<PAGE> 1
Registration Nos. 33-53532/811-7300
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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. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
(Check appropriate box or boxes.)
SAFECO TAX-EXEMPT BOND TRUST
(Exact Name of Registrant as Specified in Charter)
SAFECO Plaza, Seattle, Washington 98185
(Address of Principal Executive Offices) ZIP Code
Registrant's Telephone Number, including Area Code
(206) 545-5000
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
/x/ immediately upon filing pursuant to paragraph (b)
___ on _________________ pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ on __________________ pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2) ____ on
___ __________________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
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 or about May 30, 1996.
================================================================================
<PAGE> 2
SAFECO TAX-EXEMPT BOND TRUST
Registration Statement on Form N-1A
Cross Reference Sheet
Part A
<TABLE>
<CAPTION>
Item No. Location in Prospectus
-------- ----------------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis Introduction to the Trust and the
Funds; Fund Expenses
Item 3. Condensed Financial Information Financial Highlights; Performance
Information
Item 4. General Description of Registrant The Trust and Each Fund's Investment
Policies; Information about Share
Ownership and Companies that Provide
Services to the Trust
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>
<PAGE> 3
<TABLE>
<CAPTION>
Item No. Location in Prospectus
-------- ----------------------
<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
Part B
<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 Holders of Securities Principal Shareholders
Item 16. Investment Advisory and Other Services Investment Advisory and Other
Services
Item 17. Brokerage Allocation and Other Practices Brokerage Practices
Item 18. Capital Stock and Other Securities Not Applicable
Item 19. Purchase, Redemption and Pricing of Securities Additional Information on
Being Offered Calculation of Net Asset Value Per
Share; Redemption in Kind
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Location in Statement of
Item No. Additional Information
-------- ------------------------
<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.
<PAGE> 5
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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 19, 1996
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.
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 19, 1996, and incorporated herein by
reference, has been filed with the Securities and Exchange Commission and is
available at no charge upon request by calling one of the numbers listed on this
page. The Statement of Additional Information contains more information about
most of the topics in this Prospectus as well as information about the Trustees
and officers of the Trust.
For additional assistance, please call or write:
<TABLE>
<S> <C>
NATIONWIDE: 1-800-624-5711 SAFECO MUTUAL FUNDS
SEATTLE: 206-545-7319 P.O. BOX 34890
TTY/TDD SERVICE: 1-800-438-8718 SEATTLE, WA 98124-1890
</TABLE>
All telephone calls are tape-recorded for your protection.
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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.
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-- 1 --
<PAGE> 6
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST OR SAFECO
SECURITIES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY THE TRUST OR BY SAFECO SECURITIES IN ANY
STATE IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
- -------------------------------------------------------------------------
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.
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.
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.
-- 2 --
<PAGE> 7
- -------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Introduction to the Trust and the Funds 4
Fund Expenses 7
Financial Highlights 8
The Trust and Each Fund's Investment Policies 13
Portfolio Managers 25
Information about Share Ownership and Companies
that Provide Services to the Trust 26
Person Controlling the Intermediate, Insured
and Washington Funds 28
Performance Information 29
Fund Distributions and How They Are Taxed 30
Account Statements 33
Account Changes and Signature Requirements 33
Share Price Calculation 34
How to Purchase Shares 34
How to Redeem Shares 37
How to Systematically Purchase or Redeem Shares 39
How to Exchange Shares from One Fund to Another 39
Telephone Transactions 41
Transactions Through Registered Investment Advisers 42
</TABLE>
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<PAGE> 8
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INTRODUCTION TO THE TRUST
AND THE FUNDS
The Trust is a series investment company that currently issues shares
representing 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.
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<PAGE> 9
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INTRODUCTION TO THE TRUST
AND THE FUNDS (CONTINUED)
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
which 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 will 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 the California Fund and
Washington Fund each concentrates its investments in a single state, these Funds
may be subject to special risks. Investors should carefully consider the
investment risks of such geographic
-- 5 --
<PAGE> 10
- -------------------------------------------------------------------------
INTRODUCTION TO THE TRUST
AND THE FUNDS (CONTINUED)
concentration before purchasing shares of these Funds. See "The Trust and Each
Fund's Investment Policies" beginning on page 13 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 managed over $2 billion in mutual fund
assets as of June 30, 1996. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been 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.
- --Has a minimum initial investment requirement of $1,000. No minimum initial
investment is required for the Automatic Investment Method ("AIM").
-- 6 --
<PAGE> 11
- --------------------------------------------------------------------------------
FUND EXPENSES
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
SALES
LOAD IMPOSED
SALES ON
LOAD IMPOSED REINVESTED DEFERRED REDEMPTION EXCHANGE
ON PURCHASES DIVIDENDS SALES LOAD FEES FEES
------------ ------------ ---------- ---------- --------
<C> <S> <C> <C> <C>
None None None None None
</TABLE>
SAFECO Services Corporation, the transfer agent for the Funds, charges a $10 fee
to wire redemption proceeds.
B. ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT OTHER OPERATING
FUND 12B-1 FEE + FEE + EXPENSES = EXPENSES
- --------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Intermediate None .54% .30% .84%
Insured None .61% .38% .99%
Municipal None .41% .13% .54%
California None .53% .15% .68%
Washington None .64% .43% 1.07%
</TABLE>
The amounts shown are actual expenses paid by shareholders of each Fund for the
fiscal year ended March 31, 1996. See "Information about Share Ownership and
Companies that Provide Services to the Trust" on page 26 for more information.
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment assuming 5% annual
return and redemption at the end of each time period. 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 $104
Insured $10 $32 $55 $121
Municipal $ 6 $17 $30 $ 68
California $ 7 $22 $38 $ 85
Washington $11 $34 $59 $131
</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.
-- 7 --
<PAGE> 12
- ------------------------------------------------------------------------------
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 of SAFECO Intermediate-Term Municipal Bond
Fund which has been 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
(INITIAL
PUBLIC
FOR THE YEAR ENDED MARCH 31, OFFERING) TO
1996 1995 1994 MARCH 31, 1993
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $10.17 $10.13 $10.25 $10.27
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .45 .45 .40 .02
Net realized and
unrealized gain
(loss) on investments .32 .04 (.12) (.02)
----- ----- ----- -------
Total from
investment operations .77 .49 .28 (.00)
----- ----- ----- -------
LESS DISTRIBUTIONS:
Dividends from
net investment income (.45) (.45) (.40) (.02)
Distributions from
capital gains -- -- -- --
----- ----- ----- -------
Total distributions (.45) (.45) (.40) (.02)
----- ----- ----- -------
Net asset value at end of period $10.49 $10.17 $10.13 $10.25
----- ----- ----- -------
----- ----- ----- -------
Total return 7.63% 4.97% 2.64% -.04%*
Net assets at end of period
(000's omitted) $14,981 $13,762 $10,781 $2,345
Ratio of expenses
to average net assets .84% .85% .99% .98%**
Ratio of net investment
income to average net assets 4.29% 4.46% 3.85% 4.25%**
Portfolio turnover rate 9.12% 4.27% 1.49% None
</TABLE>
* Not annualized.
** Annualized.
-- 8 --
<PAGE> 13
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FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
The supplemental financial information and performance data has been derived
from the financial statements of the SAFECO Insured Municipal Bond Fund which
has been 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
(INITIAL
PUBLIC
FOR THE YEAR ENDED MARCH 31, OFFERING) TO
1996 1995 1994 MARCH 31, 1993
--------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $10.05 $9.73 $10.26 $10.32
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .48 .48 .41 .02
Net realized and
unrealized gain (loss) on
investments .41 .32 (.53) (.06)
----- ---- ----- -------
Total from
investment operations .89 .80 (.12) (.04)
----- ---- ----- -------
LESS DISTRIBUTIONS:
Dividends from
net investment income (.48) (.48) (.41) (.02)
Distributions from
capital gains -- -- -- --
----- ---- ----- -------
Total distributions (.48) (.48) (.41) (.02)
----- ---- ----- -------
Net asset value at end of period $10.46 $10.05 $9.73 $10.26
----- ---- ----- -------
----- ---- ----- -------
Total return 8.95% 8.58% -1.40% -.43%*
Net assets at end of period
(000's omitted) $11,758 $8,163 $3,306 $2,106
Ratio of expenses
to average net assets .99% 1.08% 1.41% 1.04%**
Ratio of net investment
income to average net assets 4.53% 5.11% 3.99% 3.88%**
Portfolio turnover rate 3.71% 14.76% 21.19% None
</TABLE>
* Not Annualized.
