<PAGE>
ANNUAL REPORT
December 31, 1998
SAFECO MUTUAL FUNDS
FIXED-INCOME FUNDS
NO-LOAD CLASS
----------
<TABLE>
<CAPTION>
TAXABLE BOND FUNDS
<S> <C>
Intermediate-Term U.S. Treasury Fund.................................. 2
GNMA Fund............................................................. 5
High-Yield Bond Fund.................................................. 8
Managed Bond Fund..................................................... 15
<CAPTION>
TAX-EXEMPT BOND FUNDS
<S> <C>
Municipal Bond Market Overview........................................ 19
California Tax-Free Income Fund....................................... 20
Municipal Bond Fund................................................... 24
Washington State Municipal Bond Fund.................................. 32
Intermediate-Term Municipal Bond Fund................................. 36
Insured Municipal Bond Fund........................................... 41
<CAPTION>
MONEY MARKET FUNDS
<S> <C>
Money Market Fund..................................................... 47
Tax-Free Money Market Fund............................................ 51
</TABLE>
[LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
RONALD SPAULDING
The SAFECO Intermediate-Term U.S. Treasury Fund beat its peer funds for
the year and quarter ended December 31, 1998. The Fund returned -0.35% for
the quarter compared to -0.44% for the average fund as reported by Lipper,
Inc. and a gain of 0.23% for the Merrill Lynch Intermediate-Term Treasury
Index. For the full year, the SAFECO Fund returned 9.61% compared to 9.05%
for the average fund and 8.63% for the Index.
Duration is a measure of price sensitivity to interest rate changes. A
longer average duration in the Fund, 4.9 versus 3.1, explains why the Fund
performed better than the Index for the full year, and fared worse in the
fourth quarter. As interest rates declined in the first nine months of 1998,
prices moved up faster on the longer duration bonds, such as those held by
the Fund. In the fourth quarter the trend reversed: interest rates rose and
the Fund declined faster than the Index. Our average duration has been
similar to, or slightly longer than, our peers as well.
Trading activity was light in the fourth quarter. We bought six-month
U.S. Treasury Bills and
- -------------------------------------------------------------------------------
INTERMEDIATE-TERM TREASURY FUND
PERFORMANCE OVERVIEW -- NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS
ENDED DECEMBER 31, 1998
- -----------------------
<S> <C>
1-Year 9.61%
5-Year 6.04%
10-Year 7.83%
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE-TERM INTERMEDIATE-TERM
TREASURY FUND TREASURY INDEX
--------------------------------------
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,059 10,099
02/28/89 10,008 10,057
03/31/89 10,026 10,106
04/30/89 10,202 10,293
05/31/89 10,382 10,510
06/30/89 10,617 10,777
07/31/89 10,804 10,998
08/31/89 10,704 10,845
09/30/89 10,747 10,899
10/31/89 10,928 11,123
11/30/89 11,008 11,232
12/31/89 11,030 11,260
01/31/90 10,965 11,196
02/28/90 11,020 11,224
03/31/90 11,014 11,246
04/30/90 10,986 11,207
05/31/90 11,194 11,443
06/30/90 11,308 11,593
07/31/90 11,460 11,759
08/31/90 11,418 11,708
09/30/90 11,463 11,815
10/31/90 11,554 11,979
11/30/90 11,674 12,158
12/31/90 11,821 12,330
01/31/91 11,874 12,455
02/28/91 11,966 12,520
03/31/91 12,051 12,588
04/30/91 12,185 12,719
05/31/91 12,249 12,791
06/30/91 12,264 12,804
07/31/91 12,416 12,942
08/31/91 12,626 13,184
09/30/91 12,815 13,408
10/31/91 12,953 13,560
11/30/91 13,086 13,719
12/31/91 13,419 14,054
01/31/92 13,265 13,912
02/28/92 13,282 13,965
03/31/92 13,233 13,908
04/30/92 13,334 14,035
05/31/92 13,526 14,235
06/30/92 13,738 14,442
07/31/92 14,080 14,710
08/31/92 14,190 14,879
09/30/92 14,454 15,085
10/31/92 14,189 14,900
11/30/92 14,101 14,834
12/31/92 14,299 15,029
01/31/93 14,667 15,310
02/28/93 14,992 15,539
03/31/93 15,053 15,598
04/30/93 15,160 15,721
05/31/93 15,110 15,674
06/30/93 15,476 15,899
07/31/93 15,501 15,932
08/31/93 15,883 16,175
09/30/93 15,972 16,245
10/31/93 16,007 16,273
11/30/93 15,751 16,195
12/31/93 15,850 16,258
01/31/94 16,055 16,420
02/28/94 15,631 16,187
03/31/94 15,302 15,960
04/30/94 15,193 15,852
05/31/94 15,200 15,868
06/30/94 15,171 15,880
07/31/94 15,372 16,077
08/31/94 15,412 16,127
09/30/94 15,243 15,997
10/31/94 15,249 16,001
11/30/94 15,217 15,921
12/31/94 15,277 15,981
01/31/95 15,452 16,247
02/28/95 15,683 16,558
03/31/95 15,763 16,648
04/30/95 15,957 16,839
05/31/95 16,567 17,321
06/30/95 16,677 17,434
07/31/95 16,549 17,445
08/31/95 16,745 17,588
09/30/95 16,931 17,707
10/31/95 17,188 17,906
11/30/95 17,538 18,129
12/31/95 17,835 18,314
01/31/96 17,894 18,471
02/28/96 17,457 18,264
03/31/96 17,274 18,176
04/30/96 17,238 18,119
05/31/96 17,235 18,109
06/30/96 17,360 18,286
07/31/96 17,415 18,342
08/31/96 17,413 18,362
09/30/96 17,608 18,596
10/31/96 17,824 18,898
11/30/96 18,053 19,131
12/31/96 17,904 19,027
01/31/97 17,960 19,097
02/28/97 17,912 19,118
03/31/97 17,694 19,021
04/30/97 17,942 19,234
05/31/97 18,081 19,382
06/30/97 18,261 19,549
07/31/97 18,788 19,916
08/31/97 18,561 19,831
09/30/97 18,840 20,050
10/31/97 19,171 20,283
11/30/97 19,179 20,329
12/31/97 19,388 20,502
01/30/98 19,700 20,778
02/28/98 19,634 20,751
03/31/98 19,671 20,820
04/30/98 19,742 20,913
05/31/98 19,910 21,054
06/30/98 20,076 21,200
07/31/98 20,118 21,284
08/31/98 20,613 21,709
09/30/98 21,325 22,221
10/31/98 21,222 22,272
11/30/98 21,151 22,189
12/31/98 21,251 22,271
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-2-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10-year U.S. Treasury Notes while maintaining an average maturity at six
years. U.S. Treasury securities comprise 79% of the Fund, and U.S. Government
Agency securities add another 16%.
We expect the year ahead to be good for bonds, but not as positive as
1998. A slowing economy, low inflation, and a neutral Federal Reserve provide
a strong foundation for the U.S. bond market. But there are some concerns.
While the consensus of economists has been for a slowdown in the U.S.
domestic economy for at least two quarters, to date there has been little
evidence of slowing. Indeed, economic data released in January point to
acceleration in economic growth. The Fed almost certainly will not ease again
as many investors are hoping and counting on.
The international situation likewise clouds the future. Persistent
economic weakness in Asia could set off another flight to quality and push
bond prices higher. On the other hand, strength in the new European currency,
the Euro, could weaken the dollar and push bond prices lower. We are
forecasting a modest increase in bond prices.
However, given the renewed strength in the economy, we no longer feel
comfortable with a duration that is 50 percent longer than the comparable
index. If the economy carries interest rates higher and the Fed is unlikely
to ease, we're better to err to the short side. After the end of the quarter,
I restructured the portfolio to bring our average duration in line with
Merrill Lynch's Intermediate-Term Treasury Index.
Ronald Spaulding
- -------------------------------------------------------------------------------
Ronald Spaulding is the chief investment officer of SAFECO Corporation. In
1995, he became vice president and treasurer of SAFECO Corporation, director
of the insurance subsidiaries, vice chairman of SAFECO Asset Management
Company, and vice president and treasurer of SAFECO Mutual Funds. He holds an
M.B.A. from the University of Washington and is a Chartered Financial Analyst.
-3-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT SECURITIES - 95.5%
U.S. FEDERAL AGENCY NOTES - 16.2%
$1,500 6.875%, due 11/22/06........................ $ 1,558
1,500 6.26%, due 9/24/04.......................... 1,578
500 5.785%, due 4/14/08......................... 515
500 5.75%, due 2/15/08.......................... 518
U.S. TREASURY NOTES - 68.3%
2,200 7.75%, due 2/15/01.......................... 2,335
1,200 7.50%, due 11/15/01......................... 1,290
2,070 7.25%, due 8/15/04.......................... 2,328
1,310 6.875%, due 3/31/00......................... 1,344
3,900 6.50%, due 10/15/06......................... 4,329
5,550 5.625%, due 5/15/08......................... 5,921
U.S. TREASURY BILLS/STRIPS - 11.0%
1,500 0.00%, due 4/01/99.......................... 1,484
1,975 0.00%, due 2/15/07.......................... 1,336
-------
TOTAL U.S. GOVERNMENT SECURITIES................................ 24,536
-------
TEMPORARY INVESTMENTS - 3.5%
INVESTMENT COMPANIES:
$ 889 SSgA Prime Money
Market Portfolio............................ 889
-------
TOTAL TEMPORARY INVESTMENTS..................................... 889
-------
TOTAL INVESTMENTS - 99.0%....................................... 25,425
Other Assets, less Liabilities.................................. 257
-------
NET ASSETS...................................................... $25,682
-------
-------
</TABLE>
- -------------------------------------------------------------------------------
HIGHLIGHTS
Current Yield (30-day).......................................... 4.08%
Weighted Average Maturity....................................... 6.0 years
- -------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-4-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO GNMA FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
PAUL STEVENSON
For the fourth quarter, SAFECO GNMA Fund returned 0.44%, essentially
matching the 0.40% return for the average GNMA Fund calculated by Lipper,
Inc.
For the year ended December 31, 1998, the SAFECO GNMA Fund returned
6.84%, while the average fund returned 6.47% and the Merrill Lynch GNMA
Index posted 7.20%.
Clearly, the peer group under-performed the Index. I attribute the 0.36%
difference between our Fund and the Index to the fact that the Index does not
have to re-invest cash flows and has no prepayments or management expenses.
Our moderate emphasis on longer duration (sensitivity to interest rates)
helped generate above-average returns for the year. We have a greater
allocation to 30-year pass-throughs and discount coupons than the Index, and
we hold CMOs (collateralized mortgage obligations), which are not included in
the Index at all. Only in the fourth quarter did shorter duration securities
with greater yield spreads outperform.
It was in the fourth quarter, in the face of global turmoil, that the
United States Federal Reserve stepped in with just the right dose of the
right medicine. Easing
- -------------------------------------------------------------------------------
GNMA FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
YEAR ENDED DECEMBER 31, 1998
- -----------------------------------
<S> <C>
1 Year 6.84 %
5 Year 6.00%
10 Year 7.98%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH
GNMA FUND GNMA INDEX
------------------------------
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,105 10,173
02/28/89 10,075 10,101
03/31/89 10,085 10,105
04/30/89 10,253 10,298
05/31/89 10,511 10,616
06/30/89 10,767 10,946
07/31/89 11,002 11,140
08/31/89 10,856 11,002
09/30/89 10,905 11,050
10/31/89 11,102 11,332
11/30/89 11,224 11,467
12/31/89 11,293 11,535
01/31/90 11,167 11,414
02/28/90 11,218 11,517
03/31/90 11,232 11,531
04/30/90 11,077 11,423
05/31/90 11,417 11,786
06/30/90 11,569 11,980
07/31/90 11,781 12,182
08/31/90 11,676 12,280
09/30/90 11,753 12,392
10/31/90 11,853 12,543
11/30/90 12,116 12,822
12/31/90 12,277 13,035
01/31/91 12,450 13,222
02/28/91 12,522 13,315
03/31/91 12,588 13,416
04/30/91 12,724 13,549
05/31/91 12,825 13,658
06/30/91 12,840 13,678
07/31/91 13,043 13,908
08/31/91 13,253 14,169
09/30/91 13,484 14,425
10/31/91 13,682 14,653
11/30/91 13,751 14,753
12/31/91 14,094 15,119
01/31/92 13,897 14,936
02/28/92 14,011 15,084
03/31/92 13,930 14,989
04/30/92 14,034 15,148
05/31/92 14,304 15,428
06/30/92 14,457 15,669
07/31/92 14,663 15,761
08/31/92 14,814 15,992
09/30/92 14,933 16,111
10/31/92 14,779 15,987
11/30/92 14,842 16,069
12/31/92 15,038 16,266
01/31/93 15,260 16,481
02/28/93 15,426 16,634
03/31/93 15,488 16,736
04/30/93 15,542 16,828
05/31/93 15,587 16,917
06/30/93 15,849 17,077
07/31/93 15,915 17,158
08/31/93 16,082 17,192
09/30/93 16,099 17,201
10/31/93 16,126 17,253
11/30/93 15,973 17,260
12/31/93 16,102 17,431
01/31/94 16,282 17,568
02/28/94 16,035 17,485
03/31/94 15,527 17,031
04/30/94 15,391 16,905
05/31/94 15,443 16,941
06/30/94 15,375 16,905
07/31/94 15,671 17,238
08/31/94 15,707 17,285
09/30/94 15,470 17,091
10/31/94 15,430 17,080
11/30/94 15,296 17,037
12/31/94 15,415 17,218
01/31/95 15,731 17,591
02/28/95 16,099 18,061
03/31/95 16,153 18,150
04/30/95 16,359 18,408
05/31/95 16,811 18,957
06/30/95 16,882 19,081
07/31/95 16,901 19,129
08/31/95 17,085 19,333
09/30/95 17,248 19,534
10/31/95 17,381 19,697
11/30/95 17,586 19,911
12/31/95 17,801 20,165
01/31/96 17,919 20,319
02/28/96 17,677 20,158
03/31/96 17,572 20,132
04/30/96 17,503 20,067
05/31/96 17,463 19,991
06/30/96 17,704 20,218
07/31/96 17,729 20,308
08/31/96 17,727 20,336
09/30/96 18,022 20,664
10/31/96 18,354 21,079
11/30/96 18,626 21,401
12/31/96 18,510 21,289
01/31/97 18,630 21,438
02/28/97 18,671 21,520
03/31/97 18,473 21,317
04/30/97 18,777 21,658
05/31/97 18,938 21,886
06/30/97 19,169 22,142
07/31/97 19,578 22,541
08/31/97 19,507 22,512
09/30/97 19,741 22,803
10/31/97 19,947 23,034
11/30/97 19,980 23,095
12/31/97 20,171 23,320
01/30/98 20,375 23,546
02/28/98 20,415 23,627
03/31/98 20,457 23,730
04/30/98 20,582 23,886
05/31/98 20,725 24,065
06/30/98 20,843 24,130
07/31/98 20,930 24,265
08/31/98 21,222 24,460
09/30/98 21,455 24,762
10/31/98 21,364 24,735
11/30/98 21,463 24,893
12/31/98 21,551 25,001
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-5-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPORT FROM THE GNMA FUND MANAGER
short-term interest rates multiple times and taking a proactive role in
maintaining market discipline, they returned liquidity and confidence to the
financial markets. By November, investors started to leave the safe haven of
U.S. Treasuries to search for attractive yields in the "more risky" sectors
of the bond markets.
By year-end, fixed-income spread products such as corporate, mortgage
and junk bonds (all of which had suffered badly during the fear-driven flight
to quality) began receiving bids. The higher yields (and lower prices)
demanded by investors for these "more risky" credits started to melt away,
and the outlook for further improvement remains quite favorable.
I have kept this portfolio's average maturity and duration (5.9 and 3.2
years at year-end), longer than the Index's (5.1 and 2 years). I believe the
Fund is somewhat longer than the average GNMA fund as well as the Index.
Approximately 80% of the Fund's assets are invested in mortgage
pass-throughs, with the balance in well-structured CMOs. Looking at just the
pass-throughs, most are GNMAs (86%). The pass-throughs emphasize discount and
current coupon 30-year bonds, with a smattering of big-coupon premium bonds
for defense.
During the quarter I added to my existing GNMA 30-year discount
positions (essentially reinvesting cash from prepayments) and picked up a
very cheap and very short CMO, which has appreciated handsomely.
While I am sticking with my flat to lower interest rate outlook for the
U.S. bond markets, my convictions are being tested daily by all the
volatility. My forecast, which is an economic slowdown due mainly to the
Asian (and now Brazilian) difficulties coupled with low inflation, is
contradicted by the hard-to-fathom continued strength of the U.S. stock
markets and its astonishing effect on consumer demand. Further complicating
matters, I believe that hedge fund-like players making or unwinding huge
bets are exacerbating an already-volatile fixed-income market. Finally in
the mortgage-sector, I
-6-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
am concerned about what would happen if FNMA and FHLMC, which account for
much of the new issue supply, quit buying back their product for their own
portfolios. All of these concerns have led me to a more cautious strategy in
1999 as compared to last year.
I will be searching for the right opportunities to transfer assets into
sectors that I identify as cheap, and I may use these opportunities to
shorten duration.
Paul Stevenson
- -------------------------------------------------------------------------------
Paul Stevenson joined SAFECO in 1986 as a mortgage securities analyst. He
became the GNMA Fund manager in 1988. Stevenson has a Bachelor of Arts in
finance from Washington State University, an MBA from the University of
Washington, and is a Chartered Financial Analyst.
- -------------------------------------------------------------------------------
HIGHLIGHTS
CURRENT YIELD (30-DAY).......................................... 5.74%
WEIGHTED AVERAGE MATURITY....................................... 5.9 YEARS
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO
GNMA FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(000's) VALUE(000's)
- -------------------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT AND
AGENCY SECURITIES - 98.3%
COLLATERALIZED MORTGAGE OBLIGATION(CMO)-19.4%
$3,000 7.00%, FNMA REMIC
1993-127J PAC,
due 9/25/22................................. $ 3,120
1,794 6.50%, FHLMC REMIC 1614
due 12/15/09................................ 1,850
3,131 6.50%, FHLMC REMIC 1619
due 4/15/23................................. 3,194
FEDERAL HOME LOAN MORTGAGE
CORP. (FHLMC) - 0.9%
382 10.00%, due 5/01/03......................... 398
FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA) - 9.5%
1,289 9.00%, due 6/01/22 - 11/01/22............... 1,370
2,613 6.50%, due 10/01/23......................... 2,633
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA) - 68.5%
811 9.50%, due 3/15/20.......................... 877
282 9.00%, due 1/15/17.......................... 303
7,548 7.50%, due 1/15/22 - 5/15/28................ 7,789
5,280 7.00%, due 5/15/28.......................... 5,399
5,841 6.50%, due 1/20/24 - 8/20/28................ 5,890
6,707 6.00%, due 5/15/13 - 7/20/28................ 6,697
2,000 5.50%, due 12/20/28......................... 1,907
-------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES..................... 41,427
-------
TEMPORARY INVESTMENTS - 0.6%
INVESTMENT COMPANIES:
274 SSgA Prime Money
Market Portfolio............................ 274
-------
TOTAL TEMPORARY INVESTMENTS..................................... 274
-------
TOTAL INVESTMENTS - 98.9%....................................... 41,701
Other Assets, less Liabilities.................................. 444
-------
NET ASSETS...................................................... $42,145
-------
-------
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-7-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO HIGH-YIELD BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
ROBERT KERN
The SAFECO High-Yield Bond Fund beat both its benchmark index and peer
group for the quarter and year ended December 31, 1998.
For the quarter and year, the Fund returned 3.51% and 4.45%,
respectively. For the same periods, the Merrill Lynch High-Yield Master II
Index returned 2.76% and 2.95%, while the average return on the Lipper, Inc.
High Current Yield Funds group was 2.75% and -0.44%.
The high-yield market came back strongly during the fourth quarter of
1998, as the "flight-to-quality" trade into U.S. Treasury bonds reversed
itself. The catalyst for this extraordinary performance was a series of
interest rate easings by the Federal Reserve. Beginning in late September,
the Fed eased three times, taking the Fed Fund's rate from 5.50% to 4.75% by
mid-November. Conspicuous in this process was the October 15th drop of 25
basis points from 5.25% to 5.00% which occurred between the Fed's regularly
scheduled meetings. This move sent a signal to the financial markets that the
Fed was ready to use monetary policy proactively to prevent further
dislocation in financial markets.
Spreads-to-Treasuries (differences in yields) for high-yield
- -------------------------------------------------------------------------------
HIGH-YIELD BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED
DECEMBER 31, 1998
- -----------------
<S> <C>
1 Year 4.45%
5 Year 8.01%
10 Year 9.11%
</TABLE>
<TABLE>
<CAPTION>
HIGH-YIELD MERRILL LYNCH
BOND FUND HIGH-YIELD INDEX
-------------------------------
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,159 10,163
02/28/89 10,194 10,224
03/31/89 10,129 10,184
04/30/89 10,074 10,188
05/31/89 10,231 10,380
06/30/89 10,372 10,538
07/31/89 10,433 10,581
08/31/89 10,414 10,630
09/30/89 10,366 10,518
10/31/89 10,229 10,257
11/30/89 10,211 10,272
12/31/89 10,198 10,231
01/31/90 10,046 9,954
02/28/90 9,845 9,804
03/31/90 10,043 9,989
04/30/90 10,103 10,051
05/31/90 10,302 10,219
06/30/90 10,419 10,475
07/31/90 10,658 10,738
08/31/90 10,332 10,247
09/30/90 9,947 9,826
10/31/90 9,627 9,538
11/30/90 9,733 9,638
12/31/90 9,832 9,785
01/31/91 9,779 9,985
02/28/91 10,182 10,851
03/31/91 10,542 11,388
04/30/91 10,864 11,782
05/31/91 10,994 11,828
06/30/91 11,114 12,096
07/31/91 11,360 12,421
08/31/91 11,580 12,707
09/30/91 11,754 12,886
10/31/91 12,026 13,324
11/30/91 12,176 13,467
12/31/91 12,220 13,617
01/31/92 12,560 14,077
02/28/92 12,777 14,433
03/31/92 12,915 14,636
04/30/92 12,907 14,712
05/31/92 13,081 14,929
06/30/92 13,251 15,101
07/31/92 13,478 15,395
08/31/92 13,646 15,591
09/30/92 13,814 15,756
10/31/92 13,543 15,554
11/30/92 13,772 15,792
12/31/92 13,915 15,993
01/31/93 14,295 16,374
02/28/93 14,578 16,666
03/31/93 14,826 16,950
04/30/93 14,934 17,066
05/31/93 15,160 17,288
06/30/93 15,446 17,610
07/31/93 15,628 17,787
08/31/93 15,735 17,950
09/30/93 15,788 18,030
10/31/93 16,011 18,372
11/30/93 16,134 18,468
12/31/93 16,268 18,662
01/31/94 16,574 19,066
02/28/94 16,494 18,933
03/31/94 15,911 18,322
04/30/94 15,782 18,094
05/31/94 15,927 18,054
06/30/94 15,996 18,136
07/31/94 15,990 18,256
08/31/94 16,049 18,391
09/30/94 16,043 18,387
10/31/94 15,978 18,435
11/30/94 15,768 18,277
12/31/94 15,901 18,469
01/31/95 16,089 18,729
02/28/95 16,427 19,329
03/31/95 16,577 19,590
04/30/95 16,890 20,097
05/31/95 17,334 20,717
06/30/95 17,422 20,856
07/31/95 17,652 21,128
08/31/95 17,661 21,239
09/30/95 17,876 21,491
10/31/95 18,123 21,667
11/30/95 18,154 21,882
12/31/95 18,389 22,248
01/31/96 18,621 22,620
02/28/96 18,800 22,689
03/31/96 18,738 22,596
04/30/96 18,777 22,628
05/31/96 18,893 22,791
06/30/96 18,941 22,893
07/31/96 19,139 23,032
08/31/96 19,411 23,319
09/30/96 19,804 23,861
10/31/96 19,881 24,068
11/30/96 20,176 24,552
12/31/96 20,300 24,756
01/31/97 20,469 24,942
02/28/97 20,845 25,326
03/31/97 20,410 24,976
04/30/97 20,566 25,296
05/31/97 21,127 25,829
06/30/97 21,450 26,228
07/31/97 22,003 26,923
08/31/97 22,016 26,891
09/30/97 22,395 27,375
10/31/97 22,379 27,515
11/30/97 22,588 27,772
12/31/97 22,896 28,039
01/30/98 23,379 28,486
02/28/98 23,483 28,602
03/31/98 23,765 28,873
04/30/98 23,686 28,997
05/31/98 23,793 29,171
06/30/98 23,896 29,322
07/31/98 24,208 29,509
08/31/98 22,724 28,019
09/30/98 23,104 28,092
10/31/98 22,839 27,492
11/30/98 23,825 28,919
12/31/98 23,915 28,867
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypotheitcal investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less that
their original cost.
