<PAGE> 1
December 31, 1996
Mt. Adams, Washington
[GRAPHIC]
ANNUAL REPORT
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
<PAGE> 2
SAFECO TAX-EXEMPT BOND FUNDS
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
U.S. Bank of Washington, N.A.
FOR SHAREHOLDER SERVICE:
Monday-Friday,
5:30am - 7:00pm Pacific Time
NATIONWIDE: 1-800-624-5711
SEATTLE: 545-7319
DEAF AND HARD OF HEARING
TTY/TDD SERVICE: 1-800-438-8718
FOR ACCOUNT INFORMATION,
YIELDS, PRICES AND
PERFORMANCE INFORMATION:
24 hours a day, 7 days a week
NATIONWIDE: 1-800-835-4391
SEATTLE: 545-5113
MAILING ADDRESS:
SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
INTERNET:
http://networth.galt.com/safeco
E-MAIL: [email protected]
GMF 713 2/97 Printed on Recycled Paper.
This report must be preceded or accompanied by a current prospectus.
(R) Registered trademark of SAFECO Corporation.
<PAGE> 3
PERFORMANCE INFORMATION
December 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 3.75% N/A 5.26%*
Lehman Brothers 7-Year Municipal Bond Index 4.38% N/A 5.90%
- --------------------------------------------------------------------------------
SAFECO Insured Municipal Bond Fund 2.56% N/A 5.90%*
Lehman Brothers Long Insured Municipal Bond Index 4.01% N/A 6.79%
- --------------------------------------------------------------------------------
SAFECO Municipal Bond Fund 3.18% 7.10% 7.94%
Lehman Brothers Long Municipal Bond Index 4.49% 8.19% 8.65%
- --------------------------------------------------------------------------------
SAFECO California Tax-Free Income Fund 2.53% 7.51% 7.69%
Lehman Brothers Long Municipal Bond Index 4.49% 8.19% 8.65%
- --------------------------------------------------------------------------------
SAFECO Washington State Municipal Bond Fund 3.04% N/A 5.61%*
Lehman Brothers Long Municipal Bond Index 4.49% N/A 7.00%
- --------------------------------------------------------------------------------
</TABLE>
*Inception was on March 18, 1993. Performance information begins March 31,
1993.
<PAGE> 4
Intermediate-Term Muni Bond Fund
Intermediate-Term Muni Bond Fund
Lehman Brothers 7-Year Muni Index
<TABLE>
<CAPTION>
IT Muni Lehman
------------- -------------
<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
04/30/96 11,575 11,816
05/31/96 11,539 11,798
06/30/96 11,590 11,889
07/31/96 11,736 11,988
08/31/96 11,755 11,994
09/30/96 11,845 12,102
10/31/96 11,979 12,233
11/30/96 12,168 12,437
12/31/96 12,121 12,399
</TABLE>
Insured Muni Bond Fund
Insured Muni Bond Fund
Lehman Brothers Long Insured Muni Index
<TABLE>
<CAPTION>
INS Muni Lehman
------------- -------------
<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 12,366
02/28/96 11,947 12,194
03/31/96 11,664 11,950
04/30/96 11,564 11,891
05/31/96 11,575 11,894
06/30/96 11,741 12,078
07/31/96 11,892 12,198
08/31/96 11,847 12,182
09/30/96 12,145 12,452
10/31/96 12,238 12,602
11/30/96 12,558 12,885
12/31/96 12,400 12,795
</TABLE>
-1-
<PAGE> 5
Municipal Bond Fund
Municipal Bond Fund
Lehman Brothers Long Muni Bond Index
<TABLE>
<CAPTION>
Muni Lehman
------------- ------
<S> <C> <C>
12/31/86 10,000 10,000
01/31/87 10,322 10,336
02/28/87 10,362 10,365
03/31/87 10,308 10,212
04/30/87 9,651 9,639
05/31/87 9,627 9,533
06/30/87 9,872 9,837
07/31/87 9,956 9,928
08/31/87 9,980 9,972
09/30/87 9,539 9,565
10/31/87 9,562 9,564
11/30/87 9,844 9,870
12/31/87 10,017 9,998
01/31/88 10,491 10,397
02/28/88 10,611 10,520
03/31/88 10,404 10,369
04/30/88 10,481 10,451
05/31/88 10,451 10,462
06/30/88 10,663 10,666
07/31/88 10,718 10,737
08/31/88 10,773 10,780
09/30/88 11,014 11,024
10/31/88 11,317 11,275
11/30/88 11,184 11,154
12/31/88 11,407 11,348
01/31/89 11,670 11,615
02/28/89 11,495 11,452
03/31/89 11,495 11,462
04/30/89 11,765 11,798
05/31/89 11,986 12,071
06/30/89 12,136 12,255
07/31/89 12,261 12,417
08/31/89 12,153 12,228
09/30/89 12,142 12,191
10/31/89 12,261 12,352
11/30/89 12,481 12,614
12/31/89 12,557 12,708
01/31/90 12,411 12,579
02/28/90 12,554 12,721
03/31/90 12,536 12,734
04/30/90 12,343 12,578
05/31/90 12,734 12,934
06/30/90 12,852 13,061
07/31/90 13,098 13,291
08/31/90 12,757 12,975
09/30/90 12,733 12,955
10/31/90 12,976 13,229
11/30/90 13,337 13,564
12/31/90 13,392 13,624
01/31/91 13,604 13,807
02/28/91 13,663 13,904
03/31/91 13,680 13,937
04/30/91 13,909 14,153
05/31/91 14,049 14,319
06/30/91 14,001 14,292
07/31/91 14,224 14,513
08/31/91 14,440 14,722
09/30/91 14,671 14,935
10/31/91 14,828 15,092
11/30/91 14,780 15,110
12/31/91 15,238 15,470
01/31/92 15,106 15,461
02/28/92 15,145 15,485
03/31/92 15,126 15,524
04/30/92 15,269 15,672
05/31/92 15,526 15,901
06/30/92 15,862 16,209
07/31/92 16,472 16,803
08/31/92 16,135 16,578
09/30/92 16,166 16,651
10/31/92 15,814 16,373
11/30/92 16,298 16,834
12/31/92 16,571 17,053
01/31/93 16,732 17,214
02/28/93 17,456 18,014
03/31/93 17,182 17,797
04/30/93 17,418 18,040
05/31/93 17,518 18,190
06/30/93 17,877 18,532
07/31/93 17,809 18,550
08/31/93 18,282 19,025
09/30/93 18,487 19,290
10/31/93 18,537 19,326
11/30/93 18,303 19,092
12/31/93 18,669 19,585
01/31/94 18,896 19,816
02/28/94 18,337 19,160
03/31/94 17,405 18,016
04/30/94 17,421 18,155
05/31/94 17,631 18,368
06/30/94 17,436 18,147
07/31/94 17,837 18,614
08/31/94 17,850 18,653
09/30/94 17,409 18,220
10/31/94 17,037 17,661
11/30/94 16,687 17,194
12/31/94 17,129 17,805
01/31/95 17,759 18,588
02/28/95 18,506 19,345
03/31/95 18,641 19,578
04/30/95 18,612 19,568
05/31/95 19,478 20,401
06/30/95 19,061 20,025
07/31/95 19,153 20,128
08/31/95 19,400 20,412
09/30/95 19,544 20,572
10/31/95 19,954 21,070
11/30/95 20,506 21,613
12/31/95 20,808 21,950
01/31/96 20,876 22,044
02/28/96 20,646 21,775
03/31/96 20,174 21,377
04/30/96 20,022 21,291
05/31/96 20,055 21,302
06/30/96 20,351 21,630
07/31/96 20,600 21,848
08/31/96 20,527 21,816
09/30/96 20,942 22,315
10/31/96 21,189 22,588
11/30/96 21,661 23,073
12/31/96 21,470 22,935
</TABLE>
California Tax-Free Income Fund
California Tax-Free Income Fund
Lehman Brothers Long Muni Bond Index
<TABLE>
<CAPTION>
Cal Lehman
-------------- ------
<S> <C> <C>
12/31/86 10,000 10,000
01/31/87 10,262 10,336
02/28/87 10,321 10,365
03/31/87 10,261 10,212
04/30/87 9,497 9,639
05/31/87 9,348 9,533
06/30/87 9,655 9,837
07/31/87 9,728 9,928
08/31/87 9,740 9,972
09/30/87 9,212 9,565
10/31/87 9,197 9,564
11/30/87 9,574 9,870
12/31/87 9,791 9,998
01/31/88 10,272 10,397
02/28/88 10,424 10,520
03/31/88 10,118 10,369
04/30/88 10,175 10,451
05/31/88 10,085 10,462
06/30/88 10,344 10,666
07/31/88 10,373 10,737
08/31/88 10,419 10,780
09/30/88 10,663 11,024
10/31/88 10,980 11,275
11/30/88 10,814 11,154
12/31/88 11,043 11,348
01/31/89 11,308 11,615
02/28/89 11,145 11,452
03/31/89 11,139 11,462
04/30/89 11,398 11,798
05/31/89 11,630 12,071
06/30/89 11,755 12,255
07/31/89 11,890 12,417
08/31/89 11,745 12,228
09/30/89 11,741 12,191
10/31/89 11,855 12,352
11/30/89 12,067 12,614
12/31/89 12,138 12,708
01/31/90 12,003 12,579
02/28/90 12,150 12,721
03/31/90 12,127 12,734
04/30/90 11,943 12,578
05/31/90 12,309 12,934
06/30/90 12,427 13,061
07/31/90 12,663 13,291
08/31/90 12,348 12,975
09/30/90 12,330 12,955
10/31/90 12,641 13,229
11/30/90 12,937 13,564
12/31/90 12,984 13,624
01/31/91 13,181 13,807
02/28/91 13,221 13,904
03/31/91 13,192 13,937
04/30/91 13,397 14,153
05/31/91 13,527 14,319
06/30/91 13,461 14,292
07/31/91 13,668 14,513
08/31/91 13,857 14,722
09/30/91 14,109 14,935
10/31/91 14,261 15,092
11/30/91 14,181 15,110
12/31/91 14,614 15,470
01/31/92 14,563 15,461
02/28/92 14,567 15,485
03/31/92 14,568 15,524
04/30/92 14,675 15,672
05/31/92 14,896 15,901
06/30/92 15,189 16,209
07/31/92 15,702 16,803
08/31/92 15,401 16,578
09/30/92 15,512 16,651
10/31/92 15,081 16,373
11/30/92 15,576 16,834
12/31/92 15,782 17,053
01/31/93 15,946 17,214
02/28/93 16,669 18,014
03/31/93 16,445 17,797
04/30/93 16,686 18,040
05/31/93 16,754 18,190
06/30/93 17,067 18,532
07/31/93 17,045 18,550
08/31/93 17,524 19,025
09/30/93 17,737 19,290
10/31/93 17,737 19,326
11/30/93 17,462 19,092
12/31/93 17,870 19,585
01/31/94 18,136 19,816
02/28/94 17,660 19,160
03/31/94 16,769 18,016
04/30/94 16,708 18,155
05/31/94 16,864 18,368
06/30/94 16,702 18,147
07/31/94 17,090 18,614
08/31/94 17,084 18,653
09/30/94 16,651 18,220
10/31/94 16,248 17,661
11/30/94 15,948 17,194
12/31/94 16,226 17,805
01/31/95 16,971 18,588
02/28/95 17,800 19,345
03/31/95 17,944 19,578
04/30/95 17,864 19,568
05/31/95 18,872 20,401
06/30/95 18,295 20,025
07/31/95 18,377 20,128
08/31/95 18,666 20,412
09/30/95 18,810 20,572
10/31/95 19,311 21,070
11/30/95 20,020 21,613
12/31/95 20,467 21,950
01/31/96 20,394 22,044
02/28/96 20,134 21,775
03/31/96 19,536 21,377
04/30/96 19,362 21,291
05/31/96 19,380 21,302
06/30/96 19,760 21,630
07/31/96 19,986 21,848
08/31/96 19,937 21,816
09/30/96 20,414 22,315
10/31/96 20,670 22,588
11/30/96 21,213 23,073
12/31/96 20,986 22,935
</TABLE>
Washington State Muni Bond Fund
Washington State Muni Bond Fund
Lehman Brothers Long Muni Bond Index
<TABLE>
<CAPTION>
Wash Muni Lehman Brothers
-------------- ---------------
<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
04/30/96 11,556 11,963
05/31/96 11,580 11,969
06/30/96 11,714 12,154
07/31/96 11,832 12,276
08/31/96 11,798 12,258
09/30/96 12,029 12,539
10/31/96 12,134 12,692
11/30/96 12,341 12,965
12/31/96 12,272 12,887
</TABLE>
-2-
<PAGE> 6
LETTER FROM THE PRESIDENT
December 31, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Fund Managers' Reports ...................... 5
Highlights .................................. 13
Portfolios of Investments ................... 16
Financial Statements ........................ 34
Notes to Financial Statements ............... 40
</TABLE>
[PHOTO OF DAVID F. HILL]
DAVID F. HILL
DEAR SHAREHOLDER:
SAFECO Mutual Funds have changed their fiscal year to coincide with the
calendar year, and so we present to you our annual report for 1996:
We entered 1996 with rather modest expectations for the equity markets
and look what happened. The S&P gained 22.94% on the heels of its astonishing
37.50% growth in 1995.
