<PAGE> 1
June 30, 1996
SEMIANNUAL
REPORT
SAFECO Institutional Series Trust-Fixed Income Porfolio
[LOGO]
<PAGE> 2
PERFORMANCE INFORMATION
For the Period Ended June 30, 1996 (Unaudited)
The performance of the Portfolio assumes the reinvestment of all interest and
capital gains. Operating expenses for the Portfolio have been applied, but not
to the Index. If portfolio operating expenses had been applied to the Index,
its value would have been lower.
Investment returns are historical and not predictive of future performance. The
Lehman Brothers Gov't/Corp. Index is a representative total return benchmark
for the portfolio.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
AVERAGE ANNUAL SINCE
TOTAL RETURN 1 YEAR INCEPTION*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
SAFECO Institutional Series
Trust -- Fixed-Income Portfolio 4.49% 4.54%
Lehman Brothers Gov't/Corp. Index 4.66% 5.66%
- ---------------------------------------------------------------------------------------------------
</TABLE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
Report from the Fund Manager 1
Highlights 2
Portfolio of Investments 3
Statement of Assets and Liabilities 4
Statement of Operations 4
Statement of Changes in Net Assets 5
Notes to Financial Statements 6
</TABLE>
SAFECO INSTITUTIONAL SERIES TRUST-
FIXED-INCOME PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT
[A graph appears here which illustrates the growth of a $10,000 investment over
the life of the fund in comparison to the Lehman Brothers Gov't/Corp. Index.]
<TABLE>
<CAPTION>
Ist Lehman
----- --------
<S> <C> <C>
02/28/94 10,000 10,000
03/31/94 9,666 9,755
04/30/94 9,657 9,674
05/31/94 9,666 9,657
06/30/94 9,653 9,634
07/31/94 9,757 9,827
08/31/94 9,780 9,831
09/30/94 9,703 9,683
10/31/94 9,709 9,672
11/30/94 9,680 9,655
12/31/94 9,699 9,718
01/31/95 9,828 9,905
02/28/95 9,991 10,135
03/31/95 10,038 10,203
04/30/95 10,167 10,344
05/31/95 10,533 10,778
06/30/95 10,615 10,864
07/31/95 10,541 10,822
08/31/95 10,674 10,960
09/30/95 10,791 11,072
10/31/95 10,962 11,235
11/30/95 11,178 11,420
12/31/95 11,382 11,588
01/31/96 11,400 11,660
02/28/96 11,127 11,413
03/31/96 11,010 11,317
04/30/96 11,004 11,239
05/31/96 11,009 11,220
06/30/96 11,092 11,370
</TABLE>
*The Fund became available to the public on
February 28, 1994. Therefore, index graph comparison
also begins on February 28, 1994.
<PAGE> 3
REPORT FROM THE FUND MANAGER
SAFECO INSTITUTIONAL SERIES TRUST
June 30, 1996
SAFECO Institutional Series Trust -- Fixed-Income Portfolio returned
- -2.55% for the six months and 4.49% for the twelve months ended June 30, 1996.
The Lehman Government/Corporate Index returned -1.88% and 4.66% for the same
six- and twelve-month periods.
The year 1996 is proving difficult for bond investors, as yields on
intermediate-term bonds moved higher through the first and second quarters.
Increased treasury borrowing accounted for some of the upward movement in
yields, but fear of a resurgence of inflation is the main culprit behind the
current bearish sentiment.
When rates began moving higher in February, the portfolio took a blow.
However, the conservative risk profile we decided to adopt in March clearly
benefited our performance. Because the average maturity of our bond portfolio
is significantly shorter than that of the market, we outperformed over the last
three months and came in close to the Index (which is unmanaged and has no
expenses) for the past twelve months.
We sold a combination of three-month and seven-year treasuries and
bought three-year treasury strips, also known as zero-coupon bonds. They are
called strips because the interest payment is stripped away, leaving the holder
only the right to collect the principal value at maturity. Strips are sold at
deep discounts because they provide no coupon income stream. They tend to
appreciate faster than traditional securities when the bond market rallies and
decline faster when the market falls. By buying the strips, we were able to
improve yield and position the portfolio to benefit from any increase in the
difference between short- and long-term yields.
Another change to the portfolio during the reporting period included
investing in a new asset class. We added a new AAA-rated asset-backed security
issued by Chevy Chase Auto Trust, which offers a generous yield spread
(difference in yield of securities with different credit qualities) over
treasuries despite its high-quality rating.
