[Federal Register Volume 66, Number 72 (Friday, April 13, 2001)]
[Notices]
[Pages 19252-19253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9111]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24931; 812-12444]


SAFECO Tax-Exempt Bond Trust, et al.; Notice of Application

April 6, 2001.

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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SUMMARY OF THE APPLICATION: Applicants request an order to permit a 
series of a registered open-end management investment company to 
acquire all of the assets and assume all liabilities of another series 
of the investment company. Because of certain affiliations, applicants 
may not rely on rule 17a-8 under the Act.

APPLICANTS: SAFECO Tax-Exempt Bond Trust (``Trust)'', SAFECO Asset 
Management Company(``SAM''), SAFECO Insurance Company of America 
(``SAFECO Insurance'') and SAFECO Corporation.

FILING DATES: The application was filed on February 20, 2001. 
Applicants have agreed to file an amendment to the application during 
the notice period, the substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on April 27, 2001, and should be accompanied by proof of service 
on applicants in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Applicants, 10865 William Road, N.E., Redmond, WA 
98052.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel, 
at (202) 942-0714, or Michael Mundt, Branch Chief, at (202) 942-0564 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090.

Applicant's Representations

    1. The Trust, a Delaware business trust, is registered under the 
Act as an open-end management investment company and offers four 
series, including the SAFECO Insured Municipal Bond Fund (the ``Insured 
Fund'') and the SAFECO Municipal Bond Fund (the ``Municipal Bond 
Fund,'' together with the Insured Fund, the ``Funds''). SAM is 
registered under the Investment Advisers Act of 1940 and is the 
investment adviser to the Funds. SAFECO Corporation is the parent of 
SAM and SAFECO Insurance. As of March 14, 2001, SAFECO Insurance owned 
approximately 31% of the outstanding voting securities of the Insured 
Fund.
    2. On February 8, 2001, a majority of the board of trustees of the 
Trust (the ``Board''), including all of the trustees who are not 
``interested persons,'' as defined in section 2(a)(19) of the Act 
(``Independent Trustees''), approved a Plan of Reorganization and 
Termination (the ``Plan''). Under the Plan, the Municipal Bond Fund 
will acquire all of the assets and assume all of the liabilities of the 
Insured Fund in exchange for shares of the Municipal Bond Fund 
(``Reorganization''). The Insured Fund will then distribute the shares 
of the Municipal Bond Fund to its shareholders of record, so that each 
shareholder of the Insured Fund will receive a number of full and 
fractional shares of the Municipal Bond Fund equal in net asset value 
to the shareholder's Insured Fund shares on the date of the 
Reorganization. The value of the assets of each Fund will be determined 
according to the respective Fund's then-current prospectus and 
statement of additional information. The Insured Fund will liquidate as 
soon as practicable after the Reorganization, which currently is 
anticipated to occur on April 30, 2001.
    3. Applicants state that the investment objectives, policies and 
restrictions of the Municipal Bond Fund are substantially the same as 
those of the Insured Fund. The Insured Fund offers only one class of 
shares, which is not subject to any front-end or contingent deferred 
sales charge or rule 12b-7 fee. Shareholders will receive shares of a 
class of the Municipal Bond Fund with the same charge structure. No 
sales charges will be imposed in connection with the Reorganization. As 
determined by the Board, each Fund will bear the expenses incurred by 
it or on its behalf in connection with the Reorganization, and certain 
expenses will be borne by SAM.
    4. The Board, including a majority of the Independent Trustees, 
determined that the Reorganization is in the best interests of each 
Fund and its shareholders, and that the interests of the existing 
shareholders of each Fund would not be diluted as a result of the 
Reorganization. In assessing the Reorganization, the Board considered 
various factors, including: (a) The terms and conditions of the 
Reorganization; (b) the compatibility of the Funds' investment 
objectives, policies and restrictions; (c) the Fund's respective 
investment performances; (d) the expense ratios of the Funds; (e) the 
costs incurred by each Fund as a result of the Reorganization; and (f) 
the tax-free nature of the Reorganization.
    5. The Reorganization is subject to a number of conditions 
precedent, including that: (a) The shareholders of the Insured Fund 
will have approved the Plan; (b) the Insured Fund will have received an 
opinion of counsel concerning the tax-free nature of the 
Reorganization; and (c) the Commission will have granted an exemption 
from section 17(a) of the Act to permit the Reorganization. The Plan 
may be terminated and the Reorganization abandoned at any time prior to 
the Reorganization if the Board determines that proceeding with the 
Reorganization is inadvisable for either Fund. Applicants agree not to 
make any material changes to the Plan without prior Commission 
approval.
    6. A registration statement on Form N-14 with respect to the 
Reorganization was filed on February 16, 2001. Materials related to the 
Reorganization, including a prospectus/proxy statement, were mailed to 
shareholders of the Insured Fund on March 28, 2001. A special meeting 
of shareholders of the Insured Fund will be held on April 17, 2001 to 
vote on the Reorganization.

[[Page 19253]]

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of such person, acting as principal, from selling any security 
to, or purchasing any security from, the company. Section 2(a)(3) of 
the Act defines and ``affiliated person'' of another person to include 
(a) any person directly or indirectly owning, controlling, or holding 
with power to vote 5% or more of the outstanding voting securities of 
the other person; (b) any person 5% or more of whose securities are 
directly or indirectly owned, controlled, or held with power to vote by 
the other person; (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person; and (d) 
if the other person is an investment company, any investment adviser of 
that company.
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) certain mergers, consolidations or sales of substantially 
all of the assets of registered investment companies that are 
affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions set 
forth in the rule are satisfied. Applicants believe that rule 17a-8 may 
not be available in connection with the Reorganization because the 
Funds may be deemed to be affiliated persons (or affiliated persons of 
an affiliated person) by reason of SAFECO Insurance's ownership of more 
than 5% of the outstanding voting shares of the Insured Fund.
    3. Section 17(b) of the Act provides, in relevant part, that the 
Commission may exempt a transaction, including the consideration to be 
paid or received, are reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the proposed 
transaction is consistent with the policy of each registered investment 
company concerned and with the general purposes of the Act.
    4. Applicants request an order under section 17(b) exempting them 
from section 17(a) to the extent necessary to complete the 
reorganization. Applicants believe that the terms of the Reorganization 
are reasonable and fair and do not involve overreaching. Applicants 
state that the investment objectives, policies and restrictions of the 
Funds are substantially the same. Applicants also state that the Board, 
including a majority of the Independent Trustees, has determined that 
the participation by the funds in the Reorganization is in the best 
interests of each Fund and its shareholders, and that such 
participation will not dilute the interests of the existing 
shareholders of each Fund. In addition, applicants state that the 
Reorganization will be on the basis of the Funds' relative net asset 
values.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-9111 Filed 4-12-01; 8:45 am]
BILLING CODE 8010-01-M