<PAGE> 1
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO GNMA FUND
SAFECO HIGH-YIELD BOND FUND
SAFECO MANAGED BOND FUND
NO-LOAD CLASS SEPTEMBER 30, 1996
This Prospectus offers shares of the following mutual funds: the SAFECO
Intermediate-Term U.S. Treasury Fund, the SAFECO GNMA Fund, the SAFECO
High-Yield Bond Fund, which are series of the SAFECO Taxable Bond Trust
("Taxable Bond Trust"). The SAFECO Managed Bond Fund is a series of the SAFECO
Managed Bond Trust ("Managed Bond Trust"). The investment objectives for each of
these Funds appears on page 3.
This Prospectus sets forth the information a prospective investor should know
before investing. PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
Statement of Additional Information, dated September 30, 1996, and incorporated
herein by reference, has been filed with the Securities and Exchange Commission
and is available at no charge upon request by calling one of the numbers listed
on this page. The Statement of Additional Information and other material
incorporated by reference herein are also available on the Securities and
Exchange Commission website (http://www.sec.gov). The Statement of Additional
Information contains more information about many of the topics in this
Prospectus as well as information about the trustees and officers of the Trusts.
For additional assistance, please call or write:
Nationwide 1-800-624-5711; Seattle 545-7319
Hearing Impaired
TTY/TDD Service 1-800-438-8718
SAFECO Mutual Funds
No-Load Class Shares
P.O. Box 34890
Seattle, WA. 98124-1890
ALL TELEPHONE CALLS ARE TAPE-RECORDED FOR YOUR PROTECTION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE U.S. GOVERNMENT OR ANY BANK, NOR ARE FUND SHARES FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND FUND SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation, other than those contained in this
Prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by either Trust, any Fund, or
by SAFECO Securities. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy a Trust, a Fund or by SAFECO Securities in any
state in which such offer or solicitation may not lawfully be made.
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND ("Intermediate Treasury Fund") has
as its investment objective to provide as high a level of current income as is
consistent with the preservation of capital. During normal market conditions,
the Fund will invest at least 65% of its total assets in direct obligations of
the U.S. Treasury.
SAFECO GNMA FUND ("GNMA Fund") has as its investment objective to provide as
high a level of current interest income as is consistent with the preservation
of capital through the purchase of U.S. Government securities. During normal
market conditions, the Fund will invest at least 65% of its total assets in
Government National Mortgage Association ("GNMA") mortgage-backed securities.
SAFECO HIGH-YIELD BOND FUND ("High-Yield Bond Fund") has as its investment
objective to provide a high level of current interest income through the
purchase of high-yield, fixed-income securities. During normal market
conditions, the Fund will invest at least 65% of its total assets in high-yield,
fixed-income securities.
SAFECO MANAGED BOND FUND ("Managed Bond Fund") has as its investment objective
to provide as high a level of total return as is consistent with the relative
stability of capital through the purchase of investment grade debt securities.
There is no assurance that a Fund will achieve its investment objective.
2
<PAGE> 3
TABLE OF CONTENTS
Page
INTRODUCTION TO THE TRUSTS AND THE FUNDS............................. 4
EXPENSES ............................................................ 5
FINANCIAL HIGHLIGHTS................................................. 7
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES........................ 12
RISK FACTORS......................................................... 20
PORTFOLIO MANAGERS................................................... 23
HOW TO PURCHASE SHARES............................................... 23
HOW TO REDEEM SHARES................................................. 26
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES...................... 28
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER...................... 29
TELEPHONE TRANSACTIONS............................................... 31
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS.................. 31
SHARE PRICE CALCULATION.............................................. 32
INFORMATION ABOUT SHARE OWNERSHIP AND
COMPANIES THAT PROVIDE SERVICES TO THE TRUSTS........................ 32
PERSONS CONTROLLING CERTAIN FUNDS.................................... 35
PERFORMANCE INFORMATION.............................................. 35
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED............................ 36
TAX-DEFERRED RETIREMENT PLANS........................................ 37
ACCOUNT STATEMENTS................................................... 38
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS........................... 38
DEBT SECURITIES HELD BY THE HIGH-YIELD BOND FUND..................... 39
DESCRIPTION OF RATINGS............................................... 40
3
<PAGE> 4
- --------------------------------------------------
INTRODUCTION TO THE TRUSTS AND THE FUNDS
- --------------------------------------------------
The Taxable Bond Trust is an open-end management investment company that issues
shares representing three diversified mutual funds: the Intermediate Treasury
Fund, the GNMA Fund and the High-Yield Bond Fund (collectively, the "Taxable
Bond Funds").
The Managed Bond Trust is an open-end management investment company that
currently issues shares representing one diversified mutual fund: the Managed
Bond Fund (each Taxable Bond Fund and the Managed Bond Fund, a "Fund"). Prior to
September 30, 1996, the name of the Managed Bond Fund was the SAFECO
Fixed-Income Portfolio and the name of the Managed Bond Trust was the SAFECO
Institutional Series Trust.
THE FUNDS
No-Load Class shares of each Fund are offered through this Prospectus. The
Intermediate Treasury Fund and the Managed Bond Fund also offer other classes of
shares.
The No-Load Class of each Fund:
- Is 100% no-load; there are no initial or contingent deferred sales
charges or Rule 12b-1 fees.
- Offers free exchanges as well as easy access to your money through
telephone redemptions and wire transfers.
- Has a minimum initial investment of $1,000 for regular accounts and
$250 for individual retirement accounts ("IRAs").
RISK FACTORS
There is, of course, no assurance that a Fund will achieve its investment
objective. See "Each Fund's Investment Objective and Policies" for more
information.
There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Also, the value of a Fund's portfolio will normally fluctuate inversely with
changes in interest rates. In addition, the High-Yield Bond Fund is subject to
special risks associated with below investment grade securities, sometimes
referred to as "junk" bonds, which it will purchase to pursue its investment
objective. See "Each Fund's Investment Objective and Policies" for more
information.
4
<PAGE> 5
INVESTMENT ADVISER
Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and managed over $2 billion in mutual fund
assets as of June 30, 1996. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been advisers since
1932. See "Information about Share Ownership and Companies that Provide Services
to the Trusts" for more information.
EXPENSES
A. SHAREHOLDER TRANSACTION EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND
Sales Charge
Sales Charge Imposed on Contingent
Imposed on Reinvested Deferred Redemption Exchange
Purchases Dividends Sales Charge Fees Fees
- ----------- ------------ ------------ ---------- --------
None None None None None
SAFECO Services Corporation ("SAFECO Services"), the transfer agent for the
Funds, charges a $10 fee to wire redemption proceeds.
B. ANNUAL OPERATING EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND
(As a percentage of average net assets)
<TABLE>
<CAPTION>
Total
Management Rule Other Operating
Fund Fee + 12b-1 Fees + Expenses = Expenses
- ---- -------------- ---------- -------- --------
<S> <C> <C> <C> <C>
Intermediate
Treasury .54% None .42% .96%
GNMA .63% None .38% 1.01%
High-Yield Bond .64% None .37% 1.01%
Managed Bond .49% None .67% 1.16%
</TABLE>
The amounts shown are actual expenses paid by shareholders for the fiscal year
ended September 30, 1995 for the Taxable Bond Funds and December 31, 1995 for
the Managed Bond Fund. See "Information about Share Ownership and Companies that
Provide Services to the Trusts" for more information.
5
<PAGE> 6
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in No-Load Class
shares, assuming a 5% annual return. The example also assumes that all dividends
and other distributions are reinvested and that the percentage amounts listed in
"Annual Operating Expenses" above remain the same in the years shown.
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Intermediate
Treasury $10 $31 $53 $118
GNMA $10 $32 $56 $124
High-Yield
Bond $10 $32 $56 $124
Managed Bond $11 $36 $63 $140
</TABLE>
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in No-Load Class shares of each Fund would bear,
directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER
OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES
AND EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS, AND IT IS
NOT A PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE
PERFORMANCE OF ANY FUND.
6
<PAGE> 7
- ----------------------------------------
FINANCIAL HIGHLIGHTS
- ----------------------------------------
The amounts shown for each Fund in the Financial Highlights tables that follow
are based upon a single share outstanding throughout the period indicated.
Except for the six-month periods ended March 31, 1996 (Intermediate Treasury,
GNMA and High-Yield) and June 30, 1996 (Managed Bond), the following selected
data for the Intermediate Treasury, GNMA, High-Yield and Managed Bond Funds are
derived from financial statements that have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and other financial information included in each
Trust's annual report to shareholders and incorporated by reference in each
Trust's Statement of Additional Information. The following selected data for the
six month periods ended March 31, 1996 (Intermediate Treasury, GNMA and High
Yield) and June 30, 1996 (Managed Bond) are derived from unaudited financial
statements and should be read in conjunction with the financial statements,
related notes and financial information included in each Trust's semiannual
report to shareholders and incorporated by reference in each Trust's Statement
of Additional Information. Each of the Trusts' Statements of Additional
Information may be obtained by calling one of the numbers on the front page of
this Prospectus.
