07/31/93 $15,329 $16,052 $18,156
08/31/93 $15,434 $16,161 $18,322
09/30/93 $15,486 $16,216 $18,403
10/31/93 $15,706 $16,446 $18,753
11/30/93 $15,826 $16,572 $18,851
12/31/93 $15,957 $16,709 $19,049
01/31/94 $16,258 $17,024 $19,461
02/28/94 $16,179 $16,941 $19,326
03/31/94 $15,607 $16,342 $18,701
04/30/94 $15,481 $16,211 $18,469
05/31/94 $15,622 $16,358 $18,428
06/30/94 $15,690 $16,429 $18,512
07/31/94 $15,685 $16,424 $18,634
08/31/94 $15,742 $16,484 $18,772
09/30/94 $15,736 $16,478 $18,768
10/31/94 $15,673 $16,411 $18,818
11/30/94 $15,467 $16,196 $18,656
12/31/94 $15,598 $16,333 $18,852
01/31/95 $15,782 $16,525 $19,117
02/28/95 $16,113 $16,873 $19,730
03/31/95 $16,261 $17,027 $19,996
04/30/95 $16,568 $17,349 $20,513
05/31/95 $17,003 $17,804 $21,146
06/30/95 $17,089 $17,894 $21,289
07/31/95 $17,316 $18,132 $21,566
08/31/95 $17,323 $18,140 $21,679
09/30/95 $17,535 $18,361 $21,936
10/31/95 $17,777 $18,615 $22,116
11/30/95 $17,807 $18,646 $22,336
12/31/95 $18,038 $18,888 $22,710
01/31/96 $18,265 $19,125 $23,089
02/28/96 $18,441 $19,310 $23,160
03/31/96 $18,380 $19,246 $23,065
04/30/96 $18,418 $19,285 $23,097
05/31/96 $18,532 $19,405 $23,264
06/30/96 $18,579 $19,455 $23,368
07/31/96 $18,774 $19,658 $23,510
08/31/96 $19,040 $19,937 $23,802
09/30/96 $19,426 $20,341 $24,356
10/31/96 $19,500 $20,419 $24,567
11/30/96 $19,790 $20,723 $25,061
12/31/96 $19,912 $20,850 $25,269
01/31/97 $20,078 $21,024 $25,459
02/28/97 $20,445 $21,397 $25,851
03/31/97 $20,017 $20,934 $25,494
04/30/97 $20,145 $21,056 $25,821
05/31/97 $20,718 $21,641 $26,364
06/30/97 $21,008 $21,931 $26,772
07/31/97 $21,547 $22,480 $27,482
08/31/97 $21,554 $22,476 $27,449
09/30/97 $21,921 $22,847 $27,942
10/31/97 $21,924 $22,838 $28,085
11/30/97 $22,125 $23,035 $28,348
12/31/97 $22,398 $23,304 $28,620
*The Funds inception was
September 7, 1988. Graph
and average annual return
comparison begins
September 30, 1988.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 47 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE HIGH-YIELD BOND FUND MANAGER
At year end, our portfolio was broadly diversified with about 80 holdings
concentrated in cash-paying domestic companies. The telecom sector represented
approximately 8% of net assets. (Telecom is 8% of the Merrill Lynch High Yield
Index.) The Telecom Act of 1996 introduced competition into both the long-
distance and local segments of the industry and this sector has become a large
and important part of the high-yield universe as many companies have come to the
debt and equity markets seeking funding for their network expansions. I added
positions in Intermedia Communications, Qwest Communications, and Telegroup to
the fund.
Intermedia Communications is a local telephone company that provides
facilities-based services primarily to business users in the Southeastern US.
The company, which has been in a building phase, should turn cash-flow positive
during the second quarter of 1998.
Qwest Communications is building a high-capacity, long-distance fiber-optic
network along railway right-of-way capable of carrying voice, data, and internet
services. Capacity on the network is sold under contract to long-distance
companies, regional Bell operating companies, and other telecommunications
services providers.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000'S)
- -------------------------------------------------------------------------
<S> <C>
Heritage Media Services .......................................... $2,406
Snyder Oil Corp. ................................................. 1,272
Specialty Equipment Co. .......................................... 1,083
AES Corp. .......................................................... 995
Shop Vac Corp. ..................................................... 814
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Holmes Products Corp. (144A) ....................................... 2.1%
(Household Furniture & Appliances)
National Equipment Services, Inc. .................................. 2.1
(Building Equipment)
Qwest Communications
International, Inc. (144A) ........................................ 1.9
(Telecommunications)
Dyersburg Corp. .................................................... 1.8
(Textiles)
Jitney-Jungle Stores of America, Inc. .............................. 1.8
(Retail--Food Chains)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(July to Dec.) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Holmes Products Corp. (144A) ........................................ $1,504
National Equipment Services, Inc. ................................... 1,482
Heritage Media Services .............................................. 1,328
Qwest Communications International, Inc. (144A) ...................... 1,306
Big 5 Corp. ......................................................... 1,253
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Broadcast Media ..................................................... 11%
Telecommunications (Long Distance) .................................... 6
Foods ................................................................. 4
Telephone ............................................................. 2
Hospital Management ................................................... 3
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 7.85%
CURRENT YIELD (30-DAY) CLASS B ......................................... 7.47%
WEIGHTED AVERAGE MATURITY .......................................... 8.1 YEARS
- 48 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Telegroup is a global long distance services company whose
established presence, and state-of-the art facilities, should enable
them to capture a healthy share of the European telecommunications
market, as it opens up to competition in 1998.
When buying bonds, I look at how the issuer will use the funding. I favor
companies that are borrowing to refinance higher-cost debt, expand their
business, or make a prudent acquisition. For example, in October I bought Jitney
Jungle 10 3/8% bonds. This Jackson, Mississippi grocery chain used the proceeds
to acquire DelChamps, another grocer with contiguous markets. Jitney should be
able to cut distribution costs and improve operations of the acquired stores.
I also established a position in National Equipment Services, a heavy-duty
equipment rental company that intends to grow via acquisition and whose bonds
were attractively priced.
I built a position in Holmes Products, a manufacturer of home comfort
products including space heaters, air conditioners and dehumidifiers. The
company's products are made under contract in China and are sold through the
major retailers such as Wal-Mart, Costco, Home Depot and through
national drugstore chains.
I sold bonds I felt offered limited upside potential. Among those
sold were Universal Outdoor, ShopVac and Snyder Oil. Universal
Outdoor was acquired by Clear-Channel Communications, and the bonds traded up
nicely. ShopVac had also appreciated substantially and it was time to put the
money to work in bonds with greater potential. Snyder Oil had also appreciated
in price, and given my negative outlook for oil and gas prices, I felt it
prudent to reduce my exposure here.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P CREDIT RATING
DISTRIBUTION
AS A PERCENT OF NET
ASSETS
<S> <C>
BB: 14%
B: 69%
Not Rated: 10%
Preferred Stock: 4%
Cash & Other: 3%
</TABLE>
Looking forward to 1998, I am cautiously optimistic about the high-yield
market. I expect healthy economic growth, although at a somewhat slower pace
than was experienced in 1997. The financial turmoil in Asia will have some
effect on U.S. economic performance, but it is too soon to gauge its full
impact. Slower growth out of that region, together with the stronger dollar, may
contribute to continued low inflation thus may preclude the need for the Federal
Reserve to raise interest rates.
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE HIGH-YIELD BOND FUND MANAGER
I will continue to use fundamental credit analysis to identify companies
which offer good relative performance, as well as safety of principal. While I
intend to maintain a well-diversified portfolio, when I believe it is
appropriate and opportunity for outperformance is present, I will overweight
certain market segments (such as telecom currently).
/s/ Robert Kern
Robert Kern
- -------------------------------
Robert Kern joined SAFECO in 1988 with B.S. degrees in business and accounting
from the Universities of Washington and Puget Sound respectively. Robert is a
Certified Public Accountant and a Chartered Financial Analyst.
- 50 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
CORPORATE BONDS - 91.9%
ADVERTISING - 1.5%
$1,000 Lamar Advertising Co.
9.625%, due 12/01/06 ................................ $1,076
AGRICULTURE/FERTILIZER PRODUCTS - 1.5%
1,000 Sun World International (Series B)
11.25%, due 4/15/04 .................................. 1,077
BANKS - REGIONAL - 1.9%
1,250 Bay View Capital Corp.
9.125%, due 8/15/07 .................................. 1,287
BEVERAGES - 1.8%
1,250 Coca-Cola Bottling Group (Southwest), Inc.
9.00%, due 11/15/03 .................................. 1,281
BROADCASTING - 11.2%
1,250 Adelphia Communications Corp.
9.25%, due 10/01/02 .................................. 1,275
500 Cablevision Systems Corp.
9.875%, due 5/15/06 .................................... 549
1,000 Cablevision Systems Corp.
7.875%, due 12/15/07 ................................. 1,020
500 Century Communications Corp.
9.50%, due 3/01/05 ..................................... 529
500 Century Communications Corp.
8.875%, due 1/15/07 .................................... 515
1,000 #Intermedia Telecom, Inc. (144A)
8.875%, due 11/01/07 (acquired 10/24/97) ............. 1,025
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07 .................................. 1,045
500 SFX Broadcasting, Inc. (Series B)
10.75%, due 5/15/06 .................................... 548
500 Sinclair Broadcast Group, Inc.
8.75%, due 12/15/07 .................................... 500
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06 ................................... 1,000
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BUILDING EQUIPMENT - 2.1%
$1,500 National Equipment Services, Inc.
10.00%, due 11/30/04 ................................ $1,481
BUILDING MATERIALS - 0.7%
500 Synthetic Industries, Inc.
9.25%, due 2/15/07 ..................................... 527
CHEMICALS - 0.7%
500 Atlantis Group, Inc.
11.00%, due 2/15/03 .................................... 507
CHEMICALS - SPECIALTY - 0.7%
500 #Sovereign Specialty Chemicals, Inc. (144A)
9.50%, due 8/01/07
(acquired 8/05/97) ..................................... 512
COMPUTERS - HARDWARE - 1.2%
1,000 HMT Technology Corp.
5.75%, due 1/15/04 ..................................... 876
CONTAINERS - METAL & GLASS - 0.7%
500 Applied Extrusion Technologies, Inc. (Series B)
11.50%, due 4/01/02 .................................... 533
COSMETICS - 2.2%
500 Coty, Inc.
10.25%, due 5/01/05 .................................... 531
1,000 French Fragrances, Inc. (Series B)
10.375%, due 5/15/07 ................................. 1,045
DRUGS - 2.4%
750 Chattem, Inc. (Series B)
12.75%, due 6/15/04 .................................... 855
1,000 IVAX Corp.
6.50%, due 11/15/01 .................................... 852
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS - 0.7%
$ 500 Plantronics, Inc.
10.00%, due 1/15/01 .................................. $ 517
ENVIRONMENTAL - 1.7%
1,000 #Allied Waste North America, Inc. (144A)
11.30%, due 6/01/02 Step Bond (acquired 5/15/97) ....... 700
500 Allied Waste North America, Inc.
10.25%, due 12/01/06 ................................... 549
FINANCIAL - 2.1%
1,000 Americredit Corp.
9.25%, due 2/01/04 ..................................... 995
500 DVI, Inc.
9.875%, due 2/01/04 .................................... 521
FOOD - 3.9%
500 Chiquita Brands International, Inc.
10.25%, due 11/01/06 ................................... 546
500 Curtice Burns Foods
12.25%, due 2/01/05 .................................... 551
1,100 #Gorges/Quik-To-Fix Foods (144A)
11.50%, due 12/01/06
(acquired 11/25/96) .................................. 1,161
500 International Home Foods, Inc.
10.375%, due 11/01/06 .................................. 549
FOOTWEAR - 1.3%
1,000 Nine West Group, Inc.
8.375%, due 8/15/05 .................................... 960
GAMING - 0.8%
500 Aztar Corp.
13.75%, due 10/01/04 ................................... 573
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HOSPITAL MANAGEMENT - 3.2%
$1,250 #Integrated Health Services, Inc. (144A)
9.50%, due 9/15/07
(acquired 5/30/97) .................................. $1,281
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05 .................................. 1,031
HOTELS/MOTELS - 0.7%
500 HMH Properties, Inc.
9.50%, due 5/15/05 ..................................... 532
HOUSEHOLD FURNITURE & APPLIANCES - 2.1%
1,500 #Holmes Products Corp. (144A)
9.875%, due 11/15/07
(acquired 11/18/97) .................................. 1,526
INDUSTRIAL PRODUCT & SUPPLIER - 0.7%
500 Printpack, Inc.
10.625%, due 8/15/06 ................................... 530
IRON & STEEL - 0.7%
500 #Armco, Inc. (144A)
9.00%, due 9/15/07
(acquired 9/12/97) ..................................... 486
LEISURE TIME - 5.7%
1,000 AMC Entertainment, Inc.
9.50%, due 3/15/09 ................................... 1,037
919 AMF Bowling WW (Series B)
12.25%, due 3/15/01 Step Bond .......................... 723
500 Cinemark USA, Inc. (Series B)
9.625%, due 8/01/08 .................................... 519
500 Cinemark USA, Inc. (Series D)
9.625%, due 8/01/08 .................................... 519
1,250 Speedway Motorsports, Inc.
8.50%, due 8/15/07 ................................... 1,275
MANUFACTURING - DIVERSIFIED - 1.5%
1,000 Plastic Specialties and Technologies, Inc.
11.25%, due 12/01/03 ................................. 1,090
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING - SPECIALIZED - 0.7%
$ 500 #Flextronics International, Ltd. (144A)
8.75%, due 10/15/07
(acquired 10/09/97) .................................. $ 496
METALS - 3.0%
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06 ................................. 1,073
1,000 Wells Aluminum Corp. (Series B)
10.125%, due 6/01/05 ................................. 1,060
OFFICE EQUIPMENT & SUPPLIES - 1.5%
1,200 Corporate Express, Inc.
4.50%, due 7/01/00 Convertible ....................... 1,061
OIL SERVICES - 1.8%
500 ICO, Inc. (Series B)
10.375%, due 6/01/07 ................................... 536
750 #Newpark Resources, Inc. (144A)
8.625%, due 12/15/07
(acquired 12/10/97) .................................... 762
PAPER & FOREST PRODUCTS - 1.4%
500 Specialty Paperboard, Inc.
9.375%, due 10/15/06 ................................... 520
500 The Fonda Group (Series B)
9.50%, due 3/01/07 ..................................... 470
POWER PRODUCER - 1.4%
1,000 AES Corp.
8.50%, due 11/01/07 .................................. 1,000
REFINING - 2.2%
500 Crown Central Petroleum Corp.
10.875%, due 2/01/05 ................................... 530
1,000 #United Refining Co. (144A)
10.75%, due 6/15/07
(acquired 6/09/97) ................................... 1,050
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RESTAURANTS - 2.9%
$1,000 Apple South, Inc.
9.75%, due 6/01/06 .................................. $1,045
1,000 #Perkins Family Restaurants (144A)
10.125%, due 12/15/07
(acquired 12/17/97) .................................. 1,013
RETAIL - 0.7%
500 K-Mart Corp.
7.95%, due 2/01/23 ..................................... 479
RETAIL - DEPARTMENT STORES - 1.8%
1,250 Specialty Retailers, Inc.
9.00%, due 7/15/07 ................................... 1,275
RETAIL - FOOD CHAINS - 1.8%
1,250 Jitney-Jungle Stores of America, Inc.
10.375%, due 9/15/07 ................................. 1,297
RETAIL - SPECIALTY - 1.7%
1,250 #Big 5 Corp. (144A)
10.875%, due 11/15/07
(acquired 11/07/97) .................................. 1,244
SAVINGS & LOAN - SAVINGS BANK - 0.8%
500 #First Nationwide Holdings, Inc. (144A)
10.625%, due 10/01/03
(acquired 9/13/96) ..................................... 560
SERVICES - COMMERCIAL & CONSUMER - 0.7%
500 Unicco Service Co.
9.875%, due 10/15/07 ................................... 498
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS - 5.7%
$1,000 Paging Network, Inc.
10.00%, due 10/15/08 ................................ $1,036
1,250 PhoneTel Technologies
12.00%, due 12/15/06 ................................. 1,297
2,000 #Qwest Communications International, Inc. (144A)
9.47%, due 10/15/02 Step Bond (acquired 10/09/97) .... 1,350
500 #Telegroup, Inc. (144A) 10.50%, due 5/1/00 Step Bond
(acquired 10/20/97) .................................... 388
TELEPHONE - 1.8%
1,250 GCI, Inc.
9.75%, due 8/01/07 ................................... 1,297
TEXTILES - 1.8%
1,250 Dyersburg Corp.
9.75%, due 9/07/07 ................................... 1,306
TEXTILES - HOME FURNISHINGS - 1.4%
1,000 #Maxim Group, Inc. (144A)
9.25%, due 10/15/07 (acquired 12/01/97) ................ 993
TEXTILES - SPECIALTY - 1.4%
1,000 Polymer Group, Inc. (Series B)
9.00%, due 7/01/07 ..................................... 998
TRANSPORTATION - 1.4%
1,000 International Shipholding Corp.
9.00%, due 7/01/03 ................................... 1,025
TRUCKERS - 1.8%
1,250 Allied Holdings, Inc.
8.625%, due 10/01/07 ................................. 1,278
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
UTILITIES - 0.5%
$ 314 Midland Cogeneration Venture, L.P.
