SAFECO MONEY MARKET TRUSTS, 497, 1996-10-11

SAFECO MONEY MARKET TRUSTS
497, 1996-10-11

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SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND

Advisor Class A
Advisor Class B

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Funds. A copy of the
Prospectus may be obtained by writing SAFECO Mutual Funds, Advisor Class
Shares, P.O. Box 34890, Seattle, Washington 98124-1890, or by calling TOLL
FREE: 1-800-463-8791.

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.
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_________________________________________________________________________

TABLE OF CONTENTS

OVERVIEW OF INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . - 1 -
INVESTMENT POLICIES OF THE GROWTH FUND . . . . . . . . . . . . . . - 1 -
INVESTMENT POLICIES OF THE EQUITY FUND . . . . . . . . . . . . . . - 5 -
INVESTMENT POLICIES OF THE INCOME FUND . . . . . . . . . . . . . . - 8 -
INVESTMENT POLICIES OF THE NORTHWEST FUND . . . . . . . . . . . . . - 11 -
INVESTMENT POLICIES OF THE BALANCED FUND . . . . . . . . . . . . . - 15 -
INVESTMENT POLICIES OF THE INTERNATIONAL FUND . . . . . . . . . . . - 18 -
INVESTMENT POLICIES OF THE SMALL COMPANY FUND . . . . . . . . . . . - 21 -
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . - 24 -
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS . . . . . . . . . . . - 40 -
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . - 43 -
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . - 43 -
CONVERSION OF ADVISOR CLASS B SHARES . . . . . . . . . . . . . . . - 45 -
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER
SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . - 46 -
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . - 54 -
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . - 57 -
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . - 64 -
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . - 64 -
DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS . . . . - 65 -
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OVERVIEW OF INVESTMENT POLICIES

SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"),
SAFECO Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest
Fund"), SAFECO Balanced Fund ("Balanced Fund"), SAFECO International Stock
Fund ("International Fund") and SAFECO Small Company Stock Fund ("Small
Company Fund") (collectively, the "Funds") are each a series of the SAFECO
Common Stock Trust ("Trust"). The investment policies of each Fund are
described in the Prospectus and this Statement of Additional Information.
These policies state the investment practices that the Funds will follow,
in some cases limiting investments to a certain percentage of assets, as
well as those investment activities that are prohibited. The types of
securities (e.g., common stock, U.S. Government securities or bonds) a
Fund may purchase are also disclosed in the Prospectus. Before a Fund
purchases a security that the following policies permit, but which is not
currently described in the Prospectus, the Prospectus will be amended or
supplemented to describe the security. If a policy's percentage
limitation is adhered to immediately after and as a result of the
investment, a later increase or decrease in values, net assets or other
circumstances will not be considered in determining whether a Fund
complies with the applicable limitation (except to the extent the change
may impact a Fund's borrowing limit).

Each Fund's fundamental policies may not be changed without the approval
of a "majority of its outstanding voting securities," as defined by the
Investment Company Act of 1940, as amended ("1940 Act"). For purposes of
such approval, the vote of a majority of the outstanding voting securities
of a Fund means the vote, at a meeting of the shareholders of such Fund
duly called, of (i) 67% or more of the voting securities present at such
meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (ii) more than 50% of
the outstanding voting securities, whichever is less.

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE GROWTH FUND

Fundamental Investment Policies

The Growth Fund has adopted the following fundamental investment policies.
The Growth Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of the Growth Fund's total assets would
be invested in the securities of such issuer, except that up to
25% of the value of such assets (which 25% shall not include
securities issued by another investment company) may be invested
without regard to this 5% limitation.

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2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of any class of securities of
such issuer to be held by the Growth Fund.

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

4. Purchase securities of companies which have a record of less than
3 years of continuous operation, including in such 3 years the
operation of any predecessor company or companies, partnerships,
or individual proprietorship, if the company whose securities are
to be purchased by the Growth Fund has come into existence as a
result of a merger, consolidation, reorganization or purchase of
substantially all of the assets of such predecessor company or
companies, partnership or individual proprietorship, if such
purchase at the time thereof would cause more than 5% of the
Fund's assets to be invested in the securities of such companies.

5. Concentrate its investments in particular industries or
companies, but shall maintain substantial diversification of its
investments among industries and, to the extent deemed
practicable by management, among companies within particular
industries.

6. Purchase securities on margin, except for short-term credits as
are necessary for the clearance of transactions.

7. Make short sales (sales of securities not presently owned),
except where the Growth Fund has at the time of sale, by virtue
of its ownership in other securities, the right to obtain
securities equivalent in kind and amount to the securities sold.

8. Make loans to any person, firm or corporation, but the purchase
by the Growth Fund of a portion of an issue of publicly
distributed bonds, debentures or other securities issued by
persons other than the Growth Fund, whether or not the purchase
was made upon the original issue of securities, shall not be
considered a loan within the prohibition of this section.

9. Borrow money, except from banks or affiliates of SAFECO
Corporation at an interest rate not greater than that available
to the Growth Fund from commercial banks as a temporary measure
for extraordinary or emergency purposes and in amounts not in
excess of 20% of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after such
borrowing. The Growth Fund will not purchase securities if
borrowings equal to or greater than 5% of the Fund's total assets
are outstanding.

10. Pledge, mortgage or hypothecate assets taken at market to an
extent greater than 15% of its gross assets taken at cost.

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11. Purchase for nor retain in its portfolio securities issued by any
issuer any of whose officers, directors or security holders is an
officer or director of the Growth Fund, if or so long as the
officers or trustees of the Growth Fund, together, own
beneficially more than five percent (5%) of any class of the
securities of such issuer.

12. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or
except when such purchase, although not made in the open market,
is part of a merger, consolidation or acquisition. Such
purchases in the open market will be limited to not more than 5%
of the value of the Growth Fund's total assets. Nothing in this
section or in sections 1 or 2 above shall prevent any purchase
for the purpose of effecting a merger, consolidation or
acquisition of assets expressly approved by the shareholders
after full disclosure of any commission or profit to the
principal underwriter.

13. Act as underwriter of securities issued by any other person, firm
or corporation; however, the Growth Fund may be deemed to be a
statutory underwriter as that term is defined in the 1940 Act and
the Securities Act of 1933, as amended ("1933 Act"), in
connection with the disposition of any unmarketable or restricted
securities which it may acquire and hold in its portfolio.

14. Buy or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts in the
ordinary course of business, but this policy shall not be
construed as preventing the Growth Fund from acquiring real
estate, commodities, commodity contracts or futures contracts
through liquidating distributions as a result of the ownership of
securities.

15. Participate, on a joint or joint and several basis, in any
trading account in securities.

16. Issue or sell any senior securities, except that this restriction
shall not be construed to prohibit the Growth Fund from borrowing
funds (i) on a temporary basis as permitted by Section 18(g) of
the 1940 Act, or (ii) from any bank provided, that immediately
after such borrowing, there is an asset coverage of at least 300%
for all such borrowings and provided, further, that in the event
that such asset coverage shall at any time fall below 300% the
Growth Fund shall, within 3 days thereafter (not including
Sundays and holidays), or such longer period as the Securities
and Exchange Commission ("SEC") may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent
that the asset coverage of such borrowings shall be at least
300%. For purposes of this restriction, the terms "senior

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security" and "asset coverage" shall be understood to have the
meaning assigned to those terms in Section 18 of the 1940 Act.

17. Act as a distributor of securities of which the Growth Fund is
the issuer, except through an underwriter (who may be designated
as "distributor"), who may act as principal or be an agent of the
Growth Fund and may not be obligated to the Growth Fund to sell
or take any specific amount of securities.

18. Purchase foreign securities only if (a) such securities are
listed on a national securities exchange, and (b) such purchase,
at the time thereof, would not cause more than 10% of the total
assets of the Growth Fund (taken at market value) to be invested
in foreign securities.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Growth Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Growth Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

2. The Growth Fund will not issue long-term debt securities.

3. The Growth Fund will not invest in any security for the purpose
of acquiring or exercising control or management of the issuer.

4. The Growth Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

5. The Growth Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

6. The Growth Fund will not invest in securities with unlimited
liability, e.g., securities the holder of which may be assessed
for amounts in addition to the subscription or other price paid
for the security.

7. Although the Growth Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the
fundamental policy at section 10 above, it will only do so up to
ten percent (10%) of its net assets in order to comply with state
law.

8. The Growth Fund will invest no more than five percent (5%) of
total assets in qualified repurchase agreements and will not
enter into a repurchase agreement for a period longer than 7
days.

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9. The Growth Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, no-load, open-end
money market funds (subject to the fundamental policy limitations
set forth in section 12 above), repurchase agreements (subject to
the non-fundamental policy limitations in section 8 above) or any
other short-term instrument that SAFECO Asset Management Company
("SAM") deems appropriate.

10. The Growth Fund may invest up to 5% of net assets in warrants,
but will limit investments in warrants which are not listed on
the New York or American Stock Exchange to no more than two
percent (2%) of net assets. Warrants acquired as a result of
unit offerings or attached to securities may be deemed without
value for purposes of the 5% limitation.

11. The Growth Fund may invest up to 10% of its total assets in
contingent value rights.

12. The Growth Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

13. The Growth Fund will not purchase any security, if as a result,
more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal
or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.

14. The Growth Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A under
the 1933 Act, as amended ("Rule 144A"), provided that SAM has
determined that such securities are liquid under guidelines
adopted by the Board of Trustees.

INVESTMENT POLICIES OF THE EQUITY FUND

Fundamental Investment Policies

The Equity Fund has adopted the following fundamental investment policies.
The Equity Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies and instrumentalities) if as a result
more than 5% of the value of the Equity Fund's total assets would
be invested in the securities of such issuer, except that up to
25% of the value of the Fund's assets (which 25% shall not
include securities issued by another investment company) may be
invested without regard to this 5% limitation.

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2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of the outstanding voting
securities of such issuer to be held by the Equity Fund.

3. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions and where the Equity Fund has at the
time of sale, by virtue of its ownership in other securities, the
right to obtain securities equivalent in kind and amount to the
securities sold.

4. Purchase securities (other than obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities) if as
a result more than 25% of the Equity Fund's total assets would be
invested in one industry (governmental issues of securities are
not considered part of any one industry).

5. Make loans, except through the purchase of a portion or all of an
issue of debt or money market securities in accordance with the
Equity Fund's investment objective, policies and restrictions or
through investments in qualified repurchase agreements; provided,
however, that the Equity Fund shall not invest more than 10% of
its total assets in qualified repurchase agreements or through
qualified loan agreements.

6. Borrow money, except from a bank or affiliates of SAFECO
Corporation at an interest rate not greater than that available
to the Equity Fund from commercial banks for temporary or
emergency purposes and not for investment purposes. The Equity
Fund will not purchase securities if borrowings equal to or
greater than 5% of the Fund's total assets are outstanding.

7. Purchase shares of registered investment companies other than
real estate investment trusts.

8. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Equity Fund's investment objective, policies
and restrictions and the subsequent disposition thereof may be
deemed to be an underwriting, or the later disposition of
restricted securities acquired within the limits imposed on the
acquisition of such securities may be deemed to be an
underwriting.
9. Purchase or sell real estate (except real estate investment
trusts), commodities, commodity contracts or futures contracts.
This limitation is intended to include ownership of real estate
through limited partnerships.

10. Purchase any security for the purpose of acquiring or exercising
control or management of the issuer.

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11. Purchase puts, calls, straddles, spreads or any combination
thereof; provided, however, that nothing herein shall prevent the
purchase, ownership, holding or sale of warrants where the
grantor of the warrants is the issuer of the underlying
securities.

12. Issue or sell any senior securities, except that this restriction
shall not be construed to prohibit the Equity Fund from borrowing
funds (i) on a temporary basis as permitted by Section 18(g) of
the 1940 Act or (ii) from any bank provided, that immediately
after such borrowing, there is an asset coverage of at least 300%
for all such borrowings and provided, further, that in the event
that such asset coverage shall at any time fall below 300%, the
Equity Fund shall, within 3 days thereafter (not including
Sundays and holidays), or such longer period as the SEC may
prescribe by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%; for purposes of this
restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms
in Section 18 of the 1940 Act.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Equity Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Equity Fund will not participate on a joint or joint and
several basis in any trading account in securities, except that
the Equity Fund may, for the purpose of seeking better net
results on portfolio transactions or lower brokerage commission
rates, join with other transactions executed by the Fund's
investment adviser or the investment adviser's parent company and
any subsidiary thereof.

2. The Equity Fund will not purchase securities of any issuer which
with its predecessors has been in operation less than three
years, if such purchase would cause more than 5% of the Equity
Fund's total assets to be invested in such issuers.

3. The Equity Fund will not trade in foreign currency, except as may
be necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

4. The Equity Fund will not purchase securities with unlimited
liability, e.g., securities the holder of which may be assessed
for amounts in addition to the subscription or other price paid
for the security.

5. The Equity Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

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6. The Equity Fund will not pledge, mortgage, or hypothecate its
portfolio securities to the extent that, at any time, the
percentage of pledged securities at market value will exceed 10%
of its net assets.

7. The Equity Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

8. The Equity Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, repurchase
agreements (subject to the non-fundamental policy limitations in
section 7) or any other short-term instrument SAM deems
appropriate.

9. The Equity Fund may invest up to 5% of net assets in warrants
purchased at the lower of market or cost, but will limit
investments in warrants which are not listed on the New York or
American Stock Exchange to no more than 2% of net assets.
Warrants acquired as a result of unit offerings or attached to
securities may be deemed without value for purposes of the 5%
limitation.

10. The Equity Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

11. The Equity Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

12. The Equity Fund may invest in securities convertible into common
stock, but less than 35% of its total assets will be invested in
such securities.

13. The Equity Fund may purchase foreign securities, provided that
such purchase at the time thereof would not cause more than ten
percent (10%) of the total assets of the Equity Fund taken at
market value to be invested in foreign securities.

14. The Equity Fund will not purchase or retain for its portfolio the
securities of any issuer, if, to the Fund's knowledge, the
officers or trustees of the Fund or its investment adviser (who
individually own more than 0.5% of the outstanding securities of
such issuer), together own more than 5% of such issuer's
outstanding securities.

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INVESTMENT POLICIES OF THE INCOME FUND

Fundamental Policies

The Income Fund has adopted the following fundamental investment policies.
The Income Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of its total assets would be invested
in the securities of such issuer, except that up to 25% of the
value of such assets (which 25% shall not include securities
issued by another investment company) may be invested without
regard to this 5% limitation.

2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of any class of securities of
such issuer to be held by the Income Fund.

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

4. Purchase securities of companies which have a record of less than
three years of continuous operation (including in such three
years the operation of any predecessor company or companies,
partnerships, or individual proprietorship, if the company whose
securities are to be purchased by the Income Fund has come into
existence as a result of a merger, consolidation, reorganization
or purchase of substantially all of the assets of such
predecessor company or companies, partnership, or individual
proprietorship), if such purchase at the time thereof would cause
more than 5% of the Income Fund's assets to be invested in the
securities of such companies.

6. Purchase securities on margin, except for short-term credits as
are necessary for the clearance of transactions.

7. Make short sales (sales of securities not presently owned),
except where the Income Fund has at the time of sale, by virtue
of its ownership in other securities, the right to obtain
securities equivalent in kind and amount to the securities sold.

8. Make loans to any person, firm or corporation, but the purchase
of a portion of an issue of publicly distributed bonds,

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debentures or other securities issued by persons other than the
Income Fund, whether or not the purchase was made upon the
original issue of the securities, shall not be considered as a
loan within the prohibition of this section.

9. Borrow money, except from banks or affiliates of SAFECO
Corporation at an interest rate not greater than that available
to the Income Fund from commercial banks as a temporary measure
for extraordinary or emergency purposes and in amounts not in
excess of 20% of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after such
borrowing. The Fund will not purchase securities if borrowings
equal to or greater than 5% of the Fund's total assets are
outstanding.

10. Pledge, mortgage or hypothecate assets taken at market to an
extent greater than 15% of its gross assets taken at cost.

11. Purchase for nor retain in its portfolio securities issued by any
issuer, any of whose officers, trustees or security holders is an
officer or director of the Income Fund, if or so long as the
officers or directors of the Income Fund together own
beneficially more than five percent (5%) of any class of the
securities of such issuer.

12. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or
except where such purchase, although not made in the open market,
is part of a plan of merger or consolidation. Such purchases in
the open market shall be limited to not more than five percent
(5%) of the value of the Income Fund's total assets. Nothing in
this section or in sections 1 or 2 above shall prevent any
purchase for the purpose of effecting a merger, consolidation or
acquisition of assets.

13. Underwrite securities issued by any other person, firm or
corporation; however the Income Fund may be deemed a statutory
underwriter as that term is defined in the 1940 Act and the 1933
Act in connection with the disposition of any unmarketable or
restricted securities which it may acquire and hold in its
portfolio.

14. Buy or sell real estate, (except real estate investment trusts)
commodities, commodity contracts or futures contracts.

15. Participate, on a joint or joint and several basis, in any
trading account in securities.

16. Purchase foreign securities, unless (a) such securities are
listed on a national securities exchange, and (b) such purchase

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at the time thereof would not cause more than 10% of the total
assets of the Income Fund (taken at market value) to be invested
in foreign securities.

17. Issue or sell any senior security, except that this restriction
shall not be construed to prohibit the Income Fund from borrowing
funds (i) on a temporary basis as permitted by Section 18(g) of
the 1940 Act or (ii) from any bank provided, that immediately
after such borrowing, there is an asset coverage of at least 300%
for all such borrowings and provided, further, that in the event
that such asset coverage shall at any time fall below 300%, the
Income Fund shall, within three (3) days thereafter (not
including Sundays and holidays), or such longer period as the SEC
may prescribe by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. For purposes of this
restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms
in Section 18 of the 1940 Act.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Income Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Income Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

2. The Income Fund will not issue long-term debt securities.

3. Although the Income Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the
fundamental policy at section 10 above, it will only do so up to
10% of its net assets.

4. The Income Fund will not invest in any security for the purpose
of acquiring or exercising control or management of the issuer.

5. The Income Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

6. The Income Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

7. The Income Fund will not invest in securities with unlimited
liability, e.g., securities the holder of which may be assessed
for amounts in addition to the subscription or other price paid
for the security.

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8. The Income Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

9. The Income Fund will invest primarily in common stock and may
also invest in convertible and non-convertible bonds and
preferred stock.

10. The Income Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, no-load, open-end
money market funds (subject to the fundamental policy limitations
set forth in section 12 above), repurchase agreements (subject to
the non-fundamental policy limitations in section 8 above) or any
other short-term instrument SAM deems appropriate.

11. The Income Fund may invest up to 5% of net assets in warrants,
but will limit investments in warrants which are not listed on
the New York or American Stock Exchange to no more than 2% of net
assets. Warrants acquired as a result of unit offerings or
attached to securities may be deemed without value for purposes
of the 5% limitation.

12. The Income Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

13. The Income Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

INVESTMENT POLICIES OF THE NORTHWEST FUND

Fundamental Policies

The Northwest Fund has adopted the following fundamental investment
policies. The Northwest Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of its total assets at the time of
purchase would be invested in the securities of such issuer,
except that up to 25% of the Fund's total assets (which 25% shall
not include securities issued by another investment company) may
be invested without regard to this 5% limitation.

2. Purchase the securities of any issuer if, as a result, more than
10% of any class of securities of such issuer will be owned by
the Fund.

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<PAGE>

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

4. Concentrate its investments in particular industries (other than
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities) or invest 25% or more of the
Fund's total assets in any one industry (governmental issues of
securities are not considered part of one industry).

5. Purchase securities on margin, except for short-term credits
necessary for the clearance of transactions.

6. Make short sales (sales of securities not presently owned).

7. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with the Northwest Fund's
investment objective, policies and restrictions or through the
purchase of qualified repurchase agreements.

8. Borrow money, except from a bank or SAFECO Corporation or its
affiliates at an interest rate not greater than that available to
the Northwest Fund from commercial banks, for temporary or
emergency purposes and not for investment purposes, and then only
in an amount not exceeding 20% of the value of the Fund's total
assets at the time of borrowing. The Northwest Fund will not
purchase securities if borrowings equal to or greater than 5% of
the Fund's total assets are outstanding.

9. Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by section 7 above, the Northwest
Fund may pledge securities having a market value at the time of
pledge not exceeding 10% of the Fund's total assets.

10. Purchase or retain for its portfolio the securities of any
issuer, if, to the Northwest Fund's knowledge, the officers or
directors of the Fund, or its investment adviser, who
individually own more than 1/2 of 1% of the outstanding
securities of such an issuer, together own more than 5% of such
outstanding securities.

11. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Northwest Fund's investment objective,
policies and restrictions and the subsequent disposition thereof
may be deemed to be underwriting, or the later disposition of
restricted securities acquired within the limits imposed on the
acquisition of such securities may be deemed to be an
underwriting.

12. Purchase or sell real estate, except real estate investment
trusts.

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<PAGE>

13. Purchase or sell commodities, commodity contracts or futures
contracts.

14. Participate, on a joint or joint-and-several basis, in any
trading account in securities, except that the Northwest Fund may
join with other transactions executed by the investment adviser
or the investment adviser's parent company and any subsidiary
thereof, for the purpose of seeking better net results on
portfolio transactions or lower brokerage commission rates.

15. Issue or sell any senior security, except that this restriction
shall not be construed to prohibit the Northwest Fund from
borrowing funds (i) on a temporary basis as permitted by Section
18(g) of the 1940 Act or (ii) from any bank provided, that
immediately after such borrowing, there is an asset coverage of
at least 300% for all such borrowings and provided, further, that
in the event that such asset coverage shall at any time fall
below 300%, the Northwest Fund shall, within 3 days thereafter
(not including Sundays and holidays), or such longer period as
the SEC may prescribe by rules and regulations, reduce the amount
of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. For purposes of this
restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms
in Section 18 of the 1940 Act.

16. Purchase from, or sell portfolio securities to, any officer or
director, the Northwest Fund's investment adviser, principal
underwriter or any affiliates or subsidiaries thereof, provided,
however, that this prohibition shall not prohibit the Northwest
Fund from purchasing with the $5,000,000 raised through the sale
of 500,000 shares of common stock to SAFECO Insurance Company of
America, portfolio securities from subsidiaries of SAFECO
Corporation prior to its effective date.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Northwest
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

1. The Northwest Fund will not buy or sell foreign exchange, except
as may be necessary to invest the proceeds of the sale of foreign
securities in the Fund's portfolio in U.S. dollars.

2. The Northwest Fund will not issue long-term debt securities.

3. The Northwest Fund will not invest in any security for the
purpose of acquiring or exercising control or management of the
issuer.

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<PAGE>

4. The Northwest Fund will not invest in oil, gas or other mineral
exploration or development programs.

5. The Northwest Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

6. The Northwest Fund will not invest more than 5% of its total
assets in securities of companies (including predecessor
companies) having a record of less than 3 years of continuous
operation.

7. The Northwest Fund will not invest in securities with unlimited
liability, e.g., securities the holder of which may be assessed
for amounts in addition to the subscription or other price paid
for the security.

8. The Northwest Fund will not invest more than 10% of its total
assets in qualified repurchase agreements and will not invest in
qualified repurchase agreements maturing in more than 7 days.

9. The Northwest Fund will not purchase the securities of any other
investment company or investment trust, except by purchase in the
open market where no commission or profit to a broker or dealer
results from such purchase other than the customary broker's
commissions, or except as part of a merger, consolidation or
acquisition. The Fund shall not invest more than 10% of its
total assets in shares of other investment companies nor invest
more than 5% of its total assets in a single investment company.

10. The Northwest Fund may invest in shares of common stock selected
primarily for potential appreciation.

11. The Northwest Fund may occasionally invest in securities
convertible into common stock when, in the opinion of SAM, the
expected total return of a convertible security exceeds the
expected total return of common stock eligible for purchase by
the Fund.

12. The Northwest Fund may invest up to 5% of its net assets in
warrants, but shall limit investments in warrants which are not
listed on the New York or American Stock Exchange to no more than
2% of net assets. Warrants acquired as a result of unit
offerings or attached to securities may be deemed without value
for purposes of the 5% limitation.

13. The Northwest Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, shares of no-
load, open-end money market funds (subject to the percentage
limitations set forth in section 9 above), repurchase agreements
(subject to the limitations set forth in section 8 above) or any
other short-term instrument that SAM deems appropriate.

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<PAGE>

14. The Northwest Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be
desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

15. The Northwest Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

16. The Northwest Fund may purchase foreign securities, provided that
such purchase, at the time thereof, would not cause more than 10%
of the total assets of the Northwest Fund (at market value) to be
invested in foreign securities.

INVESTMENT POLICIES OF THE BALANCED FUND

Fundamental Policies

The Balanced Fund has adopted the following fundamental investment
policies. The Balanced Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of the Balanced Fund's total assets
would be invested in the securities of such issuer or the
Balanced Fund would own or hold more than 10% of the outstanding
voting securities of such issuer), except that up to 25% of the
value of such assets (which 25% shall not include securities
issued by another investment company) may be invested without
regard to these limits;

2. Borrow money, except the Balanced Fund may borrow money for
temporary and emergency purposes (not for leveraging or
investment purposes) in an amount not exceeding 33 1/3% of its
total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings by the Fund that come to
exceed this amount shall be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limit;

3. Act as underwriter of securities issued by any other person, firm
or corporation; except to the extent that, in connection with the
disposition of portfolio securities, the Balanced Fund may be
deemed an underwriter under federal securities laws;

4. Issue senior securities, except as permitted under the 1940 Act;

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<PAGE>

5. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if, as a result,
more than 25% of the Balanced Fund's total assets would be
invested in securities of companies whose principal business
activities are in the same industry;

6. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments; however, the
Balanced Fund may purchase or sell options or futures contracts
and invest in securities or other instruments backed by physical
commodities;

7. Lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties; however,
this limit does not apply to purchases of debt securities or to
repurchase agreements; and

8. Purchase or sell real estate, except real estate investment
trusts.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Balanced Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Balanced Fund will not purchase securities of companies which
together with any predecessors have a record of less than 3 years
of continuous operation, if such purchase at the time thereof
would cause more than 5% of the Fund's total assets to be
invested in the securities of such companies.

2. The Balanced Fund will not make short sales (sales of securities
not presently owned), except where the Fund has at the time of
sale, by virtue of its ownership in other securities, the right
to obtain at no additional cost securities equivalent in kind and
amount to the securities to be sold.

3. The Balanced Fund will not purchase securities issued by any
other investment company, except by purchase in the open market
where no commission or profit to a broker or dealer results from
such purchase, other than the customary broker's commissions, or
except when such purchase, although not made in the open market,
is part of a merger, consolidation or acquisition. Nothing in
this policy shall prevent any purchase for the purpose of
effecting a merger, consolidation or acquisition of assets
expressly approved by the shareholders after full disclosure of
any commission or profit to the principal underwriter.

4. The Balanced Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

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<PAGE>

5. The Balanced Fund will not invest more than 5% of its net assets
in warrants. Included in that amount, but not to exceed 2% of
net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants
acquired by the Fund in units or attached to securities are not
subject to these limits.

6. The Balanced Fund will not invest more than 10% of its total
assets in real estate investment trusts, nor will the Fund invest
in interests in real estate investment trusts that are not
readily marketable or interests in real estate limited
partnerships not listed or traded on the Nasdaq Stock Market
("Nasdaq") if, as a result, the sum of such interests considered
illiquid and other illiquid securities would exceed 15% of the
Fund's net assets.

7. The Balanced Fund will not purchase securities on margin, except
that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin
payments made in connection with futures contracts and options on
futures shall not constitute purchasing securities on margins.

8. The Balanced Fund may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse
repurchase agreements with any party. The Fund will not purchase
any securities while borrowings equal to or greater than 5% of
its total assets are outstanding.

9. The Balanced Fund will not purchase any security, if as a result,
more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal
or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.

10. The Balanced Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an
issue of publicly distributed bonds, debentures or other
securities issued by persons other than the Fund, whether or not
the purchase was made upon the original issue of securities,
shall not be considered a loan within the prohibition of this
section.

11. The Balanced Fund will not purchase or retain the securities of
any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the
officers and directors of the investment adviser to the Fund
(each owning beneficially more than 0.5% of the outstanding
securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer.

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<PAGE>

12. The Balanced Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

13. The Balanced Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be
desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

14. The Balanced Fund will not purchase puts, calls, straddles,
spreads or any combination thereof if by reason thereof the value
of its aggregate investment in such classes of securities would
exceed 5% of its total assets; provided, however, that nothing
herein shall prevent the purchase, ownership, holding or sale of
warrants where the grantor of the warrants is the issuer of the
underlying securities.

15. The Balanced Fund will not purchase or sell commodities or
commodity contracts.

INVESTMENT POLICIES OF THE INTERNATIONAL FUND

Fundamental Policies

The International Fund has adopted the following fundamental investment
policies. The International Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of the International Fund's total
assets would be invested in the securities of such issuer or the
International Fund would own or hold more than 10% of the
outstanding voting securities of such issuer), except that up to
25% of the value of such assets (which 25% shall not include
securities issued by another investment company) may be invested
without regard to these limits;

2. Borrow money, except the International Fund may borrow money for
temporary and emergency purposes (not for leveraging or
investment purposes) in an amount not exceeding 33 1/3% of its
total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings by the Fund that come to
exceed this amount shall be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limit;

3. Act as underwriter of securities issued by any other person, firm
or corporation; except to the extent that, in connection with the

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<PAGE>

disposition of portfolio securities, the International Fund may
be deemed an underwriter under federal securities laws;

4. Issue senior securities, except as permitted under the 1940 Act;

5. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if, as a result,
more than 25% of the International Fund's total assets would be
invested in securities of companies whose principal business
activities are in the same industry;

6. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments; however, the
International Fund may purchase or sell options or futures
contracts and invest in securities or other instruments backed by
physical commodities;

8. Purchase or sell real estate, except real estate investment
trusts.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the International
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

1. The International Fund will not purchase securities of companies
which together with any predecessors have a record of less than 3
years of continuous operation, if such purchase at the time
thereof would cause more than 5% of the Fund's total assets to be
invested in the securities of such companies.

2. The International Fund will not make short sales (sales of
securities not presently owned), except where the Fund has at the
time of sale, by virtue of its ownership in other securities, the
right to obtain at no additional cost securities equivalent in
kind and amount to the securities to be sold.

3. The International Fund will not purchase securities issued by any
other investment company, except by purchase in the open market
where no commission or profit to a broker or dealer results from
such purchase, other than the customary broker's commissions, or
except when such purchase, although not made in the open market,
is part of a merger, consolidation or acquisition. Nothing in
this policy shall prevent any purchase for the purpose of
effecting a merger, consolidation or acquisition of assets

- 20 -
<PAGE>

expressly approved by the shareholders after full disclosure of
any commission or profit to the principal underwriter.

4. The International Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.

5. The International Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed
2% of net assets, are warrants whose underlying securities are
not traded on principal domestic or foreign exchanges. Warrants
acquired by the Fund in units or attached to securities are not
subject to these limits.

6. The International Fund will not invest more than 10% of its total
assets in real estate investment trusts, nor will the Fund invest
in interests in real estate investment trusts that are not
readily marketable or interests in real estate limited
partnerships not listed or traded on Nasdaq if, as a result, the
sum of such interests considered illiquid and other illiquid
securities would exceed 15% of the Fund's net assets.

7. The International Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that
margin payments made in connection with futures contracts and
options on futures shall not constitute purchasing securities on
margins.

8. The International Fund may borrow money only from a bank or
SAFECO Corporation or affiliates thereof or by engaging in
reverse repurchase agreements with any party. The Fund will not
purchase any securities while borrowings equal to or greater than
5% of its total assets are outstanding.

9. The International Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are
subject to legal or contractual restrictions on resale or because
they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.

10. The International Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an
issue of publicly distributed bonds, debentures or other
securities issued by persons other than the Fund, whether or not
the purchase was made upon the original issue of securities,
shall not be considered a loan within the prohibition of this
section.

11. The International Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the

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<PAGE>

officers and directors of the investment adviser to the Fund
(each owning beneficially more than 0.5% of the outstanding
securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer.

12. The International Fund may invest up to 10% of its total assets
in restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

13. The International Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be
desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

INVESTMENT POLICIES OF THE SMALL COMPANY FUND

Fundamental Policies

The Small Company Fund has adopted the following fundamental investment
policies. The Small Company Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than 5% of the value of the Small Company Fund's total
assets would be invested in the securities of such issuer or the
Small Company Fund would own or hold more than 10% of the
outstanding voting securities of such issuer), except that up to
25% of the value of such assets (which 25% shall not include
securities issued by another investment company) may be invested
without regard to these limits;

2. Borrow money, except the Small Company Fund may borrow money for
temporary and emergency purposes (not for leveraging or
investment purposes) in an amount not exceeding 33 1/3% of its
total assets (including the amount borrowed) less liabilities
(other than borrowings). Any borrowings by the Fund that come to
exceed this amount shall be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply
with the 33 1/3% limit;

3. Act as underwriter of securities issued by any other person, firm
or corporation; except to the extent that, in connection with the
disposition of portfolio securities, the Small Company Fund may
be deemed an underwriter under federal securities laws;

4. Issue senior securities, except as permitted under the 1940 Act;

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<PAGE>

5. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if, as a result,
more than 25% of the Small Company Fund's total assets would be
invested in securities of companies whose principal business
activities are in the same industry;

6. Purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments; however, the
Small Company Fund may purchase or sell options or futures
contracts and invest in securities or other instruments backed by
physical commodities;

8. Purchase or sell real estate, except real estate investment
trusts.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Small Company
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

1. The Small Company Fund will not make short sales (sales of
securities not presently owned), except where the Fund has at the
time of sale, by virtue of its ownership in other securities, the
right to obtain at no additional cost securities equivalent in
kind and amount to the securities to be sold.

2. The Small Company Fund will not purchase securities issued by any
other investment company, except by purchase in the open market
where no commission or profit to a broker or dealer results from
such purchase, other than the customary broker's commissions, or
except when such purchase, although not made in the open market,
is part of a merger, consolidation or acquisition. Nothing in
this policy shall prevent any purchase for the purpose of
effecting a merger, consolidation or acquisition of assets
expressly approved by the shareholders after full disclosure of
any commission or profit to the principal underwriter.

3. The Small Company Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.

4. The Small Company Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed
2% of net assets, are warrants whose underlying securities are
not traded on principal domestic or foreign exchanges. Warrants
acquired by the Fund in units or attached to securities are not
subject to these limits.

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<PAGE>

5. The Small Company Fund will not invest more than 10% of its total
assets in real estate investment trusts, nor will the Fund invest
in interests in real estate investment trusts that are not
readily marketable or interests in real estate limited
partnerships not listed or traded on Nasdaq if, as a result, the
sum of such interests considered illiquid and other illiquid
securities would exceed 15% of the Fund's net assets.

6. The Small Company Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that
margin payments made in connection with futures contracts and
options on futures shall not constitute purchasing securities on
margins.