7
<PAGE> 8
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO Intermediate-Term U.S. Treasury Fund
<TABLE>
<CAPTION>
For the Six For the Year Ended September 30
Month Period
Ended March
31, 1996
(unaudited) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.24 $ 9.74 $ 10.74 $ 10.69
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.25 .55 .52 .60
Net realized and unrealized gain (loss) on
investments (0.04) .50 (1.00) .49
---------- ---------- ---------- ----------
Total from investment operations 0.21 1.05 (.48) 1.09
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.25) (.55) (.52) (.60)
Distributions from capital gains -- -- -- (.44)
---------- ---------- ---------- ----------
Total distributions (0.25) (.55) (.52) (1.04)
---------- ---------- ---------- ----------
Net asset value at end of period $ 10.20 $ 10.24 $ 9.74 $ 10.74
========== ========== ========== ==========
Total return 2.03%+ 11.07% -4.56% 10.51%
Net assets at end of period (000's omitted) $ 14,255 $ 13,774 $ 13,367 $ 14,706
Ratio of expenses to average net assets 1.06%++ .96% .90% .99%
Ratio of net investment income to average
net assets 4.83%++ 5.51% 5.08% 5.52%
Portfolio turnover rate 228.20%++ 124.9% 75.46% 104.94%
</TABLE>
<TABLE>
<CAPTION>
For the
Period From
September 7, 1988
(Initial Public
Offering) To
1992 1991 1990 1989 September 30, 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.20 $ 9.83 $ 9.96 $ 9.95 $ 9.93
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .72 .75 .77 .77 .05
Net realized and unrealized gain (loss) on
investments .54 .37 (.13) (.01) .02
---------- --------- --------- --------- ---------
Total from investment operations 1.26 1.12 .64 .78 .07
---------- --------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income (.72) (.75) (.77) (.77) (.05)
Distributions from capital gains (.05) -- -- -- --
---------- --------- --------- --------- ---------
Total distributions (.77) (.75) (.77) (.77) (.05)
---------- --------- --------- --------- ---------
Net asset value at end of period $ 10.69 $ 10.20 $ 9.83 $ 9.96 $ 9.95
========== ========= ========= ========= =========
Total return 12.78% 11.80% 6.65% 8.20% .69%+
Net assets at end of period (000's omitted) $ 12,205 $ 9,458 $ 6,916 $ 6,249 $ 5,007
Ratio of expenses to average net assets .98% 1.00% 1.00% .96% 1.06%++
Ratio of net investment income to average
net assets 6.89% 7.45% 7.76% 7.82% 7.46%++
Portfolio turnover rate 37.19% 9.51% 24.17% 4.36% None
</TABLE>
+ Not annualized.
++ Annualized.
8
<PAGE> 9
SAFECO GNMA Fund
<TABLE>
<CAPTION>
For the Six For the Year Ended September 30
Month Period
Ended March
31, 1996
(unaudited) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.45 $ 9.05 $ 10.03 $ 9.95
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.30 .60 .60 .67
Net realized and unrealized gain (loss) on
investments (0.12) .40 (.98) .08
---------- ---------- ---------- ----------
Total from investment operations 0.18 1.00 (.38) .75
---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.30) (.60) (.60) (.67)
---------- ---------- ---------- ----------
Net asset value at end of period $ 9.33 $ 9.45 $ 9.05 $ 10.03
========== ========== ========== ==========
Total return 1.88%+ 11.49% -3.91% 7.81%
Net assets at end of period (000's
omitted) $ 43,103 $ 44,055 $ 46,176 $ 62,720
Ratio of expenses to average net assets 1.07%++ 1.01% .95% .93%
Ratio of net investment income to
average net assets 6.29%++ 6.55% 6.26% 6.71%
Portfolio turnover rate 52.85%++ 131.24% 55.12% 70.96%
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 9.68 $ 9.16 $ 9.23 $ 9.06 $ 9.13
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .73 .78 .76 .81 .87
Net realized and unrealized gain (loss) on
investments .27 .52 (.07) .17 (.07)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.00 1.30 .69 .98 .80
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net investment income (.73) (.78) (.76) (.81) (.87)
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 9.95 $ 9.68 $ 9.16 $ 9.23 $ 9.06
========== ========== ========== ========== ==========
Total return 10.75% 14.72% 7.77% 11.25% 9.05%
Net assets at end of period (000's
omitted) $ 56,474 $ 42,207 $ 28,587 $ 27,063 $ 27,724
Ratio of expenses to average net assets .94% .97% .99% 1.02% 1.06%
Ratio of net investment income to
average net assets 7.49% 8.23% 8.28% 8.83% 9.51%
Portfolio turnover rate 24.66% 43.80% 90.19% 77.39% 109.53%
</TABLE>
<TABLE>
<CAPTION>
For the Period
From July 15,
1986 (Initial Public
Offering) To
September 30,
1987 1986
-----------------------------------------
<S> <C> <C>
Net asset value at beginning of period $ 10.00 $ 9.95
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .82 .18
Net realized and unrealized gain (loss) on
investments (.87) .05
---------- ---------
Total from investment operations (.05) .23
---------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income (.82) (.18)
---------- ---------
Net asset value at end of period $ 9.13 $ 10.00
========== =========
Total return -.63% 1.71%+*
Net assets at end of period (000's
omitted) $ 20,257 $ 8,057
Ratio of expenses to average net assets 1.05% 1.25%++
Ratio of net investment income to
average net assets 8.59% 8.01%++
Portfolio turnover rate 100.96% 33.47%++
</TABLE>
* Unaudited
+ Not annualized.
++ Annualized.
9
<PAGE> 10
SAFECO High-Yield Bond Fund
<TABLE>
<CAPTION>
For the Six
Month Period
Ended For the Year Ended September 30
March 31,
1996
(unaudited) 1995 1994 1993 1992
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 8.68 $ 8.55 $ 9.22 $ 8.92 $ 8.35
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39 .79 .82 .91 .83
Net realized and unrealized gain (loss) on
investments 0.02 .13 (.67) .30 .57
--------- ---------- --------- --------- ---------
Total from investment operations 0.41 .92 .15 1.21 1.40
--------- ---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.39) (.79) (.82) (.91) (.83)
--------- ---------- --------- --------- ---------
Net asset value at end of period $ 8.70 $ 8.68 $ 8.55 $ 9.22 $ 8.92
========= ========== ========= ========= =========
Total return 4.82%+ 11.43% 1.61% 14.29% 17.52%
Net assets at end of period (000's omitted) $39,568 $ 39,178 $ 27,212 $ 28,291 $ 19,672
Ratio of expenses to average net assets .99%++ 1.01% 1.03% 1.09% 1.05%
Ratio of net investment income to average
net assets 9.08%++ 9.28% 9.26% 9.94% 9.66%
Portfolio turnover rate 55.18%++ 38.03% 63.02% 50.27% 40.66%
</TABLE>
<TABLE>
<CAPTION>
For the Period From
September 7, 1988
(Initial Public
Offering) To
1991 1990 1989 September 30, 1988
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 7.94 $ 9.33 $ 9.86 $ 9.89
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .93 1.04 1.11 .07
Net realized and unrealized gain (loss) on
investments .41 (1.39) (.53) (.03)
---------- --------- --------- ---------
Total from investment operations 1.34 (.35) .58 .04
---------- --------- --------- ---------
LESS DISTRIBUTIONS:
Dividends from net investment income (.93) (1.04) (1.11) (.07)
---------- --------- --------- ---------
Net asset value at end of period $ 8.35 $ 7.94 $ 9.33 $ 9.86
========== ========= ========= =========
Total return 18.18% -4.04% 6.10% .37%+
Net assets at end of period (000's omitted) $ 11,931 $ 7,786 $ 9,051 $ 5,204
Ratio of expenses to average net assets 1.11% 1.15% 1.11% 1.25%++
Ratio of net investment income to average
net assets 11.51% 11.90% 11.52% 10.27%++
Portfolio turnover rate 32.46% 18.46% 12.57% None
</TABLE>
+ Not annualized.
++ Annualized.
10
<PAGE> 11
SAFECO Managed Bond Fund
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
For the Period From
For the Six Month February 28, 1994
Period Ended June 30, For the Year Ended (Initial Public Offering)
1996 (unaudited) December 31, 1995 to December 31, 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 8.77 $ 8.15 $ 8.68
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.20 .44 .27
Net realized and unrealized
gain (loss) on investments (0.42) .94 .53
--------- --------- ---------
Total from investment operations (0.22) 1.38 (.26)
--------- --------- ---------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net investment income (0.20) (.44) (.27)
Realized gains on investments -- (.32) --
--------- --------- ---------
Total distributions (0.20) (.76) (.27)
--------- --------- ---------
Net asset value at end of period $ 8.35 $ 8.77 $ 8.15
========= ========= =========
Total return -2.55%+ 17.35% -3.01%+
Net assets at end of period (000's omitted) $ 4,114 $ 4,497 $ 4,627
Ratio of expenses to average net assets 1.17%++ 1.16% 1.28%++
Ratio of net investment income to average
net assets 4.64%++ 5.14% 3.88%++
Portfolio turnover rate 117.13%++ 78.78% 132.26%++
</TABLE>
+ Not annualized.
++ Annualized.
11
<PAGE> 12
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES
Each Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993.