** Annualized.
-- 9 --
<PAGE> 14
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FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
The supplemental financial information and performance data has been derived
from the audited financial statements of SAFECO Municipal Bond Fund which has
been 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
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $13.36 $13.27 $14.13 $13.37 $12.95 $12.73 $12.92 $12.85 $14.16 $13.74
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income .76 .77 .78 .81 .86 .86 .88 .94 .96 .99
Net realized and
unrealized gain
(loss) on
investments .33 .12 (.55) .94 .48 .26 .25 .36 (.91) .63
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations 1.09 .89 .23 1.75 1.34 1.12 1.13 1.30 .05 1.62
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.76) (.77) (.78) (.81) (.86) (.86) (.88) (.94) (.96) (.99)
Distributions from
capital gains -- (.03) (.31) (.18) (.06) (.04) (.44) (.29) (.40) (.21)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total distributions (.76) (.80) (1.09) (.99) (.92) (.90) (1.32) (1.23) (1.36) (1.20)
---- ---- ---- ---- ---- ---- ---- ---- ---- ---
Net asset value at
end of period $13.69 $13.36 $13.27 $14.13 $13.37 $12.95 $12.73 $12.92 $12.85 $14.16
==== ==== ==== ==== ==== ==== ==== ==== ==== ====
Total return 8.23% 7.10% 1.30% 13.60% 10.57% 9.13% 9.05% 10.49% .93% 12.49%*
Net assets at end
of period
(000's omitted) $480,643 $472,569 $507,453 $541,515 $427,638 $331,647 $286,303 $231,911 $183,642 $214,745
Ratio of expenses to
average net assets .54% .56% .52% .53% .54% .56% .57% .60% .61% .59%
Ratio of net investment
income to average
net assets 5.47% 5.96% 5.49% 5.91% 6.37% 6.68% 6.76% 7.23% 7.42% 7.20%
Portfolio turnover rate 12.60% 26.96% 22.07% 31.66% 25.18% 38.55% 65.80% 135.60% 71.91% 23.09%
</TABLE>
* Unaudited.
-- 10 --
<PAGE> 15
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
The supplemental financial information and performance data has been derived
from the financial statements of SAFECO California Tax-Free Income Fund which
has been 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
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $11.54 $11.51 $12.23 $11.60 $11.24 $11.07 $11.02 $10.72 $12.14 $11.68
INCOME FROM INVESTMENT
OPERATIONS:
Net investment
income .62 .63 .66 .68 .71 .71 .72 .75 .76 .80
Net realized and
unrealized gain
(loss) on
investments .40 .13 (.38) .76 .44 .23 .23 .30 (.99) .57
---- ---- ---- ----- ----- ---- ---- ----- ----- ----
Total from investment
operations 1.02 .76 .28 1.44 1.15 .94 .95 1.05 (.23) 1.37
---- ---- ---- ----- ----- ---- ---- ----- ----- ----
LESS DISTRIBUTIONS:
Dividends from net
investment income (.62) (.63) (.66) (.68) (.71) (.71) (.72) (.75) (.76) (.80)
Distributions from
capital gains (.08) (.10) (.34) (.13) (.08) (.06) (.18) -- (.43)** (.11)
---- ---- ---- ----- ----- ---- ---- ----- ----- ----
Total distributions (.70) (.73) (1.00) (.81) (.79) (.77) (.90) (.75) (1.19) (.91)
---- ---- ---- ----- ----- ---- ---- ----- ----- ----
Net asset value at
end of period $11.86 $11.54 $11.51 $12.23 $11.60 $11.24 $11.07 $11.02 $10.72 $12.14
==== ==== ==== ===== ===== ==== ==== ===== ===== ====
Total return 8.87% 7.01% 1.97% 12.88% 10.43% 8.78% 8.87% 10.09% -1.39% 12.25%*
Net assets at end
of period
(000's omitted) $70,546 $64,058 $77,056 $79,872 $71,480 $57,066 $47,867 $36,930 $28,790 $34,792
Ratio of expenses to
average net assets .68% .70% .68% .66% .67% .67% .68% .71% .72% .70%
Ratio of net
investment income
to average net
assets 5.12% 5.65% 5.31% 5.71% 6.13% 6.32% 6.42% 6.86% 6.99% 6.71%
Portfolio turnover
rate 16.25% 44.10% 32.58% 23.18% 39.35% 22.92% 71.37% 76.95% 66.72% 44.61%
</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.
-- 11 --
<PAGE> 16
- ------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
The supplemental financial information and performance data has been derived
from the financial statements of the SAFECO
Washington State Municipal Bond Fund which has been 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
(INITIAL
PUBLIC
FOR THE YEAR ENDED MARCH 31, OFFERING) TO
1996 1995 1994 MARCH 31, 1993
--------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at
beginning of period $10.10 $9.91 $10.27 $10.32
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income .50 .49 .44 .02
Net realized and
unrealized gain (loss) on investments .27 .19 (.35) (.05)
---- ---- ---- -------
Total from
investment operations .77 .68 .09 (.03)
---- ---- ---- -------
LESS DISTRIBUTIONS:
Dividends from
net investment income (.50) (.49) (.44) (.02)
Distributions from
capital gains (.03) -- (.01) --
---- ---- ---- -------
Total distributions (.53) (.49) (.45) (.02)
---- ---- ---- -------
Net asset value at end of period $10.34 $10.10 $9.91 $10.27
---- ---- ---- -------
---- ---- ---- -------
Total return 7.73% 7.13% .68% -.31%*
Net assets at end of period
(000's omitted) $6,489 $5,953 $2,908 $2,163
Ratio of expenses
to average net assets 1.07% 1.09% 1.44% 1.04%**
Ratio of net investment
income to average
net assets 4.78% 5.06% 4.17% 4.47%**
Portfolio turnover rate 20.86% 9.23% 17.26% None
</TABLE>
* Not annualized.
** Annualized.
-- 12 --
<PAGE> 17
- -------------------------------------------------------------------------
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 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 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
provide 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 provide 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 provide as high a
level of current interest income exempt from federal income tax and California
-- 13 --
<PAGE> 18
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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
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
-- 14 --
<PAGE> 19
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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
-- 15 --
<PAGE> 20
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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
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.
-- 16 --
<PAGE> 21
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
- - 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
-- 17 --
<PAGE> 22
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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
invest only in those 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 or local governments that entitle the holder of
the certificate to a proportionate interest in the lease purchase payments
made. A Fund will invest only in those COPs 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 five 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
-- 18 --
<PAGE> 23
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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 canceled 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
canceled 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.
-- 19 --
<PAGE> 24
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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 portfolio insurance policies will be an Insured Fund expense. Such
an expense may reduce the Insured Fund's current yield. The Insured Fund will
purchase insurance policies only 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 be purchased only 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
-- 20 --
<PAGE> 25
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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.
-- 21 --
<PAGE> 26
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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 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 "Overview of Investment 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
-- 22 --
<PAGE> 27
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (Continued)
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
After suffering through a severe recession, California's economy has been on a
steady recovery since the start of 1994. Nevertheless, the State's budget
problems in recent years have also been caused by the increasing costs of
education, health, welfare and corrections, driven by California's rapid
population growth. These pressures on the State's General Fund are expected to
continue. The State's long-term credit ratings,
-- 23 --
<PAGE> 28
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (CONTINUED)
reduced in 1992, were lowered again in 1994 and have not been fully restored.
Its 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.
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.
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 25% of total manufacturing in
1995. 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. Boeing anticipates increasing employment in the State by
approximately 4,500 jobs by the end of 1996. The commercial airline industry is
cyclical in nature and future job cuts could 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.
-- 24 --
<PAGE> 29
- -------------------------------------------------------------------------
THE TRUST AND EACH FUND'S
INVESTMENT POLICIES (CONTINUED)
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 MANAGERS
The portfolio manager for the Municipal Bond, California Tax-Free Income and
Insured Municipal Bond Funds 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 Insured Fund. Mr. Bauer is the portfolio
manager for certain other SAFECO municipal bond funds, and also serves as
President and a Director of SAM.
The portfolio manager for the Intermediate-Term Municipal Bond Fund is Mary
Metastasio, Vice President, SAFECO Asset Management Company ("SAM"). Ms.
Metastasio has served in various positions with SAM since 1985, and has been the
portfolio manager for another SAFECO Mutual Fund since 1987.
The portfolio manager for the Washington State Municipal Bond Fund is Beverly
Denny. Ms. Denny was the Marketing Director for the SAFECO Mutual Funds from
1991 to 1993, and has been employed as an investment analyst with SAFECO Asset
Management Company since 1993.