7. The Small Company Fund may borrow money only from a bank or
SAFECO Corporation or affiliates thereof or by engaging in
reverse repurchase agreements with any party. The Fund will not
purchase any securities while borrowings equal to or greater than
5% of its total assets are outstanding.

8. The Small Company Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are
subject to legal or contractual restrictions on resale or because
they cannot be sold or disposed of in the ordinary course of
business at approximately the prices at which they are valued.

9. The Small Company Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an
issue of publicly distributed bonds, debentures or other
securities issued by persons other than the Fund, whether or not
the purchase was made upon the original issue of securities,
shall not be considered a loan within the prohibition of this
section.

10. The Small Company Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the
officers and directors of the investment adviser to the Fund
(each owning beneficially more than 0.5% of the outstanding
securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer.

11. The Small Company Fund may invest up to 10% of its total assets
in restricted securities eligible for resale under Rule 144A,
provided that SAM has determined that such securities are liquid
under guidelines adopted by the Board of Trustees.

12. The Small Company Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be

- 24 -
<PAGE>

desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

13. The Small Company Fund will not purchase securities of companies
which together with any predecessors have a record of less than 3
years of continuous operation, if such purchase at the time
thereof would cause more than 5% of the Fund's total assets to be
invested in the securities of such companies.

14. The Small Company Fund will not purchase puts, calls, straddles,
spreads or any combination thereof, if by reason thereof the
value of its aggregate investment in such classes of securities
would exceed 5% of its total assets; provided, however, that
nothing herein shall prevent the purchase, ownership, holding or
sale of warrants where the grantor of the warrants is the issuer
of the underlying securities.

15. The Small Company Fund will not purchase or sell commodities or
commodity contracts.

ADDITIONAL INVESTMENT INFORMATION

Each Fund may make the following investments, among others, although they
may not buy all of the types of securities that are described.

1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted
securities are securities that may be sold only in a public
offering with respect to which a registration statement is in
effect under the 1933 Act or, if they are unregistered, in a
privately negotiated transaction or pursuant to an exemption from
registration. In recognition of the increased size and liquidity
of the institutional markets for unregistered securities and the
importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A, which is designed to
further facilitate efficient trading among institutional
investors by permitting the sale of Rule 144A securities to
qualified institutional buyers. To the extent privately placed
securities held by a Fund qualify under Rule 144A and an
institutional market develops for those securities, the Fund
likely will be able to dispose of the securities without
registering them under the 1933 Act. SAM, acting under
guidelines established by the Trust's Board of Trustees, may
determine that certain securities qualified for trading under
Rule 144A are liquid.

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<PAGE>

favorable price than prevailed when it decided to sell. To the
extent privately placed securities are illiquid, purchases
thereof will be subject to any limitations on investments in
illiquid securities. Restricted securities for which no market
exists are priced at fair value as determined in accordance with
procedures approved and periodically reviewed by the Trust's
Board of Trustees.

2. WARRANTS. A warrant is an option issued by a corporation that
gives the holder the right to buy a stated number of shares of
common stock of the corporation at a specified price within a
designated time period. Warrants may be purchased and sold
separately or attached to stocks or bonds as part of a unit
offering. The term of a warrant may run from two to five years
and in some cases the term may be longer. The exercise price
carried by the warrant is usually well above the prevailing
market price of the underlying common stock at the time the
warrant is issued. The holder of a warrant has no voting rights
and receives no dividends. Warrants are freely transferable and
may trade on the major national exchanges.

Warrants may be speculative. Generally, the value of a warrant
will fluctuate by greater percentages than the value of the
underlying common stock. The primary risk associated with a
warrant is that the term of the warrant may expire before the
exercise price of the common stock has been reached. Under these
circumstances, a Fund could lose all of its principal investment
in the warrant.

A Fund will invest in a warrant only if the Fund has the
authority to hold the underlying common stock. Additionally, if
a warrant is part of a unit offering, a Fund will purchase the
warrant only if it is attached to a security in which the Fund
has authority to invest. In all cases, a Fund will purchase
warrants only after SAM determines that the exercise price for
the underlying common stock is likely to be achieved within the
required time-frame and for which an actively traded market
exists. SAM will make this determination by analyzing the
issuer's financial health, quality of management and any other
factors deemed to be relevant.

3. REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund and the
seller agree at the time of sale to the repurchase of a security
at a mutually agreed upon time and place. The period of maturity
is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price
is in excess of the purchase price, reflecting an agreed upon
market rate effective for the period of time a Fund's money is
invested in the security (which is not related to the coupon rate
of the purchased security). Repurchase agreements may be
considered loans of money to the seller of the underlying
security, which are collateralized by the securities underlying

- 26 -
<PAGE>

the repurchase agreement. A Fund will not enter into a
repurchase agreement unless the agreement is fully
collateralized. A Fund will take possession of the securities
underlying the repurchase agreement and will value them daily to
assure that this condition is met. In the event that a seller
defaults on a repurchase agreement, a Fund may incur loss in the
market value of the collateral, as well as disposition costs;
and, if a party with whom a Fund has entered into a repurchase
agreement becomes involved in a bankruptcy proceeding, a Fund's
ability to realize the collateral may be limited or delayed and a
loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceeding.
Foreign repurchase agreements may be less well secured than U.S.
repurchase agreements and may be subject to currency risks. In
addition, foreign counter parties may be less creditworthy than
U.S. counterparties.

4. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSIT. In making
temporary investments in commercial paper and certificates of
deposit, a Fund will adhere to the following guidelines:

a) Commercial paper must be rated A-1 or A-2 by Standard &
Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P") or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or issued by
companies with an unsecured debt issue currently
outstanding rated AA by S&P or Aa by Moody's or higher.

b) Certificates of deposit must be issued by banks or
savings and loan associations that have total assets of
at least $1 billion or, in the case of a bank or savings
and loan association not having total assets of at least
$1 billion, the bank or savings and loan association is
insured by the Federal Deposit Insurance Corporation in
which case the Growth Fund will limit its investment to
the statutory insurance coverage.

5. CONTINGENT VALUE RIGHTS. A contingent value right ("CVR") is a
right issued by a corporation that takes on a pre-established
value if the underlying common stock does not attain a target
price by a specified date. Generally, a CVR's value will be the
difference between the target price and the current market price
of the common stock on the target date. If the common stock does
attain the target price by the date, the CVR expires without
value. CVRs may be purchased and sold as part of the underlying
common stock or separately from the stock. CVRs may also be
issued to owners of the underlying common stock as the result of
a corporation's restructuring.

6. REAL ESTATE INVESTMENT TRUSTS ("REITs"). REITs purchase real
property, which is then leased, and make mortgage investments.
For federal income tax purposes REITs attempt to qualify for

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<PAGE>

beneficial "modified pass through" tax treatment by annually
distributing at least 95% of their taxable income. If a REIT
were unable to qualify for such tax treatment, it would be taxed
as a corporation and the distributions made to its shareholders
would not be deductible by it in computing its taxable income.

REITs are dependent upon the successful operation of the
properties owned and the financial condition of lessees and
mortgagors. The value of REIT units will fluctuate depending on
the underlying value of the real property and mortgages owned and
the amount of cash flow (net income plus depreciation) generated
and paid out. In addition, REITs typically borrow to increase
funds available for investment. Generally, there is a greater
risk associated with REITs that are highly leveraged.

7. ILLIQUID SECURITIES. Illiquid securities are securities that
cannot be sold within seven days in the ordinary course of
business for approximately the amount at which they are valued.
Due to the absence of an active trading market, a Fund may
experience difficulty in valuing or disposing of illiquid
securities. SAM determines the liquidity of the securities under
guidelines adopted by the Trust's Board of Trustees.

8. CONVERTIBLE SECURITIES. Convertible bonds and convertible
preferred stock may be exchanged for a stated number of shares of
the issuer's common stock at a certain price known as the
conversion price. The conversion price is usually greater than
the price of the common stock at the time the convertible
security is purchased. Generally, the interest rate of
convertible bonds and the yield of convertible preferred stock
will be lower than the issuer's non-convertible securities.
Also, the value of convertible securities will normally vary with
the value of the underlying common stock and fluctuate inversely
with interest rates. However, convertible securities may show
less volatility in value than the issuer's non-convertible
securities. A risk associated with convertible bonds and
convertible preferred stock is that the conversion price of the
common stock will not be attained.

9. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. Under this proce-
dure, a Fund agrees to acquire securities (whose terms and
conditions, including price, have been fixed by the issuer) that
are to be issued and delivered against payment in the future.
Delivery of securities so sold normally takes place 30 to 45 days
(settlement date) after the date of the commitment. No interest
is earned by a Fund prior to the settlement date. The value of
securities sold on a "when-issued" or "delayed-delivery" basis
may fluctuate before the settlement date and the Fund bears the
risk of such fluctuation from the date of purchase. A Fund may
dispose of its interest in those securities before delivery.

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<PAGE>

10. SOVEREIGN DEBT OBLIGATIONS. Sovereign debt instruments are issued
or guaranteed by foreign governments or their agencies.
Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan
participations. Governments or governmental entities responsible
for repayment of the debt may be unable or unwilling to repay
principal and interest when due, and may require renegotiation or
rescheduling of debt payments. Repayment of principal and
interest may depend also upon political and economic factors.

11. INDEXED SECURITIES. Indexed securities are securities whose
prices are indexed to the prices of other securities, securities
indices, currencies, commodities or other financial indicators.
Indexed securities generally are debt securities whose value at
maturity or interest rate is determined by reference to a
specific instrument or statistic. Currency-indexed securities
generally are debt securities whose maturity values or interest
rates are determined by reference to values of one or more
specified foreign currencies. Currency-indexed securities may be
positively or negatively indexed; i.e., their maturity value may
increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on
the values of different foreign securities relative to each
other.

The performance of an indexed security depends largely on the
performance of the security, currency or other instrument to
which they are indexed. Performance may also be influenced by
interest rate changes in the United States and foreign countries.
Indexed securities additionally are subject to credit risks
associated with the issuer of the security. Their values may
decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may also be more volatile than
their underlying instruments.

12. PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"). PFICs may
include funds or trusts organized as investment vehicles to
invest in companies of certain foreign countries. Investors in a
PFIC bear their proportionate share of the PFIC's management fees
and other expenses. See "Additional Tax Information" for more
information.

13. SHORT SALES AGAINST THE BOX. A Fund may make short sales of
securities or maintain a short position, provided that at all
times when a short position is open the Fund owns an equal amount
of such securities or an equal amount of the securities of the
same issuer as the securities sold short (a "short sale against

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<PAGE>

the box"). Funds engaging in short sales against the box will
incur transaction costs.

14. OPTIONS ON EQUITY SECURITIES. (International Fund only.) The
International Fund may purchase and write (i.e., sell) put and
call options on equity securities that are traded on national
securities exchanges or that are listed on Nasdaq. A call option
is a short-term contract pursuant to which the purchaser or
holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise
price (the strike price) at any time during the term of the
option. The writer of the call option, who received the premium,
has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the strike price.
A put option is a similar contract that gives the purchaser or
holder, in return for a premium, the right to sell the underlying
equity security at a specified exercise price (the strike price)
during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying
equity security at the strike price upon exercise by the holder
of the put.

The Fund will write call options on stocks only if they are
covered, and such options must remain covered so long as the Fund
is obligated as a writer. A call option is "covered" if: the
Fund has an immediate right to acquire that security without
additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian);
upon the Fund's conversion or exchange of other securities held
in its portfolio; or the Fund holds a share-for-share basis a
call on the same security as the call written where the strike
price of the call held is equal to or less than the strike price
of the call written or greater than the strike price of the call
written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term debt
obligations in a segregated account with its custodian.

The Fund will write put options on stocks only if they are
covered, and such options must remain covered so long as the Fund
is obligated as a writer. A put option is "covered" if: the Fund
holds in a segregated account cash, Treasury bills, or other
liquid high-grade short-term debt obligations of a value equal to
the strike price; or the Fund holds on a share-for-share basis a
put on the same security as the put written where the strike
price of the put held is equal to or greater than the strike
price of the put written or less than the strike price of the put
written if the difference is maintained by the Fund in cash,
Treasury bills, or other liquid high-grade short-term obligations
in a segregated account with its custodian.

The Fund may purchase "protective puts," i.e., put options
acquired for the purpose of protecting a portfolio security from

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<PAGE>

a decline in market value. In exchange for the premium paid for
the put option, the Fund acquires the right to sell the
underlying security at the strike price of the put regardless of
the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial
excess, if any, of the market price of the underlying security
over the strike price. However, if the market price of the
security underlying the put rises, the profit the Fund realizes
on the sale of the security will be reduced by the premium paid
for the put option less any amount (net of transaction costs)for
which the put may be sold.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on stocks.

If the Fund, as a writer of an option, wishes to terminate the
obligation, it may effect a "closing purchase transaction" by
buying an option of the same series as the option previously
written. Similarly, the holder of an option may liquidate his or
her position by exercising the option or by effecting a "closing
sale transaction," i.e., selling an option of the same series as
the option previously purchased. The Fund may effect closing
sale and purchase transactions. The Fund will realize a profit
from a closing transaction if the price of the transaction is
less than the premium received from writing the option or is more
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect
to a call option is likely to be offset in whole or in part by
appreciation of the underlying equity security owned by the Fund.
There is no guaranty that closing purchase or closing sale
transactions can be effected.

The Fund's use of options on equity securities is subject to
certain special risks, in addition to the risk that the market
value of the security will move adversely to the Fund's option
position. An option position may be closed out only on an
exchange, board of trade or other trading facility that provides
a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for
which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise
may exist. In such event it might not be possible to effect
closing transactions in particular options, with the result that
the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the
exercise of such options and upon the subsequent disposition of
the underlying securities acquired through the exercise of call

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<PAGE>

options or upon the purchase of underlying securities or the
exercise of put options. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell underlying security
until the option expires or it delivers the underlying security
upon exercise.

Reasons for the absence of a liquid secondary market on an
exchange can include any of the following: (i) there may be
insufficient trading interest in certain options; (ii)
restrictions imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease
to exist, although outstanding options on that exchange that had
been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facility of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures that may interfere with the
timely execution of customers' orders.

15. OPTIONS ON STOCK INDICES. (International Fund only.) The
International Fund may purchase and sell (i.e., write) put and
call options on stock indices traded on national securities
exchanges or listed on Nasdaq. Options on stock indices are
similar to options on stock except that, rather than obtaining
the right to take or make delivery of stock at a specified price,
an option on stock index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is
greater than (in the case of a call) or less than (in the case of
a put) the strike price of the option. The amount of cash is
equal to such difference between the closing price of the index
and the strike price of the option times a specified multiple
(the "multiplier"). If the option is exercised, the writer is
obligated, in return for the premium received, to make delivery
of this amount. Unlike stock options, all settlements are in
cash, and gain or loss depends on price movements in the stock
market generally (or in particular industry or segment of the
market) rather than price movements in individual stocks.

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<PAGE>

The Fund will write call options on stock indices only if they
are covered, and such options remain covered as long as the Fund
is obligated as a writer. When the Fund writes a call option on
a broadly based stock market index, the Fund will segregate or
put into escrow with its custodian or pledge to a broker as
collateral for the option, cash, Treasury bills or other liquid
high-grade short-term debt obligations, or "qualified securities"
(defined below) with a market value at the time the option is
written of not less than 100% of the current index value times
the multiplier times the number of contracts. A "qualified
security" is an equity security that is listed on a national
securities exchange or listed on Nasdaq against which the Fund
has not written a stock call option and that has not been hedged
by the Fund by the sale of stock index futures.

When the Fund writes a call option on an industry or market
segment index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option,
cash, Treasury bills or other liquid high-grade short-term debt
obligations, or at least five qualified securities, all of which
are stocks of issuers in such industry or market segment, with a
market value at the time the option is written of not less than
100% of the current index value times the multiplier times the
number of contracts. Such stocks will include stocks that
represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the portfolio's
holdings in that industry or market segment. No individual
security will represent more than 15% of the amount so
segregated, pledged or escrowed in the case of broadly based
stock market stock options or 25% of such amount in the case of
industry or market segment index options.

If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls
below 100% of the current index value times the multiplier times
the number of contracts, the Fund will so segregate, escrow, or
pledge an amount in cash, Treasury bills, or other liquid high-
grade short-term obligations equal in value to the difference.
In addition, when the Fund writes a call on an index that is in-
the-money at the time the call is written, the Fund will
segregate with its custodian or pledge to the broker as
collateral, cash or U.S. Government or other liquid high-grade
short-term debt obligations equal in value to the amount by which
the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing
sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the
qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A call
option is also covered and the Fund need not follow the
segregation requirements set forth in this paragraph if the Fund
holds a call on the same index as the call written where the

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<PAGE>

strike price of the call held is equal to or less than the strike
price of the call written or greater than the strike price of the
call written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term obligations
in a segregated account with its custodian.

The Fund will write put options on stock indices only if they are
covered, and such options must remain covered so long as the Fund
is obligated as a writer. A put option is covered if the Fund
holds in a segregated account cash, Treasury bills, or other
liquid high-grade short-term debt obligations of a value equal to
the strike price times the multiplier times the number of
contracts; or the Fund holds a put on the same index as the put
written where the strike price of the put held is equal to or
greater than the strike price of the put written or less than the
strike price of the put written if the difference is maintained
by the Fund in cash, Treasury bills, or other liquid high-grade
short-term debt obligations in a segregated account with its
custodian.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of puts and calls on stock
indices. The Fund may effect closing sale and purchase
transactions, as described above in connection with options on
equity securities.

The purchase and sale of options on stock indices will be subject
to the same risks as options on equity securities, described
above. In addition, the distinctive characteristics of options
on indices create certain risks that are not present with stock
options. Index prices may be distorted if trading of certain
stocks included in the index is interrupted. Trading in index
options also may be interrupted in certain circumstances, such as
if trading were halted in a substantial number of stocks included
in the index. If this occurred, the Fund would not be able to
close out options that it had purchased or written and, if
restrictions on exercise were imposed, may be unable to exercise
an option it holds, which could result in substantial losses to
the Fund. The Fund generally will purchase or write options only
on stock indices that include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the
index.

Although the markets for certain index option contracts have
developed rapidly, the markets for other index options are still
relatively illiquid. The ability to establish and close out
positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop in all index options contracts. The
Fund will not purchase or sell any index option contract unless
and until Bank of Ireland Asset Management (U.S.) Limited (the
"Sub-Adviser"), the Fund's sub-investment adviser, believes the

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<PAGE>

market for such options has developed sufficiently that the risk
in connection with such transactions is no greater than the risk
in connection with options on stocks.

Price movements in the Fund's equity security portfolio probably
will not correlate precisely with movements in the level of the
index and, therefore, in writing a call on a stock index the Fund
bears the risk that the price of the securities held by the Fund
may not increase as much as the index. In such event, the Fund
would bear a loss on the call that is not completely offset by
movement in the price of the Fund's equity securities. It is
also possible that the index may rise when the Fund's securities
do not rise in value. If this occurred, the Fund would
experience a loss on the call that is not offset by an increase
in the value of its securities portfolio and might also
experience a loss in its securities portfolio. However, because
the value of a diversified securities portfolio will, over time,
tend to move in the same direction as the market, movements in
the value of the Fund's securities in the opposite direction as
the market would be likely to occur for only a short period or to
a small degree.

When the Fund has written a call, there is also a risk that the
market may decline between the time the Fund has a call exercised
against it, at a price which is fixed as of the closing level of
the index on the date of exercise, and the time the Fund is able
to sell stocks in its portfolio. As with stock options, the Fund
will not learn that an index option has been exercised until the
day following the exercise date but, unlike a call on stock where
the Fund would be able to deliver the underlying securities in
settlement, the Fund may have to sell part of its stock portfolio
in order to make settlement in cash, and the price of such stocks
might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially
more risky with options in stock indices than with stock options.

There are also certain special risks involved in purchasing put
and call options on stock indices. If the Fund holds an index
option and exercises it before final determination of the closing
index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change
causes the exercised option to fall out-of-the-money, the Fund
will be required to pay the difference between the closing index
value and the strike price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be
able to minimize the risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be
earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

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<PAGE>

16. OPTIONS ON DEBT SECURITIES. (International Fund only.) The Fund
may purchase and write (i.e., sell) put and call options on debt
securities (including U.S. Government debt securities) that are
traded on national securities exchanges or that result from
privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New
York ("OTC options"). Options on debt are similar to options on
stock, except that the option holder has the right to take or
make delivery of a debt security, rather than stock.

The Fund will write options only if they are covered, and such
options must remain covered so long as the Fund is obligated as a
writer. An option on debt securities is covered in the same
manner as explained in connection with options on equity
securities, except that, in the case of call options on U.S.
Treasury bills, the Fund might own U.S. Treasury bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. The principal reason for the
Fund to write an option on one or more of its securities is to
realize through the receipt of the premiums paid by the purchaser
of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not
be written when, in the opinion of the Sub-Adviser, interest
rates are likely to decline significantly, because under those
circumstances the premium received by writing the call likely
would not fully offset the foregone appreciation in the value of
the underlying security.

The Fund may also write straddles (i.e., a combination of a call
and a put written on the same security at the same strike price
where the same issue of the security is considered "cover" for
both the put and the call). In such cases, the Fund will also
segregate or deposit for the benefit of the Fund's broker cash or
liquid high-grade debt obligations equivalent to the amount, if
any, by which the put is in-the-money. The Fund's use of
straddles will be limited to 5% of its net assets (meaning that
the securities used for cover or segregated as described above
will not exceed 5% of the Fund's net assets at the time the
straddle is written). The writing of a call and a put on the
same security at the same strike price where the call and the put
are covered by different securities is not considered a straddle
for purposes of this limit.

The Fund may purchase "protective puts" on debt securities in an
effort to protect the value of a security that they own against a
substantial decline in market value. Protective puts are
described above in "Options on Equities."

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<PAGE>

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on debt
securities.

If the Fund, as a writer of an exchange-traded option, wishes to
terminate the obligation, it may effect a closing purchase or
sale transaction in a manner similar to that discussed above in
connection with options on equity securities. Unlike exchange-
traded options, OTC options generally do not have a continuous
liquid market. Consequently, the Fund will generally be able to
realize the value of an OTC option it has purchased only by
exercising it or reselling it to the dealer who issued it.
Similarly, when the Fund writes an OTC option, it generally will
be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the OTC option. While the
Fund will seek to enter into OTC options only with dealers who
agree to and who are expected to be able to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. In the
event of insolvency of the other party, the Fund may be unable to
liquidate an OTC option. There is, in general, no guarantee that
closing purchase or closing sale transactions can be effected.
The Fund may not invest more than 15% of its total assets
(determined at the time of investment) in illiquid securities,
including debt securities for which there is not an established
market. The staff of the SEC has taken the position that
purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities. However, pursuant to the
terms of certain no-action letters issued by the staff, the
securities used as cover for written OTC options may be
considered liquid provided that the Fund sells OTC options only
to qualified dealers who agree that the Fund may repurchase any
OTC option its writes for a maximum price to be calculated by a
predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of
the option.

The Fund's purchase and sale of exchange-traded options on debt
securities will be subject to the risks described above in
"Options on Equity Securities."

17. OPTIONS ON FOREIGN CURRENCIES. (International Fund only.) The
Fund may purchase and write put and call options on foreign
currencies traded on U.S. or foreign securities exchanges or
boards of trade for hedging purposes. Options on foreign
currencies are similar to options on stock, except that the
option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.

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<PAGE>

The Fund may purchase and write options to hedge its securities
denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Fund's securities
are denominated, the dollar value of such securities will decline
even though the foreign currency value remains the same. To
hedge against the decline of the foreign currency, the Fund may
purchase put options on such foreign currency. If the value of
the foreign currency declines, the gain realized on the put
option would offset, in whole or in part, the adverse effect such
decline would have on the value of the Fund's securities.
Alternatively, the Fund may write a call option on the foreign
currency. If the foreign currency declines, the option would not
be exercised and the decline in the value of the portfolio
securities denominated in such foreign currency would be offset
in part by the premium the Fund received for the option.

If, on the other hand, the Sub-Adviser anticipates purchasing a
foreign security and also anticipates a rise in such foreign
currency (thereby increasing the cost of such security), the Fund
may purchase call options on the foreign currency. The purchase
of such options could offset, at least partially, the effects of
the adverse movements of the exchange rates. Alternatively, the
Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire
unexercised.

The Fund's successful use of options on foreign currencies
depends upon the Sub-Adviser's ability to predict the direction
of the currency exchange markets and political conditions, which
requires different skills and techniques than predicting changes
in the securities markets generally. For instance, if the
currency being hedged has moved in a favorable direction, the
corresponding appreciation of the Fund's securities denominated
in such currency would be partially offset by the premiums paid
on the options. Furthermore, if the currency exchange rate does
not change, the Fund's net income would be less than if the Fund
had not hedged since there are costs associated with options.

The use of these options is subject to various additional risks.
The correlation between movements in the price of options and the
price of the currencies being hedged is imperfect. The use of
these instruments will hedge only the currency risks associated
with investments in foreign securities, not market risks. The
Fund's ability to establish and maintain positions will depend on
market liquidity. The ability of the Fund to close out an option
depends upon a liquid secondary market. There is no assurance
that liquid secondary markets will exist for any particular
option at any particular time.

18. STOCK INDEX FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes stock
index futures contracts traded on a commodities exchange or board

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of trade. A stock index futures contract is an agreement in
which the seller of the contract agrees to deliver to the buyer
an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the
underlying stocks in the index is made. When the futures
contract is entered into, each party deposits with a broker or in
a segregated custodial account approximately 5% of the contract
amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures
contracts more or less valuable, a process known as "marking to
the market."

The Fund may sell stock index futures to hedge against a decline
in the value of equity securities it holds. The Fund may also
buy stock index futures to hedge against a rise in the value of
equity securities it intends to acquire. To the extent permitted
by federal regulations, the Fund may also engage in other types
of hedging transactions in stock index futures that are
economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund's equity securities.

The Fund's successful use of stock index futures contracts
depends upon the Sub-Adviser's ability to predict the direction
of the market and is subject to various additional risks. The
correlation between movement in the price of the stock index
future and the price of the securities being hedged is imperfect
and the risk from imperfect correlation increases as the
composition of the Fund's securities portfolio diverges from the
composition of the relevant index. In addition, the ability of
the Fund to close out a futures position depends on a liquid
secondary market. There is no assurance that liquid secondary
markets will exist for any particular stock index futures
contract at any particular time.

Under regulations of the Commodity Futures Trading Commission
("CFTC"), investment companies registered under the 1940 Act are
excluded from regulation as commodity pools or commodity pool
operators if their use of futures is limited in certain specified
ways. The Fund will use futures in a manner consistent with the
terms of this exclusion. Among other requirements, no more than
5% of the Fund's assets may be committed as initial margin on
futures contracts.

19. INTEREST RATE FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures
contracts on interest bearing securities (such as U.S. Treasury
bonds, U.S. Treasury notes, U.S. Treasury bills, and GNMA
certificates) or interest rate indices. Futures contracts on

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<PAGE>

interest bearing securities and interest rate indices are
referred to collectively as "interest rate futures contracts."
The portfolios will engage in transactions in only those futures
contracts that are traded on a commodities exchange or board of
trade.

The Fund may sell an interest rate futures contract to hedge
against a decline in the market value of debt securities it owns.
The Fund may purchase an interest rate futures contract to hedge
against an anticipated increase in the value of debt securities
it intends to acquire. The Fund may also engage in other types
of transactions in interest rate futures contracts that are
economically appropriate for the reduction of risks inherent in
the ongoing management of its futures.

The Fund's successful use of interest rate futures contracts
depends upon the Sub-Adviser's ability to predict interest rate
movements. Further, because there are a limited number of types
of interest rate futures contracts, it is likely that the
interest rate futures contracts available to the Fund will not
exactly match the debt securities the Fund intends to hedge or
acquire. To compensate for differences in historical volatility
between securities the Fund intends to hedge or acquire and the
interest rate futures contracts available to it, the Fund could
purchase or sell futures contracts with a greater or lesser value
than the securities it wished to hedge or intended to purchase.
Interest rate futures contracts are subject to the same risks
regarding closing transactions and the CFTC limits as described
above in "Stock Index Futures Contracts."

20. FOREIGN CURRENCY FUTURES CONTRACTS. (International Fund only.)
The International Fund may buy and sell for hedging purposes
futures contracts on foreign currencies or groups of foreign
currencies such as the European Currency Unit. An European
Currency Unit is a basket of specified amounts of the currencies
of certain member states of the European Economic Community, a
Western European economic cooperative organization including
France, Germany, the Netherlands and the United Kingdom. The
Fund will engage in transactions in only those futures contracts
and other options thereon that are traded on a commodities
exchange or a board of trade. See "Stock Index Futures
Contracts" above for a general description of futures contracts.
The Fund intends to engage in transactions involving futures
contracts as a hedge against changes in the value of the
currencies in which they hold investments or in which they expect
to pay expenses or pay for future purchases. The Fund may also
engage in such transactions when they are economically
appropriate for the reduction of risks inherent in their ongoing
management.

The use of these futures contracts is subject to risks similar to
those involved in the use of options of foreign currencies and

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<PAGE>

the use of any futures contract. The Fund's successful use of
foreign currency futures contracts depends upon the Sub-Adviser's
ability to predict the direction of currency exchange markets and
political conditions. In addition, the correlation between
movements in the price of futures contracts and the price of
currencies being hedged is imperfect, and there is no assurance
that liquid markets will exist for any particular futures
contract at any particular time. Those risks are discussed above
more fully under "Options on Foreign Currencies" and "Stock Index
Futures Contracts."

21. OPTIONS ON FUTURES CONTRACTS. (International Fund only.) The
Fund may, to the extent permitted by applicable regulations,
enter into certain transactions involving options on futures
contracts. An option on a futures contract gives the purchaser
or holder the right, but not the obligation, to assume a position
in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified price
at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option,
the assumption of offsetting futures positions by the writer and
holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures
contract, an exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on
the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or
purchasing an option of the same series. There is no guarantee
that such closing transactions can be effected. The Fund intends
to utilize options on futures contracts for the same purposes
that it intends to use the underlying futures contracts.

Options on futures contracts are subject to risks similar to
those described above with respect to options and futures
contracts. There is also the risk of imperfect correlation
between the option and the underlying futures contract. If there
were no liquid secondary market for a particular option on a
futures contract, the Fund might have to exercise an option it
held in order to realize any profit and might continue to be
obligated under an option it had written until the option expired
or was exercised. If the Fund were unable to close out an option
it had written on a futures contract, it would continue to be
required to maintain initial margin and make variation margin
payments with respect to the option position until the option
expired or was exercise against the Fund.

22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (International Fund
only.) The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") in several circumstances. When

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<PAGE>

the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of
foreign currency involved in the underlying transactions, the
Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is declared, and the
date on which such payments are made or received.

Additionally, when the Sub-Adviser believes that the currency of
a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward
contract for a fixed amount of dollars, to sell the amount of
foreign currency approximating the value of some or all of the
portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the
future value of securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency
market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign
currency in excess of the value of the securities or other
assets denominated in that currency held by the Fund.

Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to
have the flexibility to enter into forward contracts when it is
determined that the best interests of the Fund will thereby be
served. The Fund's custodian will place cash or liquid, high-
grade equity or debt securities into a segregated account of the
portfolio in an amount equal to the value of the Fund's total
assets committed to the consummation of forward foreign currency
exchange contracts. If the value of the securities placed in the
segregated account declines, additional cash or securities will
be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with
respect to such contracts.

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<PAGE>

The Fund generally will not enter into a forward contract with a
term of greater than one year. At the maturity of a forward
contract, the Fund may either sell the portfolio security and
make delivery of the foreign currency or it may retain the
security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency. However,
there is no assurance that liquid markets will exist for any
particular forward contract at any particular time or that the
Fund will be able to effect a closing or "offsetting"
transaction. Forward contracts are subject to other risks
described in "Special Risks of Foreign Investments and Foreign
Currency Transactions."

It is impossible to forecast with absolute precision the market
value of a particular portfolio security at the expiration of the
contract. Accordingly, it may be necessary for the Fund to
purchase additional foreign currency on the spot market (and bear
the expense of such purchase) if the market value of the security
is less than the amount of foreign currency that the Fund is
obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency.

If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss (as
described below) to the extent that there has been movement in
forward contract prices. Should forward contract prices decline
during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it
enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent that
the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to purchase. Should forward
contract prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell.

The Fund's dealing in forward contracts will be limited to the
transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to its
foreign currency-denominated securities. It also should be
realized that this method of protecting the value of the
portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the
securities that are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might result should
the value of such currency increase.

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<PAGE>

Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend physically to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. The Fund
will do so from time to time, incurring the costs of currency
conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

Below investment grade bonds (commonly referred to as "high-yield" or
"junk" bonds) have certain additional risks associated with them. Yields
on below investment grade bonds will fluctuate over time. These bonds
tend to reflect short-term economic and corporate developments to a
greater extent than higher quality bonds that primarily react to
fluctuations in interest rates. During an economic downturn or period of
rising interest rates, issuers of below investment grade bonds may
experience financial difficulties that adversely affect their ability to
make principal and interest payments, meet projected business goals and
obtain additional financing. In addition, issuers often rely on cash flow
to service debt. Failure to realize projected cash flows may seriously
impair the issuer's ability to service its debt load that in turn might
cause a Fund to lose all or part of its investment in that security. SAM
will seek to minimize these additional risks through diversification,
careful assessment of the issuer's financial structure, business plan and
management team and monitoring of the issuer's progress toward its
financial goals.

The liquidity and price of below investment grade bonds can be affected by
a number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-
traded market with few participants and may adversely impact the Fund's
ability to dispose of the bonds as well as make valuation of the bonds
more difficult. Because there tend to be fewer investors in below
investment grade bonds, it may be difficult for the Fund to sell these
securities at an optimum time. Consequently, these bonds may be subject
to more price changes, fluctuations in yield and risk to principal and
income than higher-rated bonds of the same maturity.

Credit ratings evaluate the likelihood that an issuer will make principal
and interest payments, but may not reflect market value risks associated
with lower-rated bonds. Credit rating agencies may not timely revise
ratings to reflect subsequent events affecting an issuer's ability to pay
principal and interest.

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<PAGE>

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

Foreign Securities

Investing in foreign companies and markets involves certain
considerations, including those set forth below, that are not typically
associated with investing in U.S. securities denominated in U.S. dollars
and traded in U.S. markets. Many of the securities held by a Fund will
not be registered under, nor will the issuers thereof be subject to the
reporting requirements of, U.S. securities laws. Accordingly, there may
be less publicly available information about a foreign company than about
a domestic company. Foreign companies are not generally subject to
uniform accounting and auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies.

It is contemplated that most foreign securities will be purchased in over-
the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities
are located. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges. There is generally
less governmental supervision and regulation of foreign stock exchanges,
broker-dealers and issuers than in the United States.

