<PAGE>
June 30, 1997
[LOGO]
Semiannual Report
Tax-Exempt Bond Funds
No-Load Shares
--------------
<TABLE>
<S> <C>
SAFECO Municipal Bond Fund............................................. 3
SAFECO California Tax-Free Income Fund................................. 10
SAFECO Insured Municipal Bond Fund..................................... 14
SAFECO Washington State Municipal Bond Fund............................ 19
SAFECO Intermediate-Term Municipal Bond Fund........................... 23
</TABLE>
[LOGO OF SAFECO MUTUAL FUNDS]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Report from the Fund Manager
June 30, 1997
[PICTURE APPEARS HERE]
STEPHEN C. BAUER
OVERVIEW-MUNICIPAL, INSURED, AND CALIFORNIA FUNDS
The first half of 1997 was particularly uneventful for the munici-
pal bond markets. As measured by the Bond Buyer 40 Bond Index, long-
term municipal yields stayed within a narrow range, ending the period
slightly lower than where they began. Yields began the period at 5.78%
on January 2, 1997 and ended at 5.69% on June 30, 1997. They ranged
from a high of 6.01% on April 14 to a low of 5.58% on June 20.
Stable interest rates and contained inflation are the major factors hold-
ing the market in a narrow, quiet range. In fact, falling long-term rates have
caused the yield curve to flatten, diminishing the difference in the yield be-
tween shorter and longer-term bonds.
Meanwhile, low supply, strong demand (especially from high yield funds)
and price cutting by bond insurers has diminished the differences in yield be-
tween high and low credit quality bonds.
It's been a difficult market in which to add value. There has been no bad
news to scare people into selling at fire sale prices. And the continued low
supply means there are no big imbalances to take advantage of.
My techniques of increasing yield--lowering credit quality, giving up call
protection, and extending maturities--have become increasingly difficult to
execute in recent weeks. Quality differentials have narrowed so that a swap
from Aaa to Baa now increases yield only 18 to 20 basis points instead of 25 to
30 as was common several months ago. Flattening of the yield curve (the
difference in yield between various maturities) has reduced the attractiveness
of extending maturities. While the spread between bonds with 10-year calls and
those with six-year calls is still attractive, we have few 10-year-call holdings
that we can use in that kind of swap.
I think it will take a market correction to reverse the narrowing spreads
in maturity and credit quality. Until that happens my swapping activity will
be low. In the meantime I am going to pursue the possibilities of using more
premium bonds in the Funds to add yield.
Looking ahead, I don't see a market correction, I see continued stability.
It's hold and clip the coupons time. But really, income and stability are why
people should buy bonds anyway.
- 2 -
<PAGE>
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- --------------------------------------------------------------------------------
SAFECO MUNICIPAL BOND FUND
The SAFECO Municipal Bond Fund came on strong in the second quarter, to
return 3.04% for the six months, slightly above the average return of 2.95% for
all general municipal bond funds according to Lipper Analytical Services. For
the 12 months ended June 30, 1997 the Fund was well into the top quartile of
comparable funds with a return of 8.70% compared to the Lipper average of
7.81%.
The Fund's above average performance was not enough to beat the Lehman
Brothers long municipal bond index which returned 9.73% for the year. But then
it's very difficult for an unleveraged bond fund to outperform an index in a
rising market because the index is a "portfolio on paper" with no cash, no call
features and no transaction expenses.
Your Fund does best when yields are falling and prices are rising due
primarily to three factors: Number one, the Fund stays fully invested. Two, it
has a relatively long average maturity. And three, it has a high concentration
of deep discount bonds which perform well in bull markets because of excellent
call protection.
[PERFORMANCE OVERVIEW GRAPH HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
for the period ended June 30, 1997
<S> <C>
1 Year 8.70%
5 Year 6.88%
10 Year 8.40%
</TABLE>
<TABLE>
<CAPTION>
Muni Shearson
------- --------
<S> <C> <C>
Jun 30, 87 10000 10000
Jul 31, 87 10086 10092
Aug 31, 87 10110 10137
Sep 30, 87 9663 9723
Oct 31, 87 9687 9723
Nov 30, 87 9972 10034
Dec 31, 87 10147 10164
Jan 31, 88 10627 10570
Feb 28, 88 10749 10694
Mar 31, 88 10539 10541
Apr 30, 88 10618 10625
May 31, 88 10587 10636
Jun 30, 88 10802 10843
Jul 31, 88 10857 10916
Aug 31, 88 10913 10959
Sep 30, 88 11157 11207
Oct 31, 88 11464 11462
Nov 30, 88 11330 11339
Dec 31, 88 11555 11536
Jan 31, 89 11822 11808
Feb 28, 89 11645 11642
Mar 31, 89 11645 11652
Apr 30, 89 11918 11994
May 31, 89 12141 12272
Jun 30, 89 12294 12458
Jul 31, 89 12420 12623
Aug 31, 89 12311 12431
Sep 30, 89 12300 12393
Oct 31, 89 12420 12557
Nov 30, 89 12643 12824
Dec 31, 89 12720 12919
Jan 31, 90 12572 12788
Feb 28, 90 12717 12932
Mar 31, 90 12699 12945
Apr 30, 90 12504 12787
May 31, 90 12899 13148
Jun 30, 90 13019 13277
Jul 31, 90 13269 13512
Aug 31, 90 12923 13190
Sep 30, 90 12898 13170
Oct 31, 90 13145 13448
Nov 30, 90 13510 13789
Dec 31, 90 13566 13850
Jan 31, 91 13781 14036
Feb 28, 91 13841 14134
Mar 31, 91 13858 14168
Apr 30, 91 14090 14388
May 31, 91 14232 14557
Jun 30, 91 14183 14530
Jul 31, 91 14408 14754
Aug 31, 91 14628 14966
Sep 30, 91 14862 15183
Oct 31, 91 15020 15342
Nov 30, 91 14972 15361
Dec 31, 91 15436 15727
Jan 31, 92 15302 15717
Feb 28, 92 15341 15742
Mar 31, 92 15322 15782
Apr 30, 92 15467 15932
May 31, 92 15728 16165
Jun 30, 92 16068 16478
Jul 31, 92 16686 17082
Aug 31, 92 16344 16853
Sep 30, 92 16376 16928
Oct 31, 92 16019 16645
Nov 30, 92 16510 17114
Dec 31, 92 16787 17336
Jan 31, 93 16950 17499
Feb 28, 93 17683 18313
Mar 31, 93 17406 18092
Apr 30, 93 17644 18340
May 31, 93 17746 18492
Jun 30, 93 18110 18839
Jul 31, 93 18040 18858
Aug 31, 93 18520 19341
Sep 30, 93 18727 19610
Oct 31, 93 18778 19647
Nov 30, 93 18541 19409
Dec 31, 93 18912 19910
Jan 31, 94 19141 20145
Feb 28, 94 18575 19478
Mar 31, 94 17631 18315
Apr 30, 94 17648 18456
May 31, 94 17860 18672
Jun 30, 94 17663 18448
Jul 31, 94 18069 18922
Aug 31, 94 18082 18962
Sep 30, 94 17636 18522
Oct 31, 94 17258 17954
Nov 30, 94 16904 17480
Dec 31, 94 17352 18100
Jan 31, 95 17990 18896
Feb 28, 95 18746 19666
Mar 31, 95 18883 19902
Apr 30, 95 19731 19893
May 31, 95 19731 20740
Jun 30, 95 19309 20357
Jul 31, 95 19402 20462
Aug 31, 95 19652 20750
Sep 30, 95 19798 20913
Oct 31, 95 20213 21419
Nov 30, 95 20773 21972
Dec 31, 95 21079 22314
Jan 31, 96 21147 22410
Feb 28, 96 20914 22137
Mar 31, 96 20436 21732
Apr 30, 96 20283 21645
May 31, 96 20316 21655
Jun 30, 96 20615 21989
Jul 31, 96 20868 22207
Aug 31, 96 20794 22178
Sep 30, 96 21214 22670
Oct 31, 96 21464 22947
Nov 30, 96 21943 23440
Dec 31, 96 21749 23299
Jan 31, 97 21644 23253
Feb 28, 97 21869 23504
Mar 31, 97 21495 23097
Apr 30, 97 21767 23370
May 31, 97 22132 23823
Jun 30, 97 22410 24128
</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.
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER (Continued)
All of the activity in the Municipal Bond fund centered around one theme:
increase yield. In general, I increased yield by extending maturities and low-
ering credit quality. However, I had one amazing trade in which I picked up
yield, improved credit and extended call protection by selling Puerto Rico
Highway (for a ridiculously high price) and buying Valdez Alaska Marine Termi-
nal.
/s/ Stephen C. Bauer
Stephen C. Bauer
Portfolio Manager
- --------------------------------------------------------------------------------
Steve 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. 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)..... 5.16%
WEIGHTED
AVERAGE
MATURITY..23.8 YEARS
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation Corridor Agency.......................... 4.6%
Illinois Educational Facilities Authority.................................. 3.6
Austin Combined Utility System............................................. 3.3
Alaska Housing Finance Corp. .............................................. 3.2
East Chicago (IN) Elementary School
Building Corp. ........................................................... 2.6
</TABLE>
S&P Credit Ratings Distributions
As a Percentage of Net Assets
<TABLE>
<S> <C>
AAA 36
AA 21
A 27
BBB 8
Not Rated 7
Cash & Other 1
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California................................................................. 22%
Washington.................................................................. 13
Illinois..................................................................... 7
Texas........................................................................ 7
New York..................................................................... 7
</TABLE>
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Municipal Bond Fund
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
BONDS - 99.0%
ALABAMA - 0.5%
$ 1,310 Board of Trustees Alabama Agriculture and Mechanical University
Revenue
5.50%, due 11/01/20 [MBIA]*................................. $ 1,288
1,000 Citronelle Industrial Development Board Pollution Control Revenue
8.00%, due 12/01/12........................................... 1,098
ALASKA - 4.3%
Alaska Housing Finance Corp. Veterans Mortgage Program
640 6.50%, due 6/01/31.............................................. 650
17,000 5.00%, due 12/01/18.......................................... 15,267
5,000 City of Valdez, Alaska Marine Terminal Revenue Refunding Bonds (BP
Pipelines (Alaska) Inc. Project) Series 1993B
5.50%, due 10/01/28........................................... 4,716
ARIZONA - 2.6%
Phoenix Civic Improvement Corp. Wastewater System Lease Revenue
4,220 5.00%, due 7/01/18 [MBIA]..................................... 3,934
9,800 4.75%, due 7/01/23 [MBIA]..................................... 8,474
CALIFORNIA - 21.9%
1,500 Foothill/Eastern Transportation Corridor Agency Toll Road Revenue
5.00%, due 1/01/35............................................ 1,289
1,995 Los Angeles County Sanitation District Financing Authority Revenue
(Capital Projects)
5.25%, due 10/01/19........................................... 1,880
2,500 Los Angeles County Certificates of Participation (Disney Parking
Project)
5.50%, due 9/01/21............................................ 2,372
13,000 Los Angeles Department of Water and Power Electric Plant Revenue
5.25%, due 11/15/26.......................................... 12,048
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
Los Angeles Wastewater System Revenue
$ 1,280 4.70%, due 11/01/17 [FGIC].................................. $ 1,130
5,000 4.70%, due 11/01/19 [FGIC].................................... 4,378
2,200 Metropolitan Water District of Southern California Waterworks
Revenue
5.75%, due 3/01/14............................................ 2,222
5,250 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09............................................ 5,062
Pittsburg Redevelopment Agency Los Medanos Community Development
Project Tax Allocation
11,995 5.80%, due 8/01/34 [FSA]..................................... 12,224
6,400 4.625%, due 8/01/21 [AMBAC]................................... 5,512
1,000 Redding Joint Powers Financing
Solid Waste and Corporation Yard Revenue
5.00%, due 1/01/23.............................................. 885
8,750 Sacramento County Sanitation District Finance Authority
4.75%, due 12/01/23........................................... 7,589
5,000 Sacramento Municipal Utility District Electric Revenue
6.00%, due 2/01/15............................................ 5,001
3,600 San Francisco Airport Commission
Sewer Revenue
6.00%, due 5/01/25 [FGIC]..................................... 3,712
1,700 San Francisco Redevelopment Financing Authority
Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC]..................................... 1,507
8,010 San Joaquin County Public Facilities Financing Corp.
