<PAGE>
SEMIANNUAL REPORT
June 30, 1999
SAFECO MUTUAL FUNDS
STOCK FUNDS
NO-LOAD CLASS
---------
<TABLE>
<S> <C>
Growth Fund .............................................................. 2
Equity Fund .............................................................. 8
Income Fund ............................................................. 13
Northwest Fund .......................................................... 19
International Fund ...................................................... 24
Balanced Fund ........................................................... 30
Small Company Fund ...................................................... 36
U.S. Value Fund ......................................................... 41
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GROWTH FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Growth continued to struggle, returning 3.30% for the quarter, -6.30%
year-to-date, and -16.43% for the 12 months ended June 30. The average growth
fund returned 7.07%, 11.65% and 18.87% for the same respective periods,
according to Lipper, Inc.
During the second quarter small company stocks began to return to favor. The
Russell 2000 (a small cap index) delivered 15.55%, while the S&P 500 (broad
market indicator) returned 7.05% for the quarter. For the 12 months ended June
30, 1999, the Russell 2000 returned 1.50% and the S&P 500 gained 22.76%.
[PHOTO OF THOMAS M. MAGUIRE]
While the Fund still lags the broad market and peer group, we began to
outperform in the final days of the period. As investors return to small
companies, as they did in the second quarter, they buy the larger ones first. As
confidence grows, I hope we will see more movement to our names, which are among
the smallest of the small.
Growth Fund is loaded with what I believe to be statistically cheap companies
with seemingly
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year -16.43%
5 Year 19.59%
10 Year 14.56%
</TABLE>
INVESTMENT VALUE
SAFECO GROWTH FUND: $38,942
S&P 500 INDEX: $55,878
<TABLE>
<CAPTION>
SAFECO GROWTH S&P 500
FUND INDEX
<S> <C> <C>
6/30/89 $10,000 $10,000
7/31/89 $10,445 $10,903
8/31/89 $10,758 $11,117
9/30/89 $10,979 $11,071
10/31/89 $10,564 $10,814
11/30/89 $10,533 $11,035
12/31/89 $10,632 $11,300
1/31/90 $9,601 $10,542
2/28/90 $9,864 $10,677
3/31/90 $10,459 $10,960
4/30/90 $10,504 $10,686
5/31/90 $11,581 $11,728
6/30/90 $11,829 $11,649
7/31/90 $11,406 $11,611
8/31/90 $9,439 $10,562
9/30/90 $8,380 $10,047
10/31/90 $7,816 $10,004
11/30/90 $8,395 $10,650
12/31/90 $9,041 $10,948
1/31/91 $9,944 $11,425
2/28/91 $11,314 $12,242
3/31/91 $11,868 $12,538
4/30/91 $12,440 $12,568
5/31/91 $13,260 $13,111
6/30/91 $12,470 $12,511
7/31/91 $13,637 $13,093
8/31/91 $14,180 $13,404
9/30/91 $14,266 $13,180
10/31/91 $14,695 $13,357
11/30/91 $13,455 $12,818
12/31/91 $14,705 $14,285
1/31/92 $15,781 $14,019
2/28/92 $15,668 $14,201
3/31/92 $14,504 $13,924
4/30/92 $13,605 $14,334
5/31/92 $13,267 $14,404
6/30/92 $12,247 $14,189
7/31/92 $12,761 $14,770
8/31/92 $12,039 $14,467
9/30/92 $11,721 $14,638
10/31/92 $12,216 $14,688
11/30/92 $13,759 $15,187
12/31/92 $14,254 $15,373
1/31/93 $14,848 $15,501
2/28/93 $13,859 $15,712
3/31/93 $14,404 $16,044
4/30/93 $13,516 $15,656
5/31/93 $14,211 $16,074
6/30/93 $14,656 $16,121
7/31/93 $14,605 $16,056
8/31/93 $15,544 $16,664
9/30/93 $16,226 $16,536
10/31/93 $16,641 $16,878
11/30/93 $15,939 $16,718
12/31/93 $17,417 $16,920
1/31/94 $18,354 $17,495
2/28/94 $17,477 $17,021
3/31/94 $16,600 $16,281
4/30/94 $17,043 $16,489
5/31/94 $17,199 $16,758
6/30/94 $15,923 $16,347
7/31/94 $16,279 $16,883
8/31/94 $17,295 $17,574
9/30/94 $16,856 $17,145
10/31/94 $17,099 $17,529
11/30/94 $16,633 $16,891
12/31/94 $17,134 $17,141
1/31/95 $16,870 $17,585
2/28/95 $17,797 $18,269
3/31/95 $17,729 $18,808
4/30/95 $17,817 $19,361
5/31/95 $18,530 $20,147
6/30/95 $19,652 $20,614
7/31/95 $20,345 $21,297
8/31/95 $20,277 $21,350
9/30/95 $20,890 $22,251
10/31/95 $20,797 $22,171
11/30/95 $21,008 $23,142
12/31/95 $21,606 $23,589
1/31/96 $22,406 $24,391
2/28/96 $23,246 $24,617
3/31/96 $22,892 $24,854
4/30/96 $23,866 $25,220
5/31/96 $24,879 $25,869
6/30/96 $23,799 $25,968
7/31/96 $21,451 $24,821
8/31/96 $22,732 $25,345
9/30/96 $23,848 $26,770
10/31/96 $24,358 $27,509
11/30/96 $25,299 $29,586
12/31/96 $26,555 $29,000
1/31/97 $28,839 $30,809
2/28/97 $28,072 $31,053
3/31/97 $27,087 $29,780
4/30/97 $25,835 $31,555
5/31/97 $29,746 $33,473
6/30/97 $32,219 $34,973
7/31/97 $34,096 $37,755
8/31/97 $35,317 $35,641
9/30/97 $38,165 $37,593
10/30/97 $37,461 $36,339
11/30/97 $39,088 $38,020
12/31/97 $39,822 $38,672
1/31/98 $40,300 $39,100
2/28/98 $44,363 $41,918
3/31/98 $47,095 $44,063
4/30/98 $48,922 $44,506
5/31/98 $46,633 $43,742
6/30/98 $46,598 $45,518
7/31/98 $44,257 $45,035
8/31/98 $33,507 $38,530
9/30/98 $34,767 $40,999
10/31/98 $37,516 $44,331
11/30/98 $39,432 $47,016
12/31/98 $41,560 $49,724
1/31/99 $42,512 $51,803
2/28/99 $37,514 $50,191
3/31/99 $37,697 $52,199
4/30/99 $38,302 $54,219
5/31/99 $37,532 $52,940
6/30/99 $38,942 $55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
attractive fundamentals. Many of them are very small (under $250 million market
capitalization) and most of those are selling for a share price that is a
fraction of their growth rate. By June 30, many of them had yet to move and a
few had hurt us.
Prison Realty Trust, Inc., the largest private owner and operator of prisons
(and formerly one of the Growth Fund's largest positions) hurt us. It fell 50%
as management's "selective" disclosure brought shareholder class action lawsuits
charging fraud.
Rent-A-Center, Inc., suffered when the financial press took issue with its
accounting. After talking with analysts and Rent-A-Center's largest competitor
(Rent-Way, Inc., which we also own), I am comfortable holding and monitoring the
stock. Both companies provide furnishings and appliances to people who don't
have credit or enough cash.
Conseco continued to produce good earnings and cash flow, and the market
continued to ignore it. Conseco provides insurance and financing to Middle
America. And Middle America is a huge market. In fact, Middle America is what
made Wal-Mart so successful.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ........................................... 11.5%
(Broadcasting-TV, Radio & Cable)
Conseco, Inc. ...................................................... 9.4
(Insurance-Life & Health)
Emmis Communications Corp. (Class A) ................................ 5.6
(Broadcasting-TV, Radio & Cable)
Nu Skin Enterprises, Inc. (Class A) ................................. 4.6
(Distributors-Food & Health)
MICROS Systems, Inc. ............................................... 3.8
(Computers-Hardware)
Mail-Well, Inc. .................................................... 3.7
(Specialty Printing)
United Stationers, Inc. ............................................ 2.8
(Office Equipment & Supplies)
Creditrust Corp. ................................................... 2.8
(Consumer Finance)
NCO Group, Inc. .................................................... 2.7
(Services-Commerical & Consumer)
Dura Pharmaceuticals, Inc. ......................................... 2.7
(Health Care-Drugs-Generic & Other)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Mylan Laboratories, Inc. .......................................... $18,418
Nu Skin Enterprises, Inc. (Class A) ................................. 17,000
Iron Mountain, Inc. ................................................ 16,042
Computer Horizons Corp. ............................................ 12,914
Serologicals Corp. ................................................. 11,788
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Amfm, Inc. ........................................................ $64,696
Beckman Coulter, Inc. .............................................. 36,234
Conseco, Inc. ...................................................... 36,072
NCO Group, Inc. .................................................... 31,970
Prison Realty Corp. ................................................ 30,993
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Broadcasting (TV, Radio & Cable) ....................................... 17%
Services (Commercial & Consumer) ........................................ 10
Insurance (Life & Health) ................................................ 9
Health Care (Major Pharmaceuticals) ...................................... 6
Distributors (Food & Health) ............................................. 5
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Credit is another great force in the American economy. For that reason we own
NCO Group, a collection agency, and Credit Trust, the leading purchaser of agent
credit card receivables.
From a winning position, Family Golf Centers took too big a swing and hasn't
been able to bring the underperforming ice rinks and driving ranges it acquired
up to standard. I think they can.
Broadcasting remains our largest sector. Chancellor Media, our largest
holding, is the fastest growing company in this fast-growing industry and Emmis
is the cheapest. Both stocks are up as radio is benefiting from a strong U.S.
economy and gaining market share from other media.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS
AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C> <C>
Large: 21% ($4 Bil. and above)
Medium: 7% ($1 Bil. - $4 Bil.)
Small: 71% (Less than $1 Bil.)
Corporate Bonds: 0%
Cash & Other: 1%
</TABLE>
With 70% of its sales in Japan, direct marketer Nu Skin Enterprises should
benefit from the Japanese recovery. United Stationers is another great franchise
with a low valuation and great growth prospects.
I choose these stocks not to match a bogey, but for their value and
appreciation potential. Consequently, Growth Fund's performance diverges from
its peers and the market, and I have hit peaks and valleys. It was not too long
ago that we were at a peak. We are working to get back there. No, the past is
not predictive, but, SAFECO Growth Fund has historically had very good years
following periods of very bad performance.
Finally, I want you to know I take this position seriously and am committed
to outperform. I ask, and thank you, for your patience. I hope to show you the
wait will be well worth it.
Thomas M. Maguire
- -------------------------------
After completing his MBA 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 June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 99.2%
AIR FREIGHT - 0.2%
611,800 *+Dynamex, Inc. ................................... $ 1,759
AUTO PARTS & EQUIPMENT - 0.2%
592,400 *+Precision Auto Care, Inc. ......................... 1,814
BANKS (MAJOR REGIONAL) - 0.7%
308,975 Provident Bankshares Corp. .......................... 7,184
BIOTECHNOLOGY - 0.3%
238,400 *CryoLife, Inc. ..................................... 2,920
BROADCASTING (TV, RADIO & CABLE) - 17.1%
2,138,500 *Chancellor Media Corp. ........................... 117,885
1,156,600 *+Emmis Communications Corp. (Class A) .............. 57,107
CHEMICALS (SPECIALTY) - 0.5%
505,100 *TETRA Technologies, Inc. ........................... 4,641
COMMUNICATION EQUIPMENT - 0.9%
436,900 *Research In Motion, Ltd. ........................... 8,847
COMPUTERS (HARDWARE) - 4.2%
166,200 *Equitrac Corp. ..................................... 3,137
1,127,528 *+MICROS Systems, Inc. ............................. 38,336
128,000 *Optimal Robotics Corp. ............................. 1,272
COMPUTERS (SOFTWARE & SERVICES) - 4.1%
842,700 *Aspen Technology, Inc. ............................. 9,902
500,641 Autodesk, Inc. ..................................... 14,800
210,000 *Cadence Design Systems, Inc. ....................... 2,678
159,300 *Cambridge Technology Partners, Inc. ................ 2,798
212,700 *Ciber, Inc. ........................................ 4,068
7,700 *internet.com Corp. .................................... 97
831,700 *+Phoenix International Ltd., Inc. .................. 5,302
40,000 *topjobs.net, plc (ADR) ................................ 225
314,200 *TRO Learning, Inc. ................................. 1,924
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.8%
250,500 *Action Performance Cos., Inc. .................... $ 8,267
CONSUMER FINANCE - 4.4%
1,025,450 *+Creditrust Corp. ................................. 28,456
397,535 Doral Financial Corp. ............................... 6,857
1,111,200 *+Towne Services, Inc. .............................. 8,751
123,900 *+Waterside Capital Corp. ............................. 852
DISTRIBUTORS (FOOD & HEALTH) - 4.8%
2,338,900 *Nu Skin Enterprises, Inc. (Class A) ................ 46,632
607,840 Weider Nutrition International, Inc. ................ 2,507
ELECTRICAL EQUIPMENT - 0.4%
398,800 *PCD, Inc. .......................................... 4,387
ENTERTAINMENT - 0.4%
121,500 *Championship Auto Racing Teams, Inc. ............... 3,637
FINANCIAL (DIVERSIFIED) - 0.4%
461,900 *+BNC Mortgage, Inc. ................................ 2,887
439,700 *United Panam Financial Corp. ....................... 1,429
HEALTH CARE (DIVERSIFIED) - 1.2%
395,000 *Anesta Corp. ....................................... 8,073
373,635 *Emisphere Technologies, Inc. ....................... 2,639
320,000 *Synaptic Pharmaceutical Corp. ...................... 1,520
HEALTH CARE (DRUGS-GENERIC & OTHER) - 3.6%
2,306,300 *+Dura Pharmaceuticals, Inc. ....................... 27,531
609,000 *+Nastech Pharmaceutical Co., Inc. .................. 2,017
530,000 *PathoGenesis Corp. ................................. 7,519
HEALTH CARE (LONG-TERM CARE) - 0.3%
156,500 *Res-Care, Inc. ..................................... 3,560
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MAJOR PHARMACEUTICALS) - 5.6%
745,000 Mylan Laboratories, Inc. .......................... $19,743
107,000 *PharmaPrint, Inc. .................................... 535
2,420,756 *+Serologicals Corp. ............................... 19,669
127,400 *SuperGen, Inc. ..................................... 1,951
260,600 Teva Pharmaceutical Industries, Ltd. (ADR) .......... 12,769
327,500 *Zonagen, Inc. ...................................... 3,029
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 2.2%
190,200 *Haemonetics Corp. .................................. 3,816
514,450 *+Lifeline Systems, Inc. ............................ 9,903
886,000 *+PolyMedica Industries, Inc...........................8,860
HEALTH CARE (SPECIALIZED SERVICES) - 1.1%
282,300 *American Healthcorp, Inc..............................2,347
1,149,200 *+Prime Medical Services, Inc. ...................... 8,475
HOUSEWARES - 0.2%
293,200 *Home Products International, Inc. .................. 2,492
INSURANCE (LIFE & HEALTH) - 9.4%
3,162,729 Conseco, Inc. ...................................... 96,266
LEISURE TIME (PRODUCTS) - 2.1%
391,000 *+American Coin Merchandising, Inc. ................. 2,542
2,452,275 *+Family Golf Centers, Inc. ........................ 18,852
LODGING (HOTELS) - 1.5%
622,400 *ResortQuest International, Inc. .................... 5,135
1,528,600 *+Suburban Lodges of America, Inc. .................. 9,840
MACHINERY (DIVERSIFIED) - 0.5%
669,150 Chart Industries, Inc. .............................. 5,270
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 2.1%
418,400 *Nortek, Inc. ..................................... $13,101
341,850 *+Recovery Engineering, Inc............................5,811
138,500 *SurModics, Inc. .................................... 2,268
MANUFACTURING (SPECIALIZED) - 0.8%
195,600 *Zomax Optical Media, Inc..............................8,606
OFFICE EQUIPMENT & SUPPLIES - 3.3%
698,400 *+TRM Copy Centers Corp. ............................ 4,583
1,314,100 *United Stationers, Inc. ........................... 28,910
PERSONAL CARE - 0.6%
895,000 *+French Fragrances, Inc. ........................... 6,545
REAL ESTATE INVESTMENT TRUST - 1.1%
1,115,237 Prison Realty Corp. ................................ 10,943
RESTAURANTS - 0.5%
427,100 *+Schlotzsky's, Inc. ................................ 4,671
RETAIL (DEPARTMENT STORES) - 0.9%
266,300 *Rainbow Rentals, Inc, ............................... 3,062
246,000 *Value City Department Stores, Inc. ................. 3,014
133,700 *Whitehall Jewellers, Inc. .......................... 3,568
RETAIL (FOOD CHAINS) - 0.3%
184,500 *NPC International, Inc. ............................ 2,837
RETAIL (GENERAL MERCHANDISE) - 0.4%
422,800 *Central Garden & Pet Co. ........................... 4,334
RETAIL (HOME SHOPPING) - 0.6%
714,900 *+Damark International, Inc. ........................ 5,987
RETAIL (SPECIALTY) - 1.6%
119,300 *1-800 Contacts, Inc. ............................... 2,237
403,200 *+Blue Rhino Corp. .................................. 3,704
354,300 *+Funco, Inc. ....................................... 6,532
271,000 *+Travis Boats & Motors, Inc...........................3,930
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO GROWTH FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (SPECIALTY-APPAREL) - 1.8%
479,500 *+Concepts Direct, Inc. ........................... $ 4,435
542,213 *+Harold's Stores, Inc. ............................. 3,524
1,634,334 *+Stage Stores, Inc. ............................... 10,623
SERVICES (ADVERTISING/MARKETING) - 0.2%
483,500 *APAC Teleservices, Inc. ............................ 1,571
SERVICES (COMMERCIAL & CONSUMER) - 10.3%
834,400 *Bluegreen Corp. .................................... 4,485
679,200 *Compass International Services Corp. ............... 4,754
495,600 *FirstService Corp. ................................. 7,558
839,900 *+IntelliQuest Information Group, Inc. .............. 6,299
565,800 *Iron Mountain, Inc. ............................... 16,196
206,000 *Navigant International, Inc...........................1,622
735,700 *NCO Group, Inc. ................................... 27,957
224,400 *Protection One, Inc. ............................... 1,206
976,600 *Rent-A-Center, Inc. ............................... 23,438
360,700 *Rent-Way, Inc. ..................................... 8,882
263,600 SunSource, Inc. ..................................... 3,410
SERVICES (COMPUTER SYSTEMS) - 0.9%
682,600 *Computer Horizons Corp. ............................ 9,428
SERVICES (EMPLOYMENT) - 0.7%
142,500 *Alternative Resources Corp..............................998
898,600 *+Hall, Kinion & Associates, Inc. ................... 6,290
SPECIALTY PRINTING - 3.7%
2,316,700 *Mail-Well, Inc. ................................... 37,502
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.1%
1,375,685 *CellStar Corp. ................................. $ 10,834
TELEPHONE - 1.3%
676,000 *+Innotrac Corp. ................................... 13,689
-------
TOTAL COMMON STOCKS ............................................... 1,015,058
-------
CORPORATE BONDS - 0.3%
LEISURE TIME (PRODUCTS) - 0.3%
$4,700,000 Family Golf Centers, Inc.
5.75% due 10/15/04 ................................... 2,990
-------
TOTAL CORPORATE BONDS ................................................. 2,990
-------
CASH EQUIVALENTS - 0.0%
INVESTMENT COMPANIES
6,798 SSgA Prime Money Market Portfolio ........................ 7
-------
TOTAL CASH EQUIVALENTS .................................................... 7
-------
TOTAL INVESTMENTS - 99.5% ......................................... 1,018,055
Other Assets, less Liabilities ........................................ 5,075
-------
NET ASSETS ....................................................... $1,023,130
-------
-------
- -----------------------------------------------------------------------------
</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
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Equity Fund beat its growth and income peer group for the 12 months
ended June 30, 1999, was virtually neck and neck for the six months, but lagged
during the latest quarter, according to Lipper, Inc.
Equity Fund was up 20.59% and 10.22% for the 12 and six months just ended
versus 14.48% and 10.93% for the peers. In the latest three months, the Fund
returned 7.28% compared to 9.04% for the peer group.
[PHOTO OF RICH MEAGLEY]
The S&P 500 returned 7.05% for the quarter, 12.38% for the six months, and
22.76% for latest 12 months.
Given the Fund's strategy of concentrating on big, blue chip companies, we
were even with the S&P, but lagged the peer group for the second quarter.