- -------------------------------------------------------------------------------
-8-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
bonds narrowed across all rating categories. The "sweet spot" from a
performance perspective was the single B category. At year-end, single Bs
made up approximately 71% of the Fund, and this large allocation contributed
to the Fund's good relative performance during the quarter.
Throughout the year I emphasized larger, more liquid bond issues, which
proved particularly beneficial in August and September, as liquidity became
an increasing concern. I also favored debt from larger, better-capitalized
companies, especially those with public equity that had performed well.
Improving equity pricing gives an issuer an alternative "currency" and a
potential vehicle for deleveraging. Finally, I looked for companies with
primarily domestic businesses. The better performers in the Fund shared some
or all of these traits, and included companies like Qwest Communications,
Allied Waste Industries, and Ball Corp.
In the fourth quarter, I added Chancellor Media to the Fund. Chancellor
is engaged in radio and television broadcasting, and
<TABLE>
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------
<S> <C>
BB................. 15%
B.................. 71
Not Rated.......... 2
Preferred Stock.... 3
Cash & Other....... 9
-----
100%
-----
-----
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE COMPANIES NET ASSETS
- ------------------------------------------------------------------------------
<S> <C>
NEXTLINK Communications, Inc................................... 2.6%
(Telephone)
Intermedia Communication, Inc.................................. 2.5
(Telephone)
Chancellor Media Corp.......................................... 2.5
(Broadcasting)
Qwest Communications International, Inc........................ 2.4
(Telecommunications)
AES Corp....................................................... 2.4
(Power Producer - Independent)
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES COST
(July to Dec.) (000's)
- ------------------------------------------------------------------------------
<S> <C>
Global Crossing Holdings, Ltd................................. $2,006
Ball Corp...................................................... 1,758
Hayes Lemmerz International, Inc............................... 1,750
Comcast Corp................................................... 1,586
Genesis Health Ventures, Inc................................... 1,530
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE SALES PROCEEDS
(July to Dec.) (000's)
- ------------------------------------------------------------------------------
<S> <C>
Level 3 Communications, Inc..................................... $1,821
Integrated Health Services, Inc................................. 1,313
Advanced Lighting Technologies, Inc............................. 1,310
Adelphia Communications Corp.................................... 1,302
Dyersburg Corp.................................................. 1,209
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE INDUSTRIES NET ASSETS
- ------------------------------------------------------------------------------
<S> <C>
Broadcasting (Television, Radio & Cable)........................ 14%
Telephone....................................................... 10
Telecommunications (Long Distance).............................. 4
Manufacturing (Specialized)..................................... 4
Manufacturing (Diversified)..................................... 3
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
HIGHLIGHTS
<S> <C>
Current Yield (30-day)........................................ 8.36%
Weighted Average Maturity..................................... 7.6 years
</TABLE>
-9-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
outdoor advertising. An active industry consolidator, Chancellor has the
potential to use its increased cash flow to reduce debt, and achieve a higher
investment rating. I also purchased Hayes Lemmerz, a manufacturer of
automotive wheels and brake products. They supply these products both to the
original equipment manufacturers and the after-market, and command number one
or two market positions in most markets where they compete.
The Fund ended the year with net assets of just over $84 million
invested in 66 companies in 42 industries. My strategy for 1999 will be much
like this year's. I believe the U.S. economy will grow at a slightly slower
pace than last year, and that inflation will remain subdued. I intend to
maintain a well-diversified portfolio that allows investors to participate in
the high-yield market.
Robert Kern
- -------------------------------------------------------------------------------
Robert Kern joined SAFECO in 1988 with B.S. degrees in business and
accounting from the Universities of Washington and Puget Sound, respectively.
Bob is a Certified Public Accountant and a Chartered Financial Analyst.
-10-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- ------------------------------------------------------------------------------
<S> <C>
CORPORATE BONDS - 88.2%
ADVERTISING - 1.3%
$1,000 Lamar Advertising Co.
9.625%, due 12/01/06........................ $1,070
AEROSPACE/DEFENSE - 1.2%
1,000 BE Aerospace, Inc.
8.00%, due 3/01/08.......................... 990
AGRICULTURE/FERTILIZER PRODUCTS - 1.3%
1,000 Sun World International
11.25%, due 4/15/04......................... 1,060
AIR FREIGHT - 1.8%
1,500 - Atlas Air, Inc. (144A)
9.375%, due 11/15/06
(acquired 11/13/98)......................... 1,530
ALUMINUM - 2.3%
1,000 Commonwealth Aluminum Corp.
10.75%, due 10/01/06........................ 1,005
1,000 Wells Aluminum Corp.
10.125%, due 6/01/05........................ 960
AUTO PARTS & EQUIPMENT - 2.1%
1,750 - Hayes Lemmerz
International, Inc. (144A)
8.25%, due 12/15/08
(acquired 12/07/98)......................... 1,741
BANKS (REGIONAL) - 1.4%
1,250 Bay View Capital Corp.
9.125%, due 8/15/07......................... 1,206
BROADCASTING (TELEVISION, RADIO & CABLE) - 13.0%
$1,750 21st Century Telecom Group, Inc.
12.25%, beg. 2/15/03 Step Bond
due 2/15/08................................. $ 735
1,500 Adelphia Communications Corp.
8.125%, due 7/15/03......................... 1,536
750 - Avalon Cable of Michigan (144A)
9.375%, due 12/01/08
(acquired 12/03/98)......................... 767
526 CBS Radio, Inc.
11.375%, due 1/15/09........................ 626
Century Communications Corp.
500 9.50%, due 3/01/05.......................... 555
500 8.875%, due 1/15/07......................... 552
Chancellor Media Corp.
1,000 9.00%, due 10/01/08......................... 1,055
1,000 - 8.00%, due 11/01/08 (144A)
(acquired 11/11/98)......................... 1,022
1,500 Comcast Corp.
9.50%, due 1/15/08.......................... 1,597
1,000 Jones Intercable, Inc.
8.875%, due 4/01/07......................... 1,085
329 SFX Broadcasting, Inc.
10.75%, due 5/15/06......................... 360
1,000 Young Broadcasting, Inc.
9.00%, due 1/15/06.......................... 1,010
BUILDING MATERIALS - 0.6%
500 Synthetic Industries, Inc.
9.25%, due 2/15/07.......................... 510
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-11-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- ------------------------------------------------------------------------------
<S> <C>
CHEMICALS (SPECIALTY) - 0.6%
$ 500 Sovereign Specialty
Chemicals, Inc.
9.50%, due 8/01/07.......................... $ 507
COMMUNICATIONS EQUIPMENT - 2.3%
National Equipment Services, Inc.
500 - 10.00%, due 11/30/04 (144A)
(acquired 12/08/98)......................... 487
1,500 10.00%, due 11/30/04........................ 1,463
CONTAINERS (METAL & GLASS) - 1.9%
1,500 - Ball Corp. (144A)
8.25%, due 8/01/08
(acquired 8/08/98).......................... 1,560
CONTAINERS (PACKAGING & PAPER) - 0.6%
500 Printpack, Inc.
10.625%, due 8/15/06........................ 490
COSMETICS - 1.2%
1,000 French Fragrances, Inc.
10.375%, due 5/15/07........................ 985
ELECTRIC COMPANIES - 1.4%
1,500 Niagara Mohawk Power Corp.
8.50%, beg. 7/01/03 Step Bond
due 7/01/10................................. 1,168
ENTERTAINMENT - 2.8%
500 Cinemark USA, Inc. (Series B)
9.625%, due 8/01/08......................... 522
500 Cinemark USA, Inc. (Series D)
9.625%, due 8/01/08......................... 522
1,250 Premier Parks, Inc.
9.25%, due 4/01/06.......................... 1,292
FINANCIAL (DIVERSIFIED) - 2.3%
$1,000 Americredit Corp.
9.25%, due 2/01/04.......................... $ 980
1,000 DVI, Inc.
9.875%, due 2/01/04......................... 993
FOODS - 0.6%
500 Chiquita Brands International, Inc.
10.25%, due 11/01/06........................ 519
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.7%
1,500 Genesis Health Ventures, Inc.
9.25%, due 10/01/06......................... 1,410
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 1.1%
1,000 Quorum Health Group, Inc.
8.75%, due 11/01/05......................... 955
HOUSEHOLD FURNITURE & APPLIANCES - 2.2%
2,000 Holmes Products Corp.
9.875%, due 11/15/07........................ 1,890
LODGING (HOTELS) - 1.7%
1,500 HMH Properties, Inc.
7.875%, due 8/01/08......................... 1,447
MANUFACTURING (DIVERSIFIED) - 3.1%
1,000 - Nortek, Inc. (144A)
8.875%, due 8/01/08
(acquired 7/28/98).......................... 1,020
1,560 Tekni-Plex, Inc.
9.25%, due 3/01/08.......................... 1,630
MANUFACTURING (SPECIALIZED) - 3.6%
1,500 Flextronics International, Ltd.
8.75%, due 10/15/07.......................... 1,541
1,600 Numatics, Inc.
9.625%, due 4/01/08.......................... 1,496
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-12-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- ------------------------------------------------------------------------------
<S> <C>
OIL & GAS (DRILLING & EQUIPMENT) - 2.2%
$ 500 ICO, Inc.
10.375%, due 6/01/07....................... $ 465
1,500 Newpark Resources, Inc.
8.625%, due 12/15/07....................... 1,421
OIL & GAS (EXPLORATION & PRODUCTION) - 1.7%
1,500 Ocean Energy, Inc.
8.375%, due 7/01/08........................ 1,395
PAPER & FOREST PRODUCTS - 0.6%
500 Specialty Paperboard, Inc.
9.375%, due 10/15/06....................... 505
POWER PRODUCER (INDEPENDENT) - 2.4%
2,000 AES Corp.
8.50%, due 11/01/07........................ 2,025
PUBLISHING - 3.0%
1,000 - Big Flower Press
Holdings, Inc. (144A)
8.625%, due 12/01/08
(aquired 12/02/98)......................... 1,010
500 - World Color Press, Inc. (144A)
8.375%, due 11/15/08
(aquired 11/12/98)......................... 500
1,000 Ziff-Davis, Inc.
8.50%, due 5/01/08......................... 980
RESTAURANTS - 1.9%
1,500 Perkins Family Restaurants
10.125%, due 12/15/07...................... 1,590
RETAIL (DEPARTMENT STORES) - 1.2%
1,250 Specialty Retailers, Inc.
9.00%, due 7/15/07......................... 1,013
RETAIL (FOOD CHAINS) - 2.3%
$1,750 Randall's Food Markets, Inc.
9.375%, 7/01/07............................ $1,894
RETAIL (OTHER) - 0.9%
750 Purina Mills, Inc.
9.00%, due 3/15/10......................... 765
RETAIL (SPECIALTY) - 1.5%
1,250 Big 5 Corp.
10.875%, due 11/15/07...................... 1,263
SERVICES - 0.3%
250 - Ackerley Group, Inc. (144A)
9.00%, due 1/15/09
(aquired 12/09/98)......................... 254
SERVICES (COMMERCIAL & CONSUMER) - 1.7%
1,500 Unicco Service Corp.
9.875%, due 10/15/07....................... 1,448
SERVICES (COMPUTER SYSTEMS) - 0.6%
500 - Verio, Inc. (144A)
11.25%, due 12/01/08
(aquired 11/20/98).......................... 503
TELECOMMUNICATIONS (LONG DISTANCE) - 3.9%
1,250 Flag Ltd.
8.25%, due 1/30/08.......................... 1,228
Qwest Communications
International, Inc.
2,000 9.47%, beg. 10/15/02 Step Bond
due 10/15/07................................ 1,545
500 - 7.25%, due 11/01/08 (144A)
(acquired 11/19/98)......................... 510
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-13-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO HIGH-YIELD BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- ------------------------------------------------------------------------------
<S> <C>
TELEPHONE - 8.0%
$1,250 GCI, Inc.
9.75%, due 8/01/07.......................... $1,238
Intermedia Communication, Inc.
1,000 11.25%, beg. 7/15/02 Step Bond
due 7/15/07................................. 680
1,000 8.875%, due 11/01/07........................ 965
500 8.60%, due 6/01/08.......................... 475
500 - Metromedia Fiber
Network, Inc. (144A)
10.00%, due 11/15/08
(acquired 11/20/98)......................... 514
NEXTLINK Communications, Inc.
1,000 - 10.75%, due 11/15/08 (144A)
(acquired 11/04/98)......................... 1,018
2,000 9.45%, beg. 4/15/03 Step Bond
due 4/15/08................................. 1,140
1,250 TeleHub Communications Corp.
13.875%, beg. 7/31/01 Step Bond
due 7/31/05................................. 663
TEXTILES (HOME FURNISHINGS) - 1.2%
1,000 Maxim Group, Inc.
9.25%, due 10/15/07......................... 990
TEXTILES (SPECIALTY) - 1.2%
1,000 Polymer Group, Inc.
9.00%, due 7/01/07.......................... 990
TRUCKERS - 1.5%
$1,250 Allied Holdings, Inc.
8.625%, due 10/01/07........................ $ 1,269
-------
TOTAL CORPORATE BONDS........................................... 74,105
-------
PREFERRED STOCK - 3.4%
BROADCASTING (TELEVISION, RADIO & CABLE) - 1.1%
3 SFX Broadcasting, Inc....................... 341
5 Sinclair Broadcast Group, Inc............... 545
TELEPHONE - 2.3%
20 - Global Crossing
Holdings, Ltd. (144A)
(acquired 11/24/98)......................... 1,960
-------
TOTAL PREFERRED STOCK........................................... 2,846
-------
TEMPORARY INVESTMENTS - 5.3%
INVESTMENT COMPANIES:
$4,146 SSgA Prime Money
Market Portfolio............................ 4,146
361 SSgA U.S. Treasury Money
Market Portfolio............................ 361
-------
TOTAL TEMPORARY INVESTMENTS..................................... 4,507
-------
TOTAL INVESTMENTS - 96.9%....................................... 81,458
Other Assets, less Liabilities.................................. 2,583
-------
NET ASSETS...................................................... $84,041
-------
-------
</TABLE>
- -------------------------------------------------------------------------------
- - Securities are exempt from registration and restricted as to resale only
to dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer." The total cost of such securities is $14,241,846 and
the total value is 17.13% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
-14-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MANAGED BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
MICHAEL HUGHES
Returning 8.43% for the year, the SAFECO Managed Bond Fund beat the
average intermediate-term investment-grade debt fund, which returned 7.25%
according to Lipper, Inc. The Fund returned -0.63% for the quarter compared
to its peers' 0.03%.
The Lehman Brothers Government/Corporate Bond Index -- which incurs no
fees or expenses -- returned 0.13% for the quarter and 9.47% for the year.
(Before fees and expenses, the Managed Bond Fund outperformed its benchmark
index for the year.)
Our underperformance of our peers during the quarter and outperformance
for the year can be attributed to three things. First, the Fund's duration
(sensitivity to interest rates) was somewhat longer than both its peer group
and benchmark. Thus, as interest rates rose approximately 0.25% during the
fourth quarter, the Fund lagged. However, being longer allowed the Fund to
make greater gains as rates declined overall, by roughly 1%, for the year.
Second, the portfolio held relatively more of its assets in
- -------------------------------------------------------------------------------
MANAGED BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS
ENDED SEPTEMBER 31, 1998
- ------------------------
<S> <C>
1 Year 8.43%
Since inception 6.18% *
</TABLE>
*The Fund's inception was June 25, 1992. Graph and average annual return
comparison begins February 28, 1994 (initial public offering).
<TABLE>
<CAPTION>
MANAGED BOND LEHMAN BROTHERS
FUND GOV'T/CORP. INDEX
----------------------------------
<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 9,756 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 10,542 10,822
08/31/95 10,673 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 11,399 11,660
02/28/96 11,127 11,412
03/31/96 11,010 11,317
04/30/96 11,004 11,239
05/31/96 11,009 11,219
06/30/96 11,092 11,370
07/31/96 11,127 11,396
08/31/96 11,147 11,369
09/30/96 11,239 11,571
10/31/96 11,356 11,841
11/30/96 11,486 12,058
12/31/96 11,383 11,925
01/31/97 11,407 11,939
02/28/97 11,383 11,964
03/31/97 11,236 11,822
04/30/97 11,380 11,994
05/31/97 11,470 12,106
06/30/97 11,601 12,251
07/31/97 11,942 12,626
08/31/97 11,776 12,484
09/30/97 11,968 12,680
10/31/97 12,161 12,883
11/30/97 12,180 12,952
12/31/97 12,321 13,088
01/30/98 12,528 13,272
02/28/98 12,478 13,246
03/31/98 12,502 13,287
04/30/98 12,553 13,353
05/31/98 12,691 13,496
06/30/98 12,810 13,634
07/31/98 12,823 13,645
08/31/98 13,108 13,911
09/30/98 13,444 14,308
10/31/98 13,288 14,207
11/30/98 13,321 14,292
12/31/98 13,359 14,326
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
-15-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------
<S> <C>
AAA 81%
AA 4
A 12
BBB 2
Cash & Other 1
----
100%
----
----
</TABLE>
Treasuries, which were top bond performers in 1998. This conservative posture
worked very well through the middle of October until Treasuries came down off
their flight-to-quality highs, and credit sensitive instruments --
particularly high-quality domestic corporate bonds -- outperformed. Third,
the Fund's relatively high allocation to mortgage-backed securities was a
drag on relative performance as this sector underperformed for both the
quarter and the year.
The year 1998 will go down as one of the most volatile bond trading
years in history. At the beginning of the year, the markets were less
concerned about the possible effects of the Asian debacle, and more focused
on the possibility of the Fed raising interest rates. It was smooth sailing
until August, when Russia defaulted on its debt and triggered a surge of
flight-to-quality buying into Treasuries. Volatility soared, and spread
product (i.e., non-Treasury bonds) collapsed. In an effort to support nervous
markets, the Fed reduced rates three times by a total of 75 basis points over
a seven-week period, thereby boosting investor confidence.
Around October, as market sentiment shifted away from the global
Armageddon scenario, investors began bottom-fishing quality credits. The
spread product tightened sharply, staging one of the most impressive rallies
on record, while U.S. Treasuries lagged.
Although I am concerned at the pace of spread tightening, I am
encouraged by the return of liquidity to the U.S. credit markets. I expect
continued improvement in spread product relative to U.S. Treasuries. However,
as the year progresses, one, or more, of the many potential problems in the
global economy may spur another flight to U.S. Treasuries. Given that very
real possibility, I took defensive precautions during the fourth quarter. I
replaced corporate bonds, international issues, and triple-B rated securities
with U.S. Treasury obligations and extremely large high-quality domestic
corporate bond offerings to improve our overall portfolio quality and
liquidity.
At year-end, the Fund held 42% of its assets in U.S. Treasury
-16-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
obligations, 24% in asset-backed securities, 17% in high-grade corporate
bonds, 16% in U.S. agency debentures, and 5% in cash. The portfolio's
effective duration was 6.9 years at year-end, longer than the duration of the
Lehman Brothers Government/Corporate Bond Index at 5.6 years. The Fund is
maintaining an average credit quality rating of triple-A.
Going forward, I will continue to use a combination of active duration
management, sector rotation, yield-curve positioning, and credit selection to
keep us well positioned for whatever 1999 may bring.
Michael Hughes
- -------------------------------------------------------------------------------
Michael Hughes joined SAFECO as a portfolio manager in January 1997. He
began his investment career in 1983. He graduated magna cum laude with a B.S.
in finance from the University of Colorado in Boulder and holds an M.B.A.
from the University of Southern California in Los Angeles. He is a Chartered
Financial Analyst.
HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENT OF
BONDS BY TYPE NET ASSETS
- -------------------------------------------
<S> <C>
U.S. Treasury Securities 42%
Asset-Backed Securities 24%
Corporate Bonds 33%
Cash and Other 1%
----
100%
----
----
</TABLE>
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
ASSET-BACKED SECURITIES - 24.1%
COLLATERALIZED MORTGAGE OBLIGATION (CMO) - 17.2%
$100 FHLMC REMIC 1579
6.55%, due 6/15/22.......................... $101
150 FHLMC REMIC 1587
6.50%, due 10/15/08......................... 153
90 FNMA POOL 2494
8.00%, due 4/01/08.......................... 94
150 FNMA REMIC 1993-11 N
7.35%, due 6/25/07.......................... 154
75 FNMA REMIC 1992-108
7.00%, due 7/25/07.......................... 77
125 FNMA REMIC 1993-44 PH
6.75%, due 5/25/19.......................... 126
130 FNMA G93-33J
6.75%, due 6/25/22.......................... 133
150 FNMA 1997-M5 C
6.74%, due 8/25/07.......................... 158
100 FNMA REMIC 1993-23
6.70%, due 7/25/19.......................... 101
200 FNMA REMIC 1993-55
6.50%, due 2/25/05.......................... 205
FINANCE (CONSUMER) - 2.3%
81 AFG Receivables Trust
6.20%, due 2/15/03.......................... 82
90 Premier Auto Trust
6.20%, due 1/06/01.......................... 91
FINANCE (DIVERSIFIED & BUSINESS) - 3.5%
27 Chevy Chase Auto ABS
Series 1996-1 (Class A)
6.60%, due 12/15/02......................... 28
125 ComEd Transitional Funding Trust
5.674%, due 12/16/08........................ 126
104 DLJ Commercial Mortgage Corp.
1998-CF1 A1A
6.14%, due 10/15/06......................... 106
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MANAGED BOND FUND
As of December 31,1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
Manufacturing (Specialized) - 1.1%
$185 Harley Davidson Eagle
6.20%, due 1/15/03.......................... $ 86
------
TOTAL ASSET-BACKED SECURITIES................................... 1,821
------
CORPORATE BONDS - 17.0%
Banks (Major Regional) - 1.4%
100 U.S. Bancorp
6.75%, due 10/15/05......................... 105
Electric Companies - 1.4%
100 Israel Electric Corp.
7.125%, due 7/15/05......................... 103
Engineering & Construction - 1.4%
97 Halliburton Co.
6.75%, due 2/01/27.......................... 109
Finance (Consumer) - 1.3%
90 Household Finance Corp.
7.25%, due 7/15/03.......................... 95
Finance (Diversified & Business) - 5.8%
110 CIT Group, Inc.
5.57%, due 12/08/03......................... 109
50 American General Financial Corp.
5.75%, due 11/01/03......................... 50
105 General Motors Acceptance Corp.
6.875%, due 7/15/01......................... 108
170 Hertz Corp.
7.00%, due 7/01/04.......................... 179
Investment Banking/Brokerage - 2.4%
95 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07......................... 98
85 Merrill Lynch & Co., Inc.
6.00%, due 11/15/04......................... 86
Retail (Computers & Electric) - 2.2%
160 Tandy Corp.
6.95%, due 9/1/07........................... 169
Retail (General Merchandise) - 1.1%
$175 Sears Roebuck Acceptance Corp.
6.75%, due 9/15/05.......................... $ 79
------
TOTAL CORPORATE BONDS........................................... 1,290
------
U.S. GOVERNMENT SECURITIES - 57.9%
U.S. Federal Agency Notes - 15.9%
50 Federal Home
Loan Mortgage Corp.
6.943%, due 3/21/07......................... 56
600 FNMA
6.62%, due 6/25/07.......................... 655
500 FNMA
4.75%, due 11/14/03......................... 494
U. S. Treasury Notes - 42.0%
895 7.50%, due 11/15/16......................... 1,113
30 6.50%, due 8/15/05.......................... 33
585 6.50%, due 10/15/06......................... 649
100 6.375%, due 8/15/02......................... 106
750 5.625%, due 5/15/08......................... 800
480 4.75%, due 11/15/08......................... 484
------
TOTAL U.S. GOVERNMENT SECURITIES................................ 4,390
------
TEMPORARY INVESTMENTS - 5.2%
INVESTMENT COMPANIES:
16 SSgA U.S. Treasury Money
Market Portfolio............................ 16
379 SSgA Prime Money Market
Portfolio................................... 379
------
TOTAL TEMPORARY INVESTMENTS..................................... 395
------
TOTAL INVESTMENTS - 104.2%...................................... 7,896
Liabilities, less Other Assets.................................. (321)
------
NET ASSETS...................................................... $7,575
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE>
MUNICIPAL BOND
MARKET OVERVIEW
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
In a year characterized by excessive volatility in financial markets
around the globe, the municipal bond market was range bound. The yield on
long-term tax-exempt bonds varied by less than 50 basis points (0.5%) from
high to low. It closed 1998 at 5.16%, only 10 basis points (0.1%) lower than
it opened the year.
The fourth quarter was even more uneventful, with long bonds trading in
a 25 basis point (.25%) range. While yields on tax-exempts remained virtually
unchanged, long-term U.S. Treasury bond yields fell, pushing the ratio of
tax-exempt to taxable yields as high as 105% on October 5th. The ratio
remained above 100% for most of fourth quarter, during which 30-year Treasury
yields hit all-time lows.
The reasons for this unusual relationship in which Treasuries yielded
less than similar length munis were several. Foremost was the demand for
Treasuries (with little regard for yield) from foreign buyers seeking safe
haven from their battered economies, currencies, and financial markets. A
second important factor was that yields available in the muni market, and
subsequently demand for muni bonds, were near 20-year lows. Finally, there
was supply. New issue volume was surprisingly heavy throughout 1998 as strong
balance sheets enabled state and local governments to increase borrowing, and
low rates encouraged them to refinance. Total new issue volume for 1998 was
$284 billion, a close second to the record $292 billion of 1993, and up 29%
from 1997.
Looking forward to 1999 and seeing almost no evidence of an increase in
inflation, it is hard to see what events might conspire to dramatically move
long-term interest rates in either direction. Another international
financial crisis and flight to quality could sharply lower U.S. Treasury
yields. But the duration of such a change could be brief, and the effect on
other financial markets, especially municipals, might be nonexistent. I
believe 1999 will be another year of modest change for municipals, although
they should outperform government bonds as the ratio of tax-exempt to taxable
yields trends toward its historical range.
-19-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO CALIFORNIA
TAX-FREE INCOME FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
For the fourth quarter 1998, the SAFECO California Fund returned -0.05%
to its peer funds' 0.01%, according to Lipper, Inc. For the year, the Fund
delivered 6.19% to the competition's 5.77%, ranking it 31 of 107 California
municipal bond funds. The SAFECO Fund's longer-term results are gratifying as
well. In fact, for the ten years it is first of 33 California funds, and for
the five years it is fifth of 62 funds.
The Fund slightly underperformed the Lehman Brothers Long Municipal Bond
Index, which returned 0.28% for the quarter and 6.90% for the year, but this
is standard. It's nearly impossible to beat a bond index because it has no
expenses, no cash and no call features.
Since yields rose slightly during the fourth quarter, the Fund
underperformed its peers over the three-month period. Our longer-than-average
maturity generally results in below-average returns when yields rise and
prices fall. However, it helps us outperform when yields decline. Over the
last one, three, five and ten years, our strategy of staying fully invested
in long, deep-discount bonds has paid off.
- -------------------------------------------------------------------------------
CALIFORNIA TAX-FREE INCOME FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED
DECEMBER 31, 1998
- ----------------------------
<S> <C>
1 Year 6.19%
5 Year 6.83%
10 Year 8.45%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS
CALIFORNIA TAX-FREE LONG MUNICIPAL
INCOME FUND BOND INDEX
------------------- ---------------
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,240 10,235
02/28/89 10,092 10,092
03/31/89 10,087 10,100
04/30/89 10,321 10,397
05/31/89 10,532 10,637
06/30/89 10,644 10,799
07/31/89 10,766 10,942
08/31/89 10,635 10,776
09/30/89 10,632 10,743
10/31/89 10,735 10,885
11/30/89 10,927 11,116
12/31/89 10,991 11,198
01/31/90 10,869 11,085
02/28/90 11,001 11,210
03/31/90 10,981 11,221
04/30/90 10,814 11,084
05/31/90 11,146 11,397
06/30/90 11,253 11,509
07/31/90 11,467 11,712
08/31/90 11,181 11,434
09/30/90 11,165 11,416
10/31/90 11,447 11,658
11/30/90 11,714 11,953
12/31/90 11,757 12,006
01/31/91 11,936 12,167
02/28/91 11,973 12,252
03/31/91 11,946 12,282
04/30/91 12,131 12,472
05/31/91 12,249 12,619
06/30/91 12,190 12,595
07/31/91 12,377 12,790
08/31/91 12,547 12,973
09/30/91 12,776 13,162
10/31/91 12,914 13,299
11/30/91 12,841 13,315
12/31/91 13,233 13,632
01/31/92 13,187 13,624
02/28/92 13,190 13,646
03/31/92 13,192 13,680
04/30/92 13,288 13,811
05/31/92 13,489 14,013
06/30/92 13,754 14,284
07/31/92 14,219 14,807
08/31/92 13,946 14,609
09/30/92 14,046 14,674
10/31/92 13,657 14,429
11/30/92 14,105 14,835
12/31/92 14,291 15,027
01/31/93 14,440 15,169
02/28/93 15,094 15,874
03/31/93 14,891 15,683
04/30/93 15,109 15,898
05/31/93 15,171 16,029
06/30/93 15,455 16,331
07/31/93 15,434 16,347
08/31/93 15,869 16,766
09/30/93 16,061 16,999
10/31/93 16,061 17,031
11/30/93 15,812 16,825
12/31/93 16,182 17,259
01/31/94 16,423 17,463
02/28/94 15,991 16,884
03/31/94 15,184 15,876
04/30/94 15,129 15,999
05/31/94 15,271 16,186
06/30/94 15,125 15,992
07/31/94 15,475 16,403
08/31/94 15,470 16,437
09/30/94 15,077 16,056
10/31/94 14,712 15,563
11/30/94 14,441 15,152
12/31/94 14,693 15,690
01/31/95 15,367 16,380
02/28/95 16,119 17,047
03/31/95 16,249 17,252
04/30/95 16,177 17,244
05/31/95 17,089 17,978
06/30/95 16,567 17,646
07/31/95 16,641 17,737
08/31/95 16,903 17,987
09/30/95 17,034 18,128
10/31/95 17,486 18,567
11/30/95 18,128 19,046
12/31/95 18,534 19,343
01/31/96 18,467 19,426
02/28/96 18,232 19,189
03/31/96 17,691 18,838
04/30/96 17,532 18,762
05/31/96 17,549 18,772
06/30/96 17,893 19,061
07/31/96 18,099 19,250
08/31/96 18,053 19,225
09/30/96 18,486 19,651
10/31/96 18,718 19,891
11/30/96 19,210 20,319
12/31/96 19,003 20,197
01/31/97 18,803 20,156
02/28/97 19,007 20,374
03/31/97 18,601 20,022
04/30/97 18,886 20,258
05/31/97 19,250 20,651
06/30/97 19,540 20,915
07/31/97 20,563 21,677
08/31/97 20,109 21,388
09/30/97 20,388 21,696
10/31/97 20,563 21,883
11/30/97 20,766 22,078
12/31/97 21,199 22,482
01/30/98 21,426 22,722
02/28/98 21,384 22,711
03/31/98 21,364 22,743
04/30/98 21,114 22,620
05/31/98 21,645 23,063
06/30/98 21,726 23,162
07/31/98 21,745 23,216
08/31/98 22,173 23,631
09/30/98 22,523 23,960
10/31/98 22,386 23,883
11/30/98 22,569 24,005
12/31/98 22,512 24,029
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
-20-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
During 1998, the California Fund grew from $89 million to $114 million,
and I carried more cash than I like as I waited for an attractive offering to
appear. I was able to add call protection to the Fund throughout the year by
selling par bonds and buying bonds at the deepest discounts available, but I
never did find any of the lower-rated, higher-yielding bonds at favorable
spreads to high grades that I favor. Perhaps next year. We ended this last
one with an average maturity of 25.3 years and 1.6% cash.
- -------------------------------------------------------------------------------
Stephen C. Bauer
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981,
and is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- -------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<CAPTION>
TOP FIVE PERCENT OF
TYPES OF BONDS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Local General Obligation - Limited Tax.......................... 16%
Utilities - Water............................................... 12
Utilities - Sewer............................................... 12
Lease Rental.................................................... 10
Hospital........................................................ 9
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
East Bay Municipal Utility
Water System Revenue.......................................... 5.0%
Thousand Oaks Certificates of Participation
Wastewater System Revenue..................................... 4.6
Los Angeles Wastewater
System Revenue................................................ 4.4
Airports Commission City and County of
San Francisco International
Airport Revenue............................................... 4.3
Sacramento City Financing Authority Lease
Revenue (Cal EPA Building).................................... 4.2
</TABLE>
<TABLE>
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- --------------------------
<S> <C>
AAA 67%
AA 3
A 12
BBB 16
Cash & Other 2
----
100%
----
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Current Yield (30-day).......................................... 4.26%
Weighted Average Maturity....................................... 25.3 years
</TABLE>
-21-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
BONDS* - 97.5%
$5,000 Airports Commission City
and County of San Francisco
International Airport Revenue
4.90%, due 5/01/19 [MBIA]................... $4,950
4,750 Arcade Water District Water
Revenue 5.00%,
due 11/01/27 [FGIC]......................... 4,714
4,000 California Educational Facilities
Authority Revenue
(Institute of Technology)
4.50%, due 10/01/28......................... 3,696
California Health Facilities
Financing Authority Insured
Health Facility Revenue
(Catholic Health Care West)
2,250 4.75%, due 7/01/19 [MBIA]................... 2,164
2,500 5.125%, due 7/01/24......................... 2,505
3,715 California Statewide Communities
Development Authority
Certificates of Participation
(Children's Hospital of Los Angeles)
4.75%, due 6/01/21 [MBIA]................... 3,542
20 Concord Redevelopment Agency
Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18.......................... 21
3,750 Culver City Redevelopment
Financing Authority
Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC]................. 3,537
6,000 East Bay Municipal Utility District
Water System Revenue
(Alameda and Contra
Costa Counties)
4.75%, due 6/01/34 [MBIA]................... 5,714
4,195 Foothill/Eastern Transportation
Corridor Agency
Toll Road Revenue
5.00%, due 1/01/35.......................... 4,000
$ 670 Inglewood Insured Hospital
Revenue
(Daniel Freeman Hospital)
6.75%, due 5/01/13.......................... $ 731
1,200 - Los Angeles Convention and
Exhibition Center Authority
Certificates of Participation
9.00%, due 12/01/20 (Prerefunded
12/01/05 @100).............................. 1,569
3,800 Los Angeles Department of
Water and Power Waterworks
Revenue
4.75%, due 11/15/19 [FGIC].................. 3,673
5,000 Los Angeles Wastewater
System Revenue
5.00%, due 6/01/28 [FGIC]................... 4,962
3,585 Metropolitan Water District of
Southern California
Waterworks Revenue
5.00%, due 7/01/37.......................... 3,531
Northern California Power
Agency Geothermal
Project Revenue
810 5.00%, due 7/01/09.......................... 810
1,690 - 5.00%, due 7/01/09 (Prerefunded
7/01/08 @ 100) ............................. 1,800
Palm Desert Financing Authority
Tax Allocation Revenue
2,595 5.625%, due 4/01/23 [MBIA].................. 2,758
4,260 5.10%, due 10/01/27 [MBIA].................. 4,275
2,350 Palomar Pomerado Health System
California Insured Revenue
4.75%, due 11/01/23 [MBIA].................. 2,235
4,435 Pittsburg Redevelopment Agency
Los Medanos Community
Development Project
Tax Allocation
4.625%, due 8/01/21 [AMBAC]................. 4,171
Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
1,585 6.20%, due 9/02/17.......................... 1,685
1,760 6.15%, due 9/02/12.......................... 1,893
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-22-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
$4,900 Redding Joint Powers Financing
Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23.......................... $4,780
2,000 Riverside County Certificates of
Participation (Capital Projects)
6.125%, due 11/01/21........................ 2,176
5,000 Sacramento City Financing
Authority Lease Revenue
(Cal EPA Building)
4.75%, due 5/01/23 [AMBAC].................. 4,793
2,500 San Bernardino County
Cerificates of Participation
(Medical Center Financing
Project)
5.50%, due 8/01/24.......................... 2,579
1,000 San Francisco Bay Area Rapid
Transit District Revenue
5.00%, due 7/01/28 [AMBAC].................. 994
4,000 San Gabriel Valley School Finance
Authority Revenue (Pamona
Unified School District)
5.50%, due 2/01/24.......................... 4,121
5,000 San Joaquin Hills Transportation
Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33.......................... 4,788
4,000 San Jose Redevelopment Agency
(Merged Area Redevelopment
Project Tax Allocation)
4.75%, due 8/01/22.......................... 3,809
3,000 Santa Rosa Wastewater Revenue
(Subregional Wastewater Project)
5.00%, due 9/01/22 [FGIC]................... 2,979
1,335 Southern California Public Power
Authority Power Project Revenue
(Multiple Projects)
5.50%, due 7/01/20.......................... 1,347
900 Stanislaus Waste to Energy
Financing Agency Solid Waste
Facility Revenue
7.625%, due 1/01/10......................... 941
State of California
General Obligation Bonds
$2,500 5.625%, due 09/01/24........................ $ 2,666
1,075 5.625%, due 10/01/23 [FGIC]................. 1,137
5,335 Thousand Oaks Certificate of
Participation Wastewater
System Revenue
4.875%, due 10/01/23 [FSA].................. 5,211
--------
TOTAL BONDS..................................................... 111,257
--------
TEMPORARY INVESTMENTS - 1.6%
INVESTMENT COMPANIES:
1,830 SEI Tax-Exempt Trust
Institutional Tax-Free
Portfolio................................... 1,830
--------
TOTAL TEMPORARY INVESTMENTS..................................... 1,830
--------
TOTAL INVESTMENTS - 99.1%....................................... 113,087
Other Assets, less Liabilities.................................. 975
--------
NET ASSETS...................................................... $114,062
--------
--------
</TABLE>
- -------------------------------------------------------------------------------
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of the
portfolio they guarantee at the period end are as follows:
<TABLE>
<CAPTION>
<S> <C>
MBIA: Municipal Bond Investors
Assurance Corp........................................ 22.7%
FGIC: Financial Guaranty
Insurance Corp........................................ 15.4
AMBAC: AMBAC Indemnity Corp.................................. 11.9
FSA: Financial Security
Assurance, Inc........................................ 4.6
-----
54.6%
-----
-----
</TABLE>
- - Prerefunded bonds are collateralized by securities (generally U.S.
Treasury securities) held in an irrevocable trust in an amount sufficient
to pay interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-23-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MUNICIPAL BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
SAFECO Municipal Bond Fund returned 0.04% to its peers' 0.09% for the
fourth quarter of 1998. For the full year, the Fund delivered 6.35% to the
competition's 5.32%, ranking it 18th of 246 general municipal bond funds
according to Lipper, Inc. SAFECO Muni's longer-term results are gratifying as
well. (For the five and ten years ended December 31, 1998, the Fund is 17 of
141 funds and 12 of 74 funds. The Fund's average annual return for those
periods was 6.24% for the five years and 8.28% for the ten years.)
The Fund slightly underperformed the Lehman Brothers Long Municipal Bond
Index, which returned 0.28% for the quarter and 6.90% for the year. This
underperformance is standard. It's nearly impossible to beat a bond index
because it has no expenses, no cash and no call features.
Since yields rose slightly during the fourth quarter, the Fund
underperformed its peers over the three-month period. Our longer-than-average
maturity generally results in below-average returns when yields rise and
prices fall. However, it helps us outperform when yields decline. As our
one-, three-, five- and ten-year results attest, our strategy of
- --------------------------------------------------------------------------------
MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS
ENDED DECEMBER 31, 1998
- -----------------------
<S> <C>
1 Year 6.35%
5 Year 6.24%
10 Year 8.28%
</TABLE>
<TABLE>
<CAPTION>
LEHMAN BROTHERS
MUNICIPAL BOND LONG MUNICIPAL
FUND BOND INDEX
--------------------------------
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,231 10,235
02/28/89 10,078 10,092
03/31/89 10,077 10,100
04/30/89 10,314 10,397
05/31/89 10,507 10,637
06/30/89 10,639 10,799
07/31/89 10,748 10,942
08/31/89 10,654 10,776
09/30/89 10,645 10,743
10/31/89 10,749 10,885
11/30/89 10,942 11,116
12/31/89 11,008 11,198
01/31/90 10,880 11,085
02/28/90 11,005 11,210
03/31/90 10,990 11,221
04/30/90 10,821 11,084
05/31/90 11,163 11,397
06/30/90 11,267 11,509
07/31/90 11,482 11,712
08/31/90 11,184 11,434
09/30/90 11,162 11,416
10/31/90 11,376 11,658
11/30/90 11,692 11,953
12/31/90 11,741 12,006
01/31/91 11,926 12,167
02/28/91 11,977 12,252
03/31/91 11,993 12,282
04/30/91 12,194 12,472
05/31/91 12,317 12,619
06/30/91 12,274 12,595
07/31/91 12,470 12,790
08/31/91 12,659 12,973
09/30/91 12,862 13,162
10/31/91 12,999 13,299
11/30/91 12,957 13,315
12/31/91 13,358 13,632
01/31/92 13,242 13,624
02/28/92 13,276 13,646
03/31/92 13,260 13,680
04/30/92 13,385 13,811
05/31/92 13,611 14,013
06/30/92 13,905 14,284
07/31/92 14,440 14,807
08/31/92 14,145 14,609
09/30/92 14,172 14,674
10/31/92 13,863 14,429
11/30/92 14,288 14,835
12/31/92 14,527 15,027
01/31/93 14,668 15,169
02/28/93 15,303 15,874
03/31/93 15,063 15,683
04/30/93 15,270 15,898
05/31/93 15,357 16,029
06/30/93 15,672 16,331
07/31/93 15,613 16,347
08/31/93 16,027 16,766
09/30/93 16,206 16,999
10/31/93 16,251 17,031
11/30/93 16,046 16,825
12/31/93 16,367 17,259
01/31/94 16,565 17,463
02/28/94 16,074 16,884
03/31/94 15,258 15,876
04/30/94 15,273 15,999
05/31/94 15,456 16,186
06/30/94 15,286 15,992
07/31/94 15,637 16,403
08/31/94 15,648 16,437
09/30/94 15,262 16,056
10/31/94 14,935 15,563
11/30/94 14,629 15,152
12/31/94 15,016 15,690
01/31/95 15,569 16,380
02/28/95 16,223 17,047
03/31/95 16,341 17,252
04/30/95 16,317 17,244
05/31/95 17,076 17,978
06/30/95 16,710 17,646
07/31/95 16,790 17,737
08/31/95 17,007 17,987
09/30/95 17,134 18,128
10/31/95 17,493 18,567
11/30/95 17,977 19,046
12/31/95 18,242 19,343
01/31/96 18,301 19,426
02/28/96 18,099 19,189
03/31/96 17,686 18,838
04/30/96 17,553 18,762
05/31/96 17,582 18,772
06/30/96 17,841 19,061
07/31/96 18,059 19,250
08/31/96 17,996 19,225
09/30/96 18,359 19,651
10/31/96 18,575 19,891
11/30/96 18,989 20,319
12/31/96 18,822 20,197
01/31/97 18,731 20,156
02/28/97 18,926 20,374
03/31/97 18,602 20,022
04/30/97 18,838 20,258
05/31/97 19,154 20,651
06/30/97 19,394 20,915
07/31/97 20,184 21,677
08/31/97 19,836 21,388
09/30/97 20,111 21,696
10/31/97 20,268 21,883
11/30/97 20,420 22,078
12/31/97 20,832 22,482
01/30/98 21,047 22,722
02/28/98 21,035 22,711
03/31/98 21,040 22,743
04/30/98 20,852 22,620
05/31/98 21,304 23,063
06/30/98 21,437 23,162
07/31/98 21,472 23,216
08/31/98 21,851 23,631
09/30/98 22,148 23,960
10/31/98 22,031 23,883
11/30/98 22,131 24,005
12/31/98 22,155 24,029
CURRENT YIELD (30-DAY) 4.34 %
WEIGHTED AVERAGE MATURITY 24.5 years
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-24-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
staying fully invested in long, deep-discount bonds has paid off.