The good news is, investors who had the conviction to stay invested in
common stocks were amply rewarded. For the second straight year, we're glad to
have been "in" the market, rather than "out."
The bad news is that such market conditions can cause amnesia --
amnesia when it comes to the volatile nature of the stock market (which
delivered 1.32% in 1994), and forgetfulness regarding the diversification that
bond and money market funds provide.
The neglected cousins of 1996 were the bond markets. Bonds struggled
through the year -- despite the fact inflation remained at bay -- reversing
directions and ultimately delivering lackluster total returns. The broader
market as measured by Lehman Brothers Government/Corporate Index returned 2.90%
for the year.
Three elements seem to be props for the stock market. Inflation has
remained in control, corporate earnings have continued to grow and there has
been a fundamental shift in the way individuals invest. Investors are
increasingly recognizing the superior long-term potential of stocks. At the same
time they are taking control of more of their retirement savings.
While the shift from traditional company-controlled pensions to
employee-directed plans
(Continued on next page.)
-3-
<PAGE> 7
LETTER FROM THE PRESIDENT (Continued)
such as 401(k)s seems irreversible, it doesn't seem possible for the stock
market to sustain its present level of growth.
Still, we believe common stocks offer the potential for superior
long-term returns as they have over the past 70 years. At the same time, we
remind you of the historical level of stock market returns. Over the last 20
years, the S&P 500 has averaged 14%, not 23% or 38% as reflected in the
performance of the past two years.
All in all, our 1997 outlook is that the financial markets will do
"okay." We anticipate bonds will return their current interest rate, and be
without big gains or losses. But then, people should buy bonds for that stream
of interest anyway.
Stocks will have a more difficult time, especially if corporate
earnings fail to meet expectations. Nonetheless, there are always opportunities
for stock pickers. And that's what we do best.
/s/ David F. Hill
David F. Hill, President
SAFECO Mutual Funds
-4-
<PAGE> 8
REPORT FROM THE FUND MANAGERS
December 31, 1996
[PHOTO OF STEPHEN C. BAUER]
STEPHEN C. BAUER
SAFECO TAX-EXEMPT BOND TRUST
After a summer of watchful waiting, investors decided that inflation
was still under control. The Federal Reserve decided to leave interest rates
unchanged and the bond markets breathed a sigh of relief.
And in this market, municipal bonds outperformed Treasury bonds. Over
the 12 months ending December 31, 1996, the Bond Buyer 40 Index, an index based
on the average yield of 40 municipal bonds, went from 5.56% to 5.72% during the
course of the year; reaching a high of 6.22% in June and a low of 5.47% in
February.
The 30-year Treasury bond yield went from 5.95% to 6.64%.
Although municipal bond prices declined about two and one-half points
over 1996, Treasury prices dropped nine points.
The main reason for muni's outperformance was low supply and the
elimination from the political scene of the "flat tax" advocates.
Flat-tax proposals -- which would reduce, or eliminate, the value of
tax-exemption -- caused municipal bonds to become grossly undervalued compared
to Treasury bonds. As flat-tax schemes were dismissed, the muni market regained
its normal relationship with taxable bonds. Tax-exempts went from yielding 95%
of similar-length, taxable Treasury bonds to yielding 85% of Treasuries.
The second factor holding up muni values was low supply in a market
with a strong demand. Individuals and insurance companies have been big buyers
of municipal bonds. Almost every new issue priced has been snapped up by
cash-laden investors. That, combined with bonds reaching maturity or being
called,
(Continued on next page.)
-5-
<PAGE> 9
REPORT FROM THE FUND MANAGERS (Continued)
made 1996 the second consecutive year in which the outstanding volume of
tax-exempts declined.
Should renewed inflation fears prompt the Federal Reserve to raise
interest rates, I doubt the reaction will be either severe or long lasting. Any
increase causing a decline in bond prices will more likely be seen as a buying
opportunity, as investors are confident the Fed will ensure a low inflation
environment.
Although 1996 paled in comparison to 1995's largess, there were
positives. Additionally, I think 1997 could bring substantial improvements.
Modest economic growth and the Fed's commitment to restrain inflation is good
news for bond investors.
/s/ STEPHEN C. BAUER
Stephen C. Bauer
President, SAFECO Asset Management
-6-
<PAGE> 10
REPORT FROM THE FUND MANAGERS (Continued)
SAFECO MUNICIPAL BOND FUND
The SAFECO Municipal Bond Fund returned 3.18% for the year ended
December 31, while the average municipal bond fund returned 3.30% according to
Lipper Analytical Services. The Lehman Brothers Long Municipal Bond Index posted
4.49% for the same period.
It's nearly impossible for a bond fund to beat a bond index because the
index has no expenses, no cash and no call features. The difference in
performance of the Fund and its peer group can be attributed to our deep
discount bonds which performed poorly when rates were rising.
In the last year, transactions in the Municipal Bond Fund were to sell
prerefunded bonds and reinvest in longer, higher-yielding issues, and to improve
call protection by buying discount bonds.
A prerefunded bond is a bond for which funds have been set aside to
prepay it at the first date at which it can be called. This advance refunding
effectively shortens a bond's life to seven or eight years, making it an
intermediate-term bond. While these bonds are very stable in price and an
excellent source of liquidity in any market, significant yield pickups can be
achieved by selling pre-re's and reinvesting in long-term bonds.
I sold prerefunded bonds with yields around 4.4% and reinvested the
money in longer bonds yielding about 6.1%. Although substantial capital gains
occurred with the sales, they were offset by tax losses left over from 1994.
My second emphasis has been to improve call protection by buying
discount bonds. Discount bonds are priced below par (face value) because yields
are below current rates. As yields fall lower, par bonds are often called in and
refinanced at the new, lower rates. Their call feature inhibits the ability of
par bonds to appreciate. Meanwhile, discount bonds with
(Continued on next page.)
-7-
<PAGE> 11
REPORT FROM THE FUND MANAGERS (Continued)
their lower coupons can appreciate a long way before the market undercuts their
yields and causes them to be called.
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
The SAFECO California Tax-Free Income Fund returned 2.53% for the year
ended December 31, while the average California municipal bond fund returned
3.65%, according to Lipper Analytical Services. Meanwhile, the Lehman Brothers
Long Municipal Bond Index posted 4.49% for the one-year period.
The performance differential is due to our preference for discount
bonds. When rates rise, as they did in 1996 discount bonds are hardest hit.
However, when rates are falling and prices are rising, the outperformance of
discount bonds compensates for their downside.
Like the SAFECO Municipal Bond Fund, the California Fund reduced its
percentage in pre-refunded bonds, and improved call protection and appreciation
potential performance by selling par bonds and buying discounts.
The Foothill/Eastern Toll Road bonds continue to be among the best
performers the Fund owns. These bonds and the San Joaquin Toll Road bonds have
outperformed the market because the two construction projects are proceeding
ahead of schedule and under budget. Once they have a history of toll
collections, they may be upgraded by the rating agencies, which would further
enhance their value.
One new name added to the Fund was Eldorado Public Agency Financing
Authority, which is responsible for water and wastewater treatment in the
Placerville area.
SAFECO INSURED
MUNICIPAL BOND FUND
The SAFECO Insured Municipal Bond Fund returned 2.56% for the year
ended December 31, while the average insured fund returned 2.83%, according to
-8-
<PAGE> 12
REPORT FROM THE FUND MANAGERS (Continued)
Lipper. The Lehman Brothers Long-Insured Municipal Bond Index posted 4.01% for
the same period.
Our strategy of staying fully invested in long bonds and of buying bonds
that are out of favor and on sale causes us to lag in poor markets. However,
this same strategy has enabled us to soundly outperform the Index and our peers
in rising markets.
The Insured Fund has attracted new money to invest and we put it to work in
Chicago G.O., Dade County Water & Sewer Revenue, and Los Angeles Convention and
Exhibition Center Authority Certificates of Participation.
In addition, the Insured Fund exchanged par for discount bonds to improve
call protection and performance. I also sold bonds with maturities from 13 to 20
years and reinvested the proceeds in Huron Valley, Michigan, School District
(5.75%, due May 1, 2022). The result was better call protection and an average
yield pickup of .26%.
/s/ Stephen C. Bauer
Stephen C. Bauer
Portfolio Manager,
SAFECO Municipal Bond Fund
SAFECO California Tax-Free
Income Fund
SAFECO Insured Municipal
Bond Fund
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.
(Continued on next page.)
-9-
<PAGE> 13
REPORT FROM THE FUND MANAGERS (Continued)
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
The 12-month return for the SAFECO Washington State Municipal Bond Fund
was 3.04%, while the average return for Washington funds was 3.75%, according to
Lipper, and the Lehman Brothers Long Municipal Bond Index returned 4.49%.
The Fund's investment strategy of buying and holding long-term bonds
makes for greater volatility in both up and down markets. There's greater price
appreciation in "bull markets" when interest rates are falling, and further
declines when rates increase as they did in 1996, thus causing the Fund's
under-performance.
Our strategy, and subsequently this Fund, is appropriate for long-term
investors who can withstand share price volatility in pursuit of the higher
long-term gains provided by longer-term bonds.
Purchases for the Washington State Municipal Bond Fund included Seattle
Drainage and Wastewater revenue bond maturing in 2020 at a yield of 5.80% and
Seattle Water Metro maturing in 2020 with a yield of 5.75%.
[PHOTO OF BEVERLY R. DENNY]
Beverly Denny
Attractive prices allowed us to add to our holdings in University of
Washington Housing, Grant PUD and Snohomish PUD.
Sales included Centralia Water Revenue, Tacoma Limited G.O., and
Tumwater G.O. The shorter average maturities on these bonds -- around the year
2011 -- made them good candidates for sale as we were able to swap them for
longer bonds with better call protection and an average maturity around 2021.
I will continue to try to extend maturities, call protection and yield
during 1997.
/s/ Beverly R. Denny
Beverly R. Denny
SAFECO Washington State
Municipal Bond Fund Manager
Beverly Denny came to SAFECO from T. Rowe Price in 1991. She holds an MBA from
the University of Virginia and a B.S. in finance/economics from Babson College.
-10-
<PAGE> 14
REPORT FROM THE FUND MANAGERS (Continued)
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
For the year ended December 31, the SAFECO Intermediate-Term Municipal
Bond Fund returned 3.75%, while the average Intermediate-Term Municipal Bond
fund returned 3.70%, according to Lipper Analytical Services. The Lehman
Brothers 7-year Municipal Bond Index posted 4.38% for the same period.