-- 25 --
<PAGE> 30
- -------------------------------------------------------------------------
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
-- 26 --
<PAGE> 31
- -------------------------------------------------------------------------
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUST (CONTINUED)
the break points and applies only to the assets that fall within the specified
range:
INTERMEDIATE FUNDS
<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, 1996, the ratios of expenses to average net
assets for the Municipal, California, Intermediate, Insured and Washington Funds
were .54%, .68%, .84%, .99% and 1.07%, 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 .41%, .53%, .54%, .61% and .64%,
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
-- 27 --
<PAGE> 32
- -------------------------------------------------------------------------
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUST (CONTINUED)
Dealers, Inc. SAFECO Securities receives no compensation from the Trust or the
Funds for its services.
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 each Fund
for every shareholder account held in the Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by
SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.
SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
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, 1996, 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.
-- 28 --
<PAGE> 33
- -------------------------------------------------------------------------
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.
-- 29 --
<PAGE> 34
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FUND DISTRIBUTIONS 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. An election to receive cash will remain 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.
-- 30 --
<PAGE> 35
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FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (Continued)
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 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 will 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 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.
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<PAGE> 36
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FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)
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
-- 32 --
<PAGE> 37
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FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (Continued)
particular investor. You therefore are urged to consult your tax adviser.
ACCOUNT STATEMENTS
Periodically, you will receive an account statement showing your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS
Changes to your account registration or the services you have selected must be
in writing and signed by the persons specified on your account application as
having authority to make 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 to take such
actions has important implications. For example, one owner of a joint tenant
account could 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.
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<PAGE> 38
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ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS (Continued)
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
-- 34 --
<PAGE> 39
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HOW TO PURCHASE SHARES (Continued)
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.
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
-- 35 --
<PAGE> 40
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HOW TO PURCHASE SHARES (CONTINUED)
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 41 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 42 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
-- 36 --
<PAGE> 41
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HOW TO PURCHASE SHARES (CONTINUED)
your bank account. See "Share Price Calculation" on page 34 for more
information.
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 33 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 41 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 42 for
important information.
-- 37 --
<PAGE> 42
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HOW TO REDEEM SHARES (Continued)
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 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
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<PAGE> 43
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HOW TO REDEEM SHARES (Continued)
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, in Seattle, 206-545-5530 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
-- 39 --
<PAGE> 44
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HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)
reside. Before exchanging into a SAFECO Fund, please read its current
Prospectus.
BY WRITTEN REQUEST
Shares may be exchanged by writing SAFECO Services at the address on the
Prospectus cover. Please designate the SAFECO Funds you wish to exchange out of
and into as well as your account number. The request must be signed by the
number of owners designated on your account application, and in some cases a
signature guarantee may be required. See "Account Changes and Signature
Requirements" on page 33 for more information.
If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319.
Exchanges by telephone must be in amounts of $1,000 or more. Telephone exchanges
are not available for shares issued in certificate form. Please read "Telephone
Transactions" on page 41 for important information.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 42 for
important information.
LIMITATIONS
The exchange privilege is not intended to provide a means for frequent trading
in response to short-term fluctuations in the market. Excessive exchange
transactions can be disadvanta-
-- 40 --
<PAGE> 45
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HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)
geous to other shareholders and the Funds. Exchanges out of a Fund are therefore
limited to four per calendar year.
In addition, each Fund reserves the right to refuse exchange purchases by any
person or group if, in SAM's judgment, the Fund would be unable to invest the
money effectively in accordance with that Fund's investment objectives and
policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the restrictions described in the above paragraph
at any time.
SHARE EXCHANGE PRICE AND PROCESSING
The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received. Normally the
purchase of the SAFECO Fund you are exchanging into is executed on the same day.
However, each Fund reserves the right to delay the payment of proceeds and,
hence, the purchase in an exchange for up to seven days if making immediate
payment could adversely affect the portfolio of the Fund whose shares are
redeemed. The exchange privilege may be modified or terminated with respect to a
Fund at any time upon at least 60 days' notice to shareholders.
TELEPHONE TRANSACTIONS
To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 206-545-7319 between 5:30 a.m. and 7:00 p.m. Pacific time, Monday
through Friday, except certain holidays. All telephone calls are tape-recorded
for your protection. During times of drastic or unusual market volatility, it
may be difficult for you to exercise the telephone transaction privilege.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
-- 41 --
<PAGE> 46
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TELEPHONE TRANSACTIONS (CONTINUED)
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone allows
the Funds and SAFECO Services to accept telephone instructions from an account
owner or a person preauthorized in writing by an account owner.
Each Fund and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services, in its sole discretion, is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.
The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will follow certain procedures designed to
make sure that telephone instructions are genuine. These procedures may include
requiring the account owner to select the telephone privilege 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 privilege may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services.
TRANSACTIONS THROUGH REGISTERED
INVESTMENT ADVISERS
SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the adviser is registered under the Investment
Advisers Act of 1940, has a signed agreement with SAFECO Services and has an
executed power of attorney from the shareholder, in an acceptable form, on file
with SAFECO Services. Advisers may charge a fee to
-- 42 --
<PAGE> 47
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TRANSACTIONS THROUGH REGISTERED
INVESTMENT ADVISERS (CONTINUED)
shareholders for their services. The Trust, the Funds and SAFECO Services have
no control over, or involvement with, the fees charged by advisers for such
services. Advisers are responsible for the prompt forwarding of instructions on
shareholders' accounts to SAFECO Services and are bound by the terms of this
Prospectus. The 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).
-- 43 --
<PAGE> 48
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SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME WITH LONG-TERM GROWTH
SAFECO Income Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
FEES AND EXPENSES, CALL OR WRITE FOR A FREE PROSPECTUS. PLEASE READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
-- 44 --
<PAGE> 49
TO REQUEST A PROSPECTUS:
NATIONWIDE: 1-800-426-6730
SEATTLE: 206-545-5530
FOR 24-HOUR
PERFORMANCE FIGURES:
NATIONWIDE: 1-800-835-4391
SEATTLE: 206-545-5113
FOR ACCOUNT INFORMATION
OR TELEPHONE TRANSACTIONS:
NATIONWIDE: 1-800-624-5711
SEATTLE: 206-545-7319
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 NE
SEATTLE, WASHINGTON 98105
INTERNET ADDRESS:
http:\\networth.galt.com\safeco
SAFECO SECURITIES, INC.
DISTRIBUTOR
<PAGE> 50
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 19, 1996.
The date of this Statement of Additional Information is July 19, 1996.
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TABLE OF CONTENTS
Overview of Investment
Policies
Investment Objectives and Policies
Additional Investment Information
Investment Risks of Concentration
in California and Washington
Issuers
Additional Tax Information
Additional Information On
Calculation of Net Asset Value
Per Share
Additional Performance Information
Trustees and Officers
Principal Shareholders
Investment Advisory and Other
Services
Brokerage Practices
Redemption in Kind
Financial Statements
Description of Ratings
<PAGE> 51
INVESTMENT OBJECTIVES AND POLICIES
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.
2
<PAGE> 52
FUNDAMENTAL INVESTMENT POLICIES
The Intermediate, Insured and Washington Funds have adopted the following
fundamental policies. Each Fund will not:
1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if as a result more than 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;
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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:
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
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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;
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;
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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
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.
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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.
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
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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 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 area, to the
tax rolls of redevelopment projects. These reimbursements are adjusted for
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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.
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.
The imposition of taxes by local agencies is further limited by the provisions
of an initiative statute ("Proposition 62") approved by the voters on November
4, 1986. The statute (i) requires that any tax for general governmental purposes
imposed by local government entities be approved by resolution or ordinance
adopted by two-thirds vote of the governmental entity's legislative body and by
a majority vote of the electorate of the governmental entity, (ii) requires that
any special tax (defined as a tax levied for other than general governmental
purposes) imposed by a local governmental entity be approved by a two-thirds
vote of the voters within that jurisdiction, (iii) restricts the use of revenues
from a special tax to the purposes or for the service for which the special tax
was imposed, (iv) prohibits the imposition of ad valorem taxes on real property
by local governmental entities except as permitted by Article XIII A, (v)
prohibits the imposition of transaction taxes and sales taxes on the sale of
real property by local governmental entities and (vi) requires that any tax
imposed by a local governmental entity on or after May 1, 1985 be ratified by a
majority vote of the electorate within two years of the adoption of the
initiative or be terminated by November 15, 1988.
