<PAGE> 1
March 31, 1996
[GRAPHIC]
ANNUAL
REPORT
[GRAPHIC]
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
[SAFECO LOGO]
<PAGE> 2
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PERFORMANCE INFORMATION
March 31, 1996
The Lehman Brothers Long, Long Insured and 7-Year Municipal Bond
Indices are representative total return benchmarks for the respective funds.
Operating expenses had been applied to the funds, but not to the indices. If
portfolio operating expenses had been applied to the indices, their values would
have been lower. The performance of the funds assumes the reinvestment of all
interest and capital gains. Investment returns are historical and not predictive
of future performance.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
10 YEAR
OR SINCE
AVERAGE ANNUAL TOTAL RETURN 1 YEAR 5 YEAR INCEPTION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
SAFECO Intermediate-Term Municipal Bond Fund 7.63% N/A 5.06%*
Lehman Brothers 7-Year Municipal Bond Index 8.07% N/A 5.78%
- --------------------------------------------------------------------------------
SAFECO Insured Municipal Bond Fund 8.95% N/A 5.26%*
Lehman Brothers Long Insured Municipal Bond Index 8.79% N/A 6.09%
- --------------------------------------------------------------------------------
SAFECO Municipal Bond Fund 8.23% 8.08% 8.21%
Lehman Brothers Long Municipal Bond Index 9.19% 8.93% 8.82%
- --------------------------------------------------------------------------------
SAFECO California Tax-Free Income Fund 8.87% 8.17% 7.89%
Lehman Brothers Long Municipal Bond Index 9.19% 8.93% 8.82%
- --------------------------------------------------------------------------------
SAFECO Washington State Municipal Bond Fund 7.73% N/A 5.13%*
Lehman Brothers Long Municipal Bond Index 9.19% N/A 6.30%
- --------------------------------------------------------------------------------
</TABLE>
*Inception was on March 18, 1993.
<PAGE> 3
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SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Intermediate-Term Muni Bond Fund
<TABLE>
<CAPTION>
Lehman
7 year
Date IT Muni Muni Index
------------------------------------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,068 10,062
05/31/93 10,085 10,092
06/30/93 10,245 10,277
07/31/93 10,227 10,278
08/31/93 10,438 10,461
09/30/93 10,599 10,575
10/31/93 10,652 10,602
11/30/93 10,559 10,508
12/31/93 10,744 10,701
01/31/94 10,871 10,816
02/28/94 10,601 10,581
03/31/94 10,264 10,299
04/30/94 10,308 10,375
05/31/94 10,387 10,427
06/30/94 10,351 10,408
07/31/94 10,478 10,555
08/31/94 10,552 10,610
09/30/94 10,363 10,509
10/31/94 10,176 10,403
11/30/94 9,955 10,251
12/31/94 10,140 10,407
01/31/95 10,371 10,601
02/28/95 10,649 10,840
03/31/95 10,774 10,953
04/30/95 10,822 10,982
05/31/95 11,130 11,274
06/30/95 11,085 11,265
07/31/95 11,212 11,408
08/31/95 11,328 11,543
09/30/95 11,368 11,587
10/31/95 11,496 11,688
11/30/95 11,614 11,816
12/31/95 11,683 11,879
01/31/96 11,803 11,994
02/28/96 11,789 11,953
03/31/96 11,596 11,837
</TABLE>
================================================================================
SAFECO INSURED MUNICIPAL BOND FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Insured Muni Bond Fund
<TABLE>
<CAPTION>
Lehman
Long Insured
Date INS Muni Muni Index
--------------------------------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,122 10,146
05/31/93 10,163 10,239
06/30/93 10,396 10,430
07/31/93 10,301 10,438
08/31/93 10,643 10,710
09/30/93 10,804 10,849
10/31/93 10,808 10,861
11/30/93 10,568 10,719
12/31/93 10,853 10,992
01/31/94 10,998 11,117
02/28/94 10,539 10,726
03/31/94 9,860 10,061
04/30/94 9,907 10,152
05/31/94 10,028 10,275
06/30/94 9,862 10,152
07/31/94 10,217 10,430
08/31/94 10,169 10,433
09/30/94 9,849 10,183
10/31/94 9,560 9,872
11/30/94 9,364 9,647
12/31/94 9,721 9,983
01/31/95 10,125 10,430
02/28/95 10,651 10,851
03/31/95 10,706 10,977
04/30/95 10,630 10,973
05/31/95 11,255 11,440
06/30/95 10,934 11,220
07/31/95 10,967 11,268
08/31/95 11,130 11,424
09/30/95 11,207 11,507
10/31/95 11,514 11,800
11/30/95 11,897 12,109
12/31/95 12,090 12,302
01/31/96 12,093 12,357
02/28/96 11,947 12,185
03/31/96 11,664 11,942
</TABLE>
-1-
<PAGE> 4
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PERFORMANCE INFORMATION (Continued)
March 31, 1996
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
ILLUSTRATION OF A $10,000 INVESTMENT
- --------------------------------------------------------------------------------
Municipal Bond Fund
<TABLE>
<CAPTION>
Lehman
Long Muni
Date Muni: Bond Bond Index
--------------------------------------
<S> <C> <C>
03/31/86 10,000 10,000
04/30/86 9,958 10,000
05/31/86 9,798 9,809
06/30/86 9,900 9,893
07/31/86 9,941 9,971
08/31/86 10,486 10,493
09/30/86 10,423 10,469
10/31/86 10,663 10,648
11/30/86 10,867 10,903
12/31/86 10,913 10,889
01/31/87 11,265 11,255
02/28/87 11,308 11,286
03/31/87 11,249 11,120
04/30/87 10,532 10,496
05/31/87 10,505 10,381
06/30/87 10,773 10,711
07/31/87 10,865 10,810
08/31/87 10,891 10,858
09/30/87 10,410 10,415
10/31/87 10,435 10,414
11/30/87 10,743 10,747
12/31/87 10,931 10,887
01/31/88 11,448 11,322
02/28/88 11,580 11,455
03/31/88 11,353 11,291
04/30/88 11,438 11,380
05/31/88 11,405 11,392
06/30/88 11,637 11,614
07/31/88 11,696 11,692
08/31/88 11,757 11,738
09/30/88 12,019 12,004
10/31/88 12,350 12,277
11/30/88 12,205 12,145
12/31/88 12,448 12,357
01/31/89 12,735 12,648
02/28/89 12,545 12,470
03/31/89 12,545 12,481
04/30/89 12,839 12,847
05/31/89 13,080 13,144
06/30/89 13,244 13,344
07/31/89 13,380 13,521
08/31/89 13,262 13,315
09/30/89 13,251 13,275
10/31/89 13,380 13,450
11/30/89 13,620 13,736
12/31/89 13,703 13,837
01/31/90 13,543 13,698
02/28/90 13,699 13,852
03/31/90 13,680 13,866
04/30/90 13,470 13,697
05/31/90 13,896 14,083
06/30/90 14,025 14,222
07/31/90 14,294 14,473
08/31/90 13,922 14,128
09/30/90 13,895 14,106
10/31/90 14,160 14,405
11/30/90 14,554 14,770
12/31/90 14,614 14,835
01/31/91 14,846 15,034
02/28/91 14,910 15,140
03/31/91 14,929 15,176
04/30/91 15,179 15,411
05/31/91 15,332 15,593
06/30/91 15,279 15,563
07/31/91 15,522 15,804
08/31/91 15,758 16,031
09/30/91 16,010 16,263
10/31/91 16,181 16,433
11/30/91 16,129 16,454
12/31/91 16,629 16,845
01/31/92 16,484 16,835
02/28/92 16,527 16,862
03/31/92 16,507 16,904
04/30/92 16,662 17,065
05/31/92 16,943 17,315
06/30/92 17,310 17,650
07/31/92 17,976 18,297
08/31/92 17,608 18,052
09/30/92 17,642 18,132
10/31/92 17,257 17,829
11/30/92 17,785 18,331
12/31/92 18,084 18,569
01/31/93 18,260 18,744
02/28/93 19,049 19,615
03/31/93 18,751 19,379
04/30/93 19,008 19,644
05/31/93 19,117 19,807
06/30/93 19,509 20,179
07/31/93 19,434 20,200
08/31/93 19,951 20,717
09/30/93 20,174 21,005
10/31/93 20,229 21,045
11/30/93 19,973 20,790
12/31/93 20,373 21,326
01/31/94 20,621 21,578
02/28/94 20,010 20,864
03/31/94 18,994 19,618
04/30/94 19,012 19,769
05/31/94 19,240 20,001
06/30/94 19,027 19,761
07/31/94 19,466 20,268
08/31/94 19,479 20,311
09/30/94 18,998 19,840
10/31/94 18,592 19,231
11/30/94 18,210 18,723
12/31/94 18,693 19,388
01/31/95 19,381 20,240
02/28/95 20,195 21,064
03/31/95 20,342 21,318
04/30/95 20,311 21,308
05/31/95 21,256 22,215
06/30/95 20,801 21,805
07/31/95 20,901 21,917
08/31/95 21,171 22,226
09/30/95 21,328 22,401
10/31/95 21,775 22,943
11/30/95 22,378 23,535
12/31/95 22,708 23,901
01/31/96 22,782 24,004
02/28/96 22,530 23,711
03/31/96 22,016 23,277
</TABLE>
================================================================================
S&P CREDIT RATINGS DISTRIBUTIONS
AS A PERCENTAGE OF NET ASSETS
March 31, 1996
SAFECO
CALIFORNIA TAX-FREE
INCOME FUND
California Tax-Free Income Fund
<TABLE>
<CAPTION> Lehman
Long Muni
Date Cal Index
---------------------------------------
<S> <C> <C>
03/31/86 10,000 10,000
04/30/86 10,017 10,000
05/31/86 9,831 9,809
06/30/86 9,945 9,893
07/31/86 9,995 9,971
08/31/86 10,556 10,493
09/30/86 10,519 10,469
10/31/86 10,740 10,648
11/30/86 10,956 10,903
12/31/86 10,939 10,889
01/31/87 11,226 11,255
02/28/87 11,290 11,286
03/31/87 11,225 11,120
04/30/87 10,390 10,496
05/31/87 10,226 10,381
06/30/87 10,562 10,711
07/31/87 10,642 10,810
08/31/87 10,655 10,858
09/30/87 10,077 10,415
10/31/87 10,061 10,414
11/30/87 10,474 10,747
12/31/87 10,711 10,887
01/31/88 11,237 11,322
02/28/88 11,403 11,455
03/31/88 11,069 11,291
04/30/88 11,130 11,380
05/31/88 11,033 11,392
06/30/88 11,316 11,614
07/31/88 11,347 11,692
08/31/88 11,398 11,738
09/30/88 11,665 12,004
10/31/88 12,011 12,277
11/30/88 11,830 12,145
12/31/88 12,081 12,357
01/31/89 12,370 12,648
02/28/89 12,192 12,470
03/31/89 12,186 12,481
04/30/89 12,469 12,847
05/31/89 12,722 13,144
06/30/89 12,859 13,344
07/31/89 13,007 13,521
08/31/89 12,848 13,315
09/30/89 12,844 13,275
10/31/89 12,969 13,450
11/30/89 13,200 13,736
12/31/89 13,278 13,837
01/31/90 13,131 13,698
02/28/90 13,291 13,852
03/31/90 13,266 13,866
04/30/90 13,065 13,697
05/31/90 13,465 14,083
06/30/90 13,594 14,222
07/31/90 13,853 14,473
08/31/90 13,508 14,128
09/30/90 13,488 14,106
10/31/90 13,829 14,405
11/30/90 14,152 14,770
12/31/90 14,203 14,835
01/31/91 14,419 15,034
02/28/91 14,463 15,140
03/31/91 14,431 15,176
04/30/91 14,655 15,411
05/31/91 14,798 15,593
06/30/91 14,726 15,563
07/31/91 14,952 15,804
08/31/91 15,158 16,031
09/30/91 15,434 16,263
10/31/91 15,600 16,433
11/30/91 15,513 16,454
12/31/91 15,986 16,845
01/31/92 15,931 16,835
02/28/92 15,935 16,862
03/31/92 15,937 16,904
04/30/92 16,053 17,065
05/31/92 16,296 17,315
06/30/92 16,616 17,650
07/31/92 17,177 18,297
08/31/92 16,848 18,052
09/30/92 16,969 18,132
10/31/92 16,498 17,829
11/30/92 17,039 18,331
12/31/92 17,264 18,569
01/31/93 17,444 18,744
02/28/93 18,235 19,615
03/31/93 17,989 19,379
04/30/93 18,253 19,644
05/31/93 18,328 19,807
06/30/93 18,670 20,179
07/31/93 18,646 20,200
08/31/93 19,170 20,717
09/30/93 19,403 21,005
10/31/93 19,403 21,045
11/30/93 19,102 20,790
12/31/93 19,548 21,326
01/31/94 19,840 21,578
02/28/94 19,318 20,864
03/31/94 18,344 19,618
04/30/94 18,278 19,769
05/31/94 18,448 20,001
06/30/94 18,271 19,761
07/31/94 18,695 20,268
08/31/94 18,689 20,311
09/30/94 18,215 19,840
10/31/94 17,774 19,231
11/30/94 17,446 18,723
12/31/94 17,750 19,388
01/31/95 18,565 20,240
02/28/95 19,472 21,064
03/31/95 19,630 21,318
04/30/95 19,542 21,308
05/31/95 20,645 22,215
06/30/95 20,014 21,805
07/31/95 20,103 21,917
08/31/95 20,419 22,226
09/30/95 20,577 22,401
10/31/95 21,125 22,943
11/30/95 21,900 23,535
12/31/95 22,390 23,901
01/31/96 22,309 24,004
02/28/96 22,026 23,711
03/31/96 21,372 23,277
</TABLE>
SAFECO
WASHINGTON STATE
MUNICIPAL BOND FUND
Washington State Muni Bond Fund
<TABLE>
<CAPTION>
Lehman
Long Muni
Date Wash Muni Index
--------------------------------------
<S> <C> <C>
03/31/93 10,000 10,000
04/30/93 10,146 10,137
05/31/93 10,188 10,221
06/30/93 10,433 10,413
07/31/93 10,401 10,423
08/31/93 10,684 10,690
09/30/93 10,808 10,839
10/31/93 10,828 10,859
11/30/93 10,658 10,728
12/31/93 10,874 11,005
01/31/94 11,043 11,135
02/28/94 10,665 10,766
03/31/94 10,068 10,123
04/30/94 10,115 10,201
05/31/94 10,259 10,321
06/30/94 10,083 10,197
07/31/94 10,337 10,459
08/31/94 10,300 10,481
09/30/94 10,050 10,238
10/31/94 9,782 9,923
11/30/94 9,553 9,661
12/31/94 9,934 10,004
01/31/95 10,339 10,444
02/28/95 10,730 10,870
03/31/95 10,786 11,000
04/30/95 10,754 10,995
05/31/95 11,189 11,463
06/30/95 10,986 11,252
07/31/95 11,053 11,310
08/31/95 11,195 11,469
09/30/95 11,275 11,559
10/31/95 11,519 11,839
11/30/95 11,786 12,144
12/31/95 11,910 12,333
01/31/96 11,959 12,386
02/28/96 11,848 12,235
03/31/96 11,620 12,011
</TABLE>
-2-
<PAGE> 5
x
================================================================================
LETTER FROM THE PRESIDENT
May 1, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Fund Manager's Report ............................................... 5
Highlights .......................................................... 14
Portfolios of Investments ........................................... 17
Financial Statements ................................................ 36
Notes to Financial Statements ....................................... 42
- --------------------------------------------------------------------------------
[PHOTO OF DAVID F. HILL]
DEAR
SHAREHOLDER:
Strong corporate earnings, low interest rates and low inflation helped
the U.S. financial markets continue to post robust returns. As measured by the
S&P 500, the stock market advanced 32.07% in the 12 months ended March 31, and
5.37% in the most recent quarter.