Our underperformance compared to the Index and our overperformance
compared to the peer group was most likely driven by our longer average maturity
(as well as the fact that the index bears no expenses). Over the last six months
the Fund's average maturity moved from 7.7 to 7.5 years.
1996 was an up-and-down year for the municipal market in general, and
the intermediate market was no exception. After a great deal of this movement,
intermediate municipals ended slightly worse than when they started.
Because of their shorter maturities and lower volatility, intermediate
municipal bonds performed better than longer-term bonds during 1996. The average
general municipal bond fund returned 3.30% for the period.
[PHOTO OF MARY V. METASTASIO]
Mary V. Metastasio
The market's improvement in the second half of the year allowed us to
sell some of our shorter, lower-yielding bonds at attractive levels, and replace
them with longer, higher-yielding bonds.
I plan to continue managing the Fund to take advantage of market
conditions to increase yield and add value.
/s/ Mary V. Metastasio
Mary V. Metastasio
SAFECO Intermediate-Term
Municipal Bond Fund Manager
Mary Metastasio joined SAFECO's investment department in 1985 as a securities
analyst and began managing the SAFECO Tax-Free Money Market Fund in 1987. She
holds a B.A. in Dramatic Art from Whitman College and an M.B.A. from the
University of Washington.
-11-
<PAGE> 15
S&P CREDIT RATINGS DISTRIBUTIONS
AS A PERCENTAGE OF NET ASSETS
December 31, 1996
SAFECO
INTERMEDIATE-TERM
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Percent of
S&P Credit Ratings Net Assets
- -------------------------------------- -------------
<S> <C>
AAA 50 %
AA 14
A 21
BBB 8
B 3
Not Rated 2
Cash & Other 2
-------------
100 %
=============
</TABLE>
SAFECO
INSURED MUNICIPAL
BOND FUND
<TABLE>
<CAPTION>
Percent of
S&P Credit Ratings Net Assets
- ------------------------------------- -------------
<S> <C>
AAA 102 %
Cash & Other (2)
-------------
100 %
=============
</TABLE>
SAFECO
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Percent of
S&P Credit Ratings Net Assets
- ----------------------------------- -------------
<S> <C>
AAA 38 %
AA 20
A 26
BBB 7
B 1
Not Rated 7
Cash & Other 1
-------------
100 %
=============
</TABLE>
SAFECO
CALIFORNIA TAX-FREE
INCOME FUND
<TABLE>
<CAPTION>
Percent of
S&P Credit Ratings Net Assets
- ----------------------------------- --------------
<S> <C>
AAA 42 %
AA 10
A 23
BBB 11
Not Rated 11
Cash & Other 3
--------------
100 %
==============
</TABLE>
SAFECO
WASHINGTON STATE
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Percent of
S&P Credit Ratings Net Assets
- ------------------------------ --------------
<S> <C>
AAA 48 %
AA 20
A 20
Not Rated 10
Cash & Other 2
--------------
100 %
==============
</TABLE>
-12-
<PAGE> 16
HIGHLIGHTS
December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CURRENT YIELD (30-DAY) PERCENT
- --------------------------------------------------------------------------------
<S> <C>
SAFECO Intermediate-Term Municipal Bond Fund ................ 4.00%
SAFECO Insured Municipal Bond Fund .......................... 4.65%
SAFECO Municipal Bond Fund .................................. 5.03%
SAFECO California Tax-Free Income Fund ...................... 4.96%
SAFECO Washington State Municipal Bond Fund ................. 4.58%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE MATURITY YEARS
- --------------------------------------------------------------------------------
<S> <C>
SAFECO Intermediate-Term Municipal Bond Fund ................ 7.6
SAFECO Insured Municipal Bond Fund .......................... 24.2
SAFECO Municipal Bond Fund .................................. 23.9
SAFECO California Tax-Free Income Fund ...................... 24.2
SAFECO Washington State Municipal Bond Fund ................. 23.0
</TABLE>
-13-
<PAGE> 17
HIGHLIGHTS (Continued)
December 31, 1996
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Local G.O. - Unlimited Tax .................................. 17%
Lease Rental ................................................ 15%
Hospital .................................................... 15%
Electric Utilities - Combination ............................ 13%
Utilities - Water and Sewer ................................. 13%
<CAPTION>
TOP FIVE HOLINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
North Carolina Municipal Power Agency #1
Catawba Electric Revenue .................................. 5.3%
New York State Housing Finance Agency
Health Facilities Revenue ................................. 5.2%
Mississippi Hospital Equipment &
Facilities Authority ...................................... 4.4%
Trinity River Authority (TX) ................................ 4.3%
Oklahoma Industries Authority
Health Facilities ......................................... 4.3%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Illinois .................................................... 12%
Washington .................................................. 12%
New York .................................................... 10%
California .................................................. 9%
Indiana ..................................................... 7%
</TABLE>
<TABLE>
<CAPTION>
SAFECO INSURED
MUNICIPAL BOND FUND
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Utilities - Sewer ........................................... 20%
Electric Utilities - Combination ............................ 13%
Local G.O. - Unlimited Tax .................................. 11%
Utilities - Water & Sewer .................................. 10%
University Revenue .......................................... 9%
<CAPTION>
TOP FIVE HOLINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Los Angeles Convention and
Exhibition Center ......................................... 4.7%
Huron Valley School District
General Obligation ........................................ 4.6%
Massachusetts Housing Finance Agency
(Rental Housing and Mortgage
Revenue) .................................................. 4.6%
Board of Trustees Alabama Agriculture and
Mechanical University Revenue ............................. 4.5%
Pittsburgh Water and Sewer
Authority Revenue ......................................... 4.4%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California .................................................. 24%
Washington .................................................. 13%
Illinois .................................................... 11%
Pennsylvania ................................................ 10%
Michigan .................................................... 7%
</TABLE>
-14-
<PAGE> 18
HIGHLIGHTS (Continued)
December 31, 1996
SAFECO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Escrow Secured - U.S. Treasury
(Prerefunded) ............................................. 15%
Electric Utilities - Combination ............................ 15%
Hospital .................................................... 8%
Utilities - Sewer ........................................... 6%
Lease Rental ................................................ 5%
<CAPTION>
TOP FIVE HOLINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills (CA) Transportation
Corridor Agency ........................................... 4.5%
Illinois Educational Facilities Authority ................... 3.5%
Austin Combined Utility System .............................. 3.3%
Alaska Housing Finance Corp. ................................ 3.2%
East Chicago (IN) Elementary
School Building Corp. ..................................... 2.6%
<CAPTION>
TOP FIVE STATES PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
California .................................................. 21%
Washington .................................................. 11%
Illinois .................................................... 10%
Texas ....................................................... 7%
South Carolina .............................................. 6%
</TABLE>
<TABLE>
<CAPTION>
SAFECO CALIFORNIA
TAX-FREE INCOME FUND
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Local General Obligation - Limited Tax ...................... 14%
Electric Utilities - Combination ............................ 11%
Toll Road ................................................... 11%
Hospital .................................................... 11%
Utilities - Sewer ........................................... 11%
<CAPTION>
TOP FIVE HOLINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
San Joaquin Hills Transportation
Corridor Agency ........................................... 6.0%
Los Angeles County Sanitation
District Financing Authority .............................. 5.8%
Pittsburg Redevelopment Agency .............................. 5.3%
Foothill/Eastern Transportation
Corridor Agency ........................................... 5.0%
San Jose Redevelopment Agency ............................... 4.7%
</TABLE>
<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
TOP FIVE
TYPES OF BONDS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Local G.O. - Limited Tax .................................... 14%
Hospital .................................................... 12%
Utilities - Water ........................................... 9%
Local G.O. - Unlimited Tax .................................. 9%
Electric Utility - Hydro .................................... 9%
<CAPTION>
TOP FIVE HOLINGS PERCENT OF NET ASSETS
- --------------------------------------------------------------------------------
Snohomish County Public
Utility District #1.. ..................................... 4.7%
University of Washington Housing
and Dining System Revenue ................................. 4.5%
Snohomish County Unlimited Tax G.O. -
Everett School District #2 ................................ 4.5%
Grant County Public Utility District #2 ..................... 4.5%
King County Housing Authority ............................... 4.4%
</TABLE>
-15-
<PAGE> 19
PORTFOLIO OF INVESTMENTS
SAFECO INTERMEDIATE-TERM
MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
BONDS-98.5%
<S> <C>
ALASKA - 3.4%
$250 Anchorage Hospital Revenue
(Sisters of Providence)
6.75%, due 10/01/01 ................................ $270
200 Fairbanks North Star Borough
General Obligation
5.20%, due 3/01/03 [MBIA]* ......................... 205
ARIZONA - 0.7%
100 Tucson Airport Authority
General Revenue
5.30%, due 6/01/03 [MBIA] .......................... 104
CALIFORNIA - 8.5%
235 Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
5.80%, due 9/02/02 ................................. 242
440 Sacramento Municipal Utility
District Electric Revenue
5.50%, due 2/01/11 ................................. 442
500 Santa Margarita Dana Point
Authority Revenue
5.375%, due 8/01/04 ................................ 523
CONNECTICUT - 5.1%
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 ................................. 166
CONNECTICUT (CONTINUED)
400 East Haven Connecticut
General Obligation
6.50%, due 9/01/05 [FGIC] .......................... 447
DISTRICT OF COLUMBIA - 3.1%
District of Columbia General
Obligation
150 5.75%, due 6/01/03 ................................. 151
300 5.20%, due 6/01/03 ................................. 293
GEORGIA - 2.8%
Georgia Municipal Electric
Authority General Power Revenue
100 5.75%, due 1/01/03 ................................. 104
300 4.75%, due 1/01/04 ................................. 295
ILLINOIS - 12.2%
125 Chicago Wastewater
Transmission Revenue
5.20%, due 1/01/04 [FGIC] .......................... 128
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 ................................ 302
500 Joliet Waterworks and
Sewerage Revenue
7.00%, due 1/01/05 [FGIC] .......................... 570
Metropolitan Pier and
Exposition Authority (McCormick
Place Expansion Project)
100 5.90%, due 6/15/03 ................................. 105
500 5.50%, due 6/15/03 [MBIA] .......................... 521
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-16-
<PAGE> 20
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
INDIANA - 6.8%
$100 Clay School Building Corp.
First Mortgage
5.60%, due 1/01/03 [MBIA] .......................... $105
200 Hammond Multi-School
Building Corp. First Mortgage
(Lake County)
5.50%, due 1/15/03 ................................. 211
330 Highland School Building Corp.
First Mortgage
5.00%, due 1/05/04 ................................. 330
100 Indiana Bond Bank State
Revolving Fund Program
5.90%, due 2/01/03 ................................. 106
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
KENTUCKY - 3.7%
500 Kentucky State Property and
Buildings Commission Revenue
5.50%, due 9/01/04 ................................. 524
LOUISIANA - 1.5%
100 Louisiana Correctional Facilities
Corp. Lease Revenue
5.55%, due 12/15/02 [FSA] .......................... 105
100 Louisiana Public Facilities
Authority Student Loan Revenue
6.20%, due 3/01/01 ................................. 104
MASSACHUSETTS - 3.6%
Massachusetts Water
Resources Authority
General Revenue
$400 5.25%, due 12/01/08 ................................ $403
100 5.70%, due 11/01/02 ................................ 105
MICHIGAN - 2.2%
300 Detroit School District Unlimited
Tax General Obligation
5.75%, due 5/01/02 ................................. 314
MISSISSIPPI - 4.4%
600 Mississippi Hospital Equipment
and Facilities Authority
Revenue (Mississippi
Baptist Medical Center)
5.40%, due 5/01/04 [MBIA] .......................... 621
NEW JERSEY - 0.7%
100 New Jersey Housing &
Mortgage Finance Agency
Housing Revenue
6.00%, due 11/01/02 ................................ 104
NEW YORK - 9.5%
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 ................................. 404
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-17-
<PAGE> 21
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
NEW YORK (CONTINUED)
$100 New York Dormitory Authority
State University Educational
Facilities Revenue
5.75%, due 5/15/01 ................................. $103
700 NYS HFA Health Facilities
6.375%, due 11/01/04 ............................... 740
NORTH CAROLINA - 6.8%
210 North Carolina Eastern
Municipal Power Agency
System Revenue
5.50%, due 1/01/02 ................................. 213
800 North Carolina Municipal
Power Agency
#1 Catawba Electric Revenue
4.10%, due 1/01/05 [AMBAC] ......................... 747
OKLAHOMA - 4.3%
600 Oklahoma Industries Authority
Health Facilities Revenue
(Sisters of Mercy Health
System, St. Louis, Inc.)