Certificates of Participation Capital Facilities Project
4.75%, due 11/15/19 [MBIA].................................... 7,017
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$25,000 San Joaquin Hills Transportation Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33.......................................... $21,770
Southern California Public Power Authority Power Project Revenue
(Multiple Projects)
4,085 ^ 5.50%, DUE 7/01/20 (PREREFUNDED 7/01/00 @ 100).............. 4,240
3,165 5.50%, due 7/01/20............................................ 3,057
2,200 Southern California Public Power Authority Power Project Revenue
(Palo Verde Project)
5.00%, due 7/01/17............................................ 2,010
COLORADO - 0.3%
1,000 Colorado Housing Finance Authority Multi-Family Mortgage Revenue
8.30%, due 10/01/23........................................... 1,104
250 Colorado Housing Finance Authority Single Family Residential Housing
Revenue
8.75%, due 9/01/17.............................................. 258
DELAWARE - 0.8%
4,500 Delaware River and Bay
Authority Revenue
4.75%, due 1/01/24 [MBIA]..................................... 3,941
FLORIDA - 1.9%
Florida Board of Education
General Obligation
1,000 5.00%, due 6/01/12.............................................. 966
3,000 5.00%, due 6/01/24............................................ 2,755
2,750 Mid-Bay Bridge Authority Revenue
6.10%, due 10/01/22........................................... 2,776
3,000 Orlando Utility Commission Water and Electric Revenue
5.00%, due 10/01/23........................................... 2,738
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
GEORGIA - 3.1%
$ 6,750 Atlanta Water and Sewerage Revenue
4.50%, due 1/01/18.......................................... $ 5,814
4,000 Cobb County Kennestone Hospital Authority Revenue
5.00%, due 4/01/24 [MBIA]..................................... 3,643
5,000 Municipal Electric Authority
Project One Special Obligation Fourth Crossover Series
6.50%, due 1/01/20............................................ 5,538
ILLINOIS - 7.1%
5,500 Illinois Dedicated Tax Revenue (Civic Center)
7.00%, due 12/15/10 [AMBAC]................................... 5,997
17,500 Illinois Educational Facilities Authority Adjustable Demand Revenue
(University of Chicago)
5.70%, due 12/01/25.......................................... 17,305
5,000 Metropolitan Pier and Exposition Authority McCormick Place
Convention Complex Hospitality Facilities Revenue
7.00%, due 7/01/26............................................ 5,644
4,770 University of Illinois Auxiliary Facilities System Revenue
5.75%, due 4/01/22............................................ 4,757
INDIANA - 5.5%
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).................................. 12,461
</TABLE>
SEE NOTES TO FINANCIAL STATEMENT
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
INDIANA (CONTINUED)
$ 7,715 Hammond Multi-School Building Corp. First Mortgage Revenue
6.20%, due 7/10/15.......................................... $ 8,034
6,450 Indianapolis Gas Utility System Revenue
4.00%, due 6/01/11 [FGIC]..................................... 5,620
MARYLAND - 1.9%
5,125 Baltimore Project and Revenue (Water Projects)
5.00%, due 7/01/24 [FGIC]..................................... 4,780
5,000 Maryland Health and Higher Educational Facilities Authority Revenue
(University of Maryland Medical System)
4.75%, due 7/01/23 [FGIC]..................................... 4,378
MASSACHUSETTS - 3.4%
5,140 Massachusetts Housing Finance Agency (Rental Housing and Mortgage
Revenue)
6.20%, due 7/01/38 [AMBAC].................................... 5,246
Massachusetts Water Resources Authority General Revenue
4,500 6.00%, due 4/01/20............................................ 4,518
5,000 4.75%, due 12/01/23 [MBIA].................................... 4,361
2,500 4.75%, due 12/01/23........................................... 2,150
MICHIGAN - 1.4%
5,250 Detroit Water Supply System Revenue
4.75%, due 7/01/19 [FGIC]..................................... 4,617
2,000 University of Michigan Hospital Revenue
6.375%, due 12/01/24.......................................... 2,059
MISSOURI - 1.1%
5,000 The Curators of the University of Missouri System Facilities Revenue
Bonds Series 1997
5.80%, due 11/01/27........................................... 5,049
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
NEW JERSEY - 0.4%
$ 1,465 ^ NEW JERSEY TURNPIKE AUTHORITY REVENUE
10.375%, due 1/01/03
(Escrowed to Maturity)...................................... $ 1,727
NEW MEXICO - 0.5%
2,500 Farmington Collateralized Pollution Control Revenue (Tucson Gas and
Electric Co.)
6.10%, due 1/01/08............................................ 2,476
NEW YORK - 7.1%
New York City Municipal Water Finance Authority Water and Sewer
System Revenue
2,205 6.00%, due 6/15/19 [FGIC]..................................... 2,216
2,100 5.00%, due 6/15/17 [FGIC]..................................... 1,962
New York Dormitory Authority
State University Educational Facilities Revenue
4,400 7.50%, due 5/15/11............................................ 5,157
5,250 7.50%, due 5/15/13............................................ 6,277
6,500 5.25%, due 5/15/15............................................ 6,181
1,500 5.00%, due 7/01/15............................................ 1,417
4,000 ^ NEW YORK LOCAL GOVERNMENT ASSISTANCE CORP.
7.00%, due 4/01/21
(Prerefunded 4/01/01 @ 100)................................... 4,370
6,500 New York State Urban Development Corporation Correctional Facilities
Revenue Bonds Series 6
5.375%, due 1/01/25........................................... 6,114
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal Power Agency Power System Revenue
6.00%, due 1/01/22........................................... 11,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
OKLAHOMA - 1.3%
$ 5,590 McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA]................................... $ 5,995
PENNSYLVANIA - 4.0%
5,000 Centre County University Area
Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA].................................... 4,397
6,000 ^ Pennsylvania Intergovernmental Cooperative Authority Special Tax
Revenue (City of Philadelphia)
6.80%, due 6/15/22
(Prerefunded 6/15/02 @ 100)................................... 6,618
7,415 ^ Philadelphia Water and Sewer Revenue
7.00%, due 8/01/18
(Prerefunded 8/01/01 @100).................................... 8,134
SOUTH CAROLINA - 5.5%
10,250 Charleston County Hospital Facility Revenue
5.00%, due 10/01/22 [MBIA].................................... 9,282
1,135 Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03............................................ 1,136
5,500 Pickens County and Richland County Hospital Revenue
5.75%, due 8/01/21 [AMBAC].................................... 5,502
South Carolina Public Service Authority Power Supply Revenue
1,395 5.70%, due 7/01/08............................................ 1,396
10,000 5.125%, due 1/01/32........................................... 9,122
TEXAS - 7.1%
10,000 Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA].................................. 15,876
Austin Water, Sewer and Electric Revenue
4,195 14.00%, due 11/15/01.......................................... 5,290
80 14.00%, due 11/15/01............................................. 98
75 14.00%, due 11/15/01............................................. 86
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
TEXAS (CONTINUED)
$ 2,000 City of Houston, Texas Water and Sewer System Junior Lien Revenue
Bonds, Series 1997C
5.375%, due 12/01/27 [FGIC]................................. $ 1,932
1,600 ^ Coastal Industrial Water Authority Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity)........................................ 1,637
2,260 Texas Municipal Power Agency Revenue
5.50%, due 9/01/13 [FGIC]..................................... 2,260
7,500 Waco Texas Health Facilities Development Corp. Hospital Revenue
5.00%, due 11/01/25........................................... 6,824
UTAH - 1.1%
Intermountain Power Agency Special Obligation First Crossover Series
1,900 6.00%, due 7/01/23............................................ 1,901
2,750 5.00%, due 7/01/16............................................ 2,516
1,000 ^ Salt Lake City Hospital Revenue
(IHC Hospitals)
5.00%, due 6/01/15
(Escrowed to Maturity).......................................... 961
VIRGINIA - 0.2%
1,110 ^ Richmond Metropolitan Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity)........................................ 1,129
WASHINGTON - 13.0%
7,000 CDP King County III Lease Revenue Bonds, 1997 (King Street
Center Project)
5.25%, due 6/01/26 [MBIA]..................................... 6,603
Douglas County Public Utility District #1 Wells Hydroelectric
Revenue
5,055 8.75%, due 9/01/18............................................ 6,479
2,200 8.75%, due 9/01/18............................................ 2,922
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$ 2,500 Everett School District #2 Snohomish County Unlimited Tax General
Obligation
6.20%, due 12/01/12 [MBIA].................................. $ 2,694
2,200 King County Housing Authority Pooled Housing Refunding Revenue
6.80%, due 3/01/26............................................ 2,300
1,650 King County Limited Tax General Obligation (Various Purpose)
4.75%, due 1/01/19............................................ 1,468
2,255 King County Public Hospital District #1 Hospital Facilities Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC].................................... 2,183
4,800 Lewis County Public Utility District #1 Cowlitz Falls Hydroelectric
Project Revenue
6.00%, due 10/01/24........................................... 4,803
4,000 Port of Seattle Revenue
6.00%, due 12/01/14........................................... 4,068
2,944 Seattle Housing Authority Washington Low Income Housing Revenue Mt
Zion Project
6.60%, due 8/20/38............................................ 3,147
3,000 Washington Health Care Facilities Authority Revenue (Fred Hutchinson
Cancer Research Center)
7.375%, due 1/01/18........................................... 3,273
6,350 Washington Health Care Facilities Authority Revenue (Yakima Valley
Memorial Hospital Association)
7.25%, due 1/01/21............................................ 7,030
8,500 Washington Public Power Supply System Nuclear Project #1 Revenue
6.00%, due 7/01/17............................................ 8,509
4,000 Washington Public Power Supply System Nuclear Project #2 Revenue
6.30%, due 7/01/12............................................ 4,304
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$ 2,610 Washington Public Power Supply System Nuclear Project #3 Revenue
5.50%, due 7/01/18 [AMBAC]................................ $ 2,494
WEST VIRGINIA - 0.5%
2,155 West Virginia Water Development Authority Water Development Revenue
Bonds Loan Program II Series 1995B
5.25%, due 11/01/35.......................................... 2,004
155 West Virginia Housing Development Fund Single Family Mortgage
Revenue
6.125%, due 7/01/13............................................ 155
WISCONSIN - 0.2%
1,000 Wisconsin Health and Education Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA]................................... 1,011
-----
TOTAL BONDS.......................................................... 473,481
-------
TOTAL INVESTMENTS - 99.0%............................................ 473,481
Other Assets, less Liabilities......................................... 4,727
-------
NET ASSETS.......................................................... $478,208
--------
--------
*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:
MBIA: Municipal Bond Investors
Assurance Corp. ................................................. 16.6%
FGIC: Financial Guaranty
Insurance Corp.................................................... 8.1
AMBAC: AMBAC Indemnity Corp.............................................. 5.7
FSA: Financial Security Assurance, Inc................................. 2.6
-----
33.0%
-----
-----
</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
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Report from the Fund Manager*
June 30, 1997
SAFECO CALIFORNIA TAX-FREE INCOME FUND
The California Tax-Free Fund barely beat the Lipper Analytical Services
average for California Funds for the first six months of 1997, returning 2.83%
versus 2.82%. However, for the 12 months it had a very strong 9.20% total re-
turn while the average California fund earned 8.07%. This extra 1.13% put the
SAFECO Fund 11 of 101 funds for the year ended June 30, 1997.
