<PAGE> 1
Registration Nos. 33-53532
811-7300
- --------------------------------------------------------------------------------
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. 5 /X/
------------ -
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
-
Amendment No. 6 /X/
------------- -
(Check appropriate box or boxes.)
SAFECO TAX-EXEMPT BOND TRUST
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
SAFECO Plaza, Seattle, Washington 98185
-------------------------------------------------------------
(Address of Principal Executive Offices) ZIP Code
</TABLE>
Registrant's Telephone Number, including
Area Code (206) 545-5000
-------------------------
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 July 31, 1995 pursuant to paragraph (b)
---
60 days after filing pursuant to paragraph (a)
---
on pursuant to paragraph (a) of Rule 485
--- ------------------
================================================================================
Registrant has registered 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's Rule 24f-2 Notice was filed on May 10, 1995.
================================================================================
The Exhibit Index is at page __.
<PAGE> 2
SAFECO TAX-EXEMPT BOND TRUST
Registration Statement on Form N-1A
Cross Reference Sheet
<TABLE>
<CAPTION>
Part A
------
Location
Item No. 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
Item 5. Management of the Trust Information about Share Ownership and Companies that Provide
Services to the Trust; Portfolio Manager; Fund Expenses
Item 6. Capital Stock and Other Securities Cover Page; Fund Distributions and How They are Taxed; Information
about Share Ownership and Companies that Provide Services to the
Trust; Person Controlling the Intermediate, Insured and Washington
Funds
Item 7. Purchase of Securities Being Offered How to Purchase Shares; How to Exchange Shares from One Fund to
Another; How to Systematically Purchase or Redeem Shares; Share
Price Calculation; Account Statements; Telephone Transactions;
Transactions Through Registered Investment Advisers
</TABLE>
2
<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 of
Item No. Additional Information
- -------- -------------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Overview of Investment Policies; Additional Investment
Information; Investment Risks of Concentration in California and
Washington Issuers; Description of Ratings
Item 14. Management of Trust Trustees and Officers
Item 15. Control Persons and Principal Principal Shareholders
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Advisory and Other Services
Item 17. Brokerage Allocation and Other Brokerage Practices
Practices
Item 18. Capital Stock and Other Securities Not Applicable
Item 19. Purchase, Redemption and Pricing Additional Information
of Securities Being Offered On Calculation of Net Asset Value Per Share; Redemption in Kind
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Investment Advisory and Other Services
Item 22. Calculation 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.
4
<PAGE> 5
PROSPECTUS
July 31, 1995
SAFECO Intermediate-Term
Municipal Bond Fund
SAFECO Insured
Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California
Tax-Free Income Fund
SAFECO Washington State
Municipal Bond Fund
[SAFECO MUTUAL FUNDS LOGO]
<PAGE> 6
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
July 31, 1995
Each Fund described in this Prospectus is a series of the SAFECO Tax-Exempt Bond
Trust ("Trust"), an open-end management investment company consisting of five
separate series.
The SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND, SAFECO INSURED MUNICIPAL BOND
FUND (FUND SHARES ARE NOT INSURED -- SEE "THE FUNDS AND THEIR INVESTMENT
POLICIES" FOR THE NATURE AND LIMITATIONS OF INSURANCE) and SAFECO WASHINGTON
STATE MUNICIPAL BOND FUND each has as its investment objective to provide as
high a level of current interest income exempt from federal income tax as is
consistent with prudent investment risk.
The SAFECO MUNICIPAL BOND FUND has as its investment objective to provide as
high a level of current interest income exempt from federal income tax as is
consistent with the relative stability of capital.
The SAFECO CALIFORNIA TAX-FREE INCOME FUND has as its investment objective to
provide as high a level of current interest income exempt from federal income
tax and California state personal income tax as is consistent with the relative
stability of capital.
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 THIS PROSPECTUS FOR FUTURE REFERENCE. A Statement of
Additional Information, dated July 31, 1995, 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
HEARING IMPAIRED
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.
THE CALIFORNIA FUND IS OFFERED FOR SALE ONLY TO RESIDENTS IN THE STATES OF
ARIZONA, NEVADA, OREGON AND CALIFORNIA. THE WASHINGTON FUND IS OFFERED FOR SALE
ONLY TO RESIDENTS IN THE STATES OF WASHINGTON, CALIFORNIA AND ARIZONA. THESE
FUNDS ARE NOT PERMITTED TO OFFER OR SELL SHARES TO RESIDENTS OF OTHER STATES.
===============================================================================
- 1 -
<PAGE> 7
<TABLE>
TABLE OF CONTENTS
<S> <C>
INTRODUCTION TO THE TRUST AND THE FUNDS................................................. 3
FUND EXPENSES........................................................................... 5
FINANCIAL HIGHLIGHTS.................................................................... 6
THE TRUST AND EACH FUND'S INVESTMENT POLICIES........................................... 11
PORTFOLIO MANAGER....................................................................... 17
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE TRUST...... 18
PERSON CONTROLLING THE INTERMEDIATE, INSURED AND WASHINGTON FUNDS....................... 19
PERFORMANCE INFORMATION................................................................. 19
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED............................................... 20
ACCOUNT STATEMENTS...................................................................... 21
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS.............................................. 22
SHARE PRICE CALCULATION................................................................. 22
HOW TO PURCHASE SHARES.................................................................. 22
HOW TO REDEEM SHARES.................................................................... 24
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES......................................... 25
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER......................................... 25
TELEPHONE TRANSACTIONS.................................................................. 26
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS..................................... 27
</TABLE>
- 2 -
<PAGE> 8
INTRODUCTION TO THE TRUST AND THE FUNDS
The Trust is a series investment company that currently issues shares
representing five mutual funds: SAFECO Intermediate-Term Municipal Bond Fund
("Intermediate Fund"), SAFECO Insured Municipal Bond Fund ("Insured Fund"),
SAFECO Municipal Bond Fund ("Municipal Fund"), SAFECO California Tax-Free Income
Fund ("California Fund") and SAFECO Washington State Municipal Bond Fund
("Washington Fund") (together, the "Funds"). Each Fund is a diversified series
of the Trust, an open-end management investment company that continuously offers
to sell and to redeem (buy back) its shares at the current net asset value per
share without any sales or redemption charges or 12b-1 fees.
The INTERMEDIATE, INSURED AND WASHINGTON FUNDS each has as its investment
objective to provide as high a level of current interest income exempt from
federal income tax as is consistent with prudent investment risk.
The MUNICIPAL FUND has as its investment objective to provide as high a level of
current interest income exempt from federal income tax as is consistent with the
relative stability of capital.
The CALIFORNIA FUND has as its investment objective to provide as high a level
of current interest income exempt from federal income tax and California state
personal income tax as is consistent with the relative stability of capital.
During normal market conditions, each Fund will invest as a matter of
fundamental policy at least 80% of its net assets in securities, the interest on
which is exempt from federal income tax and, in the case of the California Fund,
from California state personal income tax. In addition, each Fund during normal
market conditions will invest at least 65% of its total assets in investment
grade municipal bonds having a maturity of over one year.
To pursue its objective, the INTERMEDIATE FUND will invest primarily in
municipal bonds whose interest is exempt from federal income tax and will
maintain a portfolio having an average weighted maturity of between three and
ten years.
To pursue its objective, the INSURED FUND will invest at least 95% of total
assets in municipal bonds whose interest is exempt from federal income tax and
are covered by insurance that guarantees the timely payment of both principal
and interest. INSURANCE DOES NOT GUARANTEE THE MARKET VALUE OF INSURED MUNICIPAL
BONDS NOR THE SHARE PRICE OF THE INSURED FUND.
To pursue its objective, the MUNICIPAL FUND will invest primarily in investment
grade municipal bonds whose interest is exempt from federal income tax.
To pursue its objective, the CALIFORNIA FUND will invest primarily in investment
grade municipal bonds whose interest is exempt from both federal and California
personal income taxes.
To pursue its objective, the WASHINGTON FUND will invest primarily in investment
grade municipal bonds whose interest is exempt from federal income tax and that
are issued by the State of Washington or one of its political subdivisions,
municipalities, agencies, instrumentalities or public authorities. The
Washington Fund may not be suitable for every eligible investor. Since the State
of Washington currently has no personal income tax, there are no tax benefits at
the state level to an investor. An investor in the Washington Fund will
generally earn dividend income free from federal income taxes as does an
investor in the Intermediate, Insured, California and Municipal Funds.
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 securities may
decrease and result in a decrease in the value of a shareholder's investment.
The value of each Fund's portfolio securities will normally fluctuate inversely
with changes in market interest rates. Because
- 3 -
<PAGE> 9
INTRODUCTION TO THE TRUST AND THE FUNDS (CONTINUED)
the California Fund and Washington Fund each concentrates its investments in
single states, these Funds may be subject to special risks. Investors should
carefully consider the investment risks of such geographic concentration before
purchasing shares of these Funds. See "The Trust and Each Fund's Investment
Policies" beginning on page 11 and "Investment Risks of Concentration in
California and Washington Issuers" in the Statement of Additional Information
for further 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 June 30, 1995. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been such advisers
since 1932. 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, monthly. Dividend income is exempt from federal
income taxes and, for the California Fund, from California personal income
tax.
- - Has a minimum initial investment requirement of $1,000. No minimum initial
investment is required for the Automatic Investment Method ("AIM").
- 4 -
<PAGE> 10
FUND EXPENSES
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
SALES
SALES LOAD IMPOSED DEFERRED
LOAD IMPOSED ON REINVESTED SALES REDEMPTION EXCHANGE
ON PURCHASES DIVIDENDS LOAD FEES FEES
------------ ------------- -------- ---------- --------
<S> <C> <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 FEE + FEE + EXPENSES = EXPENSES
- ---- --------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Intermediate None .52% .33% .85%
Insured None .63% .45% 1.08%
Municipal None .42% .14% .56%
California None .54% .16% .70%
Washington None .63% .46% 1.09%
</TABLE>
The amounts shown are actual expenses paid by shareholders of each Fund for the
fiscal year ended March 31, 1995. See "Information About Share Ownership and
Companies that Provide Services to the Trust" on page 18 for more information.
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment assuming 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>
Intermediate $ 9 $27 $47 $105
Insured $11 $34 $60 $132
Municipal $ 6 $18 $31 $ 70
California $ 7 $22 $39 $ 87
Washington $11 $35 $60 $133
</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.
- 5 -
<PAGE> 11
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
The following supplemental financial information and performance data has been
derived from the Financial Statements audited by Ernst & Young LLP, independent
auditors. The information should be read in conjunction with the financial
statements, related notes and other financial information incorporated by
reference herein.
<TABLE>
<CAPTION>
March 18, 1993
YEAR ENDED YEAR ENDED (INITIAL PUBLIC OFFERING) TO
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993
--------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................... $ 10.13 $ 10.25 $10.27
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.45 0.40 0.02
Net unrealized (loss) on investment transactions...... 0.04 (0.12) (0.02)
------- ------- ------
Total from investment operations......................... 0.49 0.28 0.00
------- ------- ------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.45) (0.40) (0.02)
Distributions from capital gains...................... -- -- --
------- ------- ------
Total distributions...................................... (0.45) (0.40) (0.02)
------- ------- ------
Net asset value at end of period......................... $ 10.17 $ 10.13 $10.25
======= ======= ======
Total return............................................. 4.97% 2.64% (.04%)*
Net assets at end of period (000's omitted).............. $13,762 $10,781 $2,345
Ratio of expenses to average net assets.................. .85% .99% .98%**
Ratio of net investment income to average net assets..... 4.46% 3.85% 4.25%**
Portfolio turnover rate.................................. 4.27% 1.49% None
</TABLE>
* Not annualized.
** Annualized.
- 6 -
<PAGE> 12
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
The following supplemental financial information and performance data has been
derived from the Financial Statements audited by Ernst & Young LLP, independent
auditors. The information should be read in conjunction with the financial
statements, related notes and other financial information incorporated by
reference herein.
<TABLE>
<CAPTION>
MARCH 18, 1993
YEAR ENDED YEAR ENDED (INITIAL PUBLIC OFFERING) TO
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993
----------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................... $ 9.73 $10.26 $10.32
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.48 0.41 0.02
Net unrealized (loss) on investment transactions...... 0.32 (0.53) (0.06)
Total from investment operations......................... 0.80 (0.12) (0.04)
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.48) (0.41) (0.02)
Distributions from capital gains...................... -- -- --
Total distributions...................................... (0.48) (0.41) (0.02)
Net asset value at end of period......................... $10.05 $ 9.73 $10.26
Total return............................................. 8.58% (1.40%) (.43%)*
Net assets at end of period (000's omitted).............. $8,163 $3,306 $2,106
Ratio of expenses to average net assets.................. 1.08% 1.41% 1.04%**
Ratio of net investment income to average net assets..... 5.11% 3.99% 3.88%**
Portfolio turnover rate.................................. 14.76% 21.19% None
</TABLE>
* Not annualized.
**Annualized.
- 7 -
<PAGE> 13
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
The following supplemental financial information and performance data has been
derived from the Financial Statements audited by Ernst & Young LLP, independent
auditors. The information should be read in conjunction with the financial
statements, related notes and other financial information incorporated by
reference herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1995 1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period..... $13.27 $14.13 $13.37 $12.95 $12.73 $12.92 $12.85 $14.16
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income... .77 .78 .81 .86 .86 .88 .94 .96
Net realized and
unrealized gain (loss)
on investment
transactions............ .12 (.55) .94 .48 .26 .25 .36 (.91)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. .89 .23 1.75 1.34 1.12 1.13 1.30 .05
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (.77) (.78) (.81) (.86) (.86) (.88) (.94) (.96)
Distributions from
capital gains........... (.03) (.31) (.18) (.06) (.04) (.44) (.29) (.40)
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions........ (.80) (1.09) (.99) (.92) (.90) (1.32) (1.23) (1.36)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value at end
of period............... $13.36 $13.27 $14.13 $13.37 $12.95 $12.73 $12.92 $12.85
======== ======== ======== ======== ======== ======== ======== ========
Total return............... 7.10% 1.30% 13.60% 10.57% 9.13% 9.05% 10.49% .93%
Net assets at
end of period
(000's omitted)......... $472,569 $507,453 $541,515 $427,638 $331,647 $286,303 $231,911 $183,642
Ratio of expenses to
average net assets...... .56% .52% .53% .54% .56% .57% .60% .61%
Ratio of net investment
income to average
net assets.............. 5.96% 5.49% 5.91% 6.37% 6.68% 6.76% 7.23% 7.42%
Portfolio turnover rate.... 26.96% 22.07% 31.66% 25.18% 38.55% 65.80% 135.60% 71.91%
</TABLE>
* Unaudited.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1987 1986
--------------------
<S> <C> <C>
Net asset value at
beginning of period..... $13.74 $11.69
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income... .99 1.06
Net realized and
unrealized gain (loss)
on investment
transactions............ .63 2.07
-------- --------
Total from investment
operations.............. 1.62 3.13
-------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (.99) (1.06)
Distributions from
capital gains........... (.21) (.02)
-------- --------
Total distributions........ (1.20) (1.08)
-------- --------
Net asset value at end
of period............... $14.16 $13.74
======== ========
Total return............... 12.49%* 28.01%*
Net assets at
end of period
(000's omitted)......... $214,745 $161,077
Ratio of expenses to
average net assets...... .59% .63%
Ratio of net investment
income to average
net assets.............. 7.20% 8.29%
Portfolio turnover rate.... 23.09% 21.36%
</TABLE>
* Unaudited.
- 8 -
<PAGE> 14
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
The following supplemental financial information and performance data has been
derived from the Financial Statements audited by Ernst & Young LLP, independent
auditors. The information should be read in conjunction with the financial
statements, related notes and other financial information incorporated by
reference herein.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
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..... $11.51 $12.23 $11.60 $11.24 $11.07 $11.02 $10.72 $12.14 $11.68 $9.99
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income... .63 .66 .68 .71 .71 .72 .75 .76 .80 .84
Net realized and
unrealized gain (loss)
on investment
transactions............ .13 (.38) .76 .44 .23 .23 .30 (.99) .57 1.69
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations.............. .76 .28 1.44 1.15 .94 .95 1.05 (.23) 1.37 2.53
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income....... (.63) (.66) (.68) (.71) (.71) (.72) (.75) (.76) (.80) (.84)
Distributions from
capital gains........... (.10) (.34) (.13) (.08) (.06) (.18) -- (.43)** (.11) --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions........ (.73) (1.00) (.81) (.79) (.77) (.90) (.75) (1.19) (.91) (.84)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end
of period............... $11.54 $11.51 $12.23 $11.60 $11.24 $11.07 $11.02 $10.72 $12.14 $11.68
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total return............... 7.01% 1.97% 12.88% 10.43% 8.78% 8.87% 10.09% (1.39%) 12.25%* 26.42%*
Net assets at
end of period
(000's omitted)......... $64,058 $77,056 $79,872 $71,480 $57,066 $47,867 $36,930 $28,790 $34,792 $21,087
Ratio of expenses to
average net assets...... .70% .68% .66% .67% .67% .68% .71% .72% .70% .76%
Ratio of net investment
income to average
net assets.............. 5.65% 5.31% 5.71% 6.13% 6.32% 6.42% 6.86% 6.99% 6.71% 7.66%
Portfolio turnover rate.... 44.10% 32.58% 23.18% 39.35% 22.92% 71.37% 76.95% 66.72% 44.61% 40.52%
</TABLE>
* Unaudited.
** Distribution includes $.05 per share attributable to the December 31, 1987
capital gain distribution paid in order to avoid any excise tax due under the
Tax Reform Act of 1986.
- 9 -
<PAGE> 15
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
The following supplemental financial information and performance data has been
derived from the Financial Statements audited by Ernst & Young LLP, independent
auditors. The information should be read in conjunction with the financial
statements, related notes and other financial information incorporated by
reference herein.
<TABLE>
<CAPTION>
MARCH 18, 1993
YEAR ENDED YEAR ENDED (INITIAL PUBLIC OFFERING) TO
MARCH 31, 1995 MARCH 31, 1994 MARCH 31, 1993
----------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period................... $9.91 $10.27 $10.32
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.49 0.44 0.02
Net unrealized (loss) on investment transactions...... 0.19 (0.35) (0.05)
------ ------- -------
Total from investment operations......................... 0.68 0.09 (0.03)
------ ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income.................. (0.49) (0.44) (0.02)
------ ------- -------
Distributions from capital gains...................... -- (0.01) --
------ ------- -------
Total distributions...................................... (0.49) (0.45) (0.02)
Net asset value at end of period......................... $10.10 $9.91 $10.27
====== ======= =======
Total return............................................. 7.13% .68% (.31%)*
Net assets at end of period (000's omitted).............. $5,953 $2,908 $2,163
Ratio of expenses to average net assets.................. 1.09% 1.44% 1.04%**
Ratio of net investment income to average net assets..... 5.06% 4.17% 4.47%**
Portfolio turnover rate.................................. 9.23% 17.26% None
</TABLE>
* Not annualized.
** Annualized.
- 10 -
<PAGE> 16
THE TRUST AND EACH FUND'S INVESTMENT POLICIES
The Trust is a Delaware business trust established by the Trust Instrument dated
May 13, 1993. The Trust currently consists of five mutual funds: Intermediate
Fund, Insured Fund, Municipal Fund, California Fund and Washington 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 (except for
the California Fund) without shareholder vote, but no such change will be made
without 60 days' prior written notice to shareholders of that Fund. The
California Fund, which has an investment objective that is fundamental, may not
change its investment objective without a shareholder vote. 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 an 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. Unless otherwise stated, all
investment policies and limitations described below are non-fundamental and may
be changed by the Trust's Board of Trustees without shareholder vote.
The investment objective of the Intermediate, Insured and Washington Funds is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with prudent investment risk. The investment objective of the
Municipal Bond Fund is to seek as high a level of current interest income exempt
from federal income tax as is consistent with the relative stability of capital.
The investment objective of the California Fund is to seek as high a level of
current interest income exempt from federal income tax and California state
personal income tax as is consistent with the relative stability of capital.
To pursue its objective, each Fund:
1. WILL, DURING NORMAL MARKET CONDITIONS, INVEST AS A MATTER OF FUNDAMENTAL
POLICY AT LEAST 80% OF ITS NET ASSETS IN SECURITIES, THE INTEREST ON WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND, IN THE CASE OF THE CALIFORNIA FUND,
EXEMPT FROM CALIFORNIA PERSONAL INCOME TAX. The Funds do not currently intend
to purchase taxable investments, except as a temporary accommodation or in an
emergency situation.
2. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN MUNICIPAL BONDS HAVING A
MATURITY IN EXCESS OF ONE YEAR THAT AT THE TIME OF ACQUISITION ARE INVESTMENT
GRADE; I.E., RATED IN ONE OF THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S
INVESTORS SERVICE, INC. ("MOODY'S") OR STANDARD & POOR'S RATING GROUP ("S&P")
OR, IF UNRATED, DETERMINED BY SAM TO BE OF COMPARABLE QUALITY. A Fund may
invest up to 20% of its total assets in unrated municipal bonds. Unrated
securities are not necessarily lower in quality than rated securities, but
may not be as attractive to as many investors as rated securities. A Fund
will invest no more than 33% of its total assets in municipal bonds rated in
the fourth highest grade or in comparable unrated bonds. Such bonds are of
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.
In addition to reviewing ratings, SAM will analyze the quality of rated and
unrated municipal bonds for purchase by a Fund by evaluating various factors
- 11 -
<PAGE> 17
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
that may include the issuer's or guarantor's financial resources and
liquidity, economic feasibility of revenue bond project financing and general
purpose borrowings, cash flow and ability to meet anticipated debt service
requirements, quality of management, sensitivity to economic conditions,
operating history and any relevant political or regulatory matters. SAM may
also evaluate trends in the economy, the financial markets or specific
geographic areas in determining whether to purchase a bond. For a description
of municipal bond ratings, see the Trust's Statement of Additional
Information.
After purchase by a Fund, a municipal bond may be downgraded to below
investment grade or, if unrated, may cease to be comparable to a rated
investment grade security (such below investment grade securities are
commonly referred to as "high-yield" or "junk" bonds). Neither event will
require a 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. A Fund will not hold more
than 5% of its net assets in such below investment grade securities.
The term "municipal bonds" as used in this Prospectus means those obligations
issued by or on behalf of states, territories or possessions of the United
States and the District of Columbia and their political subdivisions,
municipalities, agencies, instrumentalities or public authorities, the
interest on which in the opinion of bond counsel is exempt from federal
income tax and, in the case of the California Fund, exempt from California
personal income tax.
3. MAY INVEST IN ANY OF THE FOLLOWING TYPES OF MUNICIPAL BONDS:
- REVENUE BONDS, which are "limited obligation" bonds that provide
financing for specific projects or public facilities. These bonds are
backed by revenues generated by a particular project or facility or by a
special tax. A "resource recovery bond" is a type of revenue bond issued
to build waste facilities or plants. An "industrial development bond" is
a type of revenue bond that is backed by the credit of a private issuer,
generally does not have access to the resources of a municipality for
payment and may involve greater risk. Each Fund intends to invest
primarily in revenue bonds that may be issued to finance various types of
projects, including but not limited to education, hospitals, housing,
waste and utilities. Each Fund will not purchase private activity bonds
or any other type of revenue bonds, the interest on which is subject to
the alternative minimum tax.
- GENERAL OBLIGATION BONDS, which are bonds that provide general purpose
financing for state and local governments and are backed by the taxing
power of the state and local government as the case may be. The taxes or
special assessments that can be levied for the payment of principal and
interest on general obligation bonds may be limited or unlimited as to
rate or amount.
- VARIABLE AND FLOATING RATE OBLIGATIONS, which are municipal obligations
that carry variable or floating rates of interest. Variable rate
instruments bear interest at rates that are readjusted at periodic
intervals. Floating rate instruments bear interest at rates that vary
automatically with changes in specified market rates or indexes, such as
the bank prime rate. Accordingly, as interest rates fluctuate, the
potential for capital appreciation or depreciation of these obligations is
less than for fixed rate obligations. Floating and variable rate
obligations carry demand features that permit a Fund to tender (sell) them
back to the issuer at par prior to maturity and on
- 12 -
<PAGE> 18
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
short notice. A Fund's ability to obtain payment from the issuer at par
may be affected by events occurring between the date the Fund elects to
tender the obligation to the issuer and the date redemption proceeds are
payable to the Fund. A Fund will purchase floating and variable rate
obligations only if at the time of purchase there is a secondary market
for such instruments. For purposes of calculating average weighted
maturity, the Intermediate Fund will treat variable and floating rate
obligations as having a maturity equal to the period remaining until the
date the Fund can next exercise the demand feature by selling the security
back to the issuer.
- PUT BONDS, which are municipal bonds that give the holder the
unconditional right to sell the bond back to the issuer at a specified
price and exercise date and PUT BONDS WITH DEMAND FEATURES. The obligation
to purchase the bond on the exercise date may be supported by a letter of
credit or other arrangement from a bank, insurance company or other
financial institution, the credit standing of which affects the credit
quality of the bond. A demand feature is a put that entitles the Fund
holding it to repayment of the principal amount of the underlying security
on no more than 30 days' notice at any time or at specified intervals.