In addition, with respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of a Fund, political or social
instability, or diplomatic developments that could affect U.S. investments
in those countries. Moreover, individual foreign economics may differ
favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

Currency Exchange Rates

The value of the assets of a Fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations (including, but not limited to, actions by a
foreign government to devalue its currency, thereby effecting a possibly
substantial reduction in the U.S. dollar value of a Fund's investments in
that country). The International Fund is authorized to employ certain
hedging techniques to minimize this risk. However, to the extent such
transactions do not fully protect the International Fund against adverse
changes in exchange rates, decreases in the value of the currencies of the
countries in which the Fund will invest will result in a corresponding
decrease in the U.S. dollar value of the Fund's assets denominated in
those currencies. Further, the International Fund may incur costs in
connection with conversions between various currencies. Foreign exchange
dealers (including banks) realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer
or bank normally will offer to sell a foreign currency to the

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<PAGE>

International Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer.
Moreover, fluctuations in exchange rates may decrease or eliminate income
available for distribution. For example, if certain foreign currency
losses exceed other investment company taxable income (as defined below
under "Additional Tax Information") during a taxable year, the Fund would
not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as a return of
capital to shareholders for federal income tax purposes, rather than as an
ordinary dividend, reducing each shareholder's basis in his International
Fund shares.

Hedging Transactions (International Fund only)

Hedging transactions cannot eliminate all risks of loss to the
International Fund and may prevent the Fund from realizing some potential
gains. The projection of short-term foreign currency and market movements
is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Among the risks of hedging
transactions are: incorrect prediction of the movement of currency
exchange rates and market movements; imperfect correlation of currency
movements in cross-hedges and indirect hedges; imperfect correlation in
the price movements of options, futures contracts and options on future
contracts with the assets on which they are based; lack of liquid
secondary markets and inability to effect closing transactions; costs
associated with effecting such transactions; inadequate disclosure and/or
regulatory controls in certain markets; counterparty default with respect
to transactions not executed on an exchange; trading restrictions imposed
by governments, or securities and commodities exchanges; and governmental
actions affecting the value or liquidity of currencies. Hedging
transactions may be effected in foreign markets or on foreign exchanges
and are subject to the same types of risks that affect foreign securities.
See "Special Risks of Foreign Investments and Foreign Currency
Transactions".

Indirect hedges and cross-hedges are more speculative than other hedges
because they are not directly related to the position or transaction being
hedged. With respect to indirect hedges, movements in the proxy currency
may not precisely mirror movements in the currency in which portfolio
securities are denominated. Accordingly, the potential gain or loss on an
indirect hedge may be more or less than if the Fund had directly hedged a
currency risk. Similar risks are associated with cross-hedge
transactions. In a cross-hedge, the foreign currency in which a portfolio
security is denominated is hedged against another foreign currency, rather
than the U.S. dollar. Cross-hedges may also create a greater risk of loss
than other hedging transactions because they may involve hedging a
currency risk through the U.S. dollar rather than directly to the U.S.
dollar or another currency.

To help reduce certain risks associated with hedging transactions, the
Board of Trustees has adopted the requirement that forward contracts,
options, futures contracts and options on futures contracts be used on the

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<PAGE>

behalf of the Fund as a hedge and not for speculation. In addition to
this requirement, the Board of Trustees has adopted the following
percentage restrictions on the use of options, futures contracts and
options on futures contracts:

(i) The Fund will not write a put or call option if, as a
result thereof, the aggregate value of the assets
underlying all such options (determined as of the date
such options are written) would exceed 25% of the Fund's
net assets.

(ii) The Fund will not purchase a put or call option or option
on a futures contract if, as a result thereof, the
aggregate premiums paid on all options or options on
futures contracts held by the Fund would exceed 20% of
the Fund's net assets.

(iii) The Fund will not enter into any futures contract or
option on a futures contract if, as a result thereof, the
aggregate margin deposits and premiums required on all
such instruments would exceed 5% of the Fund's net
assets.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At June 30, 1996, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Northwest Fund which represented 17.98% of the
Fund's outstanding shares. At June 30, 1996, SAM owned 500,000 shares of
each of the Balanced Fund and International Fund, which represented 70.78%
of each Fund's outstanding shares. At June 30, 1996, SAFECO Corporation
owned 500,000 shares of the Small Company Fund which represented 53.76% of
the Fund's outstanding shares. SAFECO Insurance and SAM are Washington
corporations and wholly owned subsidiaries of SAFECO Corporation, which
has its principal place of business at SAFECO Plaza, Seattle, Washington
98185. Principal shareholders of a Fund may control the outcome of a
shareholder vote.

ADDITIONAL TAX INFORMATION

Each Fund intends to continue to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986 ("Code").
In order to qualify for treatment as a regulated investment company under
the Code, a Fund must distribute to its shareholders for each taxable year
at least 90% of its investment company taxable income (consisting
generally of taxable net investment income and net short-term capital
gain). Each Fund intends to make sufficient distributions to shareholders
to relieve it from liability for federal excise and income taxes.

Each Fund is treated as a separate corporation for federal income tax
purposes.

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<PAGE>

The excess of net long-term capital gains over net short-term capital loss
realized by a Fund on portfolio transactions, when distributed by the
Fund, is subject to long-term capital gains treatment under the Code,
regardless of how long you have held the shares of the Fund.
Distributions of net short-term capital gains realized from portfolio
transactions are treated as ordinary income for federal income tax
purposes. The tax consequences described above apply whether
distributions are taken in cash or in additional shares. Redemptions and
exchanges of shares of a Fund may result in a capital gain or loss for
federal income tax purposes.

If shares of a Fund are sold at a loss after being held for one year or
less, the loss will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received on
those shares. Investors also should be aware that if shares are purchased
shortly before the record date for any distribution, the shareholder will
pay full price for the shares and receive some portion of the purchase
price back as a taxable dividend or capital gain distribution.

The International Fund, may invest in the stock of PFICs. A PFIC is a
foreign corporation that, in general, meets either of the following tests:
(1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of,
passive income. Under certain circumstances, if a Fund holds stock of a
PFIC, it will be subject to federal income tax on a portion of any "excess
distribution" received on the stock or of any gain on disposition of the
stock (collectively "PFIC income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in the
Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its
shareholders.

If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its
pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital
loss) even if those earnings and gain were not received by the Fund. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market
value of any such PFIC's stock over the adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election
was in effect).

The International Fund and any other Fund that invests in foreign
securities may be required to pay withholding or other taxes to a foreign

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<PAGE>

government. If so, the taxes will reduce the Fund's distributions.
Foreign tax withholding from dividends and interest (if any) is typically
set at a rate between 10% and 15% if there is a treaty with the foreign
government that addresses this issue. If no such treaty exists, the
foreign tax withholding would generally be 30%. Amounts withheld for
foreign taxes will reduce the amount of dividend distributions to
shareholders, but will be included in shareholders taxable income.
However, the Fund intends to make an election which will allow
shareholders to claim an offsetting credit or deduction on their tax
return for their share of foreign taxes paid by the Fund.

Each Fund is required to withhold 31% of all taxable dividends, capital
gain distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate also is
required from dividends and those distributions for shareholders who
otherwise are subject to backup withholding.

If the International Fund's dividends exceed its taxable income in any
year because of currency-related losses or otherwise, all or a portion of
the Fund's dividends may be treated as a return of capital to shareholders
for tax purposes. To minimize the risk of a return of capital, the Fund
may adjust its dividends to take currency fluctuations into account,
causing the dividends to vary. Any return of capital will reduce the cost
basis of your shares resulting in a higher reported capital gains or a
lower reported capital loss when you sell your shares.

These are tax requirements that all mutual funds must follow in order to
avoid federal taxation. The Funds may have to limit investment activity
in some types of securities in order to adhere to these requirements.

CONVERSION OF ADVISOR CLASS B SHARES

Advisor Class B shares of a Fund will automatically convert to Advisor
Class A shares of that Fund, based on the relative net asset values per
share ("NAVs") of the Classes, within the first month following the sixth
anniversary of the shareholder's purchase of such Advisor Class B shares.
For the purpose of calculating the holding period required for conversion
of Advisor Class B shares of each Fund except the Money Market Fund, the
date of purchase shall mean (1) the date on which such Advisor Class B
shares were purchased or (2) for Advisor Class B shares obtained through
an exchange, or a series of exchanges, the date on which the original
Advisor Class B shares were purchased. For the purpose of calculating the
holding period required for conversion of Advisor Class B shares of the
Money Market Fund, the date of purchase shall mean the date on which those
shares were first exchanged for Advisor Class B shares of any other SAFECO
Fund. Holders of Class B shares of the SAFECO Advisor Series Trust
("Advisor Series Shares") who invest in Advisor Class B Shares of a Fund
may calculate the holding period from the date of the purchase of the
Advisor Series Shares. For purposes of conversion to Advisor Class A
shares, Advisor Class B shares purchased through the reinvestment of

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<PAGE>

dividends and other distributions paid in respect of Advisor Class B
shares will be held in a separate sub-account; each time any Advisor Class
B shares in the shareholder's regular account (other than those in the
sub-account) convert to Advisor Class A shares, a pro rata portion of the
Advisor Class B shares in the sub-account will also convert to Advisor
Class A shares. The portion will be determined by the ratio that the
shareholder's Advisor Class B shares converting to Advisor Class A shares
bears to the shareholder's total Advisor Class B shares not acquired
through dividends and other distributions.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

Each Fund determines its NAV by subtracting its liabilities (including
accrued expenses and dividends payable) from its total assets (the market
value of the securities the Fund holds plus cash and other assets,
including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAVs of the Advisor
classes of each Fund are calculated as of the close of regular trading on
the New York Stock Exchange ("Exchange", normally 1:00 p.m. Pacific Time,
every day the Exchange is open for trading. The Exchange is closed on the
following days: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. NAV
is determined separately for each class of shares of each Fund.

Short-term debt securities held by each Fund's portfolio having a
remaining maturity of less than 60 days when purchased, and securities
originally purchased with maturities in excess of 60 days but which
currently have maturities of 60 days or less, may be valued at cost
adjusted for amortization of premiums or accrual of discounts, or under
such other methods as the Board of Trustees may from time to time deem to
be appropriate. The cost of those securities that had original maturities
in excess of 60 days shall be determined by their fair market value as of
the 61st day prior to maturity. All other securities and assets in the
portfolios will be appraised in accordance with those procedures
established by the Board of Trustees in good faith in computing the fair
market value of those assets.

Trading in foreign securities will generally be substantially completed
each day at various times prior to the close of the Exchange. The value
of any such securities are determined as of such times for purposes of
computing the International Fund's NAV. Foreign currency exchange rates
are also generally determined prior to the close of the Exchange. If an
extraordinary event occurs after the close of an exchange on which that
security is traded, the security will be valued at fair value as
determined in good faith by the Sub-Adviser under procedures established
by and under general supervision of the Fund's Board of Trustees.

- 50 -
<PAGE>

are valued at their last sale price, as of the close of the applicable
commodities exchange. Quotations of foreign securities in a foreign
currency are converted into U.S. dollar equivalents at the current rate
obtained by a recognized bank or dealer. Forward contracts are valued at
the current cost of covering or offsetting such contracts.

ADDITIONAL PERFORMANCE INFORMATION

Effective September 30, 1996, all of the then-existing shares of each Fund
were redesignated No-Load Class shares and each Fund commenced offering
Advisor Class A and Advisor Class B shares. The performance information
that follows is based on the original shares of each Fund, recalculated to
reflect the sales charges of the Advisor Classes. The performance figures
quoted do not reflect Advisor Class Rule 12b-1 fees, which if reflected
would cause the performance figures to be lower than those indicated.

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended September 30, 1995, for the Growth, Equity and Income
Funds would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------
Advisor Advisor Advisor Advisor Advisor Advisor

Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C>
Growth Fund 18.35% 18.95% 138.05% 147.27% 237.03% 252.91%

Equity Fund 16.12% 16.59% 151.11% 160.94% 355.54% 377.00%

Income Fund 15.60% 16.04% 92.32% 99.38% 198.06% 212.11%
</TABLE>

The total returns, expressed as a percentage, for the one-year and since-
inception (55 months) periods ended September 30, 1995, for the Northwest
Fund would have been as follows:

- 51 -
<PAGE>

1 Year Since Initial Effective Date
------ (55 Months)
----------------------------
Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Northwest Fund 13.66% 14.01% 53.78% 59.08%
</TABLE>

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended March 31, 1996, for the Growth, Equity and Income Funds
would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------
Advisor Advisor Advisor Advisor Advisor Advisor

Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C>
Growth Fund 23.31% 24.12% 84.21% 90.89% 196.74% 210.72%

Equity Fund 20.14% 20.80% 119.87% 128.23% 269.22% 286.61%

Income Fund 19.84% 20.49% 78.69% 85.11% 151.09% 162.92%
</TABLE>

- 52 -
<PAGE>

The total returns, expressed as a percentage, for the one-year, five-year
and since-inception (61 months) periods ended March 31, 1996, for the
Northwest Fund would have been as follows:

<TABLE>
<CAPTION>
1 Year 5 Years Since Initial Effective
------ ------- Date
(61 Months)
-----------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund 18.04% 18.60% 61.49% 67.10% 65.05% 71.89%

</TABLE>

The total returns, expressed as a percentage, for the two month period
from inception to March 31, 1996 for the Balanced, International, and
Small Company Funds would have been as follows:

2 Month Period From
Inception to March 31, 1996
---------------------------
Advisor Advisor
Class A Class B
------- -------

Balanced Fund -4.34% -4.83%
International Fund -4.12% -4.60%

Small Company Fund 0.18% -0.10%

</TABLE>

- 53 -
<PAGE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended September 30,
1995, for the Growth, Equity and Income Funds would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------
Advisor Advisor Advisor Advisor Advisor Advisor

Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C>
Growth Fund $11,835 $11,893 $23,805 $24,727 $33,703 $35,291

Equity Fund $11,612 $11,659 $25,111 $26,094 $45,554 $47,700

Income Fund $11,560 $11,604 $19,232 $19,938 $29,806 $31,211
</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since-inception (55 months) periods ended
September 30, 1995, for the Northwest Fund would have been as follows:

<TABLE>
<CAPTION>
1 Year Since Initial Effective
------ Date
(55 Months)
-----------------------

Advisor Advisor Advisor Advisor

Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>

Northwest Fund $11,366 $11,401 $15,378 $15,908

</TABLE>

- 54 -
<PAGE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended March 31, 1996,
for the Growth, Equity and Income Funds would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------
Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund $12,331 $12,412 $18,421 $19,089 $29,674 $31,072
Equity Fund $12,014 $12,080 $21,987 $22,823 $36,922 $38,661

Income Fund $11,984 $12,049 $17,869 $18,511 $25,109 $26,292
</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year, five-year and since-inception (61 months)
periods ended March 31, 1996, for the Northwest Fund would have been as
follows:

1 Year 5 Years Since Initial Effective Date
------ ------- (61 Months)
-----------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund $11,804 $11,860 $16,149 $16,710 $16,505 $17,189

</TABLE>

- 55 -
<PAGE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the two month period from inception to March 31, 1996, for
the Balanced, International and Small Company Funds would have been as
follows:

2 Month Period From
Inception to March 31, 1996
---------------------------

Advisor Advisor
Class A Class B
------- -------

Balanced Fund $9,566 $9,517

International Fund $9,588 $9,540

Small Company Fund $10,018 $9,990

The average annual total returns for the one-, five- and ten-year periods
ended September 30, 1995, for the Growth, Equity and Income Funds would
have been as follows:

1 Year 5 Years 10 Years
------ ------- --------
Advisor Advisor Advisor Advisor Advisor Advisor

Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

<S> <C> <C> <C> <C> <C> <C>
Growth Fund 18.35% 18.93% 18.94% 19.85% 12.92% 13.44%

Equity Fund 16.12% 16.59% 20.22% 21.15% 16.37% 16.91%

Income Fund 15.60% 16.04% 13.97% 14.80% 11.54% 12.05%
</TABLE>

- 56 -
<PAGE>

The average annual total returns for the one-year and since-inception (55
months) periods ended September 30, 1995, for the Northwest Fund would
have been as follows:

1 Year Since Initial Effective Date
------ (55 Months)
----------------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

<S> <C> <C> <C> <C>
Northwest Fund 13.66% 14.01% 9.84% 10.66%

</TABLE>

The average annual total returns for the one-, five- and ten-year periods
ended March 31, 1996, for the Growth, Equity and Income Funds would have
been as follows:

1 Year 5 Years 10 Years
------ ------- -------

Advisor Advisor Advisor Advisor Advisor Advisor

Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>

Growth Fund 23.31% 24.12% 13.00% 13.80% 11.49% 12.01%

Equity Fund 20.14% 20.80% 17.07% 17.94% 13.95% 14.48%
Income Fund 19.84% 20.49% 12.31% 13.11% 9.64% 10.15%

</TABLE>

- 57 -
<PAGE>

The average annual total returns for the one-year, five-year and since-
inception (61 months) periods ended March 31, 1996, for the Northwest Fund
would have been as follows:

1 Year 5 Years Since Initial Effective Date
------ ------- (55 Months)
----------------------------
Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund 18.04% 18.60% 10.06% 10.81% 10.36% 11.24%
</TABLE>

Calculations
------------

The total return, expressed as a percentage, is computed using the
following formula:

ERV-P
T = ----- x 100
P

The total return, expressed in dollars, is computed using the following
formula:
n
T = P(1+A)

The average annual total return is computed using the following formula:
n
A = ( (SQUARE ROOT) ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical investment of
$1,000 at the end of a specified period of time

P = a hypothetical initial investment of $1,000 or $10,000
(when total return is expressed in dollars)

- 58 -
<PAGE>

In making the above calculation, all dividends and capital gain
distributions are assumed to be reinvested at the respective Fund's NAV on
the reinvestment date, and the maximum sales charge for each Class is
applied.

In addition to performance figures, the Funds may advertise their rankings
as calculated by independent rating services that monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical
Services, Inc., Morningstar, Inc., and Wiesenberger Investment Companies
Service). These rankings may be among mutual funds with similar
objectives and/or size or with mutual funds in general. In addition, the
Funds may advertise rankings which are in part based upon subjective
criteria developed by independent rating services to measure relative
performance. Such criteria may include methods to account for levels of
risk and potential tax liability, sales commissions and expense and
turnover ratios. These rating services may also base the measure of
relative performance on time periods deemed by them to be representative
of up and down markets. The Funds may also describe in their endorsements
the methodology used by rating services to arrive at Fund ratings. In
addition, the Funds may also advertise individual measurements of Fund
performance published by the rating services, including, but not limited
to: a Fund's beta, standard deviations, and price earnings ratio.

The Funds may occasionally reproduce articles or portions of articles
about the Funds written by independent third parties such as financial
writers, financial planners and financial analysts, which have appeared in
financial publications of general circulation or financial newsletters
(including but not limited to BARRONS, BUSINESS WEEK, FABIANS, FORBES,
FORTUNE, INVESTOR'S BUSINESS DAILY, KIPLINGER'S, MONEY MAGAZINE,
MORNINGSTAR MUTUAL FUNDS, MUTUAL FUNDS FORECASTER, MUTUAL FUNDS MAGAZINE,
NEWSWEEK, NO-LOAD FUNDS MAGAZINE, NO-LOAD FUNDS X, PENSIONS & INVESTMENTS,
RUKEYSER'S MUTUAL FUNDS, TELESWITCH, TIME MAGAZINE, U.S. NEWS AND WORLD
REPORT, YOUR MONEY AND THE WALL STREET JOURNAL).

Each Fund may compare its performance against the following unmanaged
indices that (unless otherwise noted in the advertisement) assume
reinvestment of dividends:

AMEX (AMERICAN STOCK EXCHANGE) MAJOR MARKET INDEX - Price
weighted (high priced issues have more influence than low-priced
issues) average of 20 Blue Chip stocks.

DOW JONES INDUSTRIAL AVERAGE - Price weighted average of 30
actively-traded Blue Chip stocks.

NASDAQ PRICE INDEX - Market value weighted (impact of a
component's price change is proportionate to the overall market
value of the issue) index of approximately 3500 over-the-counter
stocks.

S & P'S COMPOSITE INDEX OF 500 STOCKS - Market value weighted
index of 500 stocks most of which are listed on the New York

- 59 -
<PAGE>

Stock Exchange with some listed on the American Stock Exchange
and Nasdaq.

WILSHIRE 5000 EQUITY INDEX - Market value weighted index of
approximately 5000 stocks including all stocks on the New York
and American Exchanges.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX - Market value
weighted index of approximately 1200 companies located throughout
the world.

RUSSELL 2000 INDEX - The 2000 smallest firms in the Russell 3000
Index which is composed of the 3000 largest companies in the
United States as measured by capitalization.

Each Fund may present in its advertisements and sales literature (i) a
biography or the credentials of its portfolio manager (including but not
limited to educational degrees, professional designations, work
experience, work responsibilities and outside interests), (ii) current
facts (including but not limited to number of employees, number of
shareholders, business characteristics) about its investment adviser (SAM)
or any sub-investment adviser, the investment adviser's parent company
(SAFECO Corporation) or the parent company of any sub-investment adviser,
or the SAFECO Family of Funds, (iii) descriptions, including quotations
attributable to the portfolio manager, of the investment style used to
manage a Fund's portfolio, the research methodologies underlying
securities selection and a Fund's investment objective and (iv)
information about particular securities held in a Fund's portfolio.

From time to time, each Fund may discuss its performance in relation to
the performance of relevant indices and/or representative peer groups.
Such discussions may include how a Fund's investment style (including but
not limited to portfolio holdings, asset types, industry/sector weightings
and the purchase and sale of specific securities) contributed to such
performance.

In addition, each Fund may comment on the market and economic outlook in
general, on specific economic events, on how these conditions have
impacted its performance and on how the portfolio manager will or has
addressed such conditions.

Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.

- 60 -
<PAGE>

TRUSTEES AND OFFICERS

Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------ --------------------
<S> <C> <C>

Boh A. Dickey* Chairman and President, Chief Operating Officer
SAFECO Plaza Trustee and Director of SAFECO
Seattle, WA 98185 Corporation. Previously,
(51) Executive Vice President and Chief
Financial Officer. He has been an
executive officer of SAFECO
Corporation and its subsidiaries
since 1982. See table under
"Investment Advisory and Other
Services."
Barbara J. Dingfield Trustee Manager, Corporate Contributions
Microsoft Corporation and Community Programs for
One Microsoft Way Microsoft Corporation, Redmond,
Redmond, WA 98052 Washington, a computer software
(50) company; Director and former
Executive Vice President of Wright
Runstad & Co., Seattle,
Washington, a real estate
development company; Director of
First SAFECO National Life
Insurance Company of New York.

Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and other
Seattle, WA 98177 SAFECO Trusts; retired Senior Vice
(67) President and Treasurer of SAFECO
Corporation; former President of
SAFECO Asset Management Company;
Director of First SAFECO National
Life Insurance Company of New
York.

Richard E. Lundgren Trustee Director of Marketing and Customer
764 S. 293rd Street Relations, Building Materials
Federal Way, WA 98032 Distribution, Weyerhaeuser
(58) Company, Tacoma, Washington;
Director of First SAFECO National
Life Insurance Company of New
York.

- 61 -
<PAGE>

Larry L. Pinnt Trustee Retired Vice President and Chief
1600 Bell Plaza Financial Officer of US WEST
Room 1802 Communications, Seattle,
Seattle, WA 98191 Washington; Director of Key Bank
(61) of Washington, Seattle,
Washington; Director of University
of Washington Medical Center,
Seattle, Washington; Director of
First SAFECO National Life
Insurance Company of New York;
Director of Cascade Natural Gas
Corporation, Seattle, Washington.

John W. Schneider Trustee President of Wallingford Group,
1808 N 41st St. Inc., Seattle, Washington; former
Seattle, WA 98103 President of Coast Hotels, Inc.,
(54) Seattle, Washington; Director of
First SAFECO National Life
Insurance Company of New York.
David F. Hill* President President of SAFECO Securities
SAFECO Plaza Trustee Inc. and SAFECO Services
Seattle, WA 98185 Corporation; Senior Vice President
(47) of SAFECO Asset Management
Company. See table under
"Investment Advisory and Other
Services."

Neal A. Fuller Vice President Vice President, Controller,
SAFECO Plaza Controller Assistant Secretary and Treasurer
Seattle, WA 98185 Assistant Secretary of SAFECO Securities, Inc. and
(34) SAFECO Services Corporation; Vice
President, Controller, Secretary
and Treasurer of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."
Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice President
Seattle, WA 98185 and Treasurer of SAFECO
(52) Corporation; Director and Vice
President of SAFECO Life Insurance
Company; former senior Portfolio
Manager of SAFECO insurance
companies' taxable bond
portfolios; former Portfolio
Manager for several SAFECO mutual
funds. See Table under
"Investment Advisory and Other
Services."

</TABLE>

- 62 -
<PAGE>

* Trustees who are interested persons as defined by the 1940 Act.

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
Total Compensation
Pension or From Registrant
Retirement and
Aggregate Benefits Accrued Estimated Annual Fund Complex
Compensation As Part of Fund Benefits Upon Paid
Trustee from Registrant Expenses Retirement to Trustees
------- --------------- -------- ---------- -----------

<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0

Barbara J. Dingfield $3,708 N/A N/A $22,737

Richard E. Lundgren $3,708 N/A N/A $22,737
Larry L. Pinnt $3,708 N/A N/A $22,737

John W. Schneider $3,708 N/A N/A $22,737
Richard W. Hubbard $3,875 N/A N/A $24,150

David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management investment companies that have, in
the aggregate, twenty-four series companies managed by SAM.

The officers of the Trust receive no compensation for their service as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

- 63 -
<PAGE>

and SAFECO Services is the transfer, dividend and distribution
disbursement and shareholder servicing agent of each Fund.

SAM has a sub-advisory agreement with Bank of Ireland Asset Management
(U.S.) Limited. The Sub-Adviser has its headquarters at 26 Fitzwilliam
Place, Dublin Ireland and its U.S. office at 2 Greenwich Plaza, Greenwich,
Connecticut. The Sub-Adviser is a direct, wholly owned subsidiary of Bank
of Ireland Asset Management Limited (an investment advisory firm) that is
located at 26 Fitzwilliam Place, Dublin, Ireland. The Sub-Adviser is an
indirect, wholly owned subsidiary of Bank of Ireland (a holding company
whose primary subsidiaries are engaged in banking, insurance, securities
and related financial services), which is located at Lower Baggot Street,
Dublin, Ireland.

The following individuals have the following positions and offices with
the Trust, SAM, SAFECO Securities and SAFECO Services:

<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
---- ----- --- ---------- --------

<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director Director
Trustee Chairman

D. F. Hill President Senior Vice President President
Trustee President Director Director
Director Secretary Secretary

N. A. Fuller Vice President Vice President Vice President Vice President
Controller Controller Controller Controller
Assistant Secretary Secretary Assistant Secretary Assistant Secretary
Treasurer Treasurer Treasurer
R.L. Spaulding Vice President Vice Chairman Director Director
Treasurer Director

S. C. Bauer President
Director

</TABLE>

Mr. Dickey is President, Chief Operating Officer and a Director of SAFECO
Corporation and Mr. Spaulding is Treasurer and Vice President of SAFECO
Corporation. Messrs. Dickey and Spaulding are also Directors of other
SAFECO Corporation subsidiaries.

- 64 -
<PAGE>

office facilities, books, records and personnel to manage the Trust's and
each Fund's affairs and paying certain expenses.

The Trust Instrument of the Trust provides that the Trust will indemnify
its Trustees and its officers against liabilities and expenses reasonably
incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless it is adjudicated that
they engaged in bad faith, wilful misfeasance, gross negligence, or
reckless disregard of the duties involved in the conduct of their offices.
In the case of settlement, such indemnification will not be provided
unless it has been determined -- by a court or other body approving the
settlement or other disposition, or by a majority of disinterested
Trustees, based upon a review of readily available facts, or in a written
opinion of independent counsel -- that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties.

SAM also serves as the investment adviser for other investment companies
in addition to the Funds. Several of these investment companies have
investment objectives similar to those of certain Funds. It is therefore
possible that the same securities will be purchased for both a Fund and
another investment company advised by SAM. When two or more funds advised
by SAM are simultaneously engaged in the purchase or sale of the same
security, the prices and amounts will be allocated in accordance with a
manner considered by the officers of the funds involved to be equitable to
each fund. In some cases, this system could have a detrimental effect on
the price or value of the security as far as a Fund is concerned. In
other cases, however, the ability of a Fund to participate in volume
transactions will produce better executions and prices for the Fund.

For the services and facilities furnished by SAM, each Fund has agreed to
pay an annual fee computed on the basis of the average market value of the
net assets of each Fund ascertained each business day and paid monthly in
accordance with the following schedules. The reduction in fees occurs
only at such time as the respective Fund's net assets reach the dollar
amounts of the break points and applies only to those assets that fall
within the specified range:

Growth, Equity and Income Funds

Net Assets Annual Fee

$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%

- 65 -
<PAGE>

Northwest Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%

Balanced Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%

International Fund

Net Assets Annual Fee

$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%

Small Company Fund

Net Assets Annual Fee

$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%

Under the sub-advisory Agreement between SAM and the Sub-Adviser, the Sub-
Adviser is responsible for providing investment research and advice used
to manage the investment portfolio of the International Fund. In return,
SAM (and not the International Fund) pays the Sub-Adviser a fee in
accordance with the schedule below:

Net Assets Annual Fee

$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%

- 66 -
<PAGE>

The following table states the total amounts of compensation paid to SAM
for the past three fiscal years for the Growth, Equity and Income Funds
and the three fiscal periods for the Northwest Fund:

Fiscal Year of Period Ended
September 30, September 30, September 30,
1995 1994 1993
------------- ------------- ------------

Growth Fund $1,107,000 $1,096,000 $1,068,000
Equity Fund $3,151,000 $1,676,000 $ 749,000
Income Fund $1,348,000 $1,363,000 $1,353,000

</TABLE>

9 Month
Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>

Northwest
Fund $269,000 $287,000 $228,000

</TABLE>

Distribution Arrangements. SAFECO Securities is the principal underwriter
for each Fund and acts as the distributor of the Advisor Class A and
Advisor Class B shares of each Fund under a Distribution Agreement with
the Trust that requires SAFECO Securities to use its best efforts,
consistent with its other businesses, to sell shares of the Funds. Shares
of the Funds are offered continuously.

Under separate plans of distribution pertaining to the Advisor Class A and
Advisor Class B shares of each Fund adopted by the Trust in the manner
prescribed under Rule 12b-1 under the 1940 Act (each a "Plan"), each
Advisor Class pays fees described in the Prospectus.

Among other things, each Plan provides that (1) SAFECO Securities will
submit to the Trust's Board of Trustees at least quarterly, and the
Trustees will review, reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect so long as it is approved at least annually and

- 67 -
<PAGE>

any material amendment thereto is approved, by the Trust's Board of
Trustees, including those Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan, acting in
person at the meeting called for that purpose, (3) payments by a Fund
under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding voting securities of
the relevant Advisor Class of that Fund and (4) while the Plan remains in
effect, the selection and nomination of Trustees who are not "interested
persons" of the Trust shall be committed to the discretion of the Trustees
who are not "interested persons" of the Trust.

In reporting amounts expended under the Plans to the Trustees, SAFECO
Securities will allocate expenses attributable to the sale of each Advisor
Class of Fund shares to such Advisor Class based on the ratio of sales of
shares of such Advisor Class to the sales of all Advisor Classes of
shares. Expenses attributable to a specific Advisor Class will be
allocated to that Advisor Class.

In approving the adoption of each Plan, the Trustees determined that the
adoption was in the best interests of the Funds' shareholders.

In the event that a Plan is terminated or not continued with respect to
the Advisor Class A or Advisor Class B shares of any Fund, (i) no fees
would be owed by a Fund to SAFECO Securities with respect to that class,
and (ii) a Fund would not be obligated to pay SAFECO Securities for any
amounts expended under the Plan not previously recovered by SAFECO
Securities.

The Plans comply with rules of the National Association of Securities
Dealers, Inc. which limit the annual asset-based sales charges and service
fees that a mutual fund may impose on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class.
The rules also limit the aggregate of all front-end, deferred and asset-
based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
that class, plus interest at the prime rate plus 1% per annum.

Custodian. U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle,
Washington 98111, is the custodian of the securities, cash and other
assets of each Fund (except the International Fund) under an agreement
with the Trust. Chase Manhattan Bank, N.A., 1211 Avenue of the Americas,
New York, New York is the custodian of the securities, cash and other
assets of the International Fund. Chase Manhattan Bank, N.A. has entered
into sub-custodian agreements with several foreign banks and clearing
agencies, pursuant to which portfolio securities purchased outside the
United States are maintained in the custody of these entities.

Auditor. Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle,
Washington 98104, is the independent auditor of each Fund's financial
statements.

- 68 -
<PAGE>

SAFECO Services, SAFECO Plaza, Seattle, Washington 98185 is the transfer,
dividend and distribution disbursement and shareholder servicing agent for
the Advisor classes of each Fund under an Agreement with the Trust.
SAFECO Services provides, or through subcontracts makes provision for, all
required transfer agent activity, including maintenance of records of each
Fund's Advisor Class shareholders, records of transactions involving each
Fund's Advisor Class shares, and the compilation, distribution, or
reinvestment of income dividends or capital gains distributions. SAFECO
Services is paid a fee for these services equal to $28.00 per shareholder
account, but not to exceed .30% of each Fund's average net assets. The
following table shows the fees paid by the Growth, Equity, Income and
Northwest Funds to SAFECO Services during the past three fiscal years:

Fiscal Year of Period Ended
September 30, September 30, September 30,
1995 1994 1993
------------- ------------- ------------

Growth Fund $ 305,000 $ 210,000 $ 169,000
Equity Fund $1,018,000 $ 370,000 $ 143,000
Income Fund $ 298,000 $ 264,000 $ 259,000
</TABLE>

9 Month
Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>

Northwest
Fund $97,000 $85,000 $65,000

</TABLE>

------------------
* Table reflects fees of $3.10 per shareholder transaction payable
pursuant to the prior fee schedule.

- 69 -
<PAGE>

BROKERAGE PRACTICES

SAM and the Sub-Adviser place orders for the purchase or sale of Fund
portfolio securities based on various factors, including:

(1) Which broker gives the best execution, (i.e., which broker is able
to trade the securities in the size and at the price desired and on
a timely basis);

(2) Whether the broker is known as being reputable; and

(3) All other things being equal, which broker has provided useful
research services.

