SAFECO Mutual Funds

Annual Report

SAFECO Stock Funds

Growth Opportunities Fund	1
Equity Fund	6
Dividend Income Fund	11
Northwest Fund	16
International Stock Fund	21
Balanced Fund	27
Small Company Value Fund	34
U.S. Value Fund	39
Small Company Growth Fund	44
U.S. Growth Fund	49

Report From The Fund Manager

SAFECO Growth Opportunities Fund

December 31, 2002

    Thomas M. Maguire

How did the funds perform?

The SAFECO Growth Opportunities Fund posted negative returns and underperformed its benchmark index, the Russell 2000, during the year ended December 31, 2002. Although the Fund performed very well in 2001, the performance this past year has contributed to the Fund lagging the benchmark for the trailing five-year period also.

The year just ended was the toughest year I have experienced in the 19 years that I have been managing portfolios. There may be room for optimism; however. The Fund’s performance relative to the benchmark has, since mid-August and through year-end, improved consistently.

What factors impacted the fund’s performance?

The performance of the Fund in 2002 was a direct result of positioning it aggressively in late 2001 to benefit from an economic recovery that I thought would occur in 2002. The year did not see crystal-clear recovery signs and the market sold off. The market was hit not only by the economy but also by accounting scandals, major company bankruptcies and war fears.

Our strategy has been to buy early-stage companies that have the potential to grow into big companies. Last year was not a good year for these companies, as investors worried more about capital preservation than capital appreciation.

Early-stage companies offer significant appreciation potential. They also present risks. In a bad market, as 2002 was, the risks draw the most focus. A number of our health care stocks have later-stage products in their research pipeline. I believe these products have the potential to be very successful once introduced to their markets. However, since the products are still in the research stage, investors in bad markets worry about their success when and if the products come to market. Conceptus, Atherogenix and La Jolla Pharmaceutical are examples of companies where investors focused on product risks versus the potential.

Some of our companies were hurt by profit shortfalls. Two examples of this were: PLATO Learning, an educational software company, was hurt by tight budgets at school districts across the country, and Matria Healthcare, a disease management company, had to reduce profit guidance as contracts with potential customers were pushed out.

PolyMedica, the Fund’s largest holding and Prime Medical Services bucked the down market trend and appreciated handsomely in 2002. Both of these companies had depressed stock prices at yearend 2001 and reported strong profits during 2002. Station Casinos was another solid performer as its Las Vegas area casinos, targeted to the local population, held up well and the company announced expansion plans outside of Nevada.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

1

Report From The Fund Manager

SAFECO Growth Opportunities Fund

December 31, 2002

What changes did you make and why?

There were a number of changes made to the Fund during the second half of 2002. First and foremost was the decrease in health care holdings. Health care had become a large part of the Fund’s assets and it is important to diversify holdings into some other areas of the market that would benefit as the economy entered the recovery stage. I also cut back or eliminated some of the Fund’s smaller, non-core holdings, so I could place greater focus on the remaining names.

What is your outlook for the fund?

As mentioned above, the year ended with stronger performance than it began. I continue to look for small companies with strong fundamentals. At the present time I am cautiously optimistic concerning 2003. I realize the uncertainties the market is dealing with, not the least of which is potential war and a slow economy. However I think many of those risks are priced into the stock market already.

While I have been rebalancing the holdings in the Fund to maximize performance and minimize overexposure to one industry, I have also tried very hard not to disturb what I consider to be the core holdings—those companies I believe can grow faster than the market when recovery takes hold. I believe these continuing efforts will help the Fund recover lost ground in 2003 and that the Fund will see improved performance.

Thomas M. Maguire, MBA

Vice President of SAFECO Asset Management Company; BA Business Administration, University of Washington (1976); MBA, University of Washington (1980)

Thomas M. Maguire started his investment career as an equity analyst at SAFECO in 1981. In 1984, he became a co-portfolio manager of the SAFECO Equity Fund, and in 1989 assumed sole responsibility for the SAFECO Growth Opportunities Fund.

Managerial change update:

SAFECO Asset Management Company’s growth opportunities investment team, which is comprised of equity managers and analysts, assumed management of the SAFECO Growth Opportunities Fund in February 2003. Team management allows broader coverage of this market and increases input into the investment process.

2

Performance Overview & Highlights

SAFECO Growth Opportunities Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		10 Year
SAFECO Growth Opportunities Fund	(36.92	)%	(4.60	)%	8.24	%
Russell 2000 Index	(20.48	)%	(1.36	)%	7.16	%
Lipper, Inc. (Small-Cap Core Funds)	(18.23	)%	3.19	%	8.73	%
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Diversified Commercial Services	15	%
Health Care Equipment	10
Application Software	9
Biotechnology	9
Health Care Supplies	8
TOP TEN HOLDINGS	Percent of Net Assets
PolyMedica Corp. (Health Care Supplies)	7.2	%
Iron Mountain, Inc. (Diversified Commercial Services)	6.1
NCO Group, Inc. (Diversified Commercial Services)	5.6
MICROS Systems, Inc. (Application Software)	5.4
Conceptus, Inc. (Health Care Equipment)	5.2
TMP Worldwide, Inc. (Advertising)	3.8
Serologicals Corp. (Biotechnology)	3.1
iShare Russell 2000 Growth Index Fund (Indexed Securities)	3.0
United Stationers, Inc. (Office Services & Supplies)	2.9
RMH Teleservices, Inc. (Integrated Telecommunications Services)	2.3

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
TMP Worldwide, Inc.	$	19,500
iShares Russell 2000 Growth Index Fund		12,617
Stellent, Inc.		11,787
THQ, Inc.		10,641
La Jolla Pharmaceutical Co.		8,961
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
iShares Russell 2000 Index Fund	$	40,422
Corinthian Colleges, Inc.		28,061
Rent-A-Center, Inc.		21,851
United Stationers, Inc.		17,626
iShares S&P 2000 SmallCap 600 Index Fund		16,687

WEIGHTINGS AS A PERCENT

OF NET ASSETS

3

Portfolio of Investments

SAFECO Growth Opportunities Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—92.3%
Advertising—3.8%
1,477,700	*	TMP Worldwide, Inc.	$	16,713
Apparel Retail—0.1%
66,700		Wet Seal, Inc. (Class A)		718
Application Software—8.8%
1,061,928	*†	MICROS Systems, Inc.		23,808
1,239,766	*†	PLATO Learning, Inc.		7,364
235,898	*	Private Business, Inc.		349
544,300	*	THQ, Inc.		7,212
Auto Parts & Equipment—1.5%
937,800	*†	IMPCO Technologies, Inc.		4,398
937,800	*†	Quantum Fuel Systems Technologies Worldwide, Inc.		2,204
Banks—1.5%
230,302		Doral Financial Corp.		6,587
Biotechnology—8.5%
275,000	*	Applied Molecular Evolution, Inc.		564
1,340,900	*	AtheroGenics, Inc.		9,936
664,800	*	Bio-Technology General Corp.		2,128
25,840	*	Ista Pharmaceuticals, Inc.		81
930,100	*†	North American Scientific, Inc.		8,362
587,500	*	Novavax, Inc.		1,527
396,100	*	Pain Therapeutics, Inc.		947
1,254,973	*†	Serologicals Corp.		13,805
Casinos & Gaming—1.6%
389,800	*	Station Casinos, Inc.		6,899
Catalog Retail—0.1%
479,500	*†	Concepts Direct, Inc.		278
Diversified Commercial Services—14.7%
267,700	*	FirstService Corp.		4,305
812,680	*	Iron Mountain, Inc.		26,827
130,300	*	Kroll, Inc.		2,486
1,539,552	*†	NCO Group, Inc.		24,556
86,100	*	Rent-A-Center, Inc.		4,301
608,400	*	ResortQuest International, Inc.		2,294
Diversified Financial Services—2.0%
2,465,700	*†	Rent-Way, Inc.		8,630
Footwear—1.4%
334,900	*	Steven Madden, Ltd.		6,214
Health Care Distributors & Services—2.6%
366,100	*	American Healthways, Inc.		6,407
865,500	*	MIM Corp.		5,020

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Health Care Equipment—10.0%
455,000	*†	American Medical Alert Corp.	$	1,119
176,300	*	BioLase Technology, Inc.		968
1,897,200	*†	Conceptus, Inc.		22,728
1,187,200	*	Endocare, Inc. (Illiquid) ††		2,374
1,300,000	*	LifePoint, Inc.		2,028
1,172,500	*†	Med-Design Corp.		9,448
1,800,000	*†	PhotoMedex, Inc.		3,456
152,100	*	Physiometrix, Inc.		84
49,000	*	SonoSite, Inc.		640
861,000	*†	SpectRx, Inc.		1,386
Health Care Facilities—4.0%
842,175	*†	Matria Healthcare, Inc.		7,318
937,800	*†	Prime Medical Services, Inc.		8,131
636,800	*	Res-Care, Inc.		2,311
Health Care Supplies—7.7%
1,025,600	*†	PolyMedica Corp.		31,630
300,800	*	Thoratec Corp.		2,295
Integrated Telecommunications Services—2.3%
968,672	*†	RMH Teleservices, Inc.		10,171
Internet Software & Services—3.5%
1,409,003	*†	Stellent, Inc.		6,255
424,500	*	Websense, Inc.		9,068
IT Consulting & Services—1.2%
1,069,508	*	CIBER, Inc.		5,508
Office Services & Supplies—2.9%
443,600	*	United Stationers, Inc.		12,776
Paper Packaging—0.5%
522,300		Intertape Polymer Group, Inc.		2,152
Personal Products—2.9%
623,600	*	Elizabeth Arden, Inc.		9,229
307,200	*	Nu Skin Enterprises, Inc. (Class A)		3,677
Pharmaceuticals—7.0%
268,300	*	Connetics Corp.		3,225
1,149,425	*	Discovery Laboratories, Inc.		3,230
292,235	*	Emisphere Technologies, Inc.		1,017
1,059,300	*	First Horizon Pharmaceutical Corp.		7,921
146,400	*	Impax Laboratories, Inc.		587
1,216,000	*	La Jolla Pharmaceutical Co.		7,904
835,000	*†	Nastech Pharmaceutical Co., Inc.		7,139
Soft Drinks—0.7%
48,500		Coca-Cola Bottling Co.		3,129
Specialty Chemicals—0.5%
530,000	*	Omnova Solutions, Inc.		2,136

SEE NOTES TO FINANCIAL STATEMENTS

4

Portfolio of Investments

SAFECO Growth Opportunities Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Specialty Stores—0.1%
542,213	*†	Harold’s Stores, Inc.	$	553
Systems Software—0.8%
275,000	*	BEA Systems, Inc.		3,154
831,700	*†	Sphinx International, Inc. (Illiquid)		333
Telecommunications Equipment—0.2%
397,400	*	Innotrac Corp.		890
Trucking—1.4%
219,800	*	Old Dominion Freight Line, Inc.		6,231
TOTAL COMMON STOCKS (cost $488,447)				407,121
INDEXED SECURITIES—4.9%
Indexed Securities—4.9%
330,000		iShares Russell 2000 Growth Index Fund		13,151
132,000		iShares S&P SmallCap 600/BARRA Growth Index Fund		8,593
TOTAL INDEXED SECURITIES (cost $20,831)				21,744
WARRANTS—0.9%
Health Care Equipment—0.3%
113,750	*	American Medical Alert Corp. (Exp. 4/19/07)††		113
92,625	*	Endocare, Inc. (Illiquid) (Exp. 11/23/05)††		123
260,000	*	LifePoint, Inc. (Exp. 3/27/07)††		214
156,000	*	LifePoint, Inc. (Exp. 7/21/07)††		135
450,000	*	PhotoMedex, Inc. (Exp. 6/12/07)††		529
172,200	*	SpectRx, Inc. (Exp. 6/04/06)††		200
Integrated Telecommunications Services—0.4%
345,724	*	RMH Teleservices, Inc. (Exp. 9/28/06)††		1,603
Pharmaceuticals—0.2%
229,885	*	Discovery Laboratories, Inc. (Exp. 10/01/06)††		153
217,500	*	Nastech Pharmaceutical Co., Inc. (Exp. 3/19/06)††		1,012
TOTAL WARRANTS (cost $43)				4,082

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
CASH EQUIVALENTS—1.2%
Investment Companies
5,063,031	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)	$	5,063
TOTAL CASH EQUIVALENTS (cost $5,063)			5,063
TOTAL INVESTMENTS (cost $514,384)—99.3%			438,010
Other Assets, less Liabilities			3,056
NET ASSETS		$	441,066

  * Non-income producing security.

  † Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund controls 5% or more of the outstanding voting shares of the company). Total cost of such securities is $253,665,000 and the total value is $203,072,000 or 46.04% of net assets.

†† Securities are valued at fair value as determined under the supervision of the Board of Trustees.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

5

Report From the Fund Manager

SAFECO Equity Fund

December 31, 2002

    Richard Meagley

How did the fund perform?

For the year ending December 31, 2002, the SAFECO Equity Fund was down, lagging its benchmark, the S&P 500 Index.

During the second half of the year, performance began to improve and we ended 2002 with a strong fourth quarter. On a longer-term basis, performance of the Equity Fund versus the S&P 500 has been improving. The strong fourth quarter helped and the lingering negative effects of owning less technology than the benchmark in late 1999 and early 2000 are diminishing.

What factors impacted the fund’s performance?

The year ended with improved performance during the fourth quarter, helped by various telephone, technology, industrial and financial holdings. This improvement, however, was not enough to salvage the full year.

During 2002 the Fund was hurt mainly by company-specific problems in the first half of the year. Each company, Tyco International, AOL Time Warner, El Paso Corp., and Qwest Communications, grew quickly during the last part of the 1990s. All of these stocks dropped significantly in the first half of the year. AOL Time Warner remains in the Fund. The others have been eliminated, but not before they adversely affected performance.

What changes did you make and why?

The changes made recently to the Fund focus on improving the consistency of the Fund’s performance versus the benchmark. This past year, I have focused on deciding more quickly when a company’s fundamentals have changed dramatically—versus when they have just hit a bump in the road—and on lessening the impact to the Fund of the inevitable bumps in the road that companies do hit.

These changes have resulted in exiting certain positions more quickly than in the past, and in increasing the number of holdings in the fund. The increase in names will allow the Fund to participate in long-term trends, but in a more consistent manner. For example, healthcare should be a good place to invest long term, but the past few years have shown that individual companies are not as predictable or consistent as we once thought. By adding to the number of holdings while keeping the overall exposure to healthcare the same, I believe we can participate long term with increased consistency.

What is your outlook for the fund?

The Equity Fund is predominately positioned as a buy-and-hold fund. I believe the larger holdings should provide competitive returns over longer time periods. We have a slowly recovering economy, and quarter-to-quarter returns that vary dramatically by economic sector.

My outlook, then, is to adhere to the buy-and-hold strategy while looking for companies that are poised to benefit from a slowly improving economy. In my opinion, retaining the vast majority of assets in

6

Report From the Fund Manager

SAFECO Equity Fund

December 31, 2002

longer-term holdings, and also investing in some companies with lower long-term growth but with potential for cyclical earnings recovery, will benefit performance.

Richard Meagley, MBA, CFA

Vice President of SAFECO Asset Management Company; BA Economics, Wake Forest University (1977); MBA Finance, University of Washington (1982); Chartered Financial Analyst (CFA) (1986)

Richard Meagley joined SAFECO Asset Management Company as an equity analyst in 1983, and was a portfolio manager from 1988 to 1992.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

7

Performance Overview & Highlights

SAFECO Equity Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 year		10 year
SAFECO Equity Fund	(26.33	)%	(4.15	)%	8.52	%
S&P 500 Index	(22.12	)%	(0.59	)%	9.33	%
Lipper, Inc. (Large-Cap Core Funds)	(23.48	)%	(1.71	)%	7.72	%
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Pharmaceuticals	13	%
Diversified Financial Services	8
Banks	8
Integrated Oil & Gas	6
Integrated Telecommunications Services	5
TOP TEN HOLDINGS	Percent of Net Assets
Pfizer, Inc. (Pharmaceuticals)	4.0	%
Microsoft Corp. (Systems Software)	3.5
Citigroup, Inc. (Diversified Financial Services)	3.3
Exxon Mobil Corp. (Integrated Oil & Gas)	3.1
American International Group, Inc. (Multi-Line Insurance)	3.0
Bank of America Corp. (Banks)	2.5
Procter & Gamble Co. (Household Products)	2.5
General Electric Co. (Industrial Conglomerates)	2.5
Wal-Mart Stores, Inc. (General Merchandise Stores)	2.2
PepsiCo, Inc. (Soft Drinks)	2.1

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
Pharmacia Corp.	$	19,020
United Technologies Corp.		19,004
Wells Fargo & Co.		14,635
General Motors Corp.		13,748
Target Corp.		13,696
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Washington Mutual, Inc.	$	43,637
Wal-Mart Stores, Inc.		26,180
Royal Dutch Petroleum Co. (ADR)		20,107
General Electric Co.		19,338
Johnson & Johnson		19,225

WEIGHTINGS AS A PERCENT

OF NET ASSETS

8

Portfolio of Investments

SAFECO Equity Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—96.6%
Aerospace & Defense—2.4%
175,000		Boeing Co.	$	5,773
170,000		United Technologies Corp.		10,530
Aluminum—0.8%
250,000		Alcoa, Inc.		5,695
Application Software—0.3%
300,000	*	Siebel Systems, Inc.		2,244
Automobile Manufacturers—1.0%
180,000		General Motors Corp.		6,635
Banks—8.2%
250,000		Bank of America Corp.		17,392
500,000		U.S. Bancorp		10,610
400,000		Washington Mutual, Inc.		13,812
300,000		Wells Fargo & Co.		14,061
Brewers—1.4%
200,000		Anheuser-Busch Companies, Inc.		9,680
Computer Hardware—3.9%
300,000	*	Dell Computer Corp.		8,022
250,000		Hewlett-Packard Co.		4,340
149,000		International Business Machines Corp.		11,547
800,000	*	Sun Microsystems, Inc.		2,488
Computer Storage & Peripherals—0.4%
490,000	*	EMC Corp.		3,009
Construction & Farm Machinery & Heavy Trucks—1.4%
120,000		Caterpillar, Inc.		5,486
85,000		PACCAR, Inc.		3,921
Consumer Finance—0.7%
270,000		MBNA Corp.		5,135
Data Processing Services—0.9%
150,000		Automatic Data Processing, Inc.		5,887
Department Stores—0.7%
200,000		May Department Stores Co.		4,596
Diversified Commercial Services—0.6%
250,000		IMS Health, Inc.		4,000
Diversified Financial Services—8.2%
250,000		American Express Co.		8,838
650,000		Citigroup, Inc.		22,874
225,000		Federal National Mortgage Association		14,474

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
410,000		J.P. Morgan Chase & Co.	$	9,840
Electric Utilities—1.0%
350,000		Duke Energy Corp.		6,839
Electrical Components & Equipment—1.0%
140,000		Emerson Electric Co.		7,119
Food Retail—0.8%
350,000	*	Kroger Co.		5,408
Forest Products—0.6%
90,000		Weyerhaeuser Co.		4,429
General Merchandise Stores—3.6%
325,000		Target Corp.		9,750
300,000		Wal-Mart Stores, Inc.		15,153
Health Care Equipment—1.0%
240,000		Baxter International, Inc.		6,720
Home Furnishings—0.7%
215,000		Leggett & Platt, Inc.		4,825
Home Improvement Retail—1.7%
490,000		Home Depot, Inc.		11,740
Household Products—3.8%
190,000		Kimberly-Clark Corp.		9,019
200,000		Procter & Gamble Co.		17,188
Housewares & Specialities—0.8%
110,000		Fortune Brands, Inc.		5,116
Industrial Conglomerates—2.5%
700,000		General Electric Co.		17,045
Industrial Gases—0.8%
100,000		Praxair, Inc.		5,777
Industrial Machinery—2.0%
70,000		Illinois Tool Works, Inc.		4,540
135,000		Ingersoll-Rand Co.		5,813
70,000		Parker-Hannifin Corp.		3,229
Integrated Oil & Gas—6.2%
200,000		ChevronTexaco Corp.		13,296
163,695		ConocoPhillips		7,921
600,000		Exxon Mobil Corp.		20,964
Integrated Telecommunications Services—4.6%
150,000		CenturyTel, Inc.		4,407
500,000		SBC Communications, Inc.		13,555
340,000		Verizon Communications		13,175
Motorcycle Manufacturers—0.5%
75,000		Harley-Davidson, Inc.		3,465

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

9

Portfolio of Investments

SAFECO Equity Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Movies & Entertainment—2.5%
700,000	*	AOL Time Warner, Inc.	$	9,170
500,000		Walt Disney Co.		8,155
Multi-Line Insurance—4.0%
360,000		American International Group, Inc.		20,826
150,000		Hartford Financial Services Group, Inc.		6,815
Networking Equipment—1.6%
850,000	*	Cisco Systems, Inc.		11,135
Pharmaceuticals—12.5%
285,000		Abbott Laboratories		11,400
125,000		Eli Lilly & Co.		7,938
225,000		Johnson & Johnson		12,085
245,000		Merck & Co., Inc.		13,869
900,000		Pfizer, Inc.		27,513
330,000		Wyeth		12,342
Property & Casualty Insurance—0.9%
408,483	*	Travelers Property Casualty Corp. (Class A)		5,984
Publishing & Printing—1.2%
115,000		Gannett Co., Inc.		8,257
Semiconductor Equipment—2.2%
260,000	*	Applied Materials, Inc.		3,388
750,000		Intel Corp.		11,678
Semiconductors—0.7%
305,000		Texas Instruments, Inc.		4,578
Soft Drinks—2.1%
345,000		PepsiCo, Inc.		14,566
Systems Software—4.3%
465,000	*	Microsoft Corp.		24,041
500,000	*	Oracle Corp.		5,400
Telecommunications Equipment—0.3%
150,000		Nokia Oyj (ADR)		2,325
Tobacco—1.8%
295,000		Philip Morris Cos., Inc.		11,956
TOTAL COMMON STOCKS (cost $605,575)				660,803

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
CASH EQUIVALENTS—3.6%
Investment Companies
24,579,011	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)	$	24,579
TOTAL CASH EQUIVALENTS (cost $24,579)			24,579
TOTAL INVESTMENTS (cost $630,154)—100.2%			685,382
Other Assets, less Liabilities			(2,251	)
NET ASSETS		$	683,131

* Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS

10

Report From the Fund Managers

SAFECO Dividend Income Fund

December 31, 2002

How did the fund perform?

For the year ending December 31, 2002, the SAFECO Dividend Income Fund underperformed the Russell 1000 Value Index.

The Fund has performed approximately in line with the relevant indices for six consecutive quarters. We have been working towards improving the consistency of results by focusing on portfolio construction, stock valuation and company quality.

What factors impacted the fund’s performance?

Value stocks outperformed growth stocks for the year. Unlike the previous two years when small stocks were the stars, this year there was very little difference between large and small cap indices. Our focus on high quality, large cap, dividend paying stocks allowed us to be relatively defensive in a poor market.

