N-30D 1 dn30d.htm SEMIANNUAL REPORT FOR THE PERIOD ENDED 06/30/2002 Prepared by R.R. Donnelley Financial -- Semiannual Report for the Period Ended 06/30/2002
Table of Contents

 
LOGO

 
Semiannual Report

LOGO

 
SAFECO Stock Funds
     
  
1
  
6
  
11
  
16
  
21
  
27
  
34
  
39
  
44
  
49
SAFECO Taxable Bond Funds
     
  
54
  
60
  
63
  
66
SAFECO Tax-Exempt Bond Funds
     
  
71
  
76
SAFECO Money Market Fund
     
  
84

Table of Contents

 
SAFECO Growth Opportunities Fund
 
As of June 30, 2002
 
 

 
LOGO    Thomas M. Maguire
 
How did the Fund perform?
During the six-month period ending June 30, 2002, the SAFECO Growth Opportunities Fund underperformed its benchmark index, the Russell 2000. The magnitude of the underperformance was significant, as the Fund had its share of companies miss earnings targets during the period.
 
What factors impacted performance?
The SAFECO Growth Opportunities Fund had disappointing news in a number of its sizeable holdings during the period.
 
For example, Matria Healthcare was down 76% after it was unable to secure several key contracts. RMH Teleservices dropped 64% after its largest customer, MCI Communications (a WorldCom subsidiary) became entangled in the nation’s ever-expanding accounting scandals. PLATO Learning lost 40% after budget-crunched school districts slowed spending and forced the company to lower its earnings guidance. TMP Worldwide slid 49% as the ongoing recession began to take its toll on the company’s largest subsidiary, the job-posting site Monster.com.
 
Still, there were a few names that appreciated significantly, including Rent-Way and Prime Medical Services—both of which were up 100% or more at June 30.
 
What changes did you make and why?
The SAFECO Growth Opportunities Fund did not make any wholesale changes during the period. Instead, I am continuing along the carefully crafted path that has served it well.
 
When bear markets are upon us, some stocks get hit worse than others while others hold up relatively well. I have selectively and cautiously decreased positions in stocks that have fared well, while adding to stocks that have been hit hard, but where the fundamentals remain intact. The logic behind this strategy is that when the market turns, companies that are operationally sound but have suffered immensely should bounce back and provide a better return than companies whose stocks did not get severely punished during the downturn.
 
What is your outlook for the future?
While there are signs that the economy is coming out of a recession, it seems to have no bearing on what continues to be a bear market. Still, it appears that we are now in the capitulation stage of the market cycle. This usually marks the final stage of a bear market, and is characterized by wholesale selling regardless of valuation or fundamentals. If this is the case, I believe investments made now will look positive 12 to 18 months from now. Although I cannot predict exactly when this will happen, I can tell you I feel that the bottom is close.
 
In a bear market, some stocks get hit so hard they sell at single-digit price earnings multiples or near the cash-per-share level the companies have on their balance sheets, often declining 50%, 60%, 70% and

 
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1

Table of Contents

Report From the Fund Manager
 
SAFECO Growth Opportunities Fund
 
As of June 30, 2002

more. The silver lining behind all this bad news is that it is from these depressed stock levels that bull markets are born.
 
After managing the SAFECO Growth Opportunities Fund for almost 13 years, I have been through difficult markets. There is always another side to a bear market and that is what I’m preparing for. I am selectively purchasing stocks with the potential for great returns from depressed prices. What many forget in times like these is that there are opportunities out there.
 
Thomas M. Maguire, MBA
 
Vice President of SAFECO Asset Management; 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.

2

Table of Contents

Performance Overview & Highlights
 
SAFECO Growth Opportunities Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
       
5 Year
       
10 Year
       
Six Month*
     
1 Year
       
5 Year
       
10 Year
  
SAFECO Growth Opportunities Fund
                                                                  
Class A
   
(22.03
)%
   
(24.69
)%
     
3.67
%
     
12.13
%
     
(17.28
)%
   
(20.10
)%
     
4.90
%
     
12.80
%
Class B
   
(21.71
)%
   
(24.65
)%
     
3.75
%
     
12.31
%
     
(17.59
)%
   
(20.68
)%
     
4.10
%
     
12.31
%
Class C
   
(18.39
)%
   
(21.46
)%
     
4.09
%
     
12.31
%
     
(17.56
)%
   
(20.66
)%
     
4.09
%
     
12.31
%
Russell 2000 Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(4.70
)%
   
(8.60
)%
     
4.44
%
     
10.96
%
Lipper, Inc. (Small-Cap Core Funds)
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(3.42
)%
   
(3.98
)%
     
7.59
%
     
12.50
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Health Care Equipment
     
16
%
Diversified Commercial Services
     
15
 
Biotechnology
     
11
 
Health Care Supplies
     
7
 
Application Software
     
7
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Rent-Way, Inc.
(Diversified Financial Services)
     
5.4
%
NCO Group, Inc.
(Diversified Commercial Services)
     
5.3
 
Conceptus, Inc.
(Health Care Equipment)
     
4.8
 
PolyMedica Corp.
(Health Care Supplies)
     
4.8
 
MICROS Systems, Inc.
(Application Software)
     
4.6
 
TMP Worldwide, Inc.
(Advertising)
     
4.4
 
Iron Mountain, Inc.
(Diversified Commercial Services)
     
3.9
 
Serologicals Corp.
(Biotechnology)
     
3.9
 
United Stationers, Inc.
(Office Services & Supplies)
     
3.3
 
Corinthian Colleges, Inc.
(Diversified Commercial Services)
     
2.4
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
TMP Worldwide, Inc.
   
$14,623
Med-Design Corp.
   
12,417
Stellent, Inc.
   
11,472
IMPCO Technologies, Inc.
   
11,124
La Jolla Pharmaceutical Co.
   
8,962
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
iShares Russell 2000 Index Fund
   
$40,422
iShares S&P SmallCap 600 Index Fund
   
16,667
Rent-A-Center, Inc.
   
13,937
Lumenis, Ltd.
   
13,803
Identix, Inc.
   
13,765
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
3

Table of Contents

Portfolio of Investments
 
SAFECO Growth Opportunities Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—98.5%
     
Advertising—4.4%
       
1,310,000 
*
   
TMP Worldwide, Inc.
   
$
28,165
Application Software—7.0%
       
217,500 
*
   
CryptoLogic, Inc.
   
 
1,907
1,061,928 
*†
   
MICROS Systems, Inc.
   
 
29,426
1,239,766 
*†
   
PLATO Learning, Inc.
   
 
12,236
235,898 
*
   
Private Business, Inc.
   
 
873
Auto Parts & Equipment—2.9%
       
287,700
 
   
Autoliv, Inc.
   
 
7,250
859,500
 *†
   
IMPCO Technologies, Inc.
   
 
11,259
Banks—1.3%
       
247,435
 
   
Doral Financial Corp.
   
 
8,262
Biotechnology—10.9%
       
499,700 
*
   
Applied Molecular Evolution, Inc.
   
 
2,888
1,160,000 
*
   
AtheroGenics, Inc.
   
 
8,317
664,800 
*
   
Bio-Technology General Corp.
   
 
3,995
475,000 
*
   
Cellegy Pharmaceuticals, Inc.
   
 
1,045
449,400 
*
   
Ista Pharmaceuticals, Inc.
   
 
405
953,200 
*†
   
North American Scientific, Inc.
   
 
9,742
587,500 
*
   
Novavax, Inc.
   
 
2,503
410,300 
*
   
Pain Therapeutics, Inc.
   
 
3,430
370,600 
*
   
SangStat Medical Corp.
   
 
8,516
  1,345,356 
*†
   
Serologicals Corp.
   
 
24,607
571,600 
*
   
SuperGen, Inc.
   
 
4,150
Casinos & Gaming—1.2%
       
424,300 
*
   
Station Casinos, Inc.
   
 
7,574
Catalog Retail—0.1%
       
479,500 
*†
   
Concepts Direct, Inc.
   
 
623
Computer Storage & Peripherals—0.0%
       
43,300 
*
   
iManage, Inc.
   
 
145
Diversified Commercial Services—15.3%
       
459,900 
*
   
Corinthian Colleges, Inc.
   
 
15,586
291,600 
*
   
FirstService Corp.
   
 
7,369
805,980 
*
   
Iron Mountain, Inc.
   
 
24,864
1,539,552 
*†
   
NCO Group, Inc.
   
 
33,531
222,900 
*
   
Rent-A-Center, Inc.
   
 
12,930
608,400 
*
   
ResortQuest International, Inc.
   
 
3,468
Diversified Financial Services—5.4%
       
2,669,800 
*†
   
Rent-Way, Inc.
   
 
34,574
Environmental Services—0.4%
       
312,900 
*
   
Newpark Resources, Inc.
   
 
2,300
Footwear—1.0%
334,900 
*
   
Steven Madden, Ltd.
   
 
6,641
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Health Care Distributors & Services—1.2%
606,200 
*
   
MIM Corp.
   
$
  7,329
Health Care Equipment—15.7%
300,150 
*
   
ABIOMED, Inc.
   
 
2,545
329,000 
*
   
Aksys, Ltd.
   
 
2,270
  395,350 
*
   
Align Technology, Inc.
   
 
1,598
455,000 
*†
   
American Medical Alert Corp.
   
 
1,187
  1,854,300 
*†
   
Conceptus, Inc.
   
 
30,577
536,600 
*
   
Cytyc Corp.
   
 
4,089
1,147,900 
*
   
Endocare, Inc.
   
 
15,164
301,800 
*
   
INAMED Corp.
   
 
8,064
175,550 
*
   
Lifeline Systems, Inc.
   
 
4,624
1,300,000 
*
   
LifePoint, Inc. (Illiquid) (acquired 3/27/02)**††
   
 
3,370
443,200 
*
   
Lumenis, Ltd.
   
 
1,644
1,044,800 
*†
   
Med-Design Corp.
   
 
13,520
1,800,000 
*†
   
PhotoMedex, Inc. (Illiquid) (acquired 6/12/02)**††
   
 
2,592
490,300 
*†
   
Physiometrix, Inc.
   
 
402
199,000 
*
   
SonoSite, Inc.
   
 
2,872
861,000 
*†
   
SpectRx, Inc.
   
 
3,366
586,200 
*
   
STAAR Surgical Co.
   
 
2,415
Health Care Facilities—4.0%
842,175 
*†
   
Matria Healthcare, Inc.
   
 
6,923
1,226,300 
*†
   
Prime Medical Services, Inc.
   
 
14,250
636,800 
*
   
Res-Care, Inc.
   
 
4,216
Health Care Supplies—7.2%
1,195,200 
*†
   
PolyMedica Corp.
   
 
30,525
1,127,500 
*
   
Thoratec Corp.
   
 
10,136
347,600 
*
   
VIVUS, Inc.
   
 
2,353
134,000 
*
   
Wright Medical Group, Inc.
   
 
2,701
Integrated Telecommunications Services—1.0%
968,672 
*
   
RMH Teleservices, Inc.
   
 
6,655
Internet Software & Services—2.6%
2,365,188 
*
   
InfoSpace, Inc.
   
 
1,064
1,341,003 
*†
   
Stellent, Inc.
   
 
6,142
374,500 
*
   
Websense, Inc.
   
 
9,576
IT Consulting & Services—1.1%
1,069,508 
*
   
CIBER, Inc. (Illiquid)
(acquired 4/25/02)**††
   
 
6,978
Managed Health Care—1.1%
300,700 
*
   
AmeriPath, Inc.
   
 
7,217
Office Services & Supplies—3.3%
688,800 
*
   
United Stationers, Inc.
   
 
20,940
Paper Packaging—1.2%
641,200
 
   
Intertape Polymer Group, Inc.
   
 
7,444

SEE NOTES TO FINANCIAL STATEMENTS
 
4

Table of Contents

Portfolio of Investments
 
SAFECO Growth Opportunities Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Personal Products—2.8%
728,600 
*
   
Elizabeth Arden, Inc.
   
$
12,751
347,200 
*
   
Nu Skin Enterprises, Inc. (Class A)
   
 
5,052
Pharmaceuticals—5.2%
200,000 
*
   
Axcan Pharma, Inc.
   
 
2,988
200,000 
*
   
Connetics Corp.
   
 
2,584
  1,149,425 
*
   
Discovery Laboratories, Inc.
   
 
2,011
216,735 
*
   
Emisphere Technologies, Inc.
   
 
891
404,300 
*
   
Impax Laboratories, Inc.
   
 
3,028
1,216,000 
*
   
La Jolla Pharmaceutical Co.
   
 
7,600
835,000 
*†
   
Nastech Pharmaceutical Co., Inc.
   
 
13,719
Property & Casualty Insurance—0.3%
465,000
 
   
Vesta Insurance Group, Inc.
   
 
1,990
Semiconductors—0.1%
  730,200 
*
   
SONICblue, Inc.
   
 
752
Specialty Chemicals—0.9%
320,100 
*
   
Eden Bioscience Corp.
   
 
637
530,000 
*
   
Omnova Solutions, Inc.
   
 
4,452
33,300 
 
   
PolyOne Corp.
   
 
375
Specialty Stores—0.3%
542,213 
*†
   
Harold’s Stores, Inc.
   
 
1,437
710,000 
*†
   
TRM Copy Centers Corp.
   
 
604
Systems Software—0.1%
831,700 
*†
   
Sphinx International, Inc. (Illiquid)
   
 
507
Telecommunications Equipment—0.3%
465,000 
*
   
Innotrac Corp.
   
 
2,246
Wireless Telecommunications Services—0.2%
353,000 
*
   
Western Wireless Corp. (Class A)
   
 
1,144
           
TOTAL COMMON STOCKS (cost $661,504)
   
 
628,097
           
WARRANTS—0.9%
Health Care Equipment—0.3%
113,750 
*
   
American Medical Alert Corp.††
   
 
114
92,625 
*
   
Endocare, Inc.††
   
 
589
260,000 
*
   
LifePoint, Inc. (Illiquid) (acquired 3/27/02)**††
   
 
335
450,000 
*
   
PhotoMedex, Inc. (Illiquid) (acquired 6/12/02)**††
   
 
462
172,200 
*
   
SpectRx, Inc.††
   
 
332
Integrated Telecommunications Services—0.2%
345,724 
*
   
RMH Teleservices, Inc.††
   
 
1,439
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
  
Pharmaceuticals—0.4%
229,885
 *
   
Discovery Laboratories, Inc.††
   
$
  117
 
217,500
 *
   
Nastech Pharmaceutical Co.,
Inc.††
   
 
2,579
 
           
TOTAL WARRANTS (cost $43)
   
 
5,967
 
           
CASH EQUIVALENTS—0.7%
Investment Companies
  4,296,048
 
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio
(Institutional Shares)
   
 
4,296
 
           
TOTAL CASH EQUIVALENTS (cost $4,296)
   
 
4,296
 
           
TOTAL INVESTMENTS (cost $665,843)—100.1%
   
 
638,360
 
Other Assets, less Liabilities
   
 
(495
)
           
NET ASSETS
   
$
637,865
 
           
 
  *
 
Non-income producing security.
**
 
Securities are unregistered and restricted as to resale only to dealers, or through a dealer to a “qualified institutional buyer”. The total cost of such securities is $14,099,000 and the total value is $13,737,000 or 2.15% of net assets.
  †
 
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 $272,376,000.
††
 
Securities are valued at fair value as determined by, and under supervision of, the Board of Trustees.

 
SAFECO    MUTUAL    FUNDS
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SEE NOTES TO FINANCIAL STATEMENTS
 
5

Table of Contents

 
SAFECO Equity Fund
 
As of June 30, 2002

 
LOGO
   
Richard Meagley
    
 
How did the Fund perform?
During the six-month period, the SAFECO Equity Fund performed poorly versus its benchmark, the S&P 500 index. The Fund and the S&P 500 were down 17.50% and 13.16%, respectively. Even in these trying times for both the market and the economy, shareholders should find comfort in the types of companies this Fund owns. These companies have delivered strong earnings over time, they continue to have solid fundamentals, and I believe these stocks will emerge from the current market slump in good condition.
 
What factors impacted performance?
Slightly over half of the year-to-date shortfall can be attributed to four stocks: Tyco International, AOL Time Warner, El Paso and Qwest Communications. Each company grew quickly in the last half of the 1990s. However, when the slowdown arrived, it became apparent that for these companies past growth was no indicator of future potential. All of these stocks dropped significantly in the first half of the year.
 
The healthcare sector also hurt performance. The severity and length of the earnings problems for companies with major patent expirations have been greater than I expected. Also, several companies without patent issues are experiencing earnings slowdowns.
 
Finally, holdings in what I would call “mega-cap” stocks hurt the Fund. Though this is a large-cap fund, I own more shares than the benchmark in big names like General Electric, Citigroup, Pfizer and Intel. On average, this group turned in a year-to-date performance that is worse than the benchmark.
 
What changes did you make and why?
I sold the Fund’s Tyco International and Qwest positions, because the long-term case for continuing with the investments was no longer intact. I kept AOL Time Warner and El Paso, because I believe the current prices are attractive even on materially reduced future expectations.
 
In healthcare, I sold the companies that find themselves in the midst of working through major patent expirations: Bristol-Myers Squibb, Schering-Plough and Merck. I took a new position in Pharmacia (on July 15, Pfizer announced plans to acquire Pharmacia), plus added to my positions in Abbott Laboratories and Wyeth. This last group of companies possesses less future risk relative to negative earnings revisions, yet sell at valuations close to the group of companies that I sold.
 
In the mega-cap arena, I reduced holdings in Wal-Mart, Microsoft and Intel, because near-term valuations no longer support maintaining the current position levels. However, in the case of General Electric, Pfizer and Citigroup, I chose to maintain the Fund’s current positions.
 
I increased the weightings in the technology and consumer discretionary sectors during the first half. Also, I have tried to focus, but not exclusively, on companies with more straightforward prospects. It is my belief that such companies will be the better investments in the positive, yet tepid market that I anticipate occurring through year-end.

6

Table of Contents

Report From the Fund Manager
 
SAFECO Equity Fund
 
As of June 30, 2002

What is your outlook for the future?
I feel that things are looking up for the second half of the year. The valuation on the S&P 500 has retreated to more reasonable levels, and at the same time the economy appears to be doing fairly well.
 
Corporate scandals and investors’ concerns about how much of the late 1990s earnings boom was “borrowed” from the current period will dampen near-term enthusiasm. However, I do believe the overall “mood” will be better by year-end than it is now, and I have endeavored to position the Fund to benefit from this outlook.
 
Richard Meagley, MBA, CFA
 
Vice President of SAFECO Asset Management; 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. After gaining two additional years of portfolio management experience with a Seattle-area investment firm, Rich rejoined the organization in 1995.

 
SAFECO    MUTUAL    FUNDS
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7

Table of Contents

Performance Overview & Highlights
 
SAFECO Equity Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
     
5 Year
       
10 Year
       
Six Month*
     
1 Year
     
5 Year
       
10 Year
  
SAFECO Equity Fund
                                                              
Class A
   
(22.36
)%
   
(25.21
)%
   
(2.15
)%
     
10.40
%
     
(17.63
)%
   
(20.63
)%
   
(0.98
)%
     
11.05
%
Class B
   
(22.07
)%
   
(25.15
)%
   
(2.15
)%
     
10.53
%
     
(17.97
)%
   
(21.21
)%
   
(1.81
)%
     
10.53
%
Class C
   
(18.77
)%
   
(22.02
)%
   
(1.78
)%
     
10.55
%
     
(17.95
)%
   
(21.23
)%
   
(1.78
)%
     
10.55
%
S&P 500 Index
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(13.16
)%
   
(17.99
)%
   
3.66
%
     
11.42
%
Lipper, Inc. (Large-Cap Value Funds)
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(13.66
)%
   
(19.06
)%
   
2.23
%
     
9.77
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Pharmaceuticals
     
14
%
Diversified Financial Services
     
9
 
Integrated Oil & Gas
     
8
 
Banks
     
8
 
Systems Software
     
4
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Washington Mutual, Inc.
(Banks)
     
4.8
%
General Electric Co.
(Industrial Conglomerates)
     
4.3
 
Pfizer, Inc.
(Pharmaceuticals)
     
4.2
 
Citigroup, Inc.
(Diversified Financial Services)
     
3.6
 
Microsoft Corp.
(Systems Software)
     
3.5
 
American International Group, Inc.
(Multi-Line Insurance)
     
3.2
 
Exxon Mobil Corp.
(Integrated Oil & Gas)
     
2.9
 
Abbot Laboratories
(Pharmaceuticals)
     
2.7
 
Wyeth
(Pharmaceuticals)
     
2.6
 
ChevronTexaco Corp.
(Integrated Oil & Gas)
     
2.6
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
Pharmacia Corp.
   
$19,020
United Technologies Corp.
   
14,870
Target Corp.
   
12,366
Kimberly-Clark Corp.
   
11,501
Kroger Co.
   
11,353
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Washington Mutual, Inc.
   
$18,416
Merck & Co., Inc.
   
16,257
Wal-Mart Stores, Inc.
   
15,420
Schering-Plough Corp.
   
15,369
CVS Corp.
   
14,035
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
8

Table of Contents

Portfolio of Investments
 
SAFECO Equity Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—96.1%
       
Advertising—1.0%
       
350,000
 
   
Interpublic Group Cos., Inc.
   
$
8,666
Aerospace & Defense—1.7%
       
210,000
 
   
United Technologies Corp.
   
 
14,259
Application Software—0.4%
       
230,000
 *
   
Siebel Systems, Inc.
   
 
3,271
Automobile Manufacturers—1.0%
       
150,000
 
   
General Motors Corp.
   
 
8,017
Banks—8.0%
       
250,000
 
   
Bank of America Corp.
   
 
17,590
400,000
 
   
U.S. Bancorp
   
 
9,340
  1,100,000
 
   
Washington Mutual, Inc.
   
 
40,821
Brewers—2.0%
       
330,000
 
   
Anheuser-Busch Companies, Inc.
   
 
16,500
Computer Hardware—3.1%
       
400,000
 *
   
Dell Computer Corp.
   
 
10,456
175,000
 
   
International Business Machines Corp.
   
 
12,600
650,000
 *
   
Sun Microsystems, Inc.
   
 
3,256
Computer Storage & Peripherals—0.4%
       
490,000
 *
   
EMC Corp.
   
 
3,700
Data Processing Services—1.6%
       
300,000
 
   
Automatic Data Processing, Inc.
   
 
13,065
Department Stores—1.3%
       
325,000
 
   
May Department Stores Co.
   
 
10,702
Diversified Commercial Services—0.8%
       
350,000
 
   
IMS Health, Inc.
   
 
6,282
Diversified Financial Services—8.9%
       
300,000
 
   
American Express Co.
   
 
10,896
775,000
 
   
Citigroup, Inc.
   
 
30,031
255,000
 
   
Federal National Mortgage Association
   
 
18,806
440,000
 
   
J.P. Morgan Chase & Co.
   
 
14,925
Electric Utilities—1.9%
       
500,000
 
   
Duke Energy Corp.
   
 
15,550
Food Retail—2.4%
       
500,000
 *
   
Kroger Co.
   
 
9,950
350,000
 *
   
Safeway, Inc.
   
 
10,216
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Gas Utilities—1.0%
       
400,000
 
   
El Paso Corp.
   
$
8,244
General Merchandise Stores—3.7%
       
275,000
 
   
Target Corp.
   
 
10,477
380,000
 
   
Wal-Mart Stores, Inc.
   
 
20,904
Home Improvement Retail—1.5%
       
350,000
 
   
Home Depot, Inc.
   
 
12,855
Household Products—3.7%
       
175,000
 
   
Kimberly-Clark Corp.
   
 
10,850
225,000
 
   
Procter & Gamble Co.
   
 
20,092
Industrial Conglomerates—4.3%
       
  1,250,000
 
   
General Electric Co.
   
 
36,313
Industrial Gases—1.4%
       
200,000
 
   
Praxair, Inc.
   
 
11,394
Integrated Oil & Gas—8.4%
       
245,000
 
   
ChevronTexaco Corp.
   
 
21,683
350,000
 
   
Conoco, Inc.
   
 
9,730
600,000
 
   
Exxon Mobil Corp.
   
 
24,552
270,000
 
   
Royal Dutch Petroleum Co. (ADR)
   
 
14,923
Integrated Telecommunications Services—4.1%
555,000
 
   
SBC Communications, Inc.
   
 
16,928
450,000
 
   
Verizon Communications
   
 
18,068
IT Consulting & Services—0.5%
       
120,000
 
   
Electronic Data Systems Corp.
   
 
4,458
Movies & Entertainment—2.9%
       
1,000,000
 *
   
AOL Time Warner, Inc.
   
 
14,710
500,000
 
   
Walt Disney Co.
   
 
9,450
Multi-Line Insurance—3.2%
       
400,000
 
   
American International Group, Inc.
   
 
27,292
Networking Equipment—1.4%
       
850,000
 *
   
Cisco Systems, Inc.
   
 
11,858
Pharmaceuticals—13.8%
       
600,000
 
   
Abbott Laboratories
   
 
22,590
375,000
 
   
Johnson & Johnson
   
 
19,598
1,000,000
 
   
Pfizer, Inc.
   
 
35,000
450,000
 
   
Pharmacia Corp.
   
 
16,853
435,000
 
   
Wyeth
   
 
22,272

 
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9

Table of Contents

Portfolio of Investments
 
SAFECO Equity Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Publishing & Printing—1.8%
       
200,000
 
   
Gannett Co., Inc.
   
$
15,180
Semiconductor Equipment—2.1%
       
260,000
 *
   
Applied Materials, Inc.
   
 
4,945
700,000
 
   
Intel Corp.
   
 
12,789
Semiconductors—0.8%
       
270,000
 
   
Texas Instruments, Inc.
   
 
6,399
Soft Drinks—2.0%
       
345,000
 
   
PepsiCo, Inc.
   
 
16,629
Systems Software—4.4%
       
  540,000
 *
   
Microsoft Corp.
   
 
29,538
815,000
 *
   
Oracle Corp.
   
 
7,718
Telecommunications Equipment—0.6%
       
200,000
 
   
Nokia Oyj (ADR)
   
 
2,896
125,000
 *
   
QUALCOMM, Inc.
   
 
3,436
           
TOTAL COMMON STOCKS (cost $675,084)
   
 
809,523
           
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
  
CASH EQUIVALENTS—4.1%
         
Investment Companies
         
  34,740,019
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
$
34,740
 
         
TOTAL CASH EQUIVALENTS (cost $34,740)
   
 
34,740
 
         
TOTAL INVESTMENTS (cost $709,824)—100.2%
   
 
844,263
 
Other Assets, less Liabilities
   
 
(1,626
)
         
NET ASSETS
   
$
842,637
 
         
 
*
 
Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS
 
10

Table of Contents

 
SAFECO Dividend Income Fund
 
As of June 30, 2002

 
How did the Fund perform?
The SAFECO Dividend Income Fund underperformed the Russell 1000 Value Index for the six-month period ending June 30, 2002. The Fund benefited from the market’s bias toward value stocks, but was hurt by the outperformance of small capitalization stocks.
 
What factors impacted performance?
Our portfolio is tilted towards large-cap companies with good records for increasing earnings and dividends. We try to buy when companies are selling at attractive price/earnings ratios, and sell or cut back when the valuations are above the usual range for that stock. Our average market capitalization is $60 billion, compared to $63 billion for the Russell 1000 Value. Our stocks yielded 2.50% compared to the Russell 1000 Value’s 2.25%.
 
While general portfolio characteristics were the largest predictors of returns this year, individual stocks and sector weightings had their impact. We were helped by our banks (e.g., Washington Mutual, US Bancorp and Bank of America), real estate investment trusts (e.g., Liberty Property Trust), defense (e.g., Northrop Grumman), and consumer cyclicals (e.g., Fortune Brands).
 
Our worst performers were primarily technology stocks, including Nokia, IBM, Agilent, Electronic Data Systems and Intel. The technology sector weighting was relatively small; however, El Paso continued to decline in the wake of the Enron scandal.
 
Tyco International deserves mention as our single worst performer. As we look back and try to understand what happened, we believe it was not a case of misunderstanding the income statement, the balance sheet or the individual business units, but instead a misjudgment of Tyco’s management. When it became clear that this company had stepped over the line, we sold the stock.
 
What changes did you make and why?
Portfolio turnover has declined this year. In addition to selling Tyco International, we sold Emerson and replaced it with Hubbell, a company where we think both the near-term earnings outlook and the valuation are better. We sold Weyerhaeuser and Boeing when they reached our price targets, CVS to reduce our weighting in consumer staples, and Computer Associates due to concerns about management credibility and accounting practices. We replaced Reliant Energy with FirstEnergy, as Reliant was planning to cut its dividend. Texas Instruments and IMS Health, the leading source of drug utilization data, are new holdings.

 
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11

Table of Contents

Report From the Fund Managers
 
SAFECO Dividend Income Fund
 
As of June 30, 2002

 
What is your outlook for the future?
We continue to believe that the economy has begun what will prove to be a lackluster, but real recovery. For the first time in years, the stock market is valued at attractive levels. In addition, the scandals are likely to lead us to better corporate governance and stronger accounting standards. These factors should favor companies with reliable earnings and dividends.
 
SAFECO Asset Management Company
 
SAFECO Asset Management Company’s dividend income investment team, which is comprised of senior 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

Table of Contents

Performance Overview & Highlights
 
SAFECO Dividend Income Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
     
5 Year
       
10 Year
       
Six Month*
     
1 Year
     
5 Year
       
10 Year
  
SAFECO Dividend Income Fund
                                                              
Class A
   
(13.30
)%
   
(15.21
)%
   
(2.34
)%
     
6.82
%
     
(8.03
)%
   
(10.02
)%
   
(1.17
)%
     
7.46
%
Class B
   
(12.93
)%
   
(15.08
)%
   
(2.13
)%
     
7.05
%
     
(8.35
)%
   
(10.63
)%
   
(1.82
)%
     
7.05
%
Class C
   
(9.21
)%
   
(11.42
)%
   
(1.77
)%
     
7.07
%
     
(8.29
)%
   
(10.53
)%
   
(1.77
)%
     
7.07
%
Russell 1000 Value Index
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(4.78
)%
   
(8.95
)%
   
6.53
%
     
13.01
%
Lipper, Inc. (Equity-Income Funds)
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(7.00
)%
   
(10.34
)%
   
4.21
%
     
10.29
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Integrated Oil & Gas
     
11
%
Real Estate Investment Trust
     
9
 
Diversified Financial Services
     
8
 
Banks
     
8
 
Integrated Telecommunications Services
     
8
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
ChevronTexaco Corp.
(Integrated Oil & Gas)
     
3.9
%
Liberty Property Trust
(Real Estate Investment Trust)
     
3.2
 
Washington Mutual, Inc.
(Banks)
     
3.2
 
Exxon Mobil Corp.
(Integrated Oil & Gas)
     
3.1
 
First Industrial Realty Trust, Inc.
(Real Estate Investment Trust)
     
2.9
 
Federal National Mortgage Association
(Diversified Financial Services)
     
2.6
 
Hartford Financial Services Group, Inc.
(Multi-line Insurance)
     
2.5
 
Equity Residential
(Real Estate Investment Trust)
     
2.5
 
SBC Communications
(Integrated Telecommunications Services)
     
2.4
 
Wyeth
(Pharmaceuticals)
     
2.4
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
FirstEnergy Corp.
   
$2,694
IMS Health, Inc.
   
1,636
SBC Communications, Inc.
   
1,455
Hubbell, Inc. (Class B)
   
1,262
Fortune Brands, Inc.
   
997
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Weyerhaeuser Co.
   
$1,904
Emerson Electric Co.
   
1,772
Boeing Co.
   
1,730
Reliant Energy, Inc.
   
1,711
Hewlett-Packard Co.
   
1,677
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
13

Table of Contents

Portfolio of Investments
 
SAFECO Dividend Income Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—96.1%
       
Advertising—1.1%
       
70,400
 
   
Interpublic Group Cos., Inc.
   
$
1,743
Aerospace & Defense—3.5%
       
22,000
 
   
Northrop Grumman Corp.
   
 
2,750
40,000
 
   
United Technologies Corp.
   
 
2,716
Air Freight & Couriers—2.2%
       
55,000
 
   
United Parcel Service, Inc. (Class B)
   
 
3,396
Banks—7.7%
       
47,000
 
   
Bank of America Corp.
   
 
3,307
  160,000
 
   
U.S. Bancorp
   
 
3,736
135,000
 
   
Washington Mutual, Inc.
   
 
5,010
Brewers—2.1%
       
65,000
 
   
Anheuser-Busch Companies, Inc.
   
 
3,250
Computer Hardware—1.7%
       
25,000
 *
   
Dell Computer Corp.
   
 
653
19,200
 
   
International Business Machines Corp.
   
 
1,382
125,000
 *
   
Sun Microsystems, Inc.
   
 
626
Data Processing Services—1.0%
       
35,000
 
   
Automatic Data Processing, Inc.
   
 
1,524
Department Stores—2.1%
       
100,500
 
   
May Department Stores Co.
   
 
3,309
Diversified Chemicals—1.8%
       
64,000
 
   
Du Pont (E.I.) de Nemours & Co.
   
 
2,842
Diversified Commercial Services—0.9%
       
80,000
 
   
IMS Health, Inc.
   
 
1,436
Diversified Financial Services—8.2%
       
70,000
 
   
American Express Co.
   
 
2,542
75,000
 
   
Citigroup, Inc.
   
 
2,906
55,000
 
   
Federal National Mortgage Association
   
 
4,056
100,000
 
   
J.P. Morgan Chase & Co.
   
 
3,392
Electric Utilities—2.9%
       
68,000
 
   
Duke Energy Corp.
   
 
2,115
75,000
 
   
FirstEnergy Corp.
   
 
2,503
Electronic Equipment & Instruments—2.3%
       
55,000
 *
   
Agilent Technologies, Inc.
   
 
1,301
30,000
 
   
Diebold, Inc.
   
 
1,117
35,000
 
   
Hubbell, Inc. (Class B)
   
 
1,195
Gas Utilities—0.7%
       
55,000
 
   
El Paso Corp.
   
 
1,134
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Household Products—2.4%
       
60,000
   
Kimberly-Clark Corp.
   
$
3,720
Housewares & Specialities—1.8%
       
50,500
   
Fortune Brands, Inc.
   
 
2,828
Industrial Conglomerates—2.1%
       
115,000
   
General Electric Co.
   
 
3,341
Industrial Gases—2.2%
       
70,000
   
Air Products and Chemicals, Inc.
   
 
3,533
Industrial Machinery—2.1%
       
73,300
   
Ingersoll-Rand Co.
   
 
3,347
Integrated Oil & Gas—11.3%
       
70,000
   
ChevronTexaco Corp.
   
 
6,195
115,000
   
Conoco, Inc.
   
 
3,197
118,812
   
Exxon Mobil Corp.
   
 
4,862
65,000
   
Royal Dutch Petroleum Co. (ADR)
   
 
3,593
Integrated Telecommunications Services—7.6%
       
45,000
   
ALLTEL Corp.
   
 
2,115
30,000
   
BellSouth Corp.
   
 
945
50,000
   
CenturyTel, Inc.
   
 
1,475
125,000
   
SBC Communications, Inc.
   
 
3,813
91,740
   
Verizon Communications
   
 
3,683
IT Consulting & Services—1.1%
       
45,000
   
Electronic Data Systems Corp.
   
 
1,672
Movies & Entertainment—1.3%
       
  105,000
   
Walt Disney Co.
   
 
1,985
Multi-Line Insurance—4.0%
       
35,000
   
American International Group, Inc.
   
 
2,388
65,700
   
Hartford Financial Services Group, Inc.
   
 
3,907
Multi-Utilities—1.0%
       
75,000
   
NiSource, Inc.
   
 
1,637
Pharmaceuticals—6.5%
       
65,000
   
Abbott Laboratories
   
 
2,447
50,000
   
Johnson & Johnson
   
 
2,613
60,000
   
Schering-Plough Corp.
   
 
1,476
73,000
   
Wyeth
   
 
3,738
Publishing & Printing—1.9%
       
40,000
   
Gannett Co., Inc.
   
 
3,036
Real Estate Investment Trust—8.5%
       
  134,000
   
Equity Residential
   
 
3,853
137,000
   
First Industrial Realty Trust, Inc.
   
 
4,500
145,000
   
Liberty Property Trust
   
 
5,075
Semiconductor Equipment—0.7%
       
62,800
   
Intel Corp.
   
 
1,147

SEE NOTES TO FINANCIAL STATEMENTS
 
14

Table of Contents

Portfolio of Investments
 
SAFECO Dividend Income Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
  
Semiconductors—0.4%
         
25,000
 
   
Texas Instruments, Inc.
   
$
593
 
Systems Software—1.0%
         
30,000
 *
   
Microsoft Corp.
   
 
1,641
 
Telecommunications Equipment—1.0%
         
110,000
 
   
Nokia Oyj (ADR)
   
 
1,593
 
Tobacco—1.0%
         
35,000
 
   
Philip Morris Cos., Inc.
   
 
1,529
 
           
TOTAL COMMON STOCKS (cost $129,066)
   
 
151,418
 
           
CASH EQUIVALENTS—4.0%
         
Investment Companies
         
  6,274,321
 
   
AIM Short-Term Investments
Co. Liquid Assets Money
Market Portfolio
(Institutional Shares)
   
 
6,274
 
           
TOTAL CASH EQUIVALENTS (cost $6,274)
   
 
6,274
 
           
TOTAL INVESTMENTS (cost $135,340)—100.1%
   
 
157,692
 
Other Assets, less Liabilities
   
 
(218
)
           
NET ASSETS
   
$
157,474
 
           
 
*
 
Non-income producing security.

 
SAFECO    MUTUAL    FUNDS
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SEE NOTES TO FINANCIAL STATEMENTS
 
15

Table of Contents

 
SAFECO Northwest Fund
 
As of June 30, 2002

 
LOGO
   
Bill Whitlow
    
 
How did the Fund perform?
The SAFECO Northwest Fund performed modestly better than its S&P 500 benchmark for the six-month period. While disappointing, I was satisfied with this relative performance given the difficult market conditions and the Fund’s pro-cyclical, pro-growth bias.
 
What factors impacted performance?
Broad diversification and risk control helped the SAFECO Northwest Fund weather the market storm. Over the past two years, I have decreased the sector allocations, as well as the size of the largest holdings. I have also made an effort to closely monitor each security’s risk, decreasing the weighting in the riskier, more volatile stocks. These efforts have cushioned the punches from the “blow ups” that did occur. I have also been improving the quality of the holdings, which has helped dampen the impact of “Enronitis” on the Fund.
 
The winners during the period come from a diversified list of financial, consumer and industrial companies. Top performers were Schnitzer Steel, Ambassadors International, Penford, Starbucks, Pacific Northwest Bank, Washington Banking, StanCorp Financial Group, Expeditors International of Washington and West Coast Bancorp. The losers were concentrated in telecommunications, technology and biotech.
 
What changes did you make and why?
I made few changes to the SAFECO Northwest Fund in the first six months of 2002. I added F-5 Networks and ICOS and sold Onyx Software, Agilent and InfoSpace. Ambassadors International split into two companies during the first quarter, so the portfolio has remained at 52 holdings throughout the period.
 
My strategy during these difficult times for coping with both the ailing economy and the tough bear market has been to remain diversified in terms of stocks, sectors, capitalization and style. At June 30, about half of the names held within the Fund were large-cap, and the other half were mid-cap or small-cap. Additionally, approximately one-third had value characteristics, while the remainder had a growth focus.
 
What is your outlook for the future?
I believe we are in the early stages of a modest, worldwide economic recovery. Historically, such an economic recovery would have been led by a market recovery. Thus far, that has not been the case during this cycle. The crisis of investor confidence resulting from corporate mismanagement and accounting scandals, as well as concerns regarding terrorism, seems to be causing a disconnect between the economy and the market cycles. The net result is an increase in risk, both for the market in general and for individual stocks.

16

Table of Contents

Report From the Fund Manager
 
SAFECO Northwest Fund
 
As of June 30, 2002

 
My strategy for dealing with this increased volatility is more diversification, a greater focus on risk control, and a general improvement in the quality of our holdings. I believe this ongoing approach allowed the SAFECO Northwest Fund to weather this difficult period, while retaining the potential to outperform when the inevitable market recovery occurs.
 
Bill Whitlow, MBA, CFA
 
Vice President of SAFECO Asset Management; 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 25 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
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17

Table of Contents

Performance Overview & Highlights
 
SAFECO Northwest Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
       
5 Year
       
10 Year
       
Six Month*
     
1 Year
       
5 Year
       
10 Year
  
SAFECO Northwest Fund
                                                                  
Class A
   
(16.98
)%
   
(24.22
)%
     
1.22
%
     
7.22
%
     
(11.92
)%
   
(19.60
)%
     
2.43
%
     
7.86
%
Class B
   
(16.60
)%
   
(24.19
)%
     
1.41
%
     
7.45
%
     
(12.21
)%
   
(20.20
)%
     
1.76
%
     
7.45
%
Class C
   
(13.13
)%
   
(21.00
)%
     
1.76
%
     
7.45
%
     
(12.26
)%
   
(20.20
)%
     
1.76
%
     
7.45
%
S&P 500 Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(13.16
)%
   
(17.99
)%
     
3.66
%
     
11.42
%
WM Group NW 50 Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(9.03
)%
   
(11.61
)%
     
9.00
%
     
12.63
%
Lipper, Inc. (Multi-Cap Core Funds)
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(11.70
)%
   
(17.25
)%
     
4.03
%
     
11.33
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Banks
     
17
%
Pharmaceuticals
     
9
 
Food Retail
     
5
 
Restaurants
     
4
 
Air Freight & Couriers
     
4
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Starbucks Corp.
(Restaurants)
     
4.0
%
Washington Mutual, Inc.
(Banks)
     
3.9
 
Expeditors International of Washington, Inc.
(Air Freight & Couriers)
     
3.9
 
StanCorp Financial Group, Inc.
(Life & Health Insurance)
     
3.7
 
Costco Wholesale Corp.
(General Merchandise Stores)
     
3.5
 
Wyeth
(Pharmaceuticals)
     
3.4
 
U.S. Bancorp
(Banks)
     
3.3
 
Bank of America Corp.
(Banks)
     
3.3
 
Microsoft Corp.
(Systems Software)
     
3.2
 
Pfizer, Inc.
(Pharmaceuticals)
     
3.2
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
SPDR Trust Series 1
   
$1,584
Icos Corp.
   
1,463
F5 Networks, Inc.
   
1,117
Anadarko Petroleum Corp.
   
550
IMS Health, Inc.
   
453
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Starbucks Corp.
   
$1,673
SPDR Trust Series 1
   
1,586
Boeing Co.
   
1,208
StanCorp Financial Group, Inc.
   
1,056
Expeditors International of Washington, Inc.
   
1,000
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

18

Table of Contents

Portfolio of Investments
 
SAFECO Northwest Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—97.8%
       
Aerospace & Defense—1.6%
       
28,500
 
   
Boeing Co.
   
$
1,282
Air Freight & Couriers—3.9%
       
93,000
 
   
Expeditors International of Washington, Inc.
   
 
3,084
Airlines—2.1%
       
63,000
 *
   
Alaska Air Group, Inc.
   
 
1,644
Application Software—2.7%
       
362,200
 *
   
Captaris, Inc.
   
 
1,068
33,260
 *
   
NetIQ Corp.
   
 
753
470,000
 *
   
Primus Knowledge Solutions, Inc.
   
 
376
Banks—17.4%
       
37,000
 
   
Bank of America Corp.
   
 
2,603
64,500
 
   
Pacific Northwest Bancorp
   
 
2,020
  114,000
 
   
U.S. Bancorp
   
 
2,662
86,000
 
   
Washington Banking Co.
   
 
1,421
84,500
 
   
Washington Mutual, Inc.
   
 
3,136
124,000
 
   
West Coast Bancorp, Inc.
   
 
2,127
Biotechnology—3.1%
       
95,000
 *
   
Corixa Corp.
   
 
651
101,000
 *
   
Dendreon Corp.
   
 
213
44,000
 *
   
Icos Corp.
   
 
746
39,000
 *
   
Immunex Corp.
   
 
871
Catalog Retail—2.7%
       
87,000
 *
   
Coldwater Creek, Inc.
   
 
2,123
Diversified Chemicals—3.0%
       
132,000
 
   
Penford Corp.
   
 
2,389
Diversified Commercial Services—3.6%
       
80,000
 *
   
Ambassadors Group, Inc.
   
 
1,149
98,500
 
   
IMS Health, Inc.
   
 
1,768
Electric Utilities—2.1%
       
81,000
 
   
Avista Corp.
   
 
1,118
81,000
 *
   
Calpine Corp.
   
 
569
Electronic Equipment & Instruments—2.6%
       
112,000
 *
   
Tektronix, Inc.
   
 
2,096
Food Retail—5.3%
       
115,000
 *
   
Kroger Co.
   
 
2,289
67,500
 *
   
Safeway, Inc.
   
 
1,970
General Merchandise Stores—3.5%
       
71,500
 *
   
Costco Wholesale Corp.
   
 
2,761
Health Care Equipment—1.7%
       
93,000
 *
   
SonoSite, Inc.
   
 
1,342
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Health Care Supplies—0.4%
       
  101,000
 *
   
AVI BioPharma, Inc.
   
$
297
Integrated Oil & Gas—2.5%
       
39,500
 
   
BP, plc (ADR)
   
 
1,994
Integrated Telecommunications Services—0.3%
       
95,000
 
   
Qwest Communications International, Inc.
   
 
266
Internet Software & Services—0.8%
       
67,000
 *
   
F5 Networks, Inc.
   
 
655
Leisure Products—1.0%
       
80,000
 *
   
Ambassadors International, Inc.
   
 
805
Life & Health Insurance—3.7%
       
53,000
 
   
StanCorp Financial Group, Inc.
   
 
2,942
Movies & Entertainment—0.7%
       
130,000
 *
   
RealNetworks, Inc.
   
 
541
Networking Equipment—1.4%
       
72,050
 *
   
Avocent Corp.
   
 
1,147
Oil & Gas Drilling—2.1%
       
53,000
 
   
Transocean Sedco Forex, Inc.
   
 
1,651
Oil & Gas Exploration & Production—2.4%
       
39,000
 
   
Anadarko Petroleum Corp.
   
 
1,923
Personal Products—1.7%
       
45,500
 *
   
Nautilus Group, Inc.
   
 
1,392
Pharmaceuticals—8.9%
       
96,500
 *
   
Penwest Pharmaceuticals Co.
   
 
1,882
72,000
 
   
Pfizer, Inc.
   
 
2,520
53,200
 
   
Wyeth
   
 
2,724
Restaurants—4.0%
       
128,000
 *
   
Starbucks Corp.
   
 
3,181
Semiconductor Equipment—1.5%
       
68,000
 
   
Intel Corp.
   
 
1,242
Semiconductors—2.5%
       
42,000
 *
   
Micron Technology, Inc.
   
 
849
54,000
 *
   
PMC-Sierra, Inc.
   
 
501
96,000
 *
   
TriQuint Semiconductor, Inc.
   
 
615
Specialty Chemicals—0.3%
       
118,000
 *
   
Eden Bioscience Corp.
   
 
235
Steel—3.0%
       
108,000
 
   
Schnitzer Steel Industries, Inc.
   
 
2,411

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
19

Table of Contents

Portfolio of Investments
 
SAFECO Northwest Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Systems Software—3.2%
       
47,500
 *
   
Microsoft Corp.
   
$
2,598
Telecommunications Equipment—0.8%
       
229,000 
*
   
Touch America Holdings, Inc.
   
 
630
Wireless Telecommunications Services—1.3%
  141,000
 *
   
AT&T Wireless Services, Inc.
   
 
825
70,800
 *
   
Western Wireless Corp. (Class A)
   
 
229
           
TOTAL COMMON STOCKS (cost $74,926)
   
 
78,286
           
CASH EQUIVALENTS—1.9%
       
Investment Companies
       
  1,534,784
 
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
1,535
           
TOTAL CASH EQUIVALENTS (cost $1,535)
   
 
1,535
           
TOTAL INVESTMENTS (cost
$76,461)—99.7%
   
 
79,821
Other Assets, less Liabilities
   
 
262
           
NET ASSETS
   
$
80,083
           
 
*
 
Non-income producing security.
 

SEE NOTES TO FINANCIAL STATEMENTS
 
20

Table of Contents

 
SAFECO International Stock Fund
 
As of June 30, 2002

 
During the first half of 2002, the SAFECO International Stock Fund underperformed its benchmark, the Morgan Stanley Capital International EAFE (Europe, AustralAsia, Far East) Index.
 
Fragile investor confidence prompted a slump in almost all developed equity markets during the first half of 2002. A series of announcements of manipulated financial statements and bankruptcies, mainly in the United States, undermined investor trust and battered stock prices across the globe. While most of the incidents occurred domestically, debt loads, accounting inconsistencies and corporate governance at companies in France, Britain and other markets came under renewed scrutiny as a result.
 
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. While investor disdain for the financial practices of some companies has depressed stocks, a volatile geopolitical landscape has also weighed on markets. Heightened fears of further terrorism aimed at the United States, the continuing instability in the Middle East, and the recent nuclear-tinged standoff between India and Pakistan have all added to investors’ worries.
 
Telecom stocks contributed the most to the decline in the portfolio as these companies were knocked by a global loss of investor confidence following the bankruptcy of Global Crossing and the $4 billion accounting shock at WorldCom—neither of which were held in your portfolio. In addition, high-debt levels and a lack of demand have led to market downgrades for telecommunications operators and equipment manufacturers.
 
Two of the largest fallers in the portfolio were Telefonica and Vodafone. The Spanish company’s tough markets have been exacerbated by difficulties in South America, with the economic crisis in Argentina and the potential escalation of the Brazilian economy’s woes. Support for Telefonica is likely to come from the fact that it has relatively lower debt levels and has enjoyed better cashflow growth than most other European operators. Vodafone has been hurt by worries about the ability of mobile phone companies to generate sufficient revenue from next-generation services, such as 3G, to justify the investments of the last few years. The world’s largest mobile phone services company recently reported stronger-than-expected free cashflow and a reduction in its debt.
 
Meanwhile, shares in Finland’s Nokia dropped as the company lowered its estimate for growth in the mobile-phone handset market, partly because of a weaker-than-expected replacement market. The world’s largest maker of mobile phones has warned its second-quarter sales would be lower than in the previous year, but it has maintained its earnings target.
 
Among the portfolio’s positive performers were consumer-related and oil companies, as investors generally favored the steadier and more predictable earnings-growth capabilities of these sectors. Unilever, one of the world’s leading consumer goods companies, rose as the company achieved its stated growth targets for the first quarter. Sales of its leading brands rose 4.6% over the last 12 months while operating margins increased. Operating profits increased 18% while earnings per share gained 37% as the company benefited from a fall in its interest costs. Shares in Eni, an Italian oil company, increased as it reported second-quarter oil and gas output rose 8%. The company has benefited from its purchase of Lasmo in the UK and the development of new fields in Italy and Kazakhstan. Eni has set itself a production growth target of almost double the rates planned by certain other large rivals like Exxon Mobil Corp.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

21

Table of Contents

Report From the Fund Managers
 
SAFECO International Stock Fund
 
As of June 30, 2002
 

 
Historically, an improvement in corporate earnings has been a natural response to positive movement in underlying economic fundamentals. Since the beginning of the year, this synchronicity has not materialized, as many sectors have reported no notable improvement despite better economic fundamentals. Indeed, some companies have indicated that demand is still contracting. This is most notable within the beleaguered TMT sectors.
 