Such research services as are furnished during the year (e.g., written
reports analyzing economic and financial characteristics of industries and
companies, telephone conversations between brokerage security analysts and
members of SAM's and the Sub-Adviser's staff, and personal visits by such
analysts and brokerage strategists and economists) are used to advise all
clients including the Funds, but not all such research services furnished
to SAM are used by it to advise the Funds. SAM does not pay excess
commissions or mark-ups to any broker or dealer for research services or
for any other reason. During the fiscal year ended September 30, 1995,
for the Growth, Income, Equity and Northwest Funds, 100% of each Fund's
total brokerage expenses were commissions paid to brokers providing
research services. The following table states the total amount of
brokerage expense for each Fund for the past three fiscal years for the
Growth, Equity and Income Funds and for the three fiscal periods for the
Northwest Fund:

Fiscal Year of Period Ended

September 30, September 30, September 30,
1995 1994 1993
------------- ------------- ------------

<S> <C> <C> <C>
Growth Fund $ 489,983 $220,350 $197,179
Equity Fund $1,082,137 $731,184 $223,474
Income Fund $ 159,717 $111,612 $106,893

</TABLE>

- 70 -
<PAGE>

9 Month
Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>

Northwest
Fund $6,536 $11,409 $10,390

</TABLE>

REDEMPTION IN KIND

If the Trust concludes that cash payment upon redemption to a shareholder
would be prejudicial to the best interest of the other shareholders of a
Fund, a portion of the payment may be made in kind. Each Fund has elected
to be governed by Rule 18f-1 under the Investment Company Act of 1940,
pursuant to which each Fund must redeem shares tendered by a shareholder
of a Fund solely in cash up to the lesser of $250,000 or 1% of a net asset
value of a Fund during any 90-day period. Any shares tendered by the
shareholder in excess of the above-mentioned limit may be redeemed through
distribution of a Fund's assets. Any securities or other property so
distributed in kind shall be valued by the same method as is used in
computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur
brokerage costs in disposing of securities received in such a distribution
in kind.

FINANCIAL STATEMENTS

The following financial statements for the Growth, Equity, Income and
Northwest Funds and the report thereon of Ernst & Young LLP, independent
auditors, are incorporated herein by reference to the Trust's Annual
Report for the year ended September 30, 1995.

Portfolio of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the Year Ended September 30, 1995
Statement of Changes in Net Assets for the Years Ended September
30, 1995 and September 30, 1994
Notes to Financial Statements

The following unaudited financial statements for each Fund are
incorporated herein by reference to the Trust's Semi-Annual Report for the
period ended March 31, 1996.

Portfolio of Investments as of March 31, 1996 (unaudited)
Statement of Assets and Liabilities as of March 31, 1996
(unaudited)

- 71 -
<PAGE>

Statement of Operations for the Period Ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended March 31,
1996 (unaudited)
March 31, 1996 Notes to Financial Statements (unaudited)

A copy of the Trust's Annual and Semi-Annual Report accompanies this
Statement of Additional Information. Additional copies may be obtained by
calling SAFECO Services at 1-800-463-8791 or by writing to the address on
the first page of this Statement of Additional Information.

DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS

Commercial Paper Ratings

Moody's

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations with an original maturity not
exceeding one year.

Prime-1: Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:

. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.

Prime-2: Issuers (or supporting institutions) rated Prime-2 (P-2) have a
strong ability for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

S&P

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days.

A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely

- 72 -
<PAGE>

strong safety characteristics are denoted with a plus sign (+)
designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.

Preferred Stock Ratings

Generally, a preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends. A preferred
stock rating differs from a bond rating since it is assigned to an equity
issue which is different from, and subordinated to, a debt issue.

Excerpts from Moody's description of its preferred stock ratings:
----------------------------------------------------------------

aaa -- An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred stocks.

aa -- An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well-maintained in
the foreseeable future.

a -- An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

baa -- An issue which is rated "baa" is considered to be an upper-medium
grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be
questionable over any great length of time.

ba -- An issue which is rated "ba" is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks
in this class.

b -- An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.

caa -- An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.

- 73 -
<PAGE>

ca -- An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.

c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.***

Excerpts from S&P's description of its preferred stock ratings:
--------------------------------------------------------------

AAA -- This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.

AA -- A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated "AAA."

A -- An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.

BBB -- an issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the "A"
category.

"BB", "B", "CCC" Preferred stock rated "BB," and "CCC" -- are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest
degree of speculation and "CCC" the highest. While such issues will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.

"CC" -- The rating "CC" is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.

"C" -- A preferred stock rated "C" is a nonpaying issue.

"D" -- A preferred stock rated "D" is a nonpaying issue with the issuer in
default on debt instruments.

N.R. -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.

- 74 -
<PAGE>

Plus (+) or minus (-) To provide more detailed indications of preferred
stock quality, ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.

- 75 -
<PAGE>
SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND

No-Load Class

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Funds. A copy of the
Prospectus may be obtained by writing SAFECO Mutual Funds, P.O. Box 34890,
Seattle, Washington 98124-1890, or by calling TOLL FREE:

Nationwide
1-800-426-6730

Seattle Area
206-545-5530

Hearing Impaired TDD/TTY Service
1-800-438-8718

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.
<PAGE>

TABLE OF CONTENTS

OVERVIEW OF INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . - 2 -
INVESTMENT POLICIES OF THE GROWTH FUND . . . . . . . . . . . . . . - 2 -
INVESTMENT POLICIES OF THE EQUITY FUND . . . . . . . . . . . . . . - 6 -
INVESTMENT POLICIES OF THE INCOME FUND . . . . . . . . . . . . . . - 9 -
INVESTMENT POLICIES OF THE NORTHWEST FUND . . . . . . . . . . . . . - 12 -
INVESTMENT POLICIES OF THE BALANCED FUND . . . . . . . . . . . . . - 16 -
INVESTMENT POLICIES OF THE INTERNATIONAL FUND . . . . . . . . . . . - 19 -
INVESTMENT POLICIES OF THE SMALL COMPANY FUND . . . . . . . . . . . - 21 -
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . - 24 -
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS . . . . . . . . . . . - 40 -
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . - 41 -
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . - 43 -
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . - 43 -
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER
SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . - 46 -
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . - 52 -
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . - 56 -
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . - 61 -
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . - 62 -
DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS . . . . - 62 -

- 1 -
<PAGE>

OVERVIEW OF INVESTMENT POLICIES

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE GROWTH FUND

Fundamental Investment Policies

The Growth Fund has adopted the following fundamental investment policies.
The Growth Fund will not:

- 2 -
<PAGE>

2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of any class of securities of
such issuer to be held by the Growth Fund.

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

6. Purchase securities on margin, except for short-term credits as
are necessary for the clearance of transactions.

10. Pledge, mortgage or hypothecate assets taken at market to an
extent greater than 15% of its gross assets taken at cost.

- 3 -
<PAGE>

15. Participate, on a joint or joint and several basis, in any
trading account in securities.

- 4 -
<PAGE>

security" and "asset coverage" shall be understood to have the
meaning assigned to those terms in Section 18 of the 1940 Act.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Growth Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Growth Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

2. The Growth Fund will not issue long-term debt securities.

3. The Growth Fund will not invest in any security for the purpose
of acquiring or exercising control or management of the issuer.

4. The Growth Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

5. The Growth Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

8. The Growth Fund will invest no more than five percent (5%) of
total assets in qualified repurchase agreements and will not
enter into a repurchase agreement for a period longer than 7
days.

- 5 -
<PAGE>

11. The Growth Fund may invest up to 10% of its total assets in
contingent value rights.

12. The Growth Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

INVESTMENT POLICIES OF THE EQUITY FUND

Fundamental Investment Policies

The Equity Fund has adopted the following fundamental investment policies.
The Equity Fund will not:

- 6 -
<PAGE>

2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of the outstanding voting
securities of such issuer to be held by the Equity Fund.

7. Purchase shares of registered investment companies other than
real estate investment trusts.

10. Purchase any security for the purpose of acquiring or exercising
control or management of the issuer.

- 7 -
<PAGE>

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Equity Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

3. The Equity Fund will not trade in foreign currency, except as may
be necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

5. The Equity Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

- 8 -
<PAGE>

7. The Equity Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

10. The Equity Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

12. The Equity Fund may invest in securities convertible into common
stock, but less than 35% of its total assets will be invested in
such securities.

INVESTMENT POLICIES OF THE INCOME FUND

Fundamental Policies

- 9 -
<PAGE>

The Income Fund has adopted the following fundamental investment policies.
The Income Fund will not:

2. Purchase securities of any issuer, if such purchase at the time
thereof would cause more than 10% of any class of securities of
such issuer to be held by the Income Fund.

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

6. Purchase securities on margin, except for short-term credits as
are necessary for the clearance of transactions.

8. Make loans to any person, firm or corporation, but the purchase
of a portion of an issue of publicly distributed bonds,
debentures or other securities issued by persons other than the
Income Fund, whether or not the purchase was made upon the
original issue of the securities, shall not be considered as a
loan within the prohibition of this section.

- 10 -
<PAGE>

10. Pledge, mortgage or hypothecate assets taken at market to an
extent greater than 15% of its gross assets taken at cost.

11. Purchase for nor retain in its portfolio securities issued by any
issuer, any of whose officers, directors or security holders is
an officer or director of the Income Fund, if or so long as the
officers or trustees of the Income Fund together own beneficially
more than five percent (5%) of any class of the securities of
such issuer.

12. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or
except where such purchase, although not made in the open market,
is part of a plan of merger or consolidation. Such purchases in
the open market shall be limited to not more than five percent
(5%) of the value of the Income Fund's total assets. Nothing in
this section or in sections 1 or 2 above shall prevent any
purchase for the purpose of effecting a merger, consolidation or
acquisition of assets.

14. Buy or sell real estate, (except real estate investment trusts)
commodities, commodity contracts or futures contracts.

15. Participate, on a joint or joint and several basis, in any
trading account in securities.

16. Purchase foreign securities, unless (a) such securities are
listed on a national securities exchange, and (b) such purchase
at the time thereof would not cause more than 10% of the total
assets of the Income Fund (taken at market value) to be invested
in foreign securities.

- 11 -
<PAGE>

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Income Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

1. The Income Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign
portfolio securities into U.S. dollars.

2. The Income Fund will not issue long-term debt securities.

4. The Income Fund will not invest in any security for the purpose
of acquiring or exercising control or management of the issuer.

5. The Income Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

6. The Income Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

8. The Income Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

- 12 -
<PAGE>

9. The Income Fund will invest primarily in common stock and may
also invest in convertible and non-convertible bonds and
preferred stock.

12. The Income Fund may invest up to 10% of its total assets in
shares of real estate investment trusts.

INVESTMENT POLICIES OF THE NORTHWEST FUND

Fundamental Policies

The Northwest Fund has adopted the following fundamental investment
policies. The Northwest Fund will not:

2. Purchase the securities of any issuer if, as a result, more than
10% of any class of securities of such issuer will be owned by
the Fund.

3. With respect to 100% of the value of its total assets, purchase
more than 10% of the outstanding voting securities of any one
issuer (other than U.S. Government securities).

4. Concentrate its investments in particular industries (other than
obligations issued or guaranteed by the U.S. Government, its

- 13 -
<PAGE>

agencies or instrumentalities) or invest 25% or more of the
Fund's total assets in any one industry (governmental issues of
securities are not considered part of one industry).

5. Purchase securities on margin, except for short-term credits
necessary for the clearance of transactions.

6. Make short sales (sales of securities not presently owned).

12. Purchase or sell real estate, except real estate investment
trusts.

13. Purchase or sell commodities, commodity contracts or futures
contracts.

14. Participate, on a joint or joint-and-several basis, in any
trading account in securities, except that the Northwest Fund may

- 14 -
<PAGE>

join with other transactions executed by the investment adviser
or the investment adviser's parent company and any subsidiary
thereof, for the purpose of seeking better net results on
portfolio transactions or lower brokerage commission rates.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Northwest
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

1. The Northwest Fund will not buy or sell foreign exchange, except
as may be necessary to invest the proceeds of the sale of foreign
securities in the Fund's portfolio in U.S. dollars.

2. The Northwest Fund will not issue long-term debt securities.

3. The Northwest Fund will not invest in any security for the
purpose of acquiring or exercising control or management of the
issuer.

4. The Northwest Fund will not invest in oil, gas or other mineral
exploration or development programs.

5. The Northwest Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

- 15 -
<PAGE>

6. The Northwest Fund will not invest more than 5% of its total
assets in securities of companies (including predecessor
companies) having a record of less than 3 years of continuous
operation.

8. The Northwest Fund will not invest more than 10% of its total
assets in qualified repurchase agreements and will not invest in
qualified repurchase agreements maturing in more than 7 days.

10. The Northwest Fund may invest in shares of common stock selected
primarily for potential appreciation.

- 16 -
<PAGE>

- 17 -
<PAGE>

INVESTMENT POLICIES OF THE BALANCED FUND

Fundamental Policies

The Balanced Fund has adopted the following fundamental investment
policies. The Balanced Fund will not:

4. Issue senior securities, except as permitted under the 1940 Act;

8. Purchase or sell real estate, except real estate investment
trusts.

- 18 -
<PAGE>

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Balanced Fund
has adopted the following non-fundamental policies which may be changed
without shareholder approval:

4. The Balanced Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.

7. The Balanced Fund will not purchase securities on margin, except
that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin

- 19 -
<PAGE>

payments made in connection with futures contracts and options on
futures shall not constitute purchasing securities on margins.

- 20 -
<PAGE>

15. The Balanced Fund will not purchase or sell commodities or
commodity contracts.

INVESTMENT POLICIES OF THE INTERNATIONAL FUND

Fundamental Policies

The International Fund has adopted the following fundamental investment
policies. The International Fund will not:

3. Act as underwriter of securities issued by any other person, firm
or corporation; except to the extent that, in connection with the
disposition of portfolio securities, the International Fund may
be deemed an underwriter under federal securities laws;

4. Issue senior securities, except as permitted under the 1940 Act;

7. Lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties; however,

- 21 -
<PAGE>

this limit does not apply to purchases of debt securities or to
repurchase agreements; and

8. Purchase or sell real estate, except real estate investment
trusts.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the International
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

4. The International Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.

- 22 -
<PAGE>

sum of such interests considered illiquid and other illiquid
securities would exceed 15% of the Fund's net assets.

11. The International Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the
officers and directors of the investment adviser to the Fund
(each owning beneficially more than 0.5% of the outstanding
securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer.

- 23 -
<PAGE>

INVESTMENT POLICIES OF THE SMALL COMPANY FUND

Fundamental Policies

The Small Company Fund has adopted the following fundamental investment
policies. The Small Company Fund will not:

4. Issue senior securities, except as permitted under the 1940 Act;

8. Purchase or sell real estate, except real estate investment
trusts.

- 24 -
<PAGE>

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Small Company
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

3. The Small Company Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.

7. The Small Company Fund may borrow money only from a bank or
SAFECO Corporation or affiliates thereof or by engaging in
reverse repurchase agreements with any party. The Fund will not

- 25 -
<PAGE>

purchase any securities while borrowings equal to or greater than
5% of its total assets are outstanding.

10. The Small Company Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Trust and the officers
and directors of the investment adviser to the Fund (each owning
beneficially more than 0.5% of the outstanding securities of an
issuer) own in the aggregate 5% or more of the securities of the
issuer.

12. The Small Company Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be
desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

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<PAGE>

15. The Small Company Fund will not purchase or sell commodities or
commodity contracts.

ADDITIONAL INVESTMENT INFORMATION

Each Fund may make the following investments, among others, although they
may not buy all of the types of securities that are described.

Where registration is required, a Fund may be obligated to pay
all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the
Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. To the
extent privately placed securities are illiquid, purchases
thereof will be subject to any limitations on investments in
illiquid securities. Restricted securities for which no market
exists are priced at fair value as determined in accordance with
procedures approved and periodically reviewed by the Trust's
Board of Trustees.

2. Warrants. A warrant is an option issued by a corporation that
gives the holder the right to buy a stated number of shares of
common stock of the corporation at a specified price within a
designated time period. Warrants may be purchased and sold
separately or attached to stocks or bonds as part of a unit
offering. The term of a warrant may run from two to five years
and in some cases the term may be longer. The exercise price
carried by the warrant is usually well above the prevailing
market price of the underlying common stock at the time the
warrant is issued. The holder of a warrant has no voting rights

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<PAGE>

and receives no dividends. Warrants are freely transferable and
may trade on the major national exchanges.

3. Repurchase Agreements. In a repurchase agreement, a Fund and the
seller agree at the time of sale to the repurchase of a security
at a mutually agreed upon time and place. The period of maturity
is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price
is in excess of the purchase price, reflecting an agreed upon
market rate effective for the period of time a Fund's money is
invested in the security (which is not related to the coupon rate
of the purchased security). Repurchase agreements may be
considered loans of money to the seller of the underlying
security, which are collateralized by the securities underlying
the repurchase agreement. A Fund will not enter into a
repurchase agreement unless the agreement is fully
collateralized. A Fund will take possession of the securities
underlying the repurchase agreement and will value them daily to
assure that this condition is met. In the event that a seller
defaults on a repurchase agreement, a Fund may incur loss in the
market value of the collateral, as well as disposition costs;
and, if a party with whom a Fund has entered into a repurchase
agreement becomes involved in a bankruptcy proceeding, a Fund's
ability to realize the collateral may be limited or delayed and a
loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceeding.
Foreign repurchase agreements may be less well secured than U.S.
repurchase agreements and may be subject to currency risks. In
addition, foreign counter parties may be less creditworthy than
U.S. counterparties.

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<PAGE>

4. Commercial Paper and Certificates of Deposit. In making
temporary investments in commercial paper and certificates of
deposit, a Fund will adhere to the following guidelines:

a) Commercial paper must be rated A-1 or A-2 by Standard &
Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P") or Prime-1 or Prime-2 by Moody's
Investors Services, Inc. ("Moody's") or issued by
companies with an unsecured debt issue currently
outstanding rated AA by S&P or Aa by Moody's or higher.

5. Contingent Value Rights. A contingent value right ("CVR") is a
right issued by a corporation that takes on a pre-established
value if the underlying common stock does not attain a target
price by a specified date. Generally, a CVR's value will be the
difference between the target price and the current market price
of the common stock on the target date. If the common stock does
attain the target price by the date, the CVR expires without
value. CVRs may be purchased and sold as part of the underlying
common stock or separately from the stock. CVRs may also be
issued to owners of the underlying common stock as the result of
a corporation's restructuring.

6. Real Estate Investment Trusts ("REITs"). REITs purchase real
property, which is then leased, and make mortgage investments.
For federal income tax purposes REITs attempt to qualify for
beneficial "modified pass through" tax treatment by annually
distributing at least 95% of their taxable income. If a REIT
were unable to qualify for such beneficial tax treatment, it
would be taxed as a corporation and the distributions made to its
shareholders would not be deductible by it in computing its
taxable income.

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<PAGE>

7. Illiquid Securities. Illiquid securities are securities that
cannot be sold within seven days in the ordinary course of
business for approximately the amount at which they are valued.
Due to the absence of an active trading market, a Fund may
experience difficulty in valuing or disposing of illiquid
securities. SAM determines the liquidity of the securities under
guidelines adopted by the Trust's Board of Trustees.

8. Convertible Securities. Convertible bonds and convertible
preferred stock may be exchanged for a stated number of shares of
the issuer's common stock at a certain price known as the
conversion price. The conversion price is usually greater than
the price of the common stock at the time the convertible
security is purchased. Generally, the interest rate of
convertible bonds and the yield of convertible preferred stock
will be lower than the issuer's non-convertible securities.
Also, the value of convertible securities will normally vary with
the value of the underlying common stock and fluctuate inversely
with interest rates. However, convertible securities may show
less volatility in value than the issuer's non-convertible
securities. A risk associated with convertible bonds and
convertible preferred stock is that the conversion price of the
common stock will not be attained.

9. When-issued or Delayed-Delivery Securities. Under this proce-
dure, a Fund agrees to acquire securities (whose terms and
conditions, including price, have been fixed by the issuer) that
are to be issued and delivered against payment in the future.
Delivery of securities so sold normally takes place 30 to 45 days
(settlement date) after the date of the commitment. No interest
is earned by a Fund prior to the settlement date. The value of
securities sold on a "when-issued" or "delayed-delivery" basis
may fluctuate before the settlement date and the Fund bears the
risk of such fluctuation from the date of purchase. A Fund may
dispose of its interest in those securities before delivery.

10. Sovereign Debt Obligations. Sovereign debt instruments are issued
or guaranteed by foreign governments or their agencies.
Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan
participations. Governments or governmental entities responsible
for repayment of the debt may be unable or unwilling to repay
principal and interest when due, and may require renegotiation or
rescheduling of debt payments. Repayment of principal and
interest may depend also upon political and economic factors.

11. Indexed Securities. Indexed securities are securities whose
prices are indexed to the prices of other securities, securities
indices, currencies, commodities or other financial indicators.
Indexed securities generally are debt securities whose value at
maturity or interest rate is determined by reference to a
specific instrument or statistic. Currency-indexed securities

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<PAGE>

generally are debt securities whose maturity values or interest
rates are determined by reference to values of one or more
specified foreign currencies. Currency-indexed securities may be
positively or negatively indexed; i.e., their maturity value may
increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on
the values of different foreign securities relative to each
other.

12. Passive Foreign Investment Companies ("PFICs"). PFICs may
include funds or trusts organized as investment vehicles to
invest in companies of certain foreign countries. Investors in a
PFIC bear their proportionate share of the PFIC's management fees
and other expenses. See "Additional Tax Information" for more
information.

13. Short Sales Against the Box. A Fund may make short sales of
securities or maintain a short position, provided that at all
times when a short position is open the Fund owns an equal amount
of such securities or an equal amount of the securities of the
same issuer as the securities sold short (a "short sale against
the box"). Funds engaging in short sales against the box will
incur transaction costs.

14. Options on Equity Securities. (International Fund only.) The
International Fund may purchase and write (i.e., sell) put and
call options on equity securities that are traded on national
securities exchanges or that are listed on Nasdaq. A call option
is a short-term contract pursuant to which the purchaser or
holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise
price (the strike price) at any time during the term of the
option. The writer of the call option, who received the premium,
has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the strike price.
A put option is a similar contract that gives the purchaser or
holder, in return for a premium, the right to sell the underlying
equity security at a specified exercise price (the strike price)

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<PAGE>

during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying
equity security at the strike price upon exercise by the holder
of the put.

The Fund may purchase "protective puts," i.e., put options
acquired for the purpose of protecting a portfolio security from
a decline in market value. In exchange for the premium paid for
the put option, the Fund acquires the right to sell the
underlying security at the strike price of the put regardless of
the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial
excess, if any, of the market price of the underlying security
over the strike price. However, if the market price of the
security underlying the put rises, the profit the Fund realizes
on the sale of the security will be reduced by the premium paid
for the put option less any amount (net of transaction costs) for
which the put may be sold.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on stocks.

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<PAGE>

If the Fund, as a writer of an option, wishes to terminate the
obligation, it may effect a "closing purchase transaction" by
buying an option of the same series as the option previously
written. Similarly, the holder of an option may liquidate his or
her position by exercising the option or by effecting a "closing
sale transaction, i.e., selling an option of the same series as
the option previously purchased. The Fund may effect closing
sale and purchase transactions. The Fund will realize a profit
from a closing transaction if the price of the transaction is
less than the premium received from writing the option or is more
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect
to a call option is likely to be offset in whole or in part by
appreciation of the underlying equity security owned by the Fund.
There is no guaranty that closing purchase or closing sale
transactions can be effected.

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<PAGE>

clearing corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease
to exist, although outstanding options on that exchange that had
been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facility of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures that may interfere with the
timely execution of customers' orders.

15. Options on Stock Indices. (International Fund only.) The
International Fund may purchase and sell (i.e., write) put and
call options on stock indices traded on national securities
exchanges or listed on Nasdaq. Options on stock indices are
similar to options on stock except that, rather than obtaining
the right to take or make delivery of stock at a specified price,
an option on stock index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is
greater than (in the case of a call) or less than (in the case of
a put) the strike price of the option. The amount of cash is
equal to such difference between the closing price of the index
and the strike price of the option times a specified multiple
(the "multiplier"). If the option is exercised, the writer is
obligated, in return for the premium received, to make delivery
of this amount. Unlike stock options, all settlements are in
cash, and gain or loss depends on price movements in the stock
market generally (or in particular industry or segment of the
market) rather than price movements in individual stocks.

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<PAGE>

- 35 -
<PAGE>

strike price of the put written if the difference is maintained
by the Fund in cash, Treasury bills, or other liquid high-grade
short-term debt obligations in a segregated account with its
custodian.

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<PAGE>

experience a loss in its securities portfolio. However, because
the value of a diversified securities portfolio will, over time,
tend to move in the same direction as the market, movements in
the value of the Fund's securities in the opposite direction as
the market would be likely to occur for only a short period or to
a small degree.

16. Options on Debt Securities. (International Fund only.) The Fund
may purchase and write (i.e., sell) put and call options on debt
securities (including U.S. Government debt securities) that are
traded on national securities exchanges or that result from
privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New
York ("OTC options"). Options on debt are similar to options on
stock, except that the option holder has the right to take or
make delivery of a debt security, rather than stock.

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<PAGE>

securities, except that, in the case of call options on U.S.
Treasury bills, the Fund might own U.S. Treasury bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. The principal reason for the
Fund to write an option on one or more of its securities is to
realize through the receipt of the premiums paid by the purchaser
of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not
be written when, in the opinion of the Sub-Adviser, interest
rates are likely to decline significantly, because under those
circumstances the premium received by writing the call likely
would not fully offset the foregone appreciation in the value of
the underlying security.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on debt
securities.

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<PAGE>

Fund will seek to enter into OTC options only with dealers who
agree to and who are expected to be able to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. In the
event of insolvency of the other party, the Fund may be unable to
liquidate an OTC option. There is, in general, no guarantee that
closing purchase or closing sale transactions can be effected.
The Fund may not invest more than 15% of its total assets
(determined at the time of investment) in illiquid securities,
including debt securities for which there is not an established
market. The staff of the SEC has taken the position that
purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities. However, pursuant to the
terms of certain no-action letters issued by the staff, the
securities used as cover for written OTC options may be
considered liquid provided that the Fund sells OTC options only
to qualified dealers who agree that the Fund may repurchase any
OTC option its writes for a maximum price to be calculated by a
predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of
the option.

The Fund's purchase and sale of exchange-traded options on debt
securities will be subject to the risks described above in
"Options on Equity Securities."

17. Options on Foreign Currencies. (International Fund only.) The
Fund may purchase and write put and call options on foreign
currencies traded on U.S. or foreign securities exchanges or
boards of trade for hedging purposes. Options on foreign
currencies are similar to options on stock, except that the
option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.

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<PAGE>

18. Stock Index Futures Contracts. (International Fund only.) The
International Fund may buy and sell for hedging purposes stock
index futures contracts traded on a commodities exchange or board
of trade. A stock index futures contract is an agreement in
which the seller of the contract agrees to deliver to the buyer
an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the agreement is made. No physical delivery of the
underlying stocks in the index is made. When the futures
contract is entered into, each party deposits with a broker or in
a segregated custodial account approximately 5% of the contract
amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures
contracts more or less valuable, a process known as "marking to
the market."

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<PAGE>

19. Interest Rate Futures Contracts. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures
contracts on interest bearing securities (such as U.S. Treasury
bonds, U.S. Treasury notes, U.S. Treasury bills, and GNMA
certificates) or interest rate indices. Futures contracts on
interest bearing securities and interest rate indices are
referred to collectively as "interest rate futures contracts."
The portfolios will engage in transactions in only those futures
contracts that are traded on a commodities exchange or board of
trade.

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<PAGE>

20. Foreign Currency Futures Contracts. (International Fund only.)
The International Fund may buy and sell for hedging purposes
futures contracts on foreign currencies or groups of foreign
currencies such as the European Currency Unit. An European
Currency Unit is a basket of specified amounts of the currencies
of certain member states of the European Economic Community, a
Western European economic cooperative organization including
France, Germany, the Netherlands and the United Kingdom. The
Fund will engage in transactions in only those futures contracts
and other options thereon that are traded on a commodities
exchange or a board of trade. See "Stock Index Futures
Contracts" above for a general description of futures contracts.
The Fund intends to engage in transactions involving futures
contracts as a hedge against changes in the value of the
currencies in which they hold investments or in which they expect
to pay expenses or pay for future purchases. The Fund may also
engage in such transactions when they are economically
appropriate for the reduction of risks inherent in their ongoing
management.

The use of these futures contracts is subject to risks similar to
those involved in the use of options of foreign currencies and
the use of any futures contract. The Fund's successful use of
foreign currency futures contracts depends upon the Sub-Adviser's
ability to predict the direction of currency exchange markets and
political conditions. In addition, the correlation between
movements in the price of futures contracts and the price of
currencies being hedged is imperfect, and there is no assurance
that liquid markets will exist for any particular futures
contract at any particular time. Those risks are discussed above
more fully under "Options on Foreign Currencies" and "Stock Index
Futures Contracts."

21. Options on Futures Contracts. (International Fund only.) The
Fund may, to the extent permitted by applicable regulations,
enter into certain transactions involving options on futures
contracts. An option on a futures contract gives the purchaser

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<PAGE>

or holder the right, but not the obligation, to assume a position
in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified price
at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option,
the assumption of offsetting futures positions by the writer and
holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures
contract, an exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on
the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or
purchasing an option of the same series. There is no guarantee
that such closing transactions can be effected. The Fund intends
to utilize options on futures contracts for the same purposes
that it intends to use the underlying futures contracts.

22. Forward Foreign Currency Exchange Contracts. (International Fund
only.) The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") in several circumstances. When
the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of
foreign currency involved in the underlying transactions, the
Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is declared, and the
date on which such payments are made or received.

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<PAGE>

- 44 -
<PAGE>

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

Below investment grade bonds (commonly referred to as "high-yield" or
"junk" bonds) have certain additional risks associated with them. Yields

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<PAGE>

on below investment grade bonds will fluctuate over time. These bonds
tend to reflect short-term economic and corporate developments to a
greater extent than higher quality bonds that primarily react to
fluctuations in interest rates. During an economic downturn or period of
rising interest rates, issuers of below investment grade bonds may
experience financial difficulties that adversely affect their ability to
make principal and interest payments, meet projected business goals and
obtain additional financing. In addition, issuers often rely on cash flow
to service debt. Failure to realize projected cash flows may seriously
impair the issuer's ability to service its debt load that in turn might
cause a Fund to lose all or part of its investment in that security. SAM
will seek to minimize these additional risks through diversification,
careful assessment of the issuer's financial structure, business plan and
management team and monitoring of the issuer's progress toward its
financial goals.

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<PAGE>

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

Foreign Securities

Currency Exchange Rates

- 47 -
<PAGE>

or bank normally will offer to sell a foreign currency to the
International Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer.
Moreover, fluctuations in exchange rates may decrease or eliminate income
available for distribution. For example, if certain foreign currency
losses exceed other investment company taxable income (as defined below
under "Additional Tax Information") during a taxable year, the Fund would
not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as a return of
capital to shareholders for federal income tax purposes, rather than as an
ordinary dividend, reducing each shareholder's basis in his International
Fund shares.

Hedging Transactions (International Fund only)

To help reduce certain risks associated with hedging transactions, the
Board of Trustees has adopted the requirement that forward contracts,

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<PAGE>

options, futures contracts and options on futures contracts be used on the
behalf of the Fund as a hedge and not for speculation. In addition to
this requirement, the Board of Trustees has adopted the following
percentage restrictions on the use of options, futures contracts and
options on futures contracts:

(i) The Fund will not write a put or call option if,
as a result thereof, the aggregate value of the
assets underlying all such options (determined as
of the date such options are written) would
exceed 25% of the Fund's net assets.

(ii) The Fund will not purchase a put or call option
or option on a futures contract if, as a result
thereof, the aggregate premiums paid on all
options or options on futures contracts held by
the Fund would exceed 20% of the Fund's net
assets.

(iii) The Fund will not enter into any futures contract
or option on a futures contract if, as a result
thereof, the aggregate margin deposits and
premiums required on all such instruments would
exceed 5% of the Fund's net assets.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At June 30, 1996, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Northwest Fund which represented 17.98% of the
Fund's outstanding shares. At June 30, 1996, SAM owned 500,000 shares of
each of the Balanced Fund and International Stock Fund, which represented
70.78% of each Fund's outstanding shares. At June 30, 1996, SAFECO
Corporation owned 500,000 shares of the Small Company Stock Fund which
represented 53.76% of the Fund's outstanding shares. SAFECO Insurance and
SAM are Washington corporations and wholly owned subsidiaries of SAFECO
Corporation, which has its principal place of business at SAFECO Plaza,
Seattle, Washington 98185. Principal shareholders of a Fund may control
the outcome of a shareholder vote.

ADDITIONAL TAX INFORMATION

Each Fund is treated as a separate corporation for federal income tax
purposes.

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<PAGE>

The excess of net long-term capital gains over net short-term capital loss
realized by a Fund on portfolio transactions, when distributed by the
Fund, is subject to long-term capital gains treatment under the Code,
regardless of how long you have held the shares of the Fund.
Distributions of net short-term capital gains realized from portfolio
transactions are treated as ordinary income for federal income tax
purposes. The tax consequences described above apply whether distributions
are taken in cash or in additional shares. Redemptions and exchanges of
shares of a Fund may result in a capital gain or loss for federal income
tax purposes.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would
be entitled to elect to "mark-to-market" their stock in certain PFIC's.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market
value of any such PFIC's stock over the adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election
was in effect).

The International Fund and any other Fund that invests in foreign
securities may be required to pay withholding or other taxes to a foreign

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<PAGE>

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

Each Fund determines its net asset value per share ("NAV") by subtracting
its liabilities (including accrued expenses and dividends payable) from
its total assets (the market value of the securities the Fund holds plus
cash and other assets, including interest accrued but not yet received)
and dividing the result by the total number of shares outstanding. The
NAV of No-Load class of each Fund is calculated as of the close of regular
trading on the New York Stock Exchange ("Exchange"), normally 1:00 p.m.
PacificTime every day the Exchange is open for trading. The Exchange is
closed on the following days: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. NAV is determined separately for each class of shares of
each Fund.

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<PAGE>

such other methods as the Board of Trustees may from time to time deem to
be appropriate. The cost of those securities that had original maturities
in excess of 60 days shall be determined by their fair market value as of
the 61st day prior to maturity. All other securities and assets in the
portfolios will be appraised in accordance with those procedures
established by the Board of Trustees in good faith in computing the fair
market value of those assets.

Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close
of option trading on such exchange. Futures contracts the International
Fund will enter into will be marked to market daily, and options thereon
are valued at their last sale price, as of the close of the applicable
commodities exchange. Quotations of foreign securities in a foreign
currency are converted into U.S. dollar equivalents at the current rate
obtained by a recognized bank or dealer. Forward contracts are valued at
the current cost of covering or offsetting such contracts.

ADDITIONAL PERFORMANCE INFORMATION

Effective September 30, 1996, all of the then-existing shares of each Fund
were redesignated No-Load Class shares, and each Fund commenced offering
Advisor Class A and Advisor Class B shares.