10.33%, due 7/23/02 ................................. $ 338
-----
TOTAL CORPORATE BONDS ................................................ 65,892
-----
PREFERRED STOCK - 3.7%
BROADCAST MEDIA - 2.5%
5 American Radio Systems Corp. ........................... 626
5 SFX Broadcasting, Inc. ................................. 606
5 Sinclair Broadcast Group, Inc. ......................... 552
RAILROADS - 1.2%
500 SFP Pipeline Partners L.P. ............................. 845
-----
TOTAL PREFERRED STOCK ................................................. 2,629
-----
TEMPORARY INVESTMENTS - 1.8%
INVESTMENT COMPANIES:
1,294 SSgA Prime Money Market Portfolio .................... 1,294
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 1,294
-----
TOTAL INVESTMENTS - 97.4% ............................................ 69,815
Other Assets, less Liabilities ........................................ 1,857
-----
NET ASSETS .......................................................... $71,672
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# 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 value of such securities is $14,546,438 and
the total value is 20.3% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 54 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Intermediate-Term U.S. Treasury Fund, for the year ended December
31, 1997, returned 8.03% for Class A shares and 7.27% for Class B shares, not
including the effects of sales charges. For the six months, the Fund returned
6.07% for Class A shares and 5.65% for Class B shares, while the Merrill Lynch
index of U.S. Treasuries, 1-10 Years returned 4.88%, and the average
intermediate U.S. Treasury mutual fund--as reported by Lipper Analytical
Services--returned 5.82%. [PHOTO OF RONALD SPAULDING]
Surprisingly low price inflation in the face of a strong economy and low
unemployment rate drove bond prices higher through the last eight months of
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
OVERVIEW--CLASS A
AND CLASS B SHARES
AVERAGE ANNUAL TOTAL
RETURN WITH SALES CHARGE WITHOUT SALES CHARGE
FOR THE PERIODS
ENDED DECEMBER 31,
1997 1 YEAR 5 YEAR SINCE INCEPTION* 1 YEAR 5 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 3.17% 5.24% 7.00% 8.03% 6.21% 7.53%
Class B 2.27% 5.73% 7.44% 7.27% 6.05% 7.44%
Investment Value
With Sales Charge
SAFECO SAFECO
Intermediate- Intermediate- Merrill Lynch
Term U.S. Term U.S. Intermediate-
Treasury Fund Treasury Fund Term U.S.
Class A Class B Treasury Index
09/30/88 $9,550 $10,000 $10,000
10/31/88 9,734 10,192 10,136
11/30/88 9,658 10,113 10,048
12/31/88 9,669 10,125 10,057
01/31/89 9,727 10,185 10,156
02/28/89 9,677 10,133 10,114
03/31/89 9,694 10,151 10,164
04/30/89 9,865 10,330 10,351
05/31/89 10,038 10,511 10,569
06/30/89 10,267 10,751 10,839
07/31/89 10,447 10,939 11,060
08/31/89 10,350 10,837 10,906
09/30/89 10,392 10,882 10,961
10/31/89 10,567 11,065 11,186
11/30/89 10,644 11,146 11,295
12/31/89 10,666 11,169 11,324
01/31/90 10,603 11,102 11,259
02/28/90 10,656 11,158 11,288
03/31/90 10,650 11,152 11,310
04/30/90 10,623 11,123 11,270
05/31/90 10,824 11,334 11,509
06/30/90 10,934 11,449 11,658
07/31/90 11,081 11,603 11,826
08/31/90 11,041 11,561 11,774
09/30/90 11,084 11,606 11,882
10/31/90 11,172 11,699 12,047
11/30/90 11,288 11,820 12,227
12/31/90 11,430 11,968 12,400
01/31/91 11,481 12,022 12,526
02/28/91 11,571 12,116 12,591
03/31/91 11,653 12,202 12,660
04/30/91 11,782 12,337 12,791
05/31/91 11,844 12,402 12,864
06/30/91 11,858 12,417 12,877
07/31/91 12,006 12,572 13,016
08/31/91 12,208 12,783 13,259
09/30/91 12,392 12,976 13,485
10/31/91 12,525 13,115 13,637
11/30/91 12,654 13,250 13,797
12/31/91 12,975 13,586 14,134
01/31/92 12,827 13,431 13,991
02/28/92 12,843 13,448 14,044
03/31/92 12,796 13,399 13,987
04/30/92 12,894 13,501 14,115
05/31/92 13,079 13,695 14,316
06/30/92 13,284 13,909 14,524
07/31/92 13,614 14,256 14,793
08/31/92 13,721 14,367 14,964
09/30/92 13,976 14,634 15,171
10/31/92 13,720 14,366 14,985
11/30/92 13,635 14,277 14,918
12/31/92 13,827 14,478 15,115
01/31/93 14,183 14,851 15,397
02/28/93 14,496 15,179 15,628
03/31/93 14,555 15,241 15,686
04/30/93 14,659 15,350 15,810
05/31/93 14,611 15,299 15,763
06/30/93 14,965 15,670 15,990
07/31/93 14,988 15,694 16,022
08/31/93 15,358 16,081 16,267
09/30/93 15,444 16,172 16,337
10/31/93 15,478 16,208 16,366
11/30/93 15,231 15,948 16,287
12/31/93 15,326 16,048 16,351
01/31/94 15,525 16,256 16,514
02/28/94 15,114 15,826 16,279
03/31/94 14,796 15,493 16,051
04/30/94 14,691 15,383 15,942
05/31/94 14,697 15,390 15,959
06/30/94 14,669 15,361 15,970
07/31/94 14,864 15,564 16,168
08/31/94 14,902 15,604 16,219
09/30/94 14,739 15,434 16,088
10/31/94 14,745 15,440 16,092
11/30/94 14,715 15,408 16,012
12/31/94 14,772 15,468 16,072
01/31/95 14,941 15,645 16,339
02/28/95 15,165 15,879 16,652
03/31/95 15,242 15,960 16,743
04/30/95 15,430 16,157 16,935
05/31/95 16,019 16,774 17,419
06/30/95 16,126 16,886 17,533
07/31/95 16,001 16,755 17,545
08/31/95 16,192 16,955 17,689
09/30/95 16,371 17,142 17,808
10/31/95 16,620 17,403 18,008
11/30/95 16,958 17,757 18,232
12/31/95 17,246 18,059 18,418
01/31/96 17,302 18,117 18,576
02/28/96 16,880 17,676 18,368
03/31/96 16,703 17,490 18,280
04/30/96 16,668 17,454 18,222
05/31/96 16,665 17,451 18,212
06/30/96 16,786 17,577 18,390
07/31/96 16,839 17,632 18,447
08/31/96 16,837 17,631 18,467
09/30/96 17,025 17,828 18,701
10/31/96 17,232 18,033 19,006
11/30/96 17,450 18,269 19,240
12/31/96 17,302 18,104 19,135
01/31/97 17,350 18,129 19,206
02/28/97 17,317 18,087 19,227
03/31/97 17,100 17,853 19,129
04/30/97 17,314 18,071 19,343
05/31/97 17,435 18,198 19,492
06/30/97 17,621 18,382 19,660
07/31/97 18,121 18,896 20,029
08/31/97 17,897 18,652 19,944
09/30/97 18,164 18,916 20,164
10/31/97 18,465 19,214 20,398
11/30/97 18,472 19,209 20,445
12/31/97 18,691 19,421 20,619
*The Fund's
inception was
September 7,
1988. Graph and
average annual
return
comparison begins
September 30 1988.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 55 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE INTERMEDIATE-TERM U.S. TREASURY FUND MANAGER
the year. The economic and financial turmoil in Asia in the second half of the
year added impetus to the upward move as investors sought refuge in the safety
of U.S. Treasury bonds. Also investors reckoned that weakness in the Asian
economies and currencies would slow domestic growth and price inflation, making
prospects for bonds positive into the new year.
We beat the index and peer group by positioning the average maturity of the
fund to take advantage of the economic environment. As longer maturities will
perform better in a declining rate environment, we decided at mid-year we wanted
to position the average maturity of the fund significantly longer than our
benchmark index. At mid-year we lengthened the maturity of the fund. As the year
progressed we took care to remain fully invested to take advantage of rising
bond prices. For this time period the strategy served us well.
At year end the average maturity of the fund was 6.0 years compared to 3.8
years for the Merrill Lynch index of U.S.
HIGHLIGHTS
- -------------------------------
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.81%
CURRENT YIELD (30-DAY) CLASS B ......................................... 4.18%
WEIGHTED AVERAGE MATURITY .......................................... 6.0 YEARS
Treasuries, 1-10 Years. Eighteen per cent of net assets were invested in U.S.
Government agencies. The balance was invested in U.S. Treasuries and a small
cash position.
Bond prices at year end incorporate all the good news on the economic and
inflation front as well as a very optimistic view of 1998. While we too are
optimistic about 1998, we don't expect bond prices to improve significantly from
these levels. We expect bonds to earn their coupon this year while other
financial assets may struggle to earn similar returns. As the new year begins we
plan to keep the average maturity longer than the benchmark index. If the
economic and inflation environment begin to deteriorate we will shorten the
maturity of the portfolio.
/s/ Ronald Spaulding
Ronald Spaulding
- -------------------------------
Ronald Spaulding is the chief investment officer of SAFECO Corporation. In 1995,
he became vice president and treasurer of SAFECO Corporation, director of the
insurance subsidiaries, vice chairman of SAFECO Asset Management Company, and
vice president and treasurer of SAFECO Mutual Funds. He holds an M.B.A. from the
University of Washington and is a Chartered Financial Analyst.
- 56 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES - 97.0%
U.S. FEDERAL AGENCY NOTES - 18.5%
$1,500 6.875%, due 11/22/06 ............................... $ 1,526
1,500 6.26%, due 9/24/04 ................................... 1,521
U.S. TREASURY NOTES - 71.5%
2,450 7.75%, due 2/15/01 ................................... 2,592
1,200 7.50%, due 11/15/01 .................................. 1,273
2,070 7.25%, due 8/15/04 ................................... 2,238
1,560 6.875%, due 3/31/00 .................................. 1,599
3,900 6.50%, due 10/15/06 .................................. 4,084
U.S. TREASURY PRINCIPAL STRIPS - 7.0%
1,975 0.00%, due 2/15/07 ................................... 1,162
-----
TOTAL U.S. GOVERNMENT SECURITIES ..................................... 15,995
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 4.7%
INVESTMENT COMPANIES:
$782 SSgA Prime Money Market Portfolio ................... $ 782
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 782
-----
TOTAL INVESTMENTS - 101.7% ........................................... 16,777
Liabilities, less Other Assets ........................................ (282)
-----
NET ASSETS .......................................................... $16,495
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 57 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MANAGED BOND FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Managed Bond Fund returned 7.78% for Class A shares and 6.91% for
Class B shares, not including the effects of sales charges for the year.
For the quarter ending December 31, 1997 the Fund returned 2.86% for
Class A shares and 2.63% for Class B shares, in line with its peer group of
funds and behind the broad market.
[PHOTO OF MICHAEL HUGHES]
The average corporate bond fund delivered 8.65% for the year, and 2.24%
for the quarter, as measured by Morningstar. The Lehman Brothers
Government/Corporate Index, returned 9.76% for the year, and 3.18% for
the quarter.
The Fund gained ground against the peer group during the fourth quarter due
to its substantial holding of U.S.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR SINCE INCEPTION* 1 YEAR SINCE INCEPTION*
<S> <C> <C> <C> <C>
Class A 2.93% 4.23% 7.78% 5.49%
Class B 1.91% 4.54% 6.91% 5.22%
Investment Value
SAFECO SAFECO Lehman Brothers
Managed Bond Managed Bond Government/
With Sales Charge Fund Class A Fund Class B Corporate Index
02/28/94 $9,550 $10,000 $10,000
03/31/94 $9,231 $9,666 $9,755
04/30/94 $9,223 $9,657 $9,674
05/31/94 $9,231 $9,666 $9,657
06/30/94 $9,218 $9,653 $9,634
07/31/94 $9,318 $9,757 $9,827
08/31/94 $9,340 $9,780 $9,831
09/30/94 $9,266 $9,703 $9,683
10/31/94 $9,272 $9,709 $9,672
11/30/94 $9,245 $9,680 $9,655
12/31/94 $9,263 $9,699 $9,718
01/31/95 $9,386 $9,828 $9,905
02/28/95 $9,541 $9,991 $10,135
03/31/95 $9,587 $10,038 $10,203
04/30/95 $9,709 $10,167 $10,344
05/31/95 $10,059 $10,533 $10,778
06/30/95 $10,137 $10,615 $10,864
07/31/95 $10,067 $10,541 $10,822
08/31/95 $10,193 $10,674 $10,960
09/30/95 $10,305 $10,791 $11,072
10/31/95 $10,469 $10,962 $11,235
11/30/95 $10,675 $11,178 $11,420
12/31/95 $10,870 $11,382 $11,588
01/31/96 $10,887 $11,400 $11,660
02/28/96 $10,627 $11,127 $11,412
03/31/96 $10,514 $11,010 $11,317
04/30/96 $10,509 $11,004 $11,239
05/31/96 $10,514 $11,009 $11,219
06/30/96 $10,593 $11,092 $11,370
07/31/96 $10,626 $11,127 $11,396
08/31/96 $10,646 $11,148 $11,369
09/30/96 $10,734 $11,239 $11,571
10/31/96 $10,843 $11,347 $11,841
11/30/96 $10,965 $11,467 $12,058
12/31/96 $10,877 $11,369 $11,925
01/31/97 $10,884 $11,368 $11,939
02/28/97 $10,858 $11,335 $11,964
03/31/97 $10,715 $11,179 $11,822
04/30/97 $10,863 $11,327 $11,994
05/31/97 $10,946 $11,406 $12,106
06/30/97 $11,056 $11,511 $12,251
07/31/97 $11,378 $11,839 $12,626
08/31/97 $11,231 $11,664 $12,484
09/30/97 $11,397 $11,843 $12,680
10/31/97 $11,577 $12,007 $12,883
11/30/97 $11,592 $12,028 $12,952
12/31/97 $11,723 $11,854 $13,088
*The Fund's inception was June 25, 1992.
Graph and average annual return
comparison begins February 28, 1994
(initial public offering).
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 58 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Treasury securities, as Asian-market difficulties produced "flight
to quality" bid for U.S. Treasuries, causing corporate bonds and
mortgage-backed securities to lag. Underperformance relative to the
Lehman Brothers Government/Corporate Index can be attributed to the
nature of the index itself. An index is a "portfolio on paper," it has no cash,
and incurs no transaction costs or fees.
Additionally, the index has no maturity restrictions, while the fund is
currently constrained to investing in securities with maturities of ten years or
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
less.
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
<S> <C>
AAA: 76%
A: 20%
BBB: 2%
Cash & Other: 2%
</TABLE>
I took over the management responsibilities of the Managed Bond Fund during
February, 1997. Like my predecessor, I intend to emphasize high-quality
HIGHLIGHTS
- -------------------------------
<TABLE>
<CAPTION>
PERCENT OF
BONDS BY TYPE NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
U.S. Treasury Securities ............................................ 52%
Asset Backed Securities .............................................. 19
Corporate Bonds ...................................................... 27
Cash & Other .......................................................... 2
----
100%
----
----
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.74%
CURRENT YIELD (30-DAY) CLASS B ......................................... 4.01%
WEIGHTED AVERAGE MATURITY .......................................... 7.6 YEARS
intermediate-term securities in the portfolio. However, unlike my
predecessor, my strategy will not rely on large swings in duration
(lengthening or shortening the average maturity date of the Fund's
bond portfolio, in anticipation of their sensitivity to interest rates) to
distinguish this Fund from its peer group.
In the past, Fund performance was heavily dependent on the duration decision.
The Fund suffered when its portfolio had a duration that was either too long or
too short and interest rates suddenly changed course. The duration of your fund
will not fluctuate as widely as it had in the past. I plan to keep the portfolio
duration within plus or minus 15% of the benchmark index's duration. While
duration will remain an important factor in my investment strategy, equally
important will be sector positioning, credit selection, and maturity structure
within the portfolio. To the extent the prospectus allows, the Fund will
consider utilizing mortgage-backed securities, triple-
- 59 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE MANAGED BOND FUND MANAGER
B rated corporate bonds, and securities with maturities longer than ten years.
During the last quarter of the year, the Fund liquidated some of its U.S.
Treasury holdings in order to take advantage of the softness in the corporate
and mortgage-backed securities sectors of the market. At year end, the Fund held
52% of its assets in U.S. Treasury obligations, 27% in high-grade corporate
bonds, 12% in mortgage-backed securities, 5% in U.S. Agency debentures, 7% in
AAA rated asset-backed securities, and 2% cash. The portfolio's effective
duration was 6.2 years on December 31, 1997, slightly longer than the duration
of the Lehman Brothers Intermediate Government/Corporate Bond Index at 5.3
years.
The fundamentals behind bond bullishness remain intact. Inflation is under
wraps and even falling. Meanwhile, the dollar is strong, encouraging foreign
investors to buy U.S. bonds. Leading commodity prices are dropping, signaling
that the benign inflationary environment will likely continue. Still, bonds have
come a long way, and will have great difficulty matching 1997 gains-- unless the
Asia crisis substantially impacts the U.S. economy.
/s/ Michael Hughes
Michael Hughes
- -------------------------------
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.