- MUNICIPAL LEASE OBLIGATIONS, which are issued by or on behalf of state or
local government authorities to acquire land, equipment or facilities and
may be subject to annual budget appropriations. These obligations
themselves are not normally backed by the credit of the municipality or
the state but are secured by rent payments made by the municipality or by
the state pursuant to a lease. If the lease is assigned, the interest on
the obligation may become taxable. The leases underlying certain municipal
lease obligations provide that lease payments are subject to partial or
full abatement if, because of material damage or destruction of the lease
property, there is substantial interference with the lessee's use or
occupancy of such property. This "abatement risk" may be reduced by the
existence of insurance covering the leased property, the maintenance by
the lessee of reserve funds or the provision of credit enhancements such
as letters of credit. Certain municipal lease obligations also contain
"non-appropriation" clauses that provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Some
municipal lease obligations of this type are insured as to timely payment
of principal and interest, even in the event of a failure by the
municipality to appropriate sufficient funds to make payments under the
lease. However, in the case of an uninsured municipal lease obligation, a
Fund's ability to recover under the lease in the event of a
non-appropriation or default will be limited solely to the repossession of
leased property without recourse to the general credit of the lessee, and
disposition of the property in the event of foreclosure might prove
difficult. If rent is abated because of damage to the leased property or
if the lease is terminated because monies are not appropriated for the
following year's lease payments, the issuer may default on the obligation
causing a loss to a Fund. A Fund will only invest in municipal lease
obligations that are, in the opinion of SAM, liquid securities under
guidelines adopted by the Trust's Board of Trustees. Generally, municipal
lease obligations will be determined to be liquid if they have a readily
available market after an evaluation of all relevant factors.
- CERTIFICATES OF PARTICIPATION in municipal lease obligations, which are
certificates issued by state
- 13 -
<PAGE> 19
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
or local governments that entitle the holder of the certificate to a
proportionate interest in the lease purchase payments made. A Fund will
only invest in COPs (including certificates of participation) that are, in
the opinion of SAM, liquid securities under guidelines adopted by the
Trust's Board of Trustees. Generally, COPs will be determined to be liquid
if they have a readily available market after an evaluation of all
relevant factors.
- PARTICIPATION INTERESTS, which are interests in municipal bonds and
floating and variable rate obligations that are owned by banks. These
interests carry a demand feature that permits a Fund holding an interest
to tender (sell) it back to the bank. Generally, the bank will accept
tender of the participation interest with same day notice, but may require
up to 5 days' notice. The demand feature is usually backed by an
irrevocable letter of credit or guarantee of the bank. The credit rating
of the bank may affect the credit quality of the participation interest.
- MUNICIPAL NOTES, which are notes generally issued by an issuer to provide
for short-term capital needs and generally have maturities of one year or
less. A Fund may purchase municipal notes as a medium for its short-term
investments, the interest on which will not be subject to federal income
tax when distributed to the Fund's shareholders. Notes include tax
anticipation, revenue anticipation and bond anticipation notes and
tax-exempt commercial paper. A Fund will invest only in those municipal
notes that at the time of purchase are rated within one of the three
highest grades by Moody's or S&P or, if unrated by any of these agencies,
in the opinion of SAM, are of comparable quality.
4. WILL INVEST AT LEAST 95% OF ITS TOTAL ASSETS IN MUNICIPAL BONDS THAT ARE
COVERED BY INSURANCE GUARANTEEING THE TIMELY PAYMENT OF BOTH PRINCIPAL AND
INTEREST (INSURED FUND ONLY). The Insured Fund will invest primarily in bonds
insured by new issue and secondary market insurance policies and on occasion
by portfolio insurance. INSURANCE DOES NOT GUARANTEE THE MARKET VALUE OF
INSURED MUNICIPAL BONDS NOR THE SHARE PRICE OF THE INSURED FUND.
New issue insurance is a policy purchased by an issuer prior to bringing a
bond issue to market in an initial offering. By purchasing the policy, the
issuer obtains a higher credit rating for its bond (usually Aaa by Moody's or
AAA by S&P). Such insurance may increase the purchase price as well as the
resale value of the bond. New issue insurance cannot be cancelled by the
insurer and remains in force as long as the bond issue is outstanding.
Secondary market insurance is purchased by an investor after the bonds have
been initially issued. These policies normally insure specific bonds for the
remainder of their term. Like new issue insurance, the insurance cannot be
cancelled by the insurer. The Insured Fund may invest in bonds insured under
a secondary market policy purchased by a prior investor or may itself
purchase secondary market insurance for uninsured bonds it has purchased.
Portfolio insurance is a policy purchased by the Insured Fund to guarantee
specific bonds it has purchased for its portfolio for only as long as the
bonds are held by the Fund.
Premiums for new issue insurance are paid in advance by the issuer of the
bond. As a result, the Insured Fund may pay a higher purchase price for a
bond covered by such insurance. Premiums on secondary market and portfolio
insurance are paid directly by the Insured Fund in accordance with applicable
policy terms. Any premiums paid by the Insured Fund to purchase secondary
market or port-
- 14 -
<PAGE> 20
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
folio insurance policies will be an Insured Fund expense. Such an expense may
reduce the Insured Fund's current yield. The Insured Fund will only purchase
insurance policies from insurance companies rated Aaa by Moody's or AAA by
S&P. Generally, an insurer may not withdraw or cancel coverage on insured
securities held by the Insured Fund other than for non-payment of premium by
the Fund.
The Insured Fund may retain any defaulted municipal bond covered by portfolio
insurance. The defaulted bond will be valued based on the value of the
insurance coverage. The insurance value is normally the difference between
the market value of the defaulted security and the market value of similar
non-defaulted securities.
The Insured Fund may invest up to 5% of its total assets in uninsured
municipal bonds.
5. INVEST IN SHARES OF NO-LOAD, OPEN-END INVESTMENT COMPANIES THAT INVEST IN
TAX-EXEMPT SECURITIES WITH REMAINING MATURITIES OF ONE YEAR OR LESS. Such
shares will only be purchased as a medium for a Fund's short-term investments
if SAM determines that they provide a better combination of yield and
liquidity than a direct investment in short-term, tax-exempt securities. SAM
will waive its advisory fees for assets invested in other investment
companies. A Fund will not invest more than 10% of its total assets in shares
issued by other investment companies, will not invest more than 5% of its
total assets in a single investment company, and will not purchase more than
3% of the outstanding voting securities of a single investment company.
6. INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE DESIRABLE
AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Each Fund, however, will not
engage primarily in trading for the purpose of short-term profits. A Fund may
dispose of its portfolio securities whenever SAM deems advisable, without
regard to the length of time the securities have been held. The portfolio
turnover rate for each Fund is not expected to exceed 70%.
7. PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS.
Under this procedure, a Fund agrees to acquire or sell securities that are to
be delivered against payment in the future, normally 30 to 45 days. The
price, however, is fixed at the time of commitment. When a Fund purchases
when-issued or delayed-delivery securities, it will earmark liquid, high
quality securities in an amount equal in value to the purchase price of the
security. Use of this technique may affect a Fund's share price in a manner
similar to leveraging.
8. 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 AND SHARES OF NO-LOAD, OPEN-END
MONEY MARKET FUNDS. A Fund may purchase these short-term securities as a cash
management technique under those circumstances where it has cash to manage
for a short time period, for example, after receiving proceeds from the sale
of securities, dividend distributions from portfolio securities, or cash from
the sale of Fund shares to investors. Interest earned from these short-term
securities will be taxable to investors as ordinary income when distributed.
SAM will waive its advisory fees for Fund assets invested in money market
funds.
The following restrictions are fundamental policies and cannot be changed
without shareholder vote.
1. Each Fund, with respect to 75% of the value of its total assets, will 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 will not invest 25% or more of its total assets in municipal
obligations and other permitted
- 15 -
<PAGE> 21
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
investments, the interest on which is payable from revenues on similar types
of projects such as: sports, convention or trade show facilities; airports;
mass transportation; sewage or solid waste disposal facilities; or air or
water pollution control projects.
3. The Intermediate, Insured and Municipal Funds will not invest 25% or more of
their total assets in securities whose issuers are located in the same state.
4. Each Fund may borrow money only for temporary or emergency purposes from a
bank or affiliate of SAFECO Corporation at an interest rate not greater than
that available from commercial banks. A Fund will not borrow amounts in
excess of 20% of its total assets. As a non-fundamental policy of the
Intermediate, Insured and Washington Funds and a fundamental policy of the
California and Municipal Funds, a Fund will not purchase securities if
borrowings equal to or greater than 5% of its total assets are outstanding. A
Fund intends to primarily exercise its borrowing authority to meet
shareholder redemptions under circumstances where redemptions exceed
available cash.
For a further description of each Fund's investment policies and restrictions as
well as an explanation of ratings, see the "Investment Objectives and Policies"
and "Description of Ratings" 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 associated with an investment in a mutual fund
like any of the Funds is that the market value of the portfolio securities may
decrease and result in a decrease in the value of a shareholder's investment.
The value of each Fund's portfolio will normally fluctuate inversely with
changes in market interest rates. Generally, when market interest rates rise,
the price of municipal bonds will fall, and when market interest rates fall, the
price of these bonds will rise. Also, there is a risk that the issuer of a
municipal bond or other security will fail to make timely payments of principal
and interest to the Funds.
Because the California and Washington Funds each concentrate their investments
in a single state, there is a greater risk of fluctuation in the values of their
portfolio securities than with mutual funds whose investments are more
geographically diverse. Investors should carefully consider the investment risks
of such concentration. The share price of the California and Washington Funds
can be affected by political and economic developments within and by the
financial condition of the respective state, its public authorities and
political subdivisions. See the discussion below and "Investment Risks of
Concentration in California and Washington Issuers" in the Statement of
Additional Information for further information.
The information in the following discussion is drawn primarily from official
statements relating to state securities offerings which are dated prior to the
date of this Prospectus. The California and Washington Funds have not
independently verified any of the information in the discussion below.
SPECIAL RISKS OF THE CALIFORNIA FUND
The State of California is still experiencing the effects of the recent economic
recession, the most severe since the 1930s. Although economic indicators show a
steady recovery well underway in the State, full recovery to pre-recession
levels is not expected before late 1996. The State's long-term credit ratings,
reduced in 1992, were lowered again in 1994 and have not been restored. The
State's ability to provide assistance to its public authorities and political
subdivisions has been impaired. Cutbacks in state aid adversely affect the
financial condition of many cities, counties and school districts which are
already subject to fiscal constraints and are facing their own reduced tax
collections.
- 16 -
<PAGE> 22
THE TRUST AND EACH FUND'S INVESTMENT POLICIES (CONTINUED)
In the past, California voters have passed amendments to the California
Constitution and other measures that limit the taxing and spending authority of
California governmental entities. Future voter initiatives could result in
adverse consequences affecting obligations issued by the State. These factors,
among others, could reduce the credit standing of certain issuers of California
obligations.
On December 6, 1994 Orange County, California, together with its pooled
investment funds, filed for protection under Chapter 9 of the federal Bankruptcy
Code, after reports that the funds had suffered significant market losses in
their investments, causing a liquidity crisis for the funds and the County. More
than 180 other public entities, most of which, but not all, are located in the
County, were also depositors in the funds. As of mid-January, 1995, the County
estimated the funds' loss at about $1.69 billion, or 22% of their initial
deposits of approximately $7.5 billion. Many entities which deposited moneys in
the funds, including the County, are facing cash flow difficulties because of
the bankruptcy filing and may be required to reduce programs or capital
projects. This may also affect their ability to meet their outstanding
obligations.
SPECIAL RISKS OF THE WASHINGTON FUND
The State of Washington's economy consists of both export and local industries.
The State's leading export industries are aerospace, forest products,
agriculture and food processing. The State's manufacturing base includes
aircraft manufacture which comprised approximately 27.2% of total manufacturing
in 1994. The Boeing Company is the State's largest employer and has a
significant impact, in terms of overall production, employment and labor
earnings, on the State's economy. In February 1995, Boeing announced production
cuts and is expected to substantially trim jobs over the next several years.
Such cuts may have an adverse effect on the Washington economy. Forest products
rank second behind aerospace in value of total production. Although productivity
in the forest products industry has increased steadily in recent years, declines
in production are expected in the future. Unemployment in the timber industry is
anticipated in certain regions; however the impact is not expected to affect the
State's overall economic performance. Growth in agriculture has been an
important factor in the State's economic growth over the past decade. The State
is the home of many technology firms of which approximately half are
computer-related. Microsoft, the world's largest microcomputer software company,
is headquartered in Redmond, Washington.
State law requires a balanced budget. The Governor has a statutory
responsibility to reduce expenditures across the board to avoid any cash deficit
at the end of a biennium. In addition, state law prohibits state tax revenue
growth from exceeding the growth rate of state personal income. To date,
Washington State tax revenue increases have remained substantially below the
applicable limit. At any given time, there are numerous lawsuits against the
state which could affect its revenues and expenditures.
PORTFOLIO MANAGER
The portfolio manager for each Fund is Stephen C. Bauer, President, SAFECO Asset
Management Company. Mr. Bauer has served as portfolio manager for each Fund
since it commenced operations: 1981 for the Municipal Fund, 1983 for the
California Fund and 1992 for the Intermediate, Insured and Washington Funds. Mr.
Bauer is the portfolio manager for certain other SAFECO municipal bond funds,
and also serves as President and a Director of SAM.
- 17 -
<PAGE> 23
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUST
Each Fund is a series of SAFECO Tax-Exempt Bond Trust, a Delaware business trust
that 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 Investment Company Act of 1940 or 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.
SAM is the investment adviser for each Fund under an agreement with the Trust.
Under the agreement, SAM is responsible for the 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:
INTERMEDIATE FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .55 of 1%
$250,000,001 -- $500,000,000 .45 of 1%
$500,000,001 -- $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
</TABLE>
INSURED AND WASHINGTON FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .65 of 1%
$250,000,001 -- $500,000,000 .55 of 1%
$500,000,001 -- $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>
MUNICIPAL AND CALIFORNIA FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $100,000,000 .55 of 1%
$100,000,001 -- $250,000,000 .45 of 1%
$250,000,001 -- $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%
</TABLE>
For the fiscal year ended March 31, 1995 the ratios of expenses to average net
assets for the Municipal, California, Intermediate, Insured and Washington Funds
were .56%, .70%, .85%, 1.08% and 1.09%, respectively, and the ratios of the net
compensation paid to SAM to average net assets of the Municipal, California,
Intermediate, Insured and Washington Funds were .42%, .54%, .52%, .63% and .63%,
respectively.
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.
- 18 -
<PAGE> 24
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.
PERSON CONTROLLING THE INTERMEDIATE, INSURED AND WASHINGTON FUNDS
At June 30, 1995 SAFECO Insurance Company of America ("SAFECO Insurance"), a
Washington Corporation, controlled the Intermediate, Insured and Washington
Funds. SAFECO Insurance is a wholly-owned subsidiary of SAFECO Corporation, a
Washington corporation, having its principal place of business at SAFECO Plaza,
Seattle, Washington 98185.
PERFORMANCE INFORMATION
Each Fund's yield, tax-equivalent 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 on the last
day of the period. Tax-equivalent yield is, given an investor's tax bracket, the
taxable yield necessary to equal a Fund's non-taxable yield on an after-tax
basis over the same period of time. 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 dividend and capital gain distributions, over a stated period of
time.
From time to time, the Funds 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.
- 19 -
<PAGE> 25
FUND DISTRIBUTION AND HOW THEY ARE TAXED
DIVIDEND AND OTHER DISTRIBUTIONS
Each Fund declares an income dividend each business day based on net investment
income; i.e., all of its interest income earned on the securities in its
portfolio less all of its expenses. Income dividends are payable on the last
business day of each month. Your shares become entitled to declared dividends on
the next business day after shares are purchased in your account. If you request
redemption of all your shares at any time during the month, you will receive all
declared income dividends through the date of redemption together with the
proceeds of the redemption.
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.
Please remember that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares, then
receive part of the price back as a taxable distribution.
TAXES
Each Fund intends to continue to qualify for favorable tax treatment as a
"regulated investment company" under the Internal Revenue Code ("Code") so as to
be able to pay dividends that are exempt from federal personal income taxes. The
portion of dividends representing net short-term capital gains, however, is not
exempt and will be treated as taxable dividends for federal income tax purposes.
In addition, income which is derived from purchasing certain bonds below their
issued price after April 30, 1993 will be treated as ordinary income for federal
income tax purposes.
A portion of a Fund's assets may from time to time be temporarily invested in
fixed-income obligations, the interest on which when distributed to the Fund's
shareholders will be subject to federal income taxes. As a matter of
non-fundamental investment policy, the Funds will not purchase so-called
"non-essential or private activity" bonds, the interest on which would
constitute a preference item for shareholders in determining their alternative
minimum tax.
The excess of net long-term capital gains realized by a Fund over net
short-term capital loss on portfolio transactions, when distributed by the
Fund, is subject to long-term capital gains treatment under the Code,
regardless of how long the shares of the Fund have been held. 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.
The exemption of the tax-exempt interest component of dividends for federal
personal income tax purposes does not necessarily result in exemption under
other federal, state or local income taxes. Shareholders of each Fund should
bear in mind that they may be subject to other taxes.
If a shareholder buys shares of a Fund and sells them at a loss within six
months, such loss for federal income tax purposes will be disallowed to the
extent of the tax-exempt interest component of dividends received during such
six-month period.
If a shareholder buys shares of a Fund and sells them at a loss within six
months, to the extent not disallowed in the previous paragraph and to the extent
of any long-term capital gains distributions, the loss shall be treated as a
long-term capital loss for federal income tax purposes.
Individuals who receive Social Security benefits must use the amount of income
dividends received from
- 20 -
<PAGE> 26
FUND DISTRIBUTION AND HOW THEY ARE TAXED (CONTINUED)
each of the Funds in determining the amount of any federal income tax due on
such benefits.
Under the Code, the tax effect on individuals of receiving dividends from any of
the Funds is substantially different from the tax effect on other types of
shareholders.
CALIFORNIA FUND
The California Fund intends to pay dividends that are exempt from California
state personal income taxes. This would not include taxable interest paid on
temporary investments, if any.
Generally, the tax treatment of capital gains under California law is the same
as under federal law. Capital gains distributions paid by the California Fund
are treated as long-term capital gains under California law regardless of how
long the shares have been held. Redemptions and exchanges of the California Fund
may result in a capital gain or loss for California income tax purposes.
Under California law, the dividend income from municipal bonds is tax-exempt to
individual shareholders but its tax treatment for corporate shareholders is
unclear. Therefore, the portion of the California Fund's income dividend
attributable to these obligations and paid by it to corporate shareholders may
be taxable. Corporate shareholders may wish to consult their tax advisers
regarding this issue.
Shares of the California Fund will not be subject to the California property
tax.
WASHINGTON FUND
Currently the State of Washington has no state personal income tax. When and if
Washington State enacts a personal income tax, there can be no assurance that
income from the Washington Fund's portfolio securities which is distributed to
shareholders would be exempt from such a tax.
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.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders. See the
Trust's Statement of Additional Information for additional tax information.
There may be other federal, state or local tax considerations applicable to a
particular investor. You therefore are urged to consult your tax adviser.
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.
- 21 -
<PAGE> 27
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 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 per share ("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.
Securities are valued based on consideration of information with respect to the
transactions in similar securities, quotations from dealers and various
relationships between securities. The value of each Fund's securities are
stated on the basis of valuations provided by a pricing service approved by the
Trust's Board of Trustees, unless the Board of Trustees determines that such
valuations do not represent fair value. The service uses information with
respect to transactions in securities, quotations from security dealers, market
transactions in comparable securities, and various relationships between
securities to determine values. Other assets (including securities for which
market quotations are unavailable and restricted securities) are valued at
their fair value as determined in good faith by the Trust's Board of Trustees.
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.
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.
- 22 -
<PAGE> 28
HOW TO PURCHASE SHARES (CONTINUED)
INITIAL PURCHASES
MINIMUM INITIAL INVESTMENT $1,000.
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, 206-545-7319 for instructions.
ADDITIONAL PURCHASES
MINIMUM ADDITIONAL INVESTMENTS $100 (EXCEPT DIVIDEND REINVESTMENTS).
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.
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, 206-545-7319. You must have previously
selected this service on your account application or by written request. Not
available to open a new account.
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 26 for important information.
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 27 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 22 for more
information.
- 23 -
<PAGE> 29
HOW TO REDEEM SHARES
BY WRITTEN REQUEST
Shares may be redeemed by sending a letter that 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 all cases, SAFECO Services must have a signed and
completed application on file before a redemption will be made. See "Account
Changes and Signature Requirements" on page 22 for more information.
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 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 26 for important information.
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.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 27 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 can 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.
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 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
- 24 -
<PAGE> 30
HOW TO REDEEM SHARES (CONTINUED)
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.
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 that 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 22 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.
- 25 -
<PAGE> 31
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)
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. Please read "Telephone
Transactions" below for important information.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 27 for
important information.
LIMITATIONS
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.
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. Your
exchanges may be restricted or refused if a Fund receives or anticipates
simultaneous orders affecting significant portions of that Fund's assets, for
example, a pattern of exchanges that coincides with a "market-timing" strategy.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.
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
redeemed. The exchange privilege may be modified or terminated with respect to a
Fund at anytime upon at least 60 days' notice to shareholders.
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 privileges.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone allows
the Funds and SAFECO Services to accept telephone instructions from an account
owner or a person preauthorized in writing by an account owner.
Each Fund and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services in its sole discretion is unable to
- 26 -
<PAGE> 32
TELEPHONE TRANSACTIONS (CONTINUED)
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 Securities tape-records telephone transactions and may
request certain identifying information from the caller.
The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services.
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 that 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).
- 27 -
<PAGE> 33
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
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.
- 28 -
<PAGE> 34
Bulk Rate
U.S. Postage
PAID
SAFECO
Insurance Co.
TO REQUEST A PROSPECTUS:
Nationwide: 1-800-426-6730
Seattle: 545-5530
FOR 24-HOUR PERFORMANCE FIGURES:
Nationwide: 1-800-835-4391
Seattle: 545-5113
FOR ACCOUNT INFORMATION OR TELEPHONE TRANSACTIONS:
Nationwide: 1-800-624-5711
Seattle: 545-7319
Hearing Impaired TTY/TDD Service: 1-800-438-8718
All telephone calls are tape-recorded for your protection.
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
EXPRESS/OVERNIGHT MAIL:
SAFECO Mutual Funds
4333 Brooklyn Avenue N.E.
Seattle, WA 98105
SAFECO Securities, Inc. Distributor
MEMBER OF
100% NO-LOAD(TM) MUTUAL FUND COUNCIL
GMF 695 7/95
Printed on Recycled Paper
(R) Registered trademark of SAFECO Corporation.
<PAGE> 35
SAFECO TAX-EXEMPT BOND TRUST:
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
SAFECO INSURED MUNICIPAL BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
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
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 July 31, 1995.
The date of this Statement of Additional Information is July 31, 1995.
______________________________________________________________________________
TABLE OF CONTENTS
<TABLE>
<S> <C>
Overview of Investment Policies 2
Additional Investment Information 7
Investment Risks of Concentration in California and Washington Issuers 8
Additional Tax Information 17
Additional Information On Calculation of Net Asset Value Per Share 18
Additional Performance Information 18
Trustees and Officers 21
Principal Shareholders 23
Investment Advisory and Other Services 24
Brokerage Practices 26
Redemption in Kind 27
Financial Statements 27
Description of Ratings 27
</TABLE>
<PAGE> 36
OVERVIEW OF INVESTMENT POLICIES
SAFECO Intermediate-Term Municipal Bond Fund ("Intermediate Fund"), SAFECO
Insured Municipal Bond Fund ("Insured Fund"), SAFECO Municipal Bond Fund
("Municipal Fund"), SAFECO California Tax-Free Income Fund ("California Fund")
and SAFECO Washington State Municipal Bond Fund ("Washington Fund") (together,
the "Funds") are each a series of the SAFECO Tax-Exempt Bond Trust ("the
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.
The types of securities a Fund may invest in 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 percentage beyond the specified
limit resulting from a change in values, net assets or other circumstances will
not be considered in determining whether a Fund complies with the applicable
limitation.
Generally, the entity that has the ultimate responsibility for the payment
of interest and principal on a particular security is deemed to be its
issuer for purposes of the investment policies. The identification of the
issuer of a tax-exempt security for purposes of diversification depends on the
terms and conditions of the security. For example, when the assets and
revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer for diversification
purposes. Similarly, in the case of an industrial development bond, if that
bond is backed only by the assets and revenues of the non-governmental user,
then such non-governmental user would be deemed to be the sole issuer for
purposes of diversification. If, however, in either case, the creating
government or some other entity guarantees a security, such a guarantee would
be considered a separate security which must be valued and included in the five
percent (5%) limitation on investments in one issuer.
Each Fund's fundamental policies may not be changed without approval of a
majority of its outstanding voting securities. For purposes of such approval,
the vote of a majority of the outstanding voting securities of a Fund means the
vote, at an annual or special meeting of the shareholders of such Fund duly
called, (i) of sixty-seven percent (67%) or more of the voting securities
present at such meeting if the holders of more than fifty percent (50%) of the
outstanding voting securities are present or represented by proxy, or (ii) of
more than fifty percent (50%) of the outstanding voting securities, whichever
is less.
Non-fundamental investment policies may be changed by the Trust's Board of
Trustees without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Intermediate, Insured and Washington Funds have adopted the following
fundamental policies. Each Fund will NOT:
<PAGE> 37
1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if as a result more than five percent
(5%) of the value of a Fund's total assets would be invested in the
securities of such issuer, except that up to twenty-five percent (25%)
of the value of a Fund's total assets (which twenty-five percent (25%)
shall not include securities issued by another investment company) may
be invested without regard to this five percent (5%) limitation;
2. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations or other permitted investments
directly from the issuer in accordance with a Fund's investment
objective, policies and restrictions and the later disposition thereof
may be deemed to be underwriting;
3. Purchase or sell real estate, unless acquired as a result of the
ownership of securities or instruments, but this shall not prevent a
Fund from investing in municipal obligations or other permitted
investments secured by real estate or interests therein;
4. Borrow money, except from a bank or affiliates of SAFECO Corporation
at an interest rate not greater than that available to a Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after such borrowing;
5. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with a Fund's investment
objective, policies and restrictions and through investments in
qualified repurchase agreements;
6. Purchase or sell commodities, commodity contracts or futures;
7. Purchase securities, if as a result, twenty-five percent (25%) or more
of a Fund's total assets would be invested in the securities of
issuers having their principal business activities in any one industry
(governmental issuers of special or general tax-exempt securities are
not considered part of any one industry);
8. Issue or sell any senior security, except as permitted under the
Investment Company Act of 1940 ("1940 Act");
9. Permit twenty-five percent (25%) or more of a Fund's total assets to
be invested in municipal obligations and other permitted investments,
the interest of which is payable from revenues on similar types of
projects. As a matter of operating policy, similar types of projects
may include sports, convention or trade show facilities; airports or
mass transportation; sewage or solid waste disposal facilities; or air
or water pollution control projects;
10. Permit twenty-five percent (25%) or more of a Fund's total assets to
be invested in securities whose issuers are located in the same state.