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended September 30, 1995, for the Growth, Equity and Income
Funds were as follows:

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund 23.93% 149.27% 252.91%

Equity Fund 21.59% 162.94% 377.00%

Income Fund 21.04% 101.38% 212.11%

The total returns, expressed as a percentage, for the one-year and since-
inception (55 months) periods ended September 30, 1995, for the Northwest
Fund were as follows:

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<PAGE>

Since Initial Effective Date
1 Year (55 Months)
------ ----------------------------

Northwest Fund 19.01% 61.08%

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended March 31, 1996, for the Growth, Equity and Income Funds
were as follows:

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund 29.12% 92.89% 210.72%

Equity Fund 25.80% 130.23% 286.61%

Income Fund 25.49% 87.11% 162.92%

The total returns, expressed as a percentage, for the one-year, five-year
and since-inception (61 months) periods ended March 31, 1996, for the
Northwest Fund were as follows:

Since Initial Effective Date
1 Year 5 Year (61 Months)
------ ------ ---------------

Northwest Fund 23.60% 69.10% 72.89%

The total returns, expressed as a percentage, for the two month period
from inception to March 31, 1996, for the Balanced, International, and
Small Company Funds were as follows:

2 Month Period from
Inception to March 31, 1996
---------------------------

Balanced Fund 0.17%

International Fund 0.40%

Small Company Fund 4.90%

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund $12,393 $24,927 $35,291

- 53 -
<PAGE>

Equity Fund $12,159 $26,294 $47,700

Income Fund $12,104 $20,138 $31,211

Since Initial Effective Date
1 Year (55 Months)
------ ----------------------------

Northwest Fund $11,901 $16,108

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-five- and ten-year periods ended March 31, 1996,
for the Growth,, Equity and Income Funds were as follows:

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund $12,912 $19,299 $31,072

Equity Fund $12,580 $23,023 $38,661

Income Fund $12,549 $18,711 $26,292

Since Initial Effective Date
1 Year 5 Year (61 Months)
------ ------ ----------------------------

Northwest Fund $12,360 $16,910 $17,289

2 Month Period from
Inception to March 31, 1996
---------------------------

Balanced Fund $10,017

International Fund $10,040

Small Company Fund $10,490

- 54 -
<PAGE>

The average annual total returns for the one-, five- and ten-year periods
ended September 30, 1995, for the Growth, Equity and Income Funds were as
follows:

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund 23.93% 20.04% 13.44%

Equity Fund 21.59% 21.33% 16.91%

Income Fund 21.04% 15.03% 12.05%

The average annual total returns for the one-year and since-inception (55
months) periods ended September 30, 1995, for the Northwest Fund were as
follows:

Since Initial Effective Date
1 Year (55 Months)
------ ----------------------------

Northwest Fund 19.01% 10.96%

The average annual total returns for the one-, five- and ten-year periods
ended March 31, 1996, for the Growth, Equity and Income Funds were as
follows:

1 Year 5 Years 10 Years
------ ------- --------

Growth Fund 29.12% 14.04% 12.01%

Equity Fund 25.80% 18.15% 14.48%

Income Fund 25.49% 13.35% 10.15%

The average annual total returns for the one-year, five-year and since-
inception (61 months) periods ended March 31, 1996, for the Northwest Fund
were as follows:

Since Initial Effective Date
1 Year 5 Year (61 Months)
------ ------ ----------------------------

Northwest Fund 23.60% 11.08% 10.96%

- 55 -
<PAGE>

Calculations
------------

The total return, expressed as a percentage, is computed using the
following formula:

ERV-P
T = ----- x 100
P

The total return, expressed in dollars, is computed using the following
formula:
n
T = P(1+A)

The average annual total return is computed using the following formula:
n
A = ( (SQUARE ROOT) ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical investment of
$1,000 at the end of a specified period of time

P = a hypothetical initial investment of $1,000 or $10,000
(when total return is expressed in dollars)

In addition to performance figures, the Funds may advertise their rankings
as calculated by independent rating services that monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical
Services, Inc., Morningstar, Inc., and Wiesenberger Investment Companies
Service). These rankings may be among mutual funds with similar
objectives and/or size or with mutual funds in general. In addition, the
Funds may advertise rankings which are in part based upon subjective
criteria developed by independent rating services to measure relative
performance. Such criteria may include methods to account for levels of
risk and potential tax liability, sales commissions and expense and
turnover ratios. These rating services may also base the measure of
relative performance on time periods deemed by them to be representative
of up and down markets. The Funds may also describe in their
advertisements the methodology used by rating services to arrive at Fund
ratings. In addition, the Funds may also advertise individual
measurements of Fund performance published by the rating services,
including but not limited to: a Fund's beta, standard deviation, and price
earnings ratio.

- 56 -
<PAGE>

The Funds may occasionally reproduce articles or portions of articles
about the Funds written by independent third parties such as financial
writers, financial planners and financial analysts, which have appeared in
financial publications of general circulation or financial newsletters
(including but not limited to BARRONS, BUSINESS WEEK, FABIANS, FORBES,
FORTUNE, INVESTOR'S BUSINESS DAILY, KIPLINGER'S, MONEY MAGAZINE,
MORNINGSTAR MUTUAL FUNDS, MUTUAL FUNDS FORECASTER, MUTUAL FUNDS MAGAZINE,
NEWSWEEK, NO-LOAD FUND INVESTOR, NO-LOAD FUND X, PENSIONS & INVESTMENTS,
RUCKEYSER'S MUTUAL FUNDS, TELESWITCH, TIME MAGAZINE, U.S. NEWS AND WORLD
REPORT, YOUR MONEY AND THE WALL STREET JOURNAL).

Each Fund may compare its performance against the following unmanaged
indices that (unless otherwise noted in the advertisement) assume
reinvestment of dividends:

AMEX (American Stock Exchange) Major Market Index - Price
weighted (high priced issues have more influence than low-priced
issues) average of 20 Blue Chip stocks.

Dow Jones Industrial Average - Price weighted average of 30
actively-traded Blue Chip stocks.

Nasdaq Price Index - Market value weighted (impact of a
component's price change is proportionate to the overall market
value of the issue) index of approximately 3500 over-the-counter
stocks.

S & P's Composite Index of 500 Stocks - Market value weighted
index of 500 stocks most of which are listed on the New York
Stock Exchange with some listed on the American Stock Exchange
and Nasdaq.

Wilshire 5000 Equity Index - Market value weighted index of
approximately 5000 stocks including all stocks on the New York
and American Exchanges.

Morgan Stanley Capital International EAFE Index - Market value
weighted index of approximately 1200 companies located throughout
the world.

Russell 2000 Index - The 2000 smallest firms in the Russell 3000
Index which is composed of the 3000 largest companies in the
United States as measured by capitalization.

- 57 -
<PAGE>

or the SAFECO Family of Funds, (iii) descriptions, including quotations
attributable to the portfolio manager, of the investment style used to
manage a Fund's portfolio, the research methodologies underlying
securities selection and a Fund's investment objective and (iv)
information about particular securities held in a Fund's portfolio.

Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.

TRUSTEES AND OFFICERS
Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------- --------------------

<S> <C> <C>
Boh A. Dickey* Chairman and President, Chief Operating Officer and
SAFECO Plaza Trustee Director of SAFECO Corporation.
Seattle, WA 98185 Previously, Executive Vice President and
(51) Chief Financial Officer. Executive
officer of SAFECO Corporation and its
subsidiaries since 1982. See table under
"Investment Advisory and Other Services."

Barbara J. Dingfield Trustee Manager, Corporate Contributions and
Microsoft Corporation Community Programs for Microsoft
One Microsoft Way Corporation, Redmond, Washington, a
Redmond, WA 98052 computer software company; Director and
(50) former Executive Vice President of Wright
Runstad & Co., Seattle, Washington, a real
estate development company; Director of
First SAFECO National Life Insurance
Company of New York.

- 58 -
<PAGE>

Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------- --------------------

Richard W. Hubbard* Trustee Retired Vice President and Treasurer of
1270 NW Blakely Ct. the Trust and other SAFECO Trusts; retired
Seattle, WA 98177 Senior Vice President and Treasurer of
(67) SAFECO Corporation; former President of
SAFECO Asset Management Company; Director
of First SAFECO National Life Insurance
Company of New York.

Richard E. Lundgren Trustee Director of Marketing and Customer
764 S. 293rd Street Relations, Building Materials
Federal Way, WA 98032 Distribution, Weyerhaeuser Company,
(58) Tacoma, Washington; Director of First
SAFECO National Life Insurance Company of
New York.

Larry L. Pinnt Trustee Retired Vice President and Chief Financial
1600 Bell Plaza Officer of US WEST Communications,
Room 1802 Seattle, Washington; Director of Key Bank
Seattle, WA 98191 of Washington, Seattle, Washington;
(61) Director of University of Washington
Medical Center, Seattle, Washington;
Director of First SAFECO National Life
Insurance Company of New York; Director of
Cascade Natural Gas Corporation, Seattle,
Washington.

John W. Schneider Trustee President of Wallingford Group, Inc.,
1808 N 41st St. Seattle, Washington; former President of
Seattle, WA 98103 Coast Hotels, Inc., Seattle, Washington;
(54) Director of First SAFECO National Life
Insurance Company of New York.

David F. Hill* President President of SAFECO Securities Inc. and
SAFECO Plaza Trustee SAFECO Services Corporation; Senior Vice
Seattle, WA 98185 President of SAFECO Asset Management
(47) Company. See table under "Investment
Advisory and Other Services."

Neal A. Fuller Vice President Vice President, Controller, Assistant
SAFECO Plaza Controller Secretary and Treasurer of SAFECO
Seattle, WA 98185 Assistant Secretary Securities, Inc. and SAFECO Services
(34) Corporation; Vice President, Controller,
Secretary and Treasurer of SAFECO Asset
Management Company. See table under
"Investment Advisory and Other Services."

- 59 -
<PAGE>

Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------- --------------------

Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset Management
SAFECO Plaza Treasurer Company; Vice President and Treasurer of
Seattle, WA 98185 SAFECO Corporation; Director and Vice
(52) President of SAFECO Life Insurance
Company; former senior Portfolio Manager
of SAFECO insurance companies' taxable
bond portfolios; former Portfolio Manager
for several SAFECO mutual funds. See
Table under "Investment Advisory and Other
Services."

</TABLE>

* Trustees who are interested persons as defined by the 1940 Act.

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 1995

Pension or Total Compensation
Retirement From Registrant
Aggregate Benefits Accrued Estimated and Fund
Compensation As Part of Fund Annual Benefits Complex Paid
Trustee from Registrant Expenses Upon Retirement to Trustees
------- --------------- -------- --------------- -----------

<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0

Barbara J. Dingfield $3,708 N/A N/A $22,737

Richard E. Lundgren $3,708 N/A N/A $22,737

Larry L. Pinnt $3,708 N/A N/A $22,737

John W. Schneider $3,708 N/A N/A $22,737

Richard W. Hubbard $3,875 N/A N/A $24,150

David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

- 60 -
<PAGE>

The officers of the Trust receive no compensation for their service as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

SAM, SAFECO Securities, Inc. ("SAFECO Securities") and SAFECO Services
Corporation ("SAFECO Services") are wholly owned subsidiaries of SAFECO
Corporation. SAFECO Securities is the principal underwriter of each Fund
and SAFECO Services is the transfer, dividend and distribution
disbursement and shareholder servicing agent of each Fund.

SAM has a sub-advisory Agreement with Bank of Ireland Asset Management
(U.S.) Limited. The Sub-Adviser has its headquarters at 26 Fitzwilliam
Place, Dublin Ireland and its U.S. office at 2 Greenwich Plaza, Greenwich,
Connecticut. The Sub-Adviser is a direct, wholly owned subsidiary of Bank
of Ireland Asset Management Limited (an investment advisory firm) that is
located at 26 Fitzwilliam Place, Dublin, Ireland. The Sub-Adviser is an
indirect, wholly owned subsidiary of Bank of Ireland (a holding company
whose primary subsidiaries are engaged in banking, insurance, securities
and related financial services), which is located at Lower Baggot Street,
Dublin, Ireland.

The following individuals have the following positions and offices with
the Trust, SAM, SAFECO Securities and SAFECO Services:

- 61 -
<PAGE>

<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
---- ----- --- ---------- --------

<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director Director
Trustee Chairman
D. F. Hill President Senior Vice President President
Trustee President Director Director
Director Secretary Secretary

N. A. Fuller Vice President Vice President Vice Vice
Controller Controller President Controller President Controller
Assistant Secretary Secretary Assistant Secretary Assistant Secretary
Treasurer Treasurer Treasurer

Director Director

R.L. Spaulding Vice President Vice
Treasurer Chairman
Director

S.C. Bauer President
Director
</TABLE>

Mr. Dickey is President, Chief Operating Officer and a Director of SAFECO
Corporation and Mr. Spaulding is a Treasurer and Vice President of SAFECO
Corporation. Messrs. Dickey and Spaulding are also Directors of other
SAFECO Corporation subsidiaries.

In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed
for or on behalf of the Trust and each Fund that includes furnishing
office facilities, books, records and personnel to manage the Trust's and
each Fund's affairs and paying certain expenses.

- 62 -
<PAGE>

SAM also serves as the investment adviser for other investment companies
in addition to the Funds. Several of these investment companies have
investment objectives similar to those of certain Funds. It is therefore
possible that the same securities will be purchased for both a Fund and
another investment company advised by SAM. When two or more funds advised
by SAM are simultaneously engaged in the purchase or sale of the same
security, the prices and amounts will be allocated in a manner considered
by the officers of the funds involved to be equitable to each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as a Fund is concerned. In other cases,
however, the ability of a Fund to participate in volume transactions will
produce better executions and prices for the Fund.

Growth, Equity and Income Funds

Net Assets Annual Fee

$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%

Northwest Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%

Balanced Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%

- 63 -
<PAGE>

International Fund

Net Assets Annual Fee

$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%

Small Company Fund

Net Assets Annual Fee

$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%

Net Assets Annual Fee

$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%

The following table states the total amounts of compensation paid to SAM
for the past three fiscal years for the Growth, Equity and Income Funds
and the three fiscal periods for the Northwest Fund:

Fiscal Year or Period Ended

September 30, September 30, September 30,
1995 1994 1993

Growth Fund $1,107,000 $1,096,000 $1,068,000
Equity Fund $3,151,000 $1,676,000 $ 749,000
Income Fund $1,348,000 $1,363,000 $1,353,000

- 64 -
<PAGE>

9 Month
Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

Northwest Fund $269,000 $287,000 $228,000

Auditor. Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle,
Washington 98104, is the independent auditor of each Fund's financial
statements.

SAFECO Services, SAFECO Plaza, Seattle, Washington 98185 is the transfer,
dividend and distribution disbursement and shareholder servicing agent for
No-Load Class of each Fund under an Agreement with the Trust. SAFECO
Services provides, or through subcontracts makes provision for, all
required transfer agent activity, including maintenance of records of each
Fund's No-Load Class shareholders, records of transactions involving each
Fund's No-Load Class shares, and the compilation, distribution, or
reinvestment of income dividends or capital gains distributions. SAFECO
Services is paid a fee for these services equal to $28.00 per shareholder
account, but not to exceed .30% of each Fund's average net assets. The
following table shows the fees paid by the Growth, Equity, Income and
Northwest Funds to SAFECO Services during the past three fiscal years or
periods:

Fiscal Year or Period Ended*

September 30 September 30 September 30
1995 1994 1993
-------------- ------------- -------------

Growth Fund $ 305,000 $ 210,000 $ 169,000
Equity Fund $1,018,000 $ 370,000 $ 143,000
Income Fund $ 298,000 $ 264,000 $ 259,000

- 65 -
<PAGE>

9 Month
Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

Northwest Fund $97,000 $85,000 $56,000

* Table reflects fees of $3.10 per shareholder transaction payable
pursuant to the prior fee
schedule.

SAFECO Securities is the principal underwriter for No-Load Class of each
Fund and distributes each Fund's No-Load Class shares on a continuous best
efforts basis under an Agreement with the Trust. SAFECO Securities is not
compensated by the Trust or the Funds for underwriting, distribution or
other activities in connection with No-Load Class shares.

BROKERAGE PRACTICES

SAM and the Sub-Adviser place orders for the purchase or sale of Fund
portfolio securities based on various factors, including:

(1) Which broker gives the best execution, (i.e., which broker is able to
trade the securities in the size and at the price desired and on a
timely basis);

(2) Whether the broker is known as being reputable; and

(3) All other things being equal, which broker has provided useful
research services.

Such research services as are furnished during the year (e.g., written
reports analyzing economic and financial characteristics of industries and
companies, telephone conversations between brokerage security analysts and
members of SAM's and the Sub-Adviser's staff, and personal visits by such
analysts and brokerage strategists and economists to SAM's office) are
used to advise all clients including the Funds, but not all such research
services furnished to SAM are used by it to advise the Funds. SAM does
not pay excess commissions or mark-ups to any broker or dealer for
research services or for any other reason. During the fiscal year ended
September 30, 1995, for the Growth, Income, Equity and Northwest Funds,
100% of each Fund's total brokerage expenses were commissions paid to
brokers providing research services. The following table states the total
amount of brokerage expense for each Fund for the past three fiscal years
for the Growth, Equity and Income Funds and for the three fiscal periods
for the Northwest Fund:

- 66 -
<PAGE>

Fiscal Year Ended

September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------

Growth Fund $ 489,983 $220,350 $197,179
Equity Fund $1,082,137 $731,184 $223,474
Income Fund $ 159,717 $111,612 $106,893
<TABLE>
<CAPTION>

Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------
<S> <C> <C> <C>
Northwest Fund $6,536 $11,409 $10,390

</TABLE>

REDEMPTION IN KIND

If the Trust concludes that cash payment upon redemption to a shareholder
would be prejudicial to the best interest of the other shareholders of a
Fund, a portion of the payment may be made in kind. The Trust has elected
to be governed by Rule 18f-1 under the Investment Company Act of 1940,
pursuant to which each Fund must redeem shares tendered by a shareholder
of a Fund solely in cash up to the lesser of $250,000 or 1% of a net asset
value of a Fund during any 90-day period. Any shares tendered by the
shareholder in excess of the above-mentioned limit may be redeemed through
distribution of a Fund's assets. Any securities or other property so
distributed in kind shall be valued by the same method as is used in
computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur
brokerage costs in disposing of securities received in such a distribution
in kind.

FINANCIAL STATEMENTS

Portfolio of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the Year Ended September 30, 1995

- 67 -
<PAGE>

Statement of Changes in Net Assets for the Years Ended September
30, 1995 and September 30, 1994
Notes to Financial Statements

The following unaudited financial statements for each Fund are
incorporated herein by reference to the Trust's Semi-Annual Report for the
period ended March 31, 1996.

Portfolio of Investments as of March 31, 1996 (unaudited)
Statement of Assets and Liabilities as of March 31, 1996
(unaudited)
Statement of Operation for the Period Ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended March
31, 1996 (unaudited)
March 31, 1996 Notes to Financial Statements (unaudited)

A copy of the Trust's Annual and Semi-Annual Report accompanies this
Statement of Additional Information. Additional copies may be obtained by
calling SAFECO Services at 1-800-426-6730 nationwide or 206-545-5530 in
Seattle or by writing to the address on the first page of this Statement
of Additional Information.

DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS

Commercial Paper Ratings

Moody's

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations with an original maturity not
exceeding one year.

. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.

- 68 -
<PAGE>

more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

S&P

A S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365
days.

A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.

Preferred Stock Ratings

Excerpts from Moody's description of its preferred stock ratings:

- 69 -
<PAGE>

caa -- An issue which is rated "caa" is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.

ca -- An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.

c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

Excerpts from S&P's description of its preferred stock ratings:

AAA -- This is the highest rating that may be assigned by S&P's to a
preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.

BB, B, CCC -- Preferred stock rated "BB," and "CCC" -- are regarded, on
balance, as predominantly speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest
degree of speculation and "CCC" the highest. While such issues will
likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.

CC -- The rating "CC" is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.

C -- A preferred stock rated "C" is a nonpaying issue.

D -- A preferred stock rated "D" is a nonpaying issue with the issuer in
default on debt instruments.

N.R. -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &

- 70 -
<PAGE>

Poor's does not rate a particular type of obligation as a matter of
policy.

- 71 -
<PAGE>
SAFECO TAXABLE BOND TRUST:
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND

SAFECO TAX-EXEMPT BOND TRUST:
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

SAFECO MONEY MARKET TRUST:
SAFECO MONEY MARKET FUND

Advisor Class A
Advisor Class B

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the funds listed above (each a
"Fund"). A copy of the Prospectus may be obtained by writing SAFECO
Mutual Funds, Advisor Class Shares, P.O. Box 34890, Seattle, Washington
98124-1890, or by calling TOLL FREE: 1-800-463-8791

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.
<PAGE>

__________________________________________________________________________
_

TABLE OF CONTENTS

INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND . . . . . . . . 3
INVESTMENT POLICIES OF THE MANAGED BOND FUND . . . . . . . . . . . . . 7
INVESTMENT POLICIES OF THE TAX-EXEMPT FIXED INCOME FUNDS . . . . . . 11
INVESTMENT POLICIES OF THE MONEY MARKET FUND . . . . . . . . . . . . 17
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . 19
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS 26
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . . 39
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 40
CONVERSION OF ADVISOR CLASS B SHARES . . . . . . . . . . . . . . . . 42
ADDITIONAL INFORMATION ON CALCULATION OF
NET ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . 43
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 44
ADDITIONAL INFORMATION ON DIVIDENDS . . . . . . . . . . . . . . . . . 52
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 52
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . 58
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . 64
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . 65
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 65
DESCRIPTION OF RATINGS . . . . . . . . . . . . . . . . . . . . . . . 67
<PAGE>

INVESTMENT POLICIES

SAFECO Intermediate-Term U.S. Treasury Fund ("Intermediate Treasury Fund")
and SAFECO Managed Bond Fund ("Managed Bond Fund") (collectively the
"Taxable Fixed Income Funds") are series of SAFECO Taxable Bond Trust
("Taxable Bond Trust") and SAFECO Managed Bond Trust ("Managed Bond
Trust"), respectively.

SAFECO Municipal Bond Fund ("Municipal Bond Fund"), SAFECO California Tax-
Free Income Fund ("California Fund") and SAFECO Washington State Municipal
Bond Fund ("Washington Fund") (collectively, the "Tax-Exempt Fixed Income
Funds") are series of SAFECO Tax-Exempt Bond Trust ("Tax-Exempt Bond
Trust").

SAFECO Money Market Fund ("Money Market Fund") is a series of SAFECO Money
Market Trust ("Money Market Trust").

The investment policies of each Fund are described in the Prospectus and
this Statement of Additional Information. These policies state the
investment practices that the Funds will follow, in some cases limiting
investments to a certain percentage of assets, as well as those investment
activities that are prohibited. The types of securities that a Fund may
purchase are also disclosed in the Prospectus. Before a Fund purchases a
security that the following policies permit, but that is not currently
described in the Prospectus, the Prospectus will be amended or
supplemented to describe the security. If a policy's percentage
limitation is adhered to immediately after and as a result of the
investment, a later increase or decrease in values, net assets or other
circumstances will not be considered in determining whether a Fund
complies with the applicable limitation (except to the extent the change
may impact a Fund's borrowing limit).

Generally, the entity that has the ultimate responsibility for the payment
of interest and principal on a particular security is deemed to be its
issuer for purposes of the Tax-Exempt Fixed Income Funds' investment
policies. The identification of the issuer of a tax-exempt security for
purposes of diversification depends on the terms and conditions of the
security. For example, when the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the security is
backed only by the assets and revenues of the subdivision, such
subdivision would be deemed to be the sole issuer for diversification
purposes. Similarly, in the case of an industrial development bond, if
that bond is backed only by the assets and revenues of the non-
governmental user, then such non-governmental user would be deemed to be
the sole issuer for purposes of diversification. If, however, in either
case, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security which must be
valued and included in each Tax-Exempt Fixed Income Fund's five percent
(5%) limitation on investments in one issuer.

- 2 -
<PAGE>

Each Fund's fundamental policies may not be changed without the approval
of a "majority of its outstanding voting securities," as defined in the
Investment Company Act of 1940, as amended ("1940 Act"). For purposes of
such approval, the vote of a majority of the outstanding voting securities
of a Fund means the vote, at a meeting of the shareholders of such Fund
duly called, (i) of 67% or more of the voting securities present at such
meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (ii) of more than 50%
of the outstanding voting securities, whichever is less.

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND

The Intermediate Treasury Fund has adopted the following fundamental
investment policies. The Intermediate Treasury Fund will not:

Fundamental Investment Policies

1. Purchase the securities of any issuer (except the U.S. Govern-
ment, its agencies or instrumentalities) if as a result more than
five percent (5%) of the value of its total assets at the time of
purchase would be invested in the securities of such issuer,
except that up to twenty-five percent (25%) of the value of the
Fund's assets (which twenty-five percent (25%) shall not include
securities issued by another investment company) may be invested
without regard to this five percent (5%) limitation;

2. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Fund's investment objective, policies and
restrictions and the subsequent disposition thereof may be deemed
to be underwriting or the later disposition of restricted
securities acquired within the limits imposed on the acquisition
of such securities may be deemed to be an underwriting;

3. Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal obligations or other permitted
investments secured by real estate or interests therein;

4. Purchase or retain for the Fund's portfolio the securities of any
issuer, if, to the Fund's knowledge, the officers or directors of
the Fund, or its investment adviser, who individually own more
than one-half (1/2) of one percent (1%) of the outstanding
securities of such an issuer, together own more than five percent
(5%) of such outstanding securities;

5. Borrow money, except from a bank or SAFECO Corporation or its
affiliates at an interest rate not greater than that available to
the Fund from commercial banks, for temporary or emergency
purposes and not for investment purposes, and then only in an

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<PAGE>

amount not exceeding twenty percent (20%) of the value of the
Fund's total assets at the time of such borrowing;

The Fund will not purchase securities if borrowings equal to or
greater than five percent (5%) of the Fund's total assets are
outstanding;

6. Pledge, mortgage or hypothecate its assets, except that to secure
borrowings permitted by subparagraph (5) above, it may pledge
securities having a market value at the time of pledge not
exceeding ten percent (10%) of the cost of the Fund's total
assets;

7. Purchase or sell commodities or commodity contracts, other than
futures contracts, or invest in oil, gas or other mineral
exploration or development programs or in arbitrage transactions;

8. Make short sales of securities or purchase securities on margin,
except for margin deposits in connection with futures contracts
and such short-term credits as are necessary for the clearance of
transactions;

9. Participate on a joint or a joint-and-several basis in any
trading account in securities, except that the Fund may, for the
purpose of seeking better net results on portfolio transactions
or lower brokerage commission rates, join with other transactions
executed by the investment adviser or the investment adviser's
parent company and any subsidiary thereof;

10. Purchase from or sell portfolio securities to any officer or
director, the Fund's investment adviser, principal underwriter or
any affiliates or subsidiaries thereof; provided, however, that
this prohibition shall not prohibit the Fund from purchasing with
the up to $7,000,000 raised through the sale of up to 700,000
shares of common stock to SAFECO Life Insurance Company,
portfolio securities from subsidiaries of SAFECO Corporation
prior to the effective date of the Fund's initial public
offering;

11. Purchase securities (other than obligations issued or guaranteed
by the United States Government, its agencies or
instrumentalities), if as a result twenty-five percent (25%) or
more of the Fund's total assets would be invested in one industry
(governmental issuers of securities are not considered part of
any one industry);

12. Purchase shares of common stock, other than those issued by other
regulated investment companies only, when the acquisition of such
common stocks, rights or other equity interests is consistent
with the Fund's investment objective. Generally, the Fund will
only hold such equity securities as a result of purchases or unit
offerings of fixed-income securities which include such equity

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<PAGE>

securities or in connection with an actual or proposed conversion
or exchange of fixed-income securities;

13. Issue or sell any senior security, except that this restriction
shall not be construed to prohibit the Fund from borrowing funds
(i) on a temporary basis as permitted by Section 18(g) of the
1940 Act or (ii) from any bank provided, that immediately after
such borrowing, there is an asset coverage of at least three
hundred percent (300%) for all such borrowings and provided,
further, that in the event that such asset coverage shall at any
time fall below three hundred percent (300%), the Fund shall,
within three (3) days thereafter (not including Sundays and
holidays), or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce
the amount of its borrowings to an extent that the asset coverage
of such borrowings shall be at least three hundred percent
(300%). For purposes of this restriction, the terms "senior
security" and "asset coverage" shall be understood to have the
meaning assigned to those terms in Section 18 of the 1940 Act;

14. Purchase securities of any issuer, if, as a result, more than ten
percent (10%) of any class of securities of such issuer would be
owned by the Fund;

15. With respect to one hundred percent (100%) of the value of its
total assets, purchase more than ten percent (10%) of the
outstanding voting securities of any one issuer (other than U.S.
Government securities);

16. Purchase or otherwise acquire securities which are illiquid or
subject to legal or contractual restrictions on resale, if as a
result more than ten percent (10%) of the Fund's total assets
would be invested in such securities; or

17. Make loans, except through the purchase of a portion or all of an
issue of debt or money market securities in accordance with its
investment objective, policies and restrictions, or through
investments in qualified repurchase agreements (provided,
however, that the Fund shall not invest more than ten percent
(10%) of its total assets in qualified repurchase agreements
maturing in more than seven (7) days), or through qualified loan
agreements (by making secured loans of its portfolio securities
which amount to not more than five percent (5%) of its total
assets).

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Intermediate
Treasury Fund has adopted the following non-fundamental investment
policies which may be changed without shareholder approval:

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<PAGE>

1. The Fund will not invest more than five percent (5%) of its total
assets in securities of issuers, including their predecessors,
which have been in operation for less than three years.

2. The Fund will not issue long-term debt securities.

3. The Fund will not invest in securities with unlimited liability,
i.e., securities the holder of which may be assessed for amounts
in addition to the subscription or other price paid for the
security.

4. The Fund will not trade in foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign
securities in the Fund's portfolio into U.S. dollars.

5. The Fund may purchase "when-issued" or "delayed-delivery"
securities or purchase or sell securities on a "forward
commitment" basis.

6. The Fund will not invest in any security issued by a commercial
bank unless (a) the bank has total assets of at least $1 billion,
or the equivalent in other currencies, or, in the case of a
United States bank which does not have assets of at least $1
billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal sum of each investment is
insured in full by the Federal Deposit Insurance Corporation
("FDIC"), (b) in the case of a U.S. bank, it is a member of the
FDIC and (c) in the case of a foreign bank, the security is, in
the opinion of the Fund's investment adviser, of an investment
quality comparable with other debt securities which may be
purchased by the Fund. These limitations do not prohibit
investment in securities issued by foreign branches of U.S.
banks, provided the U.S. banks meet the foregoing requirements.

7. The Fund shall not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-
term purposes when such action is believed to be desirable and
consistent with sound investment policy, and it may dispose of
securities whenever its investment adviser deems advisable
without regard to the length of time they have been held.

8. The Fund may invest up to five percent (5%) of its total assets
in Yankee Sector debt securities and up to five percent (5%) of
its total assets in Eurodollar bonds.

9. The Fund may invest up to five percent (5%) of its total assets
in securities the interest on which, in the opinion of counsel
for the issuer, is exempt from federal income tax.

- 6 -
<PAGE>

INVESTMENT POLICIES OF THE MANAGED BOND FUND

Fundamental Investment Policies

The Managed Bond Fund has adopted the following fundamental investment
policies. The Managed Bond Fund will not:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than five percent (5%) of the value of total assets at the
time of purchase would be invested in the securities of such
issuer, except that up to twenty-five percent (25%) of the value
of the Fund's assets (which twenty-five percent (25%) shall not
include securities issued by another investment company) may be
invested without regard to this five percent (5%) limitation;

2. Purchase the securities of any issuer (other than obligations of
or guaranteed by the U.S. Government, its agencies and
instrumentalities) if, as a result, more than ten percent (10%)
of any class of securities of such issuer will be held by the
Fund;

3. With respect to one hundred percent (100%) of the value of its
total assets, purchase more than ten percent (10%) of the
outstanding voting securities of any one issuer (other than U.S.
Government securities);

4. Purchase securities, if as a result, twenty-five percent (25%) or
more of the Fund's total assets would be invested in the
securities of issuers having their principal business activities
in any one industry. Securities of foreign banks and foreign
branches of U.S. banks are considered to be one industry. This
limitation does not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or to
certificates of deposit or bankers' acceptances issued by
domestic banks;

5. Purchase securities on margin, except for short-term credits
necessary for the clearance of transactions;

6. Make short sales of securities (sales of securities not presently
owned);

7. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with the Fund's investment
objective, policies and restrictions or through investments in
qualified repurchase agreements;

- 7 -
<PAGE>

amount not exceeding twenty percent (20%) of the value of the
Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after such borrowing;

9. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Fund's investment objective, policies and
restrictions and the subsequent disposition thereof may be deemed
to be underwriting or the later disposition of restricted
securities acquired within the limits imposed on the acquisition
of such securities may be deemed to be an underwriting;

10. Purchase or sell real estate or real estate limited partnerships
(unless acquired as a result of the ownership of securities or
instruments) but this shall not prevent the Fund from investing
in permitted investments secured by real estate or interests
therein or in real estate investment trusts;

11. Purchase or sell commodities, commodity contracts or futures
contracts;

12. Participate on a joint or joint-and-several basis in any trading
account in securities, except that the Fund may join with other
transactions executed by the investment adviser or the investment
adviser's parent company and any subsidiary thereof, for the
purpose of seeking better net results on portfolio transactions
or lower brokerage commission rates; or

13. Issue or sell any senior security, except as permitted under the
1940 Act.

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Managed Bond
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

1. The Fund will not issue long-term debt securities.

2. The Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.

3. The Fund will not invest in oil, gas or other mineral exploration
or development programs or leases.

4. The Fund will not invest in or sell (write) puts, calls, strad-
dles, spreads or any combinations thereof.

5. The Fund will not invest more than five percent (5%) of its total
assets in securities of issuers (including predecessor companies
of the issuer) having a record of less than three years
continuous operation.

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<PAGE>

6. The Fund will not invest in securities with unlimited liability,
i.e., securities the holder of which may be assessed for amounts
in addition to the subscription or other price paid for the
security.

7. The Fund will not invest more than ten percent (10%) of its total
assets in qualified repurchase agreements and will not invest in
qualified repurchase agreements maturing in more than seven (7)
days.

8. The Fund will not purchase the securities of any other investment
company, except by purchase in the open market where no
commission or profit to a broker or dealer results from such
purchase other than the customary broker's commissions, or except
as part of a merger, consolidation or acquisition. The Fund
shall not invest more than ten percent (10%) of its total assets
in shares of other investment companies, invest more than five
percent (5%) of its total assets in a single investment company
nor purchase more than three percent (3%) of the outstanding
voting securities of a single investment company.

9. The Fund will not purchase securities if borrowings equal to or
greater than five percent (5%) of the Fund's total assets are
outstanding.