5.20%, due 6/01/05 ................................. 606
PENNSYLVANIA - 1.7%
$250 Philadelphia Water and
Wastewater Revenue
5.00%, due 6/15/02 ................................. $248
TEXAS - 5.8%
100 Coastal Bend Health Facility
Development Corp.
Health Services Revenue
(Incarnate Word)
5.70%, due 1/01/03 [AMBAC] ......................... 105
100 Houston Sewer System Junior
Lien Revenue
5.75%, due 12/01/02 ................................ 106
600 Trinity River Authority Revenue
(Tarrant County Water Project)
5.25%, due 2/01/05 ................................. 614
WASHINGTON - 11.7%
500 Snohomish & Island Counties WA
School Dist. No. 401 (Stanwood)
General Obligation
5.90%, due 12/15/11 [FGIC] ......................... 519
500 Tacoma Electric System Revenue
5.80%, due 1/01/04 [FGIC] .......................... 530
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-18-
<PAGE> 22
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
WASHINGTON (CONTINUED)
$100 Washington Health Care Facilities
Authority Revenue (Empire
Health Service, Spokane)
5.50%, due 11/01/03 [MBIA] ..................... $ 104
Washington Public Power
Supply System Nuclear
Project #2 Revenue
200 5.30%, due 7/01/02 ............................. 204
300 4.80%, due 7/01/04 ............................. 295
-------
TOTAL BONDS......... ................................... 13,957
-------
TEMPORARY INVESTMENTS - 0.3%
Investment Companies:
41 Federated Tax-Exempt
Money Market Fund, Inc. ........................ 41
-------
TOTAL TEMPORARY INVESTMENTS ............................ 41
-------
TOTAL INVESTMENTS - 98.8% .............................. $13,998
Other Assets, less Liabilities ......................... 174
-------
NET ASSETS ............................................. $14,172
=======
</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 total bonds
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
FGIC: Financial Guaranty
Insurance Corp. ...................................... 16.5%
MBIA: Municipal Bond Investors
Assurance Corp. ...................................... 11.9
AMBAC: AMBAC Indemnity Corp. ................................ 6.1
FSA: Financial Security
Assurance, Inc. ...................................... 0.8
-----
35.3%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-19-
<PAGE> 23
PORTFOLIO OF INVESTMENTS
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 102.2%
ALABAMA - 4.5%
$600 Board of Trustees Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA]* ........................ $592
ALASKA - 2.3%
300 Alaska Housing Finance Corp.
Insured Mortgage Program
5.90%, due 12/01/33 [FSA] .......................... 299
CALIFORNIA - 24.0%
385 Fresno Sewer System Revenue
4.50%, due 9/01/23 [AMBAC] ......................... 322
665 Los Angeles Convention and
Exhibition Center Authority
Certificates of Participation
5.125%, due 8/15/21 [MBIA] ......................... 618
600 Los Angeles County Sanitation
District Financing Authority
Revenue (Capital Projects)
5.25%, due 10/01/19 [MBIA] ......................... 569
500 Los Angeles Department of
Water and Power Electricity
Refunding Revenue
4.25%, due 11/15/14 [MBIA] ......................... 421
650 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/19 [FGIC] ......................... 567
350 Sacramento Municipal Utility
District Electric Revenue
4.75%, due 9/01/21 [MBIA] .......................... 306
CALIFORNIA (CONTINUED)
$250 San Diego Public Facilities
Financing Authority
Sewer Revenue
5.00%, due 5/15/23 [AMBAC] ......................... $228
145 University of California Revenue
(Multiple Purpose Projects)
4.75%, due 9/01/15 [AMBAC] ......................... 130
FLORIDA - 3.5%
470 Dade County Water and Sewer
System Revenue
5.50%, due 10/01/25 [FGIC] ......................... 461
ILLINOIS - 10.8%
Chicago General Obligation
100 5.875%, due 1/01/22 [AMBAC] ........................ 101
500 5.125%, due 1/01/25 [FGIC] ......................... 461
250 Cook County General Obligation
5.00%, due 11/15/23 [MBIA] ......................... 223
200 Illinois Health Facilities
Authority Revenue (The
Children's Memorial Hospital)
5.00%, due 8/15/22 [AMBAC] ......................... 178
400 Regional Transportation Authority
6.75%, due 6/01/25 [FGIC] .......................... 458
INDIANA - 5.8%
100 Indiana Municipal Power Agency
Power Supply System Revenue
6.125%, due 1/01/13 [MBIA] ......................... 107
250 Indiana State Office Building
Commission Capitol
Complex Revenue
5.25%, due 7/01/15 [AMBAC] ......................... 235
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-20-
<PAGE> 24
PORTFOLIO OF INVESTMENTS (continued)
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000's) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
INDIANA (CONTINUED)
$100 Indiana Transportation Finance
Authority Highway Revenue
5.25%, due 6/01/15 [AMBAC] ......................... $ 97
350 Indianapolis Gas Utility Revenue
5.375%, due 6/01/21 [FGIC] ......................... 328
IOWA - 1.8%
250 Marshalltown Pollution Control
Revenue (Iowa Electric Light
and Power Co. Project)
5.50%, due 11/01/23 [MBIA] ......................... 241
MASSACHUSETTS - 4.6%
600 Massachusetts Housing
Finance Agency (Rental
Housing and Mortgage Revenue)
6.20%, due 7/01/38 [AMBAC] ......................... 601
MICHIGAN - 7.0%
350 Detroit Water Supply
System Revenue
5.00%, due 7/01/23 [FGIC] .......................... 317
600 Huron Valley School District
General Obligation
5.75%, due 5/01/22 [FSA] ........................... 604
MINNESOTA - 2.3%
350 Minneapolis and St. Paul
Housing and Redevelopment
Authority Health Care System
Revenue (HealthSpan)
4.75%, due 11/15/18 [AMBAC] ........................ 307
NORTH CAROLINA - 0.9%
125 North Carolina Eastern Municipal
Power Agency Power
System Revenue
5.50%, due 1/01/17 [FGIC] .......................... 122
PENNSYLVANIA - 9.8%
$350 Montgomery County Higher
Education and Health Authority
Hospital Revenue
(Abington Memorial Hospital)
5.125%, due 6/01/24 [FGIC] ......................... $322
650 Pittsburgh Water and Sewer
Authority Revenue
4.75%, due 9/01/16 [FGIC] .......................... 580
445 University Area Joint Authority
Sewer Revenue
4.75%, due 11/01/20 [MBIA] ......................... 390
RHODE ISLAND - 3.5%
500 Rhode Island Health and
Education Building
Corporation Higher Education
Facility Revenue
5.25%, due 9/15/23 [MBIA] .......................... 461
TEXAS - 6.3%
200 Colorado River Municipal
Water District Water System
Revenue
5.15%, due 1/01/21 [AMBAC] ......................... 185
250 Harris County Toll Road
Unlimited Tax Revenue
5.50%, due 8/15/21 [FGIC] .......................... 245
Lower Colorado River Authority
Junior Lien Revenue
300 5.625%, due 1/01/17 [FSA] .......................... 293
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] ......................... 104
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-21-
<PAGE> 25
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO INSURED MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
Virginia - 1.8%
$250 Virginia Housing Development
Authority Commonwealth
Mortgage
5.25%, due 7/01/27
[AMBAC].... ........................................ $ 233
Washington - 13.3%
100 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ......................... 96
500 Municipality of Metropolitan
Seattle Sewer Revenue
6.30%, due 1/01/33 [MBIA] .......................... 530
250 Richland Water and Sewer
Improvement Revenue
5.625%, due 4/01/12 [MBIA] ......................... 253
Washington (Continued)
$530 Snohomish County Public Utility
District #1 Electric Revenue
5.50%, due 1/01/20 [FGIC] .......................... $ 507
100 Washington Health Care
Facilities Authority Revenue
(Swedish Hospital Medical
Center)
6.30%, due 11/15/22 [AMBAC] ........................ 105
250 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA] ........................... 264
-------
TOTAL BONDS......... ....................................... 13,471
-------
TEMPORARY INVESTMENTS - 5.3% Investment Companies:
705 Federated Tax-Exempt
Money Market Fund, Inc. ............................ 705
-------
TOTAL TEMPORARY INVESTMENTS ................................ 705
-------
TOTAL INVESTMENTS - 107.5% ................................. 14,176
Liabilities, less other Assets ............................. (989)
-------
NET ASSETS ........ ........................................$13,187
=======
</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 total bonds
they guarantee at the period end are as follows:
<TABLE>
<S> <C> <C>
MBIA: Municipal Bond Investors
Assurance Corp. ...................... 35.0%
FGIC: Financial Guaranty
Insurance Corp. ...................... 33.2
AMBAC: AMBAC Indemnity Corp. ................ 20.9
FSA: Financial Security
Assurance, Inc. ...................... 10.9
------
100.0%
======
</TABLE>
- -----------------------------------------------------
* Prerefunded bonds are collateralized by
securities (generally U.S. Treasury Securities)
held in an irrevocable trust in an amount
sufficient to pay interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-22-
<PAGE> 26
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 99.4%
ALABAMA - 0.5%
$1,310 Board of Trustees Alabama
Agriculture and Mechanical
University Revenue
5.50%, due 11/01/20 [MBIA]* ........................ $1,293
1,000 Citronelle Industrial Development
Board Pollution Control Revenue
8.00%, due 12/01/12 ................................ 1,107
ALASKA - 3.3%
Alaska Housing Finance Corp.
Veterans Mortgage Program
765 6.50%, due 6/01/31 ................................. 775
17,000 5.00%, due 12/01/18 ................................ 15,169
ARIZONA - 2.6%
Phoenix Civic Improvement Corp.
Wastewater System Lease
Revenue
4,220 5.00%, due 7/01/18 [MBIA] .......................... 3,931
9,800 4.75%, due 7/01/23 ................................. 8,380
CALIFORNIA - 21.3%
1,500 Foothill/Eastern Transportation
Corridor Agency
Toll Road Revenue
5.00%, due 1/01/35 ................................. 1,294
2,500 Los Angeles County Certificates
of Participation (Disney
Parking Project)
5.50%, due 9/01/21 ................................. 2,358
13,000 Los Angeles Department of
Water and Power
Electric Plant Revenue
5.25%, due 11/15/26 ................................ 11,955
Los Angeles Wastewater
System Revenue
1,280 4.70%, due 11/01/17 [FGIC] ......................... 1,128
5,000 4.70%, due 11/01/19 [FGIC] ......................... 4,360
CALIFORNIA (CONTINUED)
$ 2,200 Metropolitan Water District
of Southern California
Waterworks Revenue
5.75%, due 3/01/14 ................................. $ 2,221
5,250 Northern California Power
Agency Geothermal Project
Revenue
5.00%, due 7/01/09 ................................. 5,089
Pittsburg Redevelopment Agency
Los Medanos Community
Development Project Tax
Allocation
11,995 5.80%, due 8/01/34 [AMBAC] ......................... 12,103
6,400 4.625%, due 8/01/21 [AMBAC] ........................ 5,488
1,000 Redding Joint Powers Financing
Solid Waste and Corporation
Yard Revenue
5.00%, due 1/01/23 ................................. 863
8,750 Sacramento County Sanitation
District Finance Authority
4.75%, due 12/01/23 ................................ 7,484
5,000 Sacramento Municipal Utility
District Electric Revenue
6.00%, due 2/01/15 ................................. 5,001
3,600 San Francisco Airport
Commission Sewer Revenue
6.00%, due 5/01/25 [FGIC] .......................... 3,722
1,700 San Francisco Redevelopment
Financing Authority
Tax Allocation Revenue
4.75%, due 8/01/18 [FGIC] .......................... 1,499
8,010 San Joaquin County Public
Facilities Financing Corp.
