SAFECO MONEY MARKET TRUSTS, 497, 2000-12-08

SAFECO MONEY MARKET TRUSTS
497, 2000-12-08

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<PAGE>

516318

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SAFECO Mutual Funds

SAFECO Intermediate-Term U.S. Treasury Fund

SAFECO GNMA Fund

SAFECO High-Yield Bond Fund

SAFECO Managed Bond Fund

SAFECO California Tax-Free Income Fund

SAFECO Municipal Bond Fund

SAFECO Intermediate-Term Municipal Bond Fund

SAFECO Insured Municipal Bond Fund

SAFECO Money Market Fund

SAFECO Tax-Free Money Market Fund

Prospectus

No-Load Class

May 1, 2000

As revised December 11, 2000

AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SHARES OFFERED IN
THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS
COMMITTING A CRIME.

--------------------------------------------------------------------------------

[LOGO OF SAFECO]
<PAGE>

Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
TAXABLE BOND FUNDS

SAFECO Intermediate-Term U.S. Treasury Fund.............................. 1

SAFECO GNMA Fund......................................................... 5

SAFECO High-Yield Bond Fund.............................................. 11

SAFECO Managed Bond Fund................................................. 15

TAX-EXEMPT BOND FUNDS

SAFECO California Tax-Free Income Fund................................... 20

SAFECO Municipal Bond Fund............................................... 25

SAFECO Intermediate-Term Municipal Bond Fund............................. 29

SAFECO Insured Municipal Bond Fund....................................... 34

MONEY MARKET FUNDS

SAFECO Money Market Fund................................................. 38

SAFECO Tax-Free Money Market Fund........................................ 42

Additional Fund Facts...................................................... 46

Management................................................................. 47

Portfolio Managers......................................................... 47

Financial Highlights....................................................... 49

Fund Distributions and Tax Considerations.................................. 60

YOUR INVESTMENT............................................................ 63

How We Calculate the Value of Your Shares................................ 63

How We Value a Fund's Investments........................................ 63

Opening and Maintaining Your Account..................................... 64

Purchasing Your Shares................................................... 67

Selling Your Shares...................................................... 73

Exchanging Shares from One Fund to Another............................... 78

Maintaining Your Account................................................. 82

For More Information..................................................... 85
</TABLE>

-i-
<PAGE>

SAFECO Intermediate-Term U.S. Treasury Fund

Objective

The SAFECO Intermediate-Term U.S. Treasury Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital.

Principal Investment Strategies

The Intermediate-Term U.S. Treasury Fund will invest, during normal market
conditions, at least 65% of its total assets in direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes and bonds. The Fund may also
invest in STRIPS that are direct obligations of the U.S. Treasury.

"STRIPS" stands for Separate
Trading of Registered Interest and
Principal of Securities. The
Federal Reserve Bank creates STRIPS
by separating the coupon (interest)
and principal components of a U.S.
Treasury bond and selling them as
individual securities.

Because the Fund is an "intermediate-term" fund, it will maintain an average
dollar-weighted maturity of between 3 and 10 years for the portfolio as a
whole. However, the maturities of individual securities the Fund holds may be
outside that range.

The Fund may invest up to 35% of its total assets in other U.S. government
securities and corporate debt securities. Other U.S. government securities
include:

. Securities supported by the full faith and credit of the U.S. government
that are not direct obligations of the U.S. Treasury, such as securities
issued by the Government National Mortgage Association (GNMA).

. Securities that are not supported by the full faith and credit of the
U.S.government but are supported by the issuer's ability to borrow from the
U.S. Treasury, such as securities issued by the Federal National Mortgage
Association (FNMA), the Federal Home Loan Bank (FHLB) and the Federal Home
Loan Mortgage Corporation (FHLMC).

. Securities supported solely by the creditworthiness of the issuer, such as
securities issued by the Tennessee Valley Authority (TVA).

Corporate debt securities in which the Fund may invest include bonds that are:

. Rated in the top three grades (A or higher) by either Moody's, S&P or Fitch.

. If unrated, are of comparable quality to securities rated A or higher.

1
<PAGE>

SAFECO Intermediate-Term U.S. Treasury Fund, continued

Since the Fund invests predominantly in intermediate-term U.S. Treasury
securities, trading decisions focus on the maturity of the bonds under
consideration. In a falling interest rate environment, the Fund buys longer
maturity bonds. In a rising interest rate environment, the Fund buys shorter
maturity bonds. The Fund may increase its allocation to U.S. government agency
bonds when they have a more favorable yield premium than do U.S. Treasuries.
After choosing the desired maturity, the Fund attempts to exploit pricing
inefficiencies and purchase the cheapest securities in a maturity range or sell
the more expensive securities in a maturity range. The advisor may also sell
securities to realign the overall maturity of the portfolio or to raise cash to
meet shareholder redemptions.

Principal Risk Factors

Loss of money is a risk of investing in the Intermediate-Term U.S. Treasury
Fund. The Fund is subject to interest rate risk. Generally, when market
interest rates rise, the price of the Fund's debt securities will fall, and
when market interest rates fall, the price of the Fund's debt securities will
rise. Such changes in price generally will be greater the longer the maturity
of the debt security.

The prices of STRIPs can be more volatile than other Treasury securities when
market interest rates change.

Due to the conservative nature of this Fund, it may be suitable for you if you
want higher current income than a stable-priced money market fund, but with
greater price stability than a longer-term bond fund.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Intermediate-Term U.S. Treasury Fund by showing how the Fund's
performance has varied from year to year and how its average annual returns for
the one, five and ten year periods compare to the Merrill Lynch Intermediate-
Term Treasury Index, a widely recognized index of intermediate-term Treasury
securities. As with all mutual funds, past performance is not a prediction of
future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

2
<PAGE>

SAFECO Intermediate-Term U.S. Treasury Fund, continued

SAFECO Intermediate-Term
U.S. Treasury Fund
Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 7.16%
12/31/91 13.52%
12/31/92 6.57%
12/31/93 10.84%
12/31/94 -3.61%
12/31/95 16.75%
12/31/96 0.38%
12/31/97 8.29%
12/31/98 9.61%
12/31/99 -1.98%
</TABLE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 6.22% for the quarter ended September 30, 1998, and the lowest return was
-3.45% for the quarter ended March 31, 1994.

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Merrill Lynch Intermediate-Term Treasury Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Intermediate-Term U.S. Treasury Fund -1.98% 6.40% 6.56%
---------------------------------------------------------------
Merrill Lynch Intermediate-Term
Treasury Index* 0.55% 6.98% 7.12%
</TABLE>

* The Merrill Lynch Intermediate-Term Treasury Index is an unmanaged index
comprised of coupon paying bonds valued at $1 billion or more with
maturities between 1 to 9.9 years. The index does not reflect fees,
brokerage commissions, or other costs of investing. This index is used for
comparison purposes only, and the Fund's holdings do not necessarily mirror
the index. Performance is based on historical earnings and does not indicate
the Fund's future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

3
<PAGE>

SAFECO Intermediate-Term U.S. Treasury Fund, continued

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

No-Load Class shares of the Fund are sold without any initial sales charge
(load) or contingent deferred sales charges. There are no exchange or
redemption fees (except a $20 charge for wire redemptions). A $12 annual "small
account" fee will be charged for accounts with balances under $1,000 in the
Fund at year end.

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees 0.55%
12b-1 Fees NONE
Other Expenses 0.55%
Total Annual Fund Operating Expenses 1.10%
Fee Waiver* 0.15%
Net Expenses 0.95%
</TABLE>

* Adjusted to reflect the effect of the fee waiver on a calendar year basis,
stated as a percentage of the Fund's average daily net assets. SAFECO Asset
Management Company (SAM) has contractually agreed, from May 1, 1999 through
April 30, 2009, to pay the Fund's aggregate operating expenses which exceed,
in any given month, the rate of .40% per annum of the Fund's average daily
net assets ("Expense Limitation"). This arrangement does not include the
Fund's management fee, brokerage commissions, taxes, interest or
extraordinary expenses. To the extent that the aggregate amount SAM paid or
assumed in any prior months in a given year (May 1, 1999 through April 30,
2009) exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Other expenses include custody, accounting and administration expenses;
transfer agency and related expenses; shareholder servicing expenses;
expenses related to preparing, printing and delivering prospectuses and
shareholder reports; the expenses of holding shareholder meetings; legal
and audit fees; trustees' compensation; federal and state registration
fees; and extraordinary expenses.

4
<PAGE>

SAFECO Intermediate-Term U.S. Treasury Fund, continued

Example

The following example is intended to help you compare the cost of investing in
the Intermediate-Term U.S. Treasury Fund with the cost of investing in other
mutual funds. This example assumes that you invest $10,000 in the Intermediate-
Term U.S. Treasury Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's net operating expenses
remain the same. Although your actual costs may be higher or lower, costs based
on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $97 $303 $526 $1,166
</TABLE>

SAFECO GNMA Fund

Objective

SAFECO GNMA Fund seeks to provide as high a level of current interest income as
is consistent with the preservation of capital through the purchase of U.S.
government securities.

Principal Investment Strategies

The GNMA Fund, during normal market conditions, will invest at least 65% of its
total assets in mortgage-backed securities issued by the Government National
Mortgage Association (GNMA). These securities have the following
characteristics:

. Principal and interest are guaranteed by GNMA. This guarantee represents a
general obligation of the U.S. Treasury.

. All mortgage loans in the pool are either insured by the Federal Housing
Administration or Farmers Home Administration or are guaranteed by the
Veterans Administration.

Government National Mortgage
Association (GNMA) is a government-
owned corporation that acquires,
packages, and resells mortgages and
mortgage purchase commitments in
the form of mortgage-backed
securities.

5
<PAGE>

SAFECO GNMA Fund, continued

. The Fund may purchase both modified pass-through securities and
collateralized mortgage obligations (CMOs).

Modified pass-through securities
"pass through" to investors the
monthly interest and principal
payments from the mortgage loans
in the pool. Although mortgages
are typically issued for 30 years,
many homeowners pay off their
mortgages early. As a result, most
GNMA certificates have an average
life span of 7-10 years. Because
homeowners can pay off their
mortgages at any time (by moving
or refinancing), investors in
these certificates can not be
certain exactly when they will
receive their principal back.

Collateralized mortgage
obligations (CMOs) are mortgage-
backed securities which have been
grouped into classes to provide a
more predictable stream of
interest and principal payments.

While the individual securities in the Fund may rise and fall in value as
market conditions change, the advisor seeks to manage the Fund so that the
portfolio as a whole meets the Fund's investment objective. The Fund may invest
up to 35% of its total assets in other U.S. government securities, including:

. Securities backed by the full faith and credit of the U.S. government, such
as U.S. Treasury bills, notes and bonds.

. Securities that are not supported by the full faith and credit of the U.S.
government but are supported by the issuer's ability to borrow from the U.S.
Treasury, such as securities issued by the Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).

. Securities supported solely by the creditworthiness of the issuer, such as
securities issued by the Tennessee Valley Authority (TVA).

. Other collateralized mortgage obligations (CMOs) issued by the U.S.
government or one of its agencies.

The Fund may also invest in mortgage obligations issued by private issuers that
are collateralized by obligations issued by the U.S. government or one of its
agencies.