(NOTE: THIS FUNDAMENTAL POLICY DOES NOT APPLY TO THE WASHINGTON
FUND); or
11. During normal market conditions, invest less than eighty percent (80%)
of a Fund's net assets in obligations whose interest, in the opinion
of counsel for the issuer of the obligation, is exempt from federal
income tax.
The Municipal and California Funds have adopted the following fundamental
investment policies. Each Fund will NOT:
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1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities), if as a result more than five percent
(5%) of the value of a Fund's total assets would be invested in the
securities of such issuer, except that up to twenty-five percent (25%)
of the value of a Fund's assets (which twenty-five percent (25%) shall
not include securities issued by another investment company) may be
invested without regard to this five percent (5%) limitation;
2. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations or other permitted investments
directly from the issuer in accordance with a Fund's investment
objective, policies and restrictions and the subsequent disposition
thereof may be deemed to be underwriting;
3. Purchase or sell real estate or real estate limited partnerships, but
this shall not prevent a Fund from investing in municipal obligations
or other permitted investments secured by real estate or interests
therein;
4. Purchase or retain for a Fund's portfolio the securities of any issuer
if, to the Fund's knowledge, the officers or directors of the Fund, or
its investment adviser, who individually own more than one-half (1/2)
of one percent (1%) of the outstanding securities of such an issuer,
together own more than five percent (5%) of such outstanding
securities;
5. Participate on a joint or a joint-and-several basis in any trading
account in securities, except that a Fund may, for the purpose of
seeking better net results on portfolio transactions or lower
brokerage commission rates, join with other transactions executed by
the investment adviser or the investment adviser's parent company and
any subsidiary thereof;
6. Purchase from, or sell portfolio securities to, any officer or
director, the Fund's investment adviser, principal underwriter or any
affiliates or subsidiaries thereof;
7. Borrow money, except from a bank or affiliates of SAFECO Corporation
at an interest rate not greater than that available to a Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less
liabilities (other than borrowings immediately after such borrowing;
8. Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph 7 above, a Fund may pledge
securities having a market value at the time of pledge not exceeding
ten percent (10%) of the cost of a Fund's total assets;
9. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with a Fund's investment
objective, policies and restrictions and through investments in
qualified repurchase agreements (provided, however, that a Fund will
not invest more than ten percent (10%) of its total assets in
qualified repurchase agreements maturing in more than seven (7) days);
10. Purchase or sell commodities, commodity contracts or futures or invest
in oil, gas or other mineral exploration or development programs or
leases;
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<PAGE> 39
11. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the clearance
of transactions, or purchase or sell any put or call options or
combinations thereof;
12. Knowingly purchase or otherwise acquire any securities that are
subject to legal or contractual restrictions on resale or for which
there is no readily available market;
13. Purchase securities (other than obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities), if as a
result, more than twenty-five percent (25%) of a Fund's total assets
would be invested in one industry (governmental issuers of special or
general tax-exempt securities are not considered part of any one
industry);
14. Purchase an industrial development bond, if as a result of such
purchase, more than five percent (5%) of a Fund's total assets would
be invested in industrial revenue bonds where the payment of principal
and interest is the responsibility of a company with less than three
years' operating history;
15. Issue or sell any senior security, except that this restriction shall
not be construed to prohibit a Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the 1940 Act, or (ii)
from any bank provided, that immediately after such borrowing, there
is an "asset coverage" of at least three hundred percent (300%) for
all such borrowings and provided, further, that in the event that such
"asset coverage" shall at any time fall below three hundred percent
(300%), the Fund shall, within three (3) days thereafter (not
including Sundays and holidays) or such longer period as the
Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least three hundred
percent (300%) (for purposes of this restriction, the terms "senior
security" and "asset coverage" shall be understood to have the
meanings assigned to those terms in Section 18 of the 1940 Act);
16. Permit more than twenty percent (20%) of a Fund's net assets to be
invested, during normal market conditions, in securities whose
interest is not, in its investment adviser's opinion, exempt from
federal income tax, as long as the Fund has its investment objective
to provide as high a level of current interest income exempt from
federal income tax as is consistent with the relative stability of
capital. As a matter of operating policy, the Funds' investment
adviser may base its opinion on the opinion of counsel for the issuer
of the security;
17. Permit twenty-five percent (25%) or more of a Fund's total assets to
be invested in municipal obligations and other permitted investments,
the interest of which is payable from revenues on similar types of
projects such as sports, convention or trade show facilities; airports
or mass transportation; sewage or solid waste disposal facilities; or
air or water pollution control projects;
18. MUNICIPAL FUND ONLY: Permit twenty-five percent (25%) or more of a
Fund's total assets to be invested in securities whose issuers are
located in the same state; or
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19. During normal market conditions, invest less than eighty percent (80%)
of a Fund's net assets in obligations whose interest, in the opinion
of counsel for the issuer, is exempt from federal income tax (and, in
the case of the California Fund, also from California state personal
income tax).
NON-FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the following non-fundamental policies with respect to
its investment activities:
1. Each Fund may invest in any of the following types of short-term,
tax-exempt obligations: municipal notes of issuers rated, at the time
of purchase, within one of the three highest grades assigned by
Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating
Group ("S&P") or Fitch Investors Services, Inc. ("Fitch"); unrated
municipal notes offered by issuers having outstanding municipal bonds
rated within one of the three highest grades assigned by Moody's, S&P
or Fitch; notes issued by or on behalf of municipal issuers which are
guaranteed by the U.S. Government; tax-exempt commercial paper
assigned one of the two highest grades by Moody's, S&P or Fitch;
certificates of deposit issued by banks with assets of $1,000,000,000
or more; and municipal obligations which have a maturity of one year
or less from the date of purchase.
2. Each Fund may invest in obligations of the U.S. Government, its
agencies or instrumentalities or in qualified repurchase agreements,
the net interest on which is taxable.
3. Each Fund may invest in municipal notes including tax anticipation,
revenue anticipation and bond anticipation notes and tax-exempt
commercial paper.
4. Each Fund may invest in repurchase agreements for a period longer than
seven days.
5. Each Fund may permit twenty-five percent (25%) or more of its assets
to be invested in industrial development bonds.
6. Each Fund may purchase or sell securities on a "when-issued" or
"delayed-delivery" basis.
IN ADDITION, THE INTERMEDIATE, INSURED AND WASHINGTON FUNDS HAVE ADOPTED THE
FOLLOWING NON-FUNDAMENTAL POLICIES. EACH FUND:
1. May not make short sales of securities.
2. May not purchase securities on margin, except that a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions.
3. May not purchase or sell any put or call options or combinations
thereof.
4. May not purchase any security, if as a result, more than fifteen
percent (15%) of its net assets would be invested in illiquid
securities.
5. May not invest in oil, gas or other mineral exploration or development
programs or leases.
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<PAGE> 41
6. May not invest in real estate limited partnerships.
7. Each Fund will not purchase securities if borrowings equal to or
greater than five percent (5%) of its total assets are outstanding.
ADDITIONAL INVESTMENT INFORMATION
1. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in
which a Fund purchases securities from a bank or recognized securities
dealer and simultaneously commits to resell the securities to the bank
or dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased
securities. A Fund maintains custody of the underlying securities
prior to their repurchase; thus, the obligation of the bank or dealer
to pay the repurchase price on the date agreed to is, in effect,
secured by such securities. If the value of these securities is less
than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase
price, plus any agreed-upon additional amount.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market
value of the underlying securities and delays and costs to a Fund if
the other party to a repurchase agreement becomes bankrupt. Each Fund
intends to enter into repurchase agreements only with banks and
dealers in transactions believed by SAM to present minimum credit
risks in accordance with guidelines established by the Trust's board
of trustees. SAM will review and monitor the creditworthiness of
those institutions under the board's general supervision.
2. 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.
3. 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.
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS
CALIFORNIA FUND
The following is a condensed and general description of the judicial,
legislative and electoral proceedings affecting the taxing ability and fiscal
condition of
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<PAGE> 42
the State of California and its various political subdivisions which have
occurred since June 1978. All of these proceedings affect the continuing
ability of California political subdivisions to meet their debt service
obligations. Since during normal market conditions the Fund plans to invest at
least 80% of its net assets in bonds issued by California and its political
subdivisions, the investment risk of such concentration should be carefully
considered. The description below summarizes discussions contained in official
statements relating to various types of bonds issued by the State of California
and its political subdivisions. A more detailed description can be found in
such official statements. The California Fund has not independently verified
any of the information presented in this section.
The taxing powers of California public agencies are limited by Article XIII A
of the State Constitution, added by an initiative amendment approved by voters
on June 6, 1978, and commonly known as Proposition 13. Article XIII A limits
the maximum ad valorem tax on real property to one percent of "full cash value"
which is defined as "the County Assessor's valuation of real property as shown
on the fiscal year 1975-76 tax bill under 'full cash value' or, thereafter, the
appraised value of real property when purchased, newly constructed, or a change
in ownership has occurred after the 1975 assessment." The full cash value may
be adjusted annually to reflect inflation at a rate not to exceed two percent
per year, or reduction in the consumer price index or comparable local data, or
declining property value caused by damage, destruction, or other factors.
The tax rate limitation referred to above does not apply to ad valorem taxes to
pay the interest and redemption charges on any indebtedness approved by the
voters before July 1, 1978 or any bonded indebtedness for the acquisition or
improvement of real property approved by two-thirds of the votes cast by the
voters voting on the proposition. Article XIII A also requires a two-thirds
vote of the electors prior to the imposition of any special taxes and totally
precludes the imposition of any new ad valorem taxes on real property or sales
or transaction taxes on the sales of real property. The validity of Article
XIII A has been upheld by both the California Supreme Court and the United
States Supreme Court.
Legislation adopted in 1979 exempts business inventories from taxation.
However, the same legislation provides a formula for reimbursement by
California to cities and counties, special districts and school districts for
the amount of tax revenues lost by reason of such exemption or adjusted for
changes in the population and the cost of living. Legislation adopted in 1980
provides for state reimbursements to redevelopment agencies to replace revenues
lost due to the exemption of business inventories from taxation. Such
legislation provides for restoration of business inventory tax revenues through
the annual addition of artificial assessed value, not actually existing in a
project are, to the tax rolls of redevelopment projects. These reimbursements
are adjusted for changes in the population and the cost of living. All such
reimbursements are subject to change or repeal by the Legislature, and they
have been changed since 1980. Furthermore, current law generally prohibits the
pledging of such reimbursement revenues to secure redevelopment agency bonds.
Redevelopment agencies in California have no power to levy and collect taxes;
hence, any decrease in property taxes or limitations in the amounts by which
property taxes may increase adversely affects such agencies, which lack the
inherent power to correct for such decreases or limitations.
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<PAGE> 43
State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6, 1979,
which prohibits government agencies and the State from spending "appropriations
subject to limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes", which consist of tax revenues, certain State subventions and certain
other funds, including proceeds from regulatory licenses, user revenues,
certain State subventions and certain other funds to the extent that such
proceeds exceed "the cost reasonably born by such entity in providing the
regulation, product, or service." No limit is imposed on appropriation of
funds which are not "proceeds of taxes", on debt service or indebtedness
existing or authorized by January 1, 1979, or subsequently authorized by the
voters, or appropriations required to comply with mandates of courts or the
federal government, or user charges or fees that do not exceed the cost of the
service provided, nor on certain other non-tax funds.
By statute (which has been upheld by the California Court of Appeals), tax
revenues allocated to redevelopment agencies are not "proceeds of taxes" within
the meaning of Article XIII B, and the expenditure of such revenues is
therefore not subject to the limitations under Article XIII B.
Generally, revenues derived from most utility property assessed by the State
Board of Equalization are allocated as follows: (i) each jurisdiction,
including redevelopment project areas, receives up to 102 percent of its prior
year State-assessed revenue; and (ii) if countrywide revenues generated from
such utility property are less than the previous year's revenue or greater than
102 percent of the previous year's revenues, each jurisdiction shares the
burden of the shortfall or benefit from the excess revenues by a specified
formula. This provision applies to all utility property except railroads whose
valuation will continue to be allocated to individual tax rate areas. In a
1991 Superior Court ruling, the valuation method used by the State Board to
value unitary utility property was declared illegal and a new method was
imposed, resulting in significantly lower values and therefore significantly
reduced property tax revenues. One of the effects of the decision was to
entitle the principal utility plaintiff to a refund of $9 million. As a result
of this case, the State Board along with certain counties signed a settlement
agreement with several affected utilities providing for an orderly 10.5%
phase-down of tax assessments over a three-year period.
Lease-based financing, typically marketed in the form of certificates of
participation, has been extremely popular in California, since the courts have
long held that properly structured long-term leases do not create
"indebtedness" for purposes of constitutional and statutory debt limitations.
The obligation to pay rent thereunder is nevertheless enforceable, on an annual
basis, so long as the leased property is available for use and occupancy by the
government lessee. The risk of rent abatement (because of construction delays,
damage to structures and the like) is usually mitigated by funded reserves,
casualty insurance and rental interruption insurance.
Given the turbulent history of California electoral, judicial and legal
proceedings affecting taxation since 1978, it is impossible to predict what
proceedings might occur in the future that would affect the ability of
California and its political subdivisions to service their outstanding
indebtedness. In addition, there are both nuclear and non-nuclear electric
power authorities in
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California that are financed in whole or in part by so-called "take or pay" or
"hell or high water" contracts. Court decisions outside of the State of
California have called into question the enforceability of such contracts.
The State of California most recently issued general obligation bonds in May,
1995. The Official Statement for that bond issue describes current economic
conditions in California as follows:
"From mid-1990 to late 1993, the State of California (the "State")
suffered a recession with the worst economic, fiscal, and budget
conditions since the 1930's. Construction, manufacturing (especially
aerospace), and financial services, among others, were all severely
affected. Job losses were the worst of any post-war recession.
Employment levels stabilized by late 1993 and steady growth occurred
in 1994 and is expected to continue in 1995, but pre-recession job
levels are not expected to be reached until late 1996. Economic
indicators show a steady recovery underway in the State since the
start of 1994."
The Official Statement also discloses that the recession has seriously affected
State tax revenues, has caused increased expenditures for health and welfare
programs, and has caused a structural imbalance in the State's budget, with the
largest programs supported by the General Fund -- K-12 schools and community
colleges, health and welfare, and corrections -- growing at rates higher than
the growth rates for the principal revenue sources of the General Fund. As a
result, the State has experienced recurring budget deficits. Although the
State had an operating surplus of $1.1 billion in 1993-94, at June 30, 1994,
according to the Department of Finance, the State's Reserve for Economic
Uncertainties still had a deficit, on a budget basis, of approximately $1.5
billion.
A further consequence of the large budget imbalances over the last three fiscal
years has been that the State depleted its available cash resources and has had
to use a series of external borrowings to meet its cash needs.
On December 6, 1994, Orange County, California, together with its pooled
investment funds, filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the funds had suffered significant market
losses in their investments, causing a liquidity crisis for the funds and the
County. More than 180 other public entities, most of which, but not all, are
located in the County, were also depositors in the funds. As of mid-January,
1995, the County estimated the funds' loss at about $1.69 billion, or 22% of
their initial deposits of approximately $7.5 billion. Many of the entities
which deposited moneys in the funds, including the County, are facing cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. This may also affect their ability to meet their
outstanding obligations.
The State has no existing obligation with respect to any outstanding
obligations or securities of the County or any of the other participating
entities. However, in the event the County is unable to maintain county
administered State programs because of insufficient resources, it may be
necessary for the State to intervene. Under existing legal precedent, the
State is obligated to intervene when a school district's fiscal problems would
otherwise deny its students basic educational quality. It is not presently
possible to predict whether any school districts will face insolvency because
of their participation in the funds, and if so, the potential amount or form of
aid
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which the State may have to provide.
The Governor's budget proposal for 1995-96 released January 10, 1995, projects
General Fund revenues and transfers in the 1994-95 fiscal year of $42.4 billion
(an increase of approximately $461 million over the projection contained in the
original 1994-95 Budget Act) and expenditures of $41.7 billion (an increase of
approximately $754 million over the amount shown in the original 1994-95 Budget
Act). The Governor's Budget for 1995-96 proposes General Fund revenues and
transfers of $42.5 billion (including $830 million from the federal government)
and expenditures of $41.7 billion, which would leave a balance of approximately
$92 million in the budget reserve, the Special Fund for Economic Uncertainties,
at June 30, 1996 after repayment of the accumulated budget deficits. A January
20, 1995 report of the State's legislative analyst's office cautions, however,
that the Proposed Budget is subject to a number of major risks, including
receipt of the expected federal immigration aid and other federal actions to
allow health and welfare cuts, and the outcome of certain lawsuits concerning
previous budget actions which the State has lost at the trial court level, and
which are under appeal.
As a result of the deterioration in the State's budget and cash situation in
fiscal years 1991-92 and 1992-93, rating agencies reduced the State's credit
ratings. Between November 1991 and October 1992 the rating on the State's
general obligation bonds was reduced by S&P from "AAA" to "A+" and by Moody's
from "Aaa" to "Aa". On July 15, 1994, based on the State's inability to
eliminate its accumulated deficit, the same three rating agencies further
lowered their ratings on the State's general obligation bonds to "A-plus", "A1"
and "A", respectively. The downgradings, which have not been restored, also
affect the ratings of the obligations of certain State agencies. It is not
possible to predict the future course of the State's credit ratings.
The Fund will attempt to achieve geographic diversification by investing in
obligations of issuers that are located in different areas within California as
well as obligations of the State of California itself. In addition, the Fund
will not invest more than 15% of its total assets in tax allocation bonds
issued by California redevelopment agencies. These are operating policies of
the Fund and may be changed without the approval of the Fund's shareholders.
WASHINGTON FUND
WASHINGTON STATE
A discussion of certain economic, financial and legal matters regarding the
State of Washington follows. During normal market conditions, the Washington
Fund will generally invest at least 80% of its net assets in bonds issued by
Washington and its political subdivisions, municipalities, agencies,
instrumentalities or public authorities. Therefore, the investment risk of
such concentration should be carefully considered. The information in the
discussion is drawn primarily from official statements relating to securities
offerings of the State which are dated prior to the date of this Statement of
Additional Information. This information may be relevant in evaluating the
economic and financial position of the State, but is not intended to provide
all relevant data necessary for a complete evaluation of the State's economic
and financial position. Discussions regarding the financial health of the
State government may not be relevant to municipal obligations issued by a
political subdivision of the State. Furthermore, general economic conditions
discussed may or may not affect
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<PAGE> 46
issuers of the obligations of the State. The Washington Fund has not
independently verified any of the information presented in this section.
GENERAL INFORMATION
According to the U.S. Census Bureau's 1990 Census, Washington State's
population is ranked 18th of the 50 states. During the ten-year time period
from 1980-1990, the State's population increased at an average annual rate of
1.8%, while the U.S. population grew at an average annual rate of 1.1%. In
1993, the State's population continued its growth with an annualized rate of
1.8%
The State's largest city, Seattle, is part of a strong international trade,
manufacturing, high technology and business service corridor which extends
along Puget Sound from Everett to Tacoma. The State's Pacific Coast-Puget
Sound region includes 75% of its population, the major portion of its
industrial activity and the major part of the forests important to its timber
and paper industries. The remainder of the State has rich agricultural areas
primarily devoted to grain, fruit orchard and dairy operations.
The State's economy has recently diversified with employment in the trade and
service sectors representing an increasing portion of total employment relative
to the manufacturing sector. Both employment and personal income growth
compare favorably with the national averages despite the national recession.
The rate of economic growth as measured by employment in the State has slowed
from 2.0% in 1992 to 1.3% in 1993, 2.5% in 1994, and 2.6% projected for 1995.
Comparable rates for the U.S. were 0.3% in 1992, 1.8% in 1993, 2.6% in 1994,
and 2.6% projected in 1995. Nationwide, employment growth is expected to
decrease in 1996 and 1997 to 1.8% and 1.7% respectively. The State's economic
growth, hampered by reductions in aerospace, is expected to be 1.8% in 1996 and
2.6% in 1997.
The State operates on a July 1 to June 30 fiscal year and on a biennial budget
basis. Fiscal controls are exercised during the biennium through an allotment
process which requires each agency to submit a monthly expenditure plan. The
plan must be approved by the Office of Financial Management, which is the
Governor's budget agency. It provides the authority for agencies to spend funds
within statutory maximums specified in a legislatively adopted budget. State
law requires a balanced biennial budget. Whenever it appears that
disbursements will exceed the aggregate of estimated receipts plus beginning
cash surplus, the Governor is required to reduce allotments, thereby reducing
expenditures of appropriated funds.
As interpreted by the State Supreme Court, Washington's Constitution prohibits
the imposition of net income taxes.
The State's tax revenues are primarily comprised of excise and ad valorem
taxes. By constitutional provision, the aggregate of all regular (unvoted) tax
levies on real and personal property by state and local taxing districts cannot
exceed 1% of the true and fair value. Excess levies are subject to voter
approval. For the fiscal year ending June 30, 1994, nearly 77.3% of the State's
tax revenues came from general and selective sales and gross receipts taxes, of
which the retail sales tax and its companion use tax represented 46% of total
collections. Business and occupation tax collections represented about 16.3%
and the motor vehicle fuel tax represented approximately 7.0% of total State
taxes for the year. Ad valorem taxes represented 10.6% of State revenues for
the fiscal year 1994.
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State law prohibits State tax revenue growth from exceeding the growth rate of
State personal income averaged over a three-year period. State revenue
increases have remained substantially below the State revenue limit. In
addition, the State may not impose on local governments responsibility for new
programs or increased levels of service under existing programs without
providing the financing to pay for the added services. Expenditures of State
revenues are made in accordance with constitutional and statutory mandates.
STATE EXPENDITURE LIMITATIONS
Initiative 601, which was voted into law in November 1993, limits increases in
General Fund-State government expenditures to the average rate of population
and inflation growth. The new initiative replaced Initiative 62 effective July
1, 1995, and sets forth a series of guidelines for limiting tax and expenditure
increases and stabilizing long range budget planning.
Provisions of Initiative 601 establish a procedure for computing a fiscal year
growth factor based on a lagged, three year average of population and inflation
growth. This growth factor is used to determine a state spending limit for
programs and expenditures supported by the state General Fund. Legislative
approval is required for fee increases beyond the fiscal year growth factor.
The new initiative creates two new reserve funds (the Emergency Reserve Fund
and the Education Construction Fund) for depositing revenues in excess of the
spending limit and abolishes the current Budget Stabilization Account. Like
Initiative 62, restrictions are placed on the addition or transfer of functions
to local government unless there is reimbursement.
Beginning in Fiscal Year 1996, taxes can be enacted without voter approval with
a two-thirds majority of both houses of the State Legislature if resulting
General Fund-State expenditures do not exceed the spending limit.
The State Constitution and enabling statutes authorize the incurrence of State
general obligation debt to the payment of which the State's full faith and
credit and taxing power are pledged. With certain exceptions, the amount of
State general obligation debt which may be incurred is limited by
constitutional and statutory restrictions. These limitations are imposed by
prohibiting the issuance of new debt if the new debt would cause the maximum
annual debt service on all thereafter outstanding general obligation debt to
exceed a specified percentage of the arithmetic mean of general State revenues
for the preceding three years. These limitations apply to the incurrence of
new debt and are not limitations on the amount of debt service which may be
paid by the State in future years.
The State Legislature is obligated to appropriate money for State debt service
requirements. Generally, on or before June 30 of each year, the State Finance
Committee certifies to the State Treasurer the amount required for bond payment
of interest and principal for the coming year. Some general obligation bond
statutes provide that the General Fund will be reimbursed from discrete
revenues which are not considered general State revenues. Other bonds are
limited obligation bonds not payable from the General Fund.
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<PAGE> 48
The State began the 1991-1993 Biennium with a $468 million surplus and $260
million in the Budget Stabilization Account. The 1991-93 Biennium Budget was
signed into law by the Governor on June 30, 1991 and reflected expected revenue
growth of 12.45%. However, weaker than expected revenue collections in the
first six months of 1992 prompted the State Economic and Revenue Forecast
Council to reduce projected revenue growth resulting in a forecast General Fund
cash deficit for the 1991-93 biennium. In addition, supplemental operating
budget adjustments for state and federally mandated funding of social and
health service programs, prisons and correctional facilities and K-12 education
contributed to the projected shortfall.
In response to the forecast to fulfill his statutory duty to maintain a
balanced budget, the Governor issued an Executive Order to implement a 2.5%
across-the-board reduction in General Fund appropriations, effective December
1, 1991. In April 1992, a 1991-93 Biennium Supplemental Budget was adopted by
the State Legislature and signed by the Governor. The Supplemental Budget
added spending reductions, selected tax increases and use of a portion of the
Budget Stabilization Account. As a result, the projected General Fund-State
balance ended the 1991-93 Biennium with $234 million balance and $100 million
in the Budget Stabilization Account.
For most municipalities in the State, the fiscal year is the calendar year
except that school districts have a September 1 - August 31 fiscal year. All
municipalities must maintain balanced budgets. Depending on the type of
municipality, local revenues are derived from ad valorem taxes, excise and
gross receipts taxes, special assessments, fees, user charges and State and
federal grants.