While the domestic stock market kept on advancing at a clip well above
its historical average, the bond market did slow its pace. As measured by the
Lehman Brothers Government/Corporate Index, the bond market finished the 12
months ended March 31 up 10.93%, and the three months just ended down, -2.34%.
The bond market's decline, which began midway through the first quarter, can be
attributed to unexpected, albeit slight, strength in economic indicators and the
failure to reach a federal budget accord.
In truth, the economic indicators are thoroughly mixed, and that is
keeping the Fed cautious and slow moving.
A careful Fed is fine in our view, because inflation is not currently
an issue and interest rates are providing good support for stock prices.
Despite positive employment reports, renewed inflation fears and higher
interest rates, we think the fundamentals are in place to return the bond market
to year-end 1995 levels and to sustain the stock market. We see enough strength
in the economy -- and, in turn, corporate earnings -- to support stock market
growth, but not at the rate we have seen these past 15 months.
(Continued on next page.)
-3-
<PAGE> 6
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LETTER FROM THE PRESIDENT (Continued)
All in all, our outlook is positive; it's just unlikely that 1996 will
match 1995's bounty. It would be highly unrealistic to expect gains like those
we experienced last year.
The strength of the markets last year surprised prognosticators who'd
predicted a slowdown (if not a correction) and it highlighted the difficulty in
attempting to "time" the markets. Investors who took the conservative route and
moved their money out of stocks and long-term bonds missed significant gains.
Undeniably, the year-to-year behavior of the markets is unpredictable,
and can go either way. That is why investors with short-term time frames should
use short-term instruments such as money funds.
The money you have invested in stocks should be for long-term goals.
And, as you get closer to needing the funds you have invested toward a goal,
gradually reduce the percentage that is invested in stocks. Stocks are for money
that can be left invested for a long while.
Our commitment to our shareholders is as deeply ingrained as our
long-term attitude. At SAFECO Mutual Funds, we remain committed to providing you
the service, information and investment vehicles you need to achieve financial
security. To that end, we introduced three new stock funds in January: The
SAFECO International, Balanced, and Small Company Funds. And in June, to better
serve you, we'll bring a new automated information system on-line. We are
constantly striving for top-rated fund performance, top-notch services and truly
useful financial planning materials. Please call us if we can be of further
service at 1 (800) 426-6730. In the meantime, thank you for investing with
SAFECO Mutual Funds.
/s/ David F. Hill
- ------------------------
David F. Hill, President
-4-
<PAGE> 7
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REPORT FROM THE FUND MANAGER
May 1, 1996
[PHOTO OF STEPHEN C. BAUER]
SAFECO TAX-EXEMPT BOND FUNDS
While returns for 12 months ending March 31 remain well above
historical averages, the bond market has been trending down since mid-February
when a series of economic indicators showed a slightly stronger economy than
expected. The good news is municipal bonds declined less in February and March
than did taxable bonds. And the SAFECO Tax-Free Funds, with the exception of the
Washington Fund, soundly outperformed their peers.
The disappearance of Steve Forbes from the political scene, and the
rejection of his flat tax proposals by both Dole and Clinton, caused investors
to realize that tax-exempt bonds were undervalued compared to taxable bonds. And
so, when the market turned south, yields on 30-year U.S. Treasury bonds rose
.7%, from 6.0% to 6.7%; while long-term muni yields rose .6%, from 5.5% to 6.1%.
In terms of yield ratio, munis went from yielding 93% to yielding 89% of
similar-length taxable treasury bonds.
The fact that the value of municipal bonds rose in comparison to
treasuries was particularly impressive because the supply of new municipal bonds
(which in itself dampens prices) was increasing. Supply was up 35% over 1995's
first quarter.
I think munis may continue to outperform treasuries over the coming
months. Given the fundamentals, the supply level and current tax code, I think
the equilibrium level for tax-exempt to taxable yields should be around 86%.
For the last few years, it seems that even the shortest-term news, such
as monthly employment reports, has the potential to dramatically change the bond
markets. The market broke in February because bond traders operate under the
theory that an increase in economic activity increases inflationary pressure.
(Continued on next page.)
-5-
<PAGE> 8
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
They hate any economic scenario other than recession, and they react to the
slightest shift in the tea leaves.
The reality is that the inflation rate has been steady for three years
and the Consumer Price Index, up only 2.5% in 1995, logged its lowest increase
since 1986.
Still, many of today's bond traders are focused on the day-to-day flow
of economic data. They buy and sell billions of dollars of bonds based on
ephemeral information, much of which is revised later. This style of portfolio
management has brought a greater degree of volatility to the bond markets than
is warranted by economic fundamentals.
It brings a greater degree of share price volatility to the SAFECO
family of municipal bond funds as well. Although upsetting to some investors, to
me high volatility means opportunities. When traders make decisions based on
short-term events, they sometimes overlook long-term values. For example, as the
market climbed in 1995, premium bonds (bonds priced above face value because of
higher coupons) fell out of favor, and I added them to our portfolios at bargain
prices.
I intend to take advantage of such missed opportunities to add
incremental value to our funds. In short, I continue to maintain a long-term
view, and I think I will be able to add value for shareholders willing to share
that view.
Because of my long-term view, all the SAFECO Muni Funds tend to have
longer average maturities, lower average coupons and less cash than their peer
funds. This common structure causes them to outperform their competitors in a
rising market and underperform in a falling market. It also gives them greater
volatility. Nonetheless, I continue to structure the Funds in this way because I
believe this approach produces the best returns over the long term.
/s/ Stephen C. Bauer
- --------------------
Stephen C. Bauer, Fund Manager
-6-
<PAGE> 9
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
SAFECO MUNICIPAL BOND FUND
The SAFECO Municipal Bond Fund returned 8.23% for the year ended March
31, while the average municipal bond fund returned 7.17% according to Lipper.
For the one year just ended, the fund ranked 40 of 228 general municipal bond
funds. (For the five and 10 years the SAFECO fund was 23 of 100, and 8 of 57
similar funds.) The Lehman Brothers Long Municipal Bond Index posted 9.19% for
the same period.
The superior performance of the fund compared to the peer group can be
attributed to both the deep discount bonds and the premium coupon bonds we
bought at out-of-favor prices. The discounts outperformed as the market rallied,
and the premiums held up well as the market fell. The .96% difference between
the Index and the fund can be attributed to the fact the index has no expenses,
no cash and no call features.
All the transactions in the Municipal Bond Fund during the last six
months were made to increase yield. They can be categorized in three ways: One,
replace pre-refunded bonds with longer-term, higher-yielding bonds. Two,
purchase long-term premium bonds. Three, purchase lower-rated higher-yielding,
long-term bonds.
The low interest rates of 1995 caused over 10% of the portfolio to be
identified as "pre-refunded," guaranteeing they would be called and refunded at
their earliest call date rather than at maturity. Identifying long-term bonds as
"pre-refunded" effectively shortens their maturity to the call date. With
shortened maturities, they trade with lower yields. Thus, replacing our
"pre-rees" with longer bonds, I was able to pick up between 1% and 2% in yield
on that portion of the fund.
As frequently happens during a rally, premium bonds become overlooked.
When the market climbs, the highest yielding (or premium bonds) don't climb as
(Continued on next page.)
-7-
<PAGE> 10
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
fast as bonds with coupons at or below market rates. This was the scenario late
in November. Short-sighted traders failed to recognize the bargains the market
had created. I bought the San Francisco Airport Revenue with a 6.00% coupon, due
5/1/25 and the Illinois Regional Transportation Authority coupon 6.75%, due
6/1/25.
Two months later the Illinois bonds were pre-refunded. Ironically, the
market began to fall and they became the best performing bond in the Fund
because of their shorter maturity.
Few lower-rated bonds offer sufficient yield to compensate for the
increased risks of their lower ratings. However, two new issues came to market
with ample yields and with call protection so that their higher yields can't be
taken away. We participated in both.
The first was Metropolitan Pier and Exposition Authority Illinois
Hospitality Facilities Revenue 7.00% coupon, due 7/1/26, priced to yield 6.44%.
These bonds were issued to build a hotel adjacent to the McCormick Place
Convention Center in Chicago, one of the largest and busiest convention centers
in the world. Although the hotel will be owned by the Authority, it will be
operated by Hyatt. The bonds are not rated by Moody's and are rated BBB- by
Standard & Poor's.
The second was Puerto Rico Highway and Transportation Authority, a
5.00% coupon, due 7/1/36, but priced to yield 6.10%. In addition to tolls, these
bonds are secured by gasoline taxes of the Commonwealth. Puerto Rico bonds are
highly sought after because they are exempt from all state income taxes as well
as Federal taxes. Because of the size of this issue (over $1 billion) it was
priced to sell. The bonds are rated Baa-1 by Moody's and A by S&P. They are
noncallable for twenty years.
SAFECO CALIFORNIA TAX-FREE INCOME FUND
The SAFECO California Tax-Free Income Fund returned 8.87% for the year
ended March 31,
-8-
<PAGE> 11
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
while the average California municipal bond fund returned 7.27%. According to
Lipper, that placed the SAFECO Fund 5 of 94 California funds for the year, 4 of
45 funds for the five years, and 4 of 22 for the ten years just ended. Meanwhile
the Lehman Brothers Long Municipal Bond Index posted 9.19% for the one-year
period.