Our performance could at best be described as consistent and, at worst,
boring. Our poorest performing stock, Washington Mutual, was off just 13.5%
during the
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year 20.59%
5 Year 23.68%
10 Year 18.98%
</TABLE>
INVESTMENT VALUE
SAFECO EQUITY FUND: $56,841
S&P 500 INDEX: $55,878
<TABLE>
<CAPTION>
SAFECO
EQUITY FUND S&P 500 INDEX
<S> <C> <C>
6/30/89 $10,000 $10,000
7/31/89 $10,890 $10,903
8/31/89 $11,064 $11,117
9/30/89 $11,025 $11,071
10/31/89 $11,048 $10,814
11/30/89 $11,124 $11,035
12/31/89 $11,541 $11,300
1/31/90 $10,582 $10,542
2/28/90 $10,682 $10,677
3/31/90 $11,078 $10,960
4/30/90 $10,758 $10,686
5/31/90 $11,797 $11,728
6/30/90 $11,779 $11,649
7/31/90 $11,568 $11,611
8/31/90 $10,346 $10,562
9/30/90 $ 9,842 $10,047
10/31/90 $ 9,632 $10,004
11/30/90 $10,157 $10,650
12/31/90 $10,552 $10,948
1/31/91 $11,093 $11,425
2/28/91 $11,752 $12,242
3/31/91 $12,084 $12,538
4/30/91 $12,331 $12,568
5/31/91 $12,827 $13,111
6/30/91 $12,003 $12,511
7/31/91 $12,809 $13,093
8/31/91 $13,010 $13,404
9/30/91 $12,834 $13,180
10/31/91 $13,043 $13,357
11/30/91 $12,227 $12,818
12/31/91 $13,497 $14,285
1/31/92 $14,300 $14,019
2/28/92 $14,542 $14,201
3/31/92 $13,888 $13,924
4/30/92 $14,004 $14,334
5/31/92 $13,876 $14,404
6/30/92 $12,874 $14,189
7/31/92 $13,400 $14,770
8/31/92 $12,848 $14,467
9/30/92 $12,885 $14,638
10/31/92 $13,507 $14,688
11/30/92 $14,400 $15,187
12/31/92 $14,748 $15,373
1/31/93 $15,236 $15,501
2/28/93 $15,249 $15,712
3/31/93 $16,068 $16,044
4/30/93 $15,701 $15,656
5/31/93 $16,994 $16,074
6/30/93 $17,064 $16,121
7/31/93 $16,832 $16,056
8/31/93 $17,774 $16,664
9/30/93 $18,268 $16,536
10/31/93 $18,749 $16,878
11/30/93 $18,851 $16,718
12/31/93 $19,305 $16,920
1/31/94 $20,462 $17,495
2/28/94 $19,950 $17,021
3/31/94 $19,184 $16,281
4/30/94 $19,802 $16,489
5/31/94 $20,374 $16,758
6/30/94 $19,641 $16,347
7/31/94 $20,143 $16,883
8/31/94 $21,369 $17,574
9/30/94 $21,285 $17,145
10/31/94 $21,683 $17,529
11/30/94 $21,254 $16,891
12/31/94 $21,224 $17,141
1/31/95 $21,379 $17,585
2/28/95 $21,937 $18,269
3/31/95 $22,116 $18,808
4/30/95 $22,709 $19,361
5/31/95 $23,286 $20,147
6/30/95 $23,863 $20,614
7/31/95 $24,240 $21,297
8/31/95 $24,915 $21,350
9/30/95 $25,880 $22,251
10/31/95 $25,558 $22,171
11/30/95 $26,386 $23,142
12/31/95 $26,584 $23,589
1/31/96 $27,296 $24,391
2/28/96 $27,538 $24,617
3/31/96 $27,821 $24,854
4/30/96 $28,413 $25,220
5/31/96 $29,074 $25,869
6/30/96 $29,612 $25,968
7/31/96 $28,476 $24,821
8/31/96 $28,773 $25,345
9/30/96 $30,547 $26,770
10/31/96 $31,530 $27,509
11/30/96 $33,901 $29,586
12/31/96 $33,232 $29,000
1/31/97 $35,154 $30,809
2/28/97 $35,294 $31,053
3/31/97 $33,878 $29,780
4/30/97 $34,862 $31,555
5/31/97 $37,172 $33,473
6/30/97 $38,690 $34,973
7/31/97 $41,309 $37,755
8/31/97 $39,174 $35,641
9/30/97 $40,586 $37,593
10/30/97 $39,293 $36,339
11/30/97 $40,565 $38,020
12/31/97 $41,277 $38,672
1/31/98 $41,910 $39,100
2/28/98 $45,226 $41,918
3/31/98 $46,744 $44,063
4/30/98 $46,829 $44,506
5/31/98 $45,961 $43,742
6/30/98 $47,135 $45,518
7/31/98 $46,584 $45,035
8/31/98 $40,557 $38,530
9/30/98 $43,438 $40,999
10/31/98 $47,291 $44,331
11/30/98 $50,291 $47,016
12/31/98 $51,568 $49,724
1/31/99 $52,389 $51,803
2/28/99 $51,347 $50,191
3/31/99 $52,984 $52,199
4/30/99 $56,297 $54,219
5/31/99 $55,140 $52,940
6/30/99 $56,841 $55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 8 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
latest quarter and no member of our portfolio had "news".
The market itself was far more interesting. Investor sentiment, not economic
or company fundamentals, shifted and market leadership took a turn. Big stocks
took a breather (after four years of outperformance), while smaller stocks and
more value-oriented stocks moved ahead.
Our largest seven holdings at the beginning of the quarter-- Microsoft,
Johnson & Johnson, Procter & Gamble, General Electric, Fannie Mae, Intel and
Merck--all lagged the growth and income peer group and the S&P 500 over the
quarter. I am comfortable with these stocks performing poorly on a short-term
basis. In fact, it provides buying opportunities for those of us who invest for
the long-term.
It seemed our more value-oriented names outperformed. Praxair, a chemical
company, began the second quarter with value characteristics (low price to
earnings and price to book ratios) and ended it up 36%. Of our technology stocks
Motorola, HP and IBM beat the growthier fellows, Microsoft and Intel.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Federal National Mortgage Association .............................. 3.4%
(Financial-Diversified)
Procter & Gamble Co. ............................................... 3.4
(Household Products-Non-Durables)
Intel Corp. ........................................................ 3.4
(Electronics-Semiconductors)
Abbott Laboratories ................................................. 3.3
(Health Care-Diversified)
Johnson & Johnson ................................................... 3.3
(Health Care-Diversified)
Microsoft Corp. .................................................... 3.2
(Computers, Software & Services)
Kimberly-Clark Corp. ............................................... 3.1
(Household Products-Non-Durables)
General Electric Co. ............................................... 2.8
(Electrical Equipment)
Gannett Co., Inc. .................................................. 2.8
(Publishing-Newspapers)
Albertson's, Inc. .................................................. 2.7
(Retail-Food Chains)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Gannett Co., Inc. ................................................. $59,092
Emerson Electric Co. ............................................... 57,969
MCI WorldCom, Inc. ................................................. 46,677
Procter & Gamble Co. ............................................... 42,899
Bestfoods ........................................................... 42,827
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Motorola, Inc. .................................................... $37,800
Willamette Industries, Inc. ........................................ 31,258
Chase Manhattan Corp. .............................................. 24,584
Schlumberger, Ltd. ................................................. 23,613
American Home Products Corp. ....................................... 23,032
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Health Care (Diversified) .............................................. 11%
Household Products (Non-Durables) ........................................ 7
Electrical Equipment ..................................................... 6
Financial (Diversified) .................................................. 5
Banks (Major Regional) ................................................... 5
- ----------------------------------------------------------------------------
</TABLE>
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Washington Mutual took a 13.5% tumble. The bank's cost-cutting slowed as did
excitement from its recent acquisitions. I still like the company's prospects.
Ninety percent of our assets are invested in what I believe to be
above-average-quality companies in industries with good long-term growth
prospects that I can hold for three to five years. The remaining 10% is invested
in special situations. These companies might be cyclicals or involved in
merger/acquisitions with major cost-cutting potential. They could be
restructuring or beginning a product cycle.
I stayed with what I've done in the past. I added to existing holdings when I
liked their price and sold parts of positions when they were on the high side.
Much of our add-on activity was in stocks that did not perform well: Abbott
Laboratories, Fannie Mae, Intel and Procter & Gamble.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS AS A PERCENT OF NET ASSETS
<S> <C>
COMMON STOCKS
(1) Large ($4 Bil. and above) 97%
(2) Medium $1 Bil. - $4 Bil.) 0%
(3) Cash and Other 3%
</TABLE>
I trimmed American Home Products, Citigroup, Dover Corp., and Allied Signal
and sold all the Motorola and Willamette Industries when they reached our price
objectives. By selling Willamette I decreased our exposure to an industry I
think has below-average long-term prospects. I sold 40% of our Lockheed Martin
because it continues to struggle and the fixes don't look easy.
I added MCI Worldcom, which I think is well-positioned in data, voice and
internet services. The stock was not cheap, but should MCI deliver the solid
performance I expect it too, it will be worth it.
We ended the period with just about $2.3 billion invested in 46 companies.
Turnover in the portfolio remained low and steady, at 32.64% (annualized). And,
the character we perceive in portfolio is unchanged: high quality companies with
predictable earnings growth.
Richard 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 MBA from the University of Washington, and is a Chartered
Financial Analyst.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.3%
AEROSPACE/DEFENSE - 1.1%
700,000 Lockheed Martin Corp. ............................. $26,075
BANKS (MAJOR REGIONAL) - 5.1%
625,000 Bank of America Corp. .............................. 45,820
1,125,000 Citigroup, Inc. .................................... 53,438
652,200 U.S. Bancorp ........................................ 22,175
BANKS (MONEY CENTER) - 2.5%
700,000 Chase Manhattan Corp. .............................. 60,638
BEVERAGES (ALCOHOLIC) - 1.5%
500,000 Anheuser-Busch Co., Inc. ........................... 35,469
BEVERAGES (NON-ALCOHOLIC) - 1.9%
1,200,000 PepsiCo, Inc. ...................................... 46,425
CHEMICALS - 4.1%
625,000 Du Pont (E.I.) de Nemours & Co. .................... 42,695
1,113,600 Praxair, Inc. ...................................... 54,497
COMPUTERS (HARDWARE) - 4.7%
600,000 Hewlett-Packard Co. ................................ 60,300
400,000 International Business Machines Corp. .............. 51,700
COMPUTERS (NETWORKING) - 0.7%
600,000 *3Com Corp. ........................................ 16,013
COMPUTERS (SOFTWARE & SERVICES) - 3.2%
850,000 *Microsoft Corp. ................................... 76,659
ELECTRICAL EQUIPMENT - 5.5%
1,000,000 Emerson Electric Co. ............................... 62,875
600,000 General Electric Co. ............................... 67,800
ELECTRONICS (SEMICONDUCTORS) - 3.4%
1,350,000 Intel Corp. ........................................ 80,325
ENTERTAINMENT - 1.3%
1,000,000 The Walt Disney Co. ................................ 30,813
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL (DIVERSIFIED) - 5.4%
800,000 Federal Home Loan Mortgage Corp. .................. $46,400
1,200,000 Federal National Mortgage Association ............... 82,050
FOODS - 2.6%
1,250,000 Bestfoods ........................................... 61,875
HEALTH CARE (DIVERSIFIED) - 10.9%
1,750,000 Abbott Laboratories ................................. 79,625
750,000 American Home Products Corp. ....................... 43,125
825,000 Bristol-Myers Squibb Co. ........................... 58,111
800,000 Johnson & Johnson ................................... 78,400
HEALTH CARE (MAJOR PHARMACEUTICALS) - 2.5%
800,000 Merck & Co., Inc. .................................. 59,200
HOUSEHOLD PRODUCTS (NON-DURABLES) - 6.5%
1,300,000 Kimberly-Clark Corp. ............................... 74,100
900,000 Procter & Gamble Co. ............................... 80,325
INSURANCE (MULTI-LINE) - 3.3%
400,000 American International Group, Inc. ................. 46,825
550,000 Hartford Financial Services Group, Inc. ............ 32,072
MANUFACTURING (DIVERSIFIED) - 4.3%
1,000,000 AlliedSignal, Inc. ................................. 63,000
1,138,800 Dover Corp. ........................................ 39,858
OIL (DOMESTIC INTEGRATED) - 1.7%
400,000 Mobil Corp. ........................................ 39,600
OIL (INTERNATIONAL INTEGRATED) - 3.0%
375,000 Exxon Corp. ........................................ 28,922
725,000 Royal Dutch Petroleum Co. (ADR) ..................... 43,681
PERSONAL CARE - 0.9%
400,000 Avon Products, Inc. ................................ 22,200
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO EQUITY FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PUBLISHING (NEWSPAPERS) - 2.8%
935,000 Gannett Co., Inc. ................................. $66,736
RAILROADS - 0.7%
513,700 Burlington Northern Santa Fe Corp. ................. 15,925
RETAIL (DEPARTMENT STORES) - 2.1%
1,201,000 May Department Stores Co. .......................... 49,091
RETAIL (FOOD CHAINS) - 2.7%
1,267,500 Albertson's, Inc. .................................. 65,355
RETAIL (GENERAL MERCHANDISE) - 0.9%
470,000 Wal-Mart Stores, Inc. .............................. 22,678
SAVINGS & LOANS - 2.6%
1,750,000 Washington Mutual, Inc. ............................ 61,906
SERVICES (DATA PROCESSING) - 1.1%
600,000 Automatic Data Processing, Inc. .................... 26,400
TELECOMMUNICATIONS (LONG DISTANCE) - 2.1%
900,000 AT&T Corp. ......................................... 50,231
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 4.4%
900,000 Bell Atlantic Corp. ............................. $ 58,838
550,000 *MCI WorldCom, Inc. ................................ 47,438
TOBACCO - 1.9%
1,150,000 Philip Morris Cos., Inc. ........................... 46,216
-------
TOTAL COMMON STOCKS ............................................... 2,323,897
-------
COMMERCIAL PAPER - 2.8%
FINANCIAL (DIVERSIFIED) - 2.8%
67,436,000 Associates First Capital
Corp. 5.60%, due 7/01/99 ............................ 67,436
-------
TOTAL COMMERCIAL PAPER ............................................... 67,436
-------
TOTAL INVESTMENTS - 100.1% ........................................ 2,391,333
Other Assets, less Liabilities ...................................... (3,042)
-------
NET ASSETS ....................................................... $2,388,291
-------
-------
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INCOME FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Income Fund returned 5.31% in the second quarter, 1.79%
year-to-date and -3.81% for the 12 months ending June 30, 1999. These results
trail both the broad averages and the Fund's equity-income peers, which
delivered 9.23%, 8.98% and 11.36% for the same respective periods according to
Lipper, Inc. I am personally very disappointed in these returns. However, as I
look through our portfolio and observe the markets, I see cause for
encouragement in a number of areas.
The best news is that the equity markets, which for the past year have been
extremely narrow (a small number of stocks have been responsible for the
indexes' gains) are broadening and I expect this to continue. The broadening
began in about mid-April as investors became leery of the high valuations of the
handful of mega-cap growth stocks that had driven the market indexes higher.
[PHOTO OF THOMAS R. RATH]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year -3.81%
5 Year 17.61%
10 Year 12.35%
</TABLE>
INVESTMENT VALUE
SAFECO INCOME FUND: $32,034
S&P 500 INDEX: $55,878
<TABLE>
<CAPTION>
SAFECO S&P 500
INCOME FUND INDEX
<S> <C> <C>
6/30/89 10,000 10,000
7/31/89 10,604 10,903
8/31/89 10,777 11,117
9/30/89 10,693 11,071
10/31/89 10,290 10,814
11/30/89 10,406 11,035
12/31/89 10,612 11,300
1/31/90 10,076 10,542
2/28/90 10,123 10,677
3/31/90 10,200 10,960
4/30/90 9,817 10,686
5/31/90 10,334 11,728
6/30/90 10,292 11,649
7/31/90 10,108 11,611
8/31/90 9,359 10,562
9/30/90 8,975 10,047
10/31/90 8,758 10,004
11/30/90 9,295 10,650
12/31/90 9,471 10,948
1/31/91 9,840 11,425
2/28/91 10,406 12,242
3/31/91 10,564 12,538
4/30/91 10,679 12,568
5/31/91 11,002 13,111
6/30/91 10,725 12,511
7/31/91 11,030 13,093
8/31/91 11,364 13,404
9/30/91 11,347 13,180
10/31/91 11,465 13,357
11/30/91 10,992 12,818
12/31/91 11,674 14,285
1/31/92 11,763 14,019
2/28/92 11,801 14,201
3/31/92 11,687 13,924
4/30/92 12,029 14,334
5/31/92 12,142 14,404
6/30/92 12,186 14,189
7/31/92 12,639 14,770
8/31/92 12,547 14,467
9/30/92 12,681 14,638
10/31/92 12,447 14,688
11/30/92 12,767 15,187
12/31/92 13,012 15,373
1/31/93 13,296 15,501
2/28/93 13,549 15,712
3/31/93 14,008 16,044
4/30/93 13,817 15,656
5/31/93 14,000 16,074
6/30/93 14,073 16,121
7/31/93 14,000 16,056
8/31/93 14,460 16,664
9/30/93 14,500 16,536
10/31/93 14,752 16,878
11/30/93 14,573 16,718
12/31/93 14,646 16,920
1/31/94 15,124 17,495
2/28/94 14,785 17,021
3/31/94 14,270 16,281
4/30/94 14,437 16,489
5/31/94 14,445 16,758
6/30/94 14,233 16,347
7/31/94 14,673 16,883
8/31/94 15,137 17,574
9/30/94 14,932 17,145
10/31/94 14,906 17,529
11/30/94 14,377 16,891
12/31/94 14,486 17,141
1/31/95 14,853 17,585
2/28/95 15,318 18,269
3/31/95 15,752 18,808
4/30/95 16,088 19,361
5/31/95 16,559 20,147
6/30/95 16,763 20,614
7/31/95 17,417 21,297
8/31/95 17,543 21,350
9/30/95 18,074 22,251
10/31/95 17,875 22,171
11/30/95 18,500 23,142
12/31/95 18,883 23,589
1/31/96 19,487 24,391
2/28/96 19,535 24,617
3/31/96 19,767 24,854
4/30/96 19,844 25,220
5/31/96 20,501 25,869
6/30/96 20,757 25,968
7/31/96 20,173 24,821
8/31/96 20,553 25,345
9/30/96 21,503 26,770
10/31/96 22,298 27,509
11/30/96 23,468 29,586
12/31/96 23,414 29,000
1/31/97 24,334 30,809
2/28/97 24,367 31,053
3/31/97 23,472 29,780
4/30/97 23,796 31,555
5/31/97 25,504 33,473
6/30/97 26,554 34,973
7/31/97 28,005 37,755
8/31/97 27,578 35,641
9/30/97 28,808 37,593
10/30/97 27,857 36,339
11/30/97 28,864 38,020
12/31/97 29,603 38,672
1/31/98 30,074 39,100
2/28/98 31,784 41,918
3/31/98 33,100 44,063
4/30/98 33,349 44,506
5/31/98 32,626 43,742
6/30/98 33,303 45,518
7/31/98 31,862 45,035
8/31/98 26,978 38,530
9/30/98 27,475 40,999
10/31/98 29,128 44,331
11/30/98 30,731 47,016
12/31/98 31,471 49,724
1/31/99 31,941 51,803
2/28/99 29,728 50,191
3/31/99 30,419 52,199
4/30/99 31,515 54,219
5/31/99 31,163 52,940
6/30/99 32,034 55,878
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As investors began to recognize the disparities in prices and bought stocks
that have some value, a number of our holdings benefited. For instance, in the
second quarter, Chancellor Media, a long-term major position in the Fund, and
DuPont, a recent addition, both appreciated 17%. Hewlett-Packard climbed 48%.
Minnesota Mining and Manufacturing was up 22%, while JC Penney and
Kimberly-Clark gained 19 percent. As the market continues to broaden, I expect
more of our "cheap" holdings to participate.
I was more aggressive during the second quarter about reducing or eliminating
losing positions. The decision to cut losses is one of the most difficult
investment decisions to make. While I still believe that patience is a virtue, I
redoubled my scrutiny of companies that stumble or are surrounded by some
controversy.
In that vein, I substantially reduced our position in Prison Realty with the
goal of eliminating it from the portfolio. The unraveling of Prison Realty was a
significant reason for the underperformance of the Fund year-to-date. Painful as
it is to sell the stock at a loss, I believe that the money is better invested
elsewhere.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Merrill Lynch & Co. ............................................... 4.7%
7.875%, Cvt.