The decision to buy or sell securities in the GNMA Fund generally falls into
one or more of the three following categories:

. First, would be a desire to move in or out of various mortgage-backed
securities sectors based upon their relative values, to reduce the Fund's
investment in sectors viewed as overvalued, while increasing the Fund's
investment in undervalued sectors. The advisor's outlook on interest rates,
and the likely effect of a movement in the interest rate market on a
homeowner's decision whether or not to refinance his/her home mortgage, play
a part in the advisor's analysis of the relative values of these sectors.

6
<PAGE>

SAFECO GNMA Fund, continued

. Second, the advisor will generally shorten or lengthen the Fund's average
maturity and duration based upon the advisor's long-term interest rate
outlook.

. Third, the advisor may on occasion need to raise cash to meet shareholder
redemptions. On those occasions the advisor will consider the same criteria
used for buy/sell decisions stated above, as well as the ability to get a
fair price for a particular security given then-current market conditions.

With each buy/sell decision, the advisor also considers the effect the
transaction may have on the performance of the portfolio as a whole.

Principal Risk Factors

Loss of money is a risk of investing in the GNMA Fund. The Fund is subject to
interest rate risk. Generally, when market interest rates rise the price of the
Fund's debt securities will fall, and when market interest rates fall the price
of the Fund's debt securities will rise. Such changes in price generally will
be greater the longer the maturity of the debt security. In addition, during
periods of declining interest rates, mortgage holders may be more likely to pay
off their loans early. These prepayment fluctuations may decrease the overall
investment returns in the Fund.

There are special risks associated with CMOs. The market value of CMOs that pay
interest at floating rates, or are subject to interest rate adjustments, may be
more volatile than fixed-rate obligations. CMOs are subject to prepayment risk
(because mortgage borrowers are more likely to refinance or prepay the
underlying obligations in times of declining interest rates) and repayment
default (because principal and interest payments ultimately depend upon the
underlying mortgage borrowers repaying their mortgage loans). If the underlying
borrowers default, the remaining or repossessed collateral for the CMOs may not
be adequate to support payments on the securities.

This Fund offers a combination of relative price stability and yield. It may be
suitable for you if you want to earn more income than you can earn with U.S.
Treasury securities, yet still wish to own a portfolio of securities with the
backing of the U.S. government.

7
<PAGE>

SAFECO GNMA Fund, continued

Performance

The following bar chart and table provide some indication of the risks of
investing in the GNMA Fund by showing how the Fund's performance has varied
from year to year and how its average annual returns for the one, five and ten
year periods compare to the Merrill Lynch GNMA Index, a widely recognized index
of GNMA securities. As with all mutual funds, past performance is not a
prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO GNMA Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 8.71%
12/31/91 14.81%
12/31/92 6.70%
12/31/93 7.08%
12/31/94 -4.27%
12/31/95 15.48%
12/31/96 3.98%
12/31/97 8.97%
12/31/98 6.84%
12/31/99 0.16%
</TABLE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 5.02% for the quarter ended September 30, 1991; and the lowest return was -
3.58% for the quarter ended March 31, 1994.

8
<PAGE>

SAFECO GNMA Fund, continued

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Merrill Lynch GNMA Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
GNMA Fund 0.16% 6.97% 6.69%
----------------------------------------------------
Merrill Lynch GNMA Index* 1.91% 8.15% 8.07%
</TABLE>

* The Merrill Lynch GNMA Index is an unmanaged index comprised of 132 issues
of government pass- through mortgages with maturities from 15 to 30 years
and par values of $100 million. The index does not reflect fees, brokerage
commissions, or other costs of investing. This index is used for comparison
purposes only, and the Fund's holdings do not necessarily mirror the index.
Performance is based on historical earnings and does not indicate the Fund's
future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

9
<PAGE>

SAFECO GNMA Fund, continued

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.55%
12b-1 Fees NONE
Other Expenses 0.40%
Total Annual Fund Operating Expenses 0.95%
Fee Waiver** 0.00%
Net Expenses 0.95%
</TABLE>

* Restated to reflect current expenses stated as a percentage of the Fund's
average daily net assets.
** SAFECO Asset Management Company (SAM) has contractually agreed, from May 1,
1999 through April 30, 2009, to pay the Fund's aggregate operating expenses
which exceed, in any given month, the rate of .40% per annum of the Fund's
average daily net assets ("Expense Limitation"). This arrangement does not
include the Fund's management fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM paid
or assumed in any prior months in a given year (May 1, 1999 through April
30, 2009) exceed the Expense Limitation, SAM may offset such amounts
against the Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Example

The following example is intended to help you compare the cost of investing in
the GNMA Fund with the cost of investing in other mutual funds. This example
assumes that you invest $10,000 in the GNMA Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The example
also assumes that your investment has a 5% return each year and that the Fund's
net operating expenses remain the same. Although your actual costs may be
higher or lower, costs based on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $97 $303 $526 $1,166
</TABLE>

10
<PAGE>

SAFECO High-Yield Bond Fund

Objective

The SAFECO High-Yield Bond Fund seeks to provide a high level of current
interest income through the purchase of high-yield, debt securities.

Principal Investment Strategies

The High-Yield Bond Fund, during normal market conditions, will invest at
least 65% of its portfolio in high-yield, debt securities. The Fund may invest
in:

. Debt securities and convertible securities which are rated below investment
grade.

. Unrated securities. The Fund may invest up to 25% of its assets in
securities that have not been rated.

. Restricted securities eligible for resale under Rule 144A, or Section 4(2),
provided that the advisor has determined that such securities are liquid
under guidelines adopted by the Fund's Board of Trustees.

Debt securities are interest paying
instruments issued by corporations or
other issuers.

Convertible securities are debt or
preferred stock which may be exchanged
for common stock. Their prices are
influenced by changes in interest rates
and the values of the assets into which
they may be exchanged.

Rule 144A securities are securities
which are exempt from registration
requirements. After a minimum two-year
waiting period, they can be sold to
qualified institutional investors, such
as mutual funds.

Section 4(2) securities are exempt from
registration requirements and sold in
private placements to qualified
institutional investors such as mutual
funds.

High-yield debt securities ("junk bonds") carry greater risks than investment
grade bonds. However, the advisor seeks to reduce risk by understanding the
financial prospects of the companies the Fund invests in and by maintaining a
well-diversified portfolio.

The decision to either buy or sell a security in the Fund is based first upon
a fundamental analysis of the issuer, including the company's
creditworthiness, liquidity, and prospects for growing earnings and cash flow.
Next, the advisor examines alternative bonds with similar credit statistics,
and/or related lines of business. This helps the advisor determine whether the
bond in question is a good value relative to its peers. Finally, the advisor
considers the bond's interest rate sensitivity, coupon, and call features (the
bond's structure).

The advisor may decide to sell a security if the original evaluation
concerning the issuer's creditworthiness, liquidity or prospects changes, if
the value reaches a specific target, or to raise cash to meet shareholder
redemptions.

11
<PAGE>

SAFECO High-Yield Bond Fund, continued

Principal Risk Factors

Loss of money is a risk of investing in the High-Yield Bond Fund. The Fund is
subject to interest rate risk. Generally, when market interest rates rise the
price of the Fund's debt securities will fall, and when market interest rates
fall the price of the Fund's debt securities will rise. Such changes in price
generally will be greater the longer the maturity of the debt security.

Because the Fund invests predominantly in high-yield debt securities, the Fund
is subject to greater volatility, reduced liquidity and a higher risk of
repayment default than a fund holding predominantly investment grade
securities. High-yield debt securities involve greater investment risks due to
the issuers' reduced creditworthiness, which may indicate the issuer has a
reduced ability to make debt repayments and may make it more difficult for the
issuer to withstand economic downturns or to obtain additional financing. This
Fund may be suitable for you if you can tolerate greater risk in pursuit of
higher total returns.

Performance

The following bar chart and table provide some indication of the risks of
investing in the High-Yield Bond Fund by showing how the Fund's performance has
varied from year to year and how its average annual returns for the one, five
and ten year periods compare to the Merrill Lynch High-Yield Index, a widely
recognized index of high-yield bonds. As with all mutual funds, past
performance is not a prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

12
<PAGE>

SAFECO High-Yield Bond Fund, continued

SAFECO High-Yield Bond
Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 -3.60%
12/31/91 24.29%
12/31/92 13.87%
12/31/93 16.91%
12/31/94 -2.25%
12/31/95 15.64%
12/31/96 10.39%
12/31/97 12.79%
12/31/98 4.45%
12/31/99 3.74%
</TABLE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 7.23% for the quarter ended March 31, 1991, and the lowest return was -4.54%
for the quarter ended September 30, 1990.

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Merrill Lynch High-Yield Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
High-Yield Bond Fund 3.74% 9.30% 9.30%
----------------------------------------------------------
Merrill Lynch High-Yield Index* 2.51% 9.89% 11.34%
</TABLE>

* The Merrill Lynch High-Yield Index is an unmanaged index comprised of
outstanding debt of domestic market issuers rated below investment grade but
not in default. The index does not reflect fees, brokerage commissions, or
other costs of investing. This index is used for comparison purposes only,
and the Fund's holdings do not necessarily mirror the index. Performance is
based on historical earnings and does not indicate the Fund's future
performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

13
<PAGE>

SAFECO High-Yield Bond Fund, continued

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.65%
12b-1 Fees NONE
Other Expenses 0.40%
Total Annual Fund Operating Expenses 1.05%
Fee Waiver** 0.00%
Net Expenses 1.05%
</TABLE>

* Restated to reflect current expenses stated as a percentage of the Fund's
average daily net assets.
** SAFECO Asset Management Company (SAM) has contractually agreed, from
May 1,1999 through April 30, 2009, to pay the Fund's aggregate operating
expenses which exceed, in any given month, the rate of .40% per annum of
the Fund's average daily net assets ("Expense Limitation"). This
arrangement does not include the Fund's management fee, brokerage
commissions, taxes, interest or extraordinary expenses. To the extent that
the aggregate amount SAM paid or assumed in any prior months in a given
year (May 1, 1999 through April 30, 2009) exceed the Expense Limitation,
SAM may offset such amounts against the Expense Limitation for the current
month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

14
<PAGE>

SAFECO High-Yield Bond Fund, continued

Example

The following example is intended to help you compare the cost of investing in
the High-Yield Bond Fund with the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the High-Yield Bond Fund for the
time periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the Fund's net operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $107 $334 $579 $1,283
</TABLE>

SAFECO Managed Bond Fund

Objective

The SAFECO Managed Bond Fund seeks to provide as high a level of total return
as is consistent with the relative stability of capital through the purchase of
investment grade debt securities.

Principal Investment Strategies

The Managed Bond Fund will invest at least 65% of its total assets in bonds.

. The Fund will invest primarily in investment grade debt securities (or
unrated securities which are comparable in quality to investment grade debt
securities).

. The Fund will invest at least 50% of its total assets in U.S. government
securities.

. The Fund may invest in mortgage-backed or asset-backed securities.

Bond ratings indicate an issuer's
financial strength and ability to
meet its debt obligations. The
advisor may use rating services
provided by Moody's, S&P or Fitch.

Investment grade securities are
rated by these services as follows:

<TABLE>
<CAPTION>
Moody's S&P Fitch
------- --- -----
<S> <C> <C>
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB
</TABLE>

Debt securities are interest paying
instruments issued by corporations
or other issuers.

U.S. government securities are
securities issued by the U.S.
government or its agencies or
instrumentalities, such as the
Federal Home Loan Bank or the
Federal Land Bank.