The ability of the global economy to maintain its positive momentum will be of great importance during this time. Based on recent reports both business and consumer confidence levels have faltered despite the improving economic data. The major European economies are likely to show at least modest increases this year; the extent of any additional advance remains dependent on the performance of the U.S., the world’s largest economy. Recent concerns regarding the American economy should be put in context; it is likely to be one of the top performers in 2002 and may, as it has in the past, help drive global exports and growth. Nevertheless, the weakening of the U.S. dollar has thrown up new challenges, not least of which is the effect that this might have on tentative export-led recoveries in Asia. Fundamental problems still exist in the Japanese economy and the strengthening of the yen threatens to strangle an export-driven upturn there.
 
We do not expect much movement from the major central banks on interest rates. The stronger euro should help to ease inflation concerns and consequently delay any rate rise by the European Central Bank. The Bank of England may increase interest rates in the nearer term as the economy appears in reasonable shape and such action should provide stability for sterling, which has weakened so far this year.
 
Going forward, it is likely that equity returns will be lower than in recent periods of growth. The financial scandals of the last nine months are likely to keep investor enthusiasm muted in the short-term, until it can be shown that these problems are being addressed. The investigations that are taking place should provide some solace in this regard.
 
As markets shake off the valuation excesses that built up during the latter part of the 1990s, we believe that attractive opportunities will emerge as the benefits of the improved economic conditions feed through to corporate earnings. Our preference in the current environment continues to be for quality stocks with strong balance sheets where we can identify real value.
 
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 has managed international equities since 1996 and began managing U.S. funds in 1989.

22

Table of Contents

Performance Overview & Highlights
 
SAFECO International Stock Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
     
5 Year
       
Since
Inception**
       
Six Month*
     
1 Year
     
5 Year
       
Since
Inception**
  
SAFECO International Stock Fund
                                                              
Class A
   
(9.20
)%
   
(16.63
)%
   
(3.10
)%
     
0.89
%
     
(3.64
)%
   
(11.55
)%
   
(1.94
)%
     
1.83
%
Class B
   
(8.80
)%
   
(16.61
)%
   
(3.07
)%
     
1.12
%
     
(4.00
)%
   
(12.27
)%
   
(2.71
)%
     
1.12
%
Class C
   
(4.96
)%
   
(13.14
)%
   
(2.73
)%
     
1.10
%
     
(4.00
)%
   
(12.27
)%
   
(2.73
)%
     
1.10
%
EAFE Index
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(2.77
)%
   
(10.98
)%
   
(3.01
)%
     
(0.22
)%
Lipper, Inc. (International Funds)
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(1.65
)%
   
(10.15
)%
   
(0.41
)%
     
N/A
 
 * Not annualized.
** 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.
 
LOGO
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Total Fina Elf SA
(Integrated Oil & Gas)
     
3.5
%
ING Groep NV
(Banks)
     
3.5
 
Nestle SA
(Food Retail)
     
3.5
 
Aventis SA
(Pharmaceuticals)
     
2.9
 
Barclays, plc
(Banks)
     
2.9
 
GlaxoSmithKline, plc
(Pharmaceuticals)
     
2.9
 
Canon, Inc.
(Office Services & Supplies)
     
2.8
 
Swiss Re
(Multi-Line Insurance)
     
2.8
 
Shell Transport & Trading Co., plc
(Integrated Oil & Gas)
     
2.6
 
Lloyds TSB Group, plc
(Banks)
     
2.5
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
  
BP, plc
   
$352
 
Allianz AG
   
247
 
British American Tobacco, plc
   
187
 
Tesco, plc
   
184
 
Samsung Electronics Co., Ltd.
   
169
 
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
  
Royal Dutch Petroleum Co.
   
$232
 
NEC Corp.
   
173
 
Cable & Wireless, plc
   
164
 
Murata Manufacturing Co., Ltd.
   
161
 
Bayerische Hypo-und Vereinsbank AG
   
152
 
TOP FIVE COUNTRIES
   
Percent of
Net Assets
  
United Kingdom
   
29
%
Japan
   
13
 
Netherlands
   
12
 
Switzerland
   
12
 
France
   
10
 

23

Table of Contents

Portfolio of Investments
 
SAFECO International Stock Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—97.2%
       
Australia—3.5%
       
  26,758
   
   
Brambles Industries, Ltd.
Industrial Machinery
   
$
142
48,984
 
   
Foster’s Group, Ltd.
Brewers
   
 
130
11,550
 
   
National Australia Bank, Ltd.
Banks
   
 
230
22,027
 
   
News Corp., Ltd.
Publishing & Printing
   
 
120
24,911
 
   
Westpac Banking Corp., Ltd.
Banks
   
 
227
Finland—0.6%
       
10,957
 
   
Nokia Oyj
Wireless Telecommunications Services
   
 
160
France—9.6%
       
11,334
 
   
Alcatel
Telecommunications Equipment
   
 
79
10,056
 
   
Aventis SA
Pharmaceuticals
   
 
712
18,312
 
   
Axa
Multi-Line Insurance
   
 
335
2,500
 
   
Lafarge SA
Construction Materials
   
 
249
5,269
 
   
Total Fina Elf SA
Integrated Oil & Gas
   
 
855
4,622
 
   
Vivendi Universal SA
Movies & Entertainment
   
 
100
Germany—6.4%
       
1,086
 
   
Allianz AG
Multi-Line Insurance
  
 
217
10,375
 
   
Bayer AG
Diversified Chemicals
   
 
329
9,757
 
   
Bayerische Motoren Werke AG
Automobile Manufacturers
   
 
402
10,235
 
   
E.On AG
Electric Utilities
   
 
596
Hong Kong—2.4%
       
  28,000
 
   
Cheung Kong Holdings, Ltd.
Real Estate Investment Trust
   
 
233
  871,000
 
   
PetroChina Co., Ltd.
Oil & Gas Exploration & Production
   
 
185
21,000
 
   
Sun Hung Kai Properties, Ltd.
Real Estate Investment Trust
   
 
159
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Italy—3.5%
       
    32,027
 
   
ENI SpA
Integrated Oil & Gas
   
$
509
42,296
 
   
Telecom Italia SpA
Integrated Telecommunications Services
   
 
331
Japan—13.3%
       
2,100
 
   
Acom Co., Ltd.
Consumer Finance
   
 
143
18,000
 
   
Canon, Inc.
Office Services & Supplies
   
 
680
8,000
 
   
Fuji Photo Film Co.
Office Services & Supplies
   
 
258
40,000
 
   
Hitachi, Ltd.
Electrical Components & Equipment
   
 
259
7,200
 
   
Honda Motor Co., Ltd.
Automobile Manufacturers
   
 
292
3,100
 
   
Hoya Corp.
Health Care Supplies
   
 
226
1,900
 
   
Nintendo Co., Ltd.
Consumer Electronics
   
 
280
84
 #
   
NTT DoCoMo, Inc.
Integrated Telecommunications Services
   
 
207
1,000
 
   
Rohm Co., Ltd.
Electrical Components & Equipment
   
 
149
1,500
 
   
SMC Corp.
Industrial Machinery
   
 
177
3,000
 
   
Sony Corp.
Electrical Components & Equipment
   
 
158
9,000
 
   
Takeda Chemical Industries Pharmaceuticals
   
 
395
Netherlands—12.3%
       
22,938
 
   
ABN AMRO Holding NV
Banks
   
 
416
17,929
 
   
Elsevier NV
Publishing & Printing
   
 
244
5,147
 
   
Fortis
Diversified Financial Services
   
 
110
3,756
 
   
Heineken NV
Brewers
   
 
165
32,944
 
   
ING Groep NV
Banks
   
 
846
18,582
 
   
Koninklijke (Royal) Philips Electronics NV
Semiconductors
   
 
519
19,435
 
   
Koninklijke Ahold NV
Food Retail
   
 
409
6,860
 
   
TPG NV
Distributors
   
 
155
3,855
 
   
VNU NV
Publishing & Printing
   
 
107

SEE NOTES TO FINANCIAL STATEMENTS
 
24

Table of Contents

Portfolio of Investments
 
SAFECO International Stock Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Portugal—0.2%
       
 34,583
 
   
Electricidade de Portugal SA
Electric Utilities
   
$
67
South Korea—1.8%
       
3,200
 *
   
Kookmin Bank (ADR)
Banks
   
 
157
3,800
 *
   
Pohang Iron & Steel Co., Ltd. (ADR)
Steel
   
 
104
1,272
 
   
Samsung Electronics Co., Ltd.
Electronic Equipment & Instruments
   
 
174
Spain—3.0%
       
51,345
 
   
Banco Santander Central Hispano SA
Banks
   
 
407
36,745
 
   
Telefonica SA
Integrated Telecommunications Services
   
 
308
Switzerland—12.1%
       
3,580
 
   
Nestle SA
Food Retail
   
 
835
11,025
 
   
Novartis AG
Pharmaceuticals
   
 
485
4,968
 
   
Roche Holding AG
Pharmaceuticals
   
 
376
6,817
 
   
Swiss Re
Multi-Line Insurance
   
 
667
11,386
 
   
UBS AG
Banks
   
 
573
United Kingdom—28.5%
       
9,870
 
   
3i Group, plc
Diversified Financial Services
   
 
102
5,150
 
   
AstraZeneca Group, plc
Health Care Supplies
   
 
212
84,306
 
   
Barclays, plc
Banks
   
 
708
9,697
 
   
Boots Co., plc
Drug Retail
   
 
96
42,825
 
   
BP, plc
Integrated Oil & Gas
   
 
359
18,181
 
   
British American Tobacco, plc
Tobacco
   
 
194
33,137
 
   
Cadbury Schweppes, plc
Soft Drinks
   
 
248
38,234
 
   
Compass Group, plc
Food Retail
   
 
231
46,290
 
   
Diageo, plc
Brewers
   
 
600
32,244
 
   
GlaxoSmithKline, plc
Pharmaceuticals
   
 
696
37,700
 
   
Hilton Group, plc
Hotels
   
 
131
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
United Kingdom—(continued)
       
28,240
    
   
HSBC Holdings, plc
Banks
   
$
324
62,002
 
   
Lloyds TSB Group, plc
Banks
   
 
616
34,150
 
   
Prudential, plc
Multi-Line Insurance
   
 
312
10,360
 
   
Railtrack Group, plc
Railroads
   
 
35
10,388
 
   
Reuters Group, plc
Broadcasting & Cable TV
   
 
55
6,300
 
   
RMC Group, plc
Construction Materials
   
 
63
81,990
 
   
Shell Transport & Trading Co., plc
Integrated Oil & Gas
   
 
618
6,836
 
   
Smiths Group, plc
Industrial Conglomerates
   
 
89
52,230
 
   
Tesco, plc
Food Retail
  
 
190
19,100
 
   
TI Automotives, LTD. (Illiquid)†
Industrial Conglomerates
   
 
0
48,530
 
   
Unilever, plc
Household Products
   
 
444
  263,625
 
   
Vodafone Group, plc
Integrated Telecommunications Services
   
 
361
6,710
 
   
Wolseley, plc
Distributors
   
 
68
16,320
 
   
WPP Group, plc
Advertising
   
 
138
           
TOTAL COMMON STOCKS (cost $19,971)
   
 
23,538
           
TOTAL INVESTMENTS (total cost
$19,971)—97.2%
   
 
23,538
Domestic Cash
   
 
364
Foreign Cash
   
 
284
Other Assets, less Liabilities
   
 
24
           
           
 
672
           
NET ASSETS
   
$
24,210
           
 
*
 
Security traded on NYSE and valued in USD.
†
 
Securities are valued at fair value as determined by, and under supervision of, the Board of Trustees.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
25

Table of Contents

Portfolio of Investments
 
SAFECO International Stock Fund
 
As of June 30, 2002
(Unaudited)

 
Industry Diversification
     
Percent of
Net Assets
  
Banks
     
18.6
%
Pharmaceuticals
     
11.0
 
Integrated Oil & Gas
     
9.7
 
Food Retail
     
6.9
 
Multi-Line Insurance
     
6.3
 
Integrated Telecommunications Services
     
5.0
 
Office Services & Supplies
     
3.9
 
Brewers
     
3.7
 
Automobile Manufacturers
     
2.9
 
Electric Utilities
     
2.7
 
Electrical Components & Equipment
     
2.3
 
Semiconductors
     
2.1
 
Publishing & Printing
     
2.0
 
Household Products
     
1.8
 
Health Care Supplies
     
1.8
 
Real Estate Investment Trust
     
1.6
 
Diversified Chemicals
     
1.4
 
Industrial Machinery
     
1.3
 
Construction Materials
     
1.3
 
Consumer Electronics
     
1.2
 
Soft Drinks
     
1.0
 
Other
     
8.7
 
      
      
97.2
%
      

SEE NOTES TO FINANCIAL STATEMENTS
 
26

Table of Contents

 
SAFECO Balanced Fund
 
As of June 30, 2002

 
LOGO
   
Rex Bentley            
  
LOGO
   
Michael Hughes            
  
LOGO
   
Lynette D. Sagvold
 
How did the Fund perform?
The SAFECO Balanced Fund underperformed its benchmark index for the six-month period ending June 30, 2002.
 
What factors impacted performance?
Our underperformance relative to the 60% Russell 1000 Value Index and 40% Lehman Aggregate Bond Index is attributable to the Fund’s equity and bond holdings, both of which underperformed their respective index benchmarks for the period.
 
Three stocks were primarily responsible for the Fund’s underperformance: Tyco International, AOL Time Warner and El Paso. In each case, slower earnings growth and questionable accounting practices caused these stocks to decline significantly. The health care sector also hurt performance as concerns about patent expirations, lack of new drugs in the research pipeline, as well as problems with FDA compliance, drove pharmaceutical issues lower.
 
The main reason for underperformance from bonds came from exposure to scandal-plagued WorldCom, whose accounting woes also cast a shadow over other telecom holdings including Qwest and Sprint. The Fund’s best-performing bonds were Treasuries and Mortgage-Backed Securities.
 
What changes did you make and why?
Changes to the equity portion of the Balanced Fund were made for two primary reasons: to make a change in sector exposure and take advantage of valuations. Looking forward to an improving U.S. economy, we added stocks such as Dow Chemical, General Motors, Home Depot and United Technologies, while selling stocks such as Merck, CVS and Gillette. These changes increased our weightings in the basic materials, producer durable and consumer discretionary sectors while reducing our exposure to consumer staples.
 
We also sold stocks that reached our price target, such as Northrop Grumman. In the fixed income area, we added to our position in U.S. Treasury obligations and reduced our overweight in corporate debt to add a measure of safety due to increased uncertainty in the market.
 
What is your outlook for the future?
While the economy appears to be experiencing a modest recovery, the stock market continues to languish. Investors remain uneasy about near-term corporate earnings, the barrage of accounting scandals, and the potential for devastating geopolitical events.
 
On the plus side, the stock market valuation has improved and currently looks moderately inexpensive. We find the equity market encouraging at its current levels, and anticipate that inflation and interest rates will remain in check as the economy continues to improve. We see gross domestic product (GDP) growing in the 3% range, and look for the stock market to appreciate as the growth in GDP begins to flow down to corporate earnings. Finally, we are optimistic that the current scandals are likely to lead to better corporate governance and stronger accounting standards in the future.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

27

Table of Contents

Report From the Fund Managers
 
SAFECO Balanced Fund
 
As of June 30, 2002

 
While the geopolitical concerns remain, we believe we have positioned the SAFECO Balanced Fund to benefit from what we believe will be a stronger economy. We also believe that the consumer will continue to be the driver of our economic strength.
 
Looking toward the future, we will continue to target a 60% equity, 40% bond asset allocation in the Fund. While the Fund’s bonds should continue to add income and price stability, we believe that equities will likely outperform bonds over the next 12 months as interest rates remain stable or inch up modestly.
 
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
 
Assistant Vice President of SAFECO Asset Management; Magna Cum Laude BS Finance, University of Colorado; MBA, University of Southern California (1992); Chartered Financial Analyst (CFA)(1995)
 
Michael began his investment career in 1983 and joined SAFECO as a portfolio manager in January 1997.
 
Lynette D. Sagvold, CFA
 
Assistant Vice President of SAFECO Asset Management; 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 in 1995 as a portfolio manager and insurance analyst.

28

Table of Contents

Performance Overview & Highlights
 
SAFECO Balanced Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
       
5 Year
       
Since
Inception**
       
Six Month*
     
1 Year
       
5 Year
       
Since
Inception**
  
SAFECO Balanced Fund
                                                                  
Class A
   
(9.80
)%
   
(8.94
)%
     
2.46
%
     
5.09
%
     
(4.26
)%
   
(3.37
)%
     
3.67
%
     
6.07
%
Class B
   
(9.32
)%
   
(8.80
)%
     
2.58
%
     
5.36
%
     
(4.59
)%
   
(4.09
)%
     
2.93
%
     
5.36
%
60% Russell 1000 Value/40% Lehman Brothers Gov’t/Corp. Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
1.56
%
   
(7.49
)%
     
5.19
%
     
7.91
%
60% Russell 1000 Value/40% Lehman Brothers Aggregate Bond Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
1.35
%
   
(2.07
)%
     
6.91
%
     
8.98
%
S&P 500 Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(13.16
)%
   
(17.99
)%
     
3.66
%
     
8.79
%
Lipper, Inc. (Balanced Funds)
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(6.79
)%
   
(8.61
)%
     
4.22
%
     
N/A
 
 * Not annualized.
** 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.
 
LOGO
 
TOP FIVE INDUSTRIES
(Common Stocks)
     
Percent of
Net Assets
  
Banks
     
8
%
Integrated Oil & Gas
     
6
 
Diversified Financial Services
     
5
 
Integrated Telecommunications Services
     
4
 
Multi-Line Insurance
     
3
 
TOP TEN STOCK HOLDINGS
     
Percent of
Net Assets
  
ChevronTexaco Corp.
(Integrated Oil & Gas)
     
2.2
%
Exxon Mobil Corp.
(Integrated Oil & Gas)
     
1.9
 
American International Group, Inc.
(Multi-Line Insurance)
     
1.9
 
Wells Fargo & Co.
(Banks)
     
1.8
 
U.S. Bancorp
(Banks)
     
1.7
 
Citigroup, Inc.
(Diversified Financial Services)
     
1.6
 
United Parcel Service, Inc. (Class B)
(Air Freight & Couriers)
     
1.6
 
Praxair, Inc.
(Industrial Gases)
     
1.6
 
Washington Mutual, Inc.
(Banks)
     
1.5
 
Hartford Financial Services Group, Inc.
(Multi-Line Insurance)
     
1.5
 
 
TOP FIVE PURCHASES
(Common Stocks)
For the Period Ended June 30, 2002
   
Cost
(000’s)
FirstEnergy Corp.
   
$269
Kimberly-Clark Corp.
   
166
Target Corp.
   
146
Bank of New York Co., Inc.
   
139
ChevronTexaco Corp.
   
130
TOP FIVE SALES
(Common Stocks)
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Gillette Co.
   
$265
CVS Corp.
   
201
Procter & Gamble Co.
   
156
Northrop Grumman Corp.
   
145
Johnson & Johnson
   
132
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

29

Table of Contents

Portfolio of Investments
 
SAFECO Balanced Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—58.2%
       
Aerospace & Defense—0.3%
       
800
 
   
United Technologies Corp.
   
$
54
Air Freight & Couriers—1.6%
       
4,500
 
   
United Parcel Service, Inc. (Class B)
   
 
278
Aluminum—0.3%
       
1,700
 
   
Alcoa, Inc.
   
 
56
Automobile Manufacturers—0.3%
       
1,000
 
   
General Motors Corp.
   
 
54
Banks—8.2%
       
2,200
 
   
Bank of America Corp.
   
 
155
3,800
 
   
Bank of New York Co., Inc.
   
 
128
6,400
 
   
KeyCorp
   
 
175
2,400
 
   
State Street Corp.
   
 
107
  12,820
 
   
U.S. Bancorp
   
 
299
7,250
 
   
Washington Mutual, Inc.
   
 
269
6,200
 
   
Wells Fargo & Co.
   
 
310
Brewers—0.6%
       
2,300
 
   
Anheuser-Busch Companies, Inc.
   
 
115
Computer Hardware—0.4%
       
1,100
 
   
International Business Machines Corp.
   
 
79
Computer Storage & Peripherals—0.2%
       
4,600
 *
   
EMC Corp.
   
 
35
Data Processing Services—0.6%
       
2,300
 
   
Automatic Data Processing, Inc.
   
 
100
Department Stores—1.3%
       
7,150
 
   
May Department Stores Co.
   
 
236
Diversified Chemicals—1.5%
       
2,300
 
   
Dow Chemical Co.
   
 
79
4,100
 
   
Du Pont (E.I.) de Nemours & Co.
   
 
182
Diversified Financial Services—4.6%
       
3,200
 
   
American Express Co.
   
 
116
7,300
 
   
Citigroup, Inc.
   
 
283
2,600
 
   
Federal National Mortgage Association
   
 
192
6,500
 
   
J.P. Morgan Chase & Co.
   
 
221
Electric Utilities—2.6%
       
6,900
 
   
Duke Energy Corp.
   
 
215
7,300
 
   
FirstEnergy Corp.
   
 
244
Electronic Equipment & Instruments—0.6%
       
3,100
 
   
Hubbell, Inc. (Class B)
   
 
106
Food Distributors—0.6%
       
4,000
 
   
SYSCO Corp.
   
 
109
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Food Retail—0.9%
       
7,800
 *
   
Kroger Co.
   
$
155
Gas Utilities—0.3%
       
2,800
 
   
El Paso Corp.
   
 
58
General Merchandise Stores—1.5%
       
3,500
 *
   
Costco Wholesale Corp.
   
 
135
3,500
 
   
Target Corp.
   
 
133
Home Improvement Retail—0.6%
       
2,800
 
   
Home Depot, Inc.
   
 
103
Household Products—1.6%
       
2,700
 
   
Kimberly-Clark Corp.
   
 
167
1,300
 
   
Procter & Gamble Co.
   
 
116
Industrial Conglomerates—1.0%
       
6,100
 
   
General Electric Co.
   
 
177
Industrial Gases—1.6%
       
4,800
 
   
Praxair, Inc.
   
 
273
Industrial Machinery—0.6%
       
2,300
 
   
Ingersoll-Rand Co.
   
 
105
Integrated Oil & Gas—6.0%
       
4,300
 
   
ChevronTexaco Corp.
   
 
381
7,700
 
   
Conoco, Inc.
  
 
214
8,376
 
   
Exxon Mobil Corp.
   
 
343
2,200
 
   
Royal Dutch Petroleum Co. (ADR)
   
 
122
Integrated Telecommunications Services—4.3%
3,600
 
   
ALLTEL Corp.
   
 
169
4,100
 
   
CenturyTel, Inc.
   
 
121
7,600
 
   
SBC Communications, Inc.
   
 
232
6,014
 
   
Verizon Communications
   
 
241
IT Consulting & Services—0.6%
       
2,900
 
   
Electronic Data Systems Corp.
   
 
108
Movies & Entertainment—1.4%
       
5,400
 *
   
AOL Time Warner, Inc.
   
 
79
8,400
 
   
Walt Disney Co.
   
 
159
Multi-Line Insurance—3.4%
       
4,800
 
   
American International Group, Inc.
   
 
328
4,500
 
   
Hartford Financial Services Group, Inc.
   
 
268
Multi-Utilities—1.4%
       
  11,100
 
   
NiSource, Inc.
   
 
242
Networking Equipment—0.3%
       
4,000
 *
   
Cisco Systems, Inc.
   
 
56
Oil & Gas Equipment & Services—0.4%
       
1,500
 
   
Schlumberger, Ltd.
   
 
70

SEE NOTES TO FINANCIAL STATEMENTS
 
30

Table of Contents

Portfolio of Investments
 
SAFECO Balanced Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Pharmaceuticals—3.1%
       
3,800
 
   
Abbott Laboratories
   
$
143
2,000
 
   
Bristol-Myers Squibb Co.
   
 
51
2,300
 
   
Pfizer, Inc.
   
 
81
2,100
 
   
Pharmacia Corp.
   
 
79
3,100
 
   
Schering-Plough Corp.
   
 
76
2,300
 
   
Wyeth
   
 
118
Publishing & Printing—1.0%
       
2,400
 
   
Gannett Co., Inc.
   
 
182
Real Estate Investment Trust—2.1%
       
4,000
 
   
Equity Residential
   
 
115
3,300
 
   
First Industrial Realty Trust, Inc.
   
 
108
4,200
 
   
Liberty Property Trust
   
 
147
Restaurants—0.9%
       
5,600
 
   
McDonald’s Corp.
   
 
159
Semiconductor Equipment—0.4%
       
3,400
 
   
Intel Corp.
   
 
62
Semiconductors—0.4%
       
3,000
 
   
Texas Instruments, Inc.
   
 
71
Systems Software—0.5%
       
1,700
 *
   
Microsoft Corp.
   
 
93
Telecommunications Equipment—0.2%
       
2,500
 
   
Nokia Oyj (ADR)
   
 
36
           
TOTAL COMMON STOCKS (cost $10,344)
   
 
10,273
           
CORPORATE BONDS—13.7%
       
Air Freight & Couriers—0.4%
       
$60,000
 
   
Federal Express Corp.
6.625%, due 2/12/04
   
 
63
Airlines—1.1%
       
  65,000
 
   
Delta Air Lines, Inc.
7.11%, due 9/18/11
   
 
69
25,000
 
   
Northwest Airlines, Inc.
7.041% due 4/01/22
   
 
25
113,272
 
   
United Air Lines
7.783%, due 1/01/14
   
 
109
Alternative Carriers—0.3%
       
65,000
 
   
Sprint Capital Corp.
6.00%, due 1/15/07
   
 
51
Computer Hardware—0.4%
       
70,000
 
   
Hewlett-Packard Co.
5.75%, due 12/15/06
   
 
71
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Consumer Finance—0.4%
       
 
65,000
 
   
Household Finance Corp.
7.875%, due 3/01/07
   
$
69
Diversified Chemicals—0.5%
       
 
80,000
 
   
Dow Chemical Co.
5.75%, due 12/15/08
   
 
81
Diversified Financial Services—2.7%
       
 
125,000
 #
   
Erac USA Finance Co. (144A) 8.00%, due 1/15/11
(acquired 1/09/01)
   
 
136
 
  70,000
 
   
Ford Motor Credit Co. 7.25%, due 10/25/11
   
 
70
 
80,000
 
   
General Electric Capital Corp.
6.75%, due 3/15/32
   
 
79
 
135,000
 
   
General Motors Acceptance Corp.
6.125%, due 9/15/06
   
 
137
 
55,000
 
   
Morgan Stanley Dean Witter Co. 6.60%, due 4/01/12
   
 
56
Electric Utilities—1.6%
       
 
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
   
 
69
 
70,000
 #
   
PSEG Power (144A)
6.95%, due 6/01/12 (acquired 6/04/02)
   
 
70
 
65,000
 
   
Puget Sound Energy, Inc.
6.25%, due 1/16/04
   
 
67
Food Retail—0.9%
       
 
140,000
 
   
Safeway, Inc.
7.50%, due 9/15/09
   
 
155
Forest Products—0.2%
       
 
40,000
 #
   
Weyerhaeuser Co. (144A)
5.50%, due 3/15/05
(acquired 3/06/02)
   
 
41
Gas Utilities—0.4%
       
 
65,000
 
   
El Paso Corp.
7.00%, due 5/15/11
   
 
62
General Merchandise Stores—0.4%
       
$
60,000
 
   
Sears Roebuck & Co. 6.25%, due 1/15/04
   
 
62
Home Furnishings—0.4%
       
 
70,000
 #
   
Mohawk Industries, Inc. (144A)
6.50%, due 4/15/07
(acquired 3/25/02)
   
 
73
Integrated Oil & Gas—0.7%
       
 
65,000
 
   
Pemex Project Funding Master Trust
9.125%, due 10/13/10
   
 
68

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
31

Table of Contents

Portfolio of Investments
 
SAFECO Balanced Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Integrated Oil & Gas—(continued)
       
55,000
 
   
USX Corp.
6.85%, due 3/01/08
   
$
58
Integrated Telecommunications Services—0.8%
  110,000
 
   
Qwest Communications
International, Inc.
7.25%, due 2/15/11
   
 
62
85,000
 #
   
Verizon Wireless, Inc. (144A)
5.375%, due 12/15/06 (acquired 12/12/01)
   
 
79
40,000
 
   
Worldcom, Inc.
8.00%, due 5/15/06
   
 
6
Life & Health Insurance—0.4%
       
70,000
 
   
Lincoln National Corp.
5.25%, due 6/15/07
   
 
71
Movies & Entertainment—0.4%
       
80,000
 
   
AOL Time Warner, Inc.
6.875%, due 5/01/12
   
 
74
Oil & Gas Equipment & Services—0.3%
       
50,000
 
   
Kinder Morgan Energy Partners
6.75%, due 3/15/11
   
 
51
Trucking—0.8%
       
145,000
 
   
Hertz Corp.
7.00%, due 7/01/04
   
 
149
Wireless Telecommunications Services—0.6%
       
105,000
 
   
TCI Communications, Inc.
8.65%, due 9/15/04
   
 
108
           
TOTAL CORPORATE BONDS (cost $2,480)
   
 
2,418
           
ASSET BACKED SECURITIES—3.2%
       
Consumer Finance—0.8%
       
135,000
 
   
World Omni Auto Receivables Trust
4.49%, due 8/20/08
   
 
138
Diversified Financial Services—2.3%
       
125,000
 
   
CNH Equipment Trust 7.34%, due 2/15/07
   
 
131
265,000
 
   
General Motors Acceptance Corp.
6.42%, due 5/15/35
   
 
282
Motorcycle Manufacturers—0.1%
       
21,828
 
   
Harley Davidson Eaglemark Motorcycle Trust
7.07%, due 11/15/04
   
 
22
           
TOTAL ASSET BACKED SECURITIES
(cost $559)
   
 
573
           
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
MORTGAGE BACKED SECURITIES—16.3%
       
Collateral Mortgage Obligation (CMO)—0.8%
       
  129,460
   
6.50%, due 2/14/41
   
$
133
Diversified Financial Services—1.0%
170,000
   
First Union Commercial
Mortgage Trust
6.07%, due 10/15/35
   
 
178
Federal National Mortgage Association
(FNMA)—12.6%
219,228
   
6.00%, due 1/01/29
   
 
220
103,509
   
6.00%, due 9/01/29
   
 
104
104,717
   
6.50%, due 1/01/15
   
 
109
218,016
   
6.50%, due 2/01/31
   
 
223
34,471
   
6.50%, due 5/01/31
   
 
35
94,308
   
6.50%, due 6/01/31
   
 
96
254,906
   
6.50%, due 7/01/29
   
 
261
100,551
   
7.00%, due 3/01/12
   
 
106
83,032
   
7.00%, due 9/01/31
   
 
86
168,905
   
7.00%, due 9/01/31
   
 
175
47,013
   
8.00%, due 1/01/31
   
 
50
73,445
   
8.00%, due 10/01/30
   
 
78
82,835
   
8.00%, due 2/01/29
   
 
89
52,729
   
8.00%, due 2/01/30
   
 
56
366,471
   
8.00%, due 3/01/31
   
 
389
58,251
   
8.00%, due 4/01/20
   
 
62
26,864
   
8.00%, due 4/01/30
   
 
29
27,340
   
8.00%, due 5/01/31
   
 
29
27,992
   
8.00%, due 7/01/30
   
 
30
Government National Mortgage Association
(GNMA)—1.9%
15,489
   
6.00%, due 4/15/14
   
 
16
87,824
   
6.00%, due 8/15/13
   
 
91
133,333
   
7.00%, due 4/15/28
   
 
139
32,547
   
7.00%, due 8/15/28
   
 
34
51,906
   
7.75%, due 11/15/29
   
 
55
         
TOTAL MORTGAGE BACKED SECURITIES (cost $2,782)
   
 
2,873
         
U.S. GOVERNMENT OBLIGATIONS—7.1%
       
Federal National Mortgage Association
(FNMA)—2.1%
345,000
   
6.625%, due 11/15/30
   
 
364
U.S. Federal Agency Notes—1.8%
       
310,000
   
5.75%, due 2/15/08
   
 
327
U.S. Treasury Notes—3.2%
       
80,000
   
4.875%, due 2/15/12
   
 
80
145,000
   
6.00%, due 8/15/09
   
 
158
160,000
   
6.50%, due 11/15/26
   
 
177

SEE NOTES TO FINANCIAL STATEMENTS
 
32

Table of Contents

Portfolio of Investments
 
SAFECO Balanced Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
  
U.S. Treasury Notes—(continued)
         
  110,000
   
9.25%, due 2/15/16
   
$
151
 
         
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $1,243)
   
 
1,257
 
         
CASH EQUIVALENTS—2.3%
Investment Companies
         
399,879
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
400
 
         
TOTAL CASH EQUIVALENTS (cost $400)
   
 
400
 
         
TOTAL INVESTMENTS (cost $17,808)—100.8%
   
 
17,794
 
Other Assets, less Liabilities
   
 
(133
)
         
NET ASSETS
   
$
17,661
 
         
 
*
 
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 $390,000 and the total value is $399,000 or 2.26% of net assets.

 
SAFECO    MUTUAL    FUNDS
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SEE NOTES TO FINANCIAL STATEMENTS
 
33

Table of Contents

 
SAFECO Small Company Value Fund
 
As of June 30, 2002

 
LOGO
   
Greg Eisen
    
 
How did the Fund perform?
The SAFECO Small Company Value Fund underperformed the Russell 2000 Value Index during the first half of 2002. However, there were well over 30 stocks in the Fund that showed price changes of greater than 10% over during the period.
 
The stocks with price gains had a significantly greater impact on the overall portfolio performance than did the stocks with price drops. For example, our largest position, Rent-Way, was the Fund’s best-performing stock—up 116% for the six-month period. Many of the biggest winners were bank stocks, our largest industry exposure.
 
What factors impacted performance?
From a top-down perspective, the key to the SAFECO Small Company Value Fund’s continued success has been to maintain a portfolio structure closely aligned to the value index in terms of sector weights and valuation. This is a strategy I have been using successfully for the last six quarters.
 
I continue to maintain a low exposure to technology stocks. I have minimum exposure to telecommunications, which was among the worst-performing sectors in the small-cap universe. The financial sector was the best performer within the Russell 2000 Value Index, and I maintain exposure close to the index weight. While the Fund’s portfolio holdings did react negatively to the WorldCom fiasco, I believe small-cap stocks in general are being viewed as “different” from the former large-cap stars of the bubble market.
 
What changes did you make and why?
During the period, among the names that met my sell criteria were Forward Air, which was the highest valuation name we held. It was sold to reduce weight in the transportation sector. Colonial Bancorp had not only reached its price target, but was also at a point where it was valued at greater than $1.5 billion in market cap. As a result, I sold it to make room for stocks with greater opportunities and that fall within the small-cap definition.
 
Quovadx was a software name I sold after it became apparent they would have to perform heroics to meet their annual performance objectives. I realized a sizable gain on this stock, which was all the more gratifying when it recently collapsed after my fears became evident to the whole market.
 
I sold Paradigm Genetics due to its failure to deliver on stated objectives, as well as its internal management turmoil. Some of the names we added during the six-month period include Central Pacific Bank, Southwest Securities, URS Corp., Building Materials Holding Co. and Roper Industries.

34

Table of Contents

Report From the Fund Manager
 
SAFECO Small Company Value Fund
 
As of June 30, 2002
 
 

 
What is your outlook for the future?
The SAFECO Small Company Value Fund investment style continues to center on buying companies with valuation metrics lower than their peer group, yet with sound business models. This is combined with a smattering of turnaround ideas (e.g., Rent-Way) and “basket” approaches (e.g., trades in a large number of utility-preferred stocks).
 
Greg Eisen, CFA
 
Assistant Vice President of SAFECO Asset Management; 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
1-800-528-6501

35

Table of Contents

Performance Overview & Highlights
 
SAFECO Small Company Value Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
1 Year
       
5 Year
       
Since
Inception**
       
Six Month*
       
1 Year
       
5 Year
       
Since
Inception**
  
SAFECO Small Company Value Fund
                                                                      
Class A
   
(0.21
)%
     
1.70
%
     
1.90
%
     
6.29
%
     
5.90
%
     
7.92
%
     
3.12
%
     
7.27
%
Class B
   
0.57
%
     
2.17
%
     
1.96
%
     
6.53
%
     
5.57
%
     
7.17
%
     
2.33
%
     
6.53
%
Russell 2000 Value Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
7.26
%
     
8.49
%
     
9.70
%
     
13.08
%
Lipper, Inc. (Small-Cap Value Funds)
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.31
%
     
5.69
%
     
9.15
%
     
N/A
 
 * Not annualized.
** 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.
 
LOGO
 
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Banks
     
15
%
Diversified Financial Services
     
6
 
Trucking
     
5
 
Steel
     
5
 
Diversified Commercial Services
     
5
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Rent-Way, Inc.
(Diversified Financial Services)
     
3.7
%
BankUnited Financial Corp. (Class A)
(Banks)
     
2.9
 
Shaw Group, Inc.
(Steel)
     
2.9
 
Regis Corp.
(Specialty Stores)
     
2.8
 
Precision Castparts Corp.
(Diversified Metals & Mining)
     
2.5
 
Hooper Holmes, Inc.
(Health Care Distributors & Services)
     
2.5
 
Insight Enterprises, Inc.
(Catalog Retail)
     
2.5
 
Schnitzer Steel Industries, Inc.
(Steel)
     
2.2
 
Macatawa Bank Corp.
(Banks)
     
2.1
 
Landstar System, Inc.
(Trucking)
     
2.1
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
Optimal Robotics Corp. (Class A)
   
$1,003
Shaw Group, Inc.
   
931
SWS Group, Inc.
   
815
Alliance Gaming Corp.
   
764
P.A.M. Transportation Services, Inc.
   
661
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Elcor Corp.
   
$  914
Federal Signal Corp.
   
780
FBR Asset Investment Corp.
   
773
Forward Air Corp.
   
722
Colonial BancGroup, Inc.
   
719
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
36

Table of Contents

Portfolio of Investments
 
SAFECO Small Company Value Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—89.1%
Aerospace & Defense—1.4%
       
25,500
 * 
   
United Defense Industries, Inc.
   
$
586
Banks—14.9%
       
11,400
 
   
Alabama National BanCorp
   
 
493
62,400
 *
   
BankUnited Financial Corp. (Class A)
   
 
1,195
16,900
 
   
BostonFed Bancorp, Inc.
   
 
542
41,885
 
   
Camco Financial Corp.
   
 
591
14,300
 
   
CPB, Inc.
   
 
657
41,029
 *
   
Hanmi Financial Corp.
   
 
703
40,132
 
   
Macatawa Bank Corp.
   
 
867
18,700
 
   
Pacific Crest Capital, Inc.
   
 
524
20,600
 
   
Riggs National Corp.
   
 
307
5,830
 
   
Southern Financial Bancorp, Inc.
   
 
186
Biotechnology—0.1%
       
26,600
 *
   
Paradigm Genetics, Inc.
   
 
37
Building Products—0.9%
       
14,500
 
   
Elcor Corp.
   
 
397
Casinos & Gaming—3.2%
       
56,300
 *
   
Alliance Gaming Corp.
   
 
688
142,100
 *
   
Mikohn Gaming Corp.
   
 
602
Catalog Retail—2.5%
       
40,000
 *
   
Insight Enterprises, Inc.
   
 
1,008
Construction & Engineering—1.6%
       
22,800
 
   
URS Corp.
   
 
638
Construction Materials—2.8%
       
14,150
 
   
Florida Rock Industries, Inc.
   
 
507
16,900
 
   
Martin Marietta Materials, Inc.
   
 
659
Consumer Finance—2.0%
       
90,000
 
   
Cash America International, Inc.
   
 
828
Distributors—1.5%
       
43,000
 *
   
Building Materials Holding Corp.
   
 
618
Diversified Commercial Services—4.5%
       
25,300
 *
   
DeVry, Inc.
   
 
578
  186,950
 *†
   
International Aircraft Investors, Inc.
   
 
200
22,200
 *
   
ITT Educational Services, Inc.
   
 
484
14,900
 
   
Landauer, Inc.
   
 
579
Diversified Financial Services—5.7%
       
  117,200
 *
   
Rent-Way, Inc.
   
 
1,518
40,200
 
   
SWS Group, Inc.
   
 
789
Diversified Metals & Mining—2.5%
       
31,100
 
   
Precision Castparts Corp.
   
 
1,026
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Electronic Equipment & Instruments—1.0%
       
57,000
 *
   
Optimal Robotics Corp. (Class A)
   
$
416
Gas Utilities—1.7%
       
25,600
 
   
NUI Corp.
   
 
704
Health Care Distributors & Services—2.5%
       
  126,200
 
   
Hooper Holmes, Inc.
   
 
1,010
Health Care Equipment—2.8%
       
22,100
 *
   
INAMED Corp.
   
 
591
37,400
 *
   
SonoSite, Inc.
   
 
540
Health Care Facilities—1.3%
       
24,800
 *
   
Province Healthcare Co.
   
 
555
Health Care Supplies–—1.5%
       
 67,000
 *
   
Thoratec Corp.
   
 
602
Housewares & Specialities—1.6%
       
18,400
 
   
Lancaster Colony Corp.
   
 
656
Industrial Machinery—1.0%
       
10,800
 
   
Roper Industries, Inc.
   
 
403
Integrated Oil & Gas—1.6%
       
26,600
 
   
World Fuel Services Corp.
   
 
649
Internet Software & Services—1.6%
       
25,500
 *
   
Websense, Inc.
   
 
652
Life & Health Insurance—2.0%
       
14,800
 
   
StanCorp Financial Group, Inc.
   
 
821
Marine—1.6%
       
48,700
 
   
Nordic American Tanker Shipping, Ltd.
   
 
665
Metal & Glass Containers—1.1%
       
32,100
 *
   
Owens-Illinois, Inc.
   
 
441
Networking Equipment—1.8%
       
31,000
 *
   
Anixter International, Inc.
   
 
729
Oil & Gas Drilling—0.7%
       
9,700
 *
   
Patterson-UTI Energy, Inc.
   
 
274
Property & Casualty Insurance—1.5%
       
26,700
 
   
First American Corp.
   
 
614
Real Estate Investment Trust—3.9%
       
11,500
 
   
Alexandria Real Estate Equities, Inc.
   
 
567
12,700
 
   
Camden Property Trust
   
 
470
16,500
 
   
First Industrial Realty Trust, Inc.
   
 
542
Restaurants—0.0%
       
  14,000
 *
   
BRIAZZ, Inc.
   
 
14

 
SAFECO    MUTUAL    FUNDS
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SEE NOTES TO FINANCIAL STATEMENTS
 
37

Table of Contents

Portfolio of Investments
 
SAFECO Small Company Value Fund
 
As of June 30, 2002
(Unaudited)

 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Specialty Stores—2.8%
       
  41,800
 
   
Regis Corp.
   
$
1,129
Steel—5.0%
       
39,300
 
   
Schnitzer Steel Industries, Inc.
   
 
877
38,300
 *
   
Shaw Group, Inc.
   
 
1,176
Telecommunications Equipment—1.8%
       
38,100
 *
   
Plantronics, Inc.
   
 
724
Tobacco—1.5%
       
16,500
 
   
Universal Corp.
   
 
606
Trucking—5.2%
       
26,500
 *
   
Arkansas Best Corp.
   
 
675
8,000
 *
   
Landstar System, Inc.
   
 
855
24,200
 *
   
P.A.M. Transportation Services, Inc.
   
 
581
           
TOTAL COMMON STOCKS (cost $32,273)
   
 
36,345
           
PREFERRED STOCKS—2.1%
       
Electric Utilities—2.1%
       
2,400
 
   
Great Plains Energy, Inc.
Callable 8/05/02 @ $101.00
   
 
150
3,300
 
   
Jersey Central Power & Light Co.
Callable 8/05/02 @ $106.50
   
 
193
4,000
 
   
Massachusetts Electric Co.
Callable 8/05/02 @ $103.73
   
 
279
4,800
 
   
PSI Energy, Inc.
Callable 8/05/02 @ $25.00
   
 
84
2,000
 
   
Virginia Electric & Power Co.
Callable 8/05/02 @ $101.00
   
 
132
           
TOTAL PREFERRED STOCKS (cost $875)
   
 
838
           
 
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
CASH EQUIVALENTS—8.9%
       
Investment Companies
       
  2,020,706
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
$
2,021
1,584,410
   
Nations Money Market Reserves
   
 
1,584
         
TOTAL CASH EQUIVALENTS (cost $3,605)
   
 
3,605
         
TOTAL INVESTMENTS (cost
$36,753)—100.0%
   
 
40,788
Other Assets, less Liabilities
   
 
(19)
         
NET ASSETS
   
$
40,769
         
 
*
 
Non-income producing security.
†
 
Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund controls 5% or more of the outstanding voting shares of the company).

SEE NOTES TO FINANCIAL STATEMENTS
 
38

Table of Contents

 
SAFECO U.S. Value Fund
 
As of June 30, 2002

 
LOGO
   
Rex Bentley
  
LOGO
   
Lynette D. Sagvold
    
 
How did the Fund perform?
In a period marked by corporate transgressions, accounting concerns and earnings weakness, the SAFECO U.S. Value Fund underperformed the Russell 1000 Value Index during the first half of 2002.
 
What factors impacted performance?
Approximately two-thirds of the year-to-date shortfall in performance is attributable to three stocks: Tyco International, AOL Time Warner and El Paso. In each case, slower earnings growth and questions regarding accounting practices caused these stocks to decline significantly over the past six months. The healthcare sector also hurt performance as concerns about patent expirations, lack of new drugs in the research pipeline, and problems with FDA compliance drove pharmaceutical issues lower.
 
What changes did you make and why?
Changes to the Fund this period fell into two categories: the purchase or sale of stocks based on valuation, and a change in sector weights. Looking forward to an improving gross domestic product (GDP), we added stocks that are more sensitive to the economy like Dow Chemical, General Motors and Home Depot, and United Technologies, while selling stocks like CVS, Gillette and Merck. These changes increased our weightings in the basic material, producer durable, and consumer and discretionary sectors, and decreased our exposure to consumer staples. We also sold stocks that had reached our price target, such as Northrup Grumman.
 
What is your outlook for the future?
Although the economy appears to be experiencing a modest recovery, the stock market continues to languish. Investors remain uneasy about near-term corporate earnings, the barrage of corporate accounting scandals, and the potential for disruptive geopolitical events.
 
Still, the stock market valuation has improved and currently looks moderately inexpensive. We are encouraged about the market at current levels and anticipate that inflation and interest rates will remain in check as the economy continues to improve. We see GDP growing in the 3% range, and look for the stock market to appreciate as the growth in GDP begins to flow down to corporate earnings. We believe the current scandals are likely to lead us to better corporate governance and stronger accounting standards in the future.
 
While the geopolitical concerns remain, we believe we have positioned the SAFECO U.S. Value Fund to benefit from what we believe will be a stronger economy. We also believe that the consumer will continue to be the driver of our economic strength.
 
The Fund is modestly overweight in the consumer discretionary, technology, and integrated oil sectors where valuations are attractive and prospects are likely to improve. The SAFECO U.S. Value Fund’s

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

39

Table of Contents

Report From the Fund Managers
 
SAFECO U.S. Value Fund
 
As of June 30, 2002

forward price/equity (P/E) ratio of 15.3 compares favorably to the Russell 1000 Value P/E of 16.1, and the Fund’s gross dividend yield of 2.24% is line with the Russell 1000 Value yield of 2.25%.
 
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.
 
Lynette D. Sagvold, CFA
 
Assistant Vice President of SAFECO Asset Management; 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 in 1995 as a portfolio manager and insurance analyst.

40

Table of Contents

Performance Overview & Highlights
 
SAFECO U.S. Value Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
       
5 Year
       
Since
Inception**
       
Six Month*
     
1 Year
       
5 Year
       
Since
Inception**
  
SAFECO U.S. Value Fund
                                                                  
Class A
   
(13.45
)%
   
(14.06
)%
     
0.63
%
     
2.58
%
     
(8.14
)%
   
(8.85
)%
     
1.82
%
     
3.76
%
Class B
   
(13.05
)%
   
(14.03
)%
     
0.08
%
     
2.00
%
     
(8.47
)%
   
(9.48
)%
     
1.11
%
     
3.03
%
Russell 1000 Value Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(4.78
)%
   
(8.95
)%
     
6.53
%
     
8.31
%
Lipper, Inc. (Large-Cap Value Funds)
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
(9.21
)%
   
(13.43
)%
     
3.45
%
     
N/A
 
 * Not annualized.
** 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.
 
LOGO
 
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Banks
     
14
%
Integrated Oil & Gas
     
10
 
Diversified Financial Services
     
8
 
Integrated Telecommunication Services
     
7
 
Multi-Line Insurance
     
6
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Exxon Mobil Corp.
(Integrated Oil & Gas)
     
3.6
%
ChevronTexaco Corp.
(Integrated Oil & Gas)
     
3.5
 
American International Group, Inc.
(Multi-Line Insurance)
     
3.0
 
Wells Fargo & Co.
(Banks)
     
2.9
 
United Parcel Service, Inc. (Class B)
(Air Freight & Couriers)
     
2.8
 
Citigroup, Inc.
(Diversified Financial Services)
     
2.8
 
U.S. Bancorp.
(Banks)
     
2.7
 
Washington Mutual, Inc.
(Banks)
     
2.6
 
Hartford Financial Services Group, Inc.
(Multi-Line Insurance)
     
2.5
 
Verizon Communications
(Integrated Telecommunications Services)
     
2.3
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
FirstEnergy Corp.
   
$217
Kimberly-Clark Corp.
   
  135
Bank of New York Co., Inc.
   
  117
Target Corp.
   
  117
Hubbell, Inc. (Class B)
   
    94
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Gillette Corp.
   
$207
CVS Corp.
   
  157
Procter & Gamble Co.
   
  114
Northrop Grumman Corp.
   
  109
Johnson & Johnson
   
  100
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
41

Table of Contents

Portfolio of Investments
 
SAFECO U.S. Value Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCK—97.0%
       
Aerospace & Defense—0.8%
       
1,000
 
   
United Technologies Corp.
   
$
68
Air Freight & Couriers—2.8%
       
3,900
 
   
United Parcel Service, Inc. (Class B)
   
 
241
Aluminum—0.7%
       
1,900
 
   
Alcoa, Inc.
   
 
63
Automobile Manufacturers—0.5%
       
800
 
   
General Motors Corp.
   
 
43
Banks—13.5%
       
1,800
 
   
Bank of America Corp.
   
 
127
3,200
 
   
Bank of New York Co., Inc.
   
 
108
5,000
 
   
KeyCorp
   
 
136
2,000
 
   
State Street Corp.
   
 
89
  10,090
 
   
U.S. Bancorp
   
 
236
5,950
 
   
Washington Mutual, Inc.
   
 
221
5,000
 
   
Wells Fargo & Co.
   
 
250
Brewers—1.1%
       
1,900
 
   
Anheuser-Busch Companies, Inc.
   
 
95
Computer Hardware—0.8%
       
1,000
 
   
International Business Machines Corp.
   
 
72
Computer Storage & Peripherals—0.4%
       
4,300
 *
   
EMC Corp.
   
 
32
Data Processing Services—1.1%
       
2,100
 
   
Automatic Data Processing, Inc.
   
 
91
Department Stores—2.1%
       
5,550
 
   
May Department Stores Co.
   
 
183
Diversified Chemicals—2.4%
       
1,800
 
   
Dow Chemical Co.
   
 
62
3,300
 
   
Du Pont (E.I.) de Nemours & Co.
   
 
147
Diversified Financial Services—7.6%
       
2,400
 
   
American Express Co.
   
 
87
6,200
 
   
Citigroup, Inc.
   