Certificates of Participation
Capital Facilities Project
4.75%, due 11/15/19 [MBIA] ......................... 7,025
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-23-
<PAGE> 27
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
CALIFORNIA (CONTINUED)
$25,000 San Joaquin Hills Transportation
Corridor Agency Senior Lien
Toll Road Revenue
5.00%, due 1/01/33 ................................ $21,657
Southern California Public Power
Authority Power Project Revenue
(Multiple Projects)
4,085* 5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) ....................... 4,262
3,165 5.50%, due 7/01/20 ................................ 3,064
2,200 Southern California Public Power
Authority Power Project Revenue
(Palo Verde Project)
5.00%, due 7/01/17 ................................ 2,000
COLORADO - 0.3%
1,000 Colorado Housing Finance
Authority Multi-Family Mortgage
Revenue
8.30%, due 10/01/23 ............................... 1,108
290 Colorado Housing Finance
Authority Single Family
Residential Housing Revenue
8.75%, due 9/01/17 ................................ 302
DELAWARE - 0.8%
4,500 Delaware River and Bay
Authority Revenue
4.75%, due 1/01/24 [MBIA] ......................... 3,954
FLORIDA - 1.9%
Florida Board of Education
General Obligation
1,000 5.00%, due 6/01/12 ................................ 955
3,000 5.00%, due 6/01/24 ................................ 2,695
FLORIDA (CONTINUED)
$12,750 Mid-Bay Bridge Authority
Revenue
6.10%, due 10/01/22 ............................... $ 2,768
3,000 Orlando Utility Commission
Water and Electric Revenue
5.00%, due 10/01/23 ............................... 2,694
GEORGIA - 3.1%
6,750 Atlanta Water and Sewerage
Revenue
4.50%, due 1/01/18 ................................ 5,758
4,000 Cobb County Kennestone
Hospital Authority Revenue
5.00%, due 4/01/24 [MBIA] ......................... 3,625
5,000 Municipal Electric Authority
Project One Special Obligation
Fourth Crossover Series
6.50%, due 1/01/20 ............................... 5,489
ILLINOIS - 10.2%
7,000 Chicago Wastewater
Transmission Revenue
5.125%, due 1/01/20 [FGIC] ....................... 6,379
5,500 Illinois Dedicated Tax Revenue
(Civic Center)
7.00%, due 12/15/10 [AMBAC] ...................... 6,052
17,500 Illinois Educational Facilities
Authority Adjustable Demand
Revenue (University of Chicago)
5.70%, due 12/01/25 .............................. 17,064
5,000 Metropolitan Pier and Exposition
Authority McCormick Place
Convention Complex Hospitality
Facilities Revenue
7.00%, due 7/01/26 ............................... 5,551
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-24-
<PAGE> 28
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
ILLINOIS (CONTINUED)
$8,360 Regional Transportation Authority
6.75%, due 6/01/25 [FGIC] .......................... $ 9,569
4,770 University of Illinois Auxiliary
Facilities System Revenue
5.75%, due 4/01/22 ................................. 4,701
INDIANA - 5.5%
200 Beech Grove Economic
Development Revenue
(Westvaco Corp.)
8.75%, due 7/01/10 ................................. 204
11,000* East Chicago Elementary School
Building Corp. First Mortgage
7.00%, due 1/15/16
(Prerefunded 1/15/03 @ 102) ........................ 12,488
7,715 Hammond Multi-School
Building Corp.
First Mortgage Revenue
6.20%, due 7/10/15 ................................. 8,062
6,450 Indianapolis Gas Utility
System Revenue
4.00%, due 6/01/11 [FGIC] .......................... 5,695
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) ....................... 9,222
MARYLAND - 1.9%
$5,125 Baltimore Project and Revenue
(Water Projects)
5.00%, due 7/01/24 ................................. $ 4,798
5,000 Maryland Health and Higher
Educational Facilities Authority
Revenue (University of Maryland
Medical System)
4.75%, due 7/01/23 [FGIC] .......................... 4,306
MASSACHUSETTS - 2.5%
Massachusetts Water Resources
Authority General Revenue
5,140 6.20%, due 7/01/38 ................................. 5,153
4,500 6.00%, due 4/01/20 ................................. 4,513
2,500 4.75%, due 12/01/23 ................................ 2,141
MICHIGAN - 1.4%
5,250 Detroit Water Supply
System Revenue
4.75%, due 7/01/19 [FGIC] .......................... 4,604
2,000 University of Michigan
Hospital Revenue
6.375%, due 12/01/24 ............................... 2,050
NEW JERSEY - 0.4%
1,640* New Jersey Turnpike Authority
Revenue
10.375%, due 1/01/03
(Escrowed to Maturity) ............................. 1,972
NEW MEXICO - 0.5%
2,500 Farmington Collateralized
Pollution Control Revenue
(Tucson Gas and Electric Co.)
6.10%, due 1/01/08 ................................. 2,469
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-25-
<PAGE> 29
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
NEW YORK - 5.7%
New York City Municipal Water
Finance Authority Water and
Sewer System Revenue
$ 2,205 6.00%, due 6/15/19 [FGIC] ......................... $ 2,214
2,100 5.00%, due 6/15/17 [FGIC] ......................... 1,943
New York Dormitory Authority
State University Educational
Facilities Revenue
4,400 7.50%, due 5/15/11 ................................. 5,160
5,250 7.50%, due 5/15/13 ................................. 6,329
6,500 5.25%, due 5/15/15 ................................. 6,085
1,500 5.00%, due 7/01/15 ................................. 1,417
4,000* New York Local Government
Assistance Corp.
7.00%, due 4/01/21 ................................ 1,135
(Prerefunded 4/01/01 @ 100) ....................... 4,404
NORTH CAROLINA - 2.3%
11,000 North Carolina Eastern Municipal
Power Agency
Power System Revenue
6.00%, due 1/01/22 ................................ 10,888
OKLAHOMA - 1.3%
5,590 McGee Creek Authority
Water Revenue
6.00%, due 1/01/23 [MBIA] ......................... 6,039
PENNSYLVANIA - 4.0%
5,000 Centre County University Area
Joint Authority Sewer Revenue
4.75%, due 11/01/20 [MBIA] ........................ 4,379
6,000* Pennsylvania Intergovernmental
Cooperative Authority Special
Tax Revenue (City of Philadelphia)
6.80%, due 6/15/22
(Prerefunded 6/15/02 @ 100) ....................... 6,658
PENNSYLVANIA (CONTINUED)
$17,415* Philadelphia Water and
Sewer Revenue
7.00%, due 8/01/18
(Prerefunded 8/01/01 @ 100) ....................... $ 8,194
PUERTO RICO - 1.9%
10,000 Puerto Rico Highway and
Transportation Authority
Highway Revenue
5.00%, due 7/01/36 ................................ 8,948
SOUTH CAROLINA - 6.2%
10,250 Charleston County Hospital
Facility Revenue
5.00%, due 10/01/22 [MBIA] ........................ 9,248
1,135 Charleston County Pollution
Control Facilities Revenue
5.90%, due 8/01/03 ................................ 1,136
4,000 Charleston Waterworks and
Sewer System Revenue
5.00%, due 1/01/16 ................................ 3,735
5,500 Pickens County and Richland
County Hospital Revenue
5.75%, due 8/01/21 [AMBAC] ........................ 5,493
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 ............................... 8,953
TEXAS - 6.7%
10,000 Austin Combined Utility
System Revenue
12.50%, due 11/15/07 [MBIA] ....................... 16,099
4,350 Austin Water, Sewer and
Electric Revenue
14.00%, due 11/15/01 .............................. 5,574
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-26-
<PAGE> 30
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
TEXAS (CONTINUED)
$1,600* Coastal Industrial Water
Authority Water Revenue
5.50%, due 12/15/09
(Escrowed to Maturity) ............................ $1,611
2,260 Texas Municipal Power
Agency Revenue
5.50%, due 9/01/13 [FGIC] ......................... 2,260
7,500 Waco Texas Health Facilities
Development Corp.
Hospital Revenue
5.00%, due 11/01/25 ............................... 6,751
UTAH - 1.1%
Intermountain Power Agency
Special Obligation First
Crossover Series
1,900 6.00%, due 7/01/23 ................................ 1,903
2,750 5.00%, due 7/01/16 ................................ 2,489
1,000* Salt Lake City Hospital
Revenue (IHC Hospitals)
5.00%, due 6/01/15
(Escrowed to Maturity) ............................ 967
VIRGINIA - 0.2%
1,155* Richmond Metropolitan
Expressway Authority Revenue
5.60%, due 1/15/13
(Escrowed to Maturity) ............................ 1,169
WASHINGTON - 10.9%
$7,255 Douglas County Public Utility
District #1 Wells Hydroelectric
Revenue
8.75%, due 9/01/18 ................................ $9,429
2,500 Everett School District #2
Snohomish County Unlimited Tax
General Obligation
6.20%, due 12/01/12 [MBIA] ........................ 2,673
2,200 King County Housing Authority
Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ................................ 2,298
1,650 King County Limited Tax General
Obligation (Various Purposes)
4.75%, due 1/01/19 ................................ 1,449
2,255 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ........................ 2,163
4,800 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 ............................... 4,811
4,000 Port of Seattle Revenue
6.00%, due 12/01/14 ............................... 4,030
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-27-
<PAGE> 31
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
WASHINGTON (CONTINUED)
$3,000 Washington Health Care
Facilities Authority Revenue
(Fred Hutchinson Cancer
Research Center)
7.375%, due 1/01/18 ............................... $ 3,232
6,350 Washington Health Care Facilities
Authority Revenue
(Yakima Valley Memorial
Hospital Association)
7.25%, due 1/01/21 ................................ 7,084
8,500 Washington Public Power
Supply System
Nuclear Project #1 Revenue
6.00%, due 7/01/17 ................................ 8,505
4,000 Washington Public Power
Supply System
Nuclear Project #2 Revenue
6.30%, due 7/01/12 ................................ 4,309
2,610 Washington Public Power
Supply System
Nuclear Project #3 Revenue
5.50%, due 7/01/18 ................................ 2,463
WEST VIRGINIA - 0.6%
3,025 West Virginia Housing
Development Fund Single
Family Mortgage Revenue
6.125%, due 7/01/13 ............................... 3,046
WISCONSIN - 0.2%
1,000 Wisconsin Health and Education
Facilities Authority Revenue
6.00%, due 10/01/12 [MBIA] ........................ 1,011
--------
TOTAL BONDS........478,397
-------
TEMPORARY INVESTMENTS - 0.2%
Investment Companies:
$1,245 Federated Tax-Exempt
Money Market Fund, Inc. ........................... $ 1,245
--------
TOTAL TEMPORARY INVESTMENTS ............................... 1,245
--------
TOTAL INVESTMENTS - 99.6% ................................. 479,642
Other Assets, less Liabilities ............................ 1,751
--------
NET ASSETS ....... ........................................ $481,393
========
</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 total bonds
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
MBIA:Municipal Bond Investors
Assurance Corp. ........................................ 12.4%
FGIC:.Financial Guaranty
Insurance Corp. ........................................ 10.0
AMBAC:AMBAC Indemnity Corp. ................................. 6.5
-----
28.9%
=====
</TABLE>
*Prerefunded bonds are collateralized by securities (generally U.S.