After a year of looking, I found, in December, two opportunities to add
yield to the Fund. The first was the Indiana Development Finance Authority,
issuing bonds on behalf of USX Corporation, the holding company for U.S.
Steel and Marathon Oil. This credit is rated Baa2 by Moody's and BBB- by
Standard & Poor's and came at a yield of 5.60%. One week later, the Muni Bond
Fund bought Vancouver Housing Authority 5.65%, due 3/1/31, at a discount to
yield 5.75%. Although this issue is non-rated, the credit is sound, backed by
the general credit of the Housing Authority and a first mortgage pledge.
With the exception of these two issues, which were priced at or near
par, I have emphasized deeper discount bonds during 1998, and I expect to
continue that strategy in 1999. The additional call protection that is
provided by deep discount bonds could prove to be extremely beneficial if
yields drop.
Stephen C. Bauer
- -------------------------------------------------------------------------------
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981,
and is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- -------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY).......................................... 4.34%
WEIGHTED AVERAGE MATURITY....................................... 24.5 years
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
California........................................................ 18%
Washington........................................................ 14%
Texas............................................................. 10%
Indiana........................................................... 8%
New York.......................................................... 6%
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation
Corridor Agency Senior Lien
Toll Revenue................................................... 4.4%
Illinois Educational Facilities Authority
Adjustable Demand Revenue
(University of Chicago)...................................... 3.6
Wyoming Community Development
Authority Housing Revenue...................................... 3.5
Indiana State Development Finance
Authority Environmental Revenue................................ 3.2
Alaska Housing Finance Corp.
(General Housing Purpose)...................................... 3.1
</TABLE>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
AAA 43%
AA 20%
A 21%
BBB 13%
B 1%
Not Rated 1%
Cash & Other 1%
------
100%
------
------
</TABLE>
-25-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
BONDS* - 99.0%
ALABAMA - 1.7%
$ 2,000 Alabama Special Care, Facilities
Financing Authority of
Birmingham (Daughters of
Charity, Providence Hospital and
St. Vincent's Hospital)
5.00%, due 11/01/25....................... $ 1,951
1,310 Board of Trustees Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA]................ 1,447
1,000 Citronelle Industrial Development
Board Pollution Control Revenue
8.00%, due 12/01/12 1,063
4,250 Jefferson County Sewer Revenue
5.70%, due 2/01/20 [FGIC]................. 4,533
ALASKA - 3.2%
17,000 Alaska Housing Finance Corp.
(General Housing Purpose)
5.00%, due 12/01/18...................... 16,936
270 Alaska Housing Finance Corp.
Collateralized
(Veterans Mortgage Program)
6.50%, due 6/01/31....................... 278
ARIZONA - 1.7%
9,800 Phoenix Civic Improvement Corp.
Wastewater System Lease Revenue
4.75%, due 7/01/23....................... 9,389
CALIFORNIA - 18.4%
$1,500 Foothill/Eastern Transportation
Corridor Agency Toll
Road Revenue
5.00%, due 1/01/35....................... $ 1,430
2,500 Los Angeles County Certificates
of Participation
(Disney Parking Project)
5.50%, due 9/01/21....................... 2,667
13,000 Los Angeles Department of Water
and Power Electric Plant Revenue
5.25%, due 11/15/26...................... 13,194
5,000 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC]............... 4,804
2,200 Metropolitan Water District of
Southern California Waterworks Revenue
5.75%, due 3/01/14....................... 2,232
Northern California Power
Agency Geothermal Project Revenue
1,700 5.00%, due 7/01/09....................... 1,701
3,550 - 5.00%, due 7/01/09 (Prerefunded
7/01/08 @ 100)........................... 3,781
Pittsburg Redevelopment Agency
Los Medanos Community Development
Project Tax Allocation
11,995 5.80%, due 8/01/34 [FSA]................. 13,268
6,400 4.625%, due 8/01/21 [AMBAC].............. 6,019
2,000 Redding Joint Powers Financing
Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23....................... 1,951
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-26-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
CALIFORNIA (Continued)
$ 8,750 Sacramento County Sanitation
District Finance Authority Revenue
4.75%, due 12/01/23...................... $ 8,309
1,700 San Francisco City and County
Redevelopment Financing
Authority Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC]................ 1,663
8,010 San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation
Capital Facilities Project
4.75%, due 11/15/19 [MBIA]............... 7,702
25,000 San Joaquin Hills Transportation
Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33....................... 23,938
Southern California Public Power
Authority Power Project Revenue
(Multiple Projects)
4,085 - 5.50%, due 7/01/20 (Prerefunded
7/01/00 @ 100)........................... 4,221
3,165 5.50%, due 7/01/20....................... 3,193
COLORADO - 0.2%
1,000 Colorado Housing Finance
Authority Multi-Family Mortgage
Revenue
8.30%, due 10/01/23...................... 1,122
DISTRICT OF COLUMBIA - 4.5%
$10,000 District of Columbia General
Obligation
5.25%, due 6/01/27 [MBIA]................ $10,119
15,000 Washington Convention Center
Authority Dedicated Tax Revenue
4.75%, due 10/01/28 [AMBAC].............. 14,026
FLORIDA - 0.5%
2,750 Mid-Bay Bridge Authority Revenue
6.05%, due 10/01/22...................... 2,951
GEORGIA - 2.2%
6,750 Atlanta Water and Sewage Revenue
4.50%, due 1/01/18....................... 6,292
5,000 Municipal Electric Authority
Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20....................... 5,860
ILLINOIS - 5.6%
17,500 Illinois Educational Facilities
Authority Adjustable Demand
Revenue (University of Chicago)
5.70%, due 12/01/25...................... 19,227
5,000 Metropolitan Pier and Exposition
Authority McCormick Place
Convention Complex Hospitality
Facilities Revenue
7.00%, due 7/01/26....................... 6,148
4,770 University of Illinois Auxiliary
Facilities System Revenue
5.75%, due 4/01/22....................... 4,992
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-27-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
INDIANA - 8.2%
$ 200 Beech Grove Economic
Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10....................... $ 204
11,000 - East Chicago Elementary School
Building Corp.
First Mortgage
7.00%, due 1/15/16 (Prerefunded
1/15/03 @ 102)........................... 12,493
7,715 Hammond Multi-School Building
Corp. First Mortgage Revenue
6.20%, due 7/10/15....................... 8,251
17,550 Indiana State Development
Finance Authority
Environmental Revenue
5.60%, due 12/01/32...................... 17,417
6,450 Indianapolis Gas Utility
System Revenue
4.00%, due 6/01/11 [FGIC]................ 6,221
KENTUCKY - 2.2%
12,000 Louisville and Jefferson Counties
Metropolitan Sewer District
Sewer and Drain System Revenue
5.00%, due 5/15/30 [FGIC]................ 11,831
MARYLAND - 1.8%
5,125 Baltimore Project and Revenue
(Water Projects)
5.00%, due 7/01/24 [FGIC]................ 5,195
5,000 Maryland Health and Higher
Educational Facilities Authority
Revenue (University of Maryland
Medical System)
4.75%, due 7/01/23 [FGIC]................ 4,743
MASSACHUSETTS - 3.8%
$8,295 Massachusetts Bay
Transportation Authority
General Transportation System
5.00%, due 3/01/27 [FGIC]................ $8,147
5,140 Massachusetts Housing Finance
Agency (Rental Housing and
Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC]............... 5,516
Massachusetts Water Resources
Authority General Revenue
4,500 6.00%, due 4/01/20....................... 4,650
2,500 4.75%, due 12/01/23...................... 2,344
MICHIGAN - 1.3%
5,250 Detroit Water Supply
System Revenue
4.75%, due 7/01/19 [FGIC]................ 5,024
2,000 University of Michigan
Hospital Revenue
6.375%, due 12/01/24..................... 2,110
MISSOURI - 1.9%
5,000 Missouri Health and Education
Facilities Authority Educational
Facilities Revenue
5.00%, due 11/15/37...................... 4,858
5,000 University of Missouri System
Facilities Revenue
5.80%, due 11/01/27...................... 5,404
NEW JERSEY - 0.3%
1,275 - New Jersey Turnpike
Authority Revenue
10.375%, due 1/01/03
(Escrowed to Maturity)................... 1,449
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-28-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
NEW MEXICO - 0.5%
$12,500 Farmington Collateralized
Pollution Control Revenue
(Tucson Gas and Electric Co.)
6.10%, due 1/01/08....................... $ 2,501
NEW YORK - 6.3%
4,025 Long Island Power Authority
Electric System General Revenue
5.25%, due 12/01/26...................... 4,038
New York City Municipal Water
Finance Authority Water and
Sewer System Revenue
2,205 6.00%, due 6/15/19....................... 2,234
2,100 5.00%, due 6/15/17 [FGIC]................ 2,100
New York Dormitory Authority
State University Educational
Facilities Revenue
4,400 7.50%, due 5/15/11....................... 5,487
5,250 7.50%, due 5/15/13....................... 6,735
5,500 5.25%, due 5/15/15....................... 5,782
1,500 5.00%, due 7/01/15....................... 1,505
6,500 Urban Development Corp.
Correctional Facilities Revenue
5.375%, due 1/01/25...................... 6,581
NORTH CAROLINA - 2.2%
11,000 North Carolina Eastern Municipal
Power Agency Power System Revenue
6.00%, due 1/01/22....................... 11,863
OKLAHOMA - 1.2%
5,590 McGee Creek Authority
Water Revenue
6.00%, due 1/01/23 [MBIA]................ 6,418
PENNSYLVANIA - 0.9%
$ 5,000 Centre County University Area
Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA]............... $ 4,755
SOUTH CAROLINA - 1.2%
945 Charleston County Pollution
Control Facilities Revenue
5.90%, due 8/01/03....................... 946
5,500 Pickens and Richland Counties
Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC]............... 5,639
TEXAS - 10.0%
7,000 Austin Combined Utility Revenue
4.25%, due 5/15/28 [MBIA]................ 6,118
10,000 Austin Combined Utility
System Revenue
12.50%, due 11/15/07 [MBIA].............. 15,884
Austin Water, Sewer and
Electric Revenue
20 - 14.00%, due 11/15/01
(Prerefunded 5/15/99 @ 100).............. 21
3,350 14.00%, due 11/15/01..................... 3,874
60 - 14.00%, due 11/15/01 (Prerefunded
various dates/prices).................... 64
1,535 - Coastal Industrial Water
Authority Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity)................... 1,569
2,000 Houston Water and Sewer System
Junior Lien Revenue
5.375%, due 12/01/27 [FGIC].............. 2,059
15,000 Matagorda County Navigation
District #1
5.15%, due 11/01/29 [MBIA]............... 14,953
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-29-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
TEXAS (Continued)
$2,260 Texas Municipal Power
Agency Revenue
5.50%, due 9/01/13 [FGIC]................ $2,264
7,500 Waco Texas Health Facilities
Development Corp. Hospital
Revenue
5.00%, due 11/01/25...................... 7,200
UTAH - 0.4%
1,900 Intermountain Power Agency
Power Supply Revenue
6.00%, due 7/01/23....................... 1,918
VIRGINIA - 1.6%
1,055 - Richmond Metropolitan
Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity)................... 1,056
8,000 Upper Occoquan Sewage
Authority Regional Sewerage
System Revenue
4.75%, due 7/01/29 [MBIA]................ 7,593
WASHINGTON - 13.5%
7,000 CDP-King County III Lease
Revenue
(King Street Center Project)
5.25%, due 6/01/26 [MBIA]................ 7,078
Douglas County Public Utility
District #1 Wells Hydroelectric
Revenue
5,055 8.75%, due 9/01/18....................... 6,638
2,200 - 8.75%, due 9/01/18 (Prerefunded
9/01/06 @ 106)........................... 2,965
$2,500 Everett School District #2
Snohomish County Unlimited
Tax General Obligation
6.20%, due 12/01/12 [MBIA]............... $2,807
2,200 King County Housing Authority
Pooled Housing Revenue
6.80%, due 3/01/26....................... 2,362
1,650 King County Limited Tax General
Obligation (Various Purposes)
4.75%, due 1/01/19....................... 1,584
2,255 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC]............... 2,296
4,800 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24...................... 5,031
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 [AMBAC].............. 4,193
2,944 Seattle Housing Authority Low
Income Housing Revenue
(Mt. Zion Project)
6.60%, due 8/20/38....................... 3,285
5,940 Vancouver Washington Housing
Authority Revenue
(Springbrook Square)
5.65%, due 3/01/31....................... 5,836
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-30-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
WASHINGTON (Continued)
$ 3,000 Washington Health Care Facilities
Authority Revenue
(Fred Hutchinson Cancer
Research Center)
7.375%, due 1/01/18...................... $ 3,249
10,000 Washington Health Care Facilities
Authority Revenue
(Swedish Hospital Medical
Center)
5.25%, due 11/15/26 [AMBAC].............. 10,043
8,500 Washington Public Power Supply
System Nuclear Project #1
Revenue
6.00%, due 7/01/17....................... 8,822
4,000 Washington Public Power Supply
System Nuclear Project #2 Revenue
6.30%, due 7/01/12....................... 4,628
2,610 Washington Public Power Supply
System Nuclear Project #3 Revenue
5.50%, due 7/01/18....................... 2,624
WISCONSIN - 0.2%
1,000 Wisconsin Health and Educational
Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA]............... 1,019
WYOMING - 3.5%
18,375 Wyoming Community
Development Authority
Housing Revenue
5.60%, due 6/01/29....................... 18,873
--------
TOTAL BONDS............................................................ 536,754
--------
TEMPORARY INVESTMENTS - 0.3%
INVESTMENT COMPANIES:
$1,431 Federated Tax-Exempt
Money Market Fund, Inc................... $ 1,431
--------
TOTAL TEMPORARY INVESTMENTS............................................ 1,431
--------
TOTAL INVESTMENTS - 99.3%.............................................. 538,185
Other Assets, less Liabilities......................................... 3,996
--------
NET ASSETS............................................................. $542,181
--------
--------
</TABLE>
- -------------------------------------------------------------------------------
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of the
portfolio they guarantee at the period end are as follows:
<TABLE>
<S> <C> <C>
MBIA: Municipal Bond Investors
Assurance Corp...................... 16.0%
FGIC: Financial Guaranty
Insurance Corp...................... 10.9
AMBAC: AMBAC Indemnity Corp................ 8.9
FSA: Financial Security
Assurance, Inc...................... 2.5
------
38.3%
------
------
</TABLE>
- - Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-31-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
BEVERLY R. DENNY
Returning 5.99%, the Fund exceeded 5.78%, Lipper, Inc.'s Washington State
Municipal Bond Fund average for the year. For the fourth quarter the Fund was
flat at 0.00%, while the peer group returned 0.04%. The Fund's longer
duration (sensitivity to interest rates) will typically cause the Fund to lag
as rates increase, and to outperform as rates fall and the market rallies as
it did for the year.
Lehman Brothers Long Municipal Bond Index shows three-month and one-year
returns at 0.28% and 6.90%. It's virtually impossible for us to beat this
benchmark, as it is a national index, which has no expenses, cash holdings
nor call features.
I sold our Seattle Municipal Sewer bonds in October. In November, I bought
some higher-yielding bonds issued by the Vancouver Housing Authority with
- -------------------------------------------------------------------------------
WASHINGTON STATE MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS
ENDED DECEMBER 31, 1998
- -----------------------
<S> <C>
1-Year 5.99%
5-Year 5.44%
Since inception* 6.10%
</TABLE>
*The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
<TABLE>
<CAPTION>
LEHMAN BROTHERS
WASHINGTON STATE LONG MUNICIPAL
MUNICIPAL BOND FUND BOND INDEX
------------------- ---------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,146 10,137
05/31/93 10,188 10,221
06/30/93 10,433 10,413
07/31/93 10,401 10,423
08/31/93 10,684 10,690
09/30/93 10,808 10,839
10/31/93 10,828 10,859
11/30/93 10,658 10,728
12/31/93 10,874 11,005
01/31/94 11,043 11,135
02/28/94 10,665 10,766
03/31/94 10,068 10,123
04/30/94 10,115 10,201
05/31/94 10,259 10,321
06/30/94 10,083 10,197
07/31/94 10,337 10,459
08/31/94 10,300 10,481
09/30/94 10,050 10,238
10/31/94 9,782 9,923
11/30/94 9,553 9,661
12/31/94 9,934 10,004
01/31/95 10,339 10,444
02/28/95 10,730 10,870
03/31/95 10,786 11,000
04/30/95 10,754 10,995
05/31/95 11,189 11,463
06/30/95 10,986 11,252
07/31/95 11,053 11,310
08/31/95 11,195 11,469
09/30/95 11,275 11,559
10/31/95 11,519 11,839
11/30/95 11,786 12,144
12/31/95 11,910 12,333
01/31/96 11,959 12,386
02/28/96 11,848 12,235
03/31/96 11,620 12,011
04/30/96 11,556 11,963
05/31/96 11,580 11,969
06/30/96 11,714 12,154
07/31/96 11,832 12,274
08/31/96 11,798 12,258
09/30/96 12,029 12,530
10/31/96 12,134 12,683
11/30/96 12,341 12,956
12/31/96 12,272 12,878
01/31/97 12,201 12,852
02/28/97 12,320 12,991
03/31/97 12,110 12,766
04/30/97 12,265 12,917
05/31/97 12,466 13,168
06/30/97 12,600 13,336
07/31/97 13,020 13,822
08/31/97 12,862 13,638
09/30/97 13,023 13,834
10/31/97 13,097 13,953
11/30/97 13,181 14,077
12/31/97 13,369 14,335
01/30/98 13,491 14,488
02/28/98 13,510 14,481
03/31/98 13,532 14,501
04/30/98 13,434 14,423
05/31/98 13,669 14,706
06/30/98 13,729 14,769
07/31/98 13,770 14,803
08/31/98 13,980 15,068
09/30/98 14,170 15,277
10/31/98 14,108 15,228
11/30/98 14,157 15,306
12/31/98 14,170 15,321
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-32-
<PAGE>
a 5.65% coupon at a 5.75% yield. I later sold the Grant County PUDs to raise
cash for the Vancouver bonds.
Beverly R. Denny
- -------------------------------------------------------------------------------
Beverly R. Denny came to SAFECO in 1991. She holds an M.B.A. from the
University of Virginia and a B.S. in finance/economics from Babson College.
She is a Chartered Financial Analyst.
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY)................ 4.00%
WEIGHTED AVERAGE MATURITY............. 23.4 years
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- ----------------------------------------------------
<S> <C>
Renton Limited Tax
General Obligation.................. 4.6%
Vancouver Washington Housing
Authority Revenue
(Clark County).................... 4.4
Vancouver Washington Housing
Authority Revenue
(Springbrook Square).............. 4.2
Washington Higher Education
Facilities Authority Revenue
and Refunding Revenue
(Gonzaga University Project)...... 4.1
Washington State Housing
Finance Commission Housing
and Nonprofit Revenue (Seattle
University Auxiliary Service
Project)............................ 4.0
<CAPTION>
TOP FIVE PERCENT OF
TYPES OF BONDS NET ASSETS
- ----------------------------------------------------
<S> <C>
Housing................................. 23%
Local General Obligation - Limited Tax.. 18
Hospital................................ 14
University Revenue...................... 11
Utilities - Water....................... 9
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- ----------------------------------------------------
<S> <C>
AAA 47%
AA 27
A 18
Not Rated 4
Cash & Other 4
----
100%
----
----
</TABLE>
-33-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
BONDS* - 96.3%
$300 Bellingham Housing Authority
Housing Revenue (Cascade
Meadows)
5.20%, due 11/1/27 [MBIA]............. $299
100 Kent Limited Tax General
Obligation
5.75%, due 12/01/26 [MBIA]............. 108
300 King County Housing Authority
Pooled Housing Revenue
6.80%, due 3/01/26..................... 322
250 King County Limited Tax General
Obligation (Various Purposes)
4.75%, due 1/01/19..................... 240
200 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.25%, due 9/01/15 [AMBAC]............. 205
200 Kitsap County School District #401
Unlimited Tax General Obligation
(Central Kitsap)
5.50%, due 12/01/11.................... 214
100 Kitsap County Sewer Revenue
5.75%, due 7/01/16 [MBIA].............. 108
250 Klickitat County Public Utility
District # 1 Electric Revenue
5.75%, due 10/01/27 [FGIC]............. 268
100 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24.................... 105
200 Municipality of Metropolitan
Seattle General Obligation
5.65%, due 1/01/20..................... 209
350 Renton Limited Tax General
Obligation
5.75%, due 12/01/17 [MBIA]............. 375
Seattle Drainage and Wastewater
Utility Improvement Revenue
$175 5.25%, due 12/01/25 [MBIA]............. $177
200 5.00%, due 11/01/27.................... 194
250 Seattle Housing Authority Low
Income Housing Revenue
(Mt. Zion Project)
6.60%, due 8/20/38..................... 279
300 Seattle Municipal Light and
Power Revenue
5.00%, due 7/01/20..................... 294
Seattle Water System Revenue
200 5.25%, due 12/01/23.................... 201
300 5.00%, due 10/01/27 [FGIC]............. 294
300 Spokane County General
Obligation
5.10%, due 12/01/18.................... 302
100 Tacoma Sold Waste Utilities
Revenue
5.50%, due 12/01/19 [AMBAC]............ 105
200 Tukwila Limited Tax General
Obligation
5.90%, due 1/01/14..................... 215
350 Vancouver Washington Housing
Authority Revenue (Clark County)
5.50%, due 3/1/28...................... 355
350 Vancouver Washington Housing
Authority Revenue
(Springbrook Square)
5.65%, due 3/01/31..................... 344
100 Washington Certificates of
Participation Municipal Lease
Obligation (State Office
Building Project)
6.00%, due 4/01/12..................... 105
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-34-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C> <C>
$200 Washington Health Care Facilities
Authority Revenue (Franciscan
Health System/St. Joseph
Hospital and Health Care Center,
Tacoma)
5.625%, due 1/01/13 [MBIA] ........... $213
150 Washington Health Care Facilities
Authority Revenue (Grays Harbor
Medical Center)
5.90%, due 7/01/23
[Asset Guaranty]....................... 160
250 Washington Health Care Facilities
Authority Revenue (Highline
Community Hospital)
5.00%, due 8/15/21
[Asset Guaranty]....................... 240
200 Washington Health Care Facilities
Authority Revenue (Northwest
Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC]............ 210
100 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 [AMBAC]............ 111
250 Washington Higher Education
Facilities Authority Revenue
(Pacific Lutheran University
Project)
5.70%, due 11/01/26
[Connie Lee]........................... 264
350 Washington Higher Education
Facilities Authority Revenue and
Refunding Revenue (Gonzaga
University Project)
4.75%, due 4/01/22 [MBIA].............. 331
325 Washington State Housing
Finance Commission Housing and
Nonprofit Revenue (Seattle
University Auxiliary Service
Project)
5.30%, due 7/01/31..................... 323
$250 Washington State Housing
Finance Commission Revenue
(Horizon House Project)
6.125%, due 7/01/27 [MBIA]............. $ 268
200 Washington State Various
Purpose General Obligation
5.25%, due 1/01/19..................... 203
200 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA]............... 219
-----
TOTAL BONDS.......................................................... 7,860
-----
TEMPORARY INVESTMENTS - 4.7%
INVESTMENT COMPANIES:
387 Federated Tax-Exempt
Money Market Fund, Inc. ............... 387
------
TOTAL TEMPORARY INVESTMENTS.......................................... 387
------
TOTAL INVESTMENTS - 101.0%........................................... 8,247
Liabilities, Less Other Assets....................................... (80)
------
NET ASSETS........................................................... $8,167
------
------
*The provider of the guarantee of timely payment of both principal
and interest is identified in the brackets at the end of each bond
description. The guarantors applicable to this portfolio and the percentage
of the portfolio they guarantee at period end are as follows:
MBIA: Municipal Bond Investors
Assurance Corp. .................................... 22.8%
AMBAC: AMBAC Indemnity Corp. .............................. 7.7
FGIC: Financial Guaranty Insurance Corp. ................. 6.8
Asset Guaranty Insurance Co. ....................... 4.9
Connie Lee Insurance Co. ........................... 3.2
FSA: Financial Security Assurance, Inc. ................. 2.7
-----
48.1%
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-35-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
MARY V. METASTASIO
The SAFECO Intermediate-Term Municipal Bond Fund returned 0.67% for the
quarter ending December 31, 1998, while the average intermediate-term fund
returned 0.49%, according to Lipper, Inc. For the year, the Fund returned
5.33%, virtually matching the average intermediate-term muni fund's 5.34%.