Chancellor Media Corp. ............................................. 4.6
7.00% Cvt. (Broadcasting - TV, Radio & Cable)
Conseco, Inc. ...................................................... 4.4
(Insurance - Life & Health)
Finova Group, Inc. ................................................. 3.6
(Financial Diversified)
Kimberly-Clark Corp. ............................................... 2.9
(Household Products - Non-Durables)
MICROS Systems, Inc. ............................................... 2.9
(Computers - Hardware)
GATX Corp. ......................................................... 2.7
(Railroads)
American Home Products Corp. ....................................... 2.7
(Health Care - Diversified)
GTE Corp. .......................................................... 2.6
(Telephone)
Chase Manhattan Corp. .............................................. 2.5
(Banks - Money Center)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Cadence Design Systems, Inc. ....................................... $8,358
Bristol-Myers Squibb Co. ............................................ 7,641
Conseco, Inc. ....................................................... 5,868
Iron Mountain, Inc. ................................................. 5,406
American Stores Co. ................................................. 4,662
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ............................................ $11,537
American Home Products Corp. ........................................ 8,118
SCI Systems, Inc. ................................................... 8,021
Exxon Corp. ......................................................... 7,411
Automatic Data Processing ............................................ 7,270
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Financial (Diversified) ................................................ 10%
Health Care (Diversified) ................................................ 6
Broadcasting (TV, Radio & Cable) ......................................... 6
Real Estate Investment Trust ............................................. 5
Insurance (Life & Health) ................................................ 5
</TABLE>
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
I established four new positions during the quarter. Two, Bristol-Myers
Squibb and Abbott Labs, are in the health care sector, which declined recently
as investors rotated out of health care in search of more cyclical earnings. I
viewed that as an opportunity to establish long-term positions in strong
companies at attractive prices. With the graying of the baby boom generation, I
think these can be core holdings for some time.
The other two newcomers are Cadence Design, which provides electronic design
automation software to major semiconductor manufacturers, and Iron Mountain, a
document storage services company with high recurring revenues and increasing
margins.
I expanded our position in Merrill Lynch 7 7/8% strypes, a security that is
payable with common shares of Ciber, Inc., which is an information technology
services company that I think has great potential.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C>
Large: 54% ($4 Bil. and above)
Medium: 16% ($1 Bil. - $4 Bil.)
Small: 9% (Less than $1 Bil.)
Preferred Stocks: 14%
Corporate Bonds: 4%
Cash and Other: 3%
</TABLE>
Conseco was unexplainably flat. We think this very cheap insurance stock will
ultimately be valued higher, primarily due to its acquisition of Green Tree
Financial and growth of that subsidiary.
Finova stands to benefit by the attractive warrants it acquired when it
bought Sirrom Capital. Sirrom takes warrants of the venture stage companies it
makes loans to, some of which are internet companies.
With corporate earnings accelerating and interest rates holding steady, I see
the backdrop for stocks as almost ideal. Still, I remain concerned that
large-cap stocks are overpriced and we could see a 10% to 20% correction.
I continue to manage the Fund using the same fundamental principles that made
it a top quartile fund just one year ago. I look for quality companies that have
dominant market positions, growing revenues and earnings, and reasonable
valuations. I believe that our adherence to these criteria will ultimately be
rewarded. I look forward to being able to report much improved results to you in
future quarters.
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 June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 78.7%
AEROSPACE/DEFENSE - 1.6%
155,000 Lockheed Martin Corp. ............................. $ 5,774
BANKS (MAJOR REGIONAL) - 2.1%
99,111 Bank of America Corp. ............................... 7,266
BANKS (MONEY CENTER) - 2.5%
100,000 Chase Manhattan Corp. ............................... 8,663
BEVERAGES (NON-ALCOHOLIC) - 2.3%
210,000 PepsiCo, Inc. ....................................... 8,124
BROADCASTING (TV, RADIO & CABLE) - 1.0%
68,300 *Emmis Communications Corp. (Class A) ................ 3,372
CHEMICALS - 1.4%
70,000 Du Pont (E.I.) de Nemours Co...........................4,782
COMPUTERS (HARDWARE) - 4.0%
38,500 Hewlett-Packard Co. ................................. 3,869
298,800 *MICROS Systems, Inc. .............................. 10,159
COMPUTERS (PERIPHERALS) - 0.9%
127,200 *Quantum Corp. ...................................... 3,069
COMPUTERS (SOFTWARE & SERVICES) - 1.6%
437,000 *Cadence Design Systems, Inc. ....................... 5,572
ELECTRIC COMPANIES - 3.7%
250,000 NIPSCO Industries, Inc. ............................. 6,453
454,700 USEC, Inc. .......................................... 6,764
ELECTRICAL EQUIPMENT - 1.9%
60,000 General Electric Co. ................................ 6,780
FINANCIAL (DIVERSIFIED) - 5.1%
80,000 Federal National Mortgage Association ................ 5,470
238,760 Finova Group, Inc. ................................. 12,565
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FOODS - 0.8%
110,000 ConAgra, Inc. ..................................... $ 2,929
HEALTH CARE (DIVERSIFIED) - 6.1%
80,000 Abbott Laboratories .................................. 3,640
167,000 American Home Products Corp. ........................ 9,603
120,000 Bristol-Myers Squibb Co. ............................ 8,453
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.1%
67,000 Pharmacia & Upjohn, Inc. ............................ 3,806
HEALTH CARE (MAJOR PHARMACEUTICALS) - 1.9%
90,000 Merck & Co., Inc. ................................... 6,660
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 0.4%
28,700 Beckman Coulter, Inc. ............................... 1,396
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.9%
180,000 Kimberly-Clark Corp. ............................... 10,260
INSURANCE (LIFE & HEALTH) - 4.4%
510,000 Conseco, Inc. ...................................... 15,523
INSURANCE (MULTI-LINE) - 1.2%
75,000 Hartford Financial Services Group, Inc. ............. 4,373
LEISURE TIME (PRODUCTS) - 0.3%
144,400 *Family Golf Centers, Inc. .......................... 1,110
LODGING (HOTELS) - 0.6%
320,000 *Suburban Lodges of America, Inc. ................... 2,060
MANUFACTURING (DIVERSIFIED) - 2.0%
80,000 Minnesota Mining & Manufacturing Co. ................ 6,955
OIL (DOMESTIC INTEGRATED) - 2.3%
81,000 Mobil Corp. ......................................... 8,019
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (INTERNATIONAL INTEGRATED) - 4.1%
100,000 Royal Dutch Petroleum Co. (ADR) .................... $ 6,025
135,000 Texaco, Inc. ........................................ 8,438
RAILROADS - 2.7%
252,868 GATX Corp. .......................................... 9,625
REAL ESTATE INVESTMENT TRUST - 5.0%
100,000 Equity Residential Properties Trust .................. 4,506
205,000 First Industrial Realty Trust, Inc. ................. 5,625
185,000 Liberty Property Trust ............................... 4,602
307,700 Prison Realty Corp. ................................. 3,019
RETAIL (DEPARTMENT STORES) - 2.0%
145,000 J.C. Penney Co., Inc. ............................... 7,042
RETAIL (FOOD CHAINS) - 2.2%
148,050 Albertson's, Inc. ................................... 7,634
SAVINGS & LOANS - 1.7%
171,000 Washington Mutual, Inc. ............................. 6,049
SERVICES (COMMERCIAL & CONSUMER) - 1.9%
37,300 Central Parking Corp. ............................... 1,278
190,700 *Iron Mountain, Inc. ................................ 5,459
SERVICES (DATA PROCESSING) - 1.1%
90,000 Automatic Data Processing, Inc. ..................... 3,960
TELEPHONE - 2.6%
120,000 GTE Corp. ........................................... 9,090
TOBACCO - 1.1%
93,000 Philip Morris Cos., Inc. ............................ 3,737
WASTE MANAGEMENT - 2.3%
273,200 Landauer, Inc. ...................................... 8,059
------
TOTAL COMMON STOCKS ................................................. 277,615
------
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PREFERRED STOCKS - 14.1%
BROADCASTING (TV, RADIO & CABLE) - 4.6%
106,000 Chancellor Media Corp.
7.00% Convertible .................................. $16,284
FINANCIAL (DIVERSIFIED) - 4.7%
397,400 Merrill Lynch & Co.
7.875% Convertible .................................. 16,691
INSURANCE (LIFE & HEALTH) - 0.5%
46,300 Conseco Financial Trust Series F
7.00%, due 2/16/01 ................................... 1,861
REAL ESTATE INVESTMENT TRUST - 0.3%
68,900 Prison Realty Trust, Inc.
8.00% Series A ....................................... 1,081
SERVICES (COMMERCIAL & CONSUMER) - 1.8%
311,200 Central Parking
5.25% Convertible .................................... 6,263
TELEPHONE - 2.1%
98,000 Salomon, Inc. 6.25% Exchangeable Convertible to Cincinnati
Bell, Inc. .......................................... 7,546
------
TOTAL PREFERRED STOCKS ............................................... 49,726
------
CORPORATE BONDS - 4.2%
COMPUTERS (PERIPHERALS) - 1.2%
$4,500,000 Quantum Corp.
7.00%, due 8/01/04 ................................... 4,230
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.0%
2,500,000 ALZA Corp.
5.00%, due 5/01/06 ................................... 3,415
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INCOME FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
LEISURE TIME (PRODUCTS) - 2.1%
11,500,000 #Family Golf Centers, Inc.
(144A)
5.75%, due 10/15/04 (acquired 10/10/97) ............ $ 7,317
------
TOTAL CORPORATE BONDS ................................................ 14,962
------
CASH EQUIVALENTS - 1.9%
INVESTMENT COMPANIES
6,809,941 SSgA Prime Money Market Portfolio .................... 6,810
------
TOTAL CASH EQUIVALENTS ................................................ 6,810
------
TOTAL INVESTMENTS - 98.9% ........................................... 349,113
Other Assets, less Liabilities ........................................ 3,807
------
NET ASSETS ......................................................... $352,920
------
------
- -----------------------------------------------------------------------------
</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 $11,552,316 and
total value is 2.1% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO NORTHWEST FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO Northwest Fund outpaced its growth fund peers and the S&P 500 over the
quarter and six months ended June 30, returning 14.84% and 18.27%, respectively,
while the average growth fund returned 7.07% and 11.65% according to Lipper,
Inc. The S&P 500 returned 7.05% and 12.38% for the respective periods.
For the latest 12 months, the Fund was up 13.92%, while the peers returned
18.87% and the S&P gained 22.76%.
[PHOTO OF WILLIAM B. WHITLOW]
Northwest stocks have flourished over the last nine months as the market
anticipates renewed growth in Asian economies. In fact, the export companies
that hurt us so badly last year have helped us year-to-date.
However, because we had a position of size, it was a Seattle-based biotech
that develops vaccines that made the biggest contribution to our portfolio over
the quarter. Corixa is gaining investor visibility through partnerships and
acquisitions.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year 13.92%
5 Year 17.24%
Since Inception* 13.69%
</TABLE>
* The Funds inception was February 7, 1991. Graph and
average annual return comparison begins February 28, 1991.
INVESTMENT VALUE
SAFECO NORTHWEST FUND: $29,136
S&P 500 INDEX: $45,645
WM GROUP NW 50 INDEX: $46,046
<TABLE>
<CAPTION>
SAFECO NORTHWEST S&P 500 WM GROUP NW 50
FUND INDEX INDEX
<S> <C> <C> <C>
2/28/91 10,000 10,000 10,000
3/31/91 10,295 10,242 10,409
4/30/91 10,596 10,267 10,666
5/31/91 10,958 10,710 11,305
6/30/91 10,317 10,220 10,552
7/31/91 10,932 10,696 11,063
8/31/91 11,386 10,949 11,510
9/30/91 11,106 10,766 11,292
10/31/91 10,995 10,911 11,285
11/30/91 10,318 10,471 10,836
12/31/91 11,573 11,669 12,133
1/31/92 12,072 11,452 12,767
2/28/92 12,459 11,601 12,958
3/31/92 12,185 11,375 12,545
4/30/92 11,757 11,709 11,973
5/31/92 11,879 11,766 11,865
6/30/92 11,504 11,591 11,450
7/31/92 11,770 12,065 11,567
8/31/92 11,453 11,818 11,250
9/30/92 11,931 11,957 11,693
10/31/92 12,329 11,998 12,156
11/30/92 12,850 12,406 12,701
12/31/92 13,202 12,558 12,725
1/31/93 13,255 12,663 12,821
2/28/93 12,605 12,835 12,420
3/31/93 13,098 13,106 12,932
4/30/93 12,563 12,789 12,641
5/31/93 12,836 13,130 12,953
6/30/93 12,715 13,169 12,675
7/31/93 12,610 13,116 12,220
8/31/93 12,967 13,612 12,721
9/30/93 12,957 13,508 12,434
10/31/93 13,125 13,787 12,881
11/30/93 13,177 13,656 13,158
12/31/93 13,338 13,821 13,334
1/31/94 13,574 14,291 13,737
2/28/94 13,917 13,904 13,941
3/31/94 13,328 13,299 13,449
4/30/94 13,295 13,470 13,409
5/31/94 13,499 13,689 13,611
6/30/94 13,154 13,354 13,198
7/31/94 13,347 13,792 13,300
8/31/94 13,948 14,356 14,068
9/30/94 13,629 14,005 13,530
10/31/94 13,499 14,319 13,449
11/30/94 13,163 13,798 13,209
12/31/94 13,131 14,002 13,281
1/31/95 13,293 14,365 13,224
2/28/95 13,629 14,924 13,668
3/31/95 14,084 15,364 14,102
4/30/95 14,269 15,816 14,526
5/31/95 14,485 16,458 14,528
6/30/95 15,201 16,840 15,409
7/31/95 15,992 17,397 15,993
8/31/95 16,133 17,440 16,299
9/30/95 16,220 18,176 16,897
10/31/95 16,029 18,111 16,507
11/30/95 15,995 18,904 16,753
12/31/95 15,780 19,269 16,957
1/31/96 15,930 19,924 17,518
2/28/96 16,415 20,110 17,921
3/31/96 17,409 20,303 17,826
4/30/96 17,882 20,602 18,898
5/31/96 18,183 21,132 19,204
6/30/96 17,803 21,213 19,123
7/31/96 16,960 20,276 18,188
8/31/96 17,504 20,704 19,088
9/30/96 17,778 21,868 19,583
10/31/96 17,327 22,471 19,446
11/30/96 18,088 24,168 20,852
12/31/96 18,153 23,689 21,348
1/31/97 19,468 25,168 22,302
2/28/97 19,482 25,366 22,719
3/31/97 18,656 24,326 22,097
4/30/97 19,327 25,776 23,084
5/31/97 20,617 27,343 24,975
6/30/97 21,804 28,568 26,156
7/31/97 23,674 30,841 28,542
8/31/97 23,055 29,115 27,620
9/30/97 24,204 30,709 29,553
10/30/97 23,069 29,685 27,603
11/30/97 24,074 31,058 29,281
12/31/97 23,802 31,591 28,622
1/31/98 23,582 31,940 28,511
2/28/98 26,003 34,242 31,422
3/31/98 26,333 35,994 32,920
4/30/98 26,979 36,356 32,795
5/31/98 25,012 35,732 31,211
6/30/98 25,576 37,183 33,162
7/31/98 24,009 36,788 31,136
8/31/98 19,237 31,475 26,170
9/30/98 20,351 33,491 27,402
10/31/98 21,630 36,213 30,458
11/30/98 23,472 38,407 33,939
12/31/98 24,635 40,619 38,022
1/31/99 26,107 42,316 39,949
2/28/99 25,093 41,000 39,386
3/31/99 25,370 42,640 42,175
4/30/99 25,941 44,291 43,883
5/31/99 27,107 43,245 43,975
6/30/99 29,136 45,645 46,046
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Helping us continue to outperform is our heavy weighting in technology
stocks. One aspect of my strategy regarding technology stocks is to buy
companies that enable internet use, such as Microsoft, Intel, F5 Networks and
telecommunications providers.
F5 Networks is a company that went public on June 4 with a software product
that improves internet efficiency. We sold our initial investment in F5 after it
spiked 310%, but are retaining the rest at a 2.0% position. Visio and
Hewlett-Packard, other members of our core technology pack, were other big
contributors during the latest quarter.
I reduced my position in three of our telecommunications holdings after
they'd done very well. Nextlink, a local exchange carrier that had gained 162%
in the first half of '99; Western Wireless of Issaquah, which was up 128% and
Western's spin-off, Voice Stream.
Microsoft--the largest company in terms of market value in the world, not
just the Northwest--took a breather during the quarter. Microsoft now comprises
62% of the value of our universe of publicly-traded Northwest Companies.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 6.8%
(Computers - Software & Services)
Visio Corp. ........................................................ 4.7
(Computers - Software & Services)
Costco Companies, Inc. ............................................. 4.6
(Retail - General Merchandise)
Intel Corp. ........................................................ 3.7
(Electronics - Semiconductors)
Hewlett-Packard Co. ................................................ 3.6
(Computers - Hardware)
Starbucks Corp. .................................................... 3.5
(Restaurants)
Albertson's, Inc. .................................................. 3.4
(Retail Food Chains)
Schnitzer Steel Industrial, Inc. ................................... 3.4
(Iron & Steel)
Corixa Corp. ....................................................... 3.3
(Biotechnology)
Washington Mutual, Inc. ............................................ 3.2
(Savings & Loans)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Mylan Laboratories, Inc. ........................................... $2,388
Visio Corp. ......................................................... 2,346
Western Wireless Corp. (Class A) ..................................... 1,814
Assisted Living Concepts, Inc. ...................................... 1,706
Northwest Airlines Corp. ............................................ 1,239
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Eagle Hardware & Garden, Inc. ...................................... $3,420
Weyerhaeuser Co. .................................................... 2,444
Starbucks Corp. ..................................................... 2,113
Microsoft Corp. ..................................................... 1,808
Boeing Co. .......................................................... 1,736
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Computers (Software & Services) ........................................ 15%
Health Care (Major Pharmaceuticals) ...................................... 5
Banks (Major Regional) ................................................... 5
Health Care (Medical Products & Supplies) ................................ 4
Savings & Loans .......................................................... 4
</TABLE>
- 20 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Conversely, Boeing is becoming less a part of the Northwest economy and it's
on the downside of its commercial aircraft cycle. We don't own it.
My overriding strategy is to buy and hold core growth stocks. Washington
Mutual, Microsoft, Costco, Starbucks and Expeditors International are stocks I
intend to keep in our portfolio, despite the vagaries of their short-term
performance. I'll cut their position size and take profits when these stocks are
trading richly; and I will add more shares when a fall from grace drops them
into our buy range.
I've overweighted the Fund with technology and export-related businesses,
which I believe are the true long-term drivers of the Northwest economy.
I also try to take advantage of cyclical and sector opportunities as they
appear. Schnitzer Steel and Northwest Airlines are examples of two special
opportunities we're involved in because of their sensitivity to the unfolding
Asian recovery.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS
AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C> <C>
Large: 36% ($4 Bil. and above)
Medium: 18% ($1 Bil. - $4 Bil.)
Small: 46% (Less than $1 Bil.)
</TABLE>
After the Asia crisis virtually scrapped Schnitzer Steel, I kept the stock as
a value play. Schnitzer has roughly half the West Coast market for scrap steel
with 30% of its business in Asia. Indeed, Schnitzer has come back nicely with
Asia.
Having concluded that Asia is improving, I initiated our position in
Northwest Airlines, which derives about one-third of its business from Asia.
Expeditors gives us Asian exposure as well. A high percentage of the freight it
moves originates or terminates in the Pacific Rim.
We expect growth in the Northwest economy, slowed by Boeing employment
reductions, to parallel the national economy through 2000. After that we expect
our regional economy fueled by our Far East ties and our edge on technology to
break away.