Our best performing stocks in the quarter included industrial, telephone and technology stocks that had done poorly earlier in the year. Verizon, Bell South and SBC Communications each gained over 34% in the quarter off historic lows in valuation.

The common theme among our worst performing stocks was lowered earnings expectations. These include General Motors (autos), First Industrial Realty Trust (real estate), Interpublic (advertising), and Kimberly-Clark (personal care products). Northrop Grumman declined on sector rotation out of defense names early in the fourth quarter.

What changes did you make and why?

This year we have increased the number of holdings in the Fund to gain exposure to additional areas of the economy. A number of these new holdings, including Leggett & Platt (home furnishings), PACCAR (heavy-duty trucks), General Motors (autos) and Dell (computers) have been in cyclical areas. We sold Sun Microsystems due to increasing concerns about the commoditization of the server market. We have also diversified our holdings in healthcare, financials and technology.

We continue to have less than 5% cash and maintain a broadly diversified portfolio.

What is your outlook for the future?

We believe the economy will continue to improve slowly, avoiding both a double-dip recession and an unsustainable boom. The consumer will continue to spend, but at a slower rate as the mortgage refinancing cycle comes to an end. The government plans to add fiscal stimulus to the monetary stimulus already in place. The remaining piece of the puzzle is for corporations to increase inventories and capital spending as they become more confident of their earnings outlook.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

11

Report From the Fund Managers

SAFECO Dividend Income Fund

December 31, 2002

The Bush Administration’s plan to reduce or eliminate the double taxation of dividends tops a year when dividends were of increasing interest to investors. Historically dividends have provided around 40% of the stock market’s total return. Last year stocks in the S&P 500 that pay dividends outperformed the index, declining by 18.4% vs. 22.1%, while those that did not pay dividends declined an average of 30.3%. We have already seen more signs that corporations are thinking more favorably about instituting or increasing their dividends than we have seen in years. We believe our philosophy of focusing on companies with growing dividends fits well into this trend.

SAFECO Asset Management Company

SAFECO Asset Management Company’s dividend income investment team, which is comprised of equity managers and analysts, assumed management of SAFECO Dividend Income Fund in April 2001. Team management allows broader coverage of this highly complex market and increased input into the investment process.

12

Performance Overview & Highlights

SAFECO Dividend Income Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		10 Year
SAFECO Dividend Income Fund	(17.40	)%	(5.01	)%	5.81	%
Russell 1000 Value Index	(15.52	)%	1.16	%	10.80	%
Lipper, Inc. (Equity-Income Funds)	(16.33	)%	0.03	%	8.38	%
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Integrated Oil & Gas	10	%
Banks	9
Real Estate Investment Trust	9
Integrated Telecommunications Services	9
Diversified Financial Services	7
TOP TEN HOLDINGS	Percent of Net Assets
ChevronTexaco Corp. (Integrated Oil & Gas)	3.5	%
Liberty Property Trust (Real Estate Investment Trust)	3.5
First Industrial Realty Trust, Inc. (Real Estate Investment Trust)	2.9
Verizon Communications (Integrated Telecommunications Services)	2.7
U.S. Bancorp (Banks)	2.5
SBC Communications, Inc. (Integrated Telecommunications Services)	2.5
Equity Residential (Real Estate Investment Trust)	2.5
Bank of America Corp. (Banks)	2.4
Ingersoll-Rand Inc. (Industrial Machinery)	2.4
Exxon Mobil Corp. (Integrated Oil & Gas)	2.3

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
FirstEnergy Corp.	$	2,694
Wells Fargo & Co.		2,658
IMS Health, Inc.		1,636
SBC Communications, Inc.		1,455
Pharmacia Corp.		1,438
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Johnson & Johnson	$	2,259
Weyerhaeuser Co.		1,904
Emerson Electric Co.		1,772
Washington Mutual, Inc.		1,768
Boeing Co.		1,730

WEIGHTINGS AS A PERCENT

OF NET ASSETS

13

Portfolio of Investments

SAFECO Dividend Income Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—96.6%
Advertising—0.5%
50,000		Interpublic Group Cos., Inc.	$	704
Aerospace & Defense—3.5%
20,000		Northrop Grumman Corp.		1,940
45,000		United Technologies Corp.		2,787
Air Freight & Couriers—2.1%
45,000		United Parcel Service, Inc. (Class B)		2,839
Apparel Retail—0.5%
25,000		The Talbots, Inc.		688
Automobile Manufacturers—0.7%
25,000		General Motors Corp.		921
Banks—9.1%
47,000		Bank of America Corp.		3,270
160,000		U.S. Bancorp		3,395
85,000		Washington Mutual, Inc.		2,935
55,000		Wells Fargo & Co.		2,578
Brewers—1.4%
40,000		Anheuser-Busch Companies, Inc.		1,936
Computer Hardware—1.6%
25,000	*	Dell Computer Corp.		668
19,200		International Business Machines Corp.		1,488
Construction & Farm Machinery & Heavy Trucks—1.0%
30,000		PACCAR, Inc.		1,384
Data Processing Services—1.0%
35,000		Automatic Data Processing, Inc.		1,374
Department Stores—1.2%
70,500		May Department Stores Co.		1,620
Diversified Chemicals—1.6%
50,000		Du Pont (E.I.) de Nemours & Co.		2,120
Diversified Commercial Services—1.0%
80,000		IMS Health, Inc.		1,280
Diversified Financial Services—7.3%
70,000		American Express Co.		2,474
75,000		Citigroup, Inc.		2,639
45,000		Federal National Mortgage Association		2,895
75,000		J.P. Morgan Chase & Co.		1,800
Electric Utilities—2.8%
68,000		Duke Energy Corp.		1,329
75,000		FirstEnergy Corp.		2,473

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Electronic Equipment & Instruments—3.0%
55,000	*	Agilent Technologies, Inc.	$	988
40,000		Diebold, Inc.		1,649
40,000		Hubbell, Inc. (Class B)		1,406
Forest Products—0.9%
25,000		Weyerhaeuser Co.		1,230
Health Care Equipment—1.0%
45,000		Baxter International, Inc.		1,260
Home Furnishings—1.1%
65,000		Leggett & Platt, Inc.		1,459
Household Products—1.6%
45,000		Kimberly-Clark Corp.		2,136
Housewares & Specialities—1.8%
50,500		Fortune Brands, Inc.		2,349
Industrial Conglomerates—1.6%
90,000		General Electric Co.		2,191
Industrial Gases—1.6%
50,000		Air Products and Chemicals, Inc.		2,137
Industrial Machinery—2.4%
73,300		Ingersoll-Rand Co.		3,156
Integrated Oil & Gas—9.9%
70,000		ChevronTexaco Corp.		4,654
53,785		ConocoPhillips		2,603
88,812		Exxon Mobil Corp.		3,103
65,000		Royal Dutch Petroleum Co. (ADR)		2,861
Integrated Telecommunications Services—8.6%
45,000		ALLTEL Corp.		2,295
30,000		BellSouth Corp.		776
50,000		CenturyTel, Inc.		1,469
125,000		SBC Communications, Inc.		3,389
91,740		Verizon Communications		3,555
IT Consulting & Services—0.6%
45,000		Electronic Data Systems Corp.		829
Movies & Entertainment—1.3%
105,000		Walt Disney Co.		1,713
Multi-Line Insurance—3.7%
35,000		American International Group, Inc.		2,025
65,700		Hartford Financial Services Group, Inc.		2,985
Multi-Utilities—1.1%
75,000		NiSource, Inc.		1,500

SEE NOTES TO FINANCIAL STATEMENTS

14

Portfolio of Investments

SAFECO Dividend Income Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Pharmaceuticals—6.3%
50,000		Abbott Laboratories	$	2,000
20,000		Johnson & Johnson		1,074
35,000		Pharmacia Corp.		1,463
60,000		Schering-Plough Corp.		1,332
70,000		Wyeth		2,618
Publishing & Printing—1.9%
35,000		Gannett Co., Inc.		2,513
Real Estate Investment Trust—8.8%
134,000		Equity Residential		3,294
137,000		First Industrial Realty Trust, Inc.		3,836
145,000		Liberty Property Trust		4,631
Semiconductor Equipment—0.7%
62,800		Intel Corp.		978
Semiconductors—0.3%
25,000		Texas Instruments, Inc.		375
Systems Software—1.0%
25,000	*	Microsoft Corp.		1,293
Telecommunications Equipment—1.0%
90,000		Nokia Oyj (ADR)		1,395
Tobacco—1.1%
35,000		Philip Morris Cos., Inc.		1,419
TOTAL COMMON STOCKS (cost $123,516)				129,476

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
CASH EQUIVALENTS—3.1%
Investment Companies
4,081,381	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)	$	4,081
TOTAL CASH EQUIVALENTS (cost $4,081)			4,081
TOTAL INVESTMENTS (cost $127,597)—99.7%			133,557
Other Assets, less Liabilities			458
NET ASSETS		$	134,015

* Non-income producing security.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

15

Report From the Fund Manager

SAFECO Northwest Fund

December 31, 2002

    William B. Whitlow

How did the fund perform?

The SAFECO Northwest Fund underperformed the S&P 500 for the year ended December 31, 2002. The Fund returns were below the benchmark for five and ten years as well.

What factors impacted the fund’s performance?

The performance was the result of the pro-growth nature of the portfolio in a period of declining markets.

The U.S. stock market just completed its first three-year losing streak since 1939 to 1941. This severe “bear” market has been prolonged by an unusually weak recovery, disclosures of corporate malfeasance and threats of war with Iraq.

In this difficult environment, growth stocks fared much worse than the market in general. For example, the NASDAQ Composite, which contains more technology than the S&P 500, declined 74% since its peak in March of 2000 while the S&P 500 was down 41%. Because our Fund reflects the Northwest economy’s bias toward growth industries like technology and biotechnology, we have underperformed the S&P 500 since the peak. This negative impact has been cushioned to some degree by the portfolio’s broad diversification and our attention to valuation and risk control.

Consistent with the continued decline in growth stocks, the portfolio’s full-year performance was hurt most by telecom and tech stocks and was helped by our financial holdings as well as cyclical companies in the industrial and materials sectors. Our second-half winners were biotech companies and three of our new positions, F-5 Networks, PACCAR and Airborne.

What changes did you make and why?

The few changes made to the portfolio as the year unfolded were to further diversify and increase the quality of the holdings. For the most part, stocks eliminated were lower quality and had performed poorly in the risk-adverse environment. To increase the portfolio’s cyclical exposure, we added PACCAR, the maker of Kenworth and Peterbilt heavy trucks; Monaco Coach, a manufacturer of luxury RVs; and Airborne. Positions sold during the year included Agilent, InfoSpace, Onyx Software, Eden Biosciences, Touch America, Western Wireless, Qwest, and PMC-Sierra.

What is your outlook for the future?

I believe we are in the early stages of a slow economic recovery which will eventually lead to improving corporate profits. Further, new legislation from Congress, industry changes separating investment banking from research and the passage of time are putting the spate of corporate malfeasance issues behind us. Only the potential for a war with Iraq remains a major unknown. As we move through 2003, I believe the risks will decrease and the market will improve.

16

Report From the Fund Manager

SAFECO Northwest Fund

December 31, 2002

Because I anticipate a better environment and because the objective of the SAFECO Northwest Fund is to reflect the long-term growth of the Northwest economy, I have maintained a pro-growth, pro-cyclical bias in the portfolio. I believe this strategy will lead to superior results when a better environment returns.

Bill Whitlow, MBA, CFA

Vice President of SAFECO Asset Management Company; BA Chemistry, University of Colorado (1967); MBA Finance, U.C. Berkeley (1974); Chartered Financial Analyst (CFA) (1980)

Bill Whitlow, a nationally quoted authority on Northwest stocks, began his investment career at SAFECO in 1976, staying four years and then returning April 1997. He has over 26 years of investment experience. Before his return to SAFECO, Whitlow was a principal with Pacific Crest Securities in Portland, OR. He is currently on the Governor’s Council of Economic Advisors for the state of Washington.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

17

Performance Overview & Highlights

SAFECO Northwest Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		10 Year
SAFECO Northwest Fund	(24.13	)%	(2.05	)%	4.98	%
S&P 500 Index	(22.12	)%	(0.59	)%	9.33	%
WM Group NW 50 Index	(19.78	)%	4.51	%	10.14	%
Lipper, Inc. (Multi-Cap Core Funds)	(21.75	)%	(0.25	)%	8.52	%
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Banks	18	%
Pharmaceuticals	8
Food Retail	6
Air Freight & Couriers	5
Biotechnology	4
TOP TEN HOLDINGS	Percent of Net Assets
Expeditors International of Washington, Inc. (Air Freight & Couriers)	3.8	%
Bank of America Corp. (Banks)	3.7
U.S. Bancorp (Banks)	3.7
Microsoft Corp. (Systems Software)	3.6
Washington Mutual, Inc. (Banks)	3.6
Pfizer, Inc. (Pharmaceuticals)	3.4
Tektronix, Inc. (Electric Equipment & Instruments)	3.2
Starbucks Corp. (Restaurants)	3.2
Schnitzer Steel Industries, Inc. (Steel)	3.1
Wyeth (Pharmaceuticals)	3.1

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
S&P Depository Receipts Trust, Series 1	$	1,584
Icos Corp.		1,463
F5 Networks, Inc.		1,129
PACCAR, Inc.		1,011
Airborne, Inc.		833
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Starbucks Corp.	$	2,236
StanCorp Financial Group, Inc.		1,706
S&P Depository Receipts Trust, Series 1		1,586
Expeditors International of Washington, Inc.		1,523
Boeing Co.		1,208

WEIGHTINGS AS A PERCENT

OF NET ASSETS

18

Portfolio of Investments

SAFECO Northwest Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—99.3%
Aerospace & Defense—1.4%
28,500		Boeing Co.	$	940
Air Freight & Couriers—5.2%
65,000		Airborne, Inc.		964
75,000		Expeditors International of Washington, Inc.		2,449
Airlines—2.5%
74,000	*	Alaska Air Group, Inc.		1,602
Application Software—2.3%
381,200	*	Captaris, Inc.		915
33,260	*	NetIQ Corp.		411
470,000	*	Primus Knowledge Solutions, Inc.		197
Automobile Manufacturers—1.3%
51,500	*	Monaco Coach Corp.		852
Banks—17.8%
35,000		Bank of America Corp.		2,435
59,600		Pacific Northwest Bancorp		1,490
113,000		U.S. Bancorp		2,398
94,600		Washington Banking Co.		1,126
67,500		Washington Mutual, Inc.		2,331
116,300		West Coast Bancorp, Inc.		1,762
Biotechnology—4.3%
17,160	*	Amgen, Inc.		829
98,000	*	Corixa Corp.		626
106,000	*	Dendreon Corp.		563
33,500	*	Icos Corp.		784
Catalog Retail—2.4%
80,000	*	Coldwater Creek, Inc.		1,536
Construction & Farm Machinery & Heavy Trucks—2.1%
29,500		PACCAR, Inc.		1,361
Diversified Chemicals—2.6%
123,000		Penford Corp.		1,719
Diversified Commercial Services—3.1%
82,000	*	Ambassadors Group, Inc.		1,061
60,500		IMS Health, Inc.		968
Electric Utilities—1.9%
82,500		Avista Corp.		954
81,000	*	Calpine Corp.		264
Electronic Equipment & Instruments—3.2%
115,000	*	Tektronix, Inc.		2,092
Food Retail—5.5%
117,000	*	Kroger Co.		1,808
76,500	*	Safeway, Inc.		1,787

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
General Merchandise Stores—3.0%
69,000	*	Costco Wholesale Corp.	$	1,936
Health Care Equipment—2.0%
97,500	*	SonoSite, Inc.		1,274
Health Care Supplies—0.8%
105,000	*	AVI BioPharma, Inc.		525
Integrated Oil & Gas—1.9%
30,000		BP, plc (ADR)		1,219
Integrated Telecommunications Services—1.0%
22,000		CenturyTel, Inc.		646
Internet Software & Services—1.1%
68,500	*	F5 Networks, Inc.		736
Leisure Products—1.1%
80,000	*	Ambassadors International, Inc.		719
Life & Health Insurance—3.1%
41,000		StanCorp Financial Group, Inc.		2,003
Movies & Entertainment—0.8%
138,000	*	RealNetworks, Inc.		526
Networking Equipment—1.5%
43,050	*	Avocent Corp.		957
Oil & Gas Drilling—1.9%
53,000		Transocean Sedco Forex, Inc.		1,230
Oil & Gas Exploration & Production—2.0%
26,500		Anadarko Petroleum Corp.		1,269
Personal Products—1.2%
56,500	*	Nautilus Group, Inc.		755
Pharmaceuticals—8.2%
102,000	*	Penwest Pharmaceuticals Co.		1,081
72,500		Pfizer, Inc.		2,216
54,200		Wyeth		2,027
Restaurants—3.2%
101,500	*	Starbucks Corp.		2,069
Semiconductor Equipment—1.6%
68,000		Intel Corp.		1,059
Semiconductors—1.3%
44,000	*	Micron Technology, Inc.		428
101,000	*	TriQuint Semiconductor, Inc.		428
Steel—3.1%
97,500		Schnitzer Steel Industries, Inc.		2,038

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

19

Portfolio of Investments

SAFECO Northwest Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Systems Software—3.6%
45,100	*	Microsoft Corp.	$	2,332
Wireless Telecommunications Services—1.3%
144,000	*	AT&T Wireless Services, Inc.		814
TOTAL COMMON STOCKS (cost $64,751)				64,511
CASH EQUIVALENTS—0.9%
Investment Companies
604,982		AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)		605
TOTAL CASH EQUIVALENTS (cost $605)				605
TOTAL INVESTMENTS (cost $65,356)—100.2%				65,116
Other Assets, less Liabilities				(164	)
NET ASSETS			$	64,952

* Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS

20

Report From the Fund Managers

SAFECO International Stock Fund

December 31, 2002

How did the fund perform?

The SAFECO International Stock Fund lagged its benchmark, the Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index for the year ending December 31, 2002. Over the one-and five-year time period, the Fund has performed substantially the same as the index.

What factors impacted the fund’s performance?

Most global equity markets recorded negative returns in 2002 for the third successive year—the first time this has happened since the early years of the Second World War—despite a modest recovery in the fourth quarter. European markets were among the worst performers during the year, and the S&P 500 Index of America’s largest corporations shed about 22% of its value during 2002. However, the final quarter of the year produced healthy local currency returns of 5-10% for many markets except Japan.

Early in the year, the decline in equity markets was mainly led by telecom, media and technology (TMT) companies, although financial stocks also weakened amid fears regarding their exposure to bankrupt and debt-laden companies in the TMT sectors. By year-end, however, stocks in the technology, telecom and financial sectors dominated the list of top gainers in the fourth quarter. These sectors rebounded from their low levels in early October amid some hope the worst of the three-year bear market may be coming to an end.

Those sectors that had performed relatively well for the year overall weakened to a degree in the fourth quarter. This included the Household & Personal Products and Food Beverage & Tobacco indices. At a MSCI country level, the top performing nations were Portugal, Spain and Finland, while Japan and Greece were the largest losers in the quarter.

European equity markets recovered to a degree in the fourth quarter, helping to alleviate the losses for the year overall. The Euro registered gains against the U.S. Dollar amid concern America may not attract as much international investment flows as previously and as Eurozone interest rates remained at a relatively higher level.

Given our preference for stocks with dependable earnings growth, the Fund tends to be underweight in technology and overweight in defensive consumer-oriented sectors, yielding virtually the same performance as the index over the period under review.

Earlier in 2002, telecom stocks contributed to most of the decline in the portfolio as these companies were knocked by a global loss of investor confidence. In the second half of 2002, consistent with the broader market, the poorest performing holdings in the Fund were found in the insurance and banking industries. While no sector was able to escape the dramatic downturn in the markets, stocks held in the consumer sectors were somewhat of a safe haven.

By year end, on an absolute level, financial services stocks were among the top performers in the Fund in the fourth quarter. Shares in ABN AMRO Holding NV rose sharply, ING Groep NV advanced, and Britain’s Prudential Plc also gained.

A strong improvement in Vodafone Group Plc’s shares also augmented the portfolio’s return. Vodafone’s mobile phone markets and margins have continued to grow enabling the company to generate considerable cashflow.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

21

Report From the Fund Managers

SAFECO International Stock Fund

December 31, 2002

The Fund’s positive gains were offset to a degree by declines in certain of the pharmaceutical stocks as investors fretted about the strength of the companies’ drugs pipelines. Novartis AG declined on worries about its ability to replace products near patent expiry. GlaxoSmithKline Plc dropped slightly as it has struggled to develop new drugs while facing erosion of its existing drug sales.

The consumer staples sector was relatively weaker amid concerns about the robustness of consumer expenditure. Diageo Plc fell as it reduced the sale price of its Burger King restaurant chain to $1.5 billion, ensuring its purchase by a consortium of investors.

What changes did you make to the fund and why?

No changes were made to our investment strategy during the second half of 2002. We do not expect the fourth quarter rally to be sustained as much of the gains were made by ‘high beta’ stocks (stocks that rise and fall more than the overall market on average) at the expense of more defensive areas of the market. We remain disposed to quality ‘defensive’ stocks, which tend to produce solid earnings growth over time. Overall, equity markets are likely to continue to trend sideways amid occasional bouts of volatility.

In the second half of the year, we took advantage of share price weakness to add to existing holdings such as Nokia, Aventis and Novartis, as well as ING and Nestle. New purchases included Kingfisher, Deutsche Bank and Hong Kong Electric Holdings.

What is your outlook for the future?

The final quarter of 2002 provided a snapshot of the difficulties facing investors. October and November registered strong gains amid rising optimism that markets were entering a bullish phase, pushing some stocks strongly ahead. By the end of December, much of those gains had evaporated as geopolitical tensions began to rise again.

The low interest rate environment should provide a beneficial backdrop for equity markets. Interest rates in the U.S. are at a level last recorded in 1961 and we do not expect any significant movement in 2003. There may be more scope for the European Central Bank to ease rates further if inflation does moderate. As economic recovery takes hold, we believe corporate profits should improve although the level of improvement may be quite modest. However, we do not expect economic growth to be so strong as to prompt an aggressive rise in interest rates.

The possibility of a war with Iraq represents a significant risk to the global economy. Another potential obstacle to a global economic recovery could be foreign exchange turmoil if the U.S. Dollar weakens too much. While we have believed for some time that the U.S. Dollar has been overvalued, the extent of its decline could hurt economies, such as the Eurozone and Japan that are heavily dependent on the American export market.

Bank of Ireland

Asset Management (U.S.) Limited

The Bank of Ireland Asset Management (U.S.) Limited (BIAM) investment committee is comprised of senior analysts, economists and headed by the company’s chief financial officer. BIAM began managing the Fund in 1996.