Again, the difference in the fund and the index can be accounted for in
advisory fees and transaction expenses, of which the index has none. Compared to
our peers, our performance is attributable to our willingness to buy straw hats
in the wintertime -- that is, our ability to recognize and capture the value of
long-term bonds that are temporarily out of favor.
Most of the transactions in the California Fund this past six months
were made to increase yield. In November, the fund bought San Francisco Airport
Revenue (6%, due 5/1/25) -- a higher yielding premium bond. At the time,
premiums were going cheap as most buyers were clamoring for the discount bonds
that had been outperforming in the then-strong market. Suddenly, the market
turned. The so-recently-out-of-favor premium bonds performed particularly well.
The San Francisco Airport bonds fell only 4.6% in price during the first
quarter, while long discounts fell over 9%.
In January, the Rancho California Water District offered to buy back
their 4.75%, due 8/15/21, revenue bonds. We sold, getting top dollar for a bond
that was already trading expensively.
The Fund added to its position of the higher-yielding, lower-rated
Pleasanton Joint Powers assessment bond. Pleasanton has continued to develop
economically, which adds strength to this Baa-rated bond.
I started a new position in Foothill/Eastern Transportation Corridor
Agency Toll Road (5.00%, due 1/1/35), priced to yield 5.97%. This is a privately
built toll road in Orange County, similar to the
(Continued on next page.)
-9-
<PAGE> 12
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
successful San Joaquin Hills project in Northern California, and is rated
Baa/BBB-.
THE SAFECO INSURED MUNICIPAL BOND FUND
The SAFECO Insured Municipal Bond Fund returned 8.95% for the year ended March
31, while the average insured fund returned 6.86%. According to Lipper, the
SAFECO fund was ranked 2 of 48 insured funds with one-year records. The Lehman
Brothers Long-Insured Municipal Bond Index posted 8.79% for the same period.
The long, deeply-discounted bonds we bought at bargain prices and held
- -- despite their poor performance -- through the horrible market in 1994 climbed
through 1995. Our willingness to stay fully invested and buy deeply discounted
bonds, which outperform in rising markets, caused us to soundly outperform the
index and our peers.
Net assets in the insured fund increased 33% in the last six months.
Given that premium bonds (bonds with coupons above the market rate) went out of
favor and on sale as the market climbed through 1995, I invested the incoming
cash in long-insured premium bonds. I purchased the San Francisco Airport
Commission Revenue (6.00%, due 5/1/25), priced to yield 5.60%, and the Illinois
Regional Transportation Authority (6.75%, due 6/1/25).
I also added the Rhode Island State Health & Education Building Corp
(5.25%, due 9/15/23), at a yield of 6.00%.
When the tide turned and interest rates started to rise, these premiums
held their value, further adding to the fund's outperformance.
At year-end, the proposed merger of Financial Security Assurance Co.
and Capital Guaranty Corporation, two smaller municipal bond insurers, was
finalized. The increased size and strength of the resulting company will make
them a more viable competitor to the big three insurers -- MBIA, AMBAC, and
-10-
<PAGE> 13
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
FGIC. This will give the Fund another strong insurer on potential purchases.
THE SAFECO WASHINGTON MUNICIPAL BOND FUND
The SAFECO Washington Municipal Bond Fund returned 7.73% for the year
ended March 31. The average Washington Fund returned 8.02% according to Lipper,
and the Lehman Brothers Long Municipal Bond Index posted 9.19% for the same
period.
As I have mentioned in previous reports, the Washington market has been
characterized in recent years by few new issues, especially of longer-maturing,
higher-yielding bonds. Consequently, the Fund, which is younger than its peers,
has a shorter average maturity and lesser yield than both the peer group and
index. This yield shortfall accounts for the difference in total returns.
The Washington Fund did have several transactions over the last six
months in which we were able to extend maturities and pick up yield. In October,
I sold two issues of insured school bonds due in 2011 and 2012, and purchased
Klickitat Co. PUD (FGIC insured) due in 2027, picking up .25% in yield. In
February, I sold Grant Co. PUD (5.50%, due in 2012) and purchased Grant Co. PUD
(6.375%, due in 2023).
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
For the year ended March 31, the SAFECO Intermediate-Term Municipal
Bond Fund returned 7.63%, while the average intermediate-term municipal bond
fund returned 6.74%. According to Lipper, the SAFECO Fund was 20 of 135 similar
funds for the year ended March 31. The Lehman Brothers 7-Year Municipal Bond
Index posted 8.07% for the same period.
The superior performance of the Fund over the peer group is
attributable to our longer-average maturity. The difference between
(Continued on next page.)
-11-
<PAGE> 14
================================================================================
REPORT FROM THE FUND MANAGER (Continued)
the Fund and index can be attributed to the fact the index has no transaction or
management expenses.
My strategy managing the Intermediate Fund has been to "roll down the
yield curve"; that is, to sell off bonds as their maturity shortens and replace
them with longer bonds, such as a March purchase of the Sacramento Municipal
Utility District (5.5%, due 2/1/11), and priced to yield 5.15% over its average
life.
In one instance, we gained yield by extending maturity and lowering
credit quality. I sold three small issues due in 2001 and 2002 and replaced them
with New York State FHA Health Facilities Revenue (6.375%, due 11/1/04). These
bonds are rated Baa/BBB+ and secured by lease payments from New York City. The
increase in yield from the swap was 1.15%.
The maturity of the SAFECO Intermediate-Term Fund was 7.7 years on
March 31. I intend to extend the average maturity to the 8-10 year range,
because yield increases about .1% a year for each year of maturity beyond five.
- --------------------------------------------------------------------------------
STEVE BAUER JOINED SAFECO IN 1971 AS A FIXED-INCOME ANALYST. HE BECAME A FUND
MANAGER WITH THE INCEPTION OF THE SAFECO MUNICIPAL BOND FUND IN 1981, AND IS
PRESIDENT OF SAFECO ASSET MANAGEMENT. BAUER HOLDS A B.S. IN MICROBIOLOGY AND AN
M.B.A. FROM THE UNIVERSITY OF WASHINGTON.
-12-
<PAGE> 15
IT Muni
<TABLE>
<CAPTION>
% of
S&P Credit Ratings Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA 41.7
AA 20.5
A 26.1
BBB 7.8
Not Rated 2.3
Cash & Other 1.6
-----
100.0
=====
</TABLE>
Muni
<TABLE>
<CAPTION>
% of
S&P Credit Ratings Net Assets
- -------------------------------------------------------------------------------
<S> <C>
AAA 37.2
AA 21.6
A 28.7
BBB 5.4
B 0.5
Not Rated 6.9
Cash & Other (0.3)
100.0
=====
</TABLE>
Washington
<TABLE>
<CAPTION>
% of
S&P Credit Ratings Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA 41.3
AA 17.9
A 22.9
Not Rated 13.5
Cash & Other 4.4
-----
100.0
=====
</TABLE>
Insured Muni
<TABLE>
<CAPTION>
% of
S&P Credit Ratings Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA 82.6
Cash & Other 17.4
-----
100.0
=====
</TABLE>
California
<TABLE>
<CAPTION>
% of
S&P Credit Ratings Net Assets
- --------------------------------------------------------------------------------
<S> <C>
AAA 41.7
AA 10.4
A 21.2
BBB 8.8
Not Rated 10.5
Cash & Other 7.4
-----
100.0
=====
</TABLE>
<PAGE> 16
HIGHLIGHTS
March 31, 1996
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Hospital ................................................ 14.7%
Lease Rental ............................................ 14.0%
Electric Utilities - Combination ........................ 12.5%
Local G.O. - Unlimited Tax .............................. 9.7%
Utilities - Water and Sewer ............................. 9.5%
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency #1
Catawba Electric Revenue ............................. 4.9%
New York State Housing Finance Agency
Health Facilities Revenue ............................ 4.8%
Mississippi Hospital Equipment
& Facilities Authority ............................... 4.1%
Trinity River Authority (TX) ............................ 4.1%
Oklahoma Industries Authority
Health Facilities .................................... 4.0%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
New York ................................................ 12.2%
Illinois ................................................ 11.5%
Washington .............................................. 8.9%
California .............................................. 8.5%
Texas ................................................... 7.2%
</TABLE>
SAFECO INSURED MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Utilities - Sewer ....................................... 15.4%
Electric Utilities - Combination ........................ 15.1%
Hospital ................................................ 8.4%
Utilities - Water ....................................... 6.4%
Utilities - Water & Sewer .............................. 5.1%
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Rhode Island Health and Education
Building Corporation Higher
Education Facility Revenue ........................... 3.9%
Illinois Regional Transportation Authority .............. 3.9%
Los Angeles Department of Water
and Power Electricity ................................ 3.5%
San Francisco City & County
Airports Commission Revenue .......................... 3.4%
University Area (PA) Joint Authority Sewer .............. 3.2%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California .............................................. 18.2%
Washington .............................................. 10.6%
Pennsylvania ............................................ 8.9%
Texas ................................................... 8.3%
Illinois ................................................ 8.1%
</TABLE>
-14-
<PAGE> 17
================================================================================
HIGHLIGHTS (Continued)
March 31, 1996
SAFECO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Electric Utilities - Combination ........................ 15.2%
Escrow Secured - U.S. Treasury
(Prerefunded) ........................................ 12.8%
Hospital ................................................ 8.0%
Utilities - Water and Sewer ............................. 6.6%
Utilities - Sewer ....................................... 5.6%
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills (CA) Transportation
Corridor Agency ...................................... 4.2%
Illinois Educational Facilities Authority ............... 3.4%
Austin Combined Utility System .......................... 3.4%
Alaska Housing Finance Corp. ............................ 3.1%
East Chicago (IN) Elementary School
Building Corp ........................................ 2.6%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California .............................................. 20.1%
Illinois ................................................ 10.7%
Washington .............................................. 10.7%
New York ................................................ 6.7%
South Carolina .......................................... 6.2%
</TABLE>
SAFECO CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Utilities - Sewer ....................................... 11.9%
Electric Utilities - Combination ........................ 11.1%
Local General Obligation - Limited Tax .................. 9.9%
Hospital ................................................ 9.7%
Toll Road ............................................... 8.5%
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Los Angeles County Sanitation
District Financing Authority ......................... 5.8%
San Joaquin Hills Transportation
Corridor Agency ...................................... 5.7%
Pittsburg Redevelopment Agency .......................... 5.2%
San Jose Redevelopment Agency ........................... 4.7%
Los Angeles Department of
Water & Power Waterworks ............................. 4.6%
</TABLE>
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Local G.O. - Limited Tax ................................ 14.3%
Hospital ................................................ 13.4%
Local G.O. - Unlimited Tax .............................. 12.5%
Utilities - Water ....................................... 11.5%
Housing - Uninsured ..................................... 8.7%
<CAPTION>
TOP FIVE HOLDINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Everett School District #2 Unlimited Tax G.O. ........... 4.8%
King County Housing Authority ........................... 4.8%
Renton Water and Sewer Improvement ...................... 4.4%
Snohomish County Public
Utility District #1 .................................. 4.3%
Spokane Regional Solid
Waste Management System .............................. 4.0%
</TABLE>
-15-
<PAGE> 18
================================================================================
HIGHLIGHTS (Continued)
March 31, 1996
<TABLE>
<CAPTION>
-----------------------------------------------------------------
CURRENT YIELD (30-DAY) Percent
-----------------------------------------------------------------
<S> <C>
SAFECO Intermediate-Term Municipal Bond Fund............ 4.00%
SAFECO Insured Municipal Bond Fund...................... 4.32%
SAFECO Municipal Bond Fund.............................. 5.06%
SAFECO California Tax-Free Income Fund.................. 5.04%
SAFECO Washington State Municipal Bond Fund............. 4.62%
<CAPTION>
-----------------------------------------------------------------
WEIGHTED AVERAGE MATURITY Years
-----------------------------------------------------------------
<S> <C>
SAFECO Intermediate-Term Municipal Bond Fund............ 7.74
SAFECO Insured Municipal Bond Fund...................... 19.95
SAFECO Municipal Bond Fund.............................. 23.73
SAFECO California Tax-Free Income Fund.................. 23.30
SAFECO Washington State Municipal Bond Fund............. 21.70
</TABLE>
-16-
<PAGE> 19
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 98.4%
ALASKA - 3.2%
$250 Anchorage Hospital Revenue
(Sisters of Providence)
6.75%, due 10/01/01 ................................ $271
200 Fairbanks North Star Borough
General Obligation
5.20%, due 3/01/03 [MBIA]* ......................... 203
ARIZONA - 0.7%
100 Tucson Airport Authority
General Revenue
5.30%, due 6/01/03 [MBIA] .......................... 102
CALIFORNIA - 8.5%
90 California Housing
Finance Agency
Multi-Unit Rental Revenue
5.50%, due 2/01/99 ................................. 91
240 Pleasanton Joint
Powers Financing Authority
Reassessment Revenue
5.80%, due 9/02/02 ................................. 242
440 Sacramento Municipal
Utility District
Electricity Revenue
5.50%, due 2/01/11 ................................. 429
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04 ................................ 516
CONNECTICUT - 1.8%
100 Connecticut Housing
Finance Authority Housing
Mortgage Finance Program
5.40%, due 5/15/03 ................................. 103
150 Connecticut Special
Tax Obligation
Transportation Infrastructure
6.50%, due 6/01/03 ................................. 165
DISTRICT OF COLUMBIA - 2.9%
District of Columbia General
Obligation
$150 5.75%, due 6/01/03 ................................. 147
300 5.20%, due 6/01/03 ................................. 280
GEORGIA - 5.9%
Georgia Municipal
Electric Authority
General Power Revenue
100 5.75%, due 1/01/03 ................................. 104
300 4.75%, due 1/01/04 ................................. 291
500 Heard County Development
Authority Pollution
Control Revenue
(Oglethorpe Power)
4.70%, due 1/01/04 ................................. 482
ILLINOIS - 11.5%
125 Chicago Wastewater
Transmission Revenue
5.20%, due 1/01/04 [FGIC] .......................... 127
100 Illinois Health Facilities
Authority Revenue
(Brokaw-Mennonite Association)
5.60%, due 8/15/01 [FGIC] .......................... 104
300 Illinois Health Facilities
Authority Revenue
(Masonic Medical Center)
5.20%, due 10/01/03 ................................ 298
500 Joliet Waterworks and
Sewerage Revenue
7.00%, due 1/01/05 [FGIC] .......................... 568
Metropolitan Pier and
Exposition Authority
(McCormick Place Expansion
Project)
100 5.90%, due 6/15/03 ................................. 106
500 5.50%, due 6/15/03 [MBIA] .......................... 518
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE> 20
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
INDIANA - 6.4%
$100 Clay School Building
Corp. First Mortgage
5.60%, due 1/01/03 [MBIA] .......................... $104
200 Hammond Multi-School
Building Corp.