Municipalities incur debt by the issuance of general obligations or other
borrowings which are payable from taxes, though other revenue sources may be
used. Revenue obligations do not constitute debt under constitutional and
statutory limitations as long as taxes are not pledged or used to pay debt
service. Only non-tax revenue from the operation of a project or enterprise
financed by the revenue obligations (and sometimes special assessments on
property benefitted from the financed improvements) may be used to pay that
debt service. Usually, revenue bonds are secured by a reserve funded in an
amount based on a factor of debt service. Many municipalities may issue
improvement district obligations payable only from special assessments on
benefitted property, but some of those obligations also may be secured by a
special guaranty fund.
ECONOMIC OVERVIEW
Over the past few years, the State's economic performance has remained
relatively strong compared to the U.S. as a whole. From 1989-1992, preliminary
figures show that, after adjusting for inflation, growth in per capita income
has outperformed the national economy each year. This recent growth is broadly
based, having taken place throughout various segments of the State's economy.
The State's economic base includes manufacturing and service industries as well
as agricultural and timber production. During 1987-1993, the State experienced
growth in both the manufacturing and non-manufacturing industries. Growth in
employment in the durable and non-durable goods manufacturing, services and
government sectors have exceeded comparable figures for the U.S.
-14-
<PAGE> 49
Washington's economy consists of both export and local industries. Leading
export industries are aerospace, forest products, agriculture and food
processing. The aerospace, timber and food processing industries together
employ approximately 9% of the State's non-farm workers. However, the
non-manufacturing sector has played an increasingly significant role in
contributing to the State's economy in recent years.
Below is a summary of key industry segments of the State's economy as well as
of selected economic and employment data.
Manufacturing. The Boeing Company ("Boeing"), which is the Seattle Metropolitan
Area's largest employer, has several facilities located throughout the area.
Boeing is the world's leading manufacturer of commercial airliners and as of
January 1995 employed approximately 82,000 people state-wide, primarily at
several locations in the area. While the primary activity of Boeing is the
manufacture of commercial aircraft, Boeing has played leading roles in the
aerospace and military missile programs of the U.S. and has undertaken a broad
program of diversification activities including Boeing Computer Services. In
1994, Boeing had $21.924 billion in sales and net earnings of $856 million, and
a backlog of orders totalling $66.3 billion.
In February 1995, Boeing announced that it will reduce production of its 737
and 767 model jetliners because of the continuing financial difficulties of the
airline industry which has resulted in order delays and cancellations.
Production of the 767 line in Everett, Snohomish County, will increase from
three to four planes per month in April, but will decline to 3.5 by year-end.
The 747 will continue to be built at a rate of two planes per month through
1995 and increase to three planes per month by the end of 1996. Model 777
orders currently total 147, with production of three planes per month expected
to commence later in 1995. The company expects to deliver nineteen 777s in
1995. In Renton, the 737 line will be reduced from 8.5 to seven planes per
month and the 757 production of four planes per month will continue.
Associated with the reduced production are job cutbacks equal to approximately
6% of the company's total workforce of 117,331. It is anticipated that Boeing
will layoff approximately 7,000 employees in 1995, 6,500 of which be
eliminated in Washington.
Technology-Related Industries. The State ranks fourth among all states in the
percentage of its work force employed by technology-related industries. It
ranks third among the largest software development centers. The State is the
home of approximately 1000 advanced technology firms of which approximately
50% are computer-related. Microsoft, headquartered in Redmond, Washington, is
the largest microcomputer software company in the world. In addition, several
biotechnical firms located in the State have attained international acclaim for
their research and development.
Timber. Natural forests cover more than 40% of the State's land area and forest
products rank second behind aerospace in terms of total production. The
primary employer in the timber industry is The Weyerhaeuser Company.
Productivity in the State's forest products industry has been increasing
steadily in recent years. However, in 1991 production declined primarily
because of the recession. Overall production in the timber industry is
expected to decline over the next few years due to federally imposed
limitations on the harvest of old-growth timber and because it may be difficult
to maintain the recent record levels of production increases. Some unemployment
is anticipated in certain regions, but
-15-
<PAGE> 50
the impact is not expected to affect materially the State's overall economic
performance.
Agriculture and Food Processing. Agriculture and food processing is the State's
most important industry by most measures. Growth in agricultural products was
an integral factor in the State's economic growth in the late 1980s and early
1990s.
Finance, Insurance and Real Estate. Employment in finance, insurance and real
estate is estimated to represent 5.4% of the State's wage and salary employment
in 1993. Since 1987, annual growth in employment in this sector has averaged
2.3% compared to 1.3% for the U.S.
Trade. International trade plays an important role in the State's employment
base and one in six jobs is related to this area. During the past twenty years
the State has consistently ranked number one or number two in international
exports per capita. Seattle-Tacoma International Airport is the focus of the
region's air traffic and trade. The State, particularly the Puget Sound
Corridor, is a trade center for the Northwest and the State of Alaska. A
system of public ports, the largest of which are the Ports of Seattle and
Tacoma, handle waterborne trade primarily to and from the Far East. These two
Ports each rank among the top 20 ports in the world based on volume of
containerized cargo shipped. Approximately 70% of the cargo entering the Ports
of Seattle and Tacoma has an ultimate destination outside the Pacific
Northwest. Therefore, trade levels depend largely on national and world rather
than local economic conditions.
Trade employment experienced the third highest growth in the State between 1981
and 1991. Growth in retail sales in the State between 1990 and 1992 has
consistently been higher than that in the U.S.
Services/Tourism. The highest employment growth between 1981 and the present
took place in the services sector although rate of growth has shown small but
consistent decline since 1990 from 7% to 3.5% forecast for 1994. Seattle is
the location for the Washington State Convention and Trade Center which opened
in June 1988. The State also has many tourist attractions such as the Olympic
and Cascade mountain ranges, ocean beaches and local wineries.
Construction. Employment in the construction sector in the Puget Sound area
increased 69.2% between 1981 and 1991. The increase in employment in the late
1980s was due in part to the affordability of housing compared to other areas
of the country. Construction employment growth flattened between 1991 and
1993, but showed a modest increase in 1994. Commercial building, while not
increasing at the pace of the 1980s, remains stable.
Federal, State and Local Government. Employment in the government sector
represents approximately 19% of all wage and salary employment in the State on
a combined basis. Seattle is the regional headquarters for a number of federal
government agencies and the State receives an above average share of defense
expenditures. Employment in the government sector has expanded in the State
since 1987 at a more rapid rate than in the U.S. as a whole. State and local
government employment has increased at a faster pace than employment by the
federal government.
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<PAGE> 51
LITIGATION
At any given time, including the present, there are numerous lawsuits pending
against the State of Washington which could affect the State's revenues and
expenditures. However, none of the lawsuits are expected to have a material
adverse impact on either State revenues or expenditures.
ADDITIONAL TAX INFORMATION
The tax-exempt interest portion of each daily dividend will be based upon the
ratio of a Fund's tax-exempt to taxable income for the entire fiscal year
(average annual method). As a result, the percentage of tax-exempt income for
any particular distribution may be substantially different from the percentage
of a Fund's income that was tax-exempt during the period covered by that
distribution. Each Fund will advise its shareholders of this ratio within 60
days after the close of its fiscal year (March 31).
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible. In addition, entities or persons who
are "substantial users" (or related persons) of facilities financed by most
"private activity" bonds should consult their tax advisers before purchasing
shares of any of the Funds. "Substantial user" is generally defined to include
a "non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of most "private activity" bonds.
Each Fund may invest in municipal bonds that are purchased, generally not on
their original issue, with market discount (that is, at a price less than the
principal amount of the bond or, in the case of a bond that was issued with
original issue discount, at a price less than the amount of the issue price
plus accrued original issue discount) ("municipal market discount bonds").
Gain on the disposition of a municipal market discount bond (other than a bond
with a fixed maturity date within one year from its issuance), generally is
treated as ordinary (taxable) income, rather than capital gain, to the extent
of the bond's accrued market discount at the time of disposition. Market
discount on such a bond generally is accrued ratably, on a daily basis, over
the period from the acquisition date to the date of maturity. In lieu of
treating the disposition gain as above, a Fund may elect to include market
discount in its gross income currently, for each taxable year to which it is
attributable.
Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on November 30 of that year, plus certain other amounts.
No portion of the dividends or other distributions paid by any Fund is eligible
for the dividends-received deduction allowed to corporations.
In the future, proposals may be introduced before Congress for the purpose of
further restricting or even eliminating the federal income tax exemption for
interest on all or certain types of municipal obligations. If such a proposal
were enacted, the availability of municipal obligations for investment by each
Fund and the value of each Fund's portfolio would be affected. In such event,
each Fund would review its investment objectives and policies.
-17-
<PAGE> 52
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 or 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
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.
Each Fund has selected a pricing service to assist in computing the value of
its portfolio securities. There are a number of pricing services available and
the decision as to whether, or how, a pricing service should be used by a Fund
will be left to the judgment of the Trust's Board of Trustees.
Short-term debt securities held in a 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 if in the judgment of the Board of Trustees
such methods of valuation are appropriate 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 portfolio will be appraised in
accordance with those procedures established by the Board of Trustees in good
faith in computing the fair market value of those assets.
ADDITIONAL PERFORMANCE INFORMATION
The yield and tax-equivalent yield for the 30-day period ending March 31, 1995
at the maximum federal tax rate of 39.6% for the Municipal, Intermediate,
Insured and Washington Funds are 5.54% and 9.17%, 4.51% and 7.47%, 5.12% and
8.48%, and 5.26% and 8.71%, respectively, and at the maximum combined federal
and California tax rates of 46.2% for the California Fund, are 5.38% and
10.0%, respectively.
Yield is computed using the following formula:
<TABLE>
<S> <C> <C>
a-b
Yield = 2[( ---- +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
</TABLE>
-18-
<PAGE> 53
Tax-equivalent yield is computed using the following formula:
<TABLE>
<S> <C>
eg
Tax-equivalent yield = [ ------ ] + [e(1-g)]
(1-f)
Where: e = yield as calculated above
f = tax rate
g = percentage of "yield" which is tax-free
</TABLE>
The total returns for the Municipal Fund for the one-year, five-year and
ten-year periods ending March 31, 1995 are 7.10%, 48.7% and 160.4%,
respectively.
The average annual total returns for the Municipal Fund for the one-year,
five-year and ten-year periods ending March 31, 1995 are 7.10%, 8.26% and
10.04%, respectively.
The total returns for the California Fund for the one-year, five-year and ten
year periods ending March 31, 1995 are 7.01%, 47.97% and 148.17%, respectively.
The average annual total returns for the California Fund for the one-year,
five-year and ten year periods ending March 31, 1995 are 7.01%, 8.15% and
9.52%, respectively.
The total returns for the Intermediate, Insured and Washington Funds for the
one year period (and since inception) ended March 31, 1995 are 4.97% and 7.74%,
8.58% and 7.06%, and 7.62% and 8.35%, respectively.
The total return is computed using the following formula:
<TABLE>
<S> <C>
ERV-P
T = ----- x 100
P
Where: T = total return
ERV = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of
time
P = a hypothetical initial investment of $1,000
</TABLE>
-19-
<PAGE> 54
The average annual total return is computed using the following formula:
<TABLE>
<S> <C>
A = (n/ 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 $1,000 investment at the
end of a specified period of time
P = a hypothetical initial investment of $1,000
</TABLE>
In making the above calculation all dividends and capital gain distributions
are assumed to be reinvested at the Fund's NAV on the reinvestment date.
Each Fund may advertise its ranking as calculated by independent rating
services which monitor mutual funds' performance (e.g., CDA Investment
Technologies, Lipper Analytical Services, Inc. and Morningstar, Inc.). These
rankings may be among mutual funds with similar objectives and/or size or with
mutual funds in general and may be based on relative performance during
periods deemed by the rating services to be representative of up and down
markets.
The Funds may upon occasion reproduce articles or portions of articles about
the Funds written by independent third parties such as financial writers,
financial planners and financial analysts, and appearing 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 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) the investment adviser's
parent company (SAFECO Corporation) 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.
Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.
-20-
<PAGE> 55
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position Held Principal Occupation
Name, Address and Age With the Trust During Past 5 Years
--------------------- -------------- --------------------
<S> <C> <C>
Boh A. Dickey* Chairman Executive Vice President,
SAFECO Plaza and Trustee Chief Financial Officer and
Seattle, Washington 98185 Director of SAFECO Corporation.
(50) He has been an executive officer of SAFECO
Corporation subsidiaries since 1982. See table
under "Investment
Advisory and Other Services."
Barbara J. Dingfield Trustee Manager, Corporate Contributions and Community
Microsoft Corporation Programs for Microsoft Corporation, Redmond,
One Microsoft Way Washington, a computer software company; Director
Redmond, Washington 98052 and former Executive Vice President, Wright, Runstad
(49) & 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 Treasurer of the Trust
1270 NW Blakely Ct. and other SAFECO Trusts; retired Senior Vice
Seattle, Washington 98177 President and Treasurer of SAFECO Corporation;
(66) former President of SAFECO Asset Management Company.
Richard E. Lundgren Trustee Director of Marketing and
764 S. 293rd Street Customer Relations, Building Materials
Federal Way, Washington 98032 Distribution,
(57) Weyerhaeuser Company, Tacoma,
Washington; Director of First SAFECO National Life
Insurance Company of New York.
L. D. McClean* Trustee Retired Assistant Secretary of SAFECO Corporation
7231 91st Avenue SE and its property and casualty and life insurance
Mercer Island, WA 98040 affiliates; Director of First SAFECO National Life
(68) 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.
</TABLE>
-21-
<PAGE> 56
<TABLE>
<S> <C> <C>
Larry L. Pinnt Trustee Retired Vice President and Chief Financial Officer,
1600 Bell Plaza U S WEST Communications, Seattle,
Room 1802 Washington; Director of Key Bank of Washington,
Seattle, Washington 98191 Seattle, Washington; Director of PREMERA; Director
(60) of Blue Cross of Washington and Alaska; Director of
First SAFECO National Life Insurance Company of New
York.
John W. Schneider Trustee President of Wallingford Group,
1808 N 41st Street Inc., Seattle, Washington;
Seattle, Washington 98103 former President of Coast
(53) Hotels, Inc.; Director
of First SAFECO National Life
Insurance Company of New York.
David F. Hill President President of SAFECO Securities,
SAFECO Plaza Inc. and SAFECO Services
Seattle, Washington 98185 Corporation and Senior Vice
(46) President of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."
Neal A. Fuller Vice President, Vice President, Controller and Assistant Secretary
SAFECO Plaza Controller, of SAFECO Securities, Inc. and SAFECO Services
Seattle, Washington 98185 Assistant Corporation; Vice President, Controller, Secretary
(33) 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 Management Company;
SAFECO Plaza Treasurer Vice President and Treasurer of SAFECO Corporation;
Seattle, Washington 98185 Vice President of SAFECO Life Insurance Company;
(51) 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 Investment Company Act
of 1940.
-22-
<PAGE> 57
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Benefits Estimated Total Compensation
Compensation Accrued As Annual From Registrant
from Part of Fund Benefits Upon and Fund Complex
Trustee Registrant Expenses Retirement Paid to Trustees
------- ------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Barbara J. Dingfield $2,400 N/A N/A $16,550
Richard E. Lundgren $2,400 N/A N/A $16,550
L.D. McClean $2,200 N/A N/A $15,150
Larry L. Pinnt $2,400 N/A N/A $16,550
John W. Schneider $2,400 N/A N/A $16,550
Boh A. Dickey $ 0 $ 0
Richard W. Hubbard $ 950 N/A N/A $ 6,650
</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-three
series companies managed by SAM.
For the fiscal year ended March 31, 1995 the Trustees of the Trust not employed
by SAFECO Corporation or its affiliates, as a group, received compensation of
$2,550 per Fund for their services as Trustees. The officers of the Trust
received no compensation for their services as officers or, if applicable,
trustees.
At June 30, 1995, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each Fund.
PRINCIPAL SHAREHOLDERS
As of June 30, 1995 SAFECO Insurance Company of America ("SAFECO"), a
Washington corporation, SAFECO Plaza, Seattle, Washington 98185, owned 28.9%,
73.9% and 86.5% of the outstanding shares of the Intermediate, Insured and
Washington Funds, respectively. SAFECO is a wholly-owned subsidiary of SAFECO
Corporation, a Washington corporation, having its principal place of business
at SAFECO Plaza, Seattle, Washington 98185.
At July 15, 1995 Donald L. and Marilyn J. Anderson, Mercer Island, Washington
owned of record approximately 5.37% of the outstanding Intermediate Fund.
-23-
<PAGE> 58
INVESTMENT ADVISORY AND OTHER SERVICES
SAFECO Asset Management Company ("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.
The following individuals have the following positions and offices with the
Trust, SAM, SAFECO Securities and SAFECO Services:
<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 President President
Vice Pres. Director Secretary
Director Secretary Director
N. A. Fuller Vice President Vice Vice Vice President
Controller President President Controller
Assistant Controller Controller Assistant
Secretary Secretary Assistant Secretary
Treasurer Secretary 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 a Vice President of
SAFECO Corporation. Messrs. Dickey and Spaulding are also directors of several
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, which includes furnishing office
facilities, books, records and personnel to manage the Trust's and each Fund's
affairs and paying all 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:
-24-
<PAGE> 59
<TABLE>
<CAPTION>
NET ASSETS FEE
<S> <C> <C>
INTERMEDIATE FUND
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
INSURED AND WASHINGTON FUNDS
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
MUNICIPAL AND CALIFORNIA FUNDS
$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 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 the Fund's
expenses in any full fiscal year (excluding interest expense, taxes, brokerage
expenses, 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 the 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 states the total amounts of compensation paid to SAM for the past
three fiscal years or periods for each Fund:
<TABLE>
<CAPTION>
Year or Period Ended
March 31, 1995 March 31, 1994 March 31, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Municipal Fund $2,010,754 $2,248,615 $2,019,701
California Fund $ 364,000 $ 455,505 $ 413,781
Intermediate Fund $ 66,542 $ 36,890 $ 2,410
Insured Washington $ 38,165 $ 21,582 $ 2,088
Washington Fund $ 31,475 $ 18,350 $ 2,539
</TABLE>
-25-
<PAGE> 60
U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington 98101, is
the custodian of the securities, cash and other assets of each Fund under an
agreement with the Trust. Ernst & Young LLP, 999 Third Avenue, Suite 3500,
Seattle, Washington 98104, is the independent auditor of each Fund's financial
statements.
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 for 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 to a Fund for each shareholder
transaction processed. The following table shows the total fees paid to SAFECO
Services by each Fund as compensation for its services as transfer agent for
the past three fiscal years or periods:
<TABLE>
<CAPTION>
Years or Periods Ended
March 31, 1995 March 31, 1994 March 31, 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Municipal Fund $531,978 $557,561 $543,098
California Fund $ 68,840 $ 66,667 $ 67,124
Intermediate Fund $ 17,330 $ 11,109 $ 0
Insured Fund $ 5,164 $ 3,617 $ 0
Washington Fund $ 3,219 $ 2,801 $ 0
</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 places orders for the purchase or sale of each Fund's portfolio securities.
In deciding which broker to use in a given transaction SAM uses the following
criteria:
(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 on a timely
basis);
(2) Whether the broker is known to SAM as being reputable; and,
(3) All other things being equal, which broker has provided useful research
services to SAM.
Such research services as are furnished to SAM 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 staff, and personal visits by such analysts and brokerage
strategists and economists to SAM's office) are used by SAM to advise all of
its clients including the Funds, but not all such research services furnished
to SAM are used by it to advise the Funds. SAM does not pay excess commissions
or mark-ups to any broker or dealer for research services or for any other
reason. Purchases and sales of portfolio securities are transacted with the
issuer or with a primary market maker acting as principal for the securities on
a net basis with no commission being paid by the Funds. Transactions placed
through dealers serving as primary market makers reflect the spread between the
bid and asked
-26-
<PAGE> 61
prices. Occasionally the Funds may make purchases of underwritten issues at
prices that include underwriting fees.
REDEMPTION IN KIND
If the Trust concludes that cash payment upon redemption to a shareholder of a
Fund would be prejudicial to the best interest of 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 the 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 March 31, 1995:
Portfolios of Investments as of March 31, 1995
Statement of Assets and Liabilities as of March 31, 1995
Statement of Operations for the Year Ended March 31, 1995
Statement of Changes in Net Assets for the Years Ended March 31, 1995
and March 31, 1994
Notes to Financial Statements
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 RATINGS
Ratings by Moody's and S&P represent opinions of those organizations as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.
DESCRIPTION OF BOND RATINGS
MOODY'S
Investment Grade Descriptions:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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 visualized are most unlikely to
impair the fundamentally strong position of such issues.
-27-
<PAGE> 62
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered 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 -- Bonds which are rated Baa are considered 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
have speculative characteristics.
Below Investment Grade Descriptions:
Ba -- Judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future.
B -- Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa -- 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 short-comings.
C -- The lowest-rated class of bonds. Issues so rated have extremely poor
prospects of ever attaining any real investment standing.
S&P
Investment Grade Descriptions:
AAA -- Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
<PAGE> 63
PLUS (+) OR MINUS (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Below Investment Grade Descriptions:
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 "BB" to "D" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
DESCRIPTION OF RATINGS FOR SHORT-TERM OBLIGATIONS
(Municipal Notes, Commercial Paper, Certificates of Deposit)
MOODY'S
Municipal Notes and Other Short-Term Loans. Ratings for municipal notes and
other short-term loans are designated by Moody's Investment Grade ("MIG").
This distinction is in recognition of the differences between short-term credit
risk and long-term risk.
MIG-1. Loans bearing this designation are of the best quality, enjoying strong
protection via established cash flows of funds for their servicing or from
established and broad-based access to markets for refinancing, or both.
MIG-2. Loans bearing this designation are of high quality, with margins of
protection ample although not as large as in the preceding group.
MIG-3. Loans bearing this designation are of favorable quality, with all
security elements accounted for but lacking the undeniable strength of the
preceding grade. Market access for refinancing, in particular, is likely to be
less well established.
Commercial Paper. Issuers rated Prime-1 have a superior capacity and issuers
rated Prime-2 have a strong capacity for the repayment of short- term
promissory obligations.
S&P
Municipal Notes. Issues rated SP-1 have a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics will be given a plus (+) designation. Issues rated SP-2
have a satisfactory capacity to pay principal and interest. Issues rated SP-3
have a speculative capacity to pay principal and interest.
Commercial paper issues rated A are the highest quality obligations. Issues in
this category are regarded as having the greatest capacity for timely payment.
For issues designated A-1 the degree of safety regarding timely payment is very
strong. Issues designated A-2 also have a strong capacity for timely payment
but not as high as A-1 issues.
<PAGE> 64
SAFECO TAX-EXEMPT BOND 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 March 31, 1995 and the report thereon of Ernst &
Young LLP, independent auditors, are incorporated in the Statement of
Additional Information by reference to pages ____ of Registrant's
Annual Report filed with the SEC on or about June 1, 1995:
Portfolio of Investments as of March 31, 1995
Statement of Assets and Liabilities as of March 31, 1995
Statement of Operations for the Year Ended March 31, 1995
Statement of Changes in Net Assets for the Years Ended
March 31, 1995 and March 31, 1994
Notes to Financial Statements
Financial Statements from Registrant's Annual Report are filed as
Exhibit 12.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------ ----------------------- -----
<S> <C> <C>
(27.1-5) Financial Data Schedules
(99.1) Trust Instrument/Certificate of Trust *
(99.2) Bylaws *
(99.3) Inapplicable
(99.4) Stock Certificate *
(99.5) Investment Advisory and Management Contract *
(99.6) Distribution Agreement *
(99.7) Inapplicable
(99.8) Custody Agreement *
(99.9) Transfer Agent Agreement *
(99.10) Opinion of Counsel *
(99.11) Consent of Independent Auditors
(99.12) Registrant's Annual Report for the Year Ended March 31, 1995+
including Financial Statements
</TABLE>
<PAGE> 65
<TABLE>
<S> <C> <C>
(99.13) Subscription Agreement *
(99.14) Inapplicable
(99.15) Inapplicable
(99.16) Calculation of Performance Information
</TABLE>
+ The Registrant's Annual Report was filed with the SEC on or about June
1, 1995.
* Filed as an Exhibit to Post-Effective Amendment No. 4 dated July 31,
1995 and filed with the SEC on May 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 four mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO
Income Fund and SAFECO Northwest 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
2
<PAGE> 66
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
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General
America Corp. of Texas, a Texas corporation, S&T 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. S&T
Financial Corporation owns 100% of PNMR Securities, Inc., a Washington
corporation, and Talbot Financial Corporation, a Washington corporation which
owns 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. S.C. Simi Valley, Inc. owns 100% of
Simi Valley Hospital, Inc., a Washington corporation. Winmar Company, Inc.
owns 50% 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 June 30, 1995, Registrant had 379, 156, 11,629, 1,600 and 62 shareholders of
record in its 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, 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
3
<PAGE> 67
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
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 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 a 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
4
<PAGE> 68
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
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 reasonable 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
The investment adviser to the Registrant, SAFECO Asset Management Company,
serves as an adviser to: (a) twenty-eight series (portfolios) of seven
registered investment companies, including five series of an investment company
that serves as an 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 information set forth under
"Investment Advisory and Other Services" in the Statement of Additional
Information is incorporated by reference.
5
<PAGE> 69
Item 29. Principal Underwriters
(a) SAFECO Securities, Inc., the principal underwriter for each series of
the Registrant, also acts as the principal underwriter for each series
of the SAFECO Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO
Money Market Trust, SAFECO Institutional Series Trust, SAFECO Resource
Series Trust and SAFECO Advisor Series Trust. In addition, SAFECO
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
maintains physical possession of the accounts, books and documents of the
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
Inapplicable.
6
<PAGE> 70
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 28th day of July, 1995.