Treasury securities) held in an irrevocable trust in an amount
sufficient to pay interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-28-
<PAGE> 32
PORTFOLIO OF INVESTMENTS
SAFECO CALIFORNIA TAX-FREE
INCOME FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 96.7%
$2,250 California Department of
Water Resources
Central Valley Project
Water System Revenue
5.25%, due 12/01/24 [FGIC]* ....................... $2,142
2,250 California Health Facilities
Financing Authority
Insured Health Facility Revenue
(Catholic Healthcare West)
4.75%, due 7/01/19 [MBIA] ......................... 1,963
3,715 California Statewide Communities
Development Authority
Certificates of Participation
(Childrens Hospital of
Los Angeles)
4.75%, due 6/01/21 [MBIA] ......................... 3,222
2,750 California Statewide Communities
Development Authority
Certificates of Participation
(The Trustees of the
J. Paul Getty Trust)
5.00%, due 10/01/23 ............................... 2,519
20 Concord Redevelopment Agency
Tax Allocation
Central Concord Redevelopment
Project
8.00%, due 7/01/18 [BIG] .......................... 21
3,750 Culver City Redevelopment
Financing Authority
Tax Allocation Revenue
4.60%, due 11/01/20 [AMBAC] ....................... 3,211
$3,150 East Bay Regional Park District
California General Obligation
5.75%, due 9/01/17 ................................ $3,165
2,000 Eldorado Public Agency
Financing Authority
5.50%, due 2/15/21 [FGIC] ......................... 1,966
4,195 Foothill/Eastern Transportation
Corridor Agency
Toll Road Revenue
5.00%, due 1/01/35 ................................ 3,620
670 Inglewood Insured Hospital
Revenue
(Daniel Freeman Hospital)
6.75%, due 5/01/13 ................................ 715
Los Angeles Convention and
Exhibition Center
Authority Certificates of
Participation
1,200* 9.00%, due 12/01/20
(Prerefunded 12/01/05 @ 100) ...................... 1,583
1,300 5.125%, due 8/15/21 [MBIA] ........................ 1,208
4,500 Los Angeles County Sanitation
District Financing
Authority Revenue (Capital
Projects)
5.25%, due 10/01/19 ............................... 4,222
3,800 Los Angeles Department of
Water and Power
Waterworks Revenue
4.75%, due 11/15/19 ............................... 3,337
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-29-
<PAGE> 33
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$2,000 Los Angeles Wastewater
System Revenue
4.70%, due 11/01/17 [FGIC] ....................... $ 1,762
2,500 Northern California Power
Agency
Geothermal Project Revenue
5.00%, due 7/01/09 ............................... 2,423
2,350 Palomar Pomerado Health System
California Insured
Revenue Service
4.75%, due 11/01/23 [MBIA] ....................... 2,025
4,435 Pittsburg Redevelopment Agency
Los Medanos Community
Development Project
Tax Allocation
4.625%, due 8/01/21 .............................. 3,803
Pleasanton Joint Powers
Financing Authority
Reassessment Revenue
1,670 6.20%, due 9/02/17 ............................... 1,692
1,890 6.15%, due 9/02/12 ............................... 1,947
3,900 Redding Joint Powers Financing
Authority
Solid Waste and Corporation
Yard Revenue
5.00%, due 1/01/23 ............................... 3,367
$2,000 Riverside County Certificates of
Participation
(Capital Projects)
6.125%, due 11/01/21 ............................. $ 2,040
3,000 Sacramento Municipal Utility
District
Electric Revenue
4.75%, due 9/01/21 [MBIA] ........................ 2,621
1,750 San Diego Public Facilities
Financing Authority
Sewer Revenue
5.25%, due 5/15/20 ............................... 1,632
5,000 San Joaquin Hills Transportation
Corridor Agency
Senior Lien Toll Road Revenue
5.00%, due 1/01/33 ............................... 4,331
4,000 San Jose Redevelopment Agency
4.75%, due 8/01/22 ............................... 3,378
Southern California Public
Power Authority
Power Project Revenue
(Multiple Projects)
2,665* 5.50%, due 7/01/20
(Prerefunded 7/01/00 @ 100) ...................... 2,780
1,335 5.50%, due 7/01/20 ............................... 1,292
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-30-
<PAGE> 34
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$1,000 Southern California Public
Power Authority
Power Project Revenue
(Transportation Project)
4.75%, due 7/01/23 ............................... $ 870
970 Stanislaus Waste-to-Energy
Financing Agency
Solid Waste Facility Revenue
7.625%, due 1/01/10 .............................. 1,046
-------
TOTAL BONDS......... ..................................... 69,903
-------
TEMPORARY INVESTMENTS - 2.0% Investment Companies:
$1,497 SEI Tax Exempt Trust Institutional
Tax Free Portfolio ............................... $ 1,497
-------
TOTAL TEMPORARY INVESTMENTS .............................. 1,497
-------
TOTAL INVESTMENTS - 98.7% ................................ 71,400
Other Assets, less Liabilities ........................... 907
-------
NET ASSETS ........ ...................................... $72,307
=======
</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 total bonds
they guarantee at the period end are as follows:
<TABLE>
<S> <C>
MBIA:Municipal Bond Investors
Assurance Corp. ........................................ 15.3%
FGIC:Financial Guaranty Insured Corp. ....................... 8.1
AMBAC:AMBAC Indemnity Corp .................................. 4.4
BIG: Bond Investors Guaranty
Insurance Co. .......................................... 0.0
-----
27.8%
=====
</TABLE>
* Prerefunded bonds are collateralized by securities (generally U.S.
Treasury securities) held in an irrevocable trust in an amount
sufficient to pay interest and principal.
SEE NOTES TO FINANCIAL STATEMENTS
-31-
<PAGE> 35
PORTFOLIO OF INVESTMENTS
SAFECO WASHINGTON STATE
MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
BONDS - 98.2%
$200 Chelan County Public Utility
District #1 Columbia River Rock
Hydroelectric System Revenue
6.375%, due 6/01/29 ............................... $202
315 Grant County Public Utility
District #2 Wanapum
Hydroelectric Revenue
6.375%, due 1/01/23 ............................... 319
100 Kent Limited Tax General
Obligation
5.75%, due 12/01/26 [MBIA]* ....................... 100
300 King County Housing Authority
Pooled Housing Refunding
Revenue
6.80%, due 3/01/26 ................................ 313
250 King County Limited Tax General
Obligation (Various Purposes)
4.75%, due 1/01/19 ................................ 220
200 King County Public Hospital
District #1 Hospital Facilities
Revenue (Valley Medical Center)
5.50%, due 9/01/17 [AMBAC] ........................ 192
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 ............................... 201
100 Kitsap County, Sewer Revenue
5.75%, due 7/01/16 [MBIA] ......................... 101
250 Klickitat County Public Hospital
District # 1
Unlimited Tax General Obligation
5.75%, due 10/01/27 [FGIC] ........................ 248
$100 Lewis County Public Utility
District #1 Cowlitz Falls
Hydroelectric Project Revenue
6.00%, due 10/01/24 ............................... $100
95 Pike Place Market Preservation
and Development Authority
Special Obligation Revenue
6.60%, due 12/01/21 ............................... 103
100 Port of Seattle Revenue
6.00%, due 12/01/14 ............................... 101
300 Renton Water and Sewer
Improvement Revenue
5.375%, due 4/01/13 ............................... 290
250 Seattle Drainage and
Wastewater Utility
Improvement Revenue
5.75%, due 12/01/22 ............................... 250
200 Seattle Metro Sewer Revenue
6.30%, due 1/01/33 [MBIA] ......................... 212
200 Seattle Water Metro Municipality
5.65%, due 1/01/20 ................................ 198
200 Seattle Water System Revenue
5.25%, due 12/01/23 ............................... 188
350 Snohomish County Public Utility
District #1
Generation System Revenue
5.50%, due 1/01/20 [FGIC] ......................... 335
300 Snohomish County Unlimited
Tax General Obligation
Everett School District #2
6.20%, due 12/01/12 [MBIA] ........................ 321
250 Spokane Regional Solid Waste
Management System Revenue
6.25%, due 12/01/11 [AMBAC] ....................... 268
250 Tacoma Water System Revenue
5.50%, due 12/01/13 ............................... 250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-32-
<PAGE> 36
PORTFOLIO OF INVESTMENTS (Continued)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
As of December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000's)
- --------------------------------------------------------------------------------
<S> <C>
$200 Tukwila Limited Tax General
Obligation
5.90%, due 1/01/14 ................................ $ 206
350 University of Washington Housing
and Dining System Revenue
5.00%, due 12/01/21 [MBIA] ........................ 322
100 Washington Certificates of
Participation (State Office
Building Project)
6.00%, due 4/01/12 ................................ 101
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] ........................ 199
150 Washington Health Care Facilities
Authority Revenue
(Grays Harbor Medical Center)
5.90%, due 7/01/23 [AG] ........................... 150
200 Washington Health Care Facilities
Authority Revenue
(Northwest Hospital, Seattle)
5.75%, due 11/15/23 [AMBAC] ....................... 198
100 Washington Health Care Facilities
Authority Revenue (Swedish
Hospital Medical Center)
6.30%, due 11/15/22 [AMBAC] ....................... 105
250 Washington Higher Education
Facilities Authority Revenue
and Refunding Revenue
(Pacific Lutheran University
Project)
5.70%, due 11/01/26 [CL] .......................... 244
120 Washington Public Power
Supply System Nuclear
Project #2 Revenue
5.50%, due 7/01/18 ................................ 113
$250 Washington State Housing
Finance Commission Revenue
(Horizon House Project)
6.125%, due 7/01/27 [AG] .......................... $255
250 Whatcom County Limited Tax
General Obligation
5.75%, due 12/01/12 [FSA] ......................... 254
200 Yakima-Tieton Irrigation
District Revenue
6.20%, due 6/01/19 [FSA] .......................... 211
------
TOTAL BONDS.......... ..................................... 6,977
------
TEMPORARY INVESTMENTS - 0.9% Investment Companies:
61 Federated Tax-Exempt
Money Market Fund, Inc. ........................... 61
------
TOTAL TEMPORARY INVESTMENTS ............................... 61
------
TOTAL INVESTMENTS - 99.1% ................................. 7,038
Other Assets, less Liabilities ............................ 67
------
NET ASSETS ........ ....................................... $7,105
======
</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 total bonds
they guarantee at period end are as follows:
<TABLE>
<S> <C>
MBIA: Municipal Bond Investors
Assurance Corp. ....................................... 17.8%
AMBAC:AMBAC Indemnity Corp. ................................. 10.8
FGIC: Financial Guaranty
Insurance Corp. ....................................... 8.3
FSA: Financial Security
Assurance, Inc. ....................................... 6.6
AG: Asset Guaranty ........................................ 5.8
CL: Connie Lee ............................................ 3.5
------
52.8%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-33-
<PAGE> 37
STATEMENTS OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
BOND FUND BOND FUND
- --------------------------------------------------------------------------------
(In Thousands, Except Per-Share Amounts)
<S> <C> <C>
ASSETS
Investments, at Cost $13,614 $13,445
======= =======
Investments, at Value $13,998 $14,176
Cash 3 --
Receivables
Interest 214 215
Trust Shares Sold -- 7
Deferred Organization Expense 5 5
------- -------
Total Assets 14,220 14,403
LIABILITIES
Payables
Dividends 23 33
Investment Securities Purchased -- 601
Investment Advisory Fees 7 8
Trust Shares Redeemed -- 557
Organization Expense 5 5
Other 13 12
------- -------
Total Liabilities 48 1,216
------- -------
NET ASSETS $14,172 $13,187
======= =======
NO LOAD CLASS:
Net Assets $14,172 $13,187
TrustShares Outstanding 1,336 1,227
------- -------
Net Asset Value, Offering Price, and
Redemption Price Per Share $ 10.61 $ 10.74
======= =======
CLASS A:
Net Assets -- --
Trust Shares Outstanding
Net Asset Value and Redemption
Price Per Share
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4 5%)
CLASS B:
Net Assets -- --
Trust Shares Outstanding
Net Asset Value and Offering Price Per Share*
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-34-
<PAGE> 38
STATEMENTS OF ASSETS AND LIABILITIES (Continued)
As of December 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 Cost $429,268 $65,281 $6,750
======== ======= ======
Investments, at Value $479,642 $71,400 $7,038
Cash -- -- --
Receivables
Interest 8,772 1,284 108
Trust Shares Sold 168 2 --
Deferred Organization Expense -- -- 2