First Mortgage (Lake County)
5.50%, due 1/15/03 ................................. 209
330 Highland School Building
Corp. First Mortgage
5.00%, due 1/05/04 ................................. 326
100 Indiana Bond Bank State
Revolving Fund Program
5.90%, due 2/01/03 ................................. 104
100 Indianapolis Local Public
Improvement
Bond Bank Transportation
Revenue
5.80%, due 7/01/03 ................................. 106
100 Pike Township School
Building Corp.
First Mortgage Revenue
5.70%, due 2/01/01 ................................. 104
IOWA - 2.0%
305 Louisa Pollution Control Revenue
4.65%, due 12/15/03 ................................ 299
KENTUCKY - 4.1%
500 Kentucky State Property and
Buildings Commission Revenue
5.50%, due 9/01/04 ................................. 518
100 Kentucky Turnpike Authority
Economic Development Road
Revenue
5.20%, due 7/01/03 [AMBAC] ......................... 103
LOUISIANA - 1.4%
$100 Louisiana Correctional Facilities
Corp. Lease Revenue
5.55%, due 12/15/02 [FSA] .......................... 104
100 Louisiana Public Facilities
Authority Student Loan Revenue
6.20%, due 3/01/01 ................................. 105
MASSACHUSETTS - 0.7%
100 Massachusetts Water
Resources Authority
General Revenue
5.70%, due 11/01/02 ................................ 105
MICHIGAN - 2.1%
300 Detroit School District
Unlimited Tax
General Obligation
5.75%, due 5/01/02 ................................. 312
MISSISSIPPI - 4.1%
600 Mississippi Hospital Equipment
and Facilities Authority
Revenue (Mississippi Baptist
Medical Center)
5.40%, due 5/01/04 [MBIA] .......................... 615
NEW JERSEY - 0.7%
100 New Jersey Housing & Mortgage
Finance Agency
Housing Revenue
6.00%, due 11/01/02 ................................ 103
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE> 21
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
NEW YORK - 12.2%
$100 Metropolitan Transportation
Authority Transit Facilities Service
Contract Revenue
5.375%, due 7/01/02 ................................ $102
400 New York City Municipal Water
Finance Authority
5.00%, due 6/15/03 ................................. 401
100 New York Dormitory Authority
State University Educational
Facilities Revenue
5.75%, due 5/15/01 ................................. 104
500 New York Local Government
Assistance Corp.
4.85%, due 4/01/04 ................................. 494
700 New York State Housing Finance
Agency Health Facilities Revenue
6.375%, due 11/01/04 ............................... 726
NORTH CAROLINA - 6.3%
210 North Carolina Eastern Municipal
Power Agency System Revenue
5.50%, due 1/01/02 ................................. 214
800 North Carolina Municipal
Power Agency
#1 Catawba Electric Revenue
4.10%, due 1/01/05 [AMBAC] ......................... 736
OHIO - 1.7%
250 Ohio Air Quality Development
Authority Revenue
(Buckeye Power, Inc., Project)
5.00%, due 8/01/03 ................................. 250
OKLAHOMA - 3.9%
$600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health System,
St. Louis, Inc.)
5.20%, due 6/01/05 ................................. 599
PENNSYLVANIA - 1.6%
250 Philadelphia Water and
Wastewater Revenue
5.00%, due 6/15/02 ................................. 246
SOUTH DAKOTA - 0.7%
100 South Dakota Housing
Development Authority
Homeownership Mortgage
Revenue
5.30%, due 5/01/03 ................................. 100
TEXAS - 7.1%
250 Board of Regents of the
University of Houston
System Consolidated Revenue
5.00%, due 2/15/03 [FGIC] .......................... 253
100 Coastal Bend Health Facility
Development Corp.
Health Services Revenue
(Incarnate Word)
5.70%, due 1/01/03 [AMBAC] ......................... 104
100 Houston Sewer System Junior
Lien Revenue
5.75%, due 12/01/02 ................................ 105
600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 [AMBAC] ......................... 608
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-19-
<PAGE> 22
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
WASHINGTON - 8.9%
$500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC] .......................... $ 528
100 Washington Health Care Facilities
Authority Revenue
(Empire Health Service, Spokane)
5.50%, due 11/01/03 [MBIA] ......................... 103
100 Washington Health
Care Facilities
Authority Revenue
(Swedish Hospital Medical
Center)
5.70%, due 11/15/02 [AMBAC] ........................ 105
Washington Public Power
Supply System
Nuclear Project #2 Revenue
200 5.30%, due 7/01/02 ................................. 203
300 4.80%, due 7/01/04 ................................. 290
100 Yakima-Tieton Irrigation District
Revenue
5.65%, due 6/01/02 [FSA] ........................... 105
-------
TOTAL BONDS .................................................... 14,740
-------
SHORT-TERM INVESTMENTS - 0.5%
INVESTMENT COMPANIES:
$79 Aim Tax-Exempt
Money Market Fund, Inc. ............................ $ 79
-------
TOTAL SHORT-TERM INVESTMENTS ................................... 79
-------
TOTAL INVESTMENTS - 98.9% ...................................... 14,819
Other Assets, less Liabilities ................................. 162
-------
NET ASSETS ..................................................... $14,981
=======
</TABLE>
*The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio that
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
AMBAC: AMBAC Indemnity Corp .................................... 11.2%
MBIA: Municipal Bond Investors
Assurance Corp. ............................................. 11.2
FGIC: Financial Guaranty
Insurance Corp. ............................................. 10.7
FSA: Financial Security Assurance, Inc. ........................ 1.4
----
34.5%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-20-
<PAGE> 23
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 82.6%
ALABAMA - 0.8%
$100 Montgomery Downtown
Redevelopment Authority
Mortgage Revenue
(Alabama State Project)
5.50%, due 10/01/13 [MBIA]* ........................ $ 97
ALASKA - 2.5%
300 Alaska Housing Finance Corp.
Insured Mortgage Program
5.90%, due 12/01/33 [FSA] .......................... 292
CALIFORNIA - 18.2%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC] ......................... 310
500 Los Angeles Department
of Water and Power
Electricity Refunding Revenue
4.25%, due 11/15/14 [MBIA] ......................... 409
350 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC] ......................... 295
100 Oro Loma Sanitation District
Sewer Revenue
5.20%, due 10/01/16 [AMBAC] ........................ 91
350 Sacramento Municipal
Utility District
Electric Revenue
4.75%, due 9/01/21 [MBIA] .......................... 295
250 San Diego Public Facilities
Financing Authority
Sewer Revenue
5.00%, due 5/15/23 [AMBAC] ......................... 218
400 San Francisco City & County
Airports Commission
Revenue
6.00%, due 5/01/25 [FGIC] .......................... 400
$145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC] ......................... 126
FLORIDA - 1.5%
200 Florida Municipal Power Agency
All-Requirements Power Supply
Project Revenue
5.10%, due 10/01/25 [AMBAC] ........................ 179
ILLINOIS - 8.1%
100 Chicago General Obligation
5.875%, due 1/01/22 [AMBAC] ........................ 98
250 Cook County General Obligation
5.00%, due 11/15/23 [MBIA] ......................... 219
200 Illinois Health Facilities
Authority Revenue
(The Children's Memorial
Hospital)
5.00%, due 8/15/22 [AMBAC] ......................... 174
400 Regional Transportation Authority
6.75%, due 6/01/25 [FGIC] .......................... 456
INDIANA - 7.3%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA] ......................... 106
250 Indiana State Office Building
Commission Capitol Complex
Revenue
5.25%, due 7/01/15 [AMBAC] ......................... 232
100 Indiana Transportation Finance
Authority Highway Revenue
5.25%, due 6/01/15 [AMBAC] ......................... 94
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC] ......................... 325
100 Kokomo Sewer Works Revenue
5.50%, due 8/01/09 [AMBAC] ......................... 99
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-21-
<PAGE> 24
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INSURED MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
IOWA - 2.0%
$250 Marshalltown Pollution
Control Revenue
(Iowa Electric Light and
Power Co. Project)
5.50%, due 11/01/23 [MBIA] ......................... $236
MICHIGAN - 3.5%
350 Detroit Water Supply
System Revenue
5.00%, due 7/01/23 [FGIC] .......................... 311
100 River Rouge School District
General Obligation Building
and Site
5.50%, due 5/01/11 [FSA] ........................... 99
MINNESOTA - 2.5%
350 Minneapolis and St. Paul
Housing and Redevelopment
Authority Health Care System
Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC] ........................ 299
NORTH CAROLINA - 1.0%
125 North Carolina Eastern Municipal
Power Agency
Power System Revenue
5.50%, due 1/01/17 [FGIC] .......................... 118
PENNSYLVANIA - 8.9%
350 Montgomery County Higher
Education and Health Authority
Hospital Revenue
(Abington Memorial Hospital)
5.125%, due 6/01/24 [FGIC] ......................... 313
400 Pittsburgh Water and Sewer
Authority Revenue
4.75%, due 9/01/16 [FGIC] .......................... 347
445 University Area Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA] ......................... 380
RHODE ISLAND - 4.7%
$100 Clean Water Protection
Finance Agency Water Pollution
Control Revolving Fund Revenue
5.40%, due 10/01/15 [MBIA] ......................... 96
500 Rhode Island Health and
Education Building
Corporation Higher Education
Facility Revenue
5.25%, due 9/15/23 [MBIA] .......................... 459
SOUTH CAROLINA - 0.8%
100 South Carolina Public Service
Authority Revenue
5.50%, due 7/01/21 [MBIA] .......................... 95
TEXAS - 8.3%
200 Colorado River Municipal
Water District
Water System Revenue
5.15%, due 1/01/21 [AMBAC] ......................... 182
250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC] .......................... 238
Lower Colorado River Authority
Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA] .......................... 287
10 - 5.625%, due 1/01/17 [FSA]
(Prerefunded 1/01/15 @ 100) ........................ 10
95 Sabine River Authority
Pollution Control Revenue
(Texas Utilities Electric Co.
