<PAGE>
SAFECO Common Stock Trust
File Nos.: 33-36700
811-6167
SAFECO Taxable Bond Trust
File Nos.: 33-22132
811-5574
SAFECO Tax-Exempt Bond Trust
File Nos.: 33-53532
811-7300
SAFECO Money Market Trust
File Nos.: 2-25272
811-3347
SAFECO Managed Bond Trust
File Nos.: 33-47859
811-6667
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SAFECO COMMON STOCK TRUST
SAFECO TAXABLE BOND TRUST
SAFECO TAX-EXEMPT BOND TRUST
SAFECO MONEY MARKET TRUST
SAFECO MANAGED BOND TRUST
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
___________________
2) Aggregate number of securities to which transaction applies:
___________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
___________________
5) Total fee paid:
___________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
1) Amount Previously Paid:
___________________
2) Form, Schedule or Registration Statement No.:
___________________
3) Filing Party:
___________________
4) Date Filed:
___________________
<PAGE>
PRELIMINARY COPY
SAFECO MUTUAL FUNDS
10865 WILLOWS RD NE
REDMOND, WA 98052
February 15, 1999
Dear Shareholder,
A joint meeting of shareholders of the SAFECO Mutual Funds will be held on March
30, 1999, at 8:00 a.m. at SAFECO Plaza, 4333 Brooklyn Ave. NE, Seattle, WA 98105
to vote on the following items, which are described in more detail in the
enclosed proxy statement:
- To elect a board of seven trustees to serve until their respective
successors are elected and qualified. (Proposal 1)
- To ratify the selection of Ernst & Young LLP as independent auditors for
each Trust's current fiscal year. (Proposal 2)
- To approve certain changes that would update and standardize the
fundamental investment restrictions of designated series of designated
Trusts (each, a "Fund," and collectively, the "Funds"). (Proposals 3)
- To approve an amended and restated investment advisory contract with
respect to each Fund including a change in the fee structure. (Proposal 4)
A statement and a proxy card for each Fund you own are enclosed. Please vote
each proxy card you receive.
Your vote on these issues is important. Please vote as soon as possible to save
your Fund the expense of additional solicitations. For your convenience, we have
established several methods by which to cast your vote, including touch tone
phone, fax or on the internet. (Please review the enclosed supplement to choose
the best option for you.) If we do not receive voting instructions from you as
the meeting date approaches, you may be contacted by our proxy solicitor,
Shareholder Communications Corporation ("SCC"), reminding you to exercise your
right to vote. If you have any questions about the proxy material or need voting
assistance, please call SCC at 800-XXX-XXXX.
We look forward to receiving your vote. Thank you for the trust and confidence
you have placed in us and for your attention to this matter.
Sincerely,
Boh Dickey, Chairman
<PAGE>
PRELIMINARY COPY
SAFECO COMMON STOCK TRUST
SAFECO TAXABLE BOND TRUST
SAFECO TAX-EXEMPT BOND TRUST
SAFECO MONEY MARKET TRUST
SAFECO MANAGED BOND TRUST
10865 WILLOWS ROAD NE
REDMOND, WA 98052
---------------------
NOTICE OF A JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 30, 1999
------------------------
To Our Shareholders:
A Joint Special Meeting of Shareholders of each of the above-listed investment
companies ("Trusts") will be held on March 30, 1999, at 8:00 a.m. at SAFECO
Plaza, 4333 Brooklyn Ave. NE, Seattle, Washington 98105, for the following
purposes, as set forth in the Proxy Statement:
1. To elect a Board of seven (7) Trustees to serve until their respective
successors are elected and qualified.
2. To ratify the selection of Ernst & Young LLP as independent auditors for
each Trust's current fiscal year.
3. To approve certain changes to the fundamental investment restrictions of
designated series of designated Trusts (each, a "Fund," and collectively,
the "Funds").
4. To approve an amended and restated investment advisory contract with respect
to each Fund including a change in fee structure.
5. To consider and act upon such other business as may properly come before the
meeting.
The Boards of Trustees of the Trusts established the close of business on
February 1, 1999, as the record date for the determination of Fund shareholders
entitled to receive notice of and to vote at the Special Meeting and any
adjournments thereof.
YOUR VOTE IS VERY IMPORTANT. PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY.
David F. Hill, President
Redmond, Washington
, 1999
<PAGE>
SAFECO COMMON STOCK TRUST
SAFECO TAXABLE BOND TRUST
SAFECO TAX-EXEMPT BOND TRUST
SAFECO MONEY MARKET TRUST
SAFECO MANAGED BOND TRUST
10865 WILLOWS ROAD NE
REDMOND, WA 98052
---------------------
PROXY STATEMENT
JOINT SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 30, 1999
------------------------
The Board of Trustees of each of the above-listed investment companies
("Trusts") is soliciting your proxy to be voted at a Joint Special Meeting of
Shareholders of each series of each Trust (each a "Fund" and collectively, the
"Funds") to be held on Monday, March 30, 1999 at 8:00 a.m. at SAFECO Plaza, 4333
Brooklyn Ave. NE, Seattle, Washington 98105 or any adjournments of the meeting
(the "Meeting").
Each Board of Trustees urges you to vote your proxy, no matter how many shares
you own, whether or not you intend to be present at the Meeting. It is important
that you vote promptly to help assure a quorum and save your Fund the expense of
additional solicitation. For your convenience you can vote by completing and
mailing the enclosed card(s) in the enclosed postage-paid envelope, or by touch
tone phone, fax or internet as outlined elsewhere.
<TABLE>
<CAPTION>
SAFECO COMMON STOCK TRUST
NAME AS USED IN
THIS PROXY
FUND NAME STATEMENT PROPOSALS APPLICABLE TO FUND*
- - -------------------------- ------------------- ------------------------------------------
SAFECO Growth Fund Growth Fund 1, 2, 3A-3G, 3H, 3J, 3K, 3O, 3P, 3Q, 3R,
3S, 3T, 3V and 4
<S> <C> <C>
SAFECO Equity Fund Equity Fund 1, 2, 3A-3G, 3H, 3K, 3N, 3R, 3U and 4
SAFECO Income Fund Income Fund 1, 2, 3A-3G, 3H, 3J, 3K, 3O, 3P, 3Q, 3R,
3S, 3T and 4
SAFECO Northwest Fund Northwest Fund 1, 2, 3A-3G, 3H, 3J, 3O, 3P, 3R, 3T, 3W
and 4
SAFECO Balanced Fund Balanced Fund 1, 2, 3A-3G and 4
SAFECO International Stock International Fund 1, 2, 3A-3G and 4
Fund
SAFECO Small Company Stock Small Company Fund 1, 2, 3A-3G and 4
Fund
SAFECO U.S. Value Fund U.S. Value Fund 1, 2, 3A-3G and 4
</TABLE>
- - ------------------------
* For a list of sub-proposal topics, please see Exhibit E.
<PAGE>
<TABLE>
<CAPTION>
SAFECO TAXABLE BOND TRUST
NAME AS USED IN THIS
FUND NAME PROXY STATEMENT PROPOSALS APPLICABLE TO FUND*
- - ---------------------------- -------------------- ----------------------------------------
SAFECO Intermediate-Term Intermediate-Term 1, 2, 3A-3G, 3I, 3J, 3L, 3M, 3O, 3P, 3R,
U.S. Treasury Fund U.S. Treasury Fund 3W and 4
<S> <C> <C>
SAFECO High-Yield Fund High-Yield Fund 1, 2, 3A-3G, 3I, 3J, 3L, 3M, 3O, 3P, 3R,
3W and 4
SAFECO GNMA Fund GNMA Fund 1, 2, 3A-3G, 3I, 3J, 3L, 3M, 3O, 3P, 3R,
3W and 4
SAFECO TAX-EXEMPT BOND TRUST
<CAPTION>
NAME AS USED IN THIS
FUND NAME PROXY STATEMENT PROPOSALS APPLICABLE TO FUND*
- - ---------------------------- -------------------- ----------------------------------------
<S> <C> <C>
SAFECO Intermediate-Term Intermediate-Term 1, 2, 3A-3G, 3X, 3Y, 3Z and 4
Municipal Bond Fund Municipal Bond Fund
SAFECO Insured Municipal Insured Municipal 1, 2, 3A-3G, 3X, 3Y, 3Z and 4
Bond Fund Bond Fund
SAFECO Municipal Bond Fund Municipal Bond Fund 1, 2, 3A-3G, 3I, 3J, 3M, 3O, 3P, 3Q, 3W,
3X, 3Y, 3Z and 4
SAFECO California Tax-Free California Tax-Free 1, 2, 3A-3G, 3I, 3J, 3M, 3O, 3P, 3Q, 3W,
Income Fund Income Fund 3Z and 4
SAFECO Washington State Washington Municipal 1, 2, 3A-3G, 3Z and 4
Municipal Bond Fund Bond Fund
SAFECO MONEY MARKET TRUST
<CAPTION>
NAME AS USED IN THIS
FUND NAME PROXY STATEMENT PROPOSALS APPLICABLE TO FUND*
- - ---------------------------- -------------------- ----------------------------------------
<S> <C> <C>
SAFECO Money Market Fund Money Market Fund 1, 2, 3A-3G, 3I, 3J, 3M, 3O, 3Q and 4
SAFECO Tax-Free Money Market Tax-Free Money 1, 2, 3A-3G, 3I, 3J, 3M, 3O, 3P, 3Q, 3R,
Fund Market Fund 3U, 3W, 3Z and 4
SAFECO MANAGED BOND TRUST
<CAPTION>
NAME AS USED IN THIS
FUND NAME PROXY STATEMENT PROPOSALS APPLICABLE TO FUND*
- - ---------------------------- -------------------- ----------------------------------------
<S> <C> <C>
SAFECO Managed Bond Fund Managed Bond Fund 1, 2, 3A-3G, 3H, 3P, 3T and 4
</TABLE>
- - ------------------------
* For a list of sub-proposal topics, please see Exhibit E.
GENERAL VOTING INFORMATION.
All properly executed proxy cards received in time for the Meeting will be voted
according to your instructions by the persons you designate as your proxies. If
your card is submitted without any voting instructions, your shares will be
voted "FOR" each proposal concerning your Trust or Fund. The persons designated
as proxies will also be authorized to vote at their discretion on any other
matters that may come before the Meeting.
If you sign and return a proxy card, you may still vote your shares in person at
the Meeting. If a broker-dealer holds your shares and you wish to vote at the
Meeting, you should obtain from your broker of
<PAGE>
record a Legal Proxy to present at the Meeting. You may also revoke your proxy
before the Meeting: (1) by notifying SAFECO Mutual Funds in writing; or (2) by
submitting a superseding proxy.
Each shareholder has one vote for each share and a partial vote for each partial
share he or she held on February 1, 1999, the record date. EXHIBIT A shows the
number of shares of each Fund and Trust that were outstanding on February 1,
1999. This Proxy Statement and the accompanying card(s) will be mailed to
shareholders of record on or about February 16, 1999.
This proxy solicitation is being made primarily by mail, but may also be made by
officers or employees of the Trusts, their investment managers or affiliates, by
telephone, facsimile or other method. Shareholder Communication Corporation,
Inc. ("SCC") has been engaged to assist in the solicitation of votes. The
estimated cost of engaging SCC, which will be incurred by the Trusts and SAFECO
Asset Management Company ("SAM"), is set forth below:
<TABLE>
<S> <C> <C> <C>
SAFECO Common Stock Trust $ 86,000 to $ 125,000
SAFECO Taxable Bond Trust $ 3,000 to $ 5,000
SAFECO Tax-Exempt Bond Trust $ 15,000 to $ 21,000
SAFECO Money Market Trust $ 6,000 to $ 9,000
SAM $ 140,000 to $ 190,000
</TABLE>
VOTES REQUIRED TO APPROVE EACH PROPOSAL OR SUB-PROPOSAL
Certain proposals within this Proxy Statement affect an entire Trust. All
shareholders of the Trust may vote on these proposals. Other proposals or
sub-proposals affect only certain Funds. Only shareholders of the affected Funds
will vote on those proposals or sub-proposals. The number of votes needed to
approve each proposal or sub-proposal may vary. Voting requirements are
described in each proposal.
All shares represented by the enclosed proxy, if returned prior to the Meeting,
will be voted in the manner specified by shareholders. If neither a specific
instruction is given nor authority withheld, the proxy will be voted for each
proposal and applicable sub-proposal in this Proxy Statement.
Abstentions and broker non-votes will be included for purposes of determining
whether a quorum is present at the Meeting. They will be treated as votes
present but not cast. Thus, they have the same effect as a vote "AGAINST" each
proposal. Banks, brokers or dealers will be reimbursed for their reasonable
expenses in forwarding proxy solicitation materials to shareholders.
PROPOSAL ONE: TO ELECT THE BOARD OF TRUSTEES
The Board of Trustees of each Trust will be elected at the Meeting to hold
office until their successors are elected and qualified.
The persons named in the accompanying form of proxy intend to vote the proxies
for the election of the nominees below, if authority to vote is not withheld.
REQUIRED VOTE: With respect to each Trust, election of each nominee requires a
plurality of all the votes cast at the meeting.
<PAGE>
NOMINEES
All nominees are currently trustees of each Trust. For the years in which each
nominee first became a trustee of each Trust, see EXHIBIT B. Each nominee's
principal occupation over the past five years is described below.
BOH A. DICKEY*, 54, is Chairman of each Trust, and President, Chief Operating
Officer, and a Director of SAFECO Corporation. Previously, he was Executive Vice
President and Chief Financial Officer of SAFECO Corporation. He has been an
executive officer of SAFECO Corporation subsidiaries since 1982.
BARBARA J. DINGFIELD, 53, is the Director of Community Affairs for Microsoft
Corporation, Redmond, Washington, a computer software company. She is a former
Director and Executive Vice President of Wright Runstad & Co., Seattle,
Washington, a real estate development company. She is also a Director of First
SAFECO National Life Insurance Company of New York.**
DAVID F. HILL*, 50, is President of each Trust, SAFECO Securities, Inc. and
SAFECO Services Corporation. He is also Senior Vice President of SAFECO Asset
Management Company.
RICHARD W. HUBBARD*, 69, is a retired Vice President and Treasurer of each Trust
and other SAFECO Trusts. He is also a retired Senior Vice President and
Treasurer of SAFECO Corporation and a former President of SAFECO Asset
Management Company. Mr. Hubbard is a Director of First SAFECO National Life
Insurance Company of New York** and a member of Diocese of Olympia Investment
Committee.
RICHARD E. LUNDGREN, 61, is the Director of Marketing and Customer Relations,
Building Materials Distribution, Weyerhaeuser Company, Tacoma, Washington, a
forest products company. Mr. Lundgren is a Director of First SAFECO National
Life Insurance Company of New York.**
LARRY L. PINNT, 64, is a retired Vice President and Chief Financial Officer of
U.S. WEST Communications, Seattle, Washington, a telephone company. Mr. Pinnt is
Chairman of the University of Washington Medical Center Board, Seattle,
Washington, a Director of Cascade Natural Gas Corporation, Seattle, Washington,
a Director of First SAFECO National Life Insurance Company of New York**, and a
Treasurer of Cancer Care Alliance, Seattle, Washington.
JOHN W. SCHNEIDER, 57, is President of Wallingford Group, Inc., Seattle,
Washington, a real estate investment company. He is a former President of
Emerald Development Group, Inc., Seattle, Washington. Mr. Schneider is also a
Director of First SAFECO National Life Insurance Company of New York.**
*Each of these individuals is an "interested person" of each Trust as defined by
the Investment Company Act of 1940 ("1940 Act") because of his affiliations with
SAFECO Corporation and its subsidiaries.
** First SAFECO National Life Insurance Company of New York is a corporation
that issues variable insurance contracts and fixed annuities.
If for any reason any of the nominees shall become unavailable for election, the
persons named in the enclosed proxy shall vote for such nominees as are selected
by the Trusts' management.
PROPOSAL TWO: TO RATIFY THE SELECTION OF AUDITORS
Ernst & Young LLP, an international accounting firm, has been selected to be the
independent auditors for the fiscal year ending December 31, 1999 for each
Trust. Each Board has directed the submission of this selection to the
shareholders for ratification.
Representatives of Ernst & Young LLP will be present at the Meeting and will be
available should any matter arise requiring their attention.
REQUIRED VOTE: With respect to each Trust, the ratification of the selection of
Ernst & Young LLP requires the affirmative vote of a majority of the votes cast
thereon at the meeting.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR PROPOSAL 2.
4
<PAGE>
PROPOSAL THREE: TO APPROVE CHANGES TO THE FUNDAMENTAL INVESTMENT RESTRICTIONS
FOR DESIGNATED FUNDS. (This Proposal involves separate votes on Sub-Proposals 3A
through 3Z and applies to designated Funds.)
OVERVIEW
The 1940 Act requires EACH Fund to adopt fundamental investment restrictions
regarding certain investment practices, such as a Fund's ability to borrow or to
make loans. Thus, although each Fund's investment objectives, investment
policies and asset size may differ, fundamental investment restrictions can be
uniform because they are based on the legal and regulatory authority applying to
ALL Funds. The Trustees, together with Fund management, are recommending that
shareholders vote to: (1) standardize seven fundamental investment restrictions
for each Fund; (2) reclassify from fundamental to non-fundamental certain
restrictions that are not required to be fundamental; and (3) eliminate certain
other fundamental restrictions.
Under the proposed fundamental investment restrictions the Funds will continue
to comply with all current regulatory requirements. However, they will be able
to more effectively manage assets and compete with mutual funds that have
up-to-date investment restrictions. Management believes the proposed
restrictions will increase the portfolio managers' flexibility to respond to
changes in market, industry or regulatory conditions. Standardized restrictions
will also make it easier to monitor the Funds' compliance.
BACKGROUND
Since the SAFECO Mutual Funds were formed in 1967, legal and regulatory
requirements applicable to mutual funds have changed. Certain restrictions
imposed by state laws and regulations were preempted by the National Securities
Markets Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, some
of the Funds are subject to fundamental restrictions that are no longer required
to be fundamental. Others are subject to fundamental restrictions that are no
longer required at all. Finally, over the course of years, substantially similar
fundamental restrictions have been phrased in different ways for different
Funds, often to reflect regulatory changes.
The 1940 Act (which was adopted and written to protect mutual fund shareholders)
mandates that certain investment restrictions limiting the investment activities
of a Fund's investment adviser or sub-adviser are "fundamental" which means that
they can only be changed by a shareholder vote. The chart that follows briefly
describes the differences between fundamental restrictions and non-fundamental
restrictions.
<TABLE>
<CAPTION>
NON-FUNDAMENTAL
FUNDAMENTAL RESTRICTIONS RESTRICTIONS
--------------------------------------- -------------------------------------
<S> <C> <C>
Who must approve changes in the Board of Trustees and Shareholders Board of Trustees
restriction?
How quickly can a change in Fairly slowly, since a vote of Fairly quickly, because the Board of
restriction be made? shareholders is required Trustees can take action at any
meeting
What is the relative cost to change Costly to change because a shareholder Less costly to change because a
a restriction? vote requires holding a Special Meeting change can be approved at a regularly
of shareholders scheduled quarterly meeting of the
Board of Trustees
</TABLE>
The proposed standardized fundamental investment restrictions cover those
areas for which the 1940 Act requires a Fund to have a fundamental restriction.
They satisfy current regulatory requirements and are written to provide
flexibility to respond to future legal, regulatory, market or technical changes.
THE PROPOSED CHANGES WILL NOT AFFECT ANY FUND'S INVESTMENT OBJECTIVES.
5
<PAGE>
By reducing to a minimum those restrictions that can be changed only by a
shareholder vote, each Fund will be able to avoid the costs and delays
associated with a shareholder meeting if its Board of Trustees decides to make
future changes to its investment policies. ALTHOUGH THE PROPOSED CHANGES IN
FUNDAMENTAL RESTRICTIONS WILL ALLOW THE FUNDS GREATER FLEXIBILITY TO RESPOND TO
FUTURE INVESTMENT OPPORTUNITIES, THE BOARD OF TRUSTEES DOES NOT ANTICIPATE THAT
THE CHANGES, INDIVIDUALLY OR IN THE AGGREGATE, WILL RESULT AT THIS TIME IN A
MATERIAL CHANGE IN THE LEVEL OF INVESTMENT RISK ASSOCIATED WITH AN INVESTMENT IN
ANY FUND OR THE MANNER IN WHICH ANY FUND IS CURRENTLY MANAGED.
DESCRIPTION OF PROPOSED CHANGES
The following is the text and a summary description of the proposed changes to
the Funds' fundamental restrictions. In addition, EXHIBIT C lists the current
fundamental investment restrictions for each Fund and indicates which will be
modified, which will be reclassified as non-fundamental, and which will be
eliminated. Any non-fundamental restriction may be modified or eliminated by the
Trustees at any future date without any further approval of shareholders.
Shareholders should note that for some Funds certain of the fundamental
restrictions that are treated separately below currently are combined within a
single existing fundamental restriction.
Currently, if a Fund adheres to a fundamental or non-fundamental percentage
restriction at the time of an investment or transaction, a later increase or
decrease in the percentage resulting from a change in the value of the Fund's
portfolio securities or the amount of its total assets is not considered a
violation of the restriction. This policy will continue to apply for any of the
proposed changes that are approved.
SUB-PROPOSAL 3A:
TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING THE CONCENTRATION OF
A FUND'S INVESTMENTS IN THE SECURITIES OF COMPANIES IN THE SAME INDUSTRY
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy relating to the concentration of its
investments in securities of companies in a single industry must be fundamental.
The Securities and Exchange Commission ("SEC") staff considers a mutual fund to
"concentrate" its investments if 25% or more of its total assets are invested in
a particular industry (not counting U.S. Government securities, bank instruments
issued by domestic banks and tax-exempt securities).
Each Fund currently has a fundamental investment restriction prohibiting it from
concentrating its investments in a single industry. However, this investment
restriction is described somewhat differently for various Funds.
PROPOSED CONCENTRATION RESTRICTION: The Fund will not make investments that
will result in the concentration (as that term may be defined in the 1940
Act, any rule or order thereunder, or SEC staff interpretation thereof) of
its investments in the securities of issuers primarily engaged in the same
industry, provided that this restriction does not limit the Fund from
investing in obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; [Money Market Funds only] certain bank
instruments issued by domestic banks; [Tax-Free Money Market Fund only] and
tax-exempt securities.
Such Trust's Board also has approved a related non-fundamental policy for each
applicable Fund, which will be adopted if the new fundamental restriction is
approved and which provides that in applying the concentration restriction: (1)
utility companies will be divided according to their services, for example, gas,
gas transmission, electric and telephone will each be considered a separate
industry; (2) financial service companies will be classified according to the
end users of their services, for example, automobile finance, bank finance and
diversified finance will each be considered a separate industry; and (3)
asset-backed securities will be classified according to the underlying assets
securing such securities.
6
<PAGE>
SUB-PROPOSAL 3B:
TO AMEND THE FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING BORROWING MONEY AND
ISSUING SENIOR SECURITIES
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
The 1940 Act requires a Fund to have fundamental investment restriction limiting
its ability to borrow money or issue senior securities. In general, the
limitations are designed to protect shareholders and their investments by
restricting a Fund's ability to subject its assets to any claims of creditors or
senior security holders who would be entitled to dividends or rights on
liquidation of the Fund prior to the rights of shareholders.
The current investment restrictions concerning borrowing and senior securities
vary considerably from Fund to Fund. Shareholders of each Fund are being asked
to approve a new standardized fundamental restriction for borrowing and the
issuance of senior securities designed to reflect all current regulatory
requirements. The proposed restriction would permit a Fund to borrow or issue
senior securities, only within the limits established under the 1940 Act or
under any SEC rule, regulation or staff interpretation thereof.
SENIOR SECURITIES-GENERALLY. A "senior security" is an obligation of a Fund
with respect to its earnings or assets that takes precedence over the claims of
the Fund's shareholders with respect to the same earnings or assets. The 1940
Act generally prohibits a Fund from issuing senior securities, in order to limit
the use of leverage. In general, a Fund uses leverage when it enters into
securities transactions without being required to make payment until a later
time.
SEC staff interpretations allow a Fund to engage in a number of types of
transactions which might otherwise be considered creating "senior securities" or
"leverage," so long as the Fund meets certain collateral requirements designed
to protect shareholders. For example, some transactions that may create senior
security concerns include short sales, certain options and futures transactions,
reverse repurchase agreements and securities transactions that obligate a Fund
to pay money at a future date (such as when-issued, forward commitment or
delayed delivery transactions). A Fund that engages in such transactions must
set aside money or securities to meet the SEC staff's collateralization
requirements. This procedure effectively eliminates a Fund's ability to engage
in leverage for these types of transactions.
BORROWING-GENERALLY. Under the 1940 Act, a Fund is permitted to borrow up to 5%
of its total assets for temporary purposes. A Fund also may borrow from banks,
provided that if borrowings exceed 5%, the Fund must have assets totaling at
least 300% of the borrowing when the amount of the borrowing is added to the
Fund's other assets. The effect of this provision is to allow a Fund to borrow
from banks amounts up to one-third (33 1/3%) of its total assets (including the
amount borrowed). Funds typically borrow money to meet unexpected redemption
levels, thus avoiding a forced, unplanned sale of portfolio securities. This
technique allows a Fund greater flexibility to buy and sell portfolio securities
for investment or tax considerations, rather than for cash flow considerations.
The costs of borrowing, however, can also reduce a Fund's total return.
The Funds which were formed in recent years ("New Funds") have senior security
restrictions that provide similar restrictions as the one proposed. Many of the
older Funds, however, have fundamental restrictions that substantially prohibit
the Funds from issuing senior securities, even if to do so would be consistent
with SEC staff positions. The fundamental restrictions of these Funds preclude
them from participating in many of the types of activities that an investment
manager and a Fund's Board may deem appropriate. Since the proposed investment
restriction would provide greater flexibility for some Funds to engage in senior
security transactions, if the greater flexibility were exercised, such Funds
could experience increased risks due to the effects of leveraging. The SEC
staff's collateralization requirements are designed to mitigate such risks.