22

Performance Overview & Highlights

SAFECO International Stock Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		Since Inception*
SAFECO International Stock Fund	(19.12	)%	(4.27	)%	(0.58	)%
MSCI EAFE Index	(17.52	)%	(4.33	)%	(2.55	)%
Lipper, Inc. (International Funds)	(16.67	)%	(2.34	)%	N/A
* Graph and average annual return comparison begins January 31, 1996, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE COUNTRIES	Percent of Net Assets
United Kingdom	30	%
Japan	13
Switzerland	13
Netherlands	10
France	9
TOP TEN HOLDINGS	Percent of Net Assets
Nestle SA (Food Retail)	3.8	%
Total Fina Elf SA (Integrated Oil & Gas)	3.7
Canon, Inc. (Office Services & Supplies)	3.4
GlaxoSmithKline, plc (Pharmaceuticals)	2.9
Aventis SA (Pharmaceuticals)	2.8
UBS AG (Banks)	2.8
Barclays, plc (Banks)	2.6
Diageo, plc (Brewers)	2.6
Shell Transport & Trading Co., plc (Integrated Oil & Gas)	2.6
ING Groep NV (Banks)	2.6

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
BP, plc	$	399
British American Tobacco, plc		268
Samsung Electronics Co., Ltd.		251
Allianz AG		247
Tesco, plc		219
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Royal Dutch Petroleum Co.	$	232
Hitachi Ltd.		211
AstraZeneca Group, plc		187
NEC Corp.		173
Vivendi Universal SA		172

23

Portfolio of Investments

SAFECO International Stock Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
COMMON STOCKS—99.1%
Australia—3.2%
44,484	Foster’s Group, Ltd. Brewers	$	113
10,800	National Australia Bank, Ltd. Banks		193
22,027	News Corp., Ltd. Publishing & Printing		143
24,911	Westpac Banking Corp., Ltd. Banks		193
Finland—1.1%
14,178	Nokia Oyj Wireless Telecommunications Services		225
France—8.7%
10,056	Aventis SA Pharmaceuticals		547
18,312	Axa Multi-Line Insurance		246
2,500	Lafarge SA Construction Materials		188
5,178	Total Fina Elf SA Integrated Oil & Gas		739
Germany—5.9%
1,086	Allianz AG Multi-Line Insurance		103
9,675	Bayer AG Diversified Chemicals		203
10,291	Bayerische Motoren Werke AG Automobile Manufacturers		313
2,657	Deutsche Bank AG Banks		122
10,601	E.On AG Electric Utilities		427
Hong Kong—2.8%
28,000	Cheung Kong Holdings, Ltd. Real Estate Investment Trust		182
21,000	Hongkong Electric Holdings, Ltd. Electric Utilities		79
871,000	PetroChina Co., Ltd. Oil & Gas Exploration & Production		173
21,000	Sun Hung Kai Properties, Ltd. Real Estate Investment Trust		124
Ireland—0.5%
8,066	CRH, plc Construction Materials		99

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
Italy—4.3%
32,027	ENI SpA Integrated Oil & Gas	$	509
44,625	Telecom Italia SpA Integrated Telecommunications Services		339
Japan—13.4%
2,580	Acom Co., Ltd. Consumer Finance		85
18,000	Canon, Inc. Office Services & Supplies		678
9,000	Fuji Photo Film Co. Office Services & Supplies		294
7,700	Honda Motor Co., Ltd. Automobile Manufacturers		285
3,600	Hoya Corp. Health Care Supplies		252
2,200	Nintendo Co., Ltd. Consumer Electronics		206
76	NTT DoCoMo, Inc. Integrated Telecommunications Services		140
1,300	Rohm Co., Ltd. Electrical Components & Equipment		166
800	SMC Corp. Industrial Machinery		75
3,000	Sony Corp. Electrical Components & Equipment		125
8,600	Takeda Chemical Industries Pharmaceuticals		359
Netherlands—10.4%
24,220	ABN AMRO Holding NV Banks		396
3,756	Heineken NV Brewers		147
30,174	ING Groep NV Banks		511
18,582	Koninklijke (Royal) Philips Electronics NV Semiconductors		326
19,435	Koninklijke Ahold NV Food Retail		247
18,979	Reed Elsevier NV Publishing & Printing		232
6,860	TPG NV Distributors		111
3,855	VNU NV Publishing & Printing		101
Portugal—0.1%
15,547	Electricidade de Portugal SA Electric Utilities		26

SEE NOTES TO FINANCIAL STATEMENTS

24

Portfolio of Investments

SAFECO International Stock Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
South Korea—2.3%
3,200	Kookmin Bank (ADR)* Banks	$	113
3,500	POSCO (ADR)* Steel		87
1,881	Samsung Electronics Co., Ltd. Electronic Equipment & Instruments		249
Spain—3.4%
51,345	Banco Santander Central Hispano SA Banks		352
36,745	Telefonica SA Integrated Telecommunications Services		329
Switzerland—12.8%
3,580	Nestle SA Food Retail		758
11,242	Novartis AG Pharmaceuticals		410
5,288	Roche Holding AG Pharmaceuticals		368
6,817	Swiss Re Multi-Line Insurance		447
11,386	UBS AG Banks		553
United Kingdom—30.2%
9,870	3i Group, plc Diversified Financial Services		87
84,219	Barclays, plc Banks		520
9,697	Boots Co., plc Drug Retail		91
48,588	BP, plc Integrated Oil & Gas		334
24,383	British American Tobacco, plc Tobacco		244
35,066	Cadbury Schweppes, plc Soft Drinks		219
38,234	Compass Group, plc Food Retail		203
47,769	Diageo, plc Brewers		520
29,790	GlaxoSmithKline, plc Pharmaceuticals		572
37,700	Hilton Group, plc Hotels		100
29,310	HSBC Holdings, plc Banks		324
25,083	Kingfisher, plc Home Improvement Retail		89
63,843	Lloyds TSB Group, plc Banks		458

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
United Kingdom—(continued)
32,369	Prudential, plc Multi-Line Insurance	$	228
79,590	Shell Transport & Trading Co., plc Integrated Oil & Gas		524
6,306	Smiths Group, plc Industrial Conglomerates		71
62,879	Tesco, plc Food Retail		196
19,100	TI Automotives, Ltd. (Illiquid)† Industrial Conglomerates		0
52,633	Unilever, plc Household Products		501
263,625	Vodafone Group, plc Integrated Telecommunications Services		482
11,777	Wolseley, plc Distributors		99
16,320	WPP Group, plc Advertising		124
TOTAL COMMON STOCKS (cost $19,254)			19,674
TOTAL INVESTMENTS (cost $19,254)—99.1%			19,674
Domestic Cash			280
Foreign Cash			44
Other Assets, less Liabilities			(148	)
			176
NET ASSETS		$	19,850

* American Depositary Receipt.

† Securities are valued at fair value as determined under the supervision of the Board of Trustees.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

25

Portfolio of Investments

SAFECO International Stock Fund

As of December 31, 2002

Industry Diversification	Percent of Net Assets
Banks	18.8	%
Pharmaceuticals	11.4
Integrated Oil & Gas	10.6
Food Retail	7.1
Integrated Telecommunications Services	6.5
Multi-Line Insurance	5.2
Office Services & Supplies	4.9
Brewers	3.9
Automobile Manufacturers	3.0
Electric Utilities	2.7
Other	25.9
	100.0	%

SEE NOTES TO FINANCIAL STATEMENTS

26

Report From the Fund Managers

SAFECO Balanced Fund

December 31, 2002

    Rex Bentley             Michael Hughes             Lynette D. Sagvold

How did the fund perform?

The SAFECO Balanced Fund had a negative return for the year ending December 31, 2002. For the year the results of the Fund lagged those of a 60/40 composite of the Russell 1000 Value Index and the Lehman Aggregate Bond Index.

What factors impacted the fund’s performance?

Two factors have had a major impact on Fund performance over the past few years. One is the sharp decline in equity values, the other is the decline in interest rates and resulting positive bond returns. Over this period the Fund has benefited from having value-oriented equities, which have provided some downside protection, and from buying investment grade bonds.

Since adopting a policy of keeping equity sectors closer to the Index, relative stock returns have improved. More recently, we are also experiencing better results in stock selection. We have had fewer disappointments, and they have caused less damage.

Fixed income performance was impacted by weakness in corporate bonds in general, and by a few rating downgrades, which materially impacted performance. Most of those bonds have been sold.

What changes did you make and why?

As the year progressed, we began marginally shifting the portfolio toward more cyclical stocks. We purchased stocks such as Caterpillar, Emerson Electric, Hewlett Packard, PACCAR and Weyerhaeuser. These stocks are economically and market sensitive, and had attractive valuations. They all performed well as the market rallied. We sold stocks that were experiencing deteriorating business prospects, including Bristol Meyers Squibb and Electronic Data Systems.

As far as equity sector weightings, we remain fairly close to the Index in all sectors. We are overweighted in some sectors that we think will participate in a stronger economy, such as producer durables, consumer discretionary and technology. We are underweight in financials due to concern over the impact of potentially higher interest rates.

In the fixed income portion of the portfolio, we increased the diversification of corporate issues and improved credit quality. We added to corporate bonds, concentrating on single-A-rated issuers. Exposure to mortgages was also increased. Bond duration for the Fund is slightly less than the Index.

What is your outlook for the future?

There are still a number of issues on investor’s minds. These include geopolitical tensions, the outlook for U.S. GDP, accounting practices and governance issues. These aren’t new concerns, and we expect that financial markets have largely discounted them. We expect the U.S. economy to gradually improve, which should help earnings, stocks and corporate bond spreads.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

27

Report From the Fund Managers

SAFECO Balanced Fund

December 31, 2002

We believe the Balanced Fund—with holdings in quality, attractively-valued companies—is positioned to offer downside protection should the markets fall further, while offering enough prospects to participate in a market rally.

Rex Bentley, MBA, CFA

Vice President of SAFECO Asset Management; BA and MBA, Brigham Young University (1975); Chartered Financial Analyst (CFA) (1981)

Rex joined SAFECO Asset Management in 1995 and has amassed more than 20 years investment experience.

Michael Hughes, MBA, CFA

Michael Hughes is vice president of SAFECO Asset Management Company. He began his investment career in 1987 and joined SAFECO as a portfolio manager in January 1997. A Chartered Financial Analyst, Hughes holds an MBA degree from the University of Southern California.

Lynette D. Sagvold, CFA

Vice President of SAFECO Asset Management Company; BA Business Administration, University of Washington (1982); Chartered Financial Analyst (CFA) (1988)

Lynette began her investment career in 1981 at Kidder Peabody and was a portfolio manager for Key Trust and First Interstate before joining SAFECO Asset Management Company as a portfolio manager in 1995.

28

Performance Overview & Highlights

SAFECO Balanced Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		Since Inception*
SAFECO Balanced Fund	(8.74	)%	1.70	%	5.13	%
60% Russell 1000 Value/40% Lehman Brothers Gov’t/Corp. Index	(4.90	)%	3.74	%	7.62	%
60% Russell 1000 Value/40% Lehman Brothers Aggregate Bond Index	(5.21	)%	3.71	%	7.62	%
S&P 500 Index	(22.12	)%	(0.59	)%	6.43	%
Lipper, Inc. (Balanced Funds)	(11.71	)%	1.50	%	N/A
* Graph and average annual return comparison begins January 31, 1996, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES (Common Stocks)	Percent of Net Assets
Banks	8	%
Integrated Oil & Gas	6
Integrated Telecommunications Services	5
Diversified Financial Services	4
Multi-Line Insurance	3
TOP TEN STOCK HOLDINGS	Percent of Net Assets
Exxon Mobil Corp. (Integrated Oil & Gas)	2.1	%
Citigroup, Inc. (Diversified Financial Services)	1.9
ChevronTexaco Corp. (Integrated Oil & Gas)	1.9
Verizon Communications (Integrated Telecommunications Services)	1.7
American International Group, Inc. (Multi-Line Insurance)	1.7
U.S. Bancorp (Banks)	1.6
Washington Mutual, Inc. (Banks)	1.6
Wells Fargo & Co. (Banks)	1.6
SBC Communications (Integrated Telecommunications Service)	1.5
Praxair, Inc. (Industrial Gases)	1.3

TOP FIVE PURCHASES (Common Stocks) For the Year Ended December 31, 2002	Cost (000’s)
FirstEnergy Corp.	$	269
Target Corp.		226
ChevronTexaco Corp.		196
Bank of New York Co., Inc.		195
Home Depot, Inc.		187
TOP FIVE SALES (Common Stocks) For the Year Ended December 31, 2002	Proceeds (000’s)
Gillette Co.	$	265
CVS Corp.		201
Anheuser-Busch Companies, Inc.		197
Procter & Gamble Co.		183
Northrop Grumman Corp.		145

WEIGHTINGS AS A PERCENT

OF NET ASSETS

29

Portfolio of Investments

SAFECO Balanced Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—58.8%
Aerospace & Defense—1.3%
1,900		Raytheon Co.	$	58
2,700		United Technologies Corp.		167
Air Freight & Couriers—0.9%
2,400		United Parcel Service, Inc. (Class B)		151
Aluminum—0.4%
3,400		Alcoa, Inc.		77
Automobile Manufacturers—0.5%
2,200		General Motors Corp.		81
Banks—7.9%
2,600		Bank of America Corp.		181
5,900		Bank of New York Co., Inc.		141
4,700		KeyCorp		118
2,400		State Street Corp.		94
12,820		U.S. Bancorp		272
7,750		Washington Mutual, Inc.		268
5,600		Wells Fargo & Co.		263
Computer Hardware—1.2%
3,600		Hewlett-Packard Co.		63
1,700		International Business Machines Corp.		132
Computer Storage & Peripherals—0.2%
4,600	*	EMC Corp.		28
Construction & Farm Machinery & Heavy Trucks—0.8%
1,300		Caterpillar, Inc.		59
1,600		PACCAR, Inc.		74
Data Processing Services—0.6%
2,600		Automatic Data Processing, Inc.		102
Department Stores—0.6%
4,350		May Department Stores Co.		100
Diversified Chemicals—1.5%
2,800		Dow Chemical Co.		83
4,100		Du Pont (E.I.) de Nemours & Co.		174
Diversified Financial Services—4.3%
3,800		American Express Co.		134
9,000		Citigroup, Inc.		317
1,400		Federal National Mortgage Association		90
7,500		J.P. Morgan Chase & Co.		180
Electric Utilities—2.3%
9,400		Duke Energy Corp.		184
6,000		FirstEnergy Corp.		198
Electrical Components & Equipment—0.5%
1,600		Emerson Electric Co.		81

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Electronic Equipment & Instruments—1.1%
1,400		Diebold, Inc.	$	58
3,500		Hubbell, Inc. (Class B)		123
Food Distributors—0.6%
3,300		SYSCO Corp.		98
Food Retail—0.9%
10,300	*	Kroger Co.		159
Forest Products—0.3%
1,000		Weyerhaeuser Co.		49
General Merchandise Stores—1.8%
4,000	*	Costco Wholesale Corp.		112
6,100		Target Corp.		183
Health Care Equipment—0.5%
3,100		Baxter International, Inc.		87
Home Furnishings—0.8%
6,000		Leggett & Platt, Inc.		135
Home Improvement Retail—0.8%
5,500		Home Depot, Inc.		132
Household Products—1.4%
3,000		Kimberly-Clark Corp.		142
1,000		Procter & Gamble Co.		86
Industrial Conglomerates—1.1%
7,800		General Electric Co.		190
Industrial Gases—1.3%
3,800		Praxair, Inc.		220
Industrial Machinery—0.9%
3,600		Ingersoll-Rand Co.		155
Integrated Oil & Gas—5.5%
4,700		ChevronTexaco Corp.		312
3,601		ConocoPhillips		174
9,876		Exxon Mobil Corp.		345
2,200		Royal Dutch Petroleum Co. (ADR)		97
Integrated Telecommunications Services—5.2%
4,100		ALLTEL Corp.		209
4,100		CenturyTel, Inc.		121
9,600		SBC Communications, Inc.		260
7,214		Verizon Communications		280
Movies & Entertainment—1.1%
10,900		Walt Disney Co.		178
Multi-Line Insurance—2.9%
4,800		American International Group, Inc.		278
4,600		Hartford Financial Services Group, Inc.		209

SEE NOTES TO FINANCIAL STATEMENTS

30

Portfolio of Investments

SAFECO Balanced Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Multi-Utilities—1.1%
9,300		NiSource, Inc.	$	186
Oil & Gas Equipment & Services—0.4%
1,500		Schlumberger, Ltd.		63
Pharmaceuticals—2.5%
3,600		Abbott Laboratories		144
3,400		Pfizer, Inc.		104
2,400		Pharmacia Corp.		100
3,100		Schering-Plough Corp.		69
Property & Casualty Insurance—0.6%
7,300	*	Travelers Property Casualty Corp. (Class B)		107
Publishing & Printing—0.9%
2,200		Gannett Co., Inc.		158
Real Estate Investment Trust—1.7%
4,000		Equity Residential		98
3,300		First Industrial Realty Trust, Inc.		92
3,100		Liberty Property Trust		99
Semiconductor Equipment—0.5%
5,400		Intel Corp.		84
Semiconductors—0.3%
3,600		Texas Instruments, Inc.		54
Soft Drinks—0.8%
3,100		PepsiCo, Inc.		131
Systems Software—0.5%
1,800	*	Microsoft Corp.		93
Telecommunications Equipment—0.3%
3,200		Nokia Oyj (ADR)		50
TOTAL COMMON STOCKS (cost $10,567)				9,894
CORPORATE BONDS—13.8%
Airlines—1.5%
75,000		American Airlines, Inc. 2.02%, due 9/23/07		75
65,000		Delta Air Lines, Inc. 7.11%, due 9/18/11		64
25,000		Northwest Airlines, Inc. 7.041%, due 4/01/22		24
110,021		United Air Lines 7.783%, due 1/01/14		86
Banks—0.1%
25,000		Washington Mutual, Inc. 4.375%, due 1/15/08		25

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Computer Hardware—0.4%
65,000		International Business Machines Corp. 1.545%, due 9/10/04	$	65
Consumer Finance—0.6%
70,000		Countrywide Home Loans, Inc. 3.50%, due 12/19/05		71
25,000		Household Finance Corp. 7.875%, due 3/01/07		28
Diversified Chemicals—0.5%
80,000		Dow Chemical Co. 5.75%, due 12/15/08		83
Diversified Financial Services—2.8%
90,000	#	Erac USA Finance Co. (144A) 8.00%, due 1/15/11 (acquired 1/09/01)		103
40,000		Ford Motor Credit Co. 7.25%, due 10/25/11		39
80,000		General Electric Capital Corp. 6.75%, due 3/15/32		88
100,000		General Motors Acceptance Corp. 6.125%, due 9/15/06		102
70,000		John Deere Capital Corp. 2.01%, due 9/17/04		70
55,000		Morgan Stanley Dean Witter Co. 6.60%, due 4/01/12		61
Electric Utilities—1.5%
75,000		Avista Corp. 7.75%, due 1/01/07		77
65,000		National Rural Utilities Cooperative Finance Corp. 7.25%, due 3/01/12		75
40,000		PSEG Power 6.95%, due 6/01/12		41
65,000		Puget Sound Energy, Inc. 6.25%, due 1/16/04		67
Food Retail—0.7%
100,000		Safeway, Inc. 7.50%, due 9/15/09		115
Forest Products—0.2%
40,000		Weyerhaeuser Co. 5.50%, due 3/15/05		42
General Merchandise Stores—0.5%
75,000		Target Corp. 6.35%, due 11/01/32		78
Home Furnishings—0.5%
70,000		Mohawk Industries, Inc. 6.50%, due 4/15/07		76

SAFECO    MUTUAL    FUNDS 1-800-624-5711

SEE NOTES TO FINANCIAL STATEMENTS

31

Portfolio of Investments

SAFECO Balanced Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Household Products—0.2%
35,000		Newell Rubbermaid, Inc. 4.625%, due 12/15/09	$	36
Integrated Oil & Gas—0.8%
65,000		Pemex Project Funding Master Trust 9.125%, due 10/13/10		74
55,000		USX Corp. 6.85%, due 3/01/08		62
Integrated Telecommunications Services—0.5%
85,000		Verizon Wireless, Inc. 5.375%, due 12/15/06		89
Life & Health Insurance—0.8%
65,000	#	Jackson National Life Global Funding, LLC (144A) 1.58125%, due 3/11/05 (acquired 9/05/02)		65
70,000		Lincoln National Corp. 5.25%, due 6/15/07		72
Movies & Entertainment—0.2%
30,000		AOL Time Warner, Inc. 6.75%, due 4/15/11		31
Oil & Gas Refining & Marketing—0.2%
40,000	#	Kinder Morgan, Inc. (144A) 6.50%, due 9/01/12 (acquired 12/03/02)		42
Telecommunications Equipment—0.2%
25,000		Verizon Global Funding Corp. 7.375%, due 9/01/12		29
Trucking—0.9%
145,000		Hertz Corp. 7.00%, due 7/01/04		146
Wireless Telecommunications Services—0.7%
105,000		TCI Communications, Inc. 8.65%, due 9/15/04		113
TOTAL CORPORATE BONDS (cost $2,236)				2,314
ASSET BACKED SECURITIES—2.8%
Consumer Finance—0.8%
65,000		Americredit Automobile Receivables Trust 1.68%, due 12/12/07		65
70,000		MBNA Credit Card Master Note Trust 1.88%, due 12/15/08		70

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
Diversified Financial Services—2.0%
102,249	CNH Equipment Trust 7.34%, due 2/15/07	$	106
195,000	General Motors Acceptance Corp. 6.42%, due 5/15/35		220
TOTAL ASSET BACKED SECURITIES (cost $441)			461
MORTGAGE BACKED SECURITIES—16.7%
Collateral Mortgage Obligation (CMO)—0.5%
89,966	6.50%, due 2/14/41		92
Diversified Financial Services—1.1%
170,000	First Union Commercial Mortgage Trust 6.07%, due 10/15/35		188
Federal National Mortgage Association (FNMA)—13.5%
85,000	4.375%, due 9/15/12		85
329,968	5.00%, due 12/01/17		339
200,426	5.50%, due 9/01/17		208
155,000	5.75%, due 2/15/08		174
181,993	6.00%, due 1/01/29		189
223,690	6.00%, due 8/01/32		231
85,991	6.00%, due 9/01/29		89
77,209	6.50%, due 1/01/15		82
215,608	6.50%, due 7/01/29		225
77,643	7.00%, due 3/01/12		83
27,645	8.00%, due 1/01/31		30
48,346	8.00%, due 10/01/30		52
60,750	8.00%, due 2/01/29		66
37,052	8.00%, due 2/01/30		40
253,901	8.00%, due 3/01/31		274
35,856	8.00%, due 4/01/20		39
18,905	8.00%, due 4/01/30		20
17,500	8.00%, due 5/01/31		19
19,027	8.00%, due 7/01/30		20
Government National Mortgage Association (GNMA)—1.6%
14,275	6.00%, due 4/15/14		15
75,266	6.00%, due 8/15/13		80
100,831	7.00%, due 4/15/28		107
23,187	7.00%, due 8/15/28		25
31,926	7.75%, due 11/15/29		34
TOTAL MORTGAGE BACKED SECURITIES (cost $2,677)			2,806

SEE NOTES TO FINANCIAL STATEMENTS

32

Portfolio of Investments

SAFECO Balanced Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
U.S. GOVERNMENT OBLIGATIONS—7.2%
U.S. Treasury Notes—7.2%
80,000	4.875%, due 2/15/12	$	87
250,000	6.00%, due 8/15/09		291
425,000	6.50%, due 11/15/26		517
110,000	9.25%, due 2/15/16		163
135,000	U.S. Treasury Inflation Index Note 3.50%, due 1/15/11		155
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $1,141)			1,213
MUNICIPAL BONDS—0.4%
Electric Utilities—0.4%
70,000	California State Department of Water Resources Supply Revenue 4.33%, due 5/01/06		71
TOTAL MUNICIPAL BONDS (cost $70)			71
CASH EQUIVALENTS—1.3%
Investment Companies
220,463	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)		220
TOTAL CASH EQUIVALENTS (cost $220)			220
TOTAL INVESTMENTS (cost $17,352)—101.0%			16,979
Other Assets, less Liabilities			(164	)
NET ASSETS		$	16,815

* Non-income producing security.