The Fund's average maturity is 2.5 years compared to 9.4 years for the
Lehman Government/Corporate Index, and its adjusted duration is 2.16 compared
to 5.04 for the Index.
Looking ahead, we expect economic growth to moderate in the coming
months and inflation to remain under control, despite recent evidence that
wage-cost pressures are emerging. We think productivity gains will offset some
of the wage increases and that the remaining costs will likely be absorbed in
lower profit margins, rather than passed on to the consumer.
Interest rates will likely move higher in the short run, as the
Federal Reserve ratchets up short-term rates as a precaution against runaway
inflation. Given that, we will maintain our defensive posture, until rates
return to their early-spring levels.
/s/ Michael C. Knebel
- ---------------------------------
Michael C. Knebel
- 1 -
<PAGE> 4
HIGHLIGHTS
SAFECO INSTITUTIONAL
SERIES TRUST --
FIXED-INCOME PORTFOLIO
As of June 30, 1996
SAFECO INSTITUTIONAL SERIES TRUST --
FIXED-INCOME PORTFOLIO
- -------------------------------------
[A pie chart appears here illustrating the percentage of net assets invested
in specific types of bonds, as follows:]
BONDS BY TYPE
AS A PERCENTAGE OF NET ASSETS
- -------------------------------------
<TABLE>
<S> <C>
U.S. Treasury Securities 59.1
Utilities 20.3
Banking & Finance 12.4
Canadian Provinces, U.S. Funds 2.6
Asset-Backed Securities 2.4
Cash, Temporary Investments and Other 3.2
-----
100.0
=====
</TABLE>
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY) 5.04%
WEIGHTED AVERAGE MATURITY 2.52 YEARS
</TABLE>
S&P CREDIT RATING DISTRIBUTION
AS A PERCENTAGE OF NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
U.S. Treasury Strips (Not Rated) 16.5%
AAA 45.0%
AA 14.4%
A 20.9%
Cash & Other Assets, Less Liabilities 3.2%
------
100.0%
======
</TABLE>
- 2 -
<PAGE> 5
PORTFOLIO OF INVESTMENTS
As of June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Amount (000's) MARKET VALUE (000'S)
- -------------------------------------------------------------------------------------------
<S> <C>
ASSET-BACKED SECURITIES - 2.4%
FINANCIAL - 2.4%
$100 Chevy Chase Auto ABS
Series 1996-1, Class A
6.60%, due 12/15/02 $ 100
------
TOTAL ASSET-BACKED SECURITIES 100
------
CORPORATE BONDS - 35.3%
BANKING & FINANCE - 12.4%
200 Associates Corp. of North America
8.80%, due 8/01/98 209
100 International Lease Finance Corp.
6.625%, due 4/01/99 100
100 Norwest Financial, Inc.
6.25%, due 3/15/99 99
100 Transamerica Finance Corp.
6.80%, due 3/15/99 101
CANADIAN PROVINCES, U.S. FUNDS - 2.6%
100 Manitoba (Province)
9.50%, due 9/15/98 106
UTILITIES - 20.3%
100 Central Power & Light Co.
7.50%, due 5/01/99 102
100 Consolidated Natural Gas Co.
5.875%, due 10/01/98 99
185 GTE California, Inc.
6.25%, due 1/15/98 185
250 Nova Gas Transmission
7.25%, due 7/06/99 252
100 Pennsylvania Power & Light Co.
5.50%, due 4/01/98 98
100 Virginia Electric & Power Co.
7.25%, due 3/01/97 101
------
TOTAL CORPORATE BONDS $1,452
------
U.S. GOVERNMENT SECURITIES - 59.1%
U.S. TREASURY NOTES - 42.6%
$ 200 7.75%, due 12/31/99 $ 208
1,075 6.50%, due 9/30/96 1,078
470 6.25%, due 2/15/03 462
U.S. TREASURY PRINCIPAL STRIPS - 16.5%
825 0.00%, due 8/15/99 678
------
TOTAL U.S. GOVERNMENT SECURITIES 2,426
------
TEMPORARY INVESTMENTS - 1.8%
INVESTMENT COMPANIES:
73 Short-Term Investments Co.
(Prime Portfolio) 73
------
TOTAL TEMPORARY INVESTMENTS 73
------
TOTAL INVESTMENTS - 98.6% 4,051
Other Assets, less Liabilities 63
------
NET ASSETS $4,114
======
</TABLE>
See Notes to Financial Statements
- 3 -
<PAGE> 6
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1996 (Unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at Value
Asset-Backed Securities (Identified Cost $100,016) $ 100,281
Corporate Bonds (Identified Cost $1,436,428) 1,451,653
U.S. Government Securities (Identified Cost $2,441,408) 2,425,907
Temporary Investments 72,810
----------
Total Investments 4,050,651
Interest Receivable 72,245
Deferred Organization Expense 16,002
----------
Total Assets 4,138,898
----------
LIABILITIES
Payables
Organization Expense 16,002
Investment Advisory Fees 1,559
Dividends 509
Other 6,820
----------
Total Liabilities 24,890
----------
NET ASSETS $4,114,008
==========
SHARES OUTSTANDING 492,722
==========
NET ASSET VALUE PER SHARE (Net Assets Divided by Shares Outstanding) $ 8.35
==========
</TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the Six-Month Period Ended June 30, 1996 (Unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 123,775
EXPENSES
Investment Advisory Fees $ 10,449
Trustees' Fees 2,123
Legal and Auditing Fees 6,450
Amortization of Organization Expenses 2,990
Custodian Fees 2,629
Shareholder Servicing Fees 125
Other 221
---------
Total Expenses 24,987
---------
NET INVESTMENT INCOME 98,788
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments (2,547)
Net Change in Unrealized Appreciation (206,809)
---------
NET GAIN (LOSS) ON INVESTMENTS (209,356)
---------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $(110,568)
=========
</TABLE>
See Notes to Financial Statements
- 4 -
<PAGE> 7
STATEMENT OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE SIX- FOR THE
MONTH PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
1996 1995
------------------ ------------
<S> <C> <C>
OPERATIONS
Net Investment Income $ 98,788 $ 238,600
Net Realized Gain (Loss) on Investments (2,547) 167,331
Net Change in Unrealized Appreciation (206,809) 330,668
---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (110,568) 736,599
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (98,788) (238,600)
Net Realized Gain on Investments -- (155,678)
---------- ----------
Total Distributions (98,788) (394,278)
TRUST SHARE TRANSACTIONS (173,512) (472,597)
---------- ----------
TOTAL CHANGE IN NET ASSETS (382,868) (130,276)
NET ASSETS AT BEGINNING OF PERIOD 4,496,876 4,627,152
---------- ----------
NET ASSETS AT END OF PERIOD $4,114,008 $4,496,876
========== ==========
- ---------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN SHARES AND AMOUNTS
SHARES:
Sales 601 --
Reinvestments 11,336 44,227
Redemptions (32,182) (98,949)
---------- ----------
(20,245) (54,722)
========== ==========
AMOUNTS:
Sales $ 5,000 $ --
Reinvestments 95,706 382,403
Redemptions (274,218) (855,000)
---------- ----------
$ (173,512) $ (472,597)
========== ==========
At June 30, 1996:
Paid in Capital 4,116,943
Par Value per Share $ .001
Shares Authorized UNLIMITED
</TABLE>
See Notes to Financial Statements
- 5 -
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The SAFECO Institutional Series Trust ("Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. At June 30, 1996, the Trust consists of one
portfolio -- the Fixed-Income Portfolio ("Portfolio")
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles which permit management to make certain estimates and assumptions as
of the date of the financial statements.
SECURITY VALUATION. Investments in securities are stated on the basis
of valuations provided by a pricing service which uses information with respect
to transactions in securities, quotations from securities dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Temporary investments purchased at par are
valued at cost. All other temporary investments are valued at amortized cost
which approximates market value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. The cost of the portfolio is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on
a when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin
earning interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Portfolio segregates liquid assets in an amount
equal to the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments
daily. Bond premiums and market discounts are amortized to either call or
maturity dates.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, are normally distributed to
shareholders at the end of December.
FEDERAL INCOME AND EXCISE TAXES. The Trust intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to shareholders in a
manner which results in no tax to the Trust. Therefore, no federal income or
excise tax provision is required.
DEFERRED ORGANIZATION EXPENSES. Costs related to the organization of
the Portfolio have been deferred and are being amortized to operations over a
period of sixty months, beginning on the initial public offering date. These
costs were advanced by the investment adviser and are being reimbursed by the
Portfolio over a period of not more than sixty months. If any of the original
seed money shares are redeemed by SAFECO Asset Management Company prior to the
end of the amortization period, the redemption proceeds will be reduced by a
pro rata share of the unamortized organization expenses as of the date of
redemption.
- 6 -
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. INVESTMENT TRANSACTIONS
PURCHASES AND SALES. The Portfolio had purchases and sales of
securities during the six-month period ended June 30, 1996, of $1,851,999 and
$3,216,417, respectively (including purchases and sales of U.S. Government
Securities of $1,751,983 and $3,014,381, respectively).