The investment objective and investment policies for each Fund are described
below. A Trust's Board of Trustees may change a Fund's objective without a
shareholder vote, but no such change will be made without 30 days' prior written
notice to shareholders of that Fund. In the event a Fund changes its investment
objective, the new objective may not meet the investment needs of every
shareholder and may be different from the objective a shareholder considered
appropriate at the time of initial investment.
Each Fund has adopted a number of investment restrictions. If a Fund satisfies a
percentage limitation at the time of investment, a later increase or decrease in
value, assets or other circumstances will not be considered in determining
whether a Fund complies with the applicable policy (except to the extent the
change may impact a Fund's borrowing limits). Unless otherwise stated, the
investment policies and limitations described below under each Fund's
description and "Common Investment Practices" are non-fundamental and may be
changed without a shareholder vote.
INTERMEDIATE TREASURY FUND
The Intermediate Treasury Fund has as its investment objective to provide as
high a level of current income as is consistent with the preservation of
capital. The Intermediate Treasury Fund will seek to maintain a portfolio of
U.S. Treasury obligations with an average dollar weighted maturity of between
three and ten years. Although the average dollar weighted maturity of the
portfolio will fall within a range of three to ten years, individual obligations
held by the Intermediate Treasury Fund may have maturities outside that range.
To pursue its investment objective, the Intermediate Treasury Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN DIRECT OBLIGATIONS OF THE U.S. TREASURY SUCH AS U.S. TREASURY
BILLS, NOTES AND BONDS. These securities are supported by the full
faith and credit of the U.S. Government.
2. WILL INVEST UP TO 35% OF ITS TOTAL ASSETS IN:
OTHER U.S. GOVERNMENT SECURITIES, including (a) securities supported by
the full faith and credit of the U.S. Government but that are not
direct obligations of the U.S. Treasury, such as securities issued by
GNMA; (b) securities that are not supported by the full faith and
credit of the U.S. Government but are supported by the issuer's ability
to borrow from the U.S. Treasury, such as securities issued by the
Federal National Mortgage Association ("FNMA")
12
<PAGE> 13
and the Federal Home Loan Mortgage Corporation ("FHLMC"); and (c)
securities supported solely by the creditworthiness of the issuer, such
as securities issued by the Tennessee Valley Authority ("TVA"). While
U.S. Government securities are considered to be of the highest credit
quality available, they are subject to the same market risks as
comparable debt securities.
CORPORATE DEBT SECURITIES which at the time of purchase are rated in
the top three grades (A or higher) by either Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc. ("S&P"), or, if unrated, determined by
SAM to be of comparable quality to such rated debt securities. In
addition to reviewing ratings, SAM will analyze the quality of rated
and unrated corporate bonds for purchase by the Fund by evaluating
various factors that may include the issuer's capital structure,
earnings power and quality of management. See "Description of Ratings"
beginning on page 40.
3. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT
SECURITIES, EURODOLLAR BONDS AND MUNICIPAL SECURITIES. See the Taxable
Bond Trust's Statement of Additional Information for more information
about these securities.
GNMA FUND
The investment objective of the GNMA Fund is to provide as high a level of
current interest income as is consistent with the preservation of capital
through the purchase of U.S. Government securities.
To pursue its investment objective, the GNMA Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS
PORTFOLIO IN MORTGAGE-BACKED SECURITIES ISSUED BY GNMA ("GNMA
SECURITIES"). The GNMA securities in which the GNMA Fund will invest
represent ownership in a pool of mortgage loans or securities
collateralized by pools of mortgage loans. Each mortgage loan in the
pool is either insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans
Administration. Once approved by GNMA, the timely payment of principal
and interest by each mortgage pool is guaranteed by GNMA. The GNMA
guarantee represents a general obligation of the U.S. Treasury.
GNMA securities in which the GNMA Fund may invest include "modified
pass-through" securities or collateralized mortgage obligations
("CMOs"). Modified pass-through securities "pass through" to their
holders the scheduled monthly interest and principal payments relating
to mortgage loans in the pool. CMOs are securities collateralized by a
portfolio of mortgage loans or mortgage-backed securities. CMOs are
issued with a number of classes or series which have different
maturities and which may represent interests in some or all of the
interest or principal of the underlying collateral or a combination
thereof. One type of CMO that the
13
<PAGE> 14
GNMA Fund will purchase is interests in real estate mortgage investment
conduits ("REMICs") sponsored by GNMA.
CMO classes may be specially structured in a manner that provides any
of a wide variety of investment characteristics, such as yield,
effective maturity and interest rate sensitivity. As market conditions
change, however, and particularly during periods of rapid or
unanticipated changes in market interest rates, the attractiveness of
the CMO classes and the ability of the structure to provide the
anticipated investment characteristics may significantly change. Such
changes can result in volatility in the market value, and in some
instances reduced liquidity, of the CMO class.
While the market values of particular securities in which the GNMA Fund
invests may be volatile, or may become volatile under certain
conditions, SAM will seek to manage the Fund so that the volatility of
the Fund's portfolio, taken as a whole, is consistent with the Fund's
investment objective. Unanticipated interest rate changes and other
factors may affect the volatility of securities held by the Fund and
the Fund's ability to fully meet its investment objective.
2. MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN:
OTHER U.S. GOVERNMENT SECURITIES, including (a) securities backed by
the full faith and credit of the U.S. Government, such as U.S. Treasury
bills, notes and bonds; (b) securities issued by U.S. Government
agencies or instrumentalities that are not backed by the full faith and
credit of the U.S. Government but are supported by the issuer's right
to borrow from the U.S. Treasury, such as securities issued by FNMA and
FHLMC; and (c) securities supported solely by the creditworthiness of
the issuer, such as securities issued by TVA. While U.S. Government
securities are considered to be of the highest credit quality
available, they are subject to the same market risks as comparable debt
securities.
OTHER COLLATERALIZED MORTGAGE OBLIGATIONS issued by the U.S. Government
or one of its agencies or instrumentalities (such as FNMA or FHLMC) or
by private issuers which are collateralized by securities issued by the
U.S. Government or one of its agencies or instrumentalities (such as
FNMA or FHLMC). CMOs are securities collateralized by a portfolio of
mortgages or mortgage-backed securities. The issuer's obligation to
make interest and principal payments on the CMO is secured by the
underlying portfolio of mortgages or mortgage-backed securities. CMOs
are issued with a number of classes or series that have different
maturities and that may represent interests in some or all of the
interest or principal of the underlying collateral or a combination
thereof.
CORPORATE DEBT SECURITIES which are investment grade. Investment grade
corporate debt securities are rated in one of the four highest grades
assigned by Moody's or S&P or, if unrated, determined by SAM to be of
comparable quality to such rated debt securities. Moody's deems
securities rated in the fourth category (Baa) to have speculative
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characteristics. The GNMA Fund may retain a debt security which is
downgraded to below investment grade after purchase. In the event that,
due to a downgrade of one or more debt securities, an amount in excess
of 5% of the Fund's net assets is held in securities rated below
investment grade, SAM will engage in an orderly disposition of such
securities to the extent necessary to ensure that the Fund's holdings
of such securities do not exceed 5% of the Fund's net assets. For an
explanation of ratings, see "Description of Ratings" on page 55.
HIGH-YIELD BOND FUND
The High-Yield Bond Fund has as its investment objective to provide a high level
of current interest income through the purchase of high-yield, fixed-income
securities. The higher yields that the Fund seeks are usually available from
lower-rated or unrated securities sometimes referred to as "junk bonds." The
maturity of the debt obligations held by the Fund may range from 1 to 30 years.
However, it is anticipated that the majority of debt obligations will have
maturities from 5 to 15 years.
To pursue its investment objective, the High-Yield Bond Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS
PORTFOLIO IN HIGH-YIELD, FIXED-INCOME SECURITIES. The High-Yield Bond
Fund may purchase debt and preferred stock issues (including
convertible securities) which are below investment grade, i.e., rated
lower than the top four grades by S&P or Moody's, or, if not rated by
these agencies, in the opinion of SAM, have credit characteristics
comparable to such rated securities. Up to 25% of the Fund's total
assets may be invested in such unrated securities. SAM will determine
the quality of unrated obligations by evaluating the issuer's capital
structure, earnings power and quality of management. Unrated securities
may not be as attractive to as many investors as rated securities. In
addition, the Fund may invest up to 5% of its total assets in
securities which are in default. The Fund will purchase securities
which are in default only when, in SAM's opinion, the potential for
high yield outweighs the risk.
While fixed-income securities rated lower than investment grade
generally lack characteristics of a desirable investment, they normally
offer a current yield or yield-to-maturity which is significantly
higher than the yield available from securities rated as investment
grade. These securities are speculative and involve greater investment
risks due to the issuers' reduced creditworthiness and increased
likelihood of default and bankruptcy. In addition, these securities are
frequently subordinated to senior securities. For further explanation
of the special risks associated with investing in lower-rated,
fixed-income securities, see "Risk Factors" on page 28.
For a description of debt ratings, see "Description of Ratings" on page
55. For a breakdown of the debt securities held by the High-Yield Bond
Fund during the fiscal year ended September 30, 1995, see "Debt
Securities Held by the High-Yield Bond Fund" on page 54.