# Securities are exempt from registration and restricted as to resale only to dealers, or through a dealer to a “qualified institutional buyer”. The total cost of such securities is $196,000 and the total value is $210,000 or 1.25% of net assets.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

SEE NOTES TO FINANCIAL STATEMENTS

33

Report From the Fund Manager

SAFECO Small Company Value Fund

December 31, 2002

    Greg Eisen

How did the fund perform?

Though it posted a negative return for the year, the SAFECO Small Company Value Fund performed substantially better than the benchmark Russell 2000 Value Index for the year ending December 31, 2002. The Fund lagged the benchmark for the trailing five years (these numbers reflect a change in benchmark in 2001 from the Russell 2000 Index to the Russell 2000 Value Index and the violent shift from a growth to a value market).

What factors impacted performance?

Winning sector and stock selection account for the performance advantage achieved during the year. I correctly perceived that technology industries were not going to bounce back quickly and was conservative in allocating money there. Another correct sector decision was in financials. Small banks continued to perform well in a declining interest rate environment. Also, the Fund held more positions of smaller size than in prior years, and this helped soften the blow of the inevitable earnings torpedoes when we did suffer them.

What changes did you make and why?

We attempted to lock in profits on stocks that had accomplished targeted goals. Positions were either sold entirely (e.g. Riggs Bank, Websense, Patterson UTI), or cut back substantially (e.g. ITT Educational, Macatawa Bank). Other positions were exited for less auspicious reasons—losing positions were acknowledged and the money redeployed (e.g. Mikohn Gaming, DeVry).

Some new positions such as Black Box Corp. have been added with an eye towards participating in the economic recovery and renewal of growth in corporate spending. Successful stocks this year included Schnitzer Steel, Owens Illinois, Black Box, and CPB, Inc. Some unsuccessful names that remain in the portfolio include Optimal Robotics, Insight Enterprises and Sonosite. I think the first two have an opportunity to recover when spending picks up. Sonosite continues to ramp up sales at a high rate and I’m pleased with their operational performance.

The Fund is broadly diversified over all the economic sectors, exposed to a significant selection of industries. I try to emphasize companies with sustainable business models, healthy balance sheets and free cash flow, yet purchase these at cheap valuations.

34

Report From the Fund Manager

SAFECO Small Company Value Fund

December 31, 2002

What is your outlook for the future?

Looking ahead, I believe the overall economy will show better growth in 2003 than we witnessed in 2002. Yet the road to recovery will be bumpy, with its share of potholes along the way. I am trying to position the Fund with companies that will participate in the upturn as it happens, while still being strong enough not to be crushed if the positive scenario is delayed.

Greg Eisen, CFA

Assistant Vice President of SAFECO Asset Management Company; BA Business Administration, Rutgers University (1978); Chartered Financial Analyst (CFA) (1995)

In 1986, Greg Eisen joined SAFECO as a financial analyst. In 1992, he became a securities analyst. He was named portfolio manager in 1996 and is currently manager of the SAFECO Small Company Value Fund, which he has managed since its inception.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

35

Performance Overview & Highlights

SAFECO Small Company Value Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		Since Inception*
SAFECO Small Company Value Fund	(3.76	)%	(1.21	)%	5.53	%
Russell 2000 Value Index	(11.42	)%	2.71	%	9.01	%
Lipper, Inc. (Small-Cap Value Funds)	(10.32	)%	3.81	%	N/A
* Graph and average annual return comparison begins January 31, 1996, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Banks	13	%
Trucking	6
Real Estate Investment Trust	5
Networking Equipment	4
Steel	4
TOP TEN HOLDINGS	Percent of Net Assets
Nordic American Tanker Shipping, Ltd. (Marine)	3.1	%
Alliance Gaming Corp. (Casinos & Gaming)	2.6
Key Energy Services, Inc. (Oil & Gas Drilling)	2.6
CPB, Inc. (Banks)	2.5
Anixter International, Inc. (Networking Equipment)	2.3
Universal Corp (Tobacco)	2.3
StanCorp Financial Group, Inc. (Life & Health Insurance)	2.3
Cash America International, Inc. (Consumer Finance)	2.3
United Defense Industries, Inc. (Aerospace & Defense)	2.2
Precision Castparts Corp. (Diversified Metals & Mining)	2.2

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
URS Corp.	$	1,073
Optimal Robotics Corp. (Class A)		1,003
Shaw Group, Inc.		1,000
Key Energy Services, Inc.		923
Beazer Homes USA, Inc.		912
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Florida Rock Industries, Inc.	$	994
Elcor Corp.		914
Federal Signal Corp.		780
Websense, Inc.		775
FBR Asset Investment Corp.		773

WEIGHTINGS AS A PERCENT

OF NET ASSETS

36

Portfolio of Investments

SAFECO Small Company Value Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—94.0%
Aerospace & Defense—2.2%
38,500	*	United Defense Industries, Inc.	$	897
Apparel Retail—2.1%
80,200		Wet Seal, Inc. (Class A)		863
Banks—12.5%
11,400		Alabama National BanCorp		496
50,000	*	BankUnited Financial Corp. (Class A)		809
13,800		BostonFed Bancorp, Inc.		368
26,385		Camco Financial Corp.		375
37,500		CPB, Inc.		1,029
49,229	*	Hanmi Financial Corp.		826
18,232		Macatawa Bank Corp.		362
41,200		Pacific Crest Capital, Inc.		651
5,830		Southern Financial Bancorp, Inc.		176
Building Products—1.0%
22,900		Elcor Corp.		396
Casinos & Gaming—2.6%
62,100	*	Alliance Gaming Corp.		1,058
Catalog Retail—1.5%
74,800	*	Insight Enterprises, Inc.		622
Construction & Engineering—1.7%
48,000		URS Corp.		683
Construction Materials—2.4%
9,250		Florida Rock Industries, Inc.		352
20,700		Martin Marietta Materials, Inc.		635
Consumer Finance—3.3%
55,500	*	AmeriCredit Corp.		430
96,900		Cash America International, Inc.		923
Distributors—1.6%
46,300	*	Building Materials Holding Corp.		662
Diversified Commercial Services—2.6%
16,500	*	ITT Educational Services, Inc.		389
19,000		Landauer, Inc.		660
Diversified Financial Services—2.7%
110,700	*	Rent-Way, Inc.		387
44,200		SWS Group, Inc.		599
7,850		Westwood Holdings Group, Inc.		105
Diversified Metals & Mining—2.2%
36,100		Precision Castparts Corp.		875
Electronic Equipment & Instruments—0.8%
57,000	*	Optimal Robotics Corp. (Class A)		342

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Gas Utilities—1.7%
40,700		NUI Corp.	$	702
Health Care Distributors & Services—1.5%
96,400		Hooper Holmes, Inc.		592
Health Care Equipment—2.2%
13,200	*	INAMED Corp.		407
37,400	*	SonoSite, Inc.		489
Health Care Supplies—1.1%
59,800	*	Thoratec Corp.		456
Homebuilding—2.1%
13,800	*	Beazer Homes USA, Inc.		836
Housewares & Specialities—2.1%
21,500		Lancaster Colony Corp.		840
Industrial Machinery—1.0%
10,800		Roper Industries, Inc.		395
Integrated Oil & Gas—2.0%
39,300		World Fuel Services Corp.		806
Life & Health Insurance—2.3%
18,900		StanCorp Financial Group, Inc.		923
Managed Health Care—1.1%
22,200	*	National Dentex Corp.		434
Marine—3.1%
92,800		Nordic American Tanker Shipping, Ltd.		1,257
Metal & Glass Containers—1.4%
38,100	*	Owens-Illinois, Inc.		556
Networking Equipment—4.1%
39,800	*	Anixter International, Inc.		925
16,100	*	Black Box Corp.		721
Oil & Gas Drilling—2.6%
117,200	*	Key Energy Services, Inc.		1,051
Oil & Gas Equipment & Services—1.6%
44,000	*	Lone Star Technologies, Inc.		655
Paper Packaging—1.8%
60,900	*	Constar International, Inc.		716
Property & Casualty Insurance—2.7%
37,300		First American Corp.		828
9,000		RLI Corp.		251

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

SEE NOTES TO FINANCIAL STATEMENTS

37

Portfolio of Investments

SAFECO Small Company Value Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Real Estate Investment Trust—4.6%
16,800		Alexandria Real Estate Equities, Inc.	$	716
16,800		Camden Property Trust		554
22,000		First Industrial Realty Trust, Inc.		616
Restaurants—1.3%
30,100	*	Jack in the Box, Inc.		520
Specialty Stores—2.0%
31,900		Regis Corp.		829
Steel—3.6%
39,700		Schnitzer Steel Industries, Inc.		830
38,800	*	Shaw Group, Inc.		638
Telecommunications Equipment—1.0%
26,800	*	Plantronics, Inc.		406
Tobacco—2.3%
25,000		Universal Corp.		924
Trucking—5.6%
29,400	*	Arkansas Best Corp.		764
14,000	*	Landstar System, Inc.		817
27,700	*	P.A.M. Transportation Services, Inc.		698
TOTAL COMMON STOCKS (cost $36,130)				38,122
PREFERRED STOCKS—3.0%
Electric Utilities—3.0%
2,400		Cincinnati Gas & Electric Co. Callable 1/27/03 @ $108.00		221
2,100		Connecticut Light & Power Co. Callable 1/27/03 @ $51.00		63
2,700		Connecticut Light & Power Co. Callable 1/27/03 @ $54.00		84
2,400		Great Plains Energy, Inc. Callable 1/27/03 @ $101.00		151
3,300		Jersey Central Power & Light Co. Callable 1/27/03 @ $106.50		192
4,000		Massachusetts Electric Co. Callable 1/27/03 @ $103.73		281
4,800		PSI Energy, Inc. Callable 1/27/03 @ $25.00		83
2,000		Virginia Electric & Power Co. Callable 11/04/02 @ $101.00		136
TOTAL PREFERRED STOCKS (cost $1,229)				1,211

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
COMMERCIAL PAPER—2.4%
Diversified Financial Services—2.4%
1,000,000	UBS Finance, Inc. 1.20%, due 1/02/03	$	1,000
TOTAL COMMERCIAL PAPER (cost $1,000)			1,000
CASH EQUIVALENTS—9.0%
Investment Companies
2,093,426	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)		2,093
1,560,842	Nations Money Market Reserves		1,561
TOTAL CASH EQUIVALENTS (cost $3,654)			3,654
TOTAL INVESTMENTS (cost $42,013)—108.4%			43,987
Other Assets, less Liabilities			(3,414	)
NET ASSETS		$	40,573

* Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS

38

Report From the Fund Managers

SAFECO U.S. Value Fund

December 31, 2002

    Rex Bentley             Lynette D. Sagvold

How did the fund perform?

Over the past three months the equity market rallied, ending a very negative year on a positive note. The SAFECO U.S. Value Fund participated in both the positive fourth quarter and the negative year, with an overall decline that lagged its benchmark, the Russell 1000 Value Index for the year ending December 31, 2002.

What factors impacted the fund’s performance?

The biggest factor impacting the Fund over the past year and the past three years was the sharp decline in equity prices. This decline occurred among all major equity indices regardless of style, size or domicile. Value investing was more defensive than other styles, but returns were decidedly negative. Stocks were driven down over concerns regarding a number of issues, including the direction of U.S. economy, weakness in earnings, corporate accounting practices and governance issues, as well as world geopolitical events.

Over the course of the year we responded to these issues by investing in what we believe are higher quality companies in terms of financial strength and future earnings prospects. As we did this, we also continued to pay close attention to valuation.

What changes did you make and why?

As the year progressed, we gradually began shifting the portfolio marginally toward stocks that are more cyclical in nature. This was done with an eye toward the eventual economic and stock market recovery that we believe will occur at some point. To accomplish this we added stocks such as Caterpillar, Emerson Electric, Hewlett Packard, PACCAR and Weyerhaeuser. Those stocks performed well last quarter as the market rallied.

We also moved to an overweighted position in the utility sector. This was done because many of these stocks reached valuation levels we found compelling. The Bell regional companies for example were selling at relative price-to-earnings ratios substantially below historic norms. At those levels we found the stocks very attractive. We were pleased last quarter that both Verizon Communications and SBC Communications were among our best performing stocks during the market advance.

What is your outlook for the future?

While the concerns cited earlier still exist, none of them are new. We believe that three straight years of negative stock market returns have adequately discounted these negatives. If this is so, we believe the equity market could have a reasonably good year in 2003. We also believe the U.S. economy will continue to improve, which should help earnings and stock prices.

Our sector weightings remain fairly close to those of the Russell 1000 Value Index. We are overweighted in some sectors that we think will participate in a stronger economy, such as producer durables, consumer discretionary and technology. We are also overweighted in health care, which we think is

SAFECO    MUTUAL    FUNDS 1-800-624-5711

39

Report From the Fund Managers

SAFECO U.S. Value Fund

December 31, 2002

generally inexpensive relative to growth prospects. We are underweighted in financials due to the impact of potentially higher interest rates.

We believe the U.S. Value Fund—with holdings in quality, attractively valued companies—is positioned to offer downside protection should equities fall further, while offering enough prospects to participate in a market rally.

Rex Bentley, MBA, CFA

Vice President of SAFECO Asset Management Company; BA and MBA, Brigham Young University (1975); Chartered Financial Analyst (CFA) (1981)

Rex joined SAFECO Asset Management in 1995 and has amassed more than 20 years investment experience.

Lynette D. Sagvold, CFA

Vice President of SAFECO Asset Management Company; BA Business Administration, University of Washington (1982); Chartered Financial Analyst (CFA) (1988)

Lynette began her investment career in 1981 at Kidder Peabody and was a portfolio manager for Key Trust and First Interstate before joining SAFECO Asset Management Company as a portfolio manager in 1995.

40

Performance Overview & Highlights

SAFECO U.S. Value Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year		5 Year		Since Inception*
SAFECO U.S. Value Fund	(18.42	)%	(1.43	)%	1.59	%
Russell 1000 Value Index	(15.52	)%	1.16	%	5.30	%
Lipper, Inc. (Large-Cap Value Funds)	(19.95	)%	(0.90	)%	N/A
* Graph and average annual return comparison begins April 30, 1997, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Banks	13	%
Integrated Oil & Gas	9
Integrated Telecommunications Services	9
Diversified Financial Services	7
Multi-Line Insurance	5
TOP TEN HOLDINGS	Percent of Net Assets
Exxon Mobil Corp. (Integrated Oil & Gas)	3.5	%
Citigroup, Inc. (Diversified Financial Services)	3.1
U.S. Bancorp (Banks)	2.9
Verizon Communications (Integrated Telecommunications Services)	2.8
American International Group, Inc. (Multi-Line Insurance)	2.7
ChevronTexaco Corp. (Integrated Oil & Gas)	2.6
Wells Fargo & Co. (Banks)	2.6
SBC Communications, Inc.. (Integrated Telecommunications Services)	2.5
Washington Mutual, Inc. (Banks)	2.4
FirstEnergy Corp. (Electric Utilities)	2.1

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
FirstEnergy Corp.	$	217
Target Corp.		169
Kimberly-Clark Corp.		135
Home Depot, Inc.		126
United Technologies Corp.		121
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Gillette Corp.	$	207
Anheuser-Busch Companies, Inc.		160
CVS Corp.		157
Procter & Gamble Co.		141
United Parcel Service, Inc. (Class B)		126

WEIGHTINGS AS A PERCENT

OF NET ASSETS

41

Portfolio of Investments

SAFECO U.S. Value Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—96.9%
Aerospace & Defense—2.0%
1,100		Raytheon Co.	$	34
1,900		United Technologies Corp.		118
Air Freight & Couriers—1.6%
1,900		United Parcel Service, Inc. (Class B)		120
Aluminum—0.8%
2,500		Alcoa, Inc.		57
Automobile Manufacturers—0.7%
1,500		General Motors Corp.		55
Banks—12.9%
1,900		Bank of America Corp.		132
3,200		Bank of New York Co., Inc.		77
3,600		KeyCorp		91
2,000		State Street Corp.		78
10,090		U.S. Bancorp		214
5,300		Washington Mutual, Inc.		183
4,100		Wells Fargo & Co.		192
Computer Hardware—1.9%
2,500		Hewlett-Packard Co.		43
1,300		International Business Machines Corp.		101
Computer Storage & Peripherals—0.3%
4,300	*	EMC Corp.		26
Construction & Farm Machinery & Heavy Trucks—1.3%
900		Caterpillar, Inc.		41
1,200		PACCAR, Inc.		55
Data Processing Services—1.0%
2,000		Automatic Data Processing, Inc.		79
Department Stores—1.0%
3,250		May Department Stores Co.		75
Diversified Chemicals—2.6%
1,800		Dow Chemical Co.		53
3,300		Du Pont (E.I.) de Nemours & Co.		140
Diversified Financial Services—7.3%
2,900		American Express Co.		103
6,700		Citigroup, Inc.		236
1,100		Federal National Mortgage Association		71
5,800		J.P. Morgan Chase & Co.		139
Electric Utilities—3.6%
5,700		Duke Energy Corp.		111
4,800		FirstEnergy Corp.		158

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Electrical Components & Equipment—0.9%
1,300		Emerson Electric Co.	$	66
Electronic Equipment & Instruments—1.8%
1,000		Diebold, Inc.		41
2,600		Hubbell, Inc. (Class B)		91
Food Distributors—1.0%
2,400		SYSCO Corp.		72
Food Retail—1.6%
7,500	*	Kroger Co.		116
Forest Products—0.5%
800		Weyerhaeuser Co.		39
General Merchandise Stores—2.9%
2,900	*	Costco Wholesale Corp.		81
4,500		Target Corp.		135
Health Care Equipment—0.7%
2,000		Baxter International, Inc.		56
Home Furnishings—1.2%
4,000		Leggett & Platt, Inc.		90
Home Improvement Retail—1.2%
3,600		Home Depot, Inc.		86
Household Products—2.3%
2,200		Kimberly-Clark Corp.		104
800		Procter & Gamble Co.		69
Industrial Conglomerates—1.7%
5,100		General Electric Co.		124
Industrial Gases—2.1%
2,700		Praxair, Inc.		156
Industrial Machinery—1.6%
2,800		Ingersoll-Rand Co.		121
Integrated Oil & Gas—8.9%
2,900		ChevronTexaco Corp.		193
2,665		ConocoPhillips		129
7,528		Exxon Mobil Corp.		263
1,800		Royal Dutch Petroleum Co. (ADR)		79
Integrated Telecommunications Services—8.6%
3,100		ALLTEL Corp.		158
3,300		CenturyTel, Inc.		97
6,800		SBC Communications, Inc.		184
5,348		Verizon Communications		207
Movies & Entertainment—1.6%
7,400		Walt Disney Co.		121

SEE NOTES TO FINANCIAL STATEMENTS

42

Portfolio of Investments

SAFECO U.S. Value Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Multi-Line Insurance—4.8%
3,500		American International Group, Inc.	$	203
3,400		Hartford Financial Services Group, Inc.		154
Multi-Utilities—2.0%
7,300		NiSource, Inc.		146
Oil & Gas Equipment & Services—0.7%
1,200		Schlumberger, Ltd.		51
Pharmaceuticals—4.2%
2,800		Abbott Laboratories		112
2,500		Pfizer, Inc.		76
1,800		Pharmacia Corp.		75
2,400		Schering-Plough Corp.		53
Property & Casualty Insurance—1.0%
5,001	*	Travelers Property Casualty Corp. (Class B)		73
Publishing & Printing—1.5%
1,600		Gannett Co., Inc.		115
Real Estate Investment Trust—3.1%
3,200		Equity Residential		79
2,700		First Industrial Realty Trust, Inc.		76
2,500		Liberty Property Trust		80
Semiconductor Equipment—0.9%
4,400		Intel Corp.		69
Semiconductors—0.5%
2,600		Texas Instruments, Inc.		39
Soft Drinks—1.3%
2,300		PepsiCo, Inc.		97
Systems Software—0.8%
1,200	*	Microsoft Corp.		62
Telecommunications Equipment—0.5%
2,300		Nokia Oyj (ADR)		36
TOTAL COMMON STOCKS (cost $7,795)				7,256

SHARES OR PRINCIPAL AMOUNT		Value (000’s)
CASH EQUIVALENTS—3.5%
Investment Companies
258,510	AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)	$	258
TOTAL CASH EQUIVALENTS (cost $258)			258
TOTAL INVESTMENTS (cost $8,053)—100.4%			7,514
Other Assets, less Liabilities			(28	)
NET ASSETS		$	7,486

* Non-income producing security.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

SEE NOTES TO FINANCIAL STATEMENTS

43

Report From the Fund Manager

SAFECO Small Company Growth Fund

December 31, 2002

    Thomas J. Ross

How did the fund perform?

The SAFECO Small Company Growth Fund, though posting negative returns, outperformed the Russell 2000 Growth Index for the year ending December 31, 2002.

What factors impacted the fund’s performance?

Earlier in 2002, performance of the Fund was helped most by strong performance in retail stocks, favorable stock selection in healthcare providers, and by underweighting software stocks. The major detractors from returns in the first half of the year came from semiconductor holdings and the underweight position in banks. Later in 2002, performance was held back by holdings in auto component stocks and again by underweighting banks.

Technology was among the most punished groups in the Russell 2000 Growth Index for much of the year, rebounding in the fourth quarter to become the best performing sector in the Index. The Fund was able to participate in the rebound, although stock selection within tech and underweight allocations to tech muted returns. Many of the stocks we considered as having the weakest fundamental business outlooks climbed the most over the quarter, in a rally that exhibited traits of a speculative recoil.