 
240
2,100
 
   
Federal National Mortgage Association
   
 
155
5,300
 
   
J.P. Morgan Chase & Co.
   
 
180
Electric Utilities—4.3%
       
5,700
 
   
Duke Energy Corp.
   
 
177
5,900
 
   
FirstEnergy Corp.
   
 
197
Electronic Equipment & Instruments—1.0%
       
2,600
 
   
Hubbell, Inc. (Class B)
   
 
89
Food Distributors—1.0%
       
3,300
 
   
SYSCO Corp.
   
 
90
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Food Retail—1.5%
       
6,300
 *
   
Kroger Co.
   
$
125
Gas Utilities—0.5%
       
  2,200
 
   
El Paso Corp.
   
 
45
General Merchandise Stores—2.5%
       
2,900
 *
   
Costco Wholesale Corp.
   
 
112
2,800
 
   
Target Corp.
   
 
107
Home Improvement Retail—1.0%
       
2,300
 
   
Home Depot, Inc.
   
 
84
Household Products—2.7%
       
2,200
 
   
Kimberly-Clark Corp.
   
 
136
1,100
 
   
Procter & Gamble Co.
   
 
98
Industrial Conglomerates—1.7%
       
5,100
 
   
General Electric Co.
   
 
148
Industrial Gases—2.2%
       
3,400
 
   
Praxair, Inc.
   
 
194
Industrial Machinery—1.0%
       
1,800
 
   
Ingersoll-Rand Co.
   
 
82
Integrated Oil & Gas—10.0%
       
3,400
 
   
ChevronTexaco Corp.
   
 
301
5,700
 
   
Conoco, Inc.
  
 
158
7,528
 
   
Exxon Mobil Corp.
   
 
308
1,800
 
   
Royal Dutch Petroleum Co. (ADR)
   
 
99
Integrated Telecommunications Services—7.1%
3,000
 
   
ALLTEL Corp.
   
 
141
3,300
 
   
CenturyTel, Inc.
   
 
97
6,000
 
   
SBC Communications, Inc.
   
 
183
4,948
 
   
Verizon Communications
   
 
199
IT Consulting & Services—0.9%
       
2,200
 
   
Electronic Data Systems Corp.
   
 
82
Movies & Entertainment—2.3%
       
5,100
 *
   
AOL Time Warner, Inc.
   
 
75
6,600
 
   
Walt Disney Co.
   
 
125
Multi-Line Insurance—5.5%
       
3,863
 
   
American International Group, Inc.
   
 
264
3,600
 
   
Hartford Financial Services Group, Inc.
   
 
214
Multi-Utilities—2.2%
       
8,700
 
   
NiSource, Inc.
   
 
190
Networking Equipment—0.7%
       
4,300
 *
   
Cisco Systems, Inc.
   
 
60
Oil & Gas Equipment & Services—0.6%
       
  1,200
 
   
Schlumberger, Ltd.
   
 
56

SEE NOTES TO FINANCIAL STATEMENTS
 
42

Table of Contents

Portfolio of Investments
 
SAFECO U.S. Value Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Pharmaceuticals—5.0%
       
3,000
 
   
Abbott Laboratories
   
$
113
1,500
 
   
Bristol-Myers Squibb Co.
   
 
39
1,900
 
   
Pfizer, Inc.
   
 
67
1,700
 
   
Pharmacia Corp.
   
 
64
2,400
 
   
Schering-Plough Corp.
   
 
59
1,900
 
   
Wyeth
   
 
97
Publishing & Printing—1.8%
       
2,000
 
   
Gannett Co., Inc.
   
 
152
Real Estate Investment Trust—3.5%
       
3,200
 
   
Equity Residential
   
 
92
2,700
 
   
First Industrial Realty Trust, Inc.
   
 
89
3,400
 
   
Liberty Property Trust
   
 
119
Restaurants—1.5%
       
4,500
 
   
McDonald’s Corp.
   
 
128
Semiconductor Equipment—0.6%
       
2,800
 
   
Intel Corp.
   
 
51
Semiconductors—0.7%
       
2,500
 
   
Texas Instruments, Inc.
   
 
59
Systems Software—1.0%
       
1,600
 *
   
Microsoft Corp.
   
 
88
Telecommunications Equipment—0.4%
       
2,300
 
   
Nokia Oyj (ADR)
   
 
33
           
TOTAL COMMON STOCKS (cost $8,410)
   
 
8,412
           
CASH EQUIVALENTS—4.2%
       
Investment Companies
       
  366,302
 
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
366
           
TOTAL CASH EQUIVALENTS (cost $366)
   
 
366
           
TOTAL INVESTMENTS (cost
$8,777)—101.3%
   
 
8,778
Other Assets, less Liabilities
   
 
(111)
           
NET ASSETS
   
$
8,667
           
 
*
 
Non-income producing security.

 
SAFECO    MUTUAL    FUNDS
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43

Table of Contents

 
SAFECO Small Company Growth Fund
 
As of June 30, 2002

 
LOGO
   
Thomas J. Ross
    
 
For the six-month period ending June 30, the SAFECO Small Company Growth Fund outperformed its benchmark, the Russell 2000 Growth Index.
 
As the first half of 2002 came to a close, WorldCom, the second largest long distance telecommunications company in the United States, disclosed that it had overstated its results by nearly $4 billion, in what may be one of America’s largest cases of fraudulent accounting practices. This announcement was characteristic of business headlines in recent months, shaking investors’ faith by adding to the list of large, high-profile companies attempting to prop up their share prices by misleading the public. Standard & Poor’s also introduced their new definitions of “core earnings” in an effort to apply updated standards to the definition.
 
Also impacting sentiment, international news reminded investors of ongoing tensions in the Middle East, including unfinished business with Iraq, a possible confrontation between India and Pakistan, as well as heightened terror alerts at home. In response, virtually every U.S. equity style and size segment fell during the first half of 2002. Small-cap stocks were more resilient, however, and fell to a lesser extent than large caps. Value beat growth across the market-cap spectrum. We appear to be well into one of the longer cycles of value leadership in the small-cap stock universe.
 
The data unfolding in the real economy has nevertheless been reasonably upbeat, with slower but steady growth on an annualized basis. On an annualized basis first quarter real gross domestic product (GDP) growth was 6.1%, and second quarter growth is expected to come in around 2%. On the heels of a recession, a 4% annualized growth rate for the first half of 2002 is certainly respectable. Despite strong growth in productivity, little inflationary pressure, and signs of improvement in manufacturing, negative investor sentiment was the key driver of equity markets over the quarter.
 
Performance of the SAFECO Small Company Growth 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 came from semiconductor holdings and the underweight position in banks.
 
Technology and biotechnology were the most punished areas in the Russell 2000 Growth Index—we are underweight in both groups. Few areas of the small-cap growth market posted positive returns, although industries within consumer staples and financials were among the most resilient.
 
We reduced commitments to technology, notably in semiconductors and communications equipment, given what we perceive to be a weak outlook and a continuation of overly optimistic earnings growth assumptions. Despite the potential for counter-trend rallies in technology, we do not believe fundamentals in most areas of this sector are improving to the extent necessary to support their valuations. Earnings estimates for the second half and 2003 remain too hopeful, and these will eventually have to be revised downward. Software, in particular, is an industry where we have difficulty with company forecasts.

44

Table of Contents

Report From the Fund Manager
 
SAFECO Small Company Growth Fund
 
As of June 30, 2002

In addition to reducing 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 added a real estate investment trust (Redwood Trust Inc.), a component of the benchmark. While our position size here is small, this was one of the best performing industry segments for the fund.
 
Healthcare stocks came under selling pressure, and we reduced biotechnology holdings. Our healthcare holdings are concentrated in healthcare providers and services.
 
The largest economic sector overweight in portfolios at the end of the first half of 2002 was consumer discretionary. This sector continues to generate strong earnings, and has enjoyed the highest degree of positive earnings revisions. The largest underweight allocation was to technology.
 
Equity markets typically rally in anticipation of an economic recovery, with smaller-cap stocks taking the lead. While small caps have been outperforming the large caps, the overall market’s recent performance has been sub-par for this stage of a recovery, compared to past economic cycles. Shares in many sectors have dipped to below their September 2001 lows. It may be a rational investor response to wait until better earnings materialize, given that the integrity of published earnings is so widely being called into question.
 
Ultimately, however, smaller-cap stocks may benefit vis-à-vis larger caps, since most of the high profile accounting misdeeds, discovered so far, have occurred at very large, multinational corporations. The importance of restoring faith in corporate America is clear and policy makers appear highly motivated to pursue aggressive reforms. If deemed effective, reforms coinciding with stronger earnings could substantially improve the investment outlook.
 
Terror-related shocks remain a great uncertainty, and would hurt small caps’ relative performance in the short term. We expect monetary policy will remain accommodative near term, and believe that the current slow growth economic environment still favors smaller cap investing. Smaller companies can often grow faster than large cap firms can, in part by pursuing niche opportunities. Faster earnings growth and frustration with mega-caps are two themes that make smaller cap investing appealing, and could attract further flows into the sector as signs of an equity market recovery accelerate.
 
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
1-800-528-6501

45

Table of Contents

Performance Overview & Highlights
 
SAFECO Small Company Growth Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
Since Inception*†
       
Six Month*
       
Since Inception*†
  
SAFECO Small Company Growth Fund
                                  
Class A
   
(17.38
)%
     
(6.56
)%
     
(12.34
)%
     
(0.86
)%
Class B
   
(17.06
)%
     
(6.28
)%
     
(12.70
)%
     
(1.36
)%
Class C
   
(13.58
)%
     
(2.34
)%
     
(12.70
)%
     
(1.36
)%
Russell 2000 Growth Index
   
N/A
 
     
N/A
 
     
(17.35
)%
     
(4.90
)%
 * Not annualized.
† Total return 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.
 
LOGO
 
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Specialty Stores
     
6
%
Health Care Facilities
     
6
 
Semiconductor Equipment
     
5
 
Banks
     
5
 
Application Software
     
4
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Monro Muffler Brake, Inc.
(Diversified Commercial Services)
     
3.2
%
Patterson-UTI Energy, Inc.
(Oil & Gas Drilling)
     
2.2
 
Dane Reade, Inc.
(Drug Retail)
     
2.1
 
Linens ’n’ Things, Inc.
(Specialty Stores)
     
2.0
 
Hibbet Sporting Goods, Inc.
(Specialty Stores)
     
2.0
 
Renal Care Group
(Health Care Facilities)
     
1.9
 
National-Oilwell, Inc.
(Oil & Gas Equipment & Services)
     
1.8
 
Scottish Annuity & Life Holdings, Ltd.
(Life & Health Insurance)
     
1.8
 
Alliance Data Systems Corp.
(Data Processing Systems)
     
1.8
 
VCA Antech, Inc.
(Health Care Facilities)
     
1.7
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
Microsemi Corp.
   
$153
Monro Muffler Brake, Inc.
   
119
Concurrent Computer Corp.
   
112
Hibbett Sporting Goods, Inc.
   
111
SeaChange International, Inc.
   
102
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Triad Hospitals, Inc.
   
$154
SeaChange International, Inc.
   
125
Legato Systems, Inc.
   
117
ORATEC Interventions, Inc.
   
111
Humana, Inc.
   
102
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
46

Table of Contents

Portfolio of Investments
 
SAFECO Small Company Growth Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—89.7%
       
Aerospace & Defense—1.4%
       
  3,500
 *
   
Veridian Corp.
   
$
79
Apparel & Accessories—0.6%
       
  2,000
 *
   
Gymboree Corp.
   
 
32
Apparel Retail—1.4%
       
1,000
 *
   
J. Jill Group, Inc.
   
 
38
2,000
 *
   
Pacific Sunwear of California, Inc.
   
 
44
Application Software—4.4%
       
2,500
 *
   
J.D. Edwards & Co.
   
 
30
3,000
 *
   
NetIQ Corp.
   
 
68
2,250
 *
   
Take-Two Interactive Software, Inc.
   
 
46
2,400
 *
   
THQ, Inc.
   
 
72
8,000
 *
   
Vastera, Inc.
   
 
35
Auto Parts & Equipment—2.1%
       
3,000
 *
   
Dura Automotive Systems, Inc.
   
 
62
4,000
 *
   
Tower Automotive, Inc.
   
 
56
Automobile Manufacturers—0.5%
       
1,000
 *
   
Navistar International Corp.
   
 
32
Banks—4.5%
       
3,500
 
   
First State Bancorporation
   
 
91
1,750
 
   
FirstMerit Corp.
   
 
48
1,600
 
   
Mid-State Bancshares
   
 
31
1,866
 
   
Pacific Capital Bancorp
   
 
45
1,800
 
   
Trustmark Corp.
   
 
46
Biotechnology—1.3%
       
1,400
 *
   
Neurocrine Biosciences, Inc.
   
 
40
1,000
 *
   
Transkaryotic Therapies, Inc.
   
 
36
Broadcasting & Cable TV—2.9%
       
3,000
 *
   
Cumulus Media, Inc. (Class A)
   
 
41
1,350
 *
   
Entercom Communications Corp.
   
 
62
2,400
 *
   
Lin TV Corp. (Class A)
   
 
65
Catalog Retail—0.6%
       
1,500
 *
   
Insight Enterprises, Inc.
   
 
38
Computer Storage & Peripherals—1.0%
       
  12,500
 *
   
Concurrent Computer Corp.
   
 
58
Construction & Farm Machinery—0.8%
       
2,250
 *
   
AGCO Corp.
   
 
44
Consumer Electronics—0.7%
       
3,400
 *
   
InterTAN, Inc.
   
 
38
Data Processing Services—3.0%
       
4,000
 *
   
Alliance Data Systems Corp.
   
 
102
1,600
 *
   
ChoicePoint, Inc.
   
 
73
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Distributors—0.5%
       
1,600
 
   
Advanced Marketing Services, Inc.
   
$
29
Diversified Chemicals—1.3%
       
3,500
 
   
Olin Corp.
   
 
78
Diversified Commercial Services—4.0%
       
2,000
 *
   
Coinstar, Inc.
   
 
49
8,000
 *
   
Monro Muffler Brake, Inc.
   
 
182
Diversified Financial Services—0.8%
       
1,800
 *
   
Federal Agricultural Mortgage Corp.
   
 
48
Drug Retail—2.1%
       
3,500
 
   
Duane Reade, Inc.
   
 
119
Electrical Components & Equipment—0.9%
       
2,200
 *
   
Advanced Energy Industries, Inc.
   
 
49
Electronic Equipment & Instruments—2.2%
       
3,300
 
   
EDO Corp.
   
 
94
1,400
 *
   
InVision Technologies, Inc.
   
 
34
Food Distributors—1.5%
       
2,500
 
   
Performance Food Group Co.
   
 
85
Health Care Distributors & Services—0.6%
       
  10,600
 *
   
Curon Medical, Inc.
   
 
37
Health Care Equipment—3.1%
       
2,500
 *
   
Conceptus, Inc.
   
 
41
2,500
 *
   
Med-Design Corp.
   
 
32
1,400
 *
   
Therasense, Inc.
   
 
26
2,000
 *
   
Varian Medical Systems, Inc.
   
 
81
Health Care Facilities—5.6%
       
1,250
 *
   
LifePoint Hospitals, Inc.
   
 
45
3,500
 *
   
Renal Care Group, Inc.
   
 
109
1,750
 *
   
Triad Hospitals, Inc.
   
 
74
6,000
 *
   
VCA Antech, Inc.
   
 
95
Health Care Supplies—0.5%
       
1,900
 *
   
Kyphon, Inc.
   
 
28
Hotels—2.7%
       
3,000
 *
   
Choice Hotels International, Inc.
   
 
60
2,500
 
   
Fairmont Hotels & Resorts, Inc.
   
 
65
700
 
   
Four Seasons Hotels, Inc.
   
 
33
Industrial Machinery—0.7%
       
1,400
 *
   
Flowserve Corp.
   
 
42
Insurance Brokers—0.7%
       
2,500
 
   
Hub International, Ltd.
   
 
38
Internet Retail—0.5%
       
1,250
 *
   
Overture Services, Inc.
   
 
31

 
SAFECO    MUTUAL    FUNDS
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47

Table of Contents

Portfolio of Investments
 
SAFECO Small Company Growth Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Internet Software & Services—2.1%
       
6,000
 *
   
Exult, Inc.
   
$
39
3,500
 *
   
Fidelity National Information Solutions, Inc.
   
 
84
IT Consulting & Services—2.4%
       
4,700
 *
   
KPMG Consulting, Inc.
   
 
70
5,000
 *
   
Perot Systems Corp.
   
 
54
500
 *
   
SRA International, Inc. (Class A)
   
 
13
Leisure Products—0.6%
       
2,500
 *
   
West Marine, Inc.
   
 
32
Life & Health Insurance—1.8%
       
5,500
 
   
Scottish Annuity & Life Holdings, Ltd.
   
 
105
Metal & Glass Containers—1.8%
       
1,200
 
   
Ball Corp.
   
 
50
1,400
 *
   
Silgan Holdings, Inc.
   
 
57
Multi-Line Insurance—0.2%
       
400
 *
   
The Navigators Group, Inc.
   
 
11
Oil & Gas Drilling—2.2%
       
4,500
 *
   
Patterson-UTI Energy, Inc.
   
 
127
Oil & Gas Equipment & Services—4.3%
       
2,500
 *
   
Cal Dive International, Inc.
   
 
 55
5,000
 *
   
National-Oilwell, Inc.
   
 
105
4,900
 *
   
Varco International, Inc.
   
 
86
Oil & Gas Exploration & Production—1.4%
       
3,500
 *
   
Ultra Petroleum Corp.
   
 
27
3,000
 *
   
Unit Corp.
   
 
52
Pharmaceuticals—2.3%
       
4,000
 *
   
Amylin Pharmaceuticals, Inc.
   
 
44
1,000
 *
   
CV Therapeutics, Inc.
   
 
19
2,500
 *
   
Pharmaceutical Resources, Inc.
   
 
69
Railroads—0.9%
       
5,000
 *
   
RailAmerica, Inc.
   
 
54
Real Estate Investment Trust—0.7%
       
1,250
 
   
Redwood Trust, Inc.
   
 
39
Restaurants—0.8%
       
1,750
 *
   
O’Charley’s, Inc.
   
 
44
Semiconductor Equipment—4.9%
       
8,800
 *
   
Artisan Components, Inc.
   
 
79
4,000
 
   
Lattice Semiconductor Corp.
   
 
35
  17,500
 *
   
Manufacturers’ Services, Ltd.
   
 
85
5,000
 *
   
Microsemi Corp.
   
 
33
2,000
 *
   
Semtech Corporation
   
 
53
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Specialty Chemicals—0.6%
       
4,000
 *
   
Omnova Solutions, Inc.
   
$
34
Specialty Stores—6.3%
       
1,500
 
   
Aaron Rents, Inc.
   
 
36
4,500
 *
   
Hibbett Sporting Goods, Inc.
   
 
114
3,500
 *
   
Linens ’n Things, Inc.
   
 
115
2,000
 *
   
O’Reilly Automotive, Inc.
   
 
55
1,600
 *
   
Sonic Automotive, Inc.
   
 
41
Systems Software—0.8%
       
5,000
 *
   
Per-Se Technologies, Inc.
   
 
46
Telecommunications Equipment—1.6%
       
4,600
 *
   
UTStarcom, Inc.
   
 
93
Textiles—0.4%
       
6,000
 *
   
DHB Industries, Inc.
   
 
24
Trucking—0.7%
       
1,800
 *
   
Swift Transportation Co., Inc.
   
 
42
           
TOTAL COMMON STOCKS (cost $5,185)
   
 
5,177
           
CASH EQUIVALENTS—10.2%
       
Investment Companies
       
  295,222
 
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
295
295,222
 
   
Nations Money Market Reserves
   
 
295
           
TOTAL CASH EQUIVALENTS (cost $590)
   
 
590
           
TOTAL INVESTMENTS (cost
$5,775)—99.9%
   
 
5,767
Other Assets, less Liabilities
   
 
3
           
NET ASSETS
   
$
5,770
           
 
*
 
Non-income producing security.

SEE NOTES TO FINANCIAL STATEMENTS
 
48

Table of Contents

 
SAFECO U.S. Growth Fund
 
As of June 30, 2002

 
LOGO
   
Seth A. Reicher
  
LOGO
   
Mary Bersot
    
 
Year-to-date, the SAFECO U.S. Growth Fund slightly underperformed its benchmark, the Russell 1000 Growth Index. Once again, value stocks outperformed growth stocks and small cap stocks outperformed large-cap stocks.
 
The economy showed signs of improvement, but stock prices continued to decline. Typically at this stage of an economic recovery, stock prices tend to increase, however, the latest economic and market cycles have been anything but typical.
 
Normally during a recession, many of the excesses built up in the previous expansion are unwound. This recession, mild by historical comparison, did not fully correct the excesses. Namely, debt levels for both consumers and corporations remain high and there appears to be an excess of technology and telecommunications capital equipment that will take time to work through. As a result, it will be more difficult for the economy to make the transition from inventory cycle led growth to more sustainable growth.
 
Although still positive, economic news released during the second quarter pointed to a slower pace from the first quarter. In addition, new data suggested that the consumer might finally be retrenching. While housing remained solid, several other indicators were noticeably weaker. In addition, comments from a number of companies, especially in more cyclical industries including technology, suggested business activity remained weak and the outlook continued to be quite uncertain. Expectations for a pick-up of demand and profit recovery in the second half of the year faded.
 
Market sentiment switched from positive to negative as investors were bombarded by daily examples of questionable accounting, suggesting a lack of corporate integrity. With valuations still comparatively high in many sectors of the market, share prices had little support. U.S. mutual fund and foreign investors moved money out of stocks. Foreign investors, also had to deal with a rapid decline in the U.S dollar, which likely exacerbated the flow of funds from the United States.
 
The SAFECO U.S. Growth Fund is built bottom-up. The defensive nature of our selections was most characterized by our underweight to technology stocks and overweight to traditionally stable growth sectors, including consumer staples companies and pharmaceuticals.
 
Consumer staples stocks performed well, viewed as a safe haven in this difficult market. On the other hand, pharmaceutical stocks did not perform as expected. Technology and telecommunications stocks have been weak throughout the year (especially during the second quarter) as the fundamentals for these businesses continued to be challenged.
 
As fallout from the accounting and liquidity issues surrounding the telecommunications sector and WorldCom continue, investors punished the stocks of media companies. Our underweight to this group was positive for performance, as well.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

49

Table of Contents

Report From the Fund Managers
 
SAFECO U.S. Growth Fund
 
As of June 30, 2002

 
We continue to maintain our cautious short-term outlook for the market and the economy as a whole. While it is clear that the economy has turned the corner, growth and corporate profits in the second half of 2002 will likely be less robust than implied by current share prices. The current levels of consumer and business sector debt will act as a headwind to sustainable economic growth. In the near-term, the consumer may once again be reinvigorated by the current low mortgage rates with the acceleration of refinancing activity. However, any strength in consumer spending will likely be difficult to maintain.
 
We were somewhat skeptical of the market’s extraordinary rebound in last year’s fourth quarter and chose to maintain our defensive portfolio positioning. However, due to subsequent changes in individual stock positions, we have slightly reduced our overall defensiveness by modestly reducing our technology underweight and decreasing our healthcare overweight.
 
Given the difference in relative performance of large-cap growth to both small-cap and value stocks, and the expected growth of earnings between the sectors, we believe that growth stocks are poised for strong relative performance over the next 12 to 18 months. Regarding the broader market, stocks are likely to be caught in a trading range over the near-term and could continue to experience sharp swings in prices. Any positive news on the economy or earnings could easily be offset by negative news. In addition, concerns about the quality of earnings and relatively expensive valuations will likely combine to keep a lid on stock price appreciation. We anticipate that after a challenging summer, we may have an opportunity to further reduce your portfolio’s defensive posture. We hope to see more realistic earnings expectations for cyclical sectors and more attractive valuations.
 
As always, we remain committed to our philosophy of investing in quality companies with achievable superior growth characteristics and reasonable valuations. In an uncertain environment such as this, investors will likely pay a premium price for companies that are able to produce outstanding earnings growth. While the recent market declines have been disappointing, one result has been an increasing number of stocks that offer attractive entry-points for the intermediate-term investment horizon.
 
Seth A. Reicher
     
Mary Bersot
 
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.

50

Table of Contents

Performance Overview & Highlights
 
SAFECO U.S. Growth Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
Since Inception*†
       
Six Month*
       
Since Inception*†
  
SAFECO U.S. Growth Fund
                                  
Class A
   
(25.47
)%
     
(20.77
)%
     
(20.92
)%
     
(15.93
)%
Class B
   
(25.15
)%
     
(20.51
)%
     
(21.22
)%
     
(16.33
)%
Class C
   
(22.01
)%
     
(17.17
)%
     
(21.22
)%
     
(16.33
)%
Russell 1000 Growth Index
   
N/A
 
     
N/A
 
     
(20.78
)%
     
(13.30
)%
 * Not annualized.
† Total return 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.
 
LOGO
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Pharmaceuticals
     
20
%
Systems Software
     
8
 
Industrial Conglomerates
     
6
 
Diversified Financial Services
     
5
 
General Merchandise Stores
     
5
 
TOP TEN HOLDINGS
     
Percent of
Net Assets
  
Pfizer, Inc.
(Pharmaceuticals)
     
7.7
%
Microsoft Corp.
(Systems Software)
     
6.5
 
General Electric Co.
(Industrial Conglomerates)
     
5.9
 
Wal-Mart Stores, Inc.
(General Merchandise Stores)
     
3.6
 
Anheuser-Busch Companies, Inc.
(Brewers)
     
3.4
 
American International Group, Inc.
(Multi-Line Insurance)
     
3.2
 
Johnson & Johnson
(Pharmaceuticals)
     
3.0
 
Pharmacia Corp.
(Pharmaceuticals)
     
2.9
 
Wyeth
(Pharmaceuticals)
     
2.8
 
Intel Corp.
(Semiconductor Equipment)
     
2.7
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
Dell Computer Corp.
   
$  79
Cardinal Health, Inc.
   
68
Medtronic, Inc.
   
67
Colgate-Palmolive Co.
   
48
Automatic Data Processing, Inc.
   
42
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Tyco International, Ltd.
   
$123
Merck & Co., Inc.
   
106
AOL Time Warner, Inc.
   
72
GlaxoSmithKline, plc (ADR)
   
69
Bristol-Myers Squibb Co.
   
38
 
WEIGHTINGS AS A PERCENT
OF NET ASSETS
LOGO

 
51

Table of Contents

Portfolio of Investments
 
SAFECO U.S. Growth Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
COMMON STOCKS—94.6%
       
Aerospace & Defense—2.3%
       
400
 
   
General Dynamics Corp.
   
$
43
900
 
   
United Technologies Corp.
   
 
61
Air Freight & Couriers—1.2%
       
900
 
   
United Parcel Service, Inc. (Class B)
   
 
56
Application Software—1.0%
       
400
 *
   
Check Point Software Technologies, Ltd.
   
 
6
400
 *
   
Electronic Arts, Inc.
   
 
27
800
 *
   
Siebel Systems, Inc.
   
 
11
Biotechnology—3.1%
       
  2,200
 
   
Amgen, Inc.
   
 
92
900
 *
   
Genentech, Inc.
   
 
30
700
 *
   
MedImmune, Inc.
   
 
19
Brewers—3.4%
       
3,100
 
   
Anheuser-Busch Companies, Inc.
   
 
155
Broadcasting & Cable TV—1.4%
       
1,000
 *
   
Comcast Corp. (Special Class A)
   
 
24
950
 *
   
Viacom, Inc. (Class B)
   
 
42
Computer Hardware—2.9%
       
3,000
 *
   
Dell Computer Corp.
   
 
79
750
 
   
International Business Machines Corp.
   
 
54
Data Processing Services—1.3%
       
1,300
 
   
Automatic Data Processing, Inc.
   
 
57
Diversified Financial Services—4.9%
       
1,500
 
   
Citigroup, Inc.
   
 
58
1,175
 
   
Federal National Mortgage Association
   
 
87
600
 
   
Franklin Resources, Inc.
   
 
26
300
 
   
Marsh & McLennan Cos., Inc.
   
 
29
600
 
   
Merrill Lynch & Co., Inc.
   
 
24
Drug Retail—1.7%
       
2,000
 
   
Walgreen Co.
   
 
77
Food Distributors—1.1%
       
1,800
 
   
SYSCO Corp.
   
 
49
Footwear—1.3%
       
  1,100
 
   
NIKE, Inc. (Class B)
   
 
59
General Merchandise Stores—4.9%
       
700
 *
   
Costco Wholesale Corp.
   
 
27
800
 
   
Target Corp.
   
 
31
3,000
 
   
Wal-Mart Stores, Inc.
   
 
165
Health Care Distributors & Services—1.4%
       
1,025
 
   
Cardinal Health, Inc.
   
 
63
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Health Care Equipment—2.8%
       
1,450
 
   
Baxter International, Inc.
   
$
64
1,500
 
   
Medtronic, Inc.
   
 
64
Home Improvement Retail—1.8%
       
2,200
 
   
Home Depot, Inc.
   
 
81
Household Products—0.3%
       
200
 
   
Kimberly-Clark Corp.
   
 
12
Industrial Conglomerates—5.9%
       
9,200
 
   
General Electric Co.
   
 
267
Integrated Oil & Gas—0.5%
475
 
   
BP, plc (ADR)
   
 
24
Integrated Telecommunications Services—0.4%
600
 
   
SBC Communications, Inc.
   
 
18
IT Consulting & Services—1.4%
       
1,600
 *
   
Accenture, Ltd. (Class A)
   
 
30
900
 
   
Electronic Data Systems Corp.
   
 
33
Multi-Line Insurance—3.2%
       
2,100
 
   
American International Group, Inc.
   
 
143
Networking Equipment—1.8%
       
5,800
 *
   
Cisco Systems, Inc.
   
 
81
Oil & Gas Equipment & Services—1.2%
       
600
 
   
Baker Hughes, Inc.
   
 
20
500
 
   
Schlumberger, Ltd.
   
 
23
300
 *
   
Weatherford International, Inc.
   
 
13
Oil & Gas Exploration & Production—0.5%
       
500
 
   
Anadarko Petroleum Corp.
   
 
25
Packaged Foods—1.4%
       
1,600
 
   
Kraft Foods, Inc. (Class A)
   
 
66
Personal Products—2.8%
       
1,950
 
   
Colgate-Palmolive Co.
   
 
98
900
 
   
Gillette Co.
   
 
30
Pharmaceuticals—20.4%
       
1,600
 
   
Eli Lilly & Co.
   
 
90
550
 *
   
IDEC Pharmaceuticals Corp.
   
 
19
2,600
 
   
Johnson & Johnson
   
 
136
  10,000
 
   
Pfizer, Inc.
   
 
350
3,500
 
   
Pharmacia Corp.
   
 
131
2,900
 
   
Schering-Plough Corp.
   
 
71
  2,500
 
   
Wyeth
   
 
128
Restaurants—0.8%
       
1,500
 *
   
Starbucks Corp.
   
 
37

SEE NOTES TO FINANCIAL STATEMENTS
 
52

Table of Contents

Portfolio of Investments
 
SAFECO U.S. Growth Fund
 
As of June 30, 2002
(Unaudited)
SHARES OR PRINCIPAL AMOUNT
   
Value
(000’s)
Semiconductor Equipment—2.9%
       
6,600
 
   
Intel Corp.
   
$
121
600
 *
   
NVIDIA Corp.
   
 
10
Semiconductors—0.8%
       
1,000
 *
   
Maxim Integrated Products, Inc.
   
 
38
Soft Drinks—4.4%
       
1,400
 
   
Coca-Cola Co.
   
 
78
2,500
 
   
PepsiCo, Inc.
   
 
121
Systems Software—7.7%
       
5,400
 *
   
Microsoft Corp.
   
 
295
3,500
 *
   
Oracle Corp.
   
 
33
1,100
 *
   
VERITAS Software Corp.
   
 
22
Telecommunications Equipment—0.9%
       
1,350
 
   
Nokia Oyj (ADR)
   
 
20
800
 *
   
QUALCOMM, Inc.
   
 
22
Wireless Telecommunications Services—0.8%
       
2,650
 
   
Vodafone Group, plc (ADR)
   
 
36
           
TOTAL COMMON STOCKS (cost $4,874)
   
 
4,301
           
CASH EQUIVALENTS—5.3%
       
Investment Companies
       
  232,937
 
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
233
9,459
 
   
Nations Money Market Reserves
   
 
9
           
TOTAL CASH EQUIVALENTS (cost $242)
   
 
242
           
TOTAL INVESTMENTS (cost
$5,116)—99.9%
   
 
4,543
Other Assets, less Liabilities
   
 
3
           
NET ASSETS
   
$
4,546
           
 
*
 
Non-income producing security.
 

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
53

Table of Contents

 
SAFECO High-Yield Bond Fund
 
As of June 30, 2002

 
How did the fund perform?
This was a difficult time for both the stock market and high-yield bond portfolios in general. In simplest terms, the SAFECO High-Yield Bond Fund underperformed its benchmark—the Merrill Lynch High-Yield Master II—for the first half of 2002. Additionally, both the Fund and its benchmark index posted negative returns for the one-year annualized period during this lingering economic downturn.
 
What factors impacted performance?
The Fund’s relative underperformance was most dramatically impacted by our positions in the telecommunications sector—a sector that is reeling from a steady parade of financial restatements and fraud charges. Adelphia and WorldCom both defaulted, and Charter and Qwest Communications have been driven into distressing pricing levels. As a group, these were among the market’s largest high-yield companies (with over $60 billion in combined debt), and the seemingly endless stream of bad news has taken its toll on both the SAFECO High-Yield Bond Fund and its index.
 
In retrospect, another contributing factor to the Fund’s disappointing performance is that we were too early with some of our market movements. We expected high-yield bonds to improve with a slowly improving economy and positioned accordingly. We were also too early in acquiring fallen angels like Qwest and Tyco, and in holding the most junior positions in companies like Paxson, Crown Castle and Dobson. In this uncertain market, these issues continue to underperform, but could still generate some pleasing returns when the market does finally begin its long-awaited recovery.
 
On the positive side, our positions in early cyclicals, consumer non-durables and shorter-maturity manufacturing companies performed well. Smaller turnarounds like FHP (PacifiCare) and Samsonite have also done well, as did the shorter-maturity issues Oregon Steel and Sun World.
 
What changes did you make and why?
The economy continues a slow recovery, however investor confidence in corporate America is the worst the SAFECO High-Yield Bond Fund team has seen in our 20-plus years of experience—a factor that is clearly hurting both the debt and equity markets. The number and size of company misstatements since the Enron debacle was first revealed makes it clear that the energy giant’s fall from grace will not be the only time we see this happen. We are concerned that more restatements are likely in the near-term. In fact, the problem could grow as the 2,000-plus clients of the now-defunct Arthur Andersen LLP hire new accounting firms, as CEOs sign the Security and Exchange Commission’s newly required certifications vouching for the integrity of their company’s financial statements, and as audit committees become more active.
 
With an eye on these continuing developments, we have reduced the Fund’s risk profile until there are more signs that these corporate governance issues have been addressed. In a move to reduce individual credit risk, we have reduced positions to become underweight in larger high-yield issuers. While these changes are ongoing, the fund is now more diversified having added smaller, less complex companies with financials we believe will not be easily manipulated. Additionally, we have increased the portfolio quality by reducing B issues and adding BB-rated companies. Our most junior holdings have been reduced, including all of the preferred issues of Crown Castle and a portion of Paxson.

54

Table of Contents

Report From the Fund Managers
 
SAFECO High-Yield Bond Fund
 
As of June 30, 2002

What is your outlook for the future?
We believe the economic recovery will become the focus for investors, and so we continue to position in sectors that will benefit. While economic recovery has been postponed by corporate accounting and governance issues, we don’t believe it has been cancelled. As excesses are purged, we anticipate that the invigorated environment will create opportunities. We will continue to move to a position more in line with the index and will be vigilant and patient, awaiting clear signs of improvement in corporate earnings before we move to a more aggressive positioning of the portfolio. We do believe that by year-end investor confidence should be restored, and that the improving economy and corporate results will put investors back in the search for yield. The Fund’s more conservative positioning should improve performance until then.
 
SAFECO Asset Management Company
 
SAFECO Asset Management Company’s (SAM’s) high-yield investment team, which is comprised of senior bond managers and credit analysts, assumed management of the SAFECO High-Yield Bond Fund in November 2000. Team management allows broader coverage of this highly complex market and increased input into the investment process.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

55

Table of Contents

Performance Overview & Highlights
 
SAFECO High-Yield Bond Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
     
5 Year
       
10 Year
       
Six Month*
     
1 Year
     
5 Year
       
10 Year
  
SAFECO High-Yield Bond Fund
                                                              
Class A
   
(17.37
)%
   
(17.20
)%
   
(2.60
)%
     
3.55
%
     
(13.43
)%
   
(13.29
)%
   
(1.70
)%
     
4.02
%
Class B
   
(17.91
)%
   
(17.92
)%
   
(2.71
)%
     
3.60
%
     
(13.75
)%
   
(13.39
)%
   
(2.44
)%
     
3.60
%
Class C
   
(14.56
)%
   
(14.56
)%
   
(2.43
)%
     
3.61
%
     
(13.73
)%
   
(13.76
)%
   
(2.43
)%
     
3.61
%
Merrill Lynch High-Yield Master II Index
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(5.37
)%
   
(4.36
)%
   
1.14
%
     
6.28
%
Lipper, Inc. (High Current Yield Funds)
   
N/A
 
   
N/A
 
   
N/A
 
     
N/A
 
     
(3.77
)%
   
(3.55
)%
   
(0.27
)%
     
4.96
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
Current Yield (30-day) Class A
  
11.33%
Current Yield (30-day) Class B
  
11.03%
Current Yield (30-day) Class C
  
11.02%
Weighted Average Maturity
  
5.24 years
 
TOP FIVE INDUSTRIES
     
Percent of
Net Assets
  
Broadcasting & Cable TV
     
12
%
Integrated Telecommunications Services
     
7
 
Homebuilding
     
7
 
Restaurants
     
6
 
Steel
     
6
 
TOP FIVE HOLDINGS
     
Percent of
Net Assets
  
Sinclair Broadcast Group, Inc.
    (Broadcasting & Cable TV)
     
4.4
%
Paxson Communications Corp.
    (Broadcasting & Cable TV)
     
3.6
 
Dobson Communications Corp.
    (Integrated Telecommunications Services)
     
3.4
 
LCI International
    (Integrated Telecommunications Services)
     
3.1
 
Schuler Homes
    (Homebuilding)
     
3.0
 
 
TOP FIVE PURCHASES
For the Period Ended June 30, 2002
   
Cost
(000’s)
Adelphia Communications Corp.
   
$2,944
Xerox Corp.
   
2,379
LCI International, Inc.
   
2,030
Avaya, Inc.
   
1,976
Tyco International Group SA
   
1,575
TOP FIVE SALES
For the Period Ended June 30, 2002
   
Proceeds
(000’s)
Adelphia Communications Corp.
   
$2,613
Xerox Corp.
   
2,361
Sun World International, Inc.
   
1,970
FHP International Corp.
   
1,461
U.S. Unwired, Inc.
   
1,410
 
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
LOGO

 
56

Table of Contents

Portfolio of Investments
 
SAFECO High-Yield Bond Fund
 
As of June 30, 2002
(Unaudited)
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
CORPORATE BONDS—79.2%
      
Advertising—1.2%
      
$
500
 #
   
Penton Media, Inc. (144A)
11.875%, due 10/01/07 (acquired 3/21/02)
  
$
430
Airlines—5.1%
      
 
1,000
 
   
Continental Airlines, Inc.
7.568%, due 12/01/06
  
 
913
 
  1,000
 
   
Northwest Airlines, Inc.
8.52%, due 4/07/04
  
 
910
Alternative Carriers—0.0%
      
 
1,000
 
   
Global Crossing Holdings, Ltd.
9.50%, due 11/15/09
  
 
10
Aluminum—1.4%
      
 
500
 
   
Commonwealth Aluminum Corp.
10.75%, due 10/01/06
  
 
502
Auto Parts & Equipment—1.0%
      
 
500
 
   
Park-Ohio Industries, Inc.
9.25%, due 12/01/07
  
 
340
Broadcasting & Cable TV—2.8%
      
 
750
 
   
Adelphia Communications Corp.
10.875%, due 10/01/10
  
 
296
 
250
 
   
Adelphia Communications Corp.
3.25%, due 5/01/21
  
 
21
 
500
 #
   
Charter Communications Holdings, Inc. (144A)
11.125%, due 1/15/11
(acquired 6/28/01)
  
 
345
 
500
 
   
Charter Communications Holdings, Inc.
5.75%, due 10/15/05
  
 
259
 
250
 
   
NTL Communications Corp.
11.50%, due 10/01/08
  
 
66
Building Products—1.4%
      
 
500
 
   
NS Group, Inc.
13.50%, due 7/15/03
  
 
504
Casinos & Gaming—0.7%
      
 
250
 #
   
Venetian Casino Resort (144A)
11.00%, due 6/15/10
(acquired 5/22/02)
  
 
252
Construction Materials—1.8%
      
 
750
 
   
National Equipment Services, Inc.
10.00%, due 11/30/04
  
 
652
Department Stores—2.3%
      
 
1,000
 
   
Dillards, Inc.
6.625%, due 1/15/18
  
 
835
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Diversified Chemicals—0.7%
      
$
250
 
   
Lyondell Chemical Co.
11.125%, due 7/15/12
  
$
248
Diversified Commercial Services—3.5%
      
 
500
 
   
Renters Choice, Inc.
11.00%, due 8/15/08
  
 
531
 
750
 
   
Williams Scotsman, Inc.
9.875%, due 6/01/07
  
 
716
Diversified Financial Services—3.9%
      
 
500
 
   
CIT Capital Trust
7.70%, due 2/15/27
  
 
410
 
1,000
 
   
CIT Group, Inc.
7.625%, due 8/16/05
  
 
985
Electric Utilities—3.8%
      
 
500
 
   
Calpine Canada Energy Finance Corp.
8.50%, due 5/01/08
  
 
343
 
1,000
 
   
Mission Energy Holding Co.
13.50%, due 7/15/08
  
 
1,005
Electronic Equipment & Instruments—1.3%
      
 
500
 
   
Wesco Distribution, Inc.
9.125%, due 6/01/08
  
 
480
Food Distributors—1.1%
      
 
400
 #
   
Burns Philp Capital Property, Ltd. (144A)
9.75%, due 7/15/12 (acquired 6/14/02)
  
 
396
Food Retail—2.0%
      
 
700
 
   
Luigino’s, Inc.
10.00%, due 2/01/06
  
 
707
Health Care Equipment—0.7%
      
 
250
 #
   
Sybron Dental Specialties, Inc. (144A)
8.125%, due 6/15/12 (acquired 5/22/02)
  
 
248
Heavy Electrical Equipment—0.7%
      
 
250
 #
   
NMHG Holding Co. (144A)
10.00%, due 5/15/09 (acquired 5/02/02)
  
 
254
Home Furnishings—2.2%
      
 
750
 #
   
Interface, Inc. (144A)
10.375%, due 2/01/10 (acquired 1/11/02)
  
 
799
Homebuilding—6.6%
      
 
  2,000
 
   
Champion Enterprises, Inc. 7.625%, due 5/15/09
  
 
1,060
 
250
 #
   
Champion Home Builders Co. (144A)
11.25%, due 4/15/07 (acquired 4/12/02)
  
 
213
 
1,000
 
   
Schuler Homes, Inc.
10.50%, due 7/15/11
  
 
1,070

SEE NOTES TO FINANCIAL STATEMENTS
 
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Portfolio of Investments
 
SAFECO High-Yield Bond Fund
 
As of June 30, 2002
(Unaudited)
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Industrial Conglomerates—3.5%
      
$
500
 
   
Tyco International Group SA
6.25%, due 6/15/03
  
$
435
 
  1,000
 
   
Tyco International Group SA
6.375%, due 2/15/06
  
 
810
Industrial Machinery—1.9%
      
 
750
 
   
Cincinnati Milacron, Inc.
8.375%, due 3/15/04
  
 
671
Integrated Telecommunications Services—3.3%
 
2,250
 
   
LCI International, Inc.
7.25%, due 6/15/07
  
 
1,103
 
500
 
   
Worldcom, Inc.
8.25%, due 5/15/31
  
 
75
Leisure Products—1.3%
      
 
500
 
   
Royal Caribbean Cruises, Ltd.
8.75%, due 2/02/11
  
 
470
Managed Health Care—1.0%
      
 
250
 
   
Magellan Health Services, Inc.
9.00%, due 2/15/08
  
 
90
 
250
 #
   
Rotech Healthcare, Inc. (144A)
9.50%, due 4/01/12 (acquired 3/15/02)
  
 
255
Metal & Glass Containers—0.7%
      
 
250
 #
   
Trimas Corp. (144A)
9.875%, due 6/15/12 (acquired 5/23/02)
  
 
249
Networking Equipment—1.9%
      
 
750
 
   
Avaya, Inc.
11.125%, due 4/01/09
  
 
686
Packaged Foods—1.0%
      
 
326
 
   
Chiquita Brands International, Inc.
10.56%, due 3/15/09
  
 
342
Personal Products—2.9%
      
 
750
 
   
Elizabeth Arden, Inc.
11.75%, due 2/01/11
  
 
769
 
250
 #
   
Herbalife International, Inc. (144A)
11.75%, due 7/15/10 (acquired 6/21/02)
  
 
250
Publishing & Printing—0.7%
      
 
250
 #
   
Mail-Well Corp. (144A)
9.625%, due 3/15/12 (acquired 3/08/02)
  
 
251
Railroads—0.5%
      
 
200
 #
   
Grupo Transportacion Ferroviaria Mexicana SA (144A)
12.50%, due 6/15/12 (acquired 6/06/02)
  
 
189
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Restaurants—6.1%
      
$
250
 #
   
Buffets, Inc. (144A)
11.25%, due 7/15/10 (acquired 6/21/02)
  
$
250
 
1,000
 
   
CKE Restaurants, Inc.
4.25%, due 3/15/04
  
 
893
 
250
 
   
CKE Restaurants, Inc.
9.125%, due 5/01/09
  
 
241
 
805
 
   
Friendly Ice Cream Corp.
10.50%, due 12/01/07
  
 
789
Specialty Stores—3.6%
      
 
750
 
   
Big 5 Corp.
10.875%, due 11/15/07
  
 
791
 
500
 #
   
United Auto Group, Inc. (144A)
9.625%, due 3/15/12 (acquired 3/12/02)
  
 
503
Steel—5.8%
      
 
  1,000
 
   
Oregon Steel Mills, Inc.
11.00%, due 6/15/03
  
 
1,000
 
1,000
 
   
Samsonite Corp.
10.75%, due 6/15/08
  
 
805
 
250
 #
   
Steel Dynamics, Inc. (144A)
9.50%, due 3/15/09 (acquired 3/14/02)
  
 
264
Telecommunications Equipment—0.4%
      
 
500
 
   
Intermedia Communications, Inc.
11.25%, beg. 7/15/02 Step Bond due 7/15/07
  
 
155
Textiles—0.1%
      
 
200
 
   
Polymer Group, Inc.
9.00%, due 7/01/07
  
 
40
Wireless Telecommunications Services—0.3%
      
 
500
 
   
American Cellular Corp.
9.50%, due 10/15/09
  
 
90
            
TOTAL CORPORATE BONDS (cost $31,376)
  
 
28,266
            
PREFERRED STOCKS—12.3%
      
Alternative Carriers—0.0%
      
 
11
 
   
Global Crossing Holdings, Ltd.
10.50%, due 12/01/08
  
 
0
Broadcasting & Cable TV—8.9%
      
 
5
 
   
CSC Holdings, Inc.
11.75%, due 10/01/07
  
 
335
 
0.2
 
   
Paxson Communications Corp.
13.25%, due 11/15/06
  
 
1,274
 
15
 
   
Sinclair Broadcast Group, Inc.
11.625%, due 3/15/09
  
 
1,558

SEE NOTES TO FINANCIAL STATEMENTS
 
58

Table of Contents

Portfolio of Investments
 
SAFECO High-Yield Bond Fund
 
As of June 30, 2002
(Unaudited)
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Integrated Telecommunications Services—3.4%
$
3
   
Dobson Communications Corp.
12.25%, due 1/15/08
  
$
1,219
          
TOTAL PREFERRED STOCKS (cost $6,800)
  
 
4,386
          
COMMON STOCKS—1.5%
      
Packaged Foods—1.4%
      
 
30
   
Chiquita Brands International, Inc.
  
 
537
          
TOTAL COMMON STOCKS (cost $432)
  
 
537
          
CASH EQUIVALENTS—6.7%
      
Investment Companies
      
 
  1,845
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
  
 
1,845
 
538
   
Nations Money Market Reserves
  
 
538
          
TOTAL CASH EQUIVALENTS (cost $2,383)
  
 
2,383
          
TOTAL INVESTMENTS (cost $40,991)—99.6%
  
 
35,572
Other Assets, less Liabilities
  
 
138
          
NET ASSETS
  
$
35,710
          
 
#
 
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 $5,273,000 and the total value is $5,148,000 or 14.4% of net assets.

SEE NOTES TO FINANCIAL STATEMENTS
 
59

 
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Table of Contents

 
SAFECO Intermediate-Term U.S. Treasury Fund
 
As of June 30, 2002

 
How did the fund perform?
The SAFECO Intermediate-Term U.S. Treasury Fund slightly underperformed against its benchmark—the Merrill Lynch U.S. Treasuries 1-10 Year Index—for the first half of 2002.
 
What factors impacted performance?
In the first six months of this year, the economy showed surprising resilience and recovered more quickly than the market expected. During the second quarter economic growth slowed, but remained firmly in recovery mode. Given the backdrop of an improving economy during the six-month period, we expected interest rates would rise, the yield curve would flatten, and yield spreads on non-Treasury securities would improve.
 
Accordingly, we positioned the Fund to prosper under these conditions by shortening duration (i.e., interest rate sensitivity) to 4.50 years from 4.75 years. This was done in an effort to minimize the impact of rising rates. We adopted a barbell-shaped maturity profile to benefit from a flatter yield curve. We sought to maximize yield by keeping our Treasury exposure very close to our required minimum (65% of net assets), split our non-Treasury exposure roughly 50/50 between agency debentures and mortgage-backed securities, and allocated 8% of our portfolio to Treasury Inflation-Protected Securities (TIPS).
 
Our allocations to TIPS and non-Treasuries were winners. Year-to-date, U.S. Agencies were up 4.08%, GNMAs advanced 4.35%, and our TIPS returned over 5% (versus conventional Treasury returns of 3.61%).
 
Even though we were right about the economy, our hypothesis on how the market would react failed to fully materialize. A plummeting stock market, corporate improprieties, and fears of further terrorist attacks prompted a flight to quality into U.S. Treasuries causing their interest rates to fall. Declining probabilities of imminent Fed tightening caused the yield curve to steepen. However, non-Treasury government securities did outperform conventional Treasury securities by a considerable amount.
 
What changes did you make and why?
Just before the end of the second quarter, in order to be in compliance with the Securities Exchange Commission’s Fund Name Rule—a rule that requires at least 80% of a fund’s net assets to be invested in intermediate-term U.S. Treasuries—we increased our exposure to U.S. Treasuries and decreased our holdings in agency securities. Given the weakness in the stock market, investors’ increasing distrust and disgust with corporate America, and the probability that the Fed may delay tightening interest rates for an extended period of time, we also increased our portfolio’s duration and our yield curve exposure to neutral.
 