15
<PAGE>

SAFECO Managed Bond Fund, continued

The advisor analyzes each security it considers for purchase in two ways.
First, the advisor looks at the security on a stand-alone basis:

. Is it priced attractively given its rating and market sector?

. Does the price and interest rate adequately compensate for any structural
characteristics of the security, such as the right of an investor to require
that the issuer buy the security back at a stated price or the right of an
issuer to buy the security back at the stated price?

Next, the advisor looks at how the security fits into the Fund's overall
investment portfolio:

. Overall, what effects would a purchase of this security have on the
portfolio's yield and its sensitivity to interest rate changes?

. How would an investment in this security affect the portfolio's yield curve
exposure, the allocation among various market sectors, and diversification?
The advisor may sell securities when either this relative value analysis
shows another sector of the market is more attractive, the advisor believes
another security within the same sector offers a better value, or to raise
cash to meet shareholder redemptions.

Yield curve is a graphical
depiction of yields of like
securities from the shortest
maturity to the longest maturity.

. If the rating of a security is downgraded after it has been purchased by the
Fund, the advisor will engage in an orderly disposition of securities to
ensure that no more than 5% of the Fund's assets are invested in below-
investment grade securities.

Principal Risk Factors

Loss of money is a risk of investing in the Managed Bond Fund. The Fund is
subject to interest rate risk. Generally, when market interest rates rise the
price of the Fund's debt securities will fall, and when market interest rates
fall the price of the Fund's debt securities will rise. Such changes in price
generally will be greater the longer the maturity of the debt security.

16
<PAGE>

SAFECO Managed Bond Fund, continued

during economic downturns and periods of rising interest rates. In addition,
investment in the Fund carries risks associated with the following types of
securities:

. Mortgage-backed securities. During periods of declining interest rates,
mortgage holders may be more likely to pay off their loans early. These
prepayment fluctuations may decrease the overall investment returns of the
Fund.

. Asset-backed securities. The underlying borrower(s) may default on the loan
and the recovered collateral may not be sufficient to cover the interest and
principal payments.

This Fund may be suitable for you if you want high current income and stability
of capital.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Managed Bond Fund by showing how the Fund's performance has
varied from year to year and how its average annual return for the one and five
year periods, and since the date of the Fund's inception, compare to the Lehman
Brothers Government/ Corporate Index, a widely recognized index of government
and corporate bonds. As with all mutual funds, past performance is not a
prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO Managed Bond Fund
Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90
12/31/91
12/31/92
12/31/93
12/31/94
12/31/95 17.35%
12/31/96 0.02%
12/31/97 8.23%
12/31/98 8.43%
12/31/99 -3.82%
</TABLE>

<PAGE>

SAFECO Managed Bond Fund, continued

Since the Fund's inception in 1994, the highest quarterly return was 5.74% for
the quarter ended June 30, 1995; and the lowest return was -3.27% for the
quarter ended March 31, 1996.

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average total returns
compare to the Lehman Brothers Government/Corporate Index:

<TABLE>
<CAPTION>
February 28, 1994
(inception) to
1 year 5 year December 31, 1999
<S> <C> <C> <C>
Managed Bond Fund -3.82% 5.79% 4.39%
----------------------------------------------------------------------
Lehman Brothers Gov't./Corp. Index* -2.15% 7.61% 5.96%
</TABLE>

* The Lehman Brothers Gov't/Corp. Index is an unmanaged index comprised of
every major U.S. government and investment-grade corporate bond with more
than a year remaining until maturity. The index does not reflect fees,
brokerage commissions, or other costs of investing. This index is used for
comparison purposes only, and the Fund's holdings do not necessarily mirror
the index. Performance is based on historical earnings and does not indicate
the Fund's future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

18
<PAGE>

SAFECO Managed Bond Fund, continued

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees 0.50%
12b-1 Fees NONE
Other Expenses 0.91%
Total Annual Fund Operating Expenses 1.41%
Fee Waiver* 0.51%
Net Expenses 0.90%
</TABLE>

* Adjusted to reflect the effect of the fee waiver on a calendar year basis,
stated as a percentage of the Fund's average daily net assets. SAFECO Asset
Management Company (SAM) has contractually agreed, from May 1,1999 through
April 30, 2009, to pay the Fund's aggregate operating expenses which exceed,
in any given month, the rate of .40% per annum of the Fund's average daily
net assets ("Expense Limitation"). This arrangement does not include the
Fund's management fee, brokerage commissions, taxes, interest or
extraordinary expenses. To the extent that the aggregate amount SAM paid or
assumed in any prior months in a given year (May 1, 1999 through April 30,
2009) exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Example

The following example is intended to help you compare the cost of investing in
the Managed Bond Fund with the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Managed Bond Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the Fund's net operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $92 $287 $498 $1,108
</TABLE>

19
<PAGE>

SAFECO California Tax-Free Income Fund

Objective

The SAFECO California Tax-Free Income Fund seeks to provide as high a level of
current interest income exempt from federal income tax and California state
personal income tax as is consistent with the relative stability of capital.
This Fund is available to California, Oregon, Nevada and Arizona residents.

Principal Investment Strategies

The California Tax-Free Income Fund invests primarily in investment grade
municipal bonds issued by the state of California or its political
subdivisions, having average maturities of 15-25 years.

Bond ratings indicate an issuer's
financial strength and ability to
meet its debt obligations. The
advisor may use rating services
provided by Moody's, S&P or Fitch.

Investment grade securities are
rated by these services as follows:

<TABLE>
<CAPTION>
Moody's S&P Fitch
------- --- -----
<S> <C> <C>
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB
</TABLE>

Municipal bonds are issued by
cities, counties, and states and
other government entities to cover
borrowing needs.

The Fund will invest:

. At least 80% of its assets in securities whose interest is exempt from
federal income tax and California personal income tax, and will not invest
in securities whose interest is subject to the alternative minimum tax.

. At least 65% of its assets in investment grade municipal bonds with a
maturity of more than one year.

The Fund may invest:

. Up to 20% of its total assets in unrated municipal bonds, as long as they
are of comparable quality to investment grade securities.

When evaluating a bond for purchase, the advisor takes into consideration,
among other things, yield, maturity, structural features that give the issuer a
right to buy the bond back at a stated price (a "call") or give the Fund a
right to require the issuer to buy the bond back at a stated price (a "put"),
credit quality (including the underlying rating of insured bonds), the purpose
of the financing, the original offering price, any state or local tax
exemption, and the amount of discount off or premium on the stated principal
amount of the bond represented by the price offered. After evaluating these
features of a bond, the advisor compares the bond to the universe of other
available

20
<PAGE>

SAFECO California Tax-Free Income Fund, continued

bonds, which may have different features, and will purchase the bond if it
appears to offer the best relative value.

In selecting bonds for purchase, the advisor favors long maturity bonds in
essential services that offer a significant degree of protection against issuer
repurchase rights prior to maturity, and good value relative to their peers.
The advisor may sell bonds when they become fully valued, when more
attractively valued bonds become available or to raise cash to meet shareholder
redemptions. In any case, turnover among the Fund's portfolio securities will
remain low, because it often takes years for attractive relative valuations to
be recognized by the municipal securities market.

Principal Risk Factors

Loss of money is a risk of investing in the California Tax-Free Income Fund.
The Fund is subject to interest rate risk. Generally, when market interest
rates rise the price of the Fund's debt securities will fall, and when market
interest rates fall the price of the Fund's debt securities will rise. Such
changes in price generally will be greater the longer the maturity of the debt
security.

Although securities in the top four rating categories are considered
"investment grade," Moody's considers bonds rated "Baa" to have speculative
characteristics. These lower-quality securities may be subject to greater risk
of repayment default, particularly during economic downturns and periods of
rising interest rates. Money to repay limited obligations and revenue bonds,
which provide financing for a specific project or public facility, may be
limited to the revenues generated by those projects or facilities, or to
special tax revenues. There are greater risks of repayment default for these
securities because repayment may depend on the credit of private entity, and
the general revenues of the public issuer will not be available for repayment.

Because the Fund concentrates its investments in a single state, there may be
more fluctuation in the value of its securities than is the case for mutual
funds whose portfolios are more geographically diverse. In addition, the Fund
may experience greater volatility than a fund invested in bonds with shorter
average maturities.

This Fund may be suitable for you if you wish to earn income that is free from
federal income tax and free from California state personal income tax.

21
<PAGE>

SAFECO California Tax-Free Income Fund, continued

Performance

The following bar chart and table provide some indication of the risks of
investing in the California Tax-Free Income Fund by showing how the Fund's
performance has varied from year to year and how its average annual returns for
the one, five and ten year periods compare to the Lehman Brothers Long
Municipal Bond Index, a widely recognized index of municipal bonds having long
maturities. As with all mutual funds, past performance is not a prediction of
future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO California Tax-Free
Income Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 6.97%
12/31/91 12.55%
12/31/92 8.00%
12/31/93 13.23%
12/31/94 -9.20%
12/31/95 26.14%
12/31/96 2.53%
12/31/97 11.55%
12/31/98 6.19%
12/31/99 -9.18%
</TABLE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 10.59% for the quarter ended March 31, 1995; and the lowest return was
-6.16% for the quarter ended March 31, 1994.

22
<PAGE>

SAFECO California Tax-Free Income Fund, continued

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
California Tax-Free Income Fund -9.18% 6.83% 6.40%
---------------------------------------------------------------------
Lehman Brothers Long Municipal Bond Index* -6.67% 7.41% 7.19%
</TABLE>

* The Lehman Brothers Long Municipal Bond Index is an unmanaged index
comprised of municipal bonds maturing in 22 or more years. The index is not
limited to California issuers. The index does not reflect fees, brokerage
commissions, or other costs of investing. This index is used for comparison
purposes only, and the Fund's holdings do not necessarily mirror the index.
Performance is based on historical earnings and does not indicate the Fund's
future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

23
<PAGE>

SAFECO California Tax-Free Income Fund, continued

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.50%
12b-1 Fees NONE
Other Expenses 0.23%
Total Annual Fund Operating Expenses 0.73%
Fee Waiver** 0.00%
Net Expenses 0.73%
</TABLE>

* Restated to reflect current expenses stated as a percentage of the Fund's
average daily net assets.
** SAFECO Asset Management Company (SAM) has contractually agreed, from May
1, 1999 through April 30, 2009, to pay the Fund's aggregate operating
expenses which exceed, in any given month, the rate of .40% per annum of
the Fund's average daily net assets ("Expense Limitation"). This
arrangement does not include the Fund's management fee, brokerage
commissions, taxes, interest or extraordinary expenses. To the extent that
the aggregate amount SAM paid or assumed in any prior months in a given
year (May 1, 1999 through April 30, 2009) exceed the Expense Limitation,
SAM may offset such amounts against the Expense Limitation for the current
month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Example

The following example is intended to help you compare the cost of investing in
the California Tax-Free Income Fund with the cost of investing in other mutual
funds. This example assumes that you invest $10,000 in the California Tax-Free
Income Fund for the time periods indicated and then redeem all of your shares
at the end of those periods. The example also assumes that your investment has
a 5% return each year and that the Fund's net operating expenses remain the
same. Although your actual costs may be higher or lower, costs based on these
assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $75 $233 $406 $906
</TABLE>

24
<PAGE>

SAFECO Municipal Bond Fund

Objective

The SAFECO Municipal Bond Fund seeks to provide as high a level of current
interest income exempt from federal income tax as is consistent with the
relative stability of capital.