Much of the relative underperformance in the fourth quarter resulted from the defensive positioning during a general rotation to more cyclical areas of the market, such as technology. For example, the portfolio retained an overweight position in health care providers and services, given this segment’s relatively stable earnings and revenue streams. After strong relative performance through the third quarter, this was one of the poorer performing industries over the fourth quarter.

Health care providers across market caps generally lost ground after it was reported that medical doctors at a large cap health care provider were being investigated for allegedly operating on patients without legitimate medical justification. The provider also came under scrutiny for its unusually large use of Medicare outlier payments to generate growth. Our internal research indicated that this was not a widespread practice, although many stocks in this industry fell nevertheless.

Capital goods stocks also detracted from active returns. Holdings in this group include several defense-related companies, which were adding significantly to performance through September, but later fell as questions arose regarding billing practices in government projects while several defense companies’ records were subpoenaed. Regardless of whether the U.S. goes to war, this group should benefit from a multi-year period of rising U.S. defense spending in an otherwise weak economy.

Energy stocks benefited from rising oil and gas prices, along with favorable supply and demand trends and a colder winter. Commercial Service stocks include top ten holdings Waste Connections, Inc. and Alliance Data Systems Corp. Dallas based ADS is one of the largest private label credit card service providers in the U.S.

44

Report From the Fund Manager

SAFECO Small Company Growth Fund

December 31, 2002

What changes did you make and why?

Earlier in 2002, we reduced allocations to technology, we exited telecommunications, added to consumer discretionary, commercial goods and services, and added exposure to financials with new bank and insurance holdings. We also reduced our biotechnology holdings. By the end of the third quarter, the Fund held eight to nine bank holdings to provide diversification. The second and third largest portfolio holdings by quarter-end were from the commercial goods and services sector.

On balance, we retained our emphasis on companies with relatively predictable earnings outlooks. For most of the fourth quarter, the environment did not favor a portfolio with these characteristics. The Fund outperformed the Russell 2000 Growth Index during December’s falling market and over the last six months of the year. Before positioning the portfolio more aggressively, we wish to see more substantive indications that the economy and business outlooks are improving. We believe that investor interests are best served in the current uncertain environment by a visible earnings bias.

We added selectively to technology but remained underweight, given our concerns about the sector’s aggressive earnings expectations, high valuations, and in many cases, high cash burn rates by companies that are not yet generating positive cash flow from operations.

What is your outlook for the future?

Despite our generally cautious outlook, we remain alert to signs that the increasing fiscal policy response to the slowdown may be leading to an improvement in business conditions in various sectors of the economy. Some strategists are suggesting that President Bush’s stimulus package will boost equity markets, despite concerns that some segments remain highly valued.

In the absence of a major new terrorist attack or adverse developments in a U.S. military conflict, we believe small cap stocks can continue to outperform and complement large cap stocks, supported by their strong fundamentals including better valuations, faster sales and earnings growth, and their historical tendency to outperform larger cap securities in the early stages of an economic recovery.

Thomas J. Ross

Dresdner RCM Global Investors LLC (the “sub-advisor”) acts as the investment sub-advisor to the SAFECO Small Company Growth Fund. Thomas J. Ross is a Director of the sub-advisor, with which he has been associated since 2001. Prior to 2001, he was a senior analyst and portfolio manager for Dresdner Bank’s Dresdner Investment Trust subsidiary for ten years. He is primarily responsible for the day-to-day management of the Fund. Mr. Ross manages or co-manages other accounts of the sub-advisor or its clients.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

45

Performance Overview & Highlights

SAFECO Small Company Growth Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year	Since Inception*
SAFECO Small Company Growth Fund	(26.12)%	(14.27)%
Russell 2000 Growth Index	(30.26)%	(17.17)%
Lipper, Inc. (Small-Cap Growth Funds)	(29.72)%	N/A
* Total return comparison begins October 31, 2001, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Application Software	6	%
Banks	6
Health Care Facilities	6
Pharmaceuticals	5
Specialty Stores	4
TOP TEN HOLDINGS	Percent of Net Assets
Renal Care Group, Inc. (Health Care Facilities)	2.0	%
Performance Food Group Co. (Food Distributors)	1.8
Waste Connections, Inc. (Environmental Services)	1.7
Hibbet Sporting Goods, Inc. (Specialty Stores)	1.5
Career Education Corp. (Diversified Commercial Services)	1.5
Alliance Data Systems Corp. (Data Processing Systems)	1.5
Choice Hotels International, Inc. (Hotels)	1.5
United Natural Foods, Inc. (Food Distributors)	1.4
Hilb, Rogal and Hamilton Co. (Insurance Brokers)	1.3
Unit Corp. (Oil & Gas Exploration & Production)	1.2

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
Microsemi Corp.	$	153
Grey Wolf, Inc.		120
Monro Muffler Brake, Inc.		119
Concurrent Computer Corp.		112
Hibbett Sporting Goods, Inc.		111
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Triad Hospitals, Inc.	$	210
Varian Medical Systems, Inc..		156
National-Oilwell, Inc.		150
Monro Muffler Brake, Inc.		147
Fidelity National Information Solutions, Inc.		132

WEIGHTINGS AS A PERCENT

OF NET ASSETS

46

Portfolio of Investments

SAFECO Small Company Growth Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—95.6%
Aerospace & Defense—2.5%
1,000	*	DRS Technologies, Inc.	$	31
3,500	*	The Titan Corp.		36
2,250	*	Veridian Corp.		48
Air Freight & Couriers—0.7%
1,300		UTI Worldwide, Inc.		34
Airlines—1.4%
1,310	*	JetBlue Airways Corp.		35
2,150		SkyWest, Inc.		28
Apparel & Accessories—0.9%
2,500	*	Gymboree Corp.		40
Apparel Retail—0.9%
1,840	*	Too, Inc.		43
Application Software—5.9%
3,500		Autodesk, Inc.		50
2,300	*	Business Objects SA (ADR)		34
1,000	*	Cerner Corp.		31
1,000	*	Imation Corp.		35
2,250	*	J.D. Edwards & Co.		25
5,600	*	Lawson Software, Inc.		32
3,000	*	Macromedia, Inc.		32
1,350	*	Take-Two Interactive Software, Inc.		32
Banks—5.8%
1,030		East West Bancorp, Inc.		37
1,440		Mid-State Bancshares		24
1,866		Pacific Capital Bancorp		47
1,000		PFF Bancorp, Inc.		31
4,100		Sterling Bancshares, Inc.		50
900		UCBH Holdings, Inc.		38
1,300		Wintrust Financial Corp.		41
Biotechnology—1.3%
750	*	Cell Genesys, Inc.		8
580	*	Icos Corp.		14
720	*	InterMune, Inc.		18
2,500	*	Protein Design Labs, Inc.		21
Broadcasting & Cable TV—1.9%
3,000	*	Cumulus Media, Inc. (Class A)		45
950	*	Entercom Communications Corp.		45
Casinos & Gaming—1.1%
3,000	*	Alliance Gaming Corp.		51
Computer Storage & Peripherals—1.3%
5,500	*	Adaptec, Inc.		31
6,100	*	Maxtor Corp.		31
Construction & Engineering—0.5%
450	*	EMCOR Group, Inc.		24

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Construction & Farm Machinery—1.8%
2,140	*	AGCO Corp.	$	47
590		Oshkosh Truck Corp.		36
Data Processing Services—2.0%
3,850	*	Alliance Data Systems Corp.		68
1,600	*	Documentum, Inc.		25
Diversified Commercial Services—3.4%
1,750	*	Career Education Corp.		70
900	*	Education Management Corp.		34
1,500	*	Kroll, Inc.		29
470	*	Rent-A-Center, Inc.		23
Diversified Financial Services—0.8%
700	*	Affiliated Managers Group, Inc.		35
Electric Utilities—1.0%
1,800		MDU Resources Group, Inc.		46
Electronic Equipment & Instruments—2.4%
700	*	Cymer, Inc.		23
2,500		EDO Corp.		52
1,400	*	InVision Technologies, Inc.		37
Environmental Services—1.7%
1,980	*	Waste Connections, Inc.		76
Food Distributors—3.2%
2,500		Performance Food Group Co.		85
2,600	*	United Natural Foods, Inc.		66
General Merchandise Stores—0.7%
1,300		Fred’s, Inc.		33
Health Care Facilities—5.7%
700	*	AmSurg Corp.		14
1,800	*	LifePoint Hospitals, Inc.		54
1,340	*	Odyssey Healthcare, Inc.		46
3,000	*	Renal Care Group, Inc.		95
3,500	*	VCA Antech, Inc.		52
Health Care Supplies—1.5%
1,660		The Cooper Companies, Inc.		42
1,650	*	Wright Medical Group, Inc.		29
Home Furnishings—0.7%
1,180	*	Cost Plus, Inc.		34
Hotels—2.3%
3,000	*	Choice Hotels International, Inc.		68
1,600		Fairmont Hotels & Resorts, Inc.		38
Household Products—0.7%
1,500		The Dial Corp.		31
Insurance Brokers—1.3%
1,500		Hilb, Rogal and Hamilton Co.		61

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

SEE NOTES TO FINANCIAL STATEMENTS

47

Portfolio of Investments

SAFECO Small Company Growth Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Internet Software & Services—1.3%
1,750	*	Fidelity National Information Solutions, Inc.	$	30
1,740	*	Internet Security Systems, Inc.		32
IT Consulting & Services—0.5%
1,500	*	Altiris, Inc.		24
Leisure Products—0.7%
2,500	*	West Marine, Inc.		34
Networking Equipment—1.1%
2,950	*	NetScreen Technologies, Inc.		50
Oil & Gas Drilling—2.1%
12,600	*	Grey Wolf, Inc.		50
1,620	*	Patterson-UTI Energy, Inc.		49
Oil & Gas Equipment & Services—3.8%
1,980	*	Cal Dive International, Inc.		47
1,500	*	FMC Technologies, Inc.		31
2,500	*	National-Oilwell, Inc.		55
2,500	*	Varco International, Inc.		44
Oil & Gas Exploration & Production—2.8%
500	*	Evergreen Resources, Inc.		22
5,000	*	Ultra Petroleum Corp.		50
3,000	*	Unit Corp.		56
Packaged Foods—0.8%
1,000	*	American Italian Pasta Co.		36
Paper Products—1.3%
1,270		Boise Cascade Corp.		32
2,000		Glatfelter		26
Personal Products—1.1%
3,000	*	NBTY, Inc.		53
Pharmaceuticals—5.4%
4,000	*	Axcan Pharma, Inc.		47
2,080	*	Enzon, Inc.		35
1,810	*	K-V Pharmaceutical Co. (Class A)		42
1,450	*	OSI Pharmaceuticals, Inc.		24
1,000	*	Scios, Inc.		33
1,290	*	Taro Pharmaceutical Industries, Ltd.		49
550	*	Trimeris, Inc.		24
Property & Casualty Insurance—1.0%
1,100	*	Platinum Underwriters Holdings, Ltd.		29
600		RLI Corp.		17
Real Estate Investment Trust—3.5%
825		Alexandria Real Estate Equities, Inc.		35
800		CBL & Associates Properties, Inc.		32
700		Chelsea Property Group, Inc.		23
1,250		Redwood Trust, Inc.		35
1,100		SL Green Realty Corp.		35

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Restaurants—1.3%
1,425		Applebee’s International, Inc.	$	33
800	*	The Cheesecake Factory, Inc.		29
Semiconductor Equipment—2.0%
5,700	*	GlobespanVirata, Inc.		25
2,000	*	Integrated Circuit Systems, Inc.		37
4,000		Lattice Semiconductor Corp.		35
Semiconductors—1.5%
3,300	*	Fairchild Semiconductor Corp.		35
4,000	*	Skyworks Solutions, Inc.		34
Specialty Chemicals—0.8%
4,000	*	Omnova Solutions, Inc.		16
1,500		RPM International, Inc.		23
Specialty Stores—4.3%
2,500		Aaron Rents, Inc.		55
2,950	*	Hibbett Sporting Goods, Inc.		71
1,800	*	PETCO Animal Supplies, Inc.		42
2,000	*	Sonic Automotive, Inc.		30
Systems Software—2.0%
3,500	*	Ascential Software Corp.		8
6,000	*	Micromuse, Inc.		23
7,000	*	Novell, Inc.		23
2,850	*	Sybase, Inc.		38
Telecommunications Equipment—0.8%
1,860	*	UTStarcom, Inc.		37
Trucking—3.4%
2,600	*	Knight Transportation, Inc.		55
1,250		Roadway Corp.		46
1,800	*	Swift Transportation Co., Inc.		36
700		USFreightways Corp.		20
Wireless Telecommunications Services—0.7%
5,200		Nextel Partners, Inc.		32
TOTAL COMMON STOCKS (cost $4,346)				4,435
CASH EQUIVALENTS—4.6%
Investment Companies
214,932		AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)		215
TOTAL CASH EQUIVALENTS (cost $215)				215
TOTAL INVESTMENTS (cost $4,561)—100.2%				4,650
Other Assets, less Liabilities				(13	)
NET ASSETS			$	4,637

* Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS

48

Report From the Fund Managers

SAFECO U.S. Growth Fund

December 31, 2002

    Seth A. Reicher             Mary Bersot                 Peter Geotz

How did the fund perform?

Though the SAFECO U.S. Growth Fund posted negative returns for the year, it outperformed the Russell 1000 Growth benchmark for the year ended December 31, 2002.

What factors impacted performance?

The most fundamental characteristic of our portfolio positioning has been, and continues to be, the defensive nature of our selections and our emphasis on quality growth. Our emphasis on less leveraged, higher quality names held back relative performance as more speculative stocks outperformed during the fourth quarter rally. Using low-priced stocks as a proxy for lower-quality, from the market low in October through November, stocks priced under $5 (companies historically more likely to go under) appreciated over 100% while stocks over $60 were nearly flat.

Throughout the year, we have been underweight in more cyclical sectors, including technology and consumer discretionary, and overweight in traditionally stable growth sectors, including consumer staples companies and pharmaceuticals. While this positioning was an aid to performance through much of the year, it detracted from performance for the fourth quarter. During the first three quarters, technology and telecommunication services had been under great pressure because of weak demand and previous overbuilding and were, in fact, the worst performing sectors. The strong rebound in both during the recent rally made them the top performing sectors for the fourth quarter. Our underweight in technology, especially in semiconductors & instruments, detracted from benchmark relative performance while our small overweight in telecom supported performance.

While technology and telecommunication services posted double-digit returns for the fourth quarter, consumer staples lagged behind, with the group overall registering low single-digit returns. Our large exposure to this sector was a drag on relative performance. On the other hand, our underweight in health care providers & services was an aid to performance as this industry suffered further pressure amid government investigations.

What changes did you make and why?

We continue to be defensively positioned with an underweight in more cyclical sectors and an overweight in more stable growth sectors. Furthermore, we believe that the kinds of companies in which we invest, those able to grow earnings consistently and with high quality financials and management, are well positioned to outperform in what should continue to be a volatile market.

What is your outlook for the future?

While there has been some good news to embrace, we view the news, in aggregate, as mixed. To us, the U.S. consumer appears to be overextended with regard to credit, “saturated” with regard to consumption, and losing confidence. If correct, this would explain why the record level of mortgage refinancing activity has not apparently resulted in increased consumption.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

49

Report From the Fund Managers

SAFECO U.S. Growth Fund

December 31, 2002

Businesses don’t appear to be filling in the gap either. Capital expenditures have remained flat as profitability has waned. Businesses have little pricing power and are generally trying to keep margins up by cutting labor costs and capital expenditures. We don’t expect capital expenditures to improve materially anytime soon and struggling foreign economies are also not poised to bail us out.

Our own federal government is doing what it can to avoid further deterioration through stimulative monetary and fiscal policies. There is, of course, a delay before they impact the economy and, to date, the results are unclear. Add to this the uncertainty of potential war in the Middle East, the impact on oil prices of the Venezuelan strike and it is difficult to find a catalyst for a near-term recovery.

Seth A. Reicher, CFA Mary Bersot, CFA

Dresdner RCM Global Investors LLC (the “sub-advisor”) acts as an investment sub-advisor to the SAFECO U.S. Growth Fund. Seth A. Reicher, CFA and Mary Bersot, CFA, are primarily responsible for the day-to-day management of the Fund. Mr. Reicher is a Managing Director of the sub-advisor, which he has been associated with since 1993. Ms. Bersot is a Managing Director of the sub-advisor, which she has been associated with since 1999. From 1990 to 1999, she worked for McMorgan & Co. as a Senior Vice President managing the Taft Hartley Funds as well as a balanced mutual fund. Mr. Reicher and Ms. Bersot manage or co-manage other accounts of the sub-advisor or its clients.

Managerial change update:

Effective January, 2003, Peter Goetz has assumed the day-to-day management responsibilities of the SAFECO U.S. Growth Fund that were formerly handled by Mary Bersot. Mr. Goetz is a Director of the sub-advisor, which he has been associated with since 1999.

Peter Geotz, MBA, CFA

Peter Geotz is a member of the Large Cap Equity Team. His investment experience began in 1985. Prior to joining Dresdner RCM in 1999, Peter worked at Jurika & Voyles, where he was Vice President and Portfolio Manager for three years. There, he managed equity and balanced institutional accounts, and co-managed the firm’s core equity Value + Growth and Balanced no-load mutual funds. He received a BA in Economics from the University of California, Irvine and an MBA from the University of Southern California. Peter is a member of the Security Analysts of San Francisco.

50

Performance Overview & Highlights

SAFECO U.S. Growth Fund

INVESTOR CLASS

Average Annual Total Return for the periods ended December 31, 2002	1 Year	Since Inception*
SAFECO U.S. Growth Fund	(26.95)%	(19.42)%
Russell 1000 Growth Index	(27.88)%	(18.38)%
Lipper, Inc. (Large-Cap Growth Funds)	(28.63)%	N/A
* Total return comparison begins October 31, 2001, inception date of the Fund. Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

TOP FIVE INDUSTRIES	Percent of Net Assets
Pharmaceuticals	20	%
Systems Software	8
Diversified Financial Services	7
Industrial Conglomerates	5
General Merchandise Stores	5
TOP TEN HOLDINGS	Percent of Net Assets
Microsoft Corp. (Systems Software)	6.7	%
Pfizer, Inc. (Pharmaceuticals)	6.2
General Electric Co. (Industrial Conglomerates)	4.6
Johnson & Johnson (Pharmaceuticals)	3.7
Wyeth (Pharmaceuticals)	3.5
Wal-Mart Stores, Inc. (General Merchandise Stores)	3.4
Anheuser-Busch Companies, Inc. (Brewers)	3.4
Pharmacia Corp. (Pharmaceuticals)	3.3
Federal National Mortgage Association (Diversified Financial Services)	2.9
PepsiCo, Inc. (Soft Drinks)	2.8

TOP FIVE PURCHASES For the Year Ended December 31, 2002	Cost (000’s)
Cardinal Health, Inc.	$	94
Dell Computer Corp.		91
Medtronic, Inc.		79
Wyeth		71
Procter & Gamble Co.		68
TOP FIVE SALES For the Year Ended December 31, 2002	Proceeds (000’s)
Tyco International, Ltd.	$	123
Merck & Co., Inc.		106
American International Group, Inc.		99
Eli Lilly & Co.		74
AOL Time Warner, Inc.		72

WEIGHTINGS AS A PERCENT

OF NET ASSETS

51

Portfolio of Investments

SAFECO U.S. Growth Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
COMMON STOCKS—95.4%
Aerospace & Defense—2.5%
600		General Dynamics Corp.	$	48
1,000		United Technologies Corp.		62
Air Freight & Couriers—1.3%
900		United Parcel Service, Inc. (Class B)		57
Application Software—0.9%
800	*	Electronic Arts, Inc.		40
Biotechnology—3.4%
2,200	*	Amgen, Inc.		106
675	*	Genentech, Inc.		22
900	*	MedImmune, Inc.		24
Brewers—3.4%
3,100		Anheuser-Busch Companies, Inc.		150
Broadcasting & Cable TV—1.1%
1,200	*	Viacom, Inc. (Class B)		49
Computer Hardware—3.1%
3,500	*	Dell Computer Corp.		94
600		International Business Machines Corp.		46
Data Processing Services—1.2%
1,400		Automatic Data Processing, Inc.		55
Diversified Financial Services—6.5%
1,500		Citigroup, Inc.		53
2,000		Federal National Mortgage Association		129
1,000		Franklin Resources, Inc.		34
1,000		Marsh & McLennan Cos., Inc.		46
700		Merrill Lynch & Co., Inc.		27
Drug Retail—1.5%
2,300		Walgreen Co.		67
Food Distributors—0.8%
1,200		SYSCO Corp.		36
General Merchandise Stores—4.6%
1,150	*	Costco Wholesale Corp.		32
700		Target Corp.		21
3,000		Wal-Mart Stores, Inc.		152
Health Care Distributors & Services—2.5%
500		AmerisourceBergen Corp.		27
1,450		Cardinal Health, Inc.		86
Health Care Equipment—2.3%
1,450		Baxter International, Inc.		41
1,400		Medtronic, Inc.		64

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Home Improvement Retail—1.4%
2,500		Home Depot, Inc.	$	60
Household Products—1.9%
400		Kimberly-Clark Corp.		19
775		Procter & Gamble Co.		67
Industrial Conglomerates—5.4%
8,400		General Electric Co.		205
300		Minnesota Mining & Manufacturing Co.		37
Integrated Oil & Gas—0.5%
600		BP, plc (ADR)		24
IT Consulting & Services—1.0%
2,500	*	Accenture, Ltd. (Class A)		45
Managed Health Care—0.6%
400	*	WellPoint Health Networks, Inc.		28
Multi-Line Insurance—1.3%
975		American International Group, Inc.		56
Networking Equipment—2.4%
8,000	*	Cisco Systems, Inc.		105
Oil & Gas Equipment & Services—1.6%
1,575		Baker Hughes, Inc.		51
500	*	Weatherford International, Inc.		20
Oil & Gas Exploration & Production—0.7%
700		Anadarko Petroleum Corp.		33
Packaged Foods—1.7%
1,900		Kraft Foods, Inc. (Class A)		74
Personal Products—3.1%
2,100		Colgate-Palmolive Co.		110
900		Gillette Co.		27
Pharmaceuticals—20.1%
250		Eli Lilly & Co.		16
700	*	IDEC Pharmaceuticals Corp.		23
3,100		Johnson & Johnson		166
9,000		Pfizer, Inc.		275
3,500		Pharmacia Corp.		146
3,325		Schering-Plough Corp.		74
1,000		Teva Pharmaceutical Industries, Ltd. (ADR)		39
4,150		Wyeth		155
Restaurants—0.5%
1,000	*	Starbucks Corp.		20
Semiconductor Equipment—2.1%
6,000		Intel Corp.		93