The strategic changes we made in June of 2002 were designed to make the fund more competitive by adding incremental value in three ways. First, we increased the portfolio’s average yield by reducing its weighting in U.S. Treasury obligations, increased U.S. Agency holdings, and, for the first time, added mortgage-backed securities. Next, we made a conscious decision to exploit opportunities across the entire yield curve. Prior to June of 2002, the Fund only bought securities with maturities 10 years and under. We now buy securities out to 30 years, but maintain an average maturity of under 10 years. Finally, we use active-duration management (i.e., adjusting the interest rate sensitivity of the portfolio based on our interest rate forecast). Prior to June 2002, this was the primary tool we used to differentiate ourselves. Now it is just one of three.

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Table of Contents

Report From the Fund Managers
 
SAFECO Intermediate-Term U.S. Treasury Fund
 
As of June 30, 2002

 
What is your outlook for the future?
On fundamentals alone, we expect the next major move will be towards higher interest rates and a flatter yield curve. Non-Treasury Governments should remain near current spreads until the Fed tightens.
 
The economy has been resilient to the equity slump so far. However, the equity market turbulence makes the outlook for the bond market particularly uncertain. Therefore, we are remaining neutral on the yield curve for now. If stocks stabilize, and we experience some strengthening in job gains and capital goods orders, we would cut duration to below benchmark and position for a curve flattening.
 
If a full-blown equity crash unfolds, we would also cut duration and yield curve exposure, but at much lower yields and a much steeper curve. The Fed will only cut rates if the credit markets start to freeze up. However, such a Fed rate cut might turn out to be the catalyst for a bottoming in equities and a Treasury market sell off.
 
SAFECO Asset Management Company
 
SAFECO Asset Management Company’s (SAM’s) fixed-income team, which is comprised of senior bond managers and credit analysts, assumed management of the SAFECO Intermediate-Term U.S. Treasury Fund in July 2001. Team management allows broader coverage of this highly complex market and increased input into the investment process.
 
HIGHLIGHTS
 
Current Yield (30-day) Class A
  
2.92%
Current Yield (30-day) Class B
  
2.32%
Weighted Average Maturity
  
7.71 years
 

 
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Performance Overview
 
SAFECO Intermediate-Term U.S. Treasury Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
1 Year
       
5 Year
       
10 Year
       
Six Month*
       
1 Year
       
5 Year
       
10 Year
  
SAFECO Intermediate-Term U.S. Treasury Fund
                                                                      
Class A
   
(1.44
)%
     
2.42
%
     
5.44
%
     
5.62
%
     
3.21
%
     
7.22
%
     
6.41
%
     
6.11
%
Class B
   
(2.18
)%
     
1.42
%
     
5.32
%
     
5.69
%
     
2.82
%
     
6.42
%
     
5.64
%
     
5.69
%
Merrill Lynch Intermediate-Term Treasury Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
3.23
%
     
8.02
%
     
7.10
%
     
6.67
%
Lipper, Inc. (Intermediate U.S. Treasury Funds)
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
5.77
%
     
8.48
%
     
7.30
%
     
6.70
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
 
Portfolio of Investments
As of June 30, 2002
(Unaudited)
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
MORTGAGE BACKED SECURITIES—13.5%
     
Federal National Mortgage Association (FNMA)—4.1%
     
$479
   
7.00%, due 9/01/31
   
$   497
485
   
7.00%, due 9/01/31
   
502
Government National Mortgage Association (GNMA)—9.4%
     
1,500
   
8.00%, due 12/15/29
   
1,597
435
   
8.00%, due 4/20/31
   
462
249
   
8.00%, due 5/20/31
   
265
         
           
TOTAL MORTGAGE BACKED SECURITIES (cost $3,296)
   
3,323
         
           
U.S. GOVERNMENT OBLIGATIONS—83.7%
     
Federal National Mortgage Association (FNMA)—4.8%
     
1,125
   
6.625%, due 11/15/30
   
1,188
U.S. Treasury Notes—78.9%
     
3,100
   
10.00%, due 5/15/10
   
3,640
2,500
   
3.50%, due 11/15/06
   
2,456
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
U.S. Treasury Notes—(continued)
       
$2,350
   
5.50%, due 1/31/03
   
 
$   2,400
2,250
   
5.50%, due 2/15/08
   
 
2,390
2,195
   
6.00%, due 8/15/09
   
 
2,384
1,100
   
6.125%, due 8/15/29
   
 
1,168
2,150
   
9.25%, due 2/15/16
   
 
2,955
1,850
   
U.S. Treasury Inflation Index Note
3.50%, due 1/15/11
   
 
1,977
         
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $20,567)
   
 
20,558
         
CASH EQUIVALENTS—1.8%
       
Investment Companies
       
427
   
AIM Short-Term Investments Co.
Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
427
         
TOTAL CASH EQUIVALENTS (cost $427)
   
 
427
         
TOTAL INVESTMENTS (cost $24,290)—99.0%
   
 
24,308
Other Assets, less Liabilities
   
 
246
         
NET ASSETS
   
$
24,554
         

SEE NOTES TO FINANCIAL STATEMENTS
 
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Table of Contents

 
SAFECO U.S. Government Fund
 
As of June 30, 2002

 
On May 1, 2002, the Fund changed its name from SAFECO GNMA Fund to SAFECO U.S. Government Fund. With this change, we gained the ability to invest in the broader government securities arena, and are no longer confined to just the Ginnie Mae Mortgage-Backed Security (GNMA) segment of the mortgage-backed sector of the government securities arena.
 
What factors impacted performance?
During the first four months of the period we kept the portfolio’s investments in line with the major GNMA indices. After the change of mandate to government securities and into May, we remained overweighted in GNMA securities compared to the new benchmark, the Merrill Lynch Government Index Merrill Lynch Treasury/Agency Master Index. We did this because it appeared that investors were looking for clarification regarding the direction of interest rates. This proved to be the right strategy, as the excess yield from the GNMA securities over Treasuries more than made up for any performance loss by GNMAs later in the month when rates moved slightly lower.
 
During June, the expectation of a quick economic recovery was pushed back and the Federal Reserve put interest rate increases on hold. This was mainly due to troublesome and growing news emanating almost daily from corporate America. As a result of these changes in outlook, interest rates fell and a “flight-to-quality” bias by investors cemented Treasuries as the best-performing government securities sector. Our underperformance with respect to the new Merrill Lynch Treasury/Agency Master Index was primarily due to the fact that we were still in the process of rebalancing the portfolio and were temporarily underweighted in Treasuries.
 
What changes did you make and why?
We will continue to selectively add Treasury and Agency securities and sell mortgage-backed securities, until the portfolio is more evenly balanced between these two broadly different sectors.
 
What is your outlook for the future?
We believe the Federal Reserve’s next move will be to raise interest rates, although not until the economic recovery is well established late in the year or early next year. Inflation should continue to be subdued. This could cause “yield curve flattening,” as short-term rates will likely rise faster than long-term rates. As we look towards the future, our strategy will be to keep our duration neutral to slightly long compared to the benchmark of 50% governments and 50% mortgages. We plan to retain our slight overweight position in mortgage-backed securities since they generate a higher yield. Because of political risk to Freddie Mac and Fannie Mae, Agency holdings will be shorter maturities with Treasuries making up the longer maturity component of the portfolio.
 
SAFECO Asset Management Company
 
SAFECO Asset Management Company’s (SAM’s) U.S. Government investment team, which is comprised of senior bond managers and credit analysts, assumed management of the SAFECO U.S. Government Fund in November 2000. Team management allows broader coverage of this highly complex market and increased input into the investment process.
 
HIGHLIGHTS
 
Current Yield (30-day) Class A
  
4.91%
Current Yield (30-day) Class B
  
4.39%
Weighted Average Maturity
  
6.77 years

 
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Performance Overview
 
SAFECO U.S. Government Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
1 Year
       
5 Year
       
10 Year
       
Six Month*
       
1 Year
       
5 Year
       
10 Year
  
SAFECO U.S. Government Fund
                                                                      
Class A
   
(0.83
)%
     
2.52
%
     
5.49
%
     
5.65
%
     
3.89
%
     
7.31
%
     
6.46
%
     
6.13
%
Class B
   
(1.50
)%
     
1.51
%
     
5.80
%
     
5.96
%
     
3.50
%
     
6.51
%
     
6.12
%
     
5.96
%
Merrill Lynch GNMA Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.62
%
     
8.90
%
     
7.69
%
     
7.43
%
Merrill Lynch U.S. Treasury/Agency Master Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
3.73
%
     
8.73
%
     
7.62
%
     
7.31
%
Lipper, Inc. (GNMA Funds)
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.10
%
     
8.06
%
     
6.69
%
     
6.55
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
 
Portfolio of Investments
As of June 30, 2002
(Unaudited)
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
ASSET BACKED SECURITIES—75.4%
     
Federal Home Loan Mortgage Corp. (FHLMC)—7.7%
     
$1,017
   
6.00%, due 4/01/14
   
$1,048
1,854
   
6.50%, due 4/01/29
   
1,897
840
   
8.00%, due 9/01/25
   
899
Federal National Mortgage Association (FNMA)—9.0%
     
893
   
7.00%, due 10/01/29
   
926
1,131
   
7.00%, due 4/01/29
   
1,175
626
   
7.00%, due 5/01/29
   
650
1,089
   
8.00%, due 7/01/27
   
1,170
521
   
9.00%, due 11/01/22
   
575
Government National Mortgage Association (GNMA)—58.7%
     
1,637
   
6.00%, due 10/15/28
   
1,647
4,410
   
6.00%, due 11/20/31
   
4,389
1,235
   
6.00%, due 12/15/28
   
1,243
964
   
6.50%, due 1/20/24
   
989
2,491
   
6.50%, due 2/15/32
   
2,547
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Government National Mortgage Association (GNMA)—(continued)
     
$   642
   
6.50%, due 4/15/29
   
$   658
368
   
6.50%, due 5/15/29
   
377
313
   
6.50%, due 5/15/29
   
320
407
   
6.50%, due 6/15/29
   
417
87
   
6.50%, due 6/15/29
   
89
87
   
6.50%, due 6/15/29
   
89
4,001
   
6.50%, due 7/15/28
   
4,104
302
   
6.50%, due 7/15/29
   
310
190
   
6.50%, due 8/15/29
   
195
  1,160
   
7.00%, due 1/15/30
   
1,207
1,851
   
7.00%, due 4/15/28
   
1,927
1,563
   
7.00%, due 7/20/31
   
1,620
2,108
   
7.50%, due 10/15/27
   
2,234
371
   
7.50%, due 4/20/30
   
390
2,022
   
7.50%, due 6/20/26
   
2,138
787
   
8.00%, due 3/20/30
   
835
1,536
   
8.25%, due 5/15/20
   
1,660
         
TOTAL ASSET BACKED SECURITIES (cost $36,733)
   
37,725
         

 
SEE NOTES TO FINANCIAL STATEMENTS
 
64

Table of Contents

Portfolio of Investments
 
SAFECO U.S. Government Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
U.S. GOVERNMENT OBLIGATIONS—23.8%
     
U.S. Federal Agency Notes—3.9%
     
  1,900
   
4.625%, due 4/15/05
   
$
1,952
U.S. Treasury Notes—19.9%
     
600
   
4.875%, due 2/15/12
   
 
602
2,700
   
5.625%, due 5/15/08
   
 
2,882
2,900
   
7.25%, due 5/15/16
   
 
3,418
2,250
   
8.75%, due 5/15/20
   
 
3,051
         
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $11,865)
   
 
11,905
         
CASH EQUIVALENTS—0.3%
     
Investment Companies
     
$163
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
163
         
TOTAL CASH EQUIVALENTS (cost $163)
   
 
163
         
TOTAL INVESTMENTS (cost $48,761)—99.5%
   
49,793
Other Assets, less Liabilities
   
273
         
NET ASSETS
   
$
50,066
         

SEE NOTES TO FINANCIAL STATEMENTS
 
65

 
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Table of Contents

 
SAFECO Managed Bond Fund
 
As of June 30, 2002

 
LOGO
   
Michael Hughes
 
How did the funds perform?
For the first six months of 2002, the SAFECO Managed Bond Fund underperformed the Lehman Aggregate Bond Index.
 
What factors impacted performance?
In the first quarter of this year, the economy showed surprising resilience and was recovering more quickly than expected. During the second quarter economic growth slowed, but remained firmly in recovery mode. As the economy got better, I expected interest rates would rise, the yield curve would flatten, and corporate credit fundamentals would improve. Furthermore, the events of Sept. 11 and the Enron debacle pushed corporate spreads out to some of the widest levels I have ever witnessed.
 
I learned from my experiences in the 1998/99 market to use a sharp sell-off in corporate bonds as a buying opportunity, and strong rallies as a signal to lighten up. Given the improving economic fundamentals and my buy-on-weakness strategy, I loaded up on corporate bonds. Because I thought interest rates would rise, I reduced my portfolio’s duration (i.e., interest rate sensitivity) by selling U.S. Treasuries and buying mortgage-backed securities.
 
Unfortunately, even though I was right about the economy, my assumptions on how the market would react failed to materialize. A flight to quality bid allowed interest rates of U.S. Treasuries to fall. Declining probabilities of imminent Fed tightening caused the yield curve to steepen. And, in the corporate sector, increasing instances of downgrades, accounting irregularities, and fraud allegations were a heavy drag on performance.
 
What changes did you make and why?
For most of the year, my strategy was to protect principal, in what I thought would be a rising interest rate environment, by maximizing portfolio yield and maintaining a below-benchmark duration. Late in the second quarter, I took reduced my overweight in corporates, reduced my underweight in U.S. Treasuries, and increased duration to neutral.
 
The most notorious corporate name in my portfolio this year is WorldCom, and it reduced my returns by approximately 0.70% this period. The only good thing I can say about WorldCom is that it could have been worse. By the time they made their $3.9-billion earnings restatement, I had pared down our position by over 80% from a high point eight months prior. Plus, I received an average sale price of nearly 99 cents on the dollar. As of June 30, my remaining WorldCom bonds were valued at approximately 15 cents on the dollar.
 
My other telecom holdings, mostly Qwest and Sprint, also cost me dearly this period, eating up nearly 0.80% in total returns. I believe the accusations of fraud at WorldCom have unfairly tainted these securities, and absent any similar revelations, I expect significant future improvement in these companies’ valuation.

66

Table of Contents

Report From the Fund Manager
 
SAFECO Managed Bond Fund
 
As of June 30, 2002

 
My best performers were in mortgage-backed securities and U.S. Governments, which made up just under half of the portfolio and produced positive returns of over 4% for the year-to-date.
 
What is your outlook for the future?
My strategy is to use a top-down macro approach to optimize and control the portfolio’s risk parameters, namely duration and yield curve positioning, sector allocation and yield. I then utilize our credit analyst team to conduct fundamental bottoms-up research to aid in the selection of individual securities, I believe this combination of macro analysis supplemented with our proprietary in-house research team will be a key long-term driver for superior performance.
 
Michael Hughes, MBA, CFA
Vice President of SAFECO Asset Management
 
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his investment career in 1983. He graduated magna cum laude with a BS in finance from the University of Colorado in Boulder and holds an MBA from the University of Southern California in Los Angeles. He became a chartered financial analyst in 1995.

 
SAFECO    MUTUAL    FUNDS
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67

Table of Contents

Performance Overview & Highlights
 
SAFECO Managed Bond Fund
 

 
.
   
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
     
1 Year
       
5 Year
       
Since
Inception**
       
Six Month*
       
1 Year
       
5 Year
       
Since
Inception**
  
SAFECO Managed Bond Fund
                                                                    
Class A
   
(2.47
)%
   
1.03
%
     
4.87
%
     
4.71
%
     
2.18
%
     
5.77
%
     
5.83
%
     
5.29
%
Class B
   
(3.30
)%
   
(0.02
)%
     
4.62
%
     
4.70
%
     
1.68
%
     
4.98
%
     
4.96
%
     
4.70
%
Lehman Brothers Gov’t/Corp. Bond Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
3.26
%
     
8.25
%
     
7.48
%
     
7.00
%
Lehman Brothers Aggregate Bond Index
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
3.79
%
     
8.63
%
     
7.57
%
     
7.14
%
Lipper, Inc. (Intermediate Investment-Grade Bond Funds)
   
N/A
 
   
N/A
 
     
N/A
 
     
N/A
 
     
2.48
%
     
6.72
%
     
6.42
%
     
N/A
 
 * Not annualized.
** The Fund’s inception was June 25, 1992. Graph and average annual return comparison begins February 28, 1994.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
Current Yield (30-day) Class A
  
4.76%
Current Yield (30-day) Class B
  
4.23%
Weighted Average Maturity
  
6.90 years
 
BONDS BY TYPE
     
Percent of
Net Assets
  
U.S. Government Obligations
     
14
%
Asset Backed Securities
     
7
 
Mortgage Backed Securities
     
41
 
Corporate Bonds
     
32
 
Cash & Other
     
6
 
      
      
100
%
      
 
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
 
LOGO

 
68

Table of Contents

Portfolio of Investments
 
SAFECO Managed Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
ASSET BACKED SECURITIES—7.3%
     
Airlines—0.9%
       
$  90
 
   
United Air Lines
7.73%, due 7/01/10
   
$
85
Consumer Finance—1.9%
       
180
 
   
World Omni Auto Receivables Trust 4.49%, due 8/20/08
   
 
183
Diversified Financial Services—4.5%
       
130
 
   
CNH Equipment Trust
7.34%, due 2/15/07
   
 
136
235
 
   
General Motors Acceptance Corp.
6.42%, due 5/15/35
   
 
250
46
 
   
Team Fleet Financing Corp.
7.35%, due 5/15/03
   
 
46
           
TOTAL ASSET BACKED SECURITIES (cost $696)
   
 
700
           
CORPORATE BONDS—31.9%
       
Air Freight & Couriers—0.7%
       
65
 
   
Federal Express Corp.
6.625%, due 2/12/04
   
 
68
Airlines—2.5%
       
80
 
   
Delta Air Lines, Inc.
7.11%, due 9/18/11
   
 
85
35
 
   
Northwest Airlines, Inc.
7.041%, due 4/01/22
   
 
35
126
 
   
United Air Lines
7.783%, due 1/01/14
   
 
122
Alternative Carriers—0.7%
       
85
 
   
Sprint Capital Corp.
6.00%, due 1/15/07
   
 
66
               
Computer Hardware—1.0%
     
  95
 
   
Hewlett-Packard Co.
5.75%, due 12/15/06
   
 
96
Consumer Finance—0.9%
       
80
 
   
Household Finance Corp.
7.875%, due 3/01/07
   
 
85
Diversified Chemicals—1.2%
       
110
 
   
Dow Chemical Co.
5.75%, due 12/15/08
   
 
111
Diversified Financial Services—6.1%
       
130
 #
   
Erac USA Finance Co. (144A)
8.00%, due 1/15/11 (acquired 1/09/01)
   
 
141
85
 
   
Ford Motor Credit Co.
7.25%, due 10/25/11
   
 
85
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Diversified Financial Services—(continued)
$100
 
   
General Electric Capital Corp.
6.75%, due 3/15/32
   
$
98
180
 
   
General Motors Acceptance Corp.
6.125%, due 9/15/06
   
 
183
75
 
   
Morgan Stanley Dean Witter Co.
6.60%, due 4/01/12
   
 
76
Electric Utilities—4.0%
       
100
 
   
Avista Corp.
7.75%, due 1/01/07
   
 
103
90
 
   
National Rural Utilities Cooperative Finance Corp.
7.25%, due 3/01/12
   
 
96
90 
#
   
PSEG Power (144A)
6.95%, due 6/01/12 (acquired 6/04/02)
   
 
90
90
 
   
Puget Sound Energy, Inc.
6.25%, due 1/16/04
   
 
92
Food Retail—2.1%
       
180
 
   
Safeway, Inc.
7.50%, due 9/15/09
   
 
199
Forest Products—0.9%
       
55
 #
   
Weyerhaeuser Co. (144A)
5.50%, due 3/15/05 (acquired 3/06/02)
   
 
57
Gas Utilities—0.9%
       
90
 
   
El Paso Corp.
7.00%, due 5/15/11
   
 
86
General Merchandise Stores—0.7%
       
65
 
   
Sears Roebuck & Co.
6.25%, due 1/15/04
   
 
68
Home Furnishings—1.0%
       
90
 #
   
Mohawk Industries, Inc. (144A)
6.50%, due 4/15/07 (acquired 3/25/02)
   
 
94
Integrated Oil & Gas—1.5%
       
75
 
   
Pemex Project Funding Master Trust
9.125%, due 10/13/10
   
 
79
55
 
   
USX Corp.
6.85%, due 3/01/08
   
 
59
               
Integrated Telecommunications Services—2.0%
     
140
 
   
Qwest Communications International, Inc.
7.25%, due 2/15/11
   
 
78
110
 #
   
Verizon Wireless, Inc. (144A)
5.375%, due 12/15/06
(acquired 12/12/01)
   
 
103
55
 
   
Worldcom, Inc.
8.00%, due 5/15/06
   
 
8
 

SEE NOTES TO FINANCIAL STATEMENTS
 
69

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

Table of Contents

Portfolio of Investments
 
SAFECO Managed Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Life & Health Insurance—1.0%
       
$  90
   
Lincoln National Corp.
5.25%, due 6/15/07
   
$
91
Movies & Entertainment—1.0%
       
105
   
AOL Time Warner, Inc.
6.875%, due 5/01/12
   
 
97
Oil & Gas Equipment & Services—0.6%
       
55
   
Kinder Morgan Energy Partners
6.75%, due 3/15/11
   
 
57
Trucking—2.1%
       
195
   
Hertz Corp.
7.00%, due 7/01/04
   
 
200
Wireless Telecommunications Services—1.4%
       
130
   
TCI Communications, Inc.
8.65%, due 9/15/04
   
 
134
         
TOTAL CORPORATE BONDS (cost $3,128)
   
 
3,042
         
MORTGAGE BACKED SECURITIES—40.5%
       
Collateral Mortgage Obligation (CMO)—1.6%
       
146
   
6.50%, due 2/14/41
   
 
150
Diversified Financial Services—2.5%
       
230
   
First Union Commercial Mortgage Trust
6.07%, due 10/15/35
   
 
241
Federal National Mortgage Association (FNMA)—32.3%
43
   
6.00%, due 1/01/29
   
 
43
96
   
6.00%, due 9/01/29
   
 
96
95
   
6.50%, due 1/01/15
   
 
99
355
   
6.50%, due 2/01/31
   
 
362
190
   
6.50%, due 5/01/31
   
 
194
256
   
6.50%, due 6/01/31
   
 
261
398
   
6.50%, due 7/01/29
   
 
408
97
   
7.00%, due 3/01/12
   
 
102
109
   
7.00%, due 9/01/31
   
 
113
228
   
7.00%, due 9/01/31
   
 
236
47
   
8.00%, due 1/01/31
   
 
50
42
   
8.00%, due 10/01/30
   
 
44
80
   
8.00%, due 2/01/29
   
 
85
79
   
8.00%, due 2/01/30
   
 
84
52
   
8.00%, due 2/01/30
   
 
55
602
   
8.00%, due 3/01/31
   
 
640
36
   
8.00%, due 4/01/08
   
 
38
76
   
8.00%, due 4/01/20
   
 
81
40
   
8.00%, due 4/01/30
   
 
43
25
   
8.00%, due 5/01/31
   
 
26
28
   
8.00%, due 7/01/30
   
 
30
 
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Government National Mortgage Association
(GNMA)—4.1%
$  15
   
6.00%, due 4/15/14
   
$
16
79
   
6.00%, due 8/15/13
   
 
82
128
   
7.00%, due 4/15/28
   
 
133
100
   
7.00%, due 8/15/28
   
 
104
48
   
7.75%, due 11/15/29
   
 
51
         
TOTAL MORTGAGE BACKED SECURITIES (cost $3,750)
   
 
3,867
         
U.S. GOVERNMENT OBLIGATIONS—14.3%
     
Federal National Mortgage Association (FNMA)—6.1%
       
555
   
6.625%, due 11/15/30
   
 
586
U.S. Federal Agency Notes—0.5%
       
45
   
5.75%, due 2/15/08
   
 
47
U.S. Treasury Notes—7.7%
       
80
   
4.375%, due 5/15/07
   
 
81
65
   
4.875%, due 2/15/12
   
 
65
170
   
6.00%, due 8/15/09
   
 
185
205
   
6.50%, due 11/15/26
   
 
227
130
   
9.25%, due 2/15/16
   
 
179
         
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $1,368)
   
 
1,370
         
CASH EQUIVALENTS—5.4%
       
Investment Companies
       
510
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
   
 
510
6
   
Nations Money Market Reserves
   
 
6
         
TOTAL CASH EQUIVALENTS (cost $516)
   
 
516
         
TOTAL INVESTMENTS (cost $9,458)—99.4%
   
 
9,495
Other Assets, less Liabilities
   
 
57
         
NET ASSETS
   
$
9,552
         
 
#
 
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 $474,000 and the total value is $485,000 or 5.1% of net assets.

SEE NOTES TO FINANCIAL STATEMENTS
 
70

Table of Contents

 
SAFECO California Tax-Free Income Fund
 
As of June 30, 2002

 
LOGO
   
Stephen C. Bauer
 
How did the fund perform?
The SAFECO California Tax-Free Income Fund staged a dramatic turnaround in the second quarter. Still, it was not enough to move the six-month return above the Lehman Long Municipal Bond Index for the period ending June 30, 2002.
 
What factors impacted performance?
The underlying theme for the recent strength in the bond market is that the widely predicted economic recovery has failed to materialize. Although an economic rebound is certainly underway, its speed and strength is nowhere near what was forecast. Consequently, there is no need for corrective action by the Federal Reserve Board to mitigate the possible inflationary effects that might result from a return to a booming economy. So, here we are at mid-year and short-term yields are still at the lowest level in decades with no sign that they will be rising anytime soon.
 
During the second quarter of 2002, the long-term municipal bond market has continued to remain within a narrow range, with yields oscillating between 5.25% and 5.50%. Since testing the high end of that range in mid-May, the market has enjoyed its strongest and most sustained rally of the year. At the year’s halfway point, yields are at their lowest point since last fall.
 
The recent weakness in the equity market has added strength to the municipal bond market. Tax-exempt yields of 5% look a lot more attractive to investors than the negative returns posted by the major stock market indices. For many investors, the attraction of long-term municipals is enhanced further by the current low yields offered by money market funds. While the relative value of different classes of investments is constantly changing, it seems likely that the current interest in bonds is more than transitory and reflects a years-long neglect of one of the principal precepts of long-term investing: diversification.
 
The strong interest in the municipal bond market by individuals has had a significant impact on the shape of the yield curve. Because most buyers are middle-aged or older, and there is a natural reluctance to buy bonds maturing beyond their expected lifetime, most interest by individuals is for bonds with a maturity of 20 years and shorter. This has created an attractive incentive for professional investors to extend maturity and reap greater rewards than usual.
 
What changes did you make and why?
Early in the year I was able to increase the yield of the Fund by selling some insured hospital bonds at a yield of 5.17% and investing the proceeds in a new issue at a yield of over 6%. The new issue was for the California State University Fresno Association, which used the money to construct a new arena for sports and other events at Fresno State University.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

71

Table of Contents

Report From the Fund Manager
 
SAFECO California Tax-Free Income Fund
 
As of June 30, 2002
 
 

 
What is your outlook for the future?
The California Tax-Free Income Fund has a longer average maturity than many other California funds, and this should give it an advantage when comparing yields. I am always trying to find ways to take advantage of marketplace disparities that can enhance returns without sacrificing quality, liquidity and call protection.
 
In my opinion, the future looks bright for municipal bonds for the balance of the year. With no signs of inflation and only a modest economic recovery underway, municipals look to be a desirable investment for many people. I think the Fund is well positioned to participate in this attractive environment.
 
Stephen C. Bauer, MBA
President of SAFECO Asset Management Co.
 
Stephen C. Bauer is president of SAFECO Asset Management Co., as well as vice president and treasurer of SAFECO’s property and casualty insurance companies. Bauer began his career with SAFECO Insurance Co. as a securities analyst in 1971. In 1975, he became a portfolio manager, and was named a vice president of SAFECO Insurance Cos. in 1979. He was promoted to assistant treasurer of SAFECO Corp. in 1984, and was named to his present position in 1995.

72

Table of Contents

Performance Overview & Highlights
 
SAFECO California Tax-Free Income Fund
 

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
1 Year
       
5 Year
       
10 Year
       
Six Month*
       
1 Year
       
5 Year
       
10 Year
  
SAFECO California Tax-Free Income Fund
                                                                      
Class A
   
(1.84
)%
     
1.35
%
     
4.59
%
     
5.92
%
     
2.75
%
     
6.13
%
     
5.57
%
     
6.58
%
Class B
   
(2.60
)%
     
0.34
%
     
4.48
%
     
5.96
%
     
2.38
%
     
5.34
%
     
4.81
%
     
6.41
%
Lehman Brothers Long Municipal Bond Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.35
%
     
6.77
%
     
6.43
%
     
7.18
%
Lipper, Inc. (California Municipal Bond Funds)
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
3.40
%
     
6.00
%
     
5.29
%
     
6.12
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
Current Yield (30-day) Class A
  
4.06%
Current Yield (30-day) Class B
  
3.57%
Weighted Average Maturity
  
26.20 years
 
TOP FIVE TYPE OF BONDS
     
Percent of
Net Assets
  
Utilities (Water)
     
16
%
Hospital
     
13
 
Lease Rental
     
12
 
University Revenue
     
10
 
Airport and Seaport
     
8
 
TOP FIVE HOLDINGS
     
Percent of
Net Assets
  
State of California General Obligation Bonds
     
5.4
%
California Health Facilities Financing Authority Health Facility Revenue (Cedars Sinai Medical Center)
     
5.0
 
Alameda Corridor Transportation Authority Revenue
     
5.0
 
Sacramento City Unified School District General Obligation
     
5.0
 
Redding Joint Powers Finance Revenue
     
4.9
 
 
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
LOGO

 
73

Table of Contents

Portfolio of Investments
 
SAFECO California Tax-Free Income Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
MUNICIPAL BONDS*—94.7%
     
California—94.7%
       
$5,000
   
Alameda Corridor Transportation Authority Revenue
4.75%, due 10/01/25 [MBIA]
   
$
4,750
4,500
   
California Educational Facilities Authority Revenue (Institute of Technology)
4.50%, due 10/01/27
   
 
4,095
4,500
   
California Health Facilities Financing Authority Health Facility Revenue (Cedars Sinai Medical Center)
6.25%, due 12/01/34
   
 
4,776
3,000
   
California State University
Fresno Association Revenue
6.00%, due 7/01/25
   
 
3,005
2,000
   
California State University
Fresno Association Revenue
6.00%, due 7/01/31
   
 
2,009
2,645
   
Capistrano Beach Water
District Wastewater Enterprise Capital
4.75%, due 12/01/28 [MBIA]
   
 
2,493
1,475
   
Capistrano Beach Water District Wastewater Enterprise Capital 4.75%, due 12/01/28 [MBIA]
   
 
1,390
3,000
   
Central California Joint Powers Health Finance Authority
6.00%, due 2/01/30
   
 
3,060
20
   
Concord Redevelopment Agency Tax Allocation Central Concord Redevelopment Project
8.00%, due 7/01/18 [BIG]
   
 
21
4,000
   
Contra Costa Water District Revenue
4.50%, due 10/01/27 [FSA]
   
 
3,614
1,000
   
Cucamonga California County Water District
5.128%, due 9/01/31 [FGIC]
   
 
993
5,000
   
Duarte California Certificates of Participation City of Hope Medical Center
5.25%, due 4/01/31
   
 
4,565
1,000
   
East Bay Municipal Utility District Wastewater System Revenue
4.75%, due 6/01/28 [MBIA]
   
 
943
1,000
   
East Bay Municipal Utility District Water System Revenue
4.75%, due 6/01/34 [MBIA]
   
 
934
2,100
   
Fresno Joint Powers Financing Authority Lease Revenue Exhibition Hall Expansion Project
4.75%, due 9/01/28 [AMBAC]
   
 
1,980
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
California—(continued)
     
$1,200
 †
   
Los Angeles Convention and Exhibition Center Authority Certificates of Participation
9.00%, due 12/01/20
(Prerefunded 12/01/05 @ 100)
   
$
1,467
3,000
 
   
Los Angeles County California Certificates of Participation (Disney Parking Refund Project)
4.75%, due 3/01/23 [AMBAC]
   
 
2,875
1,250
 
   
Los Angeles County California Metropolitan Transportation Authority Sales Tax Revenue
4.75%, due 7/01/28 [FSA]
   
 
1,178
3,450
 
   
Los Angeles Department of Water and Power Waterworks Revenue
4.25%, due 10/15/34 [MBIA]
   
 
2,902
3,585
 
   
Metropolitan Water District of Southern California Waterworks Revenue
5.00%, due 7/01/37
   
 
3,449
4,900
 
   
Redding Joint Powers Financing Authority Solid Waste and Corporation Yard Revenue
5.00%, due 1/01/23
   
 
4,676
2,000
 
   
Sacramento City Financing Authority Revenue
5.00%, due 12/01/32 [AMBAC]
   
 
1,955
5,000
 
   
Sacramento City Unified School District General Obligation
4.75%, due 7/01/29 [FGIC]
   
 
4,706
2,500
 
   
San Bernardino County Certificates of Participation (Medical Center Financing Project)
5.50%, due 8/01/24
   
 
2,502
2,000
 
   
San Diego Convention Center Financing Authority Lease Revenue
4.75%, due 4/01/28 [AMBAC]
   
 
1,885
1,800
 
   
San Francisco City and County Airports Commission Revenue
4.50%, due 5/01/26 [MBIA]
   
 
1,633
3,515
 
   
San Francisco City and County Airports Commission Revenue
4.50%, due 5/01/28 [MBIA]
   
 
3,167
5,000
 
   
San Joaquin Hills Transportation Corridor Agency Senior Lien Toll Road Revenue
5.00%, due 1/01/33
   
 
4,412
2,600
 
   
San Jose Airport Revenue
5.00%, due 3/01/31 [FGIC]
   
 
2,540
4,000
 
   
San Jose Redevelopment Agency (Merged Area Redevelopment Project Tax Allocation)
4.75%, due 8/01/22
   
 
3,730

SEE NOTES TO FINANCIAL STATEMENTS
 
74

Table of Contents

Portfolio of Investments
 
SAFECO California Tax-Free Income Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
California—(continued)
     
$1,335
   
Southern California Public Power Authority Power Project Revenue (Multiple Projects)
5.50%, due 7/01/20
   
$
1,339
5,500
   
State of California
General Obligation Bonds
4.75%, due 4/01/29
   
 
5,078
1,750
   
West Kern County Water District Certificates of Participation 5.625%, due 6/01/31
   
 
1,742
         
TOTAL MUNICIPAL BONDS (cost $85,913)
   
 
89,864
         
CASH EQUIVALENTS—1.1%
       
1,100
   
SEI Tax Exempt Institutional
Tax-Free Portfolio
   
 
1,100
         
TOTAL CASH EQUIVALENTS (cost $1,100)
   
 
1,100
         
TOTAL INVESTMENTS ($87,013)—95.9%
   
 
90,964
Other Assets, less Liabilities
   
 
3,883
         
NET ASSETS
   
$
94,847
         
 
*
 
The provider of the guarantee of timely payment of both principal and interest is identified in the brackets at the end of each bond description. The guarantors applicable to this portfolio and the percentage of the portfolio they guarantee at the period end are as follows:
 
Municipal Bond Investors Assurance Corp. [MBIA]
   
19.9
%
Financial Guaranty Insurance Corp. [FGIC]
   
9.9
 
AMBAC Indemnity Corp. [AMBAC]
   
9.5
 
Financial Security Assurance, Inc. [FSA]
   
5.8
 
    
    
45.1
%
    

SEE NOTES TO FINANCIAL STATEMENTS
 
75

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

Table of Contents

 
SAFECO Municipal Bond Fund
 
As of June 30, 2002

 
LOGO
   
Stephen C. Bauer
 
How did the fund perform?
Year-to-date, the SAFECO Municipal Bond Fund underperformed against the Lehman Brothers Long Municipal Bond Index.
 
What factors impacted performance?
The recent weakness in the equity market has strengthened the municipal bond market. Investors are finding that tax-exempt yields of 5% look a lot more attractive than the negative returns posted by the major stock market indices. For many, the attraction of long-term municipals is enhanced further by the negligible yields offered by money market funds. While the relative value of different classes of investments is constantly changing, it seems likely that the current interest in bonds is more than transitory and reflects a years-long neglect of one of the principal precepts of long-term investing: diversification.
 
The strong interest in the municipal bond market by individuals has had a significant impact on the shape of the yield curve. Because most buyers are middle-aged or older, and there is an understandable disinclination to buy bonds maturing beyond their expected lifetime, most interest by individuals is for bonds with a maturity of 20 years and shorter. This has created an attractive incentive for professional investors to extend maturity and reap greater rewards than usual.
 
During the second quarter of 2002, the long-term municipal bond market has continued to remain within a narrow range, with yields oscillating between 5.25% and 5.50%. Since testing the high end of that range in mid-May, the market has enjoyed its strongest and most sustained rally of the year. At the year’s halfway point, yields are at their lowest point since last fall.
 
The underlying theme of the recent strength in the bond market is that the economic recovery, which was widely predicted, has not materialized as expected. Although an economic rebound is certainly underway, its speed and strength is nowhere near what was forecast. Consequently, there is no need for corrective action by the Federal Reserve Board to mitigate the possible inflationary effects that might result from a return to a booming economy. So, here we are at mid-year and short-term yields are still at the lowest level in decades, which is a sign that they will be rising sometime soon.
 
What changes did you make and why?
During the six-month period, one of my primary moves was to sell the Fund’s position in Alaska Housing Finance Agency, and partially replace it with Metropolitan Pier & Exposition Authority, a new issue that came to market to yield 5.45%. Not only did I increase yield by nearly 40 basis points, but I also improved call protection by eight years (from 2004 to 2012) and increased quality from Aa to Aaa.

76

Table of Contents

Report From the Fund Manager
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002

 
What is your outlook for the future?
In my opinion, the future looks bright for municipal bonds for the balance of the year. With no signs of inflation and only a modest economic recovery underway, municipals look to be a desirable investment for many people. I think the SAFECO Municipal Bond Fund is well positioned to participate in this attractive environment.
 
Stephen C. Bauer, MBA
President of SAFECO Asset Management Co.
 
Stephen C. Bauer is president of SAFECO Asset Management Co., as well as vice president and treasurer of SAFECO’s property and casualty insurance companies. Bauer began his career with SAFECO Insurance Co. as a securities analyst in 1971. In 1975, he became a portfolio manager, and was named a vice president of SAFECO Insurance Cos. in 1979. He was promoted to assistant treasurer of SAFECO Corp. in 1984, and was named to his present position in 1995.

77

 
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Table of Contents

Performance Overview & Highlights
 
SAFECO Municipal Bond Fund

 
    
With Sales Charge
       
Without Sales Charge
  
Average Annual Total Return for the
periods ended June 30, 2002
   
Six Month*
       
1 Year
       
5 Year
       
10 Year
       
Six Month*
       
1 Year
       
5 Year
       
10 Year
  
SAFECO Municipal Bond Fund
                                                                      
Class A
   
(0.61
)%
     
1.47
%
     
4.71
%
     
5.75
%
     
4.09
%
     
6.24
%
     
5.67
%
     
6.24
%
Class B
   
(1.32
)%
     
0.33
%
     
4.58
%
     
5.81
%
     
3.68
%
     
5.33
%
     
4.91
%
     
5.81
%
Lehman Brothers Long Municipal Bond Index
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.35
%
     
6.77
%
     
6.43
%
     
7.18
%
Lipper, Inc. (General Municipal Bond Funds)
   
N/A
 
     
N/A
 
     
N/A
 
     
N/A
 
     
4.22
%
     
5.75
%
     
5.03
%
     
5.85
%
* Not annualized.
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
 
LOGO
 
Current Yield (30-day) Class A
  
3.97%
Current Yield (30-day) Class B
  
3.32%
Weighted Average Maturity
  
22.33 years
 
TOP FIVE HOLDINGS
     
Percent of
Net Assets
  
San Joaquin Hills Transportation Corridor Agency Senior Lien Toll Road Revenue
     
4.0
%
Massachusetts State Housing Finance Agency (Series B)
     
3.7
 
Indiana State Development Finance Authority Environmental Revenue
     
3.5
 
Port of Seattle Revenue (Series A)
     
3.5
 
Illinois Educational Facilities Authority Adjustable Demand Revenue (University of Chicago)
     
3.4
 
 
TOP FIVE STATES
     
Percent of
Net Assets
  
California
     
10
%
Washington
     
10
 
Indiana
     
9
 
Illinois
     
9
 
Massachusetts
     
8
 
 
CREDIT RATING DISTRIBUTION
AS A PERCENT OF NET ASSETS
LOGO

 
78

Table of Contents

Portfolio of Investments
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
MUNICIPAL BONDS*—97.6%
       
Arizona—2.4%
       
$8,800
 
   
Phoenix Civic Improvement
Corp. Wastewater System
Lease Revenue
4.75%, due 7/01/23
   
$
8,351
5,000
 
   
Scottsdale Industrial
Development Authority
Hospital Revenue
5.80%, due 12/01/31
   
 
5,026
California—10.4%
       
3,550 
†
   
Northern California Power
Agency Geothermal Project Revenue
5.00%, due 7/01/09
(Prerefunded 7/01/09 @ 100)
   
 
3,849
6,400
 
   
Pittsburg Redevelopment Agency
Los Medanos Community
Development Project Tax
Allocation
4.625%, due 8/01/21 [AMBAC]
   
 
6,061
11,995 
 
   
Pittsburg Redevelopment Agency
Los Medanos Community
Development Project Tax Allocation
5.80%, due 8/01/34 [FSA]
   
 
12,845
2,000
 
   
Redding Joint Powers Financing
Authority Solid Waste and
Corporation Yard Revenue
5.00%, due 1/01/23
   
 
1,909
7,010
 
   
San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation Capital Facilities Project
4.75%, due 11/15/19 [MBIA]
   
 
6,879
25,000
 
   
San Joaquin Hills
Transportation Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33
   
 
22,060
3,165
 
   
Southern California Public
Power Authority Power
Project Revenue
(Multiple Projects)
5.50%, due 7/01/20
   
 
3,175
Colorado—3.4%
       
1,000
 
   
Colorado Housing Finance
Authority Multi-Family
Mortgage Revenue
8.30%, due 10/01/23
   
 
1,025
13,000
 
   
Colorado Springs Hospital
Revenue
6.375%, due 12/15/30
   
 
13,543
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Colorado—(continued)
       
$4,000
 
   
University of Colorado Authority
Hospital Authority Revenue
5.60%, due 11/15/31
   
$
3,995
Florida—1.9%
       
2,750
 
   
Mid-Bay Bridge Authority
Revenue
6.05%, due 10/01/22
   
 
2,809
7,500
 
   
Tallahassee Florida Health
Facilities Revenue
(Tallahassee Memorial
Healthcare, Inc.)
6.375%, due 12/01/30
   
 
7,635
Georgia—1.3%
       
6,750 
†
   
Atlanta Water and Sewage
Revenue
4.50%, due 1/01/18
(Prerefunded 1/01/04 @ 100)
   
 
7,007
Illinois—8.6%
       
2,000
 
   
Chicago Illinois Sales Tax Revenue
5.375%, due 1/01/27 [FGIC]
   
 
2,018
17,500 
†
   
Illinois Educational
Facilities Authority
Adjustable Demand Revenue
(University of Chicago)
5.70%, due 12/01/25
(Prerefunded 12/01/03 @ 102)
   
 
18,801
10,000
 
   
Illinois Educational
Facilities Authority
Student Housing Revenue
6.25%, due 5/01/30
   
 
9,914
10,000
 
   
Metropolitan Pier and Exposition
Authority Dedicated State Tax
McCormich Place Expansion
Project
5.25%, due 6/15/42 [MBIA]
   
 
9,807
5,000
 †
   
Metropolitan Pier and Exposition Authority McCormick Place Convention Complex Hospitality Facilities Revenue
7.00%, due 7/01/26
(Escrowed to Maturity)
   
 
6,393
Indiana—8.8%
       
190
 
   
Beech Grove Economic
Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10
   
 
195
11,000
 †
   
East Chicago Elementary School Building Corp. First Mortgage
7.00%, due 1/15/16
(Prerefunded 1/15/03 @102)
   
 
11,535

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
79

Table of Contents

Portfolio of Investments
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Indiana—(continued)
       
$  7,715
 
   
Hammond Multi-School Building Corp. First Mortgage Revenue 6.20%, due 7/10/15
   
$
7,927
20,550
 
   
Indiana State Development
Finance Authority
Environmental Revenue
5.60%, due 12/10/32
   
 
19,218
350
 
   
Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC]
   
 
353
6,450
 †
   
Indianapolis Gas Utility
System Revenue
4.00%, due 6/01/11 [FGIC] (Escrowed to Maturity)
   
 
6,483
2,500
 
   
St. Joseph County Hospital
Health System Revenue
4.50%, due 8/15/18 [MBIA]
   
 
2,370
Iowa—0.0%
       
250
 
   
Marshalltown Pollution Control Revenue (Iowa Electric Light and Power Co. Project)
5.50%, due 11/01/23 [MBIA]
   
 
256
Kentucky—0.4%
       
2,000
 
   
Kentucky Economic Development Finance Authority Health
System Revenue (Norton
Healthcare, Inc.) Series A
6.625%, due 10/01/28
   
 
2,043
Louisiana—0.9%
       
5,000
 
   
Louisiana Public Facilities
Authority Revenue (Tulane University) Series A
5.00%, due 7/01/32 [AMBAC]
   
 
4,850
Maryland—2.6%
       
3,400 
†
   
Baltimore Project and Revenue Prerefunded (Water Projects)
5.00%, due 7/01/24 [FGIC]
(Escrow to Maturity)
   
 
3,387
1,725
 
   
Baltimore Project and Revenue
Unrefunded (Water Projects)
5.00%, due 7/01/24 [FGIC]
   
 
1,711
5,000
 
   
Maryland Health and Higher Educational Facilities Authority Revenue (University of Maryland Medical System)
4.75%, due 7/01/23 [FGIC]
   
 
4,788
4,000
 
   
Maryland Health and Higher
Educational Facilities
Authority Revenue (University of Maryland Medical System)
6.75%, due 7/01/30
   
 
4,293
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Massachusetts—8.0%
       
$  6,250
 
   
Massachusetts Bay Transportation Authority System Revenue
4.50%, due 3/01/26 [MBIA]
   
$
5,541
5,740
 
   
Massachusetts Housing Finance Agency Housing Revenue
6.20%, due 7/01/38 [AMBAC]
   
 
5,941
20,000
 
   
Massachusetts State Housing Finance Agency (Series B)
5.40% due 12/01/28 [MBIA]
   
 
20,243
9,985
 
   
Massachusetts State Turnpike
Authority Metropolitan Highway
System Revenue (Series B)
5.125%, due 1/01/37 [MBIA]
   
 
9,636
2,500
 
   
Massachusetts Water Resources
Authority Revenue
4.75%, due 12/01/23
   
 
2,343
Michigan—0.8%
       
4,250
 
   
Detroit Water Supply System
Revenue
4.75%, due 7/01/19 [FGIC]
   
 
4,162
Mississippi—1.3%
       
8,000
 
   
Harrison County Wastewater
Management and Solid Waste
Revenue
4.75%, due 2/01/27 [FGIC]
   
 
7,420
Missouri—0.7%
       
4,000
 
   
Missouri Health and Education
Facilities Authority
Educational Facilities Revenue
4.75%, due 11/15/37
   
 
3,639
1,000
 
   
Missouri State Health and Education Facilities Authority Revenue (SSM Healthcare)
5.25%, due 6/01/28 [AMBAC]
   
 
1,000
New Jersey—0.0%
       
305
 †
   
New Jersey Turnpike Authority Revenue
10.375%, due 1/01/03 (Escrowed to Maturity)
   
 
318
New Mexico—0.4%
       
2,195
 
   
Farmington Collateralized Pollution Control Revenue (Tucson Gas and Electric Co.)
6.10%, due 1/01/08
   
 
2,228
New York—7.4%
       
900
 
   
Long Island Power Authority Electric System Revenue
5.125%, due 12/01/22 [FSA]
   
 
902

SEE NOTES TO FINANCIAL STATEMENTS
 
80

Table of Contents

Portfolio of Investments
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
New York—(continued)
       
$  3,820
 
   
Metropolitan Transportation Authority New York Dedicated Tax Fund
4.75%, due 4/01/28 [FGIC]
   
$
3,537
6,250
 
   
New York City Municipal Water Finance Authority Water and Sewer System Revenue
4.75%, due 6/15/25 [MBIA]
   
 
5,860
2,100
 
   
New York City Municipal Water Finance Authority Water and Sewer System Revenue
5.00%, due 6/15/17 [FGIC]
   
 
2,197
5,500
 
   
New York Dormitory Authority State University Educational Facilities Revenue
5.25%, due 7/15/15
   
 
5,909
2,975
 
   
New York Dormitory Authority State University Educational Facilities Revenue
7.50%, due 5/15/11
   
 
3,609
1,425
 †
   
New York Dormitory Authority State University Educational Facilities Revenue
7.50%, due 5/15/11 (Prerefunded Various Dates/Prices)
   
 
1,772
5,250
 
   
New York Dormitory Authority State University Educational Facilities Revenue
7.50%, due 5/15/13
   
 
6,679
11,800
 
   
Port Authority New York & New Jersey Consolidated Revenue
4.375%, due 10/01/33 [FGIC]
   
 
10,224
North Carolina—5.0%
       
12,000
 
   
North Carolina Eastern Municipal Power Agency Power System Revenue
6.00%, due 1/01/22
   
 
12,235
11,885
 
   
North Carolina Medical Care Commission Health Care Facilities Revenue (Duke University Health System)
4.75%, due 6/01/28 [MBIA]
   
 
11,002
3,720
 
   
North Carolina Medical Care Commission Hospital Revenue
4.75%, due 12/01/28 [MBIA] (Series A)
   
 
3,466
1,000
 
   
North Carolina Medical Care Commission Hospital Revenue
4.75%, due 12/01/28 [MBIA]
(Series B)
   
 
932
 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
North Dakota—0.6%
       
$  3,000
   
Grand Forks North Dakota
Health Care System Revenue
(Altru Health System)
7.125%, due 8/15/24
   
$
  3,188
Oklahoma—1.1%
       
5,590
   
McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA]
   
 
6,348
Pennsylvania—2.6%
       
5,000
   
Pennsylvania State Higher Educational Facilities Authority Revenue (UPMC Health System)
6.00%, due 1/15/31
   
 
5,078
5,000
   
Southeastern Pennsylvania Transportation Authority
(Series A)
4.75%, due 3/01/29 [FGIC]
   
 
4,637
4,445
   
University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA]
   
 
4,312
South Carolina—5.1%
       
375
   
Charleston County Pollution Control Facilities Revenue
5.90%, due 8/01/03
   
 
376
5,500
   
Pickens and Richland Counties Hospital Facilities Revenue
5.75%, due 8/01/21 [AMBAC]
   
 
5,508
15,000
   
Piedmont Municipal Power Agency South Carolina Electric Revenue
5.25%, due 1/01/21
   
 
13,988
7,500
   
South Carolina Jobs – Economic Development Authority
Hospital Facilities Revenue (Palmetto Health Alliance)
7.375%, due 12/15/21
   
 
8,002
Tennessee—1.3%
       
7,000
   
Greenville County
Building Equity General Obligation
5.50%, due 3/15/02
   
 
6,971
Texas—7.9%
       
5,750
   
Austin Combined Utility Revenue
4.25%, due 5/15/28 [MBIA]
   
 
4,820
10,000
   
Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA]
   
 
14,258

SEE NOTES TO FINANCIAL STATEMENTS
 
81

 
SAFECO    MUTUAL    FUNDS
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Table of Contents

Portfolio of Investments
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
Texas—(continued)
       
$  3,000
 
   
Houston Independent School District General Obligation
4.75%, due 2/15/22 [PSF]
   
$
  2,838
14,300
 
   
Hurst-Euless-Bedford Texas Independent School District General Obligation Unlimited Tax Refund
4.50%, due 8/15/25 [PSF]
   
 
12,750
10
 †
   
Lower Colorado River Authority Junior Lien Revenue
5.625%, due 1/01/17 [FSA] (Prerefunded 1/01/03 @ 101)
   
 
11
5,350
 
   
North East Texas School District General Obligation
4.50%, due 10/01/28 [PSF]
   
 
4,692
4,500
 
   
San Antonio Electric & Gas Revenue
4.50%, due 2/01/21
   
 
4,087
Utah—1.0%
       
5,635
 
   
Weber County Utah Hospital Revenue (IHC Health Services)
5.00%, due 8/15/30 [AMBAC]
   
 
5,358
Virginia—1.0%
       
2,500
 
   
Loudoun County Sanitation Authority Water and Sewer Revenue
4.75%, due 1/01/30 [MBIA]
   
 
2,316
3,240
 
   
Prince William County Authority Water and Sewer Systems Revenue
4.75%, due 7/01/29 [FGIC]
   
 
3,008
Washington—9.8%
       
700
 
   
CDP-King County III Lease Revenue (King Street Center Project)
5.25%, due 6/01/26 [MBIA]
   
 
696
1,000
 
   
Central Puget Sound Regional Transportation Authority Motor Vehicle Tax
4.75%, due 2/01/28 [FGIC]
   
 
916
5,055
 
   
Douglas County Public Utility District #1 Wells Hydroelectric Revenue
8.75%, due 9/01/18
   
 
6,285
2,200
 †
   
Douglas County Public Utility District #1 Wells Hydroelectric Revenue
8.75%, due 9/01/18
(Prerefunded 9/01/06 @ 106)
   
 
2,822
 
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Washington—(continued)
      
$  2,500
   
King County Housing Authority Pooled Housing Revenue
6.80%, due 3/01/26
  
  $
  2,584
2,255
   
King County Public Hospital District #1 Hospital Facilities Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC]
  
 
2,267
2,800
   
Lewis County Public Utility District #1 Cowlitz Falls Hydroelectric Project Revenue
6.00%, due 10/01/24
  
 
2,808
20,000
   
Port of Seattle Revenue
(Series A)
5.00%, due 4/01/31 [FGIC]
  
 
19,150
3,133
   
Seattle Housing Authority Low Income Housing Revenue (Mt. Zion Project)
6.60%, due 8/20/38
  
 
3,384
530
   
Snohomish County Public Utility District #1 Electric Revenue
5.50%, due 1/01/20 [FGIC]
  
 
536
6,290
   
Vancouver Washington Housing Authority Revenue
(Springbrook Square)
5.65%, due 3/01/31
  
 
5,518
7,000
   
Washington State General Obligation
4.50%, due 7/01/23 [FSA]
  
 
6,320
250
   
Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA]
  
 
264
West Virginia—2.9%
      
15,000
   
West Virginia State Hospital Finance Authority (Charleston Area Medical Center) Series A
6.75%, due 9/01/30
  
 
16,103
        
TOTAL MUNICIPAL BONDS (cost $486,314)
  
 
535,504
        
CASH EQUIVALENTS—3.08%
      
16,880
   
Federated Tax-Exempt Money Market Fund, Inc.
  