The Lehman Brothers Long Municipal Bond Index returned 9.73% for the year.
In fact, it's very difficult for an unleveraged bond fund to outperform an index
in a rising market. The index is a "portfolio on paper" with no cash, no call
features and no transaction expenses.
The California Fund stays fully invested and has an even longer average
maturity and much more aggressive coupon structure than its peers. For example,
on June 30 the average yield for long municipal bonds was 5.69% while the
average coupon of our portfolio was 5.16%. Because our bonds yield less, they
sell at a discount. This is an aggressive strategy because discount bonds tend
to be more volatile than bonds that trade at face value. Fortunately
* See overview on page 2
PERFORMANCE OVERVIEW -- No Load Class
<TABLE>
<CAPTION>
Average Annual Total Return
for the period ended June 30, 1997
<S> <C>
1 Year 9.20%
5 Year 7.28%
10 Year 8.37%
</TABLE>
<TABLE>
<CAPTION>
Cal Shearson
<S> <C> <C>
Jun 30, 87 10000 10000
Jul 31, 87 10076 10092
Aug 31, 87 10089 10137
Sep 30, 87 9541 9723
Oct 31, 87 9526 9723
Nov 30, 87 9917 10034
Dec 31, 87 10141 10164
Jan 31, 88 10640 10570
Feb 28, 88 10797 10694
Mar 31, 88 10480 10541
Apr 30, 88 10538 10625
May 31, 88 10446 10636
Jun 30, 88 10714 10843
Jul 31, 88 10743 10916
Aug 31, 88 10792 10959
Sep 30, 88 11045 11207
Oct 31, 88 11372 11462
Nov 30, 88 11201 11339
Dec 31, 88 11438 11536
Jan 31, 89 11712 11808
Feb 28, 89 11544 11642
Mar 31, 89 11538 11652
Apr 30, 89 11805 11994
May 31, 89 12046 12272
Jun 30, 89 12175 12458
Jul 31, 89 12315 12623
Aug 31, 89 12165 12431
Sep 30, 89 12161 12393
Oct 31, 89 12279 12557
Nov 30, 89 12498 12824
Dec 31, 89 12571 12919
Jan 31, 90 12432 12788
Feb 28, 90 12584 12932
Mar 31, 90 12561 12945
Apr 30, 90 12370 12787
May 31, 90 12749 13148
Jun 30, 90 12871 13277
Jul 31, 90 13116 13512
Aug 31, 90 12789 13190
Sep 30, 90 12771 13170
Oct 31, 90 13093 13448
Nov 30, 90 13399 13789
Dec 31, 90 13448 13850
Jan 31, 91 13652 14036
Feb 28, 91 13694 14134
Mar 31, 91 13663 14168
Apr 30, 91 13875 14388
May 31, 91 14011 14557
Jun 30, 91 13943 14530
Jul 31, 91 14157 14754
Aug 31, 91 14352 14966
Sep 30, 91 14613 15183
Oct 31, 91 14771 15342
Nov 30, 91 14688 15361
Dec 31, 91 15136 15727
Jan 31, 92 15084 15717
Feb 28, 92 15087 15742
Mar 31, 92 15089 15782
Apr 30, 92 15199 15932
May 31, 92 15429 16165
Jun 30, 92 15732 16478
Jul 31, 92 16263 17082
Aug 31, 92 15951 16853
Sep 30, 92 16066 16928
Oct 31, 92 15620 16645
Nov 30, 92 16133 17114
Dec 31, 92 16346 17336
Jan 31, 93 16516 17499
Feb 28, 93 17265 18313
Mar 31, 93 17032 18092
Apr 30, 93 17282 18340
May 31, 93 17353 18492
Jun 30, 93 17677 18839
Jul 31, 93 17654 18858
Aug 31, 93 18151 19341
Sep 30, 93 18371 19610
Oct 31, 93 18371 19647
Nov 30, 93 18086 19409
Dec 31, 93 18508 19910
Jan 31, 94 18785 20145
Feb 28, 94 18291 19478
Mar 31, 94 17368 18315
Apr 30, 94 17306 18456
May 31, 94 17467 18672
Jun 30, 94 17299 18448
Jul 31, 94 17700 18922
Aug 31, 94 17695 18962
Sep 30, 94 17246 18522
Oct 31, 94 16829 17954
Nov 30, 94 16518 17480
Dec 31, 94 16806 18100
Jan 31, 95 17578 18896
Feb 28, 95 18437 19666
Mar 31, 95 18586 19902
Apr 30, 95 18503 19893
May 31, 95 19547 20740
Jun 30, 95 18949 20357
Jul 31, 95 19034 20462
Aug 31, 95 19333 20750
Sep 30, 95 19483 20913
Oct 31, 95 20001 21419
Nov 30, 95 20735 21972
Dec 31, 95 21199 22314
Jan 31, 96 21123 22410
Feb 28, 96 20854 22137
Mar 31, 96 20235 21732
Apr 30, 96 20054 21645
May 31, 96 20073 21655
Jun 30, 96 20466 21989
Jul 31, 96 20701 22207
Aug 31, 96 20649 22178
Sep 30, 96 21144 22670
Oct 31, 96 21409 22947
Nov 30, 96 21972 23440
Dec 31, 96 21736 23299
Jan 31, 97 21506 23253
Feb 28, 97 21741 23504
Mar 31, 97 21276 23097
Apr 30, 97 21602 23370
May 31, 97 22018 23823
Jun 30, 97 22350 24128
</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.
-10-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER
for us, volatility is two-directional--swings go up as well as down.
I executed three swaps to increase the yield of the Fund. Selling East Bay
Regional Park District and buying San Bernardino County I was able to pick up
yield and gain call protection. In the other two swaps--out of Eldorado County
Public Agency Finance Authority and California Department of Water Resources
and into University of California Multi Purpose and Los Angeles Convention--I
gained yield by giving up three years of call protection. However, the bonds we
bought were deeply discounted, which goes a long way toward making up for the
nearer calldate.
/s/ Stephen C. Bauer
Stephen C. Bauer
Portfolio Manager
- --------------------------------------------------------------------------------
Steve 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. 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).................... 5.08%
WEIGHTED AVERAGE MATURITY................. 24.5 YEARS
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Lease Rental................................................................ 15%
Local General Obligation - Limited Tax...................................... 14
Electric Utilities - Combination............................................ 11
Toll Road................................................................... 11
Hospital.................................................................... 11
</TABLE>
S&P Credit Ratings Distributions
As a Percentage of Net Assets
AAA 49%
AA 6%
A 21%
BBB 11%
Not Rated 11%
Cash & Other 2%
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation Corridor Agency.......................... 6.0%
Los Angeles County Sanitation District Financing Authority................. 5.7
San Gabriel Valley School Finance Authority Revenue Unified
School District............................................................ 5.2
Pittsburg Redevelopment Agency............................................. 5.2
Foothill/Eastern Transportation
Corridor Agency........................................................... 4.9
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO California Tax-Free Income Fund
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
BONDS - 98.2%
$2,250 California Department of Water Resources Central Valley Project
Water System Revenue
4.75%, due 07/01/19 [FGIC]*.................................. $1,961
3,715 California Statewide Communities Development Authority Certificates
of Participation (Childrens Hospital of Los Angeles)
4.75%, due 6/01/21 [MBIA]..................................... 3,218
2,750 California Statewide Communities Development Authority Certificates
of Participation
(The Trustees Of The J. Paul
Getty Trust)
5.00%, due 10/01/23........................................... 2,507
20 Concord Redevelopment Agency Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18 [BIG]......................................... 21
3,750 Culver City Redevelopment Financing Authority Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC]................................... 3,225
4,195 Foothill/Eastern Transportation Corridor Agency Toll Road Revenue
5.00%, due 1/01/35............................................ 3,605
670 Inglewood Insured Hospital Revenue (Daniel Freeman Hospital)
6.75%, due 5/01/13.............................................. 715
Los Angeles Convention and Exhibition Center Authority Certificates
of Participation
1,200 ^ 9.00%, DUE 12/01/20
(Prerefunded 12/01/05 @ 100).................................. 1,571
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
$3,300 5.125%, due 8/15/21 [MBIA]................................... $3,061
4,500 Los Angeles County Sanitation District Financing Authority Revenue
(Capital Projects)
5.25%, due 10/01/19........................................... 4,241
3,800 Los Angeles Department of Water and Power Waterworks Revenue
4.75%, due 11/15/19........................................... 3,351
2,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/17 [FGIC].................................... 1,765
2,500 Northern California Power Agency Geothermal Project Revenue
5.00%, due 7/01/09............................................ 2,410
2,350 Palomar Pomerado Health System California Insured Revenue Service
4.75%, due 11/01/23 [MBIA].................................... 2,022
4,435 Pittsburg Redevelopment Agency Los Medanos Community Development
Project Tax Allocation
4.625%, due 8/01/21........................................... 3,820
Pleasanton Joint Powers Financing Authority Reassessment Revenue
1,650 6.20%, due 9/02/17............................................ 1,676
1,870 6.15%, due 9/02/12............................................ 1,939
3,900 Redding Joint Powers Financing Authority Solid Waste and Corporation
Yard Revenue
5.00%, due 1/01/23............................................ 3,450
2,000 Riverside County Certificates of Participation (Capital Projects)
6.125%, due 11/01/21.......................................... 2,035
3,000 Sacramento Municipal Utility District Electric Revenue
4.75%, due 9/01/21 [MBIA]..................................... 2,632
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of June 30, 1997 (Unaudited)
SEE NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
$2,500 San Bernardino County Certificates of Participation
5.50%, due 8/01/24........................................... $ 2,365
1,750 San Diego Public Facilities Financing Authority Sewer Revenue
5.25%, due 5/15/20............................................ 1,642
4,000 San Gabriel Valley School Finance Authority Revenue Pamona Unified
School District
5.50%, due 2/01/24............................................ 3,838
5,000 San Joaquin Hills Transportation Corridor Agency Senior Lien Toll
Road Revenue
5.00%, due 1/01/33............................................ 4,354
4,000 San Jose Redevelopment Agency
4.75%, due 8/01/22............................................ 3,434
Southern California Public Power Authority Power Project Revenue
(Multiple Projects)
2,665 . 5.50%, DUE 7/01/20
(PREREFUNDED 7/01/00 @ 100)................................... 2,766
1,335 5.50%, due 7/01/20............................................ 1,289
1,000 Southern California Public Power Authority Power Project Revenue
(Transportation Project)
4.75%, due 7/01/23.............................................. 873
940 Stanislaus Waste-to-Energy Financing Agency Solid Waste Facility
Revenue
7.625%, due 1/01/10........................................... 1,007
1,940 University of California
5.00%, due 9/01/23 [AMBAC].................................... 1,761
-------
TOTAL BONDS............................................................ 72,554
=======
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 0.3%
INVESTMENT COMPANIES:
$185 SEI Tax Exempt Trust Institutional Tax Free Portfolio......... $ 185
------
TOTAL TEMPORARY INVESTMENTS............................................... 185
------
TOTAL INVESTMENTS - 98.5%.............................................. 72,739
Other Assets, less Liabilities.......................................... 1,136
------
NET ASSETS............................................................ $73,875
=======
</TABLE>
* The provider of the guarantee of timely payment of both principal and
interest is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolios
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors
Assurance Corp. ........................................ 19.9%
AMBAC: AMBAC Indemnity Corp. .................................. 4.4
FGIC: Financial Guaranty Insured Corp. ....................... 2.4
BIG: Bond Investors Guaranty Insurance Co. .................. 0.0
----
26.7%
====
</TABLE>
. PREREFUNDED BOND ARE COLLATERALIZED BY SECURITIES (GENERALLY U.S. TREASURY
SECURITIES) HELD IN AN IRREVOCABLE TRUST IN AN AMOUNT SUFFICIENT TO PAY
INTEREST AND PRINCIPAL.