Subsequent decisions of California Courts of Appeal held that all or portions of
the provisions of Proposition 62, including those requiring the submission of
general fund tax measures to the electorate, are unconstitutional. However, on
September 28, 1995, in the case of Santa Clara County Local Transportation
Authority V. Guardino, the California Supreme Court upheld the constitutionality
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of Proposition 62. As a result, the annual revenues of any local government or
district as shown in the general fund budget must be reduced in any year to the
extent that they rely on the proceeds of any general tax which has not been
approved by majority vote of the electorate. Senate Bill No. 1590 has been
introduced in the California Legislature in an effort to clarify whether the
general tax voter approval requirement is applicable to any tax that was imposed
or increased by an ordinance or resolution adopted prior to December 14, 1995.
If adopted, Senate Bill No. 1590 will apply the Guardino decision prospectively
only.
An initiative petition called the "Right to Vote on Taxes Act" is expected to
qualify for the November 5, 1996 general election ballot. If this measure
receives the requisite number of signatures for inclusion on the ballot and if
it is approved by majority vote of the electorate, it will add Articles XIII C
and XIII D to the State Constitution. The measure requires that general tax
increases by all local government entities be approved by not less than a
majority vote and that taxes for special purposes be approved by a two-thirds
vote; provides that existing language in the California Constitution shall not
be construed to limit the initiative power with respect to reducing or repealing
any local tax, assessment, fee or charge; prescribes procedures applicable to
all assessments and requires that all assessments be approved by property
owners; prohibits property related fees and charges from exceeding costs of the
service being provided; imposes procedural requirements, including notice and
public hearing, prior to imposition of new or increased fees or charges on
property; and requires that, except for fees for sewer, water and refuse
collection, fees be approved by a majority vote of the fee payers.
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 fiscal years 1992-93, 1993-94 and 1994-95.
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.
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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 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 recently issued general obligation bonds in March,
1996. The related Official Statement for that bond issue disclosed that the
recent 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 and has had to use a series of external borrowings to
meet its cash needs.
The Governor's budget proposal for 1996-97 released January 10, 1996, projects
General Fund revenues and transfers in the 1995-96 fiscal year of $45 billion
(an increase of approximately $900 million over the projection contained in the
original 1995-96 Budget Act) and expenditures of $44.2 billion (an increase of
approximately $800 million over the amount shown in the original 1995-96 Budget
Act). The Governor's Budget for 1996-97 estimates General Fund revenues and
transfers of about $45.6 billion, which would leave a balance of approximately
$400 million in the budget reserve, the Special Fund for Economic Uncertainties,
at June 30, 1997.
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 Standard & Poor's Ratings Group from
"AAA" to "Ai" and by Moody's Investors Service from "Aaa" to "Aa" and by Fitch
Investors Service, Inc. 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," "A1" and "A", respectively. More recently, however, Fitch Investors
Service, Inc. raised its rating from "A" to "Ai." It is not possible to predict
the future course of the State's credit ratings.
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 200 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 23% of their initial
deposits of approximately $7.5 billion. Many of the entities which deposited
moneys in the funds, including the County, faced interim or extended cash flow
difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. Orange County has embarked on a fiscal recovery
plan based on sharp reductions in services and personnel, and rescheduling of
outstanding short-term debt using certain new revenues transferred to Orange
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County from other local governments pursuant to special legislation approved by
the bankruptcy judge on May 15, 1996. The State has no existing obligation with
respect to any outstanding obligations or securities of Orange County or any of
the other participating entities.
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 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%. The State's population
increased at an average annual rate of approximately 2.5% from 1990 to 1993,
and at an average annual rate of approximately 1.8% from 1993-1995.
The State's largest city, Seattle, is part of an 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 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. The rate of economic growth as measured by
employment in the State was 2.0% in 1992, 1.3% in 1993, 2.3% in
1994, 2.1% in 1995, and 2.2% in 1996.
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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 of the property. Excess levies are subject to
voter approval. For the fiscal year ending June 30, 1995, approximately 78.5% 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 16.6% and the motor vehicle fuel tax represented approximately
7.0% of total State taxes for the year. Ad valorem taxes represented 10.8% of
State revenues for the fiscal year 1995.
Expenditures of State revenues are made in accordance with constitutional and
statutory mandates.
STATE EXPENDITURE LIMITATIONS
Initiative 601, which was passed by the voters in November 1993, limits
increases in General Fund-State government expenditures to the average rate of
population and inflation growth, 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. The growth factor
is 5.13% for fiscal year 1996 and 4.47% for fiscal year 1997. The 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. Ending balances in the
Budget Stabilization Account were transferred to the State General Fund ($100
million) and the Pension Reserve Account ($25 million). The Initiative also
places restrictions on the addition or transfer of functions to local government
unless there is reimbursement by the State.
The Initiative's requirement for voter approval for new tax measures has
expired. Effective July 1, 1995, taxes can be enacted with a two-thirds majority
of both houses of the State Legislature if resulting General Fund-State
expenditures do not exceed the spending limit. Voter approval is still required
to exceed the spending limit. Thus far, the initiative has not had a
restrictive impact on the State's budget. However, the State expects its
expenditures to be constrained by the initiative beginning in the 1997-99
Biennium.
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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 payment of
bond 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.
For the 1995-97 Biennium, General Fund-State revenues are projected to be
$17.395 billion, an increase of 4.5% over the 1993-95 Biennium, plus a
carry-forward of $559 million. The revenue outlook for the 1995-97 Biennium is
stable and the General Fund is projected to end the Biennium with a $341
million fund balance.
The State Legislature passed a 1993-95 Biennium Budget on May 6, 1993, and the
Governor signed the budget bill on May 28, 1993. The 1993-95 Biennium Budget
contained $650 million in general tax increases, $163 million in other
revenues, $700 million in program and administrative reductions, and $622
million in fund shifts (such as to federal funding sources). The 1994
Supplemental Budget passed the State Legislature on March 14, 1994, and the
Governor signed the Supplemental Budget bill on April 6, 1994. The 1994
Supplemental Budget included $48 million in tax cuts, and $11 million revenue
increase from a variety of sources and $168 million in additional expenditures,
many of which represented one time investments.
The 1995 Supplemental Budget passed the State Legislature on May 1, 1995 and
was signed by Governor Lowry on May 9, 1995. The 1995 Supplemental Budget made
adjustments to expenditure authority for State agencies for the last quarter of
the Biennium. These budget adjustments reflected the most recent enrollment and
caseload estimates and addressed significant unexpected expenses, including
extraordinary costs of $47 million incurred in one of the worst forest fire
years since 1970. The 1995 Legislature also appropriated $110 million from the
General Fund to provide school construction funding in the K-12 system.
Overall, the 1995 Supplemental Budget expenditure adjustments and other 1993-95
appropriation bills in the 1995 Legislative session increased expenditures by
$114.5 million.
During the 1995 legislative session, Governor Lowry vetoed two bills that would
have cut taxes: House Bill 1997, an ongoing property tax bill that would cost
$92 million in the 1995-97 budget period and House bill 1023, which would roll
back business and occupation taxes, along with several other taxes, by $176.3
million in the 1995-97 Biennium.
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
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<PAGE> 64
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. After adjusting for
inflation, growth in personal income in the State increased 3.7% in 1995 over
the 1994 level.
The State's economic base includes manufacturing and service industries as well
as agricultural and timber production. During 1990-1995, the State experienced
growth in non-manufacturing industries and a decline in manufacturing
industries. The rate of employment growth, which exceeded 4.5% during the
mid-to-late 1980's, has declined since 1991 to an average rate of 1.4%. The 1996
employment growth is expected to be 1.46%. Growth in employment in the durable
and non-durable goods manufacturing, services and government sectors have
exceeded comparable figures for the U.S.
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
April 1996 employed approximately 74,000 people state-wide, primarily at several
locations in the area. Boeing anticipates bringing total employment in the State
to approximately 78,500 by the end of 1996. 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 Information and
Support Services. In 1994, Boeing had $19.5 billion in sales and net earnings
of $393 million, and a backlog of orders totaling $72.3 billion. Boeing
currently anticipates 1996 sales to be in the $22 billion range.
Boeing recently completed two and is currently undertaking one major expansion
project. The company recently acquired a 212-acre site in Renton (King County),
which is the site of the former Longacres Race Track. The site will be used as
a location for the development of an office complex, the first building of
which will be a 500,000 square-foot customer service training center. In
Everett (Snohomish County), Boeing completed construction of a 5.6 million
square-foot assembly plant for the new 777 jetliner. In 1993 Boeing completed a
$400 million skin and spar plant and a composite manufacturing center on 500
acres in Puyallup (Pierce County).
