<PAGE> 1
Registration No. 33-36700/811-6167
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. _____________ / /
Post-Effective Amendment No. 9 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 10 / /
(Check appropriate box or boxes.)
SAFECO COMMON STOCK TRUST
(Exact Name of Registrant as Specified in Charter)
SAFECO PLAZA, SEATTLE, WASHINGTON 98185
(Address of Principal Executive Offices) ZIP Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (206) 545-5269
NAME AND ADDRESS OF AGENT FOR SERVICE
DAVID F. HILL
SAFECO Plaza
Seattle, Washington 98185
(206) 545-5269
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective
/ / immediately upon filing pursuant to paragraph (b)
/X/ on January 31, 1996 pursuant to paragraph (b)
/ / 75 days after filing pursuant to paragraph (a)
/ / on ________________ pursuant to paragraph (a) of Rule 485
================================================================================
Registrant is registering an indefinite number of its shares under the
Securities Act of 1933 by declaration made pursuant to Section 24(f) of the
Investment Company Act of 1940 (Act). Pursuant to Rule 24f-2 under the Act,
Registrant filed a Rule 24f-2 Notice on November 15, 1995.
================================================================================
The Exhibit Index is at page __.
<PAGE> 2
SAFECO COMMON STOCK TRUST
Registration Statement on Form N-1A
Cross Reference Sheet
Part A
<TABLE>
<CAPTION>
Item No. Location in Prospectus
- -------- ----------------------
<S> <C> <C>
Item 1. Cover Page Cover page
Item 2. Synopsis Introduction to the
Trust and the Funds; Fund Expenses
Item 3. Condensed Financial Information Financial Highlights; Performance
Information
Item 4. General Description of Registrant The Trust and Each Fund's Investment
Policies; Information about
Share Ownership and Companies
that Provide Services to the
Trust; Risk Factors; Persons
Controlling the Balanced Fund,
International Fund and Small Company
Fund; Ratings Supplement
Item 5. Management of the Trust Information about Share
Ownership and Companies that
Provide Services to the Trust;
Portfolio Managers; Fund Expenses
Item 6. Capital Stock and Other Cover Page; Fund Distributions and
Securities How They Are Taxed; Information About
Share Ownership and Companies that
Provide Services to the Trust
Item 7. Purchase of Securities How to Purchase Shares;
Being Offered How to Exchange Shares
From One Fund to Another;
How to Systematically
Purchase or Redeem Shares;
Share Price Calculation;
Tax Deferred Retirement Plans;
Account Statements;
Telephone Transactions;
Transactions Through
Registered Investment Advisers
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Item 8. Redemption or Repurchase How to Redeem Shares;
How to Exchange Shares
From One Fund to Another;
How to Systematically
Purchase or Redeem Shares;
Account Changes and Signature
Requirements; Account
Statements; Telephone
Transactions; Transactions
Through Registered Investment
Advisers
Item 9. Pending Legal Proceedings Not applicable
</TABLE>
Part B
<TABLE>
<CAPTION>
Location in Statement
Item No. of Additional Information
- -------- -------------------------
<S> <C> <C>
Item 10. Cover Page Cover page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not applicable
Item 13. Investment Objectives and Overview of Investment
Policies Policies of the Growth,
Equity, Income, Northwest, Balanced,
International and Small Company Funds;
Description of Commercial Paper and
Preferred Stock Ratings; Special Risks
of Below Investment Grade Bonds -
Equity, Income, Balanced and Small
Company Funds
Item 14. Management of the Trust Trustees and Officers
Item 15. Control Persons and Principal Principal Shareholders
Holders of Securities of the Funds
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services
Item 17. Brokerage Allocation and Other Brokerage Practices
Practices
Item 18. Capital Stock and Other Not applicable
Securities
Item 19. Purchase, Redemption and Pricing Additional Information on
of Securities Being Offered Calculation of Net Asset Value
Per Share; Redemption in Kind
Item 20. Tax Status Additional Tax Information
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Item 21. Underwriters Investment Advisory and
Other Services
Item 22. Calculations of Performance Data Additional Performance
Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 5
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SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND
January 31, 1996
Each Fund described in this Prospectus is a series of the SAFECO Common Stock
Trust ("Trust"), an open-end, management investment company consisting of seven
separate series.
There are market risks in all securities transactions. This Prospectus sets
forth the information a prospective investor should know before investing.
PLEASE READ AND RETAIN THE PROSPECTUS FOR FUTURE REFERENCE. A Statement of
Additional Information, dated January 31, 1996 and incorporated herein by
reference, has been filed with the Securities and Exchange Commission and is
available at no charge upon request by calling one of the numbers listed on this
page. The Statement of Additional Information contains more information about
most of the topics in this Prospectus as well as information about the trustees
and officers of the Trust.
For additional assistance, please call or write:
NATIONWIDE 1-800-624-5711; SEATTLE 206-545-7319
TTY/TDD SERVICE 1-800-438-8718
SAFECO MUTUAL FUNDS
P.O. BOX 34890
SEATTLE, WA 98124-1890
ALL TELEPHONE CALLS ARE TAPE-RECORDED
FOR YOUR PROTECTION.
- ------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ------------------------------------------------------------------------
-- 1 --
<PAGE> 6
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The SAFECO GROWTH FUND has as its investment objective to seek growth of capital
and the increased income that ordinarily follows from such growth. The Growth
Fund ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation.
The SAFECO EQUITY FUND has as its investment objective to seek long-term growth
of capital and reasonable current income. The Equity Fund invests principally in
common stock selected for appreciation and/or dividend potential and from a
long-range investment standpoint.
The SAFECO INCOME FUND has as its investment objective to seek high current
income and, when consistent with its objective, the long-term growth of capital.
The Income Fund invests primarily in common and preferred stock and in
convertible bonds selected for dividend potential.
The SAFECO NORTHWEST FUND has as its investment objective to seek long-term
growth of capital through investing primarily in Northwest companies. To pursue
its objective, the Fund will invest at least 65% of its total assets in
securities issued by companies with their principal executive offices located in
Alaska, Idaho, Montana, Oregon or Washington ("Northwest").
The SAFECO BALANCED FUND has as its investment objective to seek growth and
income consistent with the preservation of capital. To pursue its objective, the
Balanced Fund will invest primarily in equity and fixed income securities.
The SAFECO INTERNATIONAL STOCK FUND has as its investment objective to seek
maximum long-term total return (capital appreciation and income) by investing
primarily in common stock of established non-U.S. companies. To pursue its
objective, the International Fund, under normal market conditions, will invest
at least 65% of its total assets in the securities of companies domiciled in at
least five countries, not including the U.S.
The SAFECO SMALL COMPANY STOCK FUND has as its investment objective to seek
long-term growth of capital through investing primarily in small-sized
companies. To pursue its objective, the Small Company Fund will invest primarily
in companies with total market capitalization of less than $1 billion.
-- 2 --
<PAGE> 7
- ------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction to the Trust and the Funds 4
Fund Expenses 7
Financial Highlights 9
The Trust and Each Fund's Investment Policies 13
Risk Factors 34
Portfolio Managers 36
Information about Share Ownership and Companies
that Provide Services to the Trust 38
Persons Controlling the Balanced, International
and Small Company Funds 42
Performance Information 42
Fund Distributions and How They Are Taxed 43
Tax-Deferred Retirement Plans 45
Account Statements 47
Account Changes and Signature Requirements 47
Share Price Calculation 48
How to Purchase Shares 49
How to Redeem Shares 52
How to Systematically Purchase or Redeem Shares 55
How to Exchange Shares From One Fund to Another 56
Telephone Transactions 58
Transactions Through Registered Investment Advisers 59
Ratings Supplement -- Equity, Income and Balanced Funds 59
</TABLE>
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<PAGE> 8
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INTRODUCTION TO THE TRUST AND THE FUNDS
The Trust is a series investment company that currently issues shares
representing seven mutual funds: SAFECO Growth Fund ("Growth Fund"), SAFECO
Equity Fund ("Equity Fund"), SAFECO Income Fund ("Income Fund"), SAFECO
Northwest Fund ("Northwest Fund"), SAFECO Balanced Fund ("Balanced Fund"),
SAFECO International Stock Fund ("International Fund") and SAFECO Small Company
Stock Fund ("Small Company Fund") (collectively, the "Funds"). Each Fund is a
diversified series of the Trust, an open-end, management investment company
which continuously offers to sell and redeem (buy back) its shares at the
current net asset value per share without any sales or redemption charges or
12b-1 fees.
The Growth Fund has as its investment objective to seek growth of capital and
the increased income that ordinarily follows from such growth. The Growth Fund
ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation. Such investments may cause its share price
to be more volatile than the Equity and Income Funds.
The Equity Fund has as its investment objective to seek long-term growth of
capital and reasonable current income. The Equity Fund invests principally in
common stock selected for appreciation and/or dividend potential and from a
long-range investment standpoint.
The Income Fund has as its investment objective to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Income
Fund invests primarily in common and preferred stock and in convertible bonds
selected for dividend potential.
The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Fund will invest at least 65% of its total assets in securities
issued by
-- 4 --
<PAGE> 9
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INTRODUCTION TO THE TRUST AND THE FUNDS (Continued)
companies with their principal executive offices located in the Northwest.
The Balanced Fund has as its objective to seek growth and income consistent with
the preservation of capital. To pursue its objective, the Balanced Fund will
invest primarily in equity and fixed income securities.
The International Fund has as its investment objective to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To achieve its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the U.S.
The Small Company Fund has as its investment objective to seek long-term growth
of capital through investing primarily in small-sized companies. To pursue its
objective, the Small Company Fund will invest primarily in companies with total
market capitalization of less than $1 billion.
There is, of course, no assurance that a Fund will achieve its investment
objective. See "The Trust and Each Fund's Investment Policies" for more
information.
There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest Fund concentrates its investments primarily in the
Northwest, it may be subject to special risks. Investors should carefully
consider the investment risks of such geographic concentration before purchasing
shares of the Northwest Fund. Because the International Fund invests primarily
in foreign securities, it is subject to various risks in addition to those
associated with U.S. investments. For example, the value of the International
Fund depends in part upon currency values, the political and regulatory
environments, and overall economic factors in
-- 5 --
<PAGE> 10
- ------------------------------------------------------------------------
INTRODUCTION TO THE TRUST AND THE FUNDS (Continued)
the countries in which the Fund invests. The Small Company Fund invests in
small-sized companies, which involves greater risks than investments in larger,
more established issuers and their securities can be subject to more abrupt and
erratic movements in price. See "The Trust and Each Fund's Investment Policies"
for more information.
Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and manages over $2 billion in mutual fund
assets as of December 31, 1995. SAM has been an adviser to mutual funds and
other investment portfolios since 1973 and its predecessors have been such
advisers since 1932. The International Fund is sub-advised by Bank of Ireland
Asset Management (U.S.) Limited (the "Sub-Adviser"). The Sub-Adviser is a
direct, wholly-owned subsidiary of Bank of Ireland Asset Management Limited (an
investment advisory firm), which is headquartered in Dublin, Ireland, and an
indirect, wholly-owned subsidiary of the Bank of Ireland, which is also
headquartered in Dublin, Ireland. See "Information about Share Ownership and
Companies that Provide Services to the Trust" for more information.
EACH FUND:
- - Is 100% no-load; there are no sales or redemption charges or 12b-1 fees.
Offers free exchanges as well as easy access to your money through telephone
redemptions and wire transfers.
- - Pays dividends, if any, quarterly.
- - Has a minimum initial investment of $1,000 for regular accounts and $250 for
IRAs.
-- 6 --
<PAGE> 11
- ------------------------------------------------------------------------
FUND EXPENSES
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
SALES
LOAD IMPOSED
SALES ON
LOAD IMPOSED REINVESTED DEFERRED REDEMPTION EXCHANGE
ON PURCHASES DIVIDENDS SALES LOAD FEES FEES
- ------------ ------------ ---------- ---------- --------
<C> <S> <C> <C> <C>
NONE NONE NONE NONE NONE
</TABLE>
SAFECO Services Corporation, the transfer agent for the Funds, charges a $10 fee
to wire redemption proceeds.
B. ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
FUND 12B-1 FEES + FEE + EXPENSES = EXPENSES
- ------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth None .67% .31% .98%
Equity None .61% .23% .84%
Income None .68% .18% .87%
Northwest None .73% .36% 1.09%
Balanced None .75% .24% .99%
International None 1.10% .23% 1.33%
Small
Company None .85% .23% 1.08%
</TABLE>
The amounts shown are actual expenses paid by shareholders of the Growth,
Equity, Income and Northwest Funds for the fiscal year ended September 30, 1995.
The amounts shown for the Balanced, International, and Small Company Funds are
annualized expenses to be paid by shareholders based on the maximum management
fee and estimated "other expenses" for the fiscal period ending September 30,
1996. The management fees paid by the International and Small Company Funds are
higher than the management fees paid by most other investment companies. See
"Information about Share Ownership and Companies that Provide Services to the
Trust" on page 38 for more information.
-- 7 --
<PAGE> 12
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FUND EXPENSES (Continued)
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment assuming a 5% annual
return. The example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed in "Annual Operating Expenses"
above remain the same in the years shown.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth $ 10 $31 $54 $120
Equity $ 9 $27 $47 $104
Income $ 9 $28 $48 $107
Northwest $ 11 $35 $60 $133
Balanced $ 10 $32
International $ 14 $42
Small Company $ 11 $34
</TABLE>
The purpose of the tables is to assist you in understanding the various costs
and expenses that an investor in each Fund would bear, directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES AND EXCHANGE
COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS AND IT IS NOT A PREDICTION
OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE PERFORMANCE OF ANY
FUND.
-- 8 --
<PAGE> 13
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $17.37 $19.20 $13.98 $17.95 $11.14 $17.22 $14.95 $18.13 $15.40 $16.86
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
(loss) income .07 (.02) (.02) (.01) .05 .14 .53 .35 .24 .31
Net realized
and unrealized
gain (loss) on
investment
transactions 4.07 .78 5.39 (3.15) 7.77 (4.20) 3.17 (.99) 4.31 1.62
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from
investment
operations 4.14 .76 5.37 (3.16) 7.82 (4.06) 3.70 (.64) 4.55 1.93
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS:
Dividends
from net
investment
income (.07) -- -- -- (.05) (.14) (.53) (.48) (.23) (.42)
Distributions from
capital gains (5.61) (2.59) (.15) (.81) (.96) (1.88) (.90) (2.06) (1.59) (2.97)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (5.68) (2.59) (.15) (.81) (1.01) (2.02) (1.43) (2.54) (1.82) (3.39)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value at
end of period $15.83 $17.37 $19.20 $13.98 $17.95 $11.14 $17.22 $14.95 $18.13 $15.40
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total return 23.93% 3.88% 38.43% -17.83% 70.22% -23.67% 25.23% -1.47% 32.68% 13.29%*
Net assets at
end of period
(000's omitted) $176,483 $156,108 $158,723 $127,897 $155,429 $59,164 $81,472 $74,324 $82,703 $68,375
Ratio of expenses
to average net
assets .98% .95% .91% .91% .90% 1.01% .94% .98% .92% .85%
Ratio of net
investment (loss)
income to average
net assets .34% -.12% -.10% -.10% .36% .88% 3.27% 2.37% 1.46% 1.90%
Portfolio turnover
rate 110.44% 71.18% 57.19% 85.38% 49.86% 90.48% 11.38% 19.31% 23.61% 46.04%
</TABLE>
* Unaudited.
More information about the Fund is contained in its Annual Report to
shareholders which may have accompanied this Prospectus or which may be obtained
without charge by calling the number on the Prospectus cover.
-- 9 --
<PAGE> 14
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FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO EQUITY FUND
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $13.89 $12.54 $9.53 $10.38 $8.43 $10.10 $8.51 $12.23 $11.44 $10.25
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .34 .23 .17 .15 .17 .22 .39 .18 .21 .29
Net realized
and unrealized
gain (loss) on
investment
transactions 2.59 1.83 3.79 (.09) 2.37 (1.28) 2.26 (1.82) 2.83 2.46
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from
investment
operations 2.93 2.06 3.96 .06 2.54 (1.06) 2.65 (1.64) 3.04 2.75
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends from net
investment
income (.34) (.23) (.17) (.15) (.17) (.22) (.39) (.23) (.22) (.34)
Distributions from
capital gains (1.17) (.48) (.78) (.76) (.42) (.39) (.67) (1.85) (2.03) (1.22)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total distributions (1.51) (.71) (.95) (.91) (.59) (.61) (1.06) (2.08) (2.25) (1.56)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value at
end of period $15.31 $13.89 $12.54 $9.53 $10.38 $8.43 $10.10 $8.51 $12.23 $11.44
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total return 21.59% 16.51% 41.77% .41% 30.39% -10.73% 32.12% -9.93% 31.75% 29.61%*
Net assets at
end of period
(000's omitted) $598,582 $412,805 $148,894 $74,383 $71,586 $51,603 $53,892 $45,625 $64,668 $46,740
Ratio of expenses to
average net assets .84% .85% .94% .96% .98% .97% .96% 1.00% .97% .88%
Ratio of net
investment income
to average net
assets 2.38% 1.72% 1.50% 1.34% 1.70% 2.19% 4.13% 2.16% 1.92% 2.55%
Portfolio turnover
rate 56.14% 33.33% 37.74% 39.88% 45.21% 51.01% 63.62% 88.19% 85.11% 86.39%
</TABLE>
* Unaudited.
More information about the Fund is contained in its Annual Report to
shareholders which may have accompanied this Prospectus or which may be obtained
without charge by calling the number on the Prospectus cover.
-- 10 --
<PAGE> 15
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO NORTHWEST FUND
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.
<TABLE>
<CAPTION>
FOR THE NINE FEBRUARY 7, 1991
YEAR ENDED YEAR ENDED MONTHS ENDED YEAR ENDED (INITIAL PUBLIC
SEPTEMBER 30 SEPTEMBER 30 SEPT. 30 DECEMBER 31 OFFERING)
1995 1994 1993+ 1992 TO DEC. 31, 1991
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 12.59 $ 12.34 $ 12.59 $ 11.37 $ 10.06
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .04 .04 .02 .06 .13
Net realized and
unrealized
(loss) gain on
investment
transactions 2.35 .59 (.25) 1.53 1.44
------ ------ ------ ------ --------
Total from
investment
operations 2.39 .63 (.23) 1.59 1.57
------ ------ ------ ------ --------
LESS
Distributions:
Dividends from
net investment
income (.04) (.04) (.02) (.06) (.19)
Distributions from
capital gains (.53) (.34) -- (.31) (.07)
------ ------ ------ ------ --------
Total
distributions (.57) (.38) (.02) (.37) (.26)
------ ------ ------ ------ ------
Net asset value at
end of period $ 14.41 $ 12.59 $ 12.34 $ 12.59 $ 11.37
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
Total return 19.01% 5.19% -1.86%** 14.08% 14.93%**
Net assets at
end of period
(000's omitted) $ 40,140 $ 36,383 $ 39,631 $40,402 $ 26,434
Ratio of expenses
to average
net assets 1.09% 1.06% 1.11%* 1.11% 1.27%*
Ratio of net
investment income
to average
net assets .31% .33% .18%* .55% 1.14%*
Portfolio turnover
rate 19.59% 18.46% 14.05%* 33.34% 27.71%*
</TABLE>
* Annualized.
** Not annualized.
+ The Fund changed its fiscal year end from December 31 to september 30 so that
its reporting period will coincide with the other Funds in the SAFECO Common
Stock Trust.
More information about the Fund is contained in its Annual Report to
shareholders which may have accompanied this Prospectus or which may be obtained
without charge by calling the number on the Prospectus cover.
-- 11 --
<PAGE> 16
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INCOME FUND
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $17.25 $17.79 $16.27 $15.35 $12.89 $16.44 $14.32 $17.16 $15.52 $12.96
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .82 .81 .78 .80 .81 .85 .81 .78 .78 .78
Net realized and
unrealized gain
(loss) on investment
transactions 2.71 (.30) 1.52 .96 2.53 (3.39) 2.12 (1.80) 2.37 3.13
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations 3.53 .51 2.30 1.76 3.34 (2.54) 2.93 (1.02) 3.15 3.91
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.82) (.81) (.78) (.80) (.83) (.83) (.81) (.98) (.78) (.79)
Distributions from
capital gains (.85) (.24) -- (.04) (.05) (.18) -- (.84) (.73)** (.56)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total distributions (1.67) (1.05) (.78) (.84) (.88) (1.01) (.81) (1.82) (1.51) (1.35)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value at end
of period $19.11 $17.25 $17.79 $16.27 $15.35 $12.89 $16.44 $14.32 $17.16 $15.52
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total return 21.04% 2.98% 14.35% 11.75% 26.43% -16.06% 21.00% -4.61% 21.41% 31.76%*
Net assets at end of
period (000's
omitted) $217,870 $190,610 $203,019 $181,582 $181,265 $170,153 $232,812 $231,724 $313,308 $102,254
Ratio of expenses to
average net assets .87% .86% .90% .90% .93% .92% .92% .97% .94% .95%
Ratio of net
investment income to
average net assets 4.55% 4.59% 4.55% 5.06% 5.58% 5.59% 5.28% 5.58% 4.53% 5.08%
Portfolio turnover
rate 31.12% 19.30% 20.74% 20.35% 22.25% 19.37% 16.38% 34.13% 33.08% 28.90%
</TABLE>
* Unaudited.
** Distributions include $.04, respectively, of additional gain arising from
investment transactions of Securities acquired in a nontaxable exchange.
More information about the Fund is contained in its Annual Report to
shareholders which may have accompanied this Prospectus or which may be obtained
without charge by calling the number on the Prospectus cover.
-- 12 --
<PAGE> 17
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES
The Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993. The Trust currently consists of seven mutual funds: Growth Fund,
Equity Fund, Income Fund, Northwest Fund, Balanced Fund, International Fund and
Small Company Fund, each of which is a diversified series of the Trust.
The investment objective and investment policies for each Fund are described
below. The Trust's Board of Trustees may change a Fund's objective without
shareholder vote, but no such change will be made without 30 days' prior written
notice to shareholders of that Fund. In the event a Fund changes its investment
objective, the new objective may not meet the investment needs of every
shareholder and may be different from the objective a shareholder considered
appropriate at the time of initial investment. Current holdings and recent
investment strategies are described in the Funds' financial reports, which are
sent to shareholders twice a year.
Each Fund has adopted a number of investment restrictions. If a Fund follows a
percentage limitation at the time of investment, a later increase or decrease in
values, net assets or other circumstances will not be considered in determining
whether a Fund complies with the applicable policy (except to the extent the
change may impact a Fund's borrowing limits or restrictions on its holding of
illiquid securities). Unless otherwise stated, the investment policies and
limitations described below under each Fund's description and "Common Investment
Practices" are non-fundamental and may be changed by the Board of Trustees
without shareholder vote.
GROWTH FUND
The investment objective of the Growth Fund is to seek growth of capital and the
increased income that ordinarily follows from such growth.
-- 13 --
<PAGE> 18
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
To pursue its objective, the Growth Fund:
1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED PRIMARILY
FOR POTENTIAL APPRECIATION. Common Stocks represent equity interest in a
corporation. To determine those common stocks which have the potential for
long-term growth, SAM will evaluate the issuer's financial strength, quality
of management and earnings power. Although equity securities have a history
of long-term growth in value, their prices fluctuate based on changes in a
company's financial condition and overall market and economic conditions.
Smaller companies, which generally make up a portion of the Fund's assets,
are especially sensitive to these factors.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). Convertible
securities are debt or preferred stock which are convertible into or
exchangeable for common stock. SAM will purchase convertible securities for
the Fund if such securities offer a higher yield than an issuer's common
stock and provide reasonable potential for capital appreciation. Debt
securities are used by issuers to borrow money from investors. The issuer
pays the investor a fixed or variable rate of interest, and must repay the
amount borrowed at maturity. Preferred stocks are equity securities whose
owners have a claim on a company's earnings and assets before common
stockholders, but after debt holders.
The value of convertible corporate bonds will normally vary inversely with
interest rates and the value of convertible corporate bonds and convertible
preferred stock will normally vary with the value of the underlying common
stock. In general, bond prices rise when interest rates fall, and bond prices
fall when interest rates rise. Debt securities
-- 14 --
<PAGE> 19
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
have varying degrees of quality and varying levels of sensitivity to changes
in interest rates. Long-term bonds are generally more sensitive to interest
rate changes than short-term bonds. The risk characteristics of preferred
stocks are similar to those of common stocks, except that preferred stocks
are generally subject to less risk than common stocks.
3. MAY INVEST UP TO 5% OF NET ASSETS IN CONTINGENT VALUE RIGHTS. A contingent
value right is a right issued by a corporation that takes on a preestablished
value if the underlying common stock does not attain a target price by a
specified date.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term growth of
capital and a reasonable current income for its shareholders. The Equity Fund
does not seek to achieve both growth and income with every portfolio security
investment. Rather, it attempts to manage the portfolio as a whole so as to
achieve a reasonable balance between growth and income on an overall basis.
To pursue its objective, the Equity Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN EQUITY SECURITIES (WHICH INCLUDE COMMON STOCKS AND PREFERRED
STOCKS). A common stock represents an equity interest in a corporation. The
Fund will invest principally in common stocks selected by SAM primarily for
appreciation and/or dividend potential and from a long-range investment
standpoint. Preferred stocks are equity securities whose owners have a claim
on a company's earnings and assets before common stockholders, but after debt
holders.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in
-- 15 --
<PAGE> 20
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
a company's financial condition and overall market and economic conditions.
Smaller companies are especially sensitive to these factors. The risk
characteristics of preferred stocks are similar to those of common stocks,
except that preferred stocks are generally subject to less risk than common
stocks.
2. MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN SECURITIES CONVERTIBLE INTO
COMMON STOCK (INCLUDING CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO
COMMON STOCK EITHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE
OPTION OF THE ISSUER). The Fund may invest in convertible corporate bonds
that are rated investment grade by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Group ("S&P") or unrated bonds
determined by SAM to be of comparable quality to such rated bonds. Bonds
rated in the lowest category of investment grade (Baa by Moody's and BBB by
S&P) and comparable unrated bonds are medium grade, have speculative
characteristics and are more likely to have a weakened capacity to make
principal and interest payments under changing economic conditions or upon
deterioration in the financial condition of the issuer. The value of
convertible corporate bonds will normally vary inversely with interest rates
and the value of convertible corporate bonds and convertible preferred stock
will normally vary with the value of the underlying common stock.
INCOME FUND
The investment objective of the Income Fund is to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Fund
currently intends to place greatest emphasis on holding common stock,
convertible corporate bonds and convertible preferred stock. SAM will select
securities primarily for current income, but also with a
-- 16 --
<PAGE> 21
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
view toward capital growth when this can be accomplished without conflicting
with the Fund's investment objective.