10. The Fund will invest at least sixty-five percent (65%) of its
total assets in fixed income obligations.

11. The Fund will invest at least fifty percent (50%) of its total
assets in obligations of or guaranteed by the U.S. Government,
its agencies and instrumentalities.

12. The Fund may invest up to fifty percent (50%) of its total assets
in corporate debt securities or Eurodollar bonds.

13. The Fund may invest up to ten percent (10%) of its total assets
in Yankee Sector debt obligations.

14. The Fund may purchase securities on a when-issued or delayed-
delivery basis or may purchase or sell securities on a forward
commitment basis.

15. The Fund may temporarily invest its cash in high quality
commercial paper, certificates of deposit, shares of no-load,
open-end money market funds (subject to the percentage
limitations set forth in subparagraph 8 above), repurchase
agreements (subject to the limitations set forth in subparagraph
7 above) or any other short-term instrument the Fund's investment
adviser deems appropriate.

16. The Fund may hold cash as a temporary defensive measure when
market conditions so warrant.

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<PAGE>

17. The Fund shall not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-
term purposes when such action is believed to be desirable and
consistent with sound investment policy. The Fund may dispose of
securities whenever it deems advisable without regard to the
length of time they have been held.

18. The Fund may invest up to five percent (5%) of its total assets
in securities the interest on which, in the opinion of counsel
for the issuer, is exempt from federal income tax.

WHILE THE FUND HAS THE AUTHORITY TO INVEST IN THE FOLLOWING TYPES OF
SECURITIES, IT HAS NO PRESENT INTENTION TO DO SO IN THE COMING YEAR.
BEFORE THE FUND PURCHASES ANY OF THESE SECURITIES, THE PROSPECTUS WILL BE
AMENDED BY SUPPLEMENT TO DESCRIBE THE SECURITY.

19. The Fund may invest up to five percent (5%) of its total assets
in shares of real estate investment trusts.

20. The Fund may purchase securities subject to legal or contractual
restrictions on resale or illiquid securities, if no more than
fifteen percent (15%) of the Fund's total assets would be
invested in such securities.

21. The Fund may purchase foreign securities, provided that such
purchase, at the time thereof, would not cause more than ten
percent (10%) of the total assets of the Fund (taken at market
value) to be invested in foreign securities.

22. The Fund will not buy or sell foreign currency, except as may be
necessary to invest the proceeds of the sale of any foreign
securities held by the Fund in U.S. dollars.

INVESTMENT POLICIES OF THE TAX-EXEMPT FIXED INCOME FUNDS

Fundamental Investment Policies

The Washington Fund has adopted the following fundamental investment
policies. The Washington Fund will not:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than five percent (5%) of the value of the Fund's total
assets would be invested in the securities of such issuer, except
that up to twenty-five percent (25%) of the value of the Fund's
total assets (which twenty-five percent (25%) shall not include
securities issued by another investment company) may be invested
without regard to this five percent (5%) limitation;

2. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations or other permitted investments

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<PAGE>

directly from the issuer in accordance with the Fund's investment
objective, policies and restrictions and the later disposition
thereof may be deemed to be underwriting;

3. Purchase or sell real estate, unless acquired as a result of the
ownership of securities or instruments, but this shall not
prevent the Fund from investing in municipal obligations or other
permitted investments secured by real estate or interests
therein;

4. Borrow money, except from a bank or affiliates of SAFECO
Corporation at an interest rate not greater than that available
to the Fund from commercial banks, for temporary or emergency
purposes and not for investment purposes, and then only in an
amount not exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than borrowings)
immediately after such borrowing;

5. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with the Fund's investment
objective, policies and restrictions and through investments in
qualified repurchase agreements;

6. Purchase or sell commodities, commodity contracts or futures;

7. Purchase securities, if as a result, twenty-five percent (25%) or
more of the Fund's total assets would be invested in the
securities of issuers having their principal business activities
in any one industry (governmental issuers of special or general
tax-exempt securities are not considered part of any one
industry);

8. Issue or sell any senior security, except as permitted under the
1940 Act;

9. Permit twenty-five percent (25%) or more of the Fund's total
assets to be invested in municipal obligations and other
permitted investments, the interest on which is payable from
revenues on similar types of projects. As a matter of operating
policy, similar types of projects may include sports, convention
or trade show facilities; airports or mass transportation; sewage
or solid waste disposal facilities; or air or water pollution
control projects; or

10. During normal market conditions, invest less than eighty percent
(80%) of the Fund's net assets in obligations the interest on
which, in the opinion of counsel for the issuer of the
obligation, is exempt from federal income tax.

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<PAGE>

The Municipal Bond and California Funds have adopted the following
fundamental investment policies. The Funds will not:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities), if as a result
more than five percent (5%) of the value of a Fund's total assets
would be invested in the securities of such issuer, except that
up to twenty-five percent (25%) of the value of a Fund's assets
(which twenty-five percent (25%) shall not include securities
issued by another investment company) may be invested without
regard to this five percent (5%) limitation;

2. Underwrite any issue of securities, except to the extent that the
purchase of municipal obligations or other permitted investments
directly from the issuer in accordance with a Fund's investment
objective, policies and restrictions and the subsequent
disposition thereof may be deemed to be underwriting;

3. Purchase or sell real estate or real estate limited partnerships,
but this shall not prevent a Fund from investing in municipal
obligations or other permitted investments secured by real estate
or interests therein;

4. Purchase or retain for a Fund's portfolio the securities of any
issuer if, to the Fund's knowledge, the officers or directors of
the Fund, or its investment adviser, who individually own more
than one-half (1/2) of one percent (1%) of the outstanding
securities of such an issuer, together own more than five percent
(5%) of such outstanding securities;

5. Participate on a joint or a joint-and-several basis in any
trading account in securities, except that a Fund may, for the
purpose of seeking better net results on portfolio transactions
or lower brokerage commission rates, join with other transactions
executed by the investment adviser or the investment adviser's
parent company and any subsidiary thereof;

6. Purchase from, or sell portfolio securities to, any officer or
director, the Fund's investment adviser, principal underwriter or
any affiliates or subsidiaries thereof;

7. Borrow money, except from a bank or affiliates of SAFECO
Corporation at an interest rate not greater than that available
to a Fund from commercial banks, for temporary or emergency
purposes and not for investment purposes and then only in an
amount not exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than borrowings)
immediately after such borrowing;

8. Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph 7 above, a Fund may

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<PAGE>

pledge securities having a market value at the time of pledge not
exceeding ten percent (10%) of the cost of a Fund's total assets;

9. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with a Fund's investment
objective, policies and restrictions and through investments in
qualified repurchase agreements (provided, however, that a Fund
will not invest more than ten percent (10%) of its total assets
in qualified repurchase agreements maturing in more than seven
(7) days);

10. Purchase or sell commodities, commodity contracts or futures or
invest in oil, gas or other mineral exploration or development
programs or leases;

11. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions, or purchase or sell any put or call
options or combinations thereof;

12. Knowingly purchase or otherwise acquire any securities that are
subject to legal or contractual restrictions on resale or for
which there is no readily available market;

13. Purchase securities (other than obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities), if as
a result, more than twenty-five percent (25%) of a Fund's total
assets would be invested in one industry (governmental issuers of
special or general tax-exempt securities are not considered part
of any one industry);

14. Purchase an industrial development bond, if as a result of such
purchase, more than five percent (5%) of a Fund's total assets
would be invested in industrial revenue bonds where the payment
of principal and interest is the responsibility of a company with
less than three years' operating history;

15. Issue or sell any senior security, except that this restriction
shall not be construed to prohibit a Fund from borrowing funds
(i) on a temporary basis as permitted by Section 18(g) of the
1940 Act, or (ii) from any bank provided, that immediately after
such borrowing, there is an "asset coverage" of at least three
hundred percent (300%) for all such borrowings and provided,
further, that in the event that such "asset coverage" shall at
any time fall below three hundred percent (300%), the Fund shall,
within three (3) days thereafter (not including Sundays and
holidays) or such longer period as the SEC may prescribe by rules
and regulations, reduce the amount of its borrowings to an extent
that the asset coverage of such borrowings shall be at least
three hundred percent (300%) (for purposes of this restriction,
the terms "senior security" and "asset coverage" shall be

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<PAGE>

understood to have the meanings assigned to those terms in
Section 18 of the 1940 Act);

16. Permit more than twenty percent (20%) of a Fund's net assets to
be invested, during normal market conditions, in securities the
interest on which is not, in its investment adviser's opinion,
exempt from federal income tax, as long as the Fund has its
investment objective to provide as high a level of current
interest income exempt from federal income tax as is consistent
with the relative stability of capital. As a matter of operating
policy, the Funds' investment adviser may base its opinion on the
opinion of counsel for the issuer of the security;

17. Permit twenty-five percent (25%) or more of a Fund's total assets
to be invested in municipal obligations and other permitted
investments, the interest on which is payable from revenues on
similar types of projects such as sports, convention or trade
show facilities; airports or mass transportation; sewage or solid
waste disposal facilities or air or water pollution control
projects;

18. Municipal Bond Fund Only: Permit twenty-five percent (25%) or
more of the Fund's total assets to be invested in securities
whose issuers are located in the same state; or

19. During normal market conditions, invest less than eighty percent
(80%) of a Fund's net assets in obligations the interest on
which, in the opinion of counsel for the issuer, is exempt from
federal income tax (and, in the case of the California Fund, also
from California state personal income tax).

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Washington,
Municipal Bond and California Funds have adopted the following non-
fundamental policies which may be changed without shareholder approval:

1. Each Fund may invest in any of the following types of short-term,
tax-exempt obligations: municipal notes of issuers rated, at the
time of purchase, within one of the three highest grades assigned
by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies ("S&P")
or Fitch Investors Services, Inc. ("Fitch"); unrated municipal
notes offered by issuers having outstanding municipal bonds rated
within one of the three highest grades assigned by Moody's, S&P
or Fitch; notes issued by or on behalf of municipal issuers which
are guaranteed by the U.S. Government; tax-exempt commercial
paper assigned one of the two highest grades by Moody's, S&P or
Fitch; certificates of deposit issued by banks with assets of
$1,000,000,000 or more and municipal obligations which have a
maturity of one year or less from the date of purchase. The
Funds do not currently intend to rely on Fitch Ratings.

- 14 -
<PAGE>

2. Each Fund may invest in obligations of the U.S. Government, its
agencies or instrumentalities or in qualified repurchase
agreements, the net interest on which is taxable.

3. Each Fund may invest in municipal notes including tax
anticipation, revenue anticipation and bond anticipation notes
and tax-exempt commercial paper.

4. Each Fund may invest in repurchase agreements for a period longer
than seven days.

5. Each Fund may permit twenty-five percent (25%) or more of its
assets to be invested in industrial development bonds.

6. Each Fund may purchase or sell securities on a "when-issued" or
"delayed-delivery" basis.

In addition, the Washington Fund has adopted the following non-fundamental
policies. The Washington Fund:

1. May not make short sales of securities.

2. May not purchase securities on margin, except that a Fund may
obtain such short-term credits as are necessary for the clearance
of transactions.

3. May not purchase or sell any put or call options or combinations
thereof.

4. May not purchase any security, if as a result, more than fifteen
percent (15%) of its net assets would be invested in illiquid
securities.

5. May not invest in oil, gas or other mineral exploration or
development programs or leases.

6. May not invest in real estate limited partnerships.

7. Will not purchase securities if borrowings equal to or greater
than five percent (5%) of its total assets are outstanding.

INVESTMENT POLICIES OF THE MONEY MARKET FUND

Fundamental Investment Policies

The Money Market Fund has adopted the following fundamental policies. The
Money Market Fund will not:

1. Purchase securities of any issuer, other than obligations of, or
guaranteed by, the U.S. Government, its agencies or
instrumentalities, if, as a result, more than five percent (5%) of

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<PAGE>

the value of the Fund's assets would be invested in securities of
such issuer;

2. Purchase more than ten percent (10%) of any class of securities of
any issuer. All issues of debt securities of any issuer are
considered as one class;

3. Concentrate more than twenty-five percent (25%) of the value of its
total assets in any one industry including securities issued by
foreign banks and foreign branches of U.S. banks; provided, however,
that this limitation does not apply to obligations issued or
guaranteed by the U.S. Government, or its agencies or
instrumentalities, or to certificates of deposit or bankers'
acceptances issued by domestic banks;

4. Invest more than five percent (5%) of the Fund's total assets in
securities of issuers that with their predecessors have a record of
less than three years' continuous operation;

5. Invest more than five percent (5%) of the Fund's total assets in
securities restricted as to disposition under the federal securities
laws;

6. Invest more than ten percent (10%) of the Fund's total assets in
time deposits, repurchase agreements maturing in more than seven
days and other non-negotiable instruments;

7. Enter into repurchase agreements if, as a result thereof, more than
ten percent (10%) of the Fund's total assets valued at the time of
the transaction would be subject to repurchase agreements maturing
in more than seven days;

8. Make loans to others, except through the purchase of publicly
distributed debt obligations or repurchase agreements;

9. Borrow money, except from a bank or affiliates of SAFECO Corporation
at an interest rate not greater than that available to the Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after such
borrowing. The Fund will not purchase securities if borrowings in
excess of five percent (5%) of the Fund's total assets are
outstanding;

10. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions, or purchase or sell any put or call
options or combinations thereof;

11. Pledge, mortgage or hypothecate, or in any other manner transfer as
security for indebtedness any security owned by the Fund, except as

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<PAGE>

may be necessary in connection with permissible borrowings mentioned
in paragraph 9 above, and then such pledging, mortgaging or
hypothecating may not exceed fifteen percent (15%) of the Fund's
total assets, taken at cost; provided, however, that as a matter of
operating policy the Fund will limit any such pledging, mortgaging
or hypothecating to ten percent (10%) of its net assets, taken at
market, in order to comply with certain state investment
restrictions;

12. Purchase or retain securities of any issuer if any of the officers
or directors of the Fund or its investment adviser owns beneficially
more than one-half (1/2) of one percent (1%) of the securities of
such issuer and together own more than five percent (5%) of the
securities of such issuer;

13. Invest in commodities or commodity futures contracts or in real
estate, although the Fund may invest in securities which are secured
by real estate and securities of issuers that invest or deal in real
estate;

14. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in securities of
issuers that invest in or sponsor such programs;

15. Purchase securities of other investment companies;

16. Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities; or

17. Issue or sell any senior security, except that this restriction
shall not be construed to prohibit the Fund from borrowing funds (i)
on a temporary basis as permitted by Section 18(g) of the 1940 Act,
or (ii) from any bank provided, that immediately after such
borrowing, there is an asset coverage of at least three hundred
percent (300%) for all such borrowings and provided, further, that
in the event that such asset coverage shall at any time fall below
three hundred percent (300%), the Fund shall, within three (3) days
thereafter (not including Sundays and holidays), or such longer
period as the SEC may prescribe by rules and regulations, reduce the
amount of its borrowings to an extent that the asset coverage of
such borrowings shall be at least three hundred percent (300%) (for
purposes of this restriction, the terms "senior security" and "asset
coverage" shall be understood to have the meaning assigned to those
terms in Section 18 of the 1940 Act).

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Money Market
Fund has adopted the following non-fundamental policies which may be
changed without shareholder approval:

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<PAGE>

1. The Fund will not invest in securities with unlimited liability;
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.

2. The Fund will not buy or sell foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign securities
in the Fund's portfolio into U.S. dollars.

3. The Fund may invest up to five percent (5%) of its total assets in
restricted securities eligible for resale under Rule 144A ("Rule
144A securities") or Section 4(2) of the Securities Act of 1933
("Section 4(2) securities"), provided that SAFECO Asset Management
Company ("SAM"), the Fund's investment adviser, has determined that
such securities are liquid under guidelines adopted by the Money
Market Trust's Board of Trustees.

ADDITIONAL INVESTMENT INFORMATION

Intermediate Treasury Fund

The Intermediate Treasury Fund may make the following investments, among
others, although it may not buy all of the types of securities that are
described.

Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. To the extent privately placed

- 18 -
<PAGE>

securities are illiquid, purchases thereof will be subject to any
limitations on investments in illiquid securities. Restricted
securities for which no market exists are priced at fair value as
determined in accordance with procedures approved and periodically
reviewed by the Taxable Bond Trust's Board of Trustees.

2. Repurchase Agreements. Repurchase agreements are transactions in
which the Fund purchases securities from a bank or recognized
securities dealer and simultaneously commits to resell the
securities to the bank or dealer at an agreed upon date and price
reflecting a market rate of interest unrelated to the coupon rate or
maturity of the purchased securities. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the
date agreed to is, in effect, secured by such securities. If the
value of these securities is less than the repurchase price, plus
any agreed-upon additional amount, the other party to the agreement
must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount.

The Fund intends to enter into repurchase agreements only with banks
and dealers in transactions believed by SAM to present minimum
credit risks in accordance with guidelines established by the
Taxable Bond Trust's Board of Trustees. SAM will review and monitor
the creditworthiness of those institutions under the general
supervision of the Board of Trustees.

3. When-Issued or Delayed-Delivery Securities. Under this procedure,
the Fund agrees to acquire securities (whose terms and conditions,
including price, have been fixed by the issuer) that are to be
issued and delivered against payment in the future. Delivery of
securities so sold normally takes place 30 to 45 days (settlement
date) after the date of the commitment. No interest is earned by
the Fund prior to the settlement date. The value of securities sold
on a when-issued or delayed-delivery basis may fluctuate before the
settlement date and the Fund bears the risk of such fluctuation from
the date of purchase. The Fund may dispose of its interest in those
securities before delivery.

The Fund will commit to purchase such securities only with the
intent of actually acquiring the securities when issued. Assets
which are short-term, high-quality obligations will be earmarked in
anticipation of making payments for securities purchased on a when-
issued basis.

4. Yankee Debt Securities and Eurodollar Bonds. Yankee debt securities
are securities issued in the U.S. by foreign issuers. These bonds
involve investment risks that are different from those of domestic
issuers. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government, establishment of
controls by the foreign government that would inhibit the ability of

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<PAGE>

the issuer to make principal and interest payments to the Fund, lack
of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and auditing practices in
foreign countries and finally, difficulty in enforcing claims
against foreign issuers in the event of default.

SAM will make every effort to analyze potential investments in
foreign issuers on the same basis as the rating services analyze
domestic issuers. Because public information is not always
comparable to that available on domestic issuers, this may not be
possible. Therefore, while SAM will make every effort to select
investment in foreign securities on the same basis relative to
quality and risk as its investments in domestic securities, that may
not always be possible.

Eurodollar bonds are denominated in U.S. dollars. The Fund will
purchase Eurodollar bonds through U.S. securities dealers and hold
such bonds in the U.S. The delivery of Eurodollar bonds to the
Fund's custodian in the U.S. may cause slight delays in settlement
which are not anticipated to affect the Fund in any material,
adverse manner. Eurodollar bonds issued by foreign issuers are
subject to the same risks as Yankee sector bonds.

5. Municipal Securities. Municipal securities include obligations
issued by or on behalf of the states, territories and possessions of
the United States and the District of Columbia and their political
subdivisions, agencies, instrumentalities or authorities, the
interest on which, in the opinion of counsel to the issuer, is
exempt from federal income tax. Generally, when market interest
rates rise, the price of municipal securities will fall, and when
market interest rates fall, the price of these securities will rise.
There is also a risk that the issuer of a municipal security will
fail to make timely payments of principal and interest to the Fund.

6. Illiquid Securities. Illiquid securities are securities that cannot
be sold within seven days in the ordinary course of business for
approximately the amount at which they are valued. Due to the
absence of an active trading market, the Fund may experience
difficulty in valuing or disposing of illiquid securities. SAM
determines the liquidity of the securities under guidelines adopted
by the Taxable Bond Trust's Board of Trustees.

Managed Bond Fund

The Managed Bond Fund may make the following investments, among others,
although it may not buy all of the types of securities that are described.

1. Repurchase Agreements. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 18.

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<PAGE>

2. When-Issued or Delayed-Delivery Securities. See the description of
such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 19.

3. Yankee Debt Securities and Eurodollar Bonds. See the description of
such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 19.

4. Municipal Securities. See the description of such securities under
"Additional Investment Information -- Intermediate Treasury Fund" on
page 20.

5. Asset-backed Securities. Asset-backed securities represent
interests in, or are secured by and payable from, pools of assets
such as consumer loans, automobile receivable securities, credit
card receivable securities, and installment loan contracts. The
assets underlying the securities are securitized through the use of
trusts and special purpose corporations. These securities may be
supported by credit enhancements such as letters of credit. Payment
of interest and principal ultimately depends upon borrowers paying
the underlying loans. Repossessed collateral may be unavailable or
inadequate to support payments on defaulted asset-backed securities.
In addition, asset-backed securities are subject to prepayment risks
which may reduce the overall return of the investment.

Automobile receivable securities represent undivided fractional
interests in a trust whose assets consist of a pool of automobile
retail installment sales contracts and security interests in
vehicles securing the contracts. Payments of principal and interest
on the certificates issued by the automobile receivable trust are
passed through periodically to certificate holders and are generally
guaranteed up to specified amounts by a letter of credit issued by a
financial institution. Certificate holders may experience delays in
payments or losses if the full amounts due on the underlying
installment sales contracts are not realized by the trust because of
factors such as unanticipated legal or administrative costs of
enforcing the contracts, or depreciation, damage or loss of the
vehicles securing the contracts.

Credit card receivable securities are backed by receivables from
revolving credit card accounts. Certificates issued by credit card
receivable trusts generally are pass-through securities.
Competitive and general economic factors and an accelerated
cardholder payment rate can adversely affect the rate at which new
receivables are credited to an account, potentially shortening the
expected weighted average life of the credit card receivable
security and reducing its yield. Credit card accounts are unsecured
obligations of the cardholder.

- 21 -
<PAGE>

6. Zero Coupon Bonds. Zero coupon bonds do not make interest payments;
instead they are sold at a deep discount from their face value and
are redeemed at face value when they mature. Because zero coupon
bonds to not pay current income, their prices can be very volatile
when interest rates change. In calculating its dividends, the
Managed Bond Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face
value.

The Federal Reserve Bank creates STRIPS (Separate Trading of
Registered Interest and Principal of Securities) by separating the
interest and principal components of an outstanding U.S. Treasury
bond and selling them as individual securities.

Tax-Exempt Fixed Income Funds

The Tax-Exempt Fixed Income Funds may make the following investments,
among others, although they may not buy all of the types of securities
that are described.

1. Repurchase Agreements. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 18.

2. When-Issued or Delayed-Delivery Securities. Under this procedure,
the Fund agrees to acquire securities (whose terms and conditions,
including price, have been fixed by the issuer) that are to be
issued and delivered against payment in the future. Delivery of
securities so sold normally takes place 30 to 45 days (settlement
date) after the date of the commitment. No interest is earned by
the Fund prior to the settlement date. The value of securities sold
on a when-issued or delayed-delivery basis may fluctuate before the
settlement date and the Fund bears the risk of such fluctuation from
the date of purchase. The Fund may dispose of its interest in those
securities before delivery.

3. Illiquid Securities. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 20.

Money Market Fund

The Money Market Fund may make the following investments, among others,
although it may not buy all of the types of securities that are described.

1. Quality and Maturity. Pursuant to procedures adopted by the Money
Market Trust's Board of Trustees, the Fund may purchase only high-
quality securities that SAM believes present minimal credit risks.
To be considered high quality, a security must be rated, or the
issuer must have received a rating for a comparable short-term
security, in accordance with applicable rules in one of the two
highest categories for short-term securities by at least two

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<PAGE>

nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of
equivalent quality by SAM.

High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in
the highest rating category (e.g., A-1 by S&P) and second tier
securities are those deemed to be in the second highest rating
category (e.g., A-2 by S&P).

The Fund may not invest more than five percent (5%) of its total
assets in second tier securities. In addition, the Fund may not
invest more than one percent (1%) of its total assets or $1 million
(whichever is greater) in the second tier securities of a single
issuer.

The Fund currently intends to limit its investments to securities
with remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When
determining the maturity of a security, the Fund may look to an
interest rate reset or demand feature.

A security is considered to be rated if either the security itself
is assigned a rating or the issuer is assigned a rating for
comparable short-term debt obligations. Alternatively, a security
(whether or not rated) with an unconditional demand feature (as
defined in Rule 2a-7 under the 1940 Act) may be considered to be
rated if the demand feature or its issuer has been assigned a
rating. See "Description of Ratings" on page 63 for further
explanation of rating categories.

2. Restricted Securities and Rule 144A Securities. See the description
of such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 18.

3. Variable and Floating Rate Instruments. Certain municipal
obligations may carry variable or floating rates of interest.
Variable rate instruments bear interest at rates that are readjusted
at periodic intervals so as to cause the instruments' market value
to approximate their par value. Floating rate instruments bear
interest at rates which vary automatically with changes in specified
market rates or indices, such as the bank prime rate. The Fund's
right to obtain payment at par on a demand instrument upon demand
could be affected by events occurring between the date the Fund
elects to redeem the instrument and the date redemption proceeds are
due which affect the ability of the issuer to pay the instrument at
par value.

4. Term Put Bonds. Term put bonds are variable rate obligations which
have a maturity in excess of one year with the option to put back
(sell back) the bonds on a specified put date. On the put date, the
interest rate of the bond is reset according to current market

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<PAGE>

conditions and accrues at the reset rate until the next put date.
The Fund may also hold mandatory put bonds. Mandatory put bonds
require the holder to take certain action to retain the bonds. Put
bonds are generally credit-enhanced by collateral, guaranteed
investment contracts, surety bonds, a letter of credit or insurance
which guarantees the payment of principal and interest.

5. Illiquid Securities. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 22.

6. Foreign Issuers. Obligations of foreign issuers involve certain
additional risks. These risks may include future unfavorable
political and economic developments, withholding taxes, seizures of
foreign deposits, currency controls, interest limitations, or other
governmental restrictions that might affect payment of principal or
interest. Additionally, there may be less public information
available about foreign banks and their branches. Foreign issuers
may be subject to less governmental regulation and supervision than
U.S. issuers. Foreign issuers also generally are not bound by
uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.

7. Securities Issued by Banks and Other Issuers. Investments may be
made in U.S. dollar-denominated time deposits, certificates of
deposit, and bankers' acceptances of U.S. banks and their branches
located outside of the United States, U.S. branches and agencies of
foreign banks and foreign branches of foreign banks. The Fund may
also invest in U.S. dollar-denominated securities issued or
guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign
governments, foreign government agencies or instrumentalities and
U.S. and foreign financial institutions, including savings and loan
institutions, insurance companies and mortgage bankers, as well as
banks.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulation. Payment of interest and principal on these
obligations may also be affected by governmental action in the
country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidence of ownership of portfolio
securities may be held outside of the U.S. and the Fund may be
subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and

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<PAGE>

by federal and state regulation, as well as by governmental action
in the country in which the foreign bank has its head office.

INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA FUND

The following is a condensed and general description of the judicial,
legislative and electoral proceedings affecting the taxing ability and
fiscal condition of the State of California and its various political
subdivisions which have occurred since June 1978. All of these
proceedings affect the continuing ability of California political
subdivisions to meet their debt service obligations. Since during normal
market conditions the Fund plans to invest at least 80% of its net assets
in bonds issued by California and its political subdivisions, the
investment risk of such concentration should be carefully considered. The
description below summarizes discussions contained in official statements
relating to various types of bonds issued by the State of California and
its political subdivisions. A more detailed description can be found in
such official statements. The California Fund has not independently
verified any of the information presented in this section.

The taxing powers of California public agencies are limited by Article
XIII A of the State Constitution, added by an initiative amendment
approved by voters on June 6, 1978, and commonly known as Proposition 13.
Article XIII A limits the maximum ad valorem tax on real property to one
percent of "full cash value" which is defined as "the County Assessor's
valuation of real property as shown on the fiscal year 1975-76 tax bill
under 'full cash value' or, thereafter, the appraised value of real
property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The full cash value may be adjusted
annually to reflect inflation at a rate not to exceed two percent per
year, or reduction in the consumer price index or comparable local data,
or declining property value caused by damage, destruction, or other
factors.

The tax rate limitation referred to above does not apply to ad valorem
taxes to pay the interest and redemption charges on any indebtedness
approved by the voters before July 1, 1978 or any bonded indebtedness for
the acquisition or improvement of real property approved by two-thirds of
the votes cast by the voters voting on the proposition. Article XIII A
also requires a two-thirds vote of the electors prior to the imposition of
any special taxes and totally precludes the imposition of any new ad
valorem taxes on real property or sales or transaction taxes on the sales
of real property. The validity of Article XIII A has been upheld by both
the California Supreme Court and the United States Supreme Court.

Legislation adopted in 1979 exempts business inventories from taxation.
However, the same legislation provides a formula for reimbursement by
California to cities and counties, special districts and school districts
for the amount of tax revenues lost by reason of such exemption or
adjusted for changes in the population and the cost of living.

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<PAGE>

Legislation adopted in 1980 provides for state reimbursements to
redevelopment agencies to replace revenues lost due to the exemption of
business inventories from taxation. Such legislation provides for
restoration of business inventory tax revenues through the annual addition
of artificial assessed value, not actually existing in a project area, to
the tax rolls of redevelopment projects. These reimbursements are
adjusted for changes in the population and the cost of living. All such
reimbursements are subject to change or repeal by the Legislature, and
they have been changed since 1980. Furthermore, current law generally
prohibits the pledging of such reimbursement revenues to secure
redevelopment agency bonds.

Redevelopment agencies in California have no power to levy and collect
taxes; hence, any decrease in property taxes or limitations in the amounts
by which property taxes may increase adversely affects such agencies,
which lack the inherent power to correct for such decreases or
limitations.

State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6,
1979, which prohibits government agencies and the State from spending
"appropriations subject to limitation" in excess of the appropriations
limit imposed. "Appropriations subject to limitation" are authorizations
to spend "proceeds of taxes", which consist of tax revenues, certain State
subventions and certain other funds, including proceeds from regulatory
licenses, user revenues, certain State subventions and certain other funds
to the extent that such proceeds exceed "the cost reasonably born by such
entity in providing the regulation, product, or service." No limit is
imposed on appropriation of funds which are not "proceeds of taxes", on
debt service or indebtedness existing or authorized by January 1, 1979, or
subsequently authorized by the voters, or appropriations required to
comply with mandates of courts or the federal government, or user charges
or fees that do not exceed the cost of the service provided, nor on
certain other non-tax funds.

By statute (which has been upheld by the California Court of Appeals), tax
revenues allocated to redevelopment agencies are not "proceeds of taxes"
within the meaning of Article XIII B, and the expenditure of such revenues
is therefore not subject to the limitations under Article XIII B.

The imposition of taxes by local agencies is further limited by the
provisions of an initiative statute ("Proposition 62") approved by the
voters on November 4, 1986. The statute (i) requires that any tax for
general governmental purposes imposed by local government entities be
approved by resolution or ordinance adopted by two-thirds vote of the
governmental entity's legislative body and by a majority vote of the
electorate of the governmental entity, (ii) requires that any special tax
(defined as a tax levied for other than general governmental purposes)
imposed by a local governmental entity be approved by a two-thirds vote of
the voters within that jurisdiction, (iii) restricts the use of revenues
from a special tax to the purposes or for the service for which the

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<PAGE>

special tax was imposed, (iv) prohibits the imposition of ad valorem taxes
on real property by local governmental entities except as permitted by
Article XIII A, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governmental entities
and (vi) requires that any tax imposed by a local governmental entity on
or after May 1, 1985 be ratified by a majority vote of the electorate
within two years of the adoption of the initiative or be terminated by
November 15, 1988.

Subsequent decisions of California Courts of Appeal held that all or
portions of the provisions of Proposition 62, including those requiring
the submission of general fund tax measures to the electorate, are
unconstitutional. However, on September 28, 1995, in the case of SANTA
CLARA COUNTY LOCAL TRANSPORTATION AUTHORITY V. GUARDINO, the California
Supreme Court upheld the constitutionality of Proposition 62. As a
result, the annual revenues of any local government or district as shown
in the general fund budget must be reduced in any year to the extent that
they rely on the proceeds of any general tax which has not been approved
by majority vote of the electorate. Senate Bill No. 1590 has been
introduced in the California Legislature in an effort to clarify whether
the general tax voter approval requirement is applicable to any tax that
was imposed or increased by an ordinance or resolution adopted prior to
December 14, 1995. If adopted, Senate Bill No. 1590 will apply the
GUARDINO decision prospectively only.

An initiative petition called the "Right to Vote on Taxes Act" is expected
to qualify for the November 5, 1996 general election ballot. If this
measure receives the requisite number of signatures for inclusion on the
ballot and if it is approved by majority vote of the electorate, it will
add Articles XIII C and XIII D to the State Constitution. The measure
requires that general tax increases by all local government entities be
approved by not less than a majority vote and that taxes for special
purposes be approved by a two-thirds vote; provides that existing language
in the California Constitution shall not be construed to limit the
initiative power with respect to reducing or repealing any local tax,
assessment, fee or charge; prescribes procedures applicable to all
assessments and requires that all assessments be approved by property
owners; prohibits property related fees and charges from exceeding costs
of the service being provided; imposes procedural requirements, including
notice and public hearing, prior to imposition of new or increased fees or
charges on property; and requires that, except for fees for sewer, water
and refuse collection, fees be approved by a majority vote of the fee
payers.

Generally, revenues derived from most utility property assessed by the
State Board of Equalization are allocated as follows: (i) each
jurisdiction, including redevelopment project areas, receives up to 102
percent of its prior year State-assessed revenue; and (ii) if countrywide
revenues generated from such utility property are less than the previous
year's revenue or greater than 102 percent of the previous year's
revenues, each jurisdiction shares the burden of the shortfall or benefit
from the excess revenues by a specified formula. This provision applies

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<PAGE>

to all utility property except railroads whose valuation will continue to
be allocated to individual tax rate areas. In a 1991 Superior Court
ruling, the valuation method used by the State Board to value unitary
utility property was declared illegal and a new method was imposed,
resulting in significantly lower values and therefore significantly
reduced property tax revenues. One of the effects of the decision was to
entitle the principal utility plaintiff to a refund of $9 million. As a
result of this case, the State Board along with certain counties signed a
settlement agreement with several affected utilities providing for an
orderly 10.5% phase-down of tax assessments over fiscal years 1992-93,
1993-94 and 1994-95.

Lease-based financing, typically marketed in the form of certificates of
participation, has been extremely popular in California, since the courts
have long held that properly structured long-term leases do not create
"indebtedness" for purposes of constitutional and statutory debt
limitations. The obligation to pay rent thereunder is nevertheless
enforceable, on an annual basis, so long as the leased property is
available for use and occupancy by the government lessee. The risk of
rent abatement (because of construction delays, damage to structures and
the like) is usually mitigated by funded reserves, casualty insurance and
rental interruption insurance.

Given the turbulent history of California electoral, judicial and legal
proceedings affecting taxation since 1978, it is impossible to predict
what proceedings might occur in the future that would affect the ability
of California and its political subdivisions to service their outstanding
indebtedness. In addition, there are both nuclear and non-nuclear
electric power authorities in California that are financed in whole or in
part by so-called "take or pay" or "hell or high water" contracts. Court
decisions outside of the State of California have called into question the
enforceability of such contracts.