7
<PAGE>
The investment restrictions of the New Funds generally permit borrowing to the
extent allowed under the 1940 Act, or under any SEC rule, regulation or staff
interpretation thereof. The borrowing restrictions of other Funds limit
borrowing to less than the 33 1/3% level permitted by law. Furthermore, a number
of the Funds permit borrowing only "as a temporary measure for extraordinary
purposes," or prohibit the purchase of any new securities while borrowings are
outstanding, while others prohibit borrowing for leveraging purposes. The
proposed investment restriction would provide greater flexibility.
PROPOSED BORROWING AND SENIOR SECURITIES RESTRICTION: The Fund may not
borrow money or issue senior securities, except as the 1940 Act, any rule or
order thereunder, or SEC staff interpretation thereof, may permit.
SUB-PROPOSAL 3C:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING UNDERWRITING
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy or restriction relating to underwriting is
required to be fundamental. Each Fund currently is subject to a fundamental
investment restriction prohibiting it from acting as an underwriter of the
securities of other issuers. A person or company generally is considered an
underwriter under the federal securities laws if it participates in the public
distribution of securities of OTHER ISSUERS, usually by purchasing the
securities from the issuer and re-selling the securities to the public. From
time to time, a mutual fund may purchase a security for investment purposes
which it later sells or redistributes to institutional investors or others under
circumstances where the Fund could possibly be considered to be an underwriter
under the technical definition of underwriter contained in the securities laws.
The current underwriting restriction for most Funds specifically permits such
re-sales.
There are a number of variations in the way that each Fund's current investment
restriction prohibiting underwriting activities is described in its offering
documents. The proposed restriction would standardize the language of the
restriction among the various Funds.
PROPOSED UNDERWRITING RESTRICTION: The Fund may not underwrite the
securities of other issuers, except that the Fund may engage in transactions
involving the acquisition, disposition or resale of its portfolio
securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.
SUB-PROPOSAL 3D:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING INVESTMENTS IN REAL ESTATE
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy or restriction concerning investments in
real estate must be fundamental. Each Fund currently has a fundamental
investment restriction prohibiting the purchase or sale of real estate. The
current restriction, however, allows most of the Funds to invest in companies
that deal in real estate, or to invest in securities that are secured by real
estate.
The proposed fundamental investment restriction will not permit Funds to
purchase real estate directly, but will permit the purchase of securities whose
payments of interest or principal are secured by mortgages or other rights to
real estate in the event of default. The investment restriction will also enable
the Funds to invest in companies within the real estate industry, provided such
investments are consistent with the Fund's investment objectives and policies.
PROPOSED REAL ESTATE RESTRICTION: The Fund may not purchase or sell real
estate unless acquired as a result of ownership of securities or other
instruments and provided that this restriction does not prevent the Fund
from investing in issuers which invest, deal, or otherwise engage in
transactions in
8
<PAGE>
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein, or exercising rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly manner.
SUB-PROPOSAL 3E:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING INVESTMENTS IN COMMODITIES
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy concerning investments in commodities must
be fundamental. Each Fund is currently subject to a fundamental restriction
prohibiting the purchase or sale of commodities or commodity contracts.
Historically, the most common types of commodities have been physical
commodities such as wheat, cotton, rice and corn. However, under federal law,
futures contracts are considered to be commodities and, therefore, financial
futures contracts, such as futures contracts related to currencies, stock
indices or interest rates are considered to be commodities. Financial futures
contracts enable a Fund to buy (or sell) the right to receive the cash
difference between the contract price for an underlying asset or index and the
future market price, if the market price is higher. If the future price is
lower, the Fund is obligated to pay (or, if the Fund sold the contract, the Fund
receives) the amount of the decrease. Funds often desire to invest in financial
futures contracts and options related to such contracts for hedging or other
investment reasons.
The proposed restriction would standardize the language of the commodities
restriction among the various Funds and provide appropriate flexibility for all
Funds to invest in financial futures contracts and related options. As proposed,
the restriction is broad enough to permit investment in financial futures
instruments for either investment or hedging purposes, which is broader than
many Funds' current restrictions. Using financial futures instruments can
involve substantial risks, and would be utilized only if the investment manager
determined that such investments are advisable and such practices were
affirmatively authorized by the Board and disclosed in the Funds' prospectuses
or statements of additional information.
PROPOSED COMMODITIES RESTRICTION: The Fund may not purchase or sell
physical commodities, unless acquired as a result of ownership of securities
or other instruments and provided that this restriction does not prevent the
Fund from engaging in transactions involving futures contracts and options,
forward currency contracts, swap transactions and other financial contracts
or investing in securities that are secured by physical commodities.
SUB-PROPOSAL 3F:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING LENDING BY THE FUNDS
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy concerning lending must be fundamental. Each
Fund currently is subject to a fundamental investment restriction limiting its
ability to make loans. In order to ensure that the Funds may invest in certain
debt securities or repurchase agreements, which could technically be
characterized as the making of loans, most Funds' current fundamental
restrictions specifically permit such investments. In addition, a few newer
Funds' fundamental restrictions explicitly permit those Funds to lend their
portfolio securities to broker-dealers or institutional investors. Securities
lending is a practice that has become common in the mutual fund industry and
involves the temporary loan of portfolio securities to parties who use the
securities for the settlement of securities transactions. The collateral
delivered to the Fund in connection with such a transaction is then invested to
provide the Fund with additional income it might not otherwise have.
9
<PAGE>
Securities lending involves certain risks if the borrower fails to return the
securities. However, management believes that with appropriate controls, such as
100% or greater collateralization of the loan and regular monitoring of the
creditworthiness of the counter party, the ability to engage in securities
lending does not materially increase the risks to which the Funds currently are
subject. In addition, securities on loan cannot generally be sold until the term
of the loan is over.
PROPOSED LENDING RESTRICTION: The Fund may not make loans, provided that
this restriction does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, loaning its assets to broker/dealers or
institutional investors and investing in loans, including assignments and
participation interests.
SUB-PROPOSAL 3G:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING DIVERSIFICATION
FUNDS TO WHICH THIS CHANGE APPLIES: ALL FUNDS
Under the 1940 Act, a Fund's policy relating to the diversification of its
investments in securities of any one issuer must be fundamental. The 1940 Act
prohibits a "diversified" mutual fund from purchasing securities of any one
issuer if, at the time of purchase, more than 5% of the Fund's total assets
would be invested in securities of that issuer or the Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except that
up to 25% of the fund's total assets may be invested without regard to this
limitation. This limitation does not apply to securities issued by or guaranteed
by the U.S. government, its agencies or instrumentalities or to securities
issued by other open-end investment companies used many times previously.
Each Fund currently has a fundamental investment restriction concerning
diversification. There are, however, a number of variations in the way that this
investment restriction is described in the Funds' offering documents.
PROPOSED DIVERSIFICATION RESTRICTION: The Fund will not purchase securities
of any one issuer if, as a result, more than 5% of the Fund's total assets
would be invested in securities of that issuer or the Fund would own or hold
more than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the Fund's total assets may be invested without regard to
these limitations, and except that these limitations do not apply to
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other open-end investment
companies.
SUB-PROPOSAL 3H:
TO REPLACE THE FUNDAMENTAL RESTRICTION ON MARGIN TRANSACTIONS WITH A
NON-FUNDAMENTAL RESTRICTION ON MARGIN TRANSACTIONS
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, EQUITY FUND, INCOME FUND,
NORTHWEST FUND, AND MANAGED BOND FUND
The Funds are not required to have a fundamental restriction on margin
transactions. Accordingly, it is proposed that the Funds' existing fundamental
restriction be replaced with a non-fundamental restriction. The proposed
non-fundamental restriction makes minor changes in wording from the existing
fundamental restriction and expands the list of margin transactions excepted
from the prohibition to include margin deposits in connection with financial
options and futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.
10
<PAGE>
Upon the approval of the elimination of the existing fundamental restriction
on engaging in margin transactions each of the above-referenced Funds would
become subject to the following non-fundamental restriction:
PROPOSED NON-FUNDAMENTAL MARGIN RESTRICTION: The Fund will not purchase
securities on margin, provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases and sales of securities,
and further provided that the Fund may make margin deposits in connection
with its use of financial options and futures, forward and spot currency
contracts, swap transactions and other financial contracts or derivative
instruments.
SUB-PROPOSAL 3I:
TO REPLACE THE FUNDAMENTAL RESTRICTION ON INVESTING IN ILLIQUID SECURITIES WITH
A NON-FUNDAMENTAL RESTRICTION ON INVESTING IN ILLIQUID SECURITIES
FUNDS TO WHICH THIS CHANGE APPLIES: GNMA FUND, INTERMEDIATE-TERM U.S.
TREASURY FUND AND HIGH-YIELD FUND, MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE
INCOME FUND, MONEY MARKET FUND, AND TAX-FREE MONEY MARKET FUND
There is no legal requirement that these Funds have a fundamental
restriction on this subject. Accordingly, the Boards of the Taxable Bond Trust
and the Money Market Trust believe that it should be made non-fundamental for
the above-referenced Funds. In addition, the current restrictions on investing
in illiquid securities are often split into more than one restriction, causing
confusion. The SEC takes the position that a Fund, other than a money market
fund, should not invest more than 15% of its net assets in illiquid securities.
According to the SEC, a money market fund should not invest more than 10% of its
net assets in illiquid securities. The proposed non-fundamental restriction
would consolidate and clarify the restriction, while complying with the SEC
position. Establishing the restriction as non-fundamental would enable a Board
to change this restriction in the future without shareholder approval.
Upon the approval of the elimination of the existing fundamental restriction
on investing in illiquid securities each of the above-referenced Funds would
become subject to the following non-fundamental restriction.
PROPOSED NON-FUNDAMENTAL ILLIQUID SECURITIES RESTRICTION: The Fund will not
purchase securities for which there is no readily available market, or enter
into repurchase agreements or purchase time deposits maturing in more than
seven days, or purchase OTC options or hold assets set aside to cover OTC
options written by the Fund, if immediately after and as a result, the value
of such securities would exceed, in the aggregate, [10% for Money Fund and
Tax-Free Money Fund] 15% of the Fund's net assets.
SUB-PROPOSAL 3J:
TO REPLACE THE FUNDAMENTAL RESTRICTION ON PLEDGING ASSETS WITH A NON-FUNDAMENTAL
RESTRICTION ON
PLEDGING ASSETS
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, INCOME FUND, NORTHWEST
FUND, INTERMEDIATE TERM U.S. TREASURY FUND, HIGH-YIELD FUND, GNMA FUND,
MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND, MONEY MARKET FUND, AND
TAX-FREE MONEY MARKET FUND
The Funds are not required to have a fundamental restriction with respect to
the pledging of assets. To maximize the Funds' flexibility in this area, each
Board believes that the applicable Fund's restriction on pledging assets should
be made non-fundamental. The non-fundamental restriction would be similar to the
fundamental restriction proposed to be eliminated. The Boards do not expect this
change to have a material impact on the Funds' operations. Establishing the
restriction as non-fundamental, however, would enable a Board to change this
restriction in the future without shareholder approval.
11
<PAGE>
Upon the approval of the elimination of the existing fundamental restriction
on pledging assets each of the above-referenced Funds would become subject to
the following non-fundamental restriction:
PROPOSED NON-FUNDAMENTAL RESTRICTION ON PLEDGING ASSETS: The Fund will not
mortgage, pledge, or hypothecate any of its assets, provided that this shall
not apply to the transfer of securities in connection with any permissible
borrowing or to collateral arrangements in connection with permissible
activities.
SUB-PROPOSAL 3K:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING SECURITIES ISSUED BY
OTHER INVESTMENT COMPANIES
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, EQUITY FUND, INCOME FUND, AND
MONEY MARKET FUND
The 1940 Act limits the ability of a Fund to purchase the shares of another
investment company. The purpose of this statutory limitation is to ensure that
mutual fund shareholders do not pay significant duplicate investment advisory
fees. However, there is no legal requirement that a Fund have a fundamental
restriction on this subject. Because the 1940 Act governs this activity without
mandating such a fundamental restriction, the Funds do not need to have one.
Eliminating this fundamental restriction would offer each Fund the ability to
use alternative investment structures. In addition, removing this restriction
would enhance the flexibility of each Fund and permit them to take advantage of
potential efficiencies in the future available through investment in another
fund. Accordingly, the Boards believe this investment restriction should be
eliminated.
Upon the approval of Sub-Proposal 3K, the existing fundamental restriction on
purchasing securities issued by other investment companies would be eliminated
for each of the above-referenced Funds.
SUB-PROPOSAL 3L:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING COMMON STOCKS, PREFERRED
STOCKS, WARRANTS OR OTHER EQUITY SECURITIES
FUNDS TO WHICH THIS CHANGE APPLIES: INTERMEDIATE-TERM U.S. TREASURY FUND,
HIGH-YIELD FUND, GNMA FUND
There is no legal requirement that a Fund have a fundamental restriction on this
subject. Accordingly, the Board believes that this fundamental restriction is
unnecessary and that it should be deleted. Because each Bond Fund invests
primarily in interest-bearing instruments, this change is not expected to have
any impact on the operations of the Funds.
Upon the approval of Sub-Proposal 3L, the existing fundamental restriction on
purchasing common stocks, preferred stocks, warrants or other equity securities
would be eliminated for each of the above-referenced Funds.
SUB-PROPOSAL 3M:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON INVESTMENTS IN OIL, GAS AND MINERAL
LEASES AND PROGRAMS
FUNDS TO WHICH THIS CHANGE APPLIES: INTERMEDIATE-TERM U.S. TREASURY FUND,
HIGH-YIELD FUND, GNMA FUND, MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME
FUND, MONEY MARKET FUND, AND TAX-FREE MONEY MARKET FUND
The Funds are not required to have a fundamental restriction with respect to
oil, gas or mineral investments. To maximize each Fund's flexibility in this
area, the Boards believe that each Fund's restriction on oil, gas and mineral
investments should be eliminated. This restriction was imposed by state laws and
NSMIA preempts that requirement. Notwithstanding the elimination of this
fundamental restriction, no Fund expects to invest at this time in oil, gas and
mineral leases and programs.
Some of the above-referenced Funds currently have a separate fundamental
restriction regarding this subject and others of those Funds have language
regarding these types of investments as part of another
12
<PAGE>
fundamental restriction. Upon the approval of Proposal 3M, the existing
fundamental restrictions on investments in oil, gas or minerals for each of the
above-referenced Funds would be eliminated.
SUB-PROPOSAL 3N:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON INVESTING FOR THE PURPOSE OF CONTROL
FUND TO WHICH THIS CHANGE APPLIES: EQUITY FUND
The Board proposes to eliminate this fundamental restriction, which prohibits
the above-referenced Fund from investing in companies for the purpose of
exercising control or management. Elimination of this restriction would clarify
the Fund's ability to exercise freely its rights as a shareholder of the
companies in which it invests. The Fund, however, does not currently intend to
become involved in directing or administering the day-to-day operations of any
company.
SAM believes the Fund as a shareholder of a company should be able to freely
communicate its views on important matters of policy to a company's management,
its board of directors and its shareholders, when SAM or the Board believe that
such action or policy may affect significantly the value of its investment. The
activities that the Fund might engage in, either individually or with others,
include seeking changes in a company's direction, seeking the sale of a company
or a portion of its assets, or participating or opposing a takeover effort. SAM
believes that the Fund currently may engage in such activities without
necessarily violating this fundamental restriction. Nevertheless, the existence
of the investment restriction might give rise to a claim that such activities
did in fact constitute investing for control or management.
Upon the approval of Sub-Proposal 3N, the existing fundamental restriction on
investing for the purpose of control for the above-referenced Fund would be
eliminated.
SUB-PROPOSAL 3O:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING SECURITIES OF ISSUERS IN
WHICH OFFICERS AND BOARD MEMBERS OF THE TRUST AND ITS AFFILIATES OWN SECURITIES
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, INCOME FUND, NORTHWEST FUND,
INTERMEDIATE-TERM U.S. TREASURY FUND, HIGH-YIELD FUND, GNMA FUND, MUNICIPAL BOND
FUND, CALIFORNIA TAX-FREE INCOME FUND, MONEY MARKET FUND, AND TAX-FREE MONEY
MARKET FUND
There is no legal requirement that the Funds have this fundamental restriction.
This restriction was imposed by state laws and was preempted by NSMIA. Moreover,
the Boards and SAM do not believe this restriction provides any safeguards
against conflicts of interest that are not already effectively covered under the
Funds' Code of Ethics. Accordingly, the Boards believe this restriction should
be eliminated.
Upon the approval of Sub-Proposal 3O, the existing fundamental restriction on
purchasing securities of issuers in which affiliates of the Trusts own
securities for each of the above-referenced Funds would be eliminated.
SUB-PROPOSAL 3P:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON JOINT PARTICIPATION IN A SECURITIES
TRADING ACCOUNT
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, INCOME FUND, NORTHWEST FUND,
INTERMEDIATE-TERM U.S. TREASURY FUND, HIGH-YIELD FUND, GNMA FUND, MANAGED BOND
FUND, MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND, AND TAX-FREE MONEY
MARKET FUND
The above-referenced Funds currently have a fundamental restriction against
participation on a joint or joint and several basis in any securities trading
account. The 1940 Act generally prohibits or restricts a broad range of joint
activity among mutual funds, their advisers and distributors and their
affiliates. However, there is no legal requirement for a Fund to have a
fundamental restriction on this subject. In certain circumstances, participation
in joint trading accounts may be beneficial to the Funds. Accordingly,
13
<PAGE>
the Boards wish to ensure that the Funds will not be more limited with respect
to such transactions than is required by law. Accordingly, the Boards have
determined that this restriction should be eliminated.
Upon the approval of Sub-Proposal 3P, the existing fundamental restriction on
joint participation in a securities trading account for each of the
above-reference Funds would be eliminated.
SUB-PROPOSAL 3Q:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON INVESTING IN SECURITIES OF COMPANIES
THAT HAVE BEEN IN OPERATION FOR LESS THAN THREE YEARS
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, INCOME FUND, MUNICIPAL BOND
FUND, CALIFORNIA TAX-FREE INCOME FUND, MONEY MARKET FUND, AND TAX-FREE MONEY
MARKET FUND
No Fund is required to have a fundamental restriction with respect to investing
in securities of companies that have been in operation for less than three
years. To maximize each Fund's investment flexibility, the Boards believe that
each Fund's restriction on investments in such companies should be eliminated.
This limitation was imposed by state laws and NSMIA preempts that requirement.
Upon the approval of Sub-Proposal 3Q, the existing fundamental restriction on
investing in securities of companies that have been in operation for less than
three years for each of the above-referenced Funds would be eliminated.
SUB-PROPOSAL 3R:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON SELLING SECURITIES SHORT
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, EQUITY FUND, INCOME FUND,
NORTHWEST FUND, INTERMEDIATE-TERM U.S. TREASURY FUND, HIGH-YIELD FUND, GNMA
FUND, MANAGED BOND FUND, MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND,
MONEY MARKET FUND, AND TAX-FREE MONEY MARKET FUND
No Fund is required to have a fundamental restriction with respect to short
sales of securities. To maximize the Funds' flexibility in this area, the Boards
believe that each Fund's restriction on short sales of securities should be
eliminated. This restriction was imposed by state laws and NSMIA preempts that
requirement. Notwithstanding the elimination of this fundamental restriction,
each Fund expects to continue not to engage in short sales of securities, except
to the extent that the Fund contemporaneously owns or has the right to acquire
at no additional cost securities identical to, or convertible into or
exchangeable for, those sold short. Moreover, the Money Fund and Tax-Free Money
Fund, as money market funds, are subject to substantive regulation pursuant to
Rule 2a-7 under the 1940 Act, that has the effect of precluding those Funds from
selling securities short.
Upon the approval of Sub-Proposal 3R, the existing fundamental restriction on
selling securities short for the above-referenced Funds would be eliminated.
SUB-PROPOSAL 3S:
TO REPLACE THE FUNDAMENTAL RESTRICTION ON INVESTING IN FOREIGN SECURITIES WITH A
NON-FUNDAMENTAL RESTRICTION ON INVESTING IN FOREIGN SECURITIES
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND AND INCOME FUND
Certain Funds currently have restrictions limiting their ability to invest in
foreign securities. However, the Funds are not required to have such a
fundamental restriction. Accordingly, it is proposed that the above-referenced
Funds' existing fundamental restriction be replaced with a non-fundamental
restriction.
Upon the approval of the elimination of the existing fundamental restriction on
investing in foreign securities each of the above-referenced Funds would become
subject to the following non-fundamental restriction.
PROPOSED NON-FUNDAMENTAL RESTRICTION ON PURCHASING FOREIGN SECURITIES: The
Fund will not purchase foreign securities unless (a) such securities are
listed on a national securities exchange, and (b) such
14
<PAGE>
purchase, at the time thereof, would not cause more than 10% of the total
assets of the Fund (taken at market value) to be invested in foreign
securities.
SUB-PROPOSAL 3T:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING SECURITIES OF AN ISSUER
IF MORE THAN 10% OF ANY CLASS OF SECURITIES OF THAT ISSUER WOULD BE HELD BY THE
FUND
FUNDS TO WHICH THIS CHANGE APPLIES: GROWTH FUND, INCOME FUND, NORTHWEST FUND,
AND MANAGED BOND FUND
The Funds are not required to have a fundamental restriction with respect to
purchasing securities of an issuer if more than 10% of any CLASS of securities
of that issuer would be held by the Fund. This restriction was imposed by state
laws and NSMIA preempts that requirement. Further, each Fund is a "diversified"
Fund. As such, its ability to invest in the voting securities of an issuer is
separately restricted. (See Sub-Proposal 3G).
Upon the approval of Sub-Proposal 3T, the existing fundamental restriction on
purchasing securities of an issuer if more than 10% of any class of securities
of that issuer would be held by the Fund would be eliminated.
SUB-PROPOSAL 3U:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING PUTS, CALLS, STRADDLES,
SPREADS OR ANY COMBINATION THEREOF
FUNDS TO WHICH THIS CHANGE APPLIES: EQUITY FUND AND TAX-FREE MONEY MARKET FUND
The Funds are not required to have a fundamental restriction on purchasing puts,
calls, straddles, spreads or any combination thereof. Eliminating this
restriction would maximize the Funds' flexibility in this area. Accordingly, it
is proposed that the Funds' existing fundamental restriction be eliminated.
Upon the approval of Sub-Proposal 3U, the existing fundamental restriction on
purchasing puts, calls, straddles, spreads or any combination thereof for each
of the above-referenced Funds would be eliminated.
SUB-PROPOSAL 3V:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON ACTING AS A DISTRIBUTOR OF
SECURITIES OF WHICH THE FUND IS THE ISSUER
FUND TO WHICH THIS CHANGE APPLIES: GROWTH FUND
The Growth Fund is not required to have a fundamental restriction on acting as a
distributor of securities of which the Fund is the issuer. Accordingly, it is
proposed that the Fund's existing fundamental restriction be eliminated.
Upon the approval of Sub-Proposal 3V, the existing fundamental restriction on
acting as a distributor of securities of which the Growth Fund is the issuer
would be eliminated.
SUB-PROPOSAL 3W:
TO ELIMINATE THE FUNDAMENTAL RESTRICTION ON PURCHASING FROM OR SELLING PORTFOLIO
SECURITIES TO ANY OFFICER, DIRECTOR, THE ADVISER OF THE FUND, THE PRINCIPAL
UNDERWRITER OF THE FUND OR ANY AFFILIATES OR SUBSIDIARIES THEREOF
FUNDS TO WHICH THIS CHANGE APPLIES: NORTHWEST FUND, INTERMEDIATE-TERM U.S.
TREASURY FUND, HIGH-YIELD FUND, GNMA FUND, MUNICIPAL BOND FUND, CALIFORNIA
TAX-FREE INCOME FUND, AND TAX-FREE MONEY MARKET FUND
The Funds are not required to have a fundamental restriction on purchasing from
or selling portfolio securities to, any officer, director, the adviser of the
Fund, the principal underwriter of the Fund or any affiliates or subsidiaries
thereof. Because such activity already is regulated by the 1940 Act, the Funds
do
15
<PAGE>
not need a fundamental restriction addressing this matter. Accordingly, it is
proposed that the Funds' existing fundamental restriction be eliminated.
Upon the approval of Sub-Proposal 3W, the existing fundamental restriction on
purchasing from or selling portfolio securities to, any officer, director, the
adviser of the Fund, the principal underwriter of the Fund or any affiliates or
subsidiaries thereof for each of the above-referenced Funds would be eliminated.
SUB-PROPOSAL 3X:
TO REPLACE THE FUNDAMENTAL RESTRICTION CONCERNING MUNICIPAL PROJECT
DIVERSIFICATION WITH A NON-FUNDAMENTAL RESTRICTION CONCERNING MUNICIPAL PROJECT
DIVERSIFICATION
FUNDS TO WHICH THIS CHANGE APPLIES: INTERMEDIATE-TERM MUNICIPAL BOND FUND,
INSURED MUNICIPAL BOND FUND, AND MUNICIPAL BOND FUND
There is no legal requirement that these Funds have a fundamental restriction on
this subject. Accordingly, the Board believes that it should be made
non-fundamental. The purpose of this restriction is to ensure that the Funds are
appropriately diversified. Therefore, by reclassifying this restriction as
non-fundamental, the Funds will continue to be operated in the same manner.
However, if new investment products are developed or if economic conditions
change, the Board can change this non-fundamental policy without a shareholder
vote. This reclassification will continue to provide protection for the Funds,
while at the same time providing flexibility.
Upon the approval of the elimination of the existing fundamental restriction on
municipal project diversification, each of the above-referenced Funds would
become subject to the following non-fundamental restriction:
PROPOSED NON-FUNDAMENTAL RESTRICTION ON MUNICIPAL PROJECT
DIVERSIFICATION: The Fund will not permit 25% or more of its total assets
to be invested in municipal obligations and other permitted investments, the
interest on which is payable from revenues on similar types of projects. As
a matter of operating policy, similar types of projects may include sports,
convention or trade show facilities; airports or mass transportation; sewage
or solid waste disposal facilities; or air or water pollution control
projects.