- 60 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) MARKET VALUE
<C> <S>
- -----------------------------------------------------------------------------
ASSET BACKED SECURITIES - 19.5%
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 10.4%
$150 FHLMC REMIC 1587
6.50%, due 10/15/08 ................................... $150
150 FNMA REMIC 1993-11
7.35%, due 6/25/07 ..................................... 155
200 FNMA REMIC 1993-55
6.50%, due 2/25/05 ..................................... 202
CONSUMER - FINANCE - 4.6%
138 AFG Receivables Trust
6.20%, due 2/15/03 ..................................... 138
90 Premier Auto Trust
6.20%, due 1/06/01 ...................................... 90
FINANCIAL - DIVERSIFIED - 1.7%
80 FNMA (Class C)
6.74%, due 8/25/07 ...................................... 83
FINANCIAL - MISCELLANEOUS - 1.1%
52 Chevy Chase Auto ABS Series 1996-1 (Class A)
6.60%, due 12/15/02 ..................................... 52
MANUFACTURING - SPECIALIZED - 1.7%
85 Harley Davidson Eagle
6.20%, due 1/15/03 ...................................... 85
----
TOTAL ASSET BACKED SECURITIES ........................................... 955
----
CORPORATE BONDS - 27.3%
BANKS - MAJOR REGIONAL - 3.3%
150 Midland Bank
7.65%, due 5/01/25 ..................................... 163
<CAPTION>
PRINCIPAL
AMOUNT (000'S) MARKET VALUE
- -----------------------------------------------------------------------------
<C> <S>
BUILDING MATERIALS - 1.5%
$ 70 Hanson Overseas
6.75%, due 9/15/05 ................................... $ 72
FINANCIAL - DIVERSIFIED - 13.2%
150 Federal Home Loan Mortgage Corp.
6.93%, due 3/21/07 ..................................... 159
110 Ford Motor Credit Co.
6.55%, due 9/10/02 ..................................... 112
100 General Motors Acceptance Corp.
8.50%, due 1/01/03 ..................................... 109
120 Hertz Corp. Notes
7.00%, due 7/01/04 ..................................... 123
75 Morgan Stanley Notes
6.375%, due 8/01/02 ..................................... 75
75 Student Loan Marketing Association
6.375%, due 2/11/00 ..................................... 75
FINANCIAL - MISCELLANEOUS - 2.4%
115 Smith Barney Holdings
6.625%, due 11/15/03 ................................... 116
INVESTMENT BANK/BROKERAGE - 5.3%
95 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 ..................................... 97
160 Bear Stearns Cos., Inc.
6.75%, due 12/15/07 .................................... 161
RETAIL - GENERAL MERCHANDISE - 1.6%
75 Sears Roebuck Acceptance Corp.
6.75%, due 9/15/05 ...................................... 76
----
TOTAL CORPORATE BONDS ................................................. 1,338
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 61 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) MARKET VALUE
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT SECURITIES - 51.6%
U. S. TREASURY NOTES - 29.0%
$ 475 7.25%, due 8/15/04 ................................... $ 513
205 6.50%, due 10/15/06 .................................... 215
460 6.375, due 9/30/01 ..................................... 470
220 5.75%, due 12/31/98 .................................... 220
U. S. TREASURY PRINCIPAL STRIPS - 22.6%
1,875 0.00%, due 2/15/07 ................................... 1,103
----
TOTAL U.S. GOVERNMENT SECURITIES ...................................... 2,521
----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) MARKET VALUE
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 1.2%
INVESTMENT COMPANIES:
$57 SSgA Prime Money Market Portfolio .................... $ 57
----
TOTAL TEMPORARY INVESTMENTS .............................................. 57
TOTAL INVESTMENTS - 99.6% ............................................. 4,871
Other Assets, less Liabilities ........................................... 22
----
NET ASSETS ........................................................... $4,893
----
----
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 62 -
<PAGE>
OVERVIEW OF THE
SAFECO MUNICIPAL BOND FUND
AND SAFECO CALIFORNIA MUNICIPAL BOND FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Nineteen ninety seven was a very good year for long-term bonds. While
the financial press obsessed about the stock market and if the bull
market would continue, long-term interest rates quietly dropped to their lowest
levels in 20 years. This produced handsome total returns for all classes of
fixed-income securities. [PHOTO OF STEPHEN C. BAUER]
The Lehman long municipal bond index had a double-digit total return, 11.31%
for the year. These excellent returns are particularly gratifying because most
economists expected rates to rise during 1997 in the heat of the Federal
Reserve's battle against inflation. The expected increase in inflation did not
materialize, and the Fed's policy of "watchful waiting" proved the right one.
(Interestingly, in light of financial problems in Asia, there are a few
prognosticators who expect the Fed to ease monetary policy and allow yields to
decline.)
The Consumer Price Index, a broad gauge of inflation, posted its lowest
annual increase of the nineties, less than 2%. This means that real returns
(returns adjusted for inflation) were almost as high as stated returns.
Already buoyed by low inflation, the bond market floated even higher
on a strong dollar and increased volatility in the stock market. The
strong dollar attracted foreign investors to our domestic bond market, bidding
prices up and pushing yields down. During the second half of the year money came
to the bond market from the increasingly volatile stock market.
Our investment strategy for 1998 will be based on the fundamental policies
which have always governed our investing--the same strategy that has produced
our long-term success. We will stay fully invested and resist the temptation to
try to time the market or predict the future. It simply can't be done.
One of our greatest advantages over our competition is our willingness and
ability to make decisions which may not look good for several years--that is to
buy and hold out-of-favor bonds. If we are correct in recognizing value, the
market will reward us for our patience.
We think that long-term performance is most important to our shareholders and
so it is most important to us.
- 63 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MUNICIPAL BOND FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The total return for the Municipal Bond Fund was 10.17% for Class A shares
and 9.56% for Class B shares, not including the effects of sales charges for the
year ended December 31, 1997 which compares favorably with 9.10% the average
return for general municipal bond funds reported by Lipper Analytical Services.
Of the 235 funds reporting one-year returns Class A was number 27.
The Fund slightly underperformed the Lehman long municipal index's return of
11.31%, but this is standard. It's nearly impossible for a bond fund to beat a
bond index because the index has no expenses, no cash and no call features. The
difference in the performance of the Fund and its peer group over the long term
is a better measure of success.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 5.22% 6.39% 8.47% 10.17% 7.38% 8.97%
Class B 4.56% 6.90% 8.88% 9.56% 7.20% 8.88%
Investment Value SAFECO SAFECO Lehman Brothers
With Sales Charge Municipal Bond Municipal Bond Long Municipal
Fund Class A Fund Class B Bond Index
12/31/87 $9,550 $10,000 $10,000
01/31/88 10,002 10,473 10,399
02/28/88 10,117 10,593 10,521
03/31/88 9,918 10,386 10,371
04/30/88 9,993 10,464 10,453
05/31/88 9,964 10,434 10,464
06/30/88 10,166 10,645 10,667
07/31/88 10,218 10,700 10,739
08/31/88 10,271 10,755 10,781
09/30/88 10,501 10,995 11,026
10/31/88 10,790 11,298 11,277
11/30/88 10,663 11,165 11,155
12/31/88 10,875 11,388 11,350
01/31/89 11,126 11,650 11,617
02/28/89 10,959 11,476 11,454
03/31/89 10,959 11,476 11,464
04/30/89 11,216 11,745 11,800
05/31/89 11,427 11,965 12,073
06/30/89 11,571 12,116 12,257
07/31/89 11,689 12,240 12,419
08/31/89 11,586 12,132 12,230
09/30/89 11,576 12,122 12,193
10/31/89 11,689 12,240 12,354
11/30/89 11,899 12,460 12,616
12/31/89 11,971 12,536 12,710
01/31/90 11,832 12,390 12,581
02/28/90 11,968 12,532 12,723
03/31/90 11,951 12,515 12,736
04/30/90 11,768 12,323 12,580
05/31/90 12,140 12,712 12,936
06/30/90 12,253 12,830 13,063
07/31/90 12,488 13,076 13,293
08/31/90 12,163 12,736 12,977
09/30/90 12,139 12,711 12,957
10/31/90 12,371 12,954 13,231
11/30/90 12,715 13,314 13,566
12/31/90 12,768 13,369 13,626
01/31/91 12,970 13,581 13,809
02/28/91 13,026 13,640 13,906
03/31/91 13,042 13,657 13,939
04/30/91 13,261 13,886 14,155
05/31/91 13,394 14,026 14,322
06/30/91 13,349 13,978 14,295
07/31/91 13,560 14,199 14,516
08/31/91 13,767 14,416 14,724
09/30/91 13,987 14,646 14,938
10/31/91 14,136 14,803 15,094
11/30/91 14,091 14,755 15,112
12/31/91 14,528 15,212 15,472
01/31/92 14,401 15,080 15,463
02/28/92 14,438 15,119 15,487
03/31/92 14,421 15,100 15,526
04/30/92 14,557 15,243 15,674
05/31/92 14,802 15,500 15,904
06/30/92 15,122 15,835 16,211
07/31/92 15,704 16,444 16,806
08/31/92 15,383 16,107 16,580
09/30/92 15,412 16,139 16,654
10/31/92 15,077 15,787 16,376
11/30/92 15,538 16,270 16,837
12/31/92 15,799 16,543 17,055
01/31/93 15,952 16,704 17,216
02/28/93 16,642 17,426 18,017
03/31/93 16,381 17,153 17,800
04/30/93 16,606 17,388 18,043
05/31/93 16,701 17,488 18,192
06/30/93 17,044 17,847 18,535
07/31/93 16,978 17,778 18,553
08/31/93 17,430 18,251 19,028
09/30/93 17,625 18,455 19,293
10/31/93 17,673 18,506 19,329
11/30/93 17,449 18,272 19,095
12/31/93 17,799 18,637 19,588
01/31/94 18,015 18,864 19,819
02/28/94 17,482 18,306 19,163
03/31/94 16,594 17,376 18,019
04/30/94 16,609 17,392 18,158
05/31/94 16,809 17,601 18,370
06/30/94 16,623 17,406 18,150
07/31/94 17,006 17,807 18,616
08/31/94 17,018 17,820 18,655
09/30/94 16,598 17,380 18,223
10/31/94 16,243 17,008 17,663
11/30/94 15,909 16,659 17,197
12/31/94 16,330 17,100 17,807
01/31/95 16,932 17,729 18,590
02/28/95 17,643 18,474 19,348
03/31/95 17,772 18,609 19,581
04/30/95 17,745 18,581 19,571
05/31/95 18,570 19,445 20,404
06/30/95 18,173 19,029 20,028
07/31/95 18,260 19,120 20,131
08/31/95 18,496 19,367 20,415
09/30/95 18,633 19,511 20,575
10/31/95 19,023 19,920 21,073
11/30/95 19,550 20,472 21,616
12/31/95 19,838 20,773 21,953
01/31/96 19,903 20,841 22,048
02/28/96 19,683 20,611 21,779
03/31/96 19,234 20,140 21,380
04/30/96 19,089 19,988 21,295
05/31/96 19,121 20,021 21,305
06/30/96 19,402 20,316 21,633
07/31/96 19,640 20,565 21,847
08/31/96 19,570 20,492 21,819
09/30/96 19,966 20,906 22,303
10/31/96 20,197 21,135 22,576
11/30/96 20,657 21,591 23,061
12/31/96 20,468 21,382 22,923
01/31/97 20,361 21,260 22,877
02/28/97 20,565 21,463 23,124
03/31/97 20,206 21,078 22,724
04/30/97 20,439 21,327 22,992
05/31/97 20,790 21,666 23,438
06/30/97 21,028 21,918 23,738
07/31/97 21,893 22,794 24,602
08/31/97 21,507 22,382 24,275
09/30/97 21,781 22,671 24,624
10/31/97 21,958 22,828 24,836
11/30/97 22,114 22,981 25,057
12/31/97 22,551 23,425 25,516
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 64 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
As nice as it is to do well for a given year, the more important results are
for the longer time periods. Fortunately, our three, five, and ten-year returns,
which have also been above average, better reflect the results of our long-term
strategy.
In the world of municipal bonds, it is hard to implement a strategy which has
an immediate impact. Value is often not recognized for two or three years.
Hence, much of the last three year's good performance stems from transactions
done in 1994 when prices fell dramatically. The chaotic markets of that year
provided opportunities to add value to the Fund, even though much of that value
was not fully realized until years later.
The valuable call protection afforded by the deep discount bonds which are a
hallmark of all the SAFECO Municipal bond funds, came into its own this year.
While bonds priced at par (current interest rates) rose from 4% at mid-year to
5% at year-end, deep discounts rose 6% to 8% in price over the same period.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
California ............................................................. 21%
Washington .............................................................. 13
Illinois ................................................................. 7
Texas .................................................................... 7
New York ................................................................. 7
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.06%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.74%
WEIGHTED AVERAGE MATURITY ......................................... 23.5 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation Corridor Agency ...................... 4.7%
Wyoming Community Develpoment Authority Housing Revenue ................ 3.8
Illinois Educational Facilties Authority ............................... 3.6
Alaska Housing Finance Corp. .......................................... 3.2
Austin Combined Utility System ......................................... 3.2
Facilities Authority ................................................... 4.2
</TABLE>
- 65 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO CALIFORNIA TAX-FREE FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The California Tax-Free Fund was again the best performing fund of the SAFECO
Tax-Exempt Bond Trust for the year ended December 31, 1997. The fund delivered
11.29% for Class A shares and 10.46% for Class B shares, not including the
effects of sales charges, while the average California municipal bond fund
returned 9.15% as measured by Lipper Analytical Services. Class A was 8 of 103
fund classes reporting one-year results, while Class B was 17 of 103 fund
classes.
Strong demand for California tax-exempt bonds as the local economy improved
helped the entire sector prosper. And, our policy of staying fully invested in
long-maturity, well call-protected bonds helped our Fund surpass its peer funds
and the index. Deep discount bonds, the type we favor, did particularly well in
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW--
CLASS A AND CLASS B SHARES
AVERAGE ANNUAL TOTAL RETURN WITH SALES WITHOUT
FOR THE PERIODS ENDED CHARGE SALES CHARGE
DECEMBER 31, 1997 1 YEAR 5 YEAR 10 YEAR 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C> <C> <C> <C>
Class A 6.28% 7.17% 8.58% 11.29% 8.16% 9.09%
Class B 5.46% 7.64% 8.97% 10.46% 7.94% 8.97%
SAFECO California SAFECO California
Tax-Free Tax-Free Lehman Brothers
Investment Value Income Fund Income Fund Long Muni
With Sales Charge Class A Class B Bond Index
12/31/87 9,550 10,000 10,000
01/31/88 10,019 10,492 10,399
02/28/88 10,167 10,646 10,521
03/31/88 9,869 10,334 10,371
04/30/88 9,924 10,392 10,453
05/31/88 9,837 10,301 10,464
06/30/88 10,089 10,565 10,667
07/31/88 10,117 10,594 10,739
08/31/88 10,163 10,641 10,781
09/30/88 10,401 10,891 11,026
10/31/88 10,710 11,214 11,277
11/30/88 10,548 11,045 11,155
12/31/88 10,771 11,279 11,350
01/31/89 11,030 11,549 11,617
02/28/89 10,871 11,383 11,454
03/31/89 10,865 11,377 11,464
04/30/89 11,117 11,641 11,800
05/31/89 11,344 11,878 12,073
06/30/89 11,465 12,005 12,257
07/31/89 11,597 12,144 12,419
08/31/89 11,456 11,996 12,230
09/30/89 11,452 11,992 12,193
10/31/89 11,563 12,108 12,354
11/30/89 11,770 12,324 12,616
12/31/89 11,839 12,397 12,710
01/31/90 11,708 12,259 12,581
02/28/90 11,851 12,409 12,723
03/31/90 11,829 12,386 12,736
04/30/90 11,649 12,198 12,580
05/31/90 12,006 12,571 12,936
06/30/90 12,121 12,692 13,063
07/31/90 12,352 12,934 13,293
08/31/90 12,044 12,611 12,977
09/30/90 12,026 12,593 12,957
10/31/90 12,330 12,911 13,231
11/30/90 12,618 13,213 13,566
12/31/90 12,664 13,261 13,626
01/31/91 12,857 13,462 13,809
02/28/91 12,896 13,504 13,906
03/31/91 12,867 13,473 13,939
04/30/91 13,067 13,682 14,155
05/31/91 13,194 13,816 14,322
06/30/91 13,130 13,749 14,295
07/31/91 13,332 13,960 14,516
08/31/91 13,515 14,152 14,724
09/30/91 13,761 14,410 14,938
10/31/91 13,910 14,565 15,094
11/30/91 13,832 14,484 15,112
12/31/91 14,254 14,925 15,472
01/31/92 14,205 14,874 15,463
02/28/92 14,208 14,878 15,487
03/31/92 14,209 14,879 15,526
04/30/92 14,313 14,988 15,674
05/31/92 14,530 15,214 15,904
06/30/92 14,815 15,513 16,211
07/31/92 15,316 16,037 16,806
08/31/92 15,022 15,730 16,580
09/30/92 15,130 15,843 16,654
10/31/92 14,710 15,403 16,376
11/30/92 15,193 15,908 16,837
12/31/92 15,393 16,119 17,055
01/31/93 15,554 16,287 17,216
02/28/93 16,259 17,025 18,017
03/31/93 16,040 16,795 17,800
04/30/93 16,275 17,042 18,043
05/31/93 16,342 17,112 18,192
06/30/93 16,647 17,431 18,535
07/31/93 16,626 17,409 18,553
08/31/93 17,093 17,898 19,028
09/30/93 17,300 18,115 19,293
10/31/93 17,301 18,116 19,329
11/30/93 17,032 17,834 19,095
12/31/93 17,430 18,251 19,588
01/31/94 17,690 18,523 19,819
02/28/94 17,225 18,036 19,163
03/31/94 16,356 17,126 18,019
04/30/94 16,297 17,065 18,158
05/31/94 16,449 17,224 18,370
06/30/94 16,291 17,059 18,150
07/31/94 16,669 17,454 18,616
08/31/94 16,664 17,449 18,655
09/30/94 16,241 17,006 18,223
10/31/94 15,848 16,595 17,663
11/30/94 15,555 16,288 17,197
12/31/94 15,827 16,572 17,807
01/31/95 16,553 17,333 18,590
02/28/95 17,362 18,180 19,348
03/31/95 17,503 18,327 19,581
04/30/95 17,425 18,246 19,571
05/31/95 18,408 19,275 20,404
06/30/95 17,845 18,685 20,028
07/31/95 17,925 18,769 20,131
08/31/95 18,207 19,064 20,415
09/30/95 18,347 19,212 20,575
10/31/95 18,835 19,723 21,073
11/30/95 19,527 20,447 21,616
12/31/95 19,964 20,904 21,953
01/31/96 19,892 20,829 22,048
02/28/96 19,639 20,564 21,779
03/31/96 19,055 19,953 21,380
04/30/96 18,885 19,775 21,295
05/31/96 18,903 19,794 21,305
06/30/96 19,274 20,182 21,633
07/31/96 19,494 20,413 21,847
08/31/96 19,446 20,362 21,819
09/30/96 19,912 20,850 22,303
10/31/96 20,157 21,094 22,576
11/30/96 20,700 21,632 23,061
12/31/96 20,475 21,383 22,923
01/31/97 20,255 21,140 22,877
02/28/97 20,488 21,372 23,124
03/31/97 20,030 20,881 22,724
04/30/97 20,333 21,184 22,992
05/31/97 20,720 21,575 23,438
06/30/97 21,028 21,876 23,738
07/31/97 22,123 22,984 24,602
08/31/97 21,632 22,478 24,275
09/30/97 21,927 22,771 24,624
10/31/97 22,112 22,948 24,836
11/30/97 22,326 23,157 25,057
12/31/97 22,786 23,619 25,516
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 66 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
<S> <C>
AAA: 49%
AA: 9%
A: 22%
BBB: 15%
Not Rated: 4%
Cash & Other: 1%
</TABLE>
California as they were in great demand by other large bond funds seeking to use
them to restructure their portfolios more aggressively.