The State of California recently issued general obligation bonds in March,
1996. The related Official Statement for that bond issue disclosed that
the recent recession has seriously affected State tax revenues, has caused
increased expenditures for health and welfare programs, and has caused a
structural imbalance in the State's budget, with the largest programs
supported by the General Fund -- K-12 schools and community colleges,
health and welfare, and corrections -- growing at rates higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the State has experienced recurring budget deficits and has had to
use a series of external borrowings to meet its cash needs.

The Governor's budget proposal for 1996-97 released January 10, 1996,
projects General Fund revenues and transfers in the 1995-96 fiscal year of
$45 billion (an increase of approximately $900 million over the projection
contained in the original 1995-96 Budget Act) and expenditures of $44.2
billion (an increase of approximately $800 million over the amount shown
in the original 1995-96 Budget Act). The Governor's Budget for 1996-97
estimates General Fund revenues and transfers of about $45.6 billion,

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which would leave a balance of approximately $400 million in the budget
reserve, the Special Fund for Economic Uncertainties, at June 30, 1997.

As a result of the deterioration in the State's budget and cash situation
in fiscal years 1991-92 and 1992-93, rating agencies reduced the State's
credit ratings. Between November 1991 and October 1992 the rating on the
State's general obligation bonds was reduced by Standard & Poor's Ratings
Group from "AAA" to "A+" and by Moody's Investors Service from "Aaa" to
"Aa" and by Fitch Investors Service, Inc. from "AAA" to "AA." On July 15,
1994, based on the State's inability to eliminate its accumulated deficit,
the same three rating agencies further lowered their ratings on the
State's general obligation bonds to "A," "A1" and "A", respectively. More
recently, however, Fitch Investors Service, Inc. raised its rating from
"A" to "A+." It is not possible to predict the future course of the
State's credit ratings.

On December 6, 1994, Orange County, California, together with its pooled
investment funds, filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the funds had suffered significant
market losses in their investments, causing a liquidity crisis for the
funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the funds.
As of mid-January, 1995, the County estimated the funds' loss at about
$1.69 billion, or 23% of their initial deposits of approximately $7.5
billion. Many of the entities which deposited moneys in the funds,
including the County, faced interim or extended cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. Orange County has embarked on a fiscal recovery plan
based on sharp reductions in services and personnel, and rescheduling of
outstanding short-term debt using certain new revenues transferred to
Orange County from other local governments pursuant to special legislation
approved by the bankruptcy judge on May 15, 1996. The State has no
existing obligation with respect to any outstanding obligations or
securities of Orange County or any of the other participating entities.

The Fund will attempt to achieve geographic diversification by investing
in obligations of issuers that are located in different areas within
California as well as obligations of the State of California itself. In
addition, the Fund will not invest more than 15% of its total assets in
tax allocation bonds issued by California redevelopment agencies. These
are operating policies of the Fund and may be changed without the approval
of the Fund's shareholders.

WASHINGTON FUND

Washington State

A discussion of certain economic, financial and legal matters regarding
the State of Washington follows. During normal market conditions, the
Washington Fund will generally invest at least 80% of its net assets in
bonds issued by Washington and its political subdivisions, municipalities,
agencies, instrumentalities or public authorities. Therefore, the

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investment risk of such concentration should be carefully considered. The
information in the discussion is drawn primarily from official statements
relating to securities offerings of the State which are dated prior to the
date of this Statement of Additional Information. This information may be
relevant in evaluating the economic and financial position of the State,
but is not intended to provide all relevant data necessary for a complete
evaluation of the State's economic and financial position. Discussions
regarding the financial health of the State government may not be relevant
to municipal obligations issued by a political subdivision of the State.
Furthermore, general economic conditions discussed may or may not affect
issuers of the obligations of the State. The Washington Fund has not
independently verified any of the information presented in this section.

General Information

According to the U.S. Census Bureau's 1990 Census, Washington State's
population is ranked 18th of the 50 states. During the ten-year time
period from 1980-1990, the State's population increased at an average
annual rate of 1.8%, while the U.S. population grew at an average annual
rate of 1.1%. The State's population increased at an average annual rate
of approximately 2.5% 1990 to 1993, and at an average annual rate of
approximately 1.8% from 1993 to 1995.

The State's largest city, Seattle, is part of an international trade,
manufacturing, high technology and business service corridor which extends
along Puget Sound from Everett to Tacoma. The State's Pacific Coast-Puget
Sound region includes 75% of its population, the major portion of its
industrial activity and the major part of the forests important to its
timber and paper industries. The remainder of the State has agricultural
areas primarily devoted to grain, fruit orchard and dairy operations.

The State's economy has recently diversified with employment in the trade
and service sectors representing an increasing portion of total employment
relative to the manufacturing sector. The rate of economic growth as
measured by employment in the State was 2.0% in 1992, 1.3% in 1993, 2.3%
in 1994 and 2.1% in 1995.

The State operates on a July 1 to June 30 fiscal year and on a biennial
budget basis. Fiscal controls are exercised during the biennium through
an allotment process which requires each agency to submit a monthly
expenditure plan. The plan must be approved by the Office of Financial
Management, which is the Governor's budget agency. It provides the
authority for agencies to spend funds within statutory maximums specified
in a legislatively adopted budget. State law requires a balanced biennial
budget. Whenever it appears that disbursements will exceed the aggregate
of estimated receipts plus beginning cash surplus, the Governor is
required to reduce allotments, thereby reducing expenditures of
appropriated funds.

As interpreted by the State Supreme Court, Washington's Constitution
prohibits the imposition of net income taxes.

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The State's tax revenues are primarily comprised of excise and ad valorem
taxes. By constitutional provision, the aggregate of all regular (unvoted)
tax levies on real and personal property by state and local taxing
districts cannot exceed 1% of the true and fair value of the property.
Excess levies are subject to voter approval. For the fiscal year ending
June 30, 1995, approximately 78.5% of the State's tax revenues came from
general and selective sales and gross receipts taxes, of which the retail
sales tax and its companion use tax represented 46% of total collections.
Business and occupation tax collections represented about 16.6% and the
motor vehicle fuel tax represented approximately 7.0% of total State taxes
for the year. Ad valorem taxes represented 10.8% of State revenues for the
fiscal year 1995.

Expenditures of State revenues are made in accordance with constitutional
and statutory mandates.

State Expenditure Limitations

Initiative 601, which passed by the voters in November 1993, limits
increases in General Fund-State government expenditures to the average
rate of population and inflation growth, and sets forth a series of
guidelines for limiting tax and expenditure increases and stabilizing long
range budget planning.

Provisions of Initiative 601 establish a procedure for computing a fiscal
year growth factor based on a lagged, three-year average of population and
inflation growth. This growth factor is used to determine a state
spending limit for programs and expenditures supported by the State
General Fund. The growth factor is 5.13% for fiscal year 1996 and 4.47%
for fiscal year 1997. The initiative creates two new reserve funds (the
Emergency Reserve Fund and the Education Construction Fund) for depositing
revenues in excess of the spending limit and abolishes the current Budget
Stabilization Account. Ending balances in the Budget Stabilization
Account were transferred to the State General Fund ($100 million) and the
Pension Reserve Account ($25 million). The initiative also places
restrictions on the addition or transfer of functions to local government
unless there is reimbursement by the State.

The Initiative's requirement for voter approval for new tax measures has
expired. Effective July 1, 1995, taxes can be enacted with a two-thirds
majority of both houses of the State Legislature if resulting General
Fund-State expenditures do not exceed the spending limit. Voter approval
is still required to exceed the spending limit. Thus far, the Initiative
has not had a restrictive impact on the State's budget. However, the
State expects its expenditures to be constrained by the Initiative
beginning in the 1997-99 Biennium.

The State Constitution and enabling statutes authorize the incurrence of
State general obligation debt to the payment of which the State's full
faith and credit and taxing power are pledged. With certain exceptions,
the amount of State general obligation debt which may be incurred is
limited by constitutional and statutory restrictions. These limitations

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<PAGE>

are imposed by prohibiting the issuance of new debt if the new debt would
cause the maximum annual debt service on all thereafter outstanding
general obligation debt to exceed a specified percentage of the arithmetic
mean of general State revenues for the preceding three years. These
limitations apply to the incurrence of new debt and are not limitations on
the amount of debt service which may be paid by the State in future years.

The State Legislature is obligated to appropriate money for State debt
service
requirements. Generally, on or before June 30 of each year, the State
Finance Committee certifies to the State Treasurer the amount required for
payment of bond interest and principal for the coming year. Some general
obligation bond statutes provide that the General Fund will be reimbursed
from discrete revenues which are not considered general State revenues.
Other bonds are limited obligation bonds not payable from the General
Fund. For the 1995-97 Biennium, General Fund-State revenues are projected
to be $17.395 billion, an increase of 4.5% over the 1993-95 Biennium, plus
a carry-forward of $559 million. The revenue outlook for the 1995-97
Biennium is stable and the General Fund is projected to end the Biennium
with a $341 million fund balance.

The State Legislature passed a 1993-95 Biennium Budget on May 6, 1993, and
the Governor signed the budget bill on May 28, 1993. The 1993-95 Biennium
Budget contained $650 million in general tax increases, $163 million in
other revenues, $700 million in program and administrative reductions, and
$622 million in fund shifts (such as to federal funding sources). The
1994 Supplemental Budget passed the State Legislature on March 14, 1994,
and the Governor signed the Supplemental Budget bill on April 6, 1994.
The 1994 Supplemental Budget included $48 million in tax cuts, an $11
million revenue increase from a variety of sources and $168 million in
additional expenditures, many of which represented one time investments.

The 1995 Supplemental Budget passed the State Legislature on May 1, 1995
and was signed by Governor Lowry on May 9, 1995. The 1995 Supplemental
Budget made adjustments to expenditure authority for State agencies for
the last quarter of the Biennium. These budget adjustments reflected the
most recent enrollment and caseload estimates and addressed significant
unexpected expenses, including extraordinary costs of $47 million incurred
in one of the worst forest fire years since 1970. The 1995 Legislature
also appropriated $110 million from the General Fund to provide school
construction funding in the K-12 system. Overall, the 1995 Supplemental
Budget expenditure adjustments and other 1993-95 appropriation bills in
the 1995 Legislative session increased expenditures by $114.5 million.

During the 1995 legislative session, Governor Lowry vetoed two bills that
would have cut taxes: House Bill 1997, an ongoing property tax bill that
would cost $92 million in the 1995-97 budget period and House bill 1023,
which would roll back business and occupation taxes, along with several
other taxes, by $176.3 million in the 1995-97 Biennium.

For most municipalities in the State, the fiscal year is the calendar year
except that school districts have a September 1 - August 31 fiscal year.

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<PAGE>

All municipalities must maintain balanced budgets. Depending on the type
of municipality, local revenues are derived from ad valorem taxes, excise
and gross receipts taxes, special assessments, fees, user charges and
State and federal grants.

Municipalities incur debt by the issuance of general obligations or other
borrowings which are payable from taxes, though other revenue sources may
be used. Revenue obligations do not constitute debt under constitutional
and statutory limitations as long as taxes are not pledged or used to pay
debt service. Only non-tax revenue from the operation of a project or
enterprise financed by the revenue obligations (and sometimes special
assessments on property benefitted from the financed improvements) may be
used to pay that debt service. Usually, revenue bonds are secured by a
reserve funded in an amount based on a factor of debt service. Many
municipalities may issue improvement district obligations payable only
from special assessments on benefitted property, but some of those
obligations also may be secured by a special guaranty fund.

Economic Overview

Over the past few years, the State's economic performance has remained
relatively strong compared to the U.S. as a whole. After adjusting for
inflation, growth in personal income in
the State increased 3.7% in 1995 over the 1994 level.

The State's economic base includes manufacturing and service industries as
well as agricultural and timber production. During 1990-1995, the State
experienced growth in non-manufacturing industries and a decline in
manufacturing industries. The rate of employment growth, which exceeded
4.5% during the mid-to-late 1980's, has declined since 1991 to an average
rate of 1.4%. The 1996 employment growth rate is expected to be 1.46%.

Washington's economy consists of both export and local industries. Leading
export industries are aerospace, forest products, agriculture and food
processing. The aerospace, timber and food processing industries together
employ approximately 9% of the State's non-farm workers. However, the non-
manufacturing sector has played an increasingly significant role in
contributing to the State's economy in recent years.

Below is a summary of key industry segments of the State's economy as well
as of selected economic and employment data.

Manufacturing. The Boeing Company ("Boeing"), which is the Seattle
Metropolitan Area's largest employer, has several facilities located
throughout the area. Boeing is the world's leading manufacturer of
commercial airliners and as of April 1996 employed approximately 74,000
people state-wide, primarily at several locations in the area. Boeing
anticipates bringing total employment in the State to approximately 78,500

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by the end of 1996. While the primary activity of Boeing is the
manufacture of commercial aircraft, Boeing has played leading roles in the
aerospace and military missile programs of the U.S. and has undertaken a
broad program of diversification activities including Boeing Information
and Support Services. In 1995, Boeing had $19.5 billion in sales and net
earnings of $393 million, and a backlog of orders totaling $72.3 billion.
Boeing currently anticipates 1996 sales to be in the $22 billion range.

Boeing recently completed two major expansion projects and is currently
undertaking another. The company recently acquired a 212-acre site in
Renton (King County), which is the site of the former Longacres Race
Track. The site will be used as a location for the development of an
office complex, the first building of which will be a 500,000 square-foot
customer service training center. In Everett (Snohomish County), Boeing
completed construction of a 5.6 million square-foot assembly plant for the
new 777 jetliner. In 1993, Boeing completed a $400 million skin and spar
plant and a composite manufacturing center on 500 acres in Puyallup
(Pierce County).

A total of 206 commercial jet transports were delivered in 1995, compared
with 270 for 1994. Defense and space sales of $5.6 billion were
approximately 10% higher than in 1994. The 10-week strike by the
International Association of Machinist and Aerospace Workers (IAM)
resulted in the delay of approximately 30 commercial jet transport
deliveries during the fourth quarter. During the first quarter of 1996,
deliveries for all models were hampered by the strike. A total of 40
commercial jet transports were delivered, compared with 59 in the first
quarter of 1995.

Technology-Related Industries. The State ranks fourth among all states in
the percentage of its work force employed by technology-related
industries. It ranks third among the largest software development
centers. The State is the home of approximately 1000 advanced technology
firms of which approximately 50% are computer-related. Microsoft,
headquartered in Redmond, Washington, is the largest microcomputer
software company in the world. In addition, several biotechnical firms
located in the State have attained international acclaim for their
research and development.

Timber. Natural forests cover more than 40% of the State's land area and
forest products rank second behind aerospace in terms of total production.
The primary employer in the timber industry is The Weyerhaeuser Company.
Productivity in the State's forest products industry increased steadily
from 1980 to 1990. However, since 1991, recessionary influences have
resulted in a production decline. A slight decline is anticipated for
1996 and for the next few years, due to federally-imposed limitations on
the harvest of old-growth timber and the inability to maintain the
previous record levels of production increases. Although a continued
decline in employment is anticipated for 1996 in certain regions, the
impact is not expected to affect materially the State's overall economic
performance.

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<PAGE>

Agriculture and Food Processing. Agriculture and food processing is the
State's most important industry by most measures. Growth in agricultural
products was an integral factor in the State's economic growth in the late
1980s and early 1990s.

Finance, Insurance and Real Estate. Employment in finance, insurance and
real estate is estimated to represent 5.2% of the State's wage and salary
employment in 1995. Projections for 1996 show this segment holding steady
at 5.2% of employment.

Trade. International trade plays an important role in the State's
employment base and one in six jobs is related to this area. During the
past twenty years the State has consistently ranked number one or number
two in international exports per capita. Seattle-Tacoma International
Airport is the focus of the region's air traffic and trade. The State,
particularly the Puget Sound Corridor, is a trade center for the Northwest
and the State of Alaska. A system of public ports, the largest of which
are the Ports of Seattle and Tacoma, handle waterborne trade primarily to
and from the Far East. These two Ports each rank among the top 20 ports
in the world based on volume of containerized cargo shipped.
Approximately 70% of the cargo entering the Ports of Seattle and Tacoma
has an ultimate destination outside the Pacific Northwest. Therefore,
trade levels depend largely on national and world, rather than local,
economic conditions.

Growth in retail sales in the State between 1990 and 1992 was higher than
that in the United States. During 1993 through 1995, the rate of growth
for retail sales was lower for the State than for the United States. The
State is home to a number of specialty retail companies that have reached
national stature, including Nordstrom, Eddie Bauer, Costco and
Recreational Equipment Inc. (REI).

Services/Tourism. The highest employment growth in the State since 1981
has taken place in the services sector, although rate of growth has shown
small but relatively consistent decline since 1990 from 7% to 4.3%%
forecast for 1995. Seattle is the location for the Washington State
Convention and Trade Center which opened in June 1988. The State also has
many tourist attractions such as the Olympic and Cascade mountain ranges,
ocean beaches and local wineries.

Construction. Employment in the construction sector in the Puget Sound
area increased 69.2% between 1981 and 1991. The increase in employment in
the late 1980s was due in part to the affordability of housing compared to
other areas of the country. Construction employment growth flattened
between 1991 and 1993, but showed a modest increase in 1994 and leveled
again in 1995. Commercial building, while not increasing at the pace of
the 1980s, remains stable.

Federal, State and Local Government. Employment in the government sector
represents approximately 19% of all wage and salary employment in the
State on a combined basis. Seattle is the regional headquarters for a
number of federal government agencies and the State receives an above-

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average share of defense expenditures. Employment in the government
sector has expanded in the State since 1990, but at a declining rate.
State and local government employment has increased at a faster pace than
employment by the federal government, and is projected to add new jobs
through 1996.

Litigation

At any given time, including the present, there are numerous lawsuits
pending against the State of Washington which could affect the State's
revenues and expenditures. However, none of the lawsuits are expected to
have a material adverse impact on either State revenues or expenditures.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

Intermediate Treasury Fund

At September 13, 1996, SAFECO Insurance Company of America ("SAFECO
Insurance") owned 500,000 shares of the Intermediate Treasury Fund which
represented 35.0% of the outstanding shares of the Fund. SAFECO Insurance
is a Washington Corporation and a wholly-owned subsidiary of SAFECO
Corporation, each of which has its principal place of business at SAFECO
Plaza, Seattle, Washington 98185.

Managed Bond Fund

At September 13, 1996, Principal Shareholders of the Managed Bond Fund
were as follows. Crista Ministries, PO Box 330303, Seattle, WA 98133,
owned 91,375 shares, which represented 18.4% of the Fund's outstanding
shares. Massman Construction Co. PSRT, 8901 Stateline, Kansas City, MO
64114, owned 233,262 shares, which represented 47.0% of the Fund's
outstanding shares. Crown Packaging Corp. PS&P, 8514 Eager Road, St.
Louis, MO 63144, owned 155,933 shares, which represented 31.4% of the
Fund's outstanding shares.

Washington Fund

At June 30, 1996, SAFECO Insurance owned 502,372 shares, which represents
79.6% of the outstanding shares of the Washington Fund. SAFECO is a
wholly-owned subsidiary of SAFECO Corporation, a Washington corporation,
having its principal place of business at SAFECO Plaza, Seattle Washington
98185.

Principal shareholders of a Fund may control the outcome of a shareholder
vote.

ADDITIONAL TAX INFORMATION

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<PAGE>

General

Each Fund is treated as a separate corporation for federal income tax
purposes.

Special Considerations for the Tax-Exempt Fixed Income Funds

The tax-exempt interest portion of each daily dividend will be based upon
the ratio of a Tax-Exempt Fixed Income Fund's tax-exempt to taxable income
for the entire fiscal year (average annual method). As a result, the
percentage of tax-exempt income for any particular distribution may be
substantially different from the percentage of a Tax-Exempt Fixed Income
Fund's income that was tax-exempt during the period covered by that

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<PAGE>

distribution. Each Tax-Exempt Fixed Income Fund will advise its
shareholders of this ratio within 60 days after the close of its fiscal
year.

Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of a Tax-Exempt Fixed Income Fund is not
deductible. In addition, entities or persons who are "substantial users"
(or related persons) of facilities financed by most "private activity"
bonds should consult their tax advisers before purchasing shares of any of
the Tax-Exempt Fixed Income Funds. "Substantial user" is generally
defined to include a "non-exempt person" who regularly uses in a trade or
business a part of a facility financed from the proceeds of most "private
activity" bonds.

Each Tax-Exempt Fixed Income Fund may invest in municipal bonds that are
purchased, generally not on their original issue, with market discount
(that is, at a price less than the principal amount of the bond or, in the
case of a bond that was issued with original issue discount, at a price
less than the amount of the issue price plus accrued original issue
discount) ("municipal market discount bonds"). Gain on the disposition of
a municipal market discount bond (other than a bond with a fixed maturity
date within one year from its issuance), generally is treated as ordinary
(taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on
such a bond generally is accrued ratably, on a daily basis, over the
period from the acquisition date to the date of maturity. In lieu of
treating the disposition gain as above, a Tax-Exempt Fixed Income Fund may
elect to include market discount in its gross income currently, for each
taxable year to which it is attributable.

Each Tax-Exempt Fixed Income Fund will be subject to a nondeductible 4%
excise tax to the extent it fails to distribute by the end of any calendar
year substantially all of its ordinary income for that year and capital
gain net income for the one-year period ending on November 30 of that
year, plus certain other amounts.

No portion of the dividends or other distributions paid by any Tax-Exempt
Fixed Income Fund is eligible for the dividends-received deduction allowed
to corporations.

In the future, proposals may be introduced before Congress for the purpose
of further restricting or even eliminating the federal income tax
exemption for interest on all or certain types of municipal obligations.
If such a proposal were enacted, the availability of municipal obligations
for investment by each Tax-Exempt Fixed Income Fund and the value of each
Tax-Exempt Fixed Income Fund's portfolio would be affected. In such
event, each Tax-Exempt Fixed Income Fund would review its investment
objectives and policies.

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<PAGE>

CONVERSION OF ADVISOR CLASS B SHARES

Advisor Class B shares of a Fund will automatically convert to Advisor
Class A shares of that Fund, based on the relative net asset values per
share ("NAVs") of the Classes, within the first month following the
investor's sixth anniversary from purchase of such Advisor Class B shares.
For the purpose of calculating the holding period required for conversion
of Advisor Class B shares of each Fund except the Money Market Fund, the
date of purchase shall mean (1) the date on which such Advisor Class B
shares were purchased, or (2) for Advisor Class B shares obtained through
an exchange, or a series of exchanges, the date on which the original
Advisor Class B shares were purchased. For the purpose of calculating the
holding period required for conversion of Advisor Class B shares of the
Money Market Fund, the date of purchase shall mean the date on which those
shares were first exchanged for Advisor Class B shares of any other SAFECO
Fund. Holders of Class B shares of the SAFECO Advisor Series Trust
("Advisor Series Shares") who have converted those shares to Advisor Class
B shares may calculate the holding period from the date of the purchase of
the Advisor Series Shares.

For purposes of conversion to Advisor Class A shares, Advisor Class B
shares purchased through the reinvestment of dividends and other
distributions paid in respect of Advisor Class B shares will be held in a
separate sub-account; each time any Advisor Class B shares in the
shareholder's regular account (other than those in the sub-account)
convert to Advisor Class A shares, a pro rata portion of the Advisor Class
B shares in the sub-account will also convert to Advisor Class A shares.
The portion will be determined by the ratio that the shareholder's Advisor
Class B shares converting to Advisor Class A shares bears to the
shareholder's total Advisor Class B shares not acquired through dividends
and other distributions.

ADDITIONAL INFORMATION ON CALCULATION OF
NET ASSET VALUE PER SHARE

Each Fund determines its NAV by subtracting its liabilities (including
accrued expenses and dividends payable) from its total assets (the market
value of the securities the Fund holds plus cash and other assets,
including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAVs of the Advisor
Classes of each Fund are calculated as of the close of regular trading on
the New York Stock Exchange ("Exchange") every day the Exchange is open
for trading. The Exchange is closed on the following days: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. NAV is determined separately for
each class of shares of each Fund.

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<PAGE>

Short-term debt securities held in a Fund's portfolio having a remaining
maturity of less than 60 days when purchased and securities originally
purchased with maturities in excess of 60 days, but which currently have
maturities of 60 days or less, may be valued at cost adjusted for
amortization of premiums or accrual of discounts if in the judgment of
each Board of Trustees such methods of valuation are appropriate or under
such other methods as a Board of Trustees may from time to time deem to be
appropriate. The cost of those securities that had original maturities in
excess of 60 days shall be determined by their fair market value as of the
61st day prior to maturity. All other securities and assets in the
portfolio will be appraised in accordance with those procedures
established by each Board of Trustees in good faith in computing the fair
market value of those assets.

The portfolio instruments of the Money Market Fund are valued on the basis
of amortized cost. The valuation of the Money Market Fund's portfolio
securities based upon amortized cost, and the maintenance of the Money
Market Fund's NAV at $1.00, are permitted pursuant to Rule 2a-7 under the
1940 Act. Pursuant to that rule, the Money Market Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less, purchases
only securities having remaining maturities of 397 days or less, and
invests only in securities determined by SAM, under guidelines adopted by
the Money Market Trust's Board of Trustees, to be of high quality and to
present minimal credit risks. The Board of Trustees has established
procedures designed to stabilize, to the extent reasonably possible, the
Money Market Fund's price-per-share as computed for the purpose of sales
and redemptions at $1.00. These procedures include a review of the Money
Market Fund's portfolio holdings by the Board of Trustees, at such
intervals as the Board deems appropriate, to determine whether the Fund's
NAV, calculated by using available market quotations, deviates from $1.00
per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders of the Money
Market Fund. In the event the Board determines that such a deviation
exists in the Fund, the Trustees will take such corrective action with
respect to the Money Market Fund as they regard as necessary and
appropriate, including, but not limited to: selling portfolio investments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends or redeeming shares in kind,
establishing the NAV by using available market quotations.

ADDITIONAL PERFORMANCE INFORMATION

Effective September 30, 1996, all of the then-existing shares of each Fund
were redesignated No-Load Class shares and each Fund commenced offering
Advisor Class A and Advisor Class B shares.

Yields for the Intermediate Treasury, Managed Bond, and Tax-Exempt Fixed
Income Funds.

The yield and total return calculations set forth below are for the dates
indicated and are not a prediction of future results. The performance

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<PAGE>

information that follows is based on the original shares of each Fund.
The performance figures quoted reflect applicable Advisor Class Rule 12b-1
fees.

The yields for the Advisor Classes of the Intermediate Treasury Fund for
the 30-day period ended September 30, 1995 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------
Intermediate Treasury Fund 4.92% 4.41%

The yields for the Advisor Classes of the Intermediate Treasury Fund for
the 30-day period ended March 31, 1996 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------

Intermediate Treasury Fund 4.03% 3.47%

The yields for the Advisor Classes of the Managed Bond Fund for the 30-day
period ended December 31, 1995 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------

Managed Bond Fund 4.32% 3.78%

The yields for the Advisor Classes of the Managed Bond Fund for the 30-day
period ended June 30, 1996 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------
Managed Bond Fund 4.78% 4.02%

The yields and tax-equivalent yields for the 30-day period ending
March 31, 1996 at the maximum federal tax rate of 39.6% for the Advisor
Classes of the Municipal, California, and Washington Funds and at the
maximum combined federal and California tax rates of 46.2% for the Advisor
Classes of the California Fund, would have been as follows:

- 41 -
<PAGE>

Advisor Class A Advisor Class B
--------------- ---------------
Tax-equivalent Tax-equivalent
Yield Yield Yield Yield
----- ------------- ----- -------------

<S> <C> <C> <C> <C>
Municipal Fund 4.59% 7.60% 4.06% 6.72%

California Fund 4.57% 8.49% 4.04% 7.51%
Washington Fund 4.17% 6.90% 3.62% 5.99%

</TABLE>

Yield is computed using the following formula:

ab 6
Yield = 2[(---- +1) -1]
cd

Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period

Tax-equivalent yield is computed using the following formula:

eg
Tax-equivalent yield = [-----] + [e(1-g)]
(1-f)

Where: e = yield as calculated above
f = tax rate

g = percentage of "yield" which is tax-free

- 42 -
<PAGE>

Yield for the Money Market Fund

The yields and effective yields for the Advisor Classes of the Money
Market Fund for the 7-day period ended March 31, 1996 would have been as
follows:

Advisor Class A Advisor Class B
--------------- ---------------
Yield Effective Yield Yield Effective Yield
----- --------------- ----- ---------------

<S> <C> <C> <C> <C>
Money Market Fund 4.60% 4.70% 4.60% 4.70%

</TABLE>

Yield is computed using the following formula:

(x-y) - z 365
Yield = [--------] = Base Period Return x -----
y 7

Where: x = value of one share at the end of a 7-day period
y = value of one share at the beginning of a 7-day
period ($1.00)

z = capital changes during the 7-day period, if
any

Effective yield is computed using the following formula:

Effective yield = [(Base Period Return + 1) 365/7] -1

During periods of declining interest rates, the Money Market Fund's yield
based on amortized cost may be higher than the yield based on market
valuations. Under these circumstances, a shareholder in the Money Market
Fund would be able to obtain a somewhat higher yield than would result if
the Money Market Fund utilized market valuations to determine its NAV.
The converse would apply in a period of rising interest rates.

Total Return and Average Annual Total Return for the Intermediate
Treasury, Managed Bond, and Tax-Exempt Fixed Income Funds.

The performance information that follows is based on the original shares
of each Fund, recalculated to reflect the sales charges of the Advisor

- 43 -
<PAGE>

Classes. The performance figures quoted do not reflect any applicable
Advisor Class Rule 12b-1 fees, which if reflected would cause the
performance figures to be lower than those indicated.

The total returns for the Advisor Classes of the Intermediate Treasury
Fund for the one-year, five-year and since initial public offering periods
ending September 30, 1995 would have been as follows:

Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
------ ------- -------- ------ --------
Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
----- ----- ----- ----- ----- -----

<S>
Intermediate <C> <C> <C> <C> <C> <C> <C> <C>
Treasury Fund 6.07% 6.07% 41.06% 45.70% 62.78% 70.45% 84 September 7, 1988

</TABLE>

The total returns for the Advisor Classes of the Intermediate Treasury
Fund for the one-year, five-year and since initial public offering periods
ending March 31, 1996 would have been as follows:

Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
------ ------- -------- ------ --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
----- ----- ----- ----- ----- -----
<S>
Intermediate <C> <C> <C> <C> <C> <C>
Treasury Fund 4.65% 4.58% 36.89% 41.34% 66.08% 73.91% 90 September 7, 1988

</TABLE>

The total returns for the Advisor Classes of the Managed Bond Fund for the
period from February 28, 1994 (initial public offering) through December
31, 1995, would have been as follows:

<TABLE>

- 44 -
<PAGE>

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ -------- ------ --------
Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
----- ----- ----- -----

<S>
Managed Bond <C> <C> <C> <C> <C> <C>
Fund 12.07% 12.35% 8.70% 9.82% 22 February 28, 1994

</TABLE>

The total returns for the Adviser Classes of the Managed Bond Fund for the
period from February 28, 1994 (initial public offering) through June 30,
1996, would have been as follows:

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ -------- ------ --------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
----- ----- ----- -----
<S>
Managed Bond <C> <C> <C> <C> <C> <C>
Fund -0.21% -0.51% 5.93% 7.92% 28 February 28, 1994

</TABLE>

The total returns for the Advisor Classes of the Municipal and California
Funds for the one-year, five-year and ten-year periods ending March 31,
1996 would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

- 45 -
<PAGE>

<S> <C> <C> <C> <C> <C> <C>
Municipal Fund 3.36% 3.23% 40.84% 45.47% 110.25% 120.16%

California
Fund 3.97% 3.87% 41.43% 46.09% 104.10% 113.72%

</TABLE>

The total returns for the Advisor Classes of the Washington Fund for the
one-year period (and since inception) ended March 31, 1996 would have been
as follows:

Since Initial Effective Date
1 Year (36 Months)
------ -----------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

<S> <C> <C> <C> <C>
Washington Fund 2.88% 2.73% 10.97% 13.20%

</TABLE>

The average annual total returns for the Advisor Classes of the
Intermediate Treasury Fund for the one-year, five-year and since initial
public offering periods ended September 30, 1995 would have been as
follows:

<S>
Intermediate <C> <C> <C> <C> <C> <C> <C> <C>
Treasury Fund 6.07% 6.07% 7.12% 7.82% 7.21% 7.92% 84 September 7, 1988

</TABLE>

- 46 -
<PAGE>

The average annual total returns for the Advisor Classes of the
Intermediate Treasury Fund for the one-year, five-year and since initial
public offering period ended March 31, 1996 would have been as follows:

<S>
Intermediate <C> <C> <C> <C> <C> <C> <C> <C>
Treasury Fund 4.65% 4.58% 6.48% 7.17% 7.00% 7.66% 90 September 7, 1988

</TABLE>

The average annual total returns for the Advisor Classes of the Managed
Bond Fund for the period from February 28, 1994 (initial public offering)
through December 31, 1995 would have been as follows:

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ --------------- ------ ---------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------
<S>
Managed Bond <C> <C> <C> <C> <C> <C>
Fund 12.07% 12.35% 4.66% 5.24% 22 February 28, 1994

</TABLE>

The average annual total returns for the Advisor Classes of the Managed
Bond Fund for the period from February 28, 1994 (initial public offering)
through June 30, 1996 would have been as follows:

- 47 -
<PAGE>

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ --------------- ------ ---------------
Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

<S>
Managed Bond <C> <C> <C> <C> <C> <C>
Fund -0.21% -0.51% 2.50% 3.32% 28 February 28, 1994

</TABLE>

The average annual total returns for the Advisor Classes of the Municipal
and California Funds for the one-year, five-year and ten-year periods
ending March 31, 1996 would have been as follows:

1 Year 5 Years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S>
Municipal <C> <C> <C> <C> <C> <C>
Fund 3.36% 3.23% 7.09% 7.78% 7.71% 8.21%

California
Fund 3.97% 3.87% 7.18% 7.88% 7.39% 7.89%

</TABLE>

The average annual total returns for the Advisor Classes of the Washington
Fund for the one-year period (and since inception) ended March 31, 1996
would have been as follows:

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ --------------- ------ ---------------

- 48 -
<PAGE>

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

<S>
Washington <C> <C> <C> <C> <C> <C>
Fund 2.88% 2.73% 3.53% 4.22% 36 March 18, 1993

</TABLE>

The total return is computed using the following formula:

ERV-P
T = [ ----- ] x 100
P
Where: T = ending redeemable value of a hypothetical
$1,000 investment at the end of a specified
period of time

P = a hypothetical initial investment of $1,000

The average annual total return is computed using the following formula:

A = ((SQUARE ROOT) ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical
$1,000 investment at the end of a specified
period of time

P = a hypothetical initial investment of $1,000

In making the above calculation all dividends and capital gain
distributions are assumed to be reinvested at the Fund's NAV on the rein-
vestment date.