SUB-PROPOSAL 3Y:
TO REPLACE THE FUNDAMENTAL RESTRICTION CONCERNING SAME STATE INVESTMENTS WITH A
NON-FUNDAMENTAL RESTRICTION CONCERNING SAME STATE INVESTMENTS
FUNDS TO WHICH THIS CHANGE APPLIES: INTERMEDIATE-TERM MUNICIPAL BOND FUND,
INSURED MUNICIPAL BOND FUND, AND MUNICIPAL BOND FUND
There is no legal requirement that these Funds have a fundamental restriction on
this subject. Accordingly, the Board believes that it should be made
non-fundamental. The purpose of this restriction is to ensure that the Funds are
appropriately diversified. Therefore, by reclassifying this restriction as
non-fundamental, the Funds will continue to be operated in the same manner.
However, if new investment products are developed or if economic conditions
change, the Board can change this non-fundamental policy without a shareholder
vote. This reclassification will continue to provide protection for the Funds,
while at the same time providing flexibility.
Upon the approval of the elimination of the existing fundamental restriction on
investments in the same state, each of the above-referenced Funds would become
subject to the following non-fundamental restriction:
PROPOSED NON-FUNDAMENTAL RESTRICTION ON SAME STATE INVESTMENTS: The Fund
will not permit 25% or more of its total assets to be invested in securities
whose issuers are located in the same state.
16
<PAGE>
SUB-PROPOSAL 3Z:
TO AMEND THE FUNDAMENTAL RESTRICTION CONCERNING INCOME TAX
FUNDS TO WHICH THIS CHANGE APPLIES: INTERMEDIATE-TERM MUNICIPAL BOND FUND,
INSURED MUNICIPAL BOND FUND, WASHINGTON MUNICIPAL BOND FUND, MUNICIPAL BOND
FUND, CALIFORNIA TAX-FREE INCOME FUND, AND TAX-FREE MONEY MARKET FUND
Each of the above-referenced Funds has an objective to earn income exempt from
federal and/or state income tax. Therefore, they are required to invest a
substantial portion of their assets in instruments that pay interest which is
exempt from federal and/or state income tax. However, the current investment
restrictions concerning this matter vary considerably from Fund to Fund.
Shareholders of these Funds are being asked to approve a new standardized
fundamental restriction for income tax designed to reflect current regulatory
requirements.
Upon the approval of this sub-proposal, each of the above-referenced Funds would
become subject to the following fundamental restriction:
PROPOSED FUNDAMENTAL RESTRICTION ON INCOME TAX: During normal market
conditions, the Fund will not invest less than 80% of its net assets in
obligations whose interest is exempt from federal income tax and, in the
case of the California Tax-Free Income Fund, also from California state
personal income tax.
REQUIRED VOTE: Approval of each sub-proposal requires a "majority of the
outstanding voting securities" of the Fund, which means the vote of: (1) more
than 50% of the outstanding voting securities of the Fund; or (2) 67% or more of
the voting securities of the Fund present at the Meeting, if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy at the Meeting, whichever is less.
Approval of one sub-proposal is not contingent on the approval of any other
sub-proposal.
THE TRUSTEES HAVE VOTED TO ADOPT EACH OF THE PROPOSED STANDARDIZED FUNDAMENTAL
INVESTMENT RESTRICTIONS FOR THE FUNDS, AS WELL AS TO APPROVE RECLASSIFYING
CERTAIN EXISTING FUNDAMENTAL INVESTMENT RESTRICTIONS AS NON-FUNDAMENTAL AND
ELIMINATING CERTAIN OTHER FUNDAMENTAL INVESTMENT RESTRICTIONS. THE TRUSTEES
UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR SUB-PROPOSALS 3A THROUGH 3Z AS THEY
APPLY TO YOUR FUND(S).
PROPOSAL FOUR: TO APPROVE AN AMENDED AND RESTATED INVESTMENT ADVISORY CONTRACT
FOR EACH FUND
(This proposal applies to all Funds.)
BACKGROUND
The management fees paid by a mutual fund are used by its investment manager to
pay for the personnel, equipment, office space and facilities that are needed to
manage the assets of the fund and to administer its affairs. Each Fund's current
Investment Advisory and Management Contract with SAM (each, a "Current
Agreement") provides that the applicable Fund will pay SAM a single fee
("Unitary Fee") for all the investment advisory and administration services SAM
provides to the Fund. Each Current Agreement also provides that SAM will bear
certain expenses, such as federal and state registration fees ("Registration
Fees"), Fund accounting fees, and insurance premiums (collectively, the
"Reallocated Expenses"). Recently, management analyzed the service and fee
structure of each Fund and determined that they differed from what was most
common in the industry. Management believes that each Fund's service and fee
structure needs to be revised to ensure that each Fund remains competitive with
its industry peer group.
After careful analysis of information presented by management, each Board of
Trustees is proposing that each applicable Fund amend and restate its advisory
agreement ("Amended and Restated Advisory Agreement"). In conjunction with
amending and restating the advisory agreement, each Fund will enter into a new
administration and fund accounting agreement ("New Administration Agreement")
which does not need to be approved by shareholders. EXHIBIT D contains a form of
the Amended and Restated Advisory Agreement which would adjust the schedule of
compensation payable by each Fund to SAM for
17
<PAGE>
its services as investment adviser to that Fund. The Trustees believe that the
rate of compensation under the Amended and Restated Advisory Agreement is
reasonable in light of comparative fee information, the Funds' investment
performance, SAM's expenses and profitability in managing the Funds, and the
nature, quality, and scope of services provided by SAM to the Funds.
In general, the Amended and Restated Advisory Agreement and the New
Administration Agreement would result in each Fund (1) paying SAM a separate (a)
investment advisory fee and (b) administration fee and accounting fee; (2)
paying its own Registration Fees and insurance premiums; and (3) paying a
somewhat higher combined investment advisory and administration/accounting
services fees than currently is in effect under the Unitary Fee. However, the
effect of this higher combined fee would be mitigated for certain Funds by SAM's
agreement to "cap" for ten years each Fund's other expenses at 30 basis points
for the Money Market and Tax-Free Money Market Funds and 40 basis points for
each other Fund and for the Tax-Free Money Market Fund, the one-year 0.06%
contractual waiver of advisory fees. The cap would not apply to payments under a
Fund's Distribution Plan adopted pursuant to Rule 12b-1 or to the investment
advisory fee. Finally, as the assets of a Fund increase, the Amended and
Restated Advisory Agreement would provide for somewhat higher advisory fees at
various asset levels than currently is in effect under the applicable Current
Agreement.
REASONS FOR PROPOSED CHANGES IN FEES AND EXPENSE ALLOCATION
Management recently undertook a complete review of the level and structure of
the fees for each Fund. The process involved the comparison of each Fund with
its own universe of "competing" funds, which were identified based on investment
objective, asset type and distribution channel. Once competing funds were
identified, management compared fee rates at various asset sizes to evaluate
both fee rates and breakpoint structures. Management's goal was to establish a
consistent fee structure for each Fund that would be competitive with funds of
similar investment objective and size in the current marketplace.
The Unitary Fee rate payable by some of the Funds has not changed since 1986,
and the breakpoints for reducing the Fees paid by each Fund have never been
amended. In recent years, management has noticed increased competition for
talented investment and service professionals along with growing expenses to
recruit and retain such personnel. Management believes that a competitive
management fee structure is needed to ensure that the Funds will continue to be
able to deliver investment products with competitive expense ratios; provide
increased investment opportunities and service options to shareholders; continue
to attract talented professionals; and support the high-quality, long-term
investment management and shareholder services that help maintain solid
investment performance.
DESCRIPTION OF PROPOSED CHANGES
The proposed changes in the fee structure of each Fund reflects the dynamics and
complexity of the type of assets being managed (such as equity or fixed-income),
sub-divisions within asset type (such as insured or non-insured fixed-income
securities) and geography (such as domestic or international). In addition,
management is recommending a new schedule of breakpoints for each Fund.
Breakpoints provide for a declining advisory fee as a Fund's assets reach
certain levels, allowing shareholders to benefit from economies of scale.
Management also identified a number of expenses currently paid by SAM that other
funds typically pay directly, rather than through their advisers. Therefore, the
proposed Amended and Restated Advisory Agreement provides that each Fund will
bear those Reallocated Expenses that SAM currently pays on its behalf.
Management believes that the proposed changes maintain advisory fee levels that
are reasonable and bring the Funds into line with industry practice of having
funds pay their own operating expenses.
The parties to the Amended and Restated Advisory Agreement will be the same as
the parties to the Current Agreement. Bank of Ireland Asset Management (U.S.)
Limited will continue to serve as the sub-adviser for the International Stock
Fund under a separate sub-advisory agreement between SAM and Bank of Ireland
Asset Management (U.S.) Limited.
18
<PAGE>
The proposed Amended and Restated Advisory Agreement will reflect a change in
advisory fee as follows for each Fund (see Exhibit A for a listing of each Fund
and its net assets as of December 31, 1998):
<TABLE>
<CAPTION>
CURRENT FEE* PROPOSED FEE
--------------------------------------- ----------------------------------------------
FUND NET ASSETS ANNUAL FEE NET ASSETS ANNUAL FEE
- - -------------------------- -------------------------- ----------- --------------------------------- -----------
<S> <C> <C> <C> <C>
Growth, Equity and
Income.................. $0-$100,000,000 .75 of 1% $0-$250,000,000 .70 of 1%
$100,000,001-$250,000,000 .65 of 1% $250,000,001-$750,000,000 .65 of 1%
$250,000,001-$500,000,000 .55 of 1% $750,000,001-$1,250,000,000 .60 of 1%
Over $500,000,000 .45 of 1% Over $1,250,000,000 .55 of 1%
Northwest................. $0-$250,000,000 .75 of 1% $0-$250,000,000 .70 of 1%
$250,000,001-$500,000,000 .65 of 1% $250,000,001-$750,000,000 .65 of 1%
$500,000,001-$750,000,000 .55 of 1% $750,000,001-$1,250,000,000 .60 of 1%
Over $750,000,000 .45 of 1% Over $1,250,000,000 .55 of 1%
International**........... $0-$250,000,000 1.10 of 1% $0-$250,000,000 1.00 of 1%
$250,000,001-$500,000,000 1.00 of 1% $250,000,001-$750,000,000 .90 of 1%
Over $500,000,000 .90 of 1% Over $750,000,000 .80 of 1%
Balanced and U.S. Value... $0-$250,000,000 .75 of 1% $0-$250,000,000 .70 of 1%
$250,000,001-$500,000,000 .65 of 1% $250,000,001-$750,000,000 .65 of 1%
$750,000,001-$1,250,000,000 .60 of 1%
Over $500,000,000 .55 of 1% Over $1,250,000,000 .55 of 1%
Small Company............. $0-$250,000,000 .85 of 1% $0-$250,000,000 .75 of 1%
$250,000,001-$500,000,000 .75 of 1% $250,000,001-$750,000,000 .70 of 1%
Over $750,000,001-$1,250,000,000
.65 of 1%
Over $750,000,000 .65 of 1% Over $1,250,000,000 .60 of 1%
Intermediate-Term
U.S. Treasury........... $0-$250,000,000 .55 of 1% $0-$250,000,000 .55 of 1%
$250,000,001-$500,000,000 .45 of 1% $250,000,001-$750,000,000 .50 of 1%
$500,000,001-$750,000,000 .35 of 1% $750,000,001-$1,250,000,000 .45 of 1%
Over $750,000,000 .25 of 1% Over $1,250,000,000 .40 of 1%
Insured Municipal Bond and
Washington Municipal
Bond.................... $0-$250,000,000 .65 of 1% $0-$250,000,000 .50 of 1%
$250,000,001-$500,000,000 .55 of 1% $250,000,001-$750,000,000 .45 of 1%
$500,000,001-$750,000,000 .45 of 1%
Over $750,000,000 .35 of 1% Over $750,000,000 .40 of 1%
High-Yield................ $0-$250,000,000 .65 of 1% $0-$250,000,000 .65 of 1%
$250,000,001-$500,000,000 .55 of 1% $250,000,001-$750,000,000 .55 of 1%
$500,000,001-$750,000,000 .45 of 1%
Over $750,000,000 .35 of 1% Over $750,000,000 .50 of 1%
GNMA...................... $0-$250,000,000 .65 of 1% $0-$250,000,000 .55 of 1%
$250,000,001-$500,000,000 .55 of 1% $250,000,001-$750,000,000 .50 of 1%
$500,000,001-$750,000,000 .45 of 1% $750,000,001-$1,250,000,000 .45 of 1%
Over $750,000,000 .35 of 1% Over $1,250,000,000 .40 of 1%
Managed Bond.............. $0-$100,000,000 .50 of 1% $0-$750,000,000 .50 of 1%
$100,000,001-$250,000,000 .40 of 1% $750,000,001-$1,250,000,000 .45 of 1%
Over $250,000,000 .35 of 1% Over $1,250,000,000 .40 of 1%
Intermediate-Term
Municipal Bond.......... $0-$250,000,000 .55 of 1% $0-$250,000,000 .50 of 1%
$250,000,001-$500,000,000 .45 of 1% $250,000,001-750,000,000 .45 of 1%
$500,000,001-$750,000,000 .35 of 1%
Over $750,000,000 .25 of 1% Over $750,000,000 .40 of 1%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
CURRENT FEE* PROPOSED FEE
--------------------------------------- ----------------------------------------------
FUND NET ASSETS ANNUAL FEE NET ASSETS ANNUAL FEE
- - -------------------------- -------------------------- ----------- --------------------------------- -----------
<S> <C> <C> <C> <C>
Municipal Bond and
California Tax-Free
Income.................. $0-$100,000,000 .55 of 1% $0-$250,000,000 .50 of 1%
$100,000,001-$250,000,000 .45 of 1% $250,000,001-$750,000,000 .45 of 1%
$250,000,001-$500,000,000 .35 of 1%
Over $500,000,000 .25 of 1% Over $750,000,000 .40 of 1%
Money Market.............. $0-$250,000,000 .50 of 1% $0-$250,000,000 .50 of 1%
$250,000,001-$500,000,000 .40 of 1% $250,000,001-$750,000,000 .45 of 1%
$500,000,001-$750,000,000 .30 of 1% $750,000,001-$1,250,000,000 .40 of 1%
Over $750,000,000 .25 of 1% Over $1,250,000,000 .35 of 1%
Tax-Free Money Market..... 0-$100,000,000 .50 of 1% 0-$250,000,000 .50 of 1%
$100,000,001-$250,000,000 .40 of 1% $250,000,001-$750,000,000 .45 of 1%
$250,000,001-$500,000,000 .30 of 1% $750,000,001-$1,250,000,000 .40 of 1%
Over $500,000,000 .20 of 1% Over $1,250,000,000 .35 of 1%
</TABLE>
- - ------------------------------
* Current fee covers both investment advisory and administrative services
provided by SAM.
** Under the sub-advisory agreement between SAM and the sub-adviser, the
sub-adviser is responsible for providing investment research and advice used to
manage the investment portfolio of the International Fund. In return, SAM (and
not the International Fund) pays the sub-adviser a fee in accordance with the
schedule below:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
- - --------------------------------------------------------------------------------- -----------
<S> <C>
$0-$50,000,000................................................................... .60 of 1%
$50,000,001-$100,000,000......................................................... .50 of 1%
Over $100,000,000................................................................ .40 of 1%
</TABLE>
The New Administration Agreement with SAM is a service contract and not an
investment advisory agreement. As such, the New Administration Agreement does
not need to be approved by shareholders. Under the New Administration Agreement,
SAM will serve as each Fund's accounting agent and administrator, performing
such functions as: calculate the net asset value of each Fund, maintain the Fund
financial records, prepare the financial statements semiannually, make
regulatory filings, and coordinate contractual relationships and communications
between each Fund and its service providers. Under the New Administration
Agreement, each Fund will pay SAM an administrative services fee of 0.05% of its
average daily net assets up to the first $200,000,000 and 0.01% of its net
assets thereafter, and an accounting fee of 0.04% of its average daily net
assets up to the first $200,000,000 and 0.01% of its net assets thereafter.
As shown in the chart below, the following Funds would have had lower fees
under the proposed advisory and administration fee arrangement, based on
September 30, 1998 asset balances, taking into account the cap on expenses:
Northwest, Balanced, International, Small Company Stock Fund, U.S. Value Fund,
Managed Bond Fund and Washington State Municipal Bond Fund. The GNMA Fund would
have had the same level of fees under the proposed advisory and administration
fee arrangement, based on September 30, 1998 asset balances, taking into account
the contractual cap on expenses and for the Tax-Free Money Market Fund, the
one-year 0.06% contractual waiver of advisory fees. The remaining Funds would
have experienced increased fees under the proposed advisory and administration
fee arrangement, based on September 30, 1998 asset balances, taking into account
the cap on expenses: Growth Fund, Equity Fund, Income Fund, Money Market Fund,
Tax-Free Money Market Fund, High-Yield Fund, Intermediate-Term U.S. Treasury
Fund, Insured Municipal Bond Fund, Intermediate-Term Municipal Bond Fund,
Municipal Bond and California Tax-Free Income Fund.
20
<PAGE>
SAFECO MUTUAL FUNDS
COMPARISON OF ACTUAL AND PROPOSED EXPENSE RATIOS FOR NO-LOAD CLASS SHARES
BASED ON 1998 AVERAGE NET ASSETS THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
1998 ANNUALIZED
1998 PROPOSED EXPENSE RATIO EXPENSES RATIO (UNAUDITED)
------------------------------------ ------------------------------------
ADVISORY AFFILIATE OUTSIDE MGMT AFFILIATE OUTSIDE
FEES OTHER OTHER TOTAL FEES OTHER OTHER TOTAL DIFFERENCE
------ --------- ------- ------ ------ --------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth.................................. 0.636 % 0.220% 0.039% 0.895% 0.515% 0.190% 0.030% 0.735% 0.160%
Equity.................................. 0.615 % 0.228% 0.047% 0.890% 0.499% 0.200% 0.040% 0.739% 0.151%
Income.................................. 0.678 % 0.201% 0.038% 0.917% 0.628% 0.150% 0.030% 0.808% 0.109%
Northwest............................... 0.700 % 0.297% 0.103% 1.100% 0.750% 0.280% 0.080% 1.110% (0.010)%
Balanced................................ 0.700 % 0.136% 0.264% 1.100% 0.750% 0.240% 0.190% 1.180% (0.080)%
International........................... 1.000 % 0.051% 0.349% 1.400% 1.100% 0.290% 0.270% 1.660% (0.260)%
Small Company........................... 0.750 % 0.225% 0.175% 1.150% 0.850% 0.280% 0.140% 1.270% (0.120)%
US Value................................ 0.700 % 0.072% 0.328% 1.100% 0.750% 0.180% 0.240% 1.170% (0.070)%
Money Market............................ 0.500 % 0.242% 0.058% 0.800% 0.500% 0.250% 0.040% 0.790% 0.010%
Tax-Free Money Market................... 0.440 % 0.170% 0.076% 0.686% 0.500% 0.080% 0.050% 0.630% 0.006%
High Yield.............................. 0.650 % 0.250% 0.143% 1.043% 0.650% 0.160% 0.120% 0.930% 0.113%
GNMA.................................... 0.550 % 0.228% 0.172% 0.950% 0.650% 0.170% 0.130% 0.950% 0.000%
Intermediate-Term U.S. Treasury......... 0.550 % 0.159% 0.241% 0.950% 0.550% 0.220% 0.170% 0.940% 0.010%
Managed Bond............................ 0.500 % 0.000% 0.400% 0.900% 0.500% 0.050% 0.590% 1.140% (0.240)%
Intermediate-Term Municipal Bond........ 0.500 % 0.119% 0.281% 0.900% 0.550% 0.080% 0.200% 0.830% 0.070%
Insured Municipal Bond.................. 0.500 % 0.170% 0.216% 0.886% 0.650% 0.080% 0.150% 0.880% 0.006%
Municipal Bond.......................... 0.474 % 0.107% 0.034% 0.615% 0.418% 0.060% 0.030% 0.508% 0.107%
California.............................. 0.500 % 0.160% 0.051% 0.711% 0.546% 0.070% 0.050% 0.666% 0.045%
Washington.............................. 0.500 % 0.054% 0.346% 0.900% 0.650% 0.040% 0.330% 1.020% (0.120)%
</TABLE>
"Affiliate Other" includes accounting fees, administration fees and transfer
agent fees in the proposed ratio and only transfer agent fees in the actual
ratio. The combination of "Affiliate Other" and "Outside Other" expenses is
capped at 40 basis points (30 basis points for the Money Market and Tax-Free
Money Market Funds). Any reimbursement comes first from "Affiliate Other" and
then from "Outside Other" expenses. The above ratios are those of the no-load
class and do not take into account the .25% 12b-1 fees charged Class A Shares
and the 1.00% 12b-1 fees charged Class B Shares.
CLASS A: The 1998 proposed total expenses and the 1998 annualized total expenses
(unaudited) for Class A Shares (taking 12b-1 fees into account) would
respectively be: Growth Fund 1.145% and .985%, Equity Fund 1.14% and .989%,
Income Fund 1.167% and 1.058%, Northwest Fund 1.35% and 1.36%, Balanced Fund
1.35% and 1.43%, International Fund 1.65% and 1.91%, Small Company Fund 1.40%
and 1.52%, U.S. Value Fund 1.35% and 1.42%, Money Market Fund 1.05% and 1.04%,
Tax-Free Money Market Fund .936% and .880%, High-Yield Fund 1.293% and 1.180%,
GNMA Fund 1.20% and 1.20%, Intermediate-Term U.S. Treasury Fund 1.20% and
1.190%, Managed Bond Fund 1.15% and 1.39%, Intermediate-Term Municipal Bond Fund
1.15% and 1.08%, Insured Municipal Bond 1.136% and 1.13%, Municipal Bond Fund
.865% and .758%, California Tax-Free Income Fund .961% and .916% and Washington
Municipal Bond Fund 1.15% and 1.27%.
CLASS B: The 1998 proposed total expenses and the 1998 annualized total expenses
(unaudited) for Class B Shares (taking 12b-1 fees into account) would
respectively be: Growth Fund 1.895% and 1.735%, Equity Fund 1.890% and 1.739%,
Income Fund 1.917% and 1.808%, Northwest Fund 2.100% and 2.110%, Balanced Fund
2.100% and 2.180%, International Fund 2.400% and 2.660%, Small Company Fund
2.150% and 2.270%, U.S. Value Fund 2.100% and 2.170%, Money Market Fund 1.800%
and 1.790%, Tax-Free Money Market Fund 1.686% and 1.630%, High-Yield Fund 2.043%
and 1.930%, GNMA Fund 1.950% and 1.950%, Intermediate-Term U.S. Treasury Fund
1.950% and 1.940%, Managed Bond Fund 1.900% and 2.140%, Intermediate-Term
Municipal Bond Fund 1.900% and 1.830%, Insured Municipal Bond Fund 1.886% and
1.880%, Municipal Bond Fund 1.615% and 1.508%, California Tax-Free Income Fund
1.711% and 1.666% and Washington Municipal Bond Fund 1.900% and 2.020%.
21
<PAGE>
The chart below shows the current Unitary Fee and the proposed advisory and
administration fee rates for each Fund and the dollar amounts paid to SAM and
its affiliates during the last fiscal year. The charts also show the dollar
amount that the Fund would have paid to SAM if the proposed fee structure had
been in effect. The chart indicates whether SAM has waived any management fees
and the effect such waivers would have had.
<TABLE>
<CAPTION>
1998 1998 PERCENTAGE
FUND ACTUAL PROPOSED CHANGE
- - ------------------------------------------------------- ---------- ------------ -----------
<S> <C> <C> <C>
Growth................................................. 6,818,293 9,766,200 29%
Equity................................................. 8,912,575 11,388,200 28%
Income................................................. 2,747,202 3,186,100 15%
Northwest.............................................. 519,303 494,652 -5%
Balanced............................................... 143,826 183,000 -8%
International.......................................... 196,383 180,000 -8%
Small Company.......................................... 359,673 315,000 -12%
U.S. Value............................................. 77,916 71,400 -8%
Money Market........................................... 1,012,502 1,005,000 -1%
Tax-Free Money Market.................................. 391,754 460,200 17%
High-Yield............................................. 507,058 569,800 12%
GNMA................................................... 259,104 243,714 -8%
Intermediate-Term U.S. Treasury........................ 108,772 110,000 1%
Managed................................................ 29,878 27,500 -8%
Intermediate-Term Municipal............................ 79,913 75,354 -5%
Insured Municipal...................................... 134,679 106,200 -21%
Municipal.............................................. 2,184,154 2,704,300 25%
California............................................. 587,149 631,300 8%
Washington............................................. 53,099 41,113 -23%
</TABLE>
22
<PAGE>
The effect of the new fee structure on a $10,000 balance in each Fund over the
periods indicated (assuming 5% growth, based on unaudited annualized expense
ratios as of September 30, 1998 for the no-load class and taking into account
the applicable contractual expense cap) is:
EXPENSES
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
STOCKS:
GROWTH
1998...................................................................... $ 75 $ 235 $ 409 $ 912
Proposed.................................................................. $ 91 $ 285 $ 498 $ 1,102
EQUITY
1998...................................................................... $ 76 $ 237 $ 411 $ 916
Proposed.................................................................. $ 91 $ 284 $ 493 $ 1,096
INCOME
1998...................................................................... $ 83 $ 258 $ 450 $ 1,002
Proposed.................................................................. $ 94 $ 282 $ 508 $ 1,128
NORTHWEST
1998...................................................................... $ 113 $ 363 $ 812 $ 1,352
Proposed.................................................................. $ 112 $ 350 $ 806 $ 1,340
BALANCED
1998...................................................................... $ 120 $ 375 $ 649 $ 1,432
Proposed.................................................................. $ 112 $ 350 $ 608 $ 1,340
INTERNATIONAL
1998...................................................................... $ 168 $ 520 $ 897 $ 1,955
Proposed.................................................................. $ 143 $ 443 $ 766 $ 1,630
SMALL COMPANY
1998...................................................................... $ 129 $ 403 $ 887 $ 1,534
Proposed.................................................................. $ 117 $ 365 $ 663 $ 1,398
US VALUE
1998...................................................................... $ 119 $ 972 $ 644 $ 1,420
Proposed.................................................................. $ 112 $ 350 $ 608 $ 1,340
MONEY MARKETS:
MONEY MARKET
1998...................................................................... $ 81 $ 252 $ 439 $ 978
Proposed.................................................................. $ 82 $ 255 $ 444 $ 990
TAX-FREE MONEY MARKET
1998...................................................................... $ 64 $ 202 $ 361 $ 788
Proposed.................................................................. $ 77 $ 240 $ 417 $ 930
TAXABLE BONDS:
HIGH-YIELD BOND
1998...................................................................... $ 95 $ 296 $ 515 $ 1,143
Proposed.................................................................. $ 106 $ 331 $ 674 $ 1,271
GNMA
1998...................................................................... $ 97 $ 303 $ 526 $ 1,166
Proposed.................................................................. $ 97 $ 303 $ 526 $ 1,166
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
INTERMEDIATE-TERM U.S. TREASURY
1998...................................................................... $ 96 $ 300 $ 520 $ 1,155
Proposed.................................................................. $ 97 $ 303 $ 526 $ 1,166
MANAGED BOND
1998...................................................................... $ 116 $ 362 $ 628 $ 1,386
Proposed.................................................................. $ 92 $ 287 $ 498 $ 1,108
TAX-EXEMPT BONDS:
INTERMEDIATE-TERM MUNICIPAL BOND
1998...................................................................... $ 85 $ 265 $ 460 $ 1,025
Proposed.................................................................. $ 92 $ 287 $ 498 $ 1,108
INSURED MUNICIPAL BOND
1998...................................................................... $ 90 $ 281 $ 488 $ 1,084
Proposed.................................................................. $ 91 $ 284 $ 493 $ 1,096
MUNICIPAL BOND
1998...................................................................... $ 52 $ 164 $ 285 $ 640
Proposed.................................................................. $ 63 $ 199 $ 346 $ 774
CALIFORNIA TAX-FREE
1998...................................................................... $ 67 $ 211 $ 368 $ 822
Proposed.................................................................. $ 73 $ 227 $ 395 $ 883
WASHINGTON STATE MUNICIPAL BOND
1998...................................................................... $ 104 $ 325 $ 663 $ 1,248
Proposed.................................................................. $ 92 $ 287 $ 498 $ 1,108
</TABLE>
The above estimates do not take into account the .25% 12b-1 fees charged Class A
Shares and the 1.00% 12b-1 fees charged Class B Shares.