-------- ------- ------
Total Assets 488,582 72,686 7,148
LIABILITIES
Payables
Dividends 822 140 26
Investment Securities Purchased 5,152 -- --
Investment Advisory Fees 179 35 4
Trust Shares Redeemed 975 186 --
Organization Expense -- -- 2
Other 61 18 11
-------- ------- ------
Total Liabilities 7,189 379 43
-------- ------- ------
NET ASSETS $481,393 $72,307 $7,105
======== ======= ======
NO LOAD CLASS:
Net Assets $480,970 $72,084 $6,558
Trust Shares Outstanding 34,402 5,897 623
Net Asset Value, Offering Price, and
Redemption Price Per Share$ 13.98 $ 12.22 $10.53
======== ======= ======
CLASS A:
Net Assets $ 311 $ 122 $ 336
Trust Shares Outstanding 22 10 32
-------- ------- ------
Net Asset Value and Redemption
Price Per Share $ 13.99 $ 12.23 $10.53
======== ======= ======
Maximum Offering Price Per Share
(Net Asset Value Plus Sales Charge of 4.5%) $ 14.65 $ 12.81 $11.03
======== ======= ======
CLASS B:
Net Assets $ 112 $ 101 $ 211
Trust Shares Outstanding 8 8 20
-------- ------- ------
Net Asset Value and Offering Price Per Share* $ 13.98 $ 12.22 $10.55
======== ======= ======
</TABLE>
* Redemption price per share is the net asset value less any applicable
contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
-35-
<PAGE> 39
STATEMENTS OF OPERATIONS
For the Nine-Month Period Ended December 31, 1996
<TABLE>
<CAPTION>
SAFECO SAFECO
INTERMEDIATE-TERM INSURED
MUNICIPAL MUNICIPAL
(In Thousands) BOND FUND BOND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Interest $ 568 $ 526
EXPENSES
Investment Advisory Fees 60 60
Transfer Agent Fees 10 9
Legal and Auditing Fees 12 12
Loan Interest 1 --
Reports to Shareholders 2 1
Custodian Fees 5 5
Trustees' Fees 2 2
Amortization of Organization Expenses 3 3
----- -----
Total Expenses 95 92
----- -----
NET INVESTMENT INCOME 473 434
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments (7) (19)
Net Change in Unrealized Appreciation 162 386
----- -----
NET GAIN ON INVESTMENTS 155 367
----- -----
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 628 $ 801
===== =====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-36-
<PAGE> 40
STATEMENTS OF OPERATIONS (Continued)
For the Nine-Month Period Ended December 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 $21,820 $3,132 $294
EXPENSES
Investment Advisory Fees 1,533 290 32
Transfer Agent Fees 300 48 2
Legal and Auditing Fees 24 13 12
Loan Interest 6 1 --
Reports to Shareholders 36 6 1
Custodian Fees 9 5 5
Trustees' Fees 9 3 3
Amortization of Organization Expenses -- -- 1
------- ------ ----
Total Expenses 1,917 366 56
------- ------ ----
NET INVESTMENT INCOME 19,903 2,766 238
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on Investments 2,341 197 4
Net Change in Unrealized Appreciation 7,844 2,196 125
------- ------ ----
NET GAIN ON INVESTMENTS 10,185 2,393 129
------- ------ ----
NET CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $30,088 $5,159 $367
======= ====== ====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-37-
<PAGE> 41
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SAFECO INTERMEDIATE-TERM SAFECO INSURED
MUNICIPAL BOND FUND MUNICIPAL BOND FUND
----------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR THE NINE FOR THE FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
DEC. 31 MARCH 31 DEC. 31 MARCH 31
(In Thousands) 1996 1996 1996 1996
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net Investment Income $ 473 $ 627 $ 434 $ 422
Net Realized Gain (Loss) on Investments (7) 7 (19) 9
Net Change in Unrealized Appreciation 162 422 386 239
-------- -------- -------- --------
Net Change in Net Assets Resulting
from Operations 628 1,056 801 670
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income - No-Load Class (473) (627) (434) (422)
- Class A -- -- -- --
- Class B -- -- -- --
Net Realized Gain on Investments - No-Load -- -- -- --
-------- -------- -------- --------
Total (473) (627) (434) (422)
NET TRUST SHARE TRANSACTIONS
No-Load (964) 790 1,062 3,347
Class A -- -- -- --
Class B -- -- -- --
-------- -------- -------- --------
Total (964) 790 1,062 3,347
-------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS (809) 1,219 1,429 3,595
NET ASSETS AT BEGINNING OF PERIOD 14,981 13,762 11,758 8,163
-------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 14,172 $ 14,981 $ 13,187 $ 11,758
======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES
Sales 176 342 458 368
Reinvestments 25 33 13 8
Redemptions (293) (300) (368) (64)
-------- -------- -------- --------
Net Change (92) 75 103 312
======== ======== ======== ========
AMOUNTS
Sales $ 1,841 $ 3,592 $ 4,812 $ 3,939
Reinvestments 263 350 137 81
Redemptions (3,068) (3,152) (3,887) (673)
-------- -------- -------- --------
Net Change $ (964) $ 790 $ 1,062 $ 3,347
======== ======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-38-
<PAGE> 42
<TABLE>
<CAPTION>
SAFECO SAFECO CALIFORNIA SAFECO WASHINGTON
MUNICIPAL BOND FUND TAX-FREE INCOME FUND STATE MUNICIPAL BOND FUND
- --------------------------------------------------------------------------------------------
FOR THE NINE FOR THE FOR THE NINE FOR THE FOR THE NINE FOR THE
MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED YEAR ENDED
DEC. 31 MARCH 31 DEC. 31 MARCH 31 DEC. 31 MARCH 31
1996 1996 1996 1996 1996 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 19,903 $ 26,736 $ 2,766 $ 3,520 $ 238 $ 293
2,341 2,608 197 704 4 28
7,844 11,135 2,196 1,516 125 124
--------- --------- -------- -------- ------- -------
30,088 40,479 5,159 5,740 367 445
(19,899) (26,736) (2,764) (3,520) (234) (293)
(3) -- (1) -- (3) --
(1) -- (1) -- (1) --
-- -- (200) (449) (4) (20)
--------- --------- -------- -------- ------- -------
(19,903) (26,736) (2,966) (3,969) (242) (313)
(9,855) (5,669) (652) 4,717 (52) 404
309 -- 120 -- 334 --
111 -- 100 -- 209 --
--------- --------- -------- -------- ------- -------
(9,435) (5,669) (432) 4,717 491 404
--------- --------- -------- -------- ------- -------
750 8,074 1,761 6,488 616 536
480,643 472,569 70,546 64,058 6,489 5,953
--------- --------- -------- -------- ------- -------
$ 481,393 $ 480,643 $ 72,307 $ 70,546 $ 7,105 $ 6,489
========= ========= ======== ======== ======= =======
- --------------------------------------------------------------------------------------------
4,689 27,285 1,648 2,471 78 50
908 1,214 168 223 4 3
(6,271) (28,766) (1,849) (2,299) (35) (15)
--------- --------- -------- -------- ------- -------
(674) (267) (33) 395 47 38
========= ========= ======== ======== ======= =======
$ 63,875 $ 377,063 $ 19,516 $ 29,742 $ 813 $ 528
12,498 16,744 2,025 2,678 38 31
(85,808) (399,476) (21,973) (27,703) (360) (155)
------------------------- -------- -------- ------- -------
$ (9,435) $ (5,669) $ (432) $ 4,717 $ 491 $ 404
========================= ======== ======== ======= =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
-39-
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS
1. GENERAL
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 Trust recently changed its fiscal year end from
March 31, to December 31.
Effective September 30, 1996, the Municipal, California and Washington began
issuing two additional classes of shares -- Class A and Class B shares
(collectively, "Advisor Classes"). Unlike the no-load class of shares (which are
sold directly to the shareholder with no associated sales or distribution
charges), these new classes of shares are sold by financial advisors to
shareholders and have associated service and distribution charges. Each class of
shares represents an interest in the net assets of the Fund.
In connection with issuing the new Advisor Classes, the Municipal,
California, and Washington Funds adopted a Plan of Distribution (the "Plan").
Under the Plan, each Advisor Class pays the distributor, SAFECO Securities,
Inc., for servicing its shares at the annual rate of .25% of the average daily
net asset of the Advisor Class. Class B shares also pay the distributor a
distribution fee at the annual rate of .75% of the average daily net assets of
the Class B shares.
Under the Plans, the distributor uses the service fees primarily to
compensate persons selling Advisor Class shares for providing ongoing services
and the maintenance of shareholder accounts. The distributor uses the
distribution fees primarily to offset the commissions it pays to financial
advisors for selling Class B shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by each Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting
-40-
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (Continued)
principles, which permits 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. Temporary investments are valued at cost which approximates
market.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
The cost of the portfolios is the same for financial statement and federal
income tax purposes. Realized gains and losses from security transactions are
determined using the identified cost basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS. Securities purchased on a
when-issued or delayed basis may be settled a month or more after the trade
date. The securities purchased are carried in the portfolio at market and are
subject to market fluctuation during this period. These securities begin earning
interest on the settlement date. As commitments to purchase when-issued
securities become fixed, the Funds segregate liquid assets in an amount equal to
the total obligation.
INCOME RECOGNITION. Interest is accrued on portfolio investments daily. Bond
premiums and original issue discounts are amortized to either call or maturity
dates. Market discount on bonds purchased after April 30, 1993, is recorded as
taxable income at disposition.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment income is
declared as a dividend to shareholders of record as of the close of each
business day and payment is made as of the last business day of each month. Net
gains realized from security transactions, if any, will normally be distributed
to shareholders at the end of December.
FEDERAL INCOME AND EXCISE TAXES. Each Fund intends 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.
-41-
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (Continued)
Any portion of dividends representing realized 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.
3. COMPONENTS OF NET ASSETS
At December 31, 1996, the components of net assets were as follows:
<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>
Aggregate gross unrealized
appreciation for investment
securities in which there
is an excess of value over
identified cost $ 422 $ 749 $ 50,426 $ 6,228 $ 301
--------- -------- --------- ------- -------
Aggregate gross unrealized
depreciation for investment
securities in which there
is an excess of identified
cost over value (38) (18) (52) (109) (13)
--------- -------- --------- ------- -------
Net unrealized appreciation 384 731 50,374 6,119 288
Accumulated net realized (loss)
on investment transactions* (21) (74) (1,285) -- --
Paid in capital (par value $.001,
unlimited shares authorized) 13,809 12,530 432,304 66,188 6,817
--------- -------- --------- ------- -------
NET ASSETS AT DECEMBER 31, 1996 $ 14,172 $ 13,187 $ 481,393 $ 72,307 $ 7,105
========= ======== ========= ======== =======
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*The above accumulated net realized losses on investment transactions represents
capital loss carryforwards for Federal income tax purposes, which expire as
follows:
<TABLE>
<CAPTION>
AMOUNTS
(000'S) EXPIRATION DATES
-------- ----------------
<S> <C> <C>
Intermediate-Term Municipal Bond Fund $ (21) 2003
Insured Municipal Bond Fund (74) 2002-2003
Municipal Bond Fund (1,285) 2003
</TABLE>
-42-
<PAGE> 46
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
Nine-Month Period Ended
December 31, 1996 (excluding
short-term investments) $1,359 $4,695 $23,639 $7,521 $1,417
====== ====== ======= ====== ======
Sales for the
Nine-Month Period Ended
December 31, 1996 (excluding
short-term investments) $2,291 $1,312 $38,046 $5,409 $775
====== ====== ======= ====== ======
</TABLE>
5. INVESTMENT ADVISORY FEES AND OTHER
TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Funds. These fees are based on a percentage of each day's net assets, which, on
an annual basis, are as follows:
INTERMEDIATE FUND: INSURED & WASHINGTON FUNDS:
First $250 million .55% First $250 million .65%
Next $250 million .45 Next $250 million .55
Next $250 million .35 Next $250 million .45
Over $750 million .25 Over $750 million .35
MUNICIPAL & CALIFORNIA FUNDS:
First $100 million .55%
Next $150 million .45
Next $250 million .35
Over $500 million .25
TRANSFER AGENT FEES. SAFECO Services Corporation receives transfer agent
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.