Project)
6.55%, due 10/01/22 [FGIC] ......................... 102
175 Trinity River Authority Regional
Wastewater System Revenue
5.00%, due 8/01/16 [AMBAC] ......................... 160
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-22-
<PAGE> 25
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INSURED MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
VIRGINIA - 1.9%
$250 Virginia Housing Development
Authority Commonwealth
Mortgage
5.25%, due 7/01/27 [AMBAC] ......................... $ 225
WASHINGTON - 10.6%
100 King County Public Hospital
District #1 Hospital Facilities
Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ......................... 94
250 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] .......................... 258
250 Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA] ......................... 249
300 Snohomish County Public
Utility District #1
Electric Revenue
5.50%, due 1/01/20 [FGIC] .......................... 284
100 Washington Health Care
Facilities Authority Revenue
(Swedish Hospital Medical
Center)
6.30%, due 11/15/22 [AMBAC] ........................ 102
250 Yakima-Tieton Irrigation District
Revenue
6.20%, due 6/01/19 [FSA] ........................... 254
-------
TOTAL BONDS 9,713
=======
SHORT-TERM INVESTMENTS - 20.2%
Investment Companies:
$ 588 Aim Tax-Exempt
Money Market Fund, Inc. ............................ $ 588
1,787 Nuveen Tax-Exempt
Money Market Fund, Inc. ............................ 1,787
-------
TOTAL SHORT-TERM INVESTMENTS ................................... 2,375
-------
TOTAL INVESTMENTS - 102.8% ..................................... 12,088
Liabilities, less Other Assets ................................. (330)
-------
NET ASSETS ..................................................... $11,758
=======
</TABLE>
- - Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio that
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
FGIC: Financial Guaranty
Insurance Corp ........................................ 32.8%
MBIA: Municipal Bond Investors
Assurance Corp ........................................ 29.9
AMBAC: AMBAC Indemnity Corp ................................... 27.6
FSA: Financial Security
Assurance, Inc ......................................... 9.7
-----
100.0%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-23-
<PAGE> 26
================================================================================
PORTFOLIO OF INVESTMENT
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 100.4%
ALABAMA - 0.2%
$1,000 Citronelle Industrial
Development Board
Pollution Control Revenue
8.00%, due 12/01/12 ................................ $ 1,112
ALASKA - 3.3%
Alaska Housing Finance Corp.
Veterans Mortgage Program
925 6.50%, due 6/01/31 ................................. 933
17,000 5.00%, due 12/01/18 ................................ 14,983
ARIZONA - 2.5%
Phoenix Civic Improvement Corp.
Wastewater System Lease
Revenue
4,220 5.00%, due 7/01/18 [MBIA]* ......................... 3,830
9,800 4.75%, due 7/01/23 ................................. 8,327
CALIFORNIA - 20.1%
2,500 Los Angeles County Certificates
of Participation
(Disney Parking Project)
5.50%, due 9/01/21 ................................. 2,228
13,000 Los Angeles Department of
Water and Power
Electric Plant Revenue
5.25%, due 11/15/26 ................................ 11,724
Los Angeles Wastewater
System Revenue
1,280 4.70%, due 11/01/17 [FGIC] ......................... 1,087
5,000 4.70%, due 11/01/19 [FGIC] ......................... 4,213
2,200 Metropolitan Water District
of Southern California
Waterworks Revenue
5.75%, due 3/01/14 ................................. 2,183
Northern California Power
Agency Geothermal Project
Revenue
2,000 6.75%, due 7/01/01 ................................. 2,042
5,250 5.00%, due 7/01/09 ................................. 4,972
Pittsburg Redevelopment
Agency Los Medanos
Community Development
Project Tax Allocation
5,000 5.80%, due 8/01/34 [AMBAC] ......................... 4,872
6,400 4.625%, due 8/01/21 [AMBAC] ........................ 5,297
1,000 Redding Joint Powers
Financing Solid Waste
and Corp. Yard Revenue
5.00%, due 1/01/23 ................................. 813
8,500 Sacramento County Sanitation
District Finance Authority
4.75%, due 12/01/23 ................................ 7,034
Sacramento Municipal Utility
District Electric Revenue
5,000 6.00%, due 2/01/15 ................................. 4,900
2,500 - San Bernardino County
Certificates of Participation
6.25%, due 8/01/19
(Prerefunded 8/01/01 @ 100) ........................ 2,707
1,000 - San Diego County Regional
Transportation Commission
Sales Tax Revenue
6.25%, due 4/01/08
(Prerefunded 4/01/99 @ 100) ........................ 1,056
3,600 San Francisco Airport
Commission
Sewer Revenue
6.00%, due 5/01/25 [FGIC] .......................... 3,602
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-24-
<PAGE> 27
================================================================================
PORTFOLIO OF INVESTMENT (Continued)
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
CALIFORNIA (CONTINUED)
$ 1,700 San Francisco Redevelopment
Financing Authority
Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC] .......................... $ 1,457
8,010 San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation
Capital Facilities Project
4.75%, due 11/15/19 [MBIA] ......................... 6,754
25,000 San Joaquin Hills Transportation
Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33 ................................. 20,128
Southern California Public
Power Authority
Power Project Revenue
(Multiple Projects)
4,085 - 5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) ........................ 4,261
3,165 5.50%, due 7/01/20 ................................. 2,911
2,200 Southern California Public
Power Authority
Power Project Revenue
(Palo Verde Project)
5.00%, due 7/01/17 ................................. 1,954
COLORADO - 0.3%
1,000 Colorado Housing Finance
Authority Multi-Family
Mortgage Revenue
8.30%, due 10/01/23 ................................ 1,111
355 Colorado Housing Finance
Authority Single Family
Residential Housing Revenue
8.75%, due 9/01/17 ................................. 376
DELAWARE - 0.7%
$4,200 Delaware River and Bay
Authority Revenue
4.75%, due 1/01/24 [MBIA] .......................... 3,564
FLORIDA - 1.9%
Florida Board of Education
General Obligation
1,000 5.00%, due 6/01/12 ................................. 934
3,000 5.00%, due 6/01/24 ................................. 2,624
2,750 Mid-Bay Bridge Authority
Revenue
6.10%, due 10/01/22 ................................ 2,686
3,000 Orlando Utility Commission Water
and Electric Revenue
5.00%, due 10/01/23 ................................ 2,624
GEORGIA - 3.0%
6,750 Atlanta Water and Sewerage
Revenue
4.50%, due 1/01/18 ................................. 5,643
4,000 Cobb County Kennestone Hospital
Authority Revenue
5.00%, due 4/01/24 [MBIA] .......................... 3,505
5,000 Municipal Electric Authority
Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 ................................. 5,353
ILLINOIS - 10.7%
7,000 Chicago Wastewater
Transmission Revenue
5.125%, due 1/01/20 [FGIC] ......................... 6,303
5,500 Illinois Dedicated Tax Revenue
(Civic Center)
7.00%, due 12/15/10 [AMBAC] ........................ 6,043
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-25-
<PAGE> 28
================================================================================
PORTFOLIO OF INVESTMENT
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
ILLINOIS (CONTINUED)
$17,500 Illinois Educational Facilities
Authority
Adjustable Demand Revenue
(University of Chicago)
5.70%, due 12/01/25 ................................ $16,544
2,000 - Illinois Health Facilities Authority
Revenue (Illinois Masonic
Medical Center)
7.70%, due 10/01/19
(Prerefunded 10/01/99 @ 102) ....................... 2,252
1,000 Illinois Municipal Electric
Authority Revenue
5.75%, due 2/01/21 [AMBAC] ......................... 964
5,000 Metropolitan Pier and Exposition
Authority McCormick
Place Convention Complex
Hospitality Facilities Revenue
7.00%, due 7/01/26 ................................. 5,291
8,360 Regional Transportation Authority
6.75%, due 6/01/25 [FGIC] .......................... 9,521
4,770 University of Illinois
Auxiliary Facilities System
Revenue
5.75%, due 4/01/22 ................................. 4,578
INDIANA - 5.4%
200 Beech Grove Economic
Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10 ................................. 201
11,000 - East Chicago Elementary School
Building Corp.
First Mortgage
7.00%, due 01/15/16
(Prerefunded 01/15/03 @ 102) ....................... 12,527
$7,715 Hammond Multi-School
Building Corp.
First Mortgage Revenue
6.20%, due 7/10/15 ................................. 7,898
6,450 Indianapolis Gas Utility
System Revenue
4.00%, due 6/01/11 [FGIC] .......................... 5,492
IOWA - 0.2%
880 Iowa Housing Finance Authority
Multiple Family Housing Revenue
10.00%, due 4/01/23 ................................ 884
KENTUCKY - 1.9%
8,805 - Kentucky Local Correctional
Facilities Construction Authority
Multi-County Revenue
7.00%, due 11/01/14
(Prerefunded 11/01/97 @ 102) ....................... 9,303
MARYLAND - 1.9%
5,125 Baltimore Project and Revenue
(Water Projects)
5.00%, due 7/01/24 ................................. 4,630
5,000 Maryland Health and Higher
Educational Facilities
Authority Revenue
(University of Maryland
Medical System)
4.75%, due 7/01/23 [FGIC] .......................... 4,219
MASSACHUSETTS - 2.3%
1,000 - Massachusetts General
Obligation
Dedicated Income Tax Revenue
7.00%, due 12/01/10
(Prerefunded 12/01/00 @ 100) ....................... 1,106
Massachusetts Water Resources
Authority General Revenue
4,500 6.00%, due 4/01/20 ................................. 4,449
4,000 5.00%, due 3/01/22 ................................. 3,491
2,500 4.75%, due 12/01/23 ................................ 2,075
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-26-
<PAGE> 29
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
MICHIGAN - 1.7%
$2,000 Allendale Public School District
General Obligation School
Building
5.875%, due 5/01/14 .............................. $ 2,011
5,000 Detroit Water Supply System
Revenue
4.75%, due 7/01/19 [FGIC] ........................ 4,294
2,000 University of Michigan Hospital
Revenue
6.375%, due 12/01/24 ............................. 2,041
MISSOURI - 0.4%
1,840 Missouri Environmental Impact
and Energy Resource Authority
Pollution Control Revenue
7.90%, due 11/15/14 .............................. 1,903
NEVADA - 1.5%
Clark County Airport
Improvement Revenue
965 13.00%, due 7/01/98 .............................. 1,139
6,000 6.00%, due 7/01/22 .............................. 5,984
NEW JERSEY - 0.4%
1,640- New Jersey Turnpike Authority
Revenue
10.375%, due 1/01/03
(Escrowed to Maturity)............................ 1,978
NEW MEXICO - 0.5%
2,500 Farmington Collateralized
Pollution Control Revenue
(Tucson Gas and Electric Co.)
6.10%, due 1/01/08 ............................... 2,438
NEW YORK - 6.7%
New York City Municipal Water
Finance Authority
Water and Sewer System
Revenue
2,205 6.00%, due 6/15/19 ............................... 2,199
2,100 5.00%, due 6/15/17 [FGIC] ........................ 1,870
New York Dormitory Authority
State University
Educational Facilities Revenue
4,400 7.50%, due 5/15/11 ............................... 5,059
5,250 7.50%, due 5/15/13 ............................... 6,098
6,500 5.25%, due 5/15/15 ............................... 5,901
1,500 5.00%, due 7/01/15 ............................... 1,367
4,000- New York Local Government
Assistance Corp.