 
16,880
        
TOTAL CASH EQUIVALENTS
(cost $16,880)
  
 
16,880
        

SEE NOTES TO FINANCIAL STATEMENTS
 
82

Table of Contents

Portfolio of Investments
 
SAFECO Municipal Bond Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
   
Value
(000’s)
TOTAL INVESTMENTS (cost $503,194)—100.7%
   
$
  552,384
Other Assets, less Liabilities
   
 
(4,019)
         
NET ASSETS
   
$
548,365
         
 
†
 
Prerefunded bonds are collateralized by securities (generally U.S. Treasury securities) held in an irrevocable trust in an amount sufficient to pay interest and principal.
*
 
The provider of the guarantee of timely payment of both principal and interest is identified in the brackets at the end of each bond description. The guarantors applicable to this portfolio and the percentage of the portfolio they guarantee at the period end are as follows:
 
AMBAC Indemnity Corp. [AMBAC]
   
5.8
%
Financial Guaranty Insurance Corp. [FGIC]
   
13.6
 
Financial Security Assurance, Inc. [FSA]
   
5.7
 
Municipal Bond Investors Assurance Corp. [MBIA]
   
20.1
 
Texas Permanent School Fund [PSF]
   
3.7
 
    
    
48.9
%
    

SEE NOTES TO FINANCIAL STATEMENTS
 
83

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

Table of Contents

 
SAFECO Money Market Fund
 
As of June 30, 2002

 
LOGO
   
Lesley Fox
    
 
How did the Fund Perform?
According to Lipper, the returns on the SAFECO Money Market Fund were above the average of other taxable money market funds for the six-month period ending June 30, 2002. The year-to-date return on the Fund was lower than the 1.3% increase in the Consumer Price Index during the period.
 
What factors impacted performance?
The Federal Reserve Open Market Committee (FOMC) continued to keep the overnight Fed Funds rate at the 40-year low of 1.75%. Most economists predict that the funds rate will stay low through the end of 2002. Therefore, the money market yield curve (i.e., a graphical depiction of short-term interest rates by maturity) is relatively flat resulting in little opportunity to increase yield by buying longer maturity securities.
 
In 2002, I have avoided purchases of one-year paper at rates slightly over 2%. As a result, the average maturity of the Fund was 47 days as of June 30, somewhat shorter that Lipper average of 60 days. However, one reason the Fund performed well was its holdings of one-year securities purchased at much higher yields. Another reason was its large allocation of floating rate notes. Even in the flat yield curve environment, floating rate notes based on LIBOR or T-Bill indices pay higher rates than Commercial Paper.
 
What changes did you make and why?
Over the last few months, I have worked to move the Fund out of Commercial Paper, which is the lowest yielding asset class in the prime money market sector.
 
I continued to add to the floating rate note position in 2002. I believe that floating rate notes will perform well when the FOMC eventually begins to increase the Fed Funds rate. On June 30, the Fund held 39% floating rate notes and 61% fixed-rate securities.
 
I continue to use a strategy of purchasing one-year paper when the yields are attractive. With the remaining available cash, I search for the best short-term yield opportunities in floating or fixed-rate securities. As always, credit risk in the Fund is managed very conservatively.

84

Table of Contents

Report From the Fund Manager
 
SAFECO Money Market Fund
 
As of June 30, 2002

 
What is your outlook?
The economic expansion has stalled, and the eroding investor confidence and corporate accounting scandals are only making the situation worse. I think that the Fed Funds rate will stay at 1.75% until sometime in the first half of 2003 when it will likely be raised, albeit slowly. With the Fed Funds rate on hold for the foreseeable future, one-year paper will yield low rates and remain unattractive. The Fund will likely stay short in maturity versus the Lipper peer group, and continue to pay a yield near historical lows.
 
Lesley Fox, MBA
Assistant Vice President
 
Lesley Fox joined SAFECO Asset Management in April 2000 as a portfolio manager. She spent the previous five years managing $3.5 billion in short-term funds for King County. Ms. Fox earned her MBA in Finance at George Washington University and began her investment career at the Student Loan Marketing Association (SALLIE MAE) in 1989.

 
SAFECO    MUTUAL    FUNDS
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Table of Contents

Performance Overview & Highlights
 
SAFECO Money Market Fund

 
Average Annual Total Return for the
periods ended June 30, 2002
     
Six Month*
       
1 Year
     
5 Year
     
10 Year
  
SAFECO Money Market Fund Class A
     
0.71
%
     
2.09%
     
4.48%
     
4.24
%
SAFECO Money Market Fund Class B
     
0.71
%
     
2.09%
     
4.45%
     
4.22
%
SAFECO Money Market Fund Class C
     
0.71
%
     
2.09%
     
4.44%
     
4.22
%
Lipper, Inc. (Money Market Funds)
     
0.56
%
     
1.76%
     
4.35%
     
4.26
%
* Not annualized
Performance does not reflect the deduction for taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Weighted Average Maturity
  
47 Days
  
7 Day Yield Class A
  
1.32%
       
7 Day Yield Class B
 
1.32%
       
7 Day Yield Class C
 
1.32%
 
Portfolio of Investments
As of June 30, 2002
(Unaudited)
 
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
COMMERCIAL PAPER—35.7%
      
Asset Backed—14.1%
      
$15,000
   
Apreco, Inc.
1.79%, due 7/30/02
  
$
14,978
5,000
   
Ciesso, LP
1.77%, due 8/07/02
  
 
4,991
10,000
   
Ciesso, LP
1.95%, due 7/01/02
  
 
10,000
15,000
   
Receivables Capital Corp.
1.78%, due 7/12/02
  
 
14,992
Banks (Foreign)—4.7%
      
15,000
   
National Australia Funding Corp.
1.76%, due 7/10/02
  
 
14,993
Consumer Finance—16.9%
      
8,000
   
Cooperative Association of Tractor Dealers
1.80%, due 7/15/02
  
 
7,994
7,500
   
Cooperative Association of Tractor Dealers
1.85%, due 7/01/02
  
 
7,500
3,300
   
Corporate Asset Funding Co.
1.77%, due 7/22/02
  
 
3,297
5,000
   
Corporate Asset Funding Co.
1.77%, due 7/29/02
  
 
4,993
15,000
   
Hyndai Motors Co., Ltd.
1.86%, due 7/18/02
  
 
14,987
15,000
   
Moat Fundings LLC
1.81%, due 9/04/02
  
 
14,951
        
TOTAL COMMERCIAL PAPER (cost $113,676)
  
 
113,676
        
 
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
CORPORATE BONDS—45.8%
      
Asset Backed—7.8%
      
$15,000
 #
   
Dorada Finance, Inc. (144A)
1.854%, due 5/21/03
(acquired 5/16/02)
  
$
15,000
10,000
 #
   
K2 (USA) LLC (144A)
1.86125%, due 12/09/02
(acquired 12/03/01)
  
 
10,000
Banks—6.7%
      
7,150
 
   
Banc One Corp.
6.375%, due 10/01/02
  
 
7,227
3,900
 
   
Banc One Corp.
6.40%, due 8/01/02
  
 
3,914
3,000
 
   
Banc One Corp.
7.25%, due 8/01/02
  
 
3,011
1,000
 
   
First Chicago Corp.
7.625%, due 1/15/03
  
 
1,027
6,000
 
   
PNC Funding Corp.
6.95%, due 9/01/02
  
 
6,031
Brewers—1.2%
      
3,690
 
   
New Belgium Brewery Co.
1.95%, due 7/01/15
Put Date 7/05/02
  
 
3,690
Consumer Finance—12.7%
      
10,000
 #
   
CC USA, Inc. (144A)
2.955%, due 4/16/03
(acquired 3/15/02)
  
 
10,000
14,285
 
   
Countrywide Funding Corp.
8.25%, due 7/15/02
  
 
14,311
10,000
 
   
Merrill Lynch & Co., Inc.
1.81875%, due 1/08/03
  
 
10,000
6,000
 
   
Merrill Lynch & Co., Inc.
1.81875%, due 4/03/03
  
 
6,000

SEE NOTES TO FINANCIAL STATEMENTS
 
86

Table of Contents

Portfolio of Investments
 
SAFECO Money Market Fund
 
As of June 30, 2002
(Unaudited)

 
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Diversified Financial Services—11.5%
      
$8,000
 #
   
Goldman Sachs Group, Inc. (144A)
2.13688%, due 7/15/03
  
$
8,000
2,300
 
   
Lehman Brothers Holdings, Inc.
2.44%, due 9/12/02
  
 
2,305
6,140
 
   
Lehman Brothers Holdings, Inc.
6.25%, due 4/01/03
  
 
6,283
5,000
 
   
Lehman Brothers Holdings, Inc.
7.00%, due 5/15/03
  
 
5,184
2,000
 
   
Lehman Brothers Holdings, Inc.
7.25%, due 4/15/03
  
 
2,061
7,470
 
   
Morgan Stanley Dean Witter Co.
7.125%, due 1/15/03
  
 
7,655
5,000
 
   
Salomon Smith Barney Holdings Corp.
2.02875%, due 9/12/02
  
 
5,003
General Merchandise Stores—2.4%
      
8,000
 
   
Racetrac Capital, LLC
1.84%, due 4/01/18 Put Date 7/03/02
  
 
8,000
Hotels—0.9%
      
2,775
 
   
Smuggler’s Notch Management Co.
1.95%, due 9/01/15 Put Date 7/15/02
  
 
2,775
Real Estate Management & Development—2.6%
      
8,200
 
   
Loft Quest, LLC
1.94%, due 6/01/27 Put Date 7/05/02
  
 
8,200
          
TOTAL CORPORATE BONDS (cost $145,677)
  
 
145,677
          
MUNICIPAL BONDS—14.2%
      
Diversified Commercial Services—0.6%
      
2,000
 
   
Wake Forest University
1.84%, due 7/01/17 Put Date 7/03/02
  
 
2,000
Health Care Distributors & Services—2.6%
      
  8,100
 
   
New Hampshire Business Finance Authority Revenue
1.95%, due 6/01/28 Put Date 7/15/02
  
 
8,100
Homebuilding—3.0%
      
1,000
 
   
Breckenridge Terrace LLC Tax Revenue
1.89%, due 5/01/39 Put Date 7/03/02
  
 
1,000
  2,000
 
   
Eagle County Colorado Housing Facilities Revenue
1.89%, due 5/01/39 Put Date 7/05/02
  
 
2,000
6,633
 
   
Summer Station Apartments, LLC
1.89%, due 6/01/19 Put Date 7/03/02
  
 
6,633
 
PRINCIPAL AMOUNT (000’s)
  
Value
(000’s)
Hotels—1.2%
      
$3,885
   
Tenderfoot Seasonal Housing Facilities Revenue
1.89%, due 7/01/35 Put Date 7/05/02
  
$
3,885
Managed Health Care—6.8%
      
3,565
   
Maryland Health and Higher Education Facilities Authority Revenue (University of Maryland Medical System)
1.95%, due 7/01/29 Put Date 7/03/01
  
 
3,565
5,990
   
Maryland Health and Higher Education Facilities Authority Revenue
1.95%, due 1/01/28 Put Date 7/03/02
  
 
5,990
5,000
   
Presbyterian Homes & Services
1.88%, due 12/01/28 Put Date 7/05/02
  
 
5,000
7,100
   
Village Green Finance Co.
1.84%, due 11/01/22 Put Date 7/03/02
  
 
7,100
        
TOTAL MUNICIPAL BONDS (cost $45,273)
  
 
45,273
        
CASH EQUIVALENTS—3.9%
      
Investment Companies
      
  12,513
   
AIM Short-Term Investments Co. Liquid Assets Money Market Portfolio (Institutional Shares)
  
 
12,513
        
TOTAL CASH EQUIVALENTS (cost $12,513)
  
 
12,513
        
TOTAL INVESTMENTS (cost $317,139)—99.6%
  
 
317,139
Other Assets, less Liabilities
  
 
1,262
        
NET ASSETS
  
$
318,401
        
 
If a Put date is indicated, the Fund has a right to sell a specified underlying security at an exercise price equal to the amortized cost of the underlying security plus interest, if any, as of that date.
 
Securities with a maturity of more than thirteen months have variable rates and/or demand features which qualify them as short-term securities. Rates shown are those in effect on 6/30/02. These rates change periodically based on specified market rates or indices.
 
#
 
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 and value of such securities is $43,000,000 or 13.5% of net assets.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

SEE NOTES TO FINANCIAL STATEMENTS
 
87

Table of Contents

Statements of Assets and Liabilities
 
As of June 30, 2002
(Unaudited)

 
—(In Thousands, Except Per-Share Amounts)—  
     
SAFECO
Growth
Opportunities
Fund
     
SAFECO
Equity
Fund
   
SAFECO
Dividend
Income
Fund
Assets
                         
Investments, at Cost
     
$
665,843
 
   
$
709,824
   
$
135,340
      
  
  
Investments, at Value:
                         
Unaffiliated Issuers
     
$
356,611
 
   
$
844,263
   
$
157,692
Affiliated Issuers
     
 
281,749
 
   
 
–
   
 
–
      
  
  
Total Investments at Value
     
 
638,360
 
   
 
844,263
   
 
157,692
Cash
     
 
–
 
   
 
–
   
 
–
Collateral for Securities Loaned, at Fair Value
     
 
150,163
 
   
 
2,640
   
 
1,650
Receivables:
                         
Investment Securities Sold
     
 
2,063
 
   
 
–
   
 
487
Trust Shares Sold
     
 
26
 
   
 
22
   
 
–
Dividends and Interest
     
 
5
 
   
 
585
   
 
420
From Advisor
     
 
4
 
   
 
17
   
 
–
Other
     
 
–
 
   
 
–
   
 
–
Deferred Offering Costs
     
 
–
 
   
 
–
   
 
–
      
  
  
Total Assets
     
 
790,621
 
   
 
847,527
   
 
160,249
Liabilities
                         
Payables:
                         
Investment Securities Purchased
     
 
1,938
 
   
 
–
   
 
374
Trust Shares Redeemed
     
 
79
 
   
 
99
   
 
–
Payable Upon Return of Securities Loaned
     
 
150,163
 
   
 
2,640
   
 
1,650
Forward Currency Contracts Open, Net
     
 
–
 
   
 
–
   
 
–
Dividends
     
 
–
 
   
 
1,384
   
 
596
Investment Advisory Fees
     
 
331
 
   
 
441
   
 
87
Accrued Expenses
     
 
245
 
   
 
326
   
 
68
      
  
  
Total Liabilities
     
 
152,756
 
   
 
4,890
   
 
2,775
      
  
  
Net Assets
     
$
637,865
 
   
$
842,637
   
$
157,474
      
  
  
Investor Class:
                         
Net Assets
     
$
601,672
 
   
$
813,212
   
$
155,564
Trust Shares Outstanding
     
 
26,647
 
   
 
53,324
   
 
9,036
      
  
  
Net Asset Value, Offering Price, and Redemption Price Per Share
     
$
22.58
 
   
$
15.25
   
$
17.22
      
  
  
Class A:
                         
Net Assets
     
$
24,227
 
   
$
16,539
   
$
856
Trust Shares Outstanding
     
 
1,086
 
   
 
1,083
   
 
49
      
  
  
Net Asset Value and Redemption Price Per Share
     
$
22.30
 
   
$
15.27
   
$
17.30
      
  
  
Maximum Offering Price Per Share (Net Asset Value Plus Sales Charge of 5.75%)
     
$
23.66
 
   
$
16.20
   
$
18.36
      
  
  
Class B:
                         
Net Assets
     
$
11,776
 
   
$
12,756
   
$
958
Trust Shares Outstanding
     
 
552
 
   
 
854
   
 
55
      
  
  
Net Asset Value and Offering Price Per Share
     
$
21.32
 
   
$
14.93
   
$
17.34
      
  
  
Class C:
                         
Net Assets
     
$
190
 
   
$
130
   
$
96
Trust Shares Outstanding
     
 
9
 
   
 
9
   
 
6
      
  
  
Net Asset Value and Offering Price Per Share
     
$
21.31
 
   
$
14.95
   
$
17.37
      
  
  
Analysis of Net Assets:
                         
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)
     
$
698,312
 
   
$
740,927
   
$
139,481
Distributable Earnings
     
 
(60,447
)
   
 
101,710
   
 
17,993
      
  
  
Net Assets
     
$
637,865
 
   
$
842,637
   
$
157,474
      
  
  

SEE NOTES TO FINANCIAL STATEMENTS
 
88

Table of Contents

 
—(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
     
$
76,461
 
     
$
19,971
 
     
$
17,808
 
     
$
36,753
 
     
$
8,777
 
     
$
5,775
 
     
$
5,116
 
      
    
    
    
    
    
    
Investments, at Value:
                                                                             
Unaffiliated Issuers
     
$
79,821
 
     
$
23,538
 
     
$
17,794
 
     
$
40,588
 
     
$
8,778
 
     
$
5,767
 
     
$
4,543
 
Affiliated Issuers
     
 
–
 
     
 
–
 
     
 
–
 
     
 
200
 
     
 
–
 
     
 
–
 
     
 
–
 
      
    
    
    
    
    
    
Total Investments at Value
     
 
79,821
 
     
 
23,538
 
     
 
17,794
 
     
 
40,788
 
     
 
8,778
 
     
 
5,767
 
     
 
4,543
 
Cash
     
 
–
 
     
 
664
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
98
 
     
 
–
 
Collateral for Securities Loaned, at Fair Value
     
 
6,650
 
     
 
–
 
     
 
1,685
 
     
 
7,285
 
     
 
1,610
 
     
 
–
 
     
 
–
 
Receivables:
                                                                             
Investment Securities Sold
     
 
319
 
     
 
7
 
     
 
55
 
     
 
–
 
     
 
40
 
     
 
6
 
     
 
29
 
Trust Shares Sold
     
 
–
 
     
 
24
 
     
 
–
 
     
 
35
 
     
 
–
 
     
 
–
 
     
 
–
 
Dividends and Interest
     
 
34
 
     
 
79
 
     
 
106
 
     
 
45
 
     
 
14
 
     
 
2
 
     
 
4
 
From Advisor
     
 
12
 
     
 
20
 
     
 
5
 
     
 
7
 
     
 
5
 
     
 
9
 
     
 
7
 
Other
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
Deferred Offering Costs
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
19
 
     
 
19
 
      
    
    
    
    
    
    
Total Assets
     
 
86,836
 
     
 
24,332
 
     
 
19,645
 
     
 
48,160
 
     
 
10,447
 
     
 
5,901
 
     
 
4,602
 
Liabilities
                                                                             
Payables:
                                                                             
Investment Securities Purchased
     
 
–
 
     
 
15
 
     
 
152
 
     
 
37
 
     
 
124
 
     
 
93
 
     
 
20
 
Trust Shares Redeemed
     
 
5
 
     
 
–
 
     
 
–
 
     
 
16
 
     
 
–
 
     
 
–
 
     
 
–
 
Payable Upon Return of Securities Loaned
     
 
6,650
 
     
 
–
 
     
 
1,685
 
     
 
7,285
 
     
 
1,610
 
     
 
–
 
     
 
–
 
Forward Currency Contracts Open, Net
     
 
–
 
     
 
50
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
Dividends
     
 
–
 
     
 
–
 
     
 
117
 
     
 
–
 
     
 
26
 
     
 
–
 
     
 
–
 
Investment Advisory Fees
     
 
44
 
     
 
18
 
     
 
9
 
     
 
23
 
     
 
5
 
     
 
5
 
     
 
3
 
Accrued Expenses
     
 
54
 
     
 
39
 
     
 
21
 
     
 
30
 
     
 
15
 
     
 
33
 
     
 
33
 
      
    
    
    
    
    
    
Total Liabilities
     
 
6,753
 
     
 
122
 
     
 
1,984
 
     
 
7,391
 
     
 
1,780
 
     
 
131
 
     
 
56
 
      
    
    
    
    
    
    
Net Assets
     
$
80,083
 
     
$
24,210
 
     
$
17,661
 
     
$
40,769
 
     
$
8,667
 
     
$
5,770
 
     
$
4,546
 
      
    
    
    
    
    
    
Investor Class:
                                                                             
Net Assets
     
$
70,785
 
     
$
22,324
 
     
$
14,176
 
     
$
38,027
 
     
$
7,788
 
     
$
2,684
 
     
$
1,990
 
Trust Shares Outstanding
     
 
4,255
 
     
 
2,195
 
     
 
1,281
 
     
 
2,601
 
     
 
757
 
     
 
271
 
     
 
237
 
      
    
    
    
    
    
    
Net Asset Value, Offering Price, and Redemption Price Per Share
     
$
16.64
 
     
$
10.17
 
     
$
11.06
 
     
$
14.62
 
     
$
10.29
 
     
$
9.92
 
     
$
8.42
 
      
    
    
    
    
    
    
Class A:
                                                                             
Net Assets
     
$
4,504
 
     
$
913
 
     
$
1,730
 
     
$
1,271
 
     
$
343
 
     
$
1,018
 
     
$
875
 
Trust Shares Outstanding
     
 
276
 
     
 
91
 
     
 
156
 
     
 
89
 
     
 
33
 
     
 
103
 
     
 
104
 
      
    
    
    
    
    
    
Net Asset Value and Redemption Price Per Share
     
$
16.33
 
     
$
10.07
 
     
$
11.10
 
     
$
14.37
 
     
$
10.29
 
     
$
9.90
 
     
$
8.40
 
      
    
    
    
    
    
    
Maximum Offering Price Per Share (Net Asset Value Plus Sales Charge of 5.75%)
     
$
17.33
 
     
$
10.68
 
     
$
11.78
 
     
$
15.25
 
     
$
10.92
 
     
$
10.50
 
     
$
8.91
 
      
    
    
    
    
    
    
Class B:
                                                                             
Net Assets
     
$
4,706
 
     
$
895
 
     
$
1,755
 
     
$
1,471
 
     
$
536
 
     
$
991
 
     
$
845
 
Trust Shares Outstanding
     
 
300
 
     
 
91
 
     
 
159
 
     
 
106
 
     
 
52
 
     
 
100
 
     
 
101
 
      
    
    
    
    
    
    
Net Asset Value and Offering Price Per Share
     
$
15.68
 
     
$
9.84
 
     
$
11.08
 
     
$
13.83
 
     
$
10.24
 
     
$
9.85
 
     
$
8.36
 
      
    
    
    
    
    
    
Class C:
                                                                             
Net Assets
     
$
88
 
     
$
77
 
     
 
–
 
     
 
–
 
     
 
–
 
     
$
1,077
 
     
$
836
 
Trust Shares Outstanding
     
 
6
 
     
 
8
 
                                      
 
109
 
     
 
100
 
      
    
                                     
    
Net Asset Value and Offering Price Per Share
     
$
15.68
 
     
$
9.84
 
                                      
$
9.85
 
     
$
8.36
 
      
    
                                     
    
Analysis of Net Assets:
                                                                             
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)
     
$
81,552
 
     
$
26,786
 
     
$
17,800
 
     
$
42,945
 
     
$
8,912
 
     
$
5,920
 
     
$
5,427
 
Distributable Earnings
     
 
(1,469
)
     
 
(2,576
)
     
 
(139
)
     
 
(2,176
)
     
 
(245
)
     
 
(150
)
     
 
(881
)
      
    
    
    
    
    
    
Net Assets
     
$
80,083
 
     
$
24,210
 
     
$
17,661
 
     
$
40,769
 
     
$
8,667
 
     
$
5,770
 
     
$
4,546
 
      
    
    
    
    
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
89

Table of Contents

Statements of Assets and Liabilities
 
As of June 30, 2002
(Unaudited)
–(In Thousands, Except Per-Share Amounts)–
     
SAFECO
High-Yield
Bond
Fund
       
SAFECO
Intermediate-Term
U.S. Treasury
Fund
     
SAFECO
U.S.
Government
Fund
  
Assets
                               
Investments, at Cost
     
$
40,991
 
     
$
24,290
     
$
48,761
 
      
    
    
Investments, at Value
     
$
35,572
 
     
$
24,308
     
$
49,793
 
Collateral for Securities Loaned, at Fair Value
     
 
5,772
 
     
 
–
     
 
–
 
Receivables:
                               
Investment Securities Sold
     
 
–
 
     
 
–
     
 
819
 
Trust Shares Sold
     
 
–
 
     
 
–
     
 
5
 
Interest
     
 
707
 
     
 
361
     
 
318
 
Receivable From Advisor
     
 
9
 
     
 
3
     
 
–
 
      
    
    
Total Assets
     
 
42,060
 
     
 
24,672
     
 
50,935
 
Liabilities
                               
Payables:
                               
Investment Securities Purchased
     
 
248
 
     
 
–
     
 
620
 
Trust Shares Redeemed
     
 
–
 
     
 
–
     
 
–
 
Payable Upon Return of Securities Loaned
     
 
5,772
 
     
 
–
     
 
–
 
Notes Payable
     
 
–
 
     
 
–
     
 
–
 
Dividends
     
 
282
 
     
 
89
     
 
206
 
Investment Advisory Fees
     
 
20
 
     
 
10
     
 
21
 
Accrued Expenses
     
 
28
 
     
 
19
     
 
22
 
      
    
    
Total Liabilities
     
 
6,350
 
     
 
118
     
 
869
 
      
    
    
Net Assets
     
$
35,710
 
     
$
24,554
     
$
50,066
 
      
    
    
Investor Class:
                               
Net Assets
     
$
34,172
 
     
$
21,318
     
$
49,517
 
Trust Shares Outstanding
     
 
6,311
 
     
 
1,989
     
 
5,168
 
      
    
    
Net Asset Value, Offering Price, and Redemption Price Per Share
     
$
5.42
 
     
$
10.72
     
$
9.58
 
      
    
    
Class A:
                               
Net Assets
     
$
679
 
     
$
1,782
     
$
345
 
Trust Shares Outstanding
     
 
125
 
     
 
166
     
 
36
 
      
    
    
Net Asset Value and Redemption Price Per Share
     
$
5.41
 
     
$
10.72
     
$
9.59
 
      
    
    
Maximum Offering Price Per Share (Net Asset Value Plus Sales Charge of 4.5%)
     
$
5.66
 
     
$
11.23
     
$
10.04
 
      
    
    
Class B:
                               
Net Assets
     
$
771
 
     
$
1,454
     
$
204
 
Trust Shares Outstanding
     
 
142
 
     
 
136
     
 
21
 
      
    
    
Net Asset Value and Offering Price Per Share
     
$
5.41
 
     
$
10.72
     
$
9.59
 
      
    
    
Class C:
                               
Net Assets
     
$
88
 
     
 
–
     
 
–
 
Trust Shares Outstanding
     
 
16
 
                    
      
                   
Net Asset Value and Offering Price Per Share
     
$
5.42
 
                    
      
                   
Analysis of Net Assets:
                               
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)
     
$
63,340
 
     
$
23,959
     
$
51,508
 
Distributable Earnings
     
 
(27,630
)
     
 
595
     
 
(1,442
)
      
    
    
Net Assets
     
$
35,710
 
     
$
24,554
     
$
50,066
 
      
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
90

Table of Contents

–(In Thousands, Except Per-Share Amounts)–
     
SAFECO
Managed
Bond
Fund
       
SAFECO
California
Tax-Free Income
Fund
     
SAFECO
Municipal
Bond
Fund
     
SAFECO
Money
Market
Fund
Assets
                              
Investments, at Cost
     
$
9,458
 
     
$
87,013
     
$
503,194
     
$
317,139
      
    
    
    
Investments, at Value
     
$
9,495
 
     
$
90,964
     
$
552,384
     
$
317,139
Collateral for Securities Loaned, at Fair Value
     
 
711
 
     
 
–
     
 
–
     
 
–
Receivables:
                                      
Investment Securities Sold
     
 
–
 
     
 
–
     
 
–
     
 
–
Trust Shares Sold
     
 
–
 
     
 
2,794
     
 
42
     
 
–
Interest
     
 
108
 
     
 
1,469
     
 
8,645
     
 
1,780
Receivable From Advisor
     
 
5
 
     
 
–
     
 
–
     
 
5
      
    
    
    
Total Assets
     
 
10,319
 
     
 
95,227
     
 
561,071
     
 
318,924
Liabilities
                                      
Payables:
                                      
Investment Securities Purchased
     
 
–
 
     
 
–
     
 
9,695
     
 
–
Trust Shares Redeemed
     
 
–
 
     
 
2
     
 
696
     
 
–
Payable Upon Return of Securities Loaned
     
 
711
 
     
 
–
     
 
–
     
 
–
Notes Payable
     
 
–
 
     
 
–
     
 
–
     
 
–
Dividends
     
 
35
 
     
 
318
     
 
2,043
     
 
321
Investment Advisory Fees
     
 
4
 
     
 
35
     
 
202
     
 
119
Accrued Expenses
     
 
17
 
     
 
25
     
 
70
     
 
83
      
    
    
    
Total Liabilities
     
 
767
 
     
 
380
     
 
12,706
     
 
523
      
    
    
    
Net Assets
     
$
9,552
 
     
$
94,847
     
$
548,365
     
$
318,401
      
    
    
    
Investor Class:
                                      
Net Assets
     
$
7,567
 
     
$
93,108
     
$
545,598
     
$
311,952
Trust Shares Outstanding
     
 
902
 
     
 
7,545
     
 
38,513
     
 
311,952
      
    
    
    
Net Asset Value, Offering Price, and Redemption Price Per Share
     
$
8.39
 
     
$
12.34
     
$
14.17
     
$
1.00
      
    
    
    
Class A:
                                      
Net Assets
     
$
1,059
 
     
$
590
     
$
1,271
     
$
5,227
Trust Shares Outstanding
     
 
126
 
     
 
48
     
 
89
     
 
5,227
      
    
    
    
Net Asset Value and Redemption Price Per Share
     
$
8.38
 
     
$
12.35
     
$
14.18
     
$
1.00
      
    
    
    
Maximum Offering Price Per Share (Net Asset Value Plus Sales Charge of 4.5%)
     
$
8.77
 
     
$
12.93
     
$
14.85
     
$
–
      
    
    
    
Class B:
                                      
Net Assets
     
$
926
 
     
$
1,149
     
$
1,496
     
$
1,104
Trust Shares Outstanding
     
 
111
 
     
 
93
     
 
106
     
 
1,104
      
    
    
    
Net Asset Value and Offering Price Per Share
     
$
8.37
 
     
$
12.34
     
$
14.15
     
$
1.00
      
    
    
    
Class C:
                                      
Net Assets
     
 
–
 
     
 
–
     
 
–
     
$
118
Trust Shares Outstanding
                                  
 
118
                                   
Net Asset Value and Offering Price Per Share
                                  
$
1.00
                                   
Analysis of Net Assets:
                                      
Paid in Capital (Par Value $.001, Unlimited Shares Authorized)
     
$
9,749
 
     
$
90,586
     
$
496,098
     
$
318,401
Distributable Earnings
     
 
(197
)
     
 
4,261
     
 
52,267
     
 
–
      
    
    
    
Net Assets
     
$
9,552
 
     
$
94,847
     
$
548,365
     
$
318,401
      
    
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
91

Table of Contents

Statements of Operations
 
For the Six-Month Period Ended June 30, 2002
(Unaudited)
–(In Thousands)–
     
SAFECO
Growth
Opportunities
Fund
     
SAFECO
Equity
Fund
    
SAFECO
Dividend
Income
Fund
  
Investment Income
                            
Dividends (Net of Foreign Taxes Withheld of $32 Thousand in the International Stock Fund)
     
$
202
 
   
$
7,367
 
  
$
1,992
 
Interest
     
 
51
 
   
 
285
 
  
 
53
 
Income from Securities Loaned, net
     
 
407
 
   
 
21
 
  
 
8
 
      
  
 
Total Investment Income
     
 
660
 
   
 
7,673
 
  
 
2,053
 
Expenses
                            
Investment Advisory
     
 
2,431
 
   
 
3,240
 
  
 
597
 
Fund Accounting and Administration
     
 
142
 
   
 
169
 
  
 
77
 
Transfer Agent—Investor Class
     
 
897
 
   
 
1,158
 
  
 
189
 
—Class A
     
 
44
 
   
 
30
 
  
 
1
 
—Class B
     
 
20
 
   
 
24
 
  
 
2
 
Shareholder Service—Class A
     
 
35
 
   
 
24
 
  
 
1
 
—Class B
     
 
16
 
   
 
19
 
  
 
1
 
—Class C
     
 
–
 
   
 
–
 
  
 
–
 
Distribution               —Class B
     
 
49
 
   
 
56
 
  
 
4
 
—Class C
     
 
1
 
   
 
1
 
  
 
–
 
Legal and Auditing
     
 
21
 
   
 
26
 
  
 
12
 
Custodian
     
 
33
 
   
 
43
 
  
 
10
 
Registration
     
 
21
 
   
 
19
 
  
 
18
 
Reports to Shareholders
     
 
113
 
   
 
167
 
  
 
22
 
Trustees
     
 
4
 
   
 
5
 
  
 
3
 
Loan Interest
     
 
25
 
   
 
–
 
  
 
–
 
Amortization of Offering Costs
     
 
–
 
   
 
–
 
  
 
–
 
Other
     
 
40
 
   
 
64
 
  
 
7
 
      
  
 
Total Expenses Before Expense Reimbursement
     
 
3,892
 
   
 
5,045
 
  
 
944
 
Expense Reimbursement From Advisor—Investor Class
     
 
–
 
   
 
–
 
  
 
–
 
—Class A
     
 
(11
)
   
 
(45
)
  
 
(1
)
—Class B
     
 
(5
)
   
 
(5
)
  
 
(1
)
—Class C
     
 
–
 
   
 
–
 
  
 
–
 
      
  
 
Total Expenses After Expense Reimbursement
     
 
3,876
 
   
 
4,995
 
  
 
942
 
      
  
 
Net Investment Income (Loss)
     
 
(3,216
)
   
 
2,678
 
  
 
1,111
 
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
                            
Net Realized Gain (Loss) from:
                            
Investments in Unaffiliated Issuers
     
 
(7,725
)
   
 
(2,666
)
  
 
(3,598
)
Investments in Affiliated Issuers
     
 
(6,411
)
   
 
–
 
  
 
–
 
Foreign Currency Transactions
     
 
–
 
   
 
–
 
  
 
–
 
      
  
 
Total Net Realized Gain (Loss)
     
 
(14,136
)
   
 
(2,666
)
  
 
(3,598
)
Net Change in Unrealized Appreciation (Depreciation)
     
 
(127,269
)
   
 
(185,207
)
  
 
(11,134
)
      
  
 
Net Gain (Loss) on Investments and Foreign Currency
     
 
(141,405
)
   
 
(187,873
)
  
 
(14,732
)
      
  
 
Net Change in Net Assets Resulting from Operations
     
$
(144,621
)
   
$
(185,195
)
  
$
(13,621
)
      
  
 

SEE NOTES TO FINANCIAL STATEMENTS
 
92

Table of Contents

–(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 $32 Thousand in the International Stock Fund)
     
$
  342
 
     
$
308
 
     
$
121
 
     
$
217
 
     
$
96
 
     
$
5
 
     
$
23
 
Interest
     
 
18
 
     
 
1
 
     
 
210
 
     
 
24
 
     
 
4
 
     
 
4
 
     
 
2
 
Income from Securities Loaned, net
     
 
27
 
     
 
–
 
     
 
4
 
     
 
14
 
     
 
3
 
     
 
–
 
     
 
–
 
      
    
    
    
    
    
    
Total Investment Income
     
 
387
 
     
 
309
 
     
 
335
 
     
 
255
 
     
 
103
 
     
 
9
 
     
 
25
 
Expenses
                                                                             
Investment Advisory
     
 
312
 
     
 
120
 
     
 
63
 
     
 
130
 
     
 
32
 
     
 
30
 
     
 
20
 
Fund Accounting and Administration
     
 
40
 
     
 
11
 
     
 
8
 
     
 
16
 
     
 
4
 
     
 
3
 
     
 
2
 
Transfer Agent—Investor Class
     
 
117
 
     
 
33
 
     
 
20
 
     
 
44
 
     
 
8
 
     
 
1
 
     
 
1
 
—Class A
     
 
7
 
     
 
2
 
     
 
3
 
     
 
1
 
     
 
–
 
     
 
–
 
     
 
–
 
—Class B
     
 
8
 
     
 
2
 
     
 
3
 
     
 
2
 
     
 
1
 
     
 
–
 
     
 
–
 
Shareholder Service—Class A
     
 
6
 
     
 
1
 
     
 
2
 
     
 
1
 
     
 
–
 
     
 
1
 
     
 
1
 
—Class B
     
 
7
 
     
 
1
 
     
 
2
 
     
 
2
 
     
 
1
 
     
 
1
 
     
 
1
 
—Class C
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
2
 
     
 
1
 
Distribution               —Class B
     
 
19
 
     
 
4
 
     
 
7
 
     
 
5
 
     
 
2
 
     
 
4
 
     
 
4
 
—Class C
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
4
 
     
 
4
 
Legal and Auditing
     
 
11
 
     
 
10
 
     
 
10
 
     
 
10
 
     
 
10
 
     
 
9
 
     
 
9
 
Custodian
     
 
7
 
     
 
35
 
     
 
3
 
     
 
7
 
     
 
3
 
     
 
5
 
     
 
3
 
Registration
     
 
23
 
     
 
22
 
     
 
17
 
     
 
17
 
     
 
15
 
     
 
15
 
     
 
15
 
Reports to Shareholders
     
 
18
 
     
 
8
 
     
 
4
 
     
 
9
 
     
 
1
 
     
 
1
 
     
 
–
 
Trustees
     
 
3
 
     
 
3
 
     
 
3
 
     
 
3
 
     
 
3
 
     
 
3
 
     
 
3
 
Loan Interest
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
Amortization of Offering Costs
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
1
 
     
 
28
 
     
 
28
 
Other
     
 
4
 
     
 
13
 
     
 
–
 
     
 
4
 
     
 
1
 
     
 
–
 
     
 
–
 
      
    
    
    
    
    
    
Total Expenses Before Expense Reimbursement
     
 
582
 
     
 
265
 
     
 
145
 
     
 
251
 
     
 
82
 
     
 
107
 
     
 
92
 
Expense Reimbursement From Advisor—Investor Class
     
 
(49
)
     
 
(82
)
     
 
(26
)
     
 
(38
)
     
 
(25
)
     
 
(21
)
     
 
(20
)
—Class A
     
 
(5
)
     
 
(4
)
     
 
(4
)
     
 
(2
)
     
 
(1
)
     
 
(9
)
     
 
(9
)
—Class B
     
 
(6
)
     
 
(4
)
     
 
(4
)
     
 
(3
)
     
 
(2
)
     
 
(8
)
     
 
(9
)
—Class C
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
(9
)
     
 
(8
)
      
    
    
    
    
    
    
Total Expenses After Expense Reimbursement
     
 
522
 
     
 
175
 
     
 
111
 
     
 
208
 
     
 
54
 
     
 
60
 
     
 
46
 
      
    
    
    
    
    
    
Net Investment Income (Loss)
     
 
(135
)
     
 
134
 
     
 
224
 
     
 
47
 
     
 
49
 
     
 
(51
)
     
 
(21
)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
                                                                             
Net Realized Gain (Loss) from:
                                                                             
Investments in Unaffiliated Issuers
     
 
(3
)
     
 
(401
)
     
 
(31
)
     
 
1,376
 
     
 
(30
)
     
 
(85
)
     
 
(287
)
Investments in Affiliated Issuers
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
Foreign Currency Transactions
     
 
–
 
     
 
4
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
      
    
    
    
    
    
    
Total Net Realized Gain (Loss)
     
 
(3
)
     
 
(397
)
     
 
(31
)
     
 
1,376
 
     
 
(30
)
     
 
(85
)
     
 
(287
)
Net Change in Unrealized Appreciation (Depreciation)
     
 
(10,916
)
     
 
(607
)
     
 
(971
)
     
 
291
 
     
 
(783
)
     
 
(666
)
     
 
(882
)
      
    
    
    
    
    
    
Net Gain (Loss) on Investments and Foreign Currency
     
 
(10,919
)
     
 
(1,004
)
     
 
(1,002
)
     
 
1,667
 
     
 
(813
)
     
 
(751
)
     
 
(1,169
)
      
    
    
    
    
    
    
Net Change in Net Assets Resulting from Operations
     
$
(11,054
)
     
$
(870
)
     
$
(778
)
     
$
1,714
 
     
$
(764
)
     
$
(802
)
     
$
(1,190
)
      
    
    
    
    
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
93

Table of Contents

Statements of Operations
 
For the Six-Month Period Ended June 30, 2002
(Unaudited)

 
–(In Thousands)–
     
SAFECO
High-Yield
Bond
Fund
       
SAFECO
Intermediate-Term
U.S. Treasury
Fund
       
SAFECO
U.S.
Government
Fund
Investment Income
                               
Dividends
     
$
108
 
     
$
–
 
     
$
–
Interest
     
 
2,227
 
     
 
691
 
     
 
1,500
Income from Securities Loaned, net
     
 
24
 
     
 
–
 
     
 
–
      
    
    
Total Investment Income
     
 
2,359
 
     
 
691
 
     
 
1,500
Expenses
                               
Investment Advisory
     
 
153
 
     
 
65
 
     
 
130
Fund Accounting and Administration
     
 
21
 
     
 
11
 
     
 
21
Transfer Agent—Investor Class
     
 
59
 
     
 
16
 
     
 
33
   —Class A
     
 
2
 
     
 
2
 
     
 
–
   —Class B
     
 
1
 
     
 
1
 
     
 
–
Shareholder Service—Class A
     
 
1
 
     
 
2
 
     
 
–
   —Class B
     
 
1
 
     
 
1
 
     
 
–
Distribution—Class B
     
 
3
 
     
 
4
 
     
 
1
Legal and Auditing
     
 
10
 
     
 
10
 
     
 
10
Custodian
     
 
6
 
     
 
3
 
     
 
4
Registration
     
 
22
 
     
 
15
 
     
 
13
Reports to Shareholders
     
 
7
 
     
 
2
 
     
 
3
Trustees
     
 
3
 
     
 
3
 
     
 
3
Loan Interest
     
 
2
 
     
 
–
 
     
 
–
Other
     
 
6
 
     
 
1
 
     
 
3
      
    
    
Total Expenses Before Expense Reimbursement
     
 
297
 
     
 
136
 
     
 
221
Expense Reimbursement/Waiver From Advisor—Investor Class
     
 
(39
)
     
 
(13
)
     
 
–
   —Class A
     
 
(2
)
     
 
(3
)
     
 
–
   —Class B
     
 
(2
)
     
 
(1
)
     
 
–
      
    
    
Total Expenses After Expense Reimbursement
     
 
254
 
     
 
119
 
     
 
221
      
    
    
Net Investment Income
     
 
2,105
 
     
 
572
 
     
 
1,279
Net Realized and Unrealized Gain (Loss) on Investments
                               
Net Realized Gain (Loss) on Investments
     
 
(4,310
)
     
 
639
 
     
 
465
Net Change in Unrealized Appreciation (Depreciation)
     
 
(3,725
)
     
 
(429
)
     
 
99
      
    
    
Net Gain (Loss) on Investments
     
 
(8,035
)
     
 
210
 
     
 
564
      
    
    
Net Change in Net Assets Resulting from Operations
     
$
(5,930
)
     
$
782
 
     
$
1,843
      
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
94

Table of Contents

–(In Thousands)–
     
SAFECO
Managed
Bond
Fund
       
SAFECO
California
Tax-Free
Income
Fund
     
SAFECO
Municipal
Bond
Fund
     
SAFECO
Money
Market
Fund
  
Investment Income
                                        
Dividends
     
$
    –
 
     
$
–
     
$
–
     
$
–
 
Interest
     
 
271
 
     
 
2,456
     
 
14,978
     
 
3,168
 
Income from Securities Loaned, net
     
 
2
 
     
 
–
     
 
–
     
 
–
 
      
    
    
    
Total Investment Income
     
 
273
 
     
 
2,456
     
 
14,978
     
 
3,168
 
Expenses
                                        
Investment Advisory
     
 
23
 
     
 
227
     
 
1,274
     
 
712
 
Fund Accounting and Administration
     
 
4
 
     
 
41
     
 
123
     
 
98
 
Transfer Agent—Investor Class
     
 
7
 
     
 
33
     
 
148
     
 
228
 
   —Class A
     
 
2
 
     
 
–
     
 
–
     
 
8
 
   —Class B
     
 
1
 
     
 
1
     
 
1
     
 
2
 
Shareholder Service—Class A
     
 
1
 
     
 
1
     
 
2
     
 
–
 
   —Class B
     
 
1
 
     
 
2
     
 
2
     
 
–
 
Distribution—Class B
     
 
3
 
     
 
5
     
 
5
     
 
–
 
Legal and Auditing
     
 
10
 
     
 
11
     
 
18
     
 
14
 
Custodian
     
 
3
 
     
 
6
     
 
21
     
 
16
 
Registration
     
 
21
 
     
 
4
     
 
20
     
 
13
 
Reports to Shareholders
     
 
1
 
     
 
4
     
 
14
     
 
27
 
Trustees
     
 
3
 
     
 
3
     
 
4
     
 
3
 
Loan Interest
     
 
–
 
     
 
–
     
 
–
     
 
–
 
Other
     
 
2
 
     
 
2
     
 
9
     
 
8
 
      
    
    
    
Total Expenses Before Expense Reimbursement
     
 
82
 
     
 
340
     
 
1,641
     
 
1,129
 
Expense Reimbursement/Waiver From Advisor—Investor Class
     
 
(26
)
     
 
–
     
 
–
     
 
(53
)
   —Class A
     
 
(5
)
     
 
–
     
 
–
     
 
(5
)
   —Class B
     
 
(4
)
     
 
–
     
 
–
     
 
(1
)
      
    
    
    
Total Expenses After Expense Reimbursement
     
 
47
 
     
 
340
     
 
1,641
     
 
1,070
 
      
    
    
    
Net Investment Income
     
 
226
 
     
 
2,116
     
 
13,337
     
 
2,098
 
Net Realized and Unrealized Gain (Loss) on Investments
                                        
Net Realized Gain (Loss) on Investments
     
 
(16
)
     
 
156
     
 
2,244
     
 
–
 
Net Change in Unrealized Appreciation (Depreciation)
     
 
(17
)
     
 
352
     
 
7,144
     
 
–
 
      
    
    
    
Net Gain (Loss) on Investments
     
 
(33
)
     
 
508
     
 
9,388
     
 
–
 
      
    
    
    
Net Change in Net Assets Resulting from Operations
     
$
193
 
     
$
2,624
     
$
22,725
     
$
2,098
 
      
    
    
    

SEE NOTES TO FINANCIAL STATEMENTS
 
95

Table of Contents

Statements of Changes in Net Assets
(Unaudited)
   
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)
  
$
(3,216
)
  
$
(5,308
)
  
$
2,678
 
  
$
6,294
 
  
$
1,111
 
  
$
3,016
 
  
$
(135
)
  
$
(236
)
Net Realized Gain (Loss) on Investments and Foreign Currency
  
 
(14,136
)
  
 
(15,562
)
  
 
(2,666
)
  
 
(30,021
)
  
 
(3,598
)
  
 
(298
)
  
 
(3
)
  
 
(4,512
)
Net Change in Unrealized Appreciation (Depreciation)
  
 
(127,269
)
  
 
151,466
 
  
 
(185,207
)
  
 
(112,939
)
  
 
(11,134
)
  
 
(17,959
)
  
 
(10,916
)
  
 
(9,041
)
   
 
 
 
 
 
 
 
Net Change in Net Assets Resulting from Operations
  
 
(144,621
)
  
 
130,596
 
  
 
(185,195
)
  
 
(136,666
)
  
 
(13,621
)
  
 
(15,241
)
  
 
(11,054
)
  
 
(13,789
)
Distributions to Shareholders From:
                                                                
Net Investment Income
                                                                
—Investor Class
  
 
–
 
  
 
–
 
  
 
(2,657
)
  
 
(6,251
)
  
 
(1,104
)
  
 
(2,987
)
  
 
–
 
  
 
–
 
—Class A
  
 
–
 
  
 
–
 
  
 
(21
)
  
 
(58
)
  
 
(5
)
  
 
(12
)
  
 
–
 
  
 
–
 
—Class B
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(2
)
  
 
(7
)
  
 
–
 
  
 
–
 
—Class C
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(1
)
  
 
–
 
  
 
–
 
Net Realized Gain on Investments
                                                                
—Investor Class
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
—Class A
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
—Class B
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
—Class C
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
 
 
 
 
 
 
Total
  
 
–
 
  
 
–
 
  
 
(2,678
)
  
 
(6,309
)
  
 
(1,111
)
  
 
(3,007
)
  
 
–
 
  
 
–
 
Net Trust Share Transactions
  
 
(94,983
)
  
 
70,785
 
  
 
(90,622
)
  
 
(229,360
)
  
 
(7,853
)
  
 
(21,469
)
  
 
(5,147
)
  
 
(11,213
)
Redemption Fees
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
 
 
 
 
 
 
Total Change in Net Assets
  
 
(239,604
)
  
 
201,381
 
  
 
(278,495
)
  
 
(372,335
)
  
 
(22,585
)
  
 
(39,717
)
  
 
(16,201
)
  
 
(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
  
$
637,865
 
  
$
877,469
 
  
$
842,637
 
  
$
1,121,132
 
  
$
157,474
 
  
$
180,059
 
  
$
80,083
 
  
$
96,284
 
   
 
 
 
 
 
 
 
Tax Character of Distributions Paid:
                                                                
Ordinary Income
  
$
–
 
  
$
–
 
  
$
2,678
 
  
$
6,309
 
  
$
1,111
 
  
$
3,007
 
  
$
–
 
  
$
–
 
Long-term Capital Gains
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
   
 
 
 
 
 
 
 
Total
  
$
–
 
  
$
–
 
  
$
2,678
 
  
$
6,309
 
  
$
1,111
 
  
$
3,007
 
  
$
–
 
  
$
–
 
   
 
 
 
 
 
 
 
 
  *
 
For the six-month period ended June 30, 2002.
 **
 
For the year ended December 31, 2001.
***
 
For the period from October 31, 2001 (commencement of operations) to December 31, 2001.
 