Principal Investment Strategies

The Municipal Bond Fund invests primarily in municipal bonds rated investment
grade or better with average maturities of 15-25 years.

Municipal bonds are issued by
cities, counties, and states and
other government entities to cover
borrowing needs.

Bond ratings indicate an issuer's
financial strength and ability to
meet its debt obligations. The
advisor may use rating services
provided by Moody's, S&P or Fitch.

Investment grade securities are
rated by these services as follows:

<TABLE>
<CAPTION>
Moody's S&P Fitch
------- --- -----
<S> <C> <C>
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB
</TABLE>

The Fund will invest:

. At least 80% of its assets in securities whose interest is exempt from
federal income tax, and will not invest in securities whose interest is
subject to the alternative minimum tax.
. At least 65% of its assets in investment grade municipal bonds with a
maturity of more than one year.

The Fund may invest:

. Up to 20% of its total assets in unrated municipal bonds, as long as they
are of comparable quality to investment grade securities.

25
<PAGE>

SAFECO Municipal Bond Fund, continued

In selecting bonds for purchase, the advisor favors long maturity bonds in
essential services that offer a significant degree of protection against issuer
repurchase rights prior to maturity and good value relative to their peers. In
addition, the advisor considers the relative weighting of the Fund's holdings
among states. The advisor may sell bonds when they become fully valued, when
more attractively valued bonds become available, or to raise cash to meet
shareholder redemptions. In any case, turnover among the Fund's portfolio
securities will remain low, because it often takes years for attractive
relative valuations to be recognized by the municipal securities market.

Principal Risk Factors

Loss of money is a risk of investing in the Municipal Bond Fund. The Fund is
subject to interest rate risk. Generally, when market interest rates rise the
price of the Fund's debt securities will fall, and when market interest rates
fall the price of the Fund's debt securities will rise. Also, such changes in
price generally will be greater the longer the maturity of the debt security.

Although securities in the top four rating categories are considered
"investment grade," Moody's considers bonds rated "Baa" to have speculative
characteristics. These lower-quality securities may be subject to greater risk
of repayment default, particularly during economic downturns and periods of
rising interest rates. Money to repay limited obligations and revenue bonds,
which provide financing for a specific project or public facility, may be
limited to the revenues generated by those projects or facilities, or to
special tax revenues. There are greater risks of repayment default for these
securities because repayment may depend on the credit of a private entity, and
the general revenues of the public issuer will not be available for repayment.
In addition, the Fund may experience greater volatility than a Fund invested in
bonds with a shorter average maturity.

This Fund may be suitable for you if you seek high current tax-exempt income
and relative stability of principal.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Municipal Bond Fund by showing how the Fund's performance has
varied from year to year and how its average annual returns for the one, five
and ten year periods compare to the Lehman Brothers Long Municipal Bond Index,
a widely recognized

26
<PAGE>

SAFECO Municipal Bond Fund, continued

index of municipal bonds having long maturities. As with all mutual funds, past
performance is not a prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO Municipal Bond
Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 6.65%
12/31/91 13.78%
12/31/92 8.75%
12/31/93 12.66%
12/31/94 -8.25%
12/31/95 21.48%
12/31/96 3.18%
12/31/97 10.68%
12/31/98 6.35%
12/31/99 -6.18%
</TABLE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 8.82% for the quarter ended March 31, 1995; and the lowest return was -6.77%
for the quarter ended March 31, 1994.

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Municipal Bond Fund -6.18% 6.72% 6.56%
---------------------------------------------------------------------
Lehman Brothers Long Municipal Bond Index* -6.67% 7.41% 7.19%
</TABLE>

* The Lehman Brothers Long Municipal Bond Index is an unmanaged index
comprised of municipal bonds maturing in 22 or more years. The index does
not reflect fees, brokerage commissions or other costs of investing. This
index is used for comparison purposes only, and the Fund's holdings do not
necessarily mirror the index. Performance is based on historical earnings
and does not indicate the Fund's future performance.

27
<PAGE>

SAFECO Municipal Bond Fund, continued

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees 0.45%
12b-1 Fees NONE
Other Expenses 0.15%
Total Annual Fund Operating Expenses 0.60%
Fee Waiver* 0.00%
Net Expenses 0.60%
</TABLE>

* SAFECO Asset Management Company (SAM) has contractually agreed, from May 1,
1999 through April 30, 2009, to pay the Fund's aggregate operating expenses
which exceed, in any given month, the rate of .40% per annum of the Fund's
average daily net assets ("Expense Limitation"). This arrangement does not
include the Fund's management fee, brokerage commissions, taxes, interest or
extraordinary expenses. To the extent that the aggregate amount SAM paid or
assumed in any prior months in a given year (May 1, 1999 through April 30,
2009) exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

28
<PAGE>

SAFECO Municipal Bond Fund, continued

Example

The following example is intended to help you compare the cost of investing in
the Municipal Bond Fund with the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Municipal Bond Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the Fund's net operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $61 $192 $335 $750
</TABLE>

SAFECO Intermediate-Term Municipal Bond Fund

Objective

The SAFECO Intermediate-Term Municipal Bond Fund seeks to provide as high a
level of current interest income exempt from federal income tax as is
consistent with prudent investment risk.

Principal Investment Strategies

The Intermediate-Term Municipal Bond Fund is the most conservative of the
SAFECO municipal bond funds. The Fund invests primarily in municipal bonds
rated investment grade or better. Because the Fund is an "intermediate-term"
fund, it will maintain an average dollar-weighted maturity of between 3 and 10
years for the portfolio as a whole. However, individual securities held by the
Fund may have maturities outside that range. It is designed to provide much of
the yield potential of a long-term bond fund but with less fluctuation in share
price.

Municipal bonds are issued by
cities, counties, and states and
other government entities to cover
borrowing needs.

Bond ratings indicate an issuer's
financial strength and ability to
meet its debt obligations. The
advisor may use rating services
provided by Moody's, S&P or Fitch.

Investment grade securities are
rated by these services as follows:

<TABLE>
<CAPTION>
Moody's S&P Fitch
------- --- -----
<S> <C> <C>
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB

</TABLE>

29
<PAGE>

SAFECO Intermediate-Term Municipal Bond Fund, continued

The Fund will invest:

. At least 80% of its assets in securities whose interest is exempt from
federal income tax, and will not invest in securities whose interest is
subject to the alternative minimum tax.

. At least 65% of its assets in investment grade municipal bonds with
maturities of more than one year.

The Fund may invest:

. Up to 20% of its total assets in unrated municipal bonds, as long as they
are of comparable quality to investment grade securities.

The advisor may sell bonds when more attractively valued bonds become
available, or in order to raise cash to meet shareholder redemptions.

Principal Risk Factors

Loss of money is a risk of investing in the Intermediate-Term Municipal Bond
Fund. The Fund is subject to interest rate risk. Generally, when market
interest rates rise the price of the Fund's debt securities will fall, and when
market interest rates fall the price of the Fund's debt securities will rise.
Such changes in price generally will be greater the longer the maturity of the
debt security.

30
<PAGE>

SAFECO Intermediate-Term Municipal Bond Fund, continued

obligations and revenue bonds, which provide financing for a specific project
or public facility, may be limited to the revenues generated by those projects
or facilities, or to special tax revenues. There are greater risks of repayment
default for these securities because repayment may depend on the credit of a
private entity, and the general revenues of the public issuer will not be
available for repayment.

This conservative Fund is suitable for investors seeking federally tax-exempt
income with relative price stability.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Intermediate-Term Municipal Bond Fund by showing how the
Fund's performance has varied from year to year and how its average annual
returns for the one and five year periods, and since the date of the Fund's
inception, compare to the Lehman Brothers 7-Year Municipal Bond Index, a widely
recognized index of municipal bonds. As with all mutual funds, past performance
is not a prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO Intermediate-Term
Municipal Bond Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90
12/31/91
12/31/92
12/31/93
12/31/94 -5.62%
12/31/95 15.22%
12/31/96 3.75%
12/31/97 7.50%
12/31/98 5.33%
12/31/99 -0.84%
</TABLE>

Since the Fund's inception in 1993, the highest quarterly return was 6.25% for
the quarter ended March 31, 1995; and the lowest return was -4.47% for the
quarter ended March 31, 1994.

<PAGE>

SAFECO Intermediate-Term Municipal Bond Fund, continued

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Lehman Brothers 7-Year Municipal Bond Index:

<TABLE>
<CAPTION>
March 18, 1993
(inception) to
1 year 5 years December 31, 1999
<S> <C> <C> <C>
Intermediate-Term
Municipal Bond Fund -0.84% 6.06% 4.61%
----------------------------------------------------------
Lehman Brothers 7-Year
Municipal Bond Index* -0.14% 6.36% 5.29%
</TABLE>

* The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index
comprised of municipal bonds maturing in 6 to 8 years. The index does not
reflect fees, brokerage commissions, or other costs of investing. This index
is used for comparison purposes only, and the Fund's holdings do not
necessarily mirror the index. Performance is based on historical earnings
and does not indicate the Fund's future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

32
<PAGE>

SAFECO Intermediate-Term Municipal Bond Fund, continued

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.50%
12b-1 Fees NONE
Other Expenses 0.41%
Total Annual Fund Operating Expenses 0.91%
Fee Waiver** 0.01%
Net Expenses 0.90%
</TABLE>

* Restated to reflect current expenses stated as a percentage of the Fund's
average daily net assets.
** Adjusted to reflect the effect of the fee waiver on a calendar year basis,
stated as a percentage of the Fund's average daily net assets. SAFECO Asset
Management Company (SAM) has contractually agreed, from May 1, 1999 through
April 30, 2009, to pay the Fund's aggregate operating expenses which
exceed, in any given month, the rate of .40% per annum of the Fund's
average daily net assets ("Expense Limitation"). This arrangement does not
include the Fund's management fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM paid
or assumed in any prior months in a given year (May 1, 1999 through April
30, 2009) exceed the Expense Limitation, SAM may offset such amounts
against the Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Example

The following example is intended to help you compare the cost of investing in
the Intermediate-Term Municipal Bond Fund with the cost of investing in other
mutual funds. This example assumes that you invest $10,000 in the Intermediate-
Term Municipal Bond Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The example also assumes that your
investment has a 5% return each year and that the Fund's net operating expenses
remain the same. Although your actual costs may be higher or lower, costs based
on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $92 $287 $498 $1,108
</TABLE>

33
<PAGE>

SAFECO Insured Municipal Bond Fund

Objective

The SAFECO Insured Municipal Bond Fund seeks to provide as high a level of
current interest income exempt from federal income tax as is consistent with
prudent investment risk.

Principal Investment Strategies

The Insured Municipal Bond Fund will invest at least 65% of its assets in
municipal bonds that are covered by insurance guaranteeing the timely payment
of both principal and interest. This insurance may be in the form of new issue
insurance or secondary market insurance. Any premiums paid by the Fund to
purchase insurance policies will be a Fund expense and may reduce the Fund's
current yield.

Municipal bonds are issued by
cities, counties, and states and
other government entities to cover
borrowing needs.

New issue insurance is a policy
purchased by an issuer prior to
bringing a bond issue to market in
an initial offering. By purchasing
the policy, the issuer obtains a
higher credit rating for its bond
(usually Aaa by Moody's or AAA by
S&P or Fitch). Such insurance may
increase the purchase price as well
as the resale value of the bond.

Secondary market insurance is
purchased by an investor after the
bonds have been issued. These
policies normally insure specific
bonds for the remainder of their
term.