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 June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.6%
AIR FREIGHT - 3.0%
81,000 Expeditors International of Washington, Inc. ....... $2,207
AIRLINES - 1.7%
38,000 *Northwest Airlines Corp. ........................... 1,235
BANKS (MAJOR REGIONAL) - 4.5%
63,000 U.S. Bancorp ......................................... 2,142
68,000 West Coast Bancorp, Inc. ............................ 1,190
BANKS (REGIONAL) - 2.0%
78,000 Heritage Financial Corp. .............................. 668
79,000 Washington Banking Co. ................................ 830
BIOTECHNOLOGY - 3.3%
139,000 *Corixa Corp. ....................................... 2,476
BUILDING MATERIALS - 3.2%
77,000 TJ International, Inc. .............................. 2,387
CHEMICALS (DIVERSIFIED) - 3.0%
139,500 Penford Corp. ....................................... 2,267
COMPUTERS (HARDWARE) - 4.2%
19,200 *Apex, Inc. ........................................... 394
27,000 Hewlett-Packard Co. ................................. 2,714
COMPUTERS (SOFTWARE & SERVICES) - 14.9%
36,000 *F5 Networks, Inc. .................................. 1,476
56,000 *Microsoft Corp. .................................... 5,051
49,000 *ONYX Software Corp. ................................ 1,060
93,000 *Visio Corp. ........................................ 3,540
ELECTRONICS (SEMICONDUCTORS) - 3.7%
46,000 Intel Corp. ......................................... 2,737
ENGINEERING & CONSTRUCTION - 2.0%
145,000 *Morrison Knudsen Corp. ............................. 1,495
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DIVERSIFIED) - 1.8%
23,000 American Home Products Corp. ....................... $1,323
HEALTH CARE (DRUGS-GENERIC & OTHER) - 1.5%
77,000 *PathoGenesis Corp. ................................. 1,092
HEALTH CARE (LONG-TERM CARE) - 3.2%
280,000 *Assisted Living Concepts, Inc. (Illiquid) ............. 805
157,000 *Emeritus Corp. ..................................... 1,550
HEALTH CARE (MAJOR PHARMACEUTICALS) - 4.6%
85,000 Mylan Laboratories, Inc. ............................ 2,253
151,000 *Penwest Pharmaceuticals Co. ........................ 1,208
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 4.3%
232,000 *Protocol Systems, Inc. ............................. 2,016
72,000 *SonoSite, Inc. ..................................... 1,224
INSURANCE (LIFE & HEALTH) - 3.0%
76,000 *StanCorp Financial Group, Inc. ..................... 2,280
IRON & STEEL - 3.4%
112,000 Schnitzer Steel Industries, Inc. 2,513
LEISURE TIME (PRODUCTS) - 2.9%
146,100 *Ambassadors International, Inc. .................... 2,173
LODGING (HOTELS) - 1.9%
167,800 *Cavanaughs Hospitality Corp. ....................... 1,416
RESTAURANTS - 3.5%
70,400 *Starbucks Corp. .................................... 2,644
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 22 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO NORTHWEST FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 6.6%
49,120 Albertson's, Inc. .................................. $2,533
86,000 Kroger Co. .......................................... 2,403
RETAIL (GENERAL MERCHANDISE) - 3.7%
35,000 *Costco Companies, Inc. ............................. 2,802
SAVINGS & LOANS - 4.2%
64,000 Riverview Bancorp, Inc. ............................... 720
68,500 Washington Mutual, Inc. ............................. 2,423
SERVICES (DATA PROCESSING) - 2.8%
250,000 *ARIS Corp. ......................................... 2,078
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 3.0%
43,000 *VoiceStream Wireless Corp. ......................... 1,223
37,000 *Western Wireless Corp. (Class A) ...................... 999
TELEPHONE - 2.9%
29,000 *NEXTLINK Communications, Inc. (Class A) ............. 2,157
-----
TOTAL COMMON STOCKS .................................................. 73,701
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 0.6%
INVESTMENT COMPANIES
411,194 SSgA Prime Money Market Portfolio ................... $ 411
-----
TOTAL CASH EQUIVALENTS .................................................. 411
-----
TOTAL INVESTMENTS - 99.1% ............................................ 74,112
Other Assets, less Liabilities .......................................... 648
-----
NET ASSETS .......................................................... $74,760
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 23 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERNATIONAL STOCK FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO International Stock Fund returned 3.27% for the quarter ended June
30, 1999, compared to the EAFE Index return of 2.19%. For the six months and
latest year, the Fund returned 5.63% and 4.05%, respectively, while the EAFE
Index returned 3.24% and 6.05%. Lipper, Inc., reported average returns for
international funds of 5.61%, 7.38% and 4.83% for the respective quarter, six
and 12 months.
Our overweighting in telecommunications made the greatest contribution to
performance and helped the Fund outperform the EAFE over the latest quarter.
That we lag over the 12-month period is due to our overweighting in the UK which
has under-
performed the index and the inclusion of the third quarter of '98, in which our
financial stocks were hard hit by the Russian debt crisis.
Telecom stocks have benefited by explosive growth in mobile phone and
internet usage across the globe. Merger and acquisitions have been beneficial
for investors as well. German-quoted Mannesmann made the largest
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year 4.05%
Since Inception* 11.30%
</TABLE>
* Graph and average annual return comparison begins
January 31, 1996, inception date of the fund.
INVESTMENT VALUE
SAFECO INTERNATIONAL FUND: $14,414
EAFE INDEX: $13,007
<TABLE>
<CAPTION>
SAFECO
INTERNATIONAL EAFE
FUND INDEX
<S> <C> <C>
1/31/96 10,000 10,000
2/28/96 9,940 10,034
3/31/96 10,040 10,247
4/30/96 10,290 10,545
5/31/96 10,250 10,351
6/30/96 10,240 10,409
7/31/96 9,840 10,105
8/31/96 10,240 10,127
9/30/96 10,454 10,396
10/31/96 10,585 10,290
11/30/96 11,249 10,699
12/31/96 11,423 10,561
1/30/97 11,382 10,192
2/28/97 11,534 10,358
3/31/97 11,463 10,396
4/30/97 11,514 10,451
5/31/97 12,050 11,131
6/30/97 12,414 11,731
7/31/97 12,850 11,907
8/31/97 11,747 11,004
9/30/97 12,556 11,607
10/30/97 11,514 10,700
11/30/97 11,585 10,577
12/31/97 11,943 10,656
1/31/98 12,203 11,130
2/28/98 13,013 11,829
3/31/98 13,521 12,179
4/30/98 13,594 12,261
5/31/98 13,718 12,187
6/30/98 13,854 12,265
7/31/98 14,010 12,375
8/31/98 12,181 10,827
9/30/98 11,445 10,480
10/31/98 12,317 11,557
11/30/98 13,272 12,135
12/31/98 13,646 12,599
1/31/99 13,677 12,547
2/28/99 13,594 12,233
3/31/99 13,958 12,728
4/30/99 14,633 13,229
5/31/99 13,916 12,533
6/30/99 14,414 13,007
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 24 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
single contribution to performance as acquisitions increased the value of its
network.
Japanese stocks -- across a variety of themes -- were strong contributors to
the portfolio. Japan has been the best performer among the world's major equity
markets so far this year. Through June 30, The Nikkei 225 Index was ahead by
almost 19%. (Sixteen percent of our net assets are invested here.)
Japanese companies in the technological innovation theme were significant
contributors. Canon unveiled positive earnings news and announced an alliance
with Toshiba to develop flat panel TV screens. Murata Manufacturing overcame
disappointing earnings with a stronger than anticipated order book. And,
investor sentiment toward Sony was bolstered by restructuring plans and
anticipation for Playstation II.
A portion of the portfolio's Japanese exposure was hedged during the quarter
and this added further value to the portfolio.
A number of stocks in the health care needs theme did not fare well as
investors abandoned them for shares in cyclical companies. While the health care
sector sold off in general, Takeda Chemical did not. The Japanese-quoted company
released better-
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
ING Group NV ....................................................... 3.0%
(Banks - Foreign)
Vivendi ............................................................. 2.6
(Services - Commercial & Consummer)
Axa ................................................................. 2.0
(Insurance - Multi-Line)
USB AG .............................................................. 2.0
(Banks - Foreign)
Glaxo Wellcome, plc ................................................. 2.0
(Health Care - Major Pharmaceuticals)
Sony Corp. ......................................................... 1.9
(Electrical Equipment)
Allied Zurich, plc .................................................. 1.9
(Tobacco)
Prudential Corp., plc ............................................... 1.8
(Insurance - Multi-Line)
Takeda Chemical Industries .......................................... 1.7
(Health Care - Major Pharmaceuticals)
Canon, Inc. ........................................................ 1.7
(Office Equipment & Suppies)
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COUNTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
United Kingdom ......................................................... 30%
Japan ................................................................... 16
Switzerland ............................................................. 10
Germany .................................................................. 9
Netherlands .............................................................. 9
<CAPTION>
TOP FIVE PURCHASES COST
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
ING Group NV .......................................................... $325
Vivendi ................................................................ 318
Prudential Corp., plc .................................................. 310
Glaxo Wellcome, plc .................................................... 305
Telecom Italia SpA ..................................................... 241
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Takeda Chemical Industries ............................................ $173
Telecom Italia SpA ..................................................... 137
Mobil Communications Network, Inc. .................................... 113
Safeway, plc ........................................................... 106
Dai Nippon Printing ..................................................... 98
</TABLE>
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
than-expected profits and announced the sale of its less profitable
agri-chemicals business.
Insurance companies generally underperformed during the quarter because of
concern about rising U.S. interest rates and the negative impact this would have
on their bond portfolios.
In the markets, European equities were helped by a buoyant Wall Street and a
half percent cut in interest rates by the European Central Bank. In the UK,
where 30.3% percent of the Fund's net assets are invested, the Bank of England
was credited for creating a "soft landing" for the economy. The Bank cut
interest rates 2 3/4% in the last nine months.
With massive public sector stimulus, the Japanese equity market outperformed
in the first half of 1999. International investors, particularly Americans,
continue to build up their weightings in the market, adding to the positive
sentiment. However, positive earnings news does not mean economic growth has
materially improved. It means the better quality companies have started to
rebuild margins from very depressed levels. We believe Japan truly is a
stock-picker's market.
While there is no doubt the acute crisis in Southeast Asia is over, we do not
believe the structural weakness exposed by it has been fully corrected. We
remain extremely cautious about investing in the region.
In Europe, we think the euro is increasing competition and are attempting to
identify companies that can significantly grow earnings in the single-currency
environment. We believe that companies in the telecom (14.2% of net assets),
pharmaceutical (8.5% of net assets) and financial service sectors (17.6% of net
assets) are most likely to benefit by the single currency and we have positioned
the portfolio accordingly.
Bank of Ireland
Asset Management (U.S.) Limited
- -------------------------------
The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee
is comprised of senior analysts and economists and headed by the company's chief
financial officer. BIAM has managed international equities since 1966 and began
managing U.S. funds in 1989.
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.1%
AUSTRALIA - 5.0%
2,205 Brambles Industries, Ltd. ........................... $ 58
SERVICES (COMMERCIAL & CONSUMER)
25,650 National Australia Bank, Ltd. ......................... 425
BANKS (FOREIGN)
61,519 News Corp., Ltd. ...................................... 525
PUBLISHING
50,418 Telstra Corp., Ltd. ................................... 289
TELEPHONE
23,227 Westpac Banking Corp., Ltd. ........................... 151
BANKS (FOREIGN)
DENMARK - 0.5%
2,820 Tele Danmark AS-B ...................................... 139
TELEPHONE
FRANCE - 8.3%
2,463 Alcatel ................................................ 347
TELEPHONE
4,545 Axa .................................................... 555
INSURANCE (MULTI-LINE)
3,705 Compagnie Generale des Etablissements Michelin ......... 152
AUTO PARTS & EQUIPMENT
4,240 Total SA ............................................... 547
OIL (INTERNATIONAL INTEGRATED)
9,904 Vivendi ................................................ 803
SERVICES (COMMERCIAL & CONSUMER)
GERMANY - 9.3%
4,670 Bayerische HypoVereinsbank AG 304
BANKS (FOREIGN)
397 Bayerische Motoren Werke AG ............................ 273
AUTOMOBILES
9,455 Hoescht AG ............................................. 428
CHEMICALS
8,125 Mannesmann AG ........................................ 1,213
TELEPHONE
5,815 VEBA AG ................................................ 342
ELECTRIC COMPANIES
283 Viag AG ................................................ 134
MANUFACTURING (DIVERSIFIED)
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HONG KONG - 0.6%
4,400 HSBC Holdings, plc .................................... $160
BANKS (FOREIGN)
ITALY - 2.7%
27,595 Ente Nazionale Idrocarburi SpA ......................... 165
OIL (INTERNATIONAL INTEGRATED)
60,030 Telecom Italia SpA ..................................... 624
TELEPHONE
JAPAN - 15.5%
23,000 Canon, Inc. ........................................... 662
OFFICE EQUIPMENT & SUPPLIES
7,000 Fuji Photo Film Co. ................................... 265
OFFICE EQUIPMENT & SUPPLIES
6,000 Honda Motor Co., Ltd. ................................. 254
AUTOMOBILES
13,000 Kao Corp. ............................................. 365
PERSONAL CARE
600 Keyence Corp. ......................................... 105
ELECTRICAL EQUIPMENT
6,000 Murata Manufacturing Co., Ltd. ........................ 395
ELECTRICAL EQUIPMENT
8 NTT Mobile Communication Network, Inc. ................ 108
TELEPHONE
32 NTT Mobile Communications Network, Inc. (Bonus Issue) ...428
TELEPHONE
2,000 Rohm Co., Ltd. ........................................ 313
ELECTRICAL EQUIPMENT
11,000 Shiseido Co., Ltd. .................................... 165
PERSONAL CARE
6,400 Sony Corp. ............................................ 690
ELECTRICAL EQUIPMENT
16,000 Takeda Chemical Industries ............................. 742
HEALTH CARE (MAJOR PHARMACEUTICALS)
NETHERLANDS - 8.8%
11,448 ABN Amro Holdings NV ................................... 248
BANKS (FOREIGN)
8,730 Elsevier NV ............................................ 101
PUBLISHING
18,357 ING Group NV ........................................... 995
BANKS (FOREIGN)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
11,180 Koninklijke Ahold NV .................................. $385
RETAIL (FOOD CHAINS)
7,535 Koninklijke KPN NV ..................................... 354
TELEPHONE
5,345 Royal Dutch Petroleum Co. ............................. 313
OIL (INTERNATIONAL INTEGRATED)
6,660 TNT Post Group NV ...................................... 159
SHIPPING
NEW ZEALAND - 0.2%
12,479 Telecom Corp of New Zealand, Ltd. ...................... 53
TELEPHONE
PORTUGAL - 0.3%
5,065 Electricidade de Portugal, SA ........................... 91
ELECTRIC COMPANIES
SINGAPORE - 1.9%
29,200 Development Bank of Singapore, Ltd. ................... 357
BANKS (FOREIGN)
12,000 Singapore Press Holdings, Ltd. ........................ 204
PUBLISHING
SOUTH KOREA - 0.4%
3,050 #Korea Telecom Corp. (ADR) ............................. 114
TELEPHONE
SPAIN - 2.4%
35,850 Banco Santander Central Hispano, SA .................... 374
BANKS (FOREIGN)
6,689 Telefonica SA .......................................... 322
TELEPHONE
SWEDEN - 0.3%
2,350 Telefonaktiebolaget LM Ericsson ......................... 76
TELECOMMUNICATIONS (LONG DISTANCE)
SWITZERLAND - 10.2%
233 Alusuisse-Lonza Holding AG ............................. 272
MANUFACTURING (DIVERSIFIED)
331 Nestle SA .............................................. 597
FOODS
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
364 Novartis AG ........................................... $532
HEALTH CARE (MAJOR PHARMACEUTICALS)
48 Roche Holding AG ....................................... 494
HEALTH CARE (MAJOR PHARMACEUTICALS)
279 Schweizerische Rueckversicherungs-Gesellschaft 532
INSURANCE (MULTI-LINE)
1,725 UBS AG ................................................. 515
BANKS (FOREIGN)
THAILAND - 0.3%
26,100 Bangkok Bank Public Co., Ltd. .......................... 98
BANKS (FOREIGN)
UNITED KINGDOM - 30.3%
42,565 Allied Zurich, plc ..................................... 532
TOBACCO
11,415 AstraZeneca Group, plc ................................. 442
HEALTH CARE (MEDICAL
PRODUCTS & SUPPLIES)
22,525 Barclays, plc .......................................... 657
BANKS (FOREIGN)
40,415 British American Tobacco, plc .......................... 377
TOBACCO
36,440 Cable & Wireless, plc .................................. 464
TELEPHONE
40,860 Cadbury Schweppes plc .................................. 260
BEVERAGES (NON-ALCOHOLIC)
44,460 Diageo, plc ............................................ 463
BEVERAGES (ALCOHOLIC)
11,436 EMI Group, plc .......................................... 92
LEISURE TIME (PRODUCTS)
24,360 Glaxo Wellcome, plc .................................... 677
HEALTH CARE (MAJOR PHARMACEUTICALS)
29,980 Granada Group, plc ..................................... 560
LEISURE TIME (PRODUCTS)
47,840 Hilton Group, plc ...................................... 190
LODGING (HOTELS)
71,330 Ivensys, plc ........................................... 338
MANUFACTURING (DIVERSIFIED)
18,890 Kingfisher, plc ........................................ 217
RETAIL (DRUG STORES)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERNATIONAL STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
40,190 Lloyds TSB Group, plc ................................. $543
BANKS (FOREIGN)
4,521 National Power, plc ..................................... 33
POWER PRODUCERS (INDEPENDENT)
12,840 National Westminster Bank, plc ......................... 272
BANKS (FOREIGN)
6,950 Pearson, plc ........................................... 141
PUBLISHING
48,430 Prudential Corp., plc .................................. 717
INSURANCE (MULTI-LINE)
5,240 Railtrack Group, plc ................................... 107
RAILROADS
6,715 Safeway, plc ............................................ 27
RETAIL (FOOD CHAINS)
76,784 Shell Transport & Trading Co., plc ..................... 576
OIL (INTERNATIONAL INTEGRATED)
23,100 TI Group, plc .......................................... 156
MANUFACTURING (DIVERSIFIED)
43,620 Vodafone Airtouch, plc ................................. 863
TELEPHONE
7,430 WPP Group, plc .......................................... 63
SERVICES (ADVERTISING/
MARKETING)
-----
TOTAL COMMON STOCKS .................................................. 28,081
-----
TOTAL INVESTMENTS - 97.1% ............................................ 28,081
Domestic Cash .......................................... 593
Foreign Cash ........................................... 109
Other Assets, less
Liabliities ............................................ 126
-----
828
-----
NET ASSETS .......................................................... $28,909
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# Security traded on NYSE and valued in USD.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION
PERCENT OF
NET ASSETS
- -----------------------------------------------------------------------------
<S> <C>
Banks (Foreign) 17.6%
Telephone 14.2
Health Care - (Major Pharmaceuticals) 8.5
Insurance (Multi-line) 6.2
Oil (International Integrated) 5.5
Electrical Equipment 5.2
Machinery (Diversified) 4.2
Publishing 3.4
Office Equipment & Supplies 3.2
Tobacco 3.2
Manufacturing (Diversified) 3.1
Services (Advertising/Marketing) 3.0
Leisure Time (Products) 2.3
Foods 2.1
Automobiles 1.8
Personal Care 1.8
Beverages (Alcoholic) 1.6
Electric Companies 1.5
Health Care (Medical Products & Supplies) 1.5
Chemicals 1.5
Retail (Food Chains) 1.4
Beverages (Non-Alcoholic) 0.9
Retail (Drug Stores) 0.8
Lodging (Hotels) 0.7
Shipping 0.6
Auto Parts & Equipment 0.5
Railroads 0.4
Telecommunications (Long Distance) 0.3
Power Producers (Independent) 0.1
----
97.1%
----
----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO BALANCED FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Balanced Fund returned 6.25%, 4.52% and 10.73%, respectively, for
the second quarter, six and 12 months ended June 30. The average balanced fund
returned 4.43%, 5.57% and 9.98% for the same periods, according to Lipper, Inc.
A split benchmark (60% S&P 500 and 40% Lehman Government/Corporate Index)
returned 3.79%, 6.52% and 14.74% for the quarter, six months and year just
ended. [PHOTO OF REX BENTLEY]
[PHOTO OF MICHAEL HUGHES]
We beat the combined index and peer groups for the latest quarter because the
value style of investing returned to favor. The bonds in the Fund, however, had
a negative total return as interest rates increased. (A longer comparison
against the index reflects that our value style of investing was out of favor.)
The equity portfolio is currently benefiting from a pro-cyclical tilt. We are
overweighted in strong performing sectors such as basic
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year 10.73%
Since Inception* 13.23%
</TABLE>
* Graph and average annual return comparison begins January 31, 1996,
inception date of the fund.
INVESTMENT VALUE
SAFECO BALANCED FUND: $15,287
60% S&P 500/40%/ LEHMAN BROTHERS
GOVERNMENT/CORPORATE INDEX: $17,867
<TABLE>
<CAPTION>
60% S&P 500/40% LEHMAN BROTHERS
SAFECO BALANCED FUND GOVERNMENT/CORPORATE INDEX
<S> <C> <C>
1/31/96 10,000 10,000
2/28/96 9,950 9,971
3/31/96 10,017 9,995
4/30/96 10,077 10,056
5/31/96 10,218 10,204
6/30/96 10,345 10,282
7/31/96 10,112 10,019
8/31/96 10,243 10,137
9/30/96 10,599 10,551
10/31/96 10,813 10,824
11/30/96 11,272 11,394
12/31/96 11,140 11,208
1/30/97 11,473 11,633
2/28/97 11,567 11,698
3/31/97 11,162 11,354
4/30/97 11,414 11,826
5/31/97 11,896 12,302
6/30/97 12,209 12,692
7/31/97 12,905 13,453
8/31/97 12,419 12,941
9/30/97 12,759 13,447
10/30/97 12,622 13,264
11/30/97 12,834 13,660
12/31/97 12,993 13,858
1/31/98 13,083 14,028
2/28/98 13,653 14,624
3/31/98 13,964 15,091
4/30/98 13,884 15,212
5/31/98 13,760 15,106
6/30/98 13,806 15,535
7/31/98 13,500 15,441
8/31/98 12,593 14,224
9/30/98 13,275 14,933
10/31/98 13,983 15,619
11/30/98 14,417 16,224
12/31/98 14,625 16,800
1/31/99 14,638 17,269
2/28/99 14,183 16,782
3/31/99 14,388 17,219
4/30/99 15,026 17,635
5/31/99 15,014 17,313
6/30/99 15,287 17,867
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 30 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
materials, capital goods and energy; and underweighted in the poor-performing
health care sector. Our consumer cyclical names including Armstrong, JC Penney,
and New York Times also added value in the last quarter.