The effect of a new fee structure on a $10,000 balance in each Fund over the
periods indicated (assuming 5% growth, based on unaudited annualized expense
ratios as of September 30, 1998 for the A class and taking into account the
applicable contractual expense cap) is*:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
STOCKS:
GROWTH
1998...................................................................... $ 546 $ 750 $ 970 $ 1,603
Proposed.................................................................. $ 561 $ 797 $ 1,052 $ 1,779
EQUITY
1998...................................................................... $ 546 $ 750 $ 970 $ 1,809
Proposed.................................................................. $ 561 $ 796 $ 1,049 $ 1,774
INCOME
1998...................................................................... $ 553 $ 772 $ 1,008 $ 1,886
Proposed.................................................................. $ 584 $ 804 $ 1,083 $ 1,808
NORTHWEST
1998...................................................................... $ 582 $ 861 $ 1,161 $ 2,011
Proposed.................................................................. $ 581 $ 858 $ 1,158 $ 2,001
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
BALANCED
1998...................................................................... $ 589 $ 882 $ 1,196 $ 2,066
Proposed.................................................................. $ 581 $ 858 $ 1,156 $ 2,001
INTERNATIONAL
1998...................................................................... $ 634 $ 1,020 $ 1,430 $ 2,572
Proposed.................................................................. $ 610 $ 947 $ 1,307 $ 2,317
SMALL COMPANY
1998...................................................................... $ 596 $ 909 $ 1,242 $ 2,181
Proposed.................................................................. $ 586 $ 873 $ 1,181 $ 2,054
US VALUE
1998...................................................................... $ 589 $ 882 $ 1,196 $ 2,086
Proposed.................................................................. $ 581 $ 858 $ 1,158 $ 2,001
MONEY MARKETS:
MONEY MARKET**
1998...................................................................... $ 81 $ 252 $ 439 $ 978
Proposed.................................................................. $ 82 $ 255 $ 444 $ 580
TAXABLE BONDS:
HIGH-YIELD BOND
1998...................................................................... $ 685 $ 806 $ 1,070 $ 1,817
Proposed.................................................................. $ 575 $ 641 $ 1,126 $ 1,936
INTERMEDIATE-TERM U.S. TREASURY
1998...................................................................... $ 566 $ 811 $ 1,075 $ 1,826
Proposed.................................................................. $ 587 $ 814 $ 1,080 $ 1,839
MANAGED BOND FUND
1998...................................................................... $ 585 $ 870 $ 1,176 $ 2,043
Proposed.................................................................. $ 562 $ 798 $ 1,054 $ 1,785
TAX-EXEMPT BONDS:
MUNICIPAL BOND
1998...................................................................... $ 524 $ 682 $ 853 $ 1,360
Proposed.................................................................. $ 535 $ 715 $ 911 $ 1,474
CALIFORNIA TAX-FREE
1998...................................................................... $ 539 $ 727 $ 931 $ 1,519
Proposed.................................................................. $ 544 $ 742 $ 857 $ 1,575
WASHINGTON STATE MUNICIPAL BOND
1998...................................................................... $ 574 $ 835 $ 1,116 $ 1,915
Proposed.................................................................. $ 582 $ 798 $ 1,054 $ 1,785
</TABLE>
* Includes deduction at the time of purchase of the maximum sales charge.
** The Money Market Fund has neither a sales charge, nor 12b-1 fees.
25
<PAGE>
The effect of the new fee structure on a $10,000 balance in each Fund over the
periods indicated (assuming 5% growth, based on unaudited annualized expense
ratios as of September 30, 1998 for the no-load class and taking into account
the applicable contractual expense cap) is:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
STOCKS:
GROWTH
1998 (Assumes no redemption).............................................. $ 176 $ 546 $ 941 $ 1,658
1998 (Assumes redemption at the end of the period)........................ $ 676 $ 846 $ 1,141 $ 1,658
Proposed (Assumes no redemption).......................................... $ 192 $ 595 $ 1,024 $ 1,833
Proposed (Assumes redemption at the end of the period).................... $ 892 $ 895 $ 1,224 $ 1,833
EQUITY
1998 (Assumes no redemption).............................................. $ 177 $ 548 $ 944 $ 1,664
1998 (Assumes redemption at the end of the period)........................ $ 677 $ 848 $ 1,144 $ 1,664
Proposed (Assumes no redemption).......................................... $ 192 $ 594 $ 1,021 $ 1,828
Proposed (Assumes redemption at the end of the period).................... $ 692 $ 894 $ 1,221 $ 1,828
INCOME
1998 (Assumes no redemption).............................................. $ 184 $ 569 $ 980 $ 1,741
1998 (Assumes redemption at the end of the period)........................ $ 684 $ 869 $ 1,180 $ 1,743
Proposed (Assumes no redemption).......................................... $ 195 $ 602 $ 1,035 $ 1,857
Proposed (Assumes redemption at the end of the period).................... $ 695 $ 902 $ 1,235 $ 1,857
NORTHWEST
1998 (Assumes no redemption).............................................. $ 214 $ 661 $ 1,134 $ 2,064
1998 (Assumes redemption at the end of the period)........................ $ 714 $ 961 $ 1,334 $ 2,064
Proposed (Assumes no redemption).......................................... $ 213 $ 658 $ 1,128 $ 2,054
Proposed (Assumes redemption at the end of the period).................... $ 713 $ 958 $ 1,329 $ 2,054
BALANCED
1998 (Assumes no redemption).............................................. $ 221 $ 662 $ 1,189 $ 2,138
1998 (Assumes redemption at the end of the period)........................ $ 721 $ 982 $ 1,369 $ 2,138
Proposed (Assumes no redemption).......................................... $ 213 $ 658 $ 1,128 $ 2,054
Proposed (Assumes redemption at the end of the period).................... $ 713 $ 958 $ 1,529 $ 2,054
INTERNATIONAL
1998 (Assumes no redemption).............................................. $ 268 $ 823 $ 1,405 $ 2,622
1998 (Assumes redemption at the end of the period)........................ $ 766 $ 1,123 $ 1,605 $ 2,622
Proposed (Assumes no redemption).......................................... $ 243 $ 748 $ 1,280 $ 2,368
Proposed (Assumes redemption at the end of the period).................... $ 743 $ 1,048 $ 1,480 $ 2,368
SMALL COMPANY
1998 (Assumes no redemption).............................................. $ 230 $ 709 $ 1,215 $ 2,233
1998 (Assumes redemption at the end of the period)........................ $ 730 $ 1,009 $ 1,415 $ 2,233
Proposed (Assumes no redemption).......................................... $ 216 $ 673 $ 1,154 $ 2,107
Proposed (Assumes redemption at the end of the period).................... $ 718 $ 973 $ 1,354 $ 2,107
US VALUE
1998 (Assumes no redemption).............................................. $ 220 $ 879 $ 1,164 $ 2,128
1998 (Assumes redemption at the end of the period)........................ $ 720 $ 978 $ 1,364 $ 2,128
Proposed (Assumes no redemption).......................................... $ 213 $ 658 $ 1,129 $ 2,054
Proposed (Assumes redemption at the end of the period).................... $ 713 $ 958 $ 1,329 $ 2,054
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
MONEY MARKETS:
MONEY MARKET***
1998...................................................................... $ 81 $ 252 $ 439 $ 978
Proposed.................................................................. $ 82 $ 255 $ 444 $ 990
TAXABLE BONDS:
HIGH-YIELD
1998 (Assumes no redemption).............................................. $ 196 $ 806 $ 1,042 $ 1,871
1998 (Assumes redemption at the end of the period)........................ $ 896 $ 906 $ 1,242 $ 1,871
Proposed (Assumes no redemption).......................................... $ 207 $ 640 $ 1,098 $ 1,990
Proposed (Assumes redemption at the end of the period).................... $ 707 $ 940 $ 1,298 $ 1,990
INTERMEDIATE-TERM U.S. TREASURY
1998 (Assumes no redemption).............................................. $ 197 $ 609 $ 1,047 $ 1,882
1998 (Assumes redemption at the end of the period)........................ $ 897 $ 909 $ 1,247 $ 1,882
Proposed (Assumes no redemption).......................................... $ 198 $ 812 $ 1,052 $ 1,893
Proposed (Assumes redemption at the end of the period).................... $ 698 $ 812 $ 1,252 $ 1,893
MANAGED BOND FUND
1998 (Assumes no redemption).............................................. $ 217 $ 970 $ 1,149 $ 2,096
1998 (Assumes redemption at the end of the period)........................ $ 717 $ 970 $ 1,349 $ 2,096
Proposed (Assumes no redemption).......................................... $ 193 $ 597 $ 1,026 $ 1,839
Proposed (Assumes redemption at the end of the period).................... $ 893 $ 897 $ 1,226 $ 1,839
TAX-EXEMPT BONDS:
MUNICIPAL BOND
1998 (Assumes no redemption).............................................. $ 153 $ 474 $ 816 $ 1,396
1998 (Assumes redemption at the end of the period)........................ $ 663 $ 774 $ 1,018 $ 1,395
Proposed (Assumes no redemption).......................................... $ 165 $ 511 $ 881 $ 1,530
Proposed (Assumes redemption at the end of the period).................... $ 665 $ 811 $ 1,081 $ 1,530
CALIFORNIA TAX-FREE
1998 (Assumes no redemption).............................................. $ 169 $ 623 $ 902 $ 1,575
1998 (Assumes redemption at the end of the period)........................ $ 669 $ 823 $ 1,102 $ 1,575
Proposed (Assumes no redemption).......................................... $ 173 $ 536 $ 923 $ 1,619
Proposed (Assumes redemption at the end of the period).................... $ 673 $ 836 $ 1,123 $ 1,618
WASHINGTON STATE MUNICIPAL BOND
1998 (Assumes no redemption).............................................. $ 205 $ 634 $ 1,088 $ 1,968
1998 (Assumes redemption at the end of the period)........................ $ 705 $ 934 $ 1,288 $ 1,968
Proposed (Assumes no redemption).......................................... $ 193 $ 597 $ 1,028 $ 1,839
Proposed (Assumes redemption at the end of the period).................... $ 693 $ 897 $ 1,226 $ 1,839
</TABLE>
* Includes deduction at the time of redemption of the applicable CDSC.
** The Money Market Fund has neither a sales charge, nor 12b-1 fees.
*** Ten-year figures assume (except for the Money Market Fund) Class B shares
are converted to Class A shares following the investor's sixth anniversary
from purchase.
If shareholders approve the proposed Amended and Restated Advisory Agreement, it
will take effect April 30, 1999. If the Amended and Restated Advisory Agreement
is not approved for a particular Fund, the Current Agreement will continue in
effect for that Fund.
27
<PAGE>
BOARD CONSIDERATION
At a special meeting on January 14, 1999, the Trustees for each Fund, including
the independent Trustees, considered the Amended and Restated Advisory
Agreement. In approving the proposed Amended and Restated Advisory Agreement and
recommending its approval by shareholders, the Trustees considered the best
interests of the shareholders of the Funds and took into account all factors
they deemed relevant. The Trustees foremost consideration in reviewing
management's proposal was the anticipated impact of the proposed advisory,
administration and accounting fees and Reallocated Expenses on shareholders of
the Funds. The Trustees requested and reviewed extensive materials relating to
expense and performance information. They also analyzed the methodology that
management used to identify competitive peer groups and to develop its amended
fee structure and breakpoint levels.
Management cited enhanced service options and investment opportunities made
available to shareholders as well as proven long-term performance and the
growing expenses associated with providing solid investment products. The
Trustees also considered today's ever-expanding securities markets, which
operate continuously around the globe. The Trustees believe that additional
resources will help SAM to maintain competitive computer systems, access
information and analyze strategies using the most sophisticated tools and
methodologies. The Trustees also believe that additional resources are needed to
administer the Funds because of their size and the growing complexities of
portfolio transactions domestically and internationally.
Before approving the proposed contracts, the Trustees analyzed fee rates for
each Fund on an existing and proposed basis. They reviewed reports that detailed
fees and expense information for each Fund and the funds in its peer group. The
Trustees also reviewed and considered performance of the no-load class of the
Funds, as representative of the Funds as a whole, and ranking data for each Fund
within its investment category.
After considering the advisory fees paid by comparable funds available to
investors, the Trustees concluded that the Amended and Restated Advisory
Agreement is in the best interests of the shareholders of the Funds and is
reasonable in light of the comparative information, the Funds' performance,
SAM's expenses and profitability in managing the Funds and the nature, quality
and scope of services provided by SAM to the Funds.
REQUIRED VOTE: Approval of the Amended and Restated Advisory Agreement on
behalf of each Fund requires the affirmative vote of a "majority of the
outstanding voting securities" of the Fund, which means the affirmative vote of:
(1) more than 50% of the outstanding voting securities of the Fund; or (2) 67%
or more of the voting securities of the Fund present at the Meeting, if holders
of more than 50% of the outstanding voting securities are present or represented
by proxy at the Meeting, whichever is less.
Approval of Proposal 4 by one Fund is not contingent upon approval of Proposal 4
by any other Fund.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE FOR PROPOSAL 4.
INFORMATION REGARDING SAFECO ASSET MANAGEMENT COMPANY
SAM serves as investment manager for each Fund. SAM is headquartered in Seattle,
Washington and managed over $7 billion in assets as of December 31, 1998. SAM
has been an investment adviser to mutual funds and other investment portfolios
since 1973 and its predecessors have been investment advisers since 1932. With
respect to the International Stock Fund, SAM has a sub-advisory agreement with
Bank of Ireland Asset Management (U.S.) Limited (the "Sub-Adviser"). The
Sub-Adviser has its headquarters at 26 Fitzwilliam Place, Dublin, Ireland, and
its U.S. office at 2 Greenwich Plaza, Greenwich, Connecticut. The Sub-Adviser is
a direct, wholly owned subsidiary of Bank of Ireland Asset Management Limited
(an investment advisory firm), which is located at 26 Fitzwilliam Place, Dublin,
Ireland. The Sub-Adviser is an indirect, wholly owned subsidiary of Bank of
Ireland (a holding company whose primary subsidiaries are
28
<PAGE>
engaged in banking, insurance, securities and related financial services), which
is located at Lower Baggot Street, Dublin, Ireland.
SAM, SAFECO Securities, Inc. ("SAFECO Securities") and SAFECO Services
Corporation ("SAFECO Services") are wholly owned subsidiaries of SAFECO
Corporation. SAFECO Securities is the principal underwriter of each Fund and
SAFECO Services is the transfer, dividend and distribution disbursement and
shareholder servicing agent of each Fund.
MANAGEMENT AND CONTROL OF SAM
The names and principal occupations of the directors and executive officers of
SAM are:
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
NAME SAM
- - -------------------------------------------------- ----------------------
<S> <C>
Ronald L. Spaulding............................... Chairman
Director
Stephen C. Bauer.................................. President
Director
David F. Hill..................................... Senior Vice President
Director
Neal A. Fuller.................................... Vice President
Controller
Secretary
Treasurer
David H. Longhurst................................ Assistant Controller
Stephen D. Collier................................ Assistant Secretary
</TABLE>
Several directors and officers own shares of SAFECO Corporation, SAM's parent
company. The combined ownership of such directors and officers is less than one
percent of SAFECO Corporation's common stock.
The address of Messrs. Spaulding and Bauer is Two Union Square, Sixth Avenue and
Union Street, Seattle, WA 98101, which is also the address of SAM. The address
of Messrs. Hill, Fuller, and Longhurst is 10865 Willows Road NE, Redmond, WA
98052. The address of Mr. Collier is SAFECO Plaza, Seattle, Washington 98185.
CONTRACTS WITH AFFILIATES OF SAM
DISTRIBUTION ARRANGEMENTS. SAFECO Securities is the principal underwriter for
each Fund and distributes shares of each Fund under Distribution Agreements with
each Trust that require SAFECO Securities to use its best efforts, consistent
with its other businesses, to sell shares of the Funds. Shares of the Funds are
offered continuously.
Under separate plans of distribution pertaining to the Class A and Class B
shares of each Fund adopted by each Trust in the manner prescribed under Rule
12b-1 under the 1940 Act (each a "Plan"), the Class A and Class B shares pay
SAFECO Securities such fees as are described below. SAFECO Securities is not
compensated by the Trusts or the Fund for underwriting, distribution or other
activities in connection with No-Load Class Shares.
29
<PAGE>
The following table shows the Rule 12b-1 fees paid by the following Funds to
Safeco Securities during the prior fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR
OR PERIOD
ENDED
DECEMBER 31,
1998
-------------
<S> <C>
Growth Fund........................................................................................ $ 129,804
Equity Fund........................................................................................ $ 195,827
Income Fund........................................................................................ $ 19,042
Northwest Fund..................................................................................... $ 26,066
Balanced Fund...................................................................................... $ 11,810
International Fund................................................................................. $ 6,796
Small Company Fund................................................................................. $ 9,849
U.S. Value Fund.................................................................................... $ 4,820
Intermediate-Term U.S. Treasury Fund............................................................... $ 7,668
High-Yield Fund.................................................................................... $ 11,149
Managed Bond Fund.................................................................................. $ 2,916
Municipal Bond Fund................................................................................ $ 10,149
California Tax-Free Income Fund.................................................................... $ 9,093
Washington Municipal Bond Fund..................................................................... $ 3,027
Money Market Fund.................................................................................. $ --
</TABLE>
TRANSFER AGENT. SAFECO Services, SAFECO Plaza, Seattle, Washington 98185, is
the transfer, dividend and distribution disbursement and shareholder servicing
agent for the Class A and Class B shares of each Fund under an agreement with
each Trust. SAFECO Services provides, or through subcontracts makes provision
for, all required transfer agent activity, including maintenance of records of
each Fund's No-Load Class, Class A and Class B shareholders, records of
transactions involving each Fund's No-Load Class, Class A and Class B shares,
and the compilation, distribution, or reinvestment of income dividends or
capital gain distributions.
SAFECO Services is paid a fee for these services equal to $28.00 per Stock Fund
shareholder account; $32.00 per Bond Fund, Tax-Exempt Bond Fund and Managed Bond
Fund shareholder account; and $34.00 per Money Market Fund shareholder account,
but not to exceed .30% of each Fund's average net assets.
30
<PAGE>
The following table shows the fees paid by the following Funds to SAFECO
Services during the prior fiscal year:
<TABLE>
<CAPTION>
FISCAL YEAR OR
PERIOD ENDED
DECEMBER 31,
1998
---------------
<S> <C>
Growth Fund.................................................................. $ 2,931,409
Equity Fund.................................................................. $ 3,738,800
Income Fund.................................................................. $ 711,514
Northwest Fund............................................................... $ 219,818
Intermediate-Term U.S. Treasury Fund......................................... $ 45,108
High-Yield Bond Fund......................................................... $ 135,041
GNMA Fund.................................................................... $ 65,922
Balanced Fund................................................................ $ 55,835
International Fund........................................................... $ 58,317
Small Company Fund........................................................... $ 132,224
U.S. Value Fund.............................................................. $ 24,738
Managed Bond Fund............................................................ $ 7,397
Municipal Bond Fund.......................................................... $ 335,019
California Tax-Free Income Fund.............................................. $ 89,834
Intermediate-Term Municipal Fund............................................. $ 10,861
Insured Municipal Fund....................................................... $ 16,207
Washington Municipal Bond Fund............................................... $ 6,327
Money Market Fund............................................................ $ 481,900
Tax-Free Money Market Fund................................................... $ 62,182
</TABLE>
31
<PAGE>
EXECUTIVE OFFICERS, TRUSTEE REMUNERATION
AND OWNERSHIP OF EACH TRUST'S SECURITIES
EXECUTIVE OFFICERS
Executive officers of each Trust are elected by the Board of Trustees each
August to serve a term of one year. The officers receive no compensation from
the Trust for their services as such. The following persons are executive
officers of each of the Trusts:
<TABLE>
<CAPTION>
POSITION(S) HELD WITH
NAME, ADDRESS AND AGE THE TRUST
- - -------------------------------------------------- ----------------------
<S> <C>
David F. Hill..................................... President
SAFECO Plaza Trustee
10865 Willows Road NE
Redmond, WA 98052
(50)
Neal A. Fuller.................................... Vice President
10865 Willows Road NE Controller
Redmond, WA 98052 Assistant Secretary
(36)
Ronald L. Spaulding............................... Vice President
SAFECO Plaza Treasurer
Two Union Square
Sixth Avenue and Union Street
Seattle, WA 98101
(55)
David H. Longhurst................................ Assistant Controller
SAFECO Plaza
10865 Willows Road NE
Redmond, WA 98052
(41)
Stephen D. Collier................................ Assistant Secretary
SAFECO Plaza
Seattle, WA 98185
(46)
</TABLE>
TRUSTEE REMUNERATION
Trustees who are not interested persons of the Trusts as defined by the 1940 Act
receive an annual retainer (on a fund complex wide basis (for 25
funds/portfolios)) of $20,000 and fees of $2,500 for each Board Meeting attended
and $500 for each Audit Committee meeting attended. For the fiscal year ended
December 31, 1998, First SAFECO National Life paid aggregate directors' fees of
$ .
32
<PAGE>
COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
BENEFITS TOTAL COMPENSATION
AGGREGATE ACCRUED AS PART ESTIMATED ANNUAL FROM TRUST AND
COMPENSATION OF BENEFITS UPON FUND COMPLEX
TRUSTEE TRUST FROM TRUST FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- - ---------------------- ---------------------- ------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
BOH A. DICKEY Common Stock N/A N/A N/A N/A
Taxable Bond N/A N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A N/A
Managed Bond N/A N/A N/A N/A
Money Market N/A N/A N/A N/A
BARBARA J. Common Stock 11,026 N/A N/A
DINGFIELD Taxable Bond 3,250 N/A N/A
Tax-Exempt Bond 5,832 N/A N/A
Managed Bond 1,033 N/A N/A
Money Market 2,339 N/A N/A
Total Compensation 30,375
DAVID F. HILL Common Stock N/A N/A N/A
Taxable Bond N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A
Managed Bond N/A N/A N/A
Money Market N/A N/A N/A
RICHARD W. Common Stock 10,345 N/A N/A
HUBBARD Taxable Bond 3,050 N/A N/A
Tax-Exempt Bond 5,472 N/A N/A
Managed Bond 969 N/A N/A
Money Market 2,195 N/A N/A
Total Compensation 28,500
RICHARD E. Common Stock 11,026 N/A N/A
LUNDGREN Taxable Bond 3,250 N/A N/A
Tax-Exempt Bond 5,832 N/A N/A
Managed Bond 1,003 N/A N/A
Money Market 2,339 N/A N/A
Total Compensation 30,375
LARRY L. PINNT Common Stock 11,026 N/A N/A
Taxable Bond 3,250 N/A N/A
Tax-Exempt Bond 5,832 N/A N/A
Managed Bond 1,033 N/A N/A
Money Market 2,339 N/A N/A
Total Compensation 30,375
JOHN W. Common Stock 11,026 N/A N/A
SCHNEIDER Taxable Bond 3,250 N/A N/A
Tax-Exempt Bond 5,832 N/A N/A
Managed Bond 1,033 N/A N/A
Money Market 2,339 N/A N/A
Total Compensation 30,375
</TABLE>
At February 1, 1999, the Trustees and officers of each Trust as a group owned
less than 1% of the outstanding shares of each Fund.
33
<PAGE>
Mr. Dickey and Mr. Hill are officers of various SAFECO companies and are not
compensated by the Trusts. Similarly, the officers of the Trusts receive no
compensation for their service as officers.
Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of a Trust are compensated by that Trust.
OWNERSHIP OF THE TRUST'S SECURITIES
Each Fund's nominees, trustees, and nominees, trustees and officers as a group
owned less than one percent of the respective Fund's outstanding shares of
beneficial interest at February 1, 1999.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS
At February 1, 1999, SAM controlled the International, Balanced, Value and
Managed Bond Funds. At February 1, 1999, SAFECO Insurance Company of America
("SAFECO Insurance") controlled the Intermediate-Term U.S. Treasury and
Washington Funds.