The Fund may invest up to 35% of its total assets in uninsured municipal bonds.

The Fund will invest at least 80% of its assets in securities whose interest is
exempt from federal income tax, and will not invest in securities whose
interest is subject to the alternative minimum tax.

34
<PAGE>

SAFECO Insured Municipal Bond Fund, continued

The advisor seeks to keep the Fund as fully invested as possible, to maximize
yield. In selecting bonds, the advisor pays particular attention to protection
against issuer call rights and invests in discount bonds to enhance protection
against issuer calls.

The advisor may swap bonds to improve call protection, to realize losses for
the purpose of offsetting gains, or to increase yield. The advisor will sell
bonds if the Fund needs to raise cash to meet shareholder redemptions.

Principal Risk Factors

Loss of money is a risk of investing in the Insured Municipal Bond Fund.
Insurance does not guarantee the market value of insured municipal bonds or the
share price of the Fund. The Fund is subject to interest rate risk. Generally,
when market interest rates rise the price of the Fund's debt securities will
fall, and when market interest rates fall the price of the Fund's debt
securities will rise. Also, such changes in price generally will be greater the
longer the maturity of the debt security.

There can be no assurance that the companies issuing insurance covering the
bonds purchased by the Fund will be able to meet their obligations, especially
in an environment of wide-spread issuer defaults.

This Fund is appropriate for investors seeking federally tax-exempt income from
a portfolio of securities insured for the timely payment of principal and
interest.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Insured Municipal Bond Fund by showing how the Fund's
performance has varied from year to year and how its average annual returns for
the one and five year periods, and since the date of the Fund's inception,
compare to the Lehman Brothers Insured Municipal Bond Index, a widely
recognized index of insured municipal bonds. As with all mutual funds, past
performance is not a prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

35
<PAGE>

SAFECO Insured Municipal Bond Fund, continued

SAFECO Insured Municipal
Bond Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90
12/31/91
12/31/92
12/31/93
12/31/94 -10.43%
12/31/95 24.37%
12/31/96 2.56%
12/31/97 10.70%
12/31/98 5.90%
12/31/99 -7.99%
</TABLE>

Since the Fund's inception in 1993, the highest quarterly return was 10.13% for
the quarter ended March 31, 1995; and the lowest return was -9.14% for the
quarter ended March 31, 1994.

Average Annual Total Returns
as of December 31, 1999

The following table shows how the Fund's No-Load Class average annual returns
compare to the Lehman Brothers Insured Municipal Bond Index:

<TABLE>
<CAPTION>
March 18, 1993
(inception) to
1 year 5 years December 31, 1999
<S> <C> <C> <C>
Insured Municipal Bond Fund -7.99% 6.59% 4.25%
--------------------------------------------------------------------------
Lehman Brothers Insured Municipal Bond
Index* -7.51% 7.13% 5.21%
</TABLE>

* The Lehman Brothers Insured Municipal Bond Index is an unmanaged index
comprised of insured municipal bonds. The index does not reflect fees,
brokerage commissions, or other costs of investing. This index is used for
comparison purposes only, and the Fund's holdings do not necessarily mirror
the index. Performance is based on historical earnings and does not indicate
the Fund's future performance.

Investment returns and principal value vary with market conditions. Your shares
may be worth more or less than their original value when you sell them.

36
<PAGE>

SAFECO Insured Municipal Bond Fund, continued

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.50%
12b-1 Fees NONE
Other Expenses 0.36%
Total Annual Fund Operating Expenses 0.86%
Fee Waiver* 0.00%
Net Expenses 0.86%
</TABLE>

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

37
<PAGE>

SAFECO Insured Municipal Bond Fund, continued

Example

The following example is intended to help you compare the cost of investing in
the Insured Municipal Bond Fund with the cost of investing in other mutual
funds. This example assumes that you invest $10,000 in the Insured Municipal
Bond Fund for the time periods indicated and then redeem all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and that the Fund's net operating expenses remain the same.
Although your actual costs may be higher or lower, costs based on these
assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $88 $274 $477 $1,061
</TABLE>

SAFECO Money Market Fund

Objective

The SAFECO Money Market Fund seeks as high a level of current income as is
consistent with the preservation of capital and liquidity through investment in
high-quality money market instruments maturing in 13 months or less.

Principal Investment Strategies

The Money Market Fund will purchase only high-quality securities having minimal
credit risk. The Fund will purchase only securities with remaining maturities
of 397 days or less and will maintain a dollar-weighted average portfolio
maturity of no more than 90 days.

The Fund may invest in:

. Commercial paper of both domestic and foreign issuers

. Negotiable and non-negotiable certificates of deposit, bankers' acceptances
and other short-term obligations of U.S. and foreign banks

. Repurchase agreements

Commercial paper is a short-term
unsecured promissory note issued by
a financial institution or large
corporation, and may include
funding agreements issued by
insurance companies.

Certificates of deposit are
receipts for deposits of funds in a
financial institution. They permit
the holder to receive interest plus
the deposit at maturity.

Repurchase agreements are
arrangements in which the Fund buys
securities at one price and
simultaneously agrees to sell them
back at a higher price.

38
<PAGE>

SAFECO Money Market Fund, continued

. Variable and floating rate instruments

. U.S. government securities

. Restricted securities eligible for resale under Rule 144A or Section 4(2),
provided that the advisor has determined that such securities are liquid
under guidelines adopted by the Fund's Board of Trustees

. Corporate obligations such as publicly traded bonds and notes

. Asset-backed securities

. When-issued and delayed delivery securities

Variable and floating rate
instruments have interest rates
that change periodically in order
to keep their market value at par.

U.S. government securities are
securities issued by the U.S.
government or its agencies or
instrumentalities, such as the
Federal Home Loan Bank or the
Federal Land Bank.

Rule 144A securities are securities
which are exempt from registration
requirements. After a minimum two-
year waiting period, they can be
sold to qualified institutional
investors, such as mutual funds.

Section 4(2) securities are exempt
from registration requirements and
sold in private placements to
qualified institutional investors
such as mutual funds.

Corporate obligations are debt
instruments issued by a private
corporation, as distinct from ones
issued by a government agency or a
municipality.

Asset-backed securities represent
interests in pools of consumer
loans, automobile loans, credit
card loans and installment loan
contracts.

When-issued and delayed delivery
securities are securities whose
terms and conditions, including
price, are fixed by the issuer, but
are to be issued and delivered
against payment in the future --
typically 30 to 45 days after the
date of commitment.

When evaluating a security for purchase, the advisor takes into consideration,
among other things, yield, maturity, issuer credit quality and relative value
compared with other alternatives. The advisor may sell a security if the
advisor becomes concerned about the issuer's creditworthiness, if a more
attractive alternative is available, or to raise cash to meet shareholder
redemptions.

Principal Risk Factors

Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund. The Money Market
Fund's yield will fluctuate with short-term interest rates.

An investment in the Fund is not a bank deposit, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. The Fund may be suitable for you if you seek safety and
stability of principal.

39
<PAGE>

SAFECO Money Market Fund, continued

Performance

The following bar chart and table provide some indication of the risks of
investing in the Money Market Fund by showing how the Fund's performance has
varied from year to year and showing its average annual returns for the one,
five and ten year periods. As with all mutual funds, past performance is not a
prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends as well as share price gain or loss.

SAFECO Money Market
Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 7.98%
12/31/91 5.74%
12/31/92 3.27%
12/31/93 2.50%
12/31/94 3.53%
12/31/95 5.28%
12/31/96 4.75%
12/31/97 4.93%
12/31/98 5.08%
12/31/99 4.65%
</TABLE>

During the 10-year period shown in the chart, the highest quarterly return was
1.96% for the quarter ended March 31, 1990; and the lowest return was 0.59% for
the quarter ended June 30, 1993.

Average Annual Total Returns and 7-Day Yield
as of December 31, 1999

The following table shows average annual returns for the Fund's No-Load Class:

<TABLE>
<CAPTION>
7-day yield
(period ended
1 year 5 years 10 years December 31, 1999)
<S> <C> <C> <C> <C>
Money Market Fund 4.65% 4.94% 4.76% 5.35%
</TABLE>

For updated yield information, call 800-835-4391.

40
<PAGE>

SAFECO Money Market Fund, continued

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees 0.50%
12b-1 Fees NONE
Other Expenses 0.45%
Total Annual Fund Operating Expenses 0.95%
Fee Waiver* 0.15%
Net Expenses 0.80%
</TABLE>

* Adjusted to reflect the effect of the fee waiver on a calendar year basis,
stated as a percentage of the Fund's average daily net assets. SAFECO Asset
Management Company (SAM) has contractually agreed, from May 1, 1999 through
April 30, 2009, to pay the Fund's aggregate operating expenses which exceed,
in any given month, the rate of .30% per annum of the Fund's average daily
net assets ("Expense Limitation"). This arrangement does not include the
Fund's management fee, brokerage commissions, taxes, interest or
extraordinary expenses. To the extent that the aggregate amount SAM paid or
assumed in any prior months in a given year (May 1, 1999 through April 30,
2009) exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

41
<PAGE>

SAFECO Money Market Fund, continued

Example

The following example is intended to help you compare the cost of investing in
the Money Market Fund with the cost of investing in other mutual funds. This
example assumes that you invest $10,000 in the Money Market Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The example also assumes that your investment has a 5% return each
year and that the Fund's net operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $82 $255 $444 $990
</TABLE>

SAFECO Tax-Free Money Market Fund

Objective

The SAFECO Tax-Free Money Market Fund seeks to provide as high a level of
current income exempt from federal income tax as is consistent with a portfolio
of high-quality, short-term municipal obligations selected on the basis of
liquidity and preservation of capital.

Principal Investment Strategies

. The Fund will purchase only high-quality securities having minimal credit
risk.

. The Fund will purchase only securities with remaining maturities of 397 days
or less and the Fund will maintain a dollar-weighted average portfolio
maturity of no more than 90 days.

. The Fund may invest in municipal notes, including bond anticipation notes,
tax anticipation notes, revenue anticipation notes, municipal bonds and
municipal commercial paper.

Municipal notes are issued by
cities, counties, states and other
government entities to cover short
term borrowing needs.

. The Fund may invest in floating and variable rate securities, including
tender option bonds and variable rate receipts which typically have interest
rates that change weekly and permit the holder to require the issuer to buy
the bond or receipt back at par plus amortized interest on a stated date.

42
<PAGE>

SAFECO Tax-Free Money Market Fund, continued

. The Fund will invest at least 80% of its assets in securities that pay
interest which is exempt from federal income tax and the federal alternative
minimum tax.

Principal Risk Factors

Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money in a money market fund. The Tax-Free Money
Market Fund's yield will fluctuate with short-term interest rates.

An investment in the Fund is not a bank deposit, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency. This Fund may be suitable for you if you seek safety and
stability of principal in an investment that pays federally tax-free income.

Performance

The following bar chart and table provide some indication of the risks of
investing in the Tax-Free Money Market Fund by showing how the Fund's
performance has varied from year to year and showing its average annual returns
for the one, five and ten year periods. As with all mutual funds, past
performance is not a prediction of future results.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss.