A total of 206 commercial jet transports were delivered in 1995, compared with
270 for 1994. Defense and space sales of $5.6 billion were approximately 10%
higher than in 1994. The 10-week strike by the International Association of
Machinist and Aerospace Workers (IAM) resulted in the delay of approximately 30
commercial jet transport deliveries during the fourth quarter. During the first
quarter of 1996, deliveries for all models were limited by the recovery from
the strike. A total of 40 commercial jet transports were delivered, compared
with 59 in the first quarter of 1995.
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<PAGE> 65
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 increased steadily from 1980 to 1990. However
since 1991 recessionary influences have resulted in a production decline. A
slight decline is anticipated for 1996 and for the next few years, due to
federally imposed limitations on the harvest of old growth timber and the
inability to maintain the previous record levels of production increases.
Although a continued decline in employment is anticipated in certain regions,
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 5.2% of the State's wage and salary employment
in 1995. Projections for 1996 show this segment holding steady at 5.2% of
employment.
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.
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<PAGE> 66
Growth in retail sales in the State between 1990 and 1992 was higher than that
in the United States. During 1993 through 1995, the rate of growth for retail
sales was lower for the State than for the United States. The State is home to
a number of specialty retail companies that have reached national stature,
including Nordstrom, Eddie Bauer, Costco and Recreational Equipment Inc. (REI).
Services/Tourism. The highest employment growth since 1981 has taken place in
the services sector, although rate of growth has shown small relatively but
consistent decline since 1990 from 7% to 4.3% forecast for 1995. 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,
showed a modest increase in 1994 and leveled again in 1995. 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 1990, but at a declining rate. State and local government employment has
increased at a faster pace than employment by the federal government, and is
projected to add new jobs through 1996.
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.
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
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<PAGE> 67
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.
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
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<PAGE> 68
value of those assets.
ADDITIONAL PERFORMANCE INFORMATION
The yield and tax-equivalent yield for the 30-day period ending March 31, 1996
at the maximum federal tax rate of 39.6% for the Municipal, Intermediate,
Insured and Washington Funds are 5.06% and 8.38%; 4.00% and 6.62%; 4.32% and
7.15%; and 4.62% and 7.65%, respectively, and at the maximum combined federal
and California tax rates of 46.2% for the California Fund, are 5.04% and 9.37%,
respectively.
Yield is computed using the following formula:
a-b
Yield = 2[( ---- +1)to the 6th power -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
Tax-equivalent yield is computed using the following formula:
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
The total returns for the Municipal Fund for the one-year, five-year and
ten-year periods ending March 31, 1996 are 8.23%, 47.47% and 120.16%,
respectively.
The average annual total returns for the Municipal Fund for the one-year,
five-year and ten-year periods ending March 31, 1996 are 8.23%, 8.08% and 8.21%,
respectively.
The total returns for the California Fund for the one-year, five-year and ten
year periods ending March 31, 1996 are 8.87%, 48.09% and 113.72%, respectively.
The average annual total returns for the California Fund for the one-year,
five-year and ten year periods ending March 31, 1996 are 8.87%, 8.17% and 7.89%,
respectively.
The total returns for the Intermediate, Insured and Washington Funds for the one
year period ended March 31, 1996 and the period from inception to such date
are 7.63% and 15.96%; 8.95% and 16.64%; and 7.73% and 16.20%, respectively.
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<PAGE> 69
The average annual total returns for the Intermediate, Insured and Washington
Funds for the one year period ended March 31, 1996 and the period from inception
to such date are 7.63% and 5.06%; 8.95% and 5.26%; and 7.73% and 5.13%,
respectively.
The total return is computed using the following formula:
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
The average annual total return is computed using the following formula:
A = (the square root of 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
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).
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<PAGE> 70
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.
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<PAGE> 71
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name, Address and Age With the Trust During Past 5 Years
- --------------------- -------------- -------------------
<S> <C> <C>
Boh A. Dickey* Chairman Executive Vice President, Chief
SAFECO Plaza and Trustee Financial Officer and Director of
Seattle, Washington 98185 SAFECO Corporation. He has been an
(51) executive officer of SAFECO
Corporation subsidiaries since
1982. See table under "Investment
Advisory and Other Services."
Barbara J. Dingfield Trustee Manager, Corporate Contributions
Microsoft Corporation and Community Programs for
One Microsoft Way Microsoft Corporation, Redmond,
Redmond, Washington 98052 Washington, a computer software
(50) company; Director and former
Executive Vice President, Wright,
Runstad & Co., Seattle, Washington,
a real estate development company;
Director of First SAFECO National
Life Insurance Company of New York.
Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and other
Seattle, Washington 98177 SAFECO Trusts; retired Senior Vice
(67) President and Treasurer of SAFECO
Corporation; former President of
SAFECO Asset Management Company.
Richard E. Lundgren Trustee Director of Marketing and Customer
764 S. 293rd Street Relations, Building Materials
Federal Way, Washington 98032 Distribution, Weyerhaeuser Company,
(58) Tacoma, Washington; Director of
First SAFECO Insurance Company of
New York.
Larry L. Pinnt Trustee Retired Vice President and Chief
1600 Bell Plaza Financial Officer, U.S. WEST
Room 1802 Communications, Seattle,
Seattle, Washington 98191 Washington; Director of Key Bank of
(61) Washington, Seattle, Washington;
Director of University of
Washington Medical Center, Seattle,
Washington; Director of Cascade
Natural Gas Corporation, Seattle,
Washington; Director of First
SAFECO National Life Insurance
Company of New York.
</TABLE>
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<PAGE> 72
<TABLE>
<S> <C> <C>
John W. Schneider Trustee President of Wallingford Group,
1808 N 41st Street Inc., Seattle, Washington;
Seattle, Washington 98103 former President of Coast Hotels,
(54) 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
(47) President of SAFECO Asset
Management Company. See table under
"Investment Advisory and Other
Services."
Neal A. Fuller Vice President Vice President, Controller, Treasurer
SAFECO Plaza Controller and Assistant Secretary of SAFECO
Seattle, Washington Assistant Securities, Inc. and SAFECO
98185 Secretary Services Corporation; Vice
(34) President, Controller, Secretary
and Treasurer of SAFECO Asset
Management Company; See table under
"Investment Advisory and Other
Services."
Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice President
Seattle, Washington 98185 and Treasurer of SAFECO
(52) Corporation; Vice President of
SAFECO Life Insurance Company;
former Senior Portfolio Manager of
SAFECO Insurance Companies; former
Portfolio Manager for several
SAFECO mutual funds. See table
under "Investment Advisory and
Other Services."
</TABLE>
* Trustees who are interested persons as defined by the Investment Company Act
of 1940.
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<PAGE> 73
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED
MARCH 31, 1996
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from
Benefits Estimated Registrant and
Aggregate Accrued As Annual Fund Complex
Compensation Part of Fund Benefits Upon Paid to
Trustee from Registrant Expenses Retirement Trustees
------- --------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Barbara J.
Dingfield $4,547 N/A N/A $24,813
Richard E.
Lundgren $4,547 N/A N/A $24,813
L.D. McClean $4,547 N/A N/A $24,813
Larry L. Pinnt $4,547 N/A N/A $24,813
John W.
Schneider $4,547 N/A N/A $24,813
Boh A. Dickey $ 0 $ 0
Richard W.
Hubbard $4,547 N/A N/A $23,000
</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-six series
companies managed by SAM.
At June 30, 1996, the Trustees and officers of the Trust as a group owned less
than 1% of the outstanding shares of each Fund.
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<PAGE> 74
PRINCIPAL SHAREHOLDERS
As of June 30, 1996 SAFECO Insurance Company of America ("SAFECO"), a
Washington corporation, SAFECO Plaza, Seattle, Washington 98185, owned 29.19%,
51.78% and 79.62% 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.
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
Vice Director President
President Secretary Secretary
Director 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
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.
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<PAGE> 75
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 certain expenses.