- 13 -
<PAGE>
Report from the Fund Manager*
June 30, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO INSURED MUNICIPAL BOND FUND
The Insured Fund had dramatically better performance than its peer funds
for both the six month and 12-month time periods. The six-month return for the
SAFECO Insured Muni Bond Fund was 2.96%, which ranked the Fund 3 out of 50
funds (whose average was 2.42%). For the year, your Fund returned 8.74% and was
ranked number 2 out of 48 funds (whose average was 7.19%, as reported by Lipper
Analytical Services). The Insured Fund benefited from the same strategies as
the Muni and Cal Funds: being fully invested and favoring discounted bonds.
The Lehman Brothers Long Insured Index which returned 9.38% for the 12
months ended. In a rising market, it's very difficult for an unleveraged bond
fund to outperform an index because the index is a "portfolio on paper" with no
call features, no cash and no transaction expenses.
Increasing yield in the Insured Fund is more difficult because I obviously
cannot reduce credit quality to do it. Nevertheless, I picked up 100 basis
points by selling pre-refunded bonds (bonds designated to be prepaid
* See overview on page 2
[PERFORMANCE OVERVIEW APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
for the period ended June 30, 1997
<S> <C>
1 Year 8.74%
Since inception* 5.71%
</TABLE>
<TABLE>
<CAPTION>
INS Muni Shearson
-------- --------
<S> <C> <C>
3/31/93 10000 10000
4/30/93 10039 10146
5/31/93 10080 10239
6/30/93 10311 10430
7/31/93 10217 10438
8/31/93 10556 10710
9/30/93 10716 10849
10/31/93 10720 10861
11/30/93 10482 10719
12/31/93 10764 10992
1/31/94 10908 11117
2/28/94 10453 10726
3/31/94 9780 10061
4/30/94 9828 10152
5/31/94 9946 10275
6/30/94 9781 10152
7/31/94 10133 10430
8/31/94 10086 10433
9/30/94 9769 10183
10/31/94 9482 9872
11/30/94 9267 9647
12/31/94 9642 9963
1/31/95 10042 10430
2/28/95 10584 10551
3/31/95 10619 10977
4/30/95 10543 10973
5/31/95 11163 11440
6/30/95 10845 11220
7/31/95 10878 11268
8/31/95 11039 11424
9/30/95 11115 11507
10/31/95 11420 11800
11/30/95 11800 12109
12/31/95 11992 12302
1/31/96 11984 12366
2/28/96 11850 12194
3/31/96 11569 11950
4/30/96 11470 11891
5/31/96 11481 11894
6/30/96 11645 12076
7/31/96 11795 12198
8/31/96 11750 12182
9/30/96 12046 12462
10/31/96 12138 12602
11/30/96 12456 12835
12/31/96 12299 12795
1/31/97 12152 12750
2/28/97 12280 12884
3/31/97 12051 12825
4/30/97 12262 12775
5/31/97 12484 13031
6/30/97 12683 13186
</TABLE>
*The Fund's inception was March 18, 1983. Graph and average annual return
comparison begins March 31, 1983.
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.
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER
at their earliest calldate) and reinvesting in a long-term issue. I also added
yield when I bought Cook County II at the very attractive rate of 6.08%. Final-
ly, I sold Dade County Water & Sewer and bought CDP-King County to pick up a
modest yield gain and two years of call protection.
/s/ Stephen C. Bauer
Stephen C. Bauer
Portfolio Manager
- --------------------------------------------------------------------------------
Steve 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. 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)..... 4.80%
WEIGHTED
AVERAGE
MATURITY..25.2 YEARS
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Cook County General Obligation........................................... 5.0%
CDP King County III Lease Revenue 97..................................... 4.8
Los Angeles Convention and Exhibition Center............................. 4.5
Massachusetts Housing Finance Agency (Rental Housing and Mortgage
Revenue)................................................................ 4.5
Huron Valley School District General Obligation.......................... 4.4
</TABLE>
S&P Credit Ratings Distributions
As a Percentage of Net Assets
<TABLE>
<S> <C>
AAA 100
Cash & Other 0
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California................................................................. 23%
Washington.................................................................. 18
Illinois.................................................................... 10
Pennsylvania................................................................. 9
Michigan..................................................................... 7
</TABLE>
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Insured Municipal Bond Fund
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
BONDS - 99.6%
ALABAMA - 4.3%
$600 Board of Trustee Alabama Agriculture & Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA]*...................................... $590
ALASKA - 2.2%
300 Alaska Housing Finance Corp.
Insured Mortgage Program
5.90%, due 12/01/33 [FSA]......................................... 300
CALIFORNIA - 23.1%
385 Fresno Sewer System Revenue 4.50%, due 9/01/23 [AMBAC]............ 323
665 Los Angeles Convention and Exhibition Center
Authority Certificates of Participation
5.125%, due 8/15/21 [MBIA]........................................ 617
600 Los Angeles County Sanitation District Financing Authority Revenue
(Capital Projects)
5.25%, due 10/01/19 [MBIA]........................................ 567
500 Los Angeles Department of Water and Power Electricity
Refunding Revenue
4.25%, due 11/15/14 [MBIA]........................................ 421
650 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC]........................................ 569
350 Sacramento Municipal Utility District Electric Revenue
4.75%, due 9/01/21 [MBIA]......................................... 307
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
CALIFORNIA (CONTINUED)
$250 San Diego Public Facilities Financing Authority
Sewer Revenue
5.00%, due 5/15/23 [AMBAC]....................................... $227
145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC]........................................ 130
ILLINOIS - 10.4%
Chicago General Obligation
100 5.875%, due 1/01/22 [AMBAC]....................................... 101
500 5.125%, due 1/01/25 [FGIC]........................................ 465
750 Cook County General Obligation
5.00%, due 11/15/23 [MBIA]........................................ 680
200 Illinois Health Facilities
Authority Revenue (The
Children's Memorial Hospital)
5.00%, due 8/15/22 [MBIA]......................................... 180
INDIANA - 5.0%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA]........................................ 109
250 Indiana State Office Building Commission Capitol Complex Revenue
5.25%, due 7/01/15 [AMBAC]........................................ 239
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC]........................................ 331
IOWA - 1.8%
250 Marshalltown Pollution Control Revenue (Iowa Electric Light and Power
Co. Project)
5.50%, due 11/01/23 [MBIA]........................................ 242
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 16 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
MASSACHUSETTS - 4.5%
$600 Massachusetts Housing Finance Agency (Rental Housing and Mortgage
Revenue)
6.20%, due 7/01/38 [AMBAC]....................................... $612
MICHIGAN - 6.7%
350 Detroit Water Supply System Revenue
5.00%, due 7/01/23 [FGIC]......................................... 318
600 Huron Valley School District
General Obligation
5.75%, due 5/01/22 [FGIC]......................................... 604
MINNESOTA - 2.3%
350 Minneapolis and St. Paul Housing and Redevelopment Authority
Health Care System Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC]....................................... 310
NORTH CAROLINA - 0.9%
125 North Carolina Eastern Municipal Power Agency Power System Revenue
5.50%, due 1/01/17 [FGIC]......................................... 123
PENNSYLVANIA - 9.5%
350 Montgomery County Higher Education and Health Authority Hospital
Revenue (Abington Memorial Hospital)
5.125%, due 6/01/24 [AMBAC]....................................... 323
650 Pittsburgh Water and Sewer Authority Revenue
4.75%, due 9/01/16 [FGIC]......................................... 583
445 University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA]........................................ 391
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
RHODE ISLAND - 3.4%
$500 Rhode Island Health and Education Building Corporation Higher
Education Facility Revenue
5.25%, due 9/15/23 [MBIA]........................................ $467
TEXAS - 6.1%
200 Colorado River Municipal Water District Water System Revenue
5.15%, due 1/01/21 [AMBAC]........................................ 186
250 Harris County Toll Road Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC]......................................... 243
Lower Colorado River Authority Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA]......................................... 298
10 ^ 5.625%, DUE 1/01/17 [FSA]
(Prerefunded 1/01/15 @ 100)........................................ 10
95 Sabine River Authority Pollution Control Revenue (Texas Utilities
Electric Co. Project)
6.55%, due 10/01/22 [FGIC]........................................ 103
VIRGINIA - 1.7%
250 Virginia Housing Development Authority Commonwealth
Mortgage
5.25%, due 7/01/27 [AMBAC]........................................ 237
WASHINGTON - 17.7%
700 CDP King County III Lease
Revenue 97
5.25%, due 6/01/26 [MBIA]......................................... 660
100 King County Public Hospital District #1 Hospital Facilities Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC]......................................... 97
500 Municipality of Metropolitan Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA]......................................... 531
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INSURED MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
WASHINGTON (CONTINUED)
$250 Richland Water and Sewer Improvement Revenue
5.625%, due 4/01/12 [MBIA]...................................... $254
530 Snohomish County Public Utility District #1 Electric Revenue
5.50%, due 1/01/20 [FGIC]........................................ 509
100 Washington Health Care Facilities Authority Revenue (Swedish Hospital
Medical Center)
6.30%, due 11/15/22 [AMBAC]...................................... 107
250 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA]......................................... 265
------
TOTAL BONDS........................................................... 13,629
------
TOTAL INVESTMENTS - 99.6%............................................. 13,629
Other Assets, less Liabilities............................................ 57
------
NET ASSETS........................................................... $13,686
=======
</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>
MBIA: Municipal Bond Investors
Assurance Corp. ....................................... 44.2%
FGIC: Financial Guaranty Insurance Corp. .................... 28.2
AMBAC: AMBAC Indemnity Corp. ................................. 21.2
FSA: Financial Security Assurance, Inc. .................... 6.4
-----
100.0%
=====
</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.
- 18 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Report from the Fund Manager
June 30, 1997
[PICTURE APPEARS HERE]
Beverly R. Denny
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
In the six-month period and the year ended June 30, 1997, the SAFECO
Washington State Municipal Bond Fund returned 2.68% for the period and
7.51% for the year. Single state bond funds, excluding California and
New York, averaged 7.28% for the year, according to Lipper Analytical
Services, while the Merrill Lynch Long Municipal Bond Index reported
3.56% for the period and 9.73% for the year.
While the Fund underperformed during the first quarter when rates climbed,
it outperformed competitors (other Washington State municipal bond funds)
during the second quarter as interest rates fell. This is due to the Funds
longer duration, which gives the Fund greater sensitivity to interest rates.