SEE NOTES TO FINANCIAL STATEMENTS

52

Portfolio of Investments

SAFECO U.S. Growth Fund

As of December 31, 2002

SHARES OR PRINCIPAL AMOUNT			Value (000’s)
Semiconductors—0.8%
1,100	*	Maxim Integrated Products, Inc.	$	36
Soft Drinks—4.4%
1,600		Coca-Cola Co.		70
3,000		PepsiCo, Inc.		127
Specialty Stores—0.6%
1,300		Mattel, Inc.		25
Systems Software—8.0%
5,775	*	Microsoft Corp.		299
3,500	*	Oracle Corp.		38
1,275	*	VERITAS Software Corp.		20
Telecommunications Equipment—1.1%
1,350		Nokia Oyj (ADR)		21
800	*	QUALCOMM, Inc.		29
Wireless Telecommunications Services—1.1%
2,650		Vodafone Group, plc (ADR)		48
TOTAL COMMON STOCKS (cost $4,965)				4,249
CASH EQUIVALENTS—4.9%
Investment Companies
216,919		AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)		217
TOTAL CASH EQUIVALENTS (cost $217)				217
TOTAL INVESTMENTS (cost $5,182)—100.3%				4,466
Other Assets, less Liabilities				(13	)
NET ASSETS			$	4,453

* Non-income producing security.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

SEE NOTES TO FINANCIAL STATEMENTS

53

Statements of Assets and Liabilities

As of December 31, 2002

–(In Thousands, Except Per-Share Amounts)–	SAFECO Growth Opportunities Fund			SAFECO Equity Fund		SAFECO Dividend Income Fund
Assets
Investments, at Cost	$	514,384		$	630,154	$	127,597
Investments, at Value:
Unaffiliated Issuers	$	234,938		$	685,382	$	133,557
Affiliated Issuers		203,072			–		–
Total Investments at Value		438,010			685,382		133,557
Cash		–			–		–
Collateral for Securities Loaned, at Fair Value		114,201			3,460		6,274
Receivables:
Investment Securities Sold		3,841			–		–
Trust Shares Sold		706			362		608
Dividends and Interest		2			1,484		469
From Advisor		2			14		–
Other		–			33		–
Total Assets		556,762			690,735		140,908
Liabilities
Payables:
Investment Securities Purchased		–			–		–
Trust Shares Redeemed		995			3,290		370
Payable Upon Return of Securities Loaned		114,201			3,460		6,274
Forward Currency Contracts Open, Net		–			–		–
Dividends		–			143		96
Investment Advisory Fees		260			401		81
Other Accrued Expenses		240			310		72
Total Liabilities		115,696			7,604		6,893
Net Assets	$	441,066		$	683,131	$	134,015
Investor Class:
Net Assets	$	413,147		$	658,585	$	132,467
Trust Shares Outstanding		24,036			48,654		8,664
Net Asset Value, Offering Price, and Redemption Price Per Share	$	17.19		$	13.54	$	15.29
Class A:
Net Assets	$	19,024		$	13,897	$	712
Trust Shares Outstanding		1,121			1,025		46
Net Asset Value and Redemption Price Per Share	$	16.97		$	13.55	$	15.37
Maximum Offering Price Per Share (Including Sales Charge of 5.75%)	$	18.01		$	14.38	$	16.31
Class B:
Net Assets	$	8,734		$	10,520	$	747
Trust Shares Outstanding		540			793		48
Net Asset Value and Offering Price Per Share	$	16.16		$	13.26	$	15.39
Class C:
Net Assets	$	161		$	129	$	89
Trust Shares Outstanding		10			10		6
Net Asset Value and Offering Price Per Share	$	16.16		$	13.28	$	15.44
Analysis of Net Assets:
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)	$	647,121		$	675,558	$	133,691
Distributable Earnings		(206,055	)		7,573		324
Net Assets	$	441,066		$	683,131	$	134,015

SEE NOTES TO FINANCIAL STATEMENTS

54

–(In Thousands, Except Per-Share Amounts)–	SAFECO Northwest Fund			SAFECO International Stock Fund			SAFECO Balanced Fund			SAFECO Small Company Value Fund			SAFECO U.S. Value Fund			SAFECO Small Company Growth Fund			SAFECO U.S. Growth Fund
Assets
Investments, at Cost	$	65,356		$	19,254		$	17,352		$	42,013		$	8,053		$	4,561		$	5,182
Investments, at Value:
Unaffiliated Issuers	$	65,116		$	19,674		$	16,979		$	43,987		$	7,514		$	4,650		$	4,466
Affiliated Issuers		–			–			–			–			–			–			–
Total Investments at Value		65,116			19,674			16,979			43,987			7,514			4,650			4,466
Cash		–			324			–			–			–			–			–
Collateral for Securities Loaned, at Fair Value		4,131			–			461			2,102			661			–			–
Receivables:
Investment Securities Sold		77			–			–			76			–			–			–
Trust Shares Sold		54			30			10			191			–			3			–
Dividends and Interest		31			42			100			68			18			4			5
From Advisor		–			1			3			6			4			8			8
Other		–			14			–			–			–			–			–
Total Assets		69,409			20,085			17,553			46,430			8,197			4,665			4,479
Liabilities
Payables:
Investment Securities Purchased		–			–			–			2,611			–			2			–
Trust Shares Redeemed		233			102			202			1,077			9			4			–
Payable Upon Return of Securities Loaned		4,131			–			461			2,102			661			–			–
Forward Currency Contracts Open, Net		–			11			–			–			–			–			–
Dividends		–			69			43			4			19			–			3
Investment Advisory Fees		40			17			10			26			5			4			3
Other Accrued Expenses		53			36			22			37			17			18			20
Total Liabilities		4,457			235			738			5,857			711			28			26
Net Assets	$	64,952		$	19,850		$	16,815		$	40,573		$	7,486		$	4,637		$	4,453
Investor Class:
Net Assets	$	57,624		$	18,241		$	13,588		$	37,733		$	6,661		$	2,113		$	2,083
Trust Shares Outstanding		4,028			2,163			1,311			2,856			736			254			269
Net Asset Value, Offering Price, and Redemption Price Per Share	$	14.31		$	8.43		$	10.36		$	13.21		$	9.05		$	8.33		$	7.74
Class A:
Net Assets	$	3,527		$	795		$	1,586		$	1,507		$	298		$	862		$	811
Trust Shares Outstanding		251			95			153			116			33			104			105
Net Asset Value and Redemption Price Per Share	$	14.03		$	8.36		$	10.40		$	13.01		$	9.05		$	8.30		$	7.73
Maximum Offering Price Per Share (Including Sales Charge of 5.75%)	$	14.89		$	8.87		$	11.03		$	13.80		$	9.60		$	8.81		$	8.20
Class B:
Net Assets	$	3,726		$	736		$	1,641		$	1,333		$	527		$	839		$	784
Trust Shares Outstanding		278			90			158			107			59			102			103
Net Asset Value and Offering Price Per Share	$	13.41		$	8.21		$	10.37		$	12.48		$	9.00		$	8.23		$	7.66
Class C:
Net Assets	$	75		$	78			–			–			–		$	823		$	775
Trust Shares Outstanding		6			10												100			101
Net Asset Value and Offering Price Per Share	$	13.42		$	8.21											$	8.23		$	7.66
Analysis of Net Assets:
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)	$	77,468		$	26,463		$	18,081		$	46,584		$	8,784		$	5,653		$	5,697
Distributable Earnings		(12,516	)		(6,613	)		(1,266	)		(6,011	)		(1,298	)		(1,016	)		(1,244	)
Net Assets	$	64,952		$	19,850		$	16,815		$	40,573		$	7,486		$	4,637		$	4,453

SEE NOTES TO FINANCIAL STATEMENTS

55

Statements of Operations

For the Year Ended December 31, 2002

–(In Thousands)–	SAFECO Growth Opportunities Fund			SAFECO Equity Fund			SAFECO Dividend Income Fund
Investment Income
Dividends (Net of Foreign Taxes Withheld of $49 in the International Stock Fund)	$	345		$	14,809		$	3,998
Interest		62			533			89
Income from Securities Loaned, net		579			27			10
Total Investment Income		986			15,369			4,097
Expenses
Investment Advisory		4,046			5,686			1,085
Fund Accounting and Administration		261			313			140
Transfer Agent—Investor Class		1,689			2,178			366
—Class A		129			147			3
—Class B		42			48			4
—Class C		1			–			–
Shareholder Service—Class A		58			43			2
—Class B		28			33			2
—Class C		–			–			–
Distribution              —Class B		83			98			7
—Class C		1			1			1
Legal and Auditing		49			60			26
Custodian		57			69			16
Registration		39			42			35
Reports to Shareholders		222			273			36
Trustees		11			13			8
Loan Interest		31			–			–
Amortization of Offering Costs		–			–			–
Other		56			88			13
Total Expenses Before Expense Reimbursement		6,803			9,092			1,744
Expense Reimbursement From Advisor—Investor Class		(47	)		–			(23	)
—Class A		(79	)		(147	)		(2	)
—Class B		(15	)		(13	)		(2	)
—Class C		–			–			–
Total Expenses After Expense Reimbursement		6,662			8,932			1,717
Investment Income (Loss)		(5,676	)		6,437			2,380
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers		(81,175	)		(17,633	)		(5,448	)
Investments in Affiliated Issuers		(35,475	)		–			–
Net Increase from Payment by Affiliates		2,581			–			573
Foreign Currency Transactions		–			–			–
Total Net Realized Gain (Loss)		(114,069	)		(17,633	)		(4,875	)
Net Change in Unrealized Appreciation (Depreciation)		(176,160	)		(264,417	)		(27,526	)
Net Gain (Loss) on Investments and Foreign Currency		(290,229	)		(282,050	)		(32,401	)
Net Change in Net Assets Resulting from Operations	$	(295,905	)	$	(275,613	)	$	(30,021	)

SEE NOTES TO FINANCIAL STATEMENTS

56

–(In Thousands)–	SAFECO Northwest Fund			SAFECO International Stock Fund			SAFECO Balanced Fund			SAFECO Small Company Value Fund			SAFECO U.S. Value Fund			SAFECO Small Company Growth Fund			SAFECO U.S. Growth Fund
Investment Income
Dividends (Net of Foreign Taxes Withheld of $49 in the International Stock Fund)	$	678		$	507		$	249		$	505		$	195		$	17		$	48
Interest		28			1			409			48			6			6			4
Income from Securities Loaned, net		42			–			5			24			4			–			–
Total Investment Income		748			508			663			577			205			23			52
Expenses
Investment Advisory		552			224			123			271			59			54			38
Fund Accounting and Administration		71			20			16			33			8			5			4
Transfer Agent—Investor Class		219			78			40			111			15			2			2
—Class A		17			4			6			4			1			–			–
—Class B		17			4			6			5			2			–			–
—Class C		–			–			–			–			–			–			–
Shareholder Service—Class A		11			2			4			3			1			2			2
—Class B		12			2			4			3			1			2			2
—Class C		–			–			–			–			–			3			2
Distribution              —Class B		34			6			13			10			4			7			7
—Class C		1			1			–			–			–			8			7
Legal and Auditing		23			20			20			20			19			22			21
Custodian		12			51			8			13			7			13			9
Registration		36			37			28			32			27			33			33
Reports to Shareholders		27			11			6			15			2			1			–
Trustees		7			7			7			7			7			7			7
Loan Interest		–			–			–			–			–			–			–
Amortization of Offering Costs		–			–			–			–			1			50			50
Other		8			17			3			7			3			2			2
Total Expenses Before Expense Reimbursement		1,047			484			284			534			157			211			186
Expense Reimbursement From Advisor—Investor Class		(99	)		(143	)		(52	)		(92	)		(50	)		(47	)		(45	)
—Class A		(12	)		(7	)		(7	)		(4	)		(3	)		(19	)		(18	)
—Class B		(11	)		(8	)		(9	)		(5	)		(5	)		(18	)		(18	)
—Class C		(1	)		–			–			–			–			(18	)		(18	)
Total Expenses After Expense Reimbursement		924			326			216			433			99			109			87
Investment Income (Loss)		(176	)		182			447			144			106			(86	)		(35	)
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Net Realized Gain (Loss) from:
Investments in Unaffiliated Issuers		(7,585	)		(1,171	)		(765	)		1,175			(542	)		(1,061	)		(491	)
Investments in Affiliated Issuers		–			–			–			(1,528	)		–			–			–
Net Increase from Payment by Affiliates		–			–			–			–			–			–			–
Foreign Currency Transactions		–			(20	)		–			–			–			–			–
Total Net Realized Gain (Loss)		(7,585	)		(1,191	)		(765	)		(353	)		(542	)		(1,061	)		(491	)
Net Change in Unrealized Appreciation (Depreciation)		(14,516	)		(3,726	)		(1,330	)		(1,769	)		(1,324	)		(569	)		(1,025	)
Net Gain (Loss) on Investments and Foreign Currency		(22,101	)		(4,917	)		(2,095	)		(2,122	)		(1,866	)		(1,630	)		(1,516	)
Net Change in Net Assets Resulting from Operations	$	(22,277	)	$	(4,735	)	$	(1,648	)	$	(1,978	)	$	(1,760	)	$	(1,716	)	$	(1,551	)

SEE NOTES TO FINANCIAL STATEMENTS

57

Statements of Changes in Net Assets

	SAFECO Growth Opportunities Fund						SAFECO Equity Fund						SAFECO Dividend Income Fund						SAFECO Northwest Fund
–(In Thousands)–	2002*			2001*			2002*			2001*			2002*			2001*			2002*			2001*
Operations
Net Investment Income (Loss)	$	(5,676	)	$	(5,308	)	$	6,437		$	6,294		$	2,380		$	3,016		$	(176	)	$	(236	)
Net Realized Gain (Loss) on Investments and Foreign Currency		(114,069	)		(15,562	)		(17,633	)		(30,021	)		(4,875	)		(298	)		(7,585	)		(4,512	)
Net Change in Unrealized Appreciation (Depreciation)		(176,160	)		151,466			(264,417	)		(112,939	)		(27,526	)		(17,959	)		(14,516	)		(9,041	)
Net Change in Net Assets Resulting from Operations		(295,905	)		130,596			(275,613	)		(136,666	)		(30,021	)		(15,241	)		(22,277	)		(13,789	)
Distributions to Shareholders From:
Net Investment Income
—Investor Class		–			–			(6,358	)		(6,251	)		(2,373	)		(2,987	)		–			–
—Class A		–			–			(81	)		(58	)		(11	)		(12	)		–			–
—Class B		–			–			–			–			(5	)		(7	)		–			–
—Class C		–			–			–			–			(1	)		(1	)		–			–
Net Realized Gain on Investments
—Investor Class		–			–			–			–			–			–			–			–
—Class A		–			–			–			–			–			–			–			–
—Class B		–			–			–			–			–			–			–			–
—Class C		–			–			–			–			–			–			–			–
Total		–			–			(6,439	)		(6,309	)		(2,390	)		(3,007	)		–			–
Net Trust Share Transactions		(140,945	)		70,785			(155,949	)		(229,360	)		(13,633	)		(21,469	)		(9,059	)		(11,213	)
Redemption Fees		447			–			–			–			–			–			4			–
Total Change in Net Assets		(436,403	)		201,381			(438,001	)		(372,335	)		(46,044	)		(39,717	)		(31,332	)		(25,002	)
Net Assets at Beginning of Period		877,469			676,088			1,121,132			1,493,467			180,059			219,776			96,284			121,286
Net Assets at End of Period	$	441,066		$	877,469		$	683,131		$	1,121,132		$	134,015		$	180,059		$	64,952		$	96,284
Tax Character of Distributions Paid:
Ordinary Income	$	–		$	–		$	6,439		$	6,309		$	2,390		$	3,007		$	–		$	–
Long-term Capital Gains		–			–			–			–			–			–			–			–
Total	$	–		$	–		$	6,439		$	6,309		$	2,390		$	3,007		$	–		$	–

 * For the year ended December 31.

** For the period from October 31, 2001 (commencement of operations) to December 31, 2001.

SEE NOTES TO FINANCIAL STATEMENTS

58

	SAFECO International Stock Fund						SAFECO Balanced Fund						SAFECO Small Company Value Fund						SAFECO U.S. Value Fund						SAFECO Small Company Growth Fund						SAFECO U.S. Growth Fund
–(In Thousands)–	2002*			2001*			2002*			2001*			2002*			2001*			2002*			2001*			2002*			2001**			2002*			2001**
Operations
Net Investment Income (Loss)	$	182		$	129		$	447		$	497		$	144		$	289		$	106		$	104		$	(86	)	$	(15	)		$(35	)	$	(7	)
Net Realized Gain (Loss) on Investments and Foreign Currency		(1,191	)		(5,502	)		(765	)		312			(353	)		(1,065	)		(542	)		39			(1,061	)		18			(491	)		11
Net Change in Unrealized Appreciation (Depreciation)		(3,726	)		(2,351	)		(1,330	)		(867	)		(1,769	)		5,404			(1,324	)		(609	)		(569	)		658			(1,025	)		309
Net Change in Net Assets Resulting from Operations		(4,735	)		(7,724	)		(1,648	)		(58	)		(1,978	)		4,628			(1,760	)		(466	)		(1,716	)		661			(1,551	)		313
Distributions to Shareholders From:
Net Investment Income
—Investor Class		(205	)		(541	)		(407	)		(414	)		(149	)		(282	)		(101	)		(99	)		–			–			(4	)		–
—Class A		(7	)		(21	)		(44	)		(47	)		(3	)		(7	)		(3	)		(3	)		–			–			–			–
—Class B		–			(11	)		(33	)		(36	)		–			(1	)		(2	)		(1	)		–			–			–			–
—Class C		–			(1	)		–			–			–			–			–			–			–			–			–			–
Net Realized Gain on Investments
—Investor Class		–			–			–			–			–			–			–			–			(8	)		–			(5	)		–
—Class A		–			–			–			–			–			–			–			–			(3	)		–			(2	)		–
—Class B		–			–			–			–			–			–			–			–			(3	)		–			(2	)		–
—Class C		–			–			–			–			–			–			–			–			(3	)		–			(2	)		–
Total		(212	)		(574	))		(484	)		(497	)		(152	)		(290	)		(106	)		(103	)		(17	)		–			(15	)		–
Net Trust Share Transactions		(739	)		(2,610	)		499			494			10,709			3,180			82			432			606			5,102			449			5,257
Redemption Fees		62			351			–			—			8			—			—			—			1			–			–			–
Total Change in Net Assets		(5,624	)		(10,557	)		(1,633	)		(61	)		8,587			7,518			(1,784	)		(137	)		(1,126	)		5,763			(1,117	)		5,570
Net Assets at Beginning of Period		25,474			36,031			18,448			18,509			31,986			24,468			9,270			9,407			5,763			–			5,570			–
Net Assets at End of Period	$	19,850		$	25,474		$	16,815		$	18,448		$	40,573		$	31,986			$7,486		$	9,270			$4,637		$	5,763		$	4,453		$	5,570
Tax Character of Distributions Paid:
Ordinary Income	$	212		$	574		$	484		$	497		$	152		$	290		$	106		$	103		$	17		$	–		$	15		$	–
Long-term Capital Gains		–			–			–			–			–			–			–			–			–			–			–			–
Total	$	212		$	574		$	484		$	497		$	152		$	290		$	106		$	103		$	17		$	–		$	15		$	–

SEE NOTES TO FINANCIAL STATEMENTS

59

Financial Highlights

(For a Share Outstanding Throughout the Period)

SAFECO Growth Opportunities Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	27.25		$	22.33		$	23.30		$	22.70		$	22.45
Income (Loss) From Investment Operations
Net Investment Loss		(0.22	)		(0.16	)		(0.19	)		(0.16	)		(0.01	)
Net Realized and Unrealized Gain (Loss) on Investments		(9.86	)†		5.08			(0.78	)		0.76			0.99
Total from Investment Operations		(10.08	)		4.92			(0.97	)		0.60			0.98
Redemption Fees		0.02			–			–			–			–
Less Distributions
Distributions from Realized Gains		–			–			–			–			(0.73	)
Net Asset Value at End of Period	$	17.19		$	27.25		$	22.33		$	23.30		$	22.70
Total Return		(36.92%	)		22.03%			(4.16%	)		2.64%			4.37%
Net Assets at End of Period (000's)	$	413,147		$	829,052		$	637,557		$	815,041		$	1,394,225
Ratios to Average Net Assets:
Gross Expenses		1.09%			1.03%			1.05%			1.07%			0.77%
Net Expenses		1.08%			1.03%			1.05%			1.02%			0.77%
Net Investment Loss		(0.91%	)		(0.71%	)		(0.74%	)		(0.57%	)		(0.06%	)
Portfolio Turnover Rate		37%			65%			63%			38%			55%
SAFECO Equity Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	18.54		$	20.65		$	24.02		$	23.25		$	19.54
Income (Loss) From Investment Operations
Net Investment Income		0.12			0.10			0.13			0.18			0.21
Net Realized and Unrealized Gain (Loss) on Investments		(5.00	)		(2.11	)		(2.76	)		2.00			4.64
Total from Investment Operations		(4.88	)		(2.01	)		(2.63	)		2.18			4.85
Less Distributions
Dividends from Net Investment Income		(0.12	)		(0.10	)		(0.13	)		(0.18	)		(0.21	)
Distributions from Realized Gains		–			–			(0.61	)		(1.23	)		(0.93	)
Total Distributions		(0.12	)		(0.10	)		(0.74	)		(1.41	)		(1.14	)
Net Asset Value at End of Period	$	13.54		$	18.54		$	20.65		$	24.02		$	23.25
Total Return		(26.33%	)		(9.72%	)		(10.97%	)		9.37%			24.93%
Net Assets at End of Period (000's)	$	658,585		$	1,083,035		$	1,419,589		$	2,147,299		$	2,024,877
Ratios to Average Net Assets:
Expenses		1.01%			0.94%			0.89%			0.83%			0.74%
Net Investment Income		0.77%			0.53%			0.57%			0.73%			0.99%
Portfolio Turnover Rate		45%			31%			35%			34%			33%

† Includes $0.10 related to payment by affiliate. See note 9.