SAFECO TAX-EXEMPT BOND 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>
/s/ DAVID F. HILL President 7/28/95
- ------------------------------ Principal Executive Officer -------------
David F. Hill
RONALD L. SPAUDLING* Vice President
- ------------------------------ and Treasurer -------------
Ronald L. Spaulding
NEAL A FULLER* Vice President, Controller
- ----------------------------- and Assistant Secretary -------------
Neal A. Fuller Principal Financial
(Officer)
/s/ BOH A. DICKEY 7/28/95
- ------------------------------ Chairman and Trustee -------------
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 *By: /s/ DAVID F. HILL
------------------------- ---------------------------
Boh A. Dickey David F. Hill
Attorney-in-Fact Attorney-in-Fact
</TABLE>
7
<PAGE> 71
SAFECO TAX-EXEMPT BOND TRUST
Form N-1A
Post-Effective Amendment No. 5
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------- ----------------------- ----
<S> <C> <C>
(27.1-5) Financial Data Schedule
(99.11) Consent of Independent Auditor - Ernst & Young
(99.12) Registrant's Annual Report for the Year Ended
March 31, 1995+ including Financial Statements
(99.16) Calculation of Performance Information
</TABLE>
+ Filed with the SEC on or about May 26, 1995.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX-EXEMPT BOND TRUST
<SERIES>
<NUMBER> 5
<NAME> SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 13,884
<INVESTMENTS-AT-VALUE> 14,208
<RECEIVABLES> 196
<ASSETS-OTHER> 12
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,416
<PAYABLE-FOR-SECURITIES> 598
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56
<TOTAL-LIABILITIES> 654
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,984
<SHARES-COMMON-STOCK> 1,353
<SHARES-COMMON-PRIOR> 1,064
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (200)
<NET-ASSETS> 13,762
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 673
<OTHER-INCOME> 0
<EXPENSES-NET> 108
<NET-INVESTMENT-INCOME> 565
<REALIZED-GAINS-CURRENT> (22)
<APPREC-INCREASE-CURRENT> 97
<NET-CHANGE-FROM-OPS> 640
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 565
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 655
<NUMBER-OF-SHARES-REDEEMED> 398
<SHARES-REINVESTED> 32
<NET-CHANGE-IN-ASSETS> 289
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<PAGE> 1
EXHIBIT NO. 99.11
CONSENT OF INDEPENDENT AUDITOR
<PAGE> 2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Investment Advisory and Other Services" and "Financial
Statements" in Post-Effective Amendment No. 5 to the Registration Statement
(Form N-1A, No. 33-53532) and related Prospectus of SAFECO Tax-Exempt Bond
Trust dated July 31, 1995.
We also consent to the incorporation by reference therein of our report dated
April 26, 1995 with respect to the financial statements of SAFECO Tax-Exempt
Bond Trust included in the 1995 Annual Report filed with the Securities and
Exchange Commission.
Seattle, Washington
July 25, 1995
<PAGE> 1
EXHIBIT NO. 99.12
FINANCIAL STATEMENTS
<PAGE> 2
MAILING ADDRESS:
SAFECO MUTUAL FUNDS
P.O. BOX 34890
SEATTLE, WA 98124-1890
FOR ACCOUNT INFORMATION
OR TELEPHONE TRANSACTIONS:
NATIONWIDE: 1-800-624-5711
SEATTLE: 545-7319
TTY/TDD: 1-800-438-8718
ANNUAL
REPORT
MARCH 31, 1995
SAFECO
TAX-EXEMPT
BOND FUNDS
---------------
SAFECO Intermediate-Term
Municipal Bond Fund
SAFECO Insured
Municipal Bond Fund
SAFECO Municipal
Bond Fund
SAFECO California
Tax-Free Income Fund
SAFECO Washington State
Municipal Bond Fund
[SAFECO LOGO]
MUTUAL FUNDS
<PAGE> 3
PERFORMANCE INFORMATION
For the Periods Ended March 31, 1995
The Lehman Brothers Municipal Long, Long Insured, and 7-Year Bond Indices are
representative total return benchmarks for the respective funds. Operating
expenses have been applied to the funds, but not to the indices. If portfolio
operating expenses had been applied to the indices, their values would have been
lower. The performance of the funds assumes the reinvestment of all interest and
capital gains. Investment returns are historical and not predictive of future
performance.
[GRAPH]
SAFECO Municipal Bond Fund
Illustration of a $10,000 Investment
Graph compares the value of a $10,000 investment in the SAFECO Municipal Bond
Fund to the Lehman Brothers Long Municipal Bond Index as of March 31, 1995.
[GRAPH]
SAFECO California Tax-Free Income Fund
Illustration of a $10,000 Investment
Graph compares the value of a $10,000 investment in the SAFECO California
Tax-Free Income Fund to the Lehman Brothers Long Municipal Bond Index as of
March 31, 1995.
<PAGE> 4
[GRAPH]
SAFECO Intermediate-Term Municipal Bond Fund
Illustration of a $10,000 Investment
Graph compares a $10,000 investment in the SAFECO Intermediate-Term Municipal
Bond Fund to the Lehman Brothers 7-year Municipal Bond Index as of March 31,
1995.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
10 YEAR
For Periods Ending OR SINCE
March 31, 1995 1 YEAR 5 YEAR INCEPTION
- ------------------------------------------------------
<S> <C> <C> <C>
SAFECO Intermediate-Term
Municipal Bond Fund* 4.97% N/A 3.80%*
- ------------------------------------------------------
SAFECO Insured
Municipal Bond Fund* 8.58% N/A 3.47%*
- ------------------------------------------------------
SAFECO Municipal
Bond Fund 7.10% 8.26% 10.04%*
- ------------------------------------------------------
SAFECO California
Tax-Free Income Fund 7.01% 8.15% 9.52%*
- ------------------------------------------------------
SAFECO Washington State
Municipal Bond Fund* 7.13% N/A 3.86%*
- ------------------------------------------------------
</TABLE>
*The Funds' inception was 3/18/93. Index graph comparison begins 3/31/93.
TABLE OF CONTENTS
=================================================
President's Letter 2
Fund Manager's Report 3
Portfolios 10
Financial Statements 26
Notes to Financial Statements 30
[GRAPH]
SAFECO Insured Municipal Bond Fund
Illustration of a $10,000 Investment
Graph compares a $10,000 investment in the SAFECO Insured Municipal Bond Fund
to the Lehman Brothers Long Insured Bond Index as of March 31, 1995.
[GRAPH]
SAFECO Washington State Municipal Bond Fund
Illustration of a $10,000 Investment
Graph compares a $10,000 investment in the SAFECO Washington State Municipal
Bond Fund to the Lehman Brothers Long Municipal Bond Index as of March 31, 1995.
- 1 -
<PAGE> 5
LETTER FROM THE PRESIDENT
May 1, 1995
DEAR SHAREHOLDERS:
Nineteen ninety-four proved to be a trying year for investors. The stock
market posted below-average returns, and the bond market suffered one of its
worst years in history. So far this year, we have seen an improved picture, as
both the stock and bond markets have shown renewed strength.
A significant factor in last year's disappointing markets was the perceived
threat of inflation. Much of the strength we have seen this year is due to
optimism that inflation is in check. Our view is that while inflationary fears
are moderating, they are still present. Because of this, we suspect interest
rates will hold in a fairly narrow range for the remainder of 1995.
Inflationary pressures will continue to affect the stock market as well.
Corporate profits will also be a significant factor: stronger earnings will bode
well for stocks, weaker earnings may bring disappointments.
While we do not profess to know which direction the market will turn in the
short term, it is interesting to note that the gains the market experienced in
the first quarter - as measured by the S&P 500's gain of 9.73% - is nearly equal
to the stock market's long-term average annual gain.
As usual, we caution that predicting short-term trends and successfully
moving in and out of the markets is difficult, at best. While there is money to
be made in the bond and stock markets, we believe it is best made over the long
run. Indeed, the turns the markets have experienced these past 15 months
reinforce the notion that investors need to make decisions with a long-term
horizon: those who had charted an extended course, and stayed with it through
these difficult markets reaped the gains of the first quarter of 1995.
[PHOTO] DAVID F. HILL
For those investors with shorter-term goals, there are money market funds -
shorter-term, steadier investments which pay a respectable yield while aiming
for stability of principal. For those of you wishing to know more about our
basic philosophy of investing, we have prepared a small booklet, the SAFECO
Mutual Funds Personal Investment Guide. Call us at 1-800-426-6730 for your free
copy.
As always, we truly value your continued confidence in SAFECO Mutual Funds.
Sincerely,
/s/ DAVID F. HILL
David F. Hill
- 2 -
<PAGE> 6
REPORT FROM THE FUND MANAGER
May 1, 1995
SAFECO TAX-EXEMPT BOND FUNDS:
MUNICIPAL MARKET REVIEW AND OUTLOOK
Though long-term municipal bond yields were little changed from our last
report, interest rates and net asset values have been far from stable these past
six months. From mid-October to Thanksgiving long-term municipal bond prices
fell (yields rose), then they rebounded sharply and continued to climb through
the quarter just ended.
From January 1 to November 21, 1994, a par bond declined 21%, from 100 to 79.
By March 31, 1995 it would have recovered half that loss to trade around 89.5.
Fear of inflation and technical issues relating to supply and demand were big
factors.
The market overreacted through 1994 to forecasts for sharply higher inflation
and interest rates. When actual economic data showed only a modest increase in
inflation and a decline in economic activity, the fear abated and the bond
markets rallied.
Technical factors affecting supply and demand strongly influenced the
municipal bond market. Because of higher interest rates, new issue bond volume
was down. From 1986 to 1993, the amount of outstanding municipal bonds grew $30
to $80 billion per year. In 1994, the amount of outstanding municipal debt
shrank by about $7 billion. In 1995 it appears likely that municipal
debt will decline more than $50 billion.
This shrinkage in available bonds has already had a powerful, price-raising
effect on the municipal bond market. Even bigger imbalances will come in the
months of July and December, months when bonds predominantly fall due. The
impetus for the tax-exempt market to outperform the taxable bond market is
strong.
<TABLE>
<CAPTION>
============================================================
COMPARATIVE INFORMATION
For Periods Ending AVERAGE ANNUAL TOTAL RETURN
March 31, 1995 1 YEAR 5 YEAR 10 YEAR
- ------------------------------------------------------------
<S> <C> <C> <C>
SAFECO Intermediate-Term
Municipal Bond Fund* 4.97% N/A* N/A*
Lipper Average for Category 5.59% N/A N/A
- ------------------------------------------------------------
SAFECO Insured
Municipal Bond Fund* 8.58% N/A* N/A*
Lipper Average for Category 6.64% N/A N/A
- ------------------------------------------------------------
SAFECO Municipal
Bond Fund 7.10% 8.26% 10.04%
Lipper Average for Category 6.20% 7.82% 9.28%
- ------------------------------------------------------------
SAFECO California
Tax-Free Income Fund 7.01% 8.15% 9.52%
Lipper Average for Category 7.73% 7.58% 8.84%
- ------------------------------------------------------------
SAFECO Washington State
Municipal Bond Fund* 7.13% N/A* N/A*
Lipper Average for Category 6.76% N/A N/A
- ------------------------------------------------------------
</TABLE>
* The Funds' inception was 3/18/93.
Investment returns are historical and
not predictive of future performance.
Does the bond market rally of the last five months mean that inflation has
been licked and yields will continue to decline to the levels of 1993? Probably
not. The market rose almost six years before it declined in 1994.
In the long-run, I believe I can produce excellent long-term results without
trying to guess which way the market will go and how to time it. And so I will
keep my attention on searching for value and staying fully invested rather than
making prognostications.
(Continued on next page)
- 3 -
<PAGE> 7
REPORT FROM THE FUND MANAGER (CONTINUED)
SAFECO MUNICIPAL BOND FUND
For the 12 months ended March 31, 1995, the SAFECO Municipal Bond Fund posted
a total return of 7.10% and a very respectable ranking of 24 out of 193 similar
funds. The rankings for the five and ten years ended March 31 were 23 of 93
funds and 5 of 52 funds, respectively, according to Lipper Analytical Services.
The Fund behaved much like the rest of the market during the past six months.
It a was roller coaster ride. Declining throughout 1994, the net asset value
(NAV) dropped 17% to a low point of $11.90 on November 21. Fortunately the
market rallied in early December for a year-end NAV of $12.46. After a breather
for the winter holidays, the rally picked up speed and by March 31, the share
value was up over 12% from its November low to $13.36.
The reason for the Fund's poor 1994 performance as well as its strong
recovery in 1995 was my unwillingness to sacrifice long-term goals for
short-term success. I remained fully invested throughout the bear market and
resisted selling deep discount bonds despite their poor performance. I knew that
when the market ultimately turned, they would recover more rapidly than par and
premium bonds. (Discount bonds historically perform far better than par and
premium bonds when interest rates are falling and only slightly worse when
interest rates are rising.)
I don't expect to make any significant changes to the Fund over the next six
months. With the shrinking supply of municipal bonds, it will be more important
than ever to stay fully invested. I did do a number of swaps (exchanges of one
security for another) to realize losses for tax purposes. I'm carrying these
losses forward to offset future taxable capital gains.
[PHOTO OF STEPHEN C. BAUER]
While it is unlikely we will revisit the dramatic volatility of 1994, there
will undoubtedly be news and events that cause the bond markets to move sharply
in either direction. These market breaks frequently provide opportunities for
long-term investors. In the heat of rapidly changing markets, people tend to
overlook the values (discounting) created by short-term distortions. In the
upcoming months, I hope to be able to take advantage of these distortions.
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Total return for the 12 months ended March 31, 1995 was 7.01% which ranked
the SAFECO California Tax-Free Income Fund 9 of 83 funds with similar goals,
according to Lipper Analytical Services. For the five and ten-year periods
ending March 31, the SAFECO Fund did even better, ranking 6 of 44 and 3 of 16
respectively.
During the last six months, the California municipal market was even more
volatile than the national market. Rising social service costs and declining tax
revenues have kept the state's budget under pressure for several years. That
crunch and the state's penchant for natural (and man-made) disasters caused
California municipals to trade lower more than a year ago. Just when we thought
nothing else could go wrong, Orange County declared bankruptcy and California
bonds took another hit.
-4-
<PAGE> 8
Amazingly when the market rallied after Thanksgiving, California municipals
outperformed the national market. They ended the first quarter of 1995 at their
best values relative to the national market in more than a year.
I have kept the Fund fully invested throughout the market gyrations. And, I
believe, now more than ever that staying fully invested is the single most
important factor in producing superior results over the long haul. I did some
swaps to realize losses before the market rally caused them to disappear. These
losses have been stockpiled to offset future gains.
Although the Orange County fiasco has not been fully resolved, I think there
will be no effect on the Fund. Only one holding was issued by a member of the
pool that experienced losses, the San Joaquin Hills Transportation Corridor
Agency, and its bonds are trading normally at this time.
My strategy is to continue to stay fully invested in long-term bonds with an
emphasis on call protection. As occasions warrant, I may replace pre-refunded
bonds with longer-term higher-yielding bonds. If discounts cheapen on market
weakness, I may sell higher coupon bonds to capitalize on what will probably be
a temporary phenomenon.
THE SAFECO INSURED MUNICIPAL BOND FUND
The total return for the SAFECO Insured Municipal Bond Fund for 12 months
ended March 31, 1995 was 8.58%. This was by far the best gain of all the SAFECO
tax-exempt funds and very nearly the best for any insured bond fund: for the
12-month period, the SAFECO Insured Municipal Bond Fund was second of the 41
insured funds according to Lipper Analytical Services.
The Fund has been the most volatile of all the SAFECO tax-exempt funds,
posting the biggest decline - 20% from December 23, 1993 to November 23, 1994 -
and the greatest rebound when the market turned around. The Fund's volatility,
both up and down, is a result of a long average maturity (25.3 years) and a low
average coupon (5.28%).
In February and March I traded into deeply discounted bonds which pushed the
average maturity out further, and further lowered the average coupon. This
more-aggressive strategy helped the Fund rise in value faster than it fell.
Although this strategy will produce an above-average degree of volatility, I
intend to continue this course until the full value of the long-term, highly
call-protected (by their discount) bonds which dominate the Fund is realized.
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
The SAFECO Washington State Municipal Bond Fund returned 7.13% for the 12
months ended March 31, 1995. The Lipper average for the period for Washington
State municipal bond funds was 6.76%.
In terms of return on principal, the Washington Fund outperformed the SAFECO
tax-exempt pack. However, its yield was slightly lower than the other long-term
SAFECO tax-exempt funds due to its shorter average maturity (21.2 years).
Low issuance has made Washington bonds, particularly longer-maturity,
higher-yielding issues, quite scarce over the last few quarters. While this
shortage has enhanced the price of Washington bonds and hence the Fund's net
asset value, it has inhibited the yield, and thus inhibited a higher total
return.
(Continued on next page.)
-5-
<PAGE> 9
REPORT FROM THE FUND MANAGER (CONTINUED)
I felt very fortunate in February to buy a block of King Co. Housing
Authority 6.80% coupon, maturing 3/1/26 to yield 7.00%. These bonds are A-rated
and secured by rents from five existing multi-family apartment projects in
Bellevue and South King Co. The three issues I sold to buy the housing bonds
were sold at an average yield of about 6.00%. I am constantly alert for swaps
that increase yield, but they are very scarce.
THE SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
The SAFECO Intermediate-Term Municipal Bond Fund's total return for the 12
months ending March 31, 1995 was 4.97%. The Lipper average for intermediate-term
municipals for the period was 5.59%.
The Fund underperformed because of its longer average maturity. I have not
shortened the average maturity of the Intermediate- Term Fund because I still
believe the longer end of the intermediate spectrum offers the most value.
Despite underperforming its peers, the SAFECO Intermediate-Term Municipal
Bond Fund did prove the value of intermediate funds - the chief attraction of
which is lower volatility compared to longer funds. At its low in November the
SAFECO Intermediate-Term Municipal Bond Fund was down 12.3% from its 1994
starting point, compared to the 17% to 20% drop experienced by the longer-term
SAFECO Municipal Funds.
The Intermediate-Term Fund holds about 3% of its net assets in two issues of
District of Columbia general obligation bonds that were recently downgraded to
below investment grade. The downgrading was driven by legislation that
established fiscal over-sight for the District. Regardless of the
technicalities, I am comfortable holding these bonds. I don't believe Congress
will allow the nation's capital to default on its debt.
The financial press widely reported the flattening of the yield curve during
the last year. Most of this flattening occurred where the yield curve had been
the steepest, in maturities of two years and less. In the intermediate to
long-term range, yield relationships were only modestly changed. The most
attractive part of the intermediate curve has remained seven to nine years.
Because of this, I have not changed the maturity structure of the
Intermediate-Term Bond Fund. The average maturity of the Fund is now 8.4 years
compared to 8.8 years at the end of September. This shortening is mostly due to
aging. And I expect to keep the Fund in this range for the next few months at
least.
/s/ STEPHEN C. BAUER
Stephen C. Bauer, Fund Manager
- --------------------------------------------------------------------------------
Steve Bauer joined SAFECO in 1971 as a fixed-income analyst. He became a fund
manager with the inception of the SAFECO Municipal Bond Fund in 1981, and is
President of SAFECO Asset Management. Bauer holds a B.S. in microbiology and an
M.B.A. from the University of Washington.
- 6 -
<PAGE> 10
S&P CREDIT RATINGS DISTRIBUTIONS
AS A PERCENTAGE OF NET ASSETS
As of March 31, 1995
[PIE GRAPH] [PIE GRAPH]
SAFECO Intermediate-Term
Municipal Bond Fund SAFECO Insured Municipal Bond
AAA: 39.6% AAA: 98.5%
AA: 22.3% Cash & Other, Less
A: 28.8% Liabilities: 1.5%
BBB: 6.1%
Not Rated: 2.6%
Cash & Other Less
Liabilities: 0.6%
[PIE GRAPH] [PIE GRAPH]
SAFECO California Tax-Free
SAFECO Municipal Bond Fund Income Fund
AAA: 34.6% AAA: 47.9%
AA: 23.5% AA: 15.7%
A: 25.8% A: 18.4%
BBB: 5.7% BBB: 1.6%
B: 0.5% Not Rated: 11.7%
Not Rated: 8.5% Cash & Other, Less
Cash & Other Less Liabilities: 4.7%
Liabilities: 1.4%
[PIE GRAPH]
SAFECO Washington State
Municipal Bond Fund
AAA: 46.9%
AA: 13.2%
A: 24.0%
Not Rated: 17.5%
Liabilities, Less
Cash & Other: -1.6%
- 7 -
<PAGE> 11
HIGHLIGHTS
As of March 31, 1995
<TABLE>
<CAPTION>
SAFECO Intermediate-Term Municipal Bond Fund
TOP FIVE TYPES OF BONDS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Hospital 17.9%
Local G.O. - Unlimited Tax 10.3%
Utilities - Water and Sewer 10.1%
Lease Rental 9.5%
Electric Utilities - Combination 8.0%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Mississippi Hospital Equipment & Facilities
Authority 4.3%
Oklahoma Industries Authority Health Facilities 4.3%
Trinity River (TX) Authority 4.3%
Joliet (IL) Waterworks and Sewerage 4.1%
Tacoma (WA) Electric System 3.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
=====================================================
<S> <C>
Illinois 12.2%
Texas 9.6%
Washington 9.4%
New York 7.6%
Indiana 6.7%
</TABLE>
<TABLE>
<CAPTION>
=====================================================
CURRENT YIELD (30-DAY) PERCENT
- -----------------------------------------------------
<S> <C>
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND 4.51%
SAFECO INSURED MUNICIPAL BOND FUND 5.12%
SAFECO MUNICIPAL BOND FUND 5.55%
SAFECO CALIFORNIA TAX-FREE INCOME FUND 5.38%
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND 5.26%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SAFECO INSURED MUNICIPAL BOND FUND
TOP FIVE TYPES OF BONDS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Utilities - Sewer 21.6%
Electric Utilities - Combination 17.3%
Hospital 11.7%
Local G.O. - Unlimited Tax 7.6%
Utilities - Water and Sewer 7.1%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
=====================================================
<S> <C>
University Area (PA) Joint Authority 4.5%
Pittsburgh Water & Sewer Authority 4.1%
Indianapolis Gas Utility 3.8%
Montgomery County (PA) Higher Education &
Health Auth. 3.7%
Fresno Sewer System 3.7%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
=====================================================
<S> <C>
Washington 16.3%
California 15.9%
Pennsylvania 12.4%
Texas 11.7%
Indiana 10.1%
</TABLE>
<TABLE>
<CAPTION>
=====================================================
WEIGHTED AVERAGE MATURITY YEARS
- -----------------------------------------------------
<S> <C>
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND 8.37
SAFECO INSURED MUNICIPAL BOND FUND 25.33
SAFECO MUNICIPAL BOND FUND 21.47
SAFECO CALIFORNIA TAX-FREE INCOME FUND 23.00
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND 21.17
</TABLE>
-8-
<PAGE> 12
HIGHLIGHTS (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND
TOP FIVE TYPES OF BONDS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Electric Utilities - Combination 16.2%
Escrow Secured - U.S. Treasury (Prerefunded) 10.4%
Hospital 8.2%
Lease Rental 7.6%
Utilities - Water and Sewer 7.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
=====================================================
<S> <C>
San Joaquin Hills (CA) Transportation Corridor
Agency 3.9%
Austin Combined Utility System 12.50% 3.4%
Illinois Educational Facilities Authority 3.4%
East Chicago (IN) Elementary School Building
Corp. 2.5%
Los Angeles Department of Water & Power 2.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
=====================================================
<S> <C>
California 19.1%
Washington 12.2%
Illinois 9.3%
New York 6.7%
Texas 6.5%
</TABLE>
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE INCOME FUND
TOP FIVE TYPES OF BONDS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Utilities - Sewer 12.7%
Electric Utilities - Combination 10.5%
Local G.O. - Limited Tax 10.4%
Escrow Secured - U.S. Treasury (Prerefunded) 8.4%
Toll Road 5.8%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Los Angeles County Sanitation District
Financing Authority 6.2%
San Joaquin Hills Transportation Corridor Agency 5.8%
Pittsburg Redevelopment Agency 5.5%
Rancho California Water District Financing
Authority 5.0%
San Jose Redevelopment Agency 4.9%
</TABLE>
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
TOP FIVE TYPES OF BONDS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Local G.O. - Unlimited Tax 22.3%
Local G.O. - Limited Tax 15.0%
Hospital 14.3%
Utilities - Water 10.7%
Utilities - Water and Sewer 10.4%
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
=====================================================
<S> <C>
Everett School District #2 (Snohomish County) 5.1%
King County Housing Authority 5.1%
Renton Water and Sewer Improvement 4.6%
Snohomish County Public Utility District #1 4.5%
Spokane Regional Solid Waste Management 4.3%
</TABLE>
- 9 -
<PAGE> 13
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
==========================================================================================
<S> <C> <C>
BONDS - 99.4%
ALASKA - 3.4%
$250 Anchorage Hospital Revenue (Sisters of Providence)
6.75%, due 10/01/01 $265
200 Fairbanks North Star Borough General Obligation
5.20%, due 3/01/03 [MBIA] 197
ARIZONA - 0.7%
100 Tucson Airport Authority General Revenue
5.30%, due 6/01/03 [MBIA] 99
CALIFORNIA - 6.1%
90 California Housing Finance Agency
Multi-Unit Rental Revenue
5.50%, due 2/01/99 89
250 Pleasanton Joint Powers Financing
Authority Reassessment Revenue
5.80%, due 9/02/02 249
500 Santa Margarita Dana Point Authority Revenue
5.375%, due 8/01/04 502
CONNECTICUT - 1.9%
100 Connecticut Housing Finance Authority
Housing Mortgage Finance Program
5.40%, due 5/15/03 100
150 Connecticut Special Tax Obligation
Transportation Infrastructure
6.50%, due 6/01/03 162
DISTRICT OF COLUMBIA - 3.0%
District of Columbia General Obligation
150 5.75%, due 6/01/03 141
300 5.20%, due 6/01/03 268
GEORGIA - 6.1%
Georgia Municipal Electric Authority
General Power Revenue
100 5.75%, due 1/01/03 102
300 4.75%, due 1/01/04 277
GEORGIA (CONTINUED)
$500 Heard County Development Authority
Pollution Control Revenue (Oglethorpe Power)
4.70%, due 1/01/04 $458
ILLINOIS - 12.2%
125 Chicago Wastewater Transmission Revenue
5.20%, due 1/01/04 [FGIC] 123
100 Illinois Health Facilities Authority Revenue
(Brokaw-Mennonite Association)
5.60%, due 8/15/01 [FGIC] 101
300 Illinois Health Facilities Authority Revenue
(Masonic Medical Center)
5.20%, due 10/01/03 280
500 Joliet Waterworks and Sewerage Revenue
7.00%, due 1/01/05 [FGIC] 564
Metropolitan Pier and Exposition Authority
(McCormick Place Expansion Project)
100 5.90%, due 6/15/03 103
500 5.50%, due 6/15/03 [MBIA] 504
INDIANA - 6.7%
100 Clay School Building Corp. First Mortgage
5.60%, due 1/01/03 [MBIA] 101
200 Hammond Multi-School Building Corp.
First Mortgage (Lake County)
5.50%, due 1/15/03 203
330 Highland School Building Corp. First Mortgage
5.00%, due 1/05/04 312
100 Indiana Bond Bank State Revolving Fund Program
5.90%, due 2/01/03 102
- --------------------------------------------------------------------------------
</TABLE>
* New to Portfolio since last report.