We have initiated positions in Xerox, MCI Worldcom, Bank of America, and
Abbott Labs. Concerns abroad gave us the opportunity to purchase Xerox at a
discount. Xerox is transitioning to digital copiers and expanding its retail
channels. MCI Worldcom is well positioned in the communications services
business through data, voice and Internet services. We bought Bank of America,
after it declined on concerns about rising interest rates. We expect earnings to
accelerate from merger savings and increased market share. We purchased Abbott
Labs when the stock slipped on concerns its acquisition of Alza would dilute
earnings. We think Abbot's earnings will accelerate next year.
[PHOTO OF LYNETTE D. SAGVOLD]
We eliminated positions in Motorola and Wendy's International as they
approached our price targets. We sold Beckman Coulter because cost savings were
not materializing as we anticipated and revenues continued to be disappointing.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN STOCK HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 1.9%
(Banks - Money Center)
Mobil Corp. ........................................................ 1.8
(Oil - Domestic Integrated)
Kimberly-Clark Corp. ............................................... 1.7
(Household Products - Non-Durables)
GTE Corp. .......................................................... 1.7
(Telephone)
Albertson's, Inc. .................................................. 1.6
(Retail - Food Chains)
Banc One Corp. ..................................................... 1.5
(Banks - Regional)
Crane Co. .......................................................... 1.5
(Manufacturing - Diversified)
ALLTEL Corp. ....................................................... 1.4
(Telephone)
Praxair, Inc. ...................................................... 1.4
(Chemicals)
Intel Corp. ........................................................ 1.3
(Electronics - Semiconductors)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(COMMON STOCKS)
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
ALLTEL Corp. ......................................................... $315
Abbott Laboratories .................................................... 308
Nortel Networks Corp. ................................................. 268
Interpublic Group Cos., Inc. .......................................... 265
Mylan Laboratories, Inc. .............................................. 264
<CAPTION>
TOP FIVE SALES
(COMMON STOCKS) PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Corning, Inc. ........................................................ $460
Motorola, Inc. ........................................................ 386
Wendy's International, Inc. ........................................... 347
Beckman Coulter, Inc. ................................................. 277
Hewlett-Packard Co. ................................................... 214
<CAPTION>
TOP FIVE INDUSTRIES PERCENT OF
(COMMON STOCKS) NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Telephone ............................................................... 7%
Health Care (Diversified) ................................................ 4
Manufacturing (Diversified) .............................................. 4
Oil (Domestic Integrated) ................................................ 3
Foods .................................................................... 3
- ----------------------------------------------------------------------------
</TABLE>
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Our belief in value-style investing remains unchanged. We buy stocks with
discount valuation characteristics that have attractive earnings prospects. At
quarter end, the equity portion of the SAFECO Balanced Fund had a P/E ratio
based on 1999 earnings of 19.5 compared to 27.8 for the S&P 500, according to
Baseline. And the projected earnings growth rate for the stocks in our portfolio
is higher than that of the S&P 500.
We believe that the valuation differential between growth and value stocks
remains extraordinary and that value stocks are priced at extremely attractive
levels.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C>
Large: 55% ($4 Bil. and above)
Medium: 8% ($1 Bil. - $4 Bil.)
Small: 0% (Less than $1 Bil.)
Corporate Bonds: 8%
Asset Backed Securities: 3%
U.S. Government Securities: 20%
Cash and Other: 6%
</TABLE>
On the bond side, the conservative structure of our bond portfolio
contributed to its weak performance. About 75% of the bonds in the Fund are U.S.
government and high-quality corporate bonds with maturities of 5 to 10 years.
This maturity range has typically provided a generous yield premium with limited
interest-rate risk.
However, so far this year, securities on this part of the yield curve have
been punished by fears of an extended series of interest rate hikes, massive new
issue supply and mortgage-backed hedging activity. As a result, the high-quality
intermediate securities we hold underperformed the broader market averages.
Still, we are keeping to our goals of yield, quality, and liquidity. At June
30, the bond portfolio's average maturity was 10.87 years. We currently have 50%
of the bonds invested in U.S. Treasuries, 24% in high quality corporate bonds,
20% in mortgage-backed and asset-backed securities and 6% in U.S. government
agency bonds. The average credit quality of the portfolio is AA+.
We are currently targeting a 60% equity and 40% fixed-income asset
allocation. At quarter end, SAFECO Balanced Fund was 62.7% in stocks, 35.7% in
bonds, and 1.8% in cash.
Rex Bentley
Michael Hughes
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.
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.
- 32 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 62.7%
AEROSPACE/DEFENSE - 1.2%
3,600 Boeing Co. ........................................... $159
3,600 Lockheed Martin Corp. ................................. 134
BANKS (MAJOR REGIONAL) - 2.4%
4,000 Bank of America Corp. ................................. 293
9,100 KeyCorp ................................................ 292
BANKS (MONEY CENTER) - 1.9%
5,300 Chase Manhattan Corp. ................................. 459
BANKS (REGIONAL) - 1.5%
6,330 Banc One Corp. ........................................ 377
BEVERAGES (NON-ALCOHOLIC) - 0.9%
6,000 PepsiCo, Inc. ......................................... 232
BUILDING MATERIALS - 1.1%
4,500 Armstrong World Industries, Inc. ...................... 260
CHEMICALS - 2.5%
4,000 Du Pont (E.I.) de Nemours & Co. ....................... 273
6,800 Praxair, Inc. ......................................... 333
COMMUNICATION EQUIPMENT - 1.1%
3,100 Nortel Networks Corp. ................................. 269
COMPUTERS (HARDWARE) - 1.3%
3,100 Hewlett-Packard Co. ................................... 312
COMPUTERS (PERIPHERALS) - 1.0%
10,700 * Quantum Corp. ....................................... 258
COMPUTERS (SOFTWARE & SERVICES) - 1.3%
10,800 *Cadence Design Systems, Inc. ......................... 138
10,900 *PeopleSoft, Inc. ..................................... 188
ELECTRIC COMPANIES - 2.0%
5,200 New Century Energies, Inc. ............................ 202
11,700 NIPSCO Industries, Inc. ............................... 302
ELECTRICAL EQUIPMENT - 1.1%
4,500 Emerson Electric Co. .................................. 283
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRONICS (SEMICONDUCTORS) - 1.3%
5,600 Intel Corp. .......................................... $333
ENTERTAINMENT - 0.9%
7,000 The Walt Disney Co. ................................... 216
FINANCIAL (DIVERSIFIED) - 1.8%
2,700 American General Corp. ................................ 204
3,500 Federal National Mortgage Association .................. 239
FOODS - 2.5%
11,300 ConAgra, Inc. ......................................... 301
7,600 Dean Foods Co. ........................................ 316
HEALTH CARE (DIVERSIFIED) - 4.2%
7,000 Abbott Laboratories .................................... 319
4,200 American Home Products Corp..............................242
3,300 Bristol-Myers Squibb Co. .............................. 232
2,600 Johnson & Johnson ...................................... 255
HEALTH CARE (MAJOR PHARMACEUTICALS) - 1.8%
2,500 Merck & Co., Inc. ..................................... 185
9,800 Mylan Laboratories, Inc. .............................. 260
HOUSEHOLD PRODUCTS (NON-DURABLES) - 1.7%
7,400 Kimberly-Clark Corp. .................................. 422
INSURANCE (LIFE & HEALTH) - 1.3%
10,800 Conseco, Inc. ......................................... 329
INSURANCE (MULTI-LINE) - 1.2%
5,100 Hartford Financial Services Group, Inc. ............... 297
MANUFACTURING (DIVERSIFIED) - 3.6%
3,700 AlliedSignal, Inc. .................................... 233
11,400 Crane Co. ............................................. 358
3,300 Minnesota Mining & Manufacturing Co. .................. 287
OFFICE EQUIPMENT & SUPPLIES - 1.0%
4,000 Xerox Corp. ........................................... 236
OIL (DOMESTIC INTEGRATED) - 3.0%
3,800 Atlantic Richfield Co. ................................ 318
4,400 Mobil Corp. ........................................... 436
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 33 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (INTERNATIONAL INTEGRATED) - 1.2%
4,900 Texaco, Inc. ....................................... $ 306
OIL & GAS (DRILLING & EQUIPMENT) - 1.0%
5,400 Halliburton Co. ....................................... 244
PAPER & FOREST PRODUCTS - 1.0%
5,000 International Paper Co. ............................... 253
PUBLISHING (NEWSPAPERS) - 1.1%
7,700 New York Times Co.
(Class A) .............................................. 283
REAL ESTATE INVESTMENT TRUST - 1.9%
3,200 Equity Residential Properties Trust .................... 144
6,800 First Industrial Realty Trust, Inc.......................187
5,800 Liberty Property Trust ................................. 144
RETAIL (DEPARTMENT STORES) - 2.1%
6,000 J.C. Penney Co., Inc. ................................. 291
5,850 May Department Stores Co. ............................. 239
RETAIL (FOOD CHAINS) - 1.6%
7,749 Albertson's, Inc. ..................................... 400
SAVINGS & LOANS - 1.2%
8,100 Washington Mutual, Inc. ............................... 287
SERVICES (ADVERTISING/MARKETING) - 1.2%
3,500 Interpublic Group Cos., Inc. .......................... 303
TELEPHONE - 6.5%
4,800 ALLTEL Corp. .......................................... 343
4,700 Bell Atlantic Corp. ................................... 307
7,700 Century Telephone Enterprises, Inc. ................... 306
5,500 GTE Corp. ............................................. 417
2,800 *MCI WorldCom, Inc. ................................... 242
-----
TOTAL COMMON STOCKS .................................................. 15,477
-----
CORPORATE BONDS - 8.4%
AIR FREIGHT - 0.5%
$137,230 Federal Express Corp.....................................134
6.845%, due 1/15/19
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BANKS (MAJOR REGIONAL) - 0.5%
$135,000 Bank of America Corp.
6.625%, due 6/15/04 .................................. $ 135
ENGINEERING & CONSTRUCTION - 0.3%
75,000 Halliburton Co.
6.75%, due 2/01/27 ...................................... 74
FINANCIAL (DIVERSIFIED) - 5.2%
85,000 Aristar, Inc
7.25%, due 6/15/06 ...................................... 85
200,000 CIT Group, Inc.
5.57%, due 12/08/03 .................................... 191
150,000 First Union Corp.
6.625%, due 6/15/04 .................................... 150
170,000 Ford Motor Credit Co.
5.80%, due 1/12/09 ..................................... 155
150,000 General Motors Acceptance Corp.
5.95%, due 3/14/03 ..................................... 147
195,000 Hertz Corp.
7.00%, due 7/01/04 ..................................... 196
95,000 McDonnell Douglas Corp.
6.83%, due 5/21/01 ...................................... 95
85,000 Merrill Lynch & Co., Inc.
6.00%, due 2/17/09 ...................................... 78
195,000 Sears Roebuck Acceptance Corp.
6.25%, due 5/01/09 ..................................... 183
NATURAL GAS - 0.9%
250,000 National Fuel Gas Co.
6.00%, due 3/01/09 ..................................... 232
RETAIL (DEPARTMENT STORES) - 0.7%
180,000 Nordstrom, Inc.
5.625%, due 1/15/09 .................................... 164
TELEPHONE - 0.3%
30,000 AT&T Corp.
5.625%, due 3/15/04 ..................................... 29
40,000 AT&T Corp.
6.50%, due 3/15/29 ...................................... 36
-----
TOTAL CORPORATE BONDS ................................................. 2,086
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO BALANCED FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 3.0%
CONSUMER FINANCE - 0.8%
$210,000 MBNA Master Credit Card Trust
5.90%, due 8/15/11 .................................. $ 198
ELECTRIC COMPANIES - 0.5%
130,000 ComEd Transitional Funding Trust
5.63%, due 6/25/09 ..................................... 123
FINANCIAL (DIVERSIFIED) - 1.7%
254,000 Citicorp Mortgage Securities, Inc.
6.50%, due 6/25/29 ..................................... 244
185,000 Heller Financial Commercial
Mortgage Asset Corp.
6.847%, due 5/15/31 .................................... 184
-----
TOTAL ASSET BACKED SECURITIES ........................................... 749
-----
MORTGAGE BACKED SECURITIES - 4.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 2.95%
301,330 6.00%, due 1/01/29 ..................................... 284
226,502 7.00%, due 3/01/12 ..................................... 228
212,607 8.00%, due 2/15/29 ..................................... 218
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) - 1.22%
242,429 7.00%, due 4/15/28 ..................................... 240
61,323 7.00%, due 8/15/28 ...................................... 61
-----
TOTAL MORTGAGE BACKED
SECURITIES ............................................................ 1,030
-----
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT OBLIGATIONS - 20.1%
U.S. FEDERAL AGENCY NOTES - 2.1%
$200,000 5.125%, due 2/13/04 ................................. $ 192
330,000 6.375%, due 6/15/09 .................................... 327
U.S. TREASURY NOTES - 18.0%
1,025,000 5.375%, due 6/30/00 .................................. 1,026
15,000 5.875%, due 6/30/00 ..................................... 15
545,000 6.375%, due 8/15/02 .................................... 555
885,000 6.50%, due 10/15/06 .................................... 913
245,000 6.50%, due 8/15/05 ..................................... 253
15,000 6.875%, due 3/31/00 ..................................... 15
375,000 7.25%, due 8/15/04 ..................................... 398
1,125,000 7.50%, due 11/15/16 .................................. 1,264
-----
TOTAL U.S. GOVERNMENT
OBLIGATIONS ........................................................... 4,957
-----
CASH EQUIVALENTS - 1.8%
INVESTMENT COMPANIES:
446,861 SSgA Prime Money Market Portfolio ...................... 447
-----
TOTAL CASH EQUIVALENTS .................................................. 447
-----
TOTAL INVESTMENTS - 100.2% ........................................... 24,746
-----
Other Assets, less Liabilities ......................................... (43)
-----
NET ASSETS .......................................................... $24,703
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 35 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO SMALL COMPANY STOCK FUND
June 30, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO Small Company Fund's performance has been disappointing. For the
quarter, six and 12 months ended June 30, the Fund returned 1.67%, -7.17% and
- -36.48%, respectively. For the same periods the average small company fund
returned 15.56%, 8.56% and 1.93% according to Lipper Inc. The Russell 2000
returned 15.55%, 9.29% and 1.50%, respectively.
While a few of our stocks were punished for earnings disappointments, a
number of the Fund's holdings simply went unnoticed and continue to bear very
low valuations. [PHOTO OF GREG EISEN]
Over the past five quarters-- as small-cap value stocks grossly
underperformed the broad market--my strategy of purchasing stocks of sound
businesses with low valuations and improving prospects and earnings has failed
to provide a meaningful return. However, small-cap stocks began to be recognized
during the second quarter. Unfortunately,
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year -36.48%
Since Inception* 3.45%
</TABLE>
* Graph and average annual return comparison begins
January 31, 1996, inception date of the fund.
INVESTMENT VALUE
SAFECO SMALL COMPANY FUND: $11,229
RUSSELL 2000 INDEX: $15,229
<TABLE>
<CAPTION>
SAFECO SMALL RUSSELL 2000
COMPANY FUND INDEX
<S> <C> <C>
1/31/96 10,000 10,000
2/28/96 10,150 10,312
3/31/96 10,490 10,522
4/30/96 11,550 11,084
5/31/96 12,350 11,521
6/30/96 12,030 11,048
7/31/96 11,220 10,083
8/31/96 11,910 10,668
9/30/96 12,183 11,085
10/31/96 12,162 10,914
11/30/96 12,024 11,364
12/31/96 12,501 11,662
1/30/97 12,606 11,895
2/28/97 12,342 11,606
3/31/97 11,918 11,058
4/30/97 11,675 11,089
5/31/97 12,786 12,324
6/30/97 13,464 12,852
7/31/97 14,385 13,452
8/31/97 14,670 13,756
9/30/97 16,121 14,760
10/30/97 15,538 14,103
11/30/97 15,443 14,007
12/31/97 15,423 14,259
1/31/98 15,325 14,042
2/28/98 16,886 15,095
3/31/98 18,458 15,729
4/30/98 19,119 15,815
5/31/98 18,078 14,967
6/30/98 17,677 15,010
7/31/98 15,640 13,784
8/31/98 11,120 11,112
9/30/98 11,673 11,972
10/31/98 11,413 12,463
11/30/98 11,586 13,121
12/31/98 12,096 13,940
1/31/99 12,453 14,121
2/28/99 11,684 12,977
3/31/99 11,044 13,180
4/30/99 10,936 14,360
5/31/99 10,979 14,570
6/30/99 11,229 15,229
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment into a relevant market index. The index is
unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
- 36 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
our portfolio, with its $292 million average market capitalization, has yet to
be affirmed.
Still, I believe that other investors will ultimately recognize the value
that I perceive in our portfolio and that recognition will result in a higher
share price.
One significant disappointment this quarter was in our largest holding,
Equitrac. Equitrac was slated to be bought out at $25 per share. With financing
in place and due diligence done, the buy-out investment firm renegotiated the
price to $21. That knocked 16% off my anticipated sales price.
I constantly reevaluate the Fund's holdings, asking if the reason I purchased
the stock in the first place still stands. While I eliminated positions that
failed on that account, such as Stage Stores and Platinum Software, I'm holding
those, such as Litchfield Financial Corp, that still make sense.
Litchfield makes land and time-share loans, which banks normally do not. The
high yields
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Equitrac Corp. .................................................... 7.6%
(Computers - Hardware)
Litchfield Financial Corp. ......................................... 5.6
(Financial - Diversified)
Ingles Markets, Inc. ............................................... 4.5
(Retail - Food Chains)
Rollins Truck Leasing Corp. ........................................ 4.3
(Trucking)
International Aircraft Investors, Inc. ............................. 4.3
(Aerospace/Defense)
Timberline Software Corp. .......................................... 3.8
(Computers - Software & Services)
Vallen Corp. ....................................................... 3.8
(Health Care - Med. Products & Supplies)
Imax Corp. ......................................................... 3.7
(Manufacturing - Specialized)
Craig Corp. (Class A) ............................................... 3.3
(Entertainment)
MICROS Systems, Inc. ............................................... 3.2
(Computers - Hardware)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Rollins Truck Leasing Corp. ........................................ $1,363
Imax Corp. .......................................................... 1,148
HA-LO Industries, Inc. .............................................. 1,111
Central Parking Corp. ................................................. 959
ResortQuest International, Inc. ....................................... 791
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Hooper Holmes, Inc. ................................................ $1,599
Emmis Communication Corp. (Class A) .................................. 1,262
Wet Seal, Inc. (Class A) ............................................. 1,191
Landauer, Inc. ...................................................... 1,174
Styling Technology Corp. .............................................. 957
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Computers (Hardware) ................................................... 13%
Financial (Diversified) ................................................. 11
Services (Commercial & Comsumer) ......................................... 9
Computers (Software & Services) .......................................... 7
Health Care (Medical Products & Supplies) ................................ 5
- ----------------------------------------------------------------------------
</TABLE>
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
on these loans provide good return. In fact, Litchfield has a long record of 20%
or better earnings growth, yet their stock is trading at 10 times earnings. I
have to believe patience here will ultimately be rewarded.
I'm also waiting on International Aircraft Investors, a micro-cap that leases
narrow-body aircraft to passenger airlines. If they do nothing, their current
leases assure they'll earn $0.90 per share on what is now a $7 stock. Yet
they've embarked on an expansion plan that could grow earnings 30%. I believe
this is a stock waiting to be "discovered".
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C>
Mid-Cap: 6% ($1 billion - $4 billion)
Small-Cap: 81% (Under $1 billion)
Large: 0% (over $750 million)
Medium: 25% ($250 - $750 million)
Small: 56% (under $250 million)
Cash and Other: 13%
</TABLE>
I have been buying new names with "larger" capitalizations (greater than $500
million) in order to raise the Fund's average capitalization. We bought Central
Parking, Regis Corp and Rent-A-Center on price dips. Central Parking is the
largest operator of parking facilities in the country, while Regis is the
largest operator of haircutting establishments (Supercuts). Both have very good
cash flow characteristics.
Rent-A-Center is our second holding in the rent-to-own industry, the other
being Rent-Way. Both companies are consolidators and can grow earnings by
bringing their acquired stores' level of profitability up to their existing
stores. These two stocks may stay under pressure until they show the earnings
improvements expected.
In the first quarter, I bought OfficeMax and Imax. Imax has an exclusive
engagement with Disney to screen Fantasia 2000.
Though our average capitalization grew to $292 million, the Fund is still
tilted towards a value style. At June 30, the portfolio's price/earnings ratio
on year 1999 earnings estimates was 13 times. The Fund's PEG ratio, a ratio of
price/earnings to the company's forward growth rate, was .50 times. It's an
additional indication that the portfolio is inexpensively valued.
Going forward, I'll be searching for more liquid stocks with larger market
capitalizations, while adhering to my discipline of buying solid small company
stocks at attractive valuations.
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.