/s/ Stephen C. Bauer
Stephen C. Bauer
- -------------------------------
Steve C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a fund
manager with the inception of the SAFECO Municipal Bond Fund in 1981, and is
President of SAFECO Asset Management Company. Bauer holds a B.S. in microbiology
and an M.B.A. from the University of Washington.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Local General Obligation--Limited Tax ............................... 16%
Lease Rental ......................................................... 13
Electric Utilities--Commbination ..................................... 10
Toll Road ............................................................ 10
Hospital ............................................................. 10
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 4.10%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.53%
WEIGHTED AVERAGE MATURITY ......................................... 24.5 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation Corridor Agency ................... 5.3%
Los Angeles County Sanitation District Financing Authority .......... 5.0
Pittsburg Redevelopment Agency ...................................... 4.6
San Gabriel Valley School Finance Aurhority Revenue Unified School
District .......................................................... 4.5
Foothill/Eastern Transportation Corridor Agency ..................... 4.4
</TABLE>
- 67 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BONDS* - 98.1%
ALABAMA - 1.8%
$ 2,000 Alabama Special Care Facility Financial Authority
5.00%, due 11/01/25 ................................ $ 1,902
1,310 Board of Trustees Alabama Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA] ........................... 1,348
1,000 Citronelle Industrial Development Board Pollution Control
Revenue
8.00%, due 12/01/12 .................................. 1,094
4,250 Jefferson County Alabama Sewer Revenue
8.00%, due 12/01/12 .................................. 4,479
ALASKA - 4.3%
Alaska Housing Finance Corp. Veterans Mortgage Program
595 6.50%, due 6/01/31 ..................................... 613
17,000 5.00%, due 12/01/18 ................................. 16,215
5,000 City of Valdez, Alaska Marine Terminal Revenue Refunding
Bonds (BP Pipelines (Alaska) Inc. Project) Series 1993B
5.50%, due 10/01/28 .................................. 5,028
ARIZONA - 1.8%
9,800 Phoenix Civic Improvement Corp. Wastewater System Lease
Revenue
4.75%, due 7/01/23 [MBIA] ............................ 9,168
CALIFORNIA - 20.5%
1,500 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 ................................... 1,409
2,500 Los Angeles County Certificates of Participation (Disney
Parking Project)
5.50%, due 9/01/21 ................................... 2,507
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$13,000 Los Angeles Department of Water and Power Electric Plant
Revenue
5.25%, due 11/15/26 ................................ $12,885
5,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/19 [FGIC] ........................... 4,719
2,200 Metropolitan Water District of Southern California
Waterworks Revenue
5.75%, due 3/01/14 ................................... 2,241
5,250 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09 ................................... 5,250
Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation
11,995 5.80%, due 8/01/34 [FSA] ............................ 13,094
6,400 4.625%, due 8/01/21 [AMBAC] .......................... 5,944
1,000 Redding Joint Powers Financing Solid Waste and Corporation
Yard Revenue
5.00%, due 1/01/23 ..................................... 947
8,750 Sacramento County Sanitation District Finance Authority
4.75%, due 12/01/23 .................................. 8,169
3,600 San Francisco Airport Commission Sewer Revenue
6.00%, due 5/01/25 [FGIC] ............................ 3,876
1,700 San Francisco Redevelopment Financing Authority Tax
Allocation Revenue
4.75%, due 8/01/18 [FGIC] ............................ 1,620
8,010 San Joaquin County Public Facilities Financing Corp.
Certificates of Participation Capital Facilities Project
4.75%, due 11/15/19
[MBIA] ............................................... 7,602
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 68 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$25,000 San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33 ................................. $23,698
Southern California Public Power Authority Power Project
Revenue (Multiple Projects)
4,085 #5.50%, due 7/01/20 (Prerefunded 7/01/00 @ 100) ...... 4,239
3,165 5.50%, due 7/01/20 ................................... 3,176
2,200 Southern California Public Power Authority Power Project
Revenue (Palo Verde Project)
5.00%, due 7/01/17 ................................... 2,141
COLORADO - 0.3%
1,000 Colorado Housing Finance Authority Multi-Family Mortgage
Revenue
8.30%, due 10/01/23 .................................. 1,107
235 Colorado Housing Finance Authority Single Family Residential
Housing Revenue
8.75%, due 9/01/17 ..................................... 241
FLORIDA - 1.7%
3,000 Florida Board of Education General Obligation
5.00%, due 6/01/24 ................................... 2,918
2,750 Mid-Bay Bridge Authority Revenue
6.10%, due 10/01/22 .................................. 2,876
3,000 Orlando Utility Commission Water and Electric Revenue
5.00%, due 10/01/23 .................................. 2,886
GEORGIA - 3.2%
6,750 Atlanta Water and Sewerage Revenue
4.50%, due 1/01/18 ................................... 6,206
4,000 Cobb County Kennestone Hospital Authority Revenue
5.00%, due 4/01/24 [MBIA] ............................ 3,864
5,000 Municipal Electric Authority Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 ................................... 5,839
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ILLINOIS - 7.0%
$ 5,500 Illinois Dedicated Tax Revenue (Civic Center)
7.00%, due 12/15/10 [AMBAC] ........................ $ 5,997
17,500 Illinois Educational Facilities Authority Adjustable Demand
Revenue (University of Chicago)
5.70%, due 12/01/25 ................................. 18,027
5,000 Metropolitan Pier and Exposition Authority McCormick Place
Convention Complex Hospitality Facilities Revenue
7.00%, due 7/01/26 ................................... 6,132
4,770 University of Illinois Auxiliary Facilities System Revenue
5.75%, due 4/01/22 ................................... 4,955
INDIANA - 5.3%
200 Beech Grove Economic Development Revenue (Westvaco Corp.)
8.75%, due 7/01/10 ..................................... 204
11,000 #East Chicago Elementary School Building Corp. First
Mortgage
7.00%, due 1/15/16 (Prerefunded 1/15/03 @ 102) ...... 12,529
7,715 Hammond Multi-School Building Corp. First Mortgage Revenue
6.20%, due 7/10/15 ................................... 8,239
6,450 Indianapolis Gas Utility System Revenue
4.00%, due 6/01/11 [FGIC] ............................ 5,938
MARYLAND - 2.0%
5,125 Baltimore Project and Revenue (Water Projects)
5.00%, due 7/01/24 [FGIC] ............................ 5,166
5,000 Maryland Health and Higher Educational Facilities Authority
Revenue (University of Maryland Medical System)
4.75%, due 7/01/23 [FGIC] ............................ 4,731
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 69 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MASSACHUSETTS - 2.5%
$5,140 Massachusetts Housing Finance Agency (Rental Housing and
Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC] .......................... $5,456
Massachusetts Water Resources Authority General Revenue
4,500 6.00%, due 4/01/20 ................................... 4,691
2,500 4.75%, due 12/01/23 .................................. 2,297
MICHIGAN - 1.4%
5,250 Detroit Water Supply System Revenue
4.75%, due 7/01/19 [FGIC] ............................ 4,985
2,000 University of Michigan Hospital Revenue
6.375%, due 12/01/24 ................................. 2,086
MISSOURI - 1.0%
5,000 The Curators of the University of Missouri System Facilities
Revenue Bonds Series 1997
5.80%, due 11/01/27 .................................. 5,275
NEW JERSEY - 0.3%
1,465 #New Jersey Turnpike Authority Revenue
10.375%, due 1/01/03 (Escrowed to Maturity) .......... 1,704
NEW MEXICO - 0.5%
2,500 Farmington Collateralized Pollution Control Revenue (Tucson
Gas and Electric Co.)
6.10%, due 1/01/08 ................................... 2,501
NEW YORK - 6.8%
New York City Municipal Water Finance Authority Water and
Sewer System Revenue
2,205 6.00%, due 6/15/19 [FGIC] ............................ 2,272
2,100 5.00%, due 6/15/17 [FGIC] ............................ 2,077
New York Dormitory Authority State University Educational
Facilities Revenue
4,400 7.50%, due 5/15/11 ................................... 5,414
5,250 7.50%, due 5/15/13 ................................... 6,639
5,500 5.25%, due 5/15/15 ................................... 5,645
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
NEW YORK (CONTINUED)
$ 1,500 5.00%, due 7/01/15 ................................. $ 1,476
4,000 #New York Local Government Assistance Corp.
7.00%, due 4/01/21 (Prerefunded 4/01/01 @ 100) ....... 4,357
6,500 New York State Urban Development Corporation Correctional
Facilities Revenue Bonds Series 6
5.375%, due 1/01/25 .................................. 6,440
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal Power Agency Power System
Revenue
6.00%, due 1/01/22 .................................. 11,805
OKLAHOMA - 1.3%
5,590 McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA] ............................ 6,374
PENNSYLVANIA - 3.9%
5,000 Centre County University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20
[MBIA] ............................................... 4,733
6,000 #Pennsylvania Intergovernmental Cooperative Authority
Special Tax Revenue (City of Philadelphia)
6.80%, due 6/15/22 (Prerefunded 6/15/02 @ 100) ....... 6,632
7,415 #Philadelphia Water and Sewer Revenue
7.00%, due 8/01/18 (Prerefunded 8/01/01 @100) ........ 8,124
SOUTH CAROLINA - 5.5%
10,250 Charleston County Hospital Facility Revenue
5.00%, due 10/01/22
[MBIA] ............................................... 9,883
1,040 Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03 ................................... 1,041
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 70 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SOUTH CAROLINA (CONTINUED)
$ 5,500 Pickens County and Richland County Hospital Revenue
5.75%, due 8/01/21 [AMBAC] ......................... $ 5,648
South Carolina Public Service Authority Power Supply Revenue
1,395 5.70%, due 7/01/08 ................................... 1,397
10,000 5.125%, due 1/01/32 .................................. 9,726
TEXAS - 6.9%
10,000 Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA] ......................... 16,152
Austin Water, Sewer and Electric Revenue
4,195 14.00%, due 11/15/01 ................................. 5,070
80 14.00%, due 11/15/01 .................................... 97
75 14.00%, due 11/15/01 .................................... 81
2,000 City of Houston, Texas Water and Sewer System Junior Lien
Revenue Bonds, Series 1997C
5.375%, due 12/01/27
[FGIC] ............................................... 2,029
1,600 #Coastal Industrial Water Authority Water Revenue
5.50%, due 12/15/09 (Escrowed to Maturity) ........... 1,655
2,260 Texas Municipal Power Agency Revenue
5.50%, due 9/01/13 [FGIC] ............................ 2,261
7,500 Waco Texas Health Facilities Development Corp. Hospital
Revenue
5.00%, due 11/01/25 .................................. 7,248
UTAH - 0.9%
Intermountain Power Agency Special Obligation First
Crossover Series
1,900 6.00%, due 7/01/23 ................................... 1,922
2,750 5.00%, due 7/01/16 ................................... 2,653
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
VIRGINIA - 0.2%
$1,110 #Richmond Metropolitan Expressway Authority Revenue
5.60%, due 1/15/13 .................................. $1,163
WASHINGTON - 12.7%
7,000 CDP King County III Lease Revenue Bonds, 1997 (King Street
Center Project)
5.25%, due 6/01/26 [MBIA] ............................ 6,969
Douglas County Public Utility District #1 Wells
Hydroelectric Revenue
5,055 8.75%, due 9/01/18 ................................... 6,658
2,200 8.75%, due 9/01/18 ................................... 2,968
2,500 Everett School District #2 Snohomish County Unlimited Tax
General Obligation
6.20%, due 12/01/12 [MBIA] ........................... 2,743
2,200 King County Housing Authority Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ................................... 2,342
1,650 King County Limited Tax General Obligation (Various Purpose)
4.75%, due 1/01/19 ................................... 1,552
2,255 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ........................... 2,281
4,800 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 .................................. 4,983
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 .................................. 4,126
2,944 Seattle Housing Authority Washington Low Income Housing
Revenue Mt Zion Project
6.60%, due 8/20/38 ................................... 3,222
3,000 Washington Health Care Facilities Authority Revenue (Fred
Hutchinson Cancer Research Center)
7.375%, due 1/01/18 .................................. 3,294
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 71 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$6,350 Washington Health Care Facilities Authority Revenue (Yakima
Valley Memorial Hospital Association)
7.25%, due 1/01/21 .................................. $7,012
8,500 Washington Public Power Supply System Nuclear Project #1
Revenue
6.00%, due 7/01/17 ................................... 8,882
4,000 Washington Public Power Supply System Nuclear Project #2
Revenue
6.30%, due 7/01/12 ................................... 4,556
2,610 Washington Public Power Supply System Nuclear Project #3
Revenue
5.50%, due 7/01/18 [AMBAC] ........................... 2,615
WISCONSIN - 0.2%
1,000 Wisconsin Health and Education Facilities Authority Revenue
6.00%, due 10/01/12
[MBIA] ............................................... 1,020
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WYOMING - 3.7%
$18,375 Wyoming Community Development Authority Housing Revenue
5.60%, due 6/01/29
[MBIA] ............................................ $ 18,870
------
TOTAL BONDS ......................................................... 494,321
------
TEMPORARY INVESTMENTS - 0.7%
$3,330 FEDERATED TAX-EXEMPT MONEY MARKET FUND, INC. ................... 3,330
------
TOTAL TEMPORARY INVESTMENTS ........................................... 3,330
------
TOTAL INVESTMENTS - 98.8% ........................................... 497,651
Other Assets, less Liabilities ........................................ 6,187
------
NET ASSETS ......................................................... $503,838
------
------
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
Municipal Bond Investors Assurance
Corp. [MBIA]....................... 17.6%
Financial Guaranty Insurance Corp.
[FGIC]............................. 7.9
AMBAC Indemnity Corp. [AMBAC]...... 5.5
Financial Security Assurance, Inc.