At February 1, 1999, SAM owned % of the Balanced Fund's outstanding shares;
% of the International Fund's outstanding shares; % of the Value Fund's
outstanding shares; and % of the Managed Bond Fund's outstanding shares. At
February 1, 1999, SAFECO Corporation owned % of the Small Company Fund's
outstanding shares. At February 1, 1999, SAFECO Insurance Company of America
("SAFECO Insurance") owned % of the Northwest Fund's outstanding shares; %
of the Intermediate-Term U.S. Treasury Fund's outstanding shares; and % of
the Washington Fund's outstanding shares.
At February 1, 1999, Charles Schwab & Co., Inc., whose address of record is 101
Montgomery St., San Francisco, CA 94104, owned % of the Growth Fund's
outstanding shares; % of the Income Fund's outstanding shares; % of the
Equity Fund's outstanding shares; % of the Northwest Fund's outstanding
shares; % of the Small Company Fund's outstanding shares; % of the Value
Fund's outstanding shares; % of the Intermediate-Term U.S. Treasury Fund's
outstanding shares; % of the High-Yield Bond Fund's outstanding shares; and
% of the California Fund's outstanding shares.
At February 1, 1999, William A. Helsell, whose address of record is 10653
Culpepper Court N.W., Seattle, WA 98177, owned % of the Washington Fund's
outstanding shares.
At February 1, 1999, SAFECO Trust Omnibus Account, whose address of record is
P.O. Box 34730, Seattle, WA 98124, owned % of the Intermediate-Term U.S.
Treasury Fund's outstanding shares. At February 1, 1999, Crista Ministries,
whose address of record is P.O. Box 330303, Seattle, WA 98133, owned % of the
Managed Bond Fund's outstanding shares.
SAM, SAFECO Insurance and SAFECO Trust Company are Washington corporations and
wholly owned subsidiaries of SAFECO Corporation. SAFECO Corporation is a
Washington corporation and a holding company whose primary subsidiaries are
engaged in the insurance and financial services businesses. SAM has its
principal place of business at 25th Floor, Two Union Square, Seattle, WA 98101.
Each of SAFECO Insurance and SAFECO Corporation has its principal place of
business at SAFECO Plaza, Seattle, WA 98185.
Principal shareholders of a Fund may control the outcome of a shareholder vote.
34
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information provided to the Funds or
contained in filings with the SEC regarding the beneficial ownership of shares
of each Fund as of February 1, 1999 by each person who is known by each Fund to
own beneficially, or exercise control or direction over, more than 5% of the
outstanding shares of each Fund.
<TABLE>
<CAPTION>
GROWTH FUND
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
National Financial Services Corp.
for the Exclusive Benefit of Our Customers
Attn.: Mutual Funds Dept. 5th Fl.
200 Liberty St., 1 World Financial Center
New York, NY 10281-10003
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
EQUITY FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
INCOME FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
NORTHWEST FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
SAFECO Insurance Company of America
SAFECO Plaza
Seattle, WA 98185
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
BALANCED FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street
Seattle, WA 98101
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
Safeco Services Corporation
Retirement Account
Safeco T-13
Seattle, WA 98185-0001
INTERNATIONAL STOCK FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street
Seattle, WA 98101
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
SMALL COMPANY STOCK FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
National Financial Services Corp.
for the Exclusive Benefit of Our Customers
200 Liberty Street, 1 World Financial
Attn.: Mutual Funds Dept. 5th Fl.
New York, NY 10281-1003
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C>
U.S. VALUE FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street
Seattle, WA 98101
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
INTERMEDIATE-TERM U.S. TREASURY FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza
Seattle, WA 98185
Safeco Trust Omnibus Account
P.O. Box 34730
Seattle, WA 98124-1730
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
HIGH-YIELD BOND FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
MANAGED BOND FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street
Seattle, WA 98101
Christa Ministries
William Brown V.P. Finance
P.O. Box 330303
Seattle, WA 98133-9703
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
CALIFORNIA TAX-FREE INCOME FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco CA 94104-4122
WASHINGTON STATE MUNICIPAL BOND FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza
Seattle, WA 98185
William A. Helsell
10653 Culpepper Ct. N.W.
Seattle, WA 98177-5319
INTERMEDIATE-TERM MUNICIPAL BOND FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza
Seattle, WA 98185
William A. Helsell
10653 Culpepper Ct. N.W.
Seattle, WA 98177-5319
Charles Schwab & Co., Inc.
Exclusive Benefit of its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
INSURED MUNICIPAL BOND FUND
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES FUND
- - ------------------------------------------------ --------------- -------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza
Seattle, WA 98185
Charles Schwab & Co., Inc.
Exclusive Benefit of its Customers
Attn: Mutual Fund Department
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>
On each proposal or sub-proposal, SAM will vote shares of each Fund that it owns
pro rata in accordance with the vote cast by shareholders of the applicable
Fund.
38
<PAGE>
MEETINGS OF THE BOARD AND AUDIT COMMITTEES
The Boards of Trustees of the Trusts have a standing Audit Committee whose
members are Larry L. Pinnt, Richard E. Lundgren, Barbara J. Dingfield and John
W. Schneider. The Audit Committee recommends the selection of auditors and
reviews the plan for and results of the audit of the Trust. The Board of
Trustees of each Trust met four times during the Trust's fiscal year ended
December 31, 1998 and the Audit Committee met four times during such period. The
Board has no standing nominating committee. No Board member missed any regular
or committee meetings during 1998.
BROKERAGE COMMISSIONS
Brokers typically charge commissions or mark-ups/mark-downs to effect securities
transactions. The Funds may also purchase securities from underwriters, the
price of which will include a commission or concession paid by the issuer to the
underwriter. The purchase price of securities purchased from dealers serving as
market makers will include the spread between the bid and asked prices.
Brokerage transactions involving securities of companies domiciled in countries
other than the United States will normally be conducted on the principal stock
exchange of those countries. In most international markets, commission rates are
not negotiable and may be higher than the negotiated commission rates available
in the United States. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the United
States.
SAM determines the broker/dealers through whom securities transactions for the
Funds are executed. SAM may select a broker/dealer who may receive a commission
for portfolio transactions exceeding the amount another broker/dealer would have
charged for the same transaction if SAM determines that such amount of
commission is reasonable in relation to the value of the brokerage and research
services performed or provided by the broker/dealer, viewed in terms of either
that particular transaction or SAM's overall responsibilities to the client for
whose account such portfolio transaction is executed and other accounts advised
by SAM. Research services include market information, analysis of specific
issues, presentation of special situations and trading opportunities on a timely
basis, advice concerning industries, economic factors and trends, portfolio
strategy and performance of accounts. Research services come in the form of
written reports, telephone conversations between brokerage security analysts and
members of SAM's staff, and personal visits by such analysts and brokerage
strategists and economists to SAM's office.
Research services are used in advising all accounts, including accounts advised
by related persons of SAM, and not all such services are necessarily used by SAM
in connection with the specific account that paid commissions to the
broker/dealer providing such services. SAM does not acquire research services
through the generation of credits with respect to principal transactions or
transactions in financial futures.
The overall reasonableness of broker commissions paid is evaluated periodically.
Such evaluation includes review of what competing broker/dealers are willing to
charge for similar types of services and what discounts are being granted by
brokerage firms. The evaluation also considers the timeliness and accuracy of
the research received.
The following table states the total amount of brokerage expenses for the
following Funds for the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
FISCAL YEAR OR PERIOD
ENDED
DECEMBER 31, 1998
--------------------------
<S> <C>
GROWTH FUND $ 2,693,078
EQUITY FUND $ 1,204,661
INCOME FUND $ 344,745
NORTHWEST FUND $ 48,671
BALANCED FUND $ 16,890
INTERNATIONAL FUND $ 16,320
SMALL COMPANY FUND $ 92,111
U.S. VALUE FUND $ 14,106
</TABLE>
39
<PAGE>
FUTURE MEETINGS OF SHAREHOLDERS
The Trusts are not required to hold Annual Meetings of Shareholders and do not
plan to do so. Accordingly, no anticipated date of the next shareholder meeting
can be provided at this time. The Trustees may call a Special Meeting of
Shareholders for action by shareholder vote as may be required by the 1940 Act
or the Declaration of Trust. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written request to the Secretary of the Trusts.
ANNUAL REPORT
The annual report to shareholders for fiscal year 1998 will be mailed to
shareholders on or about February 28, 1999. The Trusts will also furnish,
without charge, a copy of the most recent annual report and a copy of the recent
semi-annual report following such annual report of any Fund. Requests for such
reports may be made by writing to the Trust at SAFECO Mutual Funds, P.O. Box
34890, Seattle, Washington 98124-1890 or by calling (800) 426-6730.
OTHER MATTERS
The Boards are not aware that any other matters are to be presented for action
at the Meeting. If any other matters come before the Meeting, the persons named
in the enclosed proxy will vote in accordance with their best judgment.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY AND THAT YOUR SHARES BE
REPRESENTED. PLEASE VOTE, SIGN AND RETURN THE ACCOMPANYING FORM OF PROXY IN THE
ENCLOSED ENVELOPE.
40
<PAGE>
EXHIBIT A
[TO BE PROVIDED]
[SHOWS THE NUMBER OF SHARES OF EACH FUND AND TRUST THAT WERE
OUTSTANDING ON FEBRUARY 1, 1999]
<PAGE>
EXHIBIT B
THE YEARS IN WHICH EACH NOMINEE FIRST BECAME A TRUSTEE OF
EACH TRUST
<TABLE>
<S> <C>
Boh Dickey............................................... May 4, 1989
Barbara Dingfield........................................ May 3, 1990
David Hill............................................... August 8, 1996
Richard Hubbard.......................................... November 1, 1984
Richard Lundgren......................................... February 3, 1983
Larry Pinnt.............................................. August 1, 1985
John Schneider........................................... February 3, 1983
</TABLE>
<PAGE>
EXHIBIT C
GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not concentrate its investments in The Fund will not make investments that will result in
particular industries or companies, but shall maintain the concentration (as that term may be defined in the
substantial diversification of its investments among 1940 Act, any rule or order thereunder, or SEC staff
industries and, to the extent deemed practicable by interpretation thereof) of its investments in the
management, among companies within particular securities of issuers primarily engaged in the same
industries. industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from banks or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to the Growth Fund from thereunder, or SEC staff interpretation thereof, may
commercial banks as a temporary measure for permit.
extraordinary or emergency purposes and in amounts not
in excess of 20% of its total assets (including
borrowings) less liabilities (other than borrowings)
immediately after such borrowing. The Growth Fund will
not purchase securities if borrowings equal to or
greater than 5% of the Fund's total assets are
outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior securities,
except that this restriction shall not be construed to
prohibit the Growth Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the
1940 Act, or (ii) from any bank provided, that
immediately after such borrowing, there is an asset
coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset
coverage shall at any time fall below 300% the Growth
Fund shall, within 3 days thereafter (not including
Sundays and holidays), or such longer period as the
Securities and Exchange Commission ("SEC") may prescribe
by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. For purposes of this
restriction, the terms "senior security" and "asset
coverage" shall be understood to have the meaning
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
assigned to those terms in Section 18 of the 1940 Act.
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not act as underwriter of securities The Fund may not underwrite the securities of other
issued by any other person, firm or corporation; issuers, except that the Fund may engage in transactions
however, the Growth Fund may be deemed to be a statutory involving the acquisition, disposition or resale of its
underwriter as that term is defined in the 1940 Act and portfolio securities, under circumstances where it may
the Securities Act of 1933, as amended ("1933 Act"), in be considered to be an underwriter under the Securities
connection with the disposition of any unmarketable or Act of 1933.
restricted securities which it may acquire and hold in
its portfolio.
REAL ESTATE & COMMODITIES Adopt the modified fundamental policies below.
The Fund will not buy or sell real estate (except real The Fund may not purchase or sell real estate unless
estate investment trusts), commodities, commodity acquired as a result of ownership of securities or other
contracts or futures contracts in the ordinary course of instruments and provided that this restriction does not
business, but this policy shall not be construed as prevent the Fund from investing in issuers which invest,
preventing the Growth Fund from acquiring real estate, deal, or otherwise engage in transactions in real estate
commodities, commodity contracts or futures contracts or interests therein, or investing in securities that
through liquidating distributions as a result of the are secured by real estate or interests therein, or
ownership of securities. exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans to any person, firm or The Fund may not make loans, provided that this
corporation, but the purchase by the Growth Fund of a restriction does not prevent the Fund from purchasing
portion of an issue of publicly distributed bonds, debt obligations, entering into repurchase agreements,
debentures or other securities issued by persons other loaning its assets to broker/ dealers or institutional
than the Growth Fund, whether or not the purchase was investors and investing in loans, including assignments
made upon the original issue of securities, shall not be and participation interests.
considered a loan within the prohibition of this
section.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of the Growth Fund's total assets would be Fund would own or hold more than
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
invested in the securities of such issuer, except that 10% of the outstanding voting securities of that issuer,
up to 25% of the value of such assets (which 25% shall except that up to 25% of the Fund's total assets may be
not include securities issued by another investment invested without regard to these limitations, and except
company) may be invested without regard to this 5% that these limitations do not apply to securities issued
limitation. or guaranteed by the U.S. government, its agencies or
The Fund will not with respect to 100% of the value of instrumentalities or to securities issued by other
its total assets, purchase more than 10% of the open-end investment companies.
outstanding voting securities of any one issuer (other
than U.S. Government securities).
<S> <C>
MARGIN Replace with the modified non-fundamental policy below.
The Fund will not purchase securities on margin, except The Fund will not purchase securities on margin,
for short-term credits as are necessary for the provided that the Fund may obtain short-term credits as
clearance of transactions. may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.
FOREIGN SECURITIES Replace with the modified non-fundamental policy below.
The Fund will not purchase foreign securities only if The Fund will not purchase foreign securities unless (a)
(a) such securities are listed on a national securities such securities are listed on a national securities
exchange, and (b) such purchase, at the time thereof, exchange, and (b) such purchase, at the time thereof,
would not cause more than 10% of the total assets of the would not cause more than 10% of the total assets of the
Growth Fund (taken at market value) to be invested in Fund (taken at market value) to be invested in foreign
foreign securities. securities.
CLASSES OF AN ISSUER Eliminate.
The Fund will not purchase securities of any issuer, if
such purchase at the time thereof would cause more than
10% of any class of securities of such issuer to be held
by the Growth Fund.
NEWLY ESTABLISHED ISSUERS Eliminate.
The Fund will not purchase securities of companies which
have a record of less than 3 years of continuous
operation, including in such 3 years the operation of
any predecessor company or companies, partnerships, or
individual proprietorship, if the company whose
securities are to be purchased by the Growth Fund has
come into existence as a result of a merger,
consolidation, reorganization or purchase of
substantially all of the assets of such predecessor
company or companies, partnership or individual
proprietorship, if such purchase at the time thereof
would cause more than 5% of the Fund's assets to be
invested in the securities of such companies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
SHORT SALES Eliminate.
The Fund will not make short sales (sales of securities
not presently owned), except where the Growth Fund has
at the time of sale, by virtue of its ownership in other
securities, the right to obtain securities equivalent in
kind and amount to the securities sold.
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with the modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate assets The Fund will not mortgage, pledge, or hypothecate any
taken at market to an extent greater than 15% of its of its assets, provided that this shall not apply to the
gross assets taken at cost. transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase for nor retain in its
portfolio securities issued by any issuer any of whose
officers, directors or security holders is an officer or
director of the Growth Fund, if or so long as the
officers or trustees of the Growth Fund, together, own
beneficially more than five percent (5%) of any class of
the securities of such issuer.
INVESTMENT IN INVESTMENT COMPANIES Eliminate.
The Fund will not purchase securities issued by any
other investment company or investment trust, except by
purchase in the open market where no commission or
profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except
when such purchase, although not made in the open
market, is part of a merger, consolidation or
acquisition. Such purchases in the open market will be
limited to not more than 5% of the value of the Growth
Fund's total assets. Nothing in this section or in
sections 1 or 2 above shall prevent any purchase for the
purpose of effecting a merger, consolidation or
acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or
profit to the principal underwriter.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate, on a joint or joint and
several basis, in any trading account in securities.
ACTING AS DISTRIBUTOR Eliminate.
The Fund will not act as a distributor of securities of
which the Growth Fund is the issuer, except through an
underwriter (who may be designated as "distributor"),
who may act as principal or be an agent of the Growth
Fund and may not be obligated to the Growth Fund to sell
or take any specific amount of securities.
</TABLE>
<PAGE>
EXHIBIT C
EQUITY FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities (other than The Fund will not make investments that will result in
obligations issued or guaranteed by the U.S. Government, the concentration (as that term may be defined in the
its agencies or instrumentalities) if as a result more 1940 Act, any rule or order thereunder, or SEC staff
than 25% of the Equity Fund's total assets would be interpretation thereof) of its investments in the
invested in one industry (governmental issues of securities of issuers primarily engaged in the same
securities are not considered part of any one industry). industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to the Equity Fund from thereunder, or SEC staff interpretation thereof, may
commercial banks for temporary or emergency purposes and permit.
not for investment purposes. The Equity Fund will not
purchase securities if borrowings equal to or greater
than 5% of the Fund's total assets are outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior securities,
except that this restriction shall not be construed to
prohibit the Equity Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the
1940 Act or (ii) from any bank provided, that
immediately after such borrowing, there is an asset
coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset
coverage shall at any time fall below 300%, the Equity
Fund shall, within 3 days thereafter (not including
Sundays and holidays), or such longer period as the SEC
may prescribe by rules and regulations, reduce the
amount of its borrowings to an extent that the asset
coverage of such borrowings shall be at least 300%; for
purposes of this restriction, the terms senior security
and asset coverage shall be understood to have the
meaning assigned to those terms in Section 18 of the
1940 Act.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of The Fund may not underwrite the securities of
securities, except to the extent that the other issuers, except that the Fund may
purchase of permitted investments directly engage in transactions involving the
from the issuer in accordance with the Equity acquisition, disposition or resale of its
Fund's investment objective, policies and portfolio securities, under circumstances
restrictions and the subsequent disposition where it may be considered to be an
thereof may be deemed to be an underwriting, underwriter under the Securities Act of 1933.
or the later disposition of restricted
securities acquired within the limits imposed
on the acquisition of such securities may be
deemed to be an underwriting.
REAL ESTATE & COMMODITIES Adopt the modified fundamental policies
below.
The Fund will not purchase or sell real The Fund may not purchase or sell real estate
estate (except real estate investment unless acquired as a result of ownership of
trusts), commodities, commodity contracts or securities or other instruments and provided
futures contracts. This limitation is that this restriction does not prevent the
intended to include ownership of real estate Fund from investing in issuers which invest,
through limited partnerships. deal, or otherwise engage in transactions in
real estate or interests therein, or
investing in securities that are secured by
real estate or interests therein, or
exercising rights under agreements relating
to such securities, including the right to
enforce security interests and to hold real
estate acquired by reason of such enforcement
until that real estate can be liquidated in
an orderly manner.
The Fund may not purchase or sell physical
commodities, unless acquired as a result of
ownership of securities or other instruments
and provided that this restriction does not
prevent the Fund from engaging in
transactions involving futures contracts and
options, forward currency contracts, swap
transactions and other financial contracts or
investing in securities that are secured by
physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through The Fund may not make loans, provided that
the purchase of a portion or all of an issue this restriction does not prevent the Fund
of debt or money market securities in from purchasing debt obligations, entering
accordance with the Equity Fund's investment into repurchase agreements, loaning its
objective, policies and restrictions or assets to broker/ dealers or institutional
through investments in qualified repurchase investors and investing in loans, including
agreements; provided, however, that the assignments and participation interests.
Equity Fund shall not invest more than 10% of
its total assets in qualified repurchase
agreements or through qualified loan
agreements.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of The Fund will not purchase securities of any
any issuer (except the U.S. Government, its one issuer if, as a result, more than 5% of
agencies and instrumentalities) if as a the Fund's total assets would be invested in
result more than 5% of the value of the securities of that issuer or the Fund would
Equity Fund's total assets would own or hold more than
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - --------------------------------------------- ---------------------------------------------
<S> <C> <C>
be invested in the securities of such issuer, except 10% of the outstanding voting securities of that issuer,
that up to 25% of the value of the Fund's assets (which except that up to 25% of the Fund's total assets may be
25% shall not include securities issued by another invested without regard to these limitations, and except
investment company) may be invested without regard to that these limitations do not apply to securities issued
this 5% limitation. or guaranteed by the U.S. government, its agencies or
The Fund will not purchase securities of any issuer, if instrumentalities or to securities issued by other
such purchase at the time thereof would cause more than open-end investment companies.
10% of the outstanding voting securities of such issuer
to be held by the Equity Fund.
SHORT SALES/MARGIN Replace with the modified non-fundamental policy below.
The Fund will not make short sales of securities or The Fund will not purchase securities on margin,
purchase securities on margin, except for such provided that the Fund may obtain short-term credits as
short-term credits as are necessary for the clearance of may be necessary for the clearance of purchases and
transactions and where the Equity Fund has at the time sales of securities, and further provided that the Fund
of sale, by virtue of its ownership in other securities, may make margin deposits in connection with its use of
the right to obtain securities equivalent in kind and financial options and futures, forward and spot currency
amount to the securities sold. contracts, swap transactions and other financial
contracts or derivative instruments.
INVESTMENT IN INVESTMENT COMPANIES Eliminate.
The Fund will not purchase shares of registered
investment companies other than real estate investment
trusts.
EXERCISING CONTROL Eliminate.
The Fund will not purchase any security for the purpose
of acquiring or exercising control or management of the
issuer.
PUTS AND CALLS Eliminate.
The Fund will not purchase puts, calls, straddles,
spreads or any combination thereof; provided, however,
that nothing herein shall prevent the purchase,
ownership, holding or sale of warrants where the grantor
of the warrants is the issuer of the underlying
securities.
</TABLE>
<PAGE>
EXHIBIT C
INCOME FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not concentrate its investments in The Fund will not make investments that will result in
particular industries or companies, but shall maintain the concentration (as that term may be defined in the
substantial diversification of its investments among 1940 Act, any rule or order thereunder, or SEC staff
industries and, to the extent deemed practicable by interpretation thereof) of its investments in the
management, among companies within particular securities of issuers primarily engaged in the same
industries; in no event shall the Income Fund invest industry, provided that this restriction does not limit
more than 25% of its assets in any one industry. the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from banks or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to the Income Fund from thereunder, or SEC staff interpretation thereof, may
commercial banks as a temporary measure for permit.
extraordinary or emergency purposes and in amounts not
in excess of 20% of its total assets (including
borrowings) less liabilities (other than borrowings)
immediately after such borrowing. The Fund will not
purchase securities if borrowings equal to or greater
than 5% of the Fund's total assets are outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except that this restriction shall not be construed to
prohibit the Income Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the
1940 Act or (ii) from any bank provided, that
immediately after such borrowing, there is an asset
coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset
coverage shall at any time fall below 300%, the Income
Fund shall, within three (3) days thereafter (not
including Sundays and holidays), or such longer period
as the SEC may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that
the asset coverage of such borrowings shall be at least
300%. For purposes of this restriction, the terms senior
security and asset coverage shall be understood to have
the meaning assigned to those terms in Section 18 of the
1940 Act.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite securities issued by any The Fund may not underwrite the securities of other
other person, firm or corporation; however the Income issuers, except that the Fund may engage in transactions
Fund may be deemed a statutory underwriter as that term involving the acquisition, disposition or resale of its
is defined in the 1940 Act and the 1933 Act in portfolio securities, under circumstances where it may
connection with the disposition of any unmarketable or be considered to be an underwriter under the Securities
restricted securities which it may acquire and hold in Act of 1933.
its portfolio.
REAL ESTATE & COMMODITIES Adopt the modified fundamental policies below.
The Fund will not buy or sell real estate, (except real The Fund may not purchase or sell real estate unless
estate investment trusts) commodities, commodity acquired as a result of ownership of securities or other
contracts or futures contracts. instruments and provided that this restriction does not
prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans to any person, firm or The Fund may not make loans, provided that this
corporation, but the purchase of a portion of an issue restriction does not prevent the Fund from purchasing
of publicly distributed bonds, debentures or other debt obligations, entering into repurchase agreements,
securities issued by persons other than the Income Fund, loaning its assets to broker/ dealers or institutional
whether or not the purchase was made upon the original investors and investing in loans, including assignments
issue of the securities, shall not be considered as a and participation interests.
loan within the prohibition of this section.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of its total assets would be invested in the Fund would own or hold more than 10% of the outstanding
securities of such issuer, except that up to 25% of the voting securities of that issuer, except that up to 25%
value of such assets (which 25% shall not include of the Fund's total assets may be invested without
securities issued by another investment company) may be regard to these limitations, and except that these
invested without regard to this limitations do not
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
5% limitation. apply to securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities or to
securities issued by other open-end investment
companies.
<S> <C>
The Fund will not with respect to 100% of the value of
its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer (other
than U.S. Government securities).
FOREIGN SECURITIES Replace with the modified non-fundamental policy below.
The Fund will not purchase foreign securities, unless The Fund will not purchase foreign securities unless (a)
(a) such securities are listed on a national securities such securities are listed on a national securities
exchange, and (b) such purchase at the time thereof exchange, and (b) such purchase, at the time thereof,
would not cause more than 10% of the total assets of the would not cause more than 10% of the total assets of the
Income Fund (taken at market value) to be invested in Fund (taken at market value) to be invested in foreign
foreign securities. securities.
MARGIN Replace with the modified non-fundamental policy below.
The Fund will not purchase securities on margin, except The Fund will not purchase securities on margin,
for short-term credits as are necessary for the provided that the Fund may obtain short-term credits as
clearance of transactions. may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.
NEWLY ESTABLISHED ISSUERS Eliminate.
The Fund will not purchase securities of companies which
have a record of less than three years of continuous
operation (including in such three years the operation
of any predecessor company or companies, partnerships,
or individual proprietorship, if the company whose
securities are to be purchased by the Income Fund has
come into existence as a result of a merger,
consolidation, reorganization or purchase of
substantially all of the assets of such predecessor
company or companies, partnership, or individual
proprietorship), if such purchase at the time thereof
would cause more than 5% of the Income Fund's assets to
be invested in the securities of such companies.
SHORT SALES Eliminate.
The Fund will not make short sales (sales of securities
not presently owned), except where the Income Fund has
at the time of sale, by virtue of its ownership in other
securities, the right to obtain
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
securities equivalent in kind and amount to the
securities sold.