To pursue its objective, the Income Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCK AND ALSO IN CONVERTIBLE AND
NON-CONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). A common
stock represents an equity interest in a corporation. Convertible securities
are debt or preferred stock which are convertible into or exchangeable for
common stock. Debt securities are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Preferred stocks are equity
securities whose owners have a claim on a company's earnings and assets
before common stockholders, but after debt holders.
SAM will purchase convertible securities for the Fund if such securities
offer a higher yield than an issuer's common stock and provide reasonable
potential for capital appreciation. SAM may purchase convertible or
non-convertible corporate bonds that are rated investment grade by Moody's or
S&P or unrated bonds determined by SAM to be of comparable quality to such
rated bonds. Bonds rated in the lowest category of investment grade (Baa by
Moody's and BBB by S&P) and comparable unrated bonds are medium grade, have
speculative characteristics and are more likely to have a weakened capacity
to make principal and interest payments under changing economic conditions or
upon deterioration in the financial condition of the issuer.
Although common stocks have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and
overall market and
-- 17 --
<PAGE> 22
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
economic conditions. Smaller companies are especially sensitive to these
factors. The value of convertible corporate bonds will normally vary
inversely with interest rates and the value of convertible corporate bonds
and convertible preferred stock will normally vary with the value of the
underlying common stock. The risk characteristics of preferred stocks are
similar to those of common stocks, except that preferred stocks are generally
subject to less risk than common stocks. In general, bond prices rise when
interest rates fall, and bond prices fall when interest rates rise. Debt
securities have varying degrees of quality and varying levels of sensitivity
to changes in interest rates. Long-term bonds are generally more sensitive to
interest rate changes than short-term bonds.
2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS WHICH ARE ISSUED BY
U.S. ISSUERS. Eurodollar bonds are traded in the European bond market and are
denominated in U.S. dollars. The Fund will purchase Eurodollar bonds through
U.S. securities dealers and hold such bonds in the U.S. The delivery of
Eurodollar bonds to the Fund's custodian in the U.S. may cause slight delays
in settlement which are not anticipated to affect the Fund in any material,
adverse manner.
NORTHWEST FUND
The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Northwest Fund will invest at least 65% of its total assets in
securities issued by companies with their principal executive offices located in
Alaska, Idaho, Montana, Oregon or Washington.
To pursue its objective, the Northwest Fund:
1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCK AND PREFERRED
STOCK OF COMPANIES LOCATED IN THE NORTHWEST
-- 18 --
<PAGE> 23
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
SELECTED PRIMARILY FOR POTENTIAL LONG-TERM APPRECIATION. A common stock
represents an equity interest in a corporation. To determine those common
stocks which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management and earnings power.
Preferred stocks are equity securities whose owners have a claim on a
company's earnings and assets before common stockholders, but after debt
holders. The Fund generally invests a portion of its assets in smaller
companies.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and
overall market and economic conditions. Smaller companies are especially
sensitive to these factors. The risk characteristics of preferred stocks are
similar to those of common stocks, except that preferred stocks are generally
subject to less risk than common stocks. See "Risk Factors" for more
information about the risks of investing primarily in companies located in
the Northwest.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN THE OPINION
OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE FUND.
Convertible securities are debt or preferred stock which are convertible into
or exchangeable for common stock. Debt securities are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. SAM may
purchase for the Fund corporate bonds and preferred stock that convert to
common stock either automatically after a specified period of time or at the
option of the issuer. SAM will purchase those convertible securities which,
in SAM's opinion, have underlying common stock with potential for long-term
growth.
-- 19 --
<PAGE> 24
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
SAM will purchase for the Fund convertible securities which are investment
grade, i.e., rated in the top four categories by either S&P or Moody's. The
Fund may retain those convertible securities which are downgraded to below
investment grade after purchase. In the event that 35% or more of the Fund's
net assets is held in securities rated below investment grade due to a
downgrade of one or more corporate bonds, SAM will engage in an orderly
disposition of such securities to the extent necessary to ensure that the
Fund's holdings of such securities remain below 35% of the Fund's net assets.
For a description of ratings, see the "Description of Commercial Paper and
Preferred Stock Ratings" section of the Funds' Statement of Additional
Information.
The value of convertible securities will normally vary with the value of the
underlying common stock and vary inversely with interest rates. In general,
bond prices rise when interest rates fall, and bond prices fall when interest
rates rise. Debt securities have varying degrees of quality and varying
levels of sensitivity to changes in interest rates. Long-term bonds are
generally more sensitive to interest rate changes than short-term bonds.
BALANCED FUND
The investment objective of the Balanced Fund is to seek growth and income
consistent with the preservation of capital. The Balanced Fund will occasionally
alter the mix of its equity and fixed income securities to pursue its objective.
Such action will be taken in response to economic conditions and generally in
small increments. The Balanced Fund will not make significant changes in its
asset mix in an attempt to "time the market."
-- 20 --
<PAGE> 25
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
To pursue its objective, the Balanced Fund:
1. WILL ORDINARILY INVEST FROM 50% TO 70% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, WHICH INCLUDE COMMON STOCKS, PREFERRED STOCK AND SECURITIES
CONVERTIBLE INTO COMMON STOCK.
A common stock represents an equity interest in a corporation. The Fund
will invest principally in common stocks selected by SAM primarily for
appreciation and/or dividend potential and from a long-range investment
standpoint. Preferred stocks are equity securities whose owners have a claim
on a company's earnings and assets before common stockholders, but after debt
holders. Convertible securities are debt or preferred stocks which are
convertible into or exchangeable for common stock. Debt securities are used
by issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest, and must repay the amount borrowed at
maturity. SAM may purchase for the Fund corporate bonds and preferred stock
that convert to common stock either automatically after a specified period of
time or at the option of the issuer.
SAM will purchase those convertible securities which, in SAM's opinion, have
underlying common stock with potential for long-term growth. SAM will
purchase for the Fund convertible securities which are investment grade,
i.e., rated in the top four categories by either S&P or Moody's. The Fund may
retain those convertible securities which are downgraded to below investment
grade after purchase. In the event that an amount of 35% or more of the
Fund's net assets is held in securities rated below investment grade due to a
downgrade of one or more corporate bonds, SAM will engage in an orderly
disposition of such securities to the extent necessary to ensure that the
Fund's holdings of such securities remain below 35% of the Fund's net assets.
For a description of ratings, see the "Description of Commercial Paper and
Preferred Stock Ratings" section of the Funds' Statement of Additional
Information.
-- 21 --
<PAGE> 26
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and
overall market and economic conditions. The risk characteristics of preferred
stocks are similar to those of common stocks, except that preferred stocks
are generally subject to less risk than common stocks. The value of
convertible securities will normally vary with the value of the underlying
common stock and vary inversely with interest rates.
2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SENIOR
SECURITIES. Fixed-income senior securities are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable rate
of interest, and must repay the amount borrowed at maturity. In general, bond
prices rise when interest rates fall, and bond prices fall when interest
rates rise. Debt securities have varying degrees of quality and varying
levels of sensitivity to changes in interest rates. Long-term bonds are
generally more sensitive to interest rate changes than short-term bonds.
SAM will purchase for the Fund only U.S. Government and investment grade debt
obligations or non-rated debt obligations which in the view of SAM contain
the credit characteristics of investment grade debt obligations. Investment
grade obligations (rated between Aaa -- Baa by Moody's and AAA -- BBB by S&P)
are from high to medium quality. Medium obligations possess speculative
characteristics and may be more sensitive to economic changes and changes to
the financial condition of issuers. The Fund may retain a debt obligation if
it is downgraded to below investment grade after purchase.
INTERNATIONAL FUND
The investment objective of the International Fund is to seek maximum long-term
total return (capital appreciation and
-- 22 --
<PAGE> 27
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
income) by investing primarily in common stock of established non-U.S.
companies. To pursue its objective, the International Fund, under normal market
conditions, will invest at least 65% of its total assets in the securities of
companies domiciled in at least five countries, not including the U.S.
To pursue its objective, the International Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCKS OF NON-U.S. COMPANIES. A common stock
represents an equity interest in a corporation. Although equity securities
have a history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and overall market and economic
conditions. Common stock issued by foreign companies is subject to various
risks in addition to those associated with U.S. investments. For example, the
value of the common stock depends in part upon currency values, the political
and regulatory environments, and overall economic factors in the countries in
which the common stock is issued. See "Risk Factors" for more information
about the risks inherent in securities issued by foreign issuers.
2. MAY INVEST IN PREFERRED STOCKS AND CONVERTIBLE SECURITIES ISSUED BY FOREIGN
COMPANIES. Preferred stocks are equity securities whose owners have a claim
on a company's earnings and assets before common stockholders, but after debt
holders. Convertible securities are debt or preferred stock which are
convertible into or exchangeable for common stock. The risk characteristics
of preferred stocks are similar to those of common stocks, except that
preferred stocks are generally subject to less risk than common stocks. The
value of convertible corporate bonds will normally vary inversely with
interest rates and the value of convertible corporate bonds and convertible
preferred stock will normally vary with the value of the underlying common
stock. See "Risk Factors" for more
-- 23 --
<PAGE> 28
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
information about the risks inherent in securities issued by foreign issuers.
3. MAY INVEST IN DEBT SECURITIES ISSUED BY FOREIGN COMPANIES AND GOVERNMENTS.
Bonds and other debt securities are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. SAM will make such
investments primarily for defensive purposes, but may also do so where
anticipated interest rate movements, or other factors affecting the degree of
risk inherent in a fixed income security, are expected to change
significantly so as to produce appreciation in the security consistent with
the objective of the Fund. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise. Debt securities have
varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds.
SAM may purchase for the Fund sovereign debt instruments issued or guaranteed
by foreign governments or their agencies. Sovereign debt may be in the form
of conventional securities or other types of debt instruments such as loans
or loan participations. Governments or governmental entities responsible for
repayment of the debt may be unable or unwilling to repay principal and
interest when due, and may require renegotiation or rescheduling of debt
payments. Repayment of principal and interest may depend also upon political
and economic factors. See "Risk Factors" for more information about the risks
inherent in securities issued by foreign issuers.
4. MAY INVEST IN PRIVATE FOREIGN INVESTMENT COMPANIES ("PFICS"), WHICH ARE FUNDS
OR TRUSTS ORGANIZED AS INVESTMENT VEHICLES TO INVEST IN COMPANIES OF CERTAIN
FOREIGN COUNTRIES. Investors in PFICs bear their proportionate share
-- 24 --
<PAGE> 29
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
of the PFIC's management fees and other expenses. See "Risk Factors" for more
information about the risks inherent in securities issued by foreign issuers.
5. MAY PURCHASE AND SELL PUT AND CALL OPTIONS ON SECURITIES, FINANCIAL INDICES
AND FOREIGN CURRENCIES, PURCHASE AND SELL FUTURES CONTRACTS AND RELATED
OPTIONS WITH RESPECT TO SECURITIES, FINANCIAL INDICES AND FOREIGN CURRENCIES
AND ENTER INTO FOREIGN CURRENCY TRANSACTIONS SUCH AS FORWARD CONTRACTS. SAM
may employ certain strategies and techniques utilizing these instruments to
mitigate the Fund's exposure to changing currency exchange rates, security
prices, interest rates and other factors that affect security values. There
is no guarantee that these strategies and techniques will work.
An option gives an owner the right to buy or sell securities at a
predetermined exercise price for a given period of time. The writer of an
option is obligated to purchase or sell (depending upon the nature of the
option) the underlying securities if the option is exercised during the
specified period of time. A futures contract is an agreement in which the
seller of the contract agrees to deliver to the buyer an amount of cash equal
to a specific dollar amount times the difference between the value of a
security at the close of the last trading day of the contract and the price
at which the agreement is made. A forward currency contract is an agreement
to purchase or sell a foreign currency at some future time for a fixed amount
of U.S. dollars.
The Fund, under normal conditions, will not sell a put or call option if, as
a result thereof, the aggregate value of the assets underlying all such
options (determined as of the date such options are written) would exceed 25%
of the Fund's net assets. The Fund also will not purchase a put or call
option or option on a futures contract if, as a result thereof, the aggregate
premiums paid on all options or
-- 25 --
<PAGE> 30
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
options on futures contracts held by the Fund would exceed 20% of its net
assets. In addition, the Fund will not enter into any futures contract or
option on a futures contract if, as a result thereof, the aggregate margin
deposits and premiums required on all such instruments would exceed 5% of its
net assets.
Risks inherent in the use of futures, options and forward contracts include:
the risk that interest rates, security prices and currency markets will not
move in the directions anticipated; imperfect correlation between the price
of the future, option or forward contract and the price of the security,
interest rate or currency being hedged; the risk that potential losses may
exceed the amount invested in the contracts themselves and may potentially be
unlimited; the possible absence of a liquid secondary market for any
particular instrument at any time; the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and the reduction
or elimination of the opportunity to profit from increases in the value of
the security, interest rate or currency being hedged.
SMALL COMPANY FUND
The investment objective of the Small Company Fund is to seek long-term growth
of capital through investing primarily in small-sized companies.
To pursue its objective, the Small Company Fund:
1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND PREFERRED
STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET CAPITALIZATION OF LESS THAN
$1 BILLION. Companies whose capitalization falls outside this range after
purchase continue to be considered small-capitalized for purposes of the 65%
policy. In determining those common and preferred stocks which have the
potential for long-term growth, SAM
-- 26 --
<PAGE> 31
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
will evaluate the issuer's financial strength, quality of management and
earnings power.
A common stock represents an equity interest in a corporation. The Fund will
invest principally in common stocks selected by SAM primarily for
appreciation and/or dividend potential and from a long-range investment
standpoint. Preferred stocks are equity securities whose owners have a claim
on a company's earnings and assets before common stockholders, but after debt
holders.
Although equity securities have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and
overall market and economic conditions. The risk characteristics of preferred
stocks are similar to those of common stocks, except that preferred stocks
are generally subject to less risk than common stocks. Investments in small
or newly formed companies involve greater risks than investments in larger,
more established issuers and their securities can be subject to more abrupt
and erratic movements in price. See "Risk Factors" for more information about
the risks inherent in securities issued by small companies.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN THE OPINION
OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE FUND.
Convertible securities are debt or preferred stocks which are convertible
into or exchangeable for common stock. SAM will purchase convertible
securities for the Fund if such securities offer a higher yield than an
issuer's common stock and provide reasonable potential for capital
appreciation. Debt securities are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Preferred stocks are equity
securities
-- 27 --
<PAGE> 32
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
whose owners have a claim on a company's earnings and assets before common
stockholders, but after debt holders.
The value of convertible corporate bonds will normally vary inversely with
interest rates and the value of convertible corporate bonds and convertible
preferred stock will normally vary with the value of the underlying common
stock. In general, bond prices rise when interest rates fall, and bond prices
fall when interest rates rise. Debt securities have varying degrees of
quality and varying levels of sensitivity to changes in interest rates.
Long-term bonds are generally more sensitive to interest rate changes than
short-term bonds. The risk characteristics of preferred stocks are similar to
those of common stocks, except that preferred stocks are generally subject to
less risk than common stocks.
COMMON INVESTMENT PRACTICES
Each of the Funds may also follow the investment practices described below:
1. MAY INVEST IN DEBT SECURITIES. Bonds and other debt securities are used by
issuers to borrow money from investors. The issuer pays the investor a fixed
or variable rate of interest, and must repay the amount borrowed at
maturity. In general, bond prices rise when interest rates fall, and bond
prices fall when interest rates rise. Debt securities have varying degrees
of quality and varying levels of sensitivity to changes in interest rates.
Long-term bonds are generally more sensitive to interest rate changes than
short-term bonds.
The Equity, Income, and Small Company Funds may invest in convertible
corporate bonds that are rated below investment grade (commonly referred to
as "high-yield" or "junk" bonds) or in comparable, unrated bonds, but less
than 35% of each such Fund's total assets will be invested
-- 28 --
<PAGE> 33
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
in such securities. SAM will not purchase a below investment grade bond for
the Equity Fund rated below Ca by Moody's or CC by S&P or which is in
default on the payment of principal and interest. Bonds rated Ca or CC are
highly speculative and have large uncertainties or major risk exposures.
Below-investment grade bonds are speculative and involve greater investment
risks than investment grade bonds due to the issuer's reduced
creditworthiness and increased likelihood of default and bankruptcy.
During periods of economic uncertainty or change, the market prices of
below-investment grade bonds may experience increased volatility.
Below-investment grade bonds tend to reflect short-term economic and
corporate developments to a greater extent than higher quality bonds.
After purchase by a Fund, a corporate bond may be downgraded or, if unrated,
may cease to be comparable to a rated security. Neither event will require
the Fund to dispose of that security, but SAM will take a downgrade or loss
of comparability into account in determining whether the Fund should
continue to hold the security in its portfolio. The Equity Fund will not
hold more than 3% of its total assets and the Income Fund will not hold more
than 1% of its total assets in bonds that go into default on the payment of
principal and interest after purchase. In the event that 35% or more of a
Fund's net assets is held in securities rated below investment grade due to
a downgrade of one or more corporate bonds, SAM will engage in an orderly
disposition of such securities to the extent necessary to ensure that the
Fund's holdings of such securities remain below 35% of the Fund's net
assets.
2. MAY INVEST IN WARRANTS. Warrants are options to buy a stated number of
shares of common stock at a specified
-- 29 --
<PAGE> 34
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
price any time during the life of the warrant. Generally, the value of a
warrant will fluctuate by greater percentages than the value of the
underlying common stock. The primary risk associated with a warrant is that
the term of the warrant may expire before the exercise price of the common
stock has been reached. Under these circumstances, a Fund could lose all of
its principal investment in the warrant.
3. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH QUALITY
COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END MONEY
MARKET FUNDS (EXCEPT THE EQUITY FUND) OR REPURCHASE AGREEMENTS. SAM may
purchase these short-term securities as a cash management technique under
those circumstances where it has cash to manage for a short time period, for
example, after receiving proceeds from the sale of securities, dividend
distributions from portfolio securities or cash from the sale of Fund shares
to investors. SAM will waive its advisory fees for any Growth, Income,
Northwest, Balanced, International or Small Company Fund assets invested in
money market funds. With respect to repurchase agreements, each Fund (other
than the International Fund) will invest no more than 5% of its total assets
in repurchase agreements and will not purchase repurchase agreements that
mature in more than seven days. Counterparties of foreign repurchase
agreements may be less creditworthy than U.S. counterparties.
4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS OR
PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under this
procedure, a Fund agrees to acquire securities that are to be issued and
delivered against payment in the future. The price, however, is fixed at the
time of commitment. When SAM purchases when-issued or delayed-delivery
securities for a
-- 30 --
<PAGE> 35
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THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
Fund, its custodian bank will maintain in a temporary holding account cash,
U.S. Government securities or other high-grade debt obligations having a
value equal to or greater than such commitments. On delivery dates for such
transactions, the Fund will meet its obligations from maturities or sales of
the securities held in the temporary holding account or from then-available
cash flow. If a Fund chooses to dispose of the right to acquire a when-issued
or delayed delivery security prior to its acquisition, it could incur a gain
or loss due to market fluctuations. Use of these techniques may affect a
Fund's share price in a manner similar to leveraging.
5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are registered
receipts evidencing ownership of an underlying foreign security. They
typically are issued in the U.S. by a bank or trust company. In addition to
the risks of foreign investment applicable to the underlying securities, ADRs
may also be subject to the risks that the foreign issuer may not be obligated
to cooperate with the U.S. bank or trust company, or that such information in
the U.S. market may not be current. ADRs which are structured without the
sponsorship of the issuer of the underlying foreign security may also be
subject to the risk that the foreign issuer may not provide financial and
other material information to the U.S. bank or trust company issuer. The
International Fund may utilize European Depositary Receipts ("EDRs"), which
are similar instruments. EDRs may be in bearer form and are designed for use
in the European securities markets.
6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES (GROWTH,
EQUITY, INCOME, NORTHWEST, BALANCED AND SMALL COMPANY FUNDS ONLY). The
International Fund may invest 100% of its assets in foreign securities.
Foreign securities are subject to risks in addition to those inherent in
investments in domestic securities. See "Risk Factors"
-- 31 --
<PAGE> 36
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
on page 34 for more information about the risks associated with investments
in foreign securities.
7. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE INVESTMENT
TRUSTS ("REITS"). REITs purchase real property, which is then leased, and
make mortgage investments. For federal income tax purposes, REITs attempt to
qualify for beneficial tax treatment by distributing at least 95% of their
taxable income. If a REIT is unable to qualify for such beneficial tax
treatment, the income would not be deductible by it in computing its taxable
income. REITs are dependent upon the successful operation of properties owned
and the financial condition of lessees and mortgagors. The value of REITs
fluctuate depending on the underlying value of the real property and
mortgages owned and the amount of cash flow generated and paid out. In
addition, REITs typically borrow to increase funds available for investment.
Generally, there is a greater risk associated with REITs because they are
highly leveraged.
8. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS (GROWTH, EQUITY, INCOME, NORTHWEST,
BALANCED AND SMALL COMPANY FUNDS ONLY) IN RESTRICTED SECURITIES, PROVIDED
THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE LIQUID UNDER GUIDELINES
ADOPTED BY THE BOARD OF TRUSTEES. The International Fund may invest 100% of
its assets in securities not registered for sale in the U.S. Restricted
securities may be sold only in offerings registered under the Securities Act
of 1933 ("1933 Act") or in transactions exempt from the registration
requirements under the 1933 Act. Rule 144A under the 1933 Act provides an
exemption for the resale of certain restricted securities to qualified
institutional buyers. Investing in restricted securities may increase the
Funds' illiquidity to the extent that qualified institutional buyers or other
buyers are unwilling to purchase the securities. As a result, a Fund may not
be able to sell
-- 32 --
<PAGE> 37
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
these securities when its investment adviser or sub-investment adviser deems
it advisable to sell, or may have to sell them at less than fair value. In
addition, market quotations are sometimes less readily available for
restricted securities. Therefore, judgment may at times play a greater role
in valuing these securities than in the case of unrestricted securities.
9. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT MATURITY
ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX. The value of
an indexed security is determined by reference to a specific equity
instrument or statistic. The performance of indexed securities depends
largely on the performance of the securities or indices to which they are
indexed, but such securities are also subject to credit risks associated with
the issuer of the security. Indexed securities may also be more volatile than
their underlying instruments.
10. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES OF UNSEASONED ISSUERS.
Unseasoned issuers are those companies which, together with any
predecessors, have been in operation for less than three years.
The following restrictions are fundamental policies which cannot be changed
without shareholder vote.
1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(OTHER THAN U.S. GOVERNMENT SECURITIES).
2. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE ISSUER
(OTHER THAN U.S. GOVERNMENT SECURITIES).
3. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES, AND THE
GROWTH FUND ONLY FOR
-- 33 --
<PAGE> 38
- ------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
EXTRAORDINARY OR EMERGENCY PURPOSES, FROM A BANK OR AFFILIATE OF SAFECO
CORPORATION AT AN INTEREST RATE NOT GREATER THAN THAT AVAILABLE FROM
COMMERCIAL BANKS. The Growth, Income and Northwest Funds will not borrow
amounts in excess of 20% and the Equity, Balanced, International and Small
Company Funds will not borrow amounts in excess of 33% of total assets. SAM
will not purchase securities for a Fund if borrowings equal to or greater
than 5% of total assets are outstanding for that Fund.
For more information, see the "Investment Policies" and "Additional Investment
Information" sections of the Trust's Statement of Additional Information.
RISK FACTORS
Various factors may cause the value of a shareholder's investment in a Fund to
fluctuate. The principal risk factor associated with an investment in a mutual
fund like any of the Funds is that the market value of the portfolio securities
may decrease resulting in a decrease in the value of a shareholder's investment.
The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation through investing primarily in securities issued by smaller
companies. As a result, short-term movements in the securities market may cause
the Fund's share price to be volatile.
An investment in the Northwest Fund may be subject to different risks than a
mutual fund whose investments are more geographically diverse. Since the
Northwest Fund invests primarily in companies with their principal executive
offices located in the Northwest, the number of issuers whose securities are
eligible for purchase is significantly less than many other mutual funds. Also,
some companies whose securities are held in the Northwest Fund's portfolio may
-- 34 --
<PAGE> 39
- ------------------------------------------------------------------------
RISK FACTORS (Continued)
primarily distribute products or provide services in a specific locale or in the
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Northwest Fund may have a
predominately national or partially international market for their products or
services and are more likely to be impacted by national or international trends.
As a result, the performance of the Northwest Fund may be influenced by business
trends or economic conditions not only in a specific locale or in the Northwest
region but also on a national or international level, depending on the companies
whose securities are held in its portfolio at any particular time.
Because the International Fund primarily invests, and the other Funds may
invest, in foreign securities, each of those Funds are subject to risks in
addition to those associated with U.S. investments. Foreign investments involve
sovereign risk, which includes the possibility of adverse local political or
economic developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent currency from being sold). Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There is generally less publicly available information about
issuers of foreign securities as compared to U.S. issuers. Many foreign
companies are not subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign issuers are less liquid and more volatile than
securities of U.S. issuers. Financial markets on which foreign securities trade
are generally subject to less governmental regulation as compared to U.S.
markets. Foreign brokerage commissions and custodian fees are generally higher
than those in the U.S.
The Small Company Fund invests in companies with small market capitalizations
which involves more risks than investments in larger companies. The Small
Company Fund may
-- 35 --
<PAGE> 40
- ------------------------------------------------------------------------
RISK FACTORS (Continued)
invest to a large extent in newly formed companies which have limited product
lines, markets or financial resources and may lack management depth. The
securities of small or newly formed companies may have limited marketability and
may be subject to more abrupt and erratic movements in price than securities of
larger, more established companies, or equity securities in general. The Small
Company Fund will not invest more than 15% of its total assets in the securities
of issuers which together with any predecessors have a record of less than three
years continuous operation.
PORTFOLIO MANAGERS
GROWTH FUND
The portfolio manager for the Growth Fund is Thomas M. Maguire, Vice President,
SAM. Mr. Maguire has served as portfolio manager for the Fund since 1989.
EQUITY FUND
The portfolio manager for the Equity Fund is Richard D. Meagley, Vice President,
SAM. Mr. Meagley began serving as portfolio manager for the Fund in 1995. He is
also the portfolio manager for certain other SAFECO Funds. Prior to these
positions, he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAM and the fund manager of
the SAFECO Northwest Fund from 1991 to 1992.
INCOME FUND
The portfolio manager for the Income Fund is Arley N. Hudson, Vice President,
SAM. Mr. Hudson has served as portfolio manager for the Fund since 1978.
NORTHWEST FUND
The portfolio manager for the Northwest Fund is Charles R. Driggs, Vice
President, SAM. Mr. Driggs has served as portfolio manager for the Fund since
1992. From 1984 through 1992,
-- 36 --
<PAGE> 41
- ------------------------------------------------------------------------
PORTFOLIO MANAGERS (Continued)
Mr. Driggs was a securities analyst for SAM specializing in banks, savings and
loan institutions and the insurance industry.