See Notes to Financial Statements
- 10 -
<PAGE> 14
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
INDIANA (CONTINUED)
$100 Indianapolis Local Public Improvement
Bond Bank Transportation Revenue
5.80%, due 7/01/03 $103
100 Pike Township School Building Corp.
First Mortgage Revenue
5.70%, due 2/01/01 101
IOWA - 2.1%
305 Louisa Pollution Control Revenue
4.65%, due 12/15/03 285
KENTUCKY - 4.3%
500 Kentucky State Property and Buildings
Commission Revenue
5.50%, due 9/01/04 497
100 Kentucky Turnpike Authority
Economic Development Road Revenue
5.20%, due 7/01/03 [AMBAC] 99
LOUISIANA - 1.5%
100 Louisiana Correctional Facilities Corp.
Lease Revenue
5.55%, due 12/15/02 [FSA] 101
100 Louisiana Public Facilities Authority
Student Loan Revenue
6.20%, due 3/01/01 103
MASSACHUSETTS - 4.4%
175 Massachusetts General Obligation
5.10%, due 11/01/02 174
350 Massachusetts Health & Educational
Facilities Authority Revenue
(Brigham and Women's Hospital)
4.70%, due 7/01/03 327
100 Massachusetts Water Resources Authority
General Revenue
5.70%, due 11/01/02 103
MICHIGAN - 2.2%
$300 Detroit School District Unlimited Tax
General Obligation
5.75%, due 5/01/02 $305
MISSISSIPPI - 4.3%
600 *Mississippi Hospital Equipment and Facilities
Authority Revenue
(Mississippi Baptist Medical Center)
5.40%, due 5/01/04 [MBIA] 596
NEVADA - 1.5%
200 Henderson General Obligation
Limited Tax Water Revenue
5.55%, due 12/01/02 [AMBAC] 204
NEW HAMPSHIRE - 1.8%
250 New Hampshire Municipal Bond Bank
5.00%, due 8/15/01 247
NEW JERSEY - 0.7%
100 New Jersey Housing & Mortgage
Finance Agency Housing Revenue
6.00%, due 11/01/02 103
NEW YORK - 7.6%
100 Metropolitan Transportation Authority
Transit Facilities Service Contract Revenue
5.375%, due 7/01/02 97
400 New York City Municipal
Water Finance Authority
5.00%, due 6/15/03 377
100 New York Dormitory Authority
State University Educational Facilities Revenue
5.75%, due 5/15/01 100
500 New York Local Government Assistance Corp.
4.85%, due 4/01/04 475
</TABLE>
See Notes to Financial Statements
- 11 -
<PAGE> 15
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
<S> <C> <C>
NORTH CAROLINA - 1.5%
$210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02 $203
OHIO - 1.7%
250 Ohio Air Quality Development Authority Revenue
(Buckeye Power, Inc. Project)
5.00%, due 8/01/03 240
OKLAHOMA - 4.3%
600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health System, St. Louis, Inc.)
5.20%, due 6/01/05 593
PENNSYLVANIA - 1.7%
250 Philadelphia Water and Wastewater Revenue
5.00%, due 6/15/02 240
SOUTH DAKOTA - 0.7%
100 South Dakota Housing Development Authority
Homeownership Mortgage Revenue
5.30%, due 5/01/03 98
TEXAS - 9.6%
250 Board of Regents of the University of Houston
System Consolidated Revenue
5.00%, due 2/15/03 [FGIC] 246
100 Coastal Bend Health Facility Development Corp.
Health Services Revenue (Incarnate Word)
5.70%, due 1/01/03 [AMBAC] 102
100 Houston Sewer System Junior Lien Revenue
5.75%, due 12/01/02 102
300 Texas Turnpike Authority
Dallas North Tollway Revenue
4.60%, due 1/01/04 [AMBAC] 279
600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC] 591
WASHINGTON - 9.4%
$500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC] $ 516
100 Washington Health Care Facilities Authority
Revenue (Empire Health Service, Spokane)
5.50%, due 11/01/03 [MBIA] 101
100 Washington Health Care Facilities Authority
Revenue (Swedish Hospital Medical Center)
5.70%, due 11/15/02 [AMBAC] 103
Washington Public Power Supply System
Nuclear Project #2 Revenue
200 5.30%, due 7/01/02 195
300 4.80%, due 7/01/04 274
100 Yakima-Tieton Irrigation District Revenue
5.65%, due 6/01/02 [FSA] 102
-------
TOTAL BONDS 13,684
=======
SHORT-TERM INVESTMENTS - 3.8%
INVESTMENT COMPANIES:
524 Aim Tax-Exempt Money Market Fund, Inc. 524
-------
TOTAL SHORT-TERM INVESTMENTS 524
-------
TOTAL INVESTMENTS - 103.2% 14,208
Liabilities, less Other Assets (446)
-------
NET ASSETS $13,762
=======
- --------------------------------------------------------------------------------
</TABLE>
DIVERSIFICATION BY GUARANTOR (PERCENT OF PORTFOLIO)
The provider of guarantees of timely payment of both principal
and interest, if any, is identified in the brackets at the end of each
bond description. The guarantors applicable to this portfolio are:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors Assurance Corp. 11.7%
FGIC: Financial Guaranty Insurance Corp. 11.3
AMBAC: AMBAC Indemnity Corp. 10.1
FSA: Financial Security Assurance, Inc. 1.5
----
34.6%
====
</TABLE>
See Notes to Financial Statements
- 12 -
<PAGE> 16
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
BONDS - 98.5%
ALABAMA - 1.2%
$100 Montgomery Downtown Redevelopment Authority
Mortgage Revenue (Alabama State Project)
5.50%, due 10/01/13 [MBIA] $ 95
ALASKA - 3.4%
300 Alaska Housing Finance Corp.
Insured Mortgage Program
5.90%, due 12/01/33 [FSA] 276
CALIFORNIA - 15.9%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC] 300
350 Los Angeles Wastewater System Revenue
4.70%, due 11/01/19 [FGIC] 287
100 Oro Loma Sanitation District Sewer Revenue
5.20%, due 10/01/16 [AMBAC] 90
350 Sacramento Municipal Utility District
Electric Revenue
4.75%, due 9/01/21 [MBIA] 284
250 San Diego Public Facilities Financing Authority
Sewer Revenue
5.00%, due 5/15/23 [AMBAC] 214
145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC] 122
FLORIDA - 2.1%
200 Florida Municipal Power Agency
All-Requirements Power Supply Project Revenue
5.10%, due 10/01/25 [AMBAC] 175
HAWAII - 1.1%
$100 Maui County General Obligation
5.00%, due 9/01/09 [FGIC] $ 93
ILLINOIS - 5.8%
100 Chicago General Obligation
5.875%, due 1/01/22 [AMBAC] 95
250 Cook County General Obligation
5.00%, due 11/15/23 [MBIA] 211
200 Illinois Health Facilities Authority Revenue
(The Children's Memorial Hospital)
5.00%, due 8/15/22 [AMBAC] 167
INDIANA - 10.1%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA] 101
250 Indiana State Office Building Commission
Capitol Complex Revenue
5.25%, due 7/01/15 [AMBAC] 224
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC] 314
100 Indiana Transportation Finance Authority
Highway Revenue
5.25%, due 6/01/15 [AMBAC] 91
100 Kokomo Sewer Works Revenue
5.50%, due 8/01/09 [AMBAC] 97
IOWA - 2.8%
250 Marshalltown Pollution Control Revenue
(Iowa Electric Light and Power Co. Project)
5.50%, due 11/01/23 [MBIA] 228
- ----------------------------------------------------------------------------------------
</TABLE>
* New to Portfolio since last report.
# Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
See Notes to Financial Statements
- 13 -
<PAGE> 17
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
Principal Amount (000's) Market Value (000's)
========================================================================================
<S> <C> <C>
MASSACHUSETTS - 1.1%
$100 Massachusetts Municipal Wholesale Electric Co.
Power Supply System Revenue
5.00%, due 7/01/10 [AMBAC] $ 91
MICHIGAN - 4.9%
350 *Detroit Water Supply System Revenue
5.00%, due 7/01/23 [FGIC] 299
100 River Rouge School District
General Obligation Building and Site
5.50%, due 5/01/11 [FSA] 97
MINNESOTA - 3.5%
350 Minneapolis and St. Paul Housing and
Redevelopment Authority Health Care System
Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC] 289
NORTH CAROLINA - 1.4%
125 North Carolina Eastern Municipal Power Agency
Power System Revenue
5.50%, due 1/01/17 [FGIC] 116
PENNSYLVANIA - 12.4%
350 Montgomery County Higher Education
and Health Authority Hospital Revenue
(Abington Memorial Hospital)
5.125%, due 6/01/24 [FGIC] 304
400 *Pittsburgh Water and Sewer Authority Revenue
4.75%, due 9/01/16 [FGIC] 337
445 *University Area Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA] 368
RHODE ISLAND - 1.1%
$100 Clean Water Protection Finance Agency
Water Pollution Control Revolving Fund Revenue
5.40%, due 10/01/15 [MBIA] $ 93
SOUTH CAROLINA - 1.1%
100 South Carolina Public Service Authority Revenue
5.50%, due 7/01/21 [MBIA] 92
TEXAS - 11.7%
200 Colorado River Municipal Water District
Water System Revenue
5.15%, due 1/01/21 [AMBAC] 176
250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC] 231
Lower Colorado River Authority
Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA] 282
10 #5.625%, due 1/01/17 [FSA]
(Prerefunded 1/01/15 @ 100) 9
95 Sabine River Authority
Pollution Control Revenue
(Texas Utilities Electric Co. Project)
6.55%, due 10/01/22 [FGIC] 98
175 Trinity River Authority Regional
Wastewater System Revenue
5.00%, due 8/01/16 [AMBAC] 154
VIRGINIA - 2.6%
250 Virginia Housing Development Authority
Commonwealth Mortgage
5.25%, due 7/01/27 [AMBAC] 210
</TABLE>
See Notes to Financial Statements
- 14 -
<PAGE> 18
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
WASHINGTON - 16.3%
$100 King County Public Hospital District #1
Hospital Facilities Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] $ 92
250 Municipality of Metropolitan Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] 251
250 Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA] 241
300 Snohomish County Public Utility District #1
Electric Revenue
5.50%, due 1/01/20 [FGIC] 271
125 Snohomish County School District #6 (Mukilteo)
Unlimited Tax General Obligation
5.70%, due 12/01/11 [FGIC] 122
100 Washington Health Care Facilities Authority
Revenue (Swedish Hospital Medical Center)
6.30%, due 11/15/22 [AMBAC] 100
250 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA] 250
------
TOTAL BONDS 8,037
------
SHORT-TERM INVESTMENTS - 0.4%
INVESTMENT COMPANIES:
$36 Aim Tax-Exempt Money Market Fund, Inc. $ 36
------
TOTAL SHORT-TERM INVESTMENTS 36
------
TOTAL INVESTMENTS - 98.9% 8,073
Other Assets, less Liabilities 90
------
NET ASSETS $8,163
======
- --------------------------------------------------------------------------------
</TABLE>
DIVERSIFICATION BY GUARANTOR (PERCENT OF PORTFOLIO)
The provider of guarantees of timely payment of both principal and interest,
if any, is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio are:
<TABLE>
<S> <C> <C>
AMBAC: AMBAC Indemnity Corp. 33.4%
FGIC: Financial Guaranty Insurance Corp. 30.8
MBIA: Municipal Bond Investors Assurance Corp. 24.4
FSA: Financial Security Assurance, Inc. 11.4
-----
100.0%
=====
</TABLE>
See Notes to Financial Statements
- 15 -
<PAGE> 19
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
BONDS - 98.6%
ALABAMA - 0.2%
$1,000 Citronelle Industrial Development Board
Pollution Control Revenue
8.00%, due 12/01/12 $ 1,114
ALASKA - 0.4% Alaska Housing Finance Corp.
Veterans Mortgage Program
310 8.50%, due 12/01/11 325
1,025 6.50%, due 6/01/31 1,016
675 #Alaska Industrial Development
Authority Revenue
9.30%, due 4/01/10
(Prerefunded 4/01/95 @ 102) 691
ARIZONA - 2.5%
Phoenix Civic Improvement Corp.
Wastewater System Lease Revenue
4,220 5.00%, due 7/01/18 [MBIA] 3,704
9,800 4.75%, due 7/01/23 [MBIA] 7,994
CALIFORNIA - 19.1%
2,500 Los Angeles County Certificates of Participation
(Disney Parking Project)
5.50%, due 9/01/21 2,200
13,000 *Los Angeles Department of Water and Power
Electric Plant Revenue
5.25%, due 11/15/26 11,312
Los Angeles Wastewater System Revenue
1,280 4.70%, due 11/01/17 [FGIC] 1,062
5,000 4.70%, due 11/01/19 [FGIC] 4,098
2,200 Metropolitan Water District
of Southern California Waterworks Revenue
5.75%, due 3/01/14 2,119
CALIFORNIA (CONTINUED)
Northern California Power Agency
Geothermal Project Revenue
$2,000 6.75%, due 7/01/01 $2,071
5,250 5.00%, due 7/01/09 4,723
6,400 Pittsburg Redevelopment Agency Los Medanos
Community Development Project Tax Allocation
4.625%, due 8/01/21 [AMBAC] 5,092
2,500 Rancho California Water District
Financing Authority Revenue
4.75%, due 8/15/21 [AMBAC] 2,029
8,500 *Sacramento County Sanitation District
Finance Authority
4.75%, due 12/01/23 6,799
Sacramento Municipal Utility District
Electric Revenue
1,500 6.70%, due 2/01/98 1,560
5,000 6.00%, due 2/01/15 4,875
2,500 #San Bernardino County
Certificates of Participation
6.25%, due 8/01/19
(Prerefunded 8/01/01 @ 100) 2,666
1,000 #San Diego County
Regional Transportation Commission
Sales Tax Revenue
6.25%, due 4/01/08
(Prerefunded 4/01/99 @ 100) 1,050
- ----------------------------------------------------------------------------------------
</TABLE>
* New to Portfolio since last report.
# Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
See Notes to Financial Statements
- 16 -
<PAGE> 20
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
CALIFORNIA (CONTINUED)
$1,700 San Francisco Redevelopment
Financing Authority
Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC] $ 1,405
8,010 San Joaquin County Public Facilities
Finance Corp. Certificates of Participation
Capital Facilities Project
4.75%, due 11/15/19 [MBIA] 6,553
25,000 San Joaquin Hills Tranportation Corridor
Agency Senior Lien Toll Road Revenue
5.00%, due 1/01/33 18,515
Southern California Public Power Authority
Power Project Revenue (Multiple Projects)
4,085 #5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) 4,197
3,165 5.50%, due 7/01/20 2,850
1,950 Southern California Public Power Authority
Power Project Revenue (Palo Verde Project)
5.00%, due 7/01/17 1,669
3,350 Southern California Public Power Authority
Transmission Project Revenue
7.25%, due 7/01/06 3,485
COLORADO - 0.3%
1,000 Colorado Housing Finance Authority
Multi-Family Mortgage Revenue
8.30%, due 10/01/23 1,098
385 Colorado Housing Finance Authority
Single Family Residential Housing Revenue
8.75%, due 9/01/17 405
DELAWARE - 0.7%
4,200 *Delaware River and Bay Authority Revenue
4.75%, due 1/01/24 3,430
FLORIDA - 2.8%
Florida Board of Education General Obligation
$1,000 5.00%, due 6/01/12 $ 904
3,000 5.00%, due 6/01/24 2,582
Mid-Bay Bridge Authority Revenue
2,750 6.10%, due 10/01/22 2,550
5,000 6.00%, due 10/01/13 4,759
3,000 Orlando Utility Commission
Water and Electric Revenue
5.00%, due 10/01/23 2,589
GEORGIA - 3.0%
6,750 Atlanta Water and Sewerage Revenue
4.50%, due 1/01/18 5,402
4,000 Cobb County Kennestone Hospital
Authority Revenue
5.00%, due 4/01/24 [MBIA] 3,381
5,000 Municipal Electric Authority
Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 5,227
ILLINOIS - 9.3%
7,000 Chicago Wastewater Transmission Revenue
5.125%, due 1/01/20 [FGIC] 6,061
1,540 Cook County General Obligation
5.00%, due 11/15/23 [MBIA] 1,301
5,500 Illinois Dedicated Tax Revenue (Civic Center)
7.00%, due 12/15/10 [AMBAC] 5,918
17,500 *Illinois Educational Facilities Authority
Adjustable Demand Revenue
(University of Chicago)
5.70%, due 12/01/25 16,169
</TABLE>
See Notes to Financial Statements
- 17 -
<PAGE> 21
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
ILLINOIS (CONTINUED)
$2,000 #Illinois Health Facilities Authority
Revenue (Illinois Masonic Medical Center)
7.70%, due 10/01/19
(Prerefunded 10/01/99 @ 102) $ 2,252
1,000 Illinois Municipal Electric Authority Revenue
5.75%, due 2/01/21 [AMBAC] 942
7,735 Illinois Sales Tax Revenue
5.50%, due 6/15/20 6,985
4,770 University of Illinois
Auxiliary Facilities System Revenue
5.75%, due 4/01/22 4,479
INDIANA - 5.2%
200 Beech Grove Economic Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10 203
11,000 East Chicago Elementary
School Building Corp. First Mortgage
7.00%, due 1/15/16 11,662
7,715 Hammond Multi-School Building Corp.
First Mortgage Revenue
6.20%, due 7/10/15 7,679
6,450 Indianapolis Gas Utility System Revenue
4.00%, due 6/01/11 [FGIC] 5,115
IOWA - 0.2%
880 Iowa Housing Finance Authority
Multiple Family Housing Revenue
10.00%, due 4/01/23 898
KENTUCKY - 2.4%
$8,805 #Kentucky Local Correctional Facilities
Construction Authority Multi-County Revenue
7.00%, due 11/01/14
(Prerefunded 11/01/97 @ 102) $9,448
2,000 Louisville and Jefferson Counties
Metropolitan Sewer District Sewer
and Drain System Revenue
5.30%, due 5/15/19 [MBIA] 1,818
MARYLAND - 1.8%
5,125 Baltimore Project and Revenue
(Water Projects)
5.00%, due 7/01/24 4,422
5,000 *Maryland Health and Higher Educational
Facilities Authority Revenue
(University of Maryland Medical System)
4.75%, due 7/01/23 [FGIC] 4,073
MASSACHUSETTS - 3.4%
Massachusetts General Obligation
Dedicated Income Tax Revenue
3,310 7.875%, due 6/01/97 3,526
1,505 7.25%, due 6/01/96 1,551
1,000 #7.00%, due 12/01/10
(Prerefunded 12/01/00 @ 100) 1,097
Massachusetts Water Resources
Authority General Revenue
4,500 6.00%, due 4/01/20 4,359
4,000 5.00%, due 3/01/22 3,375
2,500 *4.75%, due 12/01/23 1,989
</TABLE>
See Notes to Financial Statements
- 18 -
<PAGE> 22
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
========================================================================================
<S> <C> <C>
MICHIGAN - 1.4%
$5,000 Detroit Water Supply System Revenue
4.75%, due 7/01/19 [FGIC] $4,080
300 #Grand Haven Electric System Revenue
6.75%, due 7/01/16
(Prerefunded 7/01/95 @ 101) 305
2,000 University of Michigan Hospital Revenue
6.375%, due 12/01/24 1,996
MISSOURI - 0.4%
1,870 Missouri Environmental Impact
and Energy Resource Authority
Pollution Control Revenue
7.90%, due 11/15/14 1,974
NEVADA - 0.2%
965 Clark County Airport Improvement Revenue
13.00%, due 7/01/98 1,178
NEW JERSEY - 0.5%
1,795 #New Jersey Turnpike Authority Revenue
10.375%, due 1/01/03
(Escrowed to Maturity) 2,151
NEW MEXICO - 1.5%
5,000 Albuquerque Joint Water
and Sewer System Revenue
5.50%, due 7/01/17 4,671
2,500 Farmington Collateralized Pollution Control
Revenue (Tucson Gas and Electric Co.)
6.10%, due 1/01/08 2,287
NEW YORK - 6.7%
New York City Municipal Water Finance
Authority Water and Sewer System Revenue
$2,205 6.00%, due 6/15/19 $2,136
2,100 5.00%, due 6/15/17 [FGIC] 1,823
New York Dormitory Authority
State University Educational
Facilities Revenue
4,400 7.50%, due 5/15/11 4,972
5,250 7.50%, due 5/15/13 5,986
6,500 5.25%, due 5/15/15 5,677
1,500 5.00%, due 7/01/15 1,303
4,000 #New York Local Government Assistance Corp.