60

Financial Highlights

(For a Share Outstanding Throughout the Period)

SAFECO Dividend Income Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	18.82		$	20.58		$	22.39		$	23.47		$	23.89
Income (Loss) From Investment Operations
Net Investment Income		0.27			0.30			0.38			0.50			0.64
Net Realized and Unrealized Gain (Loss) on Investments		(3.53	)†		(1.76	)		(1.81	)		(0.25	)		0.86
Total from Investment Operations		(3.26	)		(1.46	)		(1.43	)		0.25			1.50
Less Distributions
Dividends from Net Investment Income		(0.27	)		(0.30	)		(0.38	)		(0.50	)		(0.64	)
Distributions from Realized Gains		–			–			–			(0.83	)		(1.28	)
Total Distributions		(0.27	)		(0.30	)		(0.38	)		(1.33	)		(1.92	)
Net Asset Value at End of Period	$	15.29		$	18.82		$	20.58		$	22.39		$	23.47
Total Return		(17.40%	)		(7.06%	)		(6.36%	)		1.17%			6.31%
Net Assets at End of Period (000's)	$	132,467		$	177,920		$	217,053		$	303,537		$	399,279
Ratios to Average Net Assets:
Gross Expenses		1.11%			1.08%			1.07%			0.99%			0.82%
Net Expenses		1.10%			1.08%			1.07%			0.99%			0.82%
Net Investment Income		1.54%			1.57%			1.80%			2.18%			2.54%
Portfolio Turnover Rate		17%			58%			45%			42%			46%
SAFECO Northwest Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	18.86		$	21.25		$	25.33		$	17.73		$	17.31
Income (Loss) From Investment Operations
Net Investment Loss		(0.03	)		(0.03	)		(0.11	)		(0.10	)		(0.09	)
Net Realized and Unrealized Gain (Loss) on Investments		(4.52	)		(2.36	)		(3.97	)		9.71			0.70
Total from Investment Operations		(4.55	)		(2.39	)		(4.08	)		9.61			0.61
Less Distributions
Distributions from Realized Gains		–			–			–			(2.01	)		(0.19	)
Total Distributions		–			–			–			(2.01	)		(0.19	)
Net Asset Value at End of Period	$	14.31		$	18.86		$	21.25		$	25.33		$	17.73
Total Return		(24.13%	)		(11.25%	)		(16.11%	)		54.25%			3.50%
Net Assets at End of Period (000's)	$	57,624		$	85,290		$	108,113		$	97,534		$	63,594
Ratios to Average Net Assets:
Gross Expenses		1.24%			1.21%			1.11%			1.17%			1.12%
Net Expenses		1.10%			1.10%			1.10%			1.10%			1.12%
Net Investment Loss		(0.15%	)		(0.15%	)		(0.45%	)		(0.54%	)		(0.49%	)
Portfolio Turnover Rate		15%			50%			36%			49%			50%

† Includes $0.07 related to payment by affiliate. See note 9.

61

Financial Highlights

(For a Share Outstanding Throughout the Period)

SAFECO International Stock Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	10.54		$	14.24		$	16.95		$	13.14		$	11.50
Income (Loss) From Investment Operations
Net Investment Income		0.08			0.06			0.08			0.03			0.01
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency		(2.13	)		(3.65	)		(1.94	)		3.78			1.63
Total from Investment Operations		(2.05	)		(3.59	)		(1.86	)		3.81			1.64
Redemption Fees		0.03			0.14			–			–			–
Less Distributions
Dividends from Net Investment Income		(0.09	)		(0.25	)		(0.08	)		–			–
Distributions from Realized Gains		–			–			(0.77	)		–			–
Total Distributions		(0.09	)		(0.25	)		(0.85	)		–			–
Net Asset Value at End of Period	$	8.43		$	10.54		$	14.24		$	16.95		$	13.14
Total Return		(19.12%	)		(24.30%	)		(10.95%	)		29.00%			14.26%
Net Assets at End of Period (000's)	$	18,241		$	23,398		$	33,019		$	36,967		$	22,111
Ratios to Average Net Assets:
Gross Expenses		2.09%			2.08%			1.79%			1.72%			1.79%
Net Expenses		1.40%			1.46%			1.40%			1.69%			1.62%
Net Investment Income		0.86%			0.46%			0.23%			0.21%			0.14%
Portfolio Turnover Rate		16%			163%			33%			24%			26%
SAFECO Balanced Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	11.69		$	12.06		$	11.81		$	12.22		$	11.61
Income (Loss) From Investment Operations
Net Investment Income		0.29			0.33			0.34			0.31			0.32
Net Realized and Unrealized Gain (Loss) on Investments		(1.31	)		(0.37	)		0.25			(0.18	)		1.12
Total from Investment Operations		(1.02	)		(0.04	)		0.59			0.13			1.44
Less Distributions
Dividends from Net Investment Income		(0.31	)		(0.33	)		(0.34	)		(0.31	)		(0.32	)
Distributions from Realized Gains		–			–			–			(0.23	)		(0.51	)
Total Distributions		(0.31	)		(0.33	)		(0.34	)		(0.54	)		(0.83	)
Net Asset Value at End of Period	$	10.36		$	11.69		$	12.06		$	11.81		$	12.22
Total Return		(8.74%	)		(0.29%	)		5.09%			1.05%			12.56%
Net Assets at End of Period (000's)	$	13,588		$	14,736		$	14,816		$	18,008		$	19,137
Ratios to Average Net Assets:
Gross Expenses		1.47%			1.49%			1.43%			1.33%			1.17%
Net Expenses		1.10%			1.10%			1.10%			1.14%			1.17%
Net Investment Income		2.67%			2.82%			2.83%			2.51%			2.74%
Portfolio Turnover Rate		59%			75%			63%			95%			75%

62

Financial Highlights

(For a Share Outstanding Throughout the Period)

SAFECO Small Company Value Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	13.78		$	11.77		$	12.73		$	11.16		$	14.23
Income (Loss) From Investment Operations
Net Investment Income (Loss)		0.05			0.13			(0.02	)		(0.06	)		(0.06	)
Net Realized and Unrealized Gain (Loss) on Investments		(0.57	)		2.01			(0.94	)		1.63			(3.01	)
Total from Investment Operations		(0.52	)		2.14			(0.96	)		1.57			(3.07	)
Less Distributions
Dividends from Net Investment Income		(0.05	)		(0.13	)		–			–			–
Distributions from Realized Gains		–			–			–			–			–
Total Distributions		(0.05	)		(0.13	)		–			–			–
Net Asset Value at End of Period	$	13.21		$	13.78		$	11.77		$	12.73		$	11.16
Total Return		(3.76%	)		18.20%			(7.54%	)		14.07%			(21.57%	)
Net Assets at End of Period (000’s)	$	37,733		$	29,643		$	22,477		$	28,319		$	35,162
Ratios to Average Net Assets:
Gross Expenses		1.42%			1.48%			1.41%			1.44%			1.28%
Net Expenses		1.15%			1.19%			1.15%			1.20%			1.28%
Net Investment Income (Loss)		0.44%			1.01%			(0.13%	)		(0.49%	)		(0.49%	)
Portfolio Turnover Rate		54%			141%			107%			117%			90%
SAFECO U.S. Value Fund	For the Year Ended December 31
Investor Class	2002			2001			2000			1999			1998
Net Asset Value at Beginning of Period	$	11.25		$	11.96		$	11.95		$	11.95		$	11.19
Income (Loss) From Investment Operations
Net Investment Income		0.13			0.14			0.13			0.11			0.12
Net Realized and Unrealized Gain (Loss) on Investments		(2.20	)		(0.71	)		0.01			0.50			1.28
Total from Investment Operations		(2.07	)		(0.57	)		0.14			0.61			1.40
Less Distributions
Dividends from Net Investment Income		(0.13	)		(0.14	)		(0.13	)		(0.11	)		(0.12	)
Distributions from Realized Gains		–			–			–			(0.50	)		(0.52	)
Total Distributions		(0.13	)		(0.14	)		(0.13	)		(0.61	)		(0.64	)
Net Asset Value at End of Period	$	9.05		$	11.25		$	11.96		$	11.95		$	11.95
Total Return		(18.42%	)		(4.78%	)		1.18%			5.15%			12.61%
Net Assets at End of Period (000’s)	$	6,661		$	8,383		$	8,541		$	9,905		$	10,014
Ratios to Average Net Assets:
Gross Expenses		1.76%			1.79%			1.64%			1.52%			1.19%
Net Expenses		1.10%			1.10%			1.10%			1.17%			1.19%
Net Investment Income		1.32%			1.21%			1.08%			0.93%			1.06%
Portfolio Turnover Rate		39%			39%			45%			52%			55%

63

Financial Highlights

(For a Share Outstanding Throughout the Period)

SAFECO Small Company Growth Fund	For the Year Ended December 31			October 31, 2001 (Commencement of Operations) to December 31
Investor Class	2002			2001
Net Asset Value at Beginning of Period	$	11.31		$	10.00
Income (Loss) From Investment Operations
Net Investment Loss		(0.11	)		(0.02	)
Net Realized and Unrealized Gain (Loss) on Investments		(2.84	)		1.33
Total from Investment Operations		(2.95	)		1.31
Less Distributions
Distributions from Realized Gains		(0.03	)		–
Net Asset Value at End of Period	$	8.33		$	11.31
Total Return		(26.12%	)		13.10%	*
Net Assets at End of Period (000’s)	$	2,113		$	2,367
Ratios to Average Net Assets:
Gross Expenses		3.53%			4.54%	**
Net Expenses		1.60%			1.60%	**
Net Investment Loss		(1.18%	)		(1.23%	)**
Portfolio Turnover Rate		159%			43%	**
SAFECO U.S. Growth Fund	For the Year Ended December 31			October 31, 2001 (Commencement of Operations) to December 31
Investor Class	2002			2001
Net Asset Value at Beginning of Period	$	10.64		$	10.00
Income (Loss) From Investment Operations
Net Investment Loss		(0.02	)		–
Net Realized and Unrealized Gain (Loss) on Investments		(2.84	)		0.64
Total from Investment Operations		(2.86	)		0.64
Less Distributions
Dividends from Net Investment Income		(0.02	)		–
Distributions from Realized Gains		(0.02	)		–
Total Distributions		(0.04	)		–
Net Asset Value at End of Period	$	7.74		$	10.64
Total Return		(26.95%	)		6.40%	*
Net Assets at End of Period (000’s)	$	2,083		$	2,372
Ratios to Average Net Assets:
Gross Expenses		3.51%			4.29%	**
Net Expenses		1.40%			1.40%	**
Net Investment Loss		(0.55%	)		(0.28%	)**
Portfolio Turnover Rate		29%			2%	**

 * Not annualized.

** Annualized.

64

Notes to Financial Statements

1.    GENERAL

The SAFECO Common Stock Trust (“Trust”) is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The Trust consists of the SAFECO Growth Opportunities Fund, SAFECO Equity Fund, SAFECO Dividend Income Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO Balanced Fund, SAFECO Small Company Value Fund, SAFECO U.S. Value Fund, SAFECO Small Company Growth Fund and the SAFECO U.S. Growth Fund (together “the Funds”).

The Funds offer up to four classes of shares:

* Investor shares—sold directly to shareholders with no associated sales charges.

* Class A, Class B, and Class C shares—sold by financial advisors to shareholders with associated sales and distribution charges.

Each class of shares has equal rights as to earnings and assets except that each class bears different transfer agent, shareholder service, and distribution expenses. Each class of shares has exclusive voting rights with respect to matters that affect just that class. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. Class B shares automatically convert to Class A shares at the end of the month following the sixth anniversary of issuance.

In connection with issuing Class A, B and C shares, the Funds have adopted a Plan of Distribution (the “Plan”). Under the Plan, these classes pay a shareholder service fee to the distributor, SAFECO Securities, Inc., for selling its shares at the annual rate of 0.25% of the average daily net assets of each class. Class B and Class C shares also pay the distributor a distribution fee at the annual rate of 0.75% of the average daily net assets of each class. Under the Plan, the distributor uses the service fees primarily to compensate persons for selling shares in each class and for providing ongoing services to shareholders. The distributor uses the distribution fees primarily to offset commissions it pays to financial advisors for selling these shares.

2.    SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements. The policies are in conformity with accounting principles generally accepted in the United States.

Security Valuation.    Investments in securities traded on a national securities exchange are stated at the last reported sales price on the day of valuation; other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are stated at the last quoted bid price, except for short positions and call options written, for which the last quoted asked price is used. Short-term notes are stated at amortized cost, which approximates fair value. When valuations are not readily available, securities are valued at fair value as determined in good faith pursuant to procedures established by the Funds’ Board of Trustees.

Security Transactions.    Security transactions are recorded on the trade date. Realized gains and losses from security transactions are determined using the identified cost basis.

Securities Lending.    The Funds (excluding the International Stock, Small Company Growth and U.S. Growth Funds) may lend portfolio securities to broker-dealers and to qualified banks. The loans are secured by cash collateral in an amount equal to at least the market value, as of the prior business day, of

SAFECO    MUTUAL    FUNDS 1-800-624-5711

65

Notes to Financial Statements

the loaned securities plus any accrued interest and dividends. During the time the securities are on loan, the Funds will continue to receive the interest and dividends on the loaned securities, while earning interest on the investment of the cash collateral. Loans are subject to termination at the option of the borrower or each Fund. Upon termination of the loan, the borrower is required to return to each Fund securities identical to the loaned securities. The Funds may pay reasonable administrative fees in connection with the loans of their securities and share the interest earned on the cash collateral with the borrower. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of each Fund.

Income Recognition.    Dividend income less foreign taxes withheld (if any) is recorded on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Interest income is recorded on an accrual basis.

Redemption Fees.    Effective October 1, 2001 for the International Stock Fund and effective July 1, 2002 for the Growth Opportunities, Northwest, Small Company Value and Small Company Growth Funds, shares held for less than 90 days are subject to an early redemption fee equal to 2% of the proceeds of the redeemed shares. These fees, which are retained by the Funds, are accounted for as an addition to paid in capital for financial statement reporting purposes and as ordinary income for tax purposes.

Dividends and Distributions to Shareholders.    For the Growth Opportunities, Northwest, International Stock, Small Company Value, Small Company Growth and U.S. Growth Funds, net investment income (if any) is distributed to shareholders on the last business day (ex-dividend date) of December. For all other Funds, net investment income is distributed as of the last business day of March, June, September and December. Net realized gains on investments, if any, are normally distributed to shareholders in March and December. Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date.

Federal Income and Excise Taxes.    Each Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies by distributing substantially all taxable income to their shareholders in a manner that results in no taxes to the Funds. Therefore, no Federal income or excise tax provision is required.

Foreign Currency Translation.    The accounting records of the International Stock Fund are maintained in U.S. Dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. Dollars at prevailing exchange rates. Purchases and sales of investment securities, and dividend and interest income, are translated at the rates of exchange prevailing on the respective dates of such transactions. The International Stock Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Reported net realized gains or losses from foreign currency transactions arise from gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded in the International Stock Fund’s accounting records and the U.S. Dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in the exchange rate.

66

Notes to Financial Statements

Foreign Exchange Contracts.    The International Stock Fund may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts as a way of managing foreign currency exchange rate risk. The International Stock Fund may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either specific transactions or portfolio positions. The objective of the International Stock Fund’s foreign currency hedging transactions is to reduce the risk that the U.S. Dollar value of the International Stock Fund’s foreign currency denominated securities will decline in value due to changes in foreign currency exchange rates. All foreign currency exchange contracts are “marked-to-market” daily at the applicable translation rates resulting in unrealized gains or losses. Realized and unrealized gains or losses on foreign currency contracts are recorded on settlement date of the foreign currency exchange contract and are included in the Statements of Assets and Liabilities and the Statement of Operations. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. Dollar. With respect to forward foreign currency exchange contracts, liquid securities, with a value at least equal to the market value of the commitment, are segregated on the accounting records of the respective Fund.

Estimates.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

3.    INVESTMENT TRANSACTIONS

Following is a summary of investment transactions (excluding short-term securities) during the year ended December 31, 2002 (in thousands):

	Purchases		Sales
Growth Opportunities Fund	$	229,550	$	383,302
Equity Fund		382,069		517,340
Dividend Income Fund		25,494		37,087
Northwest Fund		11,554		20,357
International Stock Fund		3,634		4,390
Balanced Fund		10,974		10,223
Small Company Value Fund		28,372		18,480
U.S. Value Fund		3,295		3,165
Small Company Growth Fund		8,704		8,088
U.S. Growth Fund		1,680		1,324

Purchases in the Balanced Fund include $1,599 of U.S. Government securities.

Sales in the Balanced Fund include $456 of U.S. Government securities.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

67

Notes to Financial Statements

4.    SECURITIES LENDING

At December 31, 2002, the value of securities on loan and related collateral received for portfolio securities loaned were as follows (in thousands):

	Value of Securities On Loan		Collateral Received
Growth Opportunities Fund	$	108,010	$	114,201
Equity Fund		3,322		3,460
Dividend Income Fund		6,050		6,274
Northwest Fund		3,863		4,131
Balanced Fund		447		461
Small Company Value Fund		1,954		2,102
U.S. Value Fund		641		661

As of December 31, 2002, the cash collateral received for the securities on loan is invested in the State Street Navigator Securities Lending Prime Portfolio, a money market fund.

5.    COMMITMENTS

At December 31, 2002, the International Stock Fund had open forward foreign currency exchange contracts obligating it to receive or deliver the following foreign currencies (in thousands):

Currency to be Delivered	In Exchange For		Settlement Date	U.S. Dollar Value as of Dec. 31, 2002		Unrealized Depreciation
16,065 Japanese Yen	$	130	1/16/03	$	135	$	(5	)
17,218 Japanese Yen		139	1/28/03		145		(6	)
	$	269		$	280	$	(11	)

6.    NET INVESTMENT LOSS

The Growth Opportunities, Northwest, Small Company Growth and U.S. Growth Funds had net investment losses for the year ended December 31, 2002. For all Funds, excluding U.S. Growth, these amounts were recorded as a reduction to paid in capital. For the U.S. Growth Fund a portion of the net investment loss was reclassified to paid in capital. The remaining net investment loss is related to temporary differences between the timing of determining net investment income for financial reporting purposes versus tax purposes.

68

Notes to Financial Statements

7. COMPONENTS OF DISTRIBUTABLE EARNINGS

Components of distributable earnings for financial reporting purposes at December 31, 2002, was as follows (in thousands):

	Growth Opportunities Fund			Equity Fund			Dividend Income Fund			Northwest Fund			International Stock Fund
Gross Unrealized Appreciation on Investments	$	97,874		$	155,088		$	23,446		$	16,690		$	2,856
Gross Unrealized Depreciation on Investments		(174,248	)		(99,860	)		(17,486	)		(16,930	)		(2,436	)
Net Unrealized Appreciation (Depreciation) on Investments		(76,374	)		55,228			5,960			(240	)		420
Accumulated Realized Loss		(129,681	)		(47,655	)		(5,636	)		(12,276	)		(7,033	)
Distributable Earnings	$	(206,055	)	$	7,573		$	324		$	(12,516	)	$	(6,613	)
Components of distributable earnings on a tax basis at December 31, 2002, was as follows (in thousands):
Federal Tax Cost on Investments	$	517,355		$	630,154		$	127,597		$	65,372		$	20,370
Gross Unrealized Appreciation on Investments	$	97,838		$	155,088		$	23,446		$	16,678		$	2,690
Gross Unrealized Depreciation on Investments		(177,183	)		(99,860	)		(17,486	)		(16,934	)		(3,386	)
Net Unrealized Appreciation (Depreciation) on Investments		(79,345	)		55,228			5,960			(256	)		(696	)
Capital Loss Carryforward*		(92,426	)		(43,969	)		(5,636	)		(11,625	)		(5,685	)
Deferred Loss**		(34,284	)		(3,686	)		–			(635	)		(232	)
Distributable Earnings	$	(206,055	)	$	7,573		$	324		$	(12,516	)	$	(6,613	)
Components of distributable earnings for financial reporting purposes at December 31, 2002, was as follows (in thousands):
	Balanced Fund			Small Company Value Fund			U.S. Value Fund			Small Company Growth Fund			U.S. Growth Fund
Gross Unrealized Appreciation on Investments	$	1,145		$	5,563		$	624		$	307		$	112
Gross Unrealized Depreciation on Investments		(1,518	)		(3,589	)		(1,163	)		(218	)		(828	)
Net Unrealized Appreciation (Depreciation) on Investments		(373	)		1,974			(539	)		89			(716	)
Accumulated Undistributed Net Investment Loss		(8	)		–			–			(37	)		(37	)
Accumulated Realized Loss		(885	)		(7,985	)		(759	)		(1,068	)		(491	)
Distributable Earnings	$	(1,266	)	$	(6,011	)	$	(1,298	)	$	(1,016	)	$	(1,244	)
Components of distributable earnings on a tax basis at December 31, 2002, was as follows (in thousands):
Federal Tax Cost on Investments	$	17,382		$	42,119		$	8,064		$	4,604		$	5,188
Gross Unrealized Appreciation on Investments	$	1,132		$	5,517		$	623		$	300		$	112
Gross Unrealized Depreciation on Investments		(1,535	)		(3,649	)		(1,173	)		(254	)		(834	)
Net Unrealized Appreciation (Depreciation) on Investments		(403	)		1,868			(550	)		46			(722	)
Unamortized Deferred Offering Costs		–			–			–			(37	)		(37	)
Capital Loss Carryforward*		(786	)		(6,740	)		(673	)		(778	)		(451	)
Deferred Loss**		(77	)		(1,139	)		(75	)		(247	)		(34	)
Distributable Earnings	$	(1,266	)	$	(6,011	)	$	(1,298	)	$	(1,016	)	$	(1,244	)

Differences between financial statement reporting basis and tax-basis reporting is attributable primarily to the tax deferral of losses on wash sales, premium and discount amortization methods, classification of paydown gains and losses, amortization methods of deferred offering costs and the realization of unrealized gains (losses) on certain forward foreign currency contracts.

* At December 31, 2002, the following funds had accumulated net realized losses on investment transactions that represent capital loss carryforwards for Federal income tax purposes, which expire as follow:

	Expiration Dates		Expiration Dates
Growth Opportunities Fund	2007-2010	Balanced Fund	2008-2010
Equity Fund	2009-2010	Small Company Value Fund	2006-2009
Dividend Income Fund	2008-2010	U.S. Value Fund	2008-2010
Northwest Fund	2008-2010	Small Company Growth Fund	2010
International Stock Fund	2009-2010	U.S. Growth Fund	2010

** From November 1, 2002, through December 31, 2002, the funds incurred net realized capital losses. As permitted by tax regulations, these funds have elected to defer those losses and treat them as arising in the year ending December 31, 2003.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

69

Notes to Financial Statements

8.    TRUST SHARE TRANSACTIONS

Following is a summary of transactions in Trust shares and the related amounts (in thousands):

	Investor Class						Class A						Class B						Class C
	2002*			2001*			2002*			2001*			2002*			2001*			2002*			2001*
	SAFECO Growth Opportunities Fund
Shares:
Sales		14,823			24,208			637			676			61			62			2			2
Reinvestments		–			–			–			–			–			–			–			–
Redemptions		(21,207	)		(22,338	)		(773	)		(593	)		(75	)		(86	)		–			–
Net Change		(6,384	)		1,870			(136	)		83			(14	)		(24	)		2			2
Amounts:
Sales	$	354,421		$	604,350		$	13,504		$	16,516		$	1,247		$	1,433		$	51		$	49
Reinvestments		–			–			–			–			–			–			–			–
Redemptions		(491,344	)		(535,850	)		(17,351	)		(13,734	)		(1,471	)		(1,977	)		(2	)		(2	)
Net Change	$	(136,923	)	$	68,500		$	(3,847	)	$	2,782		$	(224	)	$	(544	)	$	49		$	47
	SAFECO Equity Fund
Shares:
Sales		2,985			4,175			254			516			71			82			3			3
Reinvestments		416			321			6			3			–			–			–			–
Redemptions		(13,153	)		(14,836	)		(394	)		(1,942	)		(180	)		(178	)		(2	)		(1	)
Net Change		(9,752	)		(10,340	)		(134	)		(1,423	)		(109	)		(96	)		1			2
Amounts:
Sales	$	47,599		$	79,730		$	3,899		$	9,977		$	1,071		$	1,543		$	43		$	76
Reinvestments		5,965			5,869			78			57			–			–			–			–
Redemptions		(205,803	)		(284,521	)		(6,094	)		(38,726	)		(2,680	)		(3,344	)		(27	)		(21	)
Net Change	$	(152,239	)	$	(198,922	)	$	(2,117	)	$	(28,692	)	$	(1,609	)	$	(1,801	)	$	16		$	55
	SAFECO Dividend Income Fund
Shares:
Sales		986			412			9			6			4			4			1			1
Reinvestments		126			137			1			1			–			1			–			–
Redemptions		(1,902	)		(1,644	)		(10	)		(13	)		(17	)		(18	)		–			(1	)
Net Change		(790	)		(1,095	)		–			(6	)		(13	)		(13	)		1			–
Amounts:
Sales	$	16,294		$	7,994		$	162		$	119		$	67		$	85		$	11		$	17
Reinvestments		2,034			2,562			8			10			4			6			–			–
Redemptions		(31,760	)		(31,676	)		(165	)		(249	)		(288	)		(328	)		–			(9	)
Net Change	$	(13,432	)	$	(21,120	)	$	5		$	(120	)	$	(217	)	$	(237	)		$11			$8

* For the year ended December 31.