7.00%, due 4/01/21
(Prerefunded 4/01/01 @ 100) ...................... 4,444
4,700 Triborough Bridge and Tunnel
Authority Revenue
8.125%, due 1/01/12 .............................. 5,075
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal
Power Agency
Power System Revenue
6.00%, due 1/01/22 ............................... 10,857
OKLAHOMA - 1.2%
5,590 McGee Creek Authority Water
Revenue
6.00%, due 1/01/23 [MBIA] ........................ 5,790
OREGON - 0.2%
1,000 Clackamas County Hospital
Facility Authority Revenue
(Sisters of Providence Hospital)
6.375%, due 10/01/05 ............................. 1,066
PENNSYLVANIA - 4.0%
5,000 Centre County University Area
Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA] ....................... 4,276
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-27-
<PAGE> 30
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA (CONTINUED)
$6,000 - Pennsylvania Intergovernmental
Cooperative Authority Special
Tax Revenue
(City of Philadelphia)
6.80%, due 6/15/22
(Prerefunded 6/15/02 @ 100) ...................... $ 6,685
7,415 - Philadelphia Water and Sewer
Revenue
7.00%, due 8/01/18
(Prerefunded 8/01/01 @100) ....................... 8,263
PUERTO RICO - 1.7%
10,000+ Puerto Rico Highway and
Transportation Authority
Highway Revenue
5.00%, due 7/01/36 ............................... 8,356
SOUTH CAROLINA - 6.2%
10,250 Charleston County Hospital
Facility Revenue
5.00%, due 10/01/22 [MBIA] ....................... 8,886
1,225 Charleston County Pollution
Control Facilities Revenue
5.90%, due 8/01/03 ............................... 1,228
4,000 Charleston Waterworks and
Sewer System Revenue
5.00%, due 1/01/16 ............................... 3,579
700 - Myrtle Beach Water and
Sewer Revenue
6.00%, due 3/01/15 [MBIA]
(Prerefunded 3/01/00 @100) ....................... 750
5,500 Pickens County and Richland
County Hospital Revenue
5.75%, due 8/01/21 [AMBAC] ....................... 5,294
South Carolina Public Service
Authority Power Supply Revenue
1,395 5.70%, due 7/01/08 ............................... 1,395
10,000 5.125%, due 1/01/32 .............................. 8,796
TEXAS - 5.4%
$10,000 Austin Combined Utility System
Revenue
12.50%, due 11/15/07 [MBIA] ...................... 16,369
4,350 Austin Water, Sewer and Electric
Revenue
14.00%, due 11/15/01 ............................. 5,706
1,600 - Coastal Industrial Water
Authority Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity) ........................... 1,556
2,260 Texas Municipal Power Agency
Revenue
5.50%, due 9/01/13 [FGIC] ........................ 2,206
UTAH - 1.8%
Intermountain Power Agency
Special Obligation First
Crossover Series
1,900 6.00%, due 7/01/23 ............................... 1,877
2,750 5.00%, due 7/01/16 ............................... 2,433
1,000 - Salt Lake City Hospital Revenue
(IHC Hospitals)
5.00%, due 6/01/15
(Escrowed to Maturity) ........................... 911
3,195 Utah Housing Finance Agency
Single Family Mortgage Revenue
5.875%, due 7/01/08 .............................. 3,219
VIRGINIA - 0.5%
1,250 - Fairfax County Water Authority
Water Revenue
6.125%, due 1/01/29
(Prerefunded 1/01/00 @ 100) ...................... 1,322
1,155 - Richmond Metropolitan
Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity) ........................... 1,126
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-28-
<PAGE> 31
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
WASHINGTON - 10.7%
$7,255 Douglas County Public
Utility District #1
Wells Hydroelectric Revenue
8.75%, due 9/01/18 ............................... $ 9,388
2,500 Everett School District #2
Snohomish County Unlimited Tax
General Obligation
6.20%, due 12/01/12 [MBIA] ....................... 2,597
1,750 King County Housing Authority
Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ............................... 1,817
1,650 King County Limited Tax General
Obligation
(Various Purposes)
4.75%, due 1/01/19 ............................... 1,432
2,255 King County Public Hospital
District #1
Hospital Facilities Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ....................... 2,115
4,800 Lewis County Public
Utility District #1
Cowlitz Falls Hydroelectric
Project Revenue
6.00%, due 10/01/24 .............................. 4,735
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 .............................. 4,008
3,000 Washington Health Care
Facilities Authority Revenue
(Fred Hutchinson Cancer
Research Center)
7.375%, due 1/01/18 .............................. 3,234
6,350 Washington Health Care
Facilities Authority Revenue
(Yakima Valley Memorial
Hospital Association)
7.25%, due 1/01/21 ............................... 7,154
8,500 Washington Public Power
Supply System
Nuclear Project #1 Revenue
6.00%, due 7/01/17 ............................... 8,164
4,000 Washington Public Power
Supply System
Nuclear Project #2 Revenue
6.30%, due 7/01/12 ............................... 4,157
2,610 Washington Public Power
Supply System
Nuclear Project #3 Revenue
5.50%, due 7/01/18 .............................. 2,385
WEST VIRGINIA - 0.6%
3,025 West Virginia Housing
Development Fund
Single Family Mortgage Revenue
6.125%, due 7/01/13 .............................. 3,061
WISCONSIN - 0.2%
1,000 Wisconsin Health and Education
Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA] ....................... 1,006
TOTAL BONDS 482,571
TOTAL INVESTMENTS - 100.4% ................................... 482,571
--------
Liabilities, less Other Assets ............................... (1,928)
--------
NET ASSETS ................................................... $480,643
========
</TABLE>
- - Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
+ Security issued on a when-issued basis
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio that
they guarantee at the period end are as follows:
<TABLE>
<S> <C> <C>
MBIA: Municipal Bond Investors
Assurance Corp........................................ 11.9%
FGIC: Financial Guaranty
Insurance Corp........................................ 9.2
AMBAC: AMBAC Indemnity Corp.................................. 5.1
----
26.2%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-29-
<PAGE> 32
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
BONDS - 92.6%
$2,250 California Health Facilities
Financing Authority Insured
Health Facility Revenue
(Catholic Healthcare West)
4.75%, due 7/01/19 [MBIA]* ....................... $1,905
California Statewide Communities
Development Authority
Certificates of Participation
2,750 5.00%, due 10/01/23 .............................. 2,425
3,715 4.75%, due 6/01/21 ............................... 3,124
20 Concord Redevelopment Agency
Tax Allocation Central Concord
Redevelopment Project
8.00%, due 7/01/18 [BIG] ......................... 22
3,750 Culver City Redevelopment
Financing Authority
Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC] ...................... 3,100
3,150 East Bay Regional Park District
California General Obligation
5.75%, due 9/01/17 ............................... 3,056
2,445 Foothill/Eastern Transportation
Corridor Agency
Toll Road Revenue
5.00%, due 1/01/35 ............................... 1,968
670 Inglewood Insured Hospital
Revenue
(Daniel Freeman Hospital)
6.75%, due 5/01/13 ............................... 695
1,200 - Los Angeles Convention and
Exhibition Center
Authority Certificates of
Participation
9.00%, due 12/01/20
(Prerefunded 12/01/05 @ 100) ..................... 1,581
4,500 Los Angeles County Sanitation
District Financing
Authority Revenue
(Capital Projects)
5.25%, due 10/01/19 .............................. 4,109
3,800 Los Angeles Department of
Water and Power
Waterworks Revenue
4.75%, due 11/15/19 .............................. 3,229
2,000 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/17 [FGIC] ....................... 1,698
1,000- Modesto Certificates of
Participation
(Community Center
Refinancing Project)
6.00%, due 11/01/15 [AMBAC]
(Prerefunded 11/01/01 @ 102) ..................... 1,089
2,500 Northern California Power
Agency
Geothermal Project Revenue
5.00%, due 7/01/09 ............................... 2,367
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-30-
<PAGE> 33
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$1,100 Oro Loma Sanitation District
Sewer Revenue
5.20%, due 10/01/16 [AMBAC] ...................... $1,002
1,350 Palomar Pomerado Health System
California Insured Revenue
Service
4.75%, due 11/01/23 [MBIA] ....................... 1,124
4,435 Pittsburg Redevelopment
Agency
Los Medanos Community
Development Project
Tax Allocation
4.625%, due 8/01/21 .............................. 3,671
Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
1,480 6.20%, due 9/02/17 ............................... 1,468
1,930 6.15%, due 9/02/12 ............................... 1,931
3,900 Redding Joint Powers Financing
Authority
Solid Waste and Corp. Yard
Revenue
5.00%, due 1/01/23 ............................... 3,171
2,000 Riverside County Certificates
of Participation
(Capital Projects)
6.125%, due 11/01/21 ............................. 1,973
1,000 Riverside County Certificates of
Participation
(Public Financing Project)
7.875%, due 12/01/15 ............................. 1,042
3,000 Sacramento Municipal
Utility District Electric Revenue
4.75%, due 9/01/21 [MBIA] ........................ 2,531
1,750 San Diego Public Facilities
Financing Authority
Sewer Revenue
5.25%, due 5/15/20 ............................... 1,577
2,000 San Francisco Airport
Commission
Sewer Revenue
6.00%, due 5/01/25 [FGIC] ........................ 2,001
5,000 San Joaquin Hills Transportation
Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33 ............................... 4,026
4,000 San Jose Redevelopment Agency
4.75%, due 8/01/22 ............................... 3,283
Southern California Public
Power Authority
Power Project Revenue
(Multiple Projects)
2,665 - 5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) ...................... 2,779
1,335 5.50%, due 7/01/20 ............................... 1,228
250 Southern California Public
Power Authority
Power Project Revenue
(Palo Verde Project)
5.75%, due 7/01/17 ............................... 242
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-31-
<PAGE> 34
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$1,000 Southern California Public
Power Authority
Power Project Revenue
(Transportation Project)
4.75%, due 7/01/23 ............................... $ 844
970 Stanislaus Waste-to-Energy
Financing Agency
Solid Waste Facility Revenue
7.625%, due 1/01/10 .............................. 1,048
TOTAL BONDS .................................................. 65,309
-------
SHORT-TERM INVESTMENTS - 6.2%
INVESTMENT COMPANIES:
4,369 Municipal Fund for
California Investors, Inc. ....................... 4,369
-------
TOTAL SHORT-TERM INVESTMENTS ................................. 4,369
-------
TOTAL INVESTMENTS - 98.8% .................................... 69,678
Other Assets, less Liabilities ............................... 868
-------
NET ASSETS .................................................. $70,546
=======
</TABLE>
- - Prerefunded bond collateralized by securities (generally U.S. Treasury
securities) held in an irrevocable trust in an amount sufficient to pay
interest and principal.