<S> <C>
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with the modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate assets The Fund will not mortgage, pledge, or hypothecate any
taken at market to an extent greater than 15% of its of its assets, provided that this shall not apply to the
gross assets taken at cost. transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase for nor retain in its
portfolio securities issued by any issuer, any of whose
officers, directors or security holders is an officer or
Trustee of the Income Fund, if or so long as the
officers or trustees of the Income Fund together own
beneficially more than five percent (5%) of any class of
the securities of such issuer.
INVESTMENT IN INVESTMENT COMPANIES Eliminate.
The Fund will not purchase securities issued by any
other investment company or investment trust, except by
purchase in the open market where no commission or
profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except
where such purchase, although not made in the open
market, is part of a plan of merger or consolidation.
Such purchases in the open market shall be limited to
not more than five percent (5%) of the value of the
Income Fund's total assets. Nothing in this section or
in the sections above shall prevent any purchase for the
purpose of effecting a merger, consolidation or
acquisition of assets.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate, on a joint or joint and
several basis, in any trading account in securities.
CLASSES OF AN ISSUER Eliminate.
The Fund will not purchase securities of any issuer, if
such purchase at the time thereof would cause more than
10% of any class of securities of such issuer to be held
by the Income Fund.
</TABLE>
<PAGE>
EXHIBIT C
NORTHWEST FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not concentrate its investments in The Fund will not make investments that will result in
particular industries (other than obligations issued or the concentration (as that term may be defined in the
guaranteed by the U.S. Government, its agencies or 1940 Act, any rule or order thereunder, or SEC staff
instrumentalities) or invest 25% or more of the Fund's interpretation thereof) of its investments in the
total assets in any one industry (governmental issues of securities of issuers primarily engaged in the same
securities are not considered part of one industry). industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
SAFECO Corporation or its affiliates at an interest rate securities, except as the 1940 Act, any rule or order
not greater than that available to the Northwest Fund thereunder, or SEC staff interpretation thereof, may
from commercial banks, for temporary or emergency permit.
purposes and not for investment purposes, and then only
in an amount not exceeding 20% of the value of the
Fund's total assets at the time of borrowing. The
Northwest Fund will not purchase securities if
borrowings equal to or greater than 5% of the Fund's
total assets are outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except that this restriction shall not be construed to
prohibit the Northwest Fund from borrowing funds (i) on
a temporary basis as permitted by Section 18(g) of the
1940 Act or (ii) from any bank provided, that
immediately after such borrowing, there is an asset
coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset
coverage shall at any time fall below 300%, the
Northwest Fund shall, within 3 days thereafter (not
including Sundays and holidays), or such longer period
as the SEC may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that
the asset coverage of such borrowings shall be at least
300%. For purposes of this restriction, the terms
"senior security" and "asset coverage" shall be
understood to have the meaning assigned to those terms
in Section 18 of the 1940 Act.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of permitted issuers, except that the Fund may engage in transactions
investments directly from the issuer in accordance with involving the acquisition, disposition or resale of its
the Northwest Fund's investment objective, policies and portfolio securities, under circumstances where it may
restrictions and the subsequent disposition thereof may be considered to be an underwriter under the Securities
be deemed to be underwriting, or the later disposition Act of 1933.
of restricted securities acquired within the limits
imposed on the acquisition of such securities may be
deemed to be an underwriting.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, except The Fund may not purchase or sell real estate unless
real estate investment trusts. acquired as a result of ownership of securities or other
instruments and provided that this restriction does not
prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities, The Fund may not purchase or sell physical commodities,
commodity contracts or futures contracts. unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion or all of an issue of debt restriction does not prevent the Fund from purchasing
securities in accordance with the Northwest Fund's debt obligations, entering into repurchase agreements,
investment objective, policies and restrictions or loaning its assets to broker/ dealers or institutional
through the purchase of qualified repurchase agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of its total assets at the time of purchase Fund would own or hold more than
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
would be invested in the securities of such issuer, 10% of the outstanding voting securities of that issuer,
except that up to 25% of the Fund's total assets (which except that up to 25% of the Fund's total assets may be
25% shall not include securities issued by another invested without regard to these limitations, and except
investment company) may be invested without regard to that these limitations do not apply to securities issued
this 5% limitation. or guaranteed by the U.S. government, its agencies or
The Fund will not with respect to 100% of the value of instrumentalities or to securities issued by other
its total assets, purchase more than 10% of the open-end investment companies.
outstanding voting securities of any one issuer (other
than U.S. Government securities).
<S> <C>
MARGIN Replace with the modified non-fundamental policy below.
The Fund will not purchase securities on margin, except The Fund will not purchase securities on margin,
for short-term credits necessary for the clearance of provided that the Fund may obtain short-term credits as
transactions. may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot currency
contracts, swap transactions and other financial
contracts and derivative instruments.
CLASSES OF AN ISSUER Eliminate.
The Fund will not purchase the securities of any issuer
if, as a result, more than 10% of any class of
securities of such issuer will be owned by the Fund.
SHORT SALES Eliminate.
The Fund will not make short sales (sales of securities
not presently owned).
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with the modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate its The Fund will not mortgage, pledge, or hypothecate any
assets, except that, to secure borrowings permitted of its assets, provided that this shall not apply to the
above, the Northwest Fund may pledge securities having a transfer of securities in connection with any
market value at the time of pledge not exceeding 10% of permissible borrowing or to collateral arrangements in
the Fund's total assets. connection with permissible activities.
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase or retain for its portfolio
the securities of any issuer, if, to the Northwest
Fund's knowledge, the officers or directors of the Fund,
or its investment adviser, who individually own more
than 1/2 of 1% of the outstanding securities of such an
issuer, together own more than 5% of such outstanding
securities.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate, on a joint or joint-
and-several basis, in any trading account in securities,
except that the Northwest Fund may join
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
with other transactions executed by the investment
adviser or the investment adviser's parent company and
any subsidiary thereof, for the purpose of seeking
better net results on portfolio transactions or lower
brokerage commission rates.
<S> <C>
PURCHASES OR SALES FROM AFFILIATES Eliminate.
The Fund will not purchase from, or sell portfolio
securities to, any officer or director, the Northwest
Fund's investment adviser, principal underwriter or any
affiliates or subsidiaries thereof, provided, however,
that this prohibition shall not prohibit the Northwest
Fund from purchasing with the $5,000,000 raised through
the sale of 500,000 shares of common stock to SAFECO
Insurance Company of America, portfolio securities from
subsidiaries of SAFECO Corporation prior to its
effective date.
</TABLE>
<PAGE>
EXHIBIT C
BALANCED FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not make investments that will result in
(except the U.S. Government, its agencies or the concentration (as that term may be defined in the
instrumentalities) if, as a result, more than 25% of the 1940 Act, any rule or order thereunder, or SEC staff
Balanced Fund's total assets would be invested in interpretation thereof) of its investments in the
securities of companies whose principal business securities of issuers primarily engaged in the same
activities are in the same industry. industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except the Balanced Fund The Fund may not borrow money or issue senior
may borrow money for temporary and emergency purposes securities, except as the 1940 Act, any rule or order
(not for leveraging or investment purposes) in an amount thereunder, or SEC staff interpretation thereof, may
not exceeding 33 1/3% of its total assets (including the permit.
amount borrowed) less liabilities (other than
borrowings). Any borrowings by the Fund that come to
exceed this amount shall be reduced within three days
(not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limit.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue senior securities, except as
permitted under the 1940 Act.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not act as underwriter of securities The Fund may not underwrite the securities of other
issued by any other person, firm or corporation; except issuers, except that the Fund may engage in transactions
to the extent that, in connection with the disposition involving the acquisition, disposition or resale of its
of portfolio securities, the Balanced Fund may be deemed portfolio securities, under circumstances where it may
an underwriter under federal securities laws. be considered to be an underwriter under the Securities
Act of 1933.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, except The Fund may not purchase or sell real estate unless
real estate investment trusts. acquired as a result of ownership of securities or other
instruments and provided that this restriction does not
prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
under agreements relating to such securities, including
the right to enforce security interests and to hold real
estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
<S> <C>
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell physical commodities The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities unless acquired as a result of ownership of securities
or other instruments; however, the Balanced Fund may or other instruments and provided that this restriction
purchase or sell options or futures contracts and invest does not prevent the Fund from engaging in transactions
in securities or other instruments backed by physical involving futures contracts and options, forward
commodities. currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not lend any security or make any loan if, The Fund may not make loans, provided that this
as a result, more than 33 1/3% of its total assets would restriction does not prevent the Fund from purchasing
be lent to other parties; however, this limit does not debt obligations, entering into repurchase agreements,
apply to purchases of debt securities or to repurchase loaning its assets to broker/ dealers or institutional
agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of the Balanced Fund's total assets would be Fund would own or hold more than 10% of the outstanding
invested in the securities of such issuer or the voting securities of that issuer, except that up to 25%
Balanced Fund would own or hold more than 10% of the of the Fund's total assets may be invested without
outstanding voting securities of such issuer, except regard to these limitations, and except that these
that up to 25% of the value of such assets (which 25% limitations do not apply to securities issued or
shall not include securities issued by another guaranteed by the U.S. government, its agencies or
investment company) may be invested without regard to instrumentalities or to securities issued by other
these limits. open-end investment companies.
</TABLE>
<PAGE>
EXHIBIT C
INTERNATIONAL STOCK FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not make investments that will result in
(except the U.S. Government, its agencies or the concentration (as that term may be defined in the
instrumentalities) if, as a result, more than 25% of the 1940 Act, any rule or order thereunder, or SEC staff
International Fund's total assets would be invested in interpretation thereof) of its investments in the
securities of companies whose principal business securities of issuers primarily engaged in the same
activities are in the same industry. industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except the Balanced Fund The Fund may not borrow money or issue senior
may borrow money for temporary and emergency purposes securities, except as the 1940 Act, any rule or order
(not for leveraging or investment purposes) in an amount thereunder, or SEC staff interpretation thereof, may
not exceeding 33 1/3% of its total assets (including the permit.
amount borrowed) less liabilities (other than
borrowings). Any borrowings by the Fund that come to
exceed this amount shall be reduced within three days
(not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limit.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue senior securities, except as
permitted under the 1940 Act.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not act as underwriter of securities The Fund may not underwrite the securities of other
issued by any other person, firm or corporation; except issuers, except that the Fund may engage in transactions
to the extent that, in connection with the disposition involving the acquisition, disposition or resale of its
of portfolio securities, the Balanced Fund may be deemed portfolio securities, under circumstances where it may
an underwriter under federal securities laws. Adopt the be considered to be an underwriter under the Securities
modified fundamental policy below. Act of 1933.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, except The Fund may not purchase or sell real estate unless
real estate investment trusts. acquired as a result of ownership of securities or other
instruments and provided that this restriction does not
prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
real estate or interests therein, or exercising rights
under agreements relating to such securities, including
the right to enforce security interests and to hold real
estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
<S> <C>
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell physical commodities The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities unless acquired as a result of ownership of securities
or other instruments; however, the International Fund or other instruments and provided that this restriction
may purchase or sell options or futures contracts and does not prevent the Fund from engaging in transactions
invest in securities or other instruments backed by involving futures contracts and options, forward
physical commodities. currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not lend any security or make any loan if, The Fund may not make loans, provided that this
as a result, more than 33 1/3% of its total assets would restriction does not prevent the Fund from purchasing
be lent to other parties; however, this limit does not debt obligations, entering into repurchase agreements,
apply to purchases of debt securities or to repurchase loaning its assets to broker/ dealers or institutional
agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of the International Fund's total assets would be Fund would own or hold more than 10% of the outstanding
invested in the securities of such issuer or the voting securities of that issuer, except that up to 25%
International Fund would own or hold more than 10% of of the Fund's total assets may be invested without
the outstanding voting securities of such issuer, except regard to these limitations, and except that these
that up to 25% of the value of such assets (which 25% limitations do not apply to securities issued or
shall not include securities issued by another guaranteed by the U.S. government, its agencies or
investment company) may be invested without regard to instrumentalities or to securities issued by other
these limits. open-end investment companies.
</TABLE>
<PAGE>
EXHIBIT C
SMALL COMPANY STOCK FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not make investments that will result in
(except the U.S. Government, its agencies or the concentration (as that term may be defined in the
instrumentalities) if, as a result, more than 25% of the 1940 Act, any rule or order thereunder, or SEC staff
Small Company Fund's total assets would be invested in interpretation thereof) of its investments in the
securities of companies whose principal business securities of issuers primarily engaged in the same
activities are in the same industry. industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except the International The Fund may not borrow money or issue senior
Fund may borrow money for temporary and emergency securities, except as the 1940 Act, any rule or order
purposes (not for leveraging or investment purposes) in thereunder, or SEC staff interpretation thereof, may
an amount not exceeding 33 1/3% of its total assets permit.
(including the amount borrowed) less liabilities (other
than borrowings). Any borrowings by the Fund that come
to exceed this amount shall be reduced within three days
(not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limit.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue senior securities, except as
permitted under the 1940 Act.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not act as underwriter of securities The Fund may not underwrite the securities of other
issued by any other person, firm or corporation; except issuers, except that the Fund may engage in transactions
to the extent that, in connection with the disposition involving the acquisition, disposition or resale of its
of portfolio securities, the Small Company Fund may be portfolio securities, under circumstances where it may
deemed an underwriter under federal securities laws. be considered to be an underwriter under the Securities
Act of 1933.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, except The Fund may not purchase or sell real estate unless
real estate investment trusts. acquired as a result of ownership of securities or other
instruments and provided that this restriction does not
prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
under agreements relating to such securities, including
the right to enforce security interests and to hold real
estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
<S> <C>
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell physical commodities The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities unless acquired as a result of ownership of securities
or other instruments; however, the Small Company Fund or other instruments and provided that this restriction
may purchase or sell options or futures contracts and does not prevent the Fund from engaging in transactions
invest in securities or other instruments backed by involving futures contracts and options, forward
physical commodities. currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not lend any security or make any loan if, The Fund may not make loans, provided that this
as a result, more than 33 1/3% of its total assets would restriction does not prevent the Fund from purchasing
be lent to other parties; however, this limit does not debt obligations, entering into repurchase agreements,
apply to purchases of debt securities or to repurchase loaning its assets to broker/ dealers or institutional
agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than 5% of the would be invested in securities of that issuer or the
value of the Small Company Fund's total assets would be Fund would own or hold more than 10% of the outstanding
invested in the securities of such issuer or the Small voting securities of that issuer, except that up to 25%
Company Fund would own or hold more than 10% of the of the Fund's total assets may be invested without
outstanding voting securities of such issuer, except regard to these limitations, and except that these
that up to 25% of the value of such assets (which 25% limitations do not apply to securities issued or
shall not include securities issued by another guaranteed by the U.S. government, its agencies or
investment company) may be invested without regard to instrumentalities or to securities issued by other
these limits. open-end investment companies.
</TABLE>
<PAGE>
EXHIBIT C
U.S. VALUE FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not make investments that will result in
(except the U.S. Government, its agencies or the concentration (as that term may be defined in the
instrumentalities) if, as a result, 25% or more of the 1940 Act, any rule or order thereunder, or SEC staff
U.S. Value Fund's total assets would be invested in interpretation thereof) of its investments in the
securities of companies whose principal business securities of issuers primarily engaged in the same
activities are in the same industry. industry, provided that this restriction does not limit
the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except the U.S. Value The Fund may not borrow money or issue senior
Fund may borrow money for temporary and emergency securities, except as the 1940 Act, any rule or order
purposes (not for leveraging or investment purposes) in thereunder, or SEC staff interpretation thereof, may
an amount not exceeding 33 1/3% of its total assets permit.
(including the amount borrowed) less liabilities (other
than borrowings). Any borrowings by the Fund that come
to exceed this amount shall be reduced within three days
(not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limit.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue senior securities, except as
permitted under the 1940 Act, the rules or regulations
promulgated thereunder or pursuant to a no-action letter
or an exemptive order issued by the Securities and
Exchange Commission.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not act as underwriter of securities The Fund may not underwrite the securities of other
issued by any other person, firm or corporation; except issuers, except that the Fund may engage in transactions
to the extent that, in connection with the disposition involving the acquisition, disposition or resale of its
of portfolio securities, the U.S. Value Fund may be portfolio securities, under circumstances where it may
deemed an underwriter under federal securities laws. be considered to be an underwriter under the Securities
Act of 1933.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real The Fund may not purchase or sell real estate
estate, except real estate investment trusts. unless acquired as a result of ownership of
securities or other instruments and provided
that this restriction does not prevent the
Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in
real estate or interests therein, investing
in securities that are secured by real estate
or interests therein, or exercising rights
under agreements relating to such securities,
including the right to enforce security
interests and hold real estate acquired by
reason of such enforcement until that real
estate can be liquidated in an orderly
manner.
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell physical The Fund may not purchase or sell physical
commodities unless acquired as a result of commodities, unless acquired as a result of
ownership of securities or other instruments; ownership of securities or other instruments
however, the U.S. Value Fund may purchase and provided that this restriction does not
financial futures contracts and options and prevent the Fund from engaging in
options on financial futures contracts. transactions involving futures contracts and
options thereon or investing in securities
that are secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not lend any security or make The Fund may not make loans, provided that
any loan if, as a result, more than 33 1/3% this restriction does not prevent the Fund
of its total assets would be lent to other from purchasing debt obligations, entering
parties; however, this limit does not apply into repurchase agreements, loaning its
to purchases of debt securities or to assets to broker/ dealers or institutional
repurchase agreements. investors and investing in loans, including
assignments and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of The Fund will not purchase securities of any
any issuer (except the U.S. Government, its one issuer if, as a result, more than 5% of
agencies or instrumentalities) if as a result the Fund's total assets would be invested in
more than 5% of the value of the U.S. Value securities of that issuer or the Fund would
Fund's total assets would be invested in the own or hold more than 10% of the outstanding
securities of such issuer or the U.S. Value voting securities of that issuer, except that
Fund would own or hold more than 10% of the up to 25% of the Fund's total assets may be
outstanding voting securities of such issuer, invested without regard to this 5%
except that up to 25% of the value of such limitation, and except that this limitation
assets (which 25% shall not include does not apply to securities issued or
securities issued by another investment guaranteed by the U.S. government, its
company) may be invested without regard to agencies or instrumentalities or to
these limits. securities issued by other open-end
investment companies.
</TABLE>
<PAGE>
EXHIBIT C
GNMA FUND, INTERMEDIATE-TERM U.S. TREASURY FUND
& HIGH-YIELD BOND FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of each of
the Taxable Bond Funds and indicates how each policy will be affected by
Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities (other than The Fund will not make investments that will result in
obligations issued or guaranteed by the United States the concentration (as that term may be defined in the
Government, its agencies or instrumentalities), if as a 1940 Act, any rule or order thereunder, or SEC staff
result twenty-five percent (25%) or more of the Fund's interpretation thereof) of its investments in the
total assets would be invested in one industry securities of issuers primarily engaged in the same
(governmental issuers of securities are not considered industry, provided that this restriction does not limit
part of any one industry). the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING AND ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy below.
The Fund will not issue or sell any senior security, The Fund may not borrow money or issue senior
except that this restriction shall not be construed to securities, except as the 1940 Act, any rule or order
prohibit the Fund from borrowing funds (i) on a thereunder, or SEC staff interpretation thereof, may
temporary basis as permitted by Section 18(g) of the permit.
1940 Act or (ii) from any bank provided, that
immediately after such borrowing, there is an asset
coverage of at least three hundred percent (300%) for
all such borrowings and provided, further, that in the
event that such asset coverage shall at any time fall
below three hundred percent (300%), the Fund shall,
within three (3) days thereafter (not including Sundays
and holidays), or such longer period as the Securities
and Exchange Commission ("SEC") may prescribe by rules
and regulations, reduce the amount of its borrowings to
an extent that the asset coverage of such borrowings
shall be at least three hundred percent (300%). For
purposes of this restriction, the terms senior security"
and "asset coverage" shall be understood to have the
meaning assigned to those terms in Section 18 of the
1940 Act.
High-Yield Bond and Intermediate Treasury Funds only:
The Fund will not borrow money, except from a bank or
SAFECO Corporation or its affiliates at an interest rate
not greater than that available to the Fund from
commercial banks, for temporary or emergency purposes
and not for investment purposes, and then only in an
amount not exceeding twenty percent (20%) of the value
of the Fund's total assets at the time of such
borrowing.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
GNMA Fund only: The Fund will not borrow money, except
from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the
GNMA Fund from commercial banks, for temporary or
emergency purposes and not for investment purposes, and
then only in an amount not exceeding twenty percent
(20%) of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after
such borrowing.
Each Fund will not purchase securities if borrowings
equal to or greater than five percent (5%) of the Fund's
total assets are outstanding.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of permitted issuers, except that the Fund may engage in transactions
investments directly from the issuer in accordance with involving the acquisition, disposition or resale of its
the Fund's investment objective, policies and portfolio securities, under circumstances where it may
restrictions and the subsequent disposition thereof may be considered to be an underwriter under the Securities
be deemed to be underwriting or the later disposition of Act of 1933.
restricted securities acquired within the limits imposed
on the acquisition of such securities may be deemed to
be an underwriting.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, but this The Fund may not purchase or sell real estate unless
shall not prevent the Fund from investing in municipal acquired as a result of ownership of securities or other
obligations or other permitted investments secured by instruments and provided that this restriction does not
real estate or interests therein. prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
COMMODITIES/OIL AND GAS Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities or The Fund may not purchase or sell physical commodities,
commodity contracts, other than futures contracts, or unless acquired as a result of ownership of securities
invest in oil, gas or other mineral exploration or or other instruments and provided that this restriction
development programs or in arbitrage transactions. does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion or all of an issue of debt or restriction does not prevent the Fund from purchasing
money market securities in accordance with its debt obligations, entering into repurchase agreements,
investment objective, policies and restrictions, or loaning its assets to broker/ dealers or institutional
through investments in qualified repurchase agreements investors and investing in loans, including assignments
(provided, however, that a Fund shall not invest more and participation interests.
than ten percent (10%) of its total assets in qualified
repurchase agreements maturing in more than seven (7)
days), or through qualified loan agreements (by making
secured loans of its portfolio securities which amount
to not more than five percent (5%) of its total assets).
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than five percent would be invested in securities of that issuer or the
(5%) of the value of its total assets at the time of Fund would own or hold more than 10% of the outstanding
purchase would be invested in the securities of such voting securities of that issuer, except that up to 25%
issuer, except that up to twenty-five percent (25%) of of the Fund's total assets may be invested without
the value of a Fund's assets (which twenty-five percent regard to these limitations, and except that these
(25%) shall not include securities issued by another limitations do not apply to securities issued or
investment company) may be invested without regard to guaranteed by the U.S. government, its agencies or
this five percent (5%) limitation. instrumentalities or to securities issued by other
open-end investment companies.
The Fund will not purchase securities of any issuer, if,
as a result, more than ten percent (10%) of any class of
securities of such issuer would be owned by the Fund.
The Fund will not with respect to one hundred percent
(100%) of the value of its total assets, purchase more
than ten percent (10%) of the outstanding voting
securities of any one issuer (other than U.S. Government
securities).
ILLIQUID SECURITIES Replace with the modified non-fundamental policy below.
The Fund will not purchase or otherwise acquire The Fund will not purchase securities for which there is
securities which are illiquid or subject to legal or no readily available market, or enter into repurchase
contractual restrictions on resale, if as a result more agreements or purchase time deposits maturing in more
than ten percent (10%) of the Fund's (five percent (5%) than seven days, or purchase OTC options or hold assets
of the GNMA Fund's) total assets would be invested in set aside to cover OTC options written by the Fund if
such securities, except that in the case of the immediately after and as a result, the value of such
High-Yield Fund the purchase of Rule 144A securities securities would exceed, in the aggregate, 15% of the
deemed to be liquid pursuant to guidelines adopted by Fund's net assets.
the Board of Trustees of the High-Yield Fund shall not
be limited by this restriction.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase or retain for the Fund's
portfolio the securities of any issuer, if, to the
Fund's knowledge, the officers or directors of the Fund,
or its investment adviser, who individually own more
than one-half ( 1/2) of one percent (1%) of the
outstanding securities of such an issuer, together own
more than five percent (5%) of such outstanding
securities.
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate its The Fund will not mortgage, pledge, or hypothecate any
assets, except that to secure borrowings permitted by of its assets, provided that this shall not apply to the
the above sections, it may pledge securities having a transfer of securities in connection with any
market value at the time of pledge not exceeding ten permissible borrowing or to collateral arrangements in
percent (10%) of the cost of the Fund's total assets. connection with permissible activities.
SHORT SALES Eliminate.
The Fund will not make short sales of securities or
purchase securities on margin, except for margin
deposits in connection with futures contracts and such
short-term credits as are necessary for the clearance of
transactions.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate on a joint or a joint-
and-several basis in any trading account in securities,
except that the Fund may, for the purpose of seeking
better net results on portfolio transactions or lower
brokerage commission rates, join with other transactions
executed by the investment adviser or the investment
adviser's parent company and any subsidiary thereof.
PURCHASES OR SALES FROM AFFILIATES Eliminate.
The Fund will not purchase from or sell portfolio
securities to any officer or director, the Fund's
investment adviser, principal underwriter or any
affiliates or subsidiaries thereof; provided, however,
that this prohibition shall not prohibit the Fund from
purchasing up to $7,000,000 raised through the sale of
up to 700,000 shares of common stock to SAFECO Life
Insurance Company, portfolio securities from
subsidiaries of SAFECO Corporation prior to the
effective date of the Fund's initial public offering.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
PURCHASES OF COMMON STOCK Eliminate.
The Fund will not purchase shares of common stock, other
than those issued by other regulated investment
companies (or, with respect to the High-Yield Bond and
Intermediate Treasury Funds only, when the acquisition
of such common stocks, rights or other equity interests
is consistent with the High-Yield Bond and Intermediate
Treasury Funds' investment objectives). Generally, the
High-Yield Bond and Intermediate Treasury Funds will
only hold such equity securities as a result of
purchases or unit offerings of fixed-income securities
which include such equity securities or in connection
with an actual or proposed conversion or exchange of
fixed-income securities.