During the first quarter, I purchased two issues:
Washington State general obligation (GO) bonds with 5.25% coupon maturing in
2019 and King County Public Hospital District for Valley Medical Center with a
5.25% coupon and 2015 maturity date. Both of these purchases were rather
unusual. I generally don't buy GO bonds or shorter maturity bonds (under 20
years) because of their "rich" trading
[PERFORMANCE OVERVIEW APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
for the period ended June 30, 1997
<S> <C>
1 Year 7.57%
Since Inception* 5.39%
</TABLE>
<TABLE>
<CAPTION>
Date Equity S&P
- ----------------------------------------------------------------------
<S> <C> <C> <C>
03/31/93 10000 10000
04/30/93 10065 10137
05/31/93 10107 10221
06/30/93 10351 10413
07/31/93 10319 10423
08/31/93 10600 10690
09/30/93 10723 10839
10/31/93 10742 10859
11/30/93 10573 10728
12/31/93 10788 11005
01/31/94 10956 11135
02/28/94 10581 10766
03/31/94 9988 10123
04/30/94 10035 10201
05/31/94 10177 10321
06/30/94 10003 10197
07/31/94 10255 10459
08/31/94 10219 10481
09/30/94 9971 10238
10/31/94 9705 9923
11/30/94 9478 9661
12/31/94 9855 10004
01/31/95 10258 10444
02/28/95 10645 10870
03/31/95 10701 11000
04/30/95 10669 10995
05/31/95 11100 11463
06/30/95 10899 11252
07/31/95 10965 11310
08/31/95 11107 11469
09/30/95 11185 11559
10/31/95 11428 11839
11/30/95 11692 12144
12/31/95 11816 12333
01/31/96 11864 12386
02/28/96 11754 12235
03/31/96 11528 12011
04/30/96 11465 11963
05/31/96 11488 11969
06/30/96 11621 12154
07/31/96 11739 12274
08/31/96 11705 12258
09/30/96 11934 12530
10/31/96 12038 12683
11/30/96 12244 12956
12/31/96 12174 12878
01/31/97 12105 12852
02/28/97 12223 12991
03/31/97 12014 12766
04/30/97 12168 12917
05/31/97 12367 13168
06/30/97 12501 13336
</TABLE>
* The Fund's inception was March 18, 1993. Graph and average annual
return comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the
Fund to a hypothetical investment in a relevent 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.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER (Continued)
prices relative to revenue bonds and longer-term bonds. But both of these bonds
appeared to be exceptionally good values.
I also completed one swap to gain greater call protection for the fund. I
bought Seattle Drain & Wastewater 5.25% of 2025, and sold the same name with a
5.75% coupon of 2022.
During the second quarter, I bought higher coupon issues such as Renton
General Obligation Bonds 5.75% of 2017 and Seattle Housing Authority Low Income
Housing 6.6% of 2038, yielding 5.85% and 6.2% respectively. Both are insured
and rated AAA.
Although attractively-priced discount bonds continue to be scarce, I remain
a value investor, buying competitively-priced, long-term bonds with a bias to-
wards discount bonds.
/s/ Beverly R. Denny
Beverly R. Denny
SAFECO Washington State Municipal Bond Fund Manager
- --------------------------------------------------------------------------------
Beverly Denny came to SAFECO from T. Rowe Price in 1991. She holds an MBA from
the University of Virginia and a B.S. in finance/ economics from Babson
College.
HIGHLIGHTS
<TABLE>
<S> <C>
CURRENT
YIELD
(30-
DAY)..... 4.78%
WEIGHTED
AVERAGE
MATURITY..22.4 YEARS
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Hospital.................................................................... 14%
Local General Obligation - Limited Tax...................................... 13
Housing - Uninsured......................................................... 11
Utilities - Water........................................................... 9
Local General Obligation - Unlimited Tax.................................... 8
</TABLE>
<TABLE>
S&P Credit Ratings Distributions
As a Percentage of Net Assets
--------------------------------
(in %)
<S> <C>
AAA 54
AA 14
A 20
Not Rated 9
Cash & Other 3
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
City of Renton Limited Tax General Obligation Series B.................... 4.7%
Snohomish County Public Utility
District #1............................................................... 4.4
Snohomish County Unlimited Tax Obligation Everett School District #2....... 4.3
Grant County Public Utility District #2.................................... 4.2
King County Housing Authority.............................................. 4.1
</TABLE>
- 20 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Washington State Municipal Bond Fund
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
BONDS - 97.2%
$350 City of Renton, Washington Limited Tax General Obligation Bonds, 1997B
5.75%, due 12/01/17 [MBIA]....................................... $355
100 City of Tacoma, Washington Sold Waste Utilities Revenue Refunding
Bonds, 1997B
5.50%, due 12/01/19 [AMBAC]........................................ 97
315 Grant County Public Utility
District #2 Wanapum Hydroelectric Revenue
6.375%, due 1/01/23............................................... 320
100 Kent Limited Tax General Obligation
5.75%, due 12/01/26 [MBIA]*....................................... 100
300 King County Housing Authority Pooled Housing Refunding Revenue
6.80%, due 3/01/26................................................ 314
250 King County Limited Tax General Obligation (Various Purposes)
4.75%, due 1/01/19................................................ 222
200 King County Public Hospital
District #1 Hospital Facilities Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC]........................................ 194
200 King County Public Hospital
District #1 Hospital Facilities Revenue (Valley Medical Center)
5.25%, due 9/01/15 [AMBAC]........................................ 193
100 King County School District #415 (Kent) Unlimited Tax General
Obligation
6.45%, due 12/01/12............................................... 107
200 Kitsap County School District #401 (Central Kitsap) Unlimited Tax
General Obligation
5.50%, due 12/01/11............................................... 202
100 Kitsap County, Sewer Revenue
5.75%, due 7/01/16 [MBIA]......................................... 102
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
$250 Klickitat County Public Utility
District #1 Electric Revenue
5.75%, due 10/01/27 [FGIC]....................................... $250
100 Lewis County Public Utility
District #1 Cowlitz Falls Hydroelectric Project Revenue
6.00%, due 10/01/24............................................... 100
100 Port of Seattle Revenue
6.00%, due 12/01/14............................................... 102
300 Renton Water and Sewer Improvement Revenue
5.375%, due 4/01/13 [MBIA]........................................ 292
175 Seattle Drainage and Wastewater Utility Improvement Revenue
5.25%, due 12/01/25 [MBIA]........................................ 165
250 Seattle Housing Authority Low Income Housing Revenue
(Mt Zion Project)
6.60%, due 8/20/38................................................ 267
200 Seattle Metro Municipality Limited General Obligation
5.65%, due 1/01/20................................................ 197
200 Seattle Metro Sewer Revenue
6.30%, due 1/01/33 [MBIA]......................................... 212
200 Seattle Water System Revenue
5.25%, due 12/01/23............................................... 188
350 Snohomish County Public Utility District #1 Generation System Revenue
5.50%, due 1/01/20 [FGIC]......................................... 336
300 Snohomish County Unlimited Tax General Obligation Everett School
District #2
6.20%, due 12/01/12 [MBIA]........................................ 323
250 Spokane Regional Solid Waste Management System Revenue
6.25%, due 12/01/11 [AMBAC]....................................... 268
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 21 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
$200 State of Washington Various Purpose General Obligation Bonds, Series
1997C
5.25%, due 1/01/19............................................... $193
250 Tacoma Water System Revenue
5.50%, due 12/01/13............................................... 250
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14................................................ 206
100 Washington Certificates of Participation (State Office Building
Project)
6.00%, due 4/01/12................................................ 101
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]........................................ 201
150 Washington Health Care Facilities Authority Revenue (Grays Harbor
Medical Center)
5.90%, due 7/01/23................................................ 151
200 Washington Health Care Facilities Authority Revenue (Northwest
Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC]....................................... 198
100 Washington Health Care Facilities Authority Revenue (Swedish Hospital
Medical Center)
6.30%, due 11/15/22 [AMBAC]....................................... 107
250 Washington Higher Education Facilities Authority Revenue and Refunding
Revenue (Pacific Lutheran University Project)
5.70%, due 11/01/26............................................... 244
120 Washington Public Power Supply System Nuclear Project #3 Revenue
5.50%, due 7/01/18 [AMBAC]........................................ 115
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
$250 Washington State Housing Finance Commission Revenue (Horizon House
Project)
6.125%, due 7/01/27 [MBIA]....................................... $256
250 Whatcom County Limited Tax General Obligation
5.75%, due 12/01/12............................................... 255
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA].......................................... 212
-----
TOTAL BONDS............................................................ 7,395
-----
TEMPORARY INVESTMENTS - 1.7%
130 Federated Tax-Exempt Money Market Fund, Inc. ..................... 130
-----
TOTAL TEMPORARY INVESTMENTS.............................................. 130
-----
TOTAL INVESTMENTS - 98.9%.............................................. 7,525
Other Assets, less Liabilities............................................ 84
-----
NET ASSETS............................................................ $7,609
------
------
*The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolios
they guarantee at period end are as follows:
MBIA: Municipal Bond Investors
Assurance Corp. ................................................. 27.1%
AMBAC: AMBAC Indemnity Corp. ........................................... 15.8
FGIC: Financial Guaranty
Insurance Corp. .................................................. 7.9
FSA: Financial Security
Assurance, Inc. .................................................. 2.9
------
53.7%
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 22 -
<PAGE>
Report from the Fund Manager
June 30, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PICTURE APPEARS HERE]
Mary V. Metastasio
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
The SAFECO Intermediate-Term Municipal Bond Fund returned 7.20% for
the year ending June 30, 1997. This compares to an average of 6.55% for
all Intermediate Municipal Debt Funds, as tracked by Lipper Analytical
Services. The Fund's return also exceeds the Lehman Brothers 7-year Mu-
nicipal Bond Index, which showed a return of 7.03% for the twelve-month
period.
In the six months since our last letter, interest rates have more or less
continued their decline, with the exception of a hiccup from late February
through late April. The value of bonds has correspondingly risen, and the
SAFECO Intermediate-Term Municipal Bond Fund has benefited from this. The Fund
performs well in this type of environment as it has a slightly longer average
maturity than many of its peers (7.5 years on June 30).
During the quarter we continued our strategy of selling shorter, lower-
yielding bonds and replacing them with longer, higher-yielding ones. We sold
three smaller positions maturing in 2003 and 2004, and added $400,000 par
value of Clark County, Washington PUD maturing in 2007. We
[PERFORMANCE OVERVIEW APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
for the period ended June 30, 1997
<S> <C>
1 Year 7.20%
Since Inception* 5.18%
</TABLE>
<TABLE>
<CAPTION>
IT Muni Shearson
- ------------------------------------------------
<S> <C> <C>
3/31/93 10000 10000
4/30/93 10044 10062
5/31/93 10062 10092
6/30/93 10222 10277
7/31/93 10204 10278
8/31/93 10414 10461
9/30/93 10575 10575
10/31/93 10627 10602
11/30/93 10535 10508
12/31/93 10719 10701
1/31/94 10846 10816
2/28/94 10576 10581
3/31/94 10240 10299
4/30/94 10285 10375
5/31/94 10363 10427
6/30/94 10327 10408
7/31/94 10454 10555
8/31/94 10527 10610
9/30/94 10339 10509
10/31/94 10152 10403
11/30/94 9932 10251
12/31/94 10117 10407
1/31/95 10347 10601
2/28/95 10625 10840
3/31/95 10749 10953
4/30/95 10797 10982
5/31/95 11106 11274
6/30/95 11060 11265
7/31/95 11186 11408
8/31/95 11301 11543
9/30/95 11341 11587
10/31/95 11470 11688
11/30/95 11587 11816
12/31/95 11656 11879
1/31/96 11776 11994
2/28/96 11762 11953
3/31/96 11570 11837
4/30/96 11548 11816
5/31/96 11513 11798
6/30/96 11563 11889
7/31/96 11709 11988
8/31/96 11728 11994
9/30/96 11817 12102
10/31/96 11951 12233
11/30/96 12140 12437
12/31/96 12093 12399
1/31/97 12114 12444
2/28/97 12216 12547
3/31/97 12065 12386
4/30/97 12098 12450
5/31/97 12268 12607
6/30/97 12396 12728
</TABLE>
* The Fund's inception was March 18, 1993. Graph and average annual
return comparison begins March 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the
Fund to a hypothetical investment in a relevent 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.
-23-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT FROM THE FUND MANAGER (Continued)
picked up quality as well as yield, as the issue was insured.