In addition to performance figures, each Fund may advertise its ranking as
calculated by independent rating services which monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical
Services, Inc. and Morningstar, Inc.). These rankings may be among mutual
funds with similar objectives and/or size or with mutual funds in general
and may be based on relative performance during periods deemed by the
rating services to be representative of up and down markets. The Funds
may also describe in their advertisements the methodology used by the
rating services to arrive at Fund ratings. In addition, the Funds may

- 49 -
<PAGE>

also advertise individual measurements of Fund performance published by
the rating services.

The Funds may upon occasion reproduce articles or portions of articles
about the Funds written by independent third parties such as financial
writers, financial planners and financial analysts, and appearing in
financial publications of general circulation or financial newsletters
(including but not limited to BARRONS, BUSINESS WEEK, FABIANS, FORBES,
FORTUNE, INVESTOR'S BUSINESS DAILY, KIPLINGER'S, MONEY MAGAZINE,
MORNINGSTAR MUTUAL FUNDS, MUTUAL FUNDS FORECASTER, MUTUAL FUNDS MAGAZINE,
NO-LOAD FUND INVESTOR, NO-LOAD FUND X, NEWSWEEK, PENSIONS & INVESTMENTS,
RUCKEYSER'S MUTUAL FUNDS, TELESWITCH, TIME MAGAZINE, U.S. NEWS AND WORLD
REPORT, YOUR MONEY AND THE WALL STREET JOURNAL).

Each Fund may also present in its advertisements and sales literature (i)
a biography or the credentials of its portfolio manager (including but not
limited to educational degrees, professional designations, work
experience, work responsibilities and outside interests); (ii) current
facts (including but not limited to number of employees, number of
shareholders, business characteristics) about its investment adviser (SAM)
or any sub investment adviser, the investment adviser's parent company
(SAFECO Corporation) or the parent company of any sub investment adviser
or the SAFECO Family of Funds; (iii) descriptions, including quotations
attributable to the portfolio manager, of the investment style used to
manage a Fund's portfolio, the research methodologies underlying
securities selection and a Fund's investment objective; and (iv)
information about particular securities held in a Fund's portfolio.

Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.

ADDITIONAL INFORMATION ON DIVIDENDS

Because the Money Market Fund intends to hold its portfolio securities to
maturity and expects that most of its portfolio securities will be valued
at their amortized cost, realized gains or losses should not be a signifi-
cant factor in the computation of net income. Should, however, in an
unusual circumstance, the Money Market Fund experience a realized gain or
loss, a shareholder of the Money Market Fund could receive an increased,
reduced, or no dividend for a period of time. In such an event, the Money

- 50 -
<PAGE>

Market Trust's Board of Trustees would consider whether to adhere to its
present dividend policy or to revise it in light of the then-prevailing
circumstances.

TRUSTEES AND OFFICERS

Position(s) Held Principal Occupation(s)
Name and Address with the Trusts During Past 5 Years
---------------- ---------------- -----------------------
<S> <C> <C>
Boh A. Dickey* Chairman and Trustee President, Chief Operating Officer and
SAFECO Plaza Director of SAFECO Corporation. Previously,
Seattle, WA 98185 Executive Vice President and Chief Financial
(51) Officer. He has been an executive officer of
SAFECO Corporation subsidiaries since 1982.
See table under "Investment Advisory and Other
Services."

Barbara J. Dingfield Trustee Manager, Corporate Contributions and Community
Microsoft Corporation Programs for Microsoft Corporation, Redmond,
One Microsoft Way Washington, a computer software company;
Redmond, WA 98052 Director and former Executive Vice President of
(50) Wright Runstad & Co., Seattle, Washington, a
real estate development company; Director of
First SAFECO National Life Insurance Company of
New York.

Richard W. Hubbard* Trustee Retired Vice President and Treasurer of the
1270 NW Blakely Ct. Trust and other SAFECO Trusts; retired Senior
Seattle, WA 98177 Vice President and Treasurer of SAFECO
(67) Corporation; former President of SAFECO Asset
Management Company; Director of First SAFECO
National Life Insurance Company of New York.
Richard E. Lundgren Trustee Director of Marketing and Customer Relations,
764 S. 293rd Street Building Materials Distribution, Weyerhaeuser
Federal Way, WA 98032 Company, Tacoma, Washington; Director of First
(58) SAFECO National Life Insurance Company of New
York.

Larry L. Pinnt Trustee Retired Vice President and Chief Financial
1600 Bell Plaza Officer U.S. WEST Communications, Seattle,
Room 1802 Washington; Director of Key Bank of Washington,
Seattle, WA 98191 Seattle, Washington; Director of University of
(61) Washington Medical Center, Seattle, Washington;
Director of Cascade Natural Gas Corporation,
Seattle, Washington; Director of First SAFECO
National Life Insurance Company of New York.

- 51 -
<PAGE>

Position(s) Held Principal Occupation(s)
Name and Address with the Trusts During Past 5 Years
---------------- ---------------- -----------------------
John W. Schneider Trustee President of Wallingford Group, Inc., Seattle,
1808 N 41st St. Washington; former President of Coast Hotels,
Seattle, WA 98103 Inc., Seattle, Washington; Director of First
(54) SAFECO National Life Insurance Company of New
York.

David F. Hill* President President of SAFECO Securities, Inc. and SAFECO
SAFECO Plaza Trustee Services Corporation; Senior Vice President of
Seattle, WA 98185 SAFECO Asset Management Company. See table
(47) under "Investment Advisory and other Services."

Neal A. Fuller Vice President Controller Vice President, Controller, Assistant Secretary
SAFECO Plaza Assistant Secretary and Treasurer of SAFECO Securities, Inc. and
Seattle, WA 98185 SAFECO Services Corporation; Vice President,
(34) Controller, Secretary and Treasurer of SAFECO
Asset Management Company. See table under
"Investment Advisory and Other Services."
Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset Management
SAFECO Plaza Treasurer Company; Vice President and Treasurer of
Seattle, WA 98185 SAFECO Corporation; Vice President of SAFECO
(52) Life Insurance Company; former Senior Fund
Manager of SAFECO insurance companies; former
Fund Manager for several SAFECO mutual funds.
See table under "Investment Advisory and Other
Services."

</TABLE>

* Trustees who are interested persons as defined by the 1940 Act.

- 52 -
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE FOR CURRENT TRUSTEES
(Taxable Bond Trust)
For the Fiscal Year Ended September 30, 1995
Total
Pension or Compensation
Retirement From Registrant
Aggregate Benefits Accrued Estimated Annual and Fund
Compensation As Part of Fund Benefits Upon Complex Paid to
Trustee from Registrant Expenses Retirement Trustees
------- --------------- -------- ---------- --------

<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0
Barbara J. Dingfield $2,360 N/A N/A $22,737

Richard E. Lundgren $2,360 N/A N/A $22,737

Larry L. Pinnt $2,360 N/A N/A $22,737
John W. Schneider $2,360 N/A N/A $22,737

Richard W. Hubbard $2,568 N/A N/A $24,150

David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management companies that have, in the
aggregate, twenty-eight series companies managed by SAM.

The officers of the Trust receive no compensation for their services as
officers, or if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Taxable Bond Trust as a
group owned less than 1% of the outstanding shares of the Intermediate
Treasury Fund.

- 53 -
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE FOR CURRENT TRUSTEES
(Managed Bond Trust)
For the Fiscal Year Ended December 31, 1995

Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated From Registrant and
Compensation As Part of Fund Annual Benefits Fund Complex Paid
Trustee from Registrant Expenses Upon Retirement to Trustees
------- --------------- ------------ --------------- -----------------
<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0

Barbara J. Dingfield $852 N/A N/A $23,875

Richard E. Lundgren $852 N/A N/A $23,875
Larry L. Pinnt $852 N/A N/A $23,875

John W. Schneider $852 N/A N/A $23,875

Richard W. Hubbard $960 N/A N/A $26,900
David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management companies that have, in the
aggregate, thirty series companies managed by SAM.

The officers of the Trust received no compensation for their services as
officers or, if applicable, as Trustees.

At September 18, 1996, the Trustees and officers of the Managed Bond Trust
owned none of the outstanding shares of the Managed Bond Fund.

- 54 -
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE FOR CURRENT TRUSTEES
(Money Market Trust)
For the Fiscal Year Ended March 31, 1996
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation As Part of Fund Benefits Fund Complex Paid to
Trustee from Registrant Expenses Upon Retirement Trustees
------- --------------- ------------ --------------- ----------------

<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0

Barbara J. Dingfield $2,095 N/A N/A $24,813

Richard E. Lundgren $2,095 N/A N/A $24,813

Larry L. Pinnt $2,095 N/A N/A $24,813

John W. Schneider $2,095 N/A N/A $24,813

Richard W. Hubbard $2,095 N/A N/A $23,000

David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as trustee for six
other registered open-end, management investment companies that have, in
the aggregate, twenty-nine series companies managed by SAM.

The officers of the Trust receive no compensation for their service as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Money Market Trust as a
group owned less than 1% of the outstanding shares of the Money Market
Fund.

- 55 -
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE FOR CURRENT TRUSTEES
(Tax-Exempt Bond Trust)
For the Fiscal Year Ended March 31, 1996
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation As Part of Fund Benefits Fund Complex Paid to
Trustee from Registrant Expenses Upon Retirement Trustees
------- --------------- ------------ --------------- -----------------

<S> <C> <C> <C> <C>
Boh A. Dickey $0 N/A N/A $0

Barbara J. Dingfield $4,547 N/A N/A $24,813
Richard E. Lundgren $4,547 N/A N/A $24,813

Larry L. Pinnt $4,547 N/A N/A $24,813

John W. Schneider $4,547 N/A N/A $24,813

Richard W. Hubbard $4,547 N/A N/A $23,000

David F. Hill* $0 N/A N/A $0

</TABLE>

* First elected to the Board of Trustees in August, 1996.

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of a Trust are
compensated by that Trust. Each Trustee also serves as trustee for six
other registered open-end, management investment companies that have, in
the aggregate, twenty-six series companies managed by SAM.

The officers of a Trust received no compensation for their services as
officers or, if applicable, trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Tax-Exempt Fixed Income
Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

SAFECO Asset Management Company ("SAM"), SAFECO Securities, Inc. ("SAFECO
Securities") and SAFECO Services Corporation ("SAFECO Services") are
wholly-owned subsidiaries of SAFECO Corporation. SAFECO Securities is the
principal underwriter of each Fund and SAFECO Services is the transfer,

- 56 -
<PAGE>

dividend and distribution disbursement and shareholder servicing agent of
each Fund.

The following individuals have the following positions and offices with
the Trusts, SAM, SAFECO Securities and SAFECO Services.

- 57 -
<PAGE>

SAFECO SAFECO
Name Trusts SAM Securities Services
---- ------ --- ---------- --------

<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director Director
Trustee Chairman

D. F. Hill President Senior President President
Trustee Vice Director Secretary
President Secretary Director
Director

N. A. Fuller Vice President Vice Vice Vice President
Controller President President Controller
Assistant Controller Controller Assistant
Secretary Secretary Assistant Secretary
Treasurer Secretary Treasurer
Treasurer

R.L. Spaulding Vice President Vice Director Director
Treasurer Chairman
Director

S.C. Bauer President
Director

</TABLE>

In connection with its investment advisory contract with each Trust, SAM
furnishes or pays for all facilities and services furnished or performed
for or on behalf of each Trust and each Fund, that includes furnishing
office facilities, books, records and personnel to manage each Trust's and
each Fund's affairs and paying certain expenses.

The Trust Instrument of each Trust provides that the Trust will indemnify
its Trustees and its officers against liabilities and expenses reasonably
incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless it is adjudicated that
they engaged in bad faith, wilful misfeasance, gross negligence, or
reckless disregard of the duties involved in the conduct of their offices.
In the case of settlement, such indemnification will not be provided
unless it has been determined -- by a court or other body approving the

- 58 -
<PAGE>

settlement or other disposition, or by a majority of disinterested
Trustees, based upon a review of readily available facts, or in a written
opinion of independent counsel -- that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.

SAM also serves as the investment adviser for other investment companies
in addition to the Funds. Several of these investment companies have
investment objectives similar to those of certain Funds. It is therefore
possible that the same securities will be purchased for both a Fund and
another investment company advised by SAM. When two or more funds advised
by SAM are simultaneously engaged in the purchase or sale of the same
security, the prices and amounts will be allocated in a manner considered
by the officers of the funds involved to be equitable to each fund. In
some cases this system could have a detrimental effect on the price or
value of the security as far as a Fund is concerned. In other cases,
however, the ability of a Fund to participate in volume transactions will
produce better executions and prices for the Fund.

Intermediate Treasury Fund

Net Assets Fee
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

Managed Bond Fund

Net Assets Fee
$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%

Washington Fund

Net Assets Fee
$0 - $250,000,000 .65 of 1%

$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%

- 59 -
<PAGE>

Municipal and California Funds

Net Assets Fee
$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%

- 60 -
<PAGE>

Money Market Fund

Net Assets Fee
$0 - $250,000,00 .50 of 1%
$250,000,001 - $500,000,000 .40 of 1%
$500,000,001 - $750,000,000 .30 of 1%
Over $750,000,000 .25 of 1%

Each Fund bears all expenses of its operations not specifically assumed by
SAM. SAM has agreed to reimburse each Fund for the amount by which a
Fund's expenses in any full fiscal year (excluding interest expense,
taxes, brokerage expenses, and extraordinary expenses) exceed the limits
prescribed by any state in which a Fund's shares are qualified for sale.
Presently, the most restrictive expense ratio limitation imposed by any
such state is 2.5% of the first $30 million of a Fund's average daily net
assets, 2.0% of the next $70 million of such assets, and 1.5% of the
remaining net assets. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to a reimbursement, that month's
advisory fee will be reduced or postponed, with any adjustment made after
the end of the fiscal year.

The following states the total amounts of compensation paid by each Fund
to SAM for the past three fiscal years or periods (or since its initial
public offering in the case of the Managed Bond Fund):

Intermediate Treasury Fund

Year Ended

September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

$71,000 $77,000 $ 72,000

Managed Bond Fund

Year or Period Ended

February 28, 1994
(Initial Public Offering) to
December 31, 1995 December 31, 1994
----------------- -------------------------

$22,720 $15,869

- 61 -
<PAGE>

Tax-Exempt Fixed Income Funds

Year Ended

March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- ---------------

<S> <C> <C> <C>
Municipal Bond Fund $2,020,685 $2,010,754 $2,248,615

California Fund $365,684 $364,000 $455,505

Washington Fund $39,038 $31,475 $18,350

</TABLE>

Money Market Fund

Year or Period Ended

March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------

$864,914 $840,727 $690,549

Distribution Arrangements. SAFECO Securities is the principal underwriter
for each Fund and acts as the distributor of the Advisor Class A and
Advisor Class B shares of each Fund under a Distribution Agreement with
each Trust that requires SAFECO Securities to use its best efforts,
consistent with its other businesses, to sell shares of the Funds. Shares
of the Funds are offered continuously.

Under separate plans of distribution pertaining to the Advisor Class A and
Advisor Class B shares of each Fund adopted by each Trust in the manner
prescribed under Rule 12b-1 under the 1940 Act (each a "Plan"), each
Advisor Class pays fees described in the Prospectus.

Among other things, each Plan provides that (1) SAFECO Securities will
submit to each Trust's Board of Trustees at least quarterly, and the
trustees will review, reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect so long as they are approved at least annually and
any material amendment thereto is approved, by each respective Trust's
Board of Trustees, including those Trustees who are not "interested
persons" of each Trust and who have no Plan, acting in person at the
meeting called for that purpose, (3) payments by a Fund under the Plan

- 62 -
<PAGE>

shall not be materially increased without the affirmative vote of the
holders of a majority of the outstanding voting securities of the relevant
Advisor Class of that Fund and (4) while the Plan remains in effect, the
selection and nomination of Trustees who are not "interested persons" of
each Trust shall be committed to the discretion of each of the Trustees
who are not "interested persons" of each Trust.

In reporting amounts expended under the Plans to each Trust's Board of
Trustees, SAFECO Securities will allocate expenses attributable to the
sale of each Advisor Class of Fund shares to such Advisor Class based on
the ratio of sales of shares of such Advisor Class to the sales of all
Advisor Classes of shares. Expenses attributable to a specific Advisor
Class will be allocated to that Advisor Class.

In approving the adoption of each Plan, each Trust's Board of Trustees
determined that the adoption was in the best interests of the Funds'
shareholders.

In the event that a Plan is terminated or not continued with respect to
the Advisor Class A or Advisor Class B shares of any Fund, (i) no fees
would be owed by the Fund to SAFECO Securities with respect to that class,
and (ii) the Fund would not be obligated to pay SAFECO Securities for any
amounts expended under the Plan not previously recovered by SAFECO
Securities.

Custodian. U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle,
Washington 98111, is the custodian of the securities, cash and other
assets of each Fund under an agreement with each Trust.

Auditor. Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle,
Washington 98104, is the independent auditor of each Fund's financial
statements.

SAFECO Services provides, or through subcontracts makes provision for, all
required transfer agency activity, including maintenance of records of
each Fund's shareholders, records of transactions involving each Fund's
shares, and the compilation, distribution, or reinvestment of income
dividends or capital gains distribution. For the Intermediate Treasury,
Managed Bond and Tax-Exempt Fixed Income Funds, SAFECO Services is paid a
fee for these services equal to $32.00 per shareholder account, but not to
exceed .30% of each Fund's average net assets. For the Money Market Fund,
SAFECO Services is paid a fee of $34.00 per shareholder account, but not
to exceed .30% of each Fund's average net assets. The following tables

- 63 -
<PAGE>

shows the fees paid by each Fund to SAFECO Services during the past three
fiscal years.

Intermediate Treasury Fund

Year Ended*

September 30, 1995 September 30, 1994 September 30, 1993

$33,000 $25,000 $23,000

- 64 -
<PAGE>

Managed Bond Fund

Year or Period Ended*

February 28, 1994
(Initial Public Offering) to
December 31, 1995 December 31, 1994
----------------- --------------------------

$309 $96

Money Market Fund

Year Ended*

March 31, 1996 March 31, 1995 March 31, 1994

$424,260 $385,495 $308,090

Tax-Exempt Fixed Income Funds

Year or Period Ended*

March 31, 1996 March 31, 1995 March 31, 1994

<S> <C> <C> <C>
Municipal Bond Fund $511,005 $531,978 $557,561

California Fund $68,839 $68,840 $66,667

Washington Fund $2,842 $3,219 $2,801

</TABLE>

* Tables reflect fees of $3.10 per shareholder transaction payable
pursuant to the prior fee
schedule.

BROKERAGE PRACTICES

SAM places orders for the purchase or sale of each Fund's portfolio
securities based on various factors including:

- 65 -
<PAGE>

(1) Which broker gives the best execution (i.e., which broker is able
to trade the securities in the size and at the price desired and on
a timely basis);

(2) Whether the broker is known as being reputable; and,

(3) All other things being equal, which broker has provided useful
research services.

Such research services as are furnished during the year (e.g., written
reports analyzing economic and financial characteristics of industries and
companies, telephone conversations between brokerage security analysts and
members of SAM's staff, and personal visits by such analysts and brokerage
strategists and economists to SAM's office) are used to advise all clients
including the Funds, but not all such research services furnished to SAM
are used by it to advise the Funds. SAM does not pay excess commissions
or mark-ups to any broker or dealer for research services or for any other
reason. Purchases and sales of portfolio securities are transacted with
the issuer or with a primary market maker acting as principal for the
securities on a net basis with no commission being paid by the Funds.
Transactions placed through dealers serving as primary market makers
reflect the spread between the bid and asked prices. Occasionally the
Funds may make purchases of underwritten issues at prices that include
underwriting fees.

REDEMPTION IN KIND

If a Trust concludes that cash payment upon redemption to a shareholder of
a Fund would be prejudicial to the best interest of other shareholders of
a Fund, a portion of the payment may be made in kind. Each Trust has
elected to be governed by Rule 18f-1 under the 1940 Act, pursuant to which
the Trust must redeem shares tendered by a shareholder of a Fund solely in
cash up to the lesser of $250,000 or 1% of a net asset value of a Fund
during any 90-day period. Any shares tendered by the shareholder in
excess of the above-mentioned limit may be redeemed through distribution
of a Fund's assets. Any securities or other property so distributed in
kind shall be valued by the same method as is used in computing NAV.
Distributions in kind will be made in readily marketable securities,
unless the investor elects otherwise. Investors may incur brokerage costs
in disposing of securities received in such a distribution in kind.

FINANCIAL STATEMENTS

The following financial statements for the Intermediate Treasury Fund and
the report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Taxable Bond Trust's Annual Report
for the year ended September 30, 1995.

Portfolio of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the Year Ended September 30, 1995

- 66 -
<PAGE>

Statement of Changes in Net Assets for the Years Ended September
30, 1995 and September 30, 1994
Notes to Financial Statements

The following unaudited financial statements for the Intermediate Treasury
Fund are incorporated herein by reference to the Taxable Bond Trust's
Semi-Annual Report for the period ending March 31, 1996.

Portfolio of Investments as of March 31, 1996 (unaudited)
Statement of Assets and Liabilities as of March 31, 1996
(unaudited)
Statement of Operations for the Period Ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended March 31,
1996 (unaudited)
Notes to Financial Statements (unaudited)

The following financial statements for the Managed Bond Fund (formerly
Fixed Income Portfolio) and the report thereon of Ernst & Young LLP,
independent auditors, are incorporated herein by reference to the Managed
Bond Trust's (formerly Institutional Series Trust) Annual Report for the
year ended December 31, 1995:

Portfolio of Investments as of December 31, 1995
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the Year Ended December 31, 1995
Statement of Changes in Net Assets for the Years Ended December 31,
1995 and December 31, 1994
Notes to Financial Statements

The following unaudited financial statements for the Managed Bond Fund are
incorporated herein by reference to the Managed Bond Trust's Semi-Annual
Report for the period ended June 30, 1996.

Portfolio of Investments as of June 30, 1996 (unaudited)
Statement of Assets and Liabilities as of June 30, 1996 (unaudited)
Statement of Operations for the Period Ended June 30, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended June 30,
1996 (unaudited)
Notes to Financial Statements (unaudited)

The following financial statements for the Municipal Bond, California and
Washington Funds and the report thereon of Ernst & Young LLP, independent
auditors, are incorporated herein by reference to the Tax-Exempt Bond
Trust's Annual Report for the year ended March 31, 1996:

Portfolio of Investments as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the Year Ended March 31, 1996
Statement of Changes in Net Assets for the Years Ended March 31,
1996 and March 31, 1995

- 67 -
<PAGE>

Notes to Financial Statements

The following financial statements for the Money Market Fund and the
report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Money Market Trust's Annual Report
for the year ended March 31, 1996:

A copy of each Trusts' Annual Report and the Semi-Annual Report of the
Intermediate Treasury and Managed Bond Funds accompanies this Statement of
Additional Information. Additional copies may be obtained by calling
SAFECO Services at 1-800-463-8791 or by writing to the address on the
Prospectus cover.

DESCRIPTION OF RATINGS

Ratings by Moody's and S&P represent opinions of those organizations as to
the investment quality of the rated obligations. Investors should realize
these ratings do not constitute a guarantee that the principal and
interest payable under these obligations will be paid when due.

Description of Bond Ratings

Moody's

Investment Grade Descriptions:
-----------------------------

Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors

- 68 -
<PAGE>

giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.

Baa -- Bonds which are rated Baa are considered medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.

Below Investment Grade Descriptions:
-----------------------------------

Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characteristics bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated C are the lowest-rated class of bonds. Issues
so rated have extremely poor prospects of ever attaining any real
investment standing.

S&P

Investment Grade Descriptions:
-----------------------------

AAA -- Debt rated "AAA" has the highest rating assigned by S&P's.
Capacity to pay interest and repay principal is extremely strong.

AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in a small degree.

- 69 -
<PAGE>

A -- Debt rated "A" has a very strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt rated in a
higher category.

BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas, it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.

Below Investment Grade Descriptions:
-----------------------------------

BB, B, CCC, CC -- Debt rated BB, B, CCC, CC or C is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation and "C" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions which
could lead to inadequate capacity to meet timely interest and principal
payments. The "BB" rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied "BBB-" rating.

B -- Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The "B"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BB" or "BB-" rating.

CCC -- Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions. It
is not likely to have the capacity to pay interest and repay principal.
The "CCC" rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied "B" or "B-" rating.

C -- The rating "C" is typically applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has
been filed, but debt service payments are continued.

Cl -- The rating Cl is reserved for income bonds on which no interest is
being paid.

- 70 -
<PAGE>

D -- Debt rated D is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes
that such payment will be made during such grace period.

Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.

Description of Commercial Paper Ratings

Moody's

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations with an original maturity not
exceeding one year.

. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.

- 71 -
<PAGE>

S&P

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.

Description of Ratings for Municipal Notes,
Tax-Exempt Demand Notes and Other Short-Term Obligations

Moody's

Moody's rates municipal notes and other short-term obligations using
Moody's Investment Grade (MIG). A short-term obligation having a demand
feature (a variable-rate demand obligation) will be designated VMIG. This
distinction recognizes differences between short-term credit risk and
long-term credit risk as well as differences between short-term issues
making payments on fixed maturity dates (MIG) and those making payments on
periodic demand (VMIG).

MIG/VMIG 1: This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broadbased access to the market for refinancing.

MIG 2/VMIG 2: This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

S&P

Ratings for municipal notes and other short-term obligations are
designated by Standard & Poor's note rating. These ratings reflect
liquidity concerns and market access risks unique to notes. Notes due in
three years or less will likely receive a note rating.

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.

- 72 -
<PAGE>

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-
term maturity and the commercial paper rating symbols are used to denote
the put option (for example, "AAA/A-1+"). For the newer "demand notes,"
Standard & Poor's note rating symbols, combined with the commercial paper
symbols, are used (for example, "SP-1+/A-1+").

- 73 -
<PAGE>
SAFECO TAXABLE BOND TRUST:
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO GNMA FUND
SAFECO HIGH-YIELD BOND FUND

SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND

No-Load Class

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the funds listed above (each a
"Fund"). A copy of the Prospectus may be obtained by writing SAFECO
Mutual Funds, No-Load Class Shares, P.O. Box 34890, Seattle, Washington
98124-1890, or by calling TOLL FREE:

Nationwide
1-800-426-6730

Seattle Area
206-545-5530

Hearing Impaired TDD/TTY Service
1-800-438-8718

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.
<PAGE>

TABLE OF CONTENTS

Page
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT POLICIES OF THE TAXABLE BOND FUNDS . . . . . . . 2
INVESTMENT POLICIES OF THE MANAGED BOND FUND . . . . . . . . . 7
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . 11
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . 16
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . 16
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE
PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . 17
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . 18
TRUSTEES AND OFFICERS OF THE TRUSTS . . . . . . . . . . . . 23
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . 28
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . 32
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . 32
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . 32
DESCRIPTION OF COMMERCIAL PAPER RATINGS . . . . . . . . . . 33
<PAGE>

INVESTMENT POLICIES

SAFECO Intermediate-Term U.S. Treasury Fund ("Intermediate Treasury
Fund"), SAFECO GNMA Fund ("GNMA Fund") and SAFECO High-Yield Bond Fund
("High-Yield Bond Fund") (collectively "Taxable Bond Funds") are series of
SAFECO Taxable Bond Trust ("Taxable Bond Trust"). SAFECO Managed Bond
Fund ("Managed Bond Fund") is the only series of SAFECO Managed Bond Trust
("Managed Bond Trust" and, together with Taxable Bond Trust, the
"Trusts"). The investment policies of the Taxable Bond Funds and the
Managed Bond Fund (each a "Fund") are described in the Prospectus and this
Statement of Additional Information. These policies state the investment
practices that the Funds will follow, in some cases limiting investments
to a certain percentage of assets, as well as those investment activities
that are prohibited. The types of securities that a Fund may purchase are
also disclosed in the Prospectus. Before a Fund purchases a security that
the following policies permit, but that is not currently described in the
Prospectus, the Prospectus will be amended or supplemented to describe the
security. If a policy's percentage limitation is adhered to immediately
after and as a result of the investment, a later increase or decrease in
values, net assets or other circumstances will not be considered in
determining whether a Fund complies with the applicable limitation (except
to the extent the change may impact a Fund's borrowing limit).

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE TAXABLE BOND FUNDS

Fundamental Investment Policies

Each Taxable Bond Fund has adopted the following fundamental investment
policies. Each Taxable Bond Fund will NOT:

1. Purchase the securities of any issuer (except the U.S. Govern-
ment, its agencies or instrumentalities) if as a result more than
five percent (5%) of the value of its total assets at the time of
purchase would be invested in the securities of such issuer,
except that up to twenty-five percent (25%) of the value of a
Fund's assets (which twenty-five percent (25%) shall not include
securities issued by another investment company) may be invested
without regard to this five percent (5%) limitation.

2
<PAGE>

3. Purchase or sell real estate, but this shall not prevent the Fund
from investing in municipal obligations or other permitted
investments secured by real estate or interests therein.

4. Purchase or retain for the Fund's portfolio the securities of any
issuer, if, to the Fund's knowledge, the officers or directors of
the Fund, or its investment adviser, who individually own more
than one-half (ONE-HALF) of one percent (1%) of the outstanding
securities of such an issuer, together own more than five percent
(5%) of such outstanding securities.

5. High-Yield Bond and Intermediate Treasury Funds only: Borrow
money, except from a bank or SAFECO Corporation or its affiliates
at an interest rate not greater than that available to the Fund
from commercial banks, for temporary or emergency purposes and
not for investment purposes, and then only in an amount not
exceeding twenty percent (20%) of the value of the Fund's total
assets at the time of such borrowing.

GNMA Fund only: Borrow money, except from a bank or affiliates
of SAFECO Corporation at an interest rate not greater than that
available to the GNMA Fund from commercial banks, for temporary
or emergency purposes and not for investment purposes, and then
only in an amount not exceeding twenty percent (20%) of its total
assets (including borrowings) less liabilities (other than
borrowings) immediately after such borrowing.

Each Fund will not purchase securities if borrowings equal to or
greater than five percent (5%) of the Fund's total assets are
outstanding.

7. Purchase or sell commodities or commodity contracts, other than
futures contracts, or invest in oil, gas or other mineral
exploration or development programs or in arbitrage transactions.

8. Make short sales of securities or purchase securities on margin,
except for margin deposits in connection with futures contracts

3
<PAGE>

and such short-term credits as are necessary for the clearance of
transactions.

12. Purchase shares of common stock, other than those issued by other
regulated investment companies (or, with respect to the High-
Yield Bond and Intermediate Treasury Funds only, when the
acquisition of such common stocks, rights or other equity
interests is consistent with the High-Yield Bond and Intermediate
Treasury Funds' investment objectives). Generally, the High-
Yield Bond and Intermediate Treasury Funds will only hold such
equity securities as a result of purchases or unit offerings of
fixed-income securities which include such equity securities or
in connection with an actual or proposed conversion or exchange
of fixed-income securities.

4
<PAGE>

(300%). For purposes of this restriction, the terms "senior
security" and "asset coverage" shall be understood to have the
meaning assigned to those terms in Section 18 of the 1940 Act.

14. Purchase securities of any issuer, if, as a result, more than ten
percent (10%) of any class of securities of such issuer would be
owned by the Fund.

16. Purchase or otherwise acquire securities which are illiquid or
subject to legal or contractual restrictions on resale, if as a
result more than ten percent (10%) of the Fund's (five percent
(5%) of the GNMA Fund's) total assets would be invested in such
securities.

17. Make loans, except through the purchase of a portion or all of an
issue of debt or money market securities in accordance with its
investment objective, policies and restrictions, or through
investments in qualified repurchase agreements (provided,
however, that a Fund shall not invest more than ten percent (10%)
of its total assets in qualified repurchase agreements maturing
in more than seven (7) days), or through qualified loan
agreements (by making secured loans of its portfolio securities
which amount to not more than five percent (5%) of its total
assets).

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, each Taxable Bond
Fund has adopted the following non-fundamental investment policies which
may be changed without shareholder approval:

1. The Fund will not invest more than five percent (5%) of its total
assets in securities of issuers, including their predecessors,
which have been in operation for less than three years.

2. The Fund will not issue long-term debt securities.

3. The Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts
in addition to the subscription or other price paid for the
security.

4. The Fund will not trade in foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign
securities in the Fund's portfolio into U.S. dollars.

5
<PAGE>

5. The Fund may purchase "when-issued" or "delayed-delivery"
securities or purchase or sell securities on a "forward
commitment" basis.

8. The Intermediate Treasury Fund may invest up to five percent (5%)
of its total assets in Yankee Sector debt securities and up to
five percent (5%) of its total assets in Eurodollar bonds.

9. The Intermediate Treasury Fund and High-Yield Bond Fund may each
invest up to five percent (5%) of its total assets in securities
the interest on which, in the opinion of counsel for the issuer,
is exempt from federal income tax. The GNMA Fund may not invest
in such tax-exempt securities.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

Fundamental Investment Policies

The Managed Bond Fund has adopted the following fundamental investment
policies. The Managed Bond Fund will NOT:

6
<PAGE>

5. Purchase securities on margin, except for short-term credits
necessary for the clearance of transactions.

6. Make short sales of securities (sales of securities not presently
owned).

8. Borrow money, except from a bank or SAFECO Corporation or its
affiliates at an interest rate not greater than that available to
the Fund from commercial banks, for temporary or emergency
purposes and not for investment purposes, and then only in an
amount not exceeding twenty percent (20%) of the value of the
Fund's total assets (including borrowings) less liabilities
(other than borrowings) immediately after such borrowing.

10. Purchase or sell real estate or real estate limited partnerships
(unless acquired as a result of the ownership of securities or
instruments) but this shall not prevent the Fund from investing

7
<PAGE>

in permitted investments secured by real estate or interests
therein or in real estate investment trusts.

11. Purchase or sell commodities, commodity contracts or futures
contracts.

13. Issue or sell any senior security, except as permitted under the
1940 Act.

Non-Fundamental Investment Policies

The Managed Bond Fund has adopted the following non-fundamental investment
policies which may be changed without shareholder approval:

1. The Fund will not issue long-term debt securities.

2. The Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.

3. The Fund will not invest in oil, gas or other mineral exploration
or development programs or leases.

4. The Fund will not invest in or sell (write) puts, calls, strad-
dles, spreads or any combinations thereof.

6. The Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts
in addition to the subscription or other price paid for the
security.

8
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as part of a merger, consolidation or acquisition. The Fund
shall not invest more than ten percent (10%) of its total assets
in shares of other investment companies, invest more than five
percent (5%) of its total assets in a single investment company
nor purchase more than three percent (3%) of the outstanding
voting securities of a single investment company.