The Lehman 7-Year Municipal Bond Index returned .63% and 6.22% for the
quarter and year. This under-performance is par, as the Index has no
expenses, call features or cash flow.
I am not happy with the performance of the Fund, and I plan to do some
restructuring of the portfolio, lengthening the maturity and increasing the
average position size. However, I could find no attractive swaps to make
during the latest quarter, and we continue to own more small pieces of short
maturity paper (in the 2002-2003 range) than I would like. The shorter
maturity helped us outperform as rates rose during the fourth
- -------------------------------------------------------------------------------
INTERMEDIATE-TERM MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN FOR THE PERIODS
ENDED DECEMBER 31, 1998
- -----------------------
<S> <C>
1-Year 5.33%
5-Year 5.02%
Since inception* 5.62%
</TABLE>
*The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
<TABLE>
<CAPTION>
LEHMAN BROTHERS
INTERMEDIATE-TERM 7-YEAR MUNICIPAL
MUNICIPAL BOND FUND BOND INDEX
------------------- ----------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,068 10,062
05/31/93 10,085 10,092
06/30/93 10,245 10,277
07/31/93 10,227 10,278
08/31/93 10,438 10,461
09/30/93 10,599 10,575
10/31/93 10,652 10,602
11/30/93 10,559 10,508
12/31/93 10,744 10,701
01/31/94 10,871 10,816
02/28/94 10,601 10,581
03/31/94 10,264 10,299
04/30/94 10,308 10,375
05/31/94 10,387 10,427
06/30/94 10,351 10,408
07/31/94 10,478 10,555
08/31/94 10,552 10,610
09/30/94 10,363 10,509
10/31/94 10,176 10,403
11/30/94 9,955 10,251
12/31/94 10,140 10,407
01/31/95 10,371 10,601
02/28/95 10,649 10,840
03/31/95 10,774 10,953
04/30/95 10,822 10,982
05/31/95 11,130 11,274
06/30/95 11,085 11,265
07/31/95 11,212 11,408
08/31/95 11,328 11,543
09/30/95 11,368 11,587
10/31/95 11,496 11,688
11/30/95 11,614 11,816
12/31/95 11,683 11,879
01/31/96 11,803 11,994
02/28/96 11,789 11,953
03/31/96 11,596 11,837
04/30/96 11,575 11,816
05/31/96 11,539 11,798
06/30/96 11,590 11,889
07/31/96 11,736 11,988
08/31/96 11,755 11,994
09/30/96 11,845 12,102
10/31/96 11,979 12,233
11/30/96 12,168 12,437
12/31/96 12,121 12,399
01/31/97 12,142 12,444
02/28/97 12,244 12,547
03/31/97 12,093 12,386
04/30/97 12,126 12,450
05/31/97 12,297 12,607
06/30/97 12,425 12,728
07/31/97 12,716 13,023
08/31/97 12,595 12,931
09/30/97 12,750 13,068
10/31/97 12,807 13,145
11/30/97 12,851 13,191
12/31/97 13,030 13,353
01/30/98 13,123 13,493
02/28/98 13,122 13,505
03/31/98 13,122 13,505
04/30/98 13,036 13,427
05/31/98 13,227 13,624
06/30/98 13,259 13,663
07/31/98 13,297 13,708
08/31/98 13,488 13,916
09/30/98 13,634 14,096
10/31/98 13,658 14,117
11/30/98 13,666 14,155
12/31/98 13,725 14,185
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-36-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
quarter of 1998, but that will not always be the case.
The Fund's most recent transaction was a purchase of $300,000 Port
Authority of New York and New Jersey General Obligation 5% of 10/01/2009 at a
yield of 4.10% to the 11/01/05 call and 4.284% to maturity. The bonds were
insured by FGIC and rated Aaa/AAA/AAA. As premium bonds priced to the call,
they gave us some extra yield in a solid, tradable name.
My plan is to take larger positions in good names and extend maturity a
bit.
Mary V. Metastasio
- -------------------------------------------------------------------------------
Mary V. Metastasio joined SAFECO's investment department in 1985 as a
securities analyst and began managing the SAFECO Intermediate-Term Municipal
Bond Fund in 1996. She holds a B.A. in Dramatic Art from Whitman College and
an M.B.A. from the University of Washington. Metastasio is chairman of the
National Federation of Municipal Analysts.
HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C>
CURRENT YIELD (30-DAY) 3.37%
WEIGHTED AVERAGE MATURITY 6.2 YEARS
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency
#1 Catawba Electric Revenue................................. 5.2%
New York State Housing Finance Agency
Health Facilities Revenue................................... 5.1
Mississippi Hospital Equipment and
Facilities Authority Revenue (Mississippi
Baptist Medical Center)..................................... 4.1
Oklahoma Industries Authority Health
Facilities Revenue (Sisters of Mercy
Health System, St. Louis, Inc.)............................. 4.1
Trinity River Authority Revenue (Tarrant
County Water Project)....................................... 4.1
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- --------------------------------------------------------------------------
<S> <C>
Washington..................................................... 16%
Illinois....................................................... 13
New York....................................................... 11
Texas.......................................................... 10
California..................................................... 8
</TABLE>
<TABLE>
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- ------------------------------------------------------------------------------
<S> <C>
AAA............................................................ 58%
AA............................................................. 12
A.............................................................. 14
BBB............................................................ 9
BB............................................................. 3
Cash & Other................................................... 4
-----
100%
-----
-----
</TABLE>
-37-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
BONDS* - 95.1%
CALIFORNIA - 7.8%
$220 Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
5.80%, due 9/02/02......................... $234
405 Sacramento Municipal Utility
District Electric Revenue
5.50%, due 2/01/11......................... 434
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04 [MBIA]................. 539
CONNECTICUT - 3.6%
100 Connecticut Housing Finance
Authority Housing Mortgage
Finance Program
5.40%, due 5/15/03......................... 104
400 East Haven Connecticut
General Obligation
6.50%, due 9/01/05 [FGIC].................. 458
DISTRICT OF COLUMBIA - 3.0%
District of Columbia General
Obligation
150 5.75%, due 6/01/03......................... 159
300 5.30%, due 6/01/03......................... 310
GEORGIA - 0.7%
100 Georgia Municipal Electric
Authority General Power Revenue
5.75%, due 1/01/03......................... 107
ILLINOIS - 13.3%
100 Illinois Health Facilities Authority
Revenue (Brokaw-Mennonite
Association)
5.60%, due 8/15/01 [FGIC].................. 105
ILLINOIS (CONTINUED)
$300 Illinois Health Facilities Authority
Revenue (Masonic Medical
Center)
5.20%, due 10/01/03........................ $314
500 Joliet Waterworks and
Sewage Revenue
7.00%, due 1/01/05 [FGIC].................. 578
Metropolitan Pier and
Exposition Authority McCormick
Place Expansion Project
100 5.90%, due 6/15/03......................... 108
500 5.50%, due 6/15/03 [MBIA].................. 533
400 Peoria General Obligation
5.00%, due 1/01/06 [FGIC].................. 419
INDIANA - 2.8%
200 Hammond Multi-School
Building Corp.
First Mortgage (Lake County)
5.50%, due 1/15/03......................... 213
100 Indiana Bond Bank State
Revolving Fund Program
5.90%, due 2/01/03......................... 108
100 Indianapolis Local Public
Improvement Bond Bank
Transportation Revenue
5.80%, due 7/01/03......................... 108
KENTUCKY - 3.5%
500 Kentucky State Property and
Buildings Commission Revenue
5.50%, due 9/01/04......................... 539
LOUISIANA - 1.2%
100 Louisiana Correctional Facilities
Corp. Lease Revenue
5.55%, due 12/15/02 [FSA].................. 106
85 Louisiana Public Facilities
Authority Student Loan Revenue
6.20%, due 3/01/01......................... 88
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-38-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
MASSACHUSETTS - 2.8%
$400 Massachusetts Water Resources
Authority General Revenue
5.25%, due 12/01/08........................ $430
MAINE - 2.0%
300 Maine Municipal Bond Bank
5.00%, due 11/01/09 [FSA].................. 316
MISSISSIPPI - 4.1%
600 Mississippi Hospital Equipment
and Facilities Authority
Revenue (Mississippi Baptist
Medical Center)
5.40%, due 5/01/04 [MBIA].................. 638
NEW JERSEY - 0.7%
100 New Jersey Housing and
Mortgage Finance Agency
Housing Revenue
6.00%, due 11/01/02........................ 104
NEW YORK - 11.1%
100 Metropolitan Transportation
Authority Transit Facilities Service
Contract Revenue
5.375%, due 7/01/02........................ 105
400 New York City Municipal Water
Finance Authority Water and
System Revenue
5.00%, due 6/15/03......................... 418
100 New York Dormitory Authority
State University Educational
Facilities Revenue
5.75%, due 5/15/01......................... 105
700 New York State Housing Finance
Agency Health Facilities Revenue
6.375%, due 11/01/04....................... 782
300 Port Authority New York & New
Jersey Consolidated Revenue
5.00%, due 10/01/09 [FGIC]................. 316
NORTH CAROLINA - 6.6%
$210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02......................... $218
800 North Carolina Municipal Power
Agency #1 Catawba Electric
Revenue
4.10%, due 1/01/05 [AMBAC]................. 806
OKLAHOMA - 4.1%
600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health System,
St. Louis, Inc.)
5.20%, due 6/01/05......................... 637
PENNSYLVANIA - 1.7%
250 Philadelphia Water and
Wastewater Revenue
5.00%, due 6/15/02......................... 258
TEXAS - 9.7%
250 Austin Combined Utility Systems
Revenue
5.25%, due 11/15/06........................ 276
100 Coastal Bend Health Facility
Development Corp. Health
Services Revenue
(Incarnate Word)
5.70%, due 1/01/03 [AMBAC]................. 107
100 Houston Water and Sewer System
Junior Lien Revenue
5.75%, due 12/01/02........................ 107
350 Socorro Independent School
District Unlimited Tax General
Obligation
5.80%, due 2/15/11......................... 381
600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC]................. 627
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-39-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
WASHINGTON - 16.4%
$400 Clark County Public Utility
District #1 Generating System
Revenue
6.00%, due 1/01/07 [FGIC].................. $449
360 King County Housing Authority
Pooled Housing Revenue
4.70%, due 7/01/08......................... 362
500 Snohomish and Island Counties
School District #401
General Obligation (Stanwood)
5.90%, due 12/15/11 [MBIA]................. 557
500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC].................. 542
100 Washington Health Care Facilities
Authority Revenue
(Empire Health Service, Spokane)
5.50%, due 11/01/03 [MBIA]................. 107
Washington Public Power
Supply System
Nuclear Project #2 Revenue
200 5.30%, due 7/01/02......................... 209
300 4.80%, due 7/01/04......................... 310
-------
TOTAL BONDS....................................................... 14,731
-------
TEMPORARY INVESTMENTS - 3.6%
INVESTMENT COMPANIES:
$557 Federated Tax-Exempt
Money Market Fund, Inc..................... $ 557
-------
TOTAL TEMPORARY INVESTMENTS....................................... 557
-------
TOTAL INVESTMENTS - 98.7%......................................... 15,288
Other Assets, less Liabilities.................................... 199
-------
NET ASSETS........................................................ $15,487
-------
-------
</TABLE>
- ------------------------------------------------------------------------------
*The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of the
portfolio they guarantee at the period end are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FGIC: Financial Guaranty
Insurance Corp....................................... 18.7%
MBIA: Municipal Bond Investors
Assurance Corp....................................... 15.5
AMBAC: AMBAC Indemnity Corp................................. 10.1
FSA: Financial Security
Assurance, Inc....................................... 2.7
-------
47.0%
-------
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-40-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO INSURED MUNICIPAL BOND FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
STEPHEN C. BAUER
For the year 1998, the SAFECO Insured Municipal Bond Fund returned 5.90%
compared to 5.31%, the Lipper, Inc. average for all insured municipal bond
funds. This ranked the SAFECO Fund 6th of 48 insured funds. (For the five
years ended December 31, 1998, Lipper ranked the Fund fourth of 30 insured
funds, with an average annual return of 6.02% compared to its peers' 5.32%.)
For the quarter, the Fund returned -0.51% to the peer group's 0.09%. The
Fund also underperformed the Lehman Brothers Long Insured Municipal Bond
Index, which returned 0.22% for the quarter and 7.06% for the year, but this
is standard. It's nearly impossible to beat a bond index because it has no
expenses, no cash and no call features.
Since yields rose slightly during the fourth quarter, the Fund
underperformed its peers over the three-month period. Our longer-than-average
maturity generally results in below-average returns when yields rise and
prices fall. However, it helps us outperform when yields decline. We believe
over the long term, our strategy of staying fully invested in long,
deep-discount bonds will pay off.
- -------------------------------------------------------------------------------
INSURED MUNICIPAL BOND FUND
PERFORMANCE OVERVIEW - NO-LOAD CLASS
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1998
- ---------------------------------------
<S> <C>
1-Year 5.90%
5-Year 6.02%
Since inception* 6.57%
</TABLE>
*The Fund's inception was March 18, 1993. Graph and average annual return
comparison begins March 31, 1993.
<TABLE>
<CAPTION>
LEHMAN BROTHERS
INSURED MUNICIPAL LONG INSURED
BOND FUND MUNICIPAL BOND INDEX
----------------- --------------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,122 10,146
05/31/93 10,163 10,239
06/30/93 10,396 10,430
07/31/93 10,301 10,438
08/31/93 10,643 10,710
09/30/93 10,804 10,849
10/31/93 10,808 10,861
11/30/93 10,568 10,719
12/31/93 10,853 10,992
01/31/94 10,998 11,117
02/28/94 10,539 10,726
03/31/94 9,860 10,061
04/30/94 9,907 10,152
05/31/94 10,028 10,275
06/30/94 9,862 10,152
07/31/94 10,217 10,430
08/31/94 10,169 10,433
09/30/94 9,849 10,183
10/31/94 9,560 9,872
11/30/94 9,364 9,647
12/31/94 9,721 9,983
01/31/95 10,125 10,430
02/28/95 10,651 10,851
03/31/95 10,706 10,977
04/30/95 10,630 10,973
05/31/95 11,255 11,440
06/30/95 10,934 11,220
07/31/95 10,967 11,268
08/31/95 11,130 11,424
09/30/95 11,207 11,507
10/31/95 11,514 11,800
11/30/95 11,897 12,109
12/31/95 12,090 12,302
01/31/96 12,093 12,366
02/28/96 11,947 12,194
03/31/96 11,664 11,950
04/30/96 11,564 11,891
05/31/96 11,575 11,894
06/30/96 11,741 12,078
07/31/96 11,892 12,200
08/31/96 11,847 12,182
09/30/96 12,145 12,461
10/31/96 12,238 12,610
11/30/96 12,558 12,894
12/31/96 12,400 12,804
01/31/97 12,252 12,759
02/28/97 12,382 12,893
03/31/97 12,150 12,649
04/30/97 12,363 12,800
05/31/97 12,587 13,056
06/30/97 12,767 13,211
07/31/97 13,336 13,716
08/31/97 13,073 13,502
09/30/97 13,244 13,695
10/31/97 13,351 13,787
11/30/97 13,445 13,875
12/31/97 13,726 14,226
01/30/98 13,846 14,389
02/28/98 13,811 14,362
03/31/98 13,802 14,381
04/30/98 13,669 14,280
05/31/98 14,000 14,589
06/30/98 14,061 14,651
07/31/98 14,091 14,678
08/31/98 14,374 14,973
09/30/98 14,610 15,199
10/31/98 14,487 15,147
11/30/98 14,561 15,232
12/31/98 14,536 15,232
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the Fund
to a hypothetical investment in a relevant market index. The index is
unmanaged and includes no operating expenses or transaction costs. Past
performance is not predictive of future results. Principal value may
fluctuate so that shares, when redeemed, may be worth more or less than their
original cost.
- -------------------------------------------------------------------------------
-41-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Insured Muni Fund grew substantially this past year, from $17
million to nearly $25 million. A large volume of insured new issues made for
numerous choices, including many deep discounts, which I favor. New names
added to the Fund in the fourth quarter were Austin Utility Rev. 4.25% '28,
Murray City, Utah, Hospital Rev. 4.75% '20 for Intermountain Health Care, and
Upper Occoquan Sewer Authority, VA, 4.75% '29.
Stephen C. Bauer
- -------------------------------------------------------------------------------
Stephen C. Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a
fund manager with the inception of the SAFECO Municipal Bond Fund in 1981,
and is President of SAFECO Asset Management Company. Bauer holds a B.S. in
microbiology and an M.B.A. from the University of Washington.
- -------------------------------------------------------------------------------
HIGHLIGHTS
<TABLE>
<S> <C>
Current Yield (30-day)............................................ 4.07%
Weighted Average Maturity......................................... 24.3 years
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE STATES NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Washington.......................................................... 14%
Michigan............................................................ 11
Massachusetts....................................................... 9
California.......................................................... 9
Pennsylvania........................................................ 8
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF
TOP FIVE HOLDINGS NET ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Upper Occoquan Sewer Authority
Regional Sewer Systems Revenue.................................... 4.9%
Washington Convention Center Authority
Dedicated Tax Revenue............................................. 4.7
University of Michigan Hospital Revenue
(St. John Health Systems)......................................... 3.9
Gulf Environment Services, Inc...................................... 3.8
Allegheny County Hospital Development
Authority Revenue
(Catholic Health East)............................................ 3.8
</TABLE>
<TABLE>
<CAPTION>
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
- ------------------------------------------------------------------------------
<S> <C>
AAA................................................................. 99%
Cash & Other........................................................ 1
-------
100%
-------
-------
</TABLE>
- -------------------------------------------------------------------------------
-42-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
BONDS* - 95.0%
ALABAMA - 5.9%
$600 Board of Trustee Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA].......................... $663
750 Jefferson County Sewer Revenue
5.70%, due 2/01/20 [FGIC]........................... 800
CALIFORNIA - 8.8%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC].......................... 356
600 Los Angeles County Sanitation
District Financing Authority
Revenue (Capital Projects)
5.25%, due 10/01/19 [MBIA].......................... 610
500 Los Angeles Department of Water
and Power Electric Plant Revenue
4.25%, due 11/15/14 [MBIA].......................... 474
650 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC].......................... 625
145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC].......................... 143
DISTRICT OF COLUMBIA - 4.7%
$1,250 Washington Convention Center
Authority Dedicated Tax Revenue
4.75%, due 10/01/28 [AMBAC]......................... $1,169
FLORIDA - 3.8%
1,000 Gulf Environment Services, Inc.
5.00%, due 10/01/27 [MBIA].......................... 953
IDAHO - 3.5%
900 Idaho State Building Authority
State Building Revenue
4.75%, due 9/01/25 [MBIA]........................... 867
ILLINOIS - 2.0%
500 Chicago General Obligation
5.125%, due 1/01/25 [FGIC].......................... 496
INDIANA - 2.9%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA].......................... 116
250 Indiana State Office Building
Commission Capital Complex
Revenue
5.25%, due 7/01/15 [AMBAC].......................... 255
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC].......................... 357
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-43-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
IOWA - 1.0%
$ 250 Marshalltown Pollution Control
Revenue (Iowa Electric Light
and Power Co. Project)
5.50%, due 11/01/23 [MBIA].......................... $260
MASSACHUSETTS - 8.9%
750 Massachusetts Bay
Transportation Authority
5.00%, due 3/01/27 [FGIC]........................... 737
600 Massachusetts Housing
Finance Agency (Rental Housing
and Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC].......................... 644
850 Massachusetts Turnpike Authority
Metropolitan Highway System
Revenue
5.125%, due 1/01/23 [MBIA].......................... 845
MICHIGAN - 11.3%
850 Detroit Sewage Disposal
System Revenue
5.00%, due 7/01/27 [MBIA]........................... 832
350 Detroit Water Supply
System Revenue
5.00%, due 7/01/23 [FGIC]........................... 343
600 Huron Valley School District
General Obligation
5.75%, due 5/01/22 [FGIC]........................... 669
1,000 University of Michigan Hospital
Revenue (St. John Health System)
5.00%, due 5/15/28 [AMBAC].......................... 971
MINNESOTA - 1.3%
$ 350 Minneapolis and St. Paul Housing
and Redevelopment Authority
Health Care System Revenue
(HealthSpan)
4.75%, due 11/15/18 [AMBAC]......................... $337
NEW YORK - 3.6%
900 Long Island Power Authority
Electric System General Revenue
5.125%, due 12/01/22 [FSA].......................... 900
NORTH CAROLINA - 0.5%
125 North Carolina Eastern Municipal
Power Agency Power System
Revenue
5.50%, due 1/01/17 [FGIC]........................... 128
PENNSYLVANIA - 8.0%
1,000 Allegheny County Hospital
Development Authority Revenue
(Catholic Health East)
4.875%, due 11/15/26 [AMBAC]........................ 947
650 Pittsburgh Water and Sewer
Authority Revenue
4.75%, due 9/01/16 [FGIC]........................... 635
445 University Area Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA].......................... 423
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-44-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
TEXAS - 6.2%
$1,000 Austin Combined Utility Revenue
4.25%, due 5/15/28 [MBIA]........................... $874
250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC]........................... 260
Lower Colorado River Authority
Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA]........................... 311
10 - 5.625%, due 1/01/17 [FSA]
(Prerefunded 1/01/15 @100).......................... 11
95 Sabine River Authority Pollution
Control Revenue (Texas Utilities
Electric Co. Project)
6.55%, due 10/01/22 [FGIC].......................... 105
UTAH - 3.8%
1,000 Murray City Hospital Revenue
(IHC Health Service, Inc.)