Interest rates have not only fallen in recent months, the relationship
between different points on the yield curve has changed as well. The curve has
flattened, and the spread between a generic seven-year Aa general obligation
bond and its 30-year cousin has narrowed from 94 basis points at the end of
1996 to 81 basis points on June 30. In other words, the reward for extending an
additional 23 years on the yield curve is about 4/5 of a percent.
Although we certainly cannot predict the future, it seems that there is
some value to be found in the intermediate portion of the tax-exempt market. I
will continue to manage the Fund with an eye to maximizing that value.
/s/ Mary V. Metastasio
Mary V. Metastasio
SAFECO Intermediate-Term Municipal Bond Fund Manager
- --------------------------------------------------------------------------------
Mary 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.
HIGHLIGHTS
<TABLE>
<S> <C>
CURRENT YIELD (30-DAY)..... 4.27%
WEIGHTED AVERAGE MATURITY.. 7.5 YEARS
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency #1 Catawba Electric Revenue.......... 5.5%
New York State Housing Finance Agency Health Facilities Revenue............ 5.5
Mississippi Hospital Equipment & Facilities Authority...................... 4.5
Trinity River Authority (TX)............................................... 4.5
Oklahoma Industries Authority Health Facilities............................ 4.4
</TABLE>
S&P CREDIT RATINGS DISTRIBUTIONS
AS A PERCENTAGE OF NET ASSETS
<TABLE>
<S> <C>
AAA 55%
AA 11
A 18
BBB 9
B 3
NOT RATED 3
CASH & OTHER 1
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Washington................................................................. 15%
Illinois................................................................... 12
Texas...................................................................... 11
New York................................................................... 10
California................................................................. 9
</TABLE>
- 24 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Intermediate-Term
Municipal Bond Fund
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
<C> <S>
BONDS - 98.8%
ALASKA - 2.0%
$250 Anchorage Hospital Revenue
(Sisters of Providence)
6.75%, due 10/01/01............................................... $269
CALIFORNIA - 8.7%
235 Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
5.80%, due 9/02/02................................................. 243
425 Sacramento Municipal
Utility District Electric Revenue
5.50%, due 2/01/11................................................. 431
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04................................................ 525
CONNECTICUT - 4.0%
100 Connecticut Housing Finance Authority Housing Mortgage
Finance Program
5.40%, due 5/15/03................................................. 102
400 East Haven Connecticut
General Obligation
6.50%, due 9/01/05 [FGIC].......................................... 445
DISTRICT OF COLUMBIA - 3.3%
District of Columbia General Obligation
150 5.75%, due 6/01/03................................................. 153
300 5.20%, due 6/01/03................................................. 297
GEORGIA - 2.9%
Georgia Municipal Electric
Authority General
Power Revenue
100 5.75%, due 1/01/03................................................. 104
300 4.75%, due 1/01/04................................................. 294
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
ILLINOIS - 11.7%
$100 Illinois Health Facilities
Authority Revenue
(Brokaw-Mennonite Association)
5.60%, due 8/15/01 [FGIC]........................................ $104
300 Illinois Health Facilities
Authority Revenue
(Masonic Medical Center)
5.20%, due 10/01/03............................................... 303
500 Joliet Waterworks and Sewerage Revenue
7.00%, due 1/01/05 [FGIC]......................................... 568
Metropolitan Pier and Exposition Authority (McCormick Place Expansion
Project)
100 5.90%, due 6/15/03................................................ 106
500 5.50%, due 6/15/03 [MBIA]......................................... 521
INDIANA - 3.8%
200 Hammond Multi-School
Building Corp.
First Mortgage (Lake County)
5.50%, due 1/15/03................................................ 209
100 Indiana Bond Bank State Revolving Fund Program
5.90%, due 2/01/03................................................ 106
100 Indianapolis Local Public Improvement Bond Bank
Transportation Revenue
5.80%, due 7/01/03................................................ 106
100 Pike Township School
Building Corp.
First Mortgage Revenue
5.70%, due 2/01/01................................................ 103
KENTUCKY - 3.8%
500 Kentucky State Property and Buildings Commission Revenue
5.50%, due 9/01/04................................................ 523
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 25 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
<C> <S>
LOUISIANA - 1.5%
$100 Louisiana Correctional
Facilities Corp.
Lease Revenue
5.55%, due 12/15/02 [FSA]......................................... $105
100 Louisiana Public Facilities
Authority Student Loan Revenue
6.20%, due 3/01/01................................................. 104
MASSACHUSETTS - 3.0%
400 Massachusetts Water
Resources Authority
General Revenue
5.25%, due 12/01/08................................................ 407
MISSISSIPPI - 4.5%
600 Mississippi Hospital Equipment
and Facilities Authority
Revenue (Mississippi Baptist Medical Center)
5.40%, due 5/01/04 [MBIA].......................................... 621
NEW JERSEY - 0.8%
100 New Jersey Housing & Mortgage Finance Agency
Housing Revenue
6.00%, due 11/01/02................................................ 104
NEW YORK - 9.9%
100 Metropolitan Transportation Authority Transit Facilities
Service Contract Revenue
5.375%, due 7/01/02................................................ 102
400 New York City Municipal Water Finance Authority
5.00%, due 6/15/03................................................. 405
100 New York Dormitory Authority
State University Educational Facilities Revenue
5.75%, due 5/15/01................................................. 104
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
<C> <S>
NEW YORK (CONTINUED)
$700 NYS HFA Health Facility
6.375%, due 11/01/04.............................................. $752
NORTH CAROLINA - 7.0%
210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02................................................. 214
800 North Carolina Municipal
Power Agency
#1 Catawba Electric Revenue
4.10%, due 1/01/05 [AMBAC]......................................... 753
OKLAHOMA - 4.4%
600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health System, St. Louis, Inc.)
5.20%, due 6/01/05................................................. 608
PENNSYLVANIA - 1.8%
250 Philadelphia Water and
Wastewater Revenue
5.00%, due 6/15/02................................................. 250
TEXAS - 10.6%
250 City of Austin Combined Utility Systems Revenue
Refunding Bonds Series 1993
5.25%, due 11/15/06................................................ 265
100 Coastal Bend Health Facility Development Corp.
Health Services Revenue
(Incarnate Word)
5.70%, due 1/01/03 [AMBAC]......................................... 105
100 Houston Sewer System Junior
Lien Revenue
5.75%, due 12/01/02................................................ 105
350 Socorro Independent
School District
Unlimited Tax General Obligation
5.80%, due 2/15/11................................................. 362
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of June 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- --------------------------------------------------------------------------------
<C> <S>
NEW YORK (CONTINUED)
$600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC] ........................................$612
WASHINGTON - 15.2%
400 Clark County Washington Public Utility District #001
Generating Systems Revenue
6.00%, due 1/01/07 [FGIC].......................................... 432
500 Snohomish & Island Counties WA
School Dist. No. 401 (Stanwood) General Obligation
5.90%, due 12/15/11 [MBIA]......................................... 521
500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC]..................................... $ 529
100 Washington Health Care Facilities Authority Revenue
(Empire Health Service, Spokane)
5.50%, due 11/01/03 [MBIA]......................................... 104
Washington Public Power Supply System
Nuclear Project #2 Revenue
200 5.30%, due 7/01/02................................................. 204
300 4.80%, due 7/01/04................................................. 295
-------
TOTAL BONDS............................................................ 13,575
-------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -------------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - .02%
INVESTMENT COMPANIES:
22 Federated Tax-Exempt Money Market Fund, Inc.......................... $22
-------
TOTAL TEMPORARY INVESTMENTS............................................... 22
-------
TOTAL INVESTMENTS - 99.0%............................................. 13,597
Other Assets, less Liabilities........................................... 144
-------
NET ASSETS............................................................$13,741
-------
-------
*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:
FGIC: Financial Guaranty
Insurance Corp. ................................................. 15.3%
MBIA: Municipal Bond Investors
Assurance Corp. ................................................. 13.0
AMBAC: AMBAC Indemnity Corp. ........................................... 10.8
FSA: Financial Security
Assurance, Inc. .................................................. 0.8
------
39.9%
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
(In Thousands, Except Per-Share Amounts) BOND FUND BOND FUND
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at Cost $ 13,186 $ 12,869
======== ========
Investments, at Value $ 13,597 $ 13,629
Cash -- --
Receivables
Trust Shares Sold -- --
Interest 212 219
Deferred Organization Expense 3 3
-------- --------
Total Assets 13,812 13,851
LIABILITIES
Payables
Dividends 52 55
Investment Advisory Fees 6 8
Organization Expense 3 3
Notes Payable -- 91
Other 10 8
-------- --------
Total Liabilities 71 165
-------- --------
NET ASSETS $ 13,741 $ 13,686
======== ========
NO-LOAD CLASS:
Net Assets $ 13,741 $ 13,686
Trust Shares Outstanding 1,292 1,267
-------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 10.64 $ 10.80
======== ========
CLASS A:
Net Assets -- --
Trust Shares Outstanding
Net Asset Value and Redemption Price Per Share
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4.5%)
CLASS B:
Net Assets -- --
Trust Shares Outstanding
Net Asset Value and Offering Price Per Share*
</TABLE>
- --------------------------------------------------------------------------------
*Redemption price per share is the net asset value less any applicable contin-
gent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON
MUNICIPAL TAX-FREE STATE MUNICIPAL
(In Thousands, Except Per-Share Amounts) BOND FUND INCOME FUND BOND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Cost $424,798 $ 66,739 $ 7,200
======== ======== ========
Investments, at Value $473,481 $ 72,739 $ 7,525
Cash 2 -- --
Receivables
Trust Shares Sold -- 115 --
Interest 8,565 1,389 125
Deferred Organization Expense -- -- 1
-------- -------- --------
Total Asset 482,048 74,243 7,651
LIABILITIES
Payables
Dividends 2,200 317 31
Investment Advisory Fees 173 35 4
Organization Expense -- -- 1
Notes Payable 1,405 --
Other 62 16 6
-------- -------- --------
Total Liabilities 3,840 368 42
-------- -------- --------
NET ASSETS $478,208 $ 73,875 $ 7,609
======== ======== ========
NO-LOAD CLASS:
Net Assets $477,686 $ 73,377 $ 7,055
Trust Shares Outstanding 34,081 5,988 668
-------- -------- --------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 14.02 $ 12.25 $ 10.56
======== ======== ========
CLASS A:
Net Assets $ 323 $ 122 $ 341
Trust Shares Outstanding 23 10 33
-------- -------- --------
Net Asset Value and Redemption Price
Per Share $ 14.02 $ 12.26 $ 10.56
======== ======== ========
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge
of 4.5%) $ 14.68 $ 12.84 $ 11.06
======== ======== ========
CLASS B:
Net Assets $ 199 $ 376 $ 213
Trust Shares Outstanding 14 30 20
-------- -------- --------
Net Asset Value and Offering Price
Per Share* $ 14.02 $ 12.25 $ 10.57
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
*Redemption price per share is the net asset value less any applicable contin-
gent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