[FSA].............................. 2.6
----
33.6%
----
----
</TABLE>
# Prerefunded bond are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
- 72 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BONDS* - 97.4%
$2,250 California Health Facilities Financing Authority Insured
Health Facility Refunding Revenue Bonds (Catholic Health
Care West)
4.75%, due 7/01/19 [MBIA] ........................... $2,134
3,715 California Statewide Communities Development Authority
Certificates of Participation (Childrens Hospital of Los
Angeles)
4.75%, due 6/01/21 [MBIA] ............................ 3,504
2,750 California Statewide Communities Development Authority
Certificates of Participation (The Trustees of The J. Paul
Getty Trust)
5.00%, due 10/01/23 .................................. 2,676
20 Concord Redevelopment Agency Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18 [BIG] ................................ 21
3,750 Culver City Redevelopment Financing Authority Tax Allocation
Revenue
4.60%, due 11/01/20 [AMBAC] .......................... 3,475
4,195 Foothill/Eastern Transportation Corridor Agency Toll Road
Revenue
5.00%, due 1/01/35 ................................... 3,940
670 Inglewood Insured Hospital Revenue (Daniel Freeman Hospital)
6.75%, due 5/01/13 ..................................... 721
Los Angeles Convention and Exhibition Center Authority
Certificates of Participation
1,200 #9.00%, due 12/01/20
(Prerefunded 12/01/05 @ 100) ......................... 1,580
3,300 5.125%, due 8/15/21 [MBIA] ........................... 3,249
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$4,500 Los Angeles County Sanitation District Financing Authority
Revenue (Capital Projects)
5.25%, due 10/01/19 ................................. $4,488
3,800 Los Angeles Department of Water and Power Waterworks Revenue
4.75%, due 11/15/19 [FGIC] ........................... 3,611
2,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/17 [FGIC] ........................... 1,898
3,585 Metropolitan Transportation Authority Transit Facilities
Service Contract Revenue
5.00%, due 07/01/37 .................................. 3,471
2,500 Northern California Power Agency Geothermal Project Review
5.00%, due 07/01/09 .................................. 2,500
2,350 Palomar Pomerado Health System California Insured Revenue
Service
4.75%, due 11/01/23 [MBIA] ........................... 2,200
4,435 Pittsburg Redevelopment Agency Los Medanos Community
Development Project Tax Allocation
4.625%, due 8/01/21 [AMBAC] .......................... 4,119
Pleasanton Joint Powers Financing Authority Reassessment
Revenue
1,640 6.20%, due 9/02/17 ................................... 1,721
1,855 6.15%, due 9/02/12 ................................... 1,984
3,900 Redding Joint Powers Financing Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23 ................................... 3,692
2,000 Riverside County Certificates of Participation (Capital
Projects)
6.125%, due 11/01/21 ................................. 2,179
3,000 Sacramento Municipal Utility District Electric Revenue
4.75%, due 9/01/21 [MBIA] ............................ 2,837
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 73 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$2,500 San Bernardino County Certificates of Participation
5.50%, due 8/01/24 .................................. $2,512
1,750 San Diego Public Facilities Financing Authority Sewer
Revenue
5.25%, due 5/15/20 ................................... 1,732
4,000 San Gabriel Valley School Finance Authority Revenue Pamona
Unified School District
5.50%, due 2/01/24 ................................... 4,032
5,000 San Joaquin Hills Transportation Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33 ................................... 4,741
4,000 San Jose Redevelopment Agency
4.75%, due 8/01/22 ................................... 3,684
Southern California Public Power Authority Power Project
Revenue (Multiple Projects)
2,665 #5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) .......................... 2,766
1,335 5.50%, due 7/01/20 ................................... 1,340
1,000 Southern California Public Power Authority Power Project
Revenue (Transportation Project)
4.75%, due 7/01/23 [MBIA] .............................. 944
940 Stanislaus Waste-to-Energy Financing Agency Solid Waste
Facility Revenue
7.625%, due 1/01/10 .................................. 1,007
State of California General Obligation Bonds
2,500 5.625%, due 09/01/24 ................................. 2,594
1,075 5.625%, due 10/01/23 [FGIC] .......................... 1,121
2,595 The City of Palm Desert California Financing Authority Tax
Allocation Refunding Revenue Bonds (Project Area Number 1)
5.625%, due 04/01/23 [MBIA] .......................... 2,710
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$1,940 University of California
5.00%, due 9/01/23
[AMBAC] ............................................. $1,883
-----
TOTAL BONDS .......................................................... 87,066
-----
TEMPORARY INVESTMENTS - 1.1%
INVESTMENT COMPANIES:
$963 SEI Tax Exempt Trust Institutional Tax Free Portfolio ...963
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 963
-----
TOTAL INVESTMENTS - 98.5% ............................................ 88,029
Other Assets, less Liabilities ........................................ 1,311
-----
NET ASSETS .......................................................... $89,340
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description.The
guarantors applicable to this portfolio and the percentage of the portfolio
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
Municipal Bond Investors Assurance
Corp. [MBIA]........................ 19.7%
AMBAC Indemnity Corp. [AMBAC]....... 10.9
Financial Guaranty Insured Corp.
[FGIC].............................. 7.4
----
38.0%
----
----
</TABLE>
# Prerefunded bond are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
- 74 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended 1997, the SAFECO Washington State Municipal Bond
Fund returned 8.64% for Class A shares and 7.75% for Class B shares, not
including the effects of sales charges, which was slightly below the 8.68%
average for single state municipal debt funds according to Lipper Analytical
Services. The Lehman long municipal index returned 11.31%.
[PHOTO OF BEVERLY R. DENNY]
My investment strategy is to buy and hold low-coupon, long-term bonds
with maturities of 20 years or more. Finding Washington bonds with this
structure can be difficult, since many Washington state issuers structure their
bonds with shorter maturities and with coupons at current interest rates.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE
OVERVIEW--CLASS A
AND CLASS B SHARES
AVERAGE ANNUAL TOTAL
RETURN FOR
THE PERIODS ENDED
DECEMBER 31, 1997 WITH SALES CHARGE WITHOUT SALES CHARGE
SINCE SINCE
1 YEAR 5 YEAR INCEPTION* 1 YEAR 5 YEAR INCEPTION*
<S> <C> <C> <C> <C> <C> <C>
Class A 3.75% 5.02% 8.64% 6.05%
Class B 2.75% 5.52% 7.75% 5.86%
SAFECO SAFECO
Washington State Washington State Lehman Brothers
Investment Value Muni Bond Fund Muni Bond Fund Long Muni
With Sales Charge Class A Class B Bond Index
03/31/93 9,550 10,000 10,000
04/30/93 9,612 10,065 10,137
05/31/93 9,652 10,107 10,221
06/30/93 9,885 10,351 10,413
07/31/93 9,854 10,319 10,423
08/31/93 10,123 10,600 10,690
09/30/93 10,240 10,723 10,839
10/31/93 10,259 10,742 10,859
11/30/93 10,098 10,573 10,728
12/31/93 10,303 10,788 11,005
01/31/94 10,463 10,956 11,135
02/28/94 10,104 10,581 10,766
03/31/94 9,539 9,988 10,123
04/30/94 9,584 10,035 10,201
05/31/94 9,719 10,177 10,321
06/30/94 9,553 10,003 10,197
07/31/94 9,794 10,255 10,459
08/31/94 9,759 10,219 10,481
09/30/94 9,522 9,971 10,238
10/31/94 9,268 9,705 9,923
11/30/94 9,051 9,478 9,661
12/31/94 9,412 9,855 10,004
01/31/95 9,796 10,258 10,444
02/28/95 10,166 10,645 10,870
03/31/95 10,219 10,701 11,000
04/30/95 10,189 10,669 10,995
05/31/95 10,601 11,100 11,463
06/30/95 10,408 10,899 11,252
07/31/95 10,472 10,965 11,310
08/31/95 10,607 11,107 11,469
09/30/95 10,682 11,185 11,559
10/31/95 10,914 11,428 11,839
11/30/95 11,166 11,692 12,144
12/31/95 11,284 11,816 12,333
01/31/96 11,330 11,864 12,386
02/28/96 11,225 11,754 12,235
03/31/96 11,009 11,528 12,011
04/30/96 10,949 11,465 11,963
05/31/96 10,971 11,488 11,969
06/30/96 11,098 11,621 12,154
07/31/96 11,210 11,739 12,274
08/31/96 11,178 11,705 12,258
09/30/96 11,397 11,934 12,530
10/31/96 11,494 12,028 12,683
11/30/96 11,700 12,247 12,956
12/31/96 11,619 12,166 12,878
01/31/97 11,551 12,087 12,852
02/28/97 11,661 12,183 12,991
03/31/97 11,459 11,976 12,766
04/30/97 11,603 12,118 12,917
05/31/97 11,791 12,293 13,168
06/30/97 11,915 12,414 13,336
07/31/97 12,320 12,827 13,822
08/31/97 12,157 12,661 13,638
09/30/97 12,305 12,795 13,834
10/31/97 12,372 12,867 13,953
11/30/97 12,448 12,938 14,077
12/31/97 12,622 12,909 14,335
*The Fund's inception was
March 18, 1993.
Graph and average annual
return comparison
begins March 31, 1993.
</TABLE>
The performance graph compares a hypothetical $10,000 investment in Class A
and Class B of each Fund to a hypothetical investment in a relevant market
index. Fund performance is derived from the Fund's original class of shares
and reflects the maximum 4.5% sales charge for Class A shares, and the maximum
contingent deferred sales charge (5% in the first year, decreasing to 0% after
six years) for Class B shares. Fund performance has not been restated to
reflect Rule 12b-1 fees prior to September 30, 1996 (initial public offering
date of Class A and Class B shares). Such fees will affect subsequent
performance.
The index is unmanaged and includes no operating expenses or transaction
costs. Past performance is not predictive of future results. Principal value
may fluctuate so that shares, when redeemed, may be worth more or less than
their original cost.
- 75 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE WASHINGTON MUNICIPAL BOND FUND MANAGER
To stay fully invested, I sometimes buy bonds with different
structures if I believe them to be a good value. An example would be
the Seattle Housing Authority Low Income Housing Bonds 6.6% coupon,
maturing in 2038. The high coupon (6.6%) is not a typical purchase,
but the long maturity made it more acceptable.
Falling interest rates during the last half of the year caused many of the
fund's higher coupon holdings to be priced to their call dates instead of
maturity date, effectively shortening the maturity of the portfolio. To help
offset this, I bought the longest maturity (2022) issued by Washington Higher
Education for Gonzaga University. I believe these bonds represent
value in the market given the rarity of the discount coupon, at
4.75%, and the long maturity.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P CREDIT RATING
DISTRIBUTION
AS A PERCENT OF NET
ASSETS
<S> <C>
AAA 58%
AA 14%
A 20%
Not Rated 9%
Cash & Other -1%
</TABLE>
I will continue to seek to buy bonds at a "good price." By this I
mean a price that is lower than where it normally trades relative to
how other municipal bonds are trading.
/s/ Beverly R. Denny
Beverly R. Denny
- -------------------------------
Beverly R. Denny came to SAFECO from T. Rowe Price in 1991. She holds an MBA
from the University of Virginia and a B.S. in finance/ economics from Babson
College. She is a Chartered Financial Analyst.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE TYPE OF BONDS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Hospital ............................................................... 14%
Local General Obligation - Limited Tax .................................. 13
Housing - Uninsured ..................................................... 11
Utilities - Water ........................................................ 9
Local General Obligation - Unlimited Tax ................................. 8
</TABLE>
CURRENT YIELD (30-DAY) CLASS A ......................................... 3.91%
CURRENT YIELD (30-DAY) CLASS B ......................................... 3.28%
WEIGHTED AVERAGE MATURITY ......................................... 22.0 YEARS
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
City of Renton Limited Tax General
Obligation Series B ................................................. 4.7%
Snohomish County Public Utility
District #1 .......................................................... 4.5
Grant County Public Utility District #2 ................................ 4.3
Snohomish County Unlimited Tax
Obligation Everett School District #2 ................................ 4.2
Washington State Higher Education
Facilities Authority ................................................. 4.2
</TABLE>
- 76 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
<C> <S>
- -----------------------------------------------------------------------------
BONDS* - 101.6%
$350 City of Renton, Washington Limited Tax General Obligation
Bonds, 1997B
5.75%, due 12/01/17 [MBIA] ............................ $371
100 City of Tacoma, Washington Sold Waste Utilities Revenue
Refunding Bonds, 1997B
5.50%, due 12/01/19 [AMBAC] ............................ 103
315 Grant County Public Utility District #2 Wanapum
Hydroelectric Revenue
6.375%, due 1/01/23 .................................... 336
100 Kent Limited Tax General Obligation
5.75%, due 12/01/26 [MBIA] ............................. 106
300 King County Housing Authority Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ..................................... 319
250 King County Limited Tax General Obligation (Various
Purposes) 4.75%, due 1/01/19 ........................... 235
200 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center) 5.50%, due 9/01/17
[AMBAC] ................................................ 202
200 King County Public Hospital District #1 Hospital Facilities
Revenue (Valley Medical Center) 5.25%, due 9/01/15
[AMBAC] ................................................ 201
100 King County School District #415 (Kent) Unlimited Tax
General Obligation
6.45%, due 12/01/12 .................................... 111
200 Kitsap County School District #401 (Central Kitsap)
Unlimited Tax General Obligation
5.50%, due 12/01/11 .................................... 209
100 Kitsap County, Sewer Revenue 5.75%, due 7/01/16
[MBIA] ................................................. 106
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$250 Klickitat County Public Utility District #1 Electric Revenue
5.75%, due 10/01/27 [FGIC] ............................ $262
100 Lewis County Public Utility District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 .................................... 104
100 Port of Seattle Revenue
6.00%, due 12/01/14 .................................... 103
300 Renton Water and Sewer Improvement Revenue
5.375%, due 4/01/13 [MBIA] ............................. 305
175 Seattle Drainage and Wastewater Utility Improvement Revenue
5.25%, due 12/01/25 [MBIA] ............................. 175
250 Seattle Housing Authority Low Income Housing Revenue (Mt
Zion Project)
6.60%, due 8/20/38 ..................................... 274
200 Seattle Metro Municipality Limited General Obligation 5.65%,
due 1/01/20 ............................................ 206
200 Seattle Metro Sewer Revenue 6.30%, due 1/01/33 [MBIA] ...218
200 Seattle Water System Revenue 5.25%, due 12/01/23 ....... 199
350 Snohomish County Public Utility District #1 Generation
System Revenue
5.50%, due 1/01/20 [FGIC] .............................. 355
300 Snohomish County Unlimited Tax General Obligation Everett
School District #2
6.20%, due 12/01/12 [MBIA] ............................. 329
250 Spokane Regional Solid Waste Management System Revenue
6.25%, due 12/01/11 [AMBAC] ............................ 272
200 State of Washington Various Purpose General Obligation
Bonds, Series 1997C
5.25%, due 1/01/19 ..................................... 201
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 77 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$250 Tacoma Water System Revenue 5.50%, due 12/01/13 ....... $258
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14 ..................................... 213
100 Washington Certificates of Participation (State Office
Building Project)
6.00%, due 4/01/12 ..................................... 105
200 Washington Health Care Facilities Authority Revenue
(Franciscan Health System/St. Joseph Hospital and Health
Care Center, Tacoma)
5.625%, due 1/01/13 [MBIA] ............................. 208
150 Washington Health Care Facilities Authority Revenue (Grays
Harbor Medical Center) 5.90%, due 7/01/23 .............. 157
200 Washington Health Care Facilities Authority Revenue
(Northwest Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] ............................ 207
100 Washington Health Care Facilities Authority Revenue (Swedish
Hospital Medical Center)
6.30%, due 11/15/22 [AMBAC] ............................ 109
350 Washington Higher Education Facilities Authority Revenue and
Refunding Revenue (Gonzaga University Project)
4.75%, due 4/01/22 ..................................... 329
250 Washington Higher Education Facilities Authority Revenue and
Refunding Revenue (Pacific Lutheran University Project)
5.70%, due 11/01/26 .................................... 261
120 Washington Public Power Supply System Nuclear Project #3
Revenue
5.50%, due 7/01/18 [AMBAC] ............................. 120
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
$250 Washington State Housing Finance Commission Revenue (Horizon
House Project)
6.125%, due 7/01/27 [MBIA] ........................... $ 262
250 Whatcom County Limited Tax General Obligation
5.75%, due 12/01/12 .................................... 261
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA] ............................... 218
----
TOTAL BONDS ........................................................... 8,010
----
TEMPORARY INVESTMENTS - 1.6%
127 Federated Tax-Exempt Money Market Fund, Inc. ........... 127
----
TOTAL TEMPORARY INVESTMENTS ............................................. 127
----
TOTAL INVESTMENTS - 103.2% ............................................ 8,137
Liabilities, less Other Assets ........................................ (250)
----
NET ASSETS ........................................................... $7,887
----
----
- -----------------------------------------------------------------------------
</TABLE>
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description.The
guarantors applicable to this portfolio and the percentage of the portfolios
they guarantee at period end are as follows:
<TABLE>
<S> <C>
Municipal Bond Investors
Assurance Corp. [MBIA]............. 26.4%
AMBAC Indemnity Corp. [AMBAC]...... 15.4
Financial Guaranty Insurance Corp.
[FGIC]............................. 7.8
Financial Security Assurance, Inc.
[FSA].............................. 2.8
----
52.4%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 78 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MONEY MARKET FUND
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In the year ending December 31, 1997, the SAFECO Money Market Fund
returned 4.97% for Class A shares and 4.94% for Class B shares, not
including the effects of sales charges, while the average money market returned
4.90%, according to Lipper Analytical Services. At year end, the Fund's seven
day yield was 4.95% for Class A shares and 4.99% for Class B shares. The money
market fund yields are very attractive compared to the Consumer Price Index that
rose 1.70% for the 12 months ended December 31, 1997.
[PHOTO OF NAOMI URATA]
Early in 1997, 90-day commercial paper rates fell from 5.30% to 5.20% in
March, when the Federal Reserve raised short-term interest rates. Since that
time, rates have traded in a ranges between 5.45% and 5.72%, ending the year at
5.57%. The yield curve (interest rates for various maturities) out to one year
remained flat throughout the period, reflecting the market's view of very little
risk of inflation and very steady rates going forward.
Recently, I invested in U.S. agency securities, commercial paper issued by
top tier corporations, bank notes, medium-term notes, certificates of
deposit, taxable municipal bonds and an asset-backed student loan
trust--a broad range of assets to seek the best return for our money market
investors. Seven securities have a rate that floats so investors can benefit
from higher yields if short-term rates rise. For example, I added a Merrill
Lynch & Co. floating rate note based on the prime rate. This security has an
attractive current rate and should continue to perform well. Banks are slower to
lower their prime rates in a falling rate environment and quicker to raise rates
in a rising rate environment.
I extended the seven-day weighted average maturity of the Fund from 36 days
at January 1, 1997 to 83 days at year end. I accomplished this by adding several
pieces of one-year paper with attractive yields, including Abbey National, a
British bank, with a 5.88% yield and Bayerische Landesbank, a German bank, with
a 5.81% yield.