BALANCED FUND
The portfolio managers for the Balanced Fund are Rex L. Bentley, Vice President,
SAM, and Michael C. Knebel, Vice President, SAM. Mr. Bentley was Vice President
and Investment Counsel at the investment advisory firm of Badgley, Phelps and
Bell Investment Counsel, Inc., from 1990 to 1995. He was a securities analyst
for SAFECO Corporation from 1975 to 1983. Mr. Knebel has served as portfolio
manager for certain other SAFECO mutual funds since 1989.
INTERNATIONAL FUND
The International Fund is managed by a committee of portfolio
managers employed and supervised by the Sub-Adviser, Bank of Ireland Asset
Management (U.S.) Limited, an investment adviser registered with the SEC. All
investment decisions are made by this committee and no single person is
primarily responsible for making recommendations to that committee.
SMALL COMPANY FUND
The portfolio manager for the Small Company Fund is Greg Eisen. Mr. Eisen has
served as an investment analyst for SAM since 1992. From 1986 to 1992, Mr. Eisen
was engaged by SAFECO Insurance Companies as a financial analyst.
Each portfolio manager and certain other persons related to SAM, the Sub-Adviser
and the Funds are subject to written policies and procedures designed to prevent
abusive personal securities trading. Incorporated within these policies and
procedures are each of the recommendations made by the Investment Company
Institute (the trade group for the mutual fund industry) with respect to
personal securities trading by persons associated with mutual funds. Those
recommendations include preclearance procedures and blackout periods when
certain personnel may not trade in securities that are the
-- 37 --
<PAGE> 42
- ------------------------------------------------------------------------
PORTFOLIO MANAGERS (Continued)
same or related securities being considered for purchase or sale by a Fund.
INFORMATION ABOUT SHARE
OWNERSHIP AND COMPANIES THAT
PROVIDE SERVICES TO THE TRUST
Each Fund is a series of SAFECO Common Stock Trust, a Delaware business trust,
which issues an unlimited number of shares of beneficial interest. The Board of
Trustees may establish additional series of shares of the Trust without approval
of shareholders.
Shares of each Fund represent equal proportionate interests in the assets of
that Fund only and have identical voting, dividend, redemption, liquidation and
other rights. All shares issued are fully paid and non-assessable, and
shareholders have no preemptive or other right to subscribe to any additional
shares.
The Trust does not intend to hold annual meetings of shareholders of the Funds.
The Trustees will call a special meeting of shareholders of a Fund only if
required under the 1940 Act, in their discretion, or upon the written request of
holders of 10% or more of the outstanding shares of the Fund entitled to vote.
Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
the Trust Instrument requires that every written obligation of the Trust or Fund
contain a statement that such obligation may be enforced only against the assets
of the Trust or Fund and generally provides for indemnification out of Trust or
Fund property of any shareholder nevertheless held personally liable for Trust
or Fund obligations, respectively.
-- 38 --
<PAGE> 43
- ------------------------------------------------------------------------
INFORMATION ABOUT SHARE
OWNERSHIP AND COMPANIES THAT
PROVIDE SERVICES TO THE TRUST
(Continued)
SAM is the investment adviser for each Fund under an agreement with the Trust.
Under the agreement, SAM is responsible for the overall management of the
Trust's and each Fund's business affairs. Each Fund pays SAM an annual
management fee based on a percentage of that Fund's net assets ascertained each
business day and paid monthly in accordance with the schedules below. A
reduction in the fees paid by a Fund occurs only when that Fund's net assets
reach the dollar amounts of the break points and applies only to the assets that
fall within the specified range:
GROWTH, EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $100,000,000 .75 of 1%
$100,000,001 -- $250,000,000 .65 of 1%
$250,000,001 -- $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
</TABLE>
NORTHWEST FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .75 of 1%
$250,000,001 -- $500,000,000 .65 of 1%
$500,000,001 -- $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .75 of 1%
$250,000,001 -- $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
</TABLE>
-- 39 --
<PAGE> 44
- ------------------------------------------------------------------------
INFORMATION ABOUT SHARE
OWNERSHIP AND COMPANIES THAT
PROVIDE SERVICES TO THE TRUST
(Continued)
INTERNATIONAL FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 1.10 of 1%
$250,000,001 -- $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
</TABLE>
SMALL COMPANY FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .85 of 1%
$250,000,001 -- $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
</TABLE>
For the fiscal year ended September 30, 1995, the Growth, Equity, Income, and
Northwest Funds total expenses and the compensation paid by each Fund to SAM,
expressed as a percentage of average net assets, were as follows:
<TABLE>
<CAPTION>
RATIO OF EXPENSES TO RATIO OF NET COMPENSATION
AVERAGE NET ASSETS TO AVERAGE NET ASSETS
-------------------- -------------------------
<S> <C> <C>
Growth .98% .67%
Equity .84% .61%
Income .87% .68%
Northwest 1.09% .73%
</TABLE>
SAM has a sub-advisory agreement with the Sub-Adviser. The Sub-Adviser is a
direct, wholly-owned subsidiary of the Bank of Ireland Asset Management Limited
and is an indirect, wholly-owned subsidiary of Bank of Ireland. 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 was
established in 1987 and manages over $3 billion in assets. Because the
Sub-Adviser is doing business from a location within the United States,
investors will be able to effect service of legal process within the United
States upon the Sub-Adviser, facilitating the enforcement of judgments
-- 40 --
<PAGE> 45
- ------------------------------------------------------------------------
INFORMATION ABOUT SHARE
OWNERSHIP AND COMPANIES THAT
PROVIDE SERVICES TO THE TRUST
(Continued)
against the Sub-Adviser under federal securities laws in United States courts.
However, the Sub-Adviser is a foreign organization and maintains a substantial
portion of its assets outside the United States. Therefore, the ability of
investors to enforce judgments against the Sub-Adviser may be affected by the
willingness of foreign courts to enforce judgments of United States courts.
Under the agreement, 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
equal 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 parent company of the Sub-Adviser, Bank of Ireland Asset Management Limited
is a direct, wholly-owned subsidiary of the Bank of Ireland which engages in the
investment advisory business and is located at 26 Fitzwilliam Street, Dublin,
Ireland. The Bank of Ireland is a holding company whose primary subsidiaries are
engaged in banking, insurance, securities and related financial services, and is
located at Lower Baggot Street, Dublin, Ireland.
The distributor of each Fund's shares under an agreement with the Trust is
SAFECO Securities, Inc. ("SAFECO Securities"), a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. SAFECO Securities receives no compensation from the
Trust or the Funds for its services.
-- 41 --
<PAGE> 46
- ------------------------------------------------------------------------
INFORMATION ABOUT SHARE
OWNERSHIP AND COMPANIES THAT
PROVIDE SERVICES TO THE TRUST
(Continued)
The transfer, dividend and distribution disbursement and shareholder servicing
agent for each Fund under an agreement with the Trust is SAFECO Services
Corporation ("SAFECO Services"). SAFECO Services receives a fee from a Fund for
each shareholder transaction processed for that Fund.
SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
the insurance and related financial services businesses) and are each located at
SAFECO Plaza, Seattle, Washington 98185.
The International Fund, Balanced Fund and Small Company Fund expect that their
respective turnover ratios will not exceed 50%.
PERSON CONTROLLING THE
INTERNATIONAL, BALANCED AND
SMALL COMPANY FUNDS
At December 31, 1995, SAM, a wholly-owned subsidiary of SAFECO Corporation,
controlled the International and Balanced Funds. At December 31, 1995, SAFECO
Corporation controlled the Small Company Fund. SAFECO Corporation and SAM have
their principal place of business at SAFECO Plaza, Seattle, Washington 98185.
PERFORMANCE INFORMATION
Each Fund's yield, total return and average annual total return may be quoted in
advertisements. Yield is the annualization on a 360-day basis of a Fund's net
income per share over a 30-day period divided by the Fund's net asset value per
share
-- 42 --
<PAGE> 47
- ------------------------------------------------------------------------
PERFORMANCE INFORMATION (Continued)
on the last day of the period. Total return is the total percentage change in an
investment in a Fund, assuming the reinvestment of dividend and capital gains
distributions, over a stated period of time. Average annual total return is the
annual percentage change in an investment in a Fund, assuming the reinvestment
of dividends and capital gains distributions, over a stated period of time.
From time to time, a Fund may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (e.g., CDA Investment
Technologies, Lipper Analytical Services, Inc. and Morningstar, Inc.), and are
reported periodically in national financial publications such as Barron's,
Business Week, Forbes, Investor's Business Daily, Money Magazine, and The Wall
Street Journal. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performances of relevant indices.
Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. Each
Fund's yield and share price will fluctuate and your shares, when redeemed, may
be worth more or less than you originally paid for them.
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED
DIVIDEND AND OTHER DISTRIBUTIONS
The Growth, Equity, Income, Northwest and Balanced Funds declare dividends on
the last business day of each calendar quarter and the International and Small
Company Funds declare dividends annually. Each Fund declares dividends from its
net investment income (which includes accrued dividends
-- 43 --
<PAGE> 48
- ------------------------------------------------------------------------
FUND DISTRIBUTIONS AND HOW THEY
ARE TAXED (Continued)
and interest, earned discount, and other income earned on portfolio securities
less expenses) and such shares become entitled to declared dividends on the next
business day after shares are purchased in your account.
A shareholder's dividends and other distributions are reinvested in additional
shares of the distributing Fund at net asset value per share generally
determined as of the close of business on the ex-distribution date, unless the
shareholder elects in writing to receive dividends or other distributions in
cash and that election is provided to SAFECO Services at the address on the
Prospectus cover.
The election remains in effect until revoked by written notice by the
shareholder in the same manner as the distribution election. For retirement
accounts, all dividends and other distributions declared by a Fund must be
invested in additional shares of that Fund.
Please remember that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares, then
receive part of the price back as a taxable distribution.
TAXES
Each Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, a Fund will
not be subject to federal income taxes to the extent it distributes its net
investment income and realized capital gains to its shareholders. Each Fund will
inform you as to the amount and nature of dividends and other distributions to
your account. Dividends and distributions declared in December, but received by
shareholders in January, are taxable to shareholders in the year in which
declared.
-- 44 --
<PAGE> 49
- ------------------------------------------------------------------------
FUND DISTRIBUTIONS AND HOW THEY
ARE TAXED (Continued)
TAX WITHHOLDING INFORMATION
You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you provide is correct and that you are
not subject to, or are exempt from, backup withholding for previous
underreporting to the Internal Revenue Service.
Retirement plan distributions may be subject to federal income tax withholding.
However, you may elect not to have distributions withheld by checking the
appropriate box on the Redemption Request form or by instructing SAFECO Services
in writing at the address on the Prospectus cover.
If the International Fund pays nonrefundable taxes to foreign government during
the year, the taxes will reduce the Fund's dividends but still be included in
your taxable income. However, you may be able to claim an offsetting credit or
deduction on your tax return for your share of foreign taxes paid by the Fund.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Trust's Statement of Additional Information for a further discussion. There may
be other federal, state or local tax considerations applicable to a particular
investor. You therefore are urged to consult your tax adviser.
TAX-DEFERRED RETIREMENT PLANS
SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses and non-profit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the SAFECO
Funds may be used as investment vehicles for these plans.
-- 45 --
<PAGE> 50
- ------------------------------------------------------------------------
TAX-DEFERRED RETIREMENT PLANS
(Continued)
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). IRAs are tax-deferred retirement accounts
for anyone under age 70 1/2 with earned income. The maximum annual contribution
is $2,000 per person ($2,250 for you and a non-working spouse). An annual
custodial fee will be charged for any part of a calendar year in which you have
an IRA investment in a Fund.
SIMPLIFIED EMPLOYEE PENSION IRAS (SEP-IRAS). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Annual
contributions up to $30,000 may be made to SEP-IRA accounts. SEP-IRAs have the
same investment minimums and custodial fees as regular IRAs.
403(B) PLANS. 403(b) plans are retirement plans for tax-exempt organizations and
school systems to which employers and employees both may contribute. Minimum
investment amounts are negotiable.
401(K) PLANS. 401(k) plans allow employers and employees to make tax-advantaged
contributions to a retirement account. SAFECO Services offers a low-cost
administration package that includes a prototype plan, recordkeeping, testing
and employee communications. Minimum investment amounts are negotiable.
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. These plans allow corporations,
partnerships and self-employed persons to make annual, tax-deductible
contributions to a retirement account for each person covered by a plan. A plan
may be adopted individually or paired with another plan to maximize
contributions. SAFECO Services offers an administration package for these plans.
Minimum investment amounts are negotiable.
For information about the above accounts and plans, please call 1-800-278-2985.
-- 46 --
<PAGE> 51
- ------------------------------------------------------------------------
ACCOUNT STATEMENTS
Periodically, you will receive an account statement indicating your current Fund
holdings and transactions affecting the account. Confirmation statements will be
sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS
Changes to your account registration or the services you have selected must be
in writing and signed by the number of owners specified on your account
application as having authority to make these changes. Send written changes to
SAFECO Services at the address on the Prospectus cover. Certain changes to the
Automatic Investment Method and Systematic Withdrawal Plan can be made by
telephone if you have previously selected single signature authorization for
your account.
You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
or change the account registration to single ownership without the co-owner's
signature. If you do not indicate otherwise on the application, the signatures
of all account owners will be required to effect a transaction. Your selection
of fewer than all account owner signatures may be revoked by any account owner
who writes to SAFECO Services at the address on the Prospectus cover.
SAFECO Services may require a signature guarantee for a signature that cannot be
verified by comparison to the
-- 47 --
<PAGE> 52
- ------------------------------------------------------------------------
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS (Continued)
signature(s) on your account application. A signature guarantee may be obtained
from most financial institutions, including banks, savings and loans and
broker-dealers.
SHARE PRICE CALCULATION
The net asset value ("NAV") of each Fund is computed as of the close of regular
trading on the New York Stock Exchange (normally 1:00 p.m. Pacific time) each
day that Exchange is open for trading. The NAV is calculated by subtracting a
Fund's liabilities from its assets and dividing the result by the number of
outstanding shares.
Foreign portfolio securities are valued on the basis of quotations from the
primary market in which they trade. The value of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
In general, portfolio securities are valued at the last reported sale price on
the national exchange on which the securities are primarily traded, unless there
are no transactions in which case they shall be valued at the last reported bid
price. Securities traded over-the-counter are valued at the last sale price,
unless there is no reported sale price in which case the last reported bid price
will be used. Portfolio securities that trade on a stock exchange and
over-the-counter are valued according to the broadest and most representative
market. Securities not traded on a national exchange are valued based on
consideration of information with respect to transactions in similar securities,
quotations from dealers and various relationships between securities. Other
assets for which market quotations are unavailable are valued at their fair
value pursuant to guidelines approved by the Trust's Board of Trustees. The
values of portfolio securities may be computed on the basis of valuations
provided by a pricing service, unless the Trust's Board of Trustees determines
such valuations do not represent fair value.
-- 48 --
<PAGE> 53
- ------------------------------------------------------------------------
SHARE PRICE CALCULATION (Continued)
Trading in foreign securities, as well as corporate bonds, U.S. Government
securities and money market instruments, will generally be substantially
completed each day at various times prior to the close of the NYSE. The value of
any such securities are determined as of such times for purposes of computing
the International Fund's net asset value. Foreign currency exchange rates are
also generally determined prior to the close of the NYSE. If quotations are not
readily available, or if values have been materially affected by events
occurring after the close of a foreign market, the security will be valued at
fair value as determined in good faith by SAM or BIAM under procedures
established by and under general supervision of the Fund's Board of Trustees.
Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close of
option trading on such exchange. Futures contracts the International Fund will
enter into will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
HOW TO PURCHASE SHARES
A completed and signed application must accompany payment for an initial
purchase by mail and in all cases is necessary before a redemption can be made.
Specific applications for retirement accounts must be completed and signed
before any retirement account can be set up. The Funds only accept funds drawn
in U.S. dollars and payable through a U.S. bank. The Funds do not accept
currency. The Funds issue shares in uncertificated form. Certificates for whole
shares will be issued without charge only upon written request. You will be
required to post a bond to replace missing certificates.
THE FUNDS HAVE THE RIGHT TO REFUSE ANY INVESTMENT.
-- 49 --
<PAGE> 54
- ------------------------------------------------------------------------
HOW TO PURCHASE SHARES (Continued)
INITIAL PURCHASES
MINIMUM INITIAL INVESTMENT $1,000 (IRA $250).
Minimum initial investments are negotiable for retirement accounts other than
IRAs.
No minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.
BY WRITTEN REQUEST
Send a check or money order made payable to the applicable Fund and a completed
and signed application to the address on the Prospectus cover.
BY WIRE
Call toll-free 1-800-624-5711 or, in Seattle, 545-7319 for instructions.
Not available for retirement accounts.
IN PERSON
Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 15411 N.E.
51st Street in Redmond, Washington. A licensed representative will assist you in
completing your application.
ADDITIONAL PURCHASES
MINIMUM ADDITIONAL INVESTMENT $100 (EXCEPT DIVIDEND REINVESTMENTS).
Minimum additional investments are negotiable for retirement plans other than
IRAs.
BY WRITTEN REQUEST
Send a check or money order payable to the applicable Fund to the address on the
Prospectus cover. Please specify your account number.
-- 50 --
<PAGE> 55
- ------------------------------------------------------------------------
HOW TO PURCHASE SHARES (Continued)
BY WIRE
Instruct your bank to send wires to U.S. Bank of Washington, N.A., Seattle,
Washington, ABA #1250-0010-5, Account #0017-086083.
To ensure timely credit to your account, ask your bank to include the following
information in its wire to U.S. Bank of Washington, N.A.:
-SAFECO Fund Name
-SAFECO account number
-Name of the registered owner(s) of the SAFECO account
Delays of purchases caused by inadequate wire instructions are not the
responsibility of the Funds or SAFECO Services.
Your bank may charge a fee for wire services.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319. You must have previously selected
this service on your account application or by written request. Not available to
open a new account or for retirement accounts.
Maximum purchase $100,000 per day, minimum purchase $100 per day.
Monies will be transferred from your predesignated bank account to your existing
Fund account. Your bank may charge a fee if monies are wired to your Fund
account.
Please allow 15 business days after selecting this service for it to be
available for first use.
Telephone purchases may be unavailable from some bank accounts and non-bank
financial institutions.
Please read "Telephone Transactions" on page 58 for other important information.
-- 51 --
<PAGE> 56
- ------------------------------------------------------------------------
HOW TO PURCHASE SHARES (Continued)
IN PERSON
You may complete your initial application and make additional investments in
person by visiting a SAFECO Investor Center. Investor Centers are located at
1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at
15411 N.E. 51st Street in Redmond, Washington. A licensed representative will
assist you in completing your application.
THROUGH REGISTERED SECURITIES DEALERS
You may open your account and make additional investments through a registered
securities dealer who is responsible for the prompt forwarding of purchase
orders. A dealer may charge a transaction fee and may place more restrictive
conditions on a purchase than would apply if you purchased your shares directly
from a Fund.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 59 for
important information.
SHARE PURCHASE PRICE
You will buy full and fractional shares at the NAV next computed after your
check, money order or wire has been received. For telephone purchase orders, you
will receive the price per share calculated on the day monies are received from
your bank account. See "Share Price Calculation" on page 48 for more
information.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST
Shares may be redeemed by sending a letter which specifies your account number,
the Fund's name and the number of shares or dollar amount you wish to redeem.
The request should be sent to the address on the Prospectus cover. The request
must be signed by the appropriate number of owners and in some cases a signature
guarantee may be required. In
-- 52 --
<PAGE> 57
- ------------------------------------------------------------------------
HOW TO REDEEM SHARES (Continued)
all cases, SAFECO Services must have a signed and completed application on file
before a redemption can be made. See "Account Changes and Signature
Requirements" on page 47 for more information.
Retirement account shareholders must specify whether or not they elect 10%
federal income tax withholding from a distribution.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319. You must have previously
selected this service on your account application or by written request.
Telephone redemptions are not available for retirement accounts or shares issued
in certificate form. You may request that redemption proceeds be sent directly
to your predesignated bank or mailed to your account address of record.
Please read "Telephone Transactions" on page 58 for other important information.
IN PERSON
Shares may be redeemed in person by visiting a SAFECO Investor Center. Investor
Centers are located at 1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in
Seattle, Washington, and at 15411 N.E. 51st Street in Redmond, Washington. Funds
for shares redeemed in person may be mailed to your address of record, sent
directly to your bank or retrieved directly from the SAFECO Investor Center once
they become available.
THROUGH REGISTERED SECURITIES DEALERS
Requests for redemption of shares by wire or telephone will be accepted from
registered securities dealers under agreement with each Fund's principal
underwriter. The dealer may charge a transaction fee for any order processed for
you.
-- 53 --
<PAGE> 58
- ------------------------------------------------------------------------
HOW TO REDEEM SHARES (Continued)
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 59 for
important information.
PLEASE NOTE THE FOLLOWING:
If your shares were purchased by wire, redemption proceeds will be available
immediately. If shares were purchased by means other than wire, each Fund
reserves the right to hold the proceeds of your redemption for up to 15 business
days after investment or until such time as the Fund has received assurance that
your investment will be honored by the bank on which it was drawn, whichever
occurs first.
SAFECO Services charges a $10 fee to wire redemption proceeds. In addition, some
banks may charge a fee to receive wires.
If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption will be made.
SHARE REDEMPTION PRICE AND PROCESSING
Your shares will be redeemed at the NAV next calculated after receipt of your
request that meets the redemption requirements of the Funds. The value of the
shares you redeem may be more or less than the dollar amount you purchased,
depending on the market value of the shares at the time of redemption. See
"Share Price Calculation," on page 48 for more information.
Redemption proceeds will normally be sent on the business day following receipt
of your redemption request. If your redemption request is received after the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time), proceeds will normally be sent on the second business day
-- 54 --
<PAGE> 59
- ------------------------------------------------------------------------
HOW TO REDEEM SHARES (Continued)
following receipt. Each Fund, however, reserves the right to postpone payment of
redemption proceeds for up to seven days if making immediate payment could
adversely affect its portfolio. In addition, redemptions may be suspended or
payment dates postponed if the New York Stock Exchange is closed, its trading is
restricted or the Securities and Exchange Commission declares an emergency.
Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the share price
calculated on the day your account is closed.
HOW TO SYSTEMATICALLY PURCHASE
OR REDEEM SHARES
Call 1-800-426-6730 or 206-545-5530, in Seattle, for more information.
AUTOMATIC INVESTMENT METHOD (AIM)
AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount (minimum of $100 per withdrawal per Fund)
from your bank account and invest the amount in any Fund.
PAYROLL DEDUCTION PLAN
An employer or other entity using group billing may establish a
self-administered payroll deduction plan in any Fund. Payroll deduction amounts
are negotiable.
SYSTEMATIC WITHDRAWAL PLAN
This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund) on or about the fifth business
day of every month.
-- 55 --
<PAGE> 60
- ------------------------------------------------------------------------
HOW TO EXCHANGE SHARES FROM
ONE FUND TO ANOTHER
An exchange is the redemption of shares of one SAFECO Fund and the purchase of
shares of another SAFECO Fund in accounts which are identically registered;
i.e., have the same registered owners and account number. For income tax
purposes, depending on the cost or other basis of the shares you exchange, you
may realize a capital gain or loss when you make an exchange. You may purchase
shares of a SAFECO Fund by exchange only if it is registered for sale in the
state where you reside. Before exchanging into a SAFECO Fund, please read its
Prospectus.
BY WRITTEN REQUEST
Shares may be exchanged by writing SAFECO Services at the address on the
Prospectus cover. Please designate the SAFECO Funds you wish to exchange out of
and into as well as your account number. The request must be signed by the
number of owners designated on your account application and in some cases a
signature guarantee may be required. See "Account Changes and Signature
Requirements" on page 47 for more information.
If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319.
Exchanges by telephone must be in amounts of $1,000 or more. Telephone exchanges
are not available for shares issued in certificate form.
-- 56 --
<PAGE> 61
- ------------------------------------------------------------------------
HOW TO EXCHANGE SHARES FROM
ONE FUND TO ANOTHER (Continued)
Please read "Telephone Transactions" on page 58 for other important information.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 59 for
important information.
LIMITATIONS
The exchange privilege is not intended to provide a means for frequent trading
in response to short-term fluctuations in the market. Excessive exchange
transactions can be disadvantageous to other shareholders and the Funds.
Exchanges out of a Fund are therefore limited to four per calendar year. In
addition, each Fund reserves the right to refuse exchange purchases by any
person or group if, in SAM's judgment, the Fund would be unable to invest the
money effectively in accordance with that Fund's investment objective and
policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the restrictions described in this paragraph at any
time.
SHARE EXCHANGE PRICE AND PROCESSING
The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received. Normally, the
purchase of the SAFECO Fund you are exchanging into is executed on the same day.
However, each Fund reserves the right to delay the payment of proceeds and,
hence, the purchase in an exchange for up to seven days if making immediate
payment could adversely affect the portfolio of the Fund whose shares are being
redeemed. The exchange privilege may be modified or terminated with respect to a
Fund at any time, upon at least 60 days' notice to shareholders.
-- 57 --
<PAGE> 62
- ------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 206-545-7319 between 5:30 a.m. and 7:00 p.m. Pacific time, Monday
through Friday, except certain holidays. All telephone calls are tape-recorded
for your protection. During times of drastic or unusual market volatility, it
may be difficult for you to exercise the telephone transaction privilege.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone allows
the Funds and SAFECO Services to accept telephone instructions from an account
owner or a person preauthorized in writing by an account owner.
Each Fund and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services in its sole discretion is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.
The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will follow certain procedures designed to
make sure that telephone instructions are genuine. These procedures may include
requiring the account owner to select the telephone privileges in writing prior
to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services tape-records telephone transactions and may
request certain identifying information from the caller.
-- 58 --
<PAGE> 63
- ------------------------------------------------------------------------
TELEPHONE TRANSACTIONS (Continued)
The telephone transaction privilege may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services.
TRANSACTIONS THROUGH
REGISTERED INVESTMENT ADVISERS
SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the adviser is registered under the Investment
Advisers Act of 1940, has a signed agreement with SAFECO Services and has an
executed power of attorney from the shareholder, in an acceptable form, on file
with SAFECO Services. Advisers may charge a fee to shareholders for their
services which the Trust, the Funds and SAFECO Services have no control over or
involvement with. Advisers are responsible for the prompt forwarding of
instructions on shareholders' accounts to SAFECO Services and are bound by the
terms of this Prospectus. The Trust, the Funds, SAFECO Services and their
affiliated companies will not be responsible to any shareholder for any losses,
liabilities, costs or expenses associated with any investment advice or
recommendation provided by the adviser to the shareholder or for accepting and
following any instructions from such adviser on the shareholder's account(s).
RATINGS SUPPLEMENT -- EQUITY,
INCOME AND BALANCED FUNDS
DESCRIPTION OF DEBT RATINGS
Ratings by Moody's and S&P represent their respective opinions as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.