AFFILIATE OWNERSHIP. At December 31, 1996, SAFECO Insurance Company of
America owned 397,434 shares (30% of the outstanding shares) of the Intermediate
Fund, 605,644 shares (49%) of the Insured Fund and 502,372 shares (81%) of the
Washington Fund.
DEFERRED ORGANIZATION EXPENSES. Costs related 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.
-43-
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NOVEMBER 5, 1992
NINE-MONTH (COMMENCEMENT
PERIOD ENDED OF OPERATIONS)
DECEMBER 31 FOR THE YEAR ENDED MARCH 31 TO MARCH 31
------------ ----------------------------------------------
1996 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.49 $ 10.17 $ 10.13 $ 10.25 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.35 0.45 0.45 0.40 0.09
Net Realized and Unrealized
Gain (Loss) on Investments 0.12 0.32 0.04 (0.12) 0.25
------- --------- ------- ------- ------
Total from Investment Operations 0.47 0.77 0.49 0.28 0.34
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.35) (0.45) (0.45) (0.40) (0.09)
------- --------- ------- ------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.61 $ 10.49 $ 10.17 $ 10.13 $ 10.25
======= ========= ======= ======= ========
TOTAL RETURN 4.53%* 7.63% 4.97% 2.64% - 0.04%***
NET ASSETS AT END OF PERIOD (000'S) $14,172 $ 14,981 $13,762 $10,781 $2,345
EXPENSES TO AVERAGE NET ASSETS 0.89%** 0.84% 0.85% 0.99% 1.95%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.40%** 4.29% 4.46% 3.85% 2.18%**
PORTFOLIO TURNOVER RATE 12.81%** 9.12% 4.27% 1.49% NONE
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized
** Annualized.
*** Total return from March 18, 1993 (initial public offering), to March 31,
1993, not annualized.
-44-
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO INSURED MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE NOVEMBER 5, 1992
NINE-MONTH (COMMENCEMENT
PERIOD ENDED OF OPERATIONS)
DECEMBER 31 FOR THE YEAR ENDED MARCH 31 TO MARCH 31
----------- -------------------------------------------------------
1996 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 10.46 $ 10.05 $ 9.73 $ 10.26 $ 10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.48 0.48 0.41 0.08
Net Realized and Unrealized
Gain (Loss) on Investments 0.28 0.41 0.32 (0.53) 0.26
-------- -------- --------- --------- --------
Total from Investment Operations 0.65 0.89 0.80 (0.12) 0.34
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.37) (0.48) (0.48) (0.41) (0.08)
-------- -------- --------- --------- --------
NET ASSET VALUE AT END OF PERIOD $ 10.74 $ 10.46 10.05 $ 9.73 $ 10.26
======== ======== ===== ======== ========
TOTAL RETURN 6.31%* 8.95% 8.58% - 1.40% - 0.43%***
NET ASSETS AT END OF PERIOD (000'S) $ 13,187 $ 11,758 $ 8,163 $ 3,306 $ 2,106
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.00%** 0.99% 1.08% 1.41% 1.95%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.66%** 4.53% 5.11% 3.99% 1.90%**
PORTFOLIO TURNOVER RATE 14.86%** 3.71% 14.76% 21.19% NONE
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized.
** Annualized.
*** Total return from March 18, 1993 (initial public offering), to March 31,
1993, not annualized.
-45-
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD ENDED
DECEMBER 31 FOR THE YEAR ENDED MARCH 31
----------- ------------------------------------
1996 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.69 $13.36 $13.27 $ 14.13 $ 13.37
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.57 0.76 0.77 0.78 0.81
Net Realized and Unrealized
Gain (Loss) on Investments 0.29 0.33 0.12 (0.55) 0.94
-------- ------ ------ -------- --------
Total from Investment Operations 0.86 1.09 0.89 0.23 1.75
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.57) (0.76) (0.77) (0.78) (0.81)
Distributions from Realized Gains -- -- (0.03) (0.31) (0.18)
-------- ------ ------ -------- --------
Total Distributions (0.57) (0.76) (0.80) (1.09) (0.99)
-------- ------ ------ -------- --------
NET ASSET VALUE AT END OF PERIOD $ 13.98 $ 13.69 $ 13.36 $ 13.27 $ 14.13
======== ========= ======== ========= ========
TOTAL RETURN 6.42%* 8.23% 7.10% 1.30% 13.60%
NET ASSETS AT END OF PERIOD (000'S) $480,970 $ 480,643 $472,569 $ 507,453 $541,515
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.53% ** 0.54% 0.56% 0.52% 0.53%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 5.53% ** 5.47% 5.96% 5.49% 5.91%
PORTFOLIO TURNOVER RATE 6.66% ** 12.60% 26.96% 22.07% 31.66%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized.
** Annualized.
-46-
<PAGE> 50
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
--------------------------------------------------
CLASS A CLASS B
- --------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 13.82 $ 13.82
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.18 0.15
Net Realized and Unrealized
Gain (Loss) on Investments 0.17 0.16
------- -------
Total from Investment Operations 0.35 0.31
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.18) (0.15)
Distributions from Realized Gains -- --
------- -------
Total Distributions (0.18) (0.15)
------- -------
NET ASSET VALUE AT END OF PERIOD $ 13.99 $ 13.98
======= =======
TOTAL RETURN* 2.52% 2.27%
NET ASSETS AT END OF PERIOD (000'S) $ 311 $ 112
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 0.82% 1.50%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 5.04% 4.42%
PORTFOLIO TURNOVER RATE** 6.66% 6.66%
- --------------------------------------------------------------------------------
</TABLE>
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return for Classes A and B would
be lower.
** Annualized.
-47-
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
NO-LOAD CLASS
<TABLE>
<CAPTION>
FOR THE
NINE-MONTH
PERIOD ENDED
DECEMBER 31 FOR THE YEAR ENDED MARCH 31
----------- ---------------------------
1996 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 11.86 $ 11.54 $ 11.51 $ 12.23 $ 11.60
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.47 0.62 0.63 0.66 0.68
Net Realized and Unrealized
Gain (Loss) on Investments 0.39 0.40 0.13 (0.38) 0.76
------- ------- ------- ------- -------
Total from Investment Operations 0.86 1.02 0.76 0.28 1.44
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.47) (0.62) (0.63) (0.66) (0.68)
Distributions from Realized Gains (0.03) (0.08) (0.10) (0.34) (0.13)
------- ------- ------- ------- -------
Total Distributions (0.50) (0.70) (0.73) (1.00) (0.81)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 12.22 $ 11.86 $ 11.54 $ 11.51 $ 12.23
======= ======= ======= ======= =======
TOTAL RETURN 7.42%* 8.87% 7.01% 1.97% 12.88%
NET ASSETS AT END OF PERIOD (000'S) $72,084 $70,546 $64,058 $77,056 $79,872
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.69% ** 0.68% 0.70% 0.68% 0.66%
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 5.21% ** 5.12% 5.65% 5.31% 5.71%
Portfolio Turnover Rate 10.52% ** 16.25% 44.10% 32.58% 23.18%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized.
** Annualized.
-48-
<PAGE> 52
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
--------------------------------------------------
CLASS A CLASS B
- ---------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $ 12.07 $ 12.07
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.15 0.12
Net Realized and Unrealized
Gain (Loss) on Investments 0.19 0.18
------- --------
Total from Investment Operations 0.34 0.30
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.15) (0.12)
Distributions from Realized Gains (0.03) (0.03)
------- ---------
Total Distributions (0.18) (0.15)
NET ASSET VALUE AT END OF PERIOD $ 12.23 $ 12.22
======= ========
TOTAL RETURN* 2.83% 2.56%
NET ASSETS AT END OF PERIOD (000'S) $ 122 $ 101
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 0.89% 1.64%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 4.84% 4.08%
PORTFOLIO TURNOVER RATE** 10.52% 10.52%
</TABLE>
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return for Classes A and B would
be lower.
** Annualized.
-49-
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
No-Load Class
<TABLE>
<CAPTION>
FOR THE NOVEMBER 5, 1992
NINE-MONTH (COMMENCEMENT
PERIOD ENDED OF OPERATIONS)
DECEMBER 31 FOR THE YEAR ENDED MARCH 31 TO MARCH 31
----------- ------------------------------------ -----------
1996 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.34 $10.10 $ 9.91 $ 10.27 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.37 0.50 0.49 0.44 0.09
Net Realized and Unrealized
Gain (Loss) on Investments 0.20 0.27 0.19 (0.35) 0.27
------ ------- ------ ------- ------
Total from Investment Operations 0.57 0.77 0.68 0.09 0.36
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.37) (0.50) (0.49) (0.44) (0.09)
Distributions from Realized Gains (0.01) (0.03) -- (0.01) --
------ ------- ------ ------- ------
Total Distributions (0.38) (0.53) (0.49) (0.45) (0.09)
------ ------- ------ ------- ------
NET ASSET VALUE AT END OF PERIOD $10.53 $10.34 $10.10 $ 9.91 $10.27
====== ====== ====== ======= ======
TOTAL RETURN 5.61%* 7.73% 7.13% 0.68% -0.31***
NET ASSETS AT END OF PERIOD (000'S) $6,558 $ 6,489 $5,953 $ 2,908 $2,163
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.10%** 1.07% 1.09% 1.44% 2.00%**
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS 4.78%** 4.78% 5.06% 4.17% 2.22%**
PORTFOLIO TURNOVER RATE 15.96%** 20.86 9.23% 17.26% NONE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not Annualized.
** Annualized.
*** Total return from March 18, 1993 (initial public offering), to March
31, 1993, not annualized.
-50-
<PAGE> 54
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1996
--------------------------------------------------
CLASS A CLASS B
- -----------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE AT
BEGINNING OF PERIOD $10.45 $10.45
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.12 0.10
Net Realized and Unrealized
Gain (Loss) on Investments 0.09 0.11
------ ------
Total from Investment Operations 0.21 0.21
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.12) (0.10)
Distributions from Realized Gains (0.01) (0.01)
------ ------
Total Distributions (0.13) (0.11)
------ ------
NET ASSET VALUE AT END OF PERIOD $10.53 $10.55
====== ======
TOTAL RETURN* 1.94% 1.94%
NET ASSETS AT END OF PERIOD (000'S) $ 336 $ 211
RATIO OF EXPENSES TO AVERAGE NET ASSETS** 1.31% 2.06%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS** 4.49% 3.71%
Portfolio Turnover Rate** 15.96% 15.96%
</TABLE>
- --------------------------------------------------------------------------------
* Not annualized. Total return excludes the effects of sales charges. If
sales charges were included, the total return for Classes A and B would
be lower.
** Annualized.
-51-
<PAGE> 55
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 December 31, 1996, and the related statements of operations, the
statements of changes in net assets, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 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
December 31, 1996, the results of their operations, the changes in their net
assets, and the financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 31, 1997
-52-
<PAGE> 56
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
SAFECO Managed 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-