7.00%, due 4/01/21
(Prerefunded 4/01/01 @ 100) 4,408
4,700 Triborough Bridge and Tunnel
Authority Revenue
8.125%, due 1/01/12 5,167
NORTH CAROLINA - 2.1%
11,000 North Carolina Eastern Municipal Power Agency
Power System Revenue
6.00%, due 1/01/22 10,085
OKLAHOMA - 1.2%
5,590 McGee Creek Authority Water Revenue
6.00%, due 1/01/23 [MBIA] 5,530
OREGON - 0.2%
1,000 Clackamas County Hospital
Facility Authority Revenue
(Sisters of Providence Hospital)
6.375%, due 10/01/05 1,036
</TABLE>
See Notes to Financial Statements
- 19 -
<PAGE> 23
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000's) MARKET VALUE (000's)
========================================================================================
<S> <C> <C>
PENNSYLVANIA - 3.9%
$5,000 Centre County University Area
Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA] $ 4,137
6,000 #Pennsylvania Intergovernmental
Cooperative Authority Special Tax Revenue
(City of Philadelphia)
6.80%, due 6/15/22
(Prerefunded 6/15/02 @ 100) 6,597
7,415 Philadelphia Water and Sewer Revenue
7.00%, due 8/01/18 7,623
SOUTH CAROLINA - 6.1%
10,250 Charleston County Hospital Facility Revenue
5.00%, due 10/01/22 [MBIA] 8,612
1,320 Charleston County Pollution Control
Facilities Revenue
5.90%, due 8/01/03 1,318
4,000 Charleston Waterworks
and Sewer System Revenue
5.00%, due 1/01/16 3,469
700 #Myrtle Beach Water and Sewer Revenue
6.00%, due 3/01/15 [MBIA]
(Prerefunded 3/01/00 @ 100) 741
5,500 Pickens County and Richland County
Hospital Revenue
5.75%, due 8/01/21 [AMBAC] 5,153
South Carolina Public Service Authority
Power Supply Revenue
1,395 5.70%, due 7/01/08 1,391
10,000 5.125%, due 1/01/32 8,233
TEXAS - 6.5%
$10,000 Austin Combined Utility System Revenue
12.50%, due 11/15/07 [MBIA] $16,284
4,350 Austin Water, Sewer and Electric Revenue
14.00%, due 11/15/01 6,318
1,600 #Coastal Industrial Water Authority
Water Revenue
5.50%, due 12/15/09 (Escrowed to Maturity) 1,562
4,775 Lewisville Independent School District
5.25%, due 8/15/14 [PSF] 4,332
2,260 Texas Municipal Power Agency Revenue
5.50%, due 9/01/13 [SECONDARY FGIC] 2,147
UTAH - 1.8%
Intermountain Power Agency
Special Obligation First Crossover Series
1,900 6.00%, due 7/01/23 1,842
2,750 5.00%, due 7/01/16 2,343
1,000 #Salt Lake City Hospital Revenue (IHC Hospitals)
5.00%, due 6/01/15 (Escrowed to Maturity) 887
3,440 Utah Housing Finance Agency
Single Family Mortgage Revenue
5.875%, due 7/01/08 3,449
VIRGINIA - 1.2%
1,250 #Fairfax County Water Authority Water Revenue
6.125%, due 1/01/29
(Prerefunded 1/01/00 @ 100) 1,310
1,195 #Richmond Metropolitan Expressway
Authority Revenue
5.60%, due 1/15/13 (Escrowed to Maturity) 1,180
3,000 #Richmond Public Utility Revenue
8.00%, due 1/15/18
(Prerefunded 1/15/98 @ 102) 3,300
</TABLE>
See Notes to Financial Statements
- 20 -
<PAGE> 24
PORTFOLIO OF INVESTMENTS
SAFECO MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
================================================================================
WASHINGTON - 12.2%
<S> <C> <C>
$7,255 Douglas County Public Utility District #1
Wells Hydroelectric Revenue
8.75%, due 9/01/18 $9,073
2,500 Everett School District #2
Snohomish County Unlimited
Tax General Obligation
6.20%, due 12/01/12 [MBIA] 2,529
1,875 Federal Way School District #210
King County Unlimited Tax General Obligation
5.75%, due 12/01/12 [FGIC] 1,842
1,750 * King County Housing Authority
Pooled Housing Refunding Revenue
6.80%, due 3/01/26 1,768
1,650 King County Limited Tax General Obligation
(Various Purpose)
4.75%, due 1/01/19 1,316
2,255 King County Public Hospital District #1
Hospital Facilities Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] 2,073
4,800 Lewis County Public Utility District #1
Cowlitz Falls Hydroelectric Project Revenue
6.00%, due 10/01/24 4,748
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 3,954
3,000 Washington Health Care Facilities
Authority Revenue
(Fred Hutchinson Cancer Research Center)
7.375%, due 1/01/18 3,195
6,350 Washington Health Care Facilities
Authority Revenue
(Yakima Valley Memorial Hospital Association)
7.25%, due 1/01/21 6,587
8,500 Washington Public Power Supply System
Nuclear Project #1 Revenue
6.00%, due 7/01/17 8,050
4,000 Washington Public Power Supply System
Nuclear Project #2 Revenue
6.30%, due 7/01/12 3,995
2,610 Washington Public Power Supply System
Nuclear Project #3 Revenue
5.50%, due 7/01/18 2,325
5,500 # Yakima-Tieton Irrigation District Revenue
8.40%, due 6/01/18
(Prerefunded 6/01/98 @ 100) 6,083
WEST VIRGINIA - 0.6%
3,025 West Virginia Housing Development Fund
Single Family Mortgage Revenue
6.125%, due 7/01/13 2,974
WISCONSIN - 0.8%
1,000 Wisconsin Health and Education
Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA] 990
2,850 Wisconsin Transportation Revenue
5.50%, due 7/01/22 2,578
--------
TOTAL BONDS 465,896
--------
TOTAL INVESTMENTS - 98.6% 465,896
Cash and Other Assets,
less Liabilities 6,673
--------
NET ASSETS $472,569
========
</TABLE>
DIVERSIFICATION BY GUARANTOR (PERCENT OF PORTFOLIO)
The provider of guarantees of timely payment of both principal and interest, if
any, is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio are:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors Assurance Corp. 13.6%
FGIC: Financial Guaranty Insurance Corp. 6.8
AMBAC: AMBAC Indemnity Corp. 4.6
PSF: Permanent School Fund 0.9
25.9%
</TABLE>
See Notes to Financial Statements
- 21 -
<PAGE> 25
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
===============================================================================
BONDS - 95.3%
<S> <C> <C>
$2,250 California Health Facilities Financing Authority
Insured Health Facility Revenue
(Catholic Healthcare West)
4.75%, due 7/01/19 [MBIA] $1,843
850 California Health Facilities Financing Authority
Revenue (O'Connor Hospital)
9.25%, due 3/01/15 897
2,750 California Statewide Communities
Development Authority
Certificates of Participation
5.00%, due 10/01/23 2,334
20 Concord Redevelopment Agency Tax Allocation
Central Concord Redevelopment Project
8.00%, due 7/01/18 [BIG] 22
3,750 Culver City Redevelopment Financing Authority
Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC] 2,981
3,150 East Bay Regional Park District
California General Obligation
5.75%, due 9/01/17 2,998
670 Inglewood Insured Hospital Revenue
(Daniel Freeman Hospital)
6.75%, due 5/01/13 684
1,200 # Los Angeles Convention and Exhibition Center
Authority Certificates of Participation
9.00%, due 12/01/20
(Prerefunded 12/01/05 @ 100) 1,566
4,500 Los Angeles County Sanitation District Financing
Authority Revenue (Capital Projects)
5.25%, due 10/01/20 3,965
3,000 Los Angeles County Transportation Commission
Sales Tax Revenue
5.75%, due 7/01/18 2,835
3,800 Los Angeles Department of Water and Power
Waterworks Revenue
4.75%, due 11/15/19 3,105
2,000 Los Angeles Wastewater System Revenue
4.70%, due 11/01/17 [FGIC] 1,659
1,000 # Modesto Certificates of Participation
(Community Center Refinancing Project)
6.00%, due 11/01/15 [AMBAC]
(Prerefunded 11/01/01 @ 102) 1,069
2,500 Northern California Power Agency
Geothermal Project Revenue
5.00%, due 7/01/09 2,249
1,100 Oro Loma Sanitation District Sewer Revenue
5.20%, due 10/01/16 [AMBAC] 994
4,435 Pittsburg Redevelopment Agency
Los Medanos Community Development Project
Tax Allocation
4.625%, due 8/01/21 3,529
Pleasanton Joint Powers Financing Authority
Reassessment Revenue
985 6.20%, due 9/02/17 946
1,950 6.15%, due 9/02/12 1,903
3,950 Rancho California Water District
Financing Authority Revenue
4.75%, due 8/15/21 [AMBAC] 3,206
2,000 Riverside County Certificates of Participation
(Capital Projects)
6.125%, due 11/01/21 1,936
</TABLE>
* Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
See Notes to Financial Statements
- 22 -
<PAGE> 26
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
=========================================================================================
<S> <C> <C>
$1,000 Riverside County Certificates of Participation
(Public Financing Project)
7.875%, due 12/01/15 $1,047
3,000 Sacramento Municipal Utility District
Electric Revenue
4.75%, due 9/01/21 [MBIA] 2,435
1,750 San Diego Public Facilities Financing Authority
Sewer Revenue
5.25%, due 5/15/20 1,510
5,000 San Joaquin Hills Transportation Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33 3,703
2,000 San Jose Airport Revenue
5.75%, due 3/01/16 [MBIA] 1,918
4,000 San Jose Redevelopment Agency
4.75%, due 8/01/22 3,123
Southern California Public Power Authority
Power Project Revenue (Multiple Projects)
2,665 # 5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) 2,738
1,335 5.50%, due 7/01/20 1,202
250 Southern California Public Power Authority
Power Project Revenue (Palo Verde Project)
5.75%, due 7/01/17 237
985 Stanislaus Waste-to-Energy Financing Agency
Solid Waste Facility Revenue
7.625%, due 1/01/10 1,033
1,535 University of California Housing
System Revenue
5.00%, due 11/01/13 [MBIA] 1,361
-------
TOTAL BONDS 61,028
-------
SHORT-TERM INVESTMENTS - 3.4%
INVESTMENT COMPANIES:
$2,173 Municipal Fund for
California Investors, Inc. $ 2,173
-------
TOTAL SHORT-TERM INVESTMENTS 2,173
-------
TOTAL INVESTMENTS - 98.7% 63,201
Other Assets,
less Liabilities 857
-------
NET ASSETS $64,058
=======
</TABLE>
DIVERSIFICATION BY GUARANTOR (PERCENT OF PORTFOLIO)
The provider of guarantees of timely payment of both principal and interest, if
any, is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio are:
<TABLE>
<CAPTION>
<S> <C> <C>
AMBAC: AMBAC Indemnity Corp. 13.5%
MBIA: Municipal Bond Investors Assurance Corp. 12.4
FGIC: Financial Guaranty Insurance Corp. 2.7
BIG: Bond Investors Guaranty Insurance Co. 0.0
------
28.6%
======
</TABLE>
See Notes to Financial Statements
- 23 -
<PAGE> 27
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
===========================================================================================
<S> <C> <C>
BONDS - 101.6%
$100 Battle Ground School District #119 Clark County
Unlimited Tax General Obligation
5.65%, due 12/01/12 $ 96
125 Centralia Water Revenue
5.65%, due 8/01/13 [AMBAC] 120
100 Chelan County Public Utility District #1
Columbia River Rock Hydroelectric System
Revenue
6.375%, due 6/01/29 100
200 Clark County School District #37 (Vancouver)
Unlimited Tax General Obligation
5.55%, due 12/01/09 194
300 Everett School District #2 Snohomish County
Unlimited Tax General Obligation
6.20%, due 12/01/12 [MBIA] 303
125 Federal Way School District #210
King County Unlimited Tax General Obligation
5.75%, due 12/01/12 [FGIC] 122
105 Grant County Public Utility District #2
Wanapum Hydroelectric Revenue
5.50%, due 1/01/12 98
300 * King County Housing Authority
Pooled Housing Refunding Revenue
6.80%, due 3/01/26 303
250 King County Limited Tax General Obligation
(Various Purpose)
4.75%, due 1/01/19 199
200 King County Public Hospital District #1
Hospital Facilities Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] 184
100 King County School District #403 (Renton)
6.125%, due 12/01/07 103
100 King County School District #415 (Kent)
Unlimited Tax General Obligation
6.45%, due 12/01/12 103
200 Kitsap County School District #401 (Central Kitsap)
Unlimited Tax General Obligation
5.50%, due 12/01/11 186
100 Lewis County Public Utility District #1
Cowlitz Falls Hydroelectric Project Revenue
6.00%, due 10/01/24 99
200 Municipality of Metropolitan Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] 201
95 Pike Place Market Preservation and Development
Authority Special Obligation Revenue
6.60%, due 12/01/21 97
100 Port of Seattle Revenue
6.00%, due 12/01/14 99
300 Renton Water and Sewer Improvement Revenue
5.375%, due 4/01/13 274
250 Richland Water and Sewer Revenue
5.625%, due 4/01/12 [MBIA] 241
100 Seattle Water System Revenue
5.25%, due 12/01/23 86
125 Snohomish County Mukilteo School District #6
Unlimited Tax General Obligation
5.70%, due 12/01/11 [FGIC] 123
295 Snohomish County Public Utility District #1
Generation System Revenue
5.50%, due 1/01/20 [FGIC] 266
</TABLE>
- ----------
* New to Portfolio since last report.
See Notes to Financial Statements
- 24 -
<PAGE> 28
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND (CONTINUED)
As of March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT (000'S) MARKET VALUE (000'S)
=============================================================================================
<S> <C> <C>
$250 Spokane Regional Solid Waste
Management System Revenue
6.25%, due 12/01/11 [AMBAC] $ 255
250 Tacoma Limited Tax General Obligation
6.25%, due 12/01/12 253
250 Tacoma Water System Revenue
5.50%, due 12/01/13 233
200 Tukwila Limited Tax General Obligation
5.90%, due 1/01/14 198
100 Tumwater Unlimited Tax General Obligation
5.80%, due 12/01/11 97
100 Walla Walla Water and Sewer Revenue
6.20%, due 8/01/12 [MBIA] 101
100 Washington Certificates of Participation
(State Office Building Project)
6.00%, due 4/01/12 100
100 Washington Health Care Facilities Authority
Revenue (Empire Health Service Spokane)
5.80%, due 11/01/10 [MBIA] 100
200 Washington Health Care Facilities Authority
Revenue (Franciscan Health System/
St. Joseph Hospital and
Health Care Center, Tacoma)
5.625%, due 1/01/13 [MBIA] 191
100 Washington Health Care Facilities Authority
Revenue (Harrison Memorial Hospital, Bremerton)
5.40%, due 8/15/23 [AMBAC] 89
200 Washington Health Care Facilities Authority
Revenue (Northwest Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] 186
100 Washington Health Care Facilities Authority
Revenue (Swedish Hospital Medical Center)
6.30%, due 11/15/22 [AMBAC] 100
120 Washington Public Power Supply System
Nuclear Project #2 Revenue
5.50%, due 7/01/18 107
250 Whatcom County Limited Tax
General Obligation
5.75%, due 12/01/12 [FSA] 242
200 Yakima-Tieton Irrigation District Revenue
6.20%, due 6/01/19 [FSA] 200
------
TOTAL BONDS 6,049
------
TOTAL INVESTMENTS - 101.6% 6,049
Liabilities,
less Cash and Other Assets (96)
------
NET ASSETS $5,953
======
</TABLE>
DIVERSIFICATION BY GUARANTOR (PERCENT OF PORTFOLIO)
The provider of guarantees of timely payment of both principal and interest, if
any, is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio are:
<TABLE>
<CAPTION>
<S> <C> <C>
MBIA: Municipal Bond Investors Assurance Corp. 19.1%
AMBAC: AMBAC Indemnity Corp. 15.7
FGIC: Financial Guaranty Insurance Corp. 8.6
FSA: Financial Security Assurance, Inc. 7.4
------
50.8%
======
</TABLE>
See Notes to Financial Statements
- 25 -
<PAGE> 29
STATEMENTS OF ASSETS AND LIABILITIES
As of March 31, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
INTERMEDIATE-TERM INSURED SAFECO CALIFORNIA WASHINGTON
(In Thousands, MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE STATE MUNICIPAL
Except Per-Share Amounts) BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at Value
Bonds (Identified Cost $13,884,
$7,931, $434,501, $58,620
and $6,010, respectively) $13,684 $8,037 $465,896 $61,028 $6,049
Short-Term Investments 524 36 -- 2,173 --
------- ------ -------- ------- ------
Total Investments 14,208 8,073 465,896 63,201 6,049
Cash -- -- 4 -- 4
Receivables
Interest 196 136 8,747 1,011 114
Capital Stock Sold -- -- 3,424 -- --
Deferred Organization Expense (Note 3) 12 12 -- -- 4
------- ------ -------- ------- ------
Total Assets 14,416 8,221 478,071 64,212 6,171
------- ------ -------- ------- ------
LIABILITIES
Payables
Notes Payable (Note 3) -- -- 4,405 -- 150
Dividends 24 29 859 104 23
Investment Securities Purchased 598 -- -- -- --
Investment Advisory Fees 6 4 169 29 3
Other 14 13 69 21 13
Organization Expense 12 12 -- -- 4
Capital Stock Redeemed -- -- -- -- 25
------- ------ -------- ------- ------
Total Liabilities 654 58 5,502 154 218
------- ------ -------- ------- ------
NET ASSETS $13,762 $8,163 $472,569 $64,058 $5,953
======= ====== ======== ======= ======
SHARES OUTSTANDING (Note 4) 1,353 812 35,373 5,553 590
======= ====== ======== ======= ======
NET ASSET VALUE PER SHARE
(Net Assets Divided
by Shares Outstanding) $ 10.17 $10.05 $ 13.36 $ 11.54 $10.10
======= ====== ======== ======= ======
</TABLE>
See Notes to Financial Statements
- 26 -
<PAGE> 30
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1995
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
INTERMEDIATE-TERM INSURED SAFECO CALIFORNIA WASHINGTON
(In Thousands) MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE STATE MUNICIPAL
BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $673 $375 $31,302 $4,302 $307
EXPENSES
Investment Advisory Fees (Note 3) 67 38 2,011 364 31
Shareholder Servicing Fees (Note 3) 17 5 532 69 3
Loan Interest 1 1 75 12 --
Legal and Auditing Fees 13 13 24 15 14
Reports to Shareholders 1 -- 19 3 --
Custodian Fees 2 1 11 8 1
Trustees' Fees 3 3 3 3 3
Amortization of Organization Expenses 4 4 -- -- 2
---- ---- ------- ------ ----
Total Expenses 108 65 2,675 474 54
---- ---- ------- ------ ----
NET INVESTMENT INCOME 565 310 28,627 3,828 253
---- ---- ------- ------ ----
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss)
on Investment Transactions (22) (46) (6,245) (250) 1
Net Change in Unrealized
Appreciation (Note 5) 97 273 10,408 357 109
---- ---- ------- ------ ----
NET GAIN ON INVESTMENTS 75 227 4,163 107 110
---- ---- ------- ------ ----
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $640 $537 $32,790 $3,935 $363
==== ==== ======= ====== ====
</TABLE>
See Notes to Financial Statements
- 27 -
<PAGE> 31
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended March 31
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------ -------------------
(In Thousands) 1995 1994 1995 1994
=====================================================================================
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 565 $ 282 $ 310 $ 139
Net Realized Gain (Loss) on
Investment Transactions (22) -- (46) (17)
Net Change in
Unrealized Appreciation 97 (345) 273 (218)
------- ------- ------ ------
Net Change in Net Assets
Resulting from Operations 640 (63) 537 (96)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (565) (282) (310) (139)
Net Realized Gain on
Investment Transactions -- -- -- --
NET TRUST SHARE TRANSACTIONS
(Note 4) 2,906 8,781 4,630 1,435
------- ------- ------ ------
TOTAL CHANGE IN NET ASSETS 2,981 8,436 4,857 1,200
NET ASSETS AT
BEGINNING OF PERIOD 10,781 2,345 3,306 2,106
------- ------- ------ ------
NET ASSETS AT END OF PERIOD $13,762 $10,781 $8,163 $3,306
======= ======= ====== ======
</TABLE>
See Notes to Financial Statements
- 28 -
<PAGE> 32
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Year Ended March 31
<TABLE>
<CAPTION>
SAFECO MUNICIPAL SAFECO CALIFORNIA SAFECO WASHINGTON STATE
BOND FUND TAX-FREE INCOME FUND MUNICIPAL BOND FUND
---------------- -------------------- -----------------------
(In Thousands) 1995 1994 1995 1994 1995 1994
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 28,627 $ 31,230 $ 3,828 $ 4,428 $ 253 $ 123
Net Realized Gain (Loss) on
Investment Transactions (6,245) 8,605 (250) 2,393 1 (5)
Net Change in
Unrealized Appreciation 10,408 (28,252) 357 (5,027) 109 (124)
-------- -------- -------- ------- ------ ------
Net Change in Net Assets
Resulting from Operations 32,790 11,583 3,935 1,794 363 (6)
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (28,627) (31,230) (3,828) (4,428) (253) (123)
Net Realized Gain on
Investment Transactions (1,166) (12,040) (644) (2,304) -- (4)
NET TRUST SHARE TRANSACTIONS
(Note 4) (37,881) (2,375) (12,461) 2,122 2,935 878
-------- -------- -------- ------- ------ ------
TOTAL CHANGE IN NET ASSETS (34,884) (34,062) (12,998) (2,816) 3,045 745
NET ASSETS AT
BEGINNING OF PERIOD 507,453 541,515 77,056 79,872 2,908 2,163
-------- -------- -------- ------- ------ ------
NET ASSETS AT END OF PERIOD $472,569 $507,453 $64,058 $77,056 $5,953 $2,908
======== ======== ======= ======= ====== ======
</TABLE>
See Notes to Financial Statements
- 29 -
<PAGE> 33
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The SAFECO Tax-Exempt Bond Trust ("Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of the SAFECO Intermediate-Term Municipal
Bond Fund (Intermediate), SAFECO Insured Municipal Bond Fund (Insured), SAFECO
Municipal Bond Fund (Municipal), SAFECO California Tax-Free Income Fund
(California) and SAFECO Washington State Municipal Bond Fund (Washington)
(together "the Funds").
The following is a summary of significant accounting policies consistently
followed by the Trust in the prep-aration of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION. Tax-exempt bonds are stated on the basis of valuations
provided by a pricing service, which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Short-term investments are valued at cost which approximates
market.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily. Bond
premiums and original issue discounts are amortized to either call or maturity
dates. Market discount on bonds purchased after April 30, 1993 is recorded as
taxable income at disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security trans-actions, if any, will normally be distributed
to share-holders at the end of March and December. Prior to July 29, 1994, net
realized gains were distributed at the end of April and October.
Distributions in excess of net realized gains in fiscal 1994 for financial
statement purposes result from Federal excise tax distribution requirements.
These excess distributions are the result of certain losses from securities
transactions during the year ended March 31, 1994 which are treated for Federal
income tax purposes as arising in fiscal 1995.
FEDERAL INCOME AND EXCISE TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all income to shareholders in a manner
which results in no tax to the Funds. Therefore, no Federal income or excise tax
provision is required. In addition, the Funds intend to satisfy conditions which
will enable them to pay dividends which, for shareholders, are exempt from
Federal income taxes. Any portion of dividends representing net short-term
capital gains, however, is not exempt and will be treated as taxable dividends
for Federal income tax purposes. In addition,
- 30 -
<PAGE> 34
income which is derived from amortization on bonds purchased below their issued
price after April 30, 1993, will be treated as ordinary income for Federal
income tax purposes.
2. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The Intermediate-Term Municipal Bond Fund, Municipal Bond Fund, and
California Tax-Free Income Fund had accumulated undistributed net realized
losses on transactions of $22,000, $6,233,000, and $253,000, respectively at
March 31, 1995, which expire in the year 2003.
The Insured Municipal Bond Fund had an accumulated undistributed net realized
loss on transactions of $63,000 at March 31, 1995, of which $17,000 and $46,000
expire in 2002 and 2003, respectively.
The Washington State Municipal Bond Fund had an accumulated undistributed net
realized loss on transactions of $8,000 at March 31, 1995, which will expire in
2003.
For each Fund, these amounts represent capital loss carry forwards which can
be used in future years to offset realized gains on security transactions.
3. INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company (the "Investment
Adviser") receives investment advisory fees from the Funds. For the Intermediate
Fund, the fee is based on average daily net assets at the annual rate of 55/100
of one percent on the first $250 million declining in three levels to 25/100 of
one percent on net assets over $750 million. For the Insured and Washington
Funds, the fee is based on average daily net assets at the annual rate of 65/100
of one percent on the first $250 million declining in three levels to 35/100 of
one percent on net assets over $750 million. For the Municipal and California
Funds, the fee is based on average daily net assets at the annual rate of 55/100
of one percent on the first $100 million declining in three levels to 25/100 of
one percent on net assets over $500 million.
TRANSFER AGENT FEES. SAFECO Services Corporation receives shareholder
servicing fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for temporary
purposes from SAFECO Corporation or its affiliates. Interest rates equivalent to
commercial bank interest rates are charged on loans over $100,000. No interest
is charged on loans under $100,000. At March 31, 1995, the Municipal Fund and
Washington Fund had notes payable bearing interest at 6.12% of $4,405,000 and
$150,000, respectively, to SAFECO Life Deferred Annuity Company. The Municipal
Fund note was repaid on April 4, 1995 and the Washington Fund note was repaid on
April 7, 1995.
AFFILIATE OWNERSHIP. At March 31, 1995, SAFECO Insurance Company of America
("SAFECO Insurance"), a wholly owned subsidiary of SAFECO Corporation, owned
397,434 shares (or 29.4%) of the Intermediate Fund, 605,644 shares (or 74.6%) of
the Insured Fund and 502,372 shares (or 85.2%) of the Washington Fund.
DEFERRED ORGANIZATION EXPENSES. Costs relating to the organization of the
Intermediate, Insured and Washington Funds have been deferred and are being
amortized to operations over a period of sixty months. These costs were advanced
by the Investment Adviser and are being reimbursed by those Funds over the same
period. If any of the original seed money shares for these Funds are redeemed by
SAFECO Insurance prior to the end of the amortization period, the redemption
proceeds will be reduced by a pro rata share of the unamortized organization
expenses as of the date of redemption.
- 31 -
<PAGE> 35
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. TRUST SHARES
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
------------------------ -------------------
FOR THE YEAR FOR THE YEAR
ENDED MARCH 31 ENDED MARCH 31
(In Thousands, Except ------------------------ -------------------
Per-Share Amounts) 1995 1994 1995 1994
=================================================================================
<S> <C> <C> <C> <C>
SHARES
Sales 655* 1,048 615** 229
Reinvestments 32 15 4 4
--------- --------- --------- ---------
687 1,063 619 233
Redemptions (398) (228) (147) (98)
--------- --------- --------- ---------
NET CHANGE 289 835 472 135
========= ========= ========= =========
AMOUNTS
Sales $ 6,550* $ 11,015 $ 5,994** $ 2,405
Reinvestments 320 156 40 42
--------- --------- --------- ---------
6,870 11,171 6,034 2,447
Redemptions (3,964) (2,390) (1,404) (1,012)
--------- --------- --------- ---------
NET CHANGE $ 2,906 $ 8,781 $ 4,630 $ 1,435
========= ========= ========= =========
As of March 31, 1995
Shares Authorized Unlimited Unlimited
Par Value Per Share $ .001 $ .001
Paid In Capital $ 13,984 $ 8,120
</TABLE>
In Thousands:
* Includes 197 shares purchased by SAFECO Insurance for $2,000.
** Includes 406 shares purchased by SAFECO Insurance for $4,000.
- 32 -
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. TRUST SHARES (CONTINUED)
<TABLE>
<CAPTION>
SAFECO MUNICIPAL SAFECO CALIFORNIA SAFECO WASHINGTON STATE
BOND FUND TAX-FREE INCOME FUND MUNICIPAL BOND FUND
---------------- -------------------- -----------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
(In Thousands, ENDED MARCH 31 ENDED MARCH 31 ENDED MARCH 31
Except Per-Share ---------------- -------------------- -----------------------
Amounts) 1995 1994 1995 1994 1995 1994
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
SHARES
Sales 42,783 72,411 1,366 1,171 342++ 120
Reinvestments 1,462 2,103 263 369 4 2
--------- ----------- --------- --------- --------- ---------
44,245 74,514 1,629 1,540 346 122
Redemptions (47,105) (74,591) (2,771)+ (1,374) (49) (40)
--------- ----------- --------- --------- --------- ---------
NET CHANGE (2,860) (77) (1,142) 166 297 82
========= =========== ========= ========= ========= =========
AMOUNTS
Sales $ 556,843 $ 1,034,434 $ 15,280 $ 14,523 $ 3,386++ $ 1,275
Reinvestments 18,983 30,037 2,933 4,563 39 27
--------- ----------- --------- --------- --------- ---------
575,826 1,064,471 18,213 19,086 3,425 1,302
Redemptions (613,707) (1,066,846) (30,674)+ (16,964) (490) (424)
--------- ----------- --------- --------- --------- ---------
NET CHANGE $ (37,881) $ (2,375) $ (12,461) $ 2,122 $ 2,935 $ 878
========= =========== ========= ========= ========= =========
As of March 31, 1995
Shares Authorized Unlimited Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001
Paid In Capital $ 447,407 $ 61,903 $ 5,922
</TABLE>
In Thousands:
+ Includes 442 shares redeemed by SAFECO Insurance for $5,000.
++ Includes 302 shares purchased by SAFECO Insurance for $3,000.