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 86.6%
AEROSPACE/DEFENSE - 4.3%
194,950 *International Aircraft Investors, Inc. ............ $1,377
BANKS (REGIONAL) - 2.7%
55,010 *Hanmi Bank (Los Angeles, CA) .......................... 866
BROADCASTING (TV, RADIO & CABLE) - 1.9%
12,500 *Emmis Communications Corp. (Class A) .................. 617
COMPUTERS (HARDWARE) - 12.5%
9,900 *Apex, Inc. ........................................... 203
130,300 *Equitrac Corp. ..................................... 2,459
30,400 *MICROS Systems, Inc. ............................... 1,034
35,100 *Optimal Robotics Corp. ............................... 349
COMPUTERS (SOFTWARE & SERVICES) - 6.9%
28,200 *3Dfx Interactive, Inc. ............................... 441
22,000 *ITT Educational Services, Inc. ....................... 573
78,100 Timberline Software Corp. ........................... 1,230
ELECTRONICS (DEFENSE) - 0.8%
33,550 *Comptek Research, Inc. ............................... 270
ENTERTAINMENT - 0.2%
9,400 *Craig Corp. ........................................... 66
FINANCIAL (DIVERSIFIED) - 11.0%
51,000 *Hawthorne Financial Corp. ............................ 829
106,675 Litchfield Financial Corp. .......................... 1,807
78,800 *Ragen MacKenzie Group, Inc. .......................... 936
HEALTH CARE (MEDICAL PRODUCTS &
SUPPLIES) - 5.4%
254,700 *InnerDyne, Inc. ...................................... 509
76,800 *Vallen Corp. ....................................... 1,229
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INSURANCE (PROPERTY-CASUALTY) - 2.5%
95,900 *American Safety Insurance Group, Ltd. ............. $ 809
LODGING (HOTELS) - 0.7%
28,000 ResortQuest International, Inc. ....................... 231
MANUFACTURING (DIVERSIFIED) - 3.8%
110,500 Lancer Corp. .......................................... 925
54,300 Motorcar Parts & Accessories, Inc. .................... 292
MANUFACTURING (SPECIALIZED) - 3.7%
52,700 *Imax Corp. ......................................... 1,186
PERSONAL CARE - 2.9%
45,000 *French Fragrances, Inc. .............................. 329
46,600 *Styling Technology Corp. ............................. 606
RESTAURANTS - 1.4%
45,200 *Taco Cabana, Inc. (Class A) ........................... 460
RETAIL (DEPARTMENT STORES) - 1.4%
52,000 *Musicland Stores Corp. ............................... 462
RETAIL (DISCOUNTERS) - 2.7%
72,500 *OfficeMax, Inc. ...................................... 870
RETAIL (FOOD CHAINS) - 4.5%
95,600 Ingles Markets, Inc. ................................ 1,458
SERVICES (ADVERTISING/MARKETING) - 2.2%
72,400 *HA-LO Industries, Inc. ............................... 715
SERVICES (COMMERCIAL & CONSUMER) - 8.5%
28,700 Central Parking Corp. ................................. 983
39,915 *Monro Muffler Brake, Inc. ............................ 319
29,500 *Rent-A-Center, Inc. .................................. 708
29,700 *Rent-Way, Inc. ....................................... 731
TEXTILES (HOME FURNISHINGS) - 2.4%
265,400 *Krause's Furniture, Inc. ............................. 780
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO SMALL COMPANY STOCK FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TRUCKING - 4.3%
124,500 Rollins Truck Leasing
Corp. .............................................. $1,385
-----
TOTAL COMMON STOCKS .................................................. 28,045
-----
PREFERRED STOCKS - 3.3%
ENTERTAINMENT - 3.3%
152,500 *Craig Corp. (Class A) ............................... 1,077
-----
TOTAL PREFERRED STOCKS ................................................ 1,077
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CASH EQUIVALENTS - 7.7%
INVESTMENT COMPANIES
1,611,461 SSgA Prime Money Market Portfolio .................. $ 1,611
897,303 SSgA U.S. Treasury Money Market Portfolio .............. 897
-----
TOTAL CASH EQUIVALENTS ................................................ 2,509
-----
TOTAL INVESTMENTS - 97.7% ............................................ 31,631
Other Assets, less Liabilities .......................................... 747
-----
NET ASSETS .......................................................... $32,378
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 40 -
<PAGE>
REPORT FROM THE FUND MANAGERS
SAFECO U.S. VALUE FUND
June 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We are pleased to report that during the second quarter, the market finally
recognized value and rewarded shareholders who stuck with their value-investing
discipline. In the three months ending June 30, the Russell 1000 Value Index
returned 10.8% while the Russell 1000 Growth Index returned just 3.8%.
For the quarter the U.S. Value Fund returned 11.90% outperforming the Russell
1000 Value Index, the S&P 500's 7.05%, and the Lipper Growth & Income peer
group's 9.04%. [PHOTO OF REX BENTLEY]
This new life for value investors came after the Russell 1000 Growth Index
had outperformed the Russell 1000 Value Index, 47.5% to 17.3%, over the five
previous quarters. This disparity is reflected in the six- and 12-month returns.
The Fund returned 10.30% and 15.69% for the year-to-date and the last twelve
months, respectively. For the same periods, the S&P 500 returned 12.38% and
22.76%.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED JUNE 30, 1999
<S> <C>
1 Year 15.69%
Since Inception* 19.06%
</TABLE>
* Graph and average annual return comparison begins
April 30, 1997, inception date of the fund.
INVESTMENT VALUE
SAFECO U.S. VALUE FUND: $14,594
S&P 500 INDEX: $17,708
<TABLE>
<CAPTION>
SAFECO
U.S. VALUE S&P 500
FUND INDEX
<S> <C> <C>
4/30/97 10,000 10,000
5/31/97 10,670 10,608
6/30/97 11,053 11,083
7/31/97 11,915 11,965
8/31/97 11,283 11,295
9/30/97 11,669 11,914
10/30/97 11,307 11,516
11/30/97 11,599 12,049
12/31/97 11,749 12,256
1/31/98 11,760 12,391
2/28/98 12,621 13,284
3/31/98 13,095 13,964
4/30/98 12,905 14,104
5/31/98 12,631 13,862
6/30/98 12,615 14,425
7/31/98 12,151 14,272
8/31/98 10,662 12,211
9/30/98 11,380 12,993
10/31/98 12,374 14,049
11/30/98 12,999 14,900
12/31/98 13,231 15,758
1/31/99 13,243 16,417
2/28/99 12,799 15,906
3/31/99 13,042 16,542
4/30/99 13,997 17,183
5/31/99 14,118 16,777
6/30/99 14,594 17,708
</TABLE>
The performance graph compares a hypothetical
$10,000 investment in the Fund to a hypothetical
investment into a relevant market index. The index
is unmanaged. Past performance is not predictive
of future performance. Investment return and
principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their
original cost.
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While one quarter certainly doesn't make up for the previous five, it is at
the very least a good start. We think three main factors brought investors back
to value. One is the recent strength shown by some foreign economies, especially
in Asia, which increases world demand and reduces excess capacity. This in turn
should remove some of the pressure on pricing of goods and materials. Second,
the rise in interest rates makes future earnings worth less today. Third, and
perhaps most important, the premium valuation of growth stocks relative to value
stocks was at an all-time high. As happens over and over, the market went too
far one way, then reversed course.
[PHOTO OF LYNETTE D. SAGVOLD]
Helping the Fund outperform the indexes was our pro-cyclical tilt. We were
overweighted in strong performing sectors such as basic materials, capital goods
and energy; and underweighted in the poor-performing health care sector. Our
consumer cyclical names including Armstrong, JC Penney, and New York Times also
added value. Being underweighted in technology and overweighted in financials in
a rising interest-rate environment had a dampening effect on performance.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TOP TEN HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 2.9%
(Banks - Money Center)
GTE Corp. .......................................................... 2.7
(Telephone)
Mobil Corp. ........................................................ 2.7
(Oil - Domestic Integrated)
Kimberly-Clark Corp. ............................................... 2.7
(Household Products - Non-Durables)
Crane Co. .......................................................... 2.4
(Manufacturing - Diversified)
ALLTEL Corp. ....................................................... 2.2
(Telephone)
Albertson's, Inc. .................................................. 2.2
(Retail Food Chains)
Intel Corp. ........................................................ 2.1
(Electronics - Semiconductors)
Dean Foods Co. ..................................................... 2.1
(Foods)
Conseco, Inc. ...................................................... 2.1
(Insurance - Health & Life)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES
(Jan. to June) COST (000'S)
- ----------------------------------------------------------------------------
<S> <C>
ALLTEL Corp. ......................................................... $242
Abbott Laboratories .................................................... 220
Emerson Electric Co. .................................................. 219
Nortel Networks Corp. ................................................. 211
Interpublic Group Cos., Inc. .......................................... 204
<CAPTION>
TOP FIVE SALES PROCEEDS
(Jan. to June) (000'S)
- ----------------------------------------------------------------------------
<S> <C>
Corning, Inc. ........................................................ $318
Merck & Co., Inc. ..................................................... 288
Motorola, Inc. ........................................................ 284
Wendy's International, Inc. ........................................... 276
Beckman Coulter, Inc. ................................................. 217
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ----------------------------------------------------------------------------
<S> <C>
Telephone .............................................................. 10%
Health Care (Diversified) ................................................ 7
Manufacturing (Diversified) .............................................. 6
Oil (Domestic Integrated) ................................................ 5
Foods .................................................................... 4
- ----------------------------------------------------------------------------
</TABLE>
- 42 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
During the second quarter of 1999 we initiated positions in Xerox, MCI
Worldcom, Bank of America, and Abbott Labs. Concerns about business in Brazil
and Europe gave us the opportunity to purchase Xerox at a discount. Xerox is
transitioning to digital copiers and expanding in retail channels that serve the
small business and home office markets.
MCI Worldcom is well positioned in the communications services business
through data, voice and Internet services. We bought the stock on a dip and
believe that the strong earnings growth prospects justify the premium valuation.
We bought Bank of America, after the stock declined on concerns about rising
interest rates. Earnings should begin to accelerate from merger savings and
increased market share.
We purchased Abbott Labs at a discount after the stock had fallen on concerns
that its acquisition of Alza, a leading drug delivery company, would dilute
earnings. We think Abbott's earnings will accelerate next year.
We eliminated positions in Motorola and Wendy's International as they
approached our price targets. We sold Beckman Coulter because cost savings
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
WEIGHTINGS AS A PERCENT OF NET ASSETS
COMMON STOCKS
<S> <C>
Large: 84% ($4 Bil. and above)
Medium: 13% ($1 Bil. - $4 Bil.)
Small: 0% (Less than $1 Bil.)
Cash & Other: 3%
</TABLE>
were not materializing as we anticipated and revenues in Japan and Germany
continued to be disappointing.
At June 30, the SAFECO U.S. Value Fund's P/E ratio based on 1999 earnings was
19.5 compared to 27.8 for the S&P 500. Regarding the markets, we believe that
the valuation differential between growth and value stocks is still too large.
In our opinion, value stocks are priced at extremely attractive levels.
Our strategy in managing the Fund and our belief in value-style investing
remains unchanged. We will continue to buy stocks with discount value
characteristics that have attractive earnings prospects. We hope that will prove
rewarding in the future.
Rex Bentley
Lynette D. Sagvold
- -------------------------------
Rex Bentley, an MBA from Brigham Young University and Chartered Financial
Analyst, has more than 20 years of investment experience.
Lynette D. Sagvold holds a BA in business administration from the University of
Washington and is a Chartered Financial Analyst. She began her investment career
in 1981 at Kidder Peabody and was a trust officer for Key Trust and First
Interstate before joining SAFECO as a portfolio manager and insurance analyst.
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.2%
AEROSPACE/DEFENSE - 1.9%
2,600 Boeing Co. ........................................... $115
2,800 Lockheed Martin Corp. ................................. 104
BANKS (MAJOR REGIONAL) - 3.9%
3,000 Bank of America Corp. ................................. 220
7,400 KeyCorp ................................................ 238
BANKS (MONEY CENTER) - 2.9%
3,900 Chase Manhattan Corp. ................................. 338
BANKS (REGIONAL) - 1.8%
3,640 Banc One Corp. ........................................ 217
BEVERAGES (NON-ALCOHOLIC) - 1.6%
5,000 PepsiCo, Inc. ......................................... 193
BUILDING MATERIALS - 1.7%
3,500 Armstrong World Industries, Inc..........................202
CHEMICALS - 3.8%
3,100 Du Pont (E.I.) de Nemours & Co...........................212
4,800 Praxair, Inc. ......................................... 235
COMMUNICATION EQUIPMENT - 1.7%
2,300 Nortel Networks Corp. ................................. 200
COMPUTERS (HARDWARE) - 2.0%
2,300 Hewlett-Packard Co. ................................... 231
COMPUTERS (PERIPHERALS) - 1.7%
8,100 *Quantum Corp. ........................................ 195
COMPUTERS (SOFTWARE & SERVICES) - 2.1%
8,100 *Cadence Design Systems, Inc. ......................... 103
8,300 *PeopleSoft, Inc. ..................................... 143
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRIC COMPANIES - 3.2%
3,700 New Century Energies, Inc. ........................... $144
9,200 NIPSCO Industries, Inc. ............................... 237
ELECTRICAL EQUIPMENT - 2.0%
3,800 Emerson Electric Co. .................................. 239
ELECTRONICS (SEMICONDUCTORS) - 2.1%
4,200 Intel Corp. ........................................... 250
ENTERTAINMENT - 1.4%
5,500 The Walt Disney Co. ................................... 169
FINANCIAL (DIVERSIFIED) - 2.5%
2,100 American General Corp. ................................ 158
2,000 Federal National Mortgage Association .................. 137
FOODS - 4.0%
8,400 ConAgra, Inc. ......................................... 224
5,900 Dean Foods Co. ........................................ 245
HEALTH CARE (DIVERSIFIED) - 6.7%
5,000 Abbott Laboratories .................................... 228
3,200 American Home Products Corp..............................184
2,600 Bristol-Myers Squibb Co. .............................. 183
2,000 Johnson & Johnson ...................................... 196
HEALTH CARE (MAJOR PHARMACEUTICALS) - 2.3%
1,000 Merck & Co., Inc. ...................................... 74
7,400 Mylan Laboratories, Inc. .............................. 196
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.7%
5,500 Kimberly-Clark Corp. .................................. 314
INSURANCE (LIFE & HEALTH) - 2.1%
8,000 Conseco, Inc. ......................................... 244
INSURANCE (MULTI-LINE) - 2.0%
4,000 Hartford Financial Services Group, Inc. ............... 233
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 44 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO U.S. VALUE FUND
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 5.6%
2,800 AlliedSignal, Inc. ................................... $176
8,950 Crane Co. ............................................. 281
2,400 Minnesota Mining & Manufacturing Co. .................. 209
OFFICE EQUIPMENT & SUPPLIES - 1.5%
3,000 Xerox Corp. ........................................... 177
OIL (DOMESTIC INTEGRATED) - 4.5%
2,600 Atlantic Richfield Co. ................................ 217
3,200 Mobil Corp. ........................................... 317
OIL (INTERNATIONAL INTEGRATED) - 2.0%
3,700 Texaco, Inc. .......................................... 231
OIL & GAS (DRILLING & EQUIPMENT) - 1.6%
4,200 Halliburton Co. ....................................... 190
PAPER & FOREST PRODUCTS - 1.6%
3,700 International Paper Co. ............................... 187
PUBLISHING (NEWSPAPERS) - 1.8%
5,900 New York Times Co.