* The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio and the percentage of the portfolio that
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors
Assurance Corp........................................ 8.5%
AMBAC: AMBAC Indemnity Corp.................................. 7.9
FGIC: Financial Guaranty Insured Corp....................... 5.7
BIG: Bond Investors Guaranty
Insurance Co.......................................... 0.0
----
22.1%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-32-
<PAGE> 35
================================================================================
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
BONDS - 95.6%
$100 Battle Ground School
District #119 Clark County
Unlimited Tax General Obligation
5.65%, due 12/01/12 .............................. $ 99
125 Centralia Water Revenue
5.65%, due 8/01/13 [AMBAC]* ...................... 123
100 Chelan County Public Utility
District #1
Columbia River Rock
Hydroelectric System
Revenue
6.375%, due 6/01/29 .............................. 101
300 Everett School District #2
Snohomish County
Unlimited Tax General Obligation
6.20%, due 12/01/12 [MBIA] ....................... 312
215 Grant County Public Utility
District #2
Wanapum Hydroelectric Revenue
6.375%, due 1/01/23 .............................. 218
300 King County Housing Authority
Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ............................... 312
250 King County Limited Tax General
Obligation
(Various Purpose)
4.75%, due 1/01/19 ............................... 217
200 King County Public Hospital
District #1
Hospital Facilities Revenue
(Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ....................... 188
100 King County School
District #415 (Kent)
Unlimited Tax General Obligation
6.45%, due 12/01/12 .............................. 107
200 Kitsap County School
District #401 (Central Kitsap)
Unlimited Tax General Obligation
5.50%, due 12/01/11 .............................. 196
250 Klickitat County Public Hospital
District # 1
Unlimited Tax General Obligation
5.75%, due 10/01/27 [FGIC] ....................... 245
100 Lewis County Public Utility
District #1
Cowlitz Falls Hydroelectric
Project Revenue
6.00%, due 10/01/24 .............................. 99
200 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] ........................ 206
95 Pike Place Market Preservation
and Development
Authority Special Obligation
Revenue
6.60%, due 12/01/21 .............................. 99
100 Port of Seattle Revenue
6.00%, due 12/01/14 .............................. 100
300 Renton Water and Sewer
Improvement Revenue
5.375%, due 4/01/13 .............................. 284
200 Seattle Water System Revenue
5.25%, due 12/01/23 .............................. 178
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-33-
<PAGE> 36
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$295 Snohomish County Public
Utility District #1
Generation System Revenue
5.50%, due 1/01/20 [FGIC] ........................ $279
250 Spokane Regional Solid Waste
Management System Revenue
6.25%, due 12/01/11 [AMBAC] ...................... 261
250 Tacoma Limited Tax General
Obligation
6.25%, due 12/01/12 .............................. 258
250 Tacoma Water System Revenue
5.50%, due 12/01/13 .............................. 242
200 Tukwila Limited Tax General
Obligation
5.90%, due 1/01/14 ............................... 204
100 Tumwater Unlimited Tax General
Obligation
5.80%, due 12/01/11 .............................. 100
200 University of Washington Housing
and Dining System Revenue
5.00%, due 12/01/21 [MBIA] ....................... 177
100 Washington Certificates of
Participation
(State Office Building Project)
6.00%, due 4/01/12 ............................... 100
100 Washington Health Care Facilities
Authority Revenue
(Empire Health Service Spokane)
5.80%, due 11/01/10 [MBIA] ....................... 104
200 Washington Health Care Facilities
Authority Revenue
(Franciscan Health System/
St. Joseph Hospital and
Health Care Center, Tacoma)
5.625%, due 1/01/13 [MBIA] ....................... 194
100 Washington Health Care Facilities
Authority Revenue
(Harrison Memorial Hospital,
Bremerton)
5.40%, due 8/15/23 [AMBAC] ....................... 92
200 Washington Health Care Facilities
Authority Revenue
(Northwest Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] ...................... 192
100 Washington Health Care Facilities
Authority Revenue
(Swedish Hospital Medical
Center)
6.30%, due 11/15/22 [AMBAC] ...................... 102
120 Washington Public Power
Supply System
Nuclear Project #2 Revenue
5.50%, due 7/01/18 ............................... 110
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-34-
<PAGE> 37
================================================================================
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of March 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C> <C>
$250 Washington State Housing
Finance Commission
Revenue (Horizon House Project)
6.125%, due 7/01/27 .............................. $ 251
250 Whatcom County Limited Tax
General Obligation
5.75%, due 12/01/12 [FSA] ........................ 250
200 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA] ......................... 204
TOTAL BONDS .................................................. 6,204
------
SHORT-TERM INVESTMENTS - 3.4%
217 Aim Tax-Exempt
Money Market Fund, Inc. .......................... 217
------
TOTAL SHORT-TERM INVESTMENTS.................................. 217
------
TOTAL INVESTMENTS - 99.0% .................................... 6,421
Other Assets, less Liabilities ............................... 68
------
NET ASSETS .................................................. $6,489
======
</TABLE>
*The provider of the guarantee of timely payment of both principal and interest
is identified in the brackets at the end of each bond description. The
guarantors applicable to this portfolio are:
<TABLE>
<CAPTION>
<S> <C> <C>
MBIA: Municipal Bond Investors
Assurance Corp........................................ 16.0%
AMBAC: AMBAC Indemnity Corp.................................. 15.4
FGIC: Financial Guaranty
Insurance Corp........................................ 8.4
FSA: Financial Security
Assurance, Inc........................................ 7.3
----
47.1%
====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-35-
<PAGE> 38
===============================================================================
STATEMENTS OF ASSETS AND LIABILITIES
As of March 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
(In Thousands, Except Per-Share Amounts) BOND FUND BOND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at Value:
Bonds (Identified Cost $14,518
and $9,368, respectively) $14,740 $ 9,713
Short-Term Investments 79 2,375
------- -------
Total Investments 14,819 12,088
Cash --
Receivables
Interest 202 164
Trust Shares Sold 2 5
Deferred Organization Expense 8 8
------- -------
Total Assets 15,031 12,265
------- -------
Liabilities
Payables
Dividends 21 28
Investment Securities Purchased -- 451
When-Issued Securities Purchased -- --
Investment Advisory Fees 6 5
Notes Payable -- --
Trust Shares Redeemed 1 1
Organization Expense 8 8
Other 14 14
------- -------
Total Liabilities 50 507
------- -------
Net Assets $14,981 $11,758
======= =======
Shares Outstanding 1,428 1,124
======= =======
Net Asset Value Per Share $ 10.49 $ 10.46
======= =======
- --------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-36-
<PAGE> 39
===============================================================================
STATEMENTS OF ASSETS AND LIABILITIES(CONTINUED)
As of March 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON
MUNICIPAL TAX-FREE STATE MUNICIPAL
(In Thousands, Except Per-Share Amounts) BOND FUND INCOME FUND BOND FUND
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments, at Value:
Bonds (Identified Cost $440,042,
$61,385 and $6,041, respectively) $482,571 $ 65,309 $ 6,204
Short-Term Investments -- 4,369 217
-------- -------- --------
Total Investments 482,571 69,678 6,421
Cash 3 -- --
Receivables
Interest 8,485 1,112 109
Trust Shares Sold 88 4 --
Deferred Organization Expense -- -- 3
-------- -------- --------
Total Assets 491,147 70,794 6,533
-------- -------- --------
LIABILITIES
Payables
Dividends 744 192 25
Investment Securities Purchased -- -- --
When-Issued Securities Purchased 8,409 -- --
Investment Advisory Fees 161 29 3
Notes Payable 1,030 -- --
Trust Shares Redeemed 95 7 --
Organization Expense -- -- 3
Other 65 20 13
-------- -------- --------
Total Liabilities 10,504 248 44
-------- -------- --------
NET ASSETS $480,643 $ 70,546 $ 6,489
======== ======== ========
SHARES OUTSTANDING 35,106 5,948 628
======== ======== ========
NET ASSET VALUE PER SHARE $ 13.69 $ 11.86 $ 10.34
======== ======== ========
- -----------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-37-
<PAGE> 40
===============================================================================
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
(In Thousands) BOND FUND BOND FUND
- ---------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 750 $ 515
EXPENSES
Investment Advisory Fees 78 57
Shareholder Servicing Fees 17 9
Legal and Auditing Fees 14 13
Loan Interest -- --
Reports to Shareholders 1 1
Custodian Fees 5 5
Trustees' Fees 4 4
Amortization of Organization Expenses 4 4
------- -------
Total Expenses 123 93
------- -------
NET INVESTMENT INCOME 627 422
------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments 7 9
Net Change in Unrealized Appreciation 422 239
------- -------
NET GAIN ON INVESTMENTS 429 248
------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,056 $ 670
======= =======
- ---------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-38-
<PAGE> 41
===============================================================================
STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
SAFECO CALIFORNIA WASHINGTON
MUNICIPAL TAX-FREE STATE MUNICIPAL
(In Thousands) BOND FUND INCOME FUND BOND FUND
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $29,366 $ 3,986 $ 359
EXPENSES
Investment Advisory Fees 2,021 366 39
Shareholder Servicing Fees 511 69 3
Legal and Auditing Fees 24 14 14
Loan Interest 27 2 1
Reports to Shareholders 27 4 --
Custodian Fees 13 7 4
Trustees' Fees 7 4 4
Amortization of Organization Expenses -- -- 1
------- ------- -------
Total Expenses 2,630 466 66
------- ------- -------
NET INVESTMENT INCOME 26,736 3,520 293
------- ------- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net Realized Gain on Investments 2,608 704 28
Net Change in Unrealized Appreciation 11,135 1,516 124
------- ------- -------
NET GAIN ON INVESTMENTS 13,743 2,220 152
------- ------- -------
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $40,479 $ 5,740 $ 445
======= ======= =======
- --------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-39-
<PAGE> 42
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
---------------------------------------------------------
FOR THE YEAR FOR THE YEAR
ENDED MARCH 31 ENDED MARCH 31
(In Thousands) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 627 $ 565 $ 422 $ 310
Net Realized Gain (Loss) on Investments 7 (22) 9 (46)
Net Change in Unrealized Appreciation 422 97 239 273
-------- -------- -------- --------
Net Change in Net Assets Resulting
from Operations 1,056 640 670 537
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (627) (565) (422) (310)
Net Realized Gain on Investments -- -- -- --
NET TRUST SHARE TRANSACTIONS 790 2,906 3,347 4,630
-------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 1,219 2,981 3,595 4,857
NET ASSETS AT BEGINNING OF PERIOD 13,762 10,781 8,163 3,306
-------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 14,981 $ 13,762 $ 11,758 $ 8,163
======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES
Sales 342 655* 368 615**
Reinvestments 33 32 8 4
Redemptions (300) (398) (64) (147)
-------- -------- -------- --------
Net Change 75 289 312 472
======== ======== ======== ========
AMOUNTS
Sales $ 3,592 $ 6,550* $ 3,939 $ 5,994**
Reinvestments 350 320 81 40
Redemptions (3,152) (3,964) (673) (1,404)
-------- -------- -------- --------
Net Change $ 790 $ 2,906 $ 3,347 $ 4,630
======== ======== ======== ========
As of March 31, 1996:
Trust Shares Authorized Unlimited Unlimited
Par Value Per Share $ .001 $ .001
Paid in Capital $ 14,774 $ 11,468
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In Thousands:
* Includes 197 shares purchased by SAFECO Insurance Company for $2,000.
** Includes 406 shares purchased by SAFECO Insurance Company for $4,000.
SEE NOTES TO FINANCIAL STATEMENTS
-40-
<PAGE> 43
===============================================================================
STATEMENTS OF CHANGES IN NET ASSETS(CONTINUED)
<TABLE>
<CAPTION>
SAFECO SAFECO CALIFORNIA SAFECO WASHINGTON
MUNICIPAL BOND FUND TAX-FREE INCOME FUND STATE MUNICIPAL BOND FUND
--------------------- ----------------------- -------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED MARCH 31 ENDED MARCH 31 ENDED MARCH 31
1996 1995 1996 1995 1996 1995
--------------------- ----------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net Investment Income $ 26,736 $ 28,627 $ 3,520 $ 3,828 $ 293 $ 253
Net Realized Gain (Loss) on Investments 2,608 (6,245) 704 (250) 28 1
Net Change in Unrealized Appreciation 11,135 10,408 1,516 357 124 109
--------- --------- --------- --------- ---------- ---------
Net Change in Net Assets Resulting
from Operations 40,479 32,790 5,740 3,935 445 363
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income (26,736) (28,627) (3,520) (3,828) (293) (253)
Net Realized Gain on Investments -- (1,166) (449) (644) (20)
NET TRUST SHARE TRANSACTIONS (5,669) (37,881) 4,717 (12,461) 404 2,935
--------- --------- --------- --------- ---------- ---------
TOTAL CHANGE IN NET ASSETS 8,074 (34,884) 6,488 (12,998) 536 3,045
NET ASSETS AT BEGINNING OF PERIOD 472,569 507,453 64,058 77,056 5,953 2,908
--------- --------- --------- --------- ---------- ---------
NET ASSETS AT END OF PERIOD $ 480,643 $ 472,569 $ 70,546 $ 64,058 $ 6,489 $ 5,953
========= ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES
Sales 27,285 42,783 2,471 1,366 50 342++
Reinvestments 1,214 1,462 223 263 3 4
Redemptions (28,766) (47,105) (2,299) (2,771)+ (15) (49)
--------- --------- --------- --------- ---------- ---------
Net Change (267) (2,860) 395 (1,142) 38 297
========= ========= ========= ========== ========== ==========
AMOUNTS
Sales $ 377,063 $ 556,843 $ 29,742 $ 15,280 $ 528 $ 3,386++
Reinvestments 16,744 18,983 2,678 2,933 31 39
Redemptions (399,476) (613,707) (27,703) (30,674)+ (155) (490)
--------- --------- --------- --------- ---------- ---------
Net Change $ (5,669) $ (37,881) $ 4,717 $ (12,461) $ 404 $ 2,935
========= ========= ========= ========= ========= =========
As of March 31, 1996:
Trust Shares Authorized Unlimited Unlimited Unlimited
Par Value Per Share $ .001 $ .001 $ .001
Paid in Capital $ 441,739 $ 66,620 $ 6,326
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In Thousands:
+ Includes 442 shares redeemed by SAFECO Insurance Company for $5,000.
++ Includes 302 shares purchased by SAFECO Insurance Company for $3,000.
SEE NOTES TO FINANCIAL STATEMENTS
-41-
<PAGE> 44
===============================================================================
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT
ACCOUNTING POLICIES
The SAFECO Tax-Exempt Bond Trust ("Trust") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust consists of the SAFECO
Intermediate-Term Municipal Bond Fund (Intermediate), SAFECO Insured Municipal
Bond Fund (Insured), SAFECO Municipal Bond Fund (Municipal), SAFECO California
Tax-Free Income Fund (California) and SAFECO Washington State Municipal Bond
Fund (Washington) (together "the Funds").
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Tax-exempt bonds are stated on the basis of valuations
provided by a pricing service, which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining value. Short-term investments are valued at cost which approximates
market.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade
date. The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily.
Bond premiums and original issue discounts are
-42-
<PAGE> 45
===============================================================================
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
amortized to either call or maturity dates. Market discount on bonds purchased
after April 30, 1993, is recorded as taxable income at disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, will normally be distributed
to shareholders at the end of March and December.
FEDERAL INCOME AND EXCISE TAXES. The Funds intend to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies by distributing substantially all income to shareholders in a manner
which results in no tax to the Funds. Therefore, no Federal income or excise tax
provision is required. In addition, the Funds intend to satisfy conditions which
will enable them to pay dividends which, for shareholders, are exempt from
Federal income taxes. Any portion of dividends representing net short-term
capital gains, however, is not exempt and is treated as taxable dividends for
Federal income tax purposes. In addition, income which is derived from
amortization on bonds purchased below their issued price after April 30, 1993,
is treated as ordinary income for Federal income tax purposes.