For the services and facilities furnished by SAM, each Fund has agreed to pay an
annual fee computed on the basis of the average market value of the net assets
of each Fund ascertained each business day and paid monthly in accordance with
the following schedules. The reduction in fees occurs only at such time as the
respective Fund's net assets reach the dollar amounts of the break points and
applies only to those assets that fall within the specified range:
<TABLE>
<CAPTION>
NET ASSETS FEE
INTERMEDIATE FUND
<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%
<CAPTION>
INSURED AND WASHINGTON FUNDS
<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%
<CAPTION>
MUNICIPAL AND CALIFORNIA FUNDS
<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>
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 for each Fund:
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<PAGE> 76
<TABLE>
<CAPTION>
Years Ended
March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Municipal Fund $2,020,685 $2,010,754 $2,248,615
California Fund $ 365,684 $ 364,000 $ 455,505
Intermediate Fund $ 78,437 $ 66,542 $ 36,890
Insured Fund $ 56,850 $ 38,165 $ 21,582
Washington Fund $ 39,038 $ 31,475 $ 18,350
</TABLE>
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 provides, or through
subcontracts makes provision for, all required transfer agent activity,
including maintenance of records of each Fund's shareholders, records of
transactions involving each Fund's shares, and the compilation, distribution, or
reinvestment of income dividends or capital gains distributions. SAFECO Services
is paid a fee for these services equal to $32.00 per shareholder account, but
not to exceed .30% of each Fund's average net assets. The following table shows
the fees paid by each Fund to SAFECO Services during the past three fiscal years
or periods:
<TABLE>
<CAPTION>
Years Ended*
March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Municipal Fund $511,005 $531,978 $557,561
California Fund $ 68,839 $ 68,840 $ 66,667
Intermediate Fund $ 16,947 $ 17,330 $ 11,109
Insured Fund $ 9,480 $ 5,164 $ 3,617
Washington Fund $ 2,842 $ 3,219 $ 2,801
</TABLE>
*Table reflects fees of $3.10 per shareholder transaction payable pursuant to
the prior fee schedule.
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,
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<PAGE> 77
(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 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, 1996:
Portfolios of Investments as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the Year Ended March 31, 1996
Statement of Changes in Net Assets for the Years Ended March 31, 1996 and
March 31, 1995
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
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<PAGE> 78
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.
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.
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<PAGE> 79
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.
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 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.
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<PAGE> 80
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 (i) 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.
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<PAGE> 81
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
INTERNET ADDRESS:
http://networth.galt.com/safeco
SAFECO Securities, Inc.
Distributor
MEMBER OF
- ----------------------
100% NO-LOAD(TM) Printed on Recycled Paper [RECYCLE LOGO]
MUTUAL FUND
COUNCIL (R) Registered trademark of SAFECO Corporation.
- ----------------------
GMF 695 7/96
<PAGE> 82
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, 1996 and the report thereon of Ernst & Young
LLP, independent auditors, are incorporated in the Statement of
Additional Information by reference to pages 14-50 of Registrant's Annual
Report filed with the SEC on or about May 30, 1996:
Portfolio of Investments as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the Year Ended March 31, 1996
Statement of Changes in Net Assets for the Years Ended March 31,
1996 and March 31, 1995
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
(1) Trust Instrument/Certificate of Trust *
(2) Bylaws *
(3) Inapplicable
(4) Stock Certificate *
(5) Investment Advisory and Management Contract *
(6) Distribution Agreement *
(7) Inapplicable
(8) Custody Agreement *
(9) Transfer Agent Agreement *
(99.9a) Amended Exhibit B to Transfer Agent Agreement
(10) Opinion of Counsel *
(99.11) Consent of Independent Auditors
(99.12) Registrant's Annual Report for the Year Ended
March 31, 1996 including Financial Statements +
</TABLE>
1
<PAGE> 83
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------ ----------------------- ----
<S> <C> <C>
(13) Subscription Agreement *
(14) Inapplicable
(15) Inapplicable
(99.16) Calculation of Performance Information
(18) Inapplicable
</TABLE>
+ The Registrant's Annual Report was filed with the SEC on or about May 30,
1996.
* 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 seven mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO Income
Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO Balanced
Fund and SAFECO Small Company Stock Fund. The SAFECO Taxable Bond Trust consists
of three mutual funds: SAFECO Intermediate-Term U.S. Treasury Fund, SAFECO GNMA
Fund and SAFECO High-Yield Bond Fund. The SAFECO Tax- Exempt Bond Trust consists
of five mutual funds: SAFECO Intermediate-Term Municipal Bond Fund, SAFECO
Insured Municipal Bond Fund, SAFECO Municipal Bond Fund, SAFECO California
Tax-Free Income Fund and SAFECO Washington State Municipal Bond Fund. The SAFECO
Advisor Series Trust consists of eight mutual funds: Advisor Equity Fund,
Advisor Northwest Fund, Advisor Intermediate-Term Treasury Fund, Advisor GNMA
Fund, Advisor U.S. Government Fund, Advisor Municipal Bond Fund, Advisor
Intermediate-Term Municipal Bond Fund and Advisor Washington Municipal Bond
Fund. The SAFECO Money Market Fund consists of two mutual funds: SAFECO Money
Market Fund and SAFECO Tax-Free Money Market Fund. The SAFECO Institutional
Series Trust consists of one mutual fund: Fixed-Income Portfolio. The SAFECO
Resource Series Trust consists of five mutual funds: Equity Portfolio, Growth
Portfolio, Northwest Portfolio, Bond Portfolio and Money Market Portfolio.
SAFECO Corporation, a Washington corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, and SAFECO Insurance Company of Illinois, an Illinois corporation.
SAFECO Corporation owns 20% of Agena, Inc., a Washington corporation. SAFECO
Insurance Company of America owns 100% SAFECO Surplus Lines Insurance Company,
2
<PAGE> 84
a Washington corporation, and Market Square Holding, Inc., a Minnesota
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, Talbot Financial Corporation, a Washington
corporation and SAFECO Select Insurance Services, Inc., a California
corporation. F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance
Services, Inc., a California corporation. General America Corp. of Texas is
Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas corporation.
Talbot Financial Corporation owns 100% of Talbot Agency, Inc., a New Mexico
corporation. Talbot Agency, Inc. owns 100% of PNMR Securities, Inc., a
Washington corporation. SAFECO Properties Inc. owns 100% of the following, each
a Washington corporation: RIA Development, Inc., SAFECARE Company, Inc. and
Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each a
Washington corporation: S.C. Bellevue, Inc., S.C. Everett, Inc., S.C.
Marysville, Inc., S.C. Simi Valley, Inc. and S.C. Vancouver, Inc. SAFECARE
Company, Inc. owns 50% of Lifeguard Ventures, Inc., a California corporation,
50% of Mission Oaks Hospital, Inc., a California corporation, S.C. River Oaks,
Inc., a Washington corporation, Mississippi Health Services, Inc., a Louisiana
corporation, and Safecare Texas, Inc., a Texas corporation. S.C. Simi Valley,
Inc. owns 100% of Simi Valley Hospital, Inc., a Washington corporation. Winmar
Company, Inc. owns 100% of the following: Barton Street Corp., C-W Properties,
Inc., 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, 1996, Registrant had 372, 321, 11,040, 1,648 and 76 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
3
<PAGE> 85
indemnified by the Registrant or the appropriate Series of the Registrant to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being, or having been, a trustee, officer, employee or
agent and against amounts paid or incurred by him or her in the settlement
thereof. As used in this paragraph, "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
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
4
<PAGE> 86
proceeding) is asserted by such trustee, officer, employee or agent in
connection with the shares of the Registrant, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in said Act and will
be governed by the final adjudication of such issue.
Under an agreement with its distributor ("Distribution Agreement"), Registrant
has agreed to indemnify, defend and hold the distributor, the distributor's
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.
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 provided that the Registrant shall not
indemnify the distributor for conduct set forth in this paragraph.
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) thirty-one 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
5
<PAGE> 87
Other Services" in the Statement of Additional Information is incorporated
herein by reference.
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 herein 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
Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant's annual report to shareholders, upon request and
without charge.
6
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 16th day of July, 1996.
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>
President
/s/ DAVID F. HILL Principal Executive Officer 7/16/96
- ----------------------- -------
David F. Hill
RONALD L. SPAULDING* 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 Chairman and Trustee 7/16/96
- ----------------------- -------
Boh A. Dickey
BARBARA J. DINGFIELD* Trustee
- ---------------------- -------
Barbara J. Dingfield
RICHARD W. HUBBARD* Trustee
- ---------------------- -------
Richard W. Hubbard
RICHARD E. LUNDGREN* Trustee
- ---------------------- -------
Richard E. Lundgren
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> 89
Registration Nos. 33-53532
811-7300
================================================================================
EXHIBITS
to
FORM N-1A
REGISTRATION STATEMENT
POST-EFFECTIVE AMENDMENT NO. 7
Under
The Securities Act of 1933
and
POST-EFFECTIVE AMENDMENT NO. 7
Under
The Investment Company Act of 1940
--------------------
SAFECO Tax-Exempt Bond Trust
(Exact Name of Registrant as Specified in Charter)
SAFECO Plaza
Seattle, Washington 98185
(Address of Principal Executive Offices)
206-545-5000
(Registrant's Telephone Number, including Area Code)
================================================================================
8
<PAGE> 90
SAFECO TAX-EXEMPT BOND TRUST
Form N-1A
Post-Effective Amendment No. 7
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------- ----------------------- ----
<S> <C> <C>
(27.1-5) Financial Data Schedules 10
(99.9a) Amended Exhibit B to Transfer Agent Agreement 11
(99.11) Consent of Independent Auditors 12
(99.12) Registrant's Annual Report for the Year Ended 13
March 31, 1996 including Financial Statements(+)
14
(99.16) Calculation of Performance Information
</TABLE>
+ Filed with the SEC on or about May 30, 1996.