(Class A) .............................................. 217
REAL ESTATE INVESTMENT TRUST - 3.0%
2,500 Equity Residential Properties Trust .................... 113
5,100 First Industrial Realty Trust, Inc.......................140
4,300 Liberty Property Trust ................................. 107
RETAIL (DEPARTMENT STORES) - 3.3%
4,100 J.C. Penney Co., Inc. ................................. 199
4,650 May Department Stores Co. ............................. 190
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (FOOD CHAINS) - 2.2%
5,040 Albertson's, Inc. .................................. $ 260
SAVINGS & LOANS - 1.9%
6,400 Washington Mutual, Inc. ............................... 226
SERVICES (ADVERTISING/MARKETING) - 2.0%
2,700 Interpublic Group Cos., Inc. .......................... 234
TELEPHONE - 10.4%
3,700 ALLTEL Corp. .......................................... 265
3,700 Bell Atlantic Corp. ................................... 242
5,800 Century Telephone Enterprises, Inc. ................... 231
4,200 GTE Corp. ............................................. 318
2,000 *MCI WorldCom, Inc. ................................... 173
-----
TOTAL COMMON STOCKS .................................................. 11,500
-----
CASH EQUIVALENTS - 3.3%
INVESTMENT COMPANIES
385,544 SSgA Prime Money Market Portfolio ...................... 386
-----
TOTAL CASH EQUIVALENTS .................................................. 386
-----
TOTAL INVESTMENTS - 100.5% ........................................... 11,886
Other Assets, less Liabilities ......................................... (59)
-----
NET ASSETS .......................................................... $11,827
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 45 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
(In Thousands, Except Per-Share GROWTH EQUITY INCOME
Amounts) FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $ 1,096,054 $ 1,637,810 $ 279,029
----------- ----------- -----------
----------- ----------- -----------
Investments, at Value
Unaffiliated Issuers $ 678,479 $ 2,391,333 $ 349,113
Affiliated Issuers 339,576 -- --
----------- ----------- -----------
Total Investments at Value 1,018,055 2,391,333 349,113
Cash -- -- --
Receivables
Investment Securities Sold 5,508 -- 4,517
Trust Shares Sold 3,668 466 1
Dividends and Interest 591 2,372 1,161
From Advisor -- -- --
Forward Currency Contracts Open,
Net -- -- --
Deferred Organization Expense -- -- --
----------- ----------- -----------
Total Assets 1,027,822 2,394,171 354,792
LIABILITIES
Payables
Investment Securities Purchased 2,823 -- --
Trust Shares Redeemed 98 10 --
Notes Payable 960 -- --
Dividends -- 4,135 1,545
Investment Advisory Fees 534 1,144 197
Other 277 591 130
----------- ----------- -----------
Total Liabilities 4,692 5,880 1,872
----------- ----------- -----------
NET ASSETS $ 1,023,130 $ 2,388,291 $ 352,920
----------- ----------- -----------
----------- ----------- -----------
NO-LOAD CLASS:
Net Assets $ 979,079 $ 2,299,349 $ 347,944
Trust Shares Outstanding 46,041 90,116 14,757
----------- ----------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 21.27 $ 25.52 $ 23.58
----------- ----------- -----------
----------- ----------- -----------
CLASS A:
Net Assets $ 29,259 $ 63,481 $ 2,498
Trust Shares Outstanding 1,380 2,485 105
----------- ----------- -----------
Net Asset Value and Redemption
Price Per Share $ 21.21 $ 25.55 $ 23.71
----------- ----------- -----------
----------- ----------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 5.75%) $ 22.50 $ 27.11 $ 25.16
----------- ----------- -----------
----------- ----------- -----------
CLASS B:
Net Assets $ 14,792 $ 25,461 $ 2,478
Trust Shares Outstanding 715 1,003 104
----------- ----------- -----------
Net Asset Value and Offering Price
Per Share* $ 20.70 $ 25.37 $ 23.72
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 46 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 51,738 $ 22,121 $ 22,726 $ 33,225 $ 10,361
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Investments, at Value
Unaffiliated Issuers $ 74,112 $ 28,081 $ 24,746 $ 31,631 $ 11,886
Affiliated Issuers -- -- -- -- --
----------- ----------- --------------- --------------- -----------
Total Investments at Value 74,112 28,081 24,746 31,631 11,886
Cash -- 701 -- -- --
Receivables
Investment Securities Sold 706 49 50 751 --
Trust Shares Sold -- 120 -- -- 2
Dividends and Interest 21 88 134 20 18
From Advisor 11 11 13 21 13
Forward Currency Contracts Open,
Net -- 25 -- -- --
Deferred Organization Expense -- 6 6 6 11
----------- ----------- --------------- --------------- -----------
Total Assets 74,850 29,081 24,949 32,429 11,930
LIABILITIES
Payables
Investment Securities Purchased -- 90 59 -- 43
Trust Shares Redeemed -- -- -- 3 --
Notes Payable -- -- -- -- --
Dividends -- -- 141 -- 23
Investment Advisory Fees 40 24 14 19 7
Other 50 58 32 29 30
----------- ----------- --------------- --------------- -----------
Total Liabilities 90 172 246 51 103
----------- ----------- --------------- --------------- -----------
NET ASSETS $ 74,760 $ 28,909 $ 24,703 $ 32,378 $ 11,827
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
NO-LOAD CLASS:
Net Assets $ 68,821 $ 27,049 $ 20,855 $ 30,338 $ 10,774
Trust Shares Outstanding 3,281 1,949 1,652 2,929 821
----------- ----------- --------------- --------------- -----------
Net Asset Value, Offering Price,
and Redemption Price Per Share $ 20.97 $ 13.88 $ 12.62 $ 10.36 $ 13.12
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS A:
Net Assets $ 2,632 $ 873 $ 1,192 $ 891 $ 301
Trust Shares Outstanding 127 63 94 87 23
----------- ----------- --------------- --------------- -----------
Net Asset Value and Redemption
Price Per Share $ 20.74 $ 13.85 $ 12.64 $ 10.22 $ 13.11
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 5.75%) $ 22.01 $ 14.69 $ 13.41 $ 10.84 $ 13.91
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
CLASS B:
Net Assets $ 3,307 $ 987 $ 2,656 $ 1,149 $ 752
Trust Shares Outstanding 162 72 210 115 58
----------- ----------- --------------- --------------- -----------
Net Asset Value and Offering Price
Per Share* $ 20.36 $ 13.63 $ 12.64 $ 9.99 $ 13.05
----------- ----------- --------------- --------------- -----------
----------- ----------- --------------- --------------- -----------
</TABLE>
- --------------------------------------------------------------------------------
* For Class B shares, the redemption price per share may be lower as a result
of applying contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 47 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six-Month Period Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
GROWTH EQUITY INCOME
(In Thousands) FUND FUND FUND
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of
$37 in the International Fund) $ 3,293 $ 16,404 $ 5,613
Interest 139 1,707 752
---------- ---------- ----------
Total Investment Income 3,432 18,111 6,365
EXPENSES
Investment Advisory 3,180 5,780 1,184
Transfer Agent 1,839 2,100 369
Fund Accounting and Administration 58 102 35
Shareholder Service - Class A 36 70 3
- Class B 18 26 3
Distribution - Class B 55 78 8
Legal and Auditing 46 63 19
Custodian 35 47 11
Registration 13 20 7
Reports to Shareholders 279 375 64
Trustees 4 5 3
Amortization of Organization
Expenses -- -- --
Loan Interest Expense 271 -- --
Other 60 53 10
---------- ---------- ----------
Total Expenses Before
Reimbursement 5,894 8,719 1,716
Expense Reimbursement -- -- --
---------- ---------- ----------
Total Expenses After Reimbursement 5,894 8,719 1,716
---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) (2,462) 9,392 4,649
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers (4,909) 80,315 23,180
Investments in Affiliated Issuers (20,278) -- --
Foreign Currency Transactions -- -- --
---------- ---------- ----------
Total Net Realized Gain
(Loss) (25,187) 80,315 23,180
Net Change in Unrealized
Appreciation (Depreciation) (69,415) 128,744 (22,382)
---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY (94,602) 209,059 798
---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ (97,064) $ 218,451 $ 5,447
---------- ---------- ----------
---------- ---------- ----------
- -----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 48 -
<PAGE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO SAFECO
NORTHWEST INTERNATIONAL BALANCED SMALL COMPANY U.S. VALUE
FUND FUND FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (Net of Foreign Taxes
Withheld of
$37 in the International Fund) $ 186 $ 254 $ 147 $ 81 $ 113
Interest 22 27 268 55 4
---------- ------------- -------------- -------------- ----------
Total Investment Income 208 281 415 136 117
EXPENSES
Investment Advisory 244 139 83 134 40
Transfer Agent 99 36 33 51 12
Fund Accounting and Administration 11 4 4 5 2
Shareholder Service - Class A 3 1 1 1 --
- Class B 3 1 3 1 1
Distribution - Class B 10 3 9 4 2
Legal and Auditing 10 11 8 9 11
Custodian 4 22 2 5 2
Registration 6 5 5 6 4
Reports to Shareholders 12 5 4 10 2
Trustees 2 3 3 2 3
Amortization of Organization
Expenses -- 2 2 2 2
Loan Interest Expense -- -- -- -- --
Other 2 1 1 2 1
---------- ------------- -------------- -------------- ----------
Total Expenses Before
Reimbursement 406 233 158 232 82
Expense Reimbursement (11) (11) (13) (21) (12)
---------- ------------- -------------- -------------- ----------
Total Expenses After Reimbursement 395 222 145 211 70
---------- ------------- -------------- -------------- ----------
NET INVESTMENT INCOME (LOSS) (187) 59 270 (75) 47
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
Net Realized Gain (Loss) from:
Investments in Unaffiliated
Issuers 10,338 (112) 714 (6,224) 753
Investments in Affiliated Issuers -- -- -- -- --
Foreign Currency Transactions -- 136 -- -- --
---------- ------------- -------------- -------------- ----------
Total Net Realized Gain
(Loss) 10,338 24 714 (6,224) 753
Net Change in Unrealized
Appreciation (Depreciation) 1,530 1,396 80 3,654 266
---------- ------------- -------------- -------------- ----------
NET GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY 11,868 1,420 794 (2,570) 1,019
---------- ------------- -------------- -------------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 11,681 $ 1,479 $ 1,064 $ (2,645) $ 1,066
---------- ------------- -------------- -------------- ----------
---------- ------------- -------------- -------------- ----------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 49 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ (2,462) $ (918)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions (25,187) 44,781
Net Change in Unrealized
Appreciation (Depreciation) (69,415) (92,841)
------------ ---------------
Net Change in Net Assets
Resulting from Operations (97,064) (48,978)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- --
- Class A -- --
- Class B -- --
Net Realized Gain on Investments
- No Load Class -- (43,556)
- Class A -- (1,055)
- Class B -- (497)
------------ ---------------
Total -- (45,108)
NET TRUST SHARE TRANSACTIONS
No-Load Class (321,526) 846,267
Class A (2,156) 32,104
Class B 370 15,181
------------ ---------------
Total (323,312) 893,552
------------ ---------------
TOTAL CHANGE IN NET ASSETS (420,376) 799,466
NET ASSETS AT BEGINNING OF PERIOD 1,443,506 644,040
------------ ---------------
NET ASSETS AT END OF PERIOD $ 1,023,130 $ 1,443,506
------------ ---------------
------------ ---------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 50 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO EQUITY FUND SAFECO INCOME FUND SAFECO NORTHWEST FUND
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 9,392 $ 17,446 $ 4,649 $ 10,977 $ (187) $ (373)
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 80,315 79,369 23,180 20,424 10,338 1,091
Net Change in Unrealized
Appreciation (Depreciation) 128,744 295,679 (22,382) (10,865) 1,530 1,410
------------ ------------ ------------ ------------ ------------ ------------
Net Change in Net Assets
Resulting from Operations 218,451 392,494 5,447 20,536 11,681 2,128
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (9,222) (17,149) (4,600) (10,921) -- --
- Class A (194) (343) (24) (33) -- --
- Class B -- -- (16) (22) -- --
Net Realized Gain on Investments
- No Load Class -- (76,799) -- (20,354) -- (658)
- Class A -- (1,908) -- (105) -- (23)
- Class B -- (656) -- (110) -- (28)
------------ ------------ ------------ ------------ ------------ ------------
Total (9,416) (96,855) (4,640) (31,545) -- (709)
NET TRUST SHARE TRANSACTIONS
No-Load Class 72,761 246,560 (52,115) 8,124 (5,561) (2,513)
Class A 7,787 37,060 414 1,405 22 831
Class B 6,245 12,194 286 1,483 213 1,475
------------ ------------ ------------ ------------ ------------ ------------
Total 86,793 295,814 (51,415) 11,012 (5,326) (207)
------------ ------------ ------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 295,828 591,453 (50,608) 3 6,355 1,212
NET ASSETS AT BEGINNING OF PERIOD 2,092,463 1,501,010 403,528 403,525 68,405 67,193
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 2,388,291 $ 2,092,463 $ 352,920 $ 403,528 $ 74,760 $ 68,405
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 51 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Unaudited)
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND
------------------------------
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 59 $ 14
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 24 (910)
Net Change in Unrealized
Appreciation (Depreciation) 1,396 3,209
--------------- ------------
Net Change in Net Assets
Resulting from Operations 1,479 2,313
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class -- --
- Class A -- --
- Class B -- --
Net Realized Gain on Investments
- No Load Class -- --
- Class A -- --
- Class B -- --
--------------- ------------
Total -- --
NET TRUST SHARE TRANSACTIONS
No-Load Class 3,535 5,155
Class A 209 273
Class B 169 396
--------------- ------------
Total 3,913 5,824
--------------- ------------
TOTAL CHANGE IN NET ASSETS 5,392 8,137
NET ASSETS AT BEGINNING OF PERIOD 23,517 15,380
--------------- ------------
NET ASSETS AT END OF PERIOD $ 28,909 $ 23,517
--------------- ------------
--------------- ------------
- -------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 52 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
SAFECO BALANCED FUND SAFECO SMALL COMPANY FUND SAFECO U.S. VALUE FUND
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income (Loss) $ 270 $ 505 $ (75) $ (220) $ 47 $ 102
Net Realized Gain (Loss) on
Investments and Foreign
Currency Transactions 714 890 (6,224) (4,172) 753 464
Net Change in Unrealized
Appreciation (Depreciation) 80 679 3,654 (9,513) 266 598
------------ ------------ ------------ ------------ ------------ ------------
Net Change in Net Assets
Resulting from Operations 1,064 2,074 (2,645) (13,905) 1,066 1,164
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income - No Load Class (241) (476) -- -- (47) (102)
- Class A (11) (12) -- -- (1) (1)
- Class B (17) (16) -- -- -- --
Net Realized Gain on Investments
- No Load Class -- (771) -- -- -- (428)
- Class A -- (36) -- -- -- (9)
- Class B -- (83) -- -- -- (27)
------------ ------------ ------------ ------------ ------------ ------------
Total (269) (1,394) -- -- (48) (567)
NET TRUST SHARE TRANSACTIONS
No-Load Class 1,042 4,868 (2,347) 25,617 (170) 377
Class A 262 660 (245) 1,449 66 69
Class B 518 1,675 199 930 61 392
------------ ------------ ------------ ------------ ------------ ------------
Total 1,822 7,203 (2,393) 27,996 (43) 838
------------ ------------ ------------ ------------ ------------ ------------
TOTAL CHANGE IN NET ASSETS 2,617 7,883 (5,038) 14,091 975 1,435
NET ASSETS AT BEGINNING OF PERIOD 22,086 14,203 37,416 23,325 10,852 9,417
------------ ------------ ------------ ------------ ------------ ------------
NET ASSETS AT END OF PERIOD $ 24,703 $ 22,086 $ 32,378 $ 37,416 $ 11,827 $ 10,852
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 53 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
The SAFECO Common Stock Trust ("Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of the SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO International Stock
Fund, SAFECO Balanced Fund, SAFECO Small Company Stock Fund, and SAFECO U.S.
Value Fund (together "the Funds").
Effective September 30, 1996, the Trust began issuing two new classes of
shares--Class A and Class B shares (collectively, "Advisor Classes"). Unlike the
no-load class of shares (which are sold directly to the shareholder with no
associated sales or distribution charges), these classes of shares are sold by
financial advisors to shareholders and have associated sales and distribution
charges. Each class of shares represents an interest in the net assets of the
fund.
In connection with issuing the new Advisor Classes, the Funds adopted a Plan
of Distribution (the "Plan"). Under the Plan, each Advisor Class pays a service
fee to the distributor, SAFECO Securities Inc., for selling its shares at the
annual rate of .25% of the average daily net assets of the Advisor Class. Class
B shares also pay the distributor a distribution fee at the annual rate of .75%
of the average daily net assets of the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION. Investments in securities are valued at the last reported
sales price, unless there are no transactions in which case they are valued at
the last reported bid price. When valuations are not readily available,
securities are valued at fair value as determined in
- 54 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
good faith by the board of trustees. Temporary investments purchased at par are
valued at cost. All other temporary investments are valued at amortized cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
INCOME RECOGNITION. Dividend income less foreign taxes withheld (if any) is
recorded on the ex-dividend date or upon receipt of ex-dividend notification in
the case of certain foreign securities. Interest is accrued on short-term
investments and bonds daily.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. For the Growth, Northwest,
International and Small Company Funds, net investment income (if any) is
declared as a dividend to shareholders as of the last business day (ex-dividend
date) of December. For all other Funds net investment income is distributed as
of the last business day of March, June, September and December. Net realized
gains on investments, if any, are normally distributed to shareholders at the
end of December.
Income dividends and capital gain distributions are determined in accordance
with income tax regulation which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign exchange contracts. Undistributed/ overdistributed net investment income
may include temporary financial reporting and tax basis differences which will
reverse in the subsequent year.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their shareholders
in a manner which results in no tax to the Funds. Therefore, no federal income
or excise tax provision is required.
FOREIGN CURRENCY TRANSLATION. The accounting records of the International
Fund are maintained in U.S. dollars. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at prevailing
exchange rates. Purchases and sales of
- 55 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
investment securities, and dividend and interest income, are translated at the
rates of exchange prevailing on the respective dates of such transactions.
The International Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized gains or losses from foreign currency transactions
arise from gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the International Fund's
books and the U.S. dollar equivalent of the amounts actually received or paid.
Net unrealized foreign exchange gains and losses arise from changes in the value
of assets and liabilities other than investments in securities, resulting from
changes in the exchange rate.
FOREIGN EXCHANGE CONTRACTS. The International Fund may enter into foreign
currency exchange contracts as a way of managing foreign exchange rate risk. The
International Fund may enter into these contracts for the purchase or sale of a
specific foreign currency at a fixed price on a future date as a hedge or
cross-hedge against either specific transactions or portfolio positions. The
objective of the International Fund's foreign currency hedging transactions is
to reduce the risk that the U.S. dollar value of the International Fund's
foreign currency denominated securities will decline in value due to changes in
foreign currency exchange rates. All foreign currency exchange contracts are
"marked-to-market" daily at the applicable translation rates resulting in
unrealized gains or losses. Realized and unrealized gains or losses on foreign
currency contracts are recorded on settlement date of the foreign currency
exchange contract and are included in the Statements of Assets and Liabilities
and the Statement of Operations. Risks may arise upon entering into these
contracts from the potential
- 56 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
3. INVESTMENT TRANSACTIONS
Following is a summary of investment transactions (excluding short-term
securities) during the six-month period ended June 30, 1999:
<TABLE>
<CAPTION>
(In Thousands) PURCHASES SALES
- --------------------------------------------------------------------
<S> <C> <C>
Growth Fund $178,152 $528,017
Equity Fund 474,703 344,093
Income Fund 64,771 112,214
Northwest Fund 17,778 24,047
International Fund 9,232 1,448
Balanced Fund 16,033 14,519
Small Company Fund 15,108 16,334
U.S. Value Fund 3,503 3,927
- --------------------------------------------------------------------
</TABLE>
Purchases in the Balanced Fund include $7,265 of U.S. Government
Securities.
Sales in the Balanced Fund include $6,075 of U.S. Government Securities.
- 57 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS
Following is a summary of transactions in Fund shares and the related amounts
(in thousands):
<TABLE>
<CAPTION>
SAFECO GROWTH FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 17,684 89,342 400 1,454 153 681
Reinvestments 2 1,873 -- 45 -- 22
Redemptions (33,072) (58,229) (508) (193) (139) (65)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (15,386) 32,986 (108) 1,306 14 638
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 378,804 $ 2,179,487 $ 8,633 $ 35,247 $ 3,202 $ 16,101
Reinvestments 36 42,509 3 1,009 3 486
Redemptions (700,366) (1,375,729) (10,792) (4,152) (2,835) (1,406)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (321,526) $ 846,267 $ (2,156) $ 32,104 $ 370 $ 15,181
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO EQUITY FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 15,646 29,980 493 2,002 307 604
Reinvestments 210 3,861 5 97 -- 28
Redemptions (12,841) (23,017) (177) (306) (48) (70)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 3,015 10,824 321 1,793 259 562
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 376,416 $ 654,422 $ 11,904 $ 41,546 $ 7,423 $ 13,097
Reinvestments 5,002 88,790 117 2,241 2 650
Redemptions (308,657) (496,652) (4,234) (6,727) (1,180) (1,553)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 72,761 $ 246,560 $ 7,787 $ 37,060 $ 6,245 $ 12,194
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
- 58 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO INCOME FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,055 4,553 32 66 23 62
Reinvestments 120 1,175 1 5 1 5
Redemptions (3,432) (5,541) (16) (14) (12) (8)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (2,257) 187 17 57 12 59
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 24,629 $ 114,102 $ 767 $ 1,627 $ 556 $ 1,545
Reinvestments 2,708 27,902 13 119 12 123
Redemptions (79,452) (133,880) (366) (341) (282) (185)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (52,115) $ 8,124 $ 414 $ 1,405 $ 286 $ 1,483
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO NORTHWEST FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 482 987 18 77 21 106
Reinvestments -- 31 -- 2 -- 1
Redemptions (788) (1,165) (17) (31) (9) (28)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (306) (147) 1 48 12 79
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 8,840 $ 17,313 $ 337 $ 1,349 $ 376 $ 1,882
Reinvestments -- 549 -- 29 -- 27
Redemptions (14,401) (20,375) (315) (547) (163) (434)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (5,561) $ (2,513) $ 22 $ 831 $ 213 $ 1,475
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
- 59 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO INTERNATIONAL FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,597 2,000 37 28 15 40
Reinvestments -- -- -- -- -- --
Redemptions (1,330) (1,600) (22) (6) (3) (9)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 267 400 15 22 12 31
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 21,457 $ 25,289 $ 504 $ 343 $ 207 $ 511
Reinvestments -- -- -- -- -- --
Redemptions (17,922) (20,134) (295) (70) (38) (115)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 3,535 $ 5,155 $ 209 $ 273 $ 169 $ 396
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO BALANCED FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 298 1,183 42 72 54 148
Reinvestments 6 66 -- 3 1 7
Redemptions (218) (860) (21) (20) (13) (16)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE 86 389 21 55 42 139
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 3,634 $ 14,335 $ 517 $ 862 $ 671 $ 1,783
Reinvestments 74 798 5 41 7 91
Redemptions (2,666) (10,265) (260) (243) (160) (199)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ 1,042 $ 4,868 $ 262 $ 660 $ 518 $ 1,675
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 60 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SMALL COMPANY FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 2,044 9,098 23 108 31 87
Reinvestments -- -- -- -- -- --
Redemptions (2,265) (7,540) (46) (16) (12) (20)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (221) 1,558 (23) 92 19 67
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 21,611 $ 137,539 $ 237 $ 1,634 $ 325 $ 1,156
Reinvestments -- -- -- -- -- --
Redemptions (23,958) (111,922) (482) (185) (126) (226)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (2,347) $ 25,617 $ (245) $ 1,449 $ 199 $ 930
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO U.S. VALUE FUND
---------------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
--------------------------- --------------------------- ---------------------------
SIX-MONTH SIX-MONTH SIX-MONTH
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1999 1998 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 98 225 8 7 7 34
Reinvestments 1 17 -- -- -- 2
Redemptions (116) (215) (2) (1) (2) (3)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE (17) 27 6 6 5 33
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS:
Sales $ 1,229 $ 2,687 $ 97 $ 81 $ 87 $ 410
Reinvestments 10 203 -- 4 -- 21
Redemptions (1,409) (2,513) (31) (16) (26) (39)
------------ ------------ ------------ ------------ ------------ ------------
NET CHANGE $ (170) $ 377 $ 66 $ 69 $ 61 $ 392
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 61 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. COMPONENTS OF NET ASSETS
At June 30, 1999, the components of net assets were as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY INCOME NORTHWEST
(In Thousands) FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 185,959 $ 784,781 $ 99,381 $ 28,371
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (263,958) (31,258) (29,297) (5,997)
------------- ----------- ----------- -----------
NET UNREALIZED APPRECIATION (77,999) 753,523 70,084 22,374
ACCUMULATED NET INVESTMENT INCOME (LOSS) (2,462) -- -- (187)
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENTS (26,415) 80,386 23,040 10,712
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 1,130,006 1,554,382 259,796 41,861
------------- ----------- ----------- -----------
NET ASSETS AT JUNE 30, 1999 $ 1,023,130 $ 2,388,291 $ 352,920 $ 74,760
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
SMALL
INTERNATIONAL BALANCED COMPANY U.S. VALUE
(In Thousands) FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments and Forward Contracts
in Which There Is an Excess of Value
Over Identified Cost $ 6,421 $ 2,714 $ 2,491 $ 1,923
Aggregate Gross Unrealized Depreciation
on Investments and Forward Contracts
in Which There is an Excess of
Identified Cost Over Value (436) (694) (4,085) (398)
------------- ----------- ----------- -----------
NET UNREALIZED APPRECIATION 5,985 2,020 (1,594) 1,525
ACCUMULATED NET INVESTMENT INCOME (LOSS) 59 -- (75) --
ACCUMULATED NET REALIZED GAIN (LOSS) ON
INVESTMENTS (742)* 713 (10,396)* 753
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 23,607 21,970 44,443 9,549
------------- ----------- ----------- -----------
NET ASSETS AT JUNE 30, 1999 $ 28,909 $ 24,703 $ 32,378 $ 11,827
------------- ----------- ----------- -----------
------------- ----------- ----------- -----------
- -------------------------------------------------------------------------------------------------
</TABLE>
* At December 31, 1998, these funds had the following amounts of accumulated net
realized losses on investment transactions that represented capital loss
carryforwards for Federal Income Tax purposes, which expire as follows:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNTS DATES
- ----------------------------------------------------------------
<S> <C> <C>
International Fund $ 766 2006
Small Company Fund 4,172 2006
</TABLE>
- 62 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS
WITH AFFILIATES
INVESTMENT ADVISORY FEES. Effective May 1, 1999, shareholders approved an
amended and restated investment advisory contract with SAFECO Asset Management
Company. The fees paid by the Funds under the new contract are based on a
percentage of each day's net assets, which, on an annual basis, are as follows:
<TABLE>
<CAPTION>
GROWTH, EQUITY, INCOME, NORTHWEST,
BALANCED AND
U.S. VALUE FUNDS: INTERNATIONAL FUND:
<S> <C>
First $250 million .70% First $250 million 1.00%
Next $500 million .65 Next $500 million .90
Next $500 million .60 Over $750 million .80
Over $1.25 billion .45
<CAPTION>
SMALL COMPANY FUND:
<S> <C>
First $250 million .75%
Next $500 million .70
Next $500 million .65
Over $1.25 billion .60
</TABLE>
SAFECO Asset Management Company pays sub-advisory fees to Bank of Ireland
Asset Management Company (U.S.) Limited for providing investment research and
advice to the International Fund.