SEE NOTES TO FINANCIAL STATEMENTS
 
96

Table of Contents

   
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)
  
$
134
 
   
$
129
 
   
$
224
 
   
$
497
 
   
$
47
   
$
289
 
   
$
49
 
   
$
104
 
   
$
(51
)
   
$
(15
)
   
$
(21
)
   
$
(7
)
Net Realized Gain (Loss) on Investments and Foreign Currency
  
 
(397
)
   
 
(5,502
)
   
 
(31
)
   
 
312
 
   
 
1,376
   
 
(1,065
)
   
 
(30
)
   
 
39
 
   
 
(85
)
   
 
18
 
   
 
(287
)
   
 
11
 
Net Change in Unrealized Appreciation (Depreciation)
  
 
(607
)
   
 
(2,351
)
   
 
(971
)
   
 
(867
)
   
 
291
   
 
5,404
 
   
 
(783
)
   
 
(609
)
   
 
(666
)
   
 
658
 
   
 
(882
)
   
 
309
 
   
  
  
  
  
  
  
  
  
  
  
  
Net Change in Net Assets Resulting from Operations
  
 
(870
)
   
 
(7,724
)
   
 
(778
)
   
 
(58
)
   
 
1,714
   
 
4,628
 
   
 
(764
)
   
 
(466
)
   
 
(802
)
   
 
661
 
   
 
(1,190
)
   
 
313
 
Distributions to Shareholders From:
                                                                                                         
Net Investment Income
                                                                                                         
—Investor Class
  
 
–
 
   
 
(541
)
   
 
(191
)
   
 
(414
)
   
 
–
   
 
(282
)
   
 
(47
)
   
 
(99
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class A
  
 
–
 
   
 
(21
)
   
 
(20
)
   
 
(47
)
   
 
–
   
 
(7
)
   
 
(1
)
   
 
(3
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class B
  
 
–
 
   
 
(11
)
   
 
(15
)
   
 
(36
)
   
 
–
   
 
(1
)
   
 
(1
)
   
 
(1
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class C
  
 
–
 
   
 
(1
)
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
Net Realized Gain on Investments
                                                                                                         
—Investor Class
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(4
)
   
 
–
 
   
 
(2
)
   
 
–
 
—Class A
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(2
)
   
 
–
 
   
 
(1
)
   
 
–
 
—Class B
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(1
)
   
 
–
 
   
 
(1
)
   
 
–
 
—Class C
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(2
)
   
 
–
 
   
 
–
 
   
 
–
 
   
  
  
  
  
  
  
  
  
  
  
  
Total
  
 
–
 
   
 
(574
)
   
 
(226
)
   
 
(497
)
   
 
–
   
 
(290
)
   
 
(49
)
   
 
(103
)
   
 
(9
)
   
 
–
 
   
 
(4
)
   
 
–
 
Net Trust Share Transactions
  
 
(416
)
   
 
(2,610
)
   
 
217
 
   
 
494
 
   
 
7,069
   
 
3,180
 
   
 
210
 
   
 
432
 
   
 
818
 
   
 
5,102
 
   
 
170
 
   
 
5,257
 
Redemption Fees
  
 
22
 
   
 
351
 
                                                                                        
   
  
  
  
  
  
  
  
  
  
  
  
Total Change in Net Assets
  
 
(1,264
)
   
 
(10,557
)
   
 
(787
)
   
 
(61
)
   
 
8,783
   
 
7,518
 
   
 
(603
)
   
 
(137
)
   
 
7
 
   
 
5,763
 
   
 
(1,024
)
   
 
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
  
$
24,210
 
   
$
25,474
 
   
$
17,661
 
   
$
18,448
 
   
$
40,769
   
$
31,986
 
   
$
8,667
 
   
$
9,270
 
   
$
5,770
 
   
$
5,763
 
   
$
4,546
 
   
$
5,570
 
   
  
  
  
  
  
  
  
  
  
  
  
Tax Character of Distributions Paid:
                                                                                                         
Ordinary Income
  
$
–
 
   
$
574
 
   
$
226
 
   
$
497
 
   
$
–
   
$
290
 
   
$
49
 
   
$
103
 
   
$
9
 
   
$
–
 
   
$
4
 
   
$
–
 
Long-term Capital Gains
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
  
  
  
  
  
  
  
  
  
  
  
Total
  
$
–
 
   
$
574
 
   
$
226
 
   
$
497
 
   
$
–
   
$
290
 
   
$
49
 
   
$
103
 
   
$
9
 
   
$
–
 
   
$
4
 
   
$
–
 
   
  
  
  
  
  
  
  
  
  
  
  
 

SEE NOTES TO FINANCIAL STATEMENTS
 
97

Table of Contents

Statements of Changes in Net Assets
(Unaudited)

 
    
SAFECO
High-Yield Bond
Fund
     
SAFECO
Intermediate-Term
U.S. Treasury Fund
  
    
–(In Thousands)–
   
2002*
     
2001**
     
2002*
     
2001**
  
Operations
                                    
Net Investment Income
   
$
2,105
 
   
$
5,316
 
   
$
572
 
   
$
1,008
 
Net Realized Gain (Loss) on Investments
   
 
(4,310
)
   
 
(11,851
)
   
 
639
 
   
 
550
 
Net Change in Unrealized Appreciation (Depreciation)
   
 
(3,725
)
   
 
5,995
 
   
 
(429
)
   
 
(274
)
    
  
  
  
Net Change in Net Assets Resulting from Operations
   
 
(5,930
)
   
 
(540
)
   
 
782
 
   
 
1,284
 
Distributions to Shareholders From:
                                    
Net Investment Income
                                    
—Investor Class
   
 
(1,898
)
   
 
(5,032
)
   
 
(495
)
   
 
(952
)
—Class A
   
 
(35
)
   
 
(132
)
   
 
(38
)
   
 
(55
)
—Class B
   
 
(32
)
   
 
(76
)
   
 
(19
)
   
 
(30
)
—Class C
   
 
(4
)
   
 
(8
)
   
 
–
 
   
 
–
 
Net Realized Gain on Investments
                                    
—Investor Class
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class A
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class B
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
—Class C
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
    
  
  
  
Total
   
 
(1,969
)
   
 
(5,248
)
   
 
(552
)
   
 
(1,037
)
Net Trust Share Transactions
   
 
(9,938
)
   
 
2,564
 
   
 
769
 
   
 
2,600
 
    
  
  
  
Total Change in Net Assets
   
 
(17,837
)
   
 
(3,224
)
   
 
999
 
   
 
2,847
 
Net Assets at Beginning of Period
   
 
53,547
 
   
 
56,771
 
   
 
23,555
 
   
 
20,708
 
    
  
  
  
Net Assets at End of Period
   
$
35,710
 
   
$
53,547
 
   
$
24,554
 
   
$
23,555
 
    
  
  
  
Tax Character of Distributions Paid:
                                    
Ordinary Income
   
$
1,969
 
   
$
5,248
 
   
$
552
 
   
$
1,037
 
Tax-Exempt Income
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
Long-term Capital Gains
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
    
  
  
  
Total
   
$
1,969
 
   
$
5,248
 
   
$
552
 
   
$
1,037
 
    
  
  
  
 
 *
 
For the six-month period ended June 30, 2002.
**
 
For the year ended December 31, 2001.

SEE NOTES TO FINANCIAL STATEMENTS
 
98

Table of Contents

SAFECO
U.S. Government
Fund
     
SAFECO
Managed
Bond Fund
     
SAFECO
California
Tax-Free
Income Fund
     
SAFECO
Municipal
Bond Fund
     
SAFECO
Money
Market Fund
  
–(In Thousands)–
 2002*     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
  
Operations
                                                                                       
Net Investment Income
$
1,279
 
   
$
2,454
 
   
$
226
 
   
$
447
 
   
$
2,116
 
   
$
4,693
 
   
$
13,337
 
   
$
26,426
 
   
$
2,098
 
   
$
8,967
 
Net Realized Gain (Loss) on Investments
 
465
 
   
 
178
 
   
 
(16
)
   
 
138
 
   
 
156
 
   
 
3,515
 
   
 
2,244
 
   
 
6,209
 
   
 
–
 
   
 
–
 
Net Change in Unrealized Appreciation (Depreciation)
 
99
 
   
 
246
 
   
 
(17
)
   
 
(48
)
   
 
352
 
   
 
(4,194
)
   
 
7,144
 
   
 
(4,258
)
   
 
–
 
   
 
–
 
 
  
  
  
  
  
  
  
  
  
Net Change in Net Assets Resulting from Operations
 
1,843
 
   
 
2,878
 
   
 
193
 
   
 
537
 
   
 
2,624
 
   
 
4,014
 
   
 
22,725
 
   
 
28,377
 
   
 
2,098
 
   
 
8,967
 
Distributions to Shareholders From:
                                                                                       
Net Investment Income
                                                                                       
—Investor Class
 
(1,274
)
   
 
(2,451
)
   
 
(181
)
   
 
(368
)
   
 
(2,031
)
   
 
(4,507
)
   
 
(13,099
)
   
 
(25,670
)
   
 
(2,052
)
   
 
(8,735
)
—Class A
 
(8
)
   
 
(9
)
   
 
(26
)
   
 
(41
)
   
 
(13
)
   
 
(30
)
   
 
(32
)
   
 
(53
)
   
 
(37
)
   
 
(186
)
—Class B
 
(4
)
   
 
(7
)
   
 
(19
)
   
 
(38
)
   
 
(23
)
   
 
(50
)
   
 
(24
)
   
 
(38
)
   
 
(8
)
   
 
(42
)
—Class C
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(1
)
   
 
(4
)
Net Realized Gain on Investments
                                                                                       
—Investor Class
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(896
)
   
 
–
 
   
 
(1,734
)
   
 
(1,183
)
   
 
–
 
   
 
–
 
—Class A
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(6
)
   
 
–
 
   
 
(4
)
   
 
(3
)
   
 
–
 
   
 
–
 
—Class B
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(11
)
   
 
–
 
   
 
(4
)
   
 
(3
)
   
 
–
 
   
 
–
 
—Class C
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
 
  
  
  
  
  
  
  
  
  
Total
 
(1,286
)
   
 
(2,467
)
   
 
(226
)
   
 
(447
)
   
 
(2,980
)
   
 
(4,587
)
   
 
(14,897
)
   
 
(26,950
)
   
 
(2,098
)
   
 
(8,967
)
Net Trust Share Transactions
 
3,836
 
   
 
7,454
 
   
 
283
 
   
 
1,971
 
   
 
2,780
 
   
 
(13,843
)
   
 
4,225
 
   
 
33,316
 
   
 
84,762
 
   
 
(13,930
)
 
  
  
  
  
  
  
  
  
  
Total Change in Net Assets
 
4,393
 
   
 
7,865
 
   
 
250
 
   
 
2,061
 
   
 
2,424
 
   
 
(14,416
)
   
 
12,053
 
   
 
34,743
 
   
 
84,762
 
   
 
(13,930
)
Net Assets at Beginning of Period
 
45,673
 
   
 
37,808
 
   
 
9,302
 
   
 
7,241
 
   
 
92,423
 
   
 
106,839
 
   
 
536,312
 
   
 
501,569
 
   
 
233,639
 
   
 
247,569
 
 
  
  
  
  
  
  
  
  
  
Net Assets at End of Period
$
50,066
 
   
$
45,673
 
   
$
9,552
 
   
$
9,302
 
   
$
94,847
 
   
$
92,423
 
   
$
548,365
 
   
$
536,312
 
   
$
318,401
 
   
$
233,639
 
 
  
  
  
  
  
  
  
  
  
Tax Character of Distributions Paid:
                                                                                       
Ordinary Income
$
1,286
 
   
$
2,467
 
   
$
226
 
   
$
447
 
   
$
–
 
   
$
–
 
   
$
–
 
   
$
–
 
   
$
2,098
 
   
$
8,967
 
Tax-Exempt Income
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
2,067
 
   
 
4,587
 
   
 
13,155
 
   
 
25,761
 
   
 
–
 
   
 
–
 
Long-term Capital Gains
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
913
 
   
 
–
 
   
 
1,743
 
   
 
1,189
 
   
 
–
 
   
 
–
 
 
  
  
  
  
  
  
  
  
  
Total
$
1,286
 
   
$
2,467
 
   
$
226
 
   
$
447
 
   
$
2,980
 
   
$
4,587
 
   
$
14,898
 
   
$
26,950
 
   
$
2,098
 
   
$
8,967
 
 
  
  
  
  
  
  
  
  
  
 

SEE NOTES TO FINANCIAL STATEMENTS
 
99

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Growth Opportunities Fund
 
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
   
Class A
  
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
  
$
26.96
 
   
$
22.16
 
   
$
23.21
 
   
$
22.66
 
   
$
22.39
 
   
$
16.97
 
Income (Loss) From Investment Operations
                                                     
Net Investment Loss
  
 
(0.15
)
   
 
(0.20
)
   
 
(0.25
)
   
 
(0.19
)
   
 
(0.05
)
   
 
(0.02
)
Net Realized and Unrealized Gain (Loss) on
Investments
  
 
(4.51
)
   
 
5.00
 
   
 
(0.80
)
   
 
0.74
 
   
 
1.05
 
   
 
8.44
 
   
  
  
  
  
  
Total from Investment Operations
  
 
(4.66
)
   
 
4.80
 
   
 
(1.05
)
   
 
0.55
 
   
 
1.00
 
   
 
8.42
 
Less Distributions
                                                     
Distributions from Realized Gains
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.73
)
   
 
(3.00
)
   
  
  
  
  
  
Net Asset Value at End of Period
  
$
22.30
 
   
$
26.96
 
   
$
22.16
 
   
$
23.21
 
   
$
22.66
 
   
$
22.39
 
   
  
  
  
  
  
Total Return†
  
 
(17.28%
)*
   
 
21.66%
 
   
 
(4.52%
)
   
 
2.43%
 
   
 
4.47%
 
   
 
49.61%
 
Net Assets at End of Period (000’s)
  
$
  24,227
 
   
$
33,877
 
   
$
26,020
 
   
$
27,597
 
   
$
33,712
 
   
$
4,076
 
Ratios to Average Net Assets:
                                                     
Gross Expenses
  
 
1.41%
**
   
 
1.36%
 
   
 
1.49%
 
   
 
1.34%
 
   
 
1.00%
 
   
 
1.06%
 
Net Expenses
  
 
1.33%
**
   
 
1.31%
 
   
 
1.31%
 
   
 
1.23%
 
   
 
1.00%
 
   
 
1.06%
 
Net Investment Loss
  
 
(1.15%
)**
   
 
(1.00%
)
   
 
(1.00%
)
   
 
(0.80%
)
   
 
(0.40%
)
   
 
(0.33%
)
Portfolio Turnover Rate
  
 
40%
**
   
 
65%
 
   
 
63%
 
   
 
38%
 
   
 
55%
 
   
 
83%
 
SAFECO Growth Opportunities Fund
  
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
   
Class B
  
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
  
$
25.87
 
   
$
21.42
 
   
$
22.57
 
   
$
22.21
 
   
$
22.19
 
   
$
16.94
 
Income (Loss) From Investment Operations
                                                     
Net Investment Loss
  
 
(0.22
)
   
 
(0.40
)
   
 
(0.41
)
   
 
(0.35
)
   
 
(0.15
)
   
 
(0.08
)
Net Realized and Unrealized Gain (Loss) on
Investments
  
 
(4.33
)
   
 
4.85
 
   
 
(0.74
)
   
 
0.71
 
   
 
0.90
 
   
 
8.33
 
   
  
  
  
  
  
Total from Investment Operations
  
 
(4.55
)
   
 
4.45
 
   
 
(1.15
)
   
 
0.36
 
   
 
0.75
 
   
 
8.25
 
Less Distributions
                                                     
Distributions from Realized Gains
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.73
)
   
 
(3.00
)
   
  
  
  
  
  
Net Asset Value at End of Period
  
$
21.32
 
   
$
25.87
 
   
$
21.42
 
   
$
22.57
 
   
$
22.21
 
   
$
22.19
 
   
  
  
  
  
  
Total Return†
  
 
(17.59%
)*
   
 
20.77%
 
   
 
(5.10%
)
   
 
1.62%
 
   
 
3.38%
 
   
 
48.70%
 
Net Assets at End of Period (000’s)
  
$
11,776
 
   
$
14,346
 
   
$
12,391
 
   
$
14,637
 
   
$
15,569
 
   
$
1,402
 
Ratios to Average Net Assets:
                                                     
Gross Expenses
  
 
2.15%
**
   
 
2.09%
 
   
 
2.16%
 
   
 
2.24%
 
   
 
1.91%
 
   
 
1.88%
 
Net Expenses
  
 
2.08%
**
   
 
2.06%
 
   
 
2.06%
 
   
 
2.03%
 
   
 
1.91%
 
   
 
1.88%
 
Net Investment Loss
  
 
(1.90%
)**
   
 
(1.75%
)
   
 
(1.71%
)
   
 
(1.59%
)
   
 
(1.28%
)
   
 
(1.16%
)
Portfolio Turnover Rate
  
 
40%
**
   
 
65%
 
   
 
63%
 
   
 
38%
 
   
 
55%
 
   
 
83%
 
 
 *
 
Not annualized.
**
 
Annualized.
† 
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
100

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Growth Opportunities Fund
   
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eight-Month Period Ended December 31††
  
Class C
   
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
   
$
25.85
 
     
$
21.40
 
     
$
23.34
 
Income (Loss) From Investment Operations
                               
Net Investment Loss
   
 
(0.20
)
     
 
(0.35
)
     
 
(0.23
)
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(4.34
)
     
 
4.80
 
     
 
(1.71
)
    
    
    
Total from Investment Operations
   
 
(4.54
)
     
 
4.45
 
     
 
(1.94
)
    
    
    
Net Asset Value at End of Period
   
$
21.31
 
     
$
25.85
 
     
$
21.40
 
    
    
    
Total Return†
   
 
(17.56%
)*
     
 
20.74%
 
     
 
(8.27%
)*
Net Assets at End of Period (000’s)
   
$
189,992
 
     
$
194
 
     
$
120
 
Ratios to Average Net Assets:
                               
Gross Expenses
   
 
2.24%
**
     
 
2.06%
 
     
 
2.02%
**
Net Expenses
   
 
2.08%
**
     
 
2.06%
 
     
 
2.02%
**
Net Investment Loss
   
 
(1.90%
)**
     
 
(1.75%
)
     
 
(1.71%
)**
Portfolio Turnover Rate
   
 
40%
**
     
 
65%
 
     
 
63%
**
SAFECO Equity Fund
   
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
Class A
   
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
   
$
18.56
 
   
$
20.68
 
   
$
24.06
 
   
$
23.27
 
   
$
19.55
 
   
$
16.62
 
Income (Loss) From Investment Operations
                                                      
Net Investment Income
   
 
0.02
 
   
 
0.04
 
   
 
0.04
 
   
 
0.11
 
   
 
0.18
 
   
 
0.14
 
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(3.29
)
   
 
(2.12
)
   
 
(2.77
)
   
 
2.02
 
   
 
4.65
 
   
 
3.77
 
    
  
  
  
  
  
Total from Investment Operations
   
 
(3.27
)
   
 
(2.08
)
   
 
(2.73
)
   
 
2.13
 
   
 
4.83
 
   
 
3.91
 
Less Distributions
                                                      
Dividends from Net Investment Income
   
 
(0.02
)
   
 
(0.04
)
   
 
(0.04
)
   
 
(0.11
)
   
 
(0.18
)
   
 
(0.14
)
Distributions from Realized Gains
   
 
–
 
   
 
–
 
   
 
(0.61
)
   
 
(1.23
)
   
 
(0.93
)
   
 
(0.84
)
    
  
  
  
  
  
Total Distributions
   
 
(0.02
)
   
 
(0.04
)
   
 
(0.65
)
   
 
(1.34
)
   
 
(1.11
)
   
 
(0.98
)
    
  
  
  
  
  
Net Asset Value at End of Period
   
$
15.27
 
   
$
18.56
 
   
$
20.68
 
   
$
24.06
 
   
$
23.27
 
   
$
19.55
 
    
  
  
  
  
  
Total Return†
   
 
(17.63%
)*
   
 
(10.06%
)
   
 
(11.34%
)
   
 
9.13%
 
   
 
24.77%
 
   
 
23.56%
 
Net Assets at End of Period (000’s)
   
$
16,539
 
   
$
21,519
 
   
$
53,410
 
   
$
61,625
 
   
$
50,354
 
   
$
7,247
 
Ratios to Average Net Assets:
                                                      
Gross Expenses
   
 
1.76%
**
   
 
1.42%
 
   
 
1.35%
 
   
 
1.12%
 
   
 
0.88%
 
   
 
1.24%
 
Net Expenses
   
 
1.30%
**
   
 
1.28%
 
   
 
1.26%
 
   
 
1.12%
 
   
 
0.88%
 
   
 
1.24%
 
Net Investment Income
   
 
0.24%
**
   
 
0.18%
 
   
 
0.19%
 
   
 
0.44%
 
   
 
0.89%
 
   
 
0.74%
 
Portfolio Turnover Rate
   
 
33%
**
   
 
31%
 
   
 
35%
 
   
 
34%
 
   
 
33%
 
   
 
34%
 
 
 *
 
Not annualized.
**
 
Annualized.   
 †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
101

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Equity Fund
  
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
   
Class B
  
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
  
$
18.20
 
   
$
20.38
 
   
$
23.83
 
   
$
23.15
 
   
$
19.55
 
   
$
16.60
 
Income (Loss) From Investment Operations
                                                     
Net Investment Income (Loss)
  
 
(0.04
)
   
 
(0.11
)
   
 
(0.13
)
   
 
(0.07
)
   
 
(0.03
)
   
 
0.02
 
Net Realized and Unrealized Gain (Loss) on Investments
 
 
(3.23
)
   
 
(2.07
)
   
 
(2.71
)
   
 
1.98
 
   
 
4.56
 
   
 
3.79
 
   
  
  
  
  
  
Total from Investment Operations
  
 
(3.27
)
   
 
(2.18
)
   
 
(2.84
)
   
 
1.91
 
   
 
4.53
 
   
 
3.81
 
Less Distributions
                                                     
Dividends from Net Investment Income
  
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.02
)
Distributions from Realized Gains
  
 
–
 
   
 
–
 
   
 
(0.61
)
   
 
(1.23
)
   
 
(0.93
)
   
 
(0.84
)
   
  
  
  
  
  
Total Distributions
  
 
–
 
   
 
–
 
   
 
(0.61
)
   
 
(1.23
)
   
 
(0.93
)
   
 
(0.86
)
   
  
  
  
  
  
Net Asset Value at End of Period
  
$
14.93
 
   
$
18.20
 
   
$
20.38
 
   
$
23.83
 
   
$
23.15
 
   
$
19.55
 
   
  
  
  
  
  
Total Return†
  
 
(17.97%
)*
   
 
(10.70%
)
   
 
(11.91%
)
   
 
8.18%
 
   
 
23.16%
 
   
 
22.93%
 
Net Assets at End of Period (000’s)
  
$
   12,756
 
   
$
  16,423
 
   
$
  20,349
 
   
$
28,260
 
   
$
 17,232
 
   
$
  3,565
 
Ratios to Average Net Assets:
                                                     
Gross Expenses
  
 
2.11%
**
   
 
2.05%
 
   
 
2.06%
 
   
 
2.05%
 
   
 
1.94%
 
   
 
1.81%
 
Net Expenses
  
 
2.05%
**
   
 
2.03%
 
   
 
2.01%
 
   
 
1.95%
 
   
 
1.94%
 
   
 
1.81%
 
Net Investment Income (Loss)
  
 
(0.51%
)**
   
 
(0.58%
)
   
 
(0.54%
)
   
 
(0.41%
)
   
 
(0.21%
)
   
 
0.12%
 
Portfolio Turnover Rate
  
 
33%
**
   
 
31%
 
   
 
35%
 
   
 
34%
 
   
 
33%
 
   
 
34%
 
SAFECO Equity Fund
   
 
 
 
Six-Month
Period Ended
June 30
 
 
 
   
 
 
 
 
For the
Year
Ended
December 31
 
 
 
 
   
 
 
 
 
 
Eight-
Month
Period
Ended
December 31
 
 
 
 
 ††
    
  
  
Class C
   
2002
     
2001
     
2000
  
Net Asset Value at Beginning of Period
   
$
18.22
 
   
$
20.40
 
   
$
22.87
 
Loss From Investment Operations
                           
Net Investment Loss
   
 
(0.04
)
   
 
(0.09
)
   
 
(0.06
)
Net Realized and Unrealized Loss on Investments
   
 
(3.23
)
   
 
(2.09
)
   
 
(1.80
)
    
  
  
Total from Investment Operations
   
 
(3.27
)
   
 
(2.18
)
   
 
(1.86
)
Less Distributions
                           
Distributions from Realized Gains
   
 
–
 
   
 
–
 
   
 
(0.61
)
    
  
  
Net Asset Value at End of Period
   
$
14.95
 
   
$
18.22
 
   
$
20.40
 
    
  
  
Total Return†
   
 
(17.95%
)*
   
 
(10.73%
)
   
 
(8.08%
)*
Net Assets at End of Period (000’s)
   
$
130
 
   
$
155
 
   
$
119
 
Ratios to Average Net Assets:
                           
Gross Expenses
   
 
2.28%
**
   
 
2.03%
 
   
 
1.84%
**
Net Expenses
   
 
2.05%
**
   
 
2.03%
 
   
 
1.84%
**
Net Investment Loss
   
 
(0.50%
)**
   
 
(0.58%
)
   
 
(0.44%
)**
Portfolio Turnover Rate
   
 
33%
**
   
 
31%
 
   
 
35%
**
 
   *
 
Not annualized.
  **
 
Annualized.
  †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
102

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Dividend Income Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
 
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
18.91
 
   
$
20.68
 
   
$
22.52
 
   
$
23.55
 
   
$
24.02
 
   
$
21.15
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income
     
 
0.10
 
   
 
0.25
 
   
 
0.35
 
   
 
0.42
 
   
 
0.48
 
   
 
0.51
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
(1.61
)
   
 
(1.77
)
   
 
(1.84
)
   
 
(0.20
)
   
 
0.81
 
   
 
4.98
 
      
  
  
  
  
  
Total from Investment Operations
     
 
(1.51
)
   
 
(1.52
)
   
 
(1.49
)
   
 
0.22
 
   
 
1.29
 
   
 
5.49
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.10
)
   
 
(0.25
)
   
 
(0.35
)
   
 
(0.42
)
   
 
(0.48
)
   
 
(0.51
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.83
)
   
 
(1.28
)
   
 
(2.11
)
      
  
  
  
  
  
Total Distributions
     
 
(0.10
)
   
 
(0.25
)
   
 
(0.35
)
   
 
(1.25
)
   
 
(1.76
)
   
 
(2.62
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
17.30
 
   
$
18.91
 
   
$
20.68
 
   
$
22.52
 
   
$
23.55
 
   
$
24.02
 
      
  
  
  
  
  
Total Return†
     
 
(8.03%
)*
   
 
(7.33%
)
   
 
(6.59%
)
   
 
1.01%
 
   
 
5.38%
 
   
 
26.15%
 
Net Assets at End of Period (000’s)
     
$
856
 
   
$
882
 
   
$
1,092
 
   
$
2,046
 
   
$
2,073
 
   
$
742
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
1.54%
**
   
 
1.52%
 
   
 
1.62%
 
   
 
1.47%
 
   
 
1.34%
 
   
 
1.14%
 
Net Expenses
     
 
1.35%
**
   
 
1.35%
 
   
 
1.35%
 
   
 
1.31%
 
   
 
1.34%
 
   
 
1.14%
 
Net Investment Income
     
 
1.08%
**
   
 
1.30%
 
   
 
1.56%
 
   
 
1.84%
 
   
 
2.16%
 
   
 
2.50%
 
Portfolio Turnover Rate
     
 
16%
**
   
 
58%
 
   
 
45%
 
   
 
42%
 
   
 
46%
 
   
 
52%
 
SAFECO Dividend Income Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
 
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
18.95
 
   
$
20.71
 
   
$
22.53
 
   
$
23.57
 
   
$
23.95
 
   
$
21.12
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income
     
 
0.03
 
   
 
0.11
 
   
 
0.18
 
   
 
0.25
 
   
 
0.30
 
   
 
0.38
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
(1.61
)
   
 
(1.76
)
   
 
(1.82
)
   
 
(0.21
)
   
 
0.90
 
   
 
4.94
 
      
  
  
  
  
  
Total from Investment Operations
     
 
(1.58
)
   
 
(1.65
)
   
 
(1.64
)
   
 
0.04
 
   
 
1.20
 
   
 
5.32
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.03
)
   
 
(0.11
)
   
 
(0.18
)
   
 
(0.25
)
   
 
(0.30
)
   
 
(0.38
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.83
)
   
 
(1.28
)
   
 
(2.11
)
      
  
  
  
  
  
Total Distributions
     
 
(0.03
)
   
 
(0.11
)
   
 
(0.18
)
   
 
(1.08
)
   
 
(1.58
)
   
 
(2.49
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
17.34
 
   
$
18.95
 
   
$
20.71
 
   
$
22.53
 
   
$
23.57
 
   
$
23.95
 
      
  
  
  
  
  
Total Return†
     
 
(8.35%
)*
   
 
(7.98%
)
   
 
(7.29%
)
   
 
0.18%
 
   
 
5.03%
 
   
 
25.35%
 
Net Assets at End of Period (000’s)
     
$
958
 
   
$
1,160
 
   
$
1,532
 
   
$
2,365
 
   
$
2,176
 
   
$
798
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
2.29%
**
   
 
2.24%
 
   
 
2.27%
 
   
 
2.22%
 
   
 
2.08%
 
   
 
1.83%
 
Net Expenses
     
 
2.10%
**
   
 
2.10%
 
   
 
2.10%
 
   
 
2.06%
 
   
 
2.08%
 
   
 
1.83%
 
Net Investment Income
     
 
0.30%
**
   
 
0.55%
 
   
 
0.80%
 
   
 
1.09%
 
   
 
1.45%
 
   
 
1.79%
 
Portfolio Turnover Rate
     
 
16%
**
   
 
58%
 
   
 
45%
 
   
 
42%
 
   
 
46%
 
   
 
52%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
103

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Dividend Income Fund
   
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eight-Month Period Ended December 31††
  
    
    
    
Class C
   
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
   
$
    18.99
 
     
$
    20.75
 
     
$
    21.06
 
Income (Loss) From Investment Operations
                               
Net Investment Income
   
 
0.05
 
     
 
0.12
 
     
 
0.12
 
Net Realized and Unrealized Loss on
Investments
   
 
(1.62
)
     
 
(1.76
)
     
 
(0.31
)
    
    
    
Total from Investment Operations
   
 
(1.57
)
     
 
(1.64
)
     
 
(0.19
)
Less Distributions
                               
Dividends from Net Investment Income
   
 
(0.05
)
     
 
(0.12
)
     
 
(0.12
)
    
    
    
Net Asset Value at End of Period
   
$
17.37
 
     
$
18.99
 
     
$
20.75
 
    
    
    
Total Return†
   
 
(8.29%
)*
     
 
(7.90%
)
     
 
(0.90%
)*
Net Assets at End of Period (000’s)
   
$
96
 
     
$
97
 
     
$
99
 
Ratios to Average Net Assets:
                               
Gross Expenses
   
 
2.32%
**
     
 
2.03%
 
     
 
1.95%
**
Net Expenses
   
 
2.10%
**
     
 
2.03%
 
     
 
1.95%
**
Net Investment Income
   
 
0.52%
**
     
 
0.60%
 
     
 
0.85%
**
Portfolio Turnover Rate
  
 
16%
**
     
 
58%
 
     
 
45%
**
SAFECO Northwest Fund
   
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
    
Class A
   
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
   
$
18.54
 
   
$
20.94
 
   
$
25.01
 
   
$
17.56
 
   
$
17.25
 
   
$
14.06
 
Income (Loss) From Investment Operations
                                                      
Net Investment Loss
   
 
(0.04
)
   
 
(0.08
)
   
 
(0.14
)
   
 
(0.12
)
   
 
(0.16
)
   
 
(0.06
)
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(2.17
)
   
 
(2.32
)
   
 
(3.93
)
   
 
9.58
 
   
 
0.66
 
   
 
4.39
 
    
  
  
  
  
  
Total from Investment Operations
   
 
(2.21
)
   
 
(2.40
)
   
 
(4.07
)
   
 
9.46
 
   
 
0.50
 
   
 
4.33
 
Less Distributions
                                                      
Distributions from Realized Gains
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(2.01
)
   
 
(0.19
)
   
 
(1.14
)
    
  
  
  
  
  
Net Asset Value at End of Period
   
$
16.33
 
   
$
18.54
 
   
$
20.94
 
   
$
25.01
 
   
$
17.56
 
   
$
17.25
 
    
  
  
  
  
  
Total Return†
   
 
(11.92%
)*
   
 
(11.46%
)
   
 
(16.27%
)
   
 
53.90%
 
   
 
2.87%
 
   
 
30.79%
 
Net Assets at End of Period (000’s)
   
$
4,504
 
   
$
5,141
 
   
$
6,621
 
   
$
4,774
 
   
$
2,208
 
   
$
1,354
 
Ratios to Average Net Assets:
                                                      
Gross Expenses
   
 
1.55%
**
   
 
1.52%
 
   
 
1.49%
 
   
 
1.56%
 
   
 
1.70%
 
   
 
1.42%
 
Net Expenses
   
 
1.35%
**
   
 
1.35%
 
   
 
1.35%
 
   
 
1.36%
 
   
 
1.70%
 
   
 
1.42%
 
Net Investment Loss
   
 
(0.48%
)**
   
 
(0.41%
)
   
 
(0.67%
)
   
 
(0.81%
)
   
 
(1.06%
)
   
 
(0.61%
)
Portfolio Turnover Rate
   
 
16%
**
   
 
50%
 
   
 
36%
 
   
 
49%
 
   
 
50%
 
   
 
55%
 
 
  *
 
Not annualized.
 **
 
Annualized.
  †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
104

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Northwest Fund
   
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
    
 
Class B
   
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
   
$
17.86
 
   
$
20.33
 
   
$
24.46
 
   
$
17.31
 
   
$
17.09
 
   
$
14.03
 
Income (Loss) From Investment Operations
                                                      
Net Investment Loss
   
 
(0.11
)
   
 
(0.21
)
   
 
(0.30
)
   
 
(0.25
)
   
 
(0.23
)
   
 
(0.10
)
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(2.07
)
   
 
(2.26
)
   
 
(3.83
)
   
 
9.41
 
   
 
0.64
 
   
 
4.30
 
    
  
  
  
  
  
Total from Investment Operations
   
 
(2.18
)
   
 
(2.47
)
   
 
(4.13
)
   
 
9.16
 
   
 
0.41
 
   
 
4.20
 
Less Distributions
                                                      
Distributions from Realized Gains
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(2.01
)
   
 
(0.19
)
   
 
(1.14
)
    
  
  
  
  
  
Net Asset Value at End of Period
   
$
    15.68
 
   
$
    17.86
 
   
$
    20.33
 
   
$
    24.46
 
   
$
  17.31
 
   
$
    17.09
 
    
  
  
  
  
  
Total Return†
   
 
(12.21%
)*
   
 
(12.15%
)
   
 
(16.88%
)
   
 
52.57%
 
   
 
2.37%
 
   
 
29.93%
 
Net Assets at End of Period (000’s)
   
$
4,706
 
   
$
5,753
 
   
$
6,449
 
   
$
4,842
 
   
$
2,603
 
   
$
1,204
 
Ratios to Average Net Assets:
                                                      
Gross Expenses
   
 
2.30%
**
   
 
2.26%
 
   
 
2.22%
 
   
 
2.32%
 
   
 
2.30%
 
   
 
2.09%
 
Net Expenses
   
 
2.10%
**
   
 
2.10%
 
   
 
2.10%
 
   
 
2.12%
 
   
 
2.30%
 
   
 
2.09%
 
Net Investment Loss
   
 
(1.24%
)**
   
 
(1.16%
)
   
 
(1.42%
)
   
 
(1.56%
)
   
 
(1.66%
)
   
 
(1.30%
)
Portfolio Turnover Rate
   
 
16%
**
   
 
50%
 
   
 
36%
 
   
 
49%
 
   
 
50%
 
   
 
55%
 
SAFECO Northwest Fund
     
Six-Month Period Ended June 30
       
For the
Year Ended
December 31
       
Eight-Month Period Ended December 31††
  
      
      
      
 
Class C
     
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
     
$
17.87
 
     
$
20.33
 
     
$
24.21
 
Loss From Investment Operations
                                 
Net Investment Loss
     
 
(0.10
)
     
 
(0.20
)
     
 
(0.21
)
Net Realized and Unrealized Loss on Investments
     
 
(2.09
)
     
 
(2.26
)
     
 
(3.67
)
      
    
    
Total Loss from Investment Operations
     
 
(2.19
)
     
 
(2.46
)
     
 
(3.88
)
      
    
    
Net Asset Value at End of Period
     
$
15.68
 
     
$
17.87
 
     
$
20.33
 
      
    
    
Total Return†
     
 
(12.26%
)*
     
 
(12.10%
)
     
 
(16.03%
)*
Net Assets at End of Period (000’s)
     
$
88
 
     
$
100
 
     
$
103
 
Ratios to Average Net Assets:
                                 
Gross Expenses
     
 
2.55%
**
     
 
2.25%
 
     
 
2.07%
**
Net Expenses
     
 
2.10%
**
     
 
2.10%
 
     
 
2.07%
**
Net Investment Loss
     
 
(1.24%
)**
     
 
(1.15%
)
     
 
(1.34%
)**
Portfolio Turnover Rate
     
 
16%
**
     
 
50%
 
     
 
36%
**
 
   *
 
Not annualized.
  **
 
Annualized.   
  †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
105

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO International Stock Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
10.45
 
   
$
14.20
 
   
$
16.89
 
   
$
13.13
 
   
$
11.55
 
   
$
11.29
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income (Loss)
     
 
0.05
 
   
 
0.05
 
   
 
0.05
 
   
 
(0.01
)
   
 
(0.04
)
   
 
0.20
 
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency
     
 
(0.44
)
   
 
(3.71
)
   
 
(1.92
)
   
 
3.77
 
   
 
1.62
 
   
 
0.29
 
      
  
  
  
  
  
Total from Investment Operations
     
 
(0.39
)
   
 
(3.66
)
   
 
(1.87
)
   
 
3.76
 
   
 
1.58
 
   
 
0.49
 
      
  
  
  
  
  
Redemption Fee
     
 
0.01
 
   
 
0.14
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
      
  
  
  
  
  
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
–
 
   
 
(0.23
)
   
 
(0.05
)
   
 
–
 
   
 
–
 
   
 
(0.21
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
(0.77
)
   
 
–
 
   
 
–
 
   
 
(0.02
)
      
  
  
  
  
  
Total Distributions
     
 
–
 
   
 
(0.23
)
   
 
(0.82
)
   
 
–
 
   
 
–
 
   
 
(0.23
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
10.07
 
   
$
10.45
 
   
$
14.20
 
   
$
16.89
 
   
$
13.13
 
   
$
11.55
 
      
  
  
  
  
  
Total Return†
     
 
(3.64%
)*
   
 
(24.49%
)
   
 
(11.05%
)
   
 
28.64%
 
   
 
13.68%
 
   
 
4.30%
 
Net Assets at End of Period (000’s)
     
$
913
 
   
$
969
 
   
$
1,423
 
   
$
1,215
 
   
$
629
 
   
$
295
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
2.50%
**
   
 
2.40%
 
   
 
2.21%
 
   
 
2.11%
 
   
 
2.31%
 
   
 
2.13%
 
Net Expenses
     
 
1.65%
**
   
 
1.71%
 
   
 
1.65%
 
   
 
1.73%
 
   
 
2.14%
 
   
 
1.87%
 
Net Investment Income (Loss)
     
 
0.51%
**
   
 
0.36%
 
   
 
0.04%
 
   
 
(0.06%
)
   
 
(0.47%
)
   
 
0.26%
 
Portfolio Turnover Rate
     
 
20%
**
   
 
163%
 
   
 
33%
 
   
 
24%
 
   
 
26%
 
   
 
22%
 
SAFECO International Stock Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
10.25
 
   
$
13.88
 
   
$
16.56
 
   
$
12.99
 
   
$
11.53
 
   
$
11.28
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income (Loss)
     
 
0.01
 
   
 
(0.06
)
   
 
(0.09
)
   
 
(0.10
)
   
 
(0.11
)
   
 
0.18
 
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
     
 
(0.43
)
   
 
(3.60
)
   
 
(1.82
)
   
 
3.67
 
   
 
1.57
 
   
 
0.22
 
      
  
  
  
  
  
Total from Investment Operations
     
 
(0.42
)
   
 
(3.66
)
   
 
(1.91
)
   
 
3.57
 
   
 
1.46
 
   
 
0.40
 
      
  
  
  
  
  
Redemption Fee
     
 
0.01
 
   
 
0.14
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
      
  
  
  
  
  
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
–
 
   
 
(0.11
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.13
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
(0.77
)
   
 
–
 
   
 
–
 
   
 
(0.02
)
      
  
  
  
  
  
Total Distributions
     
 
–
 
   
 
(0.11
)
   
 
(0.77
)
   
 
–
 
   
 
–
 
   
 
(0.15
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
9.84
 
   
$
10.25
 
   
$
13.88
 
   
$
16.56
 
   
$
12.99
 
   
$
11.53
 
      
  
  
  
  
  
Total Return†
     
 
(4.00%
)*
   
 
(25.07%
)
   
 
(11.52%
)
   
 
27.48%
 
   
 
12.66%
 
   
 
3.48%
 
Net Assets at End of Period (000’s)
     
$
895
 
   
$
1,027
 
   
$
1,492
 
   
$
1,392
 
   
$
777
 
   
$
331
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
3.34%
**
   
 
3.20%
 
   
 
2.97%
 
   
 
3.02%
 
   
 
3.19%
 
   
 
2.90%
 
Net Expenses
    
 
2.40%
**
   
 
2.46%
 
   
 
2.40%
 
   
 
2.51%
 
   
 
3.02%
 
   
 
2.64%
 
Net Investment Income (Loss)
     
 
0.16%
**
   
 
(0.52%
)
   
 
(0.64%
)
   
 
(0.84%
)
   
 
(1.33%
)
   
 
0.51%
 
Portfolio Turnover Rate
     
 
20%
**
   
 
163%
 
   
 
33%
 
   
 
24%
 
   
 
26%
 
   
 
22%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
106

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)

 
SAFECO International Stock Fund
   
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eight-Month Period Ended December 31††
  
    
 
Class C
   
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
   
$
10.25
 
     
$
13.85
 
     
$
15.82
 
Loss From Investment Operations
                               
Net Investment Income (Loss)
   
 
0.01
 
     
 
(0.07
)
     
 
(0.07
)
Net Realized and Unrealized Loss on Investments and Foreign Currency
   
 
(0.43
)
     
 
(3.57
)
     
 
(1.13
)
    
    
    
Total from Investment Operations
   
 
(0.42
)
     
 
(3.64
)
     
 
(1.20
)
    
    
    
Redemption Fee
   
 
0.01
 
     
 
0.14
 
     
 
–
 
    
    
    
Less Distributions
                               
Distributions from Realized Gains
   
 
–
 
     
 
(0.10
)
     
 
(0.77
)
    
    
    
Net Asset Value at End of Period
   
$
9.84
 
     
$
10.25
 
     
$
13.85
 
    
    
    
Total Return†
   
 
(4.00%
)*
     
 
(25.08%
)
     
 
(7.76%
)*
Net Assets at End of Period (000’s)
   
$
77
 
     
$
80
 
     
$
97
 
Ratios to Average Net Assets:
                               
Gross Expenses
   
 
3.39%
**
     
 
3.03%
 
     
 
2.66%
**
Net Expenses
   
 
2.40%
**
     
 
2.46%
 
     
 
2.40%
**
Net Investment Income (Loss)
   
 
0.16%
**
     
 
(0.69%
)
     
 
(0.75%
)**
Portfolio Turnover Rate
   
 
20%
**
     
 
163%
 
     
 
33%
**
SAFECO Balanced Fund
   
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
    
 
Class A
   
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
   
$
11.73
 
   
$
12.09
 
   
$
11.87
 
   
$
12.23
 
   
$
11.60
 
   
$
10.69
 
Income (Loss) From Investment Operations
                                                      
Net Investment Income
   
 
0.13
 
   
 
0.30
 
   
 
0.32
 
   
 
0.22
 
   
 
0.25
 
   
 
0.28
 
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(0.63
)
   
 
(0.36
)
   
 
0.22
 
   
 
(0.13
)
   
 
1.14
 
   
 
1.45
 
    
  
  
  
  
  
Total from Investment Operations
   
 
(0.50
)
   
 
(0.06
)
   
 
0.54
 
   
 
0.09
 
   
 
1.39
 
   
 
1.73
 
Less Distributions
                                                      
Dividends from Net Investment Income
   
 
(0.13
)
   
 
(0.30
)
   
 
(0.32
)
   
 
(0.22
)
   
 
(0.25
)
   
 
(0.28
)
Distributions from Realized Gains
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.23
)
   
 
(0.51
)
   
 
(0.54
)
    
  
  
  
  
  
Total Distributions
   
 
(0.13
)
   
 
(0.30
)
   
 
(0.32
)
   
 
(0.45
)
   
 
(0.76
)
   
 
(0.82
)
    
  
  
  
  
  
Net Asset Value at End of Period
   
$
11.10
 
   
$
11.73
 
   
$
12.09
 
   
$
11.87
 
   
$
12.23
 
   
$
11.60
 
    
  
  
  
  
  
Total Return†
   
 
(4.26%
)*
   
 
(0.42%
)
   
 
4.71%
 
   
 
0.75%
 
   
 
12.06%
 
   
 
16.29%
 
Net Assets at End of Period (000’s)
   
$
1,730
 
   
$
1,733
 
   
$
1,789
 
   
$
2,573
 
   
$
893
 
   
$
205
 
Ratios to Average Net Assets:
                                                      
Gross Expenses
   
 
1.80%
**
   
 
1.82%
 
   
 
1.88%
 
   
 
1.68%
 
   
 
1.67%
 
   
 
1.52%
 
Net Expenses
   
 
1.35%
**
   
 
1.35%
 
   
 
1.35%
 
   
 
1.36%
 
   
 
1.67%
 
   
 
1.52%
 
Net Investment Income
   
 
2.40%
**
   
 
2.57%
 
   
 
2.62%
 
   
 
2.16%
 
   
 
2.23%
 
   
 
2.55%
 
Portfolio Turnover Rate
   
 
65%
**
   
 
75%
 
   
 
63%
 
   
 
95%
 
   
 
75%
 
   
 
101%
 
 
   *
 
Not annualized.
  **
 
Annualized.
  †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
107

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Balanced Fund
    
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
  11.71
 
   
$
12.07
 
   
$
11.83
 
   
$
12.24
 
   
$
11.60
 
   
$
10.70
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income
     
 
0.09
 
   
 
0.21
 
   
 
0.23
 
   
 
0.18
 
   
 
0.15
 
   
 
0.18
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
(0.63
)
   
 
(0.36
)
   
 
0.24
 
   
 
(0.18
)
   
 
1.15
 
   
 
1.44
 
      
  
  
  
  
  
Total from Investment Operations
     
 
(0.54
)
   
 
(0.15
)
   
 
0.47
 
   
 
0.00
 
   
 
1.30
 
   
 
1.62
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.09
)
   
 
(0.21
)
   
 
(0.23
)
   
 
(0.18
)
   
 
(0.15
)
   
 
(0.18
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.23
)
   
 
(0.51
)
   
 
(0.54
)
      
  
  
  
  
  
Total Distributions
     
 
(0.09
)
   
 
(0.21
)
   
 
(0.23
)
   
 
(0.41
)
   
 
(0.66
)
   
 
(0.72
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
11.08
 
   
$
11.71
 
   
$
12.07
 
   
$
11.83
 
   
$
12.24
 
   
$
11.60
 
      
  
  
  
  
  
Total Return†
     
 
(4.59%
)*
   
 
(1.19%
)
   
 
4.03%
 
   
 
(0.01%
)
   
 
11.30%
 
   
 
15.21%
 
Net Assets at End of Period (000’s)
     
$
1,755
 
   
$
1,979
 
   
$
1,904
 
   
$
2,553
 
   
$
2,056
 
   
$
331
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
2.56%
**
   
 
2.55%
 
   
 
2.56%
 
   
 
2.46%
 
   
 
2.34%
 
   
 
2.28%
 
Net Expenses
     
 
2.10%
**
   
 
2.10%
 
   
 
2.10%
 
   
 
2.14%
 
   
 
2.34%
 
   
 
2.28%
 
Net Investment Income
     
 
1.64%
**
   
 
1.82%
 
   
 
1.89%
 
   
 
1.43%
 
   
 
1.55%
 
   
 
1.78%
 
Portfolio Turnover Rate
     
 
65%
**
   
 
75%
 
   
 
63%
 
   
 
95%
 
   
 
75%
 
   
 
101%
 
SAFECO Small Company Value Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
13.57
 
   
$
11.59
 
   
$
12.55
 
   
$
11.09
 
   
$
14.21
 
   
$
11.81
 
Income (Loss) From Investment Operations
                                                        
Net Investment Income (Loss)
     
 
0.01
 
   
 
0.10
 
   
 
(0.04
)
   
 
(0.09
)
   
 
(0.08
)
   
 
(0.06
)
Net Realized and Unrealized Gain (Loss) on Investments
     
 
0.79
 
   
 
1.98
 
   
 
(0.92
)
   
 
1.55
 
   
 