- 33 -
<PAGE> 37
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO SAFECO SAFECO SAFECO
INTERMEDIATE-TERM INSURED SAFECO CALIFORNIA WASHINGTON
MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE STATE MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
PURCHASES FOR THE YEAR
ENDED MARCH 31, 1995 $ 4,268 $ 5,350 $127,205 $ 28,936 $ 3,557
======== ======== ======== ======== ========
SALES FOR THE YEAR
ENDED MARCH 31, 1995 $ 516 $ 878 $170,576 $ 43,384 $ 450
======== ======== ======== ======== ========
UNREALIZED APPRECIATION
(DEPRECIATION) AT MARCH 31, 1995
Aggregate gross unrealized
appreciation for investment
securities in which there is an
excess of value over identified cost $ 137 $ 178 $ 33,563 $ 2,928 $ 85
Aggregate gross unrealized
depreciation for investment
securities in which there is an
excess of identified cost over value (337) (72) (2,168) (520) (46)
-------- -------- -------- -------- --------
NET UNREALIZED APPRECIATION
(DEPRECIATION) $ (200) $ 106 $ 31,395 $ 2,408 $ 39
======== ======== ======== ======== ========
</TABLE>
- 34 -
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
-----------------------------------------------
NOVEMBER 5, 1992
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
MARCH 31 MARCH 31 MARCH 31
1995 1994 1993
==============================================================================================
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.13 $ 10.25 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.45 0.40 0.09
Net Realized and Unrealized Gain (Loss)
on Investments 0.04 (0.12) 0.25
------- ------- -------
Total from Investment Operations 0.49 0.28 0.34
------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.45) (0.40) (0.09)
------- ------- -------
Total Distributions (0.45) (0.40) (0.09)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.17 $ 10.13 $ 10.25
======= ======= =======
TOTAL RETURN 4.97% 2.64% -0.04% **
NET ASSETS AT END OF PERIOD (000'S OMITTED) $13,762 $10,781 $ 2,345
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.85% 0.99% 1.95% *
RATIO OF NET INCOME TO AVERAGE NET ASSETS 4.46% 3.85% 2.18% *
PORTFOLIO TURNOVER RATE 4.27% 1.49% NONE
</TABLE>
* Annualized.
** Total return from March 18, 1993, (initial public offering) to March 31,
1993, not annualized.
- 35 -
<PAGE> 39
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SAFECO INSURED MUNICIPAL BOND FUND
-----------------------------------------------
NOVEMBER 5, 1992
FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
MARCH 31 MARCH 31 MARCH 31
1995 1994 1993
==============================================================================================
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.73 $ 10.26 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.48 0.41 0.08
Net Realized and Unrealized Gain (Loss)
on Investments 0.32 (0.53) 0.26
------- ------- -------
Total from Investment Operations 0.80 (0.12) 0.34
------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.48) (0.41) (0.08)
------- ------- -------
Total Distributions (0.48) (0.41) (0.08)
------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.05 $ 9.73 $ 10.26
======= ======= =======
TOTAL RETURN 8.58% -1.40% -0.43% **
NET ASSETS AT END OF PERIOD (000'S OMITTED) $ 8,163 $ 3,306 $ 2,106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.08% 1.41% 1.95% *
RATIO OF NET INCOME TO AVERAGE NET ASSETS 5.11% 3.99% 1.90% *
PORTFOLIO TURNOVER RATE 14.76% 21.19% None
</TABLE>
* Annualized.
** Total return from March 18, 1993, (initial public offering) to March 31,
1993, not annualized.
- 36 -
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND
------------------------------------------------------
FOR THE YEAR ENDED MARCH 31
1995 1994 1993 1992 1991
========================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 13.27 $ 14.13 $ 13.37 $ 12.95 $ 12.73
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.77 0.78 0.81 0.86 0.86
Net Realized and Unrealized Gain (Loss)
on Investments 0.12 (0.55) 0.94 0.48 0.26
Total from Investment Operations 0.89 0.23 1.75 1.34 1.12
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.77) (0.78) (0.81) (0.86) (0.86)
Distributions from Capital Gains (0.03) (0.31) (0.18) (0.06) (0.04)
Total Distributions (0.80) (1.09) (0.99) (0.92) (0.90)
NET ASSET VALUE AT END OF PERIOD $ 13.36 $ 13.27 $ 14.13 $ 13.37 $ 12.95
TOTAL RETURN 7.10% 1.30% 13.60% 10.57% 9.13%
NET ASSETS AT END OF PERIOD (000'S OMITTED) $472,569 $507,453 $541,515 $427,638 $331,647
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.56% 0.52% 0.53% 0.54% 0.56%
RATIO OF NET INCOME TO AVERAGE NET ASSETS 5.96% 5.49% 5.91% 6.37% 6.68%
PORTFOLIO TURNOVER RATE 26.96% 22.07% 31.66% 25.18% 38.55%
</TABLE>
- 37 -
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SAFECO CALIFORNIA TAX-FREE INCOME FUND
---------------------------------------------------------------
FOR THE YEAR ENDED MARCH 31
1995 1994 1993 1992 1991
===================================================================================================================
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.51 $ 12.23 $ 11.60 $ 11.24 $ 11.07
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.63 0.66 0.68 0.71 0.71
Net Realized and Unrealized Gain (Loss)
on Investments 0.13 (0.38) 0.76 0.44 0.23
------- ------- ------- ------- -------
Total from Investment Operations 0.76 0.28 1.44 1.15 0.94
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.63) (0.66) (0.68) (0.71) (0.71)
Distributions from Capital Gains (0.10) (0.34) (0.13) (0.08) (0.06)
------- ------- ------- ------- -------
Total Distributions (0.73) (1.00) (0.81) (0.79) (0.77)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 11.54 $ 11.51 $ 12.23 $ 11.60 $ 11.24
======= ======= ======= ======= =======
TOTAL RETURN 7.01% 1.97% 12.88% 10.43% 8.78%
NET ASSETS AT END OF PERIOD (000'S OMITTED) $64,058 $77,056 $79,872 $71,480 $57,066
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.70% 0.68% 0.66% 0.67% 0.67%
RATIO OF NET INCOME TO AVERAGE NET ASSETS 5.65% 5.31% 5.71% 6.13% 6.32%
PORTFOLIO TURNOVER RATE 44.10% 32.58% 23.18% 39.35% 22.92%
</TABLE>
- 38 -
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
-------------------------------------------
NOVEMBER 5, 1992
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS)
MARCH 31 MARCH 31 TO MARCH 31
1995 1994 1993
=========================================================================================
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.91 $ 10.27 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.49 0.44 0.09
Net Realized and Unrealized Gain (Loss)
on Investments 0.19 (0.35) 0.27
------- ------ -------
Total from Investment Operations 0.68 0.09 0.36
------- ------ -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.49) (0.44) (0.09)
Distributions from Capital Gains -- (0.01) --
------- ------ -------
Total Distributions (0.49) (0.45) (0.09)
------- ------ -------
NET ASSET VALUE AT END OF PERIOD $10.10 $9.91 $ 10.27
======= ======= =======
TOTAL RETURN 7.13% 0.68% -0.31% **
NET ASSETS AT END OF PERIOD (000'S OMITTED) $5,953 $2,908 $ 2,163
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.09% 1.44% 2.00% *
RATIO OF NET INCOME TO AVERAGE NET ASSETS 5.06% 4.17% 2.22% *
PORTFOLIO TURNOVER RATE 9.23% 17.26% None
</TABLE>
* Annualized.
** Total return from March 18, 1993, (initial public offering) to March 31,
1993, not annualized.
- 39 -
<PAGE> 43
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
OF THE SAFECO TAX-EXEMPT BOND TRUST
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the SAFECO Tax-Exempt Bond Trust
(comprising, respectively, the 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) as of March 31, 1995 and the related statements of operations for the year
then ended and the statements of changes in net assets for each of the two years
in the period then ended. We have also audited the financial highlights for each
of the five years in the period then ended for the SAFECO Municipal Bond Fund
and the SAFECO California Tax-Free Income Fund and we have audited the financial
highlights for each of two years in the period then ended and for the period
from November 5, 1992 (commencement of operations) through March 31, 1993 for
the SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured Municipal Bond
Fund, and SAFECO Washington State Municipal Bond Fund. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds constituting the SAFECO Tax-Exempt Bond Trust at March
31, 1995, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Seattle, Washington
April 26, 1995
- 40 -
<PAGE> 44
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
-----------------------------
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.
- 41 -
<PAGE> 45
SAFECO Tax-Exempt Bond Funds
BOARD OF TRUSTEES
Boh A. Dickey, Chairman
Barbara J. Dingfield
Richard W. Hubbard
Richard E. Lundgren
L.D. McClean
Larry L. Pinnt
John W. Schneider
OFFICERS
David F. Hill, President
Ronald L. Spaulding,
Vice President and Treasurer
Neal A. Fuller,
Vice President and Controller
INVESTMENT ADVISER
SAFECO Asset
Management Company
DISTRIBUTOR
SAFECO Securities, Inc.
TRANSFER AGENT
SAFECO Services Corporation
CUSTODIAN
U.S. Bank of Washington, N.A.
GMF 713 5/95
[Recycle LOGO] Printed on Recycled Paper
Bulk Rate
U.S. Postage
P A I D
Permit No. 2405
Seattle, WA
This report must be preceded or
accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
<PAGE> 46
APPENDIX A
Description of Graphic and Image Material
1. Location: Inside Front Cover Page of Semiannual Report
Item: Performance Information
Description: A graphical representation showing the value of a $10,000.00
investment in the SAFECO Municipal Bond Fund and the
California Tax-Free Income Fund from 1985 through March 31,
1995. The ending investment value of the Municipal Fund is
$26,040 and the ending investment value of the California Tax
-Free Income Fund is $24,817.
2. Location: Page 1
Item: Performance Information
Description: Three graphical representations showing the value of a
$10,000.00 investment in the SAFECO's from July 31,
1995 through March 31, 1995 with the ending investment value
at $18,163.00.
3. Location: Page 1
Item: Performance Information
Description: A graphical rrepresentation showing the value of a $10,000.00
investment inn the SAFECO Intermediate-Term U.S. Treasury Fund
from September 30, 1988 through March 31, 1995 with the ending
investment value at $15,870.00.
4. Location: Page 2
Item: Photograph
Description: A photo of the president, David F. Hill.
5. Location: Page 3
Item: Photograph
Description: A photo of the SAFECO High-Yield Bond Fund Manager, Kurt
Havnaer.
6. Location: Page 4
Item: Highlights of the SAFECO High-Yield Bond Fund
Description: 3 separate charts showing highlights of the SAFECO High-Yield
Bond Fund. First is a pie chart relating to the S&P Rating Distribution,
second, the top five industries as a percent of net assets and third,
7. Location:
<PAGE> 47
APPENDIX A
Description of Graphic and Image Material
for the SAFECO Money Market Funds Semiannual Report
1. Location: Inside Front Cover of Semiannual Report
Item: Performance Information
Description: A graphical representation showing the Average Weekly Yield of
the SAFECO Money Market and Tax-Free Money Market Funds
against the IBC/Donoghue Money Funds Average. The SAFECO Money
Market Fund ranges from 4.0% on October 4, 1994 to 5.8% on
March 27, 1995. The SAFECO TAx-Free Money Market Fund ranges
from 2.9% on October 3, 1994 to 3.5% on March 26, 1995.
2. Location: Page 2
Item: Photograph
Description: A photograph of the SAFECO Money Market Fund Manager,
Naomi Urata.
3. Location: Page 3
Item: Highlights of the SAFECO Money Market Fund
Description: Three separate charts represent highlights of the SAFECO Money
Market Fund. The first chart shows the Weighted Average
Maturity of 31 days and the Average Annual Total Return for one
year of 4.20%. The second chart represents the Portfolio Credit
Quality with a 100% rating in the Highest Rated catagory. The
third chart shows the top five types of short-term investments
as a percent of net assets as of March 31, 1995. The top 5 are:
The U.S. Government & Agency Securities at 23.4%, Asset Backed
at 15.6%, Banks-Foreign at 12.1%, Financial Services-Brokerage
at 6.9% and finance-Auto at 6.9%.
4. Location: Page 6
Item: Photograph
Description: A Photograph of the Tax-Free Money Market Fund, Mary V.
Metastasio.
5. Location: Page 7
Item: Highlights of the SAFECO Tax-Free Money Market Fund
Description: Five separate charts represent highlights of the SAFECO
Tax-Free Money Market Fund. The first chart shows the Weighted
Average Maturity of 62 days and the Average Annual Total Return
for one year of 2.84%. The second chart represents the top five
states. and their percent of assets. The third chart represents
the Portfolio Credit Quality with a 99.7% rating in the Highest
Rated catagory and a 0.3% in the Not Rated catagory. The fourth
graph lists the top 5 types of bonds as a percent of net asets.
The fifthe graph represents the tax-equivalent yield compared
to the Average taxable money fund yield.
<PAGE> 48
APPENDIX A
Description of Graphic and Image Material
for the SAFECO Taxable Bond Funds Semiannual Report
1. Location: Inside Front Cover of Semiannual Report
Item: Performance Informatin
Description: A graphical representation showing the value of a $10,000
investment in the SAFECO High-Yield Bond Fund from September
31, 1988 through March 31, 1995 with the ending investment
value at $16, 968.
2. Location: Page 1
Item: Performance Information
Description: A graphical representation showing the value of a $10,000
investment in the SAFECO GNMA Fund from July 31, 1995 through
March 31, 1995 with the ending investment value at $18,163.
3. Location: Page 1
Item: Performance Information
Description: A graphical representation showing the value of a $10,000
investment in the SAFECO Intermediate-Term U.S. Treasury
Fund from September 30, 1988 through March 31, 1995 with the
ending investment value at $15,870.
4. Location: Page 2
Item: Photograph
Description: A Photograph of the Fund President, David F. Hill.
5. Location: Page 3
Item: Photograph
Description: A photograph of ther SAFECO High-Yield Bond Fund Manager,
Kurt Havnaer.
6. Location: Page 4
Item: Highlights of the SAFECO High-Yield Bond Fund
Description: Three separate charts represents highlights of the SAFECO
High-Yield Bond Fund. The first chart shows the S&P Rating
Distribution as March 31, 1995, B:59.3%, BB:25.0%, BBB:1.7%,
CCC:4.3%, D:1.1$, Not Rated:2.3% and Cash & other Assets Less
Liabilities: 6.3%. The second chart represents the top five
industries of net assets. Retail-Grocers:7.8%, Home
Building:5.9%, Oil & Gas:4.6%, Hotels/Motels: 4.2% and
Utilities:4.0%. The third chart represents the Current Yield
(30 Day) at 10.01% and the Weighted Average Maturity in
(In Years) of 7.89.
7. Location: Page 8
Item: Photograph
Description: A Photograph of the SAFECO GNMA Fund Manager, Paul Stevenson.
8. Location: Page 10
Item: Historical Highlights
Description: 2 separate charts representing from March 1994 through March
1995 of the SAFECO GNMA Fund and Intermediate Term U.S.
Treasury Fund. The GNMA Fund ranges from a low of approxmiately
6.2% to a high of approxmiately 7.6%> The Intermediate Term
U.S. Treasury Fund ranges from a low of approxmiately 4.9% to a
high of approxmiately 6.2%.
9. Location: Page 11
Item: Photograph
Description: A Photograph of the SAFECO Intermediate-Term U.S. Treasury Fund
Manager, Michael C. Knebel.
<PAGE> 1
EXHIBIT NO. 99.16
CALCULATION OF PERFORMANCE INFORMATION
<PAGE> 2
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Calculation of Performance Quotations
The "yield" for the SAFECO California Tax-Free Income Fund for the 30-day
period ended March 31, 1995, is calculated as follows:
320,466 - 36,657
Yield = 2[(---------------- + 1)6-1] = 5.38%
5,551,345x 11.54
<TABLE>
<S> <C> <C> <C>
Where: $320,466 = dividends and interest (as defined in the instructions to Item 22(b)(ii) of Form N-1A)
earned during the period
$36,657 = expenses accrued during the period
5,551,345 = average daily number of shares outstanding during the period
$11.54 = offering price per share on March 31, 1995
</TABLE>
The "tax-equivalent yield" is computed using the following formula:
5.38% x 1
Tax-equivalentyield = [----------] + [5.38% x (1-100%)] = 10.00%
(1 - .462)
<TABLE>
<S> <C> <C> <C>
Where: 5.38% = "yield" as calculated above
46.2% = combined federal & state tax rate
100% = percentage of "yield" which is tax free
</TABLE>
<PAGE> 3
SAFECO CALIFORNIA TAX-FREE 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 ended March 31, 1994, are calculated as follows:
1-Year
Total return = $10,000.00 (1 + .0701)1 = $10,701
(1,070.10 - 1,000)
Total return = ------------------ = 7.01%
1,000.00
Total return = -------------------------------------
(1 \/ 1,070.10 / 1,000.00 -1) = 7.01%
<TABLE>
<S> <C> <C> <C>
Where: 1 = number of years
$1,070.10 = 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
.0701 = the average annual total return
</TABLE>
5-Year
Total return = $10,000.00 (1 + .0815)5 = $14,797
(1,479.70 - 1,000)
Total return = ------------------ = 47.97%
1,000.00
Average Annual Total Return = -------------------------------------
(5 \/ 1,479.70 / 1,000.00 -1) = 8.15%
<TABLE>
<S> <C> <C> <C>
Where: 5 = number of years
$1,479.70 = 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
.0815 = the average annual total return
</TABLE>
<PAGE> 4
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Calculation of Performance Quotations (continued)
10-Year
Total return = $10,000.00 (1 + .0952)10 = $24,817
(2,481.70 - 1,000)
Total return = ------------------ = 148.17%
1,000.00
Average Annual Total Return = --------------------------------------
(10 \/ 2,481.70 / 1,000.00 -1) = 9.52%
<TABLE>
<S> <C> <C> <C>
Where: 10 = number of years
$2,481.70 = 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
.0952 = the average annual total return
</TABLE>
<PAGE> 5
SAFECO MUNICIPAL BOND FUND
Calculation of Performance Quotations
The "yield" for the SAFECO Municipal Bond Fund for the 30-day period ended
March 31, 1995 is calculated as follows:
2,379,699 - 217,611
Yield = 2 [(------------------- + 1)6 -1] = 5.54%
35,435,331 x 13.36
<TABLE>
<S> <C> <C> <C>
Where: $2,379,699 = dividends and interest (as defined in the instructions to Item 22(b)(ii) of Form N-1A)
earned during the period
$217,611 = expenses accrued during the period
35,435,331 = average daily number of shares outstanding during the period
$13.36 = offering price per share on March 31, 1995
</TABLE>
The "tax-equivalent yield" is computed using the following formula:
5.54% x 1
Tax-equivalent yield = [----------] + [5.54% x (1 - 100%)] = 9.17%
(1 - .396)
<TABLE>
<S> <C> <C> <C>
Where: 5.54% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax-free
</TABLE>
<PAGE> 6
SAFECO MUNICIPAL BOND 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 ended March 31, 1995 are calculated as follows:
1 Year
Total return = $10,000 (1 + .0710)(1) = $10,710
1,071.00 - 1,000
Total return = (----------------) = 7.10%
1,000.00
Average Annual Total Return = -------------------------- = 7.10%
(1\/1,071.00/1,000.00 -1)
<TABLE>
<S> <C> <C> <C>
Where: 1 = number of years
$1,071.00 = 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
.0710 = the average annual total return
</TABLE>
5-Year
Total return = $10,000 (1 + .0826)(5) = $14,870
1,487.00 - 1,000
Total return = (----------------) = 48.70%
1,000.00
Average Annual Total Return = -------------------------- = 8.26%
(5\/1,487.00/1,000.00 -1)
<TABLE>
<S> <C> <C> <C>
Where: 5 = number of years
$1,487.00 = 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
.0826 = average annual total return
</TABLE>
<PAGE> 7
SAFECO MUNICIPAL BOND FUND
Calculation of Performance Quotations (continued)
10-Year
Total return = $10,000 (1 + .0040)(10) = $26,040
2,604.00 - 1,000
Total return = (----------------) = 160.40%
1,000.00
Average Annual Total Return = -------------------------- = 10.04%
(10\/2,604.00/1,000.00 -1)
<TABLE>
<S> <C> <C> <C>
Where: 10 = number of years
$2,604.00 = 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
.1004 = the average annual total return
</TABLE>
<PAGE> 8
SAFECO INSURED MUNICIPAL BOND FUND
Calculation of Performance Quotations
The "yield" for the SAFECO Insured Municipal Bond Fund for the 30-day period
ended March 31, 1995 is calculated as follows:
41,404 - 6,937
Yield = 2 [(----------------- + 1)(6) -1] = 5.12%
811,611 x 10.05
<TABLE>
<S> <C> <C> <C>
Where: $41,404 = dividends and interest (as defined in the instructions to Item 22(b)(ii) of Form N-1A) earned
during the period
$6,937 = expenses accrued during the period
811,611 = average daily number of shares outstanding during the period
$10.05 = offering price per share on March 31, 1995
</TABLE>
The "tax-equivalent yield" is computed using the following formula:
5.12% x 1
Tax-equivalent yield = [-------------] + [5.12% x (1-100%)] = 8.45%
(1 - .396
<TABLE>
<S> <C> <C> <C>
Where: 5.12% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax-free
</TABLE>
<PAGE> 9
SAFECO INSURED MUNICIPAL BOND FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
and 24-month (since initial effective date of Registration Statement) periods
ending March 31, 1995 are calculated as follows:
1 Year
Total return = $10,000.00 (1 + .0858)(1) = $10,858.00
1,085.80 - 1,000
Total return = (-------------------) = 8.58%
1,000.00
Average Annual Total Return = ---------------------------------------
(1.00 1,085.80 / 1,000.00 -1) - 8.58%
<TABLE>
<S> <C> <C> <C>
Where: 1 = number of years
.0858 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,085.80 = 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
</TABLE>
Since Inception (24 Months)
Total return = $10,000.00 (1 + .0347)(2) = $10,706.00
1,070.60 - 1,000
Total return = (-------------------) = 7.06%
1,000.00
Average Annual Total Return = ---------------------------------------
(2 \/ 1,070.60 / 1,000.00 -1) = 3.47%
<TABLE>
<S> <C> <C> <C>
Where: 2 = number of years
.0347 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,070.60 = 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
</TABLE>
<PAGE> 10
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
Calculation of Performance Quotations
The "yield" for the SAFECO Intermediate-Term Municipal Bond Fund for the 30-day
period ended March 31, 1995 is calculated as follows:
61,425 - 9,587
Yield = 2[(---------------- +1)(6) -1] = 4.51%
1,367,875x 10.17
<TABLE>
<S> <C> <C> <C>
Where: $61,425 = dividends and interest (as defined
in the instructions to Item 22(b)(ii)
of Form N-1A) earned during the period
$9,587 = expenses accrued during the period
1,367,875 = average daily number of shares
outstanding during the period
$10.17 = offering price per share on March 31,
1995
</TABLE>
The "tax-equivalent yield" is computed using the following formula:
4.51% x 1
Tax-equivalent yield = [---------] = [4.51% x (1-100%)] = 7.47%
1-.396
<TABLE>
<S> <C> <C> <C>
Where: 4.51% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax
free
</TABLE>
<PAGE> 11
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
and 24-month (since initial effective date of Registration Statement) periods
ended March 31, 1994, are calculated as follows:
1-Year
Total return = $10,000.00 = (1 + .0497)(1) = $10,497.00
(1,049.70 - 1,000)
Total return = -------------------- = 4.97%
1,000.00
Average Annual Total Return = ----------------------------------------
(1.00 1,049.70 / 1,000.00 -1) = 4.97%
<TABLE>
<S> <C> <C> <C>
Where: 1 = number of years
$.0497 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,049.70 = 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
</TABLE>
Since Inception (24 Months)
Total return = $10,000.00 (1 + .0380)(2) = $10,774.00
(1,077.40 - 1,000)
Total return = -------------------- = 7.74%
1,000.00
Average Annual Total Return = ----------------------------------------
(2 \/ 1,077.40 / 1,000.00 -1) = 3.80%
<TABLE>
<S> <C> <C> <C>
Where: 2 = number of years
.0380 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,077.40 = 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
</TABLE>
<PAGE> 12
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
Calculation of Performance Quotations
The "yield" for the SAFECO Washington State Municipal Bond Fund for the 30-day
period ended March 31, 1995 is calculated as follows:
32,004 - 5,425
Yield = 2 [(-------------- + 1)6 -1] = 5.26%
606,496 x 10.1
<TABLE>
<S> <C> <C> <C>
Where: $32,004 = dividends and interest (as defined in the instructions to Item 22(b)(ii) of Form N-1A) earned during
the period
$5,425 = expenses accrued during the period
606,496 = average daily number of shares outstanding during the period
$10.10 = offering price per share on March 31, 1995
</TABLE>
The "tax-equivalent yield" is computed using the following formula:
5.26% x 1
Tax-equivalent yield = [----------] + [5.26% x (1 - 100%)] = 8.71%
(1 - .396)
<TABLE>
<S> <C> <C> <C>
Where: 5.26% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax-free
</TABLE>
<PAGE> 13
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
Calculation of Performance Quotations (continued)
The total return and average annual total return for the Fund for the one-year,
and 24-month (since initial effective date of Registration Statement) periods
ending March 31, 1995 are calculated as follows:
1 Year
Total return = $10,000.00 ( 1 + .0762)1 = $10,762.00
1,076.20 - 1,000
Total return = [----------------] = 7.62%
1,000.00
Average Annual Total Return = -------------------------------------
(1.00 1,076.20 / 1,000.00 -1) = 7.62%
<TABLE>
<S> <C> <C> <C>
Where: 1 = number of years
0.0762 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,076.20 = 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
</TABLE>
Since Inception (24 Months)
Total return = $10,000.00 ( 1 + .0409)2 = $10,835.00
1,083.50 - 1,000
Total return = [----------------] = 8.35%
1,000.00
Average Annual Total Return = -------------------------------------
(2 \/ 1,083.50 / 1,000.00 -1) = 4.09%
<TABLE>
<S> <C> <C> <C>
Where: 2 = number of years
.0409 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$1,083.50 = 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
</TABLE>