The High-Yield Bond Fund may retain an issue whose rating has been
changed.
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2. MAY INVEST IN FIXED-INCOME SECURITIES WITH EQUITY FEATURES WHEN
COMPARABLE IN YIELD AND RISK TO FIXED-INCOME SECURITIES WITHOUT EQUITY
FEATURES, BUT ONLY WHEN ACQUIRED AS A RESULT OF UNIT OFFERINGS WHICH
CARRY AN EQUITY ELEMENT SUCH AS COMMON STOCK, RIGHTS OR OTHER EQUITY
SECURITIES. The Fund will hold these common stocks, rights or other
equity securities until SAM determines that, in its opinion, the
optimal time for sale of the equity security has been reached.
3. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES
ELIGIBLE FOR RESALE UNDER RULE 144A ("RULE 144A SECURITIES"), PROVIDED
THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE LIQUID UNDER
GUIDELINES ADOPTED BY THE BOARD OF TRUSTEES. Restricted securities may
be sold only in offerings registered under the Securities Act of 1933
("1933 Act") or in transactions exempt from the registration
requirements under the 1933 Act. Rule 144A under the 1933 Act provides
an exemption for the resale of certain restricted securities to
qualified institutional buyers. Investing in Rule 144A securities could
have the effect of increasing the Fund's illiquidity to the extent that
qualified institutional buyers or other buyers are unwilling to
purchase the securities.
4. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES WHICH
ARE RATED LOWER THAN THE TOP THREE GRADES ASSIGNED BY MOODY'S OR S&P OR
ARE UNRATED BUT COMPARABLE TO SUCH RATED SECURITIES IF, IN THE OPINION
OF SAM, THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND YIELD IS
COMPARABLE TO OR GREATER THAN, SIMILARLY-RATED TAXABLE SECURITIES.
Investment in medium and lower quality tax-exempt bonds involves the
same risks as investments in taxable bonds of similar quality.
5. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT,
ITS AGENCIES OR INSTRUMENTALITIES OR IN FIXED-INCOME SECURITIES WHICH
ARE RATED IN THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P DURING
MARKET CONDITIONS WHICH, IN THE OPINION OF SAM, ARE UNFAVORABLE FOR
SATISFACTORY PERFORMANCE BY LOWER-RATED OR UNRATED FIXED-INCOME
SECURITIES. The Fund may invest in higher-rated securities when
changing economic conditions or other factors cause the difference in
yield between lower-rated and higher-rated securities to narrow and SAM
believes that the risk of loss to principal may be substantially
reduced with a small reduction in yield.
MANAGED BOND FUND
The Managed Bond Fund has as its investment objective to provide as high a level
of total return as is consistent with the relative stability of capital through
the purchase of investment grade debt securities. In pursuing the Managed Bond
Fund's investment objective, SAM will seek to minimize the effects of interest
rate risks while pursuing total return by adjusting the investment portfolio's
average maturity in response to interest rate changes. In general, the Managed
Bond Fund's strategy will be to hold fixed-income securities with shorter
maturities as interest rates rise and with longer maturities
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<PAGE> 17
as interest rates fall. The fixed-income securities held by the Managed Bond
Fund will have maturities of 10 years or less from the date of purchase. SAM
reserves the right to modify the Managed Bond Fund's investment strategy in any
respect at any time.
To pursue its investment objective, the Managed Bond Fund:
1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN BONDS, DEFINED AS
FIXED-INCOME SECURITIES.
2. WILL INVEST PRIMARILY IN INVESTMENT GRADE DEBT SECURITIES; I.E.,
SECURITIES RATED IN THE TOP FOUR CATEGORIES BY EITHER S&P OR MOODY'S OR
IF NOT RATED, SECURITIES WHICH, IN SAM'S OPINION, ARE COMPARABLE IN
QUALITY TO INVESTMENT GRADE DEBT SECURITIES. The Fund will limit
investments in such medium grade debt securities to no more than 10% of
its total assets. Unrated securities are not necessarily of lower
quality than rated securities, but may not be as attractive to
investors.
The Fund may retain debt securities which are downgraded to below
investment grade (commonly referred to as "high yield" or "junk" bonds)
after purchase, but no more than 5% of its total assets will be
invested in such securities. In addition to reviewing ratings, SAM may
analyze the quality of rated and unrated debt securities purchased for
the Fund by evaluating the issuer's capital structure, earnings power,
quality of management and position within its industry. For a
description of debt securities ratings, see "Description of Ratings" on
page 55.
3. WILL INVEST AT LEAST 50% OF ITS TOTAL ASSETS IN OBLIGATIONS OF OR
GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES.
These obligations include (a) direct obligations of the U.S. Treasury,
such as U.S. Treasury notes, bills, bonds and stripped securities; (b)
securities supported by the full faith and credit of the U.S.
Government but that are not direct obligations of the U.S. Treasury,
such as securities issued by GNMA; (c) securities that are not
supported by the full faith and credit of the U.S. Government but are
supported by the issuer's ability to borrow from the U.S. Treasury,
such as securities issued by the FNMA and the FHLMC and (d) securities
supported solely by the creditworthiness of the issuer, such as
securities issued by the TVA. While U.S. Government securities are
considered to be of the highest credit quality available, they are
subject to the same market risks as comparable debt securities.
4. MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN CORPORATE DEBT SECURITIES
OR EURODOLLAR BONDS. Eurodollar bonds are bonds issued by either U.S.
or foreign issuers that are traded in the European bond markets and
denominated in U.S. dollars. The Fund will purchase Eurodollar bonds
through U.S. securities dealers and hold such bonds in the United
States. The delivery of Eurodollar bonds to the Fund's custodian in the
United States may cause slight delays in settlement which are not
anticipated to affect the Fund in any material, adverse manner.
Eurodollar bonds issued by foreign issuers are subject to the same
risks as Yankee sector bonds discussed below.
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5. MAY INVEST IN ASSET-BACKED SECURITIES, WHICH REPRESENT INTERESTS IN, OR
ARE SECURED BY AND PAYABLE FROM, POOLS OF ASSETS SUCH AS CONSUMER
LOANS, AUTOMOBILE RECEIVABLE SECURITIES, CREDIT CARD RECEIVABLE
SECURITIES AND INSTALLMENT LOAN CONTRACTS. These securities may be
supported by credit enhancements such as letters of credit. Payment of
interest and principal ultimately depends upon borrowers paying the
underlying loans. There is the risk that one or more of the underlying
borrowers may default and that recovery on repossessed collateral may
be unavailable or inadequate to support payments on the defaulted
asset-backed securities. In addition, asset-backed securities are
subject to prepayment risks which may reduce the overall return of the
investment.
6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT
SECURITIES, WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES
BY FOREIGN ISSUERS. These bonds have investment risks that are
different from those of domestic issuers. Such risks may include
nationalization of the issuer, confiscatory taxation by the foreign
government that would inhibit the ability of the issuer to make
principal and interest payments to the Fund, lack of comparable
publicly available information concerning foreign issuers, lack of
comparable accounting and auditing practices in foreign countries and,
finally, difficulty in enforcing claims against foreign issuers in the
event of default.
Both S&P and Moody's rate Yankee sector debt obligations. If a debt
obligation is unrated, SAM will attempt to analyze a potential
investment in the foreign issuer with respect to quality and risk on
the same basis as the rating services. Because public information is
not always comparable to that available on domestic issuers, this may
not be possible. Therefore, while SAM will attempt to select
investments in foreign securities on the same basis, and with
comparable quantities and types of information, as its investments in
domestic securities, that may not always be possible.
7. MAY HOLD CASH AS A TEMPORARY DEFENSIVE MEASURE WHEN MARKET CONDITIONS
SO WARRANT.
8. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES IF, IN
SAM'S OPINION, THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND
YIELD IS COMPARABLE TO OR GREATER THAN, SIMILARLY RATED TAXABLE
SECURITIES.
COMMON INVESTMENT PRACTICES
Each Fund may also follow the investment practices described below:
1. HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH
QUALITY COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD,
OPEN-END MONEY MARKET FUNDS OR REPURCHASE AGREEMENTS. A Fund may
purchase these short-term securities as a cash management technique
under those circumstances where it has cash to manage for a short time
period, for example, after receiving proceeds from the sale of
securities, interest payments or dividend
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distributions from portfolio securities or cash from the sale of Fund
shares to investors. Interest earned from these short-term securities
will be taxable to investors as ordinary income when distributed. SAM
will waive its advisory fees for Fund assets invested in money market
funds. With respect to repurchase agreements, the Managed Bond Fund
will invest no more than 5% of its total assets in repurchase
agreements and will not purchase repurchase agreements which mature in
more than seven days.
2. INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Each Fund,
however, will not engage primarily in trading for the purpose of
short-term profits. A Fund may dispose of its portfolio securities
whenever SAM deems advisable, without regard to the length of time the
securities have been held.
3. PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS. Under this procedure, a Fund agrees to acquire or sell
securities that are to be issued and delivered against payment in the
future, normally 30 to 45 days. The price, however, is fixed at the
time of commitment. When a Fund purchases when-issued or
delayed-delivery securities, it will earmark liquid, high-quality
securities in an amount equal in value to the purchase price of the
security. Use of these techniques may affect a Fund's share price in a
manner similar to the use of leveraging.