(3.04
)
   
 
2.80
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.80
 
   
 
2.08
 
   
 
(0.96
)
   
 
1.46
 
   
 
(3.12
)
   
 
2.74
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
–
 
   
 
(0.10
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.34
)
      
  
  
  
  
  
Total Distributions
     
 
–
 
   
 
(0.10
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.34
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
14.37
 
   
$
13.57
 
   
$
11.59
 
   
$
12.55
 
   
$
11.09
 
   
$
14.21
 
      
  
  
  
  
  
Total Return†
     
 
5.90%
*
   
 
17.92%
 
   
 
(7.65%
)
   
 
13.17%
 
   
 
(21.96%
)
   
 
23.21%
 
Net Assets at End of Period (000’s)
     
$
1,271
 
   
$
1,009
 
   
$
847
 
   
$
1,067
 
   
$
1,220
 
   
$
271
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
1.74%
**
   
 
1.82%
 
   
 
1.92%
 
   
 
1.97%
 
   
 
1.66%
 
   
 
1.52%
 
Net Expenses
     
 
1.40%
**
   
 
1.44%
 
   
 
1.40%
 
   
 
1.47%
 
   
 
1.66%
 
   
 
1.52%
 
Net Investment Income (Loss)
     
 
0.09%
**
   
 
0.75%
 
   
 
(0.32%
)
   
 
(0.79%
)
   
 
(0.99%
)
   
 
(0.60%
)
Portfolio Turnover Rate
     
 
71%
**
   
 
141%
 
   
 
107%
 
   
 
117%
 
   
 
90%
 
   
 
61%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
108

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Small Company Value Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
 
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
       
1997
  
Net Asset Value at Beginning of Period
     
$
13.10
 
   
$
11.19
 
   
$
12.22
 
   
$
10.88
 
   
$
14.07
 
     
$
11.79
 
Income (Loss) From Investment Operations
                                                          
Net Investment Income (Loss)
     
 
(0.04
)
   
 
0.01
 
   
 
(0.12
)
   
 
(0.16
)
   
 
(0.15
)
     
 
(0.10
)
Net Realized and Unrealized Gain (Loss) on
Investments
    
 
0.77
 
   
 
1.91
 
   
 
(0.91
)
   
 
1.50
 
   
 
(3.04
)
     
 
2.72
 
      
  
  
  
  
    
Total from Investment Operations
     
 
0.73
 
   
 
1.92
 
   
 
(1.03
)
   
 
1.34
 
   
 
(3.19
)
     
 
2.62
 
Less Distributions
                                                          
Dividends from Net Investment Income
     
 
–
 
   
 
(0.01
)
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
(0.34
)
      
  
  
  
  
    
Total Distributions
     
 
–
 
   
 
(0.01
)
   
 
–
 
   
 
–
 
   
 
–
 
     
 
(0.34
)
      
  
  
  
  
    
Net Asset Value at End of Period
     
$
  13.83
 
   
$
13.10
 
   
$
11.19
 
   
$
12.22
 
   
$
10.88
 
     
$
14.07
 
      
  
  
  
  
    
Total Return†
     
 
5.57%
*
   
 
17.11%
 
   
 
(8.43%
)
   
 
12.32%
 
   
 
(22.67%
)
     
 
22.23%
 
Net Assets at End of Period (000’s)
     
$
1,471
 
   
$
1,334
 
   
$
1,144
 
   
$
1,274
 
   
$
1,034
 
     
$
396
 
Ratios to Average Net Assets:
                                                          
Gross Expenses
     
 
2.49%
**
   
 
2.56%
 
   
 
2.63%
 
   
 
2.75%
 
   
 
2.64%
 
     
 
2.29%
 
Net Expenses
     
 
2.15%
**
   
 
2.19%
 
   
 
2.15%
 
   
 
2.21%
 
   
 
2.64%
 
     
 
2.29%
 
Net Investment Income (Loss)
     
 
(0.68%
)**
   
 
0.04%
 
   
 
(1.01%
)
   
 
(1.55%
)
   
 
(1.91%
)
     
 
(1.35%
)
Portfolio Turnover Rate
     
 
71%
**
   
 
141%
 
   
 
107%
 
   
 
117%
 
   
 
90%
 
     
 
61%
 
SAFECO U.S. Value Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
       
April 30, 1997
(Commencement
of Operations)
to December 31
  
      
 
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
       
1997
  
Net Asset Value at Beginning of Period
     
$
11.25
 
   
$
11.95
 
   
$
11.94
 
   
$
11.93
 
   
$
11.18
 
     
$
    10.00
 
Income (Loss) From Investment Operations
                                                          
Net Investment Income
     
 
0.05
 
   
 
0.11
 
   
 
0.10
 
   
 
0.03
 
   
 
0.05
 
     
 
0.08
 
Net Realized and Unrealized Gain (Loss) on Investments
     
 
(0.96
)
   
 
(0.70
)
   
 
0.01
 
   
 
0.54
 
   
 
1.27
 
     
 
1.65
 
      
  
  
  
  
    
Total from Investment Operations
     
 
(0.91
)
   
 
(0.59
)
   
 
0.11
 
   
 
0.57
 
   
 
1.32
 
     
 
1.73
 
Less Distributions
                                                          
Dividends from Net Investment Income
     
 
(0.05
)
   
 
(0.11
)
   
 
(0.10
)
   
 
(0.06
)
   
 
(0.05
)
     
 
(0.08
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.50
)
   
 
(0.52
)
     
 
(0.47
)
      
  
  
  
  
    
Total Distributions
     
 
(0.05
)
   
 
(0.11
)
   
 
(0.10
)
   
 
(0.56
)
   
 
(0.57
)
     
 
(0.55
)
      
  
  
  
  
    
Net Asset Value at End of Period
     
$
10.29
 
   
$
11.25
 
   
$
11.95
 
   
$
11.94
 
   
$
11.93
 
     
$
11.18
 
      
  
  
  
  
    
Total Return†
     
 
(8.14%
)*
   
 
(4.96%
)
   
 
0.97%
 
   
 
4.74%
 
   
 
11.79%
 
     
 
17.24%
*
Net Assets at End of Period (000’s)
     
$
343
 
   
$
336
 
   
$
299
 
   
$
331
 
   
$
210
 
     
$
133
 
Ratios to Average Net Assets:
                                                          
Gross Expenses
     
 
2.24%
**
   
 
2.30%
 
   
 
2.26%
 
   
 
2.02%
 
   
 
2.07%
 
     
 
1.48%
**
Net Expenses
     
 
1.35%
**
   
 
1.35%
 
   
 
1.35%
 
   
 
1.40%
 
   
 
2.07%
 
     
 
1.48%
**
Net Investment Income
     
 
0.90%
**
   
 
0.96%
 
   
 
0.89%
 
   
 
0.66%
 
   
 
0.18%
 
     
 
1.03%
**
Portfolio Turnover Rate
     
 
42%
**
   
 
39%
 
   
 
45%
 
   
 
52%
 
   
 
55%
 
     
 
36%
**
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
109

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO U.S. Value Fund
  
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
April 30, 1997
(Commencement of Operations) to December 31
  
    
 
Class B
   
2002
       
2001
     
2000
       
1999
     
1998
       
1997
  
Net Asset Value at Beginning of Period
   
$
11.20
 
     
$
11.89
 
   
$
11.88
 
     
$
11.91
 
   
$
11.18
 
     
$
10.00
 
Income (Loss) From Investment Operations
                                                            
Net Investment Income (Loss)
   
 
0.01
 
     
 
0.02
 
   
 
0.02
 
     
 
(0.01
)
   
 
(0.03
)
     
 
0.02
 
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(0.96
)
     
 
(0.69
)
   
 
0.01
 
     
 
0.48
 
   
 
1.28
 
     
 
1.65
 
    
    
  
    
  
    
Total from Investment Operations
   
 
(0.95
)
     
 
(0.67
)
   
 
0.03
 
     
 
0.47
 
   
 
1.25
 
     
 
1.67
 
Less Distributions
                                                            
Dividends from Net Investment Income
   
 
(0.01
)
     
 
(0.02
)
   
 
(0.02
)
    
 
–
 
   
 
–
 
     
 
(0.02
)
Distributions from Realized Gains
   
 
–
 
     
 
–
 
   
 
–
 
     
 
(0.50
)
   
 
(0.52
)
     
 
(0.47
)
    
    
  
    
  
    
Total Distributions
   
 
(0.01
)
     
 
(0.02
)
   
 
(0.02
)
     
 
(0.50
)
   
 
(0.52
)
     
 
(0.49
)
    
    
  
    
  
    
Net Asset Value at End of Period
   
$
10.24
 
     
$
11.20
 
   
$
11.89
 
     
$
11.88
 
   
$
11.91
 
     
$
11.18
 
    
    
  
    
  
    
Total Return†
   
 
(8.47%
)*
     
 
(5.65%
)
   
 
0.24%
 
     
 
3.92%
 
   
 
11.18%
 
     
 
16.63%
*
Net Assets at End of Period (000’s)
   
$
536  
 
     
$
551
 
   
$
567  
 
     
$
747  
 
   
$
628  
 
     
$
221  
 
Ratios to Average Net Assets:
                                                            
Gross Expenses
   
 
2.95%
**
     
 
2.98%
 
   
 
2.86%
 
     
 
2.73%
 
   
 
2.59%
 
     
 
2.29%
**
Net Expenses
   
 
2.10%
**
     
 
2.10%
 
   
 
2.10%
 
     
 
2.18%
 
   
 
2.59%
 
     
 
2.29%
**
Net Investment Income (Loss)
   
 
0.14%
**
     
 
0.21%
 
   
 
0.14%
 
     
 
(0.10%
)
   
 
(0.35%
)
     
 
0.20%
**
Portfolio Turnover Rate
   
 
42%
**
     
 
39%
 
   
 
45%
 
     
 
52%
 
   
 
55%
 
     
 
36%
**
    
Class A
  
Class B
  
Class C
    
 
SAFECO Small Company Growth Fund
   
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
     
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
     
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
  
    
 
    
2002
       
2001
     
2002
       
2001
     
2002
       
2001
  
Net Asset Value at Beginning of Period
   
$
11.31
 
     
$
10.00
 
   
$
11.30
 
     
$
10.00
 
   
$
11.30
 
     
$
10.00
 
Income (Loss) From Investment Operations
                                                            
Net Investment Loss
   
 
(0.08
)
     
 
(0.03
)
   
 
(0.12
)
     
 
(0.04
)
   
 
(0.12
)
     
 
(0.04
)
Net Realized and Unrealized Gain (Loss) on Investments
   
 
(1.31
)
     
 
1.34
 
   
 
(1.31
)
     
 
1.34
 
   
 
(1.31
)
     
 
1.34
 
    
    
  
    
  
    
Total from Investment Operations
   
 
(1.39
)
     
 
1.31
 
   
 
(1.43
)
     
 
1.30
 
   
 
(1.43
)
     
 
1.30
 
    
    
  
    
  
    
Less Distributions
                                                            
Distributions from Realized Gains
   
 
(0.02
)
     
 
–
 
   
 
(0.02
)
     
 
–
 
   
 
(0.02
)
     
 
–
 
    
    
  
    
  
    
Net Asset Value at End of Period
   
$
9.90
 
     
$
11.31
 
   
$
9.85
 
     
$
11.30
 
   
$
9.85
 
     
$
11.30
 
    
    
  
    
  
    
Total Return†
   
 
(12.34%
)*
     
 
13.10%
*
   
 
(12.70%
)*
     
 
13.00%
*
   
 
(12.70%
)*
     
 
13.00%
*
Net Assets at End of Period (000’s)
   
$
1,018
 
     
$
1,137
 
   
$
991
 
     
$
1,129
 
   
$
1,077
 
     
$
1,130
 
Ratios to Average Net Assets:
                                                            
Gross Expenses**
   
 
3.41%
 
     
 
4.79%
 
   
 
4.16%
 
     
 
5.54%
 
   
 
4.14%
 
     
 
5.54%
 
Net Expenses**
   
 
1.85%
 
     
 
1.85%
 
   
 
2.60%
 
     
 
2.60%
 
   
 
2.60%
 
     
 
2.60%
 
Net Investment Loss**
   
 
(1.56%
)
     
 
(1.45%
)
   
 
(2.32%
)
     
 
(2.20%
)
   
 
(2.32%
)
     
 
(2.20%
)
Portfolio Turnover Rate**
   
 
142%
 
     
 
43%
 
   
 
142%
 
     
 
43%
 
   
 
142%
 
     
 
43%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 
110

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)

 
   
Class A
   
Class B
   
Class C
   
 
SAFECO U.S. Growth Fund
  
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
     
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
     
Six-Month Period Ended June 30
       
October 31, 2001 (Commencement of Operations) to December 31
  
   
 
   
2002
       
2001
     
2002
       
2001
     
2002
       
2001
  
Net Asset Value at Beginning of Period
  
$
10.63
 
     
$
10.00
 
   
$
10.62
 
     
$
10.00
 
   
$
10.62
 
     
$
10.00
 
Income (Loss) From Investment Operations
                                                           
Net Investment Loss
  
 
(0.03
)
     
 
(0.01
)
   
 
(0.07
)
     
 
(0.02
)
   
 
(0.07
)
     
 
(0.02
)
Net Realized and Unrealized Gain (Loss) on Investments
  
 
(2.19
)
     
 
0.64
 
   
 
(2.18
)
     
 
0.64
 
   
 
(2.18
)
     
 
0.64
 
   
    
  
    
  
    
Total from Investment Operations
  
 
(2.22
)
     
 
0.63
 
   
 
(2.25
)
     
 
0.62
 
   
 
(2.25
)
     
 
0.62
 
   
    
  
    
  
    
Less Distributions
                                                           
Dividends from Net Investment Income
  
 
(0.01
)
     
 
–
 
   
 
(0.01
)
     
 
–
 
   
 
(0.01
)
     
 
–
 
   
    
  
    
  
    
Net Asset Value at End of Period
  
$
8.40
 
     
$
10.63
 
   
$
8.36
 
     
$
10.62
 
   
$
8.36
 
     
$
10.62
 
   
    
  
    
  
    
Total Return†
  
 
(20.92%
)*
     
 
6.30%
*
   
 
(21.22%
)*
     
 
6.20%
*
   
 
(21.22%
)*
     
 
6.20%
*
Net Assets at End of Period (000’s)
  
$
875
 
     
$
1,074
 
   
$
845
 
     
$
1,062
 
   
$
836
 
     
$
1,062
 
Ratios to Average Net Assets:
                                                           
Gross Expenses**
  
 
3.46%
 
     
 
4.54%
 
   
 
4.21%
 
     
 
5.29%
 
   
 
4.20%
 
     
 
5.29%
 
Net Expenses**
  
 
1.65%
 
     
 
1.65%
 
   
 
2.40%
 
     
 
2.40%
 
   
 
2.40%
 
     
 
2.40%
 
Net Investment Loss**
  
 
(0.67%
)
     
 
(0.50%
)
   
 
(1.43%
)
     
 
(1.25%
)
   
 
(1.43%
)
     
 
(1.25%
)
Portfolio Turnover Rate**
  
 
34%
 
     
 
2%
 
   
 
34%
 
     
 
2%
 
   
 
34%
 
     
 
2%
 
SAFECO High-Yield Bond Fund
  
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eleven-Month Period Ended December 31††
  
   
 
Class A
  
2002
       
2001
     
2000
       
1999
     
1998
       
1997
  
Net Asset Value at Beginning of Period
  
$
6.51
 
     
$
7.26
 
   
$
8.38
 
     
$
8.78
 
   
$
9.12
 
     
$
8.83
 
Income from Investment Operations
                                                           
Net Investment Income
  
 
0.27
†††
     
 
0.60
 
   
 
0.66
 
     
 
0.69
 
   
 
0.72
 
     
 
0.69
 
Net Realized and Unrealized Gain (Loss) on Investments
  
 
(1.12
)
     
 
(0.75
)
   
 
(1.12
)
     
 
(0.40
)
   
 
(0.34
)
     
 
0.29
 
   
    
  
    
  
    
Total from Investment Operations
  
 
(0.85
)
     
 
(0.15
)
   
 
(0.46
)
     
 
0.29
 
   
 
0.38
 
     
 
0.98
 
Less Distributions
                                                           
Dividends from Net Investment Income
  
 
(0.25
)
     
 
(0.60
)
   
 
(0.66
)
    
 
(0.69
)
   
 
(0.72
)
     
 
(0.69
)
   
    
  
    
  
    
Net Asset Value at End of Period
  
$
5.41
 
     
$
6.51
 
   
$
7.26
 
     
$
8.38
 
   
$
8.78
 
     
$
9.12
 
   
    
  
    
  
    
Total Return†
  
 
(13.43%
)*
     
 
(2.29%
)
   
 
(5.75%
)
     
 
3.52%
 
   
 
4.32%
 
     
 
12.49%
*
Net Assets at End of Period (000’s)
  
$
679  
 
     
$
1,086
 
   
$
1,144
 
     
$
1,583
 
   
$
2,964
 
     
$
259  
 
Ratios to Average Net Assets:
                                                           
Gross Expenses
  
 
1.74%
**
     
 
1.45%
 
   
 
1.56%
 
     
 
1.35%
 
   
 
1.12%
 
     
 
1.10%
**
Net Expenses
  
 
1.31%
**
     
 
1.32%
 
   
 
1.30%
 
     
 
1.18%
 
   
 
1.12%
 
     
 
1.10%
**
Net Investment Income
  
 
8.86%
**†††
     
 
8.39%
 
   
 
8.38%
 
     
 
8.01%
 
   
 
8.11%
 
     
 
7.65%
**
Portfolio Turnover Rate
  
 
194%
**
     
 
185%
 
   
 
45%
 
     
 
71%
 
   
 
64%
 
     
 
85%
**
 
      *
 
Not annualized.
    **
 
Annualized.
     †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
  ††
 
For the period from January 31, 1997 (initial issue date of Class A shares) through December 31, 1997.
†††
 
Net Investment Income includes $0.02 and the Ratio of Net Investment Income includes 0.56% related to amortization of premium and discount required for book purposes but not for tax purposes.

 
111

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)

SAFECO High-Yield Bond Fund
  
Six-Month
Period Ended
June 30
     
For the Year Ended December 31
       
Eleven-Month
Period Ended
December 31††
  
   
 
Class B
  
2002
     
2001
       
2000
     
1999
     
1998
       
1997
  
Net Asset Value at Beginning of Period
  
$
6.51
 
   
$
7.25
 
     
$
8.38
 
   
$
8.78
 
   
$
9.12
 
     
$
8.83
 
Income from Investment Operations
                                                         
Net Investment Loss
  
 
0.25
††††
   
 
0.55
 
     
 
0.60
 
   
 
0.63
 
   
 
0.64
 
     
 
0.63
 
Net Realized and Unrealized Gain (Loss) on Investments
  
 
(1.12
)
   
 
(0.74
)
     
 
(1.13
)
   
 
(0.40
)
   
 
(0.34
)
     
 
0.29
 
   
  
    
  
  
    
Total from Investment Operations
  
 
(0.87
)
   
 
(0.19
)
     
 
(0.53
)
   
 
0.23
 
   
 
0.30
 
     
 
0.92
 
Less Distributions
                                                         
Dividends from Net Investment Income
  
 
(0.23
)
   
 
(0.55
)
     
 
(0.60
)
   
 
(0.63
)
   
 
(0.64
)
     
 
(0.63
)
   
  
    
  
  
    
Net Asset Value at End of Period
  
$
       5.41
 
   
$
     6.51
 
     
$
     7.25
 
   
$
    8.38
 
   
$
    8.78
 
     
$
     9.12
 
   
  
    
  
  
    
Total Return†
  
 
(13.75%
)*
   
 
(2.88%
)
     
 
(6.52%
)
   
 
2.73%
 
   
 
3.39%
 
     
 
11.77%
 
Net Assets at End of Period (000’s)
  
$
771
 
   
$
920
 
     
$
995
 
   
$
1,599
 
   
$
1,381
 
     
$
355
 
Ratios to Average Net Assets:
                                                         
Gross Expenses
  
 
2.41%
**
   
 
2.31%
 
     
 
2.35%
 
   
 
2.19%
 
   
 
2.06%
 
     
 
1.81%
**
Net Expenses
  
 
2.06%
**
   
 
2.06%
 
     
 
2.05%
 
   
 
1.97%
 
   
 
2.06%
 
     
 
1.81%
**
Net Investment Income
  
 
8.18%
**††††
   
 
7.86%
 
     
 
7.73%
 
   
 
7.34%
 
   
 
7.15%
 
     
 
6.87%
**
Portfolio Turnover Rate
  
 
194%
**
   
 
185%
 
     
 
45%
 
   
 
71%
 
   
 
64%
 
     
 
85%
**
SAFECO High-Yield Bond Fund
  
Six-Month
Period Ended
June 30
       
For the
Year Ended
December 31
       
Eight-Month
Period Ended
December 31†††
  
   
    
    
Class C
  
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
  
$
6.52
 
     
$
7.26
 
     
$
7.90
 
Income from Investment Operations
                              
Net Investment Income
  
 
0.25
†††††
     
 
0.55
 
     
 
0.39
 
Net Realized and Unrealized Gain (Loss) on Investments
  
 
(1.12
)
     
 
(0.74
)
     
 
(0.64
)
   
    
    
Total from Investment Operations
  
 
(0.87
)
     
 
(0.19
)
     
 
(0.25
)
Less Distributions
                              
Dividends from Net Investment Income
  
 
(0.23
)
     
 
(0.55
)
     
 
(0.39
)
   
    
    
Net Asset Value at End of Period
  
$
5.42
 
     
$
6.52
 
     
$
7.26
 
   
    
    
Total Return†
  
 
(13.73%
)*
     
 
(2.86%
)
     
 
(3.25%
)*
Net Assets at End of Period (000’s)
  
$
88
 
     
$
87
 
     
$
92
 
Ratios to Average Net Assets:
                              
Gross Expenses
  
 
2.56%
**
     
 
2.15%
 
     
 
2.04%
**
Net Expenses
  
 
2.06%
**
     
 
2.06%
 
     
 
2.04%
**
Net Investment Income
  
 
8.30%
**†††††
     
 
7.88%
 
     
 
7.61%
**
Portfolio Turnover Rate
  
 
194%
**
     
 
185%
 
     
 
45%
**
 
          *
 
Not annualized.
         **
 
Annualized.   
        †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
      ††
 
For the period from January 31, 1997 (initial issue date of Class B Shares) through December 31, 1997.
    †††
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.
  ††††
 
Net investment income includes $0.02 and the Ratio of Investment income includes 0.65% related to amortization of premium and discount required for book purposes but not for tax purposes.
†††††
 
Net investment income includes $0.02 and the Ratio of Net Investment Income includes 0.73% related to amortization of premium and discount required for book purposes but not for tax purposes.

 
112

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Intermediate-Term U.S. Treasury Fund
     
Six-Month Period Ended June 30
       
For the Year Ended December 31
  
      
Class A
     
2002
       
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
10.62
 
     
$
10.50
 
   
$
10.00
 
   
$
10.75
 
   
$
10.35
 
   
$
10.11
 
Income From Investment Operations
                                                          
Net Investment Income
     
 
0.25
†††
     
 
0.46
††
   
 
0.52
 
   
 
0.51
 
   
 
0.52
 
   
 
0.55
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.09
 
     
 
0.13
 
   
 
0.50
 
   
 
(0.75
)
   
 
0.40
 
   
 
0.24
 
      
    
  
  
  
  
Total from Investment Operations
     
 
0.34
 
     
 
0.59
 
   
 
1.02
 
   
 
(0.24
)
   
 
0.92
 
   
 
0.79
 
Less Distributions
                                                          
Dividends from Net Investment Income
     
 
(0.24
)
     
 
(0.47
)
   
 
(0.52
)
   
 
(0.51
)
   
 
(0.52
)
   
 
(0.55
)
      
    
  
  
  
  
Net Asset Value at End of Period
     
$
10.72
 
     
$
10.62
 
   
$
10.50
 
   
$
10.00
 
   
$
10.75
 
   
$
10.35
 
      
    
  
  
  
  
Total Return†
     
 
3.21%
*
     
 
5.70%
 
   
 
10.56%
 
   
 
(2.26%
)
   
 
9.08%
 
   
 
8.03%
 
Net Assets at End of Period (000’s)
     
$
1,782
 
     
$
1,580
 
   
$
1,008
 
   
$
958
 
   
$
833
 
   
$
365
 
Ratios to Average Net Assets:
                                                          
Gross Expenses
     
 
1.50%
**
     
 
1.48%
 
   
 
1.59%
 
   
 
1.49%
 
   
 
1.40%
 
   
 
1.32%
 
Net Expenses
     
 
1.20%
**
     
 
1.20%
 
   
 
1.20%
 
   
 
1.21%
 
   
 
1.40%
 
   
 
1.32%
 
Net Investment Income
     
 
4.69%
**†††
     
 
4.26%
††
   
 
5.21%
 
   
 
4.97%
 
   
 
4.84%
 
   
 
5.36%
 
Portfolio Turnover Rate
     
 
166%
**
     
 
74%
 
   
 
199%
 
   
 
14%
 
   
 
3%
 
   
 
82%
 
SAFECO Intermediate-Term U.S. Treasury Fund
     
Six-Month Period Ended June 30
       
For the Year Ended December 31
  
      
Class B
     
2002
       
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
10.62
 
     
$
10.49
 
   
$
9.99
 
   
$
10.74
 
   
$
10.35
 
   
$
10.12
 
Income From Investment Operations
                                                          
Net Investment Income
     
 
0.21
†††
     
 
0.38
††
   
 
0.45
 
   
 
0.43
 
   
 
0.45
 
   
 
0.48
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.09
 
     
 
0.14
 
   
 
0.50
 
   
 
(0.75
)
   
 
0.39
 
   
 
0.23
 
      
    
  
  
  
  
Total from Investment Operations
     
 
0.30
 
     
 
0.52
 
   
 
0.95
 
   
 
(0.32
)
   
 
0.84
 
   
 
0.71
 
Less Distributions
                                                          
Dividends from Net Investment Income
     
 
(0.20
)
     
 
(0.39
)
   
 
(0.45
)
   
 
(0.43
)
   
 
(0.45
)
   
 
(0.48
)
      
    
  
  
  
  
Net Asset Value at End of Period
     
$
10.72
 
     
$
10.62
 
   
$
10.49
 
   
$
9.99
 
   
$
10.74
 
   
$
10.35
 
      
    
  
  
  
  
Total Return†
     
 
2.82%
*
     
 
5.01%
 
   
 
9.78%
 
   
 
(2.97%
)
   
 
8.30%
 
   
 
7.27%
 
Net Assets at End of Period (000’s)
     
$
1.454
 
     
$
867
 
   
$
732
 
   
$
786
 
   
$
788
 
   
$
432
 
Ratios to Average Net Assets:
                                                          
Gross Expenses
     
 
2.23%
**
     
 
2.27%
 
   
 
2.36%
 
   
 
2.27%
 
   
 
2.00%
 
   
 
1.87%
 
Net Expenses
     
 
1.95%
**
     
 
1.95%
 
   
 
1.95%
 
   
 
1.96%
 
   
 
2.00%
 
   
 
1.87%
 
Net Investment Income
     
 
4.02%
**†††
     
 
3.54%
††
   
 
4.49%
 
   
 
4.20%
 
   
 
4.28%
 
   
 
4.78%
 
Portfolio Turnover Rate
     
 
166%
**
     
 
74%
 
   
 
199%
 
   
 
14%
 
   
 
3%
 
   
 
82%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the year ended December 31, 2001, Net Investment Income includes $(0.01) for both Classes A and B and the ratio of Net Investment Income includes (0.16%) and (0.14%) for Class A and B, respectively, related to amortization of premium and discounts required for book purposes but not for tax purposes.
†††
 
For the six-month period ended June 30, 2002, Net Investment Income includes $0.01 for both Classes A and B and the ratio of Net Investment Income includes 0.15% and 0.22% for Class A and B, respectively, related to amortization of premium and discounts required for book purposes but not for tax purposes.

 
113

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
      
Class A    
     
Class B   
      
 
SAFECO U.S. Government Fund
     
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eight-Month Period Ended December 31††
       
Six-Month Period Ended June 30
       
For the Year Ended December 31
       
Eight-Month Period Ended December 31††
  
      
 
      
2002
       
2001
       
2000
       
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
     
$
9.47
 
     
$
9.35
 
     
$
9.01
 
     
$
9.47
 
     
$
9.36
 
     
$
9.01
 
Income From Investment Operations
                                                                  
Net Investment Income
     
 
0.24
 
     
 
0.52
 
     
 
0.36
 
     
 
0.21
 
     
 
0.45
 
     
 
0.25
 
Net Realized and Unrealized Gain on Investments
     
 
0.12
 
     
 
0.12
 
     
 
0.34
 
     
 
0.12
 
     
 
0.11
 
     
 
0.35
 
      
    
    
    
    
    
Total from Investment Operations
     
 
0.36
 
     
 
0.64
 
     
 
0.70
 
     
 
0.33
 
     
 
0.56
 
     
 
0.60
 
Less Distributions
                                                                  
Dividends from Net Investment Income
     
 
(0.24
)
     
 
(0.52
)
     
 
(0.36
)
     
 
(0.21
)
     
 
(0.45
)
     
 
(0.25
)
      
    
    
    
    
    
Net Asset Value at End of Period
     
$
9.59
 
     
$
9.47
 
     
$
9.35
 
     
$
9.59
 
     
$
9.47
 
     
$
9.36
 
      
    
    
    
    
    
Total Return†
     
 
3.89%
*
     
 
7.02%
 
     
 
8.03%
*
     
 
3.50%
*
     
 
6.10%
 
     
 
7.61%
*
Net Assets at End of Period (000’s)
     
$
345
 
     
$
266
 
     
$
105
 
     
$
204
 
     
$
189
 
     
$
139
 
Ratios to Average Net Assets:
                                                                  
Gross Expenses
     
 
1.44%
**
     
 
1.47%
 
     
 
1.27%
**
     
 
2.25%
**
     
 
2.14%
 
     
 
1.99%
**
Net Expenses
     
 
1.20%
**
     
 
1.20%
 
     
 
1.20%
**
     
 
1.95%
**
     
 
1.95%
 
     
 
1.95%
**
Net Investment Income
     
 
5.22%
**
     
 
5.44%
 
     
 
5.97%
**
     
 
4.46%
**
     
 
4.74%
 
     
 
5.22%
**
Portfolio Turnover Rate
     
 
81%
**
     
 
63%
 
     
 
160%
**
     
 
81%
**
     
 
63%
 
     
 
160%
**
SAFECO Managed Bond Fund
     
Six-Month Period Ended June 30
       
For the Year Ended December 31
  
      
 
Class A
     
2002
       
2001
       
2000
       
1999
       
1998
       
1997
  
Net Asset Value at Beginning of Period
     
$
8.40
 
     
$
8.29
 
     
$
7.90
 
     
$
8.65
 
     
$
8.60
 
     
$
8.35
 
Income From Investment Operations
                                                                  
Net Investment Income
     
 
0.20
 
     
 
0.43
 
     
 
0.46
 
     
 
0.39
 
     
 
0.37
 
     
 
0.39
 
Net Realized and Unrealized Gain (Loss) on Investments
     
 
(0.02
)
     
 
0.11
 
     
 
0.39
 
     
 
(0.75
)
     
 
0.30
 
     
 
0.25
 
      
    
    
    
    
    
Total from Investment Operations
     
 
0.18
 
     
 
0.54
 
     
 
0.85
 
     
 
(0.36
)
     
 
0.67
 
     
 
0.64
 
Less Distributions
                                                                  
Dividends from Net Investment Income
     
 
(0.20
)
     
 
(0.43
)
     
 
(0.46
)
     
 
(0.39
)
     
 
(0.37
)
     
 
(0.39
)
Distributions from Realized Gains
     
 
–
 
     
 
–
 
     
 
–
 
     
 
–
 
     
 
(0.25
)
     
 
–
 
      
    
    
    
    
    
Total Distributions
     
 
(0.20
)
     
 
(0.43
)
     
 
(0.46
)
     
 
(0.39
)
     
 
(0.62
)
     
 
(0.39
)
      
    
    
    
    
    
Net Asset Value at End of Period
     
$
8.38
 
     
$
8.40
 
     
$
8.29
 
     
$
7.90
 
     
$
8.65
 
     
$
8.60
 
      
    
    
    
    
    
Total Return†
     
 
2.18%
*
     
 
6.69%
 
     
 
11.19%
 
     
 
(4.24%
)
     
 
7.87%
 
     
 
7.78%
 
Net Assets at End of Period (000’s)
     
$
1,059
 
     
$
1,092
 
     
$
539
 
     
$
573
 
     
$
295
 
     
$
146
 
Ratios to Average Net Assets:
                                                                  
Gross Expenses
     
 
2.05%
**
     
 
1.97%
 
     
 
2.07%
 
     
 
1.87%
 
     
 
1.86%
 
     
 
1.45%
 
Net Expenses
     
 
1.15%
**
     
 
1.15%
 
     
 
1.15%
 
     
 
1.21%
 
     
 
1.86%
 
     
 
1.45%
 
Net Investment Income
     
 
4.87%
**
     
 
5.12%
 
     
 
5.80%
 
     
 
4.79%
 
     
 
4.09%
 
     
 
4.68%
 
Portfolio Turnover Rate
     
 
99%
**
     
 
126%
 
     
 
102%
 
     
 
147%
 
     
 
133%
 
     
 
177%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
For the period from April 30, 2000 (initial issue date of Class A and B shares) through December 31, 2000.

 
114

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Managed Bond Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
8.40
 
   
$
8.28
 
   
$
7.89
 
   
$
8.64
 
   
$
8.60
 
   
$
8.35
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.17
 
   
 
0.37
 
   
 
0.40
 
   
 
0.32
 
   
 
0.28
 
   
 
0.32
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
(0.03
)
   
 
0.12
 
   
 
0.39
 
   
 
(0.75
)
   
 
0.29
 
   
 
0.25
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.14
 
   
 
0.49
 
   
 
0.79
 
   
 
(0.43
)
   
 
0.57
 
   
 
0.57
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.17
)
   
 
(0.37
)
   
 
(0.40
)
   
 
(0.32
)
   
 
(0.28
)
   
 
(0.32
)
Distributions from Realized Gains
     
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.25
)
   
 
–
 
      
  
  
  
  
  
Total Distributions
     
 
(0.17
)
   
 
(0.37
)
   
 
(0.40
)
   
 
(0.32
)
   
 
(0.53
)
   
 
(0.32
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
8.37
 
   
$
8.40
 
   
$
8.28
 
   
$
7.89
 
   
$
8.64
 
   
$
8.60
 
      
  
  
  
  
  
Total Return†
     
 
1.68%
*
   
 
6.03%
 
   
 
10.39%
 
   
 
(4.98%
)
   
 
6.67%
 
   
 
6.91%
 
Net Assets at End of Period (000’s)
     
$
926
 
   
$
915
 
   
$
746
 
   
$
924
 
   
$
523
 
   
$
120
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
2.79%
**
   
 
2.76%
 
   
 
2.79%
 
   
 
2.61%
 
   
 
2.89%
 
   
 
2.23%
 
Net Expenses
     
 
1.90%
**
   
 
1.90%
 
   
 
1.90%
 
   
 
1.94%
 
   
 
2.89%
 
   
 
2.23%
 
Net Investment Income
     
 
4.12%
**
   
 
4.40%
 
   
 
5.08%
 
   
 
4.02%
 
   
 
3.07%
 
   
 
3.79%
 
Portfolio Turnover Rate
     
 
99%
**
   
 
126%
 
   
 
102%
 
   
 
147%
 
   
 
133%
 
   
 
177%
 
SAFECO California Tax-Free Income Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
12.40
 
   
$
12.50
 
   
$
11.05
 
   
$
12.74
 
   
$
12.94
 
   
$
12.23
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.26
 
   
 
0.58
††
   
 
0.53
 
   
 
0.52
 
   
 
0.55
 
   
 
0.58
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.07
 
   
 
(0.11
)
   
 
1.45
 
   
 
(1.69
)
   
 
0.17
 
   
 
0.76
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.33
 
   
 
0.47
 
   
 
1.98
 
   
 
(1.17
)
   
 
0.72
 
   
 
1.34
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.26
)
   
 
(0.57
)
   
 
(0.53
)
   
 
(0.52
)
   
 
(0.55
)
   
 
(0.58
)
Distributions from Realized Gains
     
 
(0.12
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.37
)
   
 
(0.05
)
      
  
  
  
  
  
Total Distributions
     
 
(0.38
)
   
 
(0.57
)
   
 
(0.53
)
   
 
(0.52
)
   
 
(0.92
)
   
 
(0.63
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
12.35
 
   
$
12.40
 
   
$
12.50
 
   
$
11.05
 
   
$
12.74
 
   
$
12.94
 
      
  
  
  
  
  
Total Return†
     
 
2.75%
*
   
 
3.82%
 
   
 
18.41%
 
   
 
(9.41%
)
   
 
5.73%
 
   
 
11.29%
 
Net Assets at End of Period (000’s)
     
$
590
 
   
$
645
 
   
$
675
 
   
$
740
 
   
$
678
 
   
$
460
 
Ratios to Average Net Assets:
                                                        
Expenses
     
 
1.05%
**
   
 
1.06%
 
   
 
1.05%
 
   
 
1.07%
 
   
 
1.04%
 
   
 
0.91%
 
Net Investment Income
     
 
4.25%
**
   
 
4.66%
††
   
 
4.62%
 
   
 
4.36%
 
   
 
4.25%
 
   
 
4.52%
 
Portfolio Turnover Rate
     
 
14%
**
   
 
32%
 
   
 
26%
 
   
 
25%
 
   
 
39%
 
   
 
10%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
Net Investment Income includes $0.01 and the ratio of Net Investment Income includes 0.11% which was due to amortization of premium and discounts required for book purposes but not for tax purposes.

 
115

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO California Tax-Free Income Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
12.39
 
   
$
12.49
 
   
$
11.04
 
   
$
12.73
 
   
$
12.93
 
   
$
12.22
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.21
 
   
 
0.49
††
   
 
0.45
 
   
 
0.43
 
   
 
0.46
 
   
 
0.48
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.07
 
   
 
(0.11
)
   
 
1.45
 
   
 
(1.69
)
   
 
0.17
 
   
 
0.76
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.28
 
   
 
0.38
 
   
 
1.90
 
   
 
(1.26
)
   
 
0.63
 
   
 
1.24
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.21
)
   
 
(0.48
)
   
 
(0.45
)
   
 
(0.43
)
   
 
(0.46
)
   
 
(0.48
)
Distributions from Realized Gains
     
 
(0.12
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
(0.37
)
   
 
(0.05
)
      
  
  
  
  
  
Total Distributions
     
 
(0.33
)
   
 
(0.48
)
   
 
(0.45
)
   
 
(0.43
)
   
 
(0.83
)
   
 
(0.53
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
12.34
 
   
$
12.39
 
   
$
12.49
 
   
$
11.04
 
   
$
12.73
 
   
$
12.93
 
      
  
  
  
  
  
Total Return†
     
 
2.38%
*
   
 
3.02%
 
   
 
17.63%
 
   
 
(10.07%
)
   
 
4.98%
 
   
 
10.46%
 
Net Assets at End of Period (000’s)
     
$
1,149
 
   
$
1,613
 
   
$
1,176
 
   
$
799
 
   
$
927
 
   
$
501
 
Ratios to Average Net Assets:
                                                        
Expenses
     
 
1.80%
**
   
 
1.80%
 
   
 
1.72%
 
   
 
1.80%
 
   
 
1.76%
 
   
 
1.63%
 
Net Investment Income
     
 
3.52%
**
   
 
3.97%
††
   
 
3.88%
 
   
 
3.63%
 
   
 
3.45%
 
   
 
3.71%
 
Portfolio Turnover Rate
     
 
14%
**
   
 
32%
 
   
 
26%
 
   
 
25%
 
   
 
39%
 
   
 
10%
 
SAFECO Municipal Bond Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
13.98
 
   
$
13.97
 
   
$
12.90
 
   
$
14.45
 
   
$
14.53
 
   
$
13.99
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.32
 
   
 
0.66
†††
   
 
0.65
 
   
 
0.64
 
   
 
0.66
 
   
 
0.68
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.25
 
   
 
0.02
 
   
 
1.07
 
   
 
(1.55
)
   
 
0.16
 
   
 
0.70
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.57
 
   
 
0.68
 
   
 
1.72
 
   
 
(0.91
)
   
 
0.82
 
   
 
1.38
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.32
)
   
 
(0.64
)
   
 
(0.65
)
   
 
(0.64
)
   
 
(0.66
)
   
 
(0.68
)
Distributions from Realized Gains
     
 
(0.05
)
   
 
(0.03
)
   
 
–
 
   
 
–
 
   
 
(0.24
)
   
 
(0.16
)
      
  
  
  
  
  
Total Distributions
     
 
(0.37
)
   
 
(0.67
)
   
 
(0.65
)
   
 
(0.64
)
   
 
(0.90
)
   
 
(0.84
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
14.18
 
   
$
13.98
 
   
$
13.97
 
   
$
12.90
 
   
$
14.45
 
   
$
14.53
 
      
  
  
  
  
  
Total Return†
     
 
4.09%
*
   
 
4.92%
 
   
 
13.76%
 
   
 
(6.47%
)
   
 
5.75%
 
   
 
10.17%
 
Net Assets at End of Period (000’s)
     
$
1,271
 
   
$
1,273
 
   
$
1,052
 
   
$
929
 
   
$
946
 
   
$
390
 
Ratios to Average Net Assets:
                                                        
Expenses
     
 
0.90%
**
   
 
0.98%
 
   
 
0.97%
 
   
 
0.98%
 
   
 
0.98%
 
   
 
0.95%
 
Net Investment Income
     
 
4.55%
**
   
 
4.63%
†††
   
 
4.96%
 
   
 
4.66%
 
   
 
4.51%
 
   
 
4.86%
 
Portfolio Turnover Rate
     
 
10%
**
   
 
9%
 
   
 
32%
 
   
 
17%
 
   
 
21%
 
   
 
14%
 
 
 *
 
Not annualized.
**
 
Annualized.
†
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
Net Investment Income includes $0.01 and the ratio of Net Investment Income includes 0.14% which was due to amortization of premium and discounts required for book purposes but not for tax purposes.
†††
 
Net Investment Income includes $0.02 and the ratio of Net Investment Income includes 0.13% which was due to amortization of premium and discounts required for book purposes but not for tax purposes.

 
116

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Municipal Bond Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class B
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
13.95
 
   
$
13.94
 
   
$
12.88
 
   
$
14.43
 
   
$
14.52
 
   
$
13.98
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.26
 
   
 
0.55
††
   
 
0.56
 
   
 
0.54
 
   
 
0.57
 
   
 
0.60
 
Net Realized and Unrealized Gain (Loss) on
Investments
     
 
0.25
 
   
 
0.02
 
   
 
1.06
 
   
 
(1.55
)
   
 
0.15
 
   
 
0.70
 
      
  
  
  
  
  
Total from Investment Operations
     
 
0.51
 
   
 
0.57
 
   
 
1.62
 
   
 
(1.01
)
   
 
0.72
 
   
 
1.30
 
Less Distributions
                                                        
Dividends from Net Investment Income
     
 
(0.26
)
   
 
(0.53
)
   
 
(0.56
)
   
 
(0.54
)
   
 
(0.57
)
   
 
(0.60
)
Distributions from Realized Gains
     
 
(0.05
)
   
 
(0.03
)
   
 
–
 
   
 
–
 
   
 
(0.24
)
   
 
(0.16
)
      
  
  
  
  
  
Total Distributions
     
 
(0.31
)
   
 
(0.56
)
   
 
(0.56
)
   
 
(0.54
)
   
 
(0.81
)
   
 
(0.76
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
14.15
 
   
$
13.95
 
   
$
13.94
 
   
$
12.88
 
   
$
14.43
 
   
$
14.52
 
      
  
  
  
  
  
Total Return†
     
 
3.68%
*
   
 
4.14%
 
   
 
12.87%
 
   
 
(7.14%
)
   
 
5.08%
 
   
 
9.56%
 
Net Assets at End of Period (000’s)
     
$
1,496
 
   
$
1,236
 
   
$
686
 
   
$
1,322
 
   
$
1,375
 
   
$
502
 
Ratios to Average Net Assets:
                                                        
Expenses
     
 
1.70%
**
   
 
1.73%
 
   
 
1.71%
 
   
 
1.70%
 
   
 
1.61%
 
   
 
1.53%
 
Net Investment Income
     
 
3.79%
**
   
 
3.87%
††
   
 
4.24%
 
   
 
3.94%
 
   
 
3.89%
 
   
 
4.22%
 
Portfolio Turnover Rate
     
 
10%
**
   
 
9%
 
   
 
32%
 
   
 
17%
 
   
 
21%
 
   
 
14%
 
SAFECO Money Market Fund
     
Six-Month Period Ended June 30
     
For the Year Ended December 31
  
      
Class A
     
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
     
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
Income From Investment Operations
                                                        
Net Investment Income
     
 
0.01
 
   
 
0.04
 
   
 
0.06
 
   
 
0.05
 
   
 
0.05
 
   
 
0.05
 
Less Distributions
     
 
(0.01
)
   
 
(0.04
)
   
 
(0.06
)
   
 
(0.05
)
   
 
(0.05
)
   
 
(0.05
)
      
  
  
  
  
  
Net Asset Value at End of Period
     
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
      
  
  
  
  
  
Total Return
     
 
0.71%
*
   
 
3.75%
 
   
 
5.91%
 
   
 
4.64%
 
   
 
4.92%
 
   
 
4.97%
 
Net Assets at End of Period (000’s)
     
$
5,227
 
   
$
5,193
 
   
$
4,532
 
   
$
3,554
 
   
$
2,186
 
   
$
537
 
Ratios to Average Net Assets:
                                                        
Gross Expenses
     
 
0.95%
**
   
 
0.99%
 
   
 
1.04%
 
   
 
1.00%
 
   
 
0.92%
 
   
 
0.72%
 
Net Expenses
     
 
0.79%
**
   
 
0.80%
 
   
 
0.80%
 
   
 
0.80%
 
   
 
0.92%
 
   
 
0.72%
 
Net Investment Income
     
 
1.43%
**
   
 
3.68%
 
   
 
5.88%
 
   
 
4.60%
 
   
 
4.87%
 
   
 
4.91%
 
 
   *
 
Not annualized.
  **
 
Annualized.
  †
 
Excludes the effects of sales charges. If sales charges were included, the total return would be lower.
††
 
Net Investment Income includes $0.02 and the ratio of Net Investment Income includes 0.15% which was due to amortization of premium and discounts required for book purposes but not for tax purposes.

 
117

Table of Contents

Financial Highlights
 
(For a Share Outstanding Throughout the Period)
(Unaudited)
SAFECO Money Market Fund
  
Six-Month
Period Ended
June 30
     
For the Year Ended December 31
  
Class B
  
2002
     
2001
     
2000
     
1999
     
1998
     
1997
  
Net Asset Value at Beginning of Period
  
$
    1.00
 
   
$
    1.00
 
   
$
    1.00
 
   
$
    1.00
 
   
$
    1.00
 
   
$
    1.00
 
Income From Investment Operations
                                                     
Net Investment Income
  
 
0.01
 
   
 
0.04
 
   
 
0.06
 
   
 
0.05
 
   
 
0.05
 
   
 
0.05
 
Less Distributions
  
 
(0.01
)
   
 
(0.04
)
   
 
(0.06
)
   
 
(0.05
)
   
 
(0.05
)
   
 
(0.05
)
   
  
  
  
  
  
Net Asset Value at End of Period
  
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
$
1.00
 
   
  
  
  
  
  
Total Return
  
 
0.71%
*
   
 
3.75%
 
   
 
5.93%
 
   
 
4.65%
 
   
 
4.76%
 
   
 
4.94%
 
Net Assets at End of Period (000’s)
  
$
1,104
 
   
$
1,192
 
   
$
742
 
   
$
979
 
   
$
670
 
   
$
414
 
Ratios to Average Net Assets:
                                                     
Gross Expenses
  
 
0.99%
**
   
 
1.00%
 
   
 
1.13%
 
   
 
1.08%
 
   
 
1.05%
 
   
 
0.78%
 
Net Expenses
  
 
0.79%
**
   
 
0.80%
 
   
 
0.80%
 
   
 
0.82%
 
   
 
1.05%
 
   
 
0.78%
 
Net Investment Income
  
 
1.44%
**
   
 
3.61%
 
   
 
5.78%
 
   
 
4.56%
 
   
 
4.71%
 
   
 
4.85%
 
SAFECO Money Market Fund
  
Six-Month
Period Ended
June 30
       
For the
Year Ended
December 31
       
Eight-Month
Period Ended
December 31†
  
Class C
  
2002
       
2001
       
2000
  
Net Asset Value at Beginning of Period
  
$
1.00
 
     
$
1.00
 
     
$
1.00
 
Income From Investment Operations
                              
Net Investment Income
  
 
0.01
 
     
 
0.04
 
     
 
0.04
 
Less Distributions
  
 
(0.01
)
     
 
(0.04
)
     
 
(0.04
)
   
    
    
Net Asset Value at End of Period
  
$
1.00
 
     
$
1.00
 
     
$
1.00
 
   
    
    
Total Return
  
 
0.71%
*
     
 
3.75%
 
     
 
4.08%
*
Net Assets at End of Period (000’s)
  
$
118
 
     
$
112
 
     
$
100
 
Ratios to Average Net Assets:
                              
Gross Expenses
  
 
1.16%
**
     
 
0.88%
 
     
 
0.98%
**
Net Expenses
  
 
0.79%
**
     
 
0.80%
 
     
 
0.80%
**
Net Investment Loss
  
 
1.43%
**
     
 
3.64%
 
     
 
5.93%
**
 
 *
 
Not annualized.
**
 
Annualized.
†
 
For the period from April 30, 2000 (initial issue date of Class C shares) through December 31, 2000.

 
118

Table of Contents

Notes to Financial Statements
(Unaudited)

 
1.    GENERAL
 
This financial report is on the 17 SAFECO Mutual Funds that issue Class A, B and C shares. Each Fund is a series of one of the following trusts (each a “Trust”) listed below. Each Trust is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company.
 
SAFECO Common Stock Trust
SAFECO Growth Opportunities Fund
SAFECO Equity Fund
SAFECO Dividend Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Value Fund
SAFECO U.S. Value Fund
SAFECO Small Company Growth Fund
SAFECO U.S. Growth Fund
 
SAFECO Taxable Bond Trust
SAFECO High-Yield Bond Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO U.S. Government Fund (formerly the SAFECO GNMA Fund)
 
SAFECO Managed Bond Trust
SAFECO Managed Bond Fund
 
SAFECO Tax-Exempt Bond Trust
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
 
SAFECO Money Market Trust
SAFECO Money Market Fund
 
The Funds offer up to four classes of shares:
 
 
*
 
Investor Class 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 distribution, shareholder service, and transfer agent 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 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.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

119

Table of Contents

Notes to Financial Statements
(Unaudited)

 
2.    SIGNIFICANT ACCOUNTING POLICIES
 
The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements. The policies are in conformity with 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. All other temporary investments purchased at par are valued at cost. Bonds are stated on the basis of valuations provided by a pricing service, which uses information with respect to transactions in bonds, quotations from bond dealers, market transactions in comparable securities and various relationships between securities in determining value. When valuations are not readily available, securities are valued at fair value as determined in good faith by the Board of Trustees.
 
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 Common Stock Trust (excluding the International Stock, Small Company Growth and the U.S. Growth Funds), High-Yield Bond, Intermediate-Term U.S. Treasury and the Managed Bond 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 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 the Fund. Upon termination of the loan, the borrower is required to return to the 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 the Fund.
 