SAFECO Tax-Free Money
Market Fund Chart
<TABLE>
<CAPTION>
Year Percent
Ended Return
-------- -------
<S> <C>
12/31/90 5.64%
12/31/91 4.34%
12/31/92 2.73%
12/31/93 2.02%
12/31/94 2.45%
12/31/95 3.54%
12/31/96 3.07%
12/31/97 3.12%
12/31/98 3.07%
12/31/99 2.77%
</TABLE>

43
<PAGE>

SAFECO Tax-Free Money Market Fund, continued

During the 10-year period shown in the chart, the highest quarterly return was
1.45% for the quarter ended December 31, 1990; and the lowest return was 0.47%
for the quarter ended March 31, 1994.

Average Annual Total Returns and 7-Day Yield
as of December 31, 1999

The following table shows average annual returns for the Fund's No-Load Class:

<TABLE>
<CAPTION>
7-day yield
(period ended
1 year 5 years 10 years December 31, 1999)
<S> <C> <C> <C> <C>
Tax Free Money Market Fund 2.77% 3.11% 3.27% 3.80%
</TABLE>

For updated yield information, call 800-835-4391.

Fees and Expenses

The following paragraphs describe the fees and expenses that you may pay if you
buy and hold shares of the Fund.

Shareholder Fees (fees paid directly from your investment)

44
<PAGE>

SAFECO Tax-Free Money Market Fund, continued

Annual Fund Operating Expenses (expenses that are deducted from Fund assets)

<TABLE>
<S> <C>
Management Fees* 0.50%
12b-1 Fees NONE
Other Expenses 0.24%
Total Annual Fund Operating Expenses 0.74%
Fee Waiver** 0.00%
Net Expenses 0.74%
</TABLE>

* Restated to reflect current expenses stated as a percentage of the Fund's
average daily net assets.
** Adjusted to reflect the effect of the fee waiver on a calendar year basis,
stated as a percentage of the Fund's average daily net assets. SAFECO Asset
Management Company (SAM) has contractually agreed, from May 1, 1999 through
April 30, 2009, to pay the Fund's aggregate operating expenses which
exceed, in any given month, the rate of .30% per annum of the Fund's
average daily net assets ("Expense Limitation"). This arrangement does not
include the Fund's management fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM paid
or assumed in any prior months in a given year (May 1, 1999 through April
30, 2009) exceed the Expense Limitation, SAM may offset such amounts
against the Expense Limitation for the current month.

Management fees are paid to SAFECO Asset Management Company (SAM) for
investment advisory services including the provision of research,
supervision and assistance in the management of the Fund.

Example

The following example is intended to help you compare the cost of investing in
the Tax-Free Money Market Fund with the cost of investing in other mutual
funds. This example assumes that you invest $10,000 in the Tax-Free Money
Market Fund for the time periods indicated and then redeem all of your shares
at the end of those periods. The example also assumes that your investment has
a 5% return each year and that the Fund's net operating expenses remain the
same. Although your actual costs may be higher or lower, costs based on these
assumptions would be:

<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
No-Load Class $76 $237 $411 $918
</TABLE>

45
<PAGE>

Additional Fund Facts

This prospectus describes some of the Funds' investment policies and
strategies. The Funds' Statement of Additional Information includes additional
information concerning the Funds' additional investment policies and
strategies. A Fund may exceed percentage limits that apply to particular
investments if, after the Fund's investment, market movements cause asset
values to change.

Investment objective changes. In rare circumstances, a Fund may, with approval
from its board of trustees, change its investment objective. If this happens,
the Fund may no longer meet your investment needs. Should the board of
trustees vote to change a Fund's objective, you will be notified in writing at
least 30 days prior to the change.

Temporary defensive strategies. From time to time, a Fund may take temporary
defensive positions that are inconsistent with its principal investment
policies in an attempt to respond to adverse market, economic, political or
other conditions. For temporary defensive strategies, a Fund may hold cash or
invest in high quality, short-term securities issued by an agency or
instrumentality of the U.S. government, high quality commercial paper,
certificates of deposit, shares of no-load, open-end money market funds or
repurchase agreements. A Fund taking a temporary defensive position may not
achieve its investment objective in the short run.

Market Risk. All securities transactions involve market risk. The major risk
associated with mutual funds is that the securities in the portfolio may
decline in value, causing your investment to be worth less than when you
bought it. Investing in mutual fund shares is therefore not the same as making
a bank deposit, and your investment is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.

46
<PAGE>

Management

SAFECO Asset Management Company (SAM) is the investment advisor for each Fund,
providing investment research, advice and supervision in the ongoing management
of the portfolio. Based on each Fund's investment objective and policies, SAM
determines what securities the Fund will purchase, retain or sell and
implements those decisions. Each Fund pays SAM an annual advisory fee based on
a percentage of that Fund's average daily net assets, calculated each business
day and paid monthly. The Funds paid SAM advisory and administrative fees at
the following rates, as a percentage of average daily net assets, for the year
ended December 31, 1999:

<TABLE>
<S> <C>
Intermediate-Term U.S. Treasury .55%
GNMA .58%
High-Yield Bond .59%
Managed Bond .50%
California Tax-Free Income .51%
Municipal Bond .45%
Intermediate-Term Municipal Bond .51%
Insured Municipal Bond .55%
Money Market .50%
Tax-Free Money Market .46%
</TABLE>

SAM is a wholly owned subsidiary of SAFECO Corporation, which is located at
SAFECO Plaza, Seattle, Washington 98185. SAM is located at Two Union Square,
25th Floor, Seattle, Washington 98101.

Portfolio Managers

Intermediate-Term U.S. Treasury Fund

The Intermediate-Term U.S. Treasury Fund is managed by Naomi Urata, Vice
President of SAM. Ms. Urata began managing the Fund in 1999. She is a co-
manager of the SAFECO Money Market Fund, and was that Fund's portfolio manager
from 1994 to early 2000.

47
<PAGE>

Portfolio Managers, continued

GNMA Fund

The GNMA Fund is managed by Paul A. Stevenson. Mr. Stevenson has managed or co-
managed the Fund since 1988, and is a Vice President of SAM and Vice President
of SAFECO Life Insurance Company.

High-Yield Bond Fund

The High-Yield Bond Fund is managed by a team of investment professionals at
SAFECO Asset Management Company, the Fund's investment advisor. All investment
decisions are made by this team and no single person has primary responsibility
for making recommendations to the team.

Managed Bond Fund

The Managed Bond Fund is managed by Michael Hughes, Assistant Vice President of
SAM. Mr. Hughes has managed the Fund since 1997. From 1995 to 1996 he was Vice
President and a portfolio manager for First Interstate Capital Management
Company.

California Tax-Free Income Fund

The California Tax-Free Income Fund is managed by Stephen C. Bauer, President
and Director of SAM. Mr. Bauer has managed the SAFECO California Tax-Free
Income Fund since 1983, and is the portfolio manager for other SAFECO Funds.

Municipal Bond Fund

The Municipal Bond Fund is managed by Stephen C. Bauer, President and Director
of SAM. Mr. Bauer has managed the SAFECO Municipal Bond Fund since 1981, and is
the portfolio manager for other SAFECO Funds.

Intermediate-Term Municipal Bond Fund

The Intermediate-Term Municipal Bond Fund is managed by Mary Metastasio, Vice
President of SAM. Ms. Metastasio has managed the Fund since 1996, and has been
the portfolio manager for the SAFECO Tax-Free Money Market Fund since 1987.

Insured Municipal Bond Fund

The Insured Municipal Bond Fund is managed by Beverly Denny, Assistant Vice
President of SAM. Ms. Denny began managing the Fund in 2000. Previously, she
was the portfolio manager for the SAFECO Washington State Municipal Bond Fund.

48
<PAGE>

Portfolio Managers, continued

Money Market Fund

The Money Market Fund is managed by Lesley Fox, Assistant Vice President of
SAM. Ms. Fox has been a co-manager of the Fund since May 1, 2000. From 1994 to
2000 she was a senior investment officer for King County, Washington.

Tax-Free Money Market Fund

The Tax-Free Money Market Fund is managed by Mary Metastasio, Vice President of
SAM. Ms. Metastasio has managed the Fund since 1987.

Financial Highlights

The Financial Highlights tables which follow are intended to help you
understand the Funds' financial performance for the past five years (or, if
shorter, since commencement of operations). Certain information reflects
financial results for a single Fund share. The total returns in the tables
reflect the rate that an investor would have earned (or lost) on an investment
in a Fund (assuming reinvestment of all dividends and other distributions).
This information has been audited by Ernst & Young LLP, independent auditors,
whose report, along with the Funds' financial statements, are incorporated by
reference in the Statement of Additional Information, which is available upon
request.

49
<PAGE>

Financial Highlights, continued

SAFECO Intermediate-Term U.S. Treasury Fund (For a No-Load Class Share
Outstanding Throughout the Period)

<TABLE>
<CAPTION>
Three-Month For the Year
For the Year Ended Period Ended Ended
December 31 December 31 September 30
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 10.74 $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74

Income from investment
operations
Net investment income 0.54 0.57 0.58 0.16 0.54 0.55
Net realized and
unrealized gain (loss)
on investments (0.75) 0.40 0.23 0.01 (0.14) 0.50
--------------------------------------------------------------------------------------
Total from investment
operations (0.21) 0.97 0.81 0.17 0.40 1.05

Less distributions
Dividends from net
investment income (0.54) (0.57) (0.58) (0.16) (0.54) (0.55)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.99 $ 10.74 $ 10.34 $ 10.11 $ 10.10 $ 10.24
--------------------------------------------------------------------------------------
Total return (1.98%) 9.61% 8.29% 1.68%* 4.00% 11.07%

Net assets at end of
period (000's) $19,092 $24,061 $15,698 $14,679 $14,668 $13,774

Ratio of expenses to
average net assets 0.93%+ 0.90% 0.92% 0.85%+ 1.01% 0.96%

Ratio of net investment
income to average net
assets 5.22% 5.38% 5.74% 6.30%** 5.30% 5.51%

Portfolio turnover rate 13.93% 2.83% 82.36% 125.42%** 294.25% 124.90%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.10% and 1.07% for
the year or period ended December 31, 1999 and 1996.

50
<PAGE>

Financial Highlights, continued

SAFECO GNMA Fund (For a No-Load Class Share Outstanding Throughout the Period)

Income from investment
operations
Net investment income 0.55 0.57 0.60 0.15 0.60 0.60
Net realized and
unrealized gain (loss)
on investments (0.54) 0.07 0.21 0.10 (0.19) 0.40
--------------------------------------------------------------------------------------
Total from investment
operations 0.01 0.64 0.81 0.25 0.41 1.00

Less distributions
Dividends from net
investment income (0.55) (0.57) (0.60) (0.15) (0.60) (0.60)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.10 $ 9.64 $ 9.57 $ 9.36 $ 9.26 $ 9.45
--------------------------------------------------------------------------------------
Total return 0.16% 6.84% 8.97% 2.71%* 4.48% 11.49%

Net assets at end of
period (000's) $39,449 $42,145 $38,172 $39,543 $39,703 $44,055

Ratio of expenses to
average net assets 0.94%+ 0.94% 0.93% 1.01%** 1.03% 1.01%

Ratio of net investment
income to average net
assets 5.92% 5.90% 6.40% 6.43%** 6.42% 6.55%

Portfolio turnover rate 132.51% 104.63% 82.70% 51.06%** 47.45% 131.24%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 0.98% for the year
ended December 31, 1999.