It appears that the Federal Reserve will not raise interest rates in the next
few months as
- 79 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE MONEY MARKET MANAGER
previously thought because inflation has remained low. Oil prices are down due
to greater supplies from OPEC and other countries. The Asian financial turmoil
is expected to reduce demand, keeping prices low. The dollar has increased in
value against Southeast Asian currencies, lowering the cost of imports. As a
result, economists are beginning to think that the next move by the Fed may be
an ease or lowering of interest rates in 1998. The timing is uncertain. I will
continue to keep a longer average maturity to retain higher yielding assets in
the fund as long as possible.
/s/ Naomi Urata
Naomi Urata
- -------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began managing
the SAFECO Money Market Fund in August of 1994. She holds a Master in Management
from Yale University and is a Chartered Financial Analyst.
HIGHLIGHTS
- -------------------------------
7-DAY WEIGHTED AVERAGE MATURITY ...................................... 83 DAYS
TOTAL RETURN (1 YEAR) CLASS-A .......................................... 4.97%
TOTAL RETURN (1 YEAR) CLASS-B .......................................... 4.94%
- 80 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMERCIAL PAPER, BANK NOTES, CERTIFICATES OF DEPOSITS AND FLOATING RATE
NOTES - 97.2%
ASSET BACKED - 4.6%
$4,100 Ciesco L.P.
5.68%, due 1/27/98 .................................. $4,083
4,000 #Receivables Capital Corp. 4(2)
5.88%, due 1/26/98 ................................... 3,984
BANKS - DOMESTIC - 13.5%
BankBoston N.A. BN
5,000 5.90%, due 7/23/98 ................................... 5,000
3,000 5.84%, due 8/05/98 ................................... 3,000
8,000 Bankers Trust CD
5.91%, due 8/07/98 ................................... 7,998
8,000 U.S. Bank N.A. BN
5.83%, due 10/21/98 .................................. 7,996
BANKS - FOREIGN - 14.7%
8,000 Abbey National Bank
5.875%, due 12/22/98 ................................. 7,995
8,100 Bayerische Lands Bank
5.81%, due 12/17/98 .................................. 8,095
5,000 National Bank of Canada
6.15%, due 5/15/98 ................................... 5,000
5,000 Societe Generale, NY
6.35%, due 4/15/98 ................................... 5,001
CHEMICALS - 2.2%
4,000 Formosa Plastic
5.82%, due 2/27/98 ................................... 3,963
CONGLOMERATES - 2.2%
4,000 B.A.T. Capital Corp.
5.82%, due 2/26/98 ................................... 3,964
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCE - AUTO - 9.0%
$4,000 Ford Motor Credit Co.
5.95%, due 1/09/98 .................................. $3,995
4,000 General Motors Acceptance Corp.
5.52%, due 2/25/98 ................................... 3,966
Hyundai Motors
4,000 5.87%, due 1/07/98 ................................... 3,996
4,000 5.55%, due 1/06/98 ................................... 3,997
FINANCE - CONSUMER - 8.1%
Associates Corp. of N.A.
2,380 6.73%, due 1/02/98 ................................... 2,380
4,000 5.50%, due 1/08/98 ................................... 3,996
4,000 Beneficial Corp.
5.78%, due 1/21/98 ................................... 3,987
4,000 Household Financial Corp.
5.54%, due 1/13/98 ................................... 3,993
FINANCE - DIVERSIFIED & BUSINESS - 15.7%
Finova Capital
4,000 5.73%, due 2/19/98 ................................... 3,969
4,000 5.72%, due 1/16/98 ................................... 3,990
4,000 General Electric Capital Corp.
5.91%, due 1/14/98 ................................... 3,991
8,000 PHH Corp.
5.99%, due 6/11/98 ................................... 8,000
Heller Financial, Inc.
4,000 5.90%, due 2/10/98 ................................... 3,974
4,000 5.85%, due 6/01/98 ................................... 3,902
FINANCE - MISCELLANEOUS - 2.0%
3,570 PNC Student Loan Trust
5.75%, due 7/25/98 ................................... 3,570
FINANCIAL SERVICES - BROKERAGE - 9.1%
8,200 Merrill Lynch & Co., Inc.
5.90%, due 12/21/98 .................................. 8,200
Morgan Stanley Dean Witter
4,000 5.59%, due 1/22/98 ................................... 3,987
4,000 5.57%, due 1/20/98 ................................... 3,988
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 81 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MACHINERY - 2.3%
$4,100 Stanley Works
5.59%, due 1/30/98 .................................. $4,082
METALS - 4.7%
BHP Finance (USA), Inc.
4,000 5.85%, due 2/04/98 ................................... 3,978
4,415 5.59%, due 1/05/98 ................................... 4,412
MUNICIPALITIES - 9.1%
4,100 Chicago, Illinois GO Unlimited
6.20%, due 1/01/01 ................................... 4,100
4,000 City of Olathe, Kansas
6.15%, due 3/01/27 ................................... 4,000
8,000 Wake Forest University
5.92%, due 7/01/17 ................................... 8,000
------
TOTAL COMMERCIAL PAPER, BANK NOTES, CERTIFICATES OF DEPOSITS AND FLOATING
RATE NOTES .......................................................... 172,532
------
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT AND AGENCY SECURITIES - 2.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT NOTES - 2.8%
$5,000 5.71%, due 3/18/98 ................................. $ 4,998
------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES ........................... 4,998
------
TOTAL INVESTMENTS - 100.0% .......................................... 177,530
Other Assets, less Liabilities ........................................... 44
------
NET ASSETS ......................................................... $177,574
------
------
- -----------------------------------------------------------------------------
</TABLE>
Cetain securities with a maturity of more than thirteen months have variale
rates and/or demand features which qualify them as short-term securities. Rates
shown are those in effect on December 31, 1997. These rates change periodically
based on specified market rates or indices.
# Security is 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 market value of such security is $3,983,667 and
represents 2.2% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 82 -
<PAGE>
This page left blank intentionally.
- 83 -
<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 456,464 1,502,834 404,528
Affiliated Issuers 179,521 -- --
----------- ----------- -----------
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 charges.
SEE NOTES TO FINANCIAL STATEMENTS
- 84 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 49,322 $ 13,172 $ 13,853 $ 19,598 $ 9,007
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Investments, at Value
Unaffiliated Issuers 68,757 14,433 15,177 23,863 9,667
Affiliated Issuers -- -- -- -- --
----------- ----------- --------------- --------------- -----------
Total Investments at Value 68,757 14,433 15,177 23,863 9,667
Cash -- -- 336 -- --
Receivables
Investment Securities Sold -- 14 -- -- 18
Trust Shares Sold 251 13 24 99 6
Dividends and Interest 31 111 24 17 18
Forward Currency Contracts Open, Net -- -- 55 -- --
Deferred Organization Expense -- 12 12 12 17
----------- ----------- --------------- --------------- -----------
Total Assets 69,039 14,583 15,628 23,991 9,726
LIABILITIES
Payables
Investment Securities Purchased 946 -- -- 81 --
Trust Shares Redeemed 92 1 -- 339 6
Dividends 728 338 163 192 266
Investment Advisory Fees 46 10 15 18 6
Organization Expense -- 12 12 12 17
Other 34 19 58 24 14
----------- ----------- --------------- --------------- -----------
Total Liabilities 1,846 380 248 666 309
----------- ----------- --------------- --------------- -----------
NET ASSETS $ 67,193 $ 14,203 $ 15,380 $ 23,325 $ 9,417
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 64,635 $ 13,667 $ 14,754 $ 22,658 $ 9,063
Trust Shares Outstanding 3,734 1,177 1,283 1,592 810
----------- ----------- --------------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 17.31 $ 11.61 $ 11.50 $ 14.23 $ 11.19
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS A:
Net Assets $ 1,354 $ 205 $ 295 $ 271 $ 133
Trust Shares Outstanding 79 18 25 19 12
----------- ----------- --------------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 17.25 $ 11.60 $ 11.55 $ 14.21 $ 11.18
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 18.06 $ 12.15 $ 12.09 $ 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 $ 11.60 $ 11.53 $ 14.07 $ 11.18
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 85 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
HIGH-YIELD INTERMEDIATE-TERM MANAGED
(In Thousands, Except Per-Share Amounts) BOND FUND U.S TREASURY FUND BOND FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 67,388 $ 16,357 $ 4,711
------------- ----------------- ----------
------------- ----------------- ----------
Investments, at Value 69,815 16,777 4,871
Receivables
Investment Securities Sold 858 11 --
Trust Shares Sold -- -- --
Interest 1,425 260 54
Deferred Organization Expense -- -- 7
------------- ----------------- ----------
Total Assets 72,098 17,048 4,932
LIABILITIES
Payables
Investment Securities Purchased 163 451 --
Trust Shares Redeemed -- 33 --
Dividends 192 39 18
Investment Advisory Fees 42 8 2
Organization Expense -- -- 7
Other 29 22 12
------------- ----------------- ----------
Total Liabilities 426 553 39
------------- ----------------- ----------
NET ASSETS $ 71,672 $ 16,495 $ 4,893
------------- ----------------- ----------
------------- ----------------- ----------
NO-LOAD CLASS:
Net Assets $ 71,058 $ 15,698 $ 4,627
Trust Shares Outstanding 7,786 1,518 538
------------- ----------------- ----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 9.13 $ 10.34 $ 8.60
------------- ----------------- ----------
------------- ----------------- ----------
CLASS A:
Net Assets $ 259 $ 365 $ 146
Trust Shares Outstanding 28 35 17
------------- ----------------- ----------
Net Asset Value and Redemption
Price Per Share $ 9.12 $ 10.35 $ 8.60
------------- ----------------- ----------
------------- ----------------- ----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 9.55 $ 10.84 $ 9.01
------------- ----------------- ----------
------------- ----------------- ----------
CLASS B:
Net Assets $ 355 $ 432 $ 120
Trust Shares Outstanding 39 42 14
------------- ----------------- ----------
Net Asset Value and Offering Price
Per Share* $ 9.12 $ 10.35 $ 8.60
------------- ----------------- ----------
------------- ----------------- ----------
- ----------------------------------------------------------------------------------------
</TABLE>
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charges.
** Also represents offering price per share.
SEE NOTES TO FINANCIAL STATEMENTS
- 86 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 430,038 $ 77,291 $ 7,528 $ 177,530
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
Investments, at Value 497,651 88,029 8,137 177,530
Receivables
Investment Securities Sold -- -- -- --
Trust Shares Sold 116 21 -- 1,245
Interest 8,452 1,544 121 1,019
Deferred Organization Expense -- -- -- --
---------- ----------------- ----------------- ---------------
Total Assets 506,219 89,594 8,258 179,794
LIABILITIES
Payables
Investment Securities Purchased -- -- 329 --
Trust Shares Redeemed 36 10 -- 2,024
Dividends 2,085 178 24 35
Investment Advisory Fees 190 44 5 79
Organization Expense -- -- -- --
Other 70 22 13 82
---------- ----------------- ----------------- ---------------
Total Liabilities 2,381 254 371 2,220
---------- ----------------- ----------------- ---------------
NET ASSETS $ 503,838 $ 89,340 $ 7,887 $ 177,574
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
NO-LOAD CLASS:
Net Assets $ 502,946 $ 88,379 $ 7,288 $ 176,623
Trust Shares Outstanding 34,641 6,833 665 176,623
---------- ----------------- ----------------- ---------------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 14.52 $ 12.93 $ 10.95 $ 1.00
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
CLASS A:
Net Assets $ 390 $ 460 $ 360 $ 537
Trust Shares Outstanding 27 35 33 537
---------- ----------------- ----------------- ---------------
Net Asset Value and Redemption
Price Per Share $ 14.53 $ 12.94 $ 10.95 $ 1.00**
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 15.21 $ 13.55 $ 11.47
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
CLASS B:
Net Assets $ 502 $ 501 $ 239 $ 414
Trust Shares Outstanding 35 39 22 414
---------- ----------------- ----------------- ---------------
Net Asset Value and Offering Price
Per Share* $ 14.50 $ 12.93 $ 10.97 $ 1.00
---------- ----------------- ----------------- ---------------
---------- ----------------- ----------------- ---------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 87 -
<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
- 88 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST BALANCED INTERNATIONAL 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 $ 161 $ 274 $ 105 $ 128
Interest 61 312 34 59 13
---------- ---------- -------------- -------------- ----------
Total Investment Income 501 473 308 164 141
EXPENSES
Investment Advisory Fees 416 87 153 151 43
Transfer Agent Fees 145 23 34 50 5
Shareholder Service Fees - Class A 2 1 1 -- --
- Class B 1 1 1 1 --
Distribution Fees - Class B 4 1 2 2 1
Legal and Auditing Fees 16 15 15 15 10
Custodian Fees 8 8 48 7 5
Reports to Shareholders 17 1 3 5 --
Trustees' Fees 4 4 4 4 3
Other Fees 1 -- 1 -- --
Amortization of Organization Expenses -- 4 4 4 3
---------- ---------- -------------- -------------- ----------
Total Expenses Before Reimbursement 614 145 266 239 70
Expense Reimbursement -- -- (36) -- --
---------- ---------- -------------- -------------- ----------
Total Expenses After Reimbursement 614 145 230 239 70
---------- ---------- -------------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (113) 328 78 (75) 71
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain from:
Investments in Unaffiliated Issuers 6,678 637 18 909 386
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- -- 240 -- --
---------- ---------- -------------- -------------- ----------
Total Net Realized Gain 6,678 637 258 909 386
Net Change in Unrealized Appreciation 7,326 760 213 2,742 660
---------- ---------- -------------- -------------- ----------
NET GAIN ON INVESTMENTS AND FOREIGN
CURRENCY 14,004 1,397 471 3,651 1,046
---------- ---------- -------------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 13,891 $ 1,725 $ 549 $ 3,576 $ 1,117
---------- ---------- -------------- -------------- ----------
---------- ---------- -------------- -------------- ----------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 89 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
HIGH-YIELD INTERMEDIATE-TERM MANAGED
(In Thousands) BOND FUND U.S TREASURY FUND BOND FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 5,637 $ 1,034 $ 282
EXPENSES
Investment Advisory Fees 386 85 23
Transfer Agent Fees 86 31 1
Shareholder Service Fees - Class A -- 1 --
- Class B -- 1 --
Distribution Fees - Class B 1 2 1
Legal and Auditing Fees 29 15 15
Custodian Fees 9 3 3
Reports to Shareholders 14 4 --
Trustees' Fees 4 4 4
Other Fees 11 2 2
Amortization of Organization Expenses -- -- 6
------ ------ -----
Total Expenses 540 148 55
------ ------ -----
NET INVESTMENT INCOME 5,097 886 227
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on
Investments 954 (57) (21)
Net Change in Unrealized Appreciation 1,194 416 163
------ ------ -----
NET GAIN ON INVESTMENTS 2,148 359 142
------ ------ -----
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 7,245 $ 1,245 $ 369
------ ------ -----
------ ------ -----
- ----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 90 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON STATE SAFECO
MUNICIPAL TAX-FREE MUNICIPAL BOND MONEY MARKET
BOND FUND INCOME FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 28,152 $ 4,295 $ 429 $ 9,703
EXPENSES
Investment Advisory Fees 2,041 424 49 865
Transfer Agent Fees 327 60 3 414
Shareholder Service Fees - Class A 1 1 1 --
- Class B -- -- -- --
Distribution Fees - Class B 1 2 2 --
Legal and Auditing Fees 24 25 15 18
Custodian Fees 23 6 4 16
Reports to Shareholders 39 7 -- 34
Trustees' Fees 6 4 4 5
Other Fees 13 2 -- 4
Amortization of Organization Expenses -- -- 2 --
---------- ------ ----- ------
Total Expenses 2,475 531 80 1,356
---------- ------ ----- ------
NET INVESTMENT INCOME 25,677 3,764 349 8,347
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on
Investments 6,632 367 (9) --
Net Change in Unrealized Appreciation 17,239 4,618 321 --
---------- ------ ----- ------
NET GAIN ON INVESTMENTS 23,871 4,985 312 --
---------- ------ ----- ------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 49,548 $ 8,749 $ 661 $ 8,347
---------- ------ ----- ------
---------- ------ ----- ------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 91 -
<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 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
- 92 -
<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 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
- 93 -
<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
- 94 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO BALANCED FUND SAFECO INTERNATIONAL 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) $ 328 $ 66 $ 146 $ 78 $ (5) $ 45
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 637 99 5 258 87 (11)
Net Change in Unrealized
Appreciation (Depreciation) 760 243 258 213 853 314
------------ ------------ ------------- ------------ ------------ -------------
Net Change in Net Assets
Resulting from Operations 1,725 408 409 549 935 348
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (322) (64) (146) (364) (62) (51)
- Class A (4) (1) -- (5) (1) --
- Class B (3) (1) -- (4) -- --
Net Realized Gain on Investments
- No-Load Class (613) (97) (5) (19) -- --
- Class A (9) (1) -- -- -- --
- Class B (15) (1) -- (1) -- --
------------ ------------ ------------- ------------ ------------ -------------
Total (966) (165) (151) (393) (63) (51)
NET TRUST SHARE TRANSACTIONS
No-Load Class 4,661 393 7,374 3,437 1,981 8,026
Class A 86 7 100 142 43 100
Class B 210 12 100 222 4 100
------------ ------------ ------------- ------------ ------------ -------------
Total 4,957 412 7,574 3,801 2,028 8,226
------------ ------------ ------------- ------------ ------------ -------------
TOTAL CHANGE IN NET ASSETS 5,716 655 7,832 3,957 2,900 8,523
NET ASSETS AT BEGINNING OF PERIOD 8,487 7,832 -- 11,423 8,523 --
------------ ------------ ------------- ------------ ------------ -------------
NET ASSETS AT END OF PERIOD $ 14,203 $ 8,487 $ 7,832 $ 15,380 $ 11,423 $ 8,523
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 555 43 785 932 219 1,042
Reinvestments 43 5 3 20 3 2
Redemptions (167) (9) (34) (627) (30) (224)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE 431 39 754 325 192 820
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
AMOUNTS:
Sales $ 6,388 $ 459 $ 7,893 $ 10,948 $ 2,323 $ 10,466
Reinvestments 495 50 31 230 29 18
Redemptions (1,926) (97) (350) (7,377) (324) (2,258)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE $ 4,957 $ 412 $ 7,574 $ 3,801 $ 2,028 $ 8,226
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 95 -
<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 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