Securities Purchased on a When-Issued Basis.    Securities purchased on a when-issued or delayed basis for the Taxable Bond Trust, Managed Bond Trust and Tax-Exempt Bond Trust may be settled a month or more after the trade date. The securities purchased are carried in the portfolio at market and are subject to market fluctuation during this period. These securities begin earning interest on the settlement date. As commitments to purchase when-issued securities become fixed, the Funds segregate liquid assets in an amount equal to the total obligation.
 
Income Recognition.    Dividend income less foreign taxes withheld (if any) for the Common Stock Trust is recorded on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities. Bond premiums and original issue discounts are amortized to either call or maturity dates for the Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust. Market discount on bonds purchased after April 30, 1993 is recorded as taxable income at disposition for the Tax-Exempt Bond Trust. Interest is accrued on bonds and temporary investments daily.
 
Redemption Fees.    Effective October 1, 2001, shares held in the International Stock Fund less than 90 days are subject to an early redemption fee equal to 2% of the proceeds of the redeemed shares. These

120

Table of Contents

Notes to Financial Statements
(Unaudited)

fees, which are retained by the Fund, are accounted for as an addition to paid in capital for book purposes and 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 declared as a dividend to shareholders as of the last business day (ex-dividend date) of December. For the Equity, Income, Balanced, and U.S. Value Funds, net investment income (if any) is distributed as of the last business day of March, June, September and December. Net investment income for Funds in the Taxable Bond Trust, Managed Bond Trust, Tax-Exempt Bond Trust and Money Market Trust is declared as a dividend to shareholders of record as of the close of each business day and payment is made as of the last business day of each month. Net realized gains on investments, if any, are normally distributed to shareholders in December and March. 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 which results in no tax to the Funds. Therefore, no Federal income or excise tax provision is required. In addition, the Tax-Exempt Bond Trust intends to satisfy conditions which will enable it to pay dividends which, for shareholders, are exempt from Federal income taxes. Any portion of dividends representing net short-term capital gains, however, is not exempt and is treated as taxable dividends for Federal income tax purposes.
 
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 on the International Stock Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities, resulting from changes in the exchange rate.
 
Foreign Exchange Contracts.    The International Stock Fund may enter into foreign currency exchange contracts as a way of managing foreign 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

 
SAFECO    MUTUAL    FUNDS
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121

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Notes to Financial Statements
(Unaudited)

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.
 
Estimates.    The preparation of financial statements in conformity with accounting principals 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 six-month period ended June 30, 2002:
 
(In Thousands)
   
Purchases
   
Sales
Growth Opportunities Fund
   
$
145,668
   
$
250,125
Equity Fund
   
 
157,716
   
 
238,477
Dividend Income Fund
   
 
13,367
   
 
21,298
Northwest Fund
   
 
6,904
   
 
13,290
International Stock Fund
   
 
2,359
   
 
3,168
Balanced Fund
   
 
6,082
   
 
5,802
Small Company Value Fund
   
 
15,531
   
 
11,584
U.S. Value Fund
   
 
2,045
   
 
1,813
Small Company Growth Fund
   
 
4,352
   
 
3,874
U.S. Growth Fund
   
 
878
   
 
817
High-Yield Bond Fund
   
 
42,198
   
 
46,872
Intermediate-Term U.S. Treasury Fund
   
 
21,243
   
 
20,495
U.S. Government Fund
   
 
23,052
   
 
18,608
Managed Bond Fund
   
 
4,463
   
 
4,389
California Tax-Free Income Fund
   
 
6,086
   
 
6,534
Municipal Bond Fund
   
 
30,970
   
 
25,641
Intermediate-Term Municipal Bond Fund
   
 
2,089
   
 
593
 
Purchases include $1,406, $18,421, $11,869 and $1,237 of U.S. Government securities in the Balanced, Intermediate-Term U.S. Treasury, U.S. Government, and Managed Bond Funds, respectively.
 
Sales include $978, $18,432 and $1,207 of U.S. Government securities in the Balanced, Intermediate-Term U.S. Treasury and Managed Bond Funds, respectively.

122

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Notes to Financial Statements
(Unaudited)
 
 

4.
 
FUND MERGER
 
The SAFECO Insured Municipal Bond Fund ceased operation effective May 4, 2001. The assets of the Insured Municipal Bond Fund were merged into the assets of the Municipal Bond Fund. This was accomplished by a tax-free exchange of 1,462,000 shares of the Municipal Bond Fund valued at $13.93 per share for the net assets of the Insured Municipal Bond Fund, which aggregated $20,372,000, including $1,139,000 of unrealized appreciation and $696,000 in accumulated net realized loss. The net assets of the Municipal Bond Fund before the merger were $508,620,000 and the combined net assets of the Municipal Bond Fund immediately after the merger were $528,992,000.
 
5.
 
PORTFOLIO SECURITIES LOANED
 
At June 30, 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
   
$
144,885
   
$
150,163
Equity Fund
   
 
2,346
   
 
2,640
Dividend Income Fund
   
 
1,637
   
 
1,650
Northwest Fund
   
 
6,245
   
 
6,650
Balanced Fund
   
 
1,637
   
 
1,685
Small Company Value Fund
   
 
6,974
   
 
7,285
U.S. Value Fund
   
 
1,572
   
 
1,610
High-Yield Bond Fund
   
 
5,554
   
 
5,772
Managed Bond Fund
   
 
697
   
 
711
 
6.
 
COMMITMENTS
 
At June 30, 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 June 30, 2002
     
Unrealized Depreciation
  
25,513 Japanese Yen
     
$
195
     
7/15/02
     
$
213
     
$
(18
)
29,929 Japanese Yen
     
 
233
     
7/22/02
     
 
250
     
 
(17
)
27,037 Japanese Yen
     
 
211
     
8/13/02
     
 
226
     
 
(15
)
10,145 Japanese Yen
     
 
85
     
8/28/02
     
 
85
     
 
–
 
      
           
    
      
$
724
            
$
774
     
$
(50
)
      
           
    

 
SAFECO    MUTUAL    FUNDS
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123

Table of Contents

Notes to Financial Statements
(Unaudited)

 
7.    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 six-month period ended June 30, 2002.
 
(In Thousands)
   
Shares at
Beginning
of Period
   
Additions
     
Reductions
     
Shares at
End
of Period
     
Dividends
   
Market Value
of Affiliates at
June 30,
2002
SAFECO Growth Opportunities Fund
                                      
American Medical Alert Corp.
   
  –
   
455
     
–
 
   
455
     
–
   
$
1,187
Concepts Direct, Inc.
   
480
   
–
     
–
 
   
480
     
–
   
 
623
Conceptus, Inc.
   
1,418
   
436
     
–
 
   
1,854
     
–
   
 
30,577
Endocare, Inc.*
   
1,072
   
76
     
–
 
   
1,148
     
–
   
 
–
Harold’s Stores, Inc.
   
542
   
–
     
–
 
   
542
     
–
   
 
1,437
IMPCO Technologies, Inc.
   
–
   
860
     
–
 
   
860
     
–
   
 
11,259
Matria Healthcare, Inc.
   
657
   
185
     
–
 
   
842
     
–
   
 
6,923
Med-Design Corp.
   
–
   
1,045
     
–
 
   
1,045
     
–
   
 
13,520
MICROS Systems, Inc.
   
1,050
   
12
     
–
 
   
1,062
     
–
   
 
29,426
Nastech Pharmaceutical Co., Inc.
   
835
   
–
     
–
 
   
835
     
–
   
 
13,719
NCO Group, Inc.
   
2,104
   
–
     
(564
)
   
1,540
     
–
   
 
33,531
North American Scientific, Inc.
   
953
   
–
     
–
 
   
953
     
–
   
 
9,742
PhotoMedex, Inc.
   
–
   
1,800
     
–
 
   
1,800
     
–
   
 
2,592
Physiometrix, Inc.
   
490
   
–
     
–
 
   
490
     
–
   
 
402
PLATO Learning, Inc.
   
1,094
   
146
     
–
 
   
1,240
     
–
   
 
12,236
PolyMedica Corp.
   
1,198
   
–
     
(3
)
   
1,195
     
–
   
 
30,525
Prime Medical Services, Inc.
   
1,226
   
–
     
–
 
   
1,226
     
–
   
 
14,250
Provell, Inc.*
   
662
   
–
     
(662
)
   
—
     
–
   
 
–
Rent-Way, Inc.
   
2,696
   
–
     
(26
)
   
2,670
     
–
   
 
34,574
RMH Teleservices, Inc.*
   
1,037
   
184
     
(252
)
   
969
     
–
   
 
–
Serologicals Corp.
   
1,173
   
272
     
(100
)
   
1,345
     
–
   
 
24,607
SpectRx, Inc.
   
861
   
–
     
–
 
   
861
     
–
   
 
3,366
Sphinx International, Inc.
   
832
   
–
     
–
 
   
832
     
–
   
 
507
Stellent, Inc.
   
591
   
945
     
(195
)
   
1,341
     
–
   
 
6,142
TRM Copy Centers Corp.
   
710
   
–
     
–
 
   
710
     
–
   
 
604
                                   
                                   
$
281,749
                                   
SAFECO Small Company Value Fund
                                      
International Aircraft Investors, Inc.
   
187
   
–
     
–
 
   
187
     
–
   
$
200
                                   
                                       
 
*
 
Company was not an affiliate at the end of the period.

124

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(THIS PAGE INTENTIONALLY LEFT BLANK)
 
 
 

 
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125

Table of Contents

Notes to Financial Statements
(Unaudited)

 
8.
 
COMPONENTS OF ACCUMULATED UNDISTRIBUTED INCOME (LOSS) AND DISTRIBUTABLE EARNINGS
 
At June 30, 2002, accumulated undistributed income (loss) was as follows:
 
(In Thousands)
     
Growth Opportunities Fund
     
Equity
Fund
       
Dividend Income Fund
       
Northwest
Fund
  
Gross Unrealized Appreciation on Investments
     
$
173,657
 
   
$
247,994
 
     
$
37,742
 
     
$
25,411
 
Gross Unrealized Depreciation on Investments
     
 
(201,140
)
   
 
(113,555
)
     
 
(15,390
)
     
 
(22,051
)
      
  
    
    
Net Unrealized Appreciation (Depreciation) on Investments
     
 
(27,483
)
   
 
134,439
 
     
 
22,352
 
     
 
3,360
 
Accumulated Net Investment Loss
     
 
(3,216
)
   
 
–
 
     
 
–
 
     
 
(135
)
Accumulated Realized Loss
     
 
(29,748
)
   
 
(32,729
)
     
 
(4,359
)
     
 
(4,694
)
      
  
    
    
Accumulated Undistributed Income (Loss)
     
$
(60,447
)
   
$
101,710
 
     
$
17,993
 
     
$
(1,469
)
      
  
    
    
(In Thousands)
     
International Stock Fund
     
Balanced
Fund
       
Small Company Value Fund
       
U.S. Value
Fund
  
Gross Unrealized Appreciation on Investments
     
$
4,936
 
   
$
1,327
 
     
$
7,888
 
     
$
969
 
Gross Unrealized Depreciation on Investments
     
 
(1,369
)
   
 
(1,341
)
     
 
(3,853
)
     
 
(968
)
      
  
    
    
Net Unrealized Appreciation (Depreciation) on Investments
     
 
3,567
 
   
 
(14
)
     
 
4,035
 
     
 
1
 
Accumulated Net Investment Income (Loss)
     
 
134
 
   
 
(2
)*
     
 
47
 
     
 
–
 
Accumulated Realized Loss
     
 
(6,277
)
   
 
(123
)
     
 
(6,258
)
     
 
(246
)
      
  
    
    
Accumulated Undistributed Loss
     
$
(2,576
)
   
$
(139
)
     
$
(2,176
)
     
$
(245
)
      
  
    
    
(In Thousands)
     
Small Company Growth Fund
     
U.S. Growth
Fund
       
High-Yield Bond Fund
       
Intermediate-Term U.S. Treasury Fund
  
Gross Unrealized Appreciation on Investments
     
$
565
 
   
$
133
 
     
$
941
 
     
$
99
 
Gross Unrealized Depreciation on Investments
     
 
(573
)
   
 
(706
)
     
 
(6,360
)
     
 
(81
)
      
  
    
    
Net Unrealized Appreciation (Depreciation) on Investments
     
 
(8
)
   
 
(573
)
     
 
(5,419
)
     
 
18
 
Accumulated Net Investment Income (Loss)
     
 
(51
)
   
 
(21
)
     
 
205
*
     
 
(10
)*
Accumulated Realized Gain (Loss)
     
 
(91
)
   
 
(287
)
     
 
(22,416
)
     
 
587
 
      
  
    
    
Accumulated Undistributed Income (Loss)
     
$
(150
)
   
$
(881
)
     
$
(27,630
)
     
$
595
 
      
  
    
    
(In Thousands)
     
U.S. Government Fund
     
Managed Bond Fund
       
California Tax-
Free Income Fund
       
Municipal Bond Fund
  
Gross Unrealized Appreciation on Investments
     
$
1,111
 
   
$
205
 
     
$
5,191
 
     
$
52,112
 
Gross Unrealized Depreciation on Investments
     
 
(79
)
   
 
(168
)
     
 
(1,240
)
     
 
(2,922
)
      
  
    
    
Net Unrealized Appreciation on Investments
     
 
1,032
 
   
 
37
 
     
 
3,951
 
     
 
49,190
 
Accumulated Net Investment Income (Loss)
     
 
(20
)*
   
 
–
 
     
 
154
*
     
 
848
*
Accumulated Undistributed Realized Gain (Loss)
     
 
(2,454
)
   
 
(234
)
     
 
156
 
     
 
2,229
 
      
  
    
    
Accumulated Undistributed Income (Loss)
     
$
(1,442
)
   
$
(197
)
     
$
4,261
 
     
$
52,267
 
      
  
    
    
 
*
 
Accumulated undistributed net investment income (loss) on a book basis is due to premium and discount amortization required on debt securities.

126

Table of Contents

Notes to Financial Statements
(Unaudited)

 
At June 30, 2002, the estimated components of distributable earnings on a tax basis were as follows:
 
(In Thousands)
     
Growth Opportunities Fund
     
Equity
Fund
       
Dividend Income Fund
       
Northwest
Fund
  
Undistributed Long-term Capital Gain (Loss)
     
$
(6,678
)
   
$
15,620
 
     
$
(2,301
)
     
$
(125
)
Undistributed Ordinary Loss
     
 
(10,674
)
   
 
(18,289
)
     
 
(1,297
)
     
 
(13
)
Capital Loss Carryforward**
     
 
(15,014
)
   
 
(30,060
)
     
 
(761
)
     
 
(4,680
)
Net Unrealized Appreciation (Depreciation) on Investments
     
 
(28,081
)
   
 
134,439
 
     
 
22,352
 
     
 
3,349
 
      
  
    
    
Distributable Earnings
     
$
(60,447
)
   
$
101,710
 
     
$
17,993
 
     
$
(1,469
)
      
  
    
    
(In Thousands)
     
International
Stock Fund
     
Balanced
Fund
       
Small Company Value Fund
       
U.S. Value
Fund
  
Undistributed Long-term Capital Gains (Loss)
     
$
(27
)
   
$
93
 
     
$
465
 
     
$
67
 
Undistributed Ordinary Income (Loss)
     
 
(286
)
   
 
(123
)
     
 
957
 
     
 
(96
)
Capital Loss Carryforward**
     
 
(3,296
)
   
 
(93
)
     
 
(7,479
)
     
 
(217
)
Net Unrealized Appreciation (Depreciation) on Investments
     
 
1,033
 
   
 
(16
)
     
 
3,881
 
     
 
1
 
      
  
    
    
Distributable Earnings
     
$
(2,576
)
   
$
(139
)
     
$
(2,176
)
     
$
(245
)
      
  
    
    
(In Thousands)
     
Small Company Growth Fund
     
U.S. Growth
Fund
       
High-Yield Bond Fund
       
Intermediate-Term U.S. Treasury Fund
  
Undistributed Long-term Capital Gain (Loss)
     
$
–
 
   
$
–
 
     
$
(342
)
     
$
641
 
Undistributed Ordinary Loss
     
 
(136
)
   
 
(308
)
     
 
(3,968
)
     
 
(2
)
Capital Loss Carryforward**
     
 
–
 
   
 
–
 
     
 
(17,480
)
     
 
(52
)
Net Unrealized Appreciation (Depreciation) on Investments
     
 
(14
)
   
 
(573
)
     
 
(5,840
)
     
 
8
 
      
  
    
    
Distributable Earnings
     
$
(150
)
   
$
(881
)
     
 
(27,630
)
     
$
595
 
      
  
    
    
(In Thousands)
     
U.S.
Government
Fund
     
Managed Bond Fund
       
California Tax-Free Income Fund
       
Municipal
Bond Fund
  
Undistributed Long-term Capital Gains
     
$
463
 
   
$
8
 
     
$
337
 
     
$
2,243
 
Undistributed Ordinary Income (Loss)
     
 
2
 
   
 
(25
)
     
 
(181
)
     
 
(14
)
Capital Loss Carryforward**
     
 
(2,919
)
   
 
(217
)
     
 
–
 
     
 
–
 
Net Unrealized Appreciation on Investments
     
 
1,012
 
   
 
37
 
     
 
4,105
 
     
 
50,038
 
      
  
    
    
Distributable Earnings
     
$
(1,442
)
   
$
(197
)
     
$
4,261
 
     
$
52,267
 
      
  
    
    
 
        Differences between book basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax  deferral of losses on wash sales, realization for tax purposes of unrealized gains on certain forward foreign currency contracts, and premium and discount amortization required for book purposes but not for tax purposes.
 
 
**
 
At December 31, 2001, the following funds had accumulated net realized losses on investment transactions that represent capital loss carryforwards for Federal Income tax purposes, which expire as follows:
 
(In Thousands)
   
Amounts (000’s)
   
Expiration Dates
Growth Opportunities Fund
   
$
15,014
   
2008-2009
Equity Fund
   
 
30,060
   
2009
Dividend Income Fund
   
 
761
   
2008-2009
Northwest Fund
   
 
4,680
   
2008-2009
International Stock Fund
   
 
3,296
   
2009
Balanced Fund
   
 
93
   
2008-2009
Small Company Value Fund
   
 
7,479
   
2006-2009
U.S. Value Fund
   
 
217
   
2008-2009
High-Yield Bond Fund
   
 
17,480
   
2008-2009
Intermediate-Term U.S. Treasury Fund
   
 
52
   
2008-2009
U.S. Government Fund
   
 
2,919
   
2002-2009
Managed Bond Fund
   
 
217
   
2007-2009

 
SAFECO    MUTUAL    FUNDS
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127

Table of Contents

Notes to Financial Statements
(Unaudited)

9.    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
   
 
11,712
 
   
 
24,208
 
   
 
323
 
   
 
676
 
   
 
35
 
   
 
62
 
     
 
2
 
     
 
2
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(15,486
)
   
 
(22,338
)
   
 
(494
)
   
 
(593
)
   
 
(37
)
   
 
(86
)
     
 
–
 
     
 
–
 
    
  
  
  
  
  
    
    
Net Change
   
 
(3,774
)
   
 
1,870
 
   
 
(171
)
   
 
83
 
   
 
(2
)
   
 
(24
)
     
 
2
 
     
 
2
 
    
  
  
  
  
  
    
    
Amounts:
                                                                            
Sales
   
$
298,894
 
   
$
604,350
 
   
$
7,999
 
   
$
16,516
 
   
$
822
 
   
$
1,433
 
     
$
34
 
     
$
49
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(389,491
)
   
 
(535,850
)
   
 
(12,375
)
   
 
(13,734
)
   
 
(864
)
   
 
(1,977
)
     
 
(2
)
     
 
(2
)
    
  
  
  
  
  
    
    
Net Change
   
$
(90,597
)
   
$
68,500
 
   
$
(4,376
)
   
$
2,782
 
   
$
(42
)
   
$
(544
)
     
$
32
 
     
$
47
 
    
  
  
  
  
  
    
    
    
SAFECO Equity Fund
  
Shares:
                                                                            
Sales
   
 
1,672
 
   
 
4,175
 
   
 
90
 
   
 
516
 
   
 
32
 
   
 
82
 
     
 
2
 
     
 
3
 
Reinvestments
   
 
66
 
   
 
321
 
   
 
1
 
   
 
3
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(6,819
)
   
 
(14,836
)
   
 
(167
)
   
 
(1,942
)
   
 
(80
)
   
 
(178
)
     
 
(2
)
     
 
(1
)
    
  
  
  
  
  
    
    
Net Change
   
 
(5,081
)
   
 
(10,340
)
   
 
(76
)
   
 
(1,423
)
   
 
(48
)
   
 
(96
)
     
 
–
 
     
 
2
 
    
  
  
  
  
  
    
    
Amounts:
                                                                            
Sales
   
$
29,429
 
   
$
79,730
 
   
$
1,579
 
   
$
9,977
 
   
$
552
 
   
$
1,543
 
     
$
30
 
     
$
76
 
Reinvestments
   
 
1,208
 
   
 
5,869
 
   
 
7
 
   
 
57
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(119,112
)
   
 
(284,521
)
   
 
(2,924
)
   
 
(38,726
)
   
 
(1,364
)
   
 
(3,344
)
     
 
(27
)
     
 
(21
)
    
  
  
  
  
  
    
    
Net Change
   
$
(88,475
)
   
$
(198,922
)
   
$
(1,338
)
   
$
28,692
 
   
$
(812
)
   
$
(1,801
)
     
$
3
 
     
$
55
 
    
  
  
  
  
  
    
    
    
SAFECO Dividend Income Fund
  
Shares:
                                                                            
Sales
   
 
292
 
   
 
412
 
   
 
6
 
   
 
6
 
   
 
2
 
   
 
4
 
     
 
–
 
     
 
1
 
Reinvestments
   
 
23
 
   
 
137
 
   
 
–
 
   
 
1
 
   
 
–
 
   
 
1
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(733
)
   
 
(1,644
)
   
 
(3
)
   
 
(13
)
   
 
(8
)
   
 
(18
)
     
 
–
 
     
 
(1
)
    
  
  
  
  
  
    
    
Net Change
   
 
(418
)
   
 
(1,095
)
   
 
3
 
   
 
(6
)
   
 
(6
)
   
 
(13
)
     
 
–
 
     
 
–
 
    
  
  
  
  
  
    
    
Amounts:
                                                                            
Sales
   
$
5,399
 
   
$
7,994
 
   
$
114
 
   
$
119
 
   
$
34
 
   
$
85
 
     
$
7
 
     
$
17
 
Reinvestments
   
 
440
 
   
 
2,562
 
   
 
2
 
   
 
10
 
   
 
1
 
   
 
6
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(13,642
)
   
 
(31,676
)
   
 
(62
)
   
 
(249
)
   
 
(146
)
   
 
(328
)
     
 
–
 
     
 
(9
)
    
  
  
  
  
  
    
    
Net Change
   
$
(7,803
)
   
$
(21,120
)
   
$
54
 
   
$
(120
)
   
$
(111
)
   
$
(237
)
     
$
7
 
     
$
8
 
    
  
  
  
  
  
    
    
 
 *
 
For the six-month period ended June 30, 2002.
**
 
For the year ended December 31, 2001.

128

Table of Contents

Notes to Financial Statements
(Unaudited)
 
 

 
    
Investor Class
     
Class A
     
Class B
       
Class C
  
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
       
2002*
       
2001**
  
    
SAFECO Northwest Fund
  
Shares:
                                                                            
Sales
   
 
862
 
   
 
1,399
 
   
 
34
 
   
 
71
 
   
 
13
 
   
 
49
 
     
 
–
 
     
 
1
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(1,129
)
   
 
(1,964
)
   
 
(35
)
   
 
(110
)
   
 
(35
)
   
 
(44
)
     
 
–
 
     
 
–
 
    
  
  
  
  
  
    
    
Net Change
   
 
(267
)
   
 
(585
)
   
 
(1
)
   
 
(39
)
   
 
(22
)
   
 
5
 
     
 
–
 
     
 
1
 
    
  
  
  
  
  
    
    
Amounts:
                                                                            
Sales
   
$
15,765
 
   
$
25,295
 
   
$
598
 
   
$
1,340
 
   
$
230
 
   
$
908
 
     
$
3
 
     
$
14
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(20,515
)
   
 
(35,931
)
   
 
(610
)
   
 
(2,051
)
   
 
(615
)
   
 
(783
)
     
 
(3
)
     
 
(5
)
    
  
  
  
  
  
    
    
Net Change
   
$
(4,750
)
   
$
(10,636
)
   
$
(12
)
   
$
(711
)
   
$
(385
)
   
$
125
 
     
$
–
 
     
$
9
 
    
  
  
  
  
  
    
    
    
SAFECO International Stock Fund
  
Shares:
                                                                            
Sales
   
 
532
 
   
 
13,235
 
   
 
181
 
   
 
459
 
   
 
5
 
   
 
163
 
     
 
–
 
     
 
1
 
Reinvestments
   
 
–
 
   
 
35
 
   
 
–
 
   
 
2
 
   
 
–
 
   
 
1
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(556
)
   
 
(13,368
)
   
 
(183
)
   
 
(469
)
   
 
(14
)
   
 
(172
)
     
 
–
 
     
 
–
 
    
  
  
  
  
  
    
    
Net Change
   
 
(24
)
   
 
(98
)
   
 
(2
)
   
 
(8
)
   
 
(9
)
   
 
(8
)
     
 
–
 
     
 
1
 
    
  
  
  
  
  
    
    
Amounts:
                                                                            
Sales
   
$
5,348
 
   
$
158,423
 
   
$
1,790
 
   
$
5,294
 
   
$
46
 
   
$
1,954
 
     
$
–
 
     
$
12
 
Reinvestments
   
 
–
 
   
 
366
 
   
 
–
 
   
 
19
 
   
 
–
 
   
 
10
 
     
 
–
 
     
 
–
 
Redemptions
   
 
(5,635
)
   
 
(161,176
)
   
 
(1,828
)
   
 
(5,450
)
   
 
(137
)
   
 
(2,059
)
     
 
–
 
     
 
(3
)
    
  
  
  
  
  
    
    
Net Change
   
$
(287
)
   
$
(2,387
)
   
$
(38
)
   
$
(137
)
   
$
(91
)
   
$
(95
)
     
$
  –
 
     
$
9
 
    
  
  
  
  
  
    
    
    
SAFECO Balanced Fund
  
Shares:
                                                                            
Sales
   
 
160
 
   
 
228
 
   
 
17
 
   
 
28
 
   
 
7
 
   
 
25
 
                      
Reinvestments
   
 
5
 
   
 
20
 
   
 
1
 
   
 
4
 
   
 
1
 
   
 
3
 
                      
Redemptions
   
 
(143
)
   
 
(217
)
   
 
(10
)
   
 
(32
)
   
 
(18
)
   
 
(17
)
                      
    
  
  
  
  
  
                     
Net Change
   
 
22
 
   
 
31
 
   
 
8
 
   
 
–
 
   
 
(10
)
   
 
11
 
                      
    
  
  
  
  
  
                     
Amounts:
                                                                            
Sales
   
$
1,863
 
   
$
2,669
 
   
$
197
 
   
$
334
 
   
$
79
 
   
$
296
 
                      
Reinvestments
   
 
54
 
   
 
235
 
   
 
9
 
   
 
43
 
   
 
7
 
   
 
33
 
                      
Redemptions
   
 
(1,672
)
   
 
(2,545
)
   
 
(112
)
   
 
(377
)
   
 
(208
)
   
 
(194
)
                      
    
  
  
  
  
  
                     
Net Change
   
$
245
 
   
$
359
 
   
$
94
 
   
$
–
 
   
$
(122
)
   
$
135
 
                      
    
  
  
  
  
  
                     
 
*
 
For the six-month period ended June 30, 2002.
**
 
For the year ended December 31, 2001.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

129

Table of Contents

Notes to Financial Statements
(Unaudited)

 
    
Investor Class
     
Class A
     
Class B
       
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
            
    
SAFECO Small Company Value Fund
            
Shares:
                                                                    
Sales
   
 
1,733
 
   
 
5,045
 
   
 
26
 
   
 
66
 
   
 
14
 
   
 
9
 
              
Reinvestments
   
 
–
 
   
 
20
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
              
Redemptions
   
 
(1,283
)
   
 
(4,824
)
   
 
(12
)
   
 
(65
)
   
 
(9
)
   
 
(9
)
              
    
  
  
  
  
  
             
Net Change
   
 
450
 
   
 
241
 
   
 
14
 
   
 
1
 
   
 
5
 
   
 
–
 
              
    
  
  
  
  
  
             
Amounts:
                                                                    
Sales
   
$
24,908
 
   
$
64,825
 
   
$
380
 
   
$
835
 
   
$
184
 
   
$
100
 
              
Reinvestments
   
 
–
 
   
 
273
 
   
 
–
 
   
 
6
 
   
 
–
 
   
 
–
 
              
Redemptions
   
 
(18,110
)
   
 
(61,938
)
   
 
(169
)
   
 
(815
)
   
 
(124
)
   
 
(106
)
              
    
  
  
  
  
  
             
Net Change
   
$
6,798
 
   
$
3,160
 
   
$
211
 
   
$
26
 
   
$
60
 
   
$
(6
)
              
    
  
  
  
  
  
             
    
SAFECO U.S. Value Fund
            
Shares:
                                                                    
Sales
   
 
49
 
   
 
67
 
   
 
6
 
   
 
9
 
   
 
6
 
   
 
9
 
              
Reinvestments
   
 
1
 
   
 
3
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
              
Redemptions
   
 
(38
)
   
 
(39
)
   
 
(2
)
   
 
(4
)
   
 
(3
)
   
 
(8
)
              
    
  
  
  
  
  
             
Net Change
   
 
12
 
   
 
31
 
   
 
4
 
   
 
5
 
   
 
3
 
   
 
1
 
              
    
  
  
  
  
  
             
Amounts:
                                                                    
Sales
   
$
539
 
   
$
756
 
   
$
64
 
   
$
97
 
   
$
65
 
   
$
97
 
              
Reinvestments
   
 
8
 
   
 
34
 
   
 
–
 
   
 
2
 
   
 
–
 
   
 
1
 
              
Redemptions
   
 
(408
)
   
 
(428
)
   
 
(27
)
   
 
(46
)
   
 
(31
)
   
 
(81
)
              
    
  
  
  
  
  
             
Net Change
   
$
139
 
   
$
362
 
   
$
37
 
   
$
53
 
   
$
34
 
   
$
17
 
              
    
  
  
  
  
  
             
    
Investor Class
     
Class A
     
Class B
     
Class C
    
2002*
     
2001***
     
2002*
     
2001***
     
2002*
     
2001***
     
2002*
   
2001***
    
SAFECO Small Company Growth Fund
            
Shares:
                                                                    
Sales
   
 
74
 
   
 
209
 
   
 
2
 
   
 
103
 
   
 
1
 
   
 
100
 
   
 
9
   
 
100
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
Redemptions
   
 
(13
)
   
 
–
 
   
 
–
 
   
 
(2
)
   
 
–
 
   
 
–
 
   
 
–
   
 
–
    
  
  
  
  
  
  
  
Net Change
   
 
61
 
   
 
209
 
   
 
2
 
   
 
101
 
   
 
1
 
   
 
100
 
   
 
9
   
 
100
    
  
  
  
  
  
  
  
Amounts:
                                                                    
Sales
   
$
827
 
   
$
2,096
 
   
$
25
 
   
$
1,030
 
   
$
6
 
   
$
1,000
 
   
$
100
   
$
1,000
Reinvestments
   
 
1
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
   
 
–
Redemptions
   
 
(141
)
   
 
–
 
   
 
–
 
   
 
(24
)
   
 
–
 
   
 
–
 
   
 
–
   
 
–
    
  
  
  
  
  
  
  
Net Change
   
$
687
 
   
$
2,096
 
   
$
25
 
   
$
1,006
 
   
$
     6
 
   
$
1,000
 
   
$
100
   
$
1,000
    
  
  
  
  
  
  
  
 
  *
 
For the six-month period ended June 30, 2002.
 **
 
For the year ended December 31, 2001.
***
 
For the period from October 31, 2001 (commencement of operations) through December 31, 2001.

130

Table of Contents

Notes to Financial Statements
(Unaudited)

 
    
Investor Class
     
Class A
     
Class B
       
Class C
  
    
2002*
     
2001***
     
2002*
     
2001***
     
2002*
     
2001***
       
2002*
     
2001***
  
    
SAFECO U.S. Growth Fund
  
Shares:
                                                                          
Sales
   
 
34
 
   
 
226
 
   
 
3
 
   
 
101
 
   
 
1
 
   
 
100
 
     
 
–
 
   
 
100
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
   
 
–
 
Redemptions
   
 
(21
)
   
 
(3
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
   
 
–
 
    
  
  
  
  
  
    
  
Net Change
   
 
13
 
   
 
223
 
   
 
3
 
   
 
101
 
   
 
1
 
   
 
100
 
     
 
–
 
   
 
100
 
    
  
  
  
  
  
    
  
Amounts:
                                                                          
Sales
   
$
336
 
   
$
2,277
 
   
$
28
 
   
$
1,011
 
   
$
11
 
   
$
1,000
 
     
$
–
 
   
$
1,000
 
Reinvestments
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
   
 
–
 
Redemptions
   
 
(205
)
   
 
(31
)
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
     
 
–
 
   
 
–
 
    
  
  
  
  
  
    
  
Net Change
   
$
131
 
   
$
2,246
 
   
$
28
 
   
$
1,011
 
   
$
11
 
   
$
1,000
 
     
$
–
 
   
$
1,000
 
    
  
  
  
  
  
    
  
    
Investor Class
     
Class A
     
Class B
       
Class C
  
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
       
2002*
     
2001**
  
    
SAFECO High-Yield Bond
  
Shares:
                                                                          
Sales
   
 
3,467
 
   
 
15,461
 
   
 
19
 
   
 
809
 
   
 
8
 
   
 
15
 
     
 
3
 
   
 
2
 
Reinvestments
   
 
175
 
   
 
503
 
   
 
3
 
   
 
9
 
   
 
4
 
   
 
10
 
     
 
–
 
   
 
–
 
Redemptions
   
 
(5,232
)
   
 
(15,580
)
   
 
(64
)
   
 
(809
)
   
 
(11
)
   
 
(21
)
     
 
–
 
   
 
(1
)
    
  
  
  
  
  
    
  
Net Change
   
 
(1,590
)
   
 
384
 
   
 
(42
)
   
 
9
 
   
 
1
 
   
 
4
 
     
 
3
 
   
 
1
 
    
  
  
  
  
  
    
  
Amounts:
                                                                          
Sales
   
$
22,002
 
   
$
107,668
 
   
$
119
 
   
$
5,312
 
   
$
49
 
   
$
108
 
     
$
20
 
   
$
15
 
Reinvestments
   
 
1,093
 
   
 
3,487
 
   
 
20
 
   
 
61
 
   
 
23
 
   
 
65
 
     
 
–
 
   
 
–
 
Redemptions
   
 
(32,788
)
   
 
(108,672
)
   
 
(408
)
   
 
(5,327
)
   
 
(66
)
   
 
(143
)
     
 
(2
)
   
 
(10
)
    
  
  
  
  
  
    
  
Net Change
   
$
(9,693
)
   
$
2,483
 
   
$
(269
)
   
$
46
 
   
$
6
 
   
$
30
 
     
$
18
 
   
$
5
 
    
  
  
  
  
  
    
  
    
SAFECO Intermediate-Term U.S. Treasury Fund
  
Shares:
                                                                          
Sales
   
 
768
 
   
 
1,367
 
   
 
23
 
   
 
193
 
   
 
56
 
   
 
13
 
                    
Reinvestments
   
 
24
 
   
 
54
 
   
 
2
 
   
 
4
 
   
 
1
 
   
 
3
 
                    
Redemptions
   
 
(793
)
   
 
(1,242
)
   
 
(8
)
   
 
(144
)
   
 
(3
)
   
 
(4
)
                    
    
  
  
  
  
  
                   
Net Change
   
 
(1
)
   
 
179
 
   
 
17
 
   
 
53
 
   
 
54
 
   
 
12
 
                    
    
  
  
  
  
  
                   
Amounts:
                                                                          
Sales
   
$
8,127
 
   
$
14,523
 
   
$
240
 
   
$
2,036
 
   
$
590
 
   
$
137
 
                    
Reinvestments
   
 
260
 
   
 
576
 
   
 
25
 
   
 
45
 
   
 
13
 
   
 
26
 
                    
Redemptions
   
 
(8,376
)
   
 
(13,187
)
   
 
(80
)
   
 
(1,518
)
   
 
(30
)
   
 
(38
)
                    
    
  
  
  
  
  
                   
Net Change
   
$
11
 
   
$
1,912
 
   
$
185
 
   
$
563
 
   
$
573
 
   
$
125
 
                    
    
  
  
  
  
  
                   
 
  *
 
For the six-month period ended June 30, 2002.
 **
 
For the year ended December 31.
***
 
For the period from October 31, 2001 (commencement of operations) through December 31, 2001.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

131

Table of Contents

Notes to Financial Statements
(Unaudited)

 
    
Investor Class
     
Class A
     
Class B
  
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
  
    
SAFECO U.S. Government Fund
         
Shares:
                                                      
Sales
   
 
817
 
   
 
4,933
 
   
 
8
 
   
 
17
 
   
 
1
 
   
 
5
 
Reinvestments
   
 
89
 
   
 
197
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
Redemptions
   
 
(514
)
   
 
(4,371
)
   
 
(1
)
   
 
–
 
   
 
–
 
   
 
–
 
    
  
  
  
  
  
Net Change
   
 
392
 
   
 
759
 
   
 
7
 
   
 
17
 
   
 
1
 
   
 
5
 
    
  
  
  
  
  
Amounts:
                                                      
Sales
   
$
7,784
 
   
$
46,891
 
   
$
77
 
   
$
159
 
   
$
14
 
   
$
50
 
Reinvestments
   
 
844
 
   
 
1,871
 
   
 
4
 
   
 
3
 
   
 
1
 
   
 
3
 
Redemptions
   
 
(4,880
)
   
 
(41,517
)
   
 
(6
)
   
 
(2
)
   
 
(2
)
   
 
(4
)
    
  
  
  
  
  
Net Change
   
$
3,748
 
   
$
7,245
 
   
$
75
 
   
$
160
 
   
$
13
 
   
$
49
 
    
  
  
  
  
  
    
SAFECO Managed Bond Fund
         
Shares:
                                                      
Sales
   
 
125
 
   
 
271
 
   
 
22
 
   
 
88
 
   
 
9
 
   
 
45
 
Reinvestments
   
 
9
 
   
 
19
 
   
 
2
 
   
 
4
 
   
 
2
 
   
 
4
 
Redemptions
   
 
(99
)
   
 
(141
)
   
 
(28
)
   
 
(27
)
   
 
(9
)
   
 
(30
)
    
  
  
  
  
  
Net Change
   
 
35
 
   
 
149
 
   
 
(4
)
   
 
65
 
   
 
2
 
   
 
19
 
    
  
  
  
  
  
Amounts:
                                                      
Sales
   
$
1,055
 
   
$
2,287
 
   
$
187
 
   
$
739
 
   
$
76
 
   
$
378
 
Reinvestments
   
 
73
 
   
 
163
 
   
 
20
 
   
 
36
 
   
 
13
 
   
 
32
 
Redemptions
   
 
(830
)
   
 
(1,188
)
   
 
(236
)
   
 
(225
)
   
 
(74
)
   
 
(251
)
    
  
  
  
  
  
Net Change
   
$
298
 
   
$
1,262
 
   
$
(29
)
   
$
550
 
   
$
15
 
   
$
159
 
    
  
  
  
  
  
    
SAFECO California Tax-Free Income Fund
         
Shares:
                                                      
Sales
   
 
1,326
 
   
 
2,848
 
   
 
9
 
   
 
–
 
   
 
–
 
   
 
33
 
Reinvestments
   
 
166
 
   
 
268
 
   
 
1
 
   
 
2
 
   
 
2
 
   
 
3
 
Redemptions
   
 
(1,222
)
   
 
(4,246
)
   
 
(14
)
   
 
(4
)
   
 
(39
)
   
 
–
 
    
  
  
  
  
  
Net Change
   
 
270
 
   
 
(1,130
)
   
 
(4
)
   
 
(2
)
   
 
(37
)
   
 
36
 
    
  
  
  
  
  
Amounts:
                                                      
Sales
   
$
16,342
 
   
$
36,260
 
   
$
106
 
   
$
5
 
   
$
–
 
   
$
425
 
Reinvestments
   
 
2,017
 
   
 
3,378
 
   
 
14
 
   
 
23
 
   
 
22
 
   
 
35
 
Redemptions
   
 
(15,069
)
   
 
(53,916
)
   
 
(170
)
   
 
(53
)
   
 
(482
)
   
 
–
 
    
  
  
  
  
  
Net Change
   
$
3,290
 
   
$
(14,278
)
   
$
(50
)
   
$
(25
)
   
$
(460
)
   
$
460
 
    
  
  
  
  
  
 
*
 
For the six-month period ended June 30, 2002.
**
 
For the year ended December 31, 2001.

132

Table of Contents

Notes to Financial Statements
(Unaudited)
 

 
    
Investor Class
     
Class A
     
Class B
         
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
                
    
SAFECO Municipal Bond Fund
  
Shares:
                                                                        
Sales
   
 
5,020
 
   
 
9,328
 
   
 
62
 
   
 
38
 
   
 
18
 
   
 
40
 
                  
Issued on Merger (Note 4)
   
 
–
 
   
 
1,462
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
                  
Reinvestments
   
 
615
 
   
 
1,245
 
   
 
1
 
   
 
2
 
   
 
1
 
   
 
2
 
                  
Redemptions
   
 
(5,334
)
   
 
(9,623
)
   
 
(64
)
   
 
(24
)
   
 
(2
)
   
 
(3
)
                  
    
  
  
  
  
  
                 
Net Change
   
 
301
 
   
 
2,412
 
   
 
(1
)
   
 
16
 
   
 
17
 
   
 
39
 
                  
    
  
  
  
  
  
                 
Amounts:
                                                                        
Sales
   
$
70,708
 
   
$
130,987
 
   
$
863
 
   
$
535
 
   
$
258
 
   
$
564
 
                  
Value of Shares Issued on Merger (Note 4)
   
 
–
 
   
 
20,372
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
                  
Reinvestments
   
 
8,644
 
   
 
17,616
 
   
 
15
 
   
 
26
 
   
 
16
 
   
 
29
 
                  
Redemptions
   
 
(75,338
)
   
 
(136,435
)
   
 
(910
)
   
 
(338
)
   
 
(31
)
   
 
(40
)
                  
    
  
  
  
  
  
                 
Net Change
   
$
4,014
 
   
$
32,540
 
   
$
(32
)
   
$
223
 
   
$
243
 
   
$
553
 
                  
    
  
  
  
  
  
                 
    
Investor Class
     
Class A
     
Class B
     
Class C
  
    
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
     
2002*
     
2001**
  
    
SAFECO Money Market Fund
  
Shares:
                                                                        
Sales
   
 
284,965
 
   
 
289,952
 
   
 
2,098
 
   
 
14,127
 
   
 
212
 
   
 
2,566
 
   
 
17
 
   
 
22
 
Reinvestments
   
 
1,657
 
   
 
8,319
 
   
 
30
 
   
 
158
 
   
 
6
 
   
 
35
 
   
 
–
 
   
 
–
 
Redemptions
   
 
(201,812
)
   
 
(313,323
)
   
 
(2,095
)
   
 
(13,624
)
   
 
(305
)
   
 
(2,152
)
   
 
(11
)
   
 
(10
)
    
  
  
  
  
  
  
  
Net Change
   
 
84,810
 
   
 
(15,052
)
   
 
33
 
   
 
661
 
   
 
(87
)
   
 
449
 
   
 
6
 
   
 
12
 
    
  
  
  
  
  
  
  
Amounts:
                                                                        
Sales
   
$
284,965
 
   
$
289,952
 
   
$
2,098
 
   
$
14,127
 
   
$
212
 
   
$
2,566
 
   
$
17
 
   
$
22
 
Reinvestments
   
 
1,657
 
   
 
8,319
 
   
 
30
 
   
 
158
 
   
 
6
 
   
 
35
 
   
 
–
 
   
 
–
 
Redemptions
   
 
(201,812
)
   
 
(313,323
)
   
 
(2,095
)
   
 
(13,624
)
   
 
(305
)
   
 
(2,152
)
   
 
(11
)
   
 
(10
)
    
  
  
  
  
  
  
  
Net Change
   
$
84,810
 
   
$
(15,052
)
   
$
33
 
   
$
661
 
   
$
(87
)
   
$
449
 
   
$
6
 
   
$
12
 
    
  
  
  
  
  
  
  
 
 *
 
For the six-month period ended June 30, 2002.
**
 
For the year ended December 31.

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

133

Table of Contents

Notes to Financial Statements
(Unaudited)

 
 
10.    INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
 
Investment Advisory Fees.    The Funds receive investment management and advising services pursuant to an agreement with SAFECO Asset Management Company. The fees paid by the Funds under the contract are based on a percentage of each day’s net assets, which, on an annual basis, are as follows:
 
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   
                  
  
    
Intermediate-Term U.S. Treasury
and U.S. Government Fund:
   
High-Yield Bond Fund:
   
Managed Bond Fund:
First $250 million
  
.55%
   
First $250 million
  
.65%
   
First $750 million
  
.50%
Next $500 million
  
.50   
   
Next $500 million
  
.55   
   
Next $500 million
  
.45   
Next $500 million
  
.45   
   
Over $750 million
  
.50   
   
Over $1.25 billion
  
.40   
Over $1.25 billion
  
.40   
                  
  
  
Municipal and California
Bond Funds:
   
Money Market Fund:
     
First $250 million
  
.50%
   
First $250 million
  
.50%
         
Next $500 million
  
.45   
   
Next $500 million
  
.45   
         
Over $750 million
  
.40   
   
Next $500 million
  
.40   
         
        
Over $1.25 billion
  
.35   
         
  
    
 
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
  
.04%
   
First $200 million
  
.05%
Over $200 million
  
.01   
   
Over $200 million
  
.01   
  
 
 
Transfer Agent, Shareholder Service, and Distribution Fees.    SAFECO Services Corporation receives transfer agent fees. SAFECO Securities, Inc. receives shareholder service and distribution fees.
 

134

Table of Contents

Notes to Financial Statements
(Unaudited)
 
 

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 June 30, 2002, no such borrowings were outstanding.
 
Line of Credit.    The Trusts, together with all other management investment companies for which SAFECO Asset Management Company serves as investment advisor, have line of credit arrangements with certain financial institutions. Under these arrangements, $125 million is available to meet short-term financing needs. At June 30, 2002 no such borrowings were outstanding.
 
Affiliate Ownership.    At June 30, 2002, SAFECO Insurance Company of America owned 450,000 shares (9% of outstanding shares) of the Northwest Fund and 500,000 shares (or 22%) of the Intermediate-Term U.S. Treasury Fund. SAFECO Asset Management Company owned 694,490 shares (or 29%) of the International Stock Fund, 519,268 shares (or 33%) of the Balanced Fund, 500,000 shares (or 60%) of the U.S. Value Fund, 500,000 shares (or 86%) of the Small Company Growth Fund, 500,000 shares (or 92%) of the U.S. Growth Fund and 452,103 shares (or 40%) of the Managed Bond Fund.
 
Deferred Offering Costs.    Costs related to the initial offering of the Small Company Growth and U.S. Growth Funds have been deferred and are being amortized to operations on a straight-line basis over a period of twelve months. These costs were advanced by an affiliate and are being reimbursed by the Funds over a twelve-month period.
 
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 for the Money Market and 0.40% for all other Funds. Beginning October 31, 2001 (commencement of operations) through December 31, 2002, SAFECO Asset Management Company voluntarily agreed to reimburse the Small Company Growth and the U.S. Growth Funds for operating expenses that exceed on an annual basis 0.60% of the Funds average daily net assets. In addition, from March 7, 2002 through May 5, 2002 SAFECO Asset Management Company voluntarily waived 0.10% of the Investment Advisory fee for the Money Market Fund Investor Class.
 
Dealer Concessions.    SAFECO Securities, Inc. retained the following amounts in dealer commissions from sales of Class A shares during the six-month period ended June 30, 2002:
 
(In Thousands)
     
Commissions Retained
Growth Opportunities Fund
     
$
2
Equity Fund
     
 
2
Northwest Fund
     
 
1
Municipal Bond Fund
     
 
1

 
SAFECO    MUTUAL    FUNDS
1-800-528-6501

135

Table of Contents

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
Barbara J. Dingfield
4854 154th Place NE
Redmond, WA 98052
(56)
   
Trustee
   
Term: Age 72
Time Served: 11 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.
Richard E. Lundgren
4854 154th Place NE
Redmond, WA 98052
(64)
   
Trustee
   
Term: Age 72
Time Served: 18 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.
Larry L. Pinnt
4854 154th Place NE
Redmond, WA 98052
(67)
   
Trustee
   
Term: 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., Director of Cascade Natural Gas Corporation, Seattle, Washington.
John W. Schneider
4854 154th Place NE
Redmond, WA 98052
(60)
   
Trustee
   
Term: Age 72
Time Served: 18 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.
INTERESTED TRUSTEE
Randall H. Talbot
5069 154th Place NE
Redmond, WA 98052
(48)
   
Chairman and
Trustee
   
Term: Age 72
Time Served: 1 year
   
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., Director of Netstock Corporation, Bellevue, Washington
OFFICERS
Roger F. Harbin
5069 154th Place NE
Redmond, WA 98052
(51)
   
President
   
Time Served: Six Months
   
Senior Vice President of SAFECO Life Insurance Company from 1992 to 1998. Since 1998, Executive Vice President and Actuary of SAFECO Life Insurance Company. In November 2001, named Director and President of SAFECO Services Corporation, Director of SAFECO Asset Management Company, Director and President of SAFECO Securities, Inc.
         
Ronald L. Spaulding
Two Union Square
601 Union Street
25th Floor
Seattle, WA 98101
(57)
   
Vice President
Treasurer
   
Time Served: 7 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
(45)
   
Vice President,
Secretary,
Controller
   
Time Served: 2 years
   
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.
         
Scott D. Murphy
4854 154th Place NE
Redmond, WA 98052
(40)
   
Assistant
Controller
   
Time Served: 2 years
   
Assistant Controller, SAFECO Asset Management Company and SAFECO Services Corporation since June 2000. Assistant Controller of SAFECO Securities, Inc. since May 2001. Former Senior Vice President and Chief Financial Officer with Nichols Brothers Boat Builders, Inc., a commercial ship building and repair company, from April 1991 to April 2000.
         
Susan Tracey
SAFECO Plaza
4333 Brooklyn Ave. NE
Seattle, WA 98185
(51)
   
Assistant
Secretary
   
Time Served: 1 year
   
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
(49)
   
Assistant
Secretary
   
Time Served: 1 year
   
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 executive 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.

Table of Contents

 
 

SAFECO MUTUAL FUNDS
 
INVESTMENT ADVISOR
SAFECO Asset Management Company
 
DISTRIBUTOR
SAFECO Securities, Inc.
 
TRANSFER AGENT
SAFECO Services Corporation
 
CUSTODIAN
State Street Bank
Chase Manhattan Bank
(International Stock Fund)
 
FOR CLIENT SERVICES
1-800-528-6501
 
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
c/o NFDS
P.O. Box 219241
Kansas City, MO
64121-9241
 
Internet
www.safecofunds.com
 
Email
invest@safeco.com
 

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