51
<PAGE>

Financial Highlights, continued

SAFECO High-Yield Bond Fund (For a No-Load Class Share Outstanding Throughout
the Period)

Income from investment
operations
Net investment income 0.71 0.74 0.77 0.19 0.78 0.79
Net realized and
unrealized gain (loss)
on investments (0.40) (0.35) 0.31 0.03 0.11 0.13
--------------------------------------------------------------------------------------
Total from investment
operations 0.31 0.39 1.08 0.22 0.89 0.92

Less distributions
Dividends from net
investment income (0.71) (0.74) (0.77) (0.19) (0.78) (0.79)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 8.38 $ 8.78 $ 9.13 $ 8.82 $ 8.79 $ 8.68
--------------------------------------------------------------------------------------
Total return 3.74% 4.45% 12.79% 2.50%* 10.79% 11.43%

Net assets at end of
period (000's) $73,004 $79,696 $71,058 $50,298 $47,880 $39,178

Ratio of expenses to
average net assets 0.95%+ 0.92% 0.91% 0.90%** 0.94% 1.01%

Ratio of net investment
income to average net
assets 8.31% 8.26% 8.58% 8.56%** 8.99% 9.28%

Portfolio turnover rate 70.65% 64.22% 85.06% 35.01%** 92.65% 38.03%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 0.99% for the year
ended December 31, 1999.

52
<PAGE>

Financial Highlights, continued

SAFECO Managed Bond Fund (For a No-Load Class Share Outstanding Throughout the
Period)

<TABLE>
<CAPTION>
For the Year Ended December 31
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 8.64 $ 8.60 $ 8.35 $ 8.77 $ 8.15

Income from
investment operations
Net investment
income 0.41 0.42 0.42 0.41 0.44
Net realized and
unrealized gain (loss)
on investments (0.74) 0.29 0.25 (0.42) 0.94
-------------------------------------------------------------------
Total from investment
operations (0.33) 0.71 0.67 (0.01) 1.38

Less distributions
Dividends from net
investment income (0.41) (0.42) (0.42) (0.41) (0.44)
Distributions from
realized gains -- (0.25) -- -- (0.32)
-------------------------------------------------------------------
Total distributions (0.41) (0.67) (0.42) (0.41) (0.76)
-------------------------------------------------------------------
Net asset value at
end of period $ 7.90 $ 8.64 $ 8.60 $ 8.35 $ 8.77
-------------------------------------------------------------------
Total return (3.82)% 8.43% 8.23% 0.02% 17.35%

Net assets at end of
period (000's) $6,781 $6,757 $4,627 $4,215 $4,497

Ratio of expenses to
average net assets 0.94%+ 1.16% 1.15% 1.27% 1.16%

Ratio of net investment
income to average
net assets 5.10% 4.79% 4.98% 4.86% 5.14%

Portfolio turnover rate 146.87% 132.76% 176.50% 136.29% 78.78%
</TABLE>

+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 1.41% for the year
ended December 31, 1999.

53
<PAGE>

Financial Highlights, continued

SAFECO California Tax-Free Income Fund (For a No-Load Class Share Outstanding
Throughout the Period)

<TABLE>
<CAPTION>
Three-Month For the Year
For the Year Ended Period Ended Ended
December 31 December 31 March 31
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 12.74 $ 12.93 $ 12.22 $ 11.86 $ 11.54 $ 11.51

Income from investment
operations
Net investment income 0.56 0.60 0.60 0.47 0.62 0.63
Net realized and
unrealized gain (loss)
on investments (1.70) 0.18 0.76 0.39 0.40 0.13
---------------------------------------------------------------------------------------
Total from investment
operations (1.14) 0.78 1.36 0.86 1.02 0.76

Less distributions
Dividends from net
investment income (0.56) (0.60) (0.60) (0.47) (0.62) (0.63)
Distributions from
realized gains -- (0.37) (0.05) (0.03) (0.08) (0.10)
---------------------------------------------------------------------------------------
Total distributions (0.56) (0.97) (0.65) (0.50) (0.70) (0.73)
---------------------------------------------------------------------------------------
Net asset value at
end of period $ 11.04 $ 12.74 $ 12.93 $ 12.22 $ 11.86 $ 11.54
---------------------------------------------------------------------------------------
Total return (9.18%) 6.19% 11.55% 7.42%* 8.87% 7.01%

Net assets at end of
period (000's) $85,782 $112,457 $88,379 $72,084 $70,546 $64,058

Ratio of expenses to
average net assets 0.74% 0.68% 0.68% 0.69%** 0.68% 0.70%

Ratio of net investment
income to average net
assets 4.66% 4.60% 4.88% 5.21%** 5.12% 5.65%

Portfolio turnover rate 24.66% 38.78% 9.83% 10.52%** 16.25% 44.10%
</TABLE>

* Not annualized.

54
<PAGE>

Financial Highlights, continued

SAFECO Municipal Bond Fund (For a No-Load Class Share Outstanding Throughout
the Period)

<TABLE>
<CAPTION>
Nine-Month For the Year
For the Year Ended Period Ended Ended
December 31 December 31 March 31
1999 1998 1997 1996 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 14.45 $ 14.52 $ 13.98 $ 13.69 $ 13.36 $ 13.27

Income from investment
operations
Net investment income 0.69 0.73 0.75 0.57 0.76 0.77
Net realized and
unrealized gain (loss)
on investments (1.56) 0.17 0.70 0.29 0.33 0.12
-------------------------------------------------------------------------------------------
Total from investment
operations (0.87) 0.90 1.45 0.86 1.09 0.89

Less distributions
Dividends from net
investment income (0.69) (0.73) (0.75) (0.57) (0.76) (0.77)
Distributions from
realized gains -- (0.24) (0.16) -- -- (0.03)
-------------------------------------------------------------------------------------------
Total distributions (0.69) (0.97) (0.91) (0.57) (0.76) (0.80)
-------------------------------------------------------------------------------------------
Net asset value at
end of period $ 12.89 $ 14.45 $ 14.52 $ 13.98 $ 13.69 $ 13.36
-------------------------------------------------------------------------------------------
Total return (6.18%) 6.35% 10.68% 6.42%* 8.23% 7.10%

Net assets at end of
period (000's) $470,267 $539,860 $502,946 $480,970 $480,643 $472,569

Ratio of expenses to
average net assets 0.60% 0.51% 0.51% 0.53%** 0.54% 0.56%

Ratio of net investment
income to average net
assets 5.04% 5.01% 5.31% 5.53%** 5.47% 5.96%

Portfolio turnover rate 16.84% 20.80% 13.52% 6.66%** 12.60% 26.96%
</TABLE>

* Not annualized.
** Annualized.

55
<PAGE>

Financial Highlights, continued

SAFECO Intermediate-Term Municipal Bond Fund (For a No-Load Class Share
Outstanding Throughout the Period)

Income from investment
operations
Net investment income 0.45 0.47 0.47 0.35 0.45 0.45
Net realized and
unrealized gain (loss)
on investments (0.54) 0.10 0.31 0.12 0.32 0.04
--------------------------------------------------------------------------------------
Total from investment
operations (0.09) 0.57 0.78 0.47 0.77 0.49

Less distributions
Dividends from net
investment income (0.45) (0.47) (0.47) (0.35) (0.45) (0.45)
Distributions from
realized gains (0.02) -- -- -- -- --
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 10.46 $ 11.02 $ 10.92 $ 10.61 $ 10.49 $ 10.17
--------------------------------------------------------------------------------------
Total return (0.84%) 5.33% 7.50% 4.53%* 7.63% 4.97%

Net assets at end of
period (000's) $14,607 $15,487 $13,780 $14,172 $14,981 $13,762

Ratio of expenses to
average net assets 0.86%+ 0.83% 0.83% 0.89%** 0.84% 0.85%

Ratio of net investment
income to average net
assets 4.18% 4.25% 4.37% 4.40%** 4.29% 4.46%

Portfolio turnover rate 10.51% 4.29% 10.52% 12.81%** 9.12% 4.27%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 0.92% for the year
ended December 31, 1999.

56
<PAGE>

Financial Highlights, continued

SAFECO Insured Municipal Bond Fund (For a No-Load Class Share Outstanding
Throughout the Period)

Income from investment
operations
Net investment income 0.48 0.49 0.50 0.37 0.48 0.48
Net realized and
unrealized gain (loss)
on investments (1.36) 0.17 0.62 0.28 0.41 0.32
-------------------------------------------------------------------------------------
Total from investment
operations (0.88) 0.66 1.12 0.65 0.89 0.80

Less distributions
Dividends from net
investment income (0.48) (0.49) (0.50) (0.37) (0.48) (0.48)
Distributions from
realized gains -- (0.20) -- -- -- --
-------------------------------------------------------------------------------------
Net asset value at
end of period $ 9.97 $ 11.33 $ 11.36 $ 10.74 $ 10.46 $10.05
-------------------------------------------------------------------------------------
Total return (7.99%) 5.90% 10.70% 6.31%* 8.95% 8.58%

Net assets at end of
period (000's) $22,364 $24,998 $16,516 $13,187 $11,758 $8,163

Ratio of expenses to
average net assets 0.88%+ 0.88% 0.92% 1.00%** 0.99% 1.08%

Ratio of net investment
income to average net
assets 4.45% 4.29% 4.56% 4.66%** 4.53% 5.11%

Portfolio turnover rate 32.78% 27.30% 13.02% 14.86%** 3.71% 14.76%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 0.91% for the year
ended December 31, 1999.

57
<PAGE>

Financial Highlights, continued

SAFECO Money Market Fund (For a No-Load Class Share Outstanding Throughout the
Period)

Income from investment
operations
Net investment income 0.05 0.05 0.05 0.03 0.05 0.04
-------------------------------------------------------------------------------------------
Less distributions
Dividends from net
investment income (0.05) (0.05) (0.05) (0.03) (0.05) (0.04)
-------------------------------------------------------------------------------------------
Net asset value at end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------------------------------
Total return 4.65% 5.08% 4.93% 3.54%* 5.15% 4.20%

Net assets at end of
period (000's) $240,459 $227,329 $176,623 $161,356 $165,122 $171,958

Ratio of expenses to
average net assets 0.81%+ 0.79% 0.78% 0.81%** 0.78% 0.78%

Ratio of net investment
income to average net
assets 4.55% 4.97% 4.82% 4.66%** 5.04% 4.21%
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the annualized
ratio of expenses to average net assets would have been 0.95% for the year
ended December 31, 1999.

58
<PAGE>

Financial Highlights, continued

Safeco Tax-Free Money Market Fund (For a No-Load Class Share Outstanding
Throughout the Period)

Income from investment
operations
Net investment income 0.03 0.03 0.03 0.02 0.03 0.03

Less distributions
Dividends from net
investment income (0.03) (0.03) (0.03) (0.02) (0.03) (0.03)
--------------------------------------------------------------------------------------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------------
Total return 2.77% 3.07% 3.12% 2.29%* 3.44% 2.84%

Net assets at end of
period (000's) $77,323 $77,457 $75,437 $73,164 $79,702 $77,320

Ratio of expenses to
average net assets 0.66%+ 0.63% 0.63% 0.65%** 0.65% 0.64%

Ratio of net investment
income to average net
assets 2.72% 3.04% 3.11% 3.03%** 3.40% 2.79%
</TABLE>

* Not annualized
** Annualized
+ Net of fee waiver by advisor. Absent the waiver, the annualized ratio of
expenses to average net assets would have been 0.70% for the year ended
December 31, 1999.