- 96 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO HIGH-YIELD BOND FUND SAFECO INTERMEDIATE-TERM U.S. TREASURY 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) $ 5,097 $ 1,092 $ 3,696 $ 886 $ 242 $ 758
Net Realized Gain (Loss) on
Investments 954 (426) 504 (57) (125) 290
Net Change in Unrealized
Appreciation (Depreciation) 1,194 597 46 416 144 (496)
------------ ------------ ------------- ------------ ------------ -------------
Net Change in Net Assets
Resulting from Operations 7,245 1,263 4,246 1,245 261 552
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (5,073) (1,092) (3,696) (844) (232) (758)
- Class A (11) -- -- (30) (8) --
- Class B (13) -- -- (12) (2) --
Net Realized Gain on Investments
- No-Load Class -- -- -- -- -- --
- Class A -- -- -- -- -- --
- Class B -- -- -- -- -- --
------------ ------------ ------------- ------------ ------------ -------------
Total (5,097) (1,092) (3,696) (886) (242) (758)
NET TRUST SHARE TRANSACTIONS
No-Load Class 18,821 2,247 8,152 674 189 900
Class A 155 -- -- (346) 607 100
Class B 250 -- -- 202 123 100
------------ ------------ ------------- ------------ ------------ -------------
Total 19,226 2,247 8,152 530 919 1,100
------------ ------------ ------------- ------------ ------------ -------------
TOTAL CHANGE IN NET ASSETS 21,374 2,418 8,702 889 938 894
NET ASSETS AT BEGINNING OF PERIOD 50,298 47,880 39,178 15,606 14,668 13,774
------------ ------------ ------------- ------------ ------------ -------------
NET ASSETS AT END OF PERIOD $ 71,672 $ 50,298 $ 47,880 $ 16,495 $ 15,606 $ 14,668
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 12,626 1,190 6,549 1,062 149 1,516
Reinvestments 362 78 251 43 12 35
Redemptions (10,838) (1,013) (5,863) (1,054) (70) (1,444)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE 2,150 255 937 51 91 107
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
AMOUNTS:
Sales $ 112,308 $ 10,466 $ 56,960 $ 10,738 $ 1,515 $ 18,860
Reinvestments 3,238 690 2,181 434 117 358
Redemptions (96,320) (8,909) (50,989) (10,642) (713) (18,118)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE $ 19,226 $ 2,247 $ 8,152 $ 530 $ 919 $ 1,100
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 97 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO MANAGED SAFECO MUNICIPAL
BOND FUND BOND FUND
--------------------------- ----------------------------
NINE-MONTH
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31 DEC. 31 DEC. 31 DEC. 31
(In Thousands) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 227 $ 208 $ 25,677 $ 19,903
Net Realized Gain (Loss) on
Investments (21) 2 6,632 2,341
Net Change in Unrealized
Appreciation (Depreciation) 163 (210) 17,239 7,844
------------ ------------ ------------- ------------
Net Change in Net Assets
Resulting from Operations 369 -- 49,548 30,088
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (216) (206) (25,652) (19,899)
- Class A (7) (1) (17) (3)
- Class B (4) (1) (8) (1)
Net Realized Gain on Investments
- No-Load Class -- (2) (5,345) --
- Class A -- -- (4) --
- Class B -- -- (4) --
------------ ------------ ------------- ------------
Total (227) (210) (31,030) (19,903)
NET TRUST SHARE TRANSACTIONS
No-Load Class 280 (72) 3,479 (9,855)
Class A 2 140 66 309
Class B 14 100 382 111
------------ ------------ ------------- ------------
Total 296 168 3,927 (9,435)
------------ ------------ ------------- ------------
TOTAL CHANGE IN NET ASSETS 438 (42) 22,445 750
NET ASSETS AT BEGINNING OF PERIOD 4,455 4,497 481,393 480,643
------------ ------------ ------------- ------------
NET ASSETS AT END OF PERIOD $ 4,893 $ 4,455 $ 503,838 $ 481,393
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
- ----------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 439 30 6,156 4,689
Reinvestments 18 24 1,401 908
Redemptions (422) (33) (7,286) (6,271)
------------ ------------ ------------- ------------
NET CHANGE 35 21 271 (674)
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
AMOUNTS:
Sales $ 3,703 $ 246 $ 86,878 $ 63,875
Reinvestments 152 201 19,903 12,498
Redemptions (3,559) (279) (102,854) (85,808)
------------ ------------ ------------- ------------
NET CHANGE $ 296 $ 168 $ 3,927 $ (9,435)
------------ ------------ ------------- ------------
------------ ------------ ------------- ------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 98 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO CALIFORNIA SAFECO WASHINGTON SAFECO MONEY
TAX-FREE INCOME FUND STATE MUNICIPAL BOND FUND MARKET FUND
--------------------------- ---------------------------- ----------------------------
NINE-MONTH NINE-MONTH NINE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 3,764 $ 2,766 $ 349 $ 238 $ 8,347 $ 5,795
Net Realized Gain (Loss) on
Investments 367 197 (9) 4 -- --
Net Change in Unrealized
Appreciation (Depreciation) 4,618 2,196 321 125 -- --
------------ ------------ ------------- ------------ ------------ -------------
Net Change in Net Assets
Resulting from Operations 8,749 5,159 661 367 8,347 5,795
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No-Load Class (3,744) (2,764) (326) (234) (8,324) (5,792)
- Class A (9) (1) (15) (3) (15) (2)
- Class B (11) (1) (8) (1) (8) (1)
Net Realized Gain on Investments
- No-Load Class (360) (200) -- (4) -- --
- Class A (2) -- -- -- -- --
- Class B (2) -- -- -- -- --
------------ ------------ ------------- ------------ ------------ -------------
Total (4,128) (2,966) (349) (242) (8,347) (5,795)
NET TRUST SHARE TRANSACTIONS
No-Load Class 11,712 (652) 440 (52) 15,267 (3,766)
Class A 326 120 11 334 243 295
Class B 374 100 19 209 307 106
------------ ------------ ------------- ------------ ------------ -------------
Total 12,412 (432) 470 491 15,817 (3,365)
------------ ------------ ------------- ------------ ------------ -------------
TOTAL CHANGE IN NET ASSETS 17,033 1,761 782 616 15,817 (3,365)
NET ASSETS AT BEGINNING OF PERIOD 72,307 70,546 7,105 6,489 161,757 165,122
------------ ------------ ------------- ------------ ------------ -------------
NET ASSETS AT END OF PERIOD $ 89,340 $ 72,307 $ 7,887 $ 7,105 $ 177,574 $ 161,757
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND
AMOUNTS
SHARES:
Sales 2,534 1,648 601 78 322,894 293,668
Reinvestments 231 168 7 4 7,794 5,293
Redemptions (1,773) (1,849) (563) (35) (314,871) (302,326)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE 992 (33) 45 47 15,817 (3,365)
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
AMOUNTS:
Sales $ 31,480 $ 19,516 $ 6,413 $ 813 $ 322,894 $ 293,668
Reinvestments 2,867 2,025 78 38 7,794 5,293
Redemptions (21,935) (21,973) (6,021) (360) (314,871) (302,326)
------------ ------------ ------------- ------------ ------------ -------------
NET CHANGE $ 12,412 $ (432) $ 470 $ 491 $ 15,817 $ (3,365)
------------ ------------ ------------- ------------ ------------ -------------
------------ ------------ ------------- ------------ ------------ -------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 99 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
This financial report is on the 15 SAFECO Mutual Funds that issue Class A and
Class B shares (collectively, "Advisor Classes"). Each Fund is a series of one
of the following trusts (each a "Trust") listed below. Each Trust is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company.
SAFECO Common Stock Trust
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Taxable Bond Trust
SAFECO High-Yield Bond Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
Effective September 30, 1996, certain SAFECO Mutual Funds began issuing two
new classes of shares--Class A and Class B shares. These classes of shares are
sold by financial advisors to shareholders and have associated sales and
distribution charges, unlike the no-load class of shares (which are sold
directly to the shareholder with no associated sales or distribution charges).
Each class of shares represents an interest in the net assets of the fund.
- 100 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
In connection with issuing the Advisor Classes, the Funds adopted a Plan of
Distribution (the "Plan"). Under the Plan, each Advisor Class (with the
exception of the Money Market Fund Advisor Classes) 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.
SHAREHOLDER MEETING. On April 10, 1997, the High-Yield Bond Fund held a
special meeting of shareholders who voted to amend the Fund's fundamental
investment policies to exclude certain Rule 144A securities from the definition
of securities which are illiquid or subject to legal or contractual restrictions
on resale. The results of the vote are presented below.
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------------------------
<S> <C> <C>
Shares for 3,649 74%
Shares Against 123 2%
Shares Abstain 126 2%
Broker Non-Vote 1,023 22%
- ------------------------------------------------------------------------
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their 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.
SECURITY VALUATION. Investments in equity 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. Bonds are stated on
- 101 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
the basis of valuations provided by a pricing service, which uses information
with respect to transactions in bonds, quotations from bond dealers, market
transactions in comparable securities and various relationships between
securities in determining value. When valuations are not readily available,
securities are valued at fair value as determined in good faith by the board of
trustees. Temporary investments are valued at amortized cost which approximates
market.
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.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis for the Taxable Bond Trust, Managed Bond Trust and
Tax-Exempt Bond Trust may be settled a month or more after the trade date. The
securities purchased are carried in the portfolio at market and are subject to
market fluctuation during this period. These securities begin earning interest
on the settlement date. As commitments to purchase when-issued securities become
fixed, the Funds segregate liquid assets in an amount equal to the total
obligation.
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if any) for
the Common Stock Trust is recorded on the ex-dividend date or upon receipt of
ex-dividend notification in the case of certain foreign securities. Bond
premiums and original issue discounts are amortized to either call or maturity
dates for the Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust.
Market discount on bonds purchased after April 30, 1993 is recorded as taxable
income at disposition for the Tax-Exempt Bond Trust. Interest is accrued on
bonds and temporary 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 the Equity, Income, Balanced, and U.S. Value Funds, net
investment income (if any) is distributed as of the last business day of March,
June, September and December. Net investment income for the Taxable Bond Trust,
Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust is
- 102 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
declared as a dividend to shareholders as of the close of each business day and
payment is made as of the last business day of each month. 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. In addition, the Tax-Exempt Bond Trust
intends to satisfy conditions which will enable them to pay dividends which, for
shareholders, are exempt from Federal income taxes. Any portion of dividends
representing net short-term capital gains, however, is not exempt and is treated
as taxable dividends for Federal income tax purposes. In addition, income which
is derived from amortization on bonds purchased below their issued price after
April 30, 1993, is treated as ordinary income for Federal income tax purposes.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of investment securities, and dividend and
interest income, are translated at the rates of exchange prevailing on the
respective dates of such transactions. The International Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments. Reported net realized
gains or losses from foreign currency transactions arise from gains or losses
realized between the trade and settlement dates on
- 103 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the International Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities, resulting from
changes in the exchange rate.
FOREIGN EXCHANGE CONTRACTS. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
International Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
objective of the International Fund's foreign currency hedging transactions is
to reduce the risk that the U.S. dollar value of the International Fund's
foreign currency denominated securities will decline in value due to changes in
foreign currency exchange rates. All foreign currency exchange contracts are
marked-to-market daily at the applicable translation rates resulting in
unrealized gains or losses. Realized and unrealized gains or losses on foreign
currency contracts are recorded on settlement date of the foreign currency
exchange contract and are included in the Statements of Assets and Liabilities
and the Statement of Operations. Risks may arise upon entering into these
contracts from the potential inability of counterparties to meet the terms of
their contracts and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar.
- 104 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions during the year ended
December 31, 1997.
<TABLE>
<CAPTION>
(In Thousands) PURCHASES* SALES**
- --------------------------------------------------------------------
<S> <C> <C>
Growth Fund $584,411 $266,606
Equity Fund 807,409 409,583
Income Fund 219,341 174,263
Northwest Fund 40,419 30,199
Balanced Fund 15,511 11,264
International Fund 7,093 2,899
Small Company Fund 16,781 10,199
U.S. Value Fund+ 11,116 2,726
High-Yield Bond Fund 61,112 43,803
Intermediate-Term U.S. Treasury Fund 12,739 12,518
Managed Bond Fund 8,230 7,892
Municipal Bond Fund 64,408 72,484
California Tax-Free Income Fund 19,301 7,242
Washington State Municipal Fund 1,575 858
- --------------------------------------------------------------------
</TABLE>
* Excludes short-term securities. Purchases include $6,534, $12,739, and $6,474
of U.S. Government securities for Balanced, Intermediate-Term U.S. Treasury,
and Managed Bond Funds, respectively.
** Excludes short-term securities. Sales include $6,263, $12,518, and $5,962 of
U.S. Government securities for Balanced, Intermediate-Term U.S. Treasury, and
Managed Bond Funds, respectively.
+ For the U.S. Value Fund, represents the period from April 30, 1997
(commencement of operations) to December 31, 1997.
- 105 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. COMPONENTS OF NET ASSETS
At December 31, 1997, the components of net assets were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments 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 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>
SMALL
BALANCED INTERNATIONAL 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 $ 1,466 $ 2,977 $ 5,197 $ 901
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There Is an Excess of
Identified Cost Over Value (205) (1,598) (932) (241)
----------- ------------ -------------- --------------
NET UNREALIZED APPRECIATION 1,261 1,379 4,265 660
OVERDISTRIBUTED NET INVESTMENT INCOME -- (55) -- --
----------- ------------ -------------- --------------
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 12,942 14,056 19,060 8,757
----------- ------------ -------------- --------------
NET ASSETS AT DECEMBER 31, 1997 $ 14,203 $ 15,380 $ 23,325 $ 9,417
----------- ------------ -------------- --------------
----------- ------------ -------------- --------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
- 106 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INTERMEDIATE-TERM
HIGH-YIELD U.S TREASURY MANAGED MUNICIPAL
(In Thousands) BOND FUND FUND BOND FUND BOND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 2,638 $ 442 $ 160 $ 67,633
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value (211) (22) -- (20)
----------- ------------ -------------- --------------
NET UNREALIZED APPRECIATION 2,427 420 160 67,613
ACCUMULATED NET REALIZED (LOSS) ON
INVESTMENT TRANSACTIONS (339)* (253)* (21)* --
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 69,584 16,328 4,754 436,225
----------- ------------ -------------- --------------
NET ASSETS AT DECEMBER 31, 1997 $ 71,672 $ 16,495 $ 4,893 $ 503,838
----------- ------------ -------------- --------------
----------- ------------ -------------- --------------
<CAPTION>
WASHINGTON
CALIFORNIA STATE
TAX-FREE MUNICIPAL
INCOME FUND BOND FUND
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 10,738 $ 609
-------------- --------------
NET UNREALIZED APPRECIATION 10,738 609
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 78,602 7,278
-------------- --------------
NET ASSETS AT DECEMBER 31, 1997 $ 89,340 $ 7,887
-------------- --------------
-------------- --------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The above accumulated net realized losses on investment transactions represent
capital loss carryforwards for Federal Income Tax purposes, which expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNTS DATES
--------- --------------
<S> <C> <C>
High-Yield Bond Fund $(339) 1998-2000
Intermediate-Term U.S. Treasury Fund (253) 2001-2005
Managed Bond Fund (21) 2005
</TABLE>
- 107 -
<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>
EQUITY, INCOME AND GROWTH 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: INTERMEDIATE-TERM U.S. TREASURY FUND:
First $250 million .85% First $250 million .55%
Next $250 million .75 Next $250 million .45
Over $500 million .65 Over $500 million .35
Over $750 million .25
HIGH-YIELD BOND AND WASHINGTON FUNDS: MANAGED BOND FUND:
First $250 million .65% First $100 million .50%
Next $250 million .55 Next $150 million .40
Next $250 million .45 Over $250 million .35
Over $750 million .35
MUNICIPAL AND CALIFORNIA FUNDS: MONEY MARKET FUND:
First $100 million .55% First $250 million .50%
Next $150 million .45 Next $250 million .40
Next $250 million .35 Next $250 million .30
Over $500 million .25 Over $750 million .25
</TABLE>
- 108 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
SAFECO Asset Management Company pays sub-advisory fees to Bank of Ireland
Asset Management Company (U.S.) Limited for providing investment research and
advice to the International Fund.
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates. Interest rates equivalent to
commercial bank interest rates are charged on loans over $100,000. No interest
is charged on loans under $100,000.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has a line of credit arrangements with 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,
500,000 shares (31.4%) of the Intermediate-Term U.S. Treasury Fund and 502,372
shares (70%) of the Washington Municipal Bond Fund; SAFECO Asset Management
Company owned 692,635 shares (53%) of the International Fund, 519,268 shares
(44%) of the Balanced Fund, 500,000 shares (60%) of the U.S. Value Fund, and
452,103 shares (80%) of the Managed Bond Fund; SAFECO Corporation owned 500,000
shares (31%) of the Small Company Fund and 500,000 shares (7%) of the High Yield
Bond Fund.