- 29 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Operations
For the Six Month Period Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
(In Thousands) BOND FUND BOND FUND
- -----------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 365 $ 392
EXPENSES
Investment Advisory Fees 38 45
Transfer Agent Fees 5 5
Shareholder Service Fees -- --
Legal and Auditing Fees 7 7
Custodian Fees 4 4
Reports to Shareholders 1 --
Trustees' Fees 2 2
Loan Interest 0 --
Amortization of Organization Expenses 2 2
------- -------
Total Expenses 59 65
------- -------
NET INVESTMENT INCOME 306 327
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on Investments 12 42
Net Change in Unrealized Appreciation 27 29
------- -------
NET GAIN ON INVESTMENTS 39 71
------- -------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 345 $ 398
======= =======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- 30 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Month Period Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
SAFECO
SAFECO WASHINGTON
SAFECO CALIFORNIA STATE
MUNICIPAL TAX-FREE MUNICIPAL
(In Thousands) BOND FUND INCOME FUND BOND FUND
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $14,066 $ 2,077 $ 210
EXPENSES
Investment Advisory Fees 996 197 23
Transfer Agent Fees 164 29 1
Distribution Fees--Class B 2 -- 2
Legal and Auditing Fees 11 8 7
Custodian Fees 7 3 3
Reports to Shareholders 17 3 --
Trustees' Fees 3 2 2
Loan Interest 2 1 --
Amortization of Organization Expenses -- -- 1
------- ------- -------
Total Expenses 1,202 243 39
------- ------- -------
NET INVESTMENT INCOME 12,864 1,834 171
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net Realized Gain (Loss) on Investments 2,966 366 (9)
Net Change in Unrealized Appreciation (1,691) (119) 37
------- ------- -------
NET GAIN ON INVESTMENTS 1,275 247 28
------- ------- -------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $14,139 $ 2,081 $ 199
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- 31 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
(Unaudited)
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------------------------------------
SIX-MONTH NINE-MONTH SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31
(In Thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 306 $ 473 $ 327 $ 434
Net Realized Gain
(Loss) on Investments 12 (7) 42 (19)
Net Change in
Unrealized
Appreciation 27 162 29 386
------- ------- ------- -------
Net Change in Net
Assets Resulting from
Operations 345 628 398 801
DIVIDENDS TO
SHAREHOLDERS FROM
Net Investment
Income -- No-Load
Class (306) (473) (327) (434)
-- Class A -- -- -- --
-- Class B -- -- -- --
Net Realized Gain on
Investments
-- No-Load -- -- -- --
------- ------- ------- -------
Total (306) (473) (327) (434)
NET TRUST SHARE
TRANSACTIONS
No-Load Class (470) (964) 428 1,062
Class A -- -- -- --
Class B -- -- -- --
------- ------- ------- -------
Total (470) (964) 428 1,062
------- ------- ------- -------
TOTAL CHANGE IN NET
ASSETS (431) (809) 499 1,429
NET ASSETS AT BEGINNING
OF PERIOD 14,172 14,981 13,187 11,758
------- ------- ------- -------
NET ASSETS AT END OF
PERIOD $13,741 $14,172 $13,686 $13,187
======= ======= ======= =======
- --------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
AND AMOUNTS
SHARES:
Sales 103 176 241 458
Reinvestments 13 25 10 13
Redemptions (160) (293) (211) (368)
------- ------- ------- -------
Net change (44) (92) 40 103
======= ======= ======= =======
AMOUNTS:
Sales $ 1,092 $ 1,841 $ 2,562 $ 4,812
Reinvestments 133 263 102 137
Redemptions (1,695) (3,068) (2,236) (3,887)
------- ------- ------- -------
Net change $ (470) $ (964) $ 428 $ 1,062
======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- 32 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SAFECO SAFECO CALIFORNIA SAFECO WASHINGTON
MUNICIPAL BOND FUND TAX-FREE INCOME FUND STATE MUNICIPAL BOND FUND
- -----------------------------------------------------------------------------------
SIX-MONTH NINE-MONTH SIX-MONTH NINE-MONTH SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30 DEC. 31 JUNE 30 DEC. 31 JUNE 30 DEC. 31
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 12,864 $ 19,903 $ 1,834 $ 2,766 $ 171 $ 238
2,966 2,341 366 197 (9) 4
(1,691) 7,844 (119) 2,196 37 125
-------- -------- ------- -------- ------ ------
14,139 30,088 2,081 5,159 199 367
(12,853) (19,899) (1,829) (2,764) (160) (234)
(8) (3) (3) (1) (7) (3)
(3) (1) (2) (1) (4) (1)
-- -- -- (200) -- (4)
-------- -------- ------- -------- ------ ------
(12,864) (19,903) (1,834) (2,966) (171) (242)
(4,557) (9,855) 1,048 (652) 470 (52)
11 309 -- 120 4 334
86 111 273 100 2 209
-------- -------- ------- -------- ------ ------
(4,460) (9,435) 1,321 (432) 476 491
-------- -------- ------- -------- ------ ------
(3,185) 750 1,568 1,761 504 616
481,393 480,643 72,307 70,546 7,105 6,489
-------- -------- ------- -------- ------ ------
$478,208 $481,393 $73,875 $ 72,307 $7,609 $7,105
======== ======== ======= ======== ====== ======
- -----------------------------------------------------------------------------------
2,610 4,689 836 1,648 56 78
477 908 85 168 3 4
(3,401) (6,271) (808) (1,849) (13) (35)
-------- -------- ------- -------- ------ ------
(314) (674) 113 (33) 46 47
======== ======== ======= ======== ====== ======
$ 36,110 $ 63,875 $10,058 $ 19,516 $ 586 $ 813
6,589 12,498 1,021 2,025 29 38
(47,159) (85,808) (9,758) (21,973) (139) (360)
-------- -------- ------- -------- ------ ------
$ (4,460) $ (9,435) $ 1,321 $ (432) $ 476 $ 491
======== ======== ======= ======== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
- 33 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Notes to Financial Statements
(Unaudited)
1. GENERAL
The SAFECO Tax-Exempt Bond Trust ("Trust") is registered under the Invest-
ment Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of the SAFECO Intermediate-Term Munici-
pal Bond Fund (Intermediate), SAFECO Insured Municipal Bond Fund (Insured),
SAFECO Municipal Bond Fund (Municipal), SAFECO California Tax-Free Income Fund
(California) and SAFECO Washington State Municipal Bond Fund (Washington) (to-
gether "the Funds").
Effective September 30, 1996, the Municipal, California and Washington Funds
began issuing two new classes of shares--Class A and Class B shares (collec-
tively, "Advisor Classes"). Unlike the no-load class of shares (which are sold
directly to the shareholder with no associated sales or distribution charges),
these new classes of shares are sold by financial advisors to shareholders and
have associated sales and distribution charges. Each class of shares repre-
sents an interest in the net assets of the fund.
In connection with issuing the new Advisor Classes, the Municipal, Califor-
nia and Washington Funds adopted a Plan of Distribution (the "Plan"). Under
the Plan, each Advisor Class pays the distributor, SAFECO Securities Corp.,
for selling its shares at the annual rate of .25% of the average daily net as-
set of the Advisor Class. Class B shares also pay the distributor a distribu-
tion fee at the annual rate of .75% of the average daily net assets of the
Class B shares.
Under the Plans, the distributor uses the service fees primarily to compen-
sate 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 each Fund in the preparation of its financial statements. The pol-
icies are in conformity with generally accepted accounting principles, which
permits management to make certain estimates and assumptions at the date of
the financial statements.
SECURITY VALUATION. Tax-exempt bonds are stated on the basis of valuations
provided by a pricing service, which uses information with respect to transac-
tions in bonds, quotations from bond dealers, market transac-
- 34 -
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
tions in comparable securities and various relationships between securities in
determining value. Short-term investments are valued at cost which approxi-
mates market.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal in-
come 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 sub-
ject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued secu-
rities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily. Bond
premiums and original issue discounts are amortized to either call or maturity
dates. Market discount on bonds purchased after April 30, 1993 is recorded as
taxable income at disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is de-
clared as a dividend to shareholders of record as of the close of each busi-
ness day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, will normally be distrib-
uted to shareholders at the end of December.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends to comply with the re-
quirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all income to 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 Funds 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. In addition, income which is derived from am-
ortization on bonds purchased below their issued price after April 30, 1993,
is treated as ordinary income for Federal income tax purposes.
- 35 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
3. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO
SAFECO SAFECO SAFECO WASHINGTON
INTERMEDIATE- INSURED SAFECO CALIFORNIA STATE
TERM MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES FOR THE
SIX-MONTH PERIOD ENDED
JUNE 30, 1997 (EXCLUDING
SHORT-TERM
SECURITIES) $1,036 $1,572 $39,786 $9,561 $1,246
====== ====== ======= ====== ======
SALES FOR THE
SIX-MONTH PERIOD ENDED
JUNE 30, 1997 (EXCLUDING
SHORT-TERM
SECURITIES) $1,451 $1,492 $46,044 $7,216 $ 858
====== ====== ======= ====== ======
</TABLE>
4. COMPONENTS OF NET ASSETS
At June 30, 1997, the components of net assets were as follows:
<TABLE>
<CAPTION>
SAFECO
SAFECO SAFECO SAFECO WASHINGTON
INTERMEDIATE- INSURED SAFECO CALIFORNIA STATE
TERM MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate gross
unrealized
appreciation for
investment
securities in which
there
is an excess of value
over identified cost $ 434 $ 782 $ 48,782 $ 6,058 $ 331
Aggregate gross
unrealized
depreciation for
investment
securities in which
there
is an excess of
identified
cost over value (23) (22) (99) (58) (6)
------- ------- -------- ------- ------
Net unrealized
appreciation
(depreciation) 411 760 48,683 6,000 325
Accumulated net realized
gain/(loss)
on investment
transactions* (10) (32) 1,681 366 (9)
Paid in capital (par
value $.001,
unlimited shares
authorized) 13,340 12,958 427,844 67,509 7,293
------- ------- -------- ------- ------
NET ASSETS AT JUNE 30,
1997 $13,741 $13,686 $478,208 $73,875 $7,609
======= ======= ======== ======= ======
- ----------------------------------------------------------------------------------------
</TABLE>
*The above accumulated net realized losses on investment transactions repre-
sents capital loss carryforwards for federal income tax purposes, which expire
as follows:
<TABLE>
<CAPTION>
AMOUNTS EXPIRATION DATES
------- ----------------
<S> <C> <C>
Intermediate-Term Municipal Bond Fund $(10) 2003
Insured Municipal Bond Fund (32) 2002-2003
Washington State Municipal Bond Fund (9) 2005
</TABLE>
- 36 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
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 FUND:
First $250 million .55%
Next $250 million .45
Next $250 million .35
Over $750 million .25
</TABLE>
<TABLE>
<S> <C>
INSURED & WASHINGTON
FUNDS:
First $250 million .65%
Next $250 million .55
Next $250 million .45
Over $750 million .35
</TABLE>
<TABLE>
<S> <C>
MUNICIPAL & CALIFORNIA
FUNDS:
First $100 million .55%
Next $150 million .45
Next $250 million .35
Over $500 million .25
</TABLE>
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates. Interest rates equivalent
to commercial bank interest rates are charged on loans over $100,000. No inter-
est is charged on loans under $100,000. At June 30, 1997, the Insured Muni Bond
Fund had a note payable of $91,000 to SAFECO Services. The note was repaid on
July 1, 1997. The Municipal Bond Fund had a 5.66% note payable of $1,405,000 to
SAFECO Life Annuity Company of America. The note was repaid on July 1, 1997.
AFFILIATE OWNERSHIP. At June 30, 1997, SAFECO Insurance Company of America
owned 397,434 shares (31% of the outstanding shares) of the Intermediate Fund,
605,644 shares (48%) of the Insured Fund and 502,372 shares (70%) of the Wash-
ington Fund.
DEFERRED ORGANIZATION EXPENSES. Costs relating to the organization of the In-
termediate, Insured and Washington Funds have been deferred and are being amor-
tized to operations over a period of sixty months. These costs were advanced by
SAFECO Asset Management and are being reimbursed by those Funds over a sixty-
month period.