<TABLE>
<S> <C>
Unrealized appreciation (depreciation) at June 30, 1996:
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $18,599
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (18,610)
Net unrealized depreciation $ (11)
</TABLE>
3. INVESTMENT ADVISORY FEES AND
OTHER TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from
the Portfolio. The fee is based on average daily net assets at the annual rate
of 50/100 of one percent on the first $100 million declining in two levels to
35/100 of one percent on net assets over $250 million. SAFECO Services
Corporation receives shareholder servicing fees. In connection with the
formation of the Trust, the investment adviser, SAFECO Asset Management
Company, advanced moneys for organizational expenses (Note 1). The Trust may
borrow money for temporary purposes from SAFECO Corporation or its affiliates
at interest rates equivalent to commercial bank interest rates.
4. ADDITIONAL CLASSES OF SHARES
On July 10, 1996, the Board of Trustees approved an amendment to the
Trust Instrument to establish new Advisor Class A and Advisor Class B share
Classes. As described in the Prospectus filed with the Securities and Exchange
Commission on July 30, 1996, these new share classes will be available to
shareholders on September 30, 1996.
Shareholders which purchase shares of the Fund before September 30,
1996, will be substantially unaffected by the addition of the new classes of
shares. These shares will be designated the no-load share class effective
September 30, 1996. Furthermore, management of SAFECO Asset Management Company
believes that the availability of additional classes of shares will facilitate
the growth of Portfolio assets, which in turn should lower the Portfolio's
expense ratio.
5. NAME CHANGE
On July 10, 1996, the Board of Trustees approved new names for the
Trust and the Portfolio which reflect the availability of shares to
non-institutional investors effective September 30, 1996. The new names (which
will also be effective September 30, 1996) are SAFECO Managed Bond Trust and
SAFECO Managed Bond Fund.
- 7 -
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Six- June 25, 1992
Month Period For the Year Ended (Commencement of
Ended December 31 Operations) to
June 30, 1996 1995 1994 1993+ December 31, 1992+
===============================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 8.77 $ 8.15 $ 9.08 $ 9.57 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) 0.20 0.44 0.27 (0.62) (0.50)
Net Realized and Unrealized Gain (Loss)
on Investments (0.42) 0.94 (0.93) 0.15 0.07
------ ------ ------ ------ ------
Total from Investment Operations (0.22) 1.38 (0.66) (0.47) (0.43)
------ ------ ------ ------ ------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.20) (0.44) (0.27) -- --
Net Realized Gains on Investments -- (0.32) -- (0.02) --
------ ------ ------ ------ ------
Total Distributions (0.20) (0.76) (0.27) (0.02) --
------ ------ ------ ------ ------
NET ASSET VALUE AT END OF PERIOD $ 8.35 $ 8.77 $ 8.15 $ 9.08 $ 9.57
====== ====== ====== ====== ======
TOTAL RETURN -2.55%** 17.35% -3.01%# N/A N/A
NET ASSETS AT END OF PERIOD (000'S) $4,114 $4,497 $4,627 $ 91 $ 96
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.17%* 1.16% 1.37% 11.75% 13.35%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS 4.64%* 5.14% 4.47% -6.75% -9.80%*
PORTFOLIO TURNOVER RATE 117.13%* 78.78% 129.56% None None
- --------------------------------------------------------------------------------------------------------------
</TABLE>
+ Financial highlights relate only to the performance of the initial
seed investment of SAFECO Asset Management Company. Trust shares were
not yet available to the public.
# Total return from February 28, 1994 (initial public offering) to
December 31, 1994; not annualized.
* Annualized.
** Not annualized.
- 8 -
<PAGE> 11
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME WITH LONG-TERM GROWTH
SAFECO Income Fund
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it
carefully before you invest or send money.
- 9 -
<PAGE> 12
SAFECO INSTITUTIONAL
SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
Richard W. Hubbard
Richard E. Lundgren
L.D. McClean
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
INVESTMENT ADVISER:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
U.S. Bank of Washington, N.A.
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34443
Seattle, WA 98124-1443
FOR ACCOUNT INFORMATION
OR TELEPHONE TRANSACTIONS:
NATIONWIDE: 1-800-278-1985
SEATTLE: 545-5423
TTY/TDD: 1-800-438-8718
GMF 772 8/96
Printed on Recycled Paper.
THIS REPORT MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
(R) Registered trademark of SAFECO Corporation.