DEFERRED ORGANIZATION EXPENSE. Costs related to the organization of the
Balanced, International, Small Company, U.S. Value, and Managed Bond Funds have
been deferred and are being amortized to operations over a period of sixty
months. These costs were advanced by an affiliate and are being reimbursed by
the Fund 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.
- 109 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
Balanced Fund 124
International Fund 259
Small Company Fund 171
U.S. Value Fund 56
High-Yield Bond Fund 152
Intermediate-Term U.S. Treasury Fund 6
Municipal Bond Fund 332
California Tax-Free Income Fund 57
- -----------------------------------------------------
</TABLE>
- 110 -
<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 -- 3,517
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
-------------
$179,521
-------------
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- 111 -
<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.
- 112 -
<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.
- 113 -
<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.
- 114 -
<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.
- 115 -
<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.
- 116 -
<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.
- 117 -
<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.
- 118 -
<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.
- 119 -
<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.
- 120 -
<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.
- 121 -
<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.
- 122 -
<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%.
- 123 -
<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.
- 124 -
<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%.
- 125 -
<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.
- 126 -
<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%* 17.24%* 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.
- 127 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND 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 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22 $ 8.92
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.77 0.19 0.78 0.79 0.82 0.91
Net Realized and Unrealized Gain
(Loss) on Investments 0.31 0.03 0.11 0.13 (0.67) 0.30
------ ------ -------- -------- -------- --------
Total from Investment Operations 1.08 0.22 0.89 0.92 0.15 1.21
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.77) (0.19) (0.78) (0.79) (0.82) (0.91)
------ ------ -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22
------ ------ -------- -------- -------- --------
------ ------ -------- -------- -------- --------
TOTAL RETURN 12.79% 2.50%* 10.79% 11.43% 1.61% 14.29%
NET ASSETS AT END OF PERIOD (000'S) $ 71,058 $ 50,298 $ 47,880 $ 39,178 $ 27,212 $ 28,291
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.91% 0.90%** 0.94% 1.01% 1.03% 1.09%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET
ASSETS 8.58% 8.56%** 8.99% 9.28% 9.26% 9.94%
PORTFOLIO TURNOVER RATE 85.06% 35.01%** 92.65% 38.03% 63.02% 50.27%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 128 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------- --------------
ELEVEN-MONTH ELEVEN-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31
-------------------------------
1997 1997
- -------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.83 $ 8.83
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.69 0.63
Net Realized and Unrealized Gain on
Investments 0.29 0.29
------- -------
Total from Investment Operations 0.98 0.92
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.69) (0.63)
------- -------
NET ASSET VALUE AT END OF PERIOD $ 9.12 $ 9.12
------- -------
------- -------
TOTAL RETURN+ 12.49%* 11.77%*
NET ASSETS AT END OF PERIOD (000'S) $ 259 $ 355
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.10%** 1.81%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 7.65%** 6.87%**
PORTFOLIO TURNOVER RATE 85.06%** 85.06%**
- -------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 129 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY 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 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74 $ 10.69
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.58 0.16 0.54 0.55 0.52 0.60
Net Realized and Unrealized Gain
(Loss) on Investments 0.23 0.01 (0.14) 0.50 (1.00) 0.49
------- ------- -------- -------- -------- --------
Total from Investment Operations 0.81 0.17 0.40 1.05 (0.48) 1.09
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.58) (0.16) (0.54) (0.55) (0.52) (0.60)
Distributions from Realized Gains -- -- -- -- -- (0.44)
------- ------- -------- -------- -------- --------
Total Distributions (0.58) (0.16) (0.54) (0.55) (0.52) (1.04)
------- ------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74
------- ------- -------- -------- -------- --------
------- ------- -------- -------- -------- --------
TOTAL RETURN 8.29% 1.68%* 4.00% 11.07% (4.56%) 10.51%
NET ASSETS AT END OF PERIOD (000'S) $ 15,698 $ 14,679 $ 14,668 $ 13,774 $ 13,367 $ 14,706
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.92% 0.85%**+ 1.01% 0.96% 0.90% 0.99%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.74% 6.30%** 5.30% 5.51% 5.08% 5.52%
PORTFOLIO TURNOVER RATE 82.36% 125.42%** 294.25% 124.90% 75.46% 104.94%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets for the period ended December 31,
1996 would have been 1.07%.
- 130 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------- -------------------------
THREE-MONTH THREE-MONTH
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED ENDED YEAR ENDED 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 $ 10.11 $ 10.10 $ 10.12 $ 10.10
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.15 0.48 0.14
Net Realized and Unrealized Gain on
Investments 0.24 0.01 0.23 0.02
----------- ----------- ----------- -----------
Total from Investment Operations 0.79 0.16 0.71 0.16
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.55) (0.15) (0.48) (0.14)
----------- ----------- ----------- -----------
NET ASSET VALUE AT END OF PERIOD $ 10.35 $ 10.11 $ 10.35 $ 10.12
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN+ 8.03% 1.63%* 7.27%* 1.55%*
NET ASSETS AT END OF PERIOD (000'S) $ 365 $ 704 $ 432 $ 223
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.32% 1.07%**++ 1.87% 1.72%**++
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.36% 6.07%** 4.78% 5.35%**
PORTFOLIO TURNOVER RATE 82.36% 125.42%** 82.36% 125.42%**
- -----------------------------------------------------------------------------------------------
</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 1.30% and 1.95% for
Class A and Class B, respectively.
- 131 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31 FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1997 1996 1995 1994 1993+
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.35 $ 8.77 $ 8.15 $ 9.08 $ 9.57
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.42 0.41 0.44 0.27 (0.62)
Net Realized and Unrealized Gain
(Loss) on Investments 0.25 (0.42) 0.94 (0.93) 0.15
------ ------ ------- ------- -------
Total from Investment Operations 0.67 (0.01) 1.38 (0.66) (0.47)
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.42) (0.41) (0.44) (0.27) --
Distributions from Realized Gains -- -- (0.32) -- (0.02)
------ ------ ------- ------- -------
Total Distributions (0.42) (0.41) (0.76) (0.27) (0.02)
------ ------ ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 8.60 $ 8.35 $ 8.77 $ 8.15 $ 9.08
------ ------ ------- ------- -------
------ ------ ------- ------- -------
TOTAL RETURN 8.23% 0.02% 17.35% (3.01%)# N/A
NET ASSETS AT END OF PERIOD (000'S) $ 4,627 $ 4,215 $ 4,497 $ 4,627 $ 91
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.15% 1.27% 1.16% 1.37% 11.75%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 4.98% 4.86% 5.14% 4.47% (6.75)
PORTFOLIO TURNOVER RATE 176.50% 136.29% 78.78% 129.56% None
- -----------------------------------------------------------------------------------------------------
</TABLE>
+ Financial highlights relate only to the performance of the initial seed
investment of SAFECO Asset Management Company. Trust shares were not yet
available to the public until 1994.
# Total return from February 28, 1994 (initial public offering) to December 31,
1994; not annualized.
- 132 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------------- -------------------------
THREE-MONTH THREE-MONTH
FOR THE PERIOD FOR THE PERIOD
YEAR ENDED ENDED YEAR ENDED 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 $ 8.35 $ 8.35 $ 8.35 $ 8.35
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.39 0.11 0.32 0.09
Net Realized and Unrealized Gain on
Investments 0.25 -- 0.25 --
----------- ----------- ----------- -----------
Total from Investment Operations 0.64 0.11 0.57 0.09
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.39) (0.11) (0.32) (0.09)
NET ASSET VALUE AT END OF PERIOD $ 8.60 $ 8.35 $ 8.60 $ 8.35
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TOTAL RETURN+ 7.78% 1.34%* 6.91% 1.15%*
NET ASSETS AT END OF PERIOD (000'S) $ 146 $ 140 $ 120 $ 100
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.45% 1.30%** 2.23% 2.07%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.68% 5.22%** 3.79% 4.45%**
PORTFOLIO TURNOVER RATE 176.50% 136.29%** 176.50% 136.29%**
- -----------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 133 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.98 $ 13.69 $ 13.36 $ 13.27 $ 14.13
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.75 0.57 0.76 0.77 0.78
Net Realized and Unrealized Gain
(Loss) on Investments 0.70 0.29 0.33 0.12 (0.55)
------- ------- --------- --------- ---------
Total from Investment Operations 1.45 0.86 1.09 0.89 0.23
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.75) (0.57) (0.76) (0.77) (0.78)
Distributions from Realized Gains (0.16) -- -- (0.03) (0.31)
------- ------- --------- --------- ---------
Total Distributions (0.91) (0.57) (0.76) (0.80) (1.09)
------- ------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 14.52 $ 13.98 $ 13.69 $ 13.36 $ 13.27
------- ------- --------- --------- ---------
------- ------- --------- --------- ---------
TOTAL RETURN 10.68% 6.42%* 8.23% 7.10% 1.30%
NET ASSETS AT END OF PERIOD (000'S) $ 502,946 $ 480,970 $ 480,643 $ 472,569 $ 507,453
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.51% 0.53%** 0.54% 0.56% 0.52%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.31% 5.53%** 5.47% 5.96% 5.49%
PORTFOLIO TURNOVER RATE 13.52% 6.66%** 12.60% 26.96% 22.07%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 134 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND 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 $ 13.99 $ 13.82 $ 13.98 $ 13.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.68 0.18 0.60 0.15
Net Realized and Unrealized Gain on
Investments 0.70 0.17 0.68 0.16
------ ------ ------ ------
Total from Investment Operations 1.38 0.35 1.28 0.31
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.68) (0.18) (0.60) (0.15)
Distributions from Realized Gains (0.16) -- (0.16) --
------ ------ ------ ------
Total Distributions (0.84) (0.18) (0.76) (0.15)
------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 14.53 $ 13.99 $ 14.52 $ 13.98
------ ------ ------ ------
------ ------ ------ ------
TOTAL RETURN+ 10.17% 2.52%* 9.56% 2.27%*
NET ASSETS AT END OF PERIOD (000'S) $ 390 $ 311 $ 502 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95% 0.82%** 1.53% 1.50%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.86% 5.04%** 4.22% 4.42%**
PORTFOLIO TURNOVER RATE 13.52% 6.66%** 13.52% 6.66%**
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 135 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 12.22 $ 11.86 $ 11.54 $ 11.51 $ 12.23
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.60 0.47 0.62 0.63 0.66
Net Realized and Unrealized Gain
(Loss) on Investments 0.76 0.39 0.40 0.13 (0.38)
------ ------ --------- --------- ---------
Total from Investment Operations 1.36 0.86 1.02 0.76 0.28
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.60) (0.47) (0.62) (0.63) (0.66)
Distributions from Realized Gains (0.05) (0.03) (0.08) (0.10) (0.34)
------ ------ --------- --------- ---------
Total Distributions (0.65) (0.50) (0.70) (0.73) (1.00)
------ ------ --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 12.93 $ 12.22 $ 11.86 $ 11.54 $ 11.51
------ ------ --------- --------- ---------
------ ------ --------- --------- ---------
TOTAL RETURN 11.55% 7.42%* 8.87% 7.01% 1.97%
NET ASSETS AT END OF PERIOD (000'S) $ 88,379 $ 72,084 $ 70,546 $ 64,058 $ 77,056
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.68% 0.69%** 0.68% 0.70% 0.68%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.88% 5.21%** 5.12% 5.65% 5.31%
PORTFOLIO TURNOVER RATE 9.83% 10.52%** 16.25% 44.10% 32.58%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 136 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. Financial Highlights
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE 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 $ 12.23 $ 12.07 $ 12.22 $ 12.07
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.58 0.15 0.48 0.12
Net Realized and Unrealized Gain on
Investments 0.76 0.19 0.76 0.18
------ ------------- ------ -------------
Total from Investment Operations 1.34 0.34 1.24 0.30
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.58) (0.15) (0.48) (0.12)
Distributions from Realized Gains (0.05) (0.03) (0.05) (0.03)
------ ------------- ------ -------------
Total Distributions (0.63) (0.18) (0.53) (0.15)
------ ------------- ------ -------------
NET ASSET VALUE AT END OF PERIOD $ 12.94 $ 12.23 $ 12.93 $ 12.22
------ ------------- ------ -------------
------ ------------- ------ -------------
TOTAL RETURN+ 11.29% 2.83%* 10.46% 2.56%*
NET ASSETS AT END OF PERIOD (000'S) $ 460 $ 122 $ 501 $ 101
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.91% 0.89%** 1.63% 1.64%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.52% 4.84%** 3.71% 4.08%**
PORTFOLIO TURNOVER RATE 9.83% 10.52%** 9.83% 10.52%**
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 137 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.53 $ 10.34 $ 10.10 $ 9.91 $ 10.27
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.50 0.37 0.50 0.49 0.44
Net Realized and Unrealized Gain
(Loss) on Investments 0.42 0.20 0.27 0.19 (0.35)
----- ----- --------- --------- ---------
Total from Investment Operations 0.92 0.57 0.77 0.68 0.09
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.50) (0.37) (0.50) (0.49) (0.44)
Distributions from Realized Gains 0.00 (0.01) (0.03) -- (0.01)
----- ----- --------- --------- ---------
Total Distributions (0.50) (0.38) (0.53) (0.49) (0.45)
----- ----- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 10.95 $ 10.53 $ 10.34 $ 10.10 $ 9.91
----- ----- --------- --------- ---------
----- ----- --------- --------- ---------
TOTAL RETURN 8.94% 5.61%* 7.73% 7.13% 0.68%
NET ASSETS AT END OF PERIOD (000'S) $ 7,288 $ 6,558 $ 6,489 $ 5,953 $ 2,908
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.02% 1.10%** 1.07% 1.09% 1.44%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.68% 4.78%** 4.78% 5.06% 4.17%
PORTFOLIO TURNOVER RATE 11.67% 15.96%** 20.86% 9.23% 17.26%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 138 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND 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 $ 10.53 $ 10.45 $ 10.55 $ 10.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.46 0.12 0.38 0.10
Net Realized and Unrealized Gain on
Investments 0.42 0.09 0.42 0.11
----- ----- ----- -----
Total from Investment Operations 0.88 0.21 0.80 0.21
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.46) (0.12) (0.38) (0.10)
Distributions from Realized Gains -- (0.01) -- (0.01)
----- ----- ----- -----
Total Distributions (0.46) (0.13) (0.38) (0.11)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD $ 10.95 $ 10.53 $ 10.97 $ 10.55
----- ----- ----- -----
----- ----- ----- -----
TOTAL RETURN+ 8.64% 1.94%* 7.75% 1.94%*
NET ASSETS AT END OF PERIOD (000'S) $ 360 $ 336 $ 239 $ 211
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.32% 1.31%** 2.13% 2.06%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.39% 4.49%** 3.58% 3.71%**
PORTFOLIO TURNOVER RATE 11.67% 15.96%** 11.67% 15.96%**
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
- 139 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
-----------------------------------------------------------------------
1997 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.05 0.03 0.05 0.04 0.02
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.05) (0.03) (0.05) (0.04) (0.02)
------- ------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- --------- --------- ---------
------- ------- --------- --------- ---------
TOTAL RETURN 4.93% 3.54%* 5.15% 4.20% 2.48%
NET ASSETS AT END OF PERIOD (000'S) $ 176,623 $ 161,356 $ 165,122 $ 171,958 $ 186,312
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78% 0.81%** 0.78% 0.78% 0.79%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.82% 4.66%** 5.04% 4.21% 2.47%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 140 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
9. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET 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 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.01 0.05 0.01
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.05) (0.01) (0.05) (0.01)
----- ----- ----- -----
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- -----
----- ----- ----- -----
TOTAL RETURN 4.97% 1.21%* 4.94% 1.21%*
NET ASSETS AT END OF PERIOD (000'S) $ 537 $ 295 $ 414 $ 106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.72% 0.55%** 0.78% 0.54%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.91% 5.01%** 4.85% 4.96%**
- -------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
- 141 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the SAFECO Common Stock Trust,
SAFECO Taxable Bond Trust, SAFECO Managed Bond Trust, SAFECO Tax-Exempt Bond
Trust, and SAFECO Money Market Trust
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments in securities, of certain Funds 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), the SAFECO Taxable Bond Trust (comprising,
respectfully, the SAFECO Intermediate-Term U.S. Treasury Fund and SAFECO
High-Yield Bond Fund), the SAFECO Managed Bond Trust (comprising the SAFECO
Managed Bond Fund), the SAFECO Tax-Exempt Bond Trust (comprising, respectively,
the SAFECO Municipal Bond Fund, SAFECO California Tax-Free Income Fund, and
SAFECO Washington State Municipal Bond Fund), and the SAFECO Money Market Trust
(comprising the SAFECO Money Market 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
Trusts' 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 and financial highlights. 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.
- 142 -
<PAGE>
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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 of the SAFECO Common Stock Trust, the SAFECO Taxable
Bond Trust, the SAFECO Managed Bond Trust, the SAFECO Tax-Exempt Bond Trust, and
the SAFECO Money Market Trust as listed above 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
- 143 -
<PAGE>
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NOTES
<PAGE>
SAFECO MUTUAL 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: 1-800-528-6501
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
*All telephone calls are tape-recorded
for your protection.
MAILING ADDRESS:
SAFECO Mutual Funds
Advisor Class Shares
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
E-MAIL: [email protected]
GMF 4068 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.