FUND ACCOUNTING AND FUND ADMINISTRATION FEES. Beginning May 1, 1999, SAFECO
Asset Management Company receives a fee for these services based on a percentage
of each day's net assets, which, on an annual basis is as follows:
<TABLE>
<CAPTION>
FUND ACCOUNTING: FUND ADMINISTRATION:
<S> <C>
First $200 million .04% First $200 million .05%
Over $200 million .01 Over $200 million .01
</TABLE>
- 63 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
TRANSFER AGENT, SHAREHOLDER SERVICE, AND DISTRIBUTION FEES. SAFECO Services
Corporation receives transfer agent, shareholder service, and distribution fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates at rates equivalent to
commercial bank interest rates.
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, $150 million is available to meet short-term financing
needs. At June 30, 1999, the Growth Fund had a 6.4375% note payable to State
Street Bank of $960,000. The note was repaid on 7/1/99.
AFFILIATE OWNERSHIP. At June 30, 1999, SAFECO Insurance Company of America
owned 450,000 shares (13% of outstanding shares) of the Northwest Fund. During
the same period SAFECO Asset Management Company owned 688,168 shares (33%) of
the International Fund, 519,268 shares (27%) of the Balanced Fund, and 500,000
shares (56%) of the U.S. Value Fund.
EXPENSE REIMBURSEMENT. Beginning May 1, 1999, SAFECO Asset Management Company
agreed to reimburse the Funds, for operating expenses (i.e., all expenses except
investment advisory, distribution and Service fees) which exceed, on an annual
basis, .40% of the average daily net assets.
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts in
dealer commissions from sales of Class A Shares during the six-month period
ended June 30, 1999:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- -----------------------------------------------------
<S> <C>
Growth Fund $ 14,969
Equity Fund 24,549
Income Fund 1,756
Northwest Fund 1,069
International Fund 807
Balanced Fund 1,993
Small Company Fund 652
U.S. Value Fund 176
- -----------------------------------------------------
</TABLE>
- 64 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. INVESTMENTS IN AFFILIATES
Each of the companies listed below is an affiliate of the Growth Fund because
the Fund owned at least 5% of the company's voting securities during the
six-month period ended June 30, 1999.
<TABLE>
<CAPTION>
(In Thousands) SHARES AT SHARES AT MARKET VALUE
BEGINNING END OF JUNE 30
SECURITY OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*American Buildings Co. 360 -- (360) -- -- --
American Coin Merchandising, Inc. 391 -- -- 391 -- $ 2,542
Blue Rhino Corp. 0 403 -- 403 -- 3,704
BNC Mortgage, Inc. 484 -- (22) 462 -- 2,887
Concepts Direct, Inc. 480 -- -- 480 -- 4,435
Creditrust Corp. 489 536 -- 1,025 -- 28,456
Damark International, Inc. 755 -- (40) 715 -- 5,987
*Discreet Logic, Inc. 1,618 -- (1,618)+ -- -- --
Dura Pharmaceuticals, Inc. 2,546 -- (240) 2,306 -- 27,531
Dynamex, Inc. 642 -- (30) 612 -- 1,759
Emmis Communications Corp. (Class
A) 1,242 49 (134) 1,157 -- 57,107
Family Golf Centers, Inc. 2,512 -- (60) 2,452 -- 18,852
*First Commonwealth, Inc. 344 -- (344) -- -- --
French Fragrances, Inc. 895 -- -- 895 -- 6,545
Funco, Inc. 354 -- -- 354 -- 6,532
Hall, Kinion & Associates, Inc. 899 -- -- 899 -- 6,290
Harold's Stores, Inc. 542 -- -- 542 -- 3,524
Innotrac Corp. 676 -- -- 676 -- 13,689
IntelliQuest Information Group,
Inc. 840 -- -- 840 -- 6,299
Lifeline Systems, Inc. 514 -- -- 514 -- 9,903
MICROS Systems, Inc. 1,202 -- (74) 1,128 -- 38,336
*NCO Group, Inc. 1,456 184 (904) 736 -- --
Nastech Pharmaceutical Co., Inc. 609 -- -- 609 -- 2,017
*Open Plan Systems, Inc. 245 -- (245) -- -- --
Phoenix International Ltd., Inc. 623 209 -- 832 -- 5,302
PolyMedica Industries, Inc. 886 -- -- 886 -- 8,860
Precision Auto Care, Inc. 607 -- (15) 592 -- 1,814
Prime Medical Services, Inc. 1,121 28 -- 1,149 -- 8,475
Recovery Engineering, Inc. 342 -- -- 342 -- 5,811
Schlotzsky's, Inc. 493 -- (66) 427 -- 4,671
Serologicals Corp. 543 1,903 (25) 2,421 -- 19,669
*Sirrom Capital Corp. 3,723 -- (3,723)++ -- -- --
Stage Stores, Inc. 2,112 -- (478) 1,634 -- 10,623
Suburban Lodges of America, Inc. 1,529 -- -- 1,529 -- 9,840
TRM Copy Centers Corp. 698 -- -- 698 -- 4,583
*Teardrop Golf Co. 314 -- (314) -- -- --
*TETRA Technologies, Inc. 710 -- (205) 505 -- --
Towne Services, Inc. 817 294 -- 1,111 -- 8,751
Travis Boats & Motors, Inc. 153 118 -- 271 -- 3,930
Waterside Capital Corp. 118 6** -- 124 -- 852
-------------
$339,576
-------------
-------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Company was not an affiliate at the end of the period.
** Represents a 5% Stock Dividend
+ Acquired by Autodesk, Inc.
++ Acquired by Finova Group, Inc.
- 65 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. COMMITMENTS.
At June 30, 1999, the International Fund had open forward foreign currency
exchange contracts obligating it to receive or deliver the following foreign
currencies:
<TABLE>
<CAPTION>
(In Thousands)
U.S. DOLLAR UNREALIZED
CURRENCY IN EXCHANGE SETTLEMENT VALUE AS OF APPRECIATION
TO BE DELIVERED FOR DATE JUNE 30, 1999 (DEPRECIATION)
- ------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
40,009 Japanese Yen $ 338 07/02/99 $ 331 $ 7
(40,009) Japanese Yen (329) 07/02/99 (331) 2
66,863 Japanese Yen 571 07/21/99 555 16
38,621 Japanese Yen 320 08/18/99 322 (2)
36,158 Japanese Yen 294 08/24/99 301 (7)
27,206 Japanese Yen 226 08/31/99 227 (1)
31,961 Japanese Yen 266 09/09/99 267 (1)
60,190 Japanese Yen 514 09/16/99 503 11
----- ----- ---
$ 2,200 $ 2,175 $ 25
----- ----- ---
----- ----- ---
</TABLE>
9. YEAR 2000 READINESS.
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Funds with service at current levels. Although SAFECO
Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Funds'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
- 66 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH FOR THE YEAR ENDED
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 22.70 $ 22.45 $ 16.97 $ 15.45 $ 15.83 $ 17.37
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.05) (0.01) (0.02) (0.02) (0.02) 0.07
Net Realized and Unrealized Gain
(Loss) on Investments (1.38) 0.99 8.50 1.77 2.24 4.07
------------- ------------ ---------- ------------- ---------- ----------
Total from Investment Operations (1.43) 0.98 8.48 1.75 2.22 4.14
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- -- -- -- (0.07)
Distributions from Realized Gains -- (0.73) (3.00) (0.23) (2.60) (5.61)
------------- ------------ ---------- ------------- ---------- ----------
Total Distributions -- (0.73) (3.00) (0.23) (2.60) (5.68)
------------- ------------ ---------- ------------- ---------- ----------
NET ASSET VALUE AT END
OF PERIOD $ 21.27 $ 22.70 $ 22.45 $ 16.97 $ 15.45 $ 15.83
------------- ------------ ---------- ------------- ---------- ----------
------------- ------------ ---------- ------------- ---------- ----------
TOTAL RETURN (6.30%)* 4.37% 49.96% 11.35%* 14.16% 23.93%
NET ASSETS AT END OF PERIOD (000'S) $ 979,079 $ 1,394,225 $ 638,562 $ 195,760 $ 179,574 $ 176,483
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.01%** 0.77% 0.85% 0.99%** 1.02% 0.98%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS (0.41%)** (0.06%) (.17%) (.51%)** (.14%) .34%
PORTFOLIO TURNOVER RATE 30.60%** 54.58% 82.57% 82.93%** 124.79% 110.44%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 67 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH THREE-MONTH FOR THE YEAR ENDED
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.25 $ 19.54 $ 16.60 $ 15.85 $ 15.31 $ 13.89
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.10 0.21 0.23 0.06 0.28 0.34
Net Realized and Unrealized Gain on
Investments 2.27 4.64 3.78 1.33 2.42 2.59
------------- ----------- ----------- ------------- ---------- ----------
Total from Investment Operations 2.37 4.85 4.01 1.39 2.70 2.93
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.10) (0.21) (0.23) (0.06) (0.28) (0.34)
Distributions from Realized Gains -- (0.93) (0.84) (0.58) (1.88) (1.17)
------------- ----------- ----------- ------------- ---------- ----------
Total Distributions (0.10) (1.14) (1.07) (0.64) (2.16) (1.51)
------------- ----------- ----------- ------------- ---------- ----------
NET ASSET VALUE AT END
OF PERIOD $ 25.52 $ 23.25 $ 19.54 $ 16.60 $ 15.85 $ 15.31
------------- ----------- ----------- ------------- ---------- ----------
------------- ----------- ----------- ------------- ---------- ----------
TOTAL RETURN 10.22%* 24.93% 24.21% 8.79%* 18.04% 21.59%
NET ASSETS AT END OF PERIOD (000'S) $ 2,299,349 $ 2,024,877 $ 1,490,198 $ 849,831 $ 725,780 $ 598,582
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78%** 0.74% 0.73% 0.78%** 0.79% 0.84%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.87%** 0.99% 1.24% 1.48%** 1.74% 2.38%
PORTFOLIO TURNOVER RATE 32.64%** 32.94% 34.26% 59.34%** 74.07% 56.14%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 68 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR ENDED THREE-MONTH FOR THE YEAR ENDED
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
---------------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 23.47 $ 23.89 $ 21.13 $ 20.03 $ 19.11 $ 17.25
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.30 0.64 0.65 0.15 0.73 0.82
Net Realized and Unrealized Gain on
Investments 0.11 0.86 4.87 1.63 2.84 2.71
------------- ---------- ---------- ------------- ---------- ----------
Total from Investment Operations 0.41 1.50 5.52 1.78 3.57 3.53
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.30) (0.64) (0.65) (0.15) (0.73) (0.82)
Distributions from Realized Gains -- (1.28) (2.11) (0.53) (1.92) (0.85)
------------- ---------- ---------- ------------- ---------- ----------
Total Distributions (0.30) (1.92) (2.76) (0.68) (2.65) (1.67)
------------- ---------- ---------- ------------- ---------- ----------
NET ASSET VALUE AT END
OF PERIOD $ 23.58 $ 23.47 $ 23.89 $ 21.13 $ 20.03 $ 19.11
------------- ---------- ---------- ------------- ---------- ----------
------------- ---------- ---------- ------------- ---------- ----------
TOTAL RETURN 1.79%* 6.31% 26.43% 8.89%* 18.98% 21.04%
NET ASSETS AT END OF PERIOD (000'S) $ 347,944 $ 399,279 $ 401,985 $ 289,968 $ 260,023 $ 217,870
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.94%** 0.82% 0.85% 0.89%** 0.86% 0.87%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.59%** 2.54% 2.81% 2.89%** 3.56% 4.55%
PORTFOLIO TURNOVER RATE 37.19%** 46.14% 52.14% 37.84%** 50.11% 31.12%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
- 69 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH FOR THE YEAR ENDED THREE-MONTH FOR THE YEAR ENDED
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
---------------------------------------------------------------------------------
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 17.73 $ 17.31 $ 14.07 $ 13.78 $ 14.41 $ 12.59
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income
(Loss) (0.06) (0.09) (0.03) (0.01) 0.02 0.04
Net Realized and Unrealized Gain on
Investments 3.30 0.70 4.41 0.30 1.32 2.35
------------- ---------- ---------- ------------- ---------- ----------
Total from Investment Operations 3.24 0.61 4.38 0.29 1.34 2.39
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- -- -- (0.02) (0.04)
Distributions from Realized Gains -- (0.19) (1.14) -- (1.95) (0.53)
------------- ---------- ---------- ------------- ---------- ----------
Total Distributions -- (0.19) (1.14) -- (1.97) (0.57)
------------- ---------- ---------- ------------- ---------- ----------
NET ASSET VALUE AT END
OF PERIOD $ 20.97 $ 17.73 $ 17.31 $ 14.07 $ 13.78 $ 14.41
------------- ---------- ---------- ------------- ---------- ----------
------------- ---------- ---------- ------------- ---------- ----------
TOTAL RETURN 18.27%* 3.50% 31.12% 2.10%* 9.61% 19.01%
NET ASSETS AT END OF PERIOD (000'S) $ 68,821 $ 63,594 $ 64,635 $ 43,345 $ 43,128 $ 40,140
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.13%+** 1.12% 1.09% 1.25%** 1.07% 1.09%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS (0.50%)** (0.49%) (.19%) (.31%)** 0.11% 0.31%
PORTFOLIO TURNOVER RATE 53.27%** 50.40% 55.42% 67.32%** 35.69% 19.59%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.16%.
- 70 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERNATIONAL FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH FOR THE YEAR ENDED THREE-MONTH OF OPERATIONS)
PERIOD ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
--------------------------------------------------------------------------
1999 1998 1997 1996 1996
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.14 $ 11.50 $ 11.29 $ 10.39 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.03 0.01 0.24 -- 0.06
Net Realized and Unrealized Gain on
Investments and Foreign Currency
Transactions 0.71 1.63 0.28 0.96 0.39
------------- ---------- ---------- ------------- ------
Total from Investment Operations 0.74 1.64 0.52 0.96 0.45
LESS DISTRIBUTIONS
Dividends from Net Investment Income -- -- (0.29) (0.06) (0.06)
Distributions from Realized Gains -- -- (0.02) -- --
------------- ---------- ---------- ------------- ------
Total Distributions -- -- (0.31) (0.06) (0.06)
------------- ---------- ---------- ------------- ------
NET ASSET VALUE AT END
OF PERIOD $ 13.88 $ 13.14 $ 11.50 $ 11.29 $ 10.39
------------- ---------- ---------- ------------- ------
------------- ---------- ---------- ------------- ------
TOTAL RETURN 5.63%* 14.26% 4.55% 9.27%* 4.54%*
NET ASSETS AT END OF PERIOD (000'S) $ 27,049 $ 22,111 $ 14,754 $ 11,157 $ 8,323
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.63%+** 1.62%+ 1.63%+ 1.37%+** 2.36%**
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS 0.50%** 0.14% 0.58% (.19%)** .93%**
PORTFOLIO TURNOVER RATE 12.03%** 25.62% 22.13% 18.51%** 15.73%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would have been 1.72%, 1.79%, 1.89% and
1.68% for the period ended June 30, 1999, and the periods ended December
31, 1998, 1997 and 1996, respectively.
- 71 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO BALANCED FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH THREE-MONTH OF OPERATIONS)
PERIOD ENDED FOR THE YEAR ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
-----------------------------------------------------------------------
1999 1998 1997 1996 1996
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.22 $ 11.61 $ 10.70 $ 10.38 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income 0.15 0.32 0.32 0.08 0.21
Net Realized and Unrealized Gain on
Investments 0.40 1.12 1.45 0.45 0.39
------------- -------- --------- ------------- ----------------
Total from Investment Operations 0.55 1.44 1.77 0.53 0.60
LESS DISTRIBUTIONS
Dividends from
Net Investment Income (0.15) (0.32) (0.32) (0.08) (0.21)
Distributions from Realized Gains -- (0.51) (0.54) (0.13) (0.01)
------------- -------- --------- ------------- ----------------
Total Distributions (0.15) (0.83) (0.86) (0.21) (0.22)
------------- -------- --------- ------------- ----------------
NET ASSET VALUE AT END
OF PERIOD $ 12.62 $ 12.22 $ 11.61 $ 10.70 $ 10.38
------------- -------- --------- ------------- ----------------
------------- -------- --------- ------------- ----------------
TOTAL RETURN 4.52%* 12.56% 16.64% 5.11%* 5.99%*
NET ASSETS AT END OF PERIOD (000'S) $ 20,855 $ 19,137 $ 13,667 $ 8,262 $ 7,632
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.15%+** 1.17% 1.23% 1.16%+** 1.32%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 2.51%** 2.74% 2.85% 3.19%** 3.21%**
PORTFOLIO TURNOVER RATE 131.47%** 74.76% 101.22% 36.10%** 143.87%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.27% for the
period ended June 30, 1999, and 1.52% for the period ended December 31,
1996.
- 72 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO SMALL COMPANY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
JANUARY 31, 1996
(COMMENCEMENT
SIX-MONTH FOR THE YEAR ENDED THREE-MONTH OF OPERATIONS)
PERIOD ENDED PERIOD ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31 SEPTEMBER 30
---------------------------------------------------------------------------
1999 1998 1997 1996 1996
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.16 $ 14.23 $ 11.81 $ 11.51 $ 10.00
INCOME FROM
INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.02) (0.06) (0.04) (0.01) (0.01)
Net Realized and Unrealized Gain
(Loss) on Investments (0.78) (3.01) 2.80 0.31 2.19
------------- ----------- ---------- ------------- -------
Total from Investment Operations (0.80) (3.07) 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 $ 10.36 $ 11.16 $ 14.23 $ 11.81 $ 11.51
------------- ----------- ---------- ------------- -------
------------- ----------- ---------- ------------- -------
TOTAL RETURN (7.17%)* (21.57%) 23.38% 2.61%* 21.83%*
NET ASSETS AT END OF PERIOD (000'S) $ 30,338 $ 35,162 $ 22,658 $ 13,169 $ 12,552
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.23%+** 1.28% 1.33% 1.35%+** 1.49%**
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS (.40%)** (.49%) (.41%) (.44%)** (.24%)**
PORTFOLIO TURNOVER RATE 98.30%** 90.23% 60.81% 73.47%** 91.03%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.36% for the
period ended June 30, 1999, and 1.58% for the period ended December 31,
1996.
- 73 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO U.S. VALUE FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT
SIX-MONTH FOR THE OF OPERATIONS)
PERIOD ENDED YEAR ENDED TO
JUNE 30 DECEMBER 31 DECEMBER 31
-----------------------------------------------
1998 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.95 $ 11.19 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.12 0.09
Net Realized and Unrealized Gain on
Investments 1.17 1.28 1.66
------------- ------------ ------
Total from Investment Operations 1.23 1.40 1.75
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.06) (0.12) (0.09)
Distributions from Realized Gains -- (0.52) (0.47)
------------- ------------ ------
Total Distributions (0.06) (0.64) (0.56)
------------- ------------ ------
NET ASSET VALUE AT END
OF PERIOD $ 13.12 $ 11.95 $ 11.19
------------- ------------ ------
------------- ------------ ------
TOTAL RETURN 10.30%* 12.61% 17.50%*
NET ASSETS AT END OF PERIOD (000'S) $ 10,774 $ 10,014 $ 9,063
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.22%+** 1.19% 1.19%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.95%** 1.06% 1.26%**
PORTFOLIO TURNOVER RATE 65.91%** 55.15% 36.37%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.45%.
- 74 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO COMMON STOCK FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
Chase Manhattan Bank
(International Fund)
CLIENT SERVICES*:
Monday-Friday,
5:30am-7:00pm, Pacific Time
NATIONWIDE: 1-800-624-5711
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
*All telephone calls are tape-recorded
for your protection.
FOR 24-HOUR AUTOMATED
PERFORMANCE INFORMATION
AND TRANSACTIONS:
NATIONWIDE: 1-800-835-4391
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
www.safecofunds.com
EMAIL: [email protected]
GMF 1054 8/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
- -Registered Trademark- A registered trademark of SAFECO Corporation.