Except as noted, the following restrictions are fundamental policies of each
Fund which cannot be changed without shareholder vote:
1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY
NOT INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY
ONE ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).
2. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY
NOT PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY
ONE ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).
3. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES
FROM A BANK (IN THE CASE OF THE TAXABLE BOND FUNDS, OR SAFECO
CORPORATION) OR AFFILIATES OF SAFECO CORPORATION AT AN INTEREST RATE
NOT GREATER THAN THAT AVAILABLE FROM COMMERCIAL BANKS. A Fund will not
borrow amounts in excess of 20% of its total assets. A Fund will not
purchase securities if outstanding borrowings are equal to or greater
than 5% of its total assets; this 5% policy is non-fundamental for the
Managed Bond Fund. Each Fund intends to exercise its borrowing
authority primarily to meet shareholder redemptions under circumstances
where redemptions exceed available cash.
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The Taxable Bond Funds have adopted the following additional fundamental
investment restrictions:
1. EACH TAXABLE BOND FUND MAY INVEST UP TO 10% (HIGH-YIELD BOND AND
INTERMEDIATE TREASURY FUNDS) AND 5% (GNMA FUND) OF ITS NET ASSETS IN
ILLIQUID SECURITIES, WHICH ARE SECURITIES THAT CANNOT BE SOLD WITHIN
SEVEN DAYS IN THE ORDINARY COURSE OF BUSINESS FOR APPROXIMATELY THE
AMOUNT AT WHICH THEY ARE VALUED. Due to the absence of an active
trading market, a Fund may experience difficulty in valuing or
disposing of illiquid securities. SAM determines the liquidity of the
securities under guidelines adopted by the Taxable Bond Trust's Board
of Trustees.
2. EACH TAXABLE BOND FUND MAY INVEST UP TO 10% OF NET ASSETS IN REPURCHASE
AGREEMENT TRANSACTIONS. Repurchase agreements are transactions in which
a Fund purchases securities from a bank or recognized securities dealer
and simultaneously commits to resell the securities to the bank or
dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased
securities. Repurchase agreements carry certain risks not associated
with direct investments in securities, including the risk that a Fund
will be unable to dispose of the security during the term of the
repurchase agreement if the security's market value declines, and
delays and costs to a Fund if the other party to the repurchase
agreement declares bankruptcy.
For more information, see the "Investment Policies" and the "Additional
Investment Information" sections of each Trust's No-Load Class Statement of
Additional Information.
RISK FACTORS
There are market risks in all securities transactions. Various factors may cause
the value of a shareholder's investment in a Fund to fluctuate. The principal
risk factor associated with an investment in a mutual fund like any of the Funds
is that the market value of the portfolio securities may decrease resulting in a
decrease in the value of a shareholder's investment. The value of a Fund's
portfolio will normally fluctuate inversely with changes in market interest
rates. Generally, when market interest rates rise, the price of the debt
securities held by a Fund will fall, and when market interest rates fall, the
price of the debt securities will rise. Also, there is a risk that the issuer of
a bond or other security held in a Fund's portfolio will fail to make timely
payments of principal and interest to the Fund. Included in investment grade
debt securities are debt securities of medium grade (rated Baa by Moody's or BBB
by S&P) which have speculative characteristics and are more likely to have a
weakened capacity to make principal and interest payments under changing
economic or other conditions than higher grade securities.
The prices of GNMA and other mortgage-backed securities, like conventional
fixed-income securities, are inversely affected by changes in interest rate
levels. Because of the likelihood of increased prepayments of mortgages in times
of declining interest rates, the GNMA securities held
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<PAGE> 21
in a Fund's portfolio have less potential for capital appreciation than
comparable fixed-income securities and may in fact decrease in value when
interest rates fall. Further, purchases of GNMA or other mortgage-backed
securities for the GNMA Fund are based on an anticipated prepayment rate. During
periods of rising interest rates, a decrease in the prepayment of mortgages is
likely. This decrease may cause the average dollar weighted maturity of
particular securities held by the GNMA Fund and the GNMA Fund's portfolio as a
whole to increase, thereby increasing the overall volatility of the Fund's share
price during periods of rising interest rates. To the extent that the other
Funds purchase GNMA or other mortgage-backed securities, they would be similarly
affected.
The Managed Bond Fund may invest in stripped securities that are obligations
issued by the U.S. Treasury. Stripped securities are the separate income or
principal components of a debt security. The risks associated with stripped
securities are similar to those of other debt securities, although stripped
securities may be more volatile than other debt securities.
SPECIAL RISKS OF THE HIGH-YIELD BOND FUND
The High-Yield Bond Fund invests primarily in high-yield, fixed-income
securities which are subject to the following risks:
SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS
Yields on high-yield, fixed-income securities will fluctuate over time. During
periods of economic uncertainty or change, the market prices of high-yield,
fixed-income securities may experience increased volatility, which may in turn
cause the net asset ("NAV") value per share of the High- Yield Bond Fund to be
volatile. Lower-quality, fixed-income securities tend to reflect short-term
economic and corporate developments to a greater extent than higher-quality
securities which primarily react to fluctuations in interest rates. Economic
downturns or increases in interest rates can significantly affect the market for
high-yield, fixed-income securities and the ability of issuers to timely repay
principal and interest, increasing the likelihood of defaults. Lower-quality
securities include debt obligations issued as a part of capital restructurings,
such as corporate takeovers or buyouts. Capital restructurings generally involve
the issuance of additional debt on terms different from any current outstanding
debt. As a result, the issuer of the debt is more highly leveraged. During an
economic downturn or period of rising interest rates, a highly-leveraged issuer
may experience financial difficulties which adversely affect its ability to make
principal and interest payments, meet projected business goals and obtain
additional financing. In addition, the issuer will depend on its cash flow and
may depend, especially in the context of corporate takeovers, on a sale of its
assets to service debt. Failure to realize projected cash flows or asset sales
may seriously impair the issuer's ability to service this greater debt load,
which in turn might cause the Fund to lose all or part of its investment in that
security. SAM will seek to minimize these additional risks through
diversification, careful assessment of the issuer's financial structure,
business plan and management team following any restructuring, and close
monitoring of the issuer's progress toward its financial goals.
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ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES
The High-Yield Bond Fund may hold "zero-coupon" and "payment-in-kind"
fixed-income securities. Zero-coupon securities are purchased at a discount
without scheduled interest payments. Payment-in-kind securities receive
interest paid in additional securities rather than cash. The Fund accrues income
on these securities, but does not receive cash interest payments until maturity
or payment date. The Fund intends to distribute substantially all of its income
to its shareholders so that it can be treated as a regulated investment company
under current federal tax law. As a result, if its cash position is depleted,
the Fund may have to sell securities under disadvantageous circumstances to
obtain enough cash to meet its distribution requirement. However, SAM does not
expect non-cash income to materially affect the Fund's operations. Zero-coupon
and payment-in-kind securities are generally subject to greater price
fluctuations due to changes in interest rates than those fixed-income securities
paying cash interest on a schedule until maturity.
LIQUIDITY AND VALUATION
The liquidity and price of high-yield, fixed-income securities can be affected
by a number of factors, including investor perceptions and adverse publicity
regarding major issuers, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly- traded
market with few participants and may adversely impact the High-Yield Bond Fund's
ability to dispose of its securities as well as make valuation of securities
more difficult. Because there tend to be fewer investors in lower-rated,
fixed-income securities, it may be difficult for the Fund to sell these
securities at an optimum time. Consequently, lower-rated securities are subject
to more price changes, fluctuations in yield and risk to principal and income
than higher-rated securities of the same maturity. Judgment plays a greater role
in the valuation of thinly-traded securities.
CREDIT RATINGS
Rating agencies evaluate the likelihood that an issuer will make principal and
interest payments, but ratings may not reflect market value risks associated
with lower-rated, fixed-income securities. Also, rating agencies may not timely
revise ratings to reflect subsequent events affecting an issuer's ability to pay
principal and interest. SAM uses S&P and Moody's ratings as a preliminary
indicator of investment quality. SAM will periodically research and analyze each
issue (whether rated or unrated) and evaluate such factors as the issuer's
interest or dividend coverage, asset coverage, earnings prospects and managerial
strength. This analysis will help SAM to determine if the issuer has sufficient
cash flow and profits to meet required principal and interest payments and to
monitor the liquidity of the issue. Achievement of a Fund's investment objective
will be more dependent on SAM's credit analysis of bonds rated below the three
highest rating categories than would be the case were the Fund to invest in
higher quality debt securities. This is particularly true for the High-Yield
Bond Fund.
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PORTFOLIO MANAGERS
- ------------------------
INTERMEDIATE TREASURY FUND AND MANAGED BOND FUND
The portfolio manager for the Intermediate Treasury Fund and the Managed Bond
Fund is Michael C. Knebel, Vice President, SAM. Mr. Knebel has served as
portfolio manager for the Intermediate Treasury Fund since 1995. He has served
as manager or co-manager of the Managed Bond Fund since 1994. He has served as
portfolio manager and/or co-portfolio manager for other SAFECO mutual funds
since 1989.