</TABLE>
<PAGE>
EXHIBIT C
MANAGED BOND FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities, if as a result, The Fund will not make investments that will result in
twenty-five percent (25%) or more of the Fund's total the concentration (as that term may be defined in the
assets would be invested in the securities of issuers 1940 Act, any rule or order thereunder, or SEC staff
having their principal business activities in any one interpretation thereof) of its investments in the
industry. Securities of foreign banks and foreign securities of issuers primarily engaged in the same
branches of U.S. banks are considered to be one industry, provided that this restriction does not limit
industry. This limitation does not apply to obligations the Fund from investing in obligations issued or
issued or guaranteed by the U.S. Government, its guaranteed by the U.S. government, its agencies or
agencies or instrumentalities or to certificates of instrumentalities.
deposits or bankers' acceptances issued by domestic
banks.
BORROWING Adopt the modified fundamental policy below.
Borrow money, except from a bank or SAFECO Corporation The Fund may not borrow money or issue senior
or its affiliates at an interest rate not greater than securities, except as the 1940 Act, any rule or order
that available to the Fund from commercial banks, for thereunder, or SEC staff interpretation thereof, may
temporary or emergency purposes and not for investment permit.
purposes, and then only in an amount not exceeding
twenty percent (20%) of the value of the Fund's total
assets (including borrowings) less liabilities (other
than borrowings) immediately after such borrowing.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except as permitted under the 1940 Act.
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of permitted issuers, except that the Fund may engage in transactions
investments directly from the issuer in accordance with involving the acquisition, disposition or resale of its
the Fund's investment objective, policies and portfolio securities, under circumstances where it may
restrictions and the subsequent disposition thereof may be considered to be an underwriter under the Securities
be deemed to be underwriting or the later disposition of Act of 1933.
restricted securities acquired within the limits imposed
on the acquisition of such securities may be deemed to
be an underwriting.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate or real The Fund may not purchase or sell real estate unless
estate limited partnerships (unless acquired as a result acquired as a result of ownership of securities or other
of the ownership of securities or instruments) but this instruments and provided that this restriction does not
shall not prevent the Fund prevent the Fund from
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
from investing in permitted investments secured by real investing in issuers which invest, deal, or otherwise
estate or interests therein or in real estate investment engage in transactions in real estate or interests
trusts. therein, or investing in securities that are secured by
real estate or interests therein, or exercising rights
under agreements relating to such securities, including
the right to enforce security interests and to hold real
estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
<S> <C>
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities, The Fund may not purchase or sell physical commodities,
commodity contracts or futures contracts. unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion or all of an issue of debt restriction does not prevent the Fund from purchasing
securities in accordance with the Fund's investment debt obligations, entering into repurchase agreements,
objective, policies and restrictions or through loaning its assets to broker/ dealers or institutional
investments in qualified repurchase agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than five percent would be invested in securities of that issuer or the
(5%) of the value of total assets at the time of Fund would own or hold more than 10% of the outstanding
purchase would be invested in the securities of such voting securities of that issuer, except that up to 25%
issuer, except that up to twenty-five percent (25%) of of the Fund's total assets may be invested without
the value of the Fund's assets (which twenty-five regard to these limitations, and except that these
percent (25%) shall not include securities issued by limitations do not apply to securities issued or
another investment company) may be invested without guaranteed by the U.S. government, its agencies or
regard to this five percent (5%) limitation. instrumentalities or to securities issued by other
open-end investment companies.
The Fund will not with respect to one hundred percent
(100%) of the value of its total assets, purchase more
than ten percent (10%) of the outstanding voting
securities of any one issuer (other than U.S. Government
securities).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
MARGIN Replace with the modified non-fundamental policy below.
The Fund will not purchase securities on margin, except The Fund will not purchase securities on margin,
for short-term credits necessary for the clearance of provided that the Fund may obtain short-term credits as
transactions. may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.
CLASSES OF AN ISSUER Eliminate.
The Fund will not purchase the securities of any issuer
(other than obligations of or guaranteed by the U.S.
Government, its agencies and instrumentalities) if, as a
result, more than ten percent (10%) of any class of
securities of such issuer will be held by the Fund.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate on a joint or joint-
and-several basis in any trading account in securities,
except that the Fund may join with other transactions
executed by the investment adviser or the investment
adviser's parent company and any subsidiary thereof, for
the purpose of seeking better net results on portfolio
transactions or lower brokerage commission rates.
SHORT SALES Eliminate.
The Fund will not make short sales of securities (sales
of securities not presently owned).
</TABLE>
<PAGE>
EXHIBIT C
INTERMEDIATE-TERM MUNICIPAL BOND FUND, INSURED MUNICIPAL BOND FUND
AND WASHINGTON STATE MUNICIPAL BOND FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of each
Fund and indicates how each policy will be affected by Proposals 3 and 4.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities, if as a result, The Fund will not make investments that will result in
twenty-five percent (25%) or more of a Fund's total the concentration (as that term may be defined in the
assets would be invested in the securities of issuers 1940 Act, any rule or order thereunder, or SEC staff
having their principal business activities in any one interpretation thereof) of its investments in the
industry (governmental issuers of special or general securities of issuers primarily engaged in the same
tax-exempt securities are not considered part of any one industry, provided that this restriction does not limit
industry). the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to a Fund from commercial thereunder, or SEC staff interpretation thereof, may
banks, for temporary or emergency purposes and not for permit.
investment purposes, and then only in an amount not
exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than
borrowings) immediately after such borrowing.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except as permitted under the Investment Company Act of
1940 ("1940 Act").
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of municipal issuers, except that the Fund may engage in transactions
obligations or other permitted investments directly from involving the acquisition, disposition or resale of its
the issuer in accordance with a Fund's investment portfolio securities, under circumstances where it may
objective, policies and restrictions and the later be considered to be an underwriter under the Securities
disposition thereof may be deemed to be underwriting. Act of 1933.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, unless The Fund may not purchase or sell real estate unless
acquired as a result of the ownership of securities or acquired as a result of ownership of securities or other
instruments, but this shall not prevent a Fund from instruments and provided that this restriction does not
investing in municipal obligations or other permitted prevent the Fund from investing in issuers which invest,
investments secured by real estate or interests therein. deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
real estate or interests therein, or exercising rights
under agreements relating to such securities, including
the right to enforce security interests and to hold real
estate acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner.
<S> <C>
COMMODITIES Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities, The Fund may not purchase or sell physical commodities,
commodity contracts or futures. unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion or all of an issue of debt restriction does not prevent the Fund from purchasing
securities in accordance with a Fund's investment debt obligations, entering into repurchase agreements,
objective, policies and restrictions and through loaning its assets to broker/ dealers or institutional
investments in qualified repurchase agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities) if as a result more than five percent would be invested in securities of that issuer or the
(5%) of the value of a Fund's total assets would be Fund would own or hold more than 10% of the outstanding
invested in the securities of such issuer, except that voting securities of that issuer, except that up to 25%
up to twenty-five percent (25%) of the value of a Fund's of the Fund's total assets may be invested without
total assets (which twenty-five percent (25%) shall not regard to these limitations, and except that these
include securities issued by another investment company) limitations do not apply to securities issued or
may be invested without regard to this five percent (5%) guaranteed by the U.S. government, its agencies or
limitation. Adopt the modified fundamental policy below. instrumentalities or to securities issued by other
open-end investment companies.
MUNICIPAL PROJECT DIVERSIFICATION Replace with the modified non-fundamental policy below.
The Fund will not permit twenty-five percent (25%) or The Fund will not permit 25% or more of its total assets
more of a Fund's total assets to be invested in to be invested in municipal obligations and other
municipal obligations and other permitted investments, permitted investments, the interest on which is payable
the interest of which is payable from revenues on from revenues on similar types of projects. As a matter
similar types of projects. As a matter of operating of operating policy, similar types of projects may
policy, similar types of projects may include sports, include sports, convention or trade show facilities;
convention or trade show facilities; airports or mass airports or mass transportation; sewage or solid waste
transportation; sewage or solid waste disposal disposal facilities; or air or water pollution control
facilities; or air or water pollution control projects. projects. (Note: This non-fundamental policy does not
apply to the Washington Fund.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
SAME STATE Replace with the modified non-fundamental policy below.
The Fund will not permit twenty-five percent (25%) or The Fund will not permit 25% or more of its total assets
more of a Fund's total assets to be invested in to be invested in securities whose issuers are located
securities whose issuers are located in the same state. in the same state. (Note: This non- fundamental policy
(NOTE: THIS FUNDAMENTAL POLICY DOES NOT APPLY TO THE does not apply to the Washington Fund.)
WASHINGTON FUND).
EXEMPTION FROM INCOME TAX Adopt the modified fundamental policy below.
The Fund will not, during normal market conditions, During normal market conditions, the Fund will not
invest less than eighty percent (80%) of a Fund's net invest less than 80% of its net assets in obligations
assets in obligations whose interest, in the opinion of whose interest is exempt from federal income tax and, in
counsel for the issuer of the obligation, is exempt from the case of the California Tax-Free Income Fund, also
federal income tax. from California State personal income tax.
</TABLE>
<PAGE>
EXHIBIT C
MUNICIPAL BOND FUND AND CALIFORNIA TAX-FREE INCOME FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of each
Fund and indicates how each policy will be affected by Proposals 3 and 4.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities (other than The Fund will not make investments that will result in
obligations issued or guaranteed by the U.S. Government, the concentration (as that term may be defined in the
its agencies or instrumentalities), if as a result, more 1940 Act, any rule or order thereunder, or SEC staff
than twenty-five percent (25%) of a Fund's total assets interpretation thereof) of its investments in the
would be invested in one industry (governmental issuers securities of issuers primarily engaged in the same
of special or general tax-exempt securities are not industry, provided that this restriction does not limit
considered part of any one industry). the Fund from investing in obligations issued or
guaranteed by the U.S. government, its agencies or
instrumentalities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to a Fund from commercial thereunder, or SEC staff interpretation thereof, may
banks, for temporary or emergency purposes and not for permit.
investment purposes and then only in an amount not
exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than
borrowings) immediately after such borrowing.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except that this restriction shall not be construed to
prohibit a Fund from borrowing funds (i) on a temporary
basis as permitted by Section 18(g) of the 1940 Act, or
(ii) from any bank provided, that immediately after such
borrowing, there is an "asset coverage" of at least
three hundred percent (300%) for all such borrowings and
provided, further, that in the event that such "asset
coverage" shall at any time fall below three hundred
percent (300%), the Fund shall, within three (3) days
thereafter (not including Sundays and holidays) or such
longer period as the Securities and Exchange Commission
may prescribe by rules and regulations, reduce the
amount of its borrowings to an extent that the "asset
coverage" of such borrowings shall be at least three
hundred percent (300%) (for purposes of this
restriction, the terms senior security and asset
coverage shall be understood to have the meanings
assigned to those terms in Section 18 of the 1940 Act).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of municipal issuers, except that the Fund may engage in transactions
obligations or other permitted investments directly from involving the acquisition, disposition or resale of its
the issuer in accordance with a Fund's investment portfolio securities, under circumstances where it may
objective, policies and restrictions and the subsequent be considered to be an underwriter under the Securities
disposition thereof may be deemed to be underwriting. Act of 1933.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate or real The Fund may not purchase or sell real estate unless
estate limited partnerships, but this shall not prevent acquired as a result of ownership of securities or other
a Fund from investing in municipal obligations or other instruments and provided that this restriction does not
permitted investments secured by real estate or prevent the Fund from investing in issuers which invest,
interests therein. deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
COMMODITIES/OIL AND GAS Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities, The Fund may not purchase or sell physical commodities,
commodity contracts or futures or invest in oil, gas or unless acquired as a result of ownership of securities
other mineral exploration or development programs or or other instruments and provided that this restriction
leases. does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion or all of an issue of debt restriction does not prevent the Fund from purchasing
securities in accordance with a Fund's investment debt obligations, entering into repurchase agreements,
objective, policies and restrictions and through loaning its assets to broker/ dealers or institutional
investments in qualified repurchase agreements investors and investing in loans, including assignments
(provided, however, that a Fund will not invest more and participation interests.
than ten percent (10%) of its total assets in qualified
repurchase agreements maturing in more than seven (7)
days).
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's total assets
instrumentalities), if as a result more than five would be invested in securities of that issuer or the
percent (5%) of the value of a Fund's total assets would Fund would own or hold more than 10% of the outstanding
be invested in the securities of such issuer, voting securities of that
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
except that up to twenty-five percent (25%) of the value issuer, except that up to 25% of the Fund's total assets
of a Fund's assets (which twenty-five percent (25%) may be invested without regard to these limitations, and
shall not include securities issued by another except that these limitations do not apply to securities
investment company) may be invested without regard to issued or guaranteed by the U.S. government, its
this five percent (5%) limitation. agencies or instrumentalities or to securities issued by
other open-end investment companies.
<S> <C>
NEWLY ESTABLISHED ISSUERS Eliminate.
The Fund will not purchase an industrial development
bond, if as a result of such purchase, more than five
percent (5%) of a Fund's total assets would be invested
in industrial revenue bonds where the payment of
principal and interest is the responsibility of a
company with less than three years' operating history.
EXEMPTION FROM INCOME TAX Adopt the modified fundamental policy below.
The Fund will not permit more than twenty percent (20%) During normal market conditions, the Fund will not
of a Fund's net assets to be invested, during normal invest less than 80% of its net assets in obligations
market conditions, in securities whose interest is not, whose interest is exempt from federal income tax and, in
in its investment adviser's opinion, exempt from federal the case of the California Tax-Free Fund, also from
income tax, as long as the Fund has its investment California state personal income tax.
objective to provide as high a level of current interest
income exempt from federal income tax as is consistent
with the relative stability of capital. As a matter of
operating policy, the Fund's investment adviser may base
its opinion on the opinion of counsel for the issuer of
the security.
The Fund will not, during normal market conditions,
invest less than eighty percent (80%) of a Fund's net
assets in obligations whose interest, in the opinion of
counsel for the issuer, is exempt from federal income
tax (and, in the case of the California Fund, also from
California state personal income tax).
MUNICIPAL PROJECT DIVERSIFICATION Replace with the modified non-fundamental policy below.
The Fund will not permit twenty-five percent (25%) or MUNICIPAL FUND ONLY: The Fund will not permit 25% or
more of a Fund's total assets to be invested in more of its total assets to be invested in municipal
municipal obligations and other permitted investments, obligations and other permitted investments, the
the interest of which is payable from revenues on interest on which is payable from revenues on similar
similar types of projects such as sports, convention or types of projects. As a matter of operating policy,
trade show facilities; airports or mass transportation; similar types of projects may include sports, convention
sewage or solid waste disposal facilities; or air or or trade show facilities; airports or mass
water pollution control projects. transportation; sewage or solid waste disposal
facilities; or air or water pollution control projects.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
SAME STATE Replace with the modified non-fundamental
policy below.
MUNICIPAL FUND ONLY: The Fund will not permit MUNICIPAL FUND ONLY: The Fund will not permit
twenty-five percent (25%) or more of a Fund's 25% or more of its total assets to be
total assets to be invested in securities invested in securities whose issuers are
whose issuers are located in the same state. located in the same state.
ILLIQUID SECURITIES Replace with the modified non-fundamental
policy below.
The Fund will not knowingly purchase or The Fund will not purchase securities for
otherwise acquire any securities that are which there is no readily available market,
subject to legal or contractual restrictions or enter into repurchase agreements or
on resale or for which there is no readily purchase time deposits maturing in more than
available market. seven days, or purchase OTC options or hold
assets set aside to cover OTC options written
by the Fund, if immediately after and as a
result, the value of such securities would
exceed, in the aggregate, 15% of the Fund's
net assets.
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO Eliminate.
SECURITIES
The Fund will not purchase or retain for a
Fund's portfolio the securities of any issuer
if, to the Fund's knowledge, the officers or
directors of the Fund, or its investment
adviser, who individually own more than
one-half ( 1/2) of one percent (1%) of the
outstanding securities of such an issuer,
together own more than five percent (5%) of
such outstanding securities.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate on a joint or a
joint-and-several basis in any trading
account in securities, except that a Fund
may, for the purpose of seeking better net
results on portfolio transactions or lower
brokerage commission rates, join with other
transactions executed by the investment
adviser or the investment adviser's parent
company and any subsidiary thereof.
PURCHASES OR SALES FROM AFFILIATES Eliminate.
The Fund will not purchase from, or sell
portfolio securities to, any officer or
director, the Fund's investment adviser,
principal underwriter or any affiliates or
subsidiaries thereof.
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with modified nonfundamental policy
below.
The Fund will not pledge, mortgage or The Fund will not mortgage, pledge, or
hypothecate its assets, except that, to hypothecate any of its assets, provided that
secure borrowings permitted by above, a Fund this shall not apply to the transfer of
may pledge securities having a market value securities in connection with any permissible
at the time of pledge not exceeding ten borrowing or to collateral arrangements in
percent (10%) of the cost of a Fund's total connection with permissible activities.
assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
SHORT SALES Eliminate.
The Fund will not make short sales of
securities or purchase securities on margin,
except for such short-term credits as are
necessary for the clearance of transactions,
or purchase or sell any put or call options
or combinations thereof.
</TABLE>
<PAGE>
EXHIBIT C
MONEY MARKET FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposal 3.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not concentrate more than twenty-five The Fund will not make investments that will result in
percent (25%) of the value of its total assets in any the concentration (as that term may be defined in the
one industry including securities issued by foreign 1940 Act, any rule or order thereunder, or SEC staff
banks and foreign branches of U.S. banks; provided, interpretation thereof) of its investments in the
however, that this limitation does not apply to securities of issuers primarily engaged in the same
obligations issued or guaranteed by the U.S. Government, industry, provided that this restriction does not limit
or its agencies or instrumentalities, or to certificates the Fund from investing in obligations issued or
of deposit or bankers' acceptances issued by domestic guaranteed by the U.S. government, its agencies or
banks. instrumentalities, or certain bank instruments issued by
domestic banks.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to the Money Fund from thereunder, or SEC staff interpretation thereof, may
commercial banks, for temporary or emergency purposes permit.
and not for investment purposes, and then only in an
amount not exceeding twenty percent (20%) of its total
assets (including borrowings) less liabilities (other
than borrowings) immediately after such borrowing. The
Money Fund will not purchase securities if borrowings in
excess of five percent (5%) of the Fund's total assets
are outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except that this restriction shall not be construed to
prohibit the Money Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the
Investment Company Act of 1940, or (ii) from any bank
provided, that immediately after such borrowing, there
is an asset coverage of at least three hundred percent
(300%) for all such borrowings and provided, further,
that in the event that such asset coverage shall at any
time fall below three hundred percent (300%), the Money
Fund shall, within three (3) days thereafter (not
including Sundays and holidays), or such longer period
as the Securities and Exchange Commission may prescribe
by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such
borrowings shall be at least three hundred
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
percent (300%) (for purposes of this restriction, the
terms senior security and asset coverage shall be
understood to have the meaning assigned to those terms
in Section 18 of the Investment Company Act of 1940).
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite securities issued by others The Fund may not underwrite the securities of other
except to the extent the Money Fund may be deemed to be issuers, except that the Fund may engage in transactions
an underwriter, under the federal securities laws, in involving the acquisition, disposition or resale of its
connection with the disposition of portfolio securities. portfolio securities, under circumstances where it may
be considered to be an underwriter under the Securities
Act of 1933.
REAL ESTATE & COMMODITIES Adopt the modified fundamental policies below.
The Fund will not invest in commodities or commodity The Fund may not purchase or sell real estate unless
futures contracts or in real estate, although the Money acquired as a result of ownership of securities or other
Fund may invest in securities which are secured by real instruments and provided that this restriction does not
estate and securities of issuers that invest or deal in prevent the Fund from investing in issuers which invest,
real estate. deal, or otherwise engage in transactions in real estate
or interests therein, or investing in securities that
are secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities, including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
The Fund may not purchase or sell physical commodities,
unless acquired as a result of ownership of securities
or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans to others, except through The Fund may not make loans, provided that this
the purchase of publicly distributed debt obligations or restriction does not prevent the Fund from purchasing
repurchase agreements. debt obligations, entering into repurchase agreements,
loaning its assets to broker/ dealers or institutional
investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase securities of any issuer, The Fund will not purchase securities of any one issuer
other than obligations of, or guaranteed by, the U.S. if, as a result, more than 5% of the Fund's total assets
Government, its agencies or instrumentalities, if, as a would be invested in securities of that issuer or the
result, more than five percent (5%) of the Fund would own or hold more than
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
value of the Money Fund's assets would be invested in 10% of the outstanding voting securities of that issuer,
securities of such issuer. except that up to 25% of the Fund's total assets may be
invested without regard to these limitations, and except
that these limitations do not apply to securities issued
or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other
open-end investment companies.
<S> <C>
ILLIQUID SECURITIES Replace with the modified non-fundamental policy below.
The Fund will not enter into repurchase agreements if, The Fund will not purchase securities for which there is
as a result thereof, more than ten percent (10%) of the no readily available market, or enter into repurchase
Fund's total assets valued at the time of the agreements or purchase time deposits maturing in more
transaction would be subject to repurchase agreements than seven days, or purchase OTC options or hold assets
maturing in more than seven days. set aside to cover OTC options written by the Fund, if
The Fund will not invest more than ten percent (10%) of immediately after and as a result, the value of such
the Money Fund's total assets in time deposits, securities would exceed, in the aggregate, 10% of the
repurchase agreements maturing in more than seven days Fund's net assets.
and other non-negotiable instruments.
The Fund will not purchase more than ten percent (10%)
of any class of securities of any issuer. All issues of
debt securities of any issuer are considered as one
class.
The Fund will not invest more than five percent (5%) of
the Money Fund's total assets in securities restricted
as to disposition under the federal securities laws.
NEWLY ESTABLISHED ISSUERS Eliminate.
The Fund will not invest more than five percent (5%) of
the Money Fund's total assets in securities of issuers
that with their predecessors have a record of less than
three years' continuous operation.
SHORT SALES Eliminate.
The Fund will not make short sales of securities or
purchase securities on margin, except for such
short-term credits as are necessary for the clearance of
transactions, or purchase or sell any put or call
options or combinations thereof.
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with the modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate, or in The Fund will not mortgage, pledge, or hypothecate any
any other manner transfer as security for indebtedness of its assets, provided that this shall not apply to the
any security owned by the Money Fund, except as may be transfer of securities in connection with any
necessary in connection with permissible borrowings permissible borrowing or to collateral arrangements in
mentioned above, and then such pledging, mortgaging or connection with permissible activities.
hypothecating
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
may not exceed fifteen percent (15%) of the Money Fund's
total assets, taken at cost; provided, however, that as
a matter of operating policy the Money Fund will limit
any such pledging, mortgaging or hypothecating to ten
percent (10%) of its net assets, taken at market, in
order to comply with certain state investment
restrictions.
<S> <C>
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase or retain securities of any
issuer if any of the officers or directors of the Money
Fund or its investment adviser owns beneficially more
than one-half of one percent (.5%) of the securities of
such issuer and together own more than five percent (5%)
of the securities of such issuer.
OIL AND GAS Eliminate.
The Fund will not invest in interests in oil, gas or
other mineral exploration or development programs,
although it may invest in or sponsor such programs.
INVESTMENT IN INVESTMENT COMPANIES Eliminate.
The Fund will not purchase securities of other
investment companies.
</TABLE>
<PAGE>
EXHIBIT C
TAX-FREE MONEY MARKET FUND
FUNDAMENTAL INVESTMENT POLICIES
The following chart lists the current fundamental investment policies of the
Fund and indicates how each policy will be affected by Proposals 3 and 4.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
CONCENTRATION Adopt the modified fundamental policy below.
The Fund will not purchase securities (other than The Fund will not make investments that will result in
obligations issued or guaranteed by the U.S. Government, the concentration (as that term may be defined in the
its agencies or instrumentalities), if as a result more 1940 Act, any rule or order thereunder, or SEC staff
than twenty-five percent (25%) of the Tax-Free Money interpretation thereof) of its investments in the
Fund's total assets would be invested in any one securities of issuers primarily engaged in the same
industry (governmental issuers of special or general industry, provided that this restriction does not limit
tax-exempt securities are not considered part of any one the Fund from investing in obligations issued or
industry). guaranteed by the U.S. government, its agencies or
instrumentalities, or tax-exempt securities.
BORROWING Adopt the modified fundamental policy below.
The Fund will not borrow money, except from a bank or The Fund may not borrow money or issue senior
affiliates of SAFECO Corporation at an interest rate not securities, except as the 1940 Act, any rule or order
greater than that available to the Tax-Free Money Fund thereunder, or SEC staff interpretation thereof, may
from commercial banks, for temporary or emergency permit.
purposes and not for investment purposes, and then only
in an amount not exceeding twenty percent (20%) of its
total assets (including borrowings) less liabilities
(other than borrowings) immediately after such
borrowing. The Tax-Free Money Fund will not purchase
securities if borrowings equal to or greater than five
percent (5%) of the Fund's total assets are outstanding.
ISSUANCE OF SENIOR SECURITIES Adopt the modified fundamental policy above.
The Fund will not issue or sell any senior security,
except that this restriction shall not be construed to
prohibit the Tax-Free Money Fund from borrowing funds
(i) on a temporary basis as permitted by Section 18(g)
of the Investment Company Act of 1940, or (ii) from any
bank, provided that immediately after such borrowing,
there is an asset coverage of at least three hundred
percent (300%) for all such borrowings and provided,
further, that in the event that such asset coverage
shall at any time fall below three hundred percent
(300%), the Tax-Free Money Fund shall, within three (3)
days thereafter (not including Sundays and holidays), or
such longer period as the Securities and Exchange
Commission may prescribe by rules and regulations,
reduce the amount of its borrowings to an extent that
the asset coverage of such borrowings shall be
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
at least three hundred percent (300%) (for purposes of
this restriction, the terms senior security and asset
coverage shall have the meanings assigned to those terms
in the Investment Company Act of 1940).
<S> <C>
UNDERWRITING Adopt the modified fundamental policy below.
The Fund will not underwrite any issue of securities, The Fund may not underwrite the securities of other
except to the extent that the purchase of municipal issuers, except that the Fund may engage in transactions
obligations or other permitted investments directly from involving the acquisition, disposition or resale of its
the issuer in accordance with the Tax-Free Money Fund's portfolio securities, under circumstances where it may
investment objective, policies and restrictions and the be considered to be an underwriter under the Securities
later disposition thereof may be deemed to be Act of 1933.
underwriting.
REAL ESTATE Adopt the modified fundamental policy below.
The Fund will not purchase or sell real estate, but this The Fund may not purchase or sell real estate unless
shall not prevent the Tax-Free Money Fund from investing acquired as a result of ownership of securities or other
in municipal obligations or other permitted investments instruments and provided that this restriction does not
secured by real estate or interests therein. prevent the Fund from investing in issuers which invest,
deal, or otherwise engage in transactions in real estate
or interests therein, investing in securities that are
secured by real estate or interests therein, or
exercising rights under agreements relating to such
securities including the right to enforce security
interests and to hold real estate acquired by reason of
such enforcement until that real estate can be
liquidated in an orderly manner.
COMMODITIES/OIL AND GAS Adopt the modified fundamental policy below.
The Fund will not purchase or sell commodities or The Fund may not purchase or sell physical commodities,
commodity contracts or invest in oil, gas or other unless acquired as a result of ownership of securities
mineral exploration or development programs. or other instruments and provided that this restriction
does not prevent the Fund from engaging in transactions
involving futures contracts and options, forward
currency contracts, swap transactions and other
financial contracts or investing in securities that are
secured by physical commodities.
LENDING Adopt the modified fundamental policy below.
The Fund will not make loans, except through the The Fund may not make loans, provided that this
purchase of a portion of an issue of debt securities in restriction does not prevent the Fund from purchasing
accordance with the Tax-Free Money Fund's investment debt obligations, entering into repurchase agreements,
objective, policies and restrictions, and through loaning its assets to broker/ dealers or institutional
investments in qualified repurchase agreements. investors and investing in loans, including assignments
and participation interests.
PORTFOLIO DIVERSIFICATION Adopt the modified fundamental policy below.
The Fund will not purchase the securities of any issuer The Fund will not purchase securities of any one issuer
(except the U.S. Government, its agencies or if, as a result, more than 5% of the Fund's
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
instrumentalities), if as a result more than five total assets would be invested in securities of that
percent (5%) of the value of its total assets would be issuer or the Fund would own or hold more than 10% of
invested in the securities of such issuer, except that the outstanding voting securities of that issuer, except
up to twenty-five percent (25%) of the value of the that up to 25% of the Fund's total assets may be
Tax-Free Money Fund's assets (which twenty-five percent invested without regard to these limitations, and except
(25%) shall not include securities issued by another that these limitations do not apply to securities issued
investment company) may be invested without regard to or guaranteed by the U.S. government, its agencies or
this five percent (5%) limitation. instrumentalities or to securities issued by other
open-end investment companies.
<S> <C>
EXEMPTION FROM INCOME TAX Adopt the modified fundamental policy below.
The Fund will not permit more than twenty percent (20%) During normal market conditions, the Fund will not
of its net assets to be invested, during normal market invest less than 80% of its net assets in obligations
conditions, in securities whose interest is NOT, in the whose interest is exempt from federal income tax.
Tax-Free Money Fund's opinion, exempt from federal
income tax, as long as the Fund has as its investment
objective to provide as high a level of current interest
income exempt from federal income tax as is consistent
with the relative stability of capital. As a matter of
operating policy, the Tax-Free Money Fund may base its
opinion on an opinion of counsel for the issuer. The
Tax-Free Money Fund may invest in taxable securities if
the Fund's investment adviser believes the yields then
available on municipal obligations are not attractive
and wishes to defer the investment in municipal
obligations having longer maturities until conditions in
the municipal bond market improve. If any taxable
securities are held, as a matter of operating policy,
the Tax-Free Money Fund will not hold more than five
percent (5%) of its total assets in the securities of
any one issuer.
ILLIQUID SECURITIES Replace with the modified non-fundamental policy below.
The Fund will not knowingly purchase or otherwise The Fund will not purchase securities for which there is
acquire any securities that are subject to legal or no readily available market, or enter into repurchase
contractual restrictions on resale or for which there is agreements or purchase time deposits maturing in more
no readily available market, except, however, the than seven days, or purchase OTC options or hold assets
Tax-Free Money Fund may invest up to ten percent (10%) set aside to cover OTC options written by the Fund, if
of its net assets in qualified repurchase agreements immediately after and as a result, the value of such
that mature in more than seven (7) days. securities would exceed, in the aggregate, 10% of the
Fund's net assets.
NEWLY ESTABLISHED ISSUERS Eliminate.
The Fund will not purchase an industrial development
bond, if as a result of such purchase more than five
percent (5%) of the Tax-Free Money Fund's total assets
would be invested in industrial development bonds where
the payment of principal
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
and interest is the responsibility of a company with
less than three years' operating history.
<S> <C>
The Fund will not purchase securities if as a result of
such purchase more than five percent (5%) of the
Tax-Free Money Fund's total assets would be invested in
securities where the payment of principal and interest
is the responsibility of a company with less than three
years' operating history.
MUNICIPAL PROJECT DIVERSIFICATION Replace with the modified non-fundamental policy below.
The Fund will not permit more than twenty-five percent The Fund will not permit 25% or more of its total assets
(25%) of its total assets to be invested in municipal to be invested in municipal obligations and other
obligations and other permitted investments, the permitted investments, the interest on which is payable
interest on which is payable from revenues on similar from revenues on similar types of projects. As a matter
types of projects, such as: sports, convention or trade of operating policy, similar types of projects may
show facilities; airports or mass transportation; sewage include sports, convention or trade show facilities;
or solid waste disposal facilities; or air or water airports or mass transportation; sewage or solid waste
pollution control projects. disposal facilities; or air or water pollution control
projects.
OFFICER/TRUSTEE OWNERSHIP OF PORTFOLIO SECURITIES Eliminate.
The Fund will not purchase or retain for the Tax-Free
Money Fund's portfolio the securities of any issuer if,
to the Tax-Free Money Fund's knowledge, the officers or
directors of the Tax-Free Money Fund, or its investment
adviser, who individually own more than one-half of one
percent (.5%) of the outstanding securities of such an
issuer, together own more than five percent (5%) of such
outstanding securities.
JOINT AND SEVERAL TRADING ACCOUNTS Eliminate.
The Fund will not participate on a joint or a joint-
and-several basis in any trading account in securities,
except that the Tax-Free Money Fund may, for the purpose
of seeking better net results on portfolio transactions
or lower brokerage commission rates, join with other
transactions executed by the investment adviser or the
investment adviser's parent company or any subsidiary
thereof.
PURCHASES OR SALES FROM AFFILIATES Eliminate.
The Fund will not purchase from, or sell portfolio
securities to, any officer or director, the Tax-Free
Money Fund's investment adviser, principal underwriter
or any affiliates or subsidiaries thereof.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FUNDAMENTAL POLICY PROPOSED ACTION
- - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
PLEDGE, MORTGAGE OR HYPOTHECATE ASSETS Replace with the modified non-fundamental policy below.
The Fund will not pledge, mortgage or hypothecate its The Fund will not mortgage, pledge, or hypothecate any
assets, except that, to secure borrowings permitted of its assets, provided that this shall not apply to the
above, it may pledge securities having a market value at transfer of securities in connection with any
the time of pledge not exceeding ten percent (10%) of permissible borrowing or to collateral arrangements in
the cost of the Tax-Free Money Fund's total assets. connection with permissible activities.
SHORT SALES Eliminate.
The Fund will not make short sales of securities or
purchase securities on margin, except for such
short-term credits as are necessary for the clearance of
transactions.
PUTS AND CALLS Eliminate.
The Fund will not write, purchase or sell puts, calls or
combinations thereof; however, the Tax-Free Money Fund
may purchase municipal obligations subject to standby
commitments, variable rate demand notes or repurchase
agreements in accord with its investment objective and
policies.
</TABLE>
<PAGE>
EXHIBIT D
FORM OF
AMENDED AND RESTATED INVESTMENT
ADVISORY AGREEMENT
THIS AGREEMENT is made and executed this 30th day of April, 1999, between SAFECO
TRUST ("Trust"), a Delaware business trust and SAFECO ASSET
MANAGEMENT COMPANY ("Adviser"), a Washington corporation.
WHEREAS, the Trust is registered with the Securities and Exchange Commission
as a series type, open-end, management investment company under the Investment
Company Act of 1940, as amended ("1940 Act"), and has caused its shares of
beneficial interest to be registered for sale to the public under the Securities
Act of 1933 ("1933 Act"); and
WHEREAS, the Trust intends to offer for public sale distinct series of
shares of beneficial interest ("Series"), each Series corresponding to a
distinct portfolio; and
WHEREAS, the Trust wishes to retain the Adviser to provide investment
advisory services to the Trust and each Series as now exists and as hereafter
may be established which are listed in Exhibit 1 to this Agreement as amended
from time to time; and
WHEREAS, the Adviser is willing to furnish such services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, it is agreed as follows:
1. APPOINTMENT OF ADVISER. The Trust hereby appoints the Adviser as
investment adviser of each Series to administer its affairs, subject to the
supervision of the Trust's Board of Trustees, for the period and on the
terms set-forth in this Agreement. The Adviser hereby accepts such
appointment and agrees to render the services required by this Agreement for
the compensation and upon such other terms and conditions as are set forth
in this Agreement. The Adviser shall for all purposes herein be deemed an
independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent the Trust in any
way or otherwise be deemed an agent of the Trust.
2. DUTIES OF SERIES. Each Series shall at all times keep the Adviser
fully informed with regard to the securities owned by it, its funds
available or to become available for investment, and generally as to the
condition of its affairs. It shall furnish the Adviser with such other
documents and information with regard to its affairs as the Adviser may from
time to time reasonably request.
3. DUTIES OF ADVISER.
(a) GENERAL. The Adviser shall furnish to the Trust space in the
offices of the Adviser or in such other place as may be agreed upon from
time to time and all necessary office facilities, equipment and personnel
for managing the affairs and investments of the Trust. Subject to the
supervision of the Trust's Board of Trustees, the Adviser shall regularly
provide each Series with investment research and advice and shall furnish
a continuous investment program for each Series' portfolio of securities
consistent with each Series' investment objectives and policies. The
Adviser shall determine from time to time what securities will be
purchased, retained or sold by each Series, and shall implement those
decisions, all subject to the provisions of the Trust's Trust Instrument
and Bylaws, the 1940 Act, the applicable rules and regulations of the
Securities and Exchange Commission, and other applicable federal and
state law, as well as the investment objectives and policies of each
Series. The Adviser will place orders pursuant to its investment
determinations for each Series either directly with the issuer or with
any broker or dealer. In placing orders with brokers and dealers the
Adviser will attempt to obtain the best net price and the most favorable
execution of its orders. The Adviser shall also provide advice and
recommendations with respect to other aspects of the business and affairs
of the Trust and each Series, and
<PAGE>
shall perform such other functions relating to the management and
supervision of each Series' investments as may be directed by the Board
of Trustees of the Trust.
(b) REPORTS. The Adviser shall supply the Trust's Board of Trustees
and officers with all statistical information and reports reasonably
requested by them and reasonably available to the Adviser.
4. ALLOCATION OF EXPENSES.
(a) Adviser shall be responsible for the compensation (if any) paid
to officers of the Trust for serving in that capacity and all expenses of
preparing, printing and distributing advertising and sales literature
other than expenses covered by a plan of distribution adopted pursuant to
Rule 12b-1 under the 1940 Act.
(b) The Trust and each Series shall bear all expenses of their
organization, operations and business not specifically assumed or agreed
to be paid by the Adviser as provided in this Agreement. In particular,
but without limiting the generality of the foregoing, the Trust and each
Series shall pay:
(1) ADMINISTRATIVE AND ACCOUNTING SERVICES. All expenses
related to the performance of administration and accounting services
on behalf of the Trust and each Series;
(2) CUSTODY SERVICES. All expenses of the transfer, receipt,
safekeeping, servicing and accounting for the cash, securities, and
other property of the Trust and each Series, including all charges of
depositories, custodians, and other agents, if any;
(3) SHAREHOLDER SERVICING. All expenses of maintaining and
servicing shareholder accounts, including all charges of the
transfer, shareholder recordkeeping, dividend disbursing, redemption,
and other agents of the Trust and each Series, if any;
(4) SHAREHOLDER COMMUNICATIONS. All expenses of preparing,
printing, and distributing reports and certain other communications
to shareholders of the Trust and each Series, if any;
(5) SHAREHOLDER MEETINGS. All expenses incidental to holding
meetings of shareholders of the Trust and each Series, including the
printing of notices and proxy materials and the expenses of any proxy
solicitation;
(6) PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION. All
expenses of preparing, printing and mailing to shareholders of annual
or more frequent revisions of the Prospectus and Statement of
Additional Information for the Trust and each Series;
(7) COMMUNICATION EQUIPMENT. All charges for equipment or
services used for communication between the Adviser, the Trust or
each Series and the custodian, transfer agent or any other agent
selected by the Trust;
(8) LEGAL AND AUDITING FEES AND EXPENSES. All charges for
services and expenses of the Trust's internal and outside legal
counsel and internal and independent auditors;
(9) TRUSTEES' FEES AND EXPENSES. All compensation of trustees,
other than those affiliated with the Adviser, and all expenses
incurred in connection with their service;
(10) ISSUE AND REDEMPTION OF FUND SHARES. All expenses incurred
in connection with the issue, redemption, and transfer of shares of
the Trust and each Series, including the expense of confirming all
share transactions, and of preparing and transmitting the Trust's
stock certificates, if certificates are issued;
(11) BROKERAGE COMMISSIONS. All brokers, commissions and other
charges incident to the purchase, sale, or lending of portfolio
securities of the Trust and each Series;
<PAGE>
(12) TAXES. All taxes or governmental fees payable by or with
respect to the Trust and each Series to federal, state, or other
governmental agencies, domestic or foreign, including stamp or other
transfer taxes;
(13) FEDERAL AND STATE REGISTRATION FEES. Federal and State
registration/qualification fees for the Trust and each Series;
(14) INSURANCE. All costs relating to fidelity bond and any
other insurance coverage for the Trust and each Series; and
(15) NON-RECURRING AND EXTRAORDINARY EXPENSES. Such
non-recurring expenses as may arise, including the costs of actions,
suits, or proceedings to which the Trust or any Series is a party and
the expenses the Trust or any Series may incur as a result of its
legal obligation to provide indemnification to its trustees,
officers, and agents.
5. NON-EXCLUSIVE SERVICES. The services of the Adviser to the Trust
and each Series hereunder are not to be deemed exclusive, and the Adviser
shall be free to render similar services to others so long as its services
hereunder are not impaired thereby.
6. COMPENSATION FOR SERVICES.
(a) For the services and facilities to be furnished by the Adviser,
each existing Series shall pay the Adviser an annual fee computed on the
basis of the average net asset value of the Series as ascertained each
business day and paid monthly in accordance with the schedule set forth
in Exhibit 2 to this Agreement. For purposes of computing the annual fee,
the net asset value of the Series shall be equal to the difference
between its total assets and its total liabilities (excluding from such
liabilities its capital stock and surplus) with its assets and its
liabilities to be valued in accordance with the procedures approved by
the Trust's Board of Trustees and set forth in the Trust's Registration
Statement.
(b) For the services and facilities to be furnished by the Adviser,
any new Series of the Trust which is issued on a future date will pay the
Adviser a fee according to a Schedule which will be set forth in Exhibit
2 to this Agreement.
(c) If SAFECO Securities, Inc., receives portfolio brokerage
commissions resulting from transactions in the portfolio of any series
("Commissions"), any advisory fee earned by the Adviser will be reduced
by the amount of such commissions so received by SAFECO Securities, Inc.
(d) The Trust and the Adviser may mutually agree to reduce the fees
payable by any Series if the reduction is in the best long-range interest
of the Trust and the Adviser.
(e) If the Adviser shall serve for less than the whole of any month,
the monthly advisory fee payable by each Series shall be prorated.
7. LIABILITY OF ADVISER. The Adviser assumes no responsibility under
this Agreement other than to render the services called for hereunder, in
good faith, and shall not be responsible for any action of the Trust's Board
of Trustees in following or declining to follow any advice or
recommendations of the Adviser; provided, that nothing in this Agreement
shall protect the Adviser against any liability to the Trust or its
shareholders to which it would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties
or by reason of its reckless disregard of its obligations and duties
hereunder.
8. BOOKS AND RECORDS. The Trust shall cause its books and accounts to
be audited at least once each year by a reputable, independent public
accountant or organization of public accountants who shall render a report
to the Trust.
9. AFFILIATION.
(a) It is understood that trustees, officers, shareholders and agents
of the Trust and each Series are or may be interested in the Adviser (or
any successor thereof) as directors, officers,
<PAGE>
shareholders or otherwise, and that the Adviser (or any such successor)
is or may be interested in the Trust as a shareholder or otherwise.
(b) No trustee, officer or employee of the Trust and each Series
shall receive from the Trust any salary or other compensation as such
trustee, officer or employee while he or she is at the same time a
director, officer, or employee of the Adviser or any affiliated company
of the Adviser. This Paragraph shall not apply to trustees or other
persons who are not regular members of the Adviser's or any affiliated
company's staff.
10. UNRESTRICTED ACTIVITIES. Nothing in this Agreement shall limit or
restrict the right of any director, officer, or employee of the Adviser who
may also be a trustee, officer, or employee of the Trust or any Series, to
engage in any other business or to devote his or her time and attention in
part to the management or other aspects of any other business, whether of a
similar nature or a dissimilar nature, or limit or restrict the right of the
Adviser to engage in any other business or to render services of any kind,
including investment advisory and management services, to any other
corporation, firm, individual or association.
11. USE OF NAME. In the event this Agreement is terminated by either
party or upon written notice from the Adviser at any time, the Trust hereby
agrees that it will eliminate from its corporate name any reference to the
name of "SAFECO." The Trust shall have the non-exclusive use of the name
"SAFECO" in whole or in part only so long as this Agreement is effective or
until such notice is given. Notwithstanding the foregoing and in the event
that this Agreement is terminated by either party, the Adviser may elect to
permit the Trust to continue to use the name "SAFECO" under such terms and
conditions as the Adviser shall set forth in writing.
12. EFFECTIVENESS DATE/RENEWAL. This Agreement will become effective
with respect to each series on the date first written above or such later
date as indicated on Exhibit A, provided that it shall have been approved by
the Trust's Board of Trustees and by the shareholders of that Series in
accordance with the requirements of the 1940 Act and, unless sooner
terminated as provided herein, will continue in effect for two years from
the above written date. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to each Series for successive annual
periods, provided that such continuance is specifically approved at least
annually (i) by the Trust's Board of Trustees or (ii) with respect to any
Series, by a vote of a majority of the outstanding voting securities of that
Series, provided that in either event the continuance is also approved by a
majority of the Trust's trustees who are neither interested persons (as
defined in the 1940 Act) of the Trust or the Adviser by vote cast at a
meeting called for the purpose of voting on such continuance.
13. AMENDMENT. This Agreement may be amended by the parties only if
the terms of the amendment are approved by either (i) a majority of the
Trust's Board of Trustees or, (ii) with respect to any given Series, by a
vote of a majority of the outstanding voting securities of that Series at a
duly called meeting of the shareholders. In either case, a majority of the
trustees who are neither interested persons of the Trust or the Adviser must
approve the amendment.
14. TERMINATION. This Agreement is terminable with respect to any
Series or in its entirety without penalty by the Trust's Board of Trustees,
by vote of a majority of the outstanding voting securities of each affected
Series (as defined in the 1940 Act), or by the Adviser, on not less than 60
days' written notice to the other party and will be terminated upon the
mutual written consent of the Adviser and the Trust. This Agreement shall
terminate automatically in the event of its assignment.
15. LIMITATION OF LIABILITY. Adviser is hereby expressly put on notice
of (i) the limitation of shareholder, officer and trustee liability as set
forth in the Trust Instrument of the Trust and (ii) of the provisions in the
Trust Instrument permitting the establishment of separate Series and
limiting the liability of each Series to obligations of that Series. Adviser
hereby agrees that obligations assumed by the Trust pursuant to this
Agreement are in all cases assumed on behalf of a particular series and each
such obligation shall be limited in all cases to that Series and its assets.
Adviser agrees that it shall not
<PAGE>
seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Trust nor from the officers or trustees of any
individual officer or trustee of the Trust.
16. DEFINED TERMS. For the purpose of this Agreement, the terms "vote
of a majority of the outstanding voting securities," "assignment," and
"interested persons," shall have the respective meanings specified in the
1940 Act when such terms are used in reference to the Trust and the Series.
17. ENTIRE AGREEMENT/ENFORCEMENT OF RIGHTS. This Agreement embodies
the entire agreement between the Adviser and the Trust with respect to the
services to be provided by the Adviser to the Trust and each Series and
supersedes any prior written or oral agreement between those parties. In the
event that either party should be required to take legal action in order to
enforce its rights under this Agreement, the prevailing party in any such
action or proceeding shall be entitled to recover from the other party costs
and reasonable attorneys, fees,
18. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in counterparts, each of which taken together
shall constitute one and the same instrument. The Adviser understands that
the rights and obligations of each Series under the Trust Instrument are
separate and distinct from those of any and all other Series.
19. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington and, to the extent it
involves any United States statute, in accordance with the laws of the
United States.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the day and year first above written.
<TABLE>
<S> <C>
ATTEST: SAFECO TRUST
Neal A. Fuller David F. Hill
Assistant Secretary President
ATTEST: SAFECO ASSET MANAGEMENT COMPANY
Neal A. Fuller Stephen C. Bauer
Assistant Secretary President
</TABLE>
<PAGE>
EXHIBIT 1
LIST OF SERIES
SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND
SAFECO TAXABLE BOND TRUST:
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO GNMA FUND
SAFECO HIGH-YIELD BOND FUND
SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND
SAFECO TAX-EXEMPT BOND TRUST:
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
SAFECO INSURED MUNICIPAL BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
SAFECO MONEY MARKET TRUST:
SAFECO MONEY MARKET FUND
SAFECO TAX-FREE MONEY MARKET FUND
<PAGE>
EXHIBIT 2
FEES TO BE PAID TO THE ADVISER
<TABLE>
<CAPTION>
AMOUNT OF
FUND NAME NET ASSETS ANNUAL FEE
- - ------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Name............................................................... $xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
Name............................................................... $xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
Name............................................................... $xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
$xxx to xxx .xx of 1%
</TABLE>
<PAGE>
PRELIMINARY COPY
SAFECO COMMON STOCK TRUST
SAFECO TAXABLE BOND TRUST
SAFECO TAX-EXEMPT BOND TRUST
SAFECO MONEY MARKET TRUST
SAFECO MANAGED BOND TRUST
SPECIAL MEETING OF SHAREHOLDERS
MARCH 30, 1999
This proxy is being solicited on behalf of the Boards of Trustees of the
trust indicated below ("Trust") and relates to the proposals with respect to the
Trust and the portfolio of the Trusts ("Fund") indicated below. The undersigned
hereby appoints as proxies and each of them
(with power of substitution) to vote for the undersigned all shares of
beneficial interest of the undersigned in the Fund at the Special Meeting of
Shareholders to be held at 8:00 a.m., Pacific time, on March 30, 1999 at the
offices of the Trust, SAFECO Plaza, Seattle, Washington 98105, and any
adjournment thereof ("Meeting") with all the power the undersigned would have if
personally present. The shares represented by this proxy will be voted as
instructed. Unless indicated to the contrary, this proxy shall be deemed to
grant authority to vote "FOR" all proposals relating to the Trust and the Fund
with discretionary power to vote upon such other business as may properly come
before the Meeting.
YOUR VOTE IS IMPORTANT. Please date and sign this proxy below and return it
promptly in the enclosed envelope.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
<PAGE>
NAME OF TRUST/FUND
<TABLE>
<CAPTION>
FOR ALL
FOR ALL AGAINST ALL EXCEPT
<S> <C> <C> <C> <C>
1. Election of the Trust's Board of Trustees; / / / / / / To withhold authority to vote for any individual
01) Boh A. Dickey; nominee(s), mark "For All Except"
02) Barbara J. Dingfield; and write the nominee's number on the line below.
03) David J. Hill;
04) Richard W. Hubbard; -------------------------------------------------
05) Richard E. Lundgren;
06) Larry L. Pinnt; and
07) John W. Schneider
</TABLE>
<TABLE>
<CAPTION>
FOR ALL AGAINST ALL ABSTAIN
<C> <S> <C> <C> <C>
2. Ratification of the selection of Ernst &Young LLP as the Trust's / / / / / /
Independent Public Accountants;
3. Approval of all changes to the fundamental investment restrictions; / / / / / /
/ / To vote against the proposed changes to one or more of the specific
fundamental investment restrictions, but to approve all others, PLACE
AN "X" IN THE BOX AT left and indicate the number(s) (as set forth in
the proxy statement) of the investment restriction(s) you do not want
to change on the line below.
----------------------------------------------------------------------
4. Only for Intermediate-Term Bond Fund, Insured Municipal Bond Fund, Washington
Municipal Bond Fund, Municipal Bond Fund, California Tax-Free Income Fund
and Tax-Free Money Market Fund:
Approval of all changes to the fundamental investment restrictions; / / / / / /
/ / To vote against the proposed changes to one or more of the specific fundamental
investment restrictions, but to approve all others, PLACE AN "X" IN THE
BOX AT left and indicate the number(s) (as set forth in the proxy statement) of
the investment restriction(s) you do not want to change on the line below.
5. Approval of an amended and restated investment advisory agreement. / / / / / /
</TABLE>
If the shares are held jointly, each shareholder named should sign. If only one
signs, his or her signature will be binding. If the shareholder is a
corporation, the President or a Vice President should sign in his or her own
name indicating this. If the Shareholder is a partnership, a partner should sign
in his or her own name, that he or she is a "Partner."
<TABLE>
<S> <C>
- - ----------------------------------------------------------------------------------------------------------- ----------------------
Signature: (PLEASE SIGN WITHIN BOX) Date
- - ----------------------------------------------------------------------------------------------------------- ----------------------
Signature: (Joint Owner) Date
</TABLE>