9
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 1
<NAME> SAFECO MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 440,042
<INVESTMENTS-AT-VALUE> 482,571
<RECEIVABLES> 8,573
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 491,147
<PAYABLE-FOR-SECURITIES> 8,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,095
<TOTAL-LIABILITIES> 10,504
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 441,739
<SHARES-COMMON-STOCK> 35,106
<SHARES-COMMON-PRIOR> 35,373
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,626)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,529
<NET-ASSETS> 480,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,366
<OTHER-INCOME> 0
<EXPENSES-NET> 2,630
<NET-INVESTMENT-INCOME> 26,736
<REALIZED-GAINS-CURRENT> 2,608
<APPREC-INCREASE-CURRENT> 11,135
<NET-CHANGE-FROM-OPS> 40,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,736)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,285
<NUMBER-OF-SHARES-REDEEMED> (28,766)
<SHARES-REINVESTED> 1,214
<NET-CHANGE-IN-ASSETS> 8,074
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (6,233)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,021
<INTEREST-EXPENSE> 27
<GROSS-EXPENSE> 2,630
<AVERAGE-NET-ASSETS> 488,845
<PER-SHARE-NAV-BEGIN> 13.36
<PER-SHARE-NII> 0.76
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> (0.76)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.69
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 2
<NAME> SAFECO CALIFORNIA TAX FREE INCOME FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 65,754
<INVESTMENTS-AT-VALUE> 69,678
<RECEIVABLES> 1,116
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,794
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 248
<TOTAL-LIABILITIES> 248
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 66,620
<SHARES-COMMON-STOCK> 5,948
<SHARES-COMMON-PRIOR> 5,553
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,924
<NET-ASSETS> 70,546
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,986
<OTHER-INCOME> 0
<EXPENSES-NET> 466
<NET-INVESTMENT-INCOME> 3,520
<REALIZED-GAINS-CURRENT> 704
<APPREC-INCREASE-CURRENT> 1,516
<NET-CHANGE-FROM-OPS> 5,740
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,520)
<DISTRIBUTIONS-OF-GAINS> (449)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,471
<NUMBER-OF-SHARES-REDEEMED> (2,299)
<SHARES-REINVESTED> 223
<NET-CHANGE-IN-ASSETS> 6,488
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (253)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 366
<INTEREST-EXPENSE> 2
<GROSS-EXPENSE> 466
<AVERAGE-NET-ASSETS> 68,746
<PER-SHARE-NAV-BEGIN> 11.54
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0.40
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> (0.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.86
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 3
<NAME> SAFECO INTERMEDIATE TERM MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 14,597
<INVESTMENTS-AT-VALUE> 14,819
<RECEIVABLES> 204
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,031
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,774
<SHARES-COMMON-STOCK> 1,428
<SHARES-COMMON-PRIOR> 1,353
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 222
<NET-ASSETS> 14,981
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 750
<OTHER-INCOME> 0
<EXPENSES-NET> 123
<NET-INVESTMENT-INCOME> 627
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 422
<NET-CHANGE-FROM-OPS> 1,056
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (627)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 342
<NUMBER-OF-SHARES-REDEEMED> (300)
<SHARES-REINVESTED> 33
<NET-CHANGE-IN-ASSETS> 1,219
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (22)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 78
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 123
<AVERAGE-NET-ASSETS> 14,620
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> 0.45
<PER-SHARE-GAIN-APPREC> 0.32
<PER-SHARE-DIVIDEND> (0.45)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 0.84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 4
<NAME> SAFECO INSURED MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,743
<INVESTMENTS-AT-VALUE> 12,088
<RECEIVABLES> 169
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,265
<PAYABLE-FOR-SECURITIES> 451
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56
<TOTAL-LIABILITIES> 507
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,468
<SHARES-COMMON-STOCK> 1,124
<SHARES-COMMON-PRIOR> 812
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (55)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 345
<NET-ASSETS> 11,758
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 515
<OTHER-INCOME> 0
<EXPENSES-NET> 93
<NET-INVESTMENT-INCOME> 422
<REALIZED-GAINS-CURRENT> 9
<APPREC-INCREASE-CURRENT> 239
<NET-CHANGE-FROM-OPS> 670
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (422)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 368
<NUMBER-OF-SHARES-REDEEMED> (64)
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 3,595
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (63)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 93
<AVERAGE-NET-ASSETS> 9,326
<PER-SHARE-NAV-BEGIN> 10.05
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.41
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.46
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 5
<NAME> SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 6,258
<INVESTMENTS-AT-VALUE> 6,421
<RECEIVABLES> 109
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44
<TOTAL-LIABILITIES> 44
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,326
<SHARES-COMMON-STOCK> 628
<SHARES-COMMON-PRIOR> 590
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 163
<NET-ASSETS> 6,489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 359
<OTHER-INCOME> 0
<EXPENSES-NET> 66
<NET-INVESTMENT-INCOME> 293
<REALIZED-GAINS-CURRENT> 28
<APPREC-INCREASE-CURRENT> 124
<NET-CHANGE-FROM-OPS> 445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (293)
<DISTRIBUTIONS-OF-GAINS> (20)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50
<NUMBER-OF-SHARES-REDEEMED> (15)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 536
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39
<INTEREST-EXPENSE> 1
<GROSS-EXPENSE> 66
<AVERAGE-NET-ASSETS> 6,141
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<PAGE> 1
EXHIBIT B
SAFECO TAX-EXEMPT BOND TRUST
ALL SERIES
FEE SCHEDULE
SAFECO Services shall receive from each series fund ("Fund") of the Trust an
annual fee equal to $32 per account, but not to exceed a maximum of .30% of the
Fund's average net assets, which amount shall be calculated on a monthly basis
(by averaging the number of shareholder accounts at the beginning and end of
each month) and shall be billed and paid monthly. With respect to any omnibus
account maintained by any financial intermediary which is providing shareholder
services under a written sub-administration agreement with SAFECO Services, the
annual fee will be calculated based upon the average number of underlying
individual shareholder accounts comprising the omnibus account.
SAFECO Services Corporation SAFECO Tax-Exempt Bond Trust
on behalf of each Series
By: /s/ David F. Hill By: /s/ David F. Hill
------------------------ ------------------------
Its: President Its: President
Attest: /s/ Neil A. Fuller Attest: /s/ Neil A. Fuller
-------------------- --------------------
Secretary Asst. Secretary
As of 06-01-96
<PAGE> 1
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. 7 to the Registration Statement (Form N-1A, No.
33-53532) and related Prospectus of SAFECO Tax-Exempt Bond Trust dated July 19,
1996.
We also consent to the incorporation by reference therein of our report dated
April 26, 1996, with respect to the financial statements of SAFECO Tax-Exempt
Bond Trust as of and for the year ended March 31, 1996 included in the 1996
Annual Report filed with the Securities and Exchange Commission.