2. ACCUMULATED UNDISTRIBUTED
CAPITAL LOSS
The Funds had the following amounts of accumulated undistributed net
realized loss on investment transactions at March 31, 1996. For Federal income
tax purposes, these represent capital loss carryforwards which expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION
AMOUNTS DATES
- -------------------------------------------------------------------------------
<S> <C> <C>
SAFECO
Intermediate-Term
Municipal Bond Fund $ 15,000 2003
SAFECO
Insured
Municipal Bond
Fund 55,000 2002-2003
SAFECO
Municipal
Bond Fund 3,626,000 2003
</TABLE>
3. INVESTMENT ADVISORY FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company (the "Investment
Adviser") receives investment advisory fees from the Funds. For
-43-
<PAGE> 46
===============================================================================
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
the Intermediate Fund, the fee is based on average daily net assets at the
annual rate of 55/100 of one percent on the first $250 million declining in
three levels to 25/100 of one percent on net assets over $750 million. For the
Insured and Washington Funds, the fee is based on average daily net assets at
the annual rate of 65/100 of one percent on the first $250 million declining in
three levels to 35/100 of one percent on net assets over $750 million. For the
Municipal and California Funds, the fee is based on average daily net assets at
the annual rate of 55/100 of one percent on the first $100 million declining in
three levels to 25/100 of one percent on net assets over $500 million.
TRANSFER AGENT FEES. SAFECO Services Corporation receives shareholder
servicing fees.
NOTES PAYABLE AND INTEREST EXPENSE. The Funds may borrow money for
temporary purposes from SAFECO Corporation or its affiliates. Interest rates
equivalent to commercial bank interest rates are charged on loans over $100,000.
No interest is charged on loans under $100,000. At March 31, 1996, the Municipal
Bond Fund had a 5.52% note payable of $1,030,000 to SAFECO Life Deferred Annuity
Company. The note was repaid on April 2, 1996.
AFFILIATE OWNERSHIP. At March 31, 1996, SAFECO Insurance Company of
America ("SAFECO Insurance"), a wholly owned subsidiary of SAFECO Corporation,
owned 397,434 shares (27.8% of the outstanding shares) of the Intermediate Fund,
605,644 shares (53.9%) of the Insured Fund and 502,372 shares (80.0%) of the
Washington Fund.
DEFERRED ORGANIZATION EXPENSES. Costs relating to the organization of the
Intermediate, Insured and Washington Funds have been deferred and are being
amortized to operations over a period of sixty months. These costs were advanced
by the Investment Adviser and are being reimbursed by those Funds over the same
period. If any of the original seed money shares for these Funds are redeemed by
SAFECO Insurance prior to the end of the amortization period, the redemption
proceeds will be reduced by a pro rata share of the unamortized organization
expenses as of the date of redemption.
-44-
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (Continued)
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SAFECO
SAFECO SAFECO SAFECO WASHINGTON
INTERMEDIATE- INSURED SAFECO CALIFORNIA STATE
TERM MUNICIPAL MUNICIPAL MUNICIPAL TAX-FREE MUNICIPAL
(In Thousands) BOND FUND BOND FUND BOND FUND INCOME FUND BOND FUND
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES FOR THE
YEAR ENDED
MARCH 31, 1996 $ 1,927 $ 1,741 $ 62,738 $ 12,674 $1,250
======= ======= ======== ======== ======
SALES FOR THE YEAR
ENDED MARCH 31, 1996 $ 1,293 $ 321 $ 59,858 $ 10,723 $1,251
======= ======= ======== ======== ======
UNREALIZED APPRECIATION
(DEPRECIATION) AT
MARCH 31, 1996
Aggregate gross unrealized
appreciation for investment
securities in which there
is an excess of value over
identified cost $ 341 $ 413 $ 43,217 $ 4,313 $ 203
Aggregate gross unrealized
depreciation for investment
securities in which there
is an excess of identified
cost over value (119) (68) (688) (389) (40)
------- ------- -------- -------- ------
NET UNREALIZED APPRECIATION $ 222 $ 345 $ 42,529 $ 3,924 $ 163
======= ======= ======== ======== ======
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-45-
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
NOVEMBER 5, 1992
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEAR ENDED MARCH 31 TO MARCH 31
-------------------------------------- ----------------
1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.17 $ 10.13 $ 10.25 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.45 0.45 0.40 0.09
Net Realized and Unrealized
Gain (Loss) on Investments 0.32 0.04 (0.12) 0.25
-------- -------- -------- -------
Total from Investment Operations 0.77 0.49 0.28 0.34
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.45) (0.45) (0.40) (0.09)
-------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.49 $ 10.17 $ 10.13 $ 10.25
======== ======== ======== =======
TOTAL RETURN 7.63% 4.97% 2.64% -0.04%
NET ASSETS AT END OF PERIOD (000'S) $ 14,981 $ 13,762 $ 10,781 $ 2,345
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.84% 0.85% 0.99% 1.95%*
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.29% 4.46% 3.85% 2.18%*
PORTFOLIO TURNOVER RATE 9.12% 4.27% 1.49% None
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total return from March 18, 1993 (initial public offering) to March 31, 1993,
not annualized.
-46-
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
NOVEMBER 5, 1992
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEAR ENDED MARCH 31 TO MARCH 31
-------------------------------------- ----------------
1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.05 $ 9.73 $ 10.26 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.48 0.48 0.41 0.08
Net Realized and Unrealized
Gain (Loss) on Investments 0.41 0.32 (0.53) 0.26
-------- -------- -------- -------
Total from Investment Operations 0.89 0.80 (0.12) 0.34
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.48) (0.48) (0.41) (0.08)
-------- -------- -------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.46 $ 10.05 $ 9.73 $ 10.26
======== ======== ======== =======
TOTAL RETURN 8.95% 8.58% -1.40% -0.43%**
NET ASSETS AT END OF PERIOD (000'S) $ 11,758 $ 8,163 $ 3,306 $ 2,106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.99% 1.08% 1.41% 1.95% *
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.53% 5.11% 3.99% 1.90%*
PORTFOLIO TURNOVER RATE 3.71% 14.76% 21.19% None
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total return from March 18, 1993 (initial public offering) to March 31, 1993,
not annualized.
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
--------------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.36 $ 13.27 $ 14.13 $ 13.37 $ 12.95
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.76 0.77 0.78 0.81 0.86
Net Realized and Unrealized
Gain (Loss) on Investments 0.33 0.12 (0.55) 0.94 0.48
--------- --------- --------- --------- ---------
Total from Investment Operations 1.09 0.89 0.23 1.75 1.34
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.76) (0.77) (0.78) (0.81) (0.86)
Distributions from Realized Gains -- (0.03) (0.31) (0.18) (0.06)
--------- --------- --------- --------- ---------
Total Distributions (0.76) (0.80) (1.09) (0.99) (0.92)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 13.69 $ 13.36 $ 13.27 $ 14.13 $ 13.37
========= ========= ========= ========= =========
TOTAL RETURN 8.23% 7.10% 1.30% 13.60% 10.57%
NET ASSETS AT END OF PERIOD (000'S) $ 480,643 $ 472,569 $ 507,453 $ 541,515 $ 427,638
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.54% 0.56% 0.52% 0.53% 0.54%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 5.47% 5.96% 5.49% 5.91% 6.37%
PORTFOLIO TURNOVER RATE 12.60% 26.96% 22.07% 31.66% 25.18%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-48-
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31
----------------------------------------------------------------
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.54 $ 11.51 $ 12.23 $ 11.60 $ 11.24
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.62 0.63 0.66 0.68 0.71
Net Realized and Unrealized
Gain (Loss) on Investments 0.40 0.13 (0.38) 0.76 0.44
-------- -------- -------- -------- --------
Total from Investment Operations 1.02 0.76 0.28 1.44 1.15
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.62) (0.63) (0.66) (0.68) (0.71)
Distributions from Realized Gains (0.08) (0.10) (0.34) (0.13) (0.08)
-------- -------- -------- -------- --------
Total Distributions (0.70) (0.73) (1.00) (0.81) (0.79)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 11.86 $ 11.54 $ 11.51 $ 12.23 $ 11.60
======== ======== ======== ======== ========
TOTAL RETURN 8.87% 7.01% 1.97% 12.88% 10.43%
NET ASSETS AT END OF PERIOD (000'S) $ 70,546 $ 64,058 $ 77,056 $ 79,872 $ 71,480
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.68% 0.70% 0.68% 0.66% 0.67%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 5.12% 5.65% 5.31% 5.71% 6.13%
PORTFOLIO TURNOVER RATE 16.25% 44.10% 32.58% 23.18% 39.35%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-49-
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (Continued)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
NOVEMBER 5, 1992
(COMMENCEMENT
OF OPERATIONS)
FOR THE YEAR ENDED MARCH 31 TO MARCH 31
-------------------------------------- ----------------
1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.10 $ 9.91 $ 10.27 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.50 0.49 0.44 0.09
Net Realized and Unrealized
Gain (Loss) on Investments 0.27 0.19 (0.35) 0.27
------- ------- ------- -------
Total from Investment Operations 0.77 0.68 0.09 0.36
------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.50) (0.49) (0.44) (0.09)
Distributions from Realized Gains (0.03) -- (0.01) --
------- ------- ------- -------
Total Distributions (0.53) (0.49) (0.45) (0.09)
------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 10.34 $ 10.10 $ 9.91 $ 10.27
======= ======= ======= =======
TOTAL RETURN 7.73% 7.13% 0.68% -0.31%**
NET ASSETS AT END OF PERIOD (000'S) $ 6,489 $ 5,953 $ 2,908 $ 2,163
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.07% 1.09% 1.44% 2.00%*
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.78% 5.06% 4.17% 2.22%*
PORTFOLIO TURNOVER RATE 20.86% 9.23% 17.26% None
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total return from March 18, 1993 (initial public offering) to March 31, 1993,
not annualized.
-50-
<PAGE> 53
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
OF THE SAFECO TAX-EXEMPT BOND TRUST
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the SAFECO Tax-Exempt Bond Trust
(comprising, respectively, the SAFECO Intermediate-Term Municipal Bond Fund,
SAFECO Insured Municipal Bond Fund, SAFECO Municipal Bond Fund, SAFECO
California Tax-Free Income Fund, and SAFECO Washington State Municipal Bond
Fund) as of March 31, 1996, and the related statements of operations for the
year then ended and the statements of changes in net assets for each of the two
years in the period then ended. We have also audited the financial highlights
for each of the five years in the period then ended for the SAFECO Municipal
Bond Fund and the SAFECO California Tax-Free Income Fund and we have audited the
financial highlights for each of three years in the period then ended and for
the period from November 5, 1992 (commencement of operations) through March 31,
1993, for the SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured
Municipal Bond Fund, and SAFECO Washington State Municipal Bond Fund. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures
-51-
<PAGE> 54
included confirmation of securities owned as of March 31, 1996, by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting the SAFECO Tax-Exempt Bond Trust at
March 31, 1996, and the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
April 26, 1996
-52-
<PAGE> 55
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
SAFECO Balanced Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest 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.
-53-
<PAGE> 56
SAFECO TAX-EXEMPT BOND FUNDS FOR SHAREHOLDER SERVICE:
BOARD OF TRUSTEES: Monday-Friday,
Boh A. Dickey, Chairman 5:30am-7:00pm Pacific Time
Barbara J. Dingfield
Richard W. Hubbard Nationwide: 1-800-624-5711
Richard E. Lundgren
L.D. McClean Seattle: 545-7319
Larry L. Pinnt
John W. Schneider TTY/TDD: 1-800-438-8718
OFFICERS:
David F. Hill, President
Ronald L. Spaulding FOR YIELDS, PRICES AND
Vice President and Treasurer PERFORMANCE INFORMATION:
Neal A. Fuller
Vice President and Controller 24 hours a day, 7 days a week
INVESTMENT ADVISER: NATIONWIDE: 1-800-835-4391
SAFECO Asset
Management Company SEATTLE: 545-5113
DISTRIBUTOR:
SAFECO Securities, Inc.
MAILING ADDRESS:
TRANSFER AGENT:
SAFECO Services Corporation SAFECO Mutual Funds
CUSTODIAN: P.O. Box 34890
U.S. Bank of Washington, N.A.
Seattle, WA 98124-1890