70

Notes to Financial Statements

	Investor Class						Class A						Class B						Class C
	2002*			2001*			2002*			2001*			2002*			2001*			2002*			2001*
	SAFECO Northwest Fund
Shares:
Sales		1,027			1,399			70			71			23			49			–			1
Reinvestments		–			–			–			–			–			–			–			–
Redemptions		(1,521	)		(1,964	)		(96	)		(110	)		(67	)		(44	)		–			–
Net Change		(494	)		(565	)		(26	)		(39	)		(44	)		5			–			1
Amounts:
Sales	$	18,172		$	25,295		$	1,113		$	1,340		$	358		$	908		$	4		$	14
Reinvestments		–			–			–			–			–			–			–			–
Redemptions		(26,179	)		(35,931	)		(1,472	)		(2,051	)		(1,051	)		(783	)		(4	)		(5	)
Net Change	$	(8,007	)	$	(10,636	)	$	(359	)	$	(711	)	$	(693	)	$	125			$–		$	9
	SAFECO International Stock Fund
Shares:
Sales		930			13,235			189			459			9			163			2			1
Reinvestments		16			35			1			2			–			1			–			–
Redemptions		(1,002	)		(13,368	)		(188	)		(469	)		(19	)		(172	)		–			–
Net Change		(56	)		(98	)		2			(8	)		(10	)		(8	)		2			1
Amounts:
Sales	$	8,824		$	158,423		$	1,865		$	5,294		$	81		$	1,954		$	14		$	12
Reinvestments		137			366			6			19			–			10			–			–
Redemptions		(9,611	)		(161,176	)		(1,871	)		(5,450	)		(184	)		(2,059	)		–			(3	)
Net Change	$	(650	)	$	(2,387	)	$	–		$	(137	)	$	(103	)	$	(95	)	$	14		$	9
	SAFECO Balanced Fund
Shares:
Sales		273			228			31			28			21			25
Reinvestments		22			20			4			4			3			3
Redemptions		(244	)		(217	)		(30	)		(32	)		(35	)		(17	)
Net Change		51			31			5			–			(11	)		11
Amounts:
Sales	$	3,037		$	2,669		$	342		$	334		$	228		$	296
Reinvestments		237			235			41			43			31			33
Redemptions		(2,714	)		(2,545	)		(321	)		(377	)		(382	)		(194	)
Net Change	$	560		$	359		$	62		$	–		$	(123	)	$	135

* For the year ended December 31.

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

71

Notes to Financial Statements

	Investor Class						Class A						Class B
	2002*			2001*			2002*			2001*			2002*			2001*
	SAFECO Small Company Value Fund
Shares:
Sales		2,591			5,045			148			66			25			9
Reinvestments		11			20			–			–			–			–
Redemptions		(1,896	)		(4,824	)		(106	)		(65	)		(20	)		(9	)
Net Change		706			241			42			1			5			–
Amount:
Sales	$	35,845		$	64,825		$	1,927		$	835		$	315		$	100
Reinvestments		147			273			1			6			–			–
Redemptions		(25,903	)		(61,938	)		(1,372	)		(815	)		(251	)		(106	)
Net Change	$	10,089		$	3,160		$	556		$	26		$	64		$	(6	)
	SAFECO U.S. Value Fund
Shares:
Sales		86			67			8			9			15			9
Reinvestments		4			3			–			–			–			–
Redemptions		(98	)		(39	)		(5	)		(4	)		(6	)		(8	)
Net Change		(8	)		31			3			5			9			1
Amount:
Sales	$	872		$	756		$	87		$	97		$	145		$	97
Reinvestments		35			34			2			2			1			1
Redemptions		(946	)		(428	)		(56	)		(46	)		(58	)		(81	)
Net Change	$	(39	)	$	362		$	33		$	53		$	88		$	17

* For the year ended December 31.

72

Notes to Financial Statements

	Investor Class						Class A						Class B					Class C
	2002*			2001**			2002*			2001**			2002*			2001**		2002*			2001**
	SAFECO Small Company Growth Fund
Shares:
Sales		88			209			3			103			2			100		9			100
Reinvestments		–			–			–			–			–			–		–			–
Redemptions		(43	)		–			–			(2	)		–			–		(9	)		–
Net Change		45			209			3			101			2			100		–			100
Amounts:
Sales	$	941		$	2,096		$	35		$	1,030		$	17		$	1,000	$	100		$	1,000
Reinvestments		2			–			–			–			–			–		–			–
Redemptions		(402	)		–			(1	)		(24	)		–			–		(86	)		–
Net Change	$	541		$	2,096		$	34		$	1,006		$	17		$	1,000	$	14		$	1,000
	SAFECO U.S. Growth Fund
Shares:
Sales		110			226			4			101			2			100		1			100
Reinvestments		–			–			–			–			–			–		–			–
Redemptions		(63	)		(3	)		–			–			–			–		–			–
Net Change		47			223			4			101			2			100		1			100
Amounts:
Sales	$	922		$	2,277		$	36		$	1,011		$	23		$	1,000	$	9		$	1,000
Reinvestments		2			–			–			–			–			–		–			–
Redemptions		(539	)		(31	)		–			–			(4	)		–		–			–
Net Change	$	385		$	2,246		$	36		$	1,011		$	19		$	1,000	$	9		$	1,000

 * For the year ended December 31, 2002.

** For the period from October 31, 2001 (commencement of operations) through December 31.

SAFECO    MUTUAL    FUNDS 1-800-624-5711

73

Notes to Financial Statements

9.    INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Advisory Fees.    The Funds receive investment management and advisory services pursuant to an agreement with SAFECO Asset Management Company. The investment advisory fees are based on each Fund’s net assets and the rates specified in the tables below.

Growth Opportunities, Equity, Dividend Income, Northwest, Balanced and U.S. Value Funds:		Small Company Value Fund:		International Stock Fund:
First $250 million	.70%	First $250 million	.75%	First $250 million	1.00%
Next $500 million	.65	Next $500 million	.70	Next $500 million	.90
Next $500 million	.60	Next $500 million	.65	Over $750 million	.80
Over $1.25 billion	.55	Over $1.25 billion	.60
U.S. Growth Fund:		Small Company Growth Fund:
First $250 million	.80%	First $250 million	1.00%
Next $500 million	.75	Over $250 million	.80
Next $500 million	.70
Over $1.25 billion	.65

SAFECO Asset Management Company pays sub-advisory fees for investment research and advice to the Bank of Ireland Asset Management Company (U.S.) Limited for the International Stock Fund and to Dresdner RCM Global Investors LLC for the Small Company Growth and U.S. Growth Funds.

Fund Accounting and Fund Administration Fees.    SAFECO Asset Management Company receives a fee for these services on a percentage of each day’s net assets, which, on an annual basis is as follows:

Fund Accounting:		Fund Administration:
First $200 million	0.04%	First $200 million	0.05%
Over $200 million	0.01	Over $200 million	0.01

Transfer Agent, Shareholder Service, and Distribution Fees.    SAFECO Services Corporation receives transfer agent fees. SAFECO Securities, Inc. receives shareholder service and distribution fees.

Low Balance Fees.    As described in the Prospectus, SAFECO Services Corporation assesses an annual $12 low balance fee charge on shareholder accounts containing balances less than $1,000. Low balance fee amounts received by SAFECO Services are then applied in their entirety to reduce the contractual billings that SAFECO Services charges the Funds for transfer agent services.

Notes Payable and Interest Expense.    The Funds may borrow money for temporary purposes from SAFECO Corporation or its affiliates at rates equivalent to commercial bank interest rates. At December 31, 2002 no such borrowings were outstanding. Interest rates on affiliated loans during the year ended December 31, 2002 ranged from 1.26% to 1.80%.

Line of Credit.    The Trust, together with all other management investment companies for which SAFECO Asset Management Company serves as investment advisor, has line of credit arrangements with certain financial institutions. Under these arrangements, $100 million is currently available to meet short-term financing needs. At December 31, 2002, no such borrowings were outstanding.

Affiliate Ownership.    At December 31, 2002, SAFECO Insurance Company of America owned 450,000 shares (10% of outstanding shares) of the Northwest Fund and SAFECO Asset Management Company owned 694,490 shares (29%) of the International Stock Fund, 519,268 shares (32%) of the Balanced Fund, 500,000 shares (60%) of the U.S. Value Fund, 500,000 shares (89%) of the Small Company Growth Fund and 500,000 shares (87%) of the U.S. Growth Fund.

74

Notes to Financial Statements

Investment Reimbursement by Advisor.    In February 2002, a final settlement was reached on an outstanding class-action lawsuit against Prison Realty Trust, Inc., a security formerly owned by the Growth Opportunities Fund and the Dividend Income Fund. Eligibility for the settlement was predicated on filing a claim prior to December 27, 2000. Due to a claim not being filed timely, the funds were precluded from participating in the settlement. To compensate these two Funds for the loss of settlement proceeds, SAFECO Asset Management Company voluntarily reimbursed the Growth Opportunities Fund and Dividend Income Fund $2,581,000 and $573,600, respectively, which approximated the market value of each Fund’s portion of the settlement had they participated in the original settlement agreement.

Deferred Offering Costs.    Costs related to the initial offering of the Small Company Growth and U.S. Growth Funds were deferred as of October 31, 2001 and were amortized to operations on a straight-line basis over a twelve month period. These costs were advanced by an affiliate and were reimbursed by the Funds over a twelve-month period. As of December 31, 2002, there were no deferred offering costs that remained to be amortized.

Expense Reimbursement.    Beginning May 1, 1999 through April 30, 2009, SAFECO Asset Management Company agreed to reimburse the Funds (excluding the Small Company Growth and the U.S. Growth Funds) for operating expenses (i.e., all expenses except investment advisory, distribution fees, service fees, and interest expense) that exceed on an annual basis 0.40% of the average daily net assets of each respective class of the Funds. Beginning October 31, 2001 (commencement of operations) through December 31, 2002, SAFECO Asset Management Company voluntarily reimbursed the Small Company Growth and the U.S. Growth Funds for operating expenses which exceeded on an annual basis 0.60% of the Funds average daily net assets.

Board of Trustees.    The Trust along with several other affiliated trusts not reported herein, paid each of the Trustees not affiliated with SAFECO a retainer of $23,000 per year plus out of pocket expenses. Members additionally received $2,500 per Board Meeting plus $500 per each additional committee meeting they attended.

Dealer Concessions.    SAFECO Securities, Inc. retained the following amounts in dealer commissions from sales of Class A shares during the year ended December 31, 2002 (in thousands):

	Commissions Retained
Growth Opportunities Fund	$	10
Equity Fund		3
Northwest Fund		2
International Stock Fund		1
Balanced Fund		1
Small Company Value Fund		1

SAFECO    MUTUAL    FUNDS www.safecoinvestorclass.com

75

Notes to Financial Statements

10.    INVESTMENTS IN AFFILIATES

Each of the companies listed below is an affiliate of the Fund because the Fund owned at least 5% of the company’s voting securities during the year ended December 31, 2002.

(In Thousands)	Shares at Beginning of Period	Additions	Reductions		Shares at End of Period	Dividends	Realized Gain (Loss)			Market Value of Affiliates at December 31, 2002
SAFECO Growth Opportunities Fund
American Medical Alert Corp.	–	455	–		455	–	$	–		$	1,119
Concepts Direct, Inc.	480	–	–		480	–		–			278
Conceptus, Inc.	1,418	479	–		1,897	–		–			22,728
Endocare, Inc.*	1,072	548	(433	)	1,187	–		(1,631	)		–
Harold’s Stores, Inc.	542	–	–		542	–		–			553
IMPCO Technologies, Inc.	–	938	–		938	–		–			4,398
Matria Healthcare, Inc.	657	185	–		842	–		–			7,318
Med-Design Corp.	–	1,173	–		1,173	–		–			9,448
MICROS Systems, Inc.	1,050	12	–		1,062	–		–			23,808
Nastech Pharmaceutical Co., Inc.	835	–	–		835	–		–			7,139
NCO Group, Inc.	2,104	–	(564	)	1,540	–		(9,158	)		24,556
North American Scientific, Inc.	953	–	(23	)	930	–		(248	)		8,362
PhotoMedex, Inc.	–	1,800	–		1,800	–		–			3,456
Physiometrix, Inc.*	490	–	(338	)	152	–		(6,703	)		–
PLATO Learning, Inc.	1,094	146	–		1,240	–		–			7,364
PolyMedica Corp.	1,198	–	(172	)	1,026	–		58			31,630
Prime Medical Services, Inc.	1,226	–	(288	)	938	–		(982	)		8,131
Provell, Inc.*	662	–	(662	)	–	–		(6,187	)		–
Quantum Fuel Systems Technologies Worldwide, Inc.	–	938	–		938	–		–			2,204
Rent-Way, Inc.	2,696	–	(230	)	2,466	–		(4,271	)		8,630
RMH Teleservices, Inc.	1,037	184	(252	)	969	–		2,479			10,171
Serologicals Corp.	1,173	424	(342	)	1,255	–		230			13,805
SpectRx, Inc.	861	–	–		861	–		–			1,386
Sphinx International, Inc.	832	–	–		832	–		–			333
Stellent, Inc.	591	1,013	(195	)	1,409	–		(2,829	)		6,255
TRM Copy Centers Corp.*	710	–	(710	)	–	–		(6,233	)		–
							$	(35,475	)	$	203,072
SAFECO Small Company Value Fund
International Aircraft Investors, Inc.*	187	–	(187	)	–		$	(1,528	)	$	–

* Company was not an affiliate at the end of the period.

76

Report of Ernst & Young LLP, Independent Auditors

To the Board of Trustees and Shareholders of the SAFECO Common Stock Trust

We have audited the accompanying statements of assets and liabilities, including the related portfolios of investments, of the SAFECO Common Stock Trust (comprising the SAFECO Growth Opportunities Fund, SAFECO Equity Fund, SAFECO Dividend Income Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO Balanced Fund, SAFECO Small Company Value Fund, SAFECO U.S. Value Fund, SAFECO Small Company Growth Fund, and SAFECO U.S. Growth Fund) as of December 31, 2002, and the related statements of operations, the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2002, by correspondence with the custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective funds constituting the SAFECO Common Stock Trust at December 31, 2002, the results of their operations, the changes in their net assets and financial highlights for each of the periods referred to above, in conformity with accounting principles generally accepted in the United States.

Seattle, Washington

January 24, 2003

SAFECO    MUTUAL    FUNDS 1-800-624-5711

77

Trustee and Officer Information

Name, Address, and Age	Position(s) Held with Trusts	Term of Office and Length of Time Served	Principal Occupation(s) During the Past 5 Years	Number of Portfolios in Fund Complex Overseen by Trustee	Other Directorships Held by Trustee
INDEPENDENT TRUSTEES
Scott M. Boggs 4854 154th Place NE Redmond, WA 98052 (Age-47)	Trustee	Term: Up to age 72 Served since August 8, 2002	Vice President, Corporate Controller for Microsoft Corporation, a software company, Redmond, Washington (1992—present).	25 SAFECO Mutual Funds	Trustee for Financial Executives Research Foundation (Industry Group)
Barbara J. Dingfield 4854 154th Place NE Redmond, WA 98052 (Age-57)	Trustee	Term: Up to age 72 Time Served: 12 years	Consultant. From 1994 to 1999 she was the Director of Community Affairs for Microsoft Corporation, Redmond, Washington.	25 SAFECO Mutual Funds	First SAFECO Life Insurance Co. of New York
Richard E. Lundgren 4854 154th Place NE Redmond, WA 98052 (Age-65)	Trustee	Term: Up to age 72 Time Served: 19 years	Retired in 2000 from position as Director of Marketing and Customer Relations, Building Materials Distribution, Weyerhaeuser Company, Tacoma, Washington.	25 SAFECO Mutual Funds	First SAFECO Life Insurance Co. of New York
Larry L. Pinnt 4854 154th Place NE Redmond, WA 98052 (Age-68)	Trustee	Term: Up to age 72 Time Served: 16 years	Retired Vice president and Chief Financial Officer of U.S. WEST Communications, Seattle, Washington.	25 SAFECO Mutual Funds	First SAFECO Life Insurance Co. of New York; Cascade Natural Gas Corporation, Seattle, Washington.
John W. Schneider 4854 154th Place NE Redmond, WA 98052 (Age-61)	Trustee	Term: Up to age 72 Time Served: 19 years	President and sole owner of Wallingford Group, Inc., Seattle, Washington, a company consulting on the acquisition/disposition and development of real estate.	25 SAFECO Mutual Funds	First SAFECO Life Insurance Co. of New York
INTERESTED TRUSTEE
Randall H. Talbot 5069 154th Place NE Redmond, WA 98052 (Age-49)	Chairman and Trustee	Term: Up to age 72 Time Served: 2 years	President of SAFECO Life Insurance Company since 1998. From 1975 to 1998 he was President and CEO of Talbot Financial Corporation.	25 SAFECO Mutual Funds	First SAFECO Life Insurance Co. of New York; Netstock Corporation, Bellevue, Washington
OFFICERS
Kevin A. Rowell 4854 154th Place NE Redmond, WA 98052 (Age-42)	President	Annual appointment Served since September 16, 2002	Appointed President of SAFECO Securities, Inc. and SAFECO Services Corp., effective September 16, 2002. Managing Director of Global Relationships for Alliance Capital Management in New York from 1998 to 2002. Prior to 1998, European Director for Corporate Development at Putnam Investments.
Roger F. Harbin 5069 154th Place NE Redmond, WA 98052 (Age-52)	Sr. Vice President	Annual appointment Served as interim President from November 8, 2001 to September 16, 2002 Sr. Vice President since November 7, 2002	Senior Vice President and Director of SAFECO Services Corporation and SAFECO Securities, Inc. since November 2002. Named Director and interim President of SAFECO Services Corporation, Director of SAFECO Asset Management Company, Director and interim President of SAFECO Securities, Inc. in 2001. Executive Vice President and Actuary of SAFECO Life Insurance Company since 1998. Senior Vice President of SAFECO Life Insurance Company from 1992 to 1998.
Ronald L. Spaulding Two Union Square 601 Union Street 25th Floor Seattle, WA 98101 (Age-58)	Vice President	Annual appointment Time Served: 8 years	Chairman of SAFECO Asset Management Company; Treasurer and Chief Investment Officer of SAFECO Corporation; Vice President of SAFECO Insurance Companies; Director, Vice President and Treasurer of First SAFECO Life Insurance Company of New York; former Senior Portfolio Manager of SAFECO Insurance Companies and Portfolio Manager for SAFECO Mutual Funds.
David H. Longhurst 4854 154th Place NE Redmond, WA 98052 (Age-45)	Vice President, Treasure, Secretary, Controller	Annual appointment Time Served: 2 years Served as Assistant Controller from 1996 to 2000	Vice President, Treasurer, Controller and Secretary of SAFECO Asset Management Company; Vice President, Treasurer, Controller and Secretary of SAFECO Services Corporation; and Vice President, Treasurer, Controller and Secretary and Financial Principal of SAFECO Securities, Inc. since July 2000. Treasurer, Controller, Secretary and Financial Principal of SAFECO Investment Services, Inc. since March 2000; Assistant Controller of SAFECO Securities, Inc., SAFECO Services Corporation and SAFECO Asset Management Company from 1996 to June 2000.
David N. Evans 4854 154th Place NE Redmond, WA 98052 (Age-30)	Assistant Controller	Annual appointment Served since November 7, 2002	Former Controller and Assistant Controller of Rosetta Inpharmatics from 2001-2002 and 2000-2001, respectively. From 1994 to 2000, he worked at PricewaterhouseCoopers LLP, where he focused on financial services.
Susan Tracey SAFECO Plaza 4333 Brooklyn Ave. NE Seattle, WA 98185 (Age-52)	Assistant Secretary	Annual appointment Time Served: 2 years	Tax Manager for SAFECO Corporation. Assistant Secretary of SAFECO Asset Management Company, SAFECO Securities, Inc. and SAFECO Services Corporation. She has been employed by SAFECO Corporation since 1987.
Stephen Collier SAFECO Plaza 4333 Brooklyn Ave. NE Seattle, WA 98185 (Age-50)	Assistant Secretary	Annual appointment Time Served: 2 years	Director of Taxation and Assistant Vice President of SAFECO Corporation; Assistant Secretary of SAFECO Asset Management Company, SAFECO Securities, Inc. and SAFECO Services Corporation. He has been an officer of SAFECO Corporation and subsidiaries since 1991.

The Statement of Additional Information (“SAI”) includes additional information about Fund trustees and is available upon request without charge by contacting the Fund at SAFECO Securities, Inc. 4854 154th Place NE, Redmond, WA 98052. Telephone 1-800-624-5711. Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718.

SAFECO COMMON STOCK FUNDS

INVESTMENT ADVISOR

SAFECO Asset Management

    Company

DISTRIBUTOR

SAFECO Securities, Inc.

TRANSFER AGENT

SAFECO Services Corporation

CUSTODIAN

State Street Bank and Trust Company

JP Morgan Chase Bank

(International Stock Fund)

FOR CLIENT SERVICES

1-800-624-5711

TTY/TDD

1-800-438-8718

*All telephone calls are tape-recorded

for your protection.

For 24-Hour Automated

Performance Information

and Transactions

Nationwide: 1-800-835-4391

Mailing Address

SAFECO Mutual Funds

P.O. Box 34890

Seattle, Washington 98124-1890

Internet

www.safecoinvestorclass.com

Email

mfunds@safeco.com

Printed on Recycled Paper

^®A registered trademark of SAFECO Corporation

GMF-659 2/03