4.75%, due 5/15/20 [MBIA]........................... 940
VIRGINIA - 4.9%
$1,300 Upper Occoquan Sewer Authority
Regional Sewer System Revenue
4.75%, due 7/01/29 [MBIA]........................... $1,234
WASHINGTON - 13.9%
700 CDP-King County III Lease
Revenue (King Street Center
Project)
5.25%, due 6/01/26 [MBIA]........................... 708
100 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC].......................... 102
500 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA]........................... 555
250 Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA].......................... 267
530 Snohomish County Public Utility
District #1 Electric Revenue
5.50%, due 1/01/20 [FGIC]........................... 544
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-45-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
WASHINGTON (CONTINUED)
$ 100 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical System)
6.30%, due 11/15/22 [AMBAC]......................... $ 111
900 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital System)
5.25%, due 11/15/26 [AMBAC]......................... 904
250 Yakima-Tieton Irrigation District
Revenue
6.20%, due 6/01/19 [FSA]............................ 274
-------
TOTAL BONDS....................................................... 23,755
-------
TEMPORARY INVESTMENTS - 4.5%
Investment Companies:
1,110 Federated Tax-Exempt
Money Market Fund, Inc.............................. 1,110
-------
TOTAL TEMPORARY INVESTMENTS....................................... 1,110
-------
TOTAL INVESTMENTS - 99.5%......................................... 24,865
Other Assets, less Liabilities.................................... 133
-------
NET ASSETS........................................................ $24,998
-------
-------
</TABLE>
- -------------------------------------------------------------------------------
*The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description.
The guarantors applicable to this portfolio and the percentage of this
portfolio they guarantee at the period end are as follows:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors
Assurance Corp...................................... 42.7%
AMBAC: AMBAC Indemnity Corp................................ 23.9
FGIC: Financial Guaranty
Insurance Corp...................................... 22.9
FSA: Financial Security
Assurance, Inc...................................... 6.0
----------
95.5%
----------
----------
</TABLE>
- - Prerefunded bonds are collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-46-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO MONEY MARKET FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
NAOMI URATA
The SAFECO Money Market Fund's one-year total return of 5.08%
outperformed the average money fund's total return of 4.86%, according to
Lipper, Inc. For the quarter ending December 31, 1998, the SAFECO Fund's
average return was 1.29%, which surpassed the peer group's 1.14% return for
the same period.
The increase in the Fund's yield is attributable to the purchase of
one-year, fixed-rate paper, resulting in an average maturity as long as 87
days during the half-year compared to an average of 60 days for other funds
in its peer group. The longer maturity paper enabled the Fund to maintain
yield as the Federal Funds rate fell from 5.25% to 4.75%. The Federal Reserve
lowered the rate twice during the quarter. Short-term rates remain inverted
from one day out to 270 days, so that one-day rates are at higher levels than
270-day rates. This indicates that the market believes that future rates will
be lower.
The Federal Reserve's easing mode was prompted by a slowing global
economy, the Asian crisis and declining liquidity in the financial markets.
The likelihood of further rate cuts is possible depending on the pace of
growth of the global economy, the financial health of emerging markets, and
inflation. The possibility exists that instead of slowing further, the U.S.
economy could continue growing at a healthy pace, leading to higher rates. To
hedge against rising rates, I increased the amount of floating rate paper of
corporations priced off of one-month LIBOR, the London Inter-bank Borrowing
Rate. LIBOR floaters trade cheap to boost the yield on the Fund compared to
one-month commercial paper with comparable credit ratings.
The most notable occurrence in 1998 was a huge flight to quality. SAFECO
Money Market
-47-
<PAGE>
Fund served as refuge for investors fleeing markets that are vulnerable to
foreign problems. Cash flow into the Fund was significant and, so far, it
has stayed. As I've done in the past, I will work to manage the Fund to be a
safe haven for your investment dollar in spite of volatile market conditions.
I will do this by buying quality paper subject to careful credit review. I
will lock in some longer-term rates to provide stability and downside
protection in case rates decline, and I will maintain some short maturities
in case rates move up. The shorter maturities will also provide liquidity for
your short-term cash needs.
Naomi Urata
- -------------------------------------------------------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began
managing the SAFECO Money Market Fund in August of 1994. She holds a Masters
in Management from Yale University and is a Chartered Financial Analyst.
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Weighted Average Maturity 64 days
Total Return (1 Year) 5.08%
- -------------------------------------------------------------------------------
</TABLE>
-48-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
SHORT-TERM CORPORATE SECURITIES* - 99.1%
ASSET BACKED - 2.6%
$ 6,000 Ciesco L.P.
5.35%, due 1/19/99....................................$ 5,987
BANKS (FOREIGN) - 8.8%
National Australia
Funding (DE), Inc.
5,000 5.45%, due 1/08/99......................................4,997
6,000 5.38%, due 1/19/99......................................5,987
9,000 Societe Generale, NY
5.67%, due 8/06/99......................................8,998
BANKS (MAJOR REGIONAL) - 13.2%
10,000 BancBoston
5.58%, due 3/01/99.....................................10,000
8,000 - Fleet Credit Card, L.L.C.
5.89%, due 4/15/99......................................8,008
12,000 - MBNA America Bank NA
5.75%, due 6/28/99.....................................12,000
BANKS (REGIONAL) - 3.1%
7,100 - American Express Centurion Bank
5.48%, due 1/14/99......................................7,100
FINANCE (AUTO) - 12.9%
Ford Motor Credit Co.
5,100 5.625%, due 1/15/99.....................................5,100
5,000 5.51%, due 1/21/99......................................4,987
General Motors Acceptance Corp.
4,800 7.50%, due 6/01/99......................................4,832
6,500 5.80%, due 1/07/99......................................6,497
Hyundai Motors
4,900 5.75%, due 1/11/99......................................4,895
3,000 5.60%, due 1/19/99......................................2,993
FINANCE (CONSUMER) - 3.8%
8,612 Associates Corp. of
North America
5.15%, due 1/04/99......................................8,612
FINANCE (DIVERSIFIED & BUSINESS) - 12.5%
$11,750 Aristar, Inc.
6.75%, due 5/15/99....................................$11,800
5,000 General Electric Capital Corp.
5.30%, due 1/22/99......................................4,987
8,500 Heller Financial, Inc.
6.64%, due 5/13/99......................................8,522
3,000 International Lease Finance Corp.
5.75%, due 1/15/99......................................3,000
FINANCE (MORTGAGE CO.) - 3.7%
Countrywide Funding
3,250 8.41%, due 11/17/99.....................................3,337
5,000 5.50%, due 1/06/99......................................4,998
HEALTH CARE (LONG-TERM CARE) - 0.7%
1,550 -+ Bowie Assisted Living L.L.C.
5.55%, due 7/01/23,
put date 1/06/99........................................1,550
HOME BUILDING - 3.1%
7,033 -+ Summer Station
Apartments, L.L.C.
5.63%, due 6/01/19,
put date 1/06/99........................................7,033
INVESTMENTS (BANK/BROKERAGE) - 15.9%
8,000 CS First Boston Group, Inc.
5.715%, due 7/19/99.....................................8,003
8,000 #- Goldman Sachs and
Company (144A)
5.35%, due 9/14/99
(acquired 4/08/98)......................................8,000
8,100 - Morgan Stanley, Dean Witter,
Discover and Co.
5.66%, due 3/13/01......................................8,100
- Shearson Lehman Brothers
Holdings, Inc.
4,000 6.92%, due 6/01/99......................................4,021
8,000 5.69%, due 5/23/01......................................8,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-49-
<PAGE>
PORTFOLIO OF INVESTMENTS
SAFECO MONEY MARKET FUND
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- -------------------------------------------------------------------------------
<S> <C>
MUNI'S (MUNICIPALITIES) - 3.7%
$8,500 City of St. Paul Minnesota
5.30%, due 3/30/99...................................$ 8,500
MUNI'S (STATES) - 0.9%
2,085 -+ Maryland Health and Higher
Education Facilities Authority
5.50%, due 1/01/28,
put date 1/06/99........................................2,085
MUNI'S (TAXABLE) - 4.7%
3,600 -+ Business Finance Authority of the
State of New Hampshire
5.60%, due 6/01/28,
put date 1/07/99........................................3,600
5,000 -+ Village Green Finance Co. L.L.C.
5.63%, due 11/01/22,
put date 1/06/99........................................5,000
2,000 -+ Wake Forest University
5.62%, due 7/01/17,
put date 1/07/99........................................2,000
RETAIL (GENERAL MERCHANDISE) - 3.5%
8,000 -+ Racetrac Capital, L.L.C.
5.63%, due 4/01/18,
put date 1/06/99........................................8,000
TOBACCO - 6.0%
B.A.T. Capital Corp.
5,000 5.70%, due 1/04/99......................................5,000
6,000 5.50%, due 1/26/99......................................5,980
2,671 Philip Morris Cos., Inc.
7.375%, due 2/15/99.....................................2,676
--------
TOTAL SHORT-TERM
CORPORATE SECURITIES................................................225,185
--------
U.S. GOVERNMENT AND
AGENCY SECURITIES - 0.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
DISCOUNT NOTES
$500 5.96%, due 7/23/99...................................$ 502
--------
TOTAL U.S. GOVERNMENT AND
AGENCY SECURITIES.................................................. 502
--------
TOTAL INVESTMENTS - 99.3%...........................................225,687
Other Assets, less Liabilities........................................1,642
--------
NET ASSETS.........................................................$227,329
--------
--------
</TABLE>
+ If a put date is indicated, the Fund has a right to sell a specified
underlying security at an exercise price equal to the amortized cost of
the underlying security plus interest, if any, as of that date.
# Security is exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer." The market value of such security is $8,000,000 and
represents 3.5% of net assets.
- - Securities have variable rates which change periodically based on specified
market rates or indices. Rates shown are those in effect on December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
-50-
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO TAX-FREE MONEY MARKET FUND
December 31, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PHOTO]
MARY V. METASTASIO
The SAFECO Tax-Free Money Market Fund beat its peer group for the quarter
and year ended December 31, 1998. It began the quarter with a seven-day yield
of 3.33% and ended at 3.20%. That performance placed the Fund in the top 19
percent for the quarter, according to Lipper, Inc., ranking it number 24 of
133 tax-exempt money funds. (For the year, the Fund placed in the top 22
percent, ranking 29 of 133. For the five and ten years ended December 31,
1998, it was ranked 22 of 105 and 11 of 70 funds, respectively.)
The tax-exempt money market has been marked recently by voracious demand
from funds and by dwindling supply of the short-term products that they
traditionally have used in their portfolios. There is no reason to think that
this will change soon. Net assets invested in tax-free money market funds
have continued to increase at a steady pace, rising at a rate of over six
percent in the fourth quarter to reach a total of $186 billion. This compares
to net assets of $160 billion in December of 1997 and $140 billion at
year-end 1996. These funds have grown 70% in the last five years.
The healthy economy has reduced states' and municipalities' need to
borrow in the short-term market. Attracted to the long-term market's low
fixed interest rates, they have been issuing very little variable rate debt,
further reducing supply. Meanwhile, the demand for variable rate debt from
money market funds is expected to remain high as conditions remain ripe for
net asset growth to continue.
This increased demand for short-term tax-exempt paper, and the dearth of
supply, has
-51-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPORT FROM THE TAX-FREE MONEY MARKET FUND MANAGER
had an effect on the structure of the SAFECO Tax-Free Money Market Fund. We
have had fewer opportunities to buy the longer put bonds we use to balance
the very short maturity VRDOs (variable rate demand options) that make up a
large part of our "barbell" portfolio. Thus, the Fund's average days to
maturity had fallen to 30 at year-end. We do not see this reduced average
maturity as a serious problem, however. It has not hurt the performance of
the Fund.
As for the future, I cannot and will not attempt to predict it. I will
manage the SAFECO Tax-Free Money Market Fund as I have always done, with an
eye toward safety as well as value.
Mary V. Metastasio
- -------------------------------------------------------------------------------
MARY V. METASTASIO JOINED SAFECO'S INVESTMENT DEPARTMENT IN 1985 AS A
SECURITIES ANALYST AND BEGAN MANAGING THE SAFECO TAX-FREE MONEY MARKET FUND
IN 1987. SHE HOLDS A B.A. IN DRAMATIC ART FROM WHITMAN COLLEGE AND AN M.B.A.
FROM THE UNIVERSITY OF WASHINGTON. METASTASIO IS CHAIRMAN OF THE NATIONAL
FEDERATION OF MUNICIPAL ANALYSTS.
- -------------------------------------------------------------------------------
HIGHLIGHTS
- -------------------------------------------------------------------------------
COMPARISON OF THE FUND'S
TAX-EQUIVALENT YIELDS TO THE
THREE-MONTH TREASURY BILL YIELD
<TABLE>
SAFECO Tax-Free Money Market Fund*
<S> <C>
Actual Yield 3.20%
Tax-Equivalent Yield 15% 3.76
Tax-Equivalent Yield 28% 4.44
Tax-Equivalent Yield 31% 4.64
Tax-Equivalent Yield 36% 5.00
Tax-Equivalent Yield 39.6% 5.30
Three-Month Treasury Bill**
Taxable Yield 4.45
</TABLE>
*Represents the SAFECO Tax-Free Money Market Fund actual yield on December
31, 1998, and related tax-equivalent yields assuming various shareholder tax
brackets. Tax-equivalent yield comparisions may vary with market conditions.
**Represents the Three-Month Treasury Bill yield on December 31, 1998.
<TABLE>
<S> <C>
Weighted Average Maturity 30 days
Total Return (1 Year) 3.07%
</TABLE>
-52-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of December 31, 1998
<TABLE>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
MUNICIPAL BONDS - 97.3%
ALASKA - 3.2%
$2,485 - Alaska Industrial Development
and Export Authority Revenue
4.05%, due 7/01/01,
put date 1/07/99.........................$2,485
ARIZONA - 3.6%
1,000 - Apache County Industrial
Development Authority
Pollution Control Revenue
(Tucson Electric Power Co.
Project)
4.00%, due 12/15/18,
put date 1/07/99..........................1,000
800 - Pima County Industrial
Development Authority Revenue
(Tucson Electric Power Co.
Projects)
4.00%, due 12/01/22,
put date 1/07/99............................800
1,000 - Tucson Industrial Development
Authority Revenue (Tucson City
Center Parking Garage Project)
4.125%, due 6/01/15,
put date 1/07/99..........................1,000
CALIFORNIA - 1.0%
300 - Regional Airports Improvement
Corp. Lease Revenue
American Airlines (LAX) Ser C
4.85%, due 12/01/24,
put date 1/01/99............................300
500 - Regional Airports Improvement
Corp. Lease Revenue
American Airlines (LAX) Ser F
4.85%, due 12/01/24,
put date 1/01/99............................500
DISTRICT OF COLUMBIA - 5.8%
$1,500 - District of Columbia Supplemental
Student Loan Revenue
4.50%, due 7/01/04,
put date 7/01/99.........................$1,500
3,000 - District of Columbia Housing
Finance Agency Multifamily
Housing Revenue (McClean)
5.50%, due 12/01/05,
put date 1/07/99..........................3,000
FLORIDA - 7.6%
290 - Dade County Equipment Special
Obligation Revenue 1987 A
3.95%, due 10/01/99,
put date 1/07/99............................290
155 - Dade County Equipment Special
Obligation Revenue 1988 A
3.95%, due 10/01/99,
put date 1/07/99............................155
2,000 - Florida Housing Finance Agency
Multifamily Revenue
(Iona Lakes Project)
3.85%, due 4/01/04,
put date 4/01/99..........................2,000
3,460 - Putnam County Development
Authority PCR (Seminole Electric
Cooperative, Inc.) Ser H-3
3.30%, due 3/15/14,
put date 3/15/99..........................3,460
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-53-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of December 31, 1998
<TABLE>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
ILLINOIS - 18.1%
$3,220 - Chicago - O'Hare International
Airport Revenue 1984 A
4.00%, due 1/01/15,
put date 1/06/99.........................$3,220
580 - Chicago - O'Hare International
Airport Revenue 1984 B
4.00%, due 1/01/15,
put date 1/06/99............................580
1,300 - Illinois Development Finance
Authority Revenue (Countryside
Montessori Schools Project)
4.06%, due 6/01/17,
put date 01/07/99.........................1,300
3,000 - Illinois Development Finance
Authority Revenue (Sinai
Community Institute Project)
4.06%, due 3/01/22,
put date 1/06/99..........................3,000
3,900 - Illinois Development Finance
Authority Revenue (Swedish
Covenant Hospital Project)
4.05%, due 8/01/25,
put date 1/07/99..........................3,900
2,000 - Jackson-Union Regional Port
District Revenue
4.05%, due 4/01/24,
put date 1/07/99..........................2,000
IOWA - 7.1%
$3,000 - Iowa Finance Authority Revenue
(Wheaton Franciscan) Ser B
4.05%, due 8/15/24,
put date 1/07/99.........................$3,000
1,000 Iowa School Corporations
Warrant Certificates
4.25%, due 1/28/99........................1,001
1,500 - Polk County Hospital Equipment
and Improvement Revenue
4.00%, due 12/01/05,
put date 1/07/99..........................1,500
KANSAS - 1.4%
1,100 - Wichita Revenue
(CSJ Health System)
5.50%, due 10/01/11,
put date 1/07/99..........................1,100
KENTUCKY - 1.3%
1,000 - Clark County Pollution Control
Revenue (Kansas City Power
and Light)
3.10%, due 10/15/14,
put date 4/15/99..........................1,000
LOUISIANA - 3.2%
1,000 - Louisiana Public Facilities
Authority Multifamily Housing
Revenue (Kingston Village
Apartments Project)
4.05%, due 12/01/13,
put date 1/07/99..........................1,000
1,500 - Louisiana Public Facilities
Authority (SCH Health System)
Revenue Ser E
4.10%, due 12/01/13,
put date 1/07/99..........................1,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-54-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of December 31, 1998
<TABLE>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
MARYLAND - 3.0%
$2,000 - Howard County Multifamily
Housing Revenue (Sherwood
Crossing Ltd. Partnership)
3.80%, due 6/01/08,
put date 6/01/99.........................$2,000
300 - Montgomery County Industrial
Development Revenue
(Information Systems &
Networks)
3.50%, due 4/01/14,
put date 1/01/99............................300
MISSOURI - 5.6%
2,100 - Kansas City Industrial
Development Authority
Multifamily Housing Revenue
(Coach House II Project)
3.40%, due 12/01/15,
put date 1/01/99..........................2,100
600 - Kansas City Industrial
Development Authority
Multifamily Housing Revenue
(J.C. Nichols Co.)
3.40%, due 5/01/15,
put date 1/01/99............................600
1,600 - St. Louis Planned Industrial
Expansion Authority
Industrial Development Revenue
(Italgrani U.S.A., Inc.)
3.50%, due 6/01/03,
put date 1/01/99..........................1,600
MONTANA - 2.4%
$1,855 - Havre Industrial Development
Revenue (Safeway, Inc. Projects)
3.45%, due 6/01/06,
put date 2/01/99.........................$1,855
OKLAHOMA - 1.3%
1,000 - Oklahoma Water Resources
Board State Loan Program
Revenue
3.50%, due 9/01/23,
put date 3/01/99..........................1,000
OREGON - 1.3%
1,000 - Klamath Falls Electric Revenue
3.80%, due 5/01/23,
put date 5/03/99..........................1,000
PENNSYLVANIA - 3.4%
1,150 - Commonwealth Tax-Exempt
Mortgage Trust
3.25%, due 11/01/05,
put date 5/01/99..........................1,150
1,490 - Washington County Authority
(Higher Education Pooled
Equipment and Leasing Project)
4.05%, due 11/01/05,
put date 1/07/99..........................1,490
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-55-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of December 31, 1998
<TABLE>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
TENNESSEE - 5.0%
$3,400 - Hamilton County Industrial
Development Revenue (Komatsu
American Manufacturing Corp.)
5.50%, due 11/01/05,
put date 1/07/99.........................$3,400
500 - Knox County Industrial
Development Board Industrial
Development Revenue
(Service Merchandise)
3.50%, due 12/15/08,
put date 1/07/99............................500
TEXAS - 6.7%
910 - Harris County Housing
Finance Corp. Multifamily
Housing Revenue
(Arbor II, Ltd. Project)
3.95%, due 10/01/05,
put date 10/01/99...........................910
2,400 - Harris County Health Facilities
Development Corp. (SCH Health
Care System) Revenue Ser C
4.05%, due 7/01/23,
put date 1/07/99..........................2,400
TEXAS (CONTINUED)
$1,400 - Lone Star Airport Improvement
Authority, Inc. (American
Airlines, Inc. Project)
Revenue Series 1984 B-1
4.85%, due 12/01/14,
put date 1/01/99.........................$1,400
500 - North Central Texas Health
Facilities Development Corp.
Hospital Revenue (Presbyterian
Medical Center Project)
4.85%, due 12/01/15,
put date 1/01/99............................500
1,000 - Sabine River Industrial
Development Authority
(Northeast Texas Electric
Cooperative, Inc. Project)
3.55%, due 8/15/14,
put date 2/15/99..........................1,000
VIRGINIA - 4.0%
2,100 - Peninsula Ports Authority of
Virginia Coal Terminal Revenue
(Dominion Terminal
Associates Project) Ser C
4.85%, due 7/01/16,
put date 1/01/99..........................2,100
1,000 - Peninsula Ports Authority of
Virginia Port Facility Revenue
(CSX Transportation, Inc. Project)
3.20%, due 12/15/12,
put date 1/19/99..........................1,000
</TABLE>
-56-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO TAX-FREE MONEY MARKET FUND
As of December 31, 1998
<TABLE>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
WASHINGTON - 9.6%
$2,000 - Richland Golf Enterprise Revenue
4.00%, due 12/01/21,
put date 1/07/99........................$72,000
1,865 - Washington State Housing
Finance Commission Revenue
(Pioneer Human Services)
3.90%, due 7/01/11,
put date 1/07/99..........................1,865
1,315 - Washington State Housing
Finance Commission Revenue
(YMCA of Greater Seattle Program)
5.15%, due 7/01/11,
put date 1/01/99..........................1,315
2,225 - Washington State Housing
Finance Commission Revenue
(YMCA of Snohomish County
Program)
4.80%, due 8/01/19,
put date 1/01/99..........................2,225
WYOMING - 2.7%
2,100 - Rock Springs Industrial
Development Revenue
(Safeway, Inc. Projects)
3.65%, due 3/01/02,
put date 3/01/99..........................2,101
-------
TOTAL MUNICIPAL BONDS..................................................75,402
-------
TOTAL INVESTMENTS - 97.3%.............................................$75,402
Assets, less Other Liabilities..........................................2,055
-------
NET ASSET.............................................................$77,457
-------
-------
- -------------------------------------------------------------------------------
</TABLE>
Securities with a maturity of more than thirteen months have variable rates
and/or demand features which qualify them as short-term securities. Rates
shown are those in effect on December 31, 1998. These rates change
periodically based on specified market rate or indices.