- 37 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
------------ ------------ ---------------------------
1997 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.61 $ 10.49 $ 10.17 $ 10.13 $ 10.25
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.23 0.35 0.45 0.45 0.40
Net Realized and
Unrealized
Gain (Loss) on
Investments 0.03 0.12 0.32 0.04 (0.12)
------- ------- --------- --------- ---------
Total from Investment
Operations 0.26 0.47 0.77 0.49 0.28
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.23) (0.35) (0.45) (0.45) (0.40)
------- ------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 10.64 $ 10.61 $ 10.49 $ 10.17 $ 10.13
======= ======= ========= ========= =========
TOTAL RETURN 2.50%* 4.53%* 7.63% 4.97% 2.64%
NET ASSETS AT END OF
PERIOD (000'S) $13,741 $14,172 $ 14,981 $ 13,762 $ 10,781
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.86%** 0.89%** 0.84% 0.85% 0.99%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 4.43%** 4.40%** 4.29% 4.46% 3.85%
PORTFOLIO TURNOVER RATE 15.12%** 12.81%** 9.12% 4.27% 1.49%
</TABLE>
- --------------------------------------------------------------------------------
*Not annualized.
**Annualized.
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
------------ ------------ ------------------------------
1997 1996 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.74 $ 10.46 $ 10.05 $ 9.73 $ 10.26
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.25 0.37 0.48 0.48 0.41
Net Realized and
Unrealized Gain (Loss)
on Investments 0.06 0.28 0.41 0.32 (0.53)
------- ------- --------- -------- --------
Total from Investment
Operations 0.31 0.65 0.89 0.80 (0.12)
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.25) (0.37) (0.48) (0.48) (0.41)
------- ------- --------- -------- --------
NET ASSET VALUE AT END
OF PERIOD $ 10.80 $ 10.74 $ 10.46 $ 10.05 $ 9.73
======= ======= ========= ======== ========
TOTAL RETURN 2.96%* 6.31%* 8.95% 8.58% -1.40%
NET ASSETS AT END OF
PERIOD (000'S) $13,686 $13,187 $ 11,758 $ 8,163 $ 3,306
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.95%** 1.00%** 0.99% 1.08% 1.41%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 4.77%** 4.66%** 4.53% 5.11% 3.99%
PORTFOLIO TURNOVER RATE 22.35%** 14.86%** 3.71% 14.76% 21.19%
</TABLE>
- --------------------------------------------------------------------------------
*Not annualized.
**Annualized.
- 39 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
------------ ------------ -------------------------------
1997 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.98 $ 13.69 $ 13.36 $ 13.27 $ 14.13
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.38 0.57 0.76 0.77 0.78
Net Realized and
Unrealized
Gain (Loss) on
Investments 0.04 0.29 0.33 0.12 (0.55)
-------- -------- --------- --------- ---------
Total from Investment
Operations 0.42 0.86 1.09 0.89 0.23
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.38) (0.57) (0.76) (0.77) (0.78)
Distributions from
Realized Gains -- -- -- (0.03) (0.31)
-------- -------- --------- --------- ---------
Total Distributions (0.38) (0.57) (0.76) (0.80) (1.09)
-------- -------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 14.02 $ 13.98 $ 13.69 $ 13.36 $ 13.27
======== ======== ========= ========= =========
TOTAL RETURN 3.04%* 6.42%* 8.23% 7.10% 1.30%
NET ASSETS AT END OF
PERIOD (000'S) $477,686 $480,970 $ 480,643 $ 472,569 $ 507,453
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.51%** 0.53%** 0.54% 0.56% 0.52%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 5.47%** 5.53%** 5.47% 5.96% 5.49%
PORTFOLIO TURNOVER RATE 17.11%** 6.66%** 12.60% 26.96% 22.07%
</TABLE>
- --------------------------------------------------------------------------------
*Not annualized.
**Annualized.
- 40 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6.FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
-----------------------------------------------------------
SIX-MONTH THREE-MONTH SIX-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
------------ ------------ ------------ ------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $13.99 $13.82 $13.98 $13.82
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.35 0.18 0.30 0.15
Net Realized and
Unrealized Gain on
Investments 0.03 0.17 0.04 0.16
------ ------ ------ ------
Total from Investment
Operations 0.38 0.35 0.34 0.31
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.35) (0.18) (0.30) (0.15)
Distributions from
Realized Gains -- -- -- --
------ ------ ------ ------
Total Distributions (0.35) (0.18) (0.30) (0.15)
------ ------ ------ ------
NET ASSET VALUE AT END
OF PERIOD $14.02 $13.99 $14.02 $13.98
====== ====== ====== ======
TOTAL RETURN 2.74%* 2.52%* 2.51%* 2.27%*
NET ASSETS AT END OF
PERIOD (000'S) $ 323 $ 311 $ 199 $ 112
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.94%** 0.82%** 1.54%** 1.50%**
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 5.03%** 5.04%** 4.40%** 4.42%**
PORTFOLIO TURNOVER RATE 17.11%** 6.66%** 17.11%** 6.66%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If sales
charges were included, the total return would be lower.
**Annualized.
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
------------ ------------ -------------------------------
1997 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.22 $ 11.86 $ 11.54 $ 11.51 $ 12.23
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.31 0.47 0.62 0.63 0.66
Net Realized and
Unrealized Gain (Loss)
on Investments 0.03 0.39 0.40 0.13 (0.38)
------- ------- --------- --------- ---------
Total from Investment
Operations 0.34 0.86 1.02 0.76 0.28
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.31) (0.47) (0.62) (0.63) (0.66)
Distributions from
Realized Gains -- (0.03) (0.08) (0.10) (0.34)
------- ------- --------- --------- ---------
Total Distributions (0.31) (0.50) (0.70) (0.73) (1.00)
------- ------- --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $ 12.25 $ 12.22 $ 11.86 $ 11.54 $ 11.51
======= ======= ========= ========= =========
TOTAL RETURN 2.83%* 7.42%* 8.87% 7.01% 1.97%
NET ASSETS AT END OF
PERIOD (000'S) $73,377 $72,084 $ 70,546 $ 64,058 $ 77,056
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.68%** 0.69%** 0.68% 0.70% 0.68%
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 5.13%** 5.21%** 5.12% 5.65% 5.31%
PORTFOLIO TURNOVER RATE 20.91%** 10.52%** 16.25% 44.10% 32.58%
</TABLE>
- --------------------------------------------------------------------------------
*Not annualized.
**Annualized.
- 42 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6.FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
---------------------------------------------------------
SIX-MONTH THREE-MONTH SIX-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
------------ ------------ ------------ ------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $12.23 $12.07 $ 12.22 $ 12.07
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.29 0.15 0.24 0.12
Net Realized and
Unrealized Gain on
Investments 0.03 0.19 0.03 0.18
------ ------ ------- -------
Total from Investment
Operations 0.32 0.34 0.27 0.30
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.29) (0.15) (0.24) (0.12)
Distributions from
Realized Gains -- (0.03) -- (0.03)
------ ------ ------- -------
Total Distributions (0.29) (0.18) (0.24) (0.15)
------ ------ ------- -------
NET ASSET VALUE AT END
OF PERIOD $12.26 $12.23 $ 12.25 $ 12.22
====== ====== ======= =======
TOTAL RETURN 2.70%* 2.83%* 2.31%* 2.56%*
NET ASSETS AT END OF
PERIOD (000'S) $ 122 $ 122 $ 376 $ 101
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 0.92%** 0.89%** 1.57%** 1.64%**
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 4.89%** 4.84%** 3.77%** 4.08%**
PORTFOLIO TURNOVER RATE 20.91%** 10.52%** 20.91%** 10.52%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If sales
charges were included, the total return would be lower.
**Annualized.
- 43 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6.FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
SIX-MONTH NINE-MONTH
PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 FOR THE YEAR ENDED MARCH 31
------------ ------------ -------------------------------
1997 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.53 $10.34 $ 10.10 $ 9.91 $ 10.27
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.24 0.37 0.50 0.49 0.44
Net Realized and
Unrealized
Gain (Loss) on
Investments 0.03 0.20 0.27 0.19 (0.35)
------ ------ --------- --------- ---------
Total from Investment
Operations 0.27 0.57 0.77 0.68 0.09
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.24) (0.37) (0.50) (0.49) (0.44)
Distributions from
Realized Gains 0.00 (0.01) (0.03) -- (0.01)
------ ------ --------- --------- ---------
Total Distributions (0.24) (0.38) (0.53) (0.49) (0.45)
------ ------ --------- --------- ---------
NET ASSET VALUE AT END
OF PERIOD $10.56 $10.53 $ 10.34 $ 10.10 $ 9.91
====== ====== ========= ========= =========
TOTAL RETURN 2.68%* 5.61%* 7.73% 7.13% 0.68%
NET ASSETS AT END OF
PERIOD (000'S) $7,055 $6,558 $ 6,489 $ 5,953 $ 2,908
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.04%** 1.10%** 1.07% 1.09% 1.44%
RATIO OF NET INVESTMENT
INCOME TO
AVERAGE NET ASSETS 4.80%** 4.78%** 4.78% 5.06% 4.17%
PORTFOLIO TURNOVER RATE 24.34%** 15.96%** 20.86% 9.23% 17.26%
</TABLE>
- --------------------------------------------------------------------------------
*Not annualized.
**Annualized.
- 44 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6.FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
CLASS A CLASS B
--------------------------------------------------------
SIX-MONTH THREE-MONTH SIX-MONTH THREE-MONTH
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
JUNE 30 DECEMBER 31 JUNE 30 DECEMBER 31
------------ ------------ ------------ ------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BE-
GINNING OF PERIOD $ 10.53 $ 10.45 $ 10.55 $ 10.45
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.23 0.12 0.19 0.10
Net Realized and
Unrealized Gain on
Investments 0.03 0.09 0.02 0.11
------- ------- ------- -------
Total from Investment
Operations 0.26 0.21 0.21 0.21
LESS DISTRIBUTIONS
Dividends from Net In-
vestment Income (0.23) (0.12) (0.19) (0.10)
Distributions from Re-
alized Gains -- (0.01) -- (0.01)
------- ------- ------- -------
Total Distributions (0.23) (0.13) (0.19) (0.11)
------- ------- ------- -------
NET ASSET VALUE AT END
OF PERIOD $ 10.56 $ 10.53 $ 10.57 $ 10.55
======= ======= ======= =======
TOTAL RETURN 2.55%* 1.94%* 4.13%* 1.94%*
NET ASSETS AT END OF
PERIOD (000'S) $ 341 $ 336 $ 213 $ 211
RATIO OF EXPENSES TO
AVERAGE NET ASSETS 1.33%** 1.29%** 2.14%** 2.06%**
RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET
ASSETS 4.51%** 4.49%** 3.71%** 3.71%**
PORTFOLIO TURNOVER RATE 24.34%** 15.96%** 24.34%** 15.96%**
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If sales
charges were included, the total return would be lower.
**Annualized.
- 45 -
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
- 46 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME
WITH LONG-TERM GROWTH
SAFECO Income Fund
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
- --------------------------------------------------------------------------------
For more complete information on any SAFECO Mutual Fund, including management
fees and expenses, call or write for a free Prospectus. Please read it
carefully before you invest or send money.
- 47 -
<PAGE>
SAFECO MONEY MARKET 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
INVESTMENT ADVISOR:
SAFECO Asset Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
AUDITOR:
Ernst & Young, LLP
GMF 713 8/97
[LOGO] Printed on Recycled Paper.
This report must be preceded or accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
FOR SHAREHOLDER SERVICE:
Monday-Friday,
5:30am-7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
SEATTLE: (206) 545-7319
DEAF AND HARD OF HEARING TTY/TDD: 1-800-438-8718
FOR 24 HOUR AUTOMATED PERFORMANCE INFORMATION AND TRANSACTIONS:
NATIONWIDE: 1-800-835-4391
SEATTLE: (206) 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
http://www.safecofunds.com
E-MAIL: [email protected]