59
<PAGE>

Fund Distributions and Tax Considerations

When The Funds Pay Distributions

Each Fund declares dividends, if any, each business day and pays them monthly.
Your shares become entitled to dividends on the next business day after you
purchase them. If you request a redemption of all your shares at any time
during a month, you will receive all declared dividends through the date of
redemption, together with the redemption proceeds. All Funds, except the Money
Market and Tax-Free Money Market Funds, pay capital gain distributions and
special dividends, if any, in December.

Dividends are distributions of a
Fund's net investment income --
including interest income and
earned discounts -- less expenses.

Capital gain distributions
represent net profits made on
securities that are sold for more
than they originally cost.

Dividends and other distributions paid by a Fund on the No-Load Class and each
other class of its shares are calculated at the same time in the same manner.

How Distributions Are Credited to Your Account

We will reinvest your dividends and capital gain distributions at the NAV on
the ex-distribution date unless you tell us in writing that you wish to
receive your distributions in cash. Retirement accounts must reinvest all
dividends and other distributions in the distributing Fund unless the account
owner is over age 59 1/2.

Net asset value (NAV) is the market
value of one share of a Fund. It is
calculated by adding up the value
of all the Fund's assets,
subtracting liabilities and
dividing this sum by the total
number of shares owned by the
Fund's shareholders.

Ex-distribution date is the first
day that a Fund's NAV is reduced by
the amount of the most recently
declared distribution.

How Distributions Are Taxed

Depending on which Fund you invest in, your dividends may be taxable or wholly
or partially tax-free; other distributions will be fully taxable, regardless
of the Fund that makes them. If distributions are taxable, they must be
included in your taxable income, whether you reinvest the distributions or
receive them in cash. Depending on the nature of the distribution, it may be
taxed either as ordinary income or capital gain. Thus, distributions of a
Fund's taxable dividends and its net short-term capital gains will be taxed to
you as ordinary income, while distributions of a Fund's net long-term capital
gains (to the extent they exceed its net short-term capital losses) will be
taxable to you as long-term capital gain. The tax treatment of capital gain
distributions as short-term or long-term depends on how long the Fund held the
securities it sold that generated the gain, not on how long you held your Fund
shares. Currently, net long-term capital gain distributions generally are
taxed to you (if you

60
<PAGE>

Fund Distributions and Tax Considerations, continued

are a non-corporate shareholder) at a maximum federal tax rate of 20%. We will
notify you as to which type of income or gain you are receiving so you can
declare it properly on your tax return.

You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you provide is correct and that you are
not subject to, or are exempt from, backup withholding for previous
underreporting to the Internal Revenue Service. Unless you are subject to
backup withholding, we will not withhold taxes.

Certain dividends and other distributions declared by a Fund in October,
November or December of any year are taxable to its shareholders as though
received on December 31 of that year even if paid to them during the following
January. Accordingly, those distributions will be taxed to Fund shareholders
for the taxable year in which that December 31 falls.

Please note that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares,
then receive part of the price back as a taxable distribution.

How Dispositions of Shares Are Taxed

When you sell (redeem) shares of a Fund, or exchange Fund shares for shares of
another SAFECO Fund, you may realize a capital gain or loss, except that you
will not recognize any gain or loss on the sale (redemption) or exchange of
shares of the Money Market Fund or the Tax-Free Money Market Fund so long as it
maintains a stable share price of $1.00.

In addition, distributions from tax deferred retirement accounts are generally
subject to federal income tax withholding. However, under some circumstances,
you may elect not to have taxes withheld, or to have taxes withheld at a
specified rate.

If you purchase shares of a Fund within 30 days before or after redeeming other
shares of that Fund (regardless of class) at a loss, all or part of that loss
may not be deductible and may increase the basis of the newly purchased shares.

Special Considerations

U.S. Treasury securities. States generally treat distributions of interest on
U.S. Treasury securities and other direct obligations of the U.S. government as
tax-free income. However, this treatment may depend on a Fund's owning a
certain minimum

61
<PAGE>

Fund Distributions and Tax Considerations, continued

percentage of these securities. The Intermediate-Term U.S. Treasury Fund will
invest primarily in these securities, while the GNMA Fund may occasionally
invest a portion of its portfolio in these securities.

Tax-Exempt Bond Funds and the Tax-Free Money Market Fund. Each of these Funds
pays dividends that are exempt from federal income tax. Certain investments may
result in taxable income, however. These include the following:

. Any portion of dividends representing net capital gains is taxable.

. Income derived from certain bonds purchased below their issue price (at a
discount) is treated as ordinary income. These bonds are typically purchased
in carrying out the Tax-Exempt Bond Funds' call protection strategy.

If you buy shares of a Tax-Exempt Bond Fund and sell them at a loss within six
months, you may deduct only the amount of the loss that exceeds the amount of
dividends from tax-exempt interest that you received during that period.

If you receive Social Security or railroad retirement benefits, you may need to
include tax-free Fund distributions as part of your income when determining any
federal income tax that may be due on those benefits.

California Tax-Free Income Fund. The California Tax-Free Income Fund
(California Fund) pays dividends that are exempt from California state personal
income taxes. Certain situations, in addition to those above, may result in
taxable income, however. These include the following:

. Capital gains distributions paid by the California Fund are treated as long-
term capital gains and are taxable as such, regardless of how long the
shares have been held.

. Redemptions and exchanges of shares of the California Fund may result in a
capital gain or loss for California income tax purposes.

. The tax exemption on interest income from California municipal bonds applies
only to individual shareholders. Such income is taxable for most corporate
shareholders.

This section summarizes only some of the important federal income tax
considerations you should be aware of. For more information, please see the
Statement of Additional Information. Also, there may be other federal, state or
local tax considerations unique to your situation. Consult your tax advisor for
more guidance.

62
<PAGE>

YOUR INVESTMENT

How We Calculate the Value of Your Shares

The price of a Fund's shares is based on its NAV, which is generally calculated
as of the close of regular trading on the New York Stock Exchange (NYSE)
(usually 4:00 Eastern time, 1:00 p.m. Pacific time) every day the NYSE is open.
Your purchase or redemption order will be priced at the next NAV calculated
after your order is accepted by the Fund.

The NYSE is closed on weekends and on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, President's Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

You may purchase or redeem Fund shares through various third-party
intermediaries, including banks, brokers and investment advisors. Where
authorized by the Fund or its transfer agent, those orders will be priced at
the NAV next computed after receipt by the intermediary. If you buy or redeem
Fund shares through an intermediary, consult that firm to determine whether
your purchase or redemption order will be priced upon its receipt of the order,
or at the time the order is received by the Fund. The intermediary may charge a
fee for its services.

To the extent that a Fund's assets are traded in other markets on days when the
NYSE is closed, the value of those assets may be affected on days when the Fund
is not open for business. In addition, trading in some of the Fund's assets may
not occur on days when the Fund is open for business.

How We Value a Fund's Investments

We obtain market value information for each Fund's investments from pricing
services. Values for exchange-traded securities are based on the last reported
sale price on the national exchange on which the securities are primarily
traded, unless there are no transactions, in which case the value is based on
the last reported bid price. Values for non-exchange traded securities are
based on similar securities and quotations from dealers. Investments for which
a market price cannot be established are priced using a method the Funds'
Boards of Trustees believe reflects fair value.

Like most money market funds, each Money Market Fund values securities on the
basis of amortized cost. Amortized cost valuation involves valuing a security
at its cost and adding or subtracting any discount or premium (reflective of
maturity), regardless of the impact of fluctuating interest rates on the market
value of the security. This method minimizes the effect of changes in a
security's market value and helps each Money Market Fund maintain a stable
$1.00 share price.

63
<PAGE>

Opening and Maintaining Your Account

To open an account:

. Complete an account application and send it to SAFECO Mutual Funds with a
check made payable to SAFECO Mutual Funds for your initial investment.

. If you are investing in a retirement account, complete and sign a retirement
account application (note: you may not buy tax-free funds for a retirement
account).

Investing Details

There are several things you should understand before you buy, sell or exchange
shares.

. We must have received your completed, signed application and payment before
we can conduct any Fund transaction (except when money is wired into an
account).

. We do not accept currency, credit card convenience checks or money orders,
and can accept only checks or wires drawn in U.S. dollars on a U.S. bank
account.

. Checks should be made payable to SAFECO Mutual Funds. We reserve the right
to refuse all third party checks.

. You will be charged a $12 service fee for every check or Electronic Funds
Transfer returned unpaid.

. Although we do not normally issue shares in certificate form, we will issue
certificates for whole shares free of charge upon your request. If your
shares are issued in certificate form, you must endorse and submit them with
any sale or exchange request. This physical delivery requirement may delay
your redemption or exchange of shares, because you will not be able to
request a share redemption or exchange over the telephone or using our
Internet Service.

. SAFECO Services charges a $20 fee to wire redemption proceeds. In addition,
some banks may charge a fee to receive wires.

. We reserve the right to refuse the purchase of shares.

. We may require certified copies of supporting documents (e.g., death
certificates and court orders) and a signature guarantee before we can
process certain transactions and requests. Signature guarantees are required
for all written redemption requests of $250,000 or more. Signature
guarantees help ensure that you have in fact authorized a transaction or
change to your account. You can obtain a signature guarantee for a nominal
fee from most banks, brokerage firms and other financial institutions. A
notary public stamp or seal cannot substitute for a signature guarantee.

64
<PAGE>

Opening and Maintaining Your Account, continued

. If you buy shares by any means other than by wire and shortly thereafter
sell your shares, we may hold the proceeds for up to 15 calendar days after
purchase or until we are sure that your bank will honor the investment,
whichever happens first.

In addition to a No-Load Class, some of the Funds offer Class A, Class B and
Class C shares that are sold in a separate prospectus and are subject to
different fees and expenses. The Funds' separate share classes have different
expenses; as a result their investment performances will vary.

Authorizing Signatures

On your account application, you will be asked to specify the number of
signatures required to authorize account changes and transactions. Please note
that allowing fewer than all account owners to authorize account changes and
transactions has important implications. For example, one owner of a joint
account could redeem shares without the co-owner's signature. If you select
fewer than all account owner signatures, you can revoke this instruction by
sending a written request to SAFECO Mutual Funds. Unless you indicate
otherwise, we will require that all account owners sign any account change or
transaction instructions.

Tax-Deferred Retirement Plans and Accounts

SAFECO Mutual Funds offer a variety of tax-deferred retirement plans and
accounts for individuals, businesses, and nonprofit organizations. You may
establish an account under one of the following that will allow you to defer
federal income tax on investment income while you save for retirement. Most of
the Funds (other than the Tax-Exempt Bond Funds and the Tax-Free Money Market
Fund) may be used as investment vehicles for these plans and accounts.

Individual Retirement Accounts (IRAs)
Currently, individuals can generally contribute up to $2,000 to an IRA for each
year. An annual custodial fee of $5 per Fund, up to a maximum of $10, may be
charged for any part of a calendar year in which you have an IRA investment in
a Fund. The custodial fee is waived for retirement accounts with balances over
$10,000. Minimum investment amounts are $1,000 for a Traditional IRA or a Roth
IRA, and $500 for an Education IRA.

65
<PAGE>

Opening and Maintaining Your Account, continued

. Traditional IRA

Depending on your income and other considerations, your contribution to a
Traditional IRA may be partially or fully tax deductible. You pay no tax on
your IRA account earnings until withdrawal.

. Roth IRA

Although contributions to a Roth IRA are not tax deductible, earnings on your
Roth IRA account are tax-free at withdrawal, if you meet certain requirements.

. Education IRA

An Education IRA is a vehicle for saving