-- 59 --
<PAGE> 64
- ------------------------------------------------------------------------
RATINGS SUPPLEMENT -- EQUITY,
INCOME AND BALANCED FUNDS
(Continued)
Excerpts from Moody's description of its ratings:
INVESTMENT GRADE:
AAA -- Judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be anticipated are most unlikely to impair the fundamentally strong
position of such issues.
AA -- Judged to be of high quality by all standards. Together with the Aaa group
they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Have many favorable investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility
to impairment sometime in the future.
BAA -- Considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
BELOW INVESTMENT GRADE:
BA -- Judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest
-- 60 --
<PAGE> 65
- ------------------------------------------------------------------------
RATINGS SUPPLEMENT -- EQUITY,
INCOME AND BALANCED FUNDS
(Continued)
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future.
B -- Generally lack characteristics of a desirable investment. Assurance of
interest and principal payments over any long period of time may be uncertain.
CAA -- Have poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
CA -- Represent obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
C -- The lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its ratings:
INVESTMENT GRADE:
AAA -- The highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Have an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
-- 61 --
<PAGE> 66
- ------------------------------------------------------------------------
RATINGS SUPPLEMENT -- EQUITY,
INCOME AND BALANCED FUNDS
(Continued)
interest and repay principal for debt in this category than in higher rated
categories.
BELOW INVESTMENT GRADE:
BB, B, CCC, CC -- Predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "CC" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C -- Reserved for income bonds on which no interest is being paid.
D -- In default, and payment of interest and/or repayment of principal is in
arrears.
PLUS (+) OR MINUS (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The weighted average ratings of all debt securities held by the Income Fund,
expressed as a percentage of total investments held during the fiscal year ended
September 30, 1995, were as follows:
<TABLE>
<CAPTION>
MOODY'S % S&P %
------- - --- -
INVESTMENT GRADE
<S> <C> <C> <C>
Aaa -- AAA --
Aa -- AA --
A 3.0 A 1.0
Baa 2.6 BBB 4.6
</TABLE>
-- 62 --
<PAGE> 67
- ------------------------------------------------------------------------
RATINGS SUPPLEMENT -- EQUITY,
INCOME AND BALANCED FUNDS (Continued)
<TABLE>
<CAPTION>
MOODY'S % S&P %
- ------- - --- -
BELOW INVESTMENT GRADE
<S> <C> <C> <C>
Ba 4.0 BB 4.7
B 4.9 B 3.0
Caa -- CCC .6
Ca -- CC --
Not Rated, but Not Rated, but
determined to be determined to be
investment grade -- investment grade --
Not Rated, but Not Rated, but
determined to be determined to be
below investment below investment
grade 3.7 grade 4.3
</TABLE>
The Equity Fund did not hold any convertible debt securities during the fiscal
year ended September 30, 1995.
-- 63 --
<PAGE> 68
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SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME WITH LONG-TERM GROWTH
SAFECO Income Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
FEES AND EXPENSES, CALL OR WRITE FOR A FREE PROSPECTUS. PLEASE READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
-- 64 --
<PAGE> 69
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
Statement of Additional Information
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus for the Funds. A copy of the Prospectus may
be obtained by writing SAFECO Mutual Funds, P.O. Box 34890, Seattle, Washington
98124-1890, or by calling TOLL FREE:
Nationwide
1-800-426-6730
Seattle Area
206-545-5530
Hearing Impaired TDD/TTY Service
1-800-438-8718
The date of the most current Prospectus of the Funds to which this Statement of
Additional Information relates is January 31, 1996.
The date of this Statement of Additional Information is January 31, 1996.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Overview of Investment Policies
Investment Policies of
the Growth Fund
Investment Policies of
the Equity Fund
Investment Policies of
the Income Fund
Investment Policies of
the Northwest Fund
Investment Policies of
the Balanced Fund
Investment Policies of
the International Fund
Investment Policies of
the Small Company Fund
Additional Investment Information
Special Risks of Below Investment
<PAGE> 70
Grade Bonds - Equity, Income,
Balanced and Small Company Funds
Special Risks of Foreign Investments
and Foreign Currency Transactions
Principal Shareholders of
the Funds
Additional Tax Information
Additional Information on
Calculation of Net Asset
Value Per Share
Additional Performance
Information
Trustees and Officers
Investment Advisory and
Other Services
Brokerage Practices
Redemption in Kind
Financial Statements
Description of Commercial Paper
and Preferred Stock Ratings
OVERVIEW OF INVESTMENT POLICIES
SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"), SAFECO
Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"), SAFECO
Balanced Fund ("Balanced Fund"), SAFECO International Stock Fund ("International
Fund") and SAFECO Small Company Stock Fund ("Small Company Fund") (collectively,
the "Funds") are each a series of the SAFECO Common Stock Trust ("Trust"). The
investment policies of each Fund are described in the Prospectus and this
Statement of Additional Information. These policies state the investment
practices that the Funds will follow, in some cases limiting investments to a
certain percentage of assets, as well as those investment activities that are
prohibited. The types of securities (e.g., common stock, U.S. Government
securities or bonds) a Fund may purchase are also disclosed in the Prospectus.
Before a Fund purchases a security that the following policies permit, but which
is not currently described in the Prospectus, the Prospectus will be amended or
supplemented to describe the security. If a policy's percentage limitation is
adhered to immediately after and as a result of the investment, a later increase
or decrease in values, net assets or other circumstances will not be considered
in determining whether a Fund complies with the applicable limitation.
Each Fund's fundamental policies may not be changed without the approval of a
"majority of its outstanding voting securities," as defined by the Investment
Company Act of 1940 ("1940 Act"). For purposes of such approval, the vote of a
-2-
<PAGE> 71
majority of the outstanding voting securities of a Fund means the vote, at a
meeting of the shareholders of such Fund duly called, (i) of 67% or more of the
voting securities present at such meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (ii) of
more than 50% of the outstanding voting securities, whichever is less.
Non-fundamental policies may be changed by the Trust's Board of Trustees without
shareholder approval.
INVESTMENT POLICIES OF THE GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES
The Growth Fund has adopted the following fundamental investment policies. The
Growth Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value of
the Growth Fund's total assets would be invested in the securities of such
issuer, except that up to 25% of the value of such assets (which 25% shall
not include securities issued by another investment company) may be
invested without regard to this 5% limitation.
2. 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.
3. 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.
4. Concentrate its investments in particular industries or companies, but
shall maintain substantial diversification of its investments among
industries and, to the extent deemed practicable by management, among
companies within particular industries.
5. Purchase securities on margin, except for short-term credits as are
necessary for the clearance of transactions.
6. 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.
7. Make loans to any person, firm or corporation, but the purchase by the
Growth Fund of a portion of an issue of publicly distributed bonds,
debentures or other securities issued by persons other than the Growth
Fund, whether or not the purchase was made upon the original issue of
securities, shall not be considered a loan within the prohibition of this
section.
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8. Borrow money, except from banks or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the Growth Fund from
commercial banks as a temporary measure for 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 in excess of 5% of the Fund's total assets are
outstanding.
9. Pledge, mortgage or hypothecate assets taken at market to an extent
greater than 15% of its gross assets taken at cost.
10. 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 directors of
the Growth Fund, together, own beneficially more than five percent (5%) of
any class of the securities of such issuer.
11. 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.
12. Act as underwriter of securities issued by any other person, firm or
corporation; however, the Growth Fund may be deemed to be a statutory
underwriter as that term is defined in the 1940 Act and the Securities Act
of 1933 in connection with the disposition of any unmarketable or
restricted securities which it may acquire and hold in its portfolio.
13. Buy or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts in the ordinary
course of business, but this policy shall not be construed as preventing
the Growth Fund from acquiring real estate, commodities, commodity
contracts or futures contracts through liquidating distributions as a
result of the ownership of securities.
14. Participate, on a joint or joint and several basis, in any trading
account in securities.
15. 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 may prescribe by rules and regulations, reduce the
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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.
16. 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.
17. Purchase foreign securities unless (a) such securities are listed on a
national securities exchange, and (b) such purchase, at the time thereof,
would not cause more than 10% of the total assets of the Growth Fund
(taken at market value) to be invested in foreign securities.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Growth Fund has adopted the following non-fundamental policies with respect
to its investment activities:
1. The Growth Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign portfolio
securities into United States dollars.
2. The Growth Fund will not issue long-term debt securities.
3. The Growth Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
4. The Growth Fund will not invest in oil, gas or other mineral exploration,
development programs or leases.
5. The Growth Fund will not invest in puts, calls, straddles, spreads or any
combinations thereof.
6. The Growth Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
7. Although the Growth Fund has the right to pledge, mortgage or hypothecate
its assets up to 15% of gross assets under the fundamental policy at
section 9 above, it will only do so up to ten percent (10%) of its net
assets in order to comply with state law.
8. The Growth Fund will invest no more than five percent (5%) of total
assets in qualified repurchase agreements and will not enter into a
repurchase Agreement for a period longer than 7 days.
9. The Growth Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end money market
funds (subject to the fundamental policy limitations set forth in section
11 above), repurchase agreements (subject to the non-fundamental policy
limitations in section 8 above) or any other short-term instrument that
SAM deems appropriate.
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10. The Growth Fund may invest up to 5% of net assets in warrants, but will
limit investments in warrants which are not listed on the New York or
American Stock Exchange to no more than two percent (2%) of net assets.
Warrants acquired as a result of unit offerings or attached to securities
may be deemed without value for purposes of the 5% limitation.
11. The Growth Fund may invest up to 10% of its total assets in contingent
value rights.
12. The Growth Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
13. The Growth Fund may invest up to 5% of its net assets (taken at market
value) in illiquid securities or restricted securities (other than
restricted securities eligible for resale under Rule 144A).
INVESTMENT POLICIES OF THE EQUITY FUND
FUNDAMENTAL INVESTMENT POLICIES
The Equity Fund has adopted the following fundamental investment policies. The
Equity Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies and instrumentalities) if as a result more than 5% of the value
of the Equity Fund's total assets would be invested in the securities of
such issuer, except that up to 25% of the value of the Fund's assets
(which 25% shall not include securities issued by another investment
company) may be invested without regard to this 5% limitation.
2. Purchase securities of any issuer, if such purchase at the time thereof
would cause more than 10% of the outstanding voting securities of such
issuer to be held by the Equity Fund.
3. Make short sales of securities or purchase securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions and where the Equity 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.
4. Purchase securities (other than obligations issued or guaranteed by the
United States government, its agencies or instrumentalities) if as a
result more than 25% of the Equity Fund's total assets would be invested
in one industry (governmental issues of securities are not considered part
of any one industry).
5. Make loans, except through the purchase of a portion or all of an issue
of debt or money market securities in accordance with the Equity Fund's
investment objective, policies and restrictions or through investments in
qualified repurchase agreements; provided, however, that the Equity Fund
shall not invest more than 10% of its total assets in qualified repurchase
agreements or through qualified loan agreements.
6. Borrow money, except from a bank or affiliates of SAFECO Corporation at
an interest rate not greater than that available to the Equity Fund from
commercial banks for temporary or emergency purposes and not for
investment purposes. The Equity Fund will not purchase securities if
borrowings in excess of 5% of the Fund's total assets are outstanding.
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7. Purchase shares of registered investment companies other than real estate
investment trusts.
8. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in accordance
with the Equity Fund's investment objective, policies and restrictions and
the subsequent disposition thereof may be deemed to be an underwriting, 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.
9. Purchase or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts. This limitation is
intended to include ownership of real estate through limited partnerships.
10. Purchase any security for the purpose of acquiring or exercising control
or management of the issuer.
11. 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.
12. 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 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 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.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Equity Fund has adopted the following non-fundamental policies with respect
to its investment activities:
1. The Equity Fund will not participate on a joint or joint and several
basis in any trading account in securities, except that the Equity 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 Fund's investment adviser or the investment
adviser's parent company and any subsidiary thereof.
2. The Equity Fund will not purchase securities of any issuer which with its
predecessors has been in operation less than three years, if such purchase
would cause more than 5% of the Equity Fund's total assets to be invested
in such issuers.
3. The Equity Fund will not trade in foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign portfolio
securities into U.S. dollars.
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<PAGE> 76
4. The Equity Fund will not purchase securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
5. The Equity Fund will not invest in oil, gas or other mineral exploration,
development programs or leases.
6. The Equity Fund will not pledge, mortgage, or hypothecate its portfolio
securities to the extent that, at any time, the percentage of pledged
securities at market value will exceed 10% of its net assets.
7. The Equity Fund will invest no more than 5% of total assets in qualified
repurchase agreements and will not enter into a repurchase Agreement for a
period longer than 7 days.
8. The Equity Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, repurchase agreements (subject
to the non-fundamental policy limitations in section 7) or any other
short-term instrument SAM deems appropriate.
9. The Equity Fund may invest up to 5% of net assets in warrants purchased
at the lower of market or cost, but will limit investments in warrants
which are not listed on the New York or American Stock Exchange to no more
than 2% of net assets. Warrants acquired as a result of unit offerings or
attached to securities may be deemed without value for purposes of the 5%
limitation.
10. The Equity Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
11. The Equity Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by the
Board of Trustees.
12. The Equity Fund may invest in securities convertible into common stock,
but less than 35% of its total assets will be invested in such securities.
13. The Equity Fund may purchase foreign securities, provided that such
purchase at the time thereof would not cause more than ten percent (10%)
of the total assets of the Equity Fund taken at market value to be
invested in foreign securities.
INVESTMENT POLICIES OF THE INCOME FUND
FUNDAMENTAL POLICIES
The Income Fund has adopted the following fundamental investment policies. The
Income Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value of
its total assets would be invested in the securities of such issuer,
except that up to 25% of the value of such assets (which 25% shall not
include securities issued by another investment company) may be invested
without regard to this 5% limitation.
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<PAGE> 77
2. 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.
3. 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.
4. Concentrate its investments in particular industries or companies, but
shall maintain substantial diversification of its investments among
industries and, to the extent deemed practicable by management, among
companies within particular industries; in no event shall the Income Fund
invest more than 25% of its assets in any one industry.
5. Purchase securities on margin, except for short-term credits as are
necessary for the clearance of transactions.
6. 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 securities equivalent in kind and
amount to the securities sold.
7. Make loans to any person, firm or corporation, but the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities issued by persons other than the Income Fund, whether or not
the purchase was made upon the original issue of the securities, shall not
be considered as a loan within the prohibition of this section.
8. Borrow money, except from banks or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the Income Fund from
commercial banks as a temporary measure for 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 in excess of 5% of the Fund's total assets are outstanding.
9. Pledge, mortgage or hypothecate assets taken at market to an extent
greater than 15% of its gross assets taken at cost.
10. 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 Income Fund, if or so long as the officers or directors of
the Income Fund together own beneficially more than five percent (5%) of
any class of the securities of such issuer.
11. 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
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<PAGE> 78
percent (5%) of the value of the Income 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.
12. Underwrite securities issued by any other person, firm or corporation;
however the Income Fund may be deemed a statutory underwriter as that term
is defined in the 1940 Act and the Securities Act of 1933 in connection
with the disposition of any unmarketable or restricted securities which it
may acquire and hold in its portfolio.
13. Buy or sell real estate, (except real estate investment trusts)
commodities, commodity contracts or futures contracts.
14. Participate, on a joint or joint and several basis, in any trading
account in securities.
15. Purchase foreign securities, unless (a) such securities are listed on a
national securities exchange, and (b) such purchase at the time thereof
would not cause more than 10% of the total assets of the Income Fund
(taken at market value) to be invested in foreign securities.
16. 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 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 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.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Income Fund has adopted the following non-fundamental policies with respect
to its investment activities:
1. The Income Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign portfolio
securities into U.S. dollars.
2. The Income Fund will not issue long-term debt securities.
3. Although the Income Fund has the right to pledge, mortgage or hypothecate
its assets up to 15% of gross assets under the fundamental policy at
section 9 above, it will only do so up to 10% of its net assets.
4. The Income Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
5. The Income Fund will not invest in oil, gas or other mineral exploration,
development programs or leases.
6. The Income Fund will not invest in puts, calls, straddles, spreads or any
combinations thereof.
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<PAGE> 79
7. The Income Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
8. The Income Fund will invest no more than 5% of total assets in qualified
repurchase agreements and will not enter into a repurchase Agreement for a
period longer than 7 days.
9. The Income Fund will invest primarily in common stock and may also invest
in convertible and non-convertible bonds and preferred stock.
10. The Income Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end money market
funds (subject to the fundamental policy limitations set forth in section
11 above), repurchase agreements (subject to the non-fundamental policy
limitations in section 8 above) or any other short-term instrument SAM
deems appropriate.
11. The Income Fund may invest up to 5% of net assets in warrants, but will
limit investments in warrants which are not listed on the New York or
American Stock Exchange to no more than 2% of net assets. Warrants
acquired as a result of unit offerings or attached to securities may be
deemed without value for purposes of the 5% limitation.
12. The Income Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
13. The Income Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by the
Board of Trustees.
INVESTMENT POLICIES OF THE NORTHWEST FUND
FUNDAMENTAL POLICIES
The Northwest Fund has adopted the following fundamental investment policies.
The Northwest Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value of
its total assets at the time of purchase would be invested in the
securities of such issuer, except that up to 25% of the Fund's total
assets (which 25% shall not include securities issued by another
investment company) may be invested without regard to this 5% limitation.
2. 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.
3. Concentrate its investments in particular industries (other than
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities) or invest 25% or more of the Fund's total assets in any
one industry (governmental issues of securities are not considered part of
one industry).
4. Purchase securities on margin, except for short-term credits necessary
for the clearance of transactions.
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<PAGE> 80
5. Make short sales (sales of securities not presently owned).
6. Make loans, except through the purchase of a portion or all of an issue
of debt securities in accordance with the Northwest Fund's investment
objective, policies and restrictions or through the purchase of qualified
repurchase agreements.
7. Borrow money, except from a bank or SAFECO Corporation or its affiliates
at an interest rate not greater than that available to the Northwest Fund
from commercial banks, for temporary or emergency 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 in excess of 5% of the
Fund's total assets are outstanding.
8. Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by section 7 above, the Northwest Fund may pledge
securities having a market value at the time of pledge not exceeding 10%
of the Fund's total assets.
9. 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.
10. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in accordance
with the Northwest Fund's investment objective, policies and restrictions
and the subsequent disposition thereof may be deemed to be underwriting,
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.
11. Purchase or sell real estate, except real estate investment trusts.
12. Purchase or sell commodities, commodity contracts or futures contracts.
13. Participate, on a joint or joint-and-several basis, in any trading
account in securities, except that the Northwest 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.
14. 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 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 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.
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<PAGE> 81
15. 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.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Northwest Fund has adopted the following policies with respect to its
investment activities:
1. The Northwest Fund will not buy or sell foreign exchange, except as may
be necessary to invest the proceeds of the sale of foreign securities in
the Fund's portfolio in U.S. dollars.
2. The Northwest Fund will not issue long-term debt securities.
3. The Northwest Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
4. The Northwest Fund will not invest in oil, gas or other mineral
exploration or development programs.
5. The Northwest Fund will not invest in puts, calls, straddles, spreads or
any combinations thereof.
6. The Northwest Fund will not invest more than 5% of its total assets in
securities of companies (including predecessor companies) having a record
of less than 3 continuous operation.
7. The Northwest Fund will not invest in securities with unlimited
liability, e.g., securities the holder of which may be assessed for
amounts in addition to the subscription or other price paid for the
security.
8. The Northwest Fund will not invest more than 10% of its total assets in
qualified repurchase agreements and will not invest in qualified
repurchase agreements maturing in more than 7 days.
9. The Northwest Fund will not purchase the securities of 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 as
part of a merger, consolidation or acquisition. The Fund shall not invest
more than 10% of its total assets in shares of other investment companies
nor invest more than 5% of its total assets in a single investment
company.
10. The Northwest Fund may invest in shares of common stock selected
primarily for potential appreciation.
11. The Northwest Fund may occasionally invest in securities convertible into
common stock when, in the opinion of SAM, the expected total return of a
convertible security exceeds the expected total return of common stock
eligible for purchase by the Fund.
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<PAGE> 82
12. The Northwest Fund may invest up to 5% of its net assets in warrants, but
shall limit investments in warrants which are not listed on the New York
or American Stock Exchange to no more than 2% of net assets. Warrants
acquired as a result of unit offerings or attached to securities may be
deemed without value for purposes of the 5% limitation.
13. The Northwest Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, shares of no-load, open-end
money market funds (subject to the percentage limitations set forth in
section 9 above), repurchase agreements (subject to the limitations set
forth in section 8 above) or any other short-term instrument that SAM
deems appropriate.
14. The Northwest Fund shall not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-term
purposes when such action is believed to be desirable and consistent with
sound investment policy. The Fund may dispose of securities whenever its
adviser deems advisable without regard to the length of time they have
been held.
15. The Northwest Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by the
Board of Trustees.
16. The Northwest Fund may purchase foreign securities, provided that such
purchase, at the time thereof, would not cause more than 10% of the total
assets of the Northwest Fund (at market value) to be invested in foreign
securities.
INVESTMENT POLICIES OF THE BALANCED FUND
FUNDAMENTAL POLICIES
The Balanced Fund has adopted the following fundamental investment policies.
The Balanced Fund will NOT:
1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than 5%
of the value of the Balanced Fund's total assets would be invested in the
securities of such issuer or the Balanced Fund would own or hold more than
10% of the outstanding voting securities of such issuer), except that up
to 25% of the value of such assets (which 25% shall not include securities
issued by another investment company) may be invested without regard to
these limits;
2. Borrow money, except the Balanced Fund may borrow money for temporary and
emergency purposes (not for leveraging or investment purposes) in an
amount not exceeding 33 1/3% of its total assets (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;
3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the disposition
of portfolio securities, the Balanced Fund may be deemed an underwriter
under federal securities laws;
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4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more than
25% of the Balanced Fund's total assets would be invested in securities of
companies whose principal business activities are in the same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the Balanced Fund
may purchase or sell options or futures contracts and invest in securities
or other instruments backed by physical commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties; however, this limit does
not apply to purchases of debt securities or to repurchase agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Balanced Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The Balanced Fund will not purchase securities of companies which
together with any predecessors have a record of less than 3 years of
continuous operation, if such purchase at the time thereof would cause
more than 5% of the Fund's total assets to be invested in the securities
of such companies.
2. The Balanced Fund will not make short sales (sales of securities not
presently owned), except where the 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 to be sold.
3. The Balanced Fund will not purchase securities issued by any other
investment company, 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. Nothing in this policy 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.
4. The Balanced Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
5. The Balanced Fund will not invest more than 5% of its net assets in
warrants. Included in that amount, but not to exceed 2% of net assets, are
warrants whose underlying securities are not traded on principal domestic
or foreign exchanges. Warrants acquired by the Fund in units or attached
to securities are not subject to these limits.
6. The Balanced Fund will not invest in interests in real estate investment
trusts that are not readily marketable or interests in real estate limited
partnerships not listed or trade on NASDAQ National Market System if, as a
result, the sum of such interests considered illiquid and other illiquid
securities would exceed 15% of the Fund's net assets.
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7. The Balanced Fund will not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments made in connection with
futures contracts and options on futures shall not constitute purchasing
securities on margins.
8. The Balanced Fund may borrow money only from a bank or SAFECO Corporation
or affiliates thereof or by engaging in reverse repurchase agreements with
any party. The Fund will not purchase any securities while borrowings are
outstanding that represent more than 5% of its total assets.
9. The Balanced Fund will not purchase any security, if as a result, more
than 15% of its net assets would be invested in securities that are deemed
to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they
are valued.
10. The Balanced Fund will not make loans to any person, firm or corporation,
but the purchase by the Fund of a portion of an issue of publicly
distributed bonds, debentures or other securities issued by persons other
than the Fund, whether or not the purchase was made upon the original
issue of securities, shall not be considered a loan within the prohibition
of this section.
11. The Balanced Fund will not purchase or retain the securities of any
issuer if, to the knowledge of the Fund's management, the officers and
Trustees of the SAFECO Common Stock Trust and the officers and directors
of the investment adviser to the Fund (each owning beneficially more than
0.5% of the outstanding securities of an issuer) own in the aggregate 5%
or more of the securities of the issuer.
12. The Balanced Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by the
Board of Trustees.
13. The Balanced Fund shall not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-term
purposes when such action is believed to be desirable and consistent with
sound investment policy. The Fund may dispose of securities whenever its
adviser deems advisable without regard to the length of time they have
been held.
INVESTMENT POLICIES OF THE INTERNATIONAL FUND
FUNDAMENTAL POLICIES
The International Fund has adopted the following fundamental investment
policies. The International Fund will NOT:
1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than 5%
of the value of the International Stock Fund's total assets would be
invested in the securities of such issuer (or the International Stock Fund
would own or hold more than 10% of the outstanding voting securities of
such issuer), except that up to 25% of the value of such assets (which 25%
shall not include securities issued by another investment company) may be
invested without regard to these limits;
2. Borrow money, except the International Stock Fund may borrow money for
temporary and emergency purposes (not for leveraging or investment
purposes) in an amount not exceeding 33 1/3% of its total assets
(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;
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3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the disposition
of portfolio securities, the International Stock Fund may be deemed an
underwriter under federal securities laws;
4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more than
25% of the International Stock Fund's total assets would be invested in
securities of companies whose principal business activities are in the
same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the International
Stock Fund may purchase or sell options or futures contracts and invest in
securities or other instruments backed by physical commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties; however, this limit does
not apply to purchases of debt securities or to repurchase agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
The International Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The International Stock Fund will not purchase securities of companies
which together with any predecessors have a record of less than 3 years of
continuous operation, if such purchase at the time thereof would cause
more than 5% of the Fund's total assets to be invested in the securities
of such companies.
2. The International Stock Fund will not make short sales (sales of
securities not presently owned), except where the 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 to be sold.
3. The International Stock Fund will not purchase securities issued by any
other investment company, 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. Nothing in this policy 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.
4. The International Stock Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
5. The International Stock Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed 2% of net
assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund in
units or attached to securities are not subject to these limits.
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6. The International Stock Fund will not invest in interests in real estate
investment trusts that are not readily marketable or interests in real
estate limited partnerships not listed or traded on NASDAQ National Market
System if, as a result, the sum of such interests considered illiquid and
other illiquid securities would exceed 15% of the Fund's net assets.
7. The International Stock Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments made
in connection with futures contracts and options on futures shall not
constitute purchasing securities on margins.
8. The International Stock Fund may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse repurchase
agreements with any party. The Fund will not purchase any securities while
borrowings are outstanding that represent more than 5% of its total
assets.
9. The International Stock Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
10. The International Stock Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
persons other than the Fund, whether or not the purchase was made upon the
original issue of securities, shall not be considered a loan within the
prohibition of this section.
11. The International Stock Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the officers
and Trustees of the SAFECO Common Stock Trust and the officers and
directors of the investment adviser to the Fund (each owning beneficially
more than 0.5% of the outstanding securities of an issuer) own in the
aggregate 5% or more of the securities of the issuer.
12. The International Stock Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A, provided that
SAM has determined that such securities are liquid under guidelines
adopted by the Board of Trustees.
13. The International Stock Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments for
short-term purposes when such action is believed desirable and consistent
with sound investment policy. The Fund may dispose of securities whenever
its adviser deems advisable without regard to the length of time they have
been held.
INVESTMENT POLICIES OF THE SMALL COMPANY FUND
FUNDAMENTAL POLICIES
The Small Company Fund has adopted the following fundamental investment
policies. The Small Company Fund will NOT:
1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than 5%
of the value of the Small Company Stock Fund's total assets would be
invested in the securities of such issuer (or the Small Company Stock Fund
would own or hold more than 10% of the outstanding voting securities of
such issuer), except that up to 25% of the value of such assets (which 25%
shall not include securities issued by another investment company) may be
invested without regard to these limits;
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2. Borrow money, except the Small Company Stock Fund may borrow money for
temporary and emergency purposes (not for leveraging or investment
purposes) in an amount not exceeding 33 1/3% of its total assets
(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;
3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the disposition
of portfolio securities, the Small Company Stock Fund may be deemed an
underwriter under federal securities laws;
4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more than
25% of the Small Company Stock Fund's total assets would be invested in
securities of companies whose principal business activities are in the
same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the Small Company
Stock Fund may purchase or sell options or futures contracts and invest in
securities or other instruments backed by physical commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties; however, this limit does
not apply to purchases of debt securities or to repurchase agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Small Company Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The Small Company Stock Fund will not make short sales (sales of
securities not presently owned), except where the 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 to be sold.
2. The Small Company Stock Fund will not purchase securities issued by any
other investment company, 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. Nothing in this policy 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.
3. The Small Company Stock Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
4. The Small Company Stock Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed 2% of net
assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund in
units or attached to securities are not subject to these limits.
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5. The Small Company Stock Fund will not invest in interests in real estate
investment trusts that are not readily marketable or interests in real
estate limited partnerships not listed or trade on NASDAQ National Market
System if, as a result, the sum of such interests considered illiquid and
other illiquid securities would exceed 15% of the Fund's net assets.
6. The Small Company Stock Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments made
in connection with futures contracts and options on futures shall not
constitute purchasing securities on margins.
7. The Small Company Stock Fund may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse repurchase
agreements with any party. The Fund will not purchase any securities while
borrowings are outstanding that represent more than 5% of its total
assets.
8. The Small Company Stock Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
9. The Small Company Stock Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
persons other than the Fund, whether or not the purchase was made upon the
original issue of securities, shall not be considered a loan within the
prohibition of this section.
10. The Small Company Stock Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the officers
and Trustees of the SAFECO Common Stock Trust and the officers and
directors of the investment adviser to the Fund (each owning beneficially
more than 0.5% of the outstanding securities of an issuer) own in the
aggregate 5% or more of the securities of the issuer.
11. The Small Company Stock Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A, provided that
SAM has determined that such securities are liquid under guidelines
adopted by the Board of Trustees.
12. The Small Company Stock Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments for
short-term purposes when such action is believed to be desirable and
consistent with sound investment policy. The Fund may dispose of
securities whenever its adviser deems advisable without regard to the
length of time they have been held.
13. The Small Company Stock Fund will not purchase securities of companies
which together with any predecessors have a record of less than 3 years of
continuous operation, if such purchase at the time thereof would cause
more than 5% of the Fund's total assets to be invested in the securities
of such companies.
ADDITIONAL INVESTMENT INFORMATION
Each Fund may make the following investments, among others, although they may
not buy all of the types of securities that are described.
1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted securities
are securities that may be sold only in a public offering with respect to
which a registration statement is in effect under the 1933 Act or, if they
are unregistered, in a privately negotiated transaction or pursuant to an
exemption from registration. In recognition of the increased size and
liquidity of the institutional markets for unregistered securities and the
importance of institutional investors in the formation of capital, the
Securities and Exchange Commission ("SEC") has adopted Rule 144A under the
1933 Act, which is designed to further facilitate efficient trading among
institutional investors by permitting the sale of Rule 144A securities to
qualified institutional buyers. To the extent privately placed securities
held by a Fund qualify under Rule 144A and an institutional market
develops for those securities, the Fund likely will be able to dispose of
the securities without registering them under the 1933 Act. SAM, acting
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under guidelines established by the Trust's Board of Trustees, may
determine that certain securities qualified for trading under Rule 144A
are liquid.
Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If, during such
a period, adverse market conditions were to develop, the Fund might obtain
a less favorable price than prevailed when it decided to sell. To the
extent privately placed securities are illiquid, purchases thereof will be
subject to any limitations on investments in illiquid securities.
Restricted securities for which no market exists are priced at fair value
as determined in accordance with procedures approved and periodically
reviewed by the Trust's Board of Trustees.
2. WARRANTS. A warrant is an option issued by a corporation that gives the
holder the right to buy a stated number of shares of common stock of the
corporation at a specified price within a designated time period.
Warrants may be purchased and sold separately or attached to stocks or
bonds as part of a unit offering. The term of a warrant may run from two
to five years and in some cases the term may be longer. The exercise
price carried by the warrant is usually well above the prevailing market
price of the underlying common stock at the time the warrant is issued.
The holder of a warrant has no voting rights and receives no dividends.
Warrants are freely transferable and may trade on the major national
exchanges.
Warrants may be speculative. Generally, the value of a warrant will
fluctuate by greater percentages than the value of the underlying common
stock. The primary risk associated with a warrant is that the term of the
warrant may expire before the exercise price of the common stock has been
reached. Under these circumstances, a Fund could lose all of its principal
investment in the warrant.
A Fund will invest in a warrant only if the Fund has the authority to
hold the underlying common stock. Additionally, if a warrant is part of a
unit offering, a Fund will purchase the warrant only if it is attached to
a security in which the Fund has authority to invest. In all cases, a Fund
will purchase warrants only after SAM determines that the exercise price
for the underlying common stock is likely to be achieved within the
required time-frame and for which an actively traded market exists. SAM
will make this determination by analyzing the issuer's financial health,
quality of management and any other factors deemed to be relevant.
3. REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund and the seller
agree at the time of sale to the repurchase of a security at a mutually
agreed upon time and place. The period of maturity is usually quite
short, possibly overnight or a few days, although it may extend over a
number of months. The resale price is in excess of the purchase price,
reflecting an agreed upon market rate effective for the period of time a
Fund's money is invested in the security (which is not related to the
coupon rate of the purchased security). Repurchase agreements may be
considered loans of money to the seller of the underlying security, which
are collateralized by the securities underlying the repurchase Agreement.
A Fund will not enter into a repurchase agreement unless the agreement is
fully collateralized. A Fund will take possession of the securities
underlying the Agreement and will value them daily to assure that this
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condition is met. In the event that a seller defaults on a repurchase
agreement, a Fund may incur loss in the market value of the collateral, as
well as disposition costs; and, if a party with whom a Fund has entered
into a repurchase agreement becomes involved in a bankruptcy proceeding,
a Fund's ability to realize the collateral may be limited or delayed and
a loss may be incurred if the collateral securing the repurchase Agreement
declines in value during the bankruptcy proceeding. Foreign repurchase
agreements may be less well secured than U.S. repurchase agreements and
may be subject to currency risks. In addition, foreign counterparties may
be less creditworthy than U.S. counterparties.
4. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSITS. In making temporary
investments in commercial paper and certificates of deposit, a Fund will
adhere to the following guidelines:
a) Commercial paper must be rated A-1 or A-2 by Standard & Poor's
Rating Group ("S&P") or Prime-1 or Prime-2 by Moody's Investor
Services ("Moody's") or issued by companies with an unsecured debt
issue currently outstanding rated AA by S&P or Aa by Moody's or
higher.
b) Certificates of deposit must be issued by banks or savings and loan
associations that have total assets of at least $1 billion or, in
the case of a bank or savings and loan association not having total
assets of at least $1 billion, the bank or savings and loan
association is insured by the Federal Deposit Insurance Corporation
in which case the Growth Fund will limit its investment to the
statutory insurance coverage.
5. CONTINGENT VALUE RIGHTS. A contingent value right ("CVR") is a right
issued by a corporation that takes on a pre-established value if the
underlying common stock does not attain a target price by a specified
date. Generally, a CVR's value will be the difference between the target
price and the current market price of the common stock on the target date.
If the common stock does attain the target price by the date, the CVR
expires without value. CVRs may be purchased and sold as part of the
underlying common stock or separately from the stock. CVRs may also be
issued to owners of the underlying common stock as the result of a
corporation's restructuring.
6. REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs purchase real property,
which is then leased, and make mortgage investments. For federal income
tax purposes REITs attempt to qualify for beneficial tax treatment by
distributing at least 95% of their taxable income. If a REIT is unable to
qualify for such beneficial tax treatment, it would be taxed as a
corporation and distributions to its shareholders would not be deductible
by it in computing its taxable income.
REITs are dependent upon the successful operation of the properties owned
and the financial condition of lessees and mortgagors. The value of REIT
units will fluctuate depending on the underlying value of the real
property and mortgages owned and the amount of cashflow (net income plus
depreciation) generated and paid out. In addition, REITs typically borrow
to increase funds available for investment. Generally there is a greater
risk associated with REITs that are highly leveraged.
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7. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
sold within seven days in the ordinary course of business for
approximately the amount at which they are valued. Due to the absence of
an active trading market, a Fund may experience difficulty in valuing or
disposing of illiquid securities. SAM determines the liquidity of the
securities under guidelines adopted by the Trust's Board of Trustees.
8. CONVERTIBLE SECURITIES. Convertible bonds and convertible preferred stock
may be exchanged for a stated number of shares of the issuer's common
stock at a certain price known as the conversion price. The conversion
price is usually greater than the price of the common stock at the time
the convertible security is purchased. Generally, the interest rate of
convertible bonds and the yield of convertible preferred stock will be
lower than the issuer's non-convertible securities. Also, the value of
convertible securities will normally vary with the value of the underlying
common stock and fluctuate inversely with interest rates. However,
convertible securities may show less volatility in value than the issuer's
non-convertible securities. A risk associated with convertible bonds and
convertible preferred stock is that the conversion price of the common
stock will not be attained.
9. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. Under this procedure, a Fund
agrees to acquire securities (whose terms and conditions, including price,
have been fixed by the issuer) that are to be issued and delivered against
payment in the future. Delivery of securities so sold normally takes place
30 to 45 days (settlement date) after the date of the commitment. No
interest is earned by a Fund prior to the settlement date. The value
of securities sold on a "when-issued" or "delayed-delivery" basis may
fluctuate before the settlement date and the Fund bears the risk of such
fluctuation from the date of purchase. A Fund may dispose of its interest
in those securities before delivery.
10. SOVEREIGN DEBT OBLIGATIONS. Sovereign debt instruments are issued or
guaranteed by foreign governments or their agencies. Sovereign debt may
be in the form of conventional securities or other types of debt
instruments such as loans or loan participations. Governments or
governmental entities responsible for repayment of the debt may be unable
or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. Repayment of principal
and interest may depend also upon political and economic factors.
11. INDEXED SECURITIES. Indexed securities are securities whose prices are
indexed to the prices of other securities, securities indices, currencies,
commodities or other financial indicators. Indexed securities generally
are debt securities whose value at maturity or interest rate is determined
by reference to a specific instrument or statistic. Currency-indexed
securities generally are debt securities whose maturity values or interest
rates are determined by reference to values of one or more specified
foreign currencies. Currency-indexed securities may be positively or
negatively indexed; i.e., their maturity value may increase when the
specified currency value increases, resulting in a security that performs
similarly to a foreign-denominated instrument, or their maturity value may
decline when foreign currencies increase, resulting in a security whose
price characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the values
of different foreign securities relative to each other.
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The performance of an indexed security depends largely on the performance
of the security, currency or other instrument to which they are indexed.
Performance may also be influenced by interest rate changes in the U.S.
and foreign countries. Indexed securities additionally are subject to
credit risks associated with the issuer of the security. Their values may
decline substantially if the issuer's creditworthiness deteriorates.
Indexed securities may also be more volatile than their underlying
instruments.
12. PRIVATE FOREIGN INVESTMENT COMPANIES ("PFICS"). PFICs are funds or
trusts organized as investment vehicles to invest in companies of certain
foreign countries. Investors in a PFIC bear their proportionate share of
the PFIC's management fees and other expenses.
13. SHORT SALES AGAINST THE BOX. A Fund may make short sales of securities or
maintain a short position, provided that at all times when a short
position is open the Fund owns an equal amount of such securities or an
equal amount of the securities of the same issuer as the securities sold
short (a "short sale against the box"). Funds engaging in short sales
against the box will incur transaction costs.
14. OPTIONS ON EQUITY SECURITIES. (International Fund only.) The
International Fund may purchase and write (i.e., sell) put and call
options on equity securities that are traded on national securities
exchanges or that are listed on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). A call option is a short-
term contract pursuant to which the purchaser or holder, in return for a
premium paid, has the right to buy the equity security underlying the
option at a specified exercise price (the strike price) at any time during
the term of the option. The writer of the call option, who received the
premium, has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the strike price. A put
option is a similar contract that gives the purchaser or holder, in return
for a premium, the right to sell the underlying equity security at a
specified exercise price (the strike price) during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy
the underlying equity security at the strike price upon exercise by the
holder of the put.
The Fund will write call options on stocks only if they are covered, and
such options must remain covered so long as the Fund is obligated as a
writer. A call option is "covered" if: the Fund has an immediate right to
acquire that security without additional cash consideration (or for
additional cash consideration held in a segregated account by its
custodian); upon the Fund's conversion or exchange of other securities
held in its portfolio; or the Fund holds a share-for-share basis a call on
the same security as the call written where the strike price of the call
held is equal to or less than the strike price of the call written or
grater than the strike price of the call written if the difference is
maintained by the Fund in cash, Treasury bills or other liquid high-grade
short-term debt obligations in a segregated account with its custodian.
The Fund will write put options on stocks only if they are covered, and
such options must remain covered so long as the Fund is obligated as a
writer. A put option is "covered" if: the Fund holds in a segregated
account cash, Treasury bills, or other liquid high-grade short-term debt
obligations of a value equal to the strike price; or the Fund holds on a
share-for-share basis a put on the same security as the put written where
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the strike price of the put held is equal to or grater than the strike
price of the put written or less than the strike price of the put written
if the difference is maintained by the Fund in cash, Treasury bills, or
other liquid high-grade short-term obligations in a segregated account
with its custodian.
The Fund may purchase "protective puts," i.e., put options acquired for
the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund
acquires the right to sell the underlying security at the strike price of
the put regardless of the extent to which the underlying security declines
in value. The loss to the Fund is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial excess, if
any, of the market price of the underlying security over the strike price.
However, if the market price of the security underlying the put rises, the
profit the Fund realizes on the sale of the security will be reduced by
the premium paid for the put option less any amount (net of transaction
costs) of which the put may be sold.
The Fund does not intend to invest more than 5% of its net assets at any
one time in the purchase of call options on stocks.
If the Fund, as a writer of an option, wishes to terminate the
obligation, it may effect a "closing purchase transaction" by buying an
option of the same series as the option previously written. Similarly, the
holder of an option may liquidate his or her position by exercising the
option or by effecting a "closing sale transaction, i.e., selling an
option of the same series as the option previously purchased. The Fund may
effect closing sale and purchase transactions. The Fund will realize a
profit from a closing transaction if the price of the transaction is less
than the premium received from writing the option or is more than the
premium paid to purchase the option. Because increases in the market price
of a call option will generally reflect increases in the market price of
the underlying security, any loss resulting from a closing purchase
transaction with respect to a call option is likely to be offset in whole
or in part by appreciation of the underlying equity security owned by the
Fund. There is no guaranty that closing purchase or closing sale
transactions can be effected.
The Fund's use of options on equity securities is subject to certain
special risks, in addition to the risk that the market value of the
security will move adversely to the Fund's option position. An option
position may be closed out only on an exchange, board of trade or other
trading facility that provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for
any particular option, or at any particular time, and for some options no
secondary market on an exchange or otherwise may exist. In such event it
might not be possible to effect closing transactions in particular
options, with the result that the Fund would have to exercise its options
in order to realize any profit and would incur brokerage commissions upon
the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through the exercise of call options or
upon the purchase of underlying securities or the exercise of put options.
If the Fund as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not
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be able to sell underlying security until the option expires or it
delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange can
include any of the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing corporation may
not at all times be adequate to handle current trading volume; or (vi) one
or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary
market on that exchange (or in the class or series of options) would cease
to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange
would continue to be exercisable in accordance with their terms. There is
no assurance that higher than anticipated trading activity or other
unforeseen events might not, at times, render certain of the facility of
any of the clearing corporations inadequate, and thereby result in the
institution by an exchange of special procedures that may interfere with
the timely execution of customers' orders.
15. OPTIONS ON STOCK INDICES. (International Fund only.) The International
Fund may purchase and sell (i.e., write) put and call options on stock
indices traded on national securities exchanges or listed on NASDAQ.
Options on stock indices are similar to options on stock except that,
rather than obtaining the right to take or make delivery of stock at a
specified price, an option on stock index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is greater than
(in the case of a call) or less than (in the case of a put) the strike
price of the option. The amount of cash is equal to such difference
between the closing price of the index and the strike price of the option
times a specified multiple (the "multiplier"). If the option is
exercised, the writer is obligated, in return for the premium received, to
make delivery of this amount. Unlike stock options, all settlements are
in cash, and gain or loss depends on price movements in the stock market
generally (or in particular industry or segment of the market) rather than
price movements in individual stocks.
The Fund will write call options on stock indices only if they are
covered, and such options remain covered as long as the Fund is obligated
as a writer. When the Fund writes a call option on a broadly based stock
market index, the Fund will segregate or put into escrow with its
custodian or pledge to a broker as collateral for the option, cash,
Treasury bills or other liquid high-grade short-term debt obligations, or
"qualified securities" (defined below) with a market value at the time the
option is written of not less than 100% of the current index value times
the multiplier times the number of contracts. A "qualified security" is an
equity security that is listed on a national securities exchange or listed
on NASDAQ against which the Fund has not written a stock call option and
that has not been hedged by the Fund by the sale of stock index futures.
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When the Fund writes a call option on an industry or market segment
index, the Fund will segregate or put into escrow with its custodian or
pledge to a broker as collateral for the option, cash, Treasury bills or
other liquid high-grade short-term debt obligations, or at least five
qualified securities, all of which are stocks of issuers in such industry
or market segment, with a market value at the time the option is written
of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stock that
represent at least 50% of the weighting of the industry or market segment
index and will represent at least 50% of the portfolio's holdings in that
industry or market segment. No individual security will represent more
than 15% of the amount so segregated, pledged or escrowed in the case of
broadly based stock market stock options or 25% of such amount in the case
of industry or market segment index options.
If at the close of business on any day the market value of such qualified
securities so segregated, escrowed, or pledged falls below 100% of the
current index value times the multiplier times the number of contracts,
the fund will so segregate, escrow, or pledge an amount in cash, Treasury
bills, or other liquid high-grade short-term obligations equal in value to
the difference. In addition, when the Fund writes a call on an index that
is in-the-money at the time the call is written, the Fund will segregate
with its custodian or pledge to the broker as collateral, cash or U.S.
government or other liquid high-grade short-term debt obligations equal in
value to the amount by which the call is in-the-money times the multiplier
times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the
multiplier times the number of contracts. A call option is also covered
and the Fund need not follow the segregation requirements set forth in
this paragraph if the Fund holds a call on the same index as the call
written where the strike price of the call held is equal to or less than
the strike price of the call written or greater than the strike price of
the call written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term obligations in a
segregated account with its custodian.
The Fund will write put options on stock indices only if they are
covered, and such options must remain covered so long as the Fund is
obligated as a writer. A put option is covered if the Fund holds in a
segregated account cash, Treasury bills, or other liquid high-grade
short-term debt obligations of a value equal to the strike price times the
multiplier times the number of contracts; or the Fund holds a put on the
same index as the put written where the strike price of the put held is
equal to or greater than the strike price of the put written or less than
the strike price of the put written if the difference is maintained by the
Fund in cash, Treasury bills, or other liquid high-grade short-term debt
obligations in a segregated account with its custodian.
The Fund does not intend to invest more than 5% of its net assets at any
one time in the purchase of puts and calls on stock indices. The Fund may
effect closing sale and purchase transactions, as described above in
connection with options on equity securities.
The purchase and sale of options on stock indices will be subject to the
same risks as options on equity securities, described above. In addition,
the distinctive characteristics of options on indices create certain risks
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that are not present with stock options. Index prices may be distorted if
trading of certain stocks included in the index is interrupted. Trading in
the index options also may be interrupted in certain circumstances, such
as if trading were halted in a substantial number of stocks included in
the index. If this occurred, the Fund would not be able to close out
options that it had purchased or written and, if restrictions on exercise
were imposed, may be unable to exercise an option it holds, which could
result in substantial losses to the Fund. The Fund generally will purchase
or write options only on stock indices that include a number of stocks
sufficient to minimize the likelihood of a trading halt in options on the
index.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively
illiquid. The ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop in all index
options contracts. The Fund will not purchase or sell any index option
contract unless and until Bank of Ireland Asset Management (U.S.) Limited
(the "Sub-Adviser"), the Fund's sub-investment adviser, believes the
market for such options has developed sufficiently that the risk in
connection with such transactions is no greater than the risk in
connection with options on stocks.
Price movements in the Fund's equity security portfolio probably will not
correlate precisely with movements in the level of the index and,
therefore, in writing a call on a stock index the Fund bears the risk that
the price of the securities held by the Fund may not increase as much as
the index. In such event, the Fund would bear a loss on the call that is
not completely offset by movement in the price of the Fund's equity
securities. It is also possible that the index may rise when the Fund's
securities do not rise in value. If this occurred, the Fund would
experience a loss on the call that is not offset by an increase in the
value of its securities portfolio and might also experience a loss in its
securities portfolio. However, because the value of a diversified
securities portfolio will, over time, tend to move in the same direction
as the market, movements in the value of the Fund's securities in the
opposite direction as the market would be likely to occur for only a short
period or to a small degree.
When the Fund has written a call, there is also a risk that the market
may decline between the time the Fund has a call exercised against it, at
a price which is fixed as of the closing level of the index on the date of
exercise, and the time the Fund is able to sell stocks in its portfolio.
As with stock options, the Fund will not learn that an index option has
been exercised until the day following the exercise date but, unlike a
call on stock where the Fund would be able to deliver the underlying
securities in settlement, the Fund may have to sell part of its stock
portfolio in order to make settlement in cash, and the price of such
stocks might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially more risky
with options in stock indices than with stock options.
There are also certain special risks involved in purchasing put and call
options on stock indices. If the Fund holds an index option and exercises
it before final determination of the closing index value for that day, it
runs the risk that the level of the underlying index may change before
closing. If such a change causes the exercised option to fall out-of-the-
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money, the Fund will be required to pay the difference between the closing
index value and the strike price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to
minimize the risk by withholding exercise instructions until just before
the daily cutoff time or by selling rather than exercising an option when
the index level is close to the exercise price, it may not be possible to
eliminate this risk entirely because the cutoff times for index options
may be earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.
16. OPTIONS ON DEBT SECURITIES. (International Fund only.) The Fund may
purchase and write (i.e., sell) put and call options on debt securities
(including U.S. government debt securities) that are traded on national
securities exchanges or that result from privately negotiated transactions
with primary U.S. government securities dealers recognized by the Federal
Reserve Bank of New York ("OTC options"). Options on debt are similar to
options on stock, except that the option holder has the right to take or
make delivery of a debt security, rather than stock.
The Fund will write options only if they are covered, and such options
must remain covered so long as the Fund is obligated as a writer. An
option on debt securities is covered in the same manner as explained in
connection with options on equity securities, except that, in the case of
call options on U.S. Treasury bills, the Fund might own U.S. Treasury
bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. The principal reason for the Fund to
write an option on one or more of its securities is to realize through the
receipt of the premiums paid by the purchaser of the option a greater
current return than would be realized on the underlying security alone.
Calls on debt securities will not be written when, in the opinion of the
Sub-Adviser, interest rates are likely to decline significantly, because
under those circumstances the premium received by writing the call likely
would not fully offset the foregone appreciation in the value of the
underlying security.
The Fund may also write straddles (i.e., a combination of a call and a
put written on the same security at the same strike price where the same
issue of the security is considered "cover" for both the put and the
call). In such cases, the Fund will also segregate or deposit for the
benefit of the Fund's broker cash or liquid high-grade debt obligations
equivalent to the amount, if any, by which the put is in-the-money. The
Fund's use of straddles will be limited to 5% of its net assets (meaning
that the securities used for cover or segregated as described above will
not exceed 5% of the Fund's net assets at the time the straddle is
written). The writing of a call and a put on the same security at the same
strike price where the call and the put are covered by different
securities is not considered a straddle for purposes of this limit.
The Fund may purchase "protective puts" on debt securities in an effort
to protect the value of a security that they own against a substantial
decline in market value. Protective puts are described above in "Options
on Equities".
The Fund does not intend to invest more than 5% of its net assets at any
one time in the purchase of call options on debt securities.
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If the Fund, as a writer of an exchange-traded option, wishes to
terminate the obligation, it may effect a closing purchase or sale
transaction in a manner similar to that discussed above in connection with
options on equity securities. Unlike exchange-traded options, OTC options
generally do not have a continuous liquid market. Consequently, the Fund
will generally be able to realize the value of an OTC option it has
purchased only by exercising it or reselling it to the dealer who issued
it. Similarly, when the Fund writes an OTC option, it generally will be
able to close out the OTC option prior to its expiration only by entering
into a closing purchase transaction with the dealer to which the Fund
originally wrote the OTC option. While the Fund will seek to enter into
OTC options only with dealers who agree to and who are expected to be able
to be capable of entering into closing transactions with the Fund, there
can be no assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. In the event of
insolvency of the other party, the Fund may be unable to liquidate an OTC
option. There is, in general, no guarantee that closing purchase or
closing sale transactions can be effected. The Fund may not invest more
than 15% of its total assets (determined at the time of investment) in
illiquid securities, including debt securities for which there is not an
established market. The staff of the SEC has taken the position that
purchase OTC options and the assets used as "cover" for written OTC
options are illiquid securities. However, pursuant to the terms of certain
no-action letters issued by the staff, the securities used as cover for
written OTC options may be considered liquid provided that the Fund sells
OTC options only to qualified dealers who agree that the Fund may
repurchase any OTC option its writes for a maximum price to be calculated
by a predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.
The Fund's purchase and sale of exchange-traded options on debt
securities will be subject to the risks described above in "Options on
Equity Securities."
17. OPTIONS ON FOREIGN CURRENCIES. (International Fund only.) The Fund may
purchase and write put and call options on foreign currencies traded on
U.S. or foreign securities exchanges or boards of trade for hedging
purposes. Options on foreign currencies are similar to options on stock,
except that the option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.
The Fund may purchase and write options to hedge its securities
denominated in foreign currencies. If there is a decline in the dollar
value of a foreign currency in which the Fund's securities are
denominated, the dollar value of such securities will decline even though
the foreign currency value remains the same. To hedge against the decline
of the foreign currency, the Fund may purchase put options on such foreign
currency. If the value of the foreign currency declines, the gain realized
on the put option would offset, in whole or in part, the adverse effect
such decline would have on the value of the Fund's securities.
Alternatively, the Fund may write a call option on the foreign currency.
If the foreign currency declines, the option would not be exercised and
the decline in the value of the portfolio securities denominated in such
foreign currency would be offset in part by the premium the Fund received
for the option.
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If, on the other hand, the Sub-Adviser anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the Fund may purchase call options
on the foreign currency. The purchase of such options could offset, at
least partially, the effects of the adverse movements of the exchange
rates. Alternatively, the Fund could write a put option on the currency
and, if the exchange rates move as anticipated, the option would expire
unexercised.
The Fund's successful use of currency exchange options on foreign
currencies depends upon the Sub-Adviser's ability to predict the direction
of the currency exchange markets and political conditions, which requires
different skills and techniques than predicting changes in the securities
markets generally. For instance, if the currency being hedged has moved in
a favorable direction, the corresponding appreciation of the Fund's
securities denominated in such currency would be partially offset by the
premiums paid on the options. Furthermore, if the currency exchange rate
does not change, the Fund's net income would be less than if the Fund had
not hedged since there are costs associated with options.
The use of these options is subject to various additional risks. The
correlation between movements in the price of options and the price of the
currencies being hedged is imperfect. The use of these instruments will
hedge only the currency risks associated with investments in foreign
securities, not market risks. The Fund's ability to establish and maintain
positions will depend on market liquidity. The ability of the Fund to
close out an option depends upon a liquid secondary market. There is no
assurance that liquid secondary markets will exist for any particular
option at any particular time.
18. STOCK INDEX FUTURES CONTRACTS. (International Fund only). The
International Fund may buy and sell for hedging purposes stock index
futures contracts traded on a commodities exchange or board of trade. A
stock index futures contract is an Agreement in which the seller of the
contract agrees to deliver to the buyer an amount of cash equal to a
specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the contract
and the price at which the Agreement is made. No physical delivery of the
underlying stocks in the index is made. When the futures contract is
entered into, each party deposits with a broker or in a segregated
custodial account approximately 5% of the contract amount, called the
"initial margin." Subsequent payments to and from the broker, called
"variation margin," will be made on a daily basis as the price of the
underlying stock index fluctuates, making the long and short positions in
the futures contracts more or less valuable, a process known as "marking
to the market."
The Fund may sell stock index futures to hedge against a decline in the
value of equity securities it holds. The Fund may also buy stock index
futures to hedge against a rise in the value of equity securities it
intends to acquire. To the extent permitted by federal regulations, the
Fund may also engage in other types of hedging transactions in stock index
futures that are economically appropriate for the reduction of risks
inherent in the ongoing management of the Fund's equity securities.
The Fund's successful use of stock index futures contracts depends upon
the Sub-Adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movement in
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the price of the stock index future and the price of the securities being
hedged is imperfect and the risk from imperfect correlation increases as
the composition of the Fund's securities portfolio diverges from the
composition of the relevant index. In addition, the ability of the Fund to
close out a futures position depends on a liquid secondary market. There
is no assurance that liquid secondary markets will exist for any
particular stock index futures contract at any particular time.
Under regulations of the Commodity Futures Trading Commission ("CFTC"),
investment companies registered under the Investment Company Act of 1940
are excluded from regulation as commodity pools or commodity pool
operators if their use of futures is limited in certain specified ways.
The Fund will use futures in a manner consistent with the terms of this
exclusion. Among other requirements, no more than 5% of the Fund's assets
may be committed as initial margin on futures contracts.
19. INTEREST RATE FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures contracts
on interest bearing securities (such as U.S. Treasury Bonds, U.S. Treasury
Notes, 3-month U.S. Treasury Bills, and GNMA certificates) or interest
rate indices. Futures contracts on interest bearing securities and
interest rate indices are referred to collectively as "interest rate
futures contracts." The portfolios will engage in transactions in only
those futures contracts that are traded on a commodities exchange or board
of trade.
The Fund may sell an interest rate futures contract to hedge against a
decline in the market value of debt securities it owns. The Fund may
purchase an interest rate futures contract to hedge against an anticipated
increase in the value of debt securities it intends to acquire. The Fund
may also engage in other types of transactions in interest rate futures
contracts that are economically appropriate for the reduction of risks
inherent in the ongoing management of its futures.
The Fund's successful use of interest rate futures contracts depends upon
the Sub-Adviser's ability to predict interest rate movements. Further,
because there are a limited number of types of interest rate futures
contracts, it is likely that the interest rate futures contracts available
to the Fund will not exactly match the debt securities the Fund intends to
hedge or acquire. To compensate for differences in historical volatility
between securities the Fund intends to hedge or acquire and the interest
rate futures contracts available to it, the Fund could purchase or sell
futures contracts with a greater or lesser value than the securities it
wished to hedge or intended to purchase. Interest rate futures contracts
are subject to the same risks regarding closing transactions and the CFTC
limits as described above in "Stock Index Futures Contracts."
20. FOREIGN CURRENCY FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures contracts
on foreign currencies or groups of foreign currencies such as the European
Currency Unit. A European Currency Unit is a basket of specified amounts
of the currencies of certain member states of the European Economic
Community, a Western European economic cooperative organization including
France, Germany, the Netherlands and the United Kingdom. The Fund will
engage in transactions in only those futures contracts and other options
thereon that are traded on a commodities exchange or a board of trade.
See "Stock Index Futures Contracts" above for a general description of
futures contracts. The Fund intends to engage in
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transactions involving futures contracts as a hedge against changes in the
value of the currencies in which they hold investments or in which they
expect to pay expenses or pay for future purchases. The Fund may also
engage in such transactions when they are economically appropriate for the
reduction of risks inherent in their ongoing management.
The use of these futures contracts is subject to risks similar to those
involved in the use of options of foreign currencies and the use of any
futures contract. The Fund's successful use of foreign currency futures
contracts depends upon the Sub-Adviser's ability to predict the direction
of currency exchange markets and political conditions. In addition, the
correlation between movements in the price of futures contracts and the
price of currencies being hedged is imperfect, and there is no assurance
that liquid markets will exist for any particular futures contract at any
particular time. Those risks are discussed above more fully under "Options
on Foreign Currencies" and "Stock Index Futures Contracts."
21. OPTIONS ON FUTURES CONTRACTS. (International Fund only.) The Fund may,
to the extent permitted by applicable regulations, enter into certain
transactions involving options on futures contracts. An option on a
futures contract gives the purchaser or holder the right, but not the
obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a
specified price at any time during the option exercise period. The writer
of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if
the option is a put). Upon exercise of the option, the assumption of
offsetting futures positions by the writer and holder of the option will
be accomplished by delivery of the accumulated balance in the writer's
futures margin account that represents the amount by which the market
price of the futures contract, an exercise, exceeds, in the case of a
call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or purchasing
an option of the same series. There is no guarantee that such closing
transactions can be effected. The Fund intends to utilize options on
futures contracts for the same purposes that it intends to use the
underlying futures contracts.
Options on futures contracts are subject to risks similar to those
described above with respect to options and futures contracts. There is
also the risk of imperfect correlation between the option and the
underlying futures contract. If there were no liquid secondary market for
a particular option on a futures contract, the Fund might have to exercise
an option it held in order to realize any profit and might continue to be
obligated under an option it had written until the option expired or was
exercised. If the Fund were unable to close out an option it had written
on a futures contract, it would continue to be required to maintain
initial margin and make variation margin payments with respect to the
option position until the option expired or was exercise against the Fund.
22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (International Fund only.)
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar
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equivalent of such dividend or interest payment, as the case may be. By
entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the
underlying transactions, the Fund will be able to protect itself against
a possible loss resulting from an adverse change in the relationship
between the U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or on which
the dividend or interest payment is declared, and the date on which such
payments are made or received.
Additionally, when the Sub-Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the
U.S. dollar, the Fund may enter into a forward contract for a fixed amount
of dollars, to sell the amount of foreign currency approximating the value
of some or all of the portfolio securities denominated in such foreign
currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the
future value of securities in foreign currencies will change as a
consequence of market movements in the value of those securities between
the date on which the forward contract is entered into and the date it
matures. The projection of short-term currency market movement is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Fund will not enter into such forward
contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate the Fund to deliver an amount
of foreign currency in excess of the value of the securities or other
assets denominated in that currency held by the Fund.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated in the long-term investment decisions made
with regard to overall diversification strategies. However, the Fund
believes that it is important to have the flexibility to enter into such
forward contracts when it is determined that the best interests of the
Fund will thereby be served. The Fund's custodian will place cash or
liquid, high-grade equity or debt securities into a segregated account of
the portfolio in an amount equal to the value of the Fund's total assets
committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a
daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts.
The Fund generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, the Fund may
either sell the portfolio security and make delivery of the foreign
currency or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the
same maturity date, the same amount of the foreign currency. However,
there is no assurance that liquid markets will exist for any particular
forward contract at any time, nor that the Fund will be able to effect a
closing or "offsetting" transaction. Forward contracts are subject to
other risks described in "Special Risks of Foreign Investments and Foreign
Currency Transactions."
It is impossible to forecast with absolute precision the market value of
a particular portfolio security at the expiration of the contract.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of
foreign currency that the Fund is obligated to deliver and if a decision
is made to sell the security and make delivery of the foreign currency.
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<PAGE> 103
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. Should
forward prices decline during the period between the Fund's entering into
a forward contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the foreign
currency, the Fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has
agreed to purchase. Should forward prices increase, the Fund will suffer a
loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this
method of protecting the value of the portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in the
underlying prices of the securities that are unrelated to exchange rates.
Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain which might result should the value
of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend physically to convert its holdings of foreign currencies
into U.S. dollars on a daily basis. The Fund will do so from time to time,
incurring the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based
on the difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer to sell a
foreign currency to the Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS - EQUITY, INCOME AND BALANCED
FUNDS
Below investment grade bonds (commonly referred to as "high-yield" or "junk"
bonds) have certain additional risks associated with them. Yields on below
investment grade bonds will fluctuate over time. These bonds tend to reflect
short-term economic and corporate developments to a greater extent than higher
quality bonds that primarily react to fluctuations in interest rates. During an
economic downturn or period of rising interest rates, issuers of below
investment grade bonds may experience financial difficulties that adversely
affect their ability to make principal and interest payments, meet projected
business goals and obtain additional financing. In addition, issuers often rely
on cash flow to service debt. Failure to realize projected cash flows may
seriously impair the issuer's ability to service its debt load that in turn
might cause a Fund to lose all or part of its investment in that security. SAM
will seek to minimize these additional risks through diversification, careful
assessment of the issuer's financial structure, business plan and management
team and monitoring of the issuer's progress toward its financial goals.
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<PAGE> 104
The liquidity and price of below investment grade bonds can be affected by a
number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-traded
market with few participants and may adversely impact the Fund's ability to
dispose of the bonds as well as make valuation of the bonds more difficult.
Because there tend to be fewer investors in below investment grade bonds, it may
be difficult for the Fund to sell these securities at an optimum time.
Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.
Credit ratings evaluate the likelihood that an issuer will make principal and
interest payments, but may not reflect market value risks associated with lower-
rated bonds. Credit rating agencies may not timely revise ratings to reflect
subsequent events affecting an issuer's ability to pay principal and interest.
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
FOREIGN SECURITIES
Investing in foreign companies and markets involves certain considerations,
including those set forth below, that are not typically associated with
investing in U.S. securities denominated in U.S. dollars and traded in U.S.
markets. Many of the securities held by a Fund will not be registered with, nor
will the issuers thereof be subject to the reporting requirements of U.S.
securities laws. Accordingly, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. There is generally less governmental supervision and regulation of
foreign stock exchanges, broker-dealers and issuers than in the U.S.
In addition, with respect to some foreign countries, there is the possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets of a Fund, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries. Moreover,
individual foreign economics may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
CURRENCY EXCHANGE RATES
The value of the assets of a Fund as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations (including, but not limited to, actions by a foreign government to
devalue its currency, thereby effecting a possibly substantial reduction in the
U.S. dollar value of a Fund's investments in that country). The International
Fund is authorized to employ certain hedging techniques to minimize this risk.
However, to the extent such transactions do not fully protect the International
Fund against adverse changes in exchange rates, decreases in the value of the
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<PAGE> 105
currencies of the countries in which the Fund will invest will result in a
corresponding decrease in the U.S. dollar value of the Fund's assets denominated
in those currencies. Further, the International Fund may incur costs in
connection with conversions between various currencies. Foreign exchange dealers
(including banks) realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer or bank normally will
offer to sell a foreign currency to the International Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. Moreover, fluctuations in exchange rates may
decrease or eliminate income available for distribution. For example, if foreign
exchange losses exceed other investment company taxable income during a taxable
year, the Fund would not be able to make ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as a
return of capital to stockholders for U.S. income tax purposes, rather than as
an ordinary dividend, reducing each stockholder's basis in his International
Fund shares.
HEDGING TRANSACTIONS (INTERNATIONAL FUND ONLY)
Hedging transactions cannot eliminate all risks of loss to the International
Fund and may prevent the Fund from realizing some potential gains. The
projection of short-term foreign currency and market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Among the risks of hedging transactions are: incorrect
prediction of the movement of currency exchange rates and market movements;
imperfect correlation of currency movements in cross-hedges and indirect hedges;
imperfect correlation in the price movements of options, futures contracts and
options on future contracts with the assets on which they are based; lack of
liquid secondary markets and inability to effect closing transactions; costs
associated with effecting such transactions; inadequate disclosure and/or
regulatory controls in certain markets; counterparty default with respect to
transactions not executed on an exchange; trading restrictions imposed by
governments, or securities and commodities exchanges; and governmental actions
affecting the value or liquidity of currencies. Hedging transactions may be
effected in foreign markets or on foreign exchanges and are subject to the same
types of risks that affect foreign securities. See "Special Risks of Foreign
Investments and Foreign Currency Transactions".
Indirect hedges and cross-hedges are more speculative than other hedges because
they are not directly related to the position or transaction being hedged. With
respect to indirect hedges, movements in the proxy currency may not precisely
mirror movements in the currency in which portfolio securities are denominated.
Accordingly, the potential gain or loss on an indirect hedge may be more or less
than if the Fund had directly hedged a currency risk. Similar risks are
associated with cross-hedge transactions. In a cross-hedge, the foreign currency
in which a portfolio security is denominated is hedged against another foreign
currency, rather than the U.S. dollar. Cross-hedges may also create a greater
risk of loss than other hedging transactions because they may involve hedging a
currency risk through the U.S. dollar rather than directly to the U.S. dollar or
another currency.
In order to help reduce certain risks associated with hedging transactions, the
Board of Trustees has adopted the requirement that forward contracts, options,
futures contracts and options on futures contracts be used on the behalf of the
Fund as a hedge and not for speculation. In addition to this requirement, the
Board of Trustees has adopted the following percentage restrictions on the use
of options, futures contracts and options on futures contracts:
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<PAGE> 106
(i) The Fund will not write a put or call option if, as a result
thereof, the aggregate value of the assets underlying all such
options (determined as of the date such options are written)
would exceed 25% of the Fund's net assets.
(ii) The Fund will not purchase a put or call option or option on
a futures contract if, as a result thereof, the aggregate
premiums paid on all options or options on futures contracts
held by the Fund would exceed 20% of the Fund's net assets.
(iii) The Fund will not enter into any futures contract or option
on a futures contract if, as a result thereof, the aggregate
margin deposits and premiums required on all such instruments
would exceed 5% of the Fund's net assets.
PRINCIPAL SHAREHOLDERS OF THE FUNDS
At December 31, 1995, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Northwest Fund that represented 17% of the Fund's
outstanding shares. SAFECO Insurance is a Washington corporation and a
wholly-owned subsidiary of SAFECO Corporation, which has its principal place of
business at SAFECO Plaza, Seattle, Washington 98185. At December 31, 1995, SAM
owned 500,000 shares of the Balanced Fund and International Stock Fund, which
represented 100.0% of each Funds' outstanding shares. At December 31, 1995,
SAFECO Corporation owned 500,000 shares of the Small Company Stock Fund which
represented 100% of the Fund's outstanding shares. SAFECO Insurance and SAM are
Washington corporations and wholly-owned subsidiaries of SAFECO Corporation,
which has its principal place of business at SAFECO Plaza, Seattle, Washington
98185.
ADDITIONAL TAX INFORMATION
Each Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 ("Code"). In order to
qualify for treatment as a regulated investment company under the Code, a Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain). Each Fund intends to make
sufficient distributions to shareholders to relieve it from liability for
federal excise and income taxes.
Each Fund is treated as a separate corporation for federal income tax purposes.
The excess of net long-term capital gains over net short-term capital loss
realized by a Fund on portfolio transactions, when distributed by the Fund, is
subject to long-term capital gains treatment under the Code, regardless of how
long you have held the shares of the Fund. Distributions of net short-term
capital gains realized from portfolio transactions are treated as ordinary
income for federal income tax purposes. The tax consequences described above
apply whether distributions are taken in cash or in additional shares.
Redemptions and exchanges of shares of a Fund may result in a capital gain or
loss for federal income tax purposes.
If shares of a Fund are sold at a loss after being held for one year or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares. Investors
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<PAGE> 107
also should be aware that if shares are purchased shortly before the record date
for any distribution, the shareholder will pay full price for the shares and
receive some portion of the purchase price back as a taxable dividend or capital
gain distribution.
The International Fund and any other Fund that invests in foreign securities
may be required to pay withholding or other taxes to a foreign government. If
so, the taxes will reduce the Fund's distributions. Foreign tax withholding from
dividends and interest (if any) is typically set at a rate between 10% and 15%
if there is a treaty with the foreign government that addresses this issue. If
no such treaty exists, the foreign tax withholding would generally be 30%.
Amounts withheld for foreign taxes will reduce the amount of dividend
distributions to shareholders, but will be included in shareholders' taxable
income. However,the Fund intends to make an election which will allow
shareholders to claim an offsetting credit or deduction on their tax returns
for their share of foreign taxes paid by the Fund.
Each Fund is required to withhold 31% of all taxable dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and those distributions for shareholders who otherwise are subject to backup
withholding.
If the International Fund's dividends exceed its taxable income in any year
because of currency-related losses or otherwise, all or a portion of the Fund's
dividends may be treated as a return of capital to shareholders for tax
purposes. To minimize the risk of a return of capital, the Fund may adjust its
dividends to take currency fluctuations into account, causing the dividends to
vary. Any return of capital will reduce the cost basis of your shares resulting
in a higher reported capital gains or a lower reported capital loss when you
sell your shares.
These are tax requirements that all mutual funds must follow in order to avoid
federal taxation. The Funds may have to limit investment activity in some types
of securities in order to adhere to these requirements.
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE
Each Fund determines its net asset value per share ("NAV") by subtracting its
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash and other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAV of each Fund is calculated as
of the close of regular trading on the New York Stock Exchange ("Exchange")
every day the Exchange is open for trading and at such other times and/or on
such other days as there is sufficient trading. The Exchange is closed on the
following days: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Short-term debt securities held by each Fund's portfolio having a remaining
maturity of less than 60 days when purchased, and securities originally
purchased with maturities in excess of 60 days but which currently have
maturities of 60 days or less, may be valued at cost adjusted for amortization
of premiums or accrual of discounts, or under such other methods as the Board of
Trustees may from time to time deem to be appropriate. The cost of those
securities that had original maturities in excess of 60 days shall be determined
by their fair market value as of the 61st day prior to maturity. All other
securities and assets in the portfolios will be appraised in accordance with
those procedures established
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<PAGE> 108
by the Board of Trustees in good faith in computing the fair market value of
those assets.
Trading in foreign securities will generally be substantially completed each
day at various times prior to the close of the NYSE. The value of any such
securities are determined as of such times for purposes of computing the
International Fund's net asset value. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. If an extraordinary event
occurs after the close of an exchange on which that security is traded, the
security will be valued at fair value as determined in good faith by the Sub-
Adviser under procedures established by and under general supervision of the
Fund's Board of Trustees.
Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close of
option trading on such exchange. Futures contracts the International Fund will
enter into will be market to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Quotations of foreign securities in a foreign currency are converted into U.S.
dollar equivalents at the current rate obtained by a recognized bank or dealer.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
ADDITIONAL PERFORMANCE INFORMATION
The yield and total return calculations set forth below are for the dates
indicated and are not a prediction of future results.
The yields for the 30-day period ended September 30, 1995, for the Growth,
Equity, Income and Northwest Funds were as follows:
<TABLE>
<S> <C>
Growth Fund .65%
Equity Fund 2.69%
Income Fund 4.73%
Northwest Fund .95%
</TABLE>
Yield is computed using the following formula:
Yield = 2[(a-b +1)6 -1] / cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends
d = the maximum offering price per share on the last day of the
period
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
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<PAGE> 109
The total returns, expressed as a percentage, for the one-, five- and ten-year
periods ended September 30, 1995, for the Growth, Equity and Income Funds were
as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Growth Fund 23.93% 149.27% 252.91%
Equity Fund 21.59% 162.94% 377.00%
Income Fund 21.04% 101.38% 212.11%
</TABLE>
The total returns, expressed as a percentage, for the one-year and since-
inception (55 months) periods ended September 30, 1995, for the Northwest Fund
were as follows:
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year (55 Months)
------ -----------
<S> <C> <C>
Northwest Fund 19 .01% 61 .08%
</TABLE>
The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended September 30, 1995,
for the Growth, Equity and Income Funds were as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Growth Fund $ 12,393 $ 24,927 $ 35,291
Equity Fund $ 12,159 $ 26,294 $ 47,700
Income Fund $ 12,104 $ 20,138 $ 31,211
</TABLE>
The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since-inception (55 months) periods ended
September 30, 1995, for the Northwest Fund were as follows:
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year (55 Months)
------ -----------
<S> <C> <C>
Northwest Fund $11,901 $16,108
</TABLE>
The average annual total returns for the one-, five- and ten-year periods ended
September 30, 1995, for the Growth, Equity and Income Funds were as follows:
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<PAGE> 110
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Growth Fund 23.93% 20.04% 13.44%
Equity Fund 21.59% 21.33% 16.91%
Income Fund 21.04% 15.03% 12.05%
</TABLE>
The average annual total returns for the one-year and since-inception (55
months) periods ended September 30, 1995, for the Northwest Fund were as
follows:
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year 55 Months
------ ---------
<S> <C> <C>
Northwest Fund 19.01% 10.96%
</TABLE>
Calculations
The total return, expressed as a percentage, is computed using the following
formula:
T = ERV-P
----- x 100
P
The total return, expressed in dollars, is computed using the following
formula:
T = P(1+A)(n)
The average annual total return is computed using the following formula:
A = (n [radical sign] ERV/P - 1) x 100
Where: T = total return
A = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical investment
of $1,000 at the end of a specified period of time
P = a hypothetical initial investment of $1,000 or
$10,000 (when total return is expressed in dollars)
In making the above calculation, all dividends and capital gains distributions
are assumed to be reinvested at the respective Fund's NAV on the reinvestment
date.
In addition to performance figures, the Funds may advertise their rankings as
calculated by independent rating services that monitor mutual funds' performance
(e.g., CDA Investment Technologies, Lipper Analytical Services, Inc.,
Morningstar, Inc., and Wiesenberger Investment Companies Service). These
rankings may be among mutual funds with similar objectives and/or size or with
mutual funds in general. In addition, the Funds may advertise rankings which are
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<PAGE> 111
in part based upon subjective criteria developed by independent rating services
to measure relative performance. Such criteria may include methods to account
for levels of risk and potential tax liability, sales commissions and expense
and turnover ratios. These rating services may also base the measure of relative
performance on time periods deemed by them to be representative of up and down
markets.
The Funds may occasionally reproduce articles or portions of articles about the
Funds written by independent third parties such as financial writers, financial
planners and financial analysts, which have appeared in financial publications
of general circulation or financial newsletters (including but not limited to
Barrons, Business Week, Forbes, Fortune, Investor's Business Daily, Kiplinger's,
Money Magazine, Newsweek, Pensions & Investments, Time Magazine, U.S. News and
World Report, and The Wall Street Journal).
Each Fund may compare its performance against the following unmanaged indices
that (unless otherwise noted in the advertisement) assume reinvestment of
dividends:
AMEX (American Stock Exchange) Major Market Index - Price weighted (high
priced issues have more influence than low-priced issues) average of 20
Blue Chip stocks.
Dow Jones Industrial Average - Price weighted average of 30 actively-
traded Blue Chip stocks.
NASDAQ Price Index - Market value weighted (impact of a component's price
change is proportionate to the overall market value of the issue) index of
approximately 3500 over-the-counter stocks.
S & P's Composite Index of 500 Stocks - Market value weighted index of
500 stocks most of which are listed on the New York Stock Exchange with
some listed on the American Stock Exchange and NASDAQ.
Wilshire 5000 Equity Index - Market value weighted index of approximately
5000 stocks including all stocks on the New York and American Exchanges.
Morgan Stanley Capital International EAFE Index - Market value weighted
index of approximately 1200 companies located throughout the world.
Russell 2000 Index - The 2000 smallest firms in the Russell 3000 Index
which is composed of the 3000 largest companies in the U.S. as measured by
capitalization.
Each Fund may present in its advertisements and sales literature (i) a
biography or the credentials of its portfolio manager (including but not limited
to educational degrees, professional designations, work experience, work
responsibilities and outside interests), (ii) current facts (including but not
limited to number of employees, number of shareholders, business
characteristics) about its investment adviser (SAM) or any sub-investment
adviser, the investment adviser's parent company (SAFECO Corporation) or the
parent company of any sub-investment adviser, or the SAFECO Family of Funds,
(iii) descriptions, including quotations attributable to the portfolio manager,
of the investment style used to manage a Fund's portfolio, the research
methodologies underlying securities selection and a Fund's investment objective
and (iv) information about particular securities held in a Fund's portfolio.
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<PAGE> 112
Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------- -------------------
<S> <C> <C>
Boh A. Dickey* Chairman and Executive Vice President,
SAFECO Plaza Trustee Chief Financial Officer and
Seattle, Washington 98185 Director of SAFECO
(51) Corporation; Director of
University of Washington
Medical Center, Seattle,
Washington. He has been an
executive officer of SAFECO
Corporation subsidiaries since
1982. See table under
"Investment Advisor and Other
Services."
Barbara J. Dingfield Trustee Manager, Corporate
Microsoft Corporation Contributions and Community
One Microsoft Way Programs for Microsoft
Redmond, Washington 98052 Corporation, Redmond,
(50) Washington, a computer
software company;
Director and former
Executive Vice President
of Wright Runstad & Co.,
Seattle, Washington, a
real estate development
company; Director of
First SAFECO National
Life Insurance Company of
New York.
Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and
Seattle, WA 98177 other SAFECO Trusts; retired
(66) Senior Vice President and
Treasurer of SAFECO
Corporation; former President
of SAFECO Asset Management
Company.
Richard E. Lundgren Trustee Director of Marketing and
764 S. 293rd Street Customer Relations, Building
Federal Way, Washington Materials Distribution,
98032 Weyerhaeuser Company, Tacoma,
(58) Washington; Director of First
SAFECO National Life Insurance
Company of New York.
</TABLE>
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<PAGE> 113
<TABLE>
<S> <C> <C>
L. D. McClean* Trustee Retired Assistant Secretary
7231 91st Avenue SE of SAFECO Corporation and its
Mercer Island, WA 98040 property and casualty and life
(68) insurance affiliates;
Director of First SAFECO
National Life Insurance
Company of New York;
former President of the
SAFECO Mutual Funds;
former Director of SAFECO
Asset Management Company,
SAFECO Securities, Inc.
and SAFECO Services
Corporation.
Larry L. Pinnt Trustee Retired Vice President and
1600 Bell Plaza Chief Financial Officer U S
Room 1802 WEST Communications, Seattle,
Seattle, Washington 98191 Washington; Director of Key
(61) Bank of Washington, Seattle,
Washington; Director of
PREMERA and its
subsidiary Blue Cross of
Washington and Alaska,
Seattle, Washington;
Director of University of
Washington Medical
Center, Seattle,
Washington; Director of
First SAFECO National
Life Insurance Company of
New York; Director of
Cascade Natural Gas
Corporation, Seattle,
Washington.
John W. Schneider Trustee President of Wallingford
1808 N 41st St. Group, Inc., Seattle,
Seattle, Washington Washington; former President
98103 of Coast Hotels, Inc.;
(54) Director of First SAFECO
National Life Insurance
Company of New York.
David F. Hill President President of SAFECO
SAFECO Plaza Securities Inc. and SAFECO
Seattle, Washington 98185 Services Corporation; and
(47) Senior Vice President of
SAFECO Asset Management
Company. See table under
"Investment Advisory and Other
Services."
</TABLE>
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<PAGE> 114
<TABLE>
<S> <C> <C>
Neal A. Fuller Vice President Vice President, Controller,
SAFECO Plaza Controller Assistant Secretary and
Seattle, Washington 98185 Assistant Secretary Treasurer of, SAFECO
(33) Securities, Inc. and SAFECO
Services Corporation; Vice
President, Controller,
Secretary and Treasurer of
SAFECO Asset Management
Company; former Chief
Assistant Treasurer for the
State of Idaho. See table
under "Investment Advisory and
Other Services."
Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice
Seattle, Washington 98185 President and Treasurer of
(52) SAFECO Corporation; Vice
President of SAFECO Life
Insurance Company; former
Senior Portfolio Manager
of SAFECO insurance
companies; former
Portfolio Manager for
several SAFECO mutual
funds.
See table under "Investment
Advisory and Other Services.
</TABLE>
* Trustees who are interested persons as defined by the 1940 Act.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From
Benefits Estimated Registrant and
Aggregate Accrued As Annual Fund Complex
Compensation Part of Fund Benefits Upon Paid to
Trustee from Registrant Expenses Retirement Trustees
------- --------------- -------- ---------- --------
<S> <C> <C> <C> <C>
Barbara J. Dingfield $3,708 $0 $0 $22,737
</TABLE>
-46-
<PAGE> 115
<TABLE>
<S> <C> <C> <C> <C>
Richard E. Lundgren $3,708 $0 $0 $22,737
L.D. McClean $3,425 $0 $0 $21,000
Larry L. Pinnt $3,708 $0 $0 $22,737
John W. Schneider $3,708 $0 $0 $22,737
Boh A. Dickey $ 0 $0 $0 $ 0
Richard W. Hubbard $3,875 $0 $0 $24,150
</TABLE>
Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of the Trust are compensated by the
Trust. Each Trustee also serves as Trustee for six other registered open-end
management investment companies that have, in the aggregate, twenty-eight series
companies managed by SAM.
The officers of the Trust receive no compensation for their service as officers
or, if applicable, as Trustees.
At December 31, 1995, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
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.
SAM has a sub-advisory Agreement with Bank of Ireland Asset Management (U.S.)
Limited. 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) that 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
engaged in banking, insurance, securities and related financial services), which
is located at Lower Baggot Street, Dublin, Ireland.
The following individuals have the following positions and offices with the
Trust, SAM, SAFECO Securities and SAFECO Services:
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<PAGE> 116
<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
---- ----- --- ---------- --------
<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director Director
Trustee Chairman
D. F. Hill President Senior Vice President President
President Director Director
Director Secretary Secretary
N. A. Fuller Vice President Vice Vice Vice
Controller President President President
Assistant Controller Controller Controller
Secretary Secretary Assistant Assistant
Treasurer Secretary Secretary
Treasurer Treasurer
R.L. Spaulding Vice President Vice Director Director
Treasurer Chairman
Director
S. C. Bauer President
Director
</TABLE>
Mr. Dickey is Chief Financial Officer, Executive Vice President and a director
of SAFECO Corporation and Mr. Spaulding is Treasurer and Vice President of
SAFECO Corporation. Messrs. Dickey and Spaulding are also directors of other
SAFECO Corporation subsidiaries.
In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed for or
on behalf of the Trust and each Fund that includes furnishing office facilities,
books, records and personnel to manage the Trust's and each Fund's affairs and
paying certain expenses.
For the services and facilities furnished by SAM, each Fund has agreed to pay an
annual fee computed on the basis of the average market value of the net assets
of each Fund ascertained each business day and paid monthly in accordance with
the following schedules. The reduction in fees occurs only at such time as the
respective Fund's net assets reach the dollar amounts of the break points and
applies only to those assets that fall within the specified range:
GROWTH, EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
</TABLE>
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<PAGE> 117
NORTHWEST FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
</TABLE>
INTERNATIONAL FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
</TABLE>
SMALL COMPANY FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
</TABLE>
Under the Agreement, 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
equal in accordance with the schedule below:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .45 of 1%
</TABLE>
-49-
<PAGE> 118
<TABLE>
<S> <C>
$50,000,001 - $100,000,000 .40 of 1%
Over $100,000,000 .30 of 1%
</TABLE>
Each Fund bears all expenses of its operations not specifically assumed by SAM.
SAM has agreed to reimburse each Fund for the amount by which a Fund's expenses
in any full fiscal year (excluding interest expense, taxes, brokerage expense
and extraordinary expenses) exceed the limits prescribed by any state in which a
Fund's shares are qualified for sale. Presently, the most restrictive expense
ratio limitation imposed by any such state is 2.5% of the first $30 million of a
Fund's average daily net assets, 2.0% of the next $70 million of such assets,
and 1.5% of the remaining net assets. For the purpose of determining whether a
Fund is entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to a reimbursement, that month's advisory
fee will be reduced or postponed, with any adjustment made after the end of the
fiscal year.
The following table states the total amounts of compensation paid to SAM for the
past three fiscal years for the Growth, Equity and Income Funds and the three
fiscal periods for the Northwest Fund:
Years Ended
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $1,107,000 $1,096,000 $1,068,000
Equity Fund $3,151,000 $1,676,000 $ 749,000
Income Fund $1,348,000 $1,363,000 $1,353,000
</TABLE>
<TABLE>
<CAPTION>
9 Month
Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Northwest Fund $269,000 $287,000 $228,000
</TABLE>
U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington 98111, is
the custodian of the securities, cash and other assets of each Fund (except the
International Fund) under an agreement with the Trust. Chase Manhattan Bank,
N.A., 1211 Avenue of the Americas, New York, New York is the custodian of the
securities, cash and other assets of the International Fund. Chase Manhattan
Bank, N.A. has entered into sub-custodian agreements with several foreign banks
and clearing agencies, pursuant to which portfolio securities purchased outside
the U.S. are maintained in the custody of these entities. Ernst & Young LLP, 999
Third Avenue, Suite 3500, Seattle, Washington 98104, is the independent auditor
of each Fund's financial statements.
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<PAGE> 119
SAFECO Services, SAFECO Plaza, Seattle, Washington 98185 is the transfer,
dividend and distribution disbursement and shareholder servicing agent for each
Fund under an Agreement with the Trust. SAFECO Services is responsible for all
required transfer agent activity, including maintenance of records of each
Fund's shareholders, records of transactions involving each Fund's shares, and
the compilation, distribution, or reinvestment of income dividends or capital
gains distributions, for a fee of $3.10 per each shareholder transaction. The
following table shows the total fees paid to SAFECO Services by the Funds as
compensation for its services as transfer agent for the past three fiscal years
for the Growth, Equity and Income Funds and for the three fiscal periods for the
Northwest Fund:
Fiscal Years Ended
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $ 305,000 $ 210,000 $ 169,000
Equity Fund $1,018,000 $ 370,000 $ 143,000
Income Fund $ 298,000 $ 264,000 $ 259,000
</TABLE>
<TABLE>
<CAPTION>
9 Month
Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Northwest Fund $97,000 $85,000 $56,000
</TABLE>
SAFECO Securities is the principal underwriter for each Fund and distributes
each Fund's shares on a continuous best efforts basis under an Agreement with
the Trust. SAFECO Securities is not compensated by the Trust or the Funds for
underwriting, distribution or other activities.
BROKERAGE PRACTICES
SAM and the Sub-Adviser place orders for the purchase or sale of Fund portfolio
securities based on various factors, including:
(1) Which broker gives the best execution, (i.e., which broker is able to trade
the securities in the size and at the price desired and on a timely basis);
(2) Whether the broker is known as being reputable; and
(3) All other things being equal, which broker has provided useful research
services.
Such research services as are furnished during the year (e.g., written reports
analyzing economic and financial characteristics of industries and companies,
telephone conversations between brokerage security analysts and members of SAM's
and the Sub-Adviser's staff, and personal visits by such analysts and brokerage
strategists and economists) are used to advise all clients including the Funds,
but not all such research services furnished are used by it to advise the Funds.
-51-
<PAGE> 120
Excess commissions or mark-ups are not paid to any broker or dealer for research
services or for any other reason. During the fiscal year ended September 30,
1995, for the Growth, Income, Equity and Northwest Funds, 100% of each Fund's
total brokerage expenses were commissions paid to brokers providing research
services. The following table states the total amount of brokerage expense for
each Fund for the past three fiscal years for the Growth, Equity and Income
Funds and for the three fiscal periods for the Northwest Fund:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $ 489,983 $220,350 $197,179
Equity Fund $1,082,137 $731,184 $223,474
Income Fund $ 159,717 $111,612 $106,893
</TABLE>
<TABLE>
<CAPTION>
9 Month
Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ --------------------
<S> <C> <C> <C>
Northwest Fund $ 6,536 $11,409 $10,390
</TABLE>
REDEMPTION IN KIND
If the Trust concludes that cash payment upon redemption to a shareholder would
be prejudicial to the best interest of the other shareholders of a Fund, a
portion of the payment may be made in kind. The Trust has elected to be governed
by Rule 18(f)(1) under the Investment Company Act of 1940, pursuant to which the
Trust must redeem shares tendered by a shareholder of a Fund solely in cash up
to the lesser of $250,000 or 1% of a net asset value of a Fund during any 90-day
period. Any shares tendered by the shareholder in excess of the above-mentioned
limit may be redeemed through distribution of a Fund's assets. Any securities or
other property so distributed in kind shall be valued by the same method as is
used in computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur brokerage
costs in disposing of securities received in such a distribution in kind.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Ernst & Young LLP,
independent auditors, are incorporated herein by reference to the Trust's Annual
Report for the year ended September 30, 1995:
Portfolios of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the Year Ended September 30, 1995
Statement of Changes in Net Assets for the Years Ended September 30, 1995
and September 30, 1994
Notes to Financial Statements
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<PAGE> 121
A copy of the Trust's Annual Report accompanies this Statement of Additional
Information. Additional copies may be obtained by calling SAFECO Services at 1-
800-426-6730 nationwide or 206-545-5530 in Seattle or by writing to the address
on the Prospectus cover.
DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS
COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc. ("Moody's"). Issuers rated Prime-1 have a
superior capacity, issuers rated Prime-2 have a strong capacity and issuers
rated Prime-3 have an acceptable capacity for the repayment of short-term
promissory obligations.
Standard & Poor's Rating Group ("S&P"). Commercial paper rated A are the highest
quality obligations. Issues in this category are regarded as having the greatest
capacity for timely payment. For issues designated A-1 the degree of safety
regarding timely payment is very strong. Issues designated A-2 also have a
strong capacity for timely payment but not as high as A-1 issuers. Issues
designated A-3 have a satisfactory capacity for timely payment.
PREFERRED STOCK RATINGS
Generally, a preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends. A preferred stock
rating differs from a bond rating since it is assigned to an equity issue which
is different from, and subordinated to, a debt issue.
Excerpts from Moody's description of its preferred stock ratings:
aaa - Top-quality preferred stock. This rating indicates good asset protection
and the least risk of dividend impairment within the universe of preferred
stocks.
aa - High-grade preferred stock. This rating indicates that there is a
reasonable assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.
a - Upper-medium grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classifications, earnings and asset
protections are, nevertheless, expected to be maintained at adequate levels.
baa - Medium grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
ba - Considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b - Generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long
period of time may be small.
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<PAGE> 122
caa - Likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca - Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payments.
c - Lowest rated class of preferred or preference stock. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Excerpts from S&P's description of its preferred stock ratings:
AAA - The highest rating that may be assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA - Qualifies as a high-quality fixed-income security. The capacity to pay
preferred stock obligations is very strong, although not as overwhelming as for
issues rated "AAA."
A - Backed by a sound capacity to pay the preferred stock obligations, although
it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Backed by an adequate capacity to pay the preferred stock obligations.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to make payments for a preferred stock in this category than for issues
in the "A" category.
BB, B, CCC - Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "CCC" the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC - The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated "C" is a non-paying issue.
D - A preferred stock rated "D" is a non-paying issue with issuer in default on
debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus (+) or Minus (-) To provide more detailed indications of preferred stock
quality, the ratings from "AA" to "CCC" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
-54-
<PAGE> 123
SAFECO COMMON STOCK TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The following financial statements for each series of Registrant for the
fiscal year ended September 30, 1995 and the report thereon of Ernst & Young
LLP, independent auditors, are incorporated in the Statement of Additional
Information by reference to Registrant's Annual Report filed with the Securities
& Exchange Commission on or about November 30, 1995:
Portfolio of Investments as of September 30, 1995
Statements of Assets and Liabilities as of September 30, 1995
Statements of Operations for the Year Ended September 30, 1995
Statements of Changes in Net Assets for the Year ended
September 30, 1995 and September 30, 1994
Notes to Financial Statements
Financial Statements from Registrant's Annual Report are filed as
Exhibit 12.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
(27.1-4) Financial Data Schedule
(99.1) Trust Instrument/Certificate of Trust *
(99.2) Bylaws *
(99.3) Inapplicable
(99.4) Form of Stock Certificate *
(99.5) Investment Advisory and Management **
Contract
Form of Sub-Investment Advisory Contract
(99.6) Distribution Agreement *
(99.7) Inapplicable
(99.8) Custody Agreement with U.S. Bank *
Form of Custody and Subcustodian Agreements
with Chase Manhattan Bank
(99.9) Transfer Agent Agreement *
(99.10) Opinion of Counsel
(99.11) Consent of Independent Auditors
(99.12) Registrant's Annual Report for Year or Period
Ended September 30, 1995+ including Financial
Statements
</TABLE>
<PAGE> 124
<TABLE>
<S> <C> <C>
(99.13) Subscription Agreement *
(99.14) Prototype 401(k)/Profit Sharing Plan *
(99.15) Inapplicable
(99.16) Calculation of Performance Information
</TABLE>
*Filed as an exhibit to Post-Effective Amendment No. 8 dated
January 31, 1996 and filed with the SEC on November 17, 1995.
**Investment Advisory and Management Contract filed as an exhibit to
Post-Effective Amendment No. 8 dated January 31, 1996 and filed with the
SEC on November 17, 1995.
+Registrant's Annual Report was filed with the SEC on or about
November 30, 1995.
Item 25. Persons Controlled by or Under Common Control With Registrant
SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services) and
SAFECO Securities, Inc. (SAFECO Securities), each a Washington corporation. SAM
is the investment advisor, SAFECO Services is the transfer agent and SAFECO
Securities is the principal underwriter for each of the SAFECO mutual funds. The
SAFECO Mutual Funds consist of seven Delaware business trusts: SAFECO Common
Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust, SAFECO
Advisor Series Trust, SAFECO Money Market Trust, SAFECO Institutional Series
Trust and SAFECO Resource Series Trust. The SAFECO Common Stock Trust consists
of seven mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO Income
Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO Balanced
Fund and SAFECO Small Company Stock Fund. The SAFECO Taxable Bond Trust consists
of three mutual funds: SAFECO Intermediate-Term U.S. Treasury Fund, SAFECO GNMA
Fund and SAFECO High-Yield Bond Fund. The SAFECO Tax-Exempt Bond Trust consists
of five mutual funds: SAFECO Intermediate-Term Municipal Bond Fund, SAFECO
Insured Municipal Bond Fund, SAFECO Municipal Bond Fund, SAFECO California
Tax-Free Income Fund and SAFECO Washington State Municipal Bond Fund. The SAFECO
Advisor Series Trust consists of eight mutual funds: Advisor Equity Fund,
Advisor Northwest Fund, Advisor Intermediate-Term Treasury Fund, Advisor GNMA
Fund, Advisor U.S. Government Fund, Advisor Municipal Bond Fund, Advisor
Intermediate-Term Municipal Bond Fund and Advisor Washington Municipal Bond
Fund. The SAFECO Money Market Fund consists of two mutual funds: SAFECO Money
Market Fund and SAFECO Tax-Free Money Market Fund. The SAFECO Institutional
Series Trust consists of one mutual fund: Fixed-Income Portfolio. The SAFECO
Resource Series Trust consists of five mutual funds: Equity Portfolio, Growth
Portfolio, Northwest Portfolio, Bond Portfolio and Money Market Portfolio.
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, and SAFECO Insurance Company of Illinois, an Illinois corporation.
SAFECO Corporation owns 20% of Agena, Inc., a Washington corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Management Corp., a New York
corporation, and SAFECO Surplus Lines Insurance Company, a Washington
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, and First SAFECO National Life
Insurance Company of New York, a New York corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
2
<PAGE> 125
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Mangers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General America
Corp. of Texas, a Texas corporation, Talbot Financial Corporation, a Washington
corporation and Whitehall Insurance Brokers, Inc., a California corporation.
F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance Services, Inc., a
California corporation. General America Corp. of Texas is Attorney-in-fact for
SAFECO Lloyds Insurance Company, a Texas corporation. Talbot Financial
Corporation owns 100% of PNMR Securities, Inc., a Washington corporation, and
100% of Talbot Agency, Inc., a New Mexico corporation. SAFECO Properties Inc.
owns 100% of the following, each a Washington corporation: RIA Development,
Inc., SAFECARE Company, Inc. and Winmar Company, Inc. SAFECARE Company, Inc.
owns 100% of the following, each a Washington corporation: S.C. Bellevue, Inc.,
S.C. Everett, Inc., S.C. Marysville, Inc., S.C. Simi Valley, Inc. and S.C.
Vancouver, Inc. SAFECARE Company, Inc. owns 50% of Lifeguard Ventures, Inc., a
California corporation, 50% of Mission Oaks Hospital, Inc., a California
corporation, S.C. River Oaks, Inc., a Washington corporation, Mississippi Health
Services, Inc., a Louisiana corporation, and Safecare Texas, Inc., a Texas
corporation . S.C. Simi Valley, Inc. owns 100% of Simi Valley Hospital, Inc., a
Washington corporation. Winmar Company, Inc. owns 100% of C-W Properties, Inc.,
a Washington corporation. Winmar Company, Inc. owns 100% of the following:
Barton Street Corp., Gem State Investors, Inc., Kitsap Mall, Inc., WNY
Development, Inc., Winmar Cascade, Inc., Winmar Metro, Inc., Winmar Northwest,
Inc., Winmar Redmond, Inc. and Winmar of Kitsap, Inc., each a Washington
corporation, and Capitol Court Corp., a Wisconsin corporation, SAFECO Properties
of Boise, Inc., an Idaho corporation, SCIT, Inc., a Massachusetts corporation,
Valley Fair Shopping Centers, Inc., a Delaware corporation, WDI Golf Club, Inc.,
a California corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of
Texas, Inc., a Texas corporation, Winmar of Wisconsin, Inc., a Wisconsin
corporation, and Winmar of the Desert, Inc., a California corporation. Winmar
Oregon, Inc. owns 100% of the following, each an Oregon corporation: North Coast
Management, Inc., Pacific Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P
Development, Inc., and 100% of the following, each a Washington corporation:
Washington Square, Inc. and Winmar Pacific, Inc.
Item 26. Number of Holders of Securities
At December 31, 1995, Registrant had 12,703, 42,221, 15,363, 4,022, 0, 0, and 0
shareholders of record in its SAFECO Growth Fund, SAFECO Equity Fund, SAFECO
Income Fund, SAFECO Northwest Fund, SAFECO Balanced Fund, SAFECO International
Stock Fund and SAFECO Small Company Stock Fund, respectively.
Item 27. Indemnification
Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain liabilities,
subject to specified conditions and limitations.
Under the indemnification provisions in the Registrant's Trust Instrument and
subject to the limitations described in the paragraph below, every person who
is, or has been, a trustee, officer, employee or agent of the Registrant shall
be indemnified by the Registrant or the appropriate Series of the Registrant to
the fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being, or having been, a trustee, officer, employee or
agent and against amounts paid or incurred by him or her in the settlement
thereof. As used in this paragraph, "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
3
<PAGE> 126
other, including appeals), actual or threatened, and the words, "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other liabilities.
No indemnification will be provided to a trustee, officer, employee or agent:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (a) to be liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, or (b) not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Registrant; or (ii) in the event of settlement, unless
there has been a determination that such trustee, officer, employee or agent did
not engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office; (a) by the
court or other body approving the settlement, (b) by the vote of at least a
majority of a quorum of those trustees who are neither interested persons, as
that term is defined by the Investment Company Act of 1940, of the Registrant
nor are the parties to the proceeding based upon a review of readily available
facts (as opposed to a full trial type inquiry) or (c) by written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial type inquiry).
To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described above may be paid by the
Registrant or applicable Series from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such trustee, officer,
employee or agent that such amount will be paid over by him or her to the
Registrant or the applicable Series if it is ultimately determined that he or
she is not entitled to indemnification under the Trust Instrument; provided,
however, that either (i) such trustee, officer, employee or agent shall have
provided appropriate security for such undertaking, (ii) the Registrant is
insured against such losses arising out of such advance payments or (iii) either
a majority of the trustees who are neither interested persons, as that term is
defined by the Investment Company Act of 1940, of the Registrant nor parties to
the proceeding, or independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to full
trial type inquiry), that there is reason to believe that such trustee, officer,
employee or agent, will not be disqualified from indemnification under
Registrant's Trust Instrument.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers, employees and agents of the
Registrant pursuant to such provisions of the Trust Instrument or statutes or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in said Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, employee or
agent of the Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such trustee, officer, employee or agent in
connection with the shares of the Registrant, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in said Act and will
be governed by the final adjudication of such issue.
Under an Agreement with its distributor ("Distribution Agreement"), Registrant
has agreed to indemnify, defend and hold the distributor, the distributor's
4
<PAGE> 127
several directors, officers and employees, and any person who controls the
distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
distributor, its directors, officers or employees, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in the Distribution Agreement be construed so as to protect the
distributor against any liability to the Registrant or its shareholders to which
the distributor 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 under the Distribution
Agreement, and further provided that the Registrant shall not indemnify the
distributor for conduct set forth in this subparagraph.
Under an Agreement with its transfer agent, Registrant has agreed to indemnify
and hold the transfer agent harmless against any losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and expenses)
resulting from: (1) any claim, demand, action or suit brought by any person
other than the Registrant, including by a shareholder, which names the transfer
agent and/or the Registrant as a party, and is not based on and does not result
from the transfer agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with the
transfer agent's performance hereunder; or (2) any claim, demand, action or suit
(except to the extent contributed to by the transfer agent's willful
misfeasance, bad faith or negligence or reckless disregard of duties) which
results from the negligence of the Registrant, or from the transfer agent acting
upon any instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a result of
the transfer agent acting in reliance upon advice reasonably believed by the
transfer agent to have been given by counsel for the Registrant, or as a result
of the transfer agent acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
Item 28. Business and Other Connections of Investment Adviser and Sub-Investment
Adviser
The investment adviser to the Registrant, SAM, serves as an adviser to: (a)
thirty-one series (portfolios) of seven registered investment companies,
including six series of an investment company that serves as the investment
vehicle for variable insurance products, and (b) a number of pension funds not
affiliated with SAFECO Corporation or its affiliates. The directors and officers
of SAM serve in similar capacities with SAFECO Corporation or its affiliates.
The sub-investment adviser to the SAFECO International Stock Fund, Bank of
Ireland Asset Management (U.S.) Limited, serves as investment adviser to other
registered open-end investment companies and other advisory clients. The
information set forth under "Investment Advisory and Other Services" in the
Registrant's Statement of Additional Information is incorporated by reference.
Item 29. Principal Underwriters
(a) SAFECO Securities, Inc., the principal underwriter for each series of
Registrant, acts also as the principal underwriter for each series of SAFECO
Tax-Exempt Bond Trust, SAFECO Taxable Bond Trust, SAFECO Money Market Trust,
SAFECO Institutional Series Trust and SAFECO Advisor Series Trust. In addition,
SAFECO
5
<PAGE> 128
Securities is the principal underwriter for SAFECO Separate Account C, SAFECO
Variable Account B and SAFECO Separate Account SL, all of which are variable
insurance products.
(b) The information set forth under "Investment Advisory and Other Services" in
the Statement of Additional Information is incorporated by reference.
Item 30. Location of Accounts and Records
U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington 98101; the
Bank of Ireland Investment Management Limited, 26 Fitzwilliam Street, Dublin,
Ireland; Bank of Ireland Investment Management (U.S.) Limited, 2 Greenwich
Plaza, Greenwich, Connecticut; Chase Manhattan Bank, N.A, 1212 Avenue of the
Americas, New York, New York and various sub-custodians maintain physical
possession of the accounts, books and documents of Registrant relating to its
activities as custodian of the Registrant. SAFECO Asset Management Company,
SAFECO Plaza, Seattle, Washington 98185, maintains physical possession of all
other accounts, books or documents of the Registrant required to be maintained
by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant, on behalf of the SAFECO Balanced Fund, SAFECO International Stock
Fund and SAFECO Small Company Stock Fund, undertakes to file a post-effective
amendment to this Registration Statement, using financial statements which
need not be certified, within four to six months from the effective date of
Registrant's 1933 Act Registration Statement.
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's latest annual report to shareholders, upon
request and without charge.
6
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereto duly authorized,
in the City of Seattle, and State of Washington on the 31st day of January,
1996.
SAFECO COMMON STOCK TRUST
By /S/ David F. Hill
-------------------------------
David F. Hill, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
President
/s/ David F. Hill Principal Executive Officer 1/31/96
- ------------------------------
David F. Hill
RONALD L. SPAULDING*
- ------------------------------ Vice President ____________
Ronald L. Spaulding Treasurer
NEAL A. FULLER* Vice President
- ------------------------------ Controller ____________
Neal A. Fuller Assistant Secretary
Principal Financial Officer
/s/ Boh A. Dickey Chairman and Trustee 1/31/96
- ------------------------------
Boh A. Dickey
BARBARA J. DINGFIELD* Trustee
- ------------------------------ ____________
Barbara J. Dingfield
RICHARD W. HUBBARD* Trustee
- ------------------------------ ____________
Richard W. Hubbard
RICHARD E. LUNDGREN* Trustee
- ------------------------------ ____________
Richard E. Lundgren
L. D. McCLEAN* Trustee
- ------------------------------ ____________
L. D. McClean
LARRY L. PINNT* Trustee
- ------------------------------ ____________
Larry L. Pinnt
JOHN W. SCHNEIDER* Trustee
- ------------------------------ ____________
John W. Schneider
*By /s/ Boh A. Dickey
---------------------------
Boh A. Dickey
Attorney-in-Fact
*By /s/ David F. Hill
---------------------------
David F. Hill
Attorney-in-Fact
</TABLE>
Registration No. 33-36700/811-6167
7
<PAGE> 130
===============================================================================
EXHIBITS
to
FORM N-1A
REGISTRATION STATEMENT
POST-EFFECTIVE AMENDMENT NO. 9
Under
The Securities Act of 1933
and
AMENDMENT NO. 10
Under
The Investment Company Act of 1940
---------
SAFECO Common Stock Trust
(Exact Name of Registrant as Specified in Charter)
SAFECO Plaza
Seattle, Washington 98185
(Address of Principal Executive Offices)
206-545-5269
(Registrant's Telephone Number, including Area Code)
===============================================================================
8
<PAGE> 131
SAFECO COMMON STOCK TRUST
Form N-1A
Post-Effective Amendment No. 9
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
(27.1-4) Financial Data Schedule
(99.5) Form of Sub-Advisory Contract
(99.10) Opinion of Counsel
(99.11) Consent of Independent Auditors
(99.12) Registrant's Annual Report for Year or Period
Ended September 30, 1995+ including Financial
Statements
(99.16) Calculation of Performance Information
</TABLE>
+ Registrant's Annual Report was filed with the SEC on or about November 30,
1995.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867579
<NAME> SAFECO COMMON STOCK TRUST
<SERIES>
<NUMBER> 1
<NAME> SAFECO GROWTH FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 153,850
<INVESTMENTS-AT-VALUE> 177,445
<RECEIVABLES> 7,182
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 184,627
<PAYABLE-FOR-SECURITIES> 4,949
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,195
<TOTAL-LIABILITIES> 8,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 152,870
<SHARES-COMMON-STOCK> 11,150
<SHARES-COMMON-PRIOR> 8,987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,594
<NET-ASSETS> 176,483
<DIVIDEND-INCOME> 1,875
<INTEREST-INCOME> 292
<OTHER-INCOME> 0
<EXPENSES-NET> 1,615
<NET-INVESTMENT-INCOME> 552
<REALIZED-GAINS-CURRENT> 46,016
<APPREC-INCREASE-CURRENT> (10,634)
<NET-CHANGE-FROM-OPS> 35,934
<EQUALIZATION> 2
<DISTRIBUTIONS-OF-INCOME> (557)
<DISTRIBUTIONS-OF-GAINS> (46,001)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26,526
<NUMBER-OF-SHARES-REDEEMED> (27,099)
<SHARES-REINVESTED> 2,736
<NET-CHANGE-IN-ASSETS> 20,375
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,107
<INTEREST-EXPENSE> 128
<GROSS-EXPENSE> 1,615
<AVERAGE-NET-ASSETS> 164,056
<PER-SHARE-NAV-BEGIN> 17.37
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 4.07
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (5.61)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.83
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867579
<NAME> SAFECO COMMON STOCK TRUST
<SERIES>
<NUMBER> 2
<NAME> SAFECO INCOME FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 177,798
<INVESTMENTS-AT-VALUE> 217,894
<RECEIVABLES> 1,728
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219,622
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,752
<TOTAL-LIABILITIES> 1,752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,773
<SHARES-COMMON-STOCK> 11,400
<SHARES-COMMON-PRIOR> 11,050
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40,095
<NET-ASSETS> 217,870
<DIVIDEND-INCOME> 7,964
<INTEREST-INCOME> 2,699
<OTHER-INCOME> 0
<EXPENSES-NET> 1,709
<NET-INVESTMENT-INCOME> 8,954
<REALIZED-GAINS-CURRENT> 9,277
<APPREC-INCREASE-CURRENT> 20,170
<NET-CHANGE-FROM-OPS> 38,401
<EQUALIZATION> (39)
<DISTRIBUTIONS-OF-INCOME> (8,912)
<DISTRIBUTIONS-OF-GAINS> (9,283)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,662
<NUMBER-OF-SHARES-REDEEMED> (2,145)
<SHARES-REINVESTED> 833
<NET-CHANGE-IN-ASSETS> 27,260
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,348
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,709
<AVERAGE-NET-ASSETS> 196,867
<PER-SHARE-NAV-BEGIN> 17.25
<PER-SHARE-NII> 0.82
<PER-SHARE-GAIN-APPREC> 2.71
<PER-SHARE-DIVIDEND> (0.82)
<PER-SHARE-DISTRIBUTIONS> (0.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.11
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867579
<NAME> SAFECO COMMON STOCK TRUST
<SERIES>
<NUMBER> 3
<NAME> SAFECO EQUITY FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 505,522
<INVESTMENTS-AT-VALUE> 606,238
<RECEIVABLES> 1,850
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 608,092
<PAYABLE-FOR-SECURITIES> 5,723
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,787
<TOTAL-LIABILITIES> 9,510
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 497,816
<SHARES-COMMON-STOCK> 39,097
<SHARES-COMMON-PRIOR> 29,727
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 100,716
<NET-ASSETS> 598,582
<DIVIDEND-INCOME> 15,258
<INTEREST-INCOME> 1,378
<OTHER-INCOME> 0
<EXPENSES-NET> 4,325
<NET-INVESTMENT-INCOME> 12,311
<REALIZED-GAINS-CURRENT> 42,516
<APPREC-INCREASE-CURRENT> 52,564
<NET-CHANGE-FROM-OPS> 107,391
<EQUALIZATION> 73
<DISTRIBUTIONS-OF-INCOME> (12,378)
<DISTRIBUTIONS-OF-GAINS> (42,473)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 29,460
<NUMBER-OF-SHARES-REDEEMED> (23,460)
<SHARES-REINVESTED> 3,370
<NET-CHANGE-IN-ASSETS> 185,777
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,151
<INTEREST-EXPENSE> 28
<GROSS-EXPENSE> 4,325
<AVERAGE-NET-ASSETS> 516,907
<PER-SHARE-NAV-BEGIN> 13.89
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 2.59
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (1.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.31
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000867579
<NAME> SAFECO COMMON STOCK TRUST
<SERIES>
<NUMBER> 4
<NAME> SAFECO NORTHWEST FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 29,866
<INVESTMENTS-AT-VALUE> 40,655
<RECEIVABLES> 66
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,722
<PAYABLE-FOR-SECURITIES> 214
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 368
<TOTAL-LIABILITIES> 582
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,351
<SHARES-COMMON-STOCK> 2,786
<SHARES-COMMON-PRIOR> 2,889
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,789
<NET-ASSETS> 40,140
<DIVIDEND-INCOME> 467
<INTEREST-INCOME> 47
<OTHER-INCOME> 0
<EXPENSES-NET> 402
<NET-INVESTMENT-INCOME> 112
<REALIZED-GAINS-CURRENT> 1,432
<APPREC-INCREASE-CURRENT> 4,956
<NET-CHANGE-FROM-OPS> 6,500
<EQUALIZATION> (1)
<DISTRIBUTIONS-OF-INCOME> (110)
<DISTRIBUTIONS-OF-GAINS> (1,432)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 832
<NUMBER-OF-SHARES-REDEEMED> (1,019)
<SHARES-REINVESTED> 84
<NET-CHANGE-IN-ASSETS> 3,757
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 269
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 402
<AVERAGE-NET-ASSETS> 36,749
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 2.35
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.53)
<RETURNS-OF-CAPITAL> 00
<PER-SHARE-NAV-END> 14.41
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE> 1
SUB-INVESTMENT ADVISORY CONTRACT
Contract made as of the 10th day of November, 1995, between SAFECO
ASSET MANAGEMENT COMPANY ("SAM") a Washington corporation, and BANK OF IRELAND
ASSET MANAGEMENT (U.S.) LIMITED ("BIAM"), a company incorporated in the Republic
of Ireland.
WHEREAS, SAM has entered into an Investment Advisory Contract dated as
of the date hereof ("Advisory Contract") with SAFECO Common Stock Trust (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, SAM wishes to retain BIAM as sub-investment adviser to furnish
certain investment advisory services to SAM and the SAFECO International Fund
series ("Series") of the Trust, and BIAM is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. SAM hereby appoints BIAM as its investment
sub-investment adviser with respect to the Series for the period and on the
terms set forth in this Contract. BIAM accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties of BIAM.
(a) Subject to the supervision of the Trust's Board of Trustees
("Board") and SAM, BIAM will provide a continuous investment program for the
Series, including investment research and management. BIAM will determine from
time to time what investments will be purchased, retained or sold by the Series.
BIAM will be responsible for placing purchase and sell orders for investments
and for other related transactions. BIAM will provide services under this
Contract in accordance with the Series' investment objective, policies and
restrictions as stated in the Series' Prospectus.
(b) BIAM agrees that, in placing orders with brokers, it will attempt
to obtain the best net result in terms of price and execution; provided that, on
behalf of the Series, BIAM may, in its discretion, use brokers who provide the
Series with research, analysis, advice and similar services to execute portfolio
transactions on behalf of the Series, and BIAM may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to BIAM's determining in good faith that such
commission is reasonable in terms either of the particular transaction or of the
overall responsibility of BIAM and its affiliates to the Series and its other
clients and that the total commissions paid by the Series will be reasonable in
relation to the benefits to the Series over
<PAGE> 2
the long term. In no instance will portfolio securities be purchased from or
sold to BIAM, or any affiliated person thereof, except in accordance with United
States securities laws and the rules and regulations thereunder. Whenever BIAM
simultaneously places orders to purchases or sell the same security on behalf of
the Series and one or more other accounts advised by BIAM, such orders will be
allocated as to price and amount among all such accounts in a manner believed to
be equitable to each account. SAM recognizes that in some cases this procedure
may adversely affect the results obtained for the Series.
(c) BIAM will maintain all books and records required to be maintained
by BIAM pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions on behalf of the Series, and will
furnish the Board and SAM with such periodic and special reports as the Board of
SAM reasonably may request. In compliance with the requirements of Rule 31a-3
under the 1940 Act, BIAM hereby agrees that all records which it maintains for
the Series are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or SAM,
BIAM will provide the Board and SAM with economic and investment analyses and
reports and make available to the Board and SAM any economic, statistical and
investment services normally available to similar investment company customers
of BIAM.
3. Further Duties. In all matters relating to the performance
of this Contract, BIAM will act in conformity with the Trust's Declaration of
Trust, By-laws and currently effective registration statement under the 1940 Act
and any amendments or supplements thereto ("Registration Statement") and with
the written instructions and directions of the Board and SAM and comply with the
requirements of the 1940 Act, the Investment Advisers Act of 1940 ("Advisers
Act"), the rules thereunder, and all other applicable federal and state laws and
regulations. SAM agrees to provide to BIAM copies of the Trust's Declaration of
Trust, Bylaws, Registration Statement, written instructions and directions of
the Board and SAM, and any amendments or supplements to any of them as soon as
practicable after such materials become available.
<PAGE> 3
4. Services Not Exclusive. The services furnished by BIAM
hereunder are not to be deemed exclusive, and BIAM shall be free to furnish
similar services to others so long as its services under this Contract are not
impaired thereby. Nothing in this Contract shall limit or restrict the right of
any director, officers or employee of BIAM 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.
5. Expenses. During the term of this Contract, BIAM will bear all
expenses incurred by it in connection with its services under this Contract.
6. Compensation.
(a) For the services provided and the expenses assumed by BIAM pursuant
to the Contract, SAM will pay to BIAM a fee, computed daily and payable monthly,
at an annual rate specified below (in United States dollars) as a percentage of
the net assets of the Series:
<TABLE>
<CAPTION>
Net Assets Fee
---------- ---
<S> <C>
For assets up to and including .60 of 1%
$50,000,000
For assets in excess of $50,000,000 .50 of 1%
and up to and including $100,000,000
For assets in excess of $100,000,000 .40 of 1%
</TABLE>
(b) "Net assets" shall include the assets of the Series and the assets
of any other series of any other trust managed by SAM and sub-managed by BIAM.
(c) The fee shall be accrued daily and payable monthly to BIAM on or
before the last business day of the next succeeding calendar month.
7. Limitation of Liability. BIAM shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Series, the
Trust or its shareholders or by SAM in connection with the matters to which this
Contract relates, except to the extent that such a loss results from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Contract.
8. Representations of BIAM. BIAM represents, warrants and agrees as
follows:
<PAGE> 4
(a) BIAM: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Contract remains
in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Contract; (iii) has met, and will
continue to meet for so long as this Contract remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Contract; (iv) has the authority to
enter into and perform the services contemplated by this Contract; and (v) will
immediately notify SAM of the occurrence of any event that would disqualify BIAM
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
(b) BIAM has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide SAM with a copy
of such code of ethics, together with evidence of its adoption and enforcement
by BIAM. Within 45 days after the end of the last calendar quarter of each year
that this Contract is in effect, the president or a vice president of BIAM shall
certify to SAM that BIAM has complied with the requirements of Rule 17j-1 during
the previous year and that there has been no violation of BIAM's code of ethics
or, if such a violation has occurred, that appropriate action was taken in
response to such violation. Upon the written request of SAM, BIAM shall permit
SAM, its employees or its agents to examine the reports required to be made to
BIAM by Rule 17j-1(c)(1) and all other records relevant to BIAM's code of
ethics.
(c) BIAM has provided SAM with a copy of its Form ADV as most recently
filed with the Securities and Exchange Commission ("SEC") and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy of such
amendment to SAM.
(d) BIAM will notify SAM of any change in the identity or control of
its shareholders promptly after such change.
9. Duration and Termination.
(a) This Contract shall become effective upon the date first above
written, provided that this Contract shall not take effect unless it has first
been approved (1) by a vote of a majority of those trustees of the Trust who are
not parties to this Contract or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Series' outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least
<PAGE> 5
annually (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and by
the Board or (ii) by vote of a majority of the outstanding voting securities of
the Series.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Series on 60 days'
written notice to BIAM. This Contract may also be terminated by SAM: (i) on 120
days' written notice to BIAM, without the payment of any penalty; (ii) upon
material breach by BIAM of any of the representations and warranties set forth
in Paragraph 8 of this Contract, if such breach shall not have been cured within
a 20 day period after notice of such breach; or (iii) if BIAM becomes unable to
discharge its duties and obligations under this Contract. BIAM may terminate
this Contract at any time, without the payment of any penalty, on 120 days'
notice to SAM. This Contract will terminate automatically in the event of its
assignment or upon termination of the Advisory Contract.
10. Amendment of this Contract. No provision of this Contract
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of this
Contract shall be effective until approved by vote of a majority of the Series'
outstanding voting securities.
11. Governing Law. This Contract shall be construed in
accordance with the laws of the State of Washington without giving effect to the
conflicts of laws principles thereof and the 1940 Act. To the extent that the
applicable laws of the State of Washington conflict with the applicable
provisions of the 1940 Act, the latter shall control.
12. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions thereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities," "affiliated person,"
"control," "interested person," "assignment," "broker," "investment adviser,"
"net assets," "sale," "sell" and "security" shall have the same meaning as such
terms have in the 1940 Act, subject to such exemption as may be granted by the
SEC by any rule, regulation or order. Where the effect of a requirement of the
federal securities laws reflected in any provision of this Contract is made less
restrictive by a rule, regulation or order of the SEC, whether of
<PAGE> 6
special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
ATTEST: SAFECO ASSET MANAGEMENT COMPANY
__________________________ By: ____________________________
Neal A. Fuller Steve Bauer
Secretary President
ATTEST: By: BANK OF IRELAND ASSET
MANAGEMENT (U.S.) LIMITED
___________________________ By: ____________________________
Gerald Colleary Denis Curran
Senior Vice President President
<PAGE> 1
January 26, 1996
Board of Trustees
SAFECO Common Stock Trust
SAFECO Plaza
Seattle, WA 98185
Gentlemen:
I have acted as counsel to the Registrant in connection with the filing with the
Securities and Exchange Commission of Post-Effective Amendment No. 5 to
Registration Statement No. 33-36700 on Form N-1A for the shares of the
Registrant. I have made such examination of law and have examined such records
and documents as in my opinion are necessary or appropriate to enable me to
render the following opinion:
1. The Registrant was established by a Trust Instrument dated May 13,
1993, and filed with the Delaware Secretary of State on May 17, 1993.
The Trust is at the present time validly existing as a Delaware
business trust under the laws of the state of Delaware.
2. The Registrant is authorized to issue an unlimited number of shares of
beneficial interest with a par value of .001c. per share which
currently represent seven series: SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO Balanced Fund,
SAFECO International Stock Fund and SAFECO Small Company Stock Fund.
3. All of the prescribed procedures for the issuance of the shares have
been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement all state
requirements relating to such shares will have been complied with.
4. Upon the acceptance of payment for shares issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance
with applicable law, such shares will be legally-issued, fully paid and
non-assessable shares of the Registrant.
You may use this letter, or a copy hereof, as an exhibit to the
Registration Statement.
Very truly yours,
Lizbeth A. Englund
Counsel
<PAGE> 1
EXHIBIT NO. 99.11
CONSENT OF INDEPENDENT AUDITORS
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Investment Advisory
and Other Services" and "Financial Statements" in Post-Effective Amendment No. 9
to the Registration Statement (Form N-1A, No. 33-36700) and related Prospectus
of SAFECO Common Stock Trust dated January 31, 1996.
We also consent to the incorporation by reference therein of our report dated
October 26, 1995 with respect to the financial statements of SAFECO Common
Stock Trust included in the 1995 Annual Report filed with the Securities and
Exchange Commission.
/s/
- ---------------------------
Seattle, WA
January 26, 1996
<PAGE> 1
EXHIBIT 99.16
CALCULATION OF PERFORMANCE INFORMATION
<PAGE> 2
SAFECO GROWTH FUND
Calculation of Performance Quotations
The yield for the ___________ SAFECO Growth Fund for the 30-day period ended
September 30, 1995 is calculated as follows:
203,614 - 133,622
Yield = 2[(- --------- - ------- +1)(to the sixth power) -1] = 0.65%
8,187,357 x 15.83
Where: $203,614 = dividends and interest (as defined in the instructions
to Item 22(b)(ii) of Form N-1A) earned during the period
$133,662 = expenses accrued during the period
8,187,357 = average daily number of shares outstanding during the
period
$15.83 = offering price per share on September 30, 1995
<PAGE> 3
10-Year
- -------
Total return = $10,000.00 (1 + .1344)(10) = $35,291
3,529.10 - 1,000
Total return = (---------------------) = 252.91%
1,000.00
Average Annual
Total Return = (10 [radical sign] 3,529.10 / 1,000.00 -1) = 13.44%
Where: 10 = number of years
$3,529.10 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of
time
$1,000.00 = a hypothetical investment of $1,000
$10,000.00 = a hypothetical investment of $10,000
.1344 = the average annual total return
<PAGE> 4
SAFECO GROWTH FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
five-year, and ten-year periods ending September 30, 1995 are calculated as
follows:
1-Year
- ------ 1
Total return = $10,000.00 (1 +.2393) = $12,393
1,239.30 - 1,000
Total return = (---------------------) = 23.93%
1,000.00
Average Annual ______________________
Total Return = (1 [radical sign] 1,239.30 / 1,000.00 -1) = 23.93%
Where: 1 = number of years
$1,239.30 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of
time
$1,000.00 = a hypothetical investment of $1,000
$10,000.00 = a hypothetical investment of $10,000
.2393 = the average annual total return
5-Year
- ------ 5
Total return = $10,000.00 (1 + .2004) = $24,927
2,492.70 - 1,000
Total return = (---------------------) = 149.27%
1,000.00
Average Annual _______________________
Total Return = (5 [radical sign] 2,492.70 / 1,000.00 -1) = 20.04%
Where: 5 = number of years
$2,492.70 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
$1,000.00 = a hypothetical investment of $1,000
$10,000.00 = a hypothetical investment of $10,000
.2004 = the average annual total return
<PAGE> 5
SAFECO NORTHWEST FUND
Calculation of Performance Quotations
The yield for the SAFECO Northwest Fund for the 30-day period
ended September 30, 1995 is calculated as follows:
64,983 - 33,881 6
Yield = 2[(----------------------+1) -1] = 0.95%
2,736,169 x 14.41
Where: 64,983 = dividends and interest (as defined in th
to Item 22(b)(ii) of Form N-1A) earned
period
33,881 = expenses accrued during the period
2,736,169 = average daily number of shares outstand
the period
14.41 = offering price per share on September 3
<PAGE> 6
SAFECO NORTHWEST FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
and 43-month (since initial effective date of Registration Statement) periods
ending September 30, 1995 are calculated as follows:
1 Year
- ------
1
Total return = $10,000.00 (1 + .0519) = $10,519.00
1,190.10 - 1,000
Total return = (--------------------------) = 19.01%
1,000.00
Average Annual _______________________
Total Return = (1.000 [radical sign] 1,190.10 / 1,000.00 -1) = 19.01%
Where: 1 = number of years
.0519 = average annual total return
10,000.00 = a hypothetical investment of $10,000
1,190.10 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
Since Inception (55 Months)
- ------------------------------
3.5833
Total return = $10,000.00 (1 + .0519) = $13,535.00
1,610.80 - 1,000
Total return = (--------------------------) = 61.08%
1,000.00
______________________
Average Annual Total Return = (4.58333 \ 1,610.80 / 1,000.00 -1) = 10.96%
Where: 4.58333 = number of years
.4583 = average annual total return
10,000.00 = a hypothetical investment of $10,000
1,610.80 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
<PAGE> 7
SAFECO INCOME FUND
Calculation of Performance Quotations
The yield for the SAFECO Income Fund for the 30-day period
ended September 29, 1995 is calculated as follows:
948,573 - 139,551 6
Yield = 2[(----------------------+1) -1] = 4.73%
10,848,509 x 19.11
Where: 948,573 = dividends and interest (as defined in th
to Item 22(b)(ii) of Form N-1A) earned
period
139,551 = expenses accrued during the period
10,848,509 = average daily number of shares outstand
the period
19.11 = offering price per share on September 2
<PAGE> 8
SAFECO INCOME FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
five-year, and ten-year periods ending September 30, 1995 are calculated as
follows:
1-Year
- ------ 1
Total return = 10,000.00 (1 + .2104) = $12,104
1,210.40 - 1,000
Total return = (---------------------) = 21.04%
1,000.00
Average Annual _______________________
Total Return = (1 [radical sign] 1,210.40 / 1,000.00 -1) = 21.04%
Where: 1 = number of years
1,210.40 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.2104 = the average annual total return
5-Year
- ------ 5
Total return = 10,000.00 (1 + .1503) = $20,138
2,013.80 - 1,000
Total return = (---------------------) = 101.38%
1,000.00
Average Annual _______________________
Total Return = (5 [radical sign] 2,013.80 / 1,000.00 -1) = 15.03%
Where: 5 = number of years
2,013.80 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.1503 = the average annual total return
<PAGE> 9
10-Year
- ------- 10
Total return = 10,000.00 (1 + .1205) = $31,211
3,121.10 - 1,000
Total return = (---------------------) = 212.11%
1,000.00
Average Annual _______________________
Total Return = (10 [radical sign] 3,121.10 / 1,000.00 -1) = 12.05%
Where: 10 = number of years
3,121.10 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.1205 = the average annual total return
<PAGE> 10
SAFECO EQUITY FUND
Calculation of Performance Quotations
The yield for the SAFECO Equity Fund for the 30-day period
ended September 29, 1995 is calculated as follows:
1,611,613 - 371,174 6
Yield = 2[(----------------------+1) -1] = 2.69%
36,359,120 x 15.31
Where: 1,611,613 = dividends and interest (as defined in th
to Item 22(b)(ii) of Form N-1A) earned
period
371,174 = expenses accrued during the period
36,359,120 = average daily number of shares outstand
the period
15.31 = offering price per share on September 2
<PAGE> 11
SAFECO EQUITY FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
five-year, and ten-year periods ending September 30, 1995 are calculated as
follows:
1-Year
- ------ 1
Total return = 10,000.00 (1 + .2159) = $12,159
1,215.90 - 1,000
Total return = (---------------------) = 21.59%
1,000.00
Average Annual _______________________
Total Return = (1 [radical sign] 1,215.90 / 1,000.00 -1) = 21.59%
Where: 1 = number of years
1,215.90 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.2159 = the average annual total return
5-Year
- ------ 5
Total return = 10,000.00 (1 + .2133) = $26,294
2,629.40 - 1,000
Total return = (---------------------) = 162.94%
1,000.00
Average Annual _______________________
Total Return = (5 [radical sign] 2,629.40 / 1,000.00 -1) = 21.33%
Where: 5 = number of years
2,629.40 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.2133 = the average annual total return
10-Year
- ------- 10
Total return = 10,000.00 (1 + .1691) = $47,700
4,770.00 - 1,000
Total return = (---------------------) = 377.00%
1,000.00
Average Annual _______________________
Total Return = (10 [radical sign] 4,770.00 / 1,000.00 -1) = 16.91%
Where: 10 = number of years
4,770.00 = ending redeemable value of a hypothetical $1,000
invest at the end of a specified period of time
1,000.00 = a hypothetical investment of $1,000
10,000.00 = a hypothetical investment of $10,000
.1691 = the average annual total return