GNMA FUND
The portfolio manager for the GNMA Fund is Paul A. Stevenson, Vice President,
SAM. Mr. Stevenson has served as portfolio manager for the Fund since 1988. He
also serves as portfolio manager for another SAFECO mutual fund. In addition, he
is an Assistant Vice President of the SAFECO Life Insurance Company.
HIGH-YIELD BOND FUND
The portfolio manager for the High-Yield Bond Fund is Kurt Havnaer, Assistant
Vice President, SAM. Mr. Havnaer began serving as portfolio manager for the Fund
in 1995. Since 1991, he has served as a fixed-income securities analyst for SAM.
He attended graduate school from 1990 to 1991.
Each portfolio manager and certain other persons related to SAM and the Funds
are subject to written policies and procedures designed to prevent abusive
personal securities trading. Incorporated within these policies and procedures
are recommendations made by the Investment Company Institute (the trade group
for the mutual fund industry) with respect to personal securities trading by
persons associated with mutual funds. Those recommendations include preclearance
procedures and blackout periods when certain personnel may not trade in
securities that are the same or related securities being considered for purchase
or sale by a Fund.
- -----------------------------
HOW TO PURCHASE SHARES
- -----------------------------
A completed and signed application must accompany payment for an initial
purchase by mail and in all cases is necessary before a redemption can be made.
Specific applications for retirement accounts must be completed and signed
before any retirement account can be set up. The Funds only accept
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funds drawn in U.S. dollars and payable through a U.S. bank. The Funds do not
accept currency. The Funds issue shares in uncertificated form, but will issue
certificates for whole shares without charge upon written request. You will be
required to post a bond to replace missing certificates. Please note that SAFECO
Services may not be able to provide participant sub-accounting services for all
employee benefit or pension plans that require such services.
THE FUNDS RESERVE THE RIGHT TO REFUSE ANY OFFER TO PURCHASE SHARES.
INITIAL PURCHASES
MINIMUM INITIAL INVESTMENT $1,000 (IRA $250).
Minimum initial investments are negotiable for retirement accounts other than
IRAs.
No minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.
BY WRITTEN REQUEST
Send a check or money order made payable to the No-Load Class of the applicable
Fund and a completed and signed application to the address on the Prospectus
cover.
BY WIRE
Call toll-free 1-800-624-5711 or, in Seattle, 545-7319 for instructions.
Not available for retirement accounts.
IN PERSON
Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 15411 N.E.
51st Street in Redmond, Washington. A representative will be available to assist
you in completing your application.
ADDITIONAL PURCHASES
MINIMUM ADDITIONAL INVESTMENT $100 (EXCEPT DIVIDEND REINVESTMENTS).
Minimum additional investments are negotiable for retirement accounts other than
IRAs.
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BY WRITTEN REQUEST
Send a check or money order made payable to the No-Load Class of the applicable
Fund to the address on the Prospectus cover. Please specify your account number.
BY WIRE
Instruct your bank to send wires to U.S. Bank of Washington, N.A., Seattle,
Washington, ABA # 1250-0010-5, Account #0017-086083.
To ensure timely credit to your account, ask your bank to include the following
information in its wire to U.S. Bank of Washington, N.A.:
- SAFECO Fund name and class name
- SAFECO account number
- Name of the registered owner(s) of the SAFECO account
Delays of purchases caused by inadequate wire instructions are not the
responsibility of the Funds or SAFECO Services.
Your bank may charge a fee for wire services.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319. You must have previously selected
this service on your account application or by written request. Not available to
open a new account or for retirement accounts.
Maximum purchase $100,000 per day, minimum purchase $100 per day.
Monies will be transferred from your predesignated bank account to your existing
Fund account. Your bank may charge a fee if monies are wired to your Fund
account. Please allow 15 business days after selecting this service for it to be
available for first use.
Telephone purchases may be unavailable from some bank accounts and non-bank
financial institutions.
Please read "Telephone Transactions" on page 31 for important information.
25
<PAGE> 26
IN PERSON
Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 15411 N.E.
51st Street in Redmond, Washington.
THROUGH REGISTERED SECURITIES DEALERS
You may open your account and make additional investments through a registered
securities dealer who is responsible for the prompt forwarding of purchase
orders. A dealer may charge a transaction fee and may place more restrictive
conditions on a purchase than would apply if you purchased your shares directly
from a Fund.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 32 for
other important information.
SHARE PURCHASE PRICE
You will buy full and fractional shares at the NAV next computed after your
check, money order or wire has been received. For telephone purchase orders, you
will receive the price per share calculated on the day monies are received from
your bank account. See "Share Price Calculation" on page 38 for more
information.
- ---------------------------
HOW TO REDEEM SHARES
- ---------------------------
BY WRITTEN REQUEST
Shares may be redeemed by sending a letter which specifies your account number,
the Fund's name and class name and the number of shares or dollar amount you
wish to redeem. The request should be sent to the address on the Prospectus
cover. The request must be signed by the appropriate number of owners and in
some cases a signature guarantee may be required. In all cases, SAFECO Services
must have a signed and completed application on file before a redemption can be
made. See "Account Changes and Signature Requirements" on page 53 for more
information.
Retirement account shareholders must specify whether or not they elect 10%
federal income tax withholding from a distribution other than an "eligible
rollover distribution."
26
<PAGE> 27
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319. You must have previously selected
this service on your account application or by written request. Telephone
redemptions are not available for retirement accounts or shares issued in
certificate form. You may request that redemption proceeds be sent directly to
your predesignated bank or mailed to your account address of record.
Please read "Telephone Transactions" on page 31 for important information.
IN PERSON
Shares may be redeemed in person by visiting a SAFECO Investor Center. Investor
Centers are located at 1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in
Seattle, Washington, and at 15411 N.E. 51st Street in Redmond, Washington. Funds
for shares redeemed in person may be mailed to your address of record, sent
directly to your bank or retrieved directly from the SAFECO Investor Center once
they become available.
THROUGH REGISTERED SECURITIES DEALERS
Requests for redemption of shares by wire or telephone will be accepted from
registered securities dealers under agreement with each Fund's principal
underwriter. The dealer may charge a transaction fee for any order processed.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 43 for
important information.
PLEASE NOTE THE FOLLOWING:
If your shares were purchased by wire, redemption proceeds will be available
immediately. If shares were purchased by means other than wire, each Fund
reserves the right to hold the proceeds of a redemption for up to 15 business
days after investment or until such time as the Fund has received assurance that
your investment will be honored by the bank on which it was drawn, whichever
occurs first.
SAFECO Services charges a $10 fee to wire redemption proceeds. In addition, some
banks may charge a fee to receive wires.
If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.
27
<PAGE> 28
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption will be made.
SHARE REDEMPTION PRICE AND PROCESSING
Your shares will be redeemed at the NAV per share next calculated after receipt
of a request that meets the redemption requirements of the Funds. The value of
the shares you redeem may be more or less than the dollar amount purchased,
depending on the market value of the shares at the time of redemption. See
"Share Price Calculation," on page 43 for more information.
Redemption proceeds will normally be sent on the next business day following
receipt of your redemption request. If your redemption request is received after
the close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time), proceeds will normally be sent on the second business day following
receipt. Each Fund, however, reserves the right to postpone payment of
redemption proceeds for up to seven days if making immediate payment could
adversely affect its portfolio. In addition, redemptions may be suspended or
payment dates postponed if the New York Stock Exchange is closed, its trading is
restricted or the Securities and Exchange Commission declares an emergency.
Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the NAV per share
calculated on the day your account is closed and the proceeds will be sent to
you.
- -------------------------------------------------------------
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES
- -------------------------------------------------------------
Call 1-800-426-6730 or 545-5530, in Seattle, for more information.
AUTOMATIC INVESTMENT METHOD (AIM)
AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount (minimum of $100 per withdrawal per Fund)
from your bank account and invest the amount in any Fund.
PAYROLL DEDUCTION PLAN
An employer or other entity using group billing may establish a
self-administered payroll deduction plan in any Fund. Payroll deduction amounts
are negotiable.
28
<PAGE> 29
SYSTEMATIC WITHDRAWAL PLAN
This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund) on or about the fifth business
day of every month.
- ---------------------------------------------------------------
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER
- ---------------------------------------------------------------
An exchange is the redemption of shares of one SAFECO Fund and the purchase of
shares of another SAFECO Fund in accounts which are identically registered,
i.e., have the same registered owners and account number. For income tax
purposes, depending on the cost or other basis of the shares you exchange, you
may realize a capital gain or loss when you make an exchange. You may purchase
shares of a SAFECO Fund by exchange only if it is registered for sale in the
state where you reside. Before exchanging into another SAFECO Fund, please read
its current Prospectus.
BY WRITTEN REQUEST
Shares may be exchanged by writing SAFECO Services at the address on the
Prospectus cover. Please designate the SAFECO Funds you wish to exchange out of
and into as well as your account number. The request must be signed by the
number of owners designated on your account application and in some cases a
signature guarantee may be required. See "Account Changes and Signature
Requirements" on page 38 for more information.
If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319.
Exchanges by telephone must be in amounts of $1,000 or more.
Telephone exchanges are not available for shares issued in certificate form.
Please read "Telephone Transactions" on page 31 for important information.
29
<PAGE> 30
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 31 for
important information.
SHARE EXCHANGE PRICE AND PROCESSING
The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received. Normally the
purchase of the SAFECO Fund you are exchanging into is executed on the same day.
However, each Fund reserves the right to delay the payment of proceeds and,
hence, the purchase in an exchange for up to seven days if making immediate
payment could adversely affect the portfolio of the Fund whose shares are being
redeemed. The exchange privilege may be modified or terminated with respect to a
Fund at any time, upon at least 60 days' notice to shareholders.
LIMITATIONS
Each Fund reserves the right to refuse exchange purchases or simultaneous order
transactions by any person or group if, in SAM's judgment, the Fund would not be
able to invest the money effectively in accordance with that Fund's investment
objective and policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.
The Funds are not intended to serve as vehicles for frequent trading in response
to short-term fluctuations in the market. Due to the disruptive effect that
market-timing investment strategies can have on efficient portfolio management,
the Funds have instituted certain policies to discourage excessive exchange and
simultaneous order transactions. Exchanges and simultaneous order transactions
which, in SAM's judgment, appear to follow a market-timing strategy are limited
to 4 in any 12 month period per account holder (or account, in a case where one
person or entity exercises investment discretion over more than one account).
For purposes of these limitations a "simultaneous order transaction" is a
transaction where a significant portion of an account's assets are redeemed from
one SAFECO Mutual Fund and shortly thereafter reinvested into another SAFECO
Mutual Fund. In order to protect the shareholders of the Funds, SAM reserves the
right to exercise its discretion in determining whether a particular transaction
qualifies as a simultaneous order transaction. In addition to the foregoing
limitations on exchanges and simultaneous order transactions, as described
above, the Funds reserve the right to refuse any offer to purchase shares.
30
<PAGE> 31
- -----------------------------
TELEPHONE TRANSACTIONS
- -----------------------------
To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 545-7319 between 5:30 a.m. and 7:00 p.m. Pacific time, Monday through
Friday, except certain holidays. All telephone calls are tape-recorded for your
protection. During times of drastic or unusual market volatility, it may be
difficult for you to exercise the telephone transaction privileges.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone allows
the Funds and SAFECO Services to accept telephone instructions from an account
owner or a person preauthorized in writing by an account owner. Each Fund and
SAFECO Services reserve the right to refuse any telephone transaction when a
Fund or SAFECO Services, in its sole discretion, is unable to confirm to its
satisfaction that a caller is the account owner or a person preauthorized by the
account owner.
The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone which a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures may
include requiring the account owner to select the telephone privilege in writing
prior to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services tape-records telephone transactions and may
request certain identifying information from the caller.
The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services. The
Funds and SAFECO Services may be liable if they do not employ reasonable
procedures to confirm that telephone transactions are genuine.
- -----------------------------------------------------------------
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS
- -----------------------------------------------------------------
SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the adviser is registered under the Investment
Advisers Act of 1940, has a signed agreement with SAFECO Services and has an
executed power of attorney from the shareholder, in an acceptable form, on file
with SAFECO Services. Advisers may charge a fee to shareholders for their
services. The Trust, the Funds and SAFECO Services have no control over, or
involvement with, the fees charged by advisers
31
<PAGE> 32
for such services. Advisers are responsible for the prompt forwarding of
instructions on shareholders' accounts to SAFECO Services and are bound by the
terms of this Prospectus. The Trusts, the Funds, SAFECO Services and their
affiliated companies will not be responsible to any shareholder for any losses,
liabilities, costs or expenses associated with any investment advice or
recommendation provided by the adviser to the shareholder or for accepting and
following any instructions from such adviser with respect to the shareholder's
account(s).
- ------------------------------
SHARE PRICE CALCULATION
- ------------------------------
The NAV per share of the No-Load Class shares of each Fund is computed at the
close of regular trading on the New York Stock Exchange ("NYSE") (normally 1:00
p.m. Pacific time) each day that the NYSE is open for trading. NAV is determined
separately for each class of shares of each Fund. The NAV of a Fund is
calculated by subtracting a Fund's liabilities from its assets and dividing the
result by the number of outstanding shares.
The values of each Fund's portfolio securities are stated on the basis of
valuations provided by a pricing service, unless the Board determines such does
not represent fair value. The service uses information with respect to
transactions in securities, quotations from securities dealers, market
transactions in comparable securities and various relationships between
securities to determine values. Other assets for which a representative value
cannot be established are valued at their fair value as determined in good faith
by or under the direction of each Trust's Board of Trustees.
- --------------------------------------------------------
INFORMATION ABOUT SHARE OWNERSHIP AND
COMPANIES THAT PROVIDE SERVICES TO THE TRUSTS
- --------------------------------------------------------
The Intermediate Treasury Fund, GNMA, and High-Yield Bond Funds are series of
the SAFECO Taxable Bond Trust. The Managed Bond Fund is a series of the SAFECO
Managed Bond Trust. Each Trust is a Delaware business trust established by a
Trust Instrument dated May 13, 1993. Each Trust is authorized to issue an
unlimited number of shares of beneficial interest. The Boards of Trustees may
establish additional series or classes of shares of the Trusts without the
approval of shareholders.
In addition to the No-Load Class of shares, the Intermediate Treasury Fund and
the Managed Bond Fund also offer two other classes of shares through a separate
prospectus to investors who engage the services of an investment professional:
Advisor Class A shares and Advisor Class B shares. Advisor Class A shares are
sold subject to an initial sales charge and Advisor Class B shares are sold
subject to a contingent deferred sales charge. Advisor Class A and Advisor Class
B shares also incur different expenses than No-Load Class shares. Accordingly,
the performance of the three classes will
32
<PAGE> 33
differ. For more information about Advisor Class A shares and Advisor Class B
shares of the Intermediate Treasury and Managed Bond Funds, please call
1-800-463-8791.
Each share of a Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, due to the
differing expenses borne by the three classes of the Intermediate Treasury and
Managed Bond Funds, dividends and liquidation proceeds for each class of shares
of those Funds will likely differ. All shares issued are fully paid and
non-assessable, and shareholders have no preemptive or other right to subscribe
to any additional shares.
The Trusts do not intend to hold annual meetings of shareholders of the Funds.
The Trustees of a Trust will call a special meeting of shareholders of a Fund
only if required under the Investment Company Act of 1940, in their discretion,
or upon the written request of holders of 10% or more of the outstanding shares
of that Fund entitled to vote. Separate votes are taken by each class of shares,
a Fund, or a Trust if a matter affects only that class of shares, a Fund, or a
Trust, respectively.
Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
each Trust Instrument requires that every written obligation of a Trust or a
Fund contain a statement that such obligation may be enforced only against the
assets of a Trust or Fund and generally provides for indemnification out of
Trust or Fund property of any shareholder nevertheless held personally liable
for Trust or Fund obligations, respectively.
Because the Trusts use a combined Prospectus, it is possible that a Fund might
become liable for a misstatement about the series of another Trust contained in
the Prospectus. The Boards of Trustees have considered this factor in approving
the use of a single, combined Prospectus.
SAM is the investment adviser for each Fund under an agreement with each Trust.
Under each agreement, SAM is responsible for the overall management of the
Trust's and each Fund's business affairs. SAM provides investment research,
advice, management and supervision to each Trust and each Fund, and, consistent
with each Fund's investment objectives and policies, SAM determines what
securities will be purchased, retained or sold by each Fund and implements those
decisions. Each Fund pays SAM an annual management fee based on a percentage of
that Fund's net assets ascertained each business day and paid monthly in
accordance with the schedules below. A reduction in the fees paid by a Fund
occurs only when that Fund's net assets reach the dollar amounts of the break
points and applies only to the assets that fall within the specified range:
33
<PAGE> 34
INTERMEDIATE TREASURY FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C> <C>
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
</TABLE>
GNMA AND HIGH-YIELD BOND FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C> <C>
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>
MANAGED BOND FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C> <C>
$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%
</TABLE>
The distributor for the No-Load Class of each Fund's shares under an agreement
with each Trust is SAFECO Securities, Inc. ("SAFECO Securities"), a
broker-dealer registered under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc. SAFECO Securities
receives no compensation from the Trusts or the Funds for its services as
distributor of the No-Load Class shares.
The transfer, dividend and distribution disbursement and shareholder servicing
agent for the No-Load Class of each Fund under an agreement with each Trust is
SAFECO Services. SAFECO Services receives a fee from each Fund for each
shareholder account held in that Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by
SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.
SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
the insurance and financial services businesses) and are each located at SAFECO
Plaza, Seattle, Washington 98185.
34
<PAGE> 35
- ------------------------------------------
PERSONS CONTROLLING CERTAIN FUNDS
- ------------------------------------------
At September 13, 1996, SAFECO Insurance Company of America ("SAFECO Insurance")
controlled the Intermediate Treasury Fund. SAFECO Insurance is a Washington
Corporation and a wholly-owned subsidiary of SAFECO Corporation, which has its
principal place of business at SAFECO Plaza, Seattle, Washington 98185.
At September 13, 1996, Crown Packaging Corp. PS & P and Massman Construction Co.
PSRT controlled the Managed Bond Fund. Crown Packaging Corp. PS & P's address of
record is 8514 Eager Road, St. Louis, MO 63144. Massman Construction Co. PSRT's
address of record is 8901 Stateline, Kansas City, MO 64114.
- -------------------------------
PERFORMANCE INFORMATION
- -------------------------------
The yield, total return and average annual total return of each class of a Fund
may be quoted in advertisements. Yield is the annualization on a 360-day basis
of a Fund's net income per share over a 30-day period divided by the Fund's net
asset value per share on the last day of the period. The formula for the yield
calculation is defined by regulation. Consequently, the rate of actual income
distributions paid by the Funds may differ from quoted yield figures. Total
return is the total percentage change in an investment in a class of a Fund,
assuming the reinvestment of dividends and capital gains distributions, over a
stated period of time. Average annual total return is the annual percentage
change in an investment in a class of a Fund, assuming the reinvestment of
dividends and capital gain distributions, over a stated period of time.
Performance quotations are calculated separately for each class of a Fund.
From time to time, a Fund may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (e.g., CDA Investment
Technologies, Lipper Analytical Services, Inc., and Morningstar, Inc.), and are
reported periodically in national financial publications such as Barron's,
Business Week, Forbes, Investor's Business Daily, Money Magazine, and The Wall
Street Journal. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways including, but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performance of relevant indices.
Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. The
yield and share price of each class of a Fund will
35
<PAGE> 36
fluctuate and your shares, when redeemed, may be worth more or less than you
originally paid for them.
- ---------------------------------------------------
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED
- ---------------------------------------------------
DIVIDEND AND OTHER DISTRIBUTIONS
Each Fund declares dividends on each business day from its net investment income
(which includes accrued interest, earned discount, and other income earned on
portfolio securities less expenses) and such shares become entitled to declared
dividends on the next business day after shares are purchased in your account.
If you request redemption of all your shares at any time during a month, you
will receive all declared dividends through the date of redemption, together
with the proceeds of the redemption.
Your dividends and other distributions are reinvested in additional shares of
the distributing Fund at net asset value per share, generally determined as of
the close of business on the ex-distribution date, unless you elect in writing
to receive dividends and/or other distributions in cash and that election is
provided to SAFECO Services at the address on the Prospectus cover. The election
remains in effect until revoked by written notice in the same manner as the
distribution election. For retirement accounts, all dividends and other
distributions declared by a Fund must be invested in additional shares of that
Fund.
States generally treat the pass through of interest earned on U.S. Treasury
securities and other direct obligations of the U.S. government as tax-free
income in the calculation of their state income tax. This treatment may be
dependent upon the maintenance of certain minimum percentages of fund ownership
of these securities. The Intermediate Treasury Fund will invest primarily in
these securities, while the GNMA Fund may occasionally invest a portion of its
portfolio in these securities.
Please remember that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares, then
receive part of the price back as a taxable distribution.
TAXES
Each Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund will not be subject to federal income taxes to the extent
it distributes its net investment income and realized capital gains to its
shareholders. Each Fund will inform you as to the amount and nature of dividends
and other distributions to your account. Dividends and other distributions
declared in December, but received by shareholders in January, are taxable to
shareholders in the year in which declared.
36
<PAGE> 37
TAX WITHHOLDING INFORMATION
You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you provide is correct and that you are
not subject to, or are exempt from, backup withholding for previous under
reporting to the Internal Revenue Service.
Retirement plan distributions may be subject to federal income tax withholding.
However, you may elect not to have any distributions withheld by checking the
appropriate box on the Redemption Request form or by instructing SAFECO Services
in writing at the address on the Prospectus cover.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Trust's Statement of Additional Information for additional tax information.
There may be other federal, state or local tax considerations applicable to a
particular investor. You therefore are urged to consult your tax adviser.
- -------------------------------------
TAX-DEFERRED RETIREMENT PLANS
- -------------------------------------
SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses and nonprofit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the SAFECO
Funds may be used as investment vehicles for these plans.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). IRAs are tax-deferred retirement accounts
for anyone under age 70 1/2 with earned income. The maximum annual contribution
generally is $2,000 per person ($2,250 for you and a non-working spouse). Under
certain circumstances your contribution will be deductible for income tax
purposes. An annual custodial fee will be charged for any part of a calendar
year in which you have an IRA investment in a Fund.
SIMPLIFIED EMPLOYEE PENSION IRAS (SEP-IRAS). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Annual
contributions of up to $22,500 may be made to SEP-IRA accounts; the annual
contribution limit is subject to change. SEP-IRAs have the same investment
minimums and custodial fees as regular IRAs.
403(B) PLANS. 403(b) plans are retirement plans for tax-exempt organizations and
school systems to which employers and employees both may contribute. Minimum
investment amounts are negotiable.
401(K) PLANS. 401(k) plans allow employers and employees to make tax-advantaged
contributions to a retirement account. SAFECO Services offers a low-cost
administration package that includes a prototype plan, recordkeeping, testing
and employee communications. Minimum investment amounts are negotiable.
37
<PAGE> 38
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. Each plan allows corporations,
partnerships and self-employed persons to make annual, tax-deductible
contributions to a retirement account for each person covered by the plan. A
plan may be adopted individually or paired with another plan to maximize
contributions. SAFECO Services offers an administration package for these plans.
Minimum investment amounts are negotiable.
For information about the above accounts and plans, please call 1-800-278-2985.
For a description of federal income tax withholding on distributions from these
accounts and plans, see "Fund Distributions and How They are Taxed - Tax
Withholding Information" on page 36.
- ------------------------
ACCOUNT STATEMENTS
- ------------------------
Periodically, you will receive an account statement showing your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent after each transaction that affects your account balance. Please review
the information on each confirmation statement for accuracy immediately upon
receipt. If you do not notify us within 30 days of any processing error, SAFECO
Services will consider the transactions listed on the confirmation statement to
be correct.
- -------------------------------------------------------
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS
- -------------------------------------------------------
Changes to your account registration or the services you have selected must be
in writing and signed by the person(s) specified on your account application as
having authority to make these changes. Send written changes to SAFECO Services
at the address on the Prospectus cover. Certain changes to the Automatic
Investment Method and Systematic Withdrawal Plan can be made by telephone
request if you have previously selected single signature authorization for your
account.
You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
or change the account registration to single ownership without the co-owner's
signature. If you do not indicate otherwise on the application, the signatures
of all account owners will be required to effect a transaction. Your selection
of fewer than all account owner signatures may be revoked by any account owner
who writes to SAFECO Services at the address on the Prospectus cover.
38
<PAGE> 39
SAFECO Services may require a signature guarantee for a signature that cannot be
verified by comparison to the signature(s) on your account application. A
signature guarantee may be obtained from most financial institutions, including
banks, savings and loans and broker-dealers.
- ----------------------------------------------------------
DEBT SECURITIES HELD BY THE HIGH-YIELD BOND FUND
- ----------------------------------------------------------
The weighted average ratings of all fixed-income securities, expressed as a
percentage of total investments held by the High-Yield Bond Fund during the
fiscal year ended September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Moody's % S&P %
------- - --- -
Investment Grade
----------------
<S> <C> <C> <C>
Aaa __ AAA __
Aa __ AA __
A __ AA __
Baa 2% BBB 2%
</TABLE>
<TABLE>
<CAPTION>
Below Investment Grade
----------------------
<S> <C> <C> <C>
Ba 17% BB 28%
B 69% B 60%
Caa 5% CCC 4%
Ca __ C __
D 1%
Not Rated, but Not Rated, but
determined to be determined to be
investment grade __ investment grade __
Not Rated, but Not Rated, but
determined to be determined to be
below investment below investment
grade 7% grade 5%
</TABLE>
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- ---------------------------
DESCRIPTION OF RATINGS
- ---------------------------
Ratings by Moody's and S&P represent their respective opinions as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's. Issuers rated Prime-1 have a superior capacity, issuers rated Prime-2
have a strong capacity and issuers rated Prime-3 have an acceptable capacity for
the repayment of short-term promissory obligations.
S&P. Commercial Paper issues rated A are the highest quality obligations. Issues
in this category are regarded as having the greatest capacity for timely
payment. For issues designated A-1 the degree of safety regarding timely payment
is very strong. Issuers designated A-2 also have a strong capacity for timely
payment but not as high as A-1 issuers. Issuers designated A-3 have a
satisfactory capacity for timely payment.
DESCRIPTION OF DEBT RATINGS
EXCERPTS FROM MOODY'S DESCRIPTION OF ITS RATINGS:
Investment Grade:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
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Baa -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Below Investment Grade:
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa have poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Excerpts from S&P's description of its ratings:
Investment Grade:
AAA -- Debt which is rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA -- Debt which is rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A -- Debt which is rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions
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<PAGE> 42
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Below Investment Grade:
BB, B, CCC, CC, C -- Debt which is rated BB, B, CCC, CC, or C is predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C1 -- Debt which is rated C1 is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. Interest payment, or principal payments
are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such grace
period.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
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BOND INCOME
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HIGH CURRENT INCOME WITH LONG-TERM GROWTH
SAFECO Income Fund
LONG-TERM GROWTH
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FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
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<PAGE> 44
TO REQUEST A PROSPECTUS:
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44