- - If a put date is indicated, the Fund has a right to sell a specified
underlying security at an exercise price equal to the amortized cost of the
underlying security plus interest, if any, as of that date.
SEE NOTES TO FINANCIAL STATEMENTS
-57-
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM SAFECO SAFECO MANAGED
(In Thousands, Except U.S. TREASURY GNMA HIGH-YIELD BOND
Per-Share Amounts) FUND FUND BOND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at Cost $ 24,357 $41,043 $ 82,028 $ 7,792
-------- ------- ---------- --------
-------- ------- ---------- --------
Investments, at Value $ 25,425 $41,701 $ 81,458 $ 7,896
Receivables
Investment Securities Sold -- 14 -- --
Trust Shares Sold 1 277 1,289 10
Interest 321 265 1,616 75
Deferred Organization Expense -- -- -- 1
-------- ------- ---------- --------
Total Assets 25,747 42,257 84,363 7,982
LIABILITIES
Payables
Investment Securities Purchased -- -- -- 253
Trust Shares Redeemed 6 17 71 10
Dividends 39 58 175 138
Investment Advisory Fees 13 25 50 3
Organization Expense -- -- -- 1
Other 7 12 26 2
-------- ------- ---------- --------
Total Liabilities 65 112 322 407
-------- ------- ---------- --------
NET ASSETS $25,682 $42,145 $ 84,041 $ 7,575
-------- ------- ---------- --------
-------- ------- ---------- --------
NO-LOAD CLASS:
Net Assets $24,061 $42,145 $ 79,696 $ 6,757
Trust Shares Outstanding 2,240 4,371 9,072 782
-------- ------- ---------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 10.74 $ 9.64 $ 8.78 $ 8.64
-------- ------- ---------- --------
-------- ------- ---------- --------
CLASS A:
Net Assets $ 833 -- $ 2,964 $ 295
Trust Shares Outstanding 77 338 34
-------- ---------- --------
Net Asset Value and Redemption
Price Per Share $ 10.75 $ 8.78 $ 8.65
-------- ---------- --------
-------- ---------- --------
Maximum Offering Price Per Share
(Net Asset Value Plus Sales
Charge of 4.5%) $ 11.26 $ 9.19 $ 9.06
-------- ---------- --------
-------- ---------- --------
CLASS B:
Net Assets $ 788 -- $ 1,381 $ 523
Trust Shares Outstanding 73 157 61
-------- ---------- --------
Net Asset Value and Offering
Price Per Share* $ 10.74 $ 8.78 $ 8.64
-------- ---------- --------
-------- ---------- --------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-58-
<PAGE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
CALIFORNIA SAFECO WASHINGTON STATE INTERMEDIATE-TERM INSURED
TAX-FREE MUNICIPAL MUNICIPAL MUNICIPAL MUNICIPAL
INCOME FUND BOND FUND BOND FUND BOND FUND BOND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 104,127 $ 473,615 $ 7,772 $ 14,384 $ 23,489
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
$ 113,087 $ 538,185 $ 8,247 $ 15,288 $ 24,865
-- -- -- -- --
122 118 -- 8 10
1,755 8,426 124 227 368
-- -- -- -- --
---------- --------- --------- --------- ---------
114,964 546,729 8,371 15,523 25,243
-- -- -- -- --
215 1,502 1 -- 14
615 2,791 196 26 214
57 206 5 8 15
-- -- -- -- --
15 49 2 2 2
---------- --------- --------- --------- ---------
902 4,548 204 36 245
---------- --------- --------- --------- ---------
$ 114,062 $ 542,181 $ 8,167 $ 15,487 $ 24,998
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
$ 112,457 $ 539,860 $ 7,712 $ 15,487 $ 24,998
8,830 37,373 715 1,405 2,206
---------- --------- --------- --------- ---------
$ 12.74 $ 14.45 $ 10.78 $ 11.02 $ 11.33
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
$ 678 $ 946 $ 209 -- --
53 65 19
---------- --------- ---------
$ 12.74 $ 14.45 $ 10.79
---------- --------- ---------
---------- --------- ---------
$ 13.34 $ 15.13 $ 11.30
---------- --------- ---------
---------- --------- ---------
$ 927 $ 1,375 $ 246 -- --
73 95 23
---------- --------- ---------
$ 12.73 $ 14.43 $ 10.80
---------- --------- ---------
---------- --------- ---------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-59-
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
SAFECO
SAFECO TAX-FREE
(In Thousands, Except MONEY MARKET MONEY MARKET
Per-Share Amounts) FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at Cost $ 225,687 $ 75,402
---------- --------
---------- --------
Investments, at Value $ 225,687 $ 75,402
Receivables
Investment Securities Sold -- 2,000
Trust Shares Sold 2,603 126
Interest 1,830 463
Deferred Organization Expense -- --
---------- --------
Total Assets 230,120 77,991
LIABILITIES
Payables
Investment Securities Purchased -- --
Trust Shares Redeemed 2,555 386
Dividends 29 16
Investment Advisory Fees 105 36
Organization Expense -- --
Other 102 96
---------- --------
Total Liabilities 2,791 534
---------- --------
NET ASSETS $ 227,329 $ 77,457
---------- --------
---------- --------
NO-LOAD CLASS:
Net Assets $ 224,473 $ 77,457
Trust Shares Outstanding 224,473 77,457
---------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 1.00 $ 1.00
---------- --------
---------- --------
CLASS A:
Net Assets $ 2,186 --
Trust Shares Outstanding 2,186
----------
Net Asset Value, Offering Price, and Redemption
Price Per Share $ 1.00
----------
----------
CLASS B:
Net Assets $ 670 --
Trust Shares Outstanding 670
----------
Net Asset Value, Offering
Price, and Redemption Price Per Share $ 1.00
----------
----------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-60-
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM SAFECO SAFECO MANAGED
U.S. TREASURY GNMA HIGH-YIELD BOND
(In Thousands) FUND FUND BOND FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,231 $ 2,706 $ 7,005 $ 353
Dividends -- -- 104 --
--------- -------- -------- -------
Total Investment Income 1,231 2,706 7,109 353
EXPENSES
Investment Advisory 109 259 507 30
Transfer Agent 37 65 124 4
Shareholder Service-Class A 1 -- 4 1
-Class B 2 -- 2 1
Distribution-Class B 5 -- 5 2
Legal and Auditing 15 15 15 15
Custodian 2 5 6 2
Reports to Shareholders 6 11 20 2
Trustees 5 5 6 5
Interest -- 2 19 --
Amortization of
Organization Expenses -- -- -- 6
Other 4 11 18 7
--------- -------- -------- -------
Total Expenses 186 373 726 75
--------- -------- -------- -------
NET INVESTMENT INCOME 1,045 2,333 6,383 278
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss)
on Investments 4 986 (57) 237
Net Change in Unrealized
Appreciation (Depreciation) 648 (717) (2,997) (56)
--------- -------- -------- -------
NET GAIN (LOSS) ON INVESTMENTS 652 269 (3,054) 181
--------- -------- -------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,697 $ 2,602 $ 3,329 $ 459
--------- -------- -------- -------
--------- -------- -------- -------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-61-
<PAGE>
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
SAFECO SAFECO
California SAFECO Washington State
Tax-Free Municipal Municipal
(In Thousands) Income Fund Bond Fund Bond Fund
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 5,668 $ 28,591 $ 447
Dividends -- -- --
-------- -------- -------
Total Investment Income 5,668 28,591 447
EXPENSES
Investment Advisory 587 2,164 53
Transfer Agent 81 325 3
Shareholder Services-Class A 1 2 1
-Class B 2 2 1
Distribution-Class B 6 6 2
Legal and Auditing 17 24 16
Custodian 8 26 2
Reports to Shareholders 9 38 1
Trustees 6 8 5
Interest 9 -- --
Amortization of
Organization Expenses -- -- --
Other 14 55 4
-------- -------- -------
Total Expenses 740 2,650 88
-------- -------- -------
NET INVESTMENT INCOME 4,928 25,941 359
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS
Net Realized Gain
on Investments 3,251 8,894 246
Net Change in Unrealized
Appreciation (Depreciation) (1,778) (3,043) (133)
-------- -------- -------
NET GAIN ON INVESTMENTS 1,473 5,851 113
-------- -------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,401 $ 31,792 $ 472
-------- -------- -------
-------- -------- -------
- ------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-62-
<PAGE>
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO
Intermediate-Term Insured SAFECO Tax-Free
Municipal Municipal Money Market Money Market
Bond Fund Fund Fund Fund
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 732 $ 1,062 $ 11,571 $ 2,855
-- -- -- --
--------- --------- ---------- ---------
732 1,062 11,571 2,855
80 135 1,013 392
11 16 482 62
-- -- -- --
-- -- -- --
-- -- -- --
15 15 17 16
2 3 16 7
1 2 30 6
5 5 6 5
1 -- 2 1
1 1 -- --
3 4 18 4
--------- --------- ---------- ---------
119 181 1,584 493
--------- --------- ---------- ---------
613 881 9,987 2,362
11 430 -- --
132 (121) -- --
--------- -------- ---------- ---------
143 309 -- --
--------- -------- ---------- ---------
$ 756 $ 1,190 $ 9,987 $ 2,362
--------- --------- --------- ---------
--------- --------- --------- ---------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-63-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND SAFECO GNMA FUND
------------------------- -----------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 1,045 $ 886 $ 2,333 $ 2,425
Net Realized Gain (Loss) on
Investments 4 (57) 986 411
Net Change in Unrealized
Appreciation (Depreciation) 648 416 (717) 437
------- ------- ------- -------
Net Change in Net Assets
Resulting from Operations 1,697 1,245 2,602 3,273
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (992) (844) (2,333) (2,425)
Class A (26) (30) -- --
Class B (27) (12) -- --
Net Realized Gain on Investments
No-Load Class -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
------- ------- ------- -------
TOTAL (1,045) (886) (2,333) (2,425)
NET TRUST SHARE TRANSACTIONS
No-Load Class 7,754 674 3,704 (2,219)
Class A 450 (346) -- --
Class B 331 202 -- --
------- ------- ------- ------
TOTAL 8,535 530 3,704 (2,219)
------- ------- ------- -------
TOTAL CHANGE IN NET ASSETS 9,187 889 3,973 (1,371)
NET ASSETS AT BEGINNING OF PERIOD 16,495 15,606 38,172 39,543
------- ------- ------- -------
NET ASSETS AT END OF PERIOD $25,682 $16,495 $42,145 $38,172
------- ------- ------- -------
------- ------- ------- -------
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-64-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
SAFECO
SAFECO SAFECO CALIFORNIA SAFECO
HIGH-YIELD MANAGED TAX-FREE MUNICIPAL
BOND FUND BOND FUND INCOME FUND BOND FUND
- ---------------------- ---------------------- ---------------------- -----------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6,383 $ 5,097 $ 278 $ 227 $ 4,928 $ 3,764 $ 25,941 $ 25,677
(57) 954 237 (21) $ 3,251 367 8,894 6,632
(2,997) 1,194 (56) 163 (1,778) 4,618 (3,043) 17,239
- -------- ------- ------ ------ -------- ------- -------- --------
3,329 7,245 459 369 6,401 8,749 31,792 49,548
(6,205) (5,073) (262) (216) (4,878) (3,744) (25,876) (25,652)
(127) (11) (9) (7) (24) (9) (33) (17)
(51) (13) (7) (4) (26) (11) (32) (8)
-- -- (192) -- (3,208) (360) (8,852) (5,345)
-- -- (8) -- (19) (2) (16) (4)
-- -- (15) -- (27) (2) (22) (4)
- -------- ------- ------ ------ -------- ------- -------- --------
(6,383) (5,097) (493) (227) (8,182) (4,128) (34,831) (31,030)
11,564 18,821 2,153 280 25,835 11,712 39,941 3,479
2,818 155 151 2 232 326 557 66
1,041 250 412 14 436 374 884 382
- -------- ------- ------ ------ -------- ------- -------- --------
15,423 19,226 2,716 296 26,503 12,412 41,382 3,927
- -------- ------- ------ ------ -------- ------- -------- --------
12,369 21,374 2,682 438 24,722 17,033 38,343 22,445
71,672 50,298 4,893 4,455 89,340 72,307 503,838 481,393
------- ------- ------ ------ -------- ------- -------- --------
$84,041 $71,672 $7,575 $4,893 $114,062 $89,340 $542,181 $503,838
- -------- ------- ------ ------ -------- ------- -------- --------
- -------- ------- ------ ------ -------- ------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-65-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO WASHINGTON STATE SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------ -------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
(In Thousands) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 359 $ 349 $ 613 $ 609
Net Realized Gain (Loss) on
Investments 246 (9) 11 15
Net Change in Unrealized
Appreciation (Depreciation) (133) 321 132 388
------ ------ ------- -------
Net Change in Net Assets
Resulting from Operations 472 661 756 1,012
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income
No-Load Class (343) (326) (613) (609)
Class A (9) (15) -- --
Class B (7) (8) -- --
Net Realized Gain on Investments
No-Load Class (224) -- (6) --
Class A (6) -- -- --
Class B (7) -- -- --
------ ------ ------ ------
TOTAL (596) (349) (619) (609)
NET TRUST SHARE TRANSACTIONS
No-Load Class 541 440 1,570 (795)
Class A (149) 11 -- --
Class B 12 19 -- --
------ ------ ------ ------
TOTAL 404 470 1,570 (795)
------ ------ ------ ------
TOTAL CHANGE IN NET ASSETS 280 782 1,707 (392)
NET ASSETS AT BEGINNING OF PERIOD 7,887 7,105 13,780 14,172
------ ------ ------ ------
NET ASSETS AT END OF PERIOD $8,167 $7,887 $15,487 $13,780
------ ------ ------- -------
------ ------ ------- -------
- ---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-66-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
SAFECO INSURED SAFECO SAFECO TAX-FREE
MUNICIPAL BOND FUND MONEY MARKET FUND MONEY MARKET FUND
- ---------------------- ---------------------- ----------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1998 1997 1998 1997 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 881 $ 665 $ 9,987 $ 8,347 $ 2,362 $ 2,278
430 70 -- -- -- --
(121) 766 -- -- -- --
- ------- ------- -------- -------- ------- -------
1,190 1,501 9,987 8,347 2,362 2,278
(881) (665) (9,906) (8,324) (2,362) (2,278)
-- -- (57) (15) -- --
-- -- (24) (8) -- --
(427) -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
- ------- ------- -------- -------- ------- -------
(1,308) (665) (9,987) (8,347) (2,362) (2,278)
8,600 2,493 47,850 15,267 2,020 2,273
-- -- 1,649 243 -- --
-- -- 256 307 -- --
- ------- ------- -------- -------- ------- -------
8,600 2,493 49,755 15,817 2,020 2,273
- ------- ------- -------- -------- ------- -------
8,482 3,329 49,755 15,817 2,020 2,273
16,516 13,187 177,574 161,757 75,437 73,164
- ------- ------- -------- -------- ------- -------
$24,998 $16,516 $227,329 $177,574 $77,457 $75,437
- ------- ------- -------- -------- ------- -------
- ------- ------- -------- -------- ------- -------
- -------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-67-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
This financial report is on 11 of the SAFECO Mutual Funds. Each Fund is
a series of one of the following trusts listed below. Each trust is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company.
SAFECO Taxable Bond Trust
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
SAFECO Tax-Exempt Bond Trust
SAFECO California Tax-Free Income Fund
SAFECO Municipal Bond Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Money Market Trust
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
Effective September 30, 1996, the Intermediate-Term U.S. Treasury,
Managed Bond, California Tax-Free Income, Municipal Bond, Washington State
Municipal Bond, and Money Market Funds began issuing two new classes of
shares -- Class A and Class B shares (collectively, "Advisor Classes").
Effective January 31, 1997, the High-Yield Bond Fund also began issuing
Advisor Classes. Unlike the no-load class of shares (which are sold directly
to the shareholder with no associated sales and 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, all of the
above-mentioned funds (except the Money Market Fund) adopted a Plan of
Distribution ("the Plan"). Under the Plan, each Advisor Class pays a service
fee to the distributor, SAFECO Securities Corp., for selling its shares at
the annual rate of .25% of the average daily net assets of the Advisor Class.
Class B shares also pay the distributor a distribution fee at the annual rate
of .75% of the average daily net assets of the Class B shares.
-68-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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 Funds in the preparation of their financial
statements. The policies are in conformity with generally accepted accounting
principles.
SECURITY VALUATION. Bonds are stated on the basis of valuations provided
by a pricing service, which uses information with respect to transactions in
bonds, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities in determining value.
When valuations are not readily available, securities are valued at fair
value as determined in good faith by the Board of Trustees. Investments in
equity securities are valued at the last reported sales price unless there
are no transactions, in which case they are valued at the last reported bid
price. Investments in other mutual funds are valued at net asset value.
Investments in the money market funds consist of short-term securities
maturing within thirteen months from the date of purchase. Securities in the
Tax-Free Money Market Fund with maturities of more than thirteen months have
floating rates and/or demand features which qualify them as short-term
securities. Short-term securities purchased at par are valued at cost. All
other securities in the money market funds are valued at amortized cost,
which approximates market value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. The cost of the portfolios is the same for financial statement and
Federal income tax purposes. Realized gains and losses from security
transactions are determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin
earning interest on the settlement date. As commitments to purchase
when-issued securities become fixed, the Funds segregate liquid assets in an
amount equal to the total obligation.
INCOME RECOGNITION. Bond premiums and original issue discounts are
amortized to either call or maturity dates. In the Tax-Exempt Bond Trust,
market discount on bonds purchased after April 30, 1993 is recorded as
taxable income at disposition. Interest is accrued on bonds and temporary
investments
-69-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
daily. The Managed Bond Fund has elected to amortize premiums on securities
purchased above par value. The funds in the Taxable Bond Trust have not
elected to amortize premiums on securities purchased above par value.
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. Each Fund intends to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all taxable income to their
shareholders in a manner which results in no tax to the Funds. Therefore, no
Federal income or excise tax provision is required. In addition, the
Tax-Exempt Bond Trust and the Tax-Free Money Market Fund intend to satisfy
conditions which will enable them to pay dividends which, for shareholders,
are exempt from Federal income taxes. Any portion of dividends representing
net short-term capital gains, however, is not exempt and is treated as
taxable dividends for Federal income tax purposes.
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 during the year ended
December 31, 1998.
<TABLE>
<CAPTION>
(In Thousands) Purchases* Sales**
- -------------------------------------------------------------------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $ 6,847 $ 519
GNMA Fund 42,758 38,830
High-Yield Bond Fund 58,682 47,905
Managed Bond Fund 10,173 7,691
California Tax-Free Income Fund 58,237 35,723
Municipal Bond Fund 141,849 105,293
Washington State Municipal Bond Fund 4,417 4,690
Intermediate-Term Municipal Bond Fund 982 606
Insured Municipal Bond Fund 13,855 5,298
</TABLE>
* Excludes short-term securities. Purchases include $6,847, $0, $0, and
$5,904 of U.S. Government securities in the Intermediate-Term U.S.
Treasury, GNMA, High-Yield, and Managed Bond Funds, respectively.
** Excludes short-term securities. Sales include $519, $0, $0, and $4,734
of U.S. Government securities in the Intermediate-Term U.S. Treasury,
GNMA, High-Yield, and Managed Bond Funds, respectively.
-70-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. TRUST SHARE TRANSACTIONS
Following is a summary of transactions in Fund shares and the related
amount (in thousands):
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
--------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
------------------ ------------------ ------------------
FOR THE YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,506 1,013 50 23 76 26
Reinvestments 53 40 2 2 2 1
Redemptions (837) (987) (10) (59) (47) (7)
------- ------- ------- ------- ------- -------
NET CHANGE 722 66 42 (34) 31 20
======= ======= ======= ======= ======= =======
AMOUNTS:
Sales $16,057 $10,245 $ 539 $ 228 $ 799 $ 264
Reinvestments 561 405 20 22 23 8
Redemptions (8,864) (9,976) (109) (596) (491) (70)
------- ------- ------- ------- ------- -------
NET CHANGE $ 7,754 $ 674 $ 450 $ (346) $ 331 $ 202
======= ======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO GNMA FUND SAFECO HIGH-YIELD BOND FUND
------------------ -------------------------------------------------------------
NO-LOAD NO-LOAD CLASS A CLASS B
------------------ ------------------ ------------------- ----------------
FOR THE YEAR ENDED
DECEMBER 31 FOR THE YEAR ENDED DECEMBER 31
------------------- -------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 1,678 872 9,834 12,582 319 17 138 27
Reinvestments 174 181 466 361 11 -- 5 1
Redemptions (1,469) (1,290) (9,014) (10,838) (21) -- (25) (1)
------- ------- ------- ------- ------- ------- ------- -------
NET CHANGE 383 (237) 1,286 2,105 309 17 118 27
======= ======= ======= ======= ======= ======= ======= =======
AMOUNTS:
Sales $16,177 $ 8,219 $88,489 $111,904 $2,907 $ 154 $ 1,223 $ 250
Reinvestments 1,677 1,705 4,195 3,231 94 1 44 6
Redemptions (14,150) (12,143) (81,120) (96,314) (183) -- $ (226) (6)
------- ------- ------- -------- ------- ------- ------- -------
NET CHANGE $ 3,704 $(2,219) $11,564 $ 18,821 $2,818 $ 155 $ 1,041 $ 250
======= ======= ======= ======== ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
-71-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO MANAGED BOND FUND
------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
------------------------- ------------------------- ----------------------
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 329 426 31 -- 48 14
Reinvestments 18 18 1 -- 2 --
Redemptions (103) (410) (15) -- (3) (12)
------- ------- ------- ------- ------- -------
NET CHANGE 244 34 17 -- 47 2
======= ======= ======= ======= ======= =======
AMOUNTS:
Sales $ 2,905 $ 3,587 $ 271 $ -- $ 420 $ 116
Reinvestments 157 150 10 2 15 --
Redemptions (909) (3,457) (130) -- $ (23) (102)
------- ------- ------- ------- ------- -------
NET CHANGE $ 2,153 $ 280 $ 151 $ 2 $ 412 $ 14
======= ======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE INCOME FUND
------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
------------------------- ------------------------ ---------------------
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 4,348 2,478 28 25 41 31
Reinvestments 494 231 2 -- 3 --
Redemptions (2,846) (1,772) (12) -- (10) (1)
------- ------- ------- ------- ------- -------
NET CHANGE 1,996 937 18 25 34 30
======= ======= ======= ======= ======= =======
AMOUNTS:
Sales $56,554 $30,780 $ 366 $ 324 $ 522 $ 376
Reinvestments 6,359 2,862 25 2 39 3
Redemptions (37,078) (21,930) (159) -- $ (125) (5)
------- ------- ------- ------- ------- -------
NET CHANGE $25,835 $11,712 $ 232 $ 326 $ 436 $ 374
======= ======= ======= ======= ======= =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-72-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND
-------------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
-------------------------- --------------------------- ----------------------
FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 7,648 6,119 41 11 59 26
Reinvestments 1,598 1,399 2 1 3 1
Redemptions (6,515) (7,278) (4) (8) (1) --
--------- --------- --------- --------- --------- ---------
NET CHANGE 2,731 240 39 4 61 27
========= ======== ========= ========= ========= =========
AMOUNTS:
Sales $ 111,887 $ 86,342 $ 596 $ 159 $ 859 $ 377
Reinvestments 23,242 19,883 26 15 41 5
Redemptions (95,188) (102,746) (65) (108) $ (16) --
--------- --------- --------- --------- --------- ---------
NET CHANGE $ 39,941 $ 3,479 $ 557 $ 66 $ 884 $ 382
========= ========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
-----------------------------------------------------------------------------
NO-LOAD CLASS A CLASS B
----------------------- -------------------------- ----------------------
FOR THE YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 284 599 1 -- -- 2
Reinvestments 13 6 1 1 1 --
Redemptions (247) (563) (15) -- -- --
------- ------- ------- ------- ------- -------
NET CHANGE 50 42 (13) 1 1 2
======= ======= ======= ======= ======= =======
AMOUNTS:
Sales $ 3,139 $ 6,398 $ 7 $ -- $ 3 $ 15
Reinvestments 137 63 7 11 9 4
Redemptions (2,735) (6,021) (163) -- -- --
------- ------- ------- ------- ------- -------
NET CHANGE $ 541 $ 440 $ (149) $ 11 $ 12 $ 19
======= ======= ======= ======= ======= =======
- --------------------------------------------------------------------------------------------------------
</TABLE>
-73-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. TRUST SHARE TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------------ ------------------------------
NO-LOAD NO-LOAD
------------------------------ ------------------------------
FOR THE YEAR ENDED DECEMBER 31 FOR THE YEAR ENDED DECEMBER 31
------------------------------ ------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES:
Sales 316 204 1,357 1,204
Reinvestments 31 29 59 23
Redemptions (204) (307) (665) (1,000)
---------- ---------- ---------- ----------
NET CHANGE 143 (74) 751 227
========== ========== ========== ==========
AMOUNTS:
Sales $ 3,457 $ 2,179 $ 15,554 $ 13,174
Reinvestments 345 312 676 247
Redemptions (2,232) $ (3,286) (7,630) (10,928)
---------- ---------- ---------- ----------
NET CHANGE $ 1,570 $ (795) $ 8,600 $ 2,493
========== ========== ========== ==========
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO TAX-FREE
MONEY MARKET
SAFECO MONEY MARKET FUND FUND
------------------------------------------------------------------------------ ---------------------
NO-LOAD CLASS A CLASS B NO-LOAD
------------------------ --------------------- ----------------------- ---------------------
FOR THE YEAR ENDED
FOR THE YEAR ENDED DECEMBER 31 DECEMBER 31
------------------------------------------------------------------------------ ---------------------
1998 1997 1998 1997 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHARES:
Sales 491,508 321,481 3,057 944 1,672 469 75,307 64,208
Reinvestments 9,260 7,782 51 9 17 3 2,153 2,055
Redemptions (452,918) (313,996) (1,459) (710) (1,433) (165) (75,440) (63,990)
-------- -------- -------- -------- -------- -------- -------- --------
NET CHANGE 47,850 15,267 1,649 243 256 307 2,020 2,273
======== ======== ======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $491,508 $321,481 $ 3,057 $ 944 $ 1,672 $ 469 $ 75,307 $ 64,208
Reinvestments 9,260 7,782 51 9 17 3 2,153 2,055
Redemptions (452,918) (313,996) (1,459) (710) (1,433) (165) (75,440) (63,990)
-------- -------- -------- -------- -------- -------- -------- --------
NET CHANGE $ 47,850 $ 15,267 $ 1,649 $ 243 $ 256 $ 307 $ 2,020 $ 2,273
======== ======== ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-74-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. COMPONENTS OF NET ASSETS
At December 31, 1998, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO
INTERMEDIATE-TERM SAFECO SAFECO
U.S. TREASURY GNMA HIGH-YIELD
(In Thousands) FUND FUND BOND FUND
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 1,109 $ 669 $ 1,624
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value (41) (11) (2,194)
-------- -------- --------
NET UNREALIZED APPRECIATION/(DEPRECIATION) 1,068 658 (570)
ACCUMULATED NET REALIZED (LOSS) ON
INVESTMENT TRANSACTIONS (249)* (1,584)* (396)*
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 24,863 43,071 85,007
-------- -------- --------
NET ASSETS AT DECEMBER 31, 1998 $ 25,682 $ 42,145 $ 84,041
======== ======== ========
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO
SAFECO CALIFORNIA SAFECO
MANAGED TAX-FREE MUNICIPAL
(In Thousands) BOND FUND INCOME FUND BOND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 116 $ 9,125 $ 65,045
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value (12) (165) (475)
-------- -------- --------
NET UNREALIZED APPRECIATION 104 8,960 64,570
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 7,471 105,102 477,611
-------- -------- --------
NET ASSETS AT DECEMBER 31, 1998 $ 7,575 $114,062 $542,181
======== ======== ========
- ----------------------------------------------------------------------------------------------------
</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>
AMOUNTS EXPIRATION DATES
------- ----------------
<S> <C> <C>
Intermediate-Term U.S. Treasury Fund $ 249 2001-2005
GNMA Fund 1,584 2001-2003
High-Yield Bond Fund 396 2004-2006
</TABLE>
-75-
<PAGE>
NOTES TO FINANCIAL STATEMENTS
5. COMPONENTS OF NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
SAFECO SAFECO
WASHINGTON STATE INTERMEDIATE-TERM SAFECO
MUNICIPAL MUNICIPAL INSURED MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ 476 $ 906 $ 1,417
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value (1) (2) (41)
-------- -------- --------
NET UNREALIZED APPRECIATION 475 904 1,376
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 7,692 14,583 23,622
-------- -------- --------
NET ASSETS AT DECEMBER 31, 1998 $ 8,167 $ 15,487 $ 24,998
======== ======== ========
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO
SAFECO TAX-FREE
MONEY MARKET MONEY MARKET
(In Thousands) FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aggregate Gross Unrealized Appreciation
on Investments in Which There Is an
Excess of Value Over Identified Cost $ -- $ --
Aggregate Gross Unrealized Depreciation
on Investments in Which There Is an
Excess of Identified Cost Over Value -- --
-------- --------
NET UNREALIZED APPRECIATION -- --
PAID IN CAPITAL (PAR VALUE $.001,
UNLIMITED SHARES AUTHORIZED) 227,329 77,457
-------- --------
NET ASSETS AT DECEMBER 31, 1998 $227,329 $ 77,457
======== ========
- --------------------------------------------------------------------------------------------------------
</TABLE>
-76-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
6. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company receives
investment advisory fees from the Funds. These fees are based on a
percentage of each day's net assets, which, on an annual basis, are as
follows:
<TABLE>
<S> <C>
INTERMEDIATE-TERM U.S. TREASURY FUND: GNMA & HIGH-YIELD BOND FUNDS:
First $250 million .55% First $250 million .65%
Next $250 million .45 Next $250 million .55
Next $250 million .35 Next $250 million .45
Over $750 million .25 Over $750 million .35
MANAGED BOND FUND: MUNICIPAL & CALIFORNIA FUNDS:
First $100 million .50% First $100 million .55%
Next $150 million .40 Next $150 million .45
Over $250 million .35 Next $250 million .35
Over $500 million .25
INTERMEDIATE-TERM MUNICIPAL FUND: INSURED & WASHINGTON FUNDS:
First $250 million .55% First $250 million .65%
Next $250 million .45 Next $250 million .55
Next $250 million .35 Next $250 million .45
Over $750 million .25 Over $750 million .35
MONEY MARKET FUND: TAX-FREE MONEY MARKET FUND:
First $250 million .50% First $100 million .50%
Next $250 million .40 Next $150 million .40
Next $250 million .30 Next $250 million .30
Over $750 million .25 Over $500 million .20
</TABLE>
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 line of credit arrangements with certain financial institutions.
Under these arrangements, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
-77-
<PAGE>
===============================================================================
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
AFFILIATE OWNERSHIP. At December 31, 1998, SAFECO Insurance Company of
America owned 500,000 shares (or 21%) of the Intermediate-Term U.S. Treasury
Fund, 502,372 shares (or 67%) of the Washington Fund, 397,434 (or 28%) of the
Intermediate-Term Municipal Fund, and 605,644 (or 28%) of the Insured Fund.
SAFECO Asset Management Company owned 452,103 shares (or 52%) of the Managed
Bond Fund.
DEFERRED ORGANIZATION EXPENSES. Costs related to the organization of the
Managed Bond Fund have been deferred and are being amortized to operations
over a period of sixty months. These costs were advanced by the affiliates
and are being reimbursed by the Fund over the same period.
DEALER CONCESSIONS. SAFECO Securities, Inc. retained the following amounts
in dealer commissions from sales of Class A Shares during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
COMMISSIONS
RETAINED
- ---------------------------------------------------------------------
<S> <C>
Intermediate-Term U.S. Treasury Fund $1,496
High-Yield Bond Fund 9,068
Managed Bond Fund 1,217
California Tax-Free Income Fund 1,937
Municipal Bond Fund 1,774
Washington State Municipal Bond Fund 5
- ---------------------------------------------------------------------
</TABLE>
-78-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 SEPTEMBER 30
------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.57 0.58 0.16 0.54 0.55 0.52
Net Realized and Unrealized
Gain (Loss) on Investments 0.40 0.23 0.01 (0.14) 0.50 (1.00)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.97 0.81 0.17 0.40 1.05 (0.48)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.57) (0.58) (0.16) (0.54) (0.55) (0.52)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.74 $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74
======== ======== ======== ======== ======== ========
TOTAL RETURN 9.61% 8.29% 1.68%* 4.00% 11.07% (4.56%)
NET ASSETS AT END OF PERIOD (000's) $ 25,682 $ 15,698 $ 14,679 $ 14,668 $ 13,774 $ 13,367
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.90% 0.92% 0.85%**+ 1.01% 0.96% 0.90%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.38% 5.74% 6.30%** 5.30% 5.51% 5.08%
PORTFOLIO TURNOVER RATE 2.83% 82.36% 125.42%** 294.25% 124.90% 75.46%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Excluding the reimbursements, the
annualized ratio of expenses to average net assets for the period ended
December 31, 1996, would have been 1.07%.
-79-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GNMA FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 SEPTEMBER 30
------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05 $ 10.03
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.57 0.60 0.15 0.60 0.60 0.60
Net Realized and Unrealized
Gain (Loss) on Investments 0.07 0.21 0.10 (0.19) 0.40 (0.98)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.64 0.81 0.25 0.41 1.00 (0.38)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.57) (0.60) (0.15) (0.60) (0.60) (0.60)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 9.64 $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05
======== ======== ======== ======== ======== ========
TOTAL RETURN 6.84% 8.97% 2.71%* 4.48% 11.49% (3.91%)
NET ASSETS AT END OF PERIOD (000's) $ 42,145 $ 38,172 $ 39,543 $ 39,703 $ 44,055 $ 46,176
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.94% 0.93% 1.01%** 1.03% 1.01% 0.95%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.90% 6.40% 6.43%** 6.42% 6.55% 6.26%
PORTFOLIO TURNOVER RATE 104.63% 82.70% 51.06%** 47.45% 131.24% 55.12%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-80-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO HIGH-YIELD BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
THREE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 SEPTEMBER 30
------------------------------------------------------------------------------
1998 1997 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.74 0.77 0.19 0.78 0.79 0.82
Net Realized and Unrealized
Gain (Loss) on Investments (0.35) 0.31 0.03 0.11 0.13 (0.67)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.39 1.08 0.22 0.89 0.92 0.15
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.74) (0.77) (0.19) (0.78) (0.79) (0.82)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 8.78 $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55
======== ======== ======== ======== ======== ========
TOTAL RETURN 4.45% 12.79% 2.50%* 10.79% 11.43% 1.61%
NET ASSETS AT END OF PERIOD (000's) $ 84,041 $ 71,058 $ 50,298 $ 47,880 $ 39,178 $ 27,212
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.92% 0.91% 0.90%** 0.94% 1.01% 1.03%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 8.26% 8.58% 8.56%** 8.99% 9.28% 9.26%
PORTFOLIO TURNOVER RATE 64.22% 85.06% 35.01%** 92.65% 38.03% 63.02%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-81-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MANAGED BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 8.60 $ 8.35 $ 8.77 $ 8.15 $ 9.08
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.42 0.42 0.41 0.44 0.27
Net Realized and Unrealized
Gain (Loss) on Investments 0.29 0.25 (0.42) 0.94 (0.93)
-------- -------- -------- -------- --------
Total from Investment Operations 0.71 0.67 (0.01) 1.38 (0.66)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.42) (0.42) (0.41) (0.44) (0.27)
Distributions from
Realized Gains (0.25) -- -- (0.32) --
-------- -------- -------- -------- --------
Total Distributions (0.67) (0.42) (0.41) (0.76) (0.27)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 8.64 $ 8.60 $ 8.35 $ 8.77 $ 8.15
======== ======== ======== ======== ========
TOTAL RETURN 8.43% 8.23% 0.02% 17.35% (3.01%)#
NET ASSETS AT END OF PERIOD (000's) $ 7,575 $ 4,627 $ 4,215 $ 4,497 $ 4,627
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.16% 1.15% 1.27% 1.16% 1.37%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.79% 4.98% 4.86% 5.14% 4.47%
PORTFOLIO TURNOVER RATE 132.76% 176.50% 136.29% 78.78% 129.56%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
# Total return from February 28, 1994 (initial public offering) to December
31, 1994; not annualized.
-82-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
--------------------------------------------------------------------
1998 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.93 $ 12.22 $ 11.86 $ 11.54 $ 11.51
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.60 0.60 0.47 0.62 0.63
Net Realized and Unrealized
Gain on Investments 0.18 0.76 0.39 0.40 0.13
-------- -------- -------- -------- --------
Total from Investment Operations 0.78 1.36 0.86 1.02 0.76
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.60) (0.60) (0.47) (0.62) (0.63)
Distributions from
Realized Gains (0.37) (0.05) (0.03) (0.08) (0.10)
-------- -------- -------- -------- --------
Total Distributions (0.97) (0.65) (0.50) (0.70) (0.73)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 12.74 $ 12.93 $ 12.22 $ 11.86 $ 11.54
======== ======== ======== ======== ========
TOTAL RETURN 6.19% 11.55% 7.42%* 8.87% 7.01%
NET ASSETS AT END OF PERIOD (000's) $114,062 $ 88,379 $ 72,084 $ 70,546 $ 64,058
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.68% 0.68% 0.69%** 0.68% 0.70%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.60% 4.88% 5.21%** 5.12% 5.65%
PORTFOLIO TURNOVER RATE 38.78% 9.83% 10.52%** 16.25% 44.10%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-83-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
---------------------------------------------------------------------
1998 1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 14.52 $ 13.98 $ 13.69 $ 13.36 $ 13.27
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.73 0.75 0.57 0.76 0.77
Net Realized and Unrealized
Gain on Investments 0.17 0.70 0.29 0.33 0.12
-------- -------- -------- -------- --------
Total from Investment Operations 0.90 1.45 0.86 1.09 0.89
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.73) (0.75) (0.57) (0.76) (0.77)
Distributions from
Realized Gains (0.24) (0.16) -- -- (0.03)
-------- -------- -------- -------- --------
Total Distributions (0.97) (0.91) (0.57) (0.76) (0.80)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 14.45 $ 14.52 $ 13.98 $ 13.69 $ 13.36
======== ======== ======== ======== ========
TOTAL RETURN 6.35% 10.68% 6.42%* 8.23% 7.10%
NET ASSETS AT END OF PERIOD (000's) $542,181 $502,946 $480,970 $480,643 $472,569
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.51% 0.51% 0.53%** 0.54% 0.56%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.01% 5.31% 5.53%** 5.47% 5.96%
PORTFOLIO TURNOVER RATE 20.80% 13.52% 6.66%** 12.60% 26.96%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-84-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
-------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.95 $ 10.53 $ 10.34 $ 10.10 $ 9.91
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.50 0.50 0.37 0.50 0.49
Net Realized and Unrealized
Gain on Investments 0.15 0.42 0.20 0.27 0.19
-------- -------- -------- -------- --------
Total from Investment Operations 0.65 0.92 0.57 0.77 0.68
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.50) (0.50) (0.37) (0.50) (0.49)
Distributions from
Realized Gains (0.32) -- (0.01) (0.03) --
-------- -------- -------- -------- --------
Total Distributions (0.82) (0.50) (0.38) (0.53) (0.49)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.78 $ 10.95 $ 10.53 $ 10.34 $ 10.10
======== ======== ======== ======== ========
TOTAL RETURN 5.99% 8.94% 5.61%* 7.73% 7.13%
NET ASSETS AT END OF PERIOD (000's) $ 8,167 $ 7,288 $ 6,558 $ 6,489 $ 5,953
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.03% 1.02% 1.10%** 1.07% 1.09%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.50% 4.68% 4.78%** 4.78% 5.06%
PORTFOLIO TURNOVER RATE 33.18% 11.67% 15.96%** 20.86% 9.23%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-85-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
---------------------------------------------------------------------
1998 1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.92 $ 10.61 $ 10.49 $ 10.17 $ 10.13
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.47 0.35 0.45 0.45
Net Realized and Unrealized
Gain (Loss) on Investments 0.10 0.31 0.12 0.32 0.04
-------- -------- -------- -------- --------
Total from Investment Operations 0.57 0.78 0.47 0.77 0.49
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.47) (0.47) (0.35) (0.45) (0.45)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 11.02 $ 10.92 $ 10.61 $ 10.49 $ 10.17
======== ======== ======== ======== ========
TOTAL RETURN 5.33% 7.50% 4.53%* 7.63% 4.97%
NET ASSETS AT END OF PERIOD (000's) $ 15,487 $ 13,780 $ 14,172 $ 14,981 $ 13,762
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.83% 0.83% 0.89%** 0.84% 0.85%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.25% 4.37% 4.40%** 4.29% 4.46%
PORTFOLIO TURNOVER RATE 4.29% 10.52% 12.81%** 9.12% 4.27%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-86-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
--------------------------------------------------------------------
1998 1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.36 $ 10.74 $ 10.46 $ 10.05 $ 9.73
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.49 0.50 0.37 0.48 0.48
Net Realized and Unrealized
Gain on Investments 0.17 0.62 0.28 0.41 0.32
-------- -------- -------- -------- --------
Total from Investment Operations 0.66 1.12 0.65 0.89 0.80
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.49) (0.50) (0.37) (0.48) (0.48)
Distributions from
Realized Gains (0.20) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (0.69) (0.50) (0.37) (0.48) (0.48)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 11.33 $ 11.36 $ 10.74 $ 10.46 $ 10.05
======== ======== ======== ======== ========
TOTAL RETURN 5.90% 10.70% 6.31%* 8.95% 8.58%
NET ASSETS AT END OF PERIOD (000's) $ 24,998 $ 16,516 $ 13,187 $ 11,758 $ 8,163
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.88% 0.92% 1.00%** 0.99% 1.08%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.29% 4.56% 4.66%** 4.53% 5.11%
PORTFOLIO TURNOVER RATE 27.30% 13.02% 14.86%** 3.71% 14.76%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-87-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MONEY MARKET FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
---------------------------------------------------------------------
1998 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05 0.05 0.03 0.05 0.04
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.05) (0.05) (0.03) (0.05) (0.04)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =========
TOTAL RETURN 5.08% 4.93% 3.54%* 5.15% 4.20%
NET ASSETS AT END OF PERIOD (000's) $227,329 $176,623 $161,356 $165,122 $ 171,958
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.79% 0.78% 0.81%** 0.78% 0.78%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.97% 4.82% 4.66%** 5.04% 4.21%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-88-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO TAX-FREE MONEY MARKET FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
NINE-
MONTH
PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED
ENDED DEC. 31 DEC. 31 MARCH 31
---------------------------------------------------------------------
1998 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.03 0.02 0.03 0.03
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.03) (0.03) (0.02) (0.03) (0.03)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
TOTAL RETURN 3.07% 3.12% 2.29%* 3.44% 2.84%
NET ASSETS AT END OF PERIOD (000's) $ 77,457 $ 75,437 $ 73,164 $ 79,702 $ 77,320
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.63% 0.63% 0.65%** 0.65% 0.64%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 3.04% 3.11% 3.03%** 3.40% 2.79%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Not annualized.
** Annualized.
-89-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the SAFECO Taxable Bond Trust,
SAFECO Managed Bond Trust, SAFECO Tax-Exempt Bond Trust, and SAFECO
Money Market Trust
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments in securities, of the SAFECO Taxable
Bond Trust (comprising, respectively, the SAFECO Intermediate-Term U.S.
Treasury Fund, the SAFECO GNMA Fund, and the SAFECO High-Yield Bond Fund),
the SAFECO Managed Bond Trust (comprising the SAFECO Managed Bond Fund), the
SAFECO Tax-Exempt Bond Trust (comprising, respectively, the SAFECO California
Tax-Free Income Fund, the SAFECO Municipal Bond Fund, the SAFECO Washington
State Municipal Bond Fund, the SAFECO Intermediate-Term Municipal Bond Fund,
and the SAFECO Insured Municipal Bond Fund), and the SAFECO Money Market
Trust (comprising, respectively, the SAFECO Money Market Fund and SAFECO
Tax-Free Money Market Fund) as of December 31, 1998, and the related
statements of operations, the statements of changes in net assets, and the
financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence
with the custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the respective funds constituting the SAFECO Taxable Bond
Trust, the SAFECO Managed Bond Trust, the SAFECO Tax-Exempt Bond Trust, and
the SAFECO Money Market Trust at December 31, 1998, the results of their
operations, the changes in their net assets, and financial highlights for
each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
February 5, 1999
-90-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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.
-91-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES
-92-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES
-93-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES
-94-
<PAGE>
SAFECO FIXED-INCOME 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
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 997 2/99
[LOGO] Printed on Recycled Paper.
This report must be preceded or accompanied by a current prospectus.
- -Registered Trademark- A registered trademark of SAFECO Corporation.