Seattle, Washington
July 16, 1996
<PAGE> 1
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, 1996, is calculated as follows:
331,162 - 38,667 6
Yield = 2[(------------------ + 1) - 1] = 5.04%
5,935,349 x 11.86
Where: $331,162 = dividends and interest (as defined in the
instructions to Item 22(b)(ii) of Form N-1A)
earned during the period
$38,667 = expenses accrued during the period
5,935,349 = average daily number of shares outstanding
during the period
11.86 = offering price per share on March 31, 1996
The "tax-equivalent yield" is computed using the following formula:
5.04% x 1
Tax-equivalent yield = [--------------] + [5.04% x (1-100%)] = 9.37%
(1-.462)
Where: 5.04% = "yield" as calculated above
46.2% = combined federal & state tax rate
100% = percentage of "yield" which is tax free
<PAGE> 2
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, 1996, are calculated as follows:
1-Year
- ------ 1
Total return = $10,000.00 (1 + .0887) = $10,887
1,088.70 - 1,000
Total return = (------------------) = 8.87%
1,000.00
----------------------
Average Annual Total Return = (1 \/ 1,088.70 / 1,000.00 -1) = 8.87%
Where: 1 = number of years
$ 1,088.70 = 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
.0887 = the average annual total return
5-Year
- ------ 5
Total return = $10,000.00 (1 + .0817) = $14,809
1,480.90 - 1,000
Total return = (-----------------------) = 48.09%
1,000.00
-----------------------
Average Annual Total Return = (5 \/ 1,480.90 / 1,000.00 -1) = 8.17%
Where: 5 = number of years
$ 1,480.90 = 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
.0817 = the average annual total return
<PAGE> 3
SAFECO CALIFORNIA TAX-FREE INCOME FUND
Calculation of Performance Quotations (continued)
10 year
- ------- 10
Total return = $10,000.0 (1 + .0789) = $21,372
2,137.20 - 1,000
Total return = (------------------) = 113.72%
1,000.00
--------------------
Average Annual Total Return = (10 \/ 2,137.20 / 1,000.00 - 1) = 7.89%
Where: 10 = number of years
$ 2,137.20 = 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
$10,000.00 = a hypothetical investment of $10,000
.0789 = the average annual total return
<PAGE> 4
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, 1996 is calculated as follows:
50,087 - 9,331 6
Yield = 2[(------------------ + 1) -1] = 4.32%
1,092,518 x 10.46
Where: $ 50,087 = dividends and interest (as defined in the
instructions to Item 22(b)(ii) of Form N-1A)
earned during the period
$ 9,331 = expenses accrued during the period
1,092,518 = average daily number of shares outstanding
during the period
$ 10.46 = offering price per share on March 31, 1996
The "tax-equivalent yield" is computed using the following formula:
4.32% x 1
Tax-equivalent yield =[-------------------] + [4.32% x(1-100%)] = 7.15%
(1-.396)
Where: 4.32% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax free
<PAGE> 5
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, 1996 are calculated as follows:
1 Year
- ------
1
Total return = $10,000.00 (1 + .0858) = $10,858.00
1,089.50 - 1,000
Total return = (----------------------) = 8.95%
1,000.00
-----------------------
Average Annual Total Return = (1.000 \/ 1,089.50 / 1,000.00 - 1) = 8.95%
Where: 1 = number of years
.0858 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,089.50 = 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
Since Inception (36 Months)
- ---------------------------
3
Total return = $10,000.00 (1 + .0347) = $10,706.00
1,166.40 - 1,000
Total return = (-----------------------) = 16.64%
1,000.00
--------------------
Average Annual Total Return = (3 \/ 1,166.40 / 1,000.00 - 1) = 5.26%
Where: 3 = number of years
.0347 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,166.00 = 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
<PAGE> 6
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, 1996 is calculated as follows:
60,151 - 10,727 6
Yield = 2[(-------------------- + 1) - 1] = 4.00%
1,424,786 x 10.49
Where: $ 60,151 = dividends and interest (as defined in the
instructions to Item 22(b)(ii) of Form N-1A)
earned during the period
$ 10,727 = expenses accrued during the period
1,424,786 = average daily number of shares outstanding
during the period
$ 10.49 = offering price per share on March 31, 1996
The "tax-equivalent yield" is computed using the following formula:
4.00% x 1
Tax-equivalent yield = [-----------------] + [4.00% x (1-100%)] = 6.62%
(1-.396)
Where: 4.00% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax free
<PAGE> 7
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
ending March 31, 1996 are calculated as follows:
1 Year
- ------
1
Total return = $10,000.00 (1 + .0497) = $10,497.00
1,076.30 - 1,000
Total return = (----------------------) = 7.63%
1,000.00
---------------------
Average Annual Total Return = (1.00 \/ 1,076.30 / 1,000.00 - 1) = 7.63%
Where: 1 = number of years
.0497 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,076.30 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
$ 1,000.00 = a hypothetical investment of $1,000
Since Inception (36 Months)
- ---------------------------
3
Total return = $10,000.00 (1 + .0380) = $10,774.00
1,159.60 - 1,000
Total return = (----------------------) = 15.96%
1,000.00
--------------------
Average Annual Total Return = (3 \/ 1,159.60 / 1,000.00 - 1) = 5.06%
Where: 3 = number of years
.0380 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,159.60 = 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
<PAGE> 8
SAFECO MUNICIPAL BOND FUND
Calculation of Performance Quotations
The "yield" for the SAFECO Municipal Bond Fund for the 30-day period ended
March 31, 1996, is calculated as follows:
2,229,644 - 214,061 6
Yield = 2[(--------------------- + 1) - 1] = 5.06%
35,258,343 x 13.69
Where: $ 2,229,644 = dividends and interest (as defined in the
instructions to Item 22(b)(ii) of Form N-1A) earned
during the period
$ 214,061 = expenses accrued during the period
35,258,343 = average daily number of shares outstanding during
the period
$ 13.69 = offering price per share on March 31, 1996
The "tax-equivalent yield" is computed using the following formula:
5.06% x 1
Tax-equivalent yield = [--------------------] + [5.06% x (1-100%)] = 8.38%
(1-.396)
Where: 5.06% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax free
<PAGE> 9
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, 1996 are calculated as follows:
1-Year
- ------ 1
Total return = $10,000.00 (1 + .0823) = $10,823
1,082.30 - 1,000
Total return = (--------------------) = 8.23%
1,000.00
--------------------
Average Annual Total Return = (1 \/ 1,082.30 / 1,000.00 - 1) = 8.23%
Where: 1 = number of years
$ 1,082.30 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
$ 1,000.00 = a hypothetical investment of $1,000
$10,000.00 = a hypothetical investment of $10,000
.0823 = the average annual total return
5-Year
- ------ 5
Total return = $10,000.00 (1 + .0808) = $14,747
1,474.70 - 1,000
Total return = (---------------------) = 47.47%
1,000.00
--------------------
Average Annual Total Return = (5 \/ 1,474.70 / 1,000.00 - 1) = 8.08%
Where: 5 = number of years
$ 1,474.70 = 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
.0808 = the average annual total return
<PAGE> 10
SAFECO MUNICIPAL BOND FUND
Calculation of Performance Quotations (continued)
10-Year
- ------- 10
Total return = $10,000.00 (1 + .0821) = $22,016
2,201.60 - 1,000
Total return = (---------------------) = 120.16%
1,000.00
----------------------
Average Annual Total Return = (10 \/ 2,201.60 / 1,000.00 - 1) = 8.21%
Where: 10 = number of years
$ 2,201.60 = 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
$10,000.00 = a hypothetical investment of $10,000
.0821 = the average annual total return
<PAGE> 11
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, 1996 is calculated as follows:
30,560 - 6,069 6
Yield = 2[(------------------- + 1) - 1] = 4.62%
620,747 x 10.34
Where: $ 30,560 = dividends and interest (as defined in the
instructions to Item 22(b)(ii) of Form N-1A) earned
during the period
$ 6,069 = expenses accrued during the period
620,747 = average daily number of shares outstanding during
the period
$ 10.34 = offering price per share on March 31, 1996
The "tax-equivalent yield" is computed using the following formula:
4.62% x 1
Tax-equivalent yield = [---------------] + [4.62% x (1-100%)] = 7.65%
(1-.396)
Where: 4.62% = "yield" as calculated above
39.6% = tax rate
100% = percentage of "yield" which is tax free
<PAGE> 12
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, 1996 are calculated as follows:
1 Year
- ------
1
Total return = $10,000.00 (1 + .0762) = $10,762.00
1,077.30 - 1,000
Total return = (----------------------) = 7.73%
1,000.00
--------------------
Average Annual Total Return = (1.000 \/ 1,077.30 / 1,000.00 -1) = 7.73%
Where: 1 = number of years
0.0762 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,077.30 = ending redeemable value of a hypothetical $1,000
investment at the end of a specified period of time
$ 1,000.00 = a hypothetical investment of $1,000
Since Inception (36 Months)
- ---------------------------
3
Total return = $10,000.00 (1 + .0409) = $10,835.00
1,162.00 - 1,000
Total return = (---------------------) = 16.20%
1,000.00
----------------------
Average Annual Total Return = (3 \/ 1,162.00 / 1,000.00 -1) = 5.13%
Where: 3 = number of years
.0409 = average annual total return
$10,000.00 = a hypothetical investment of $10,000
$ 1,162.00 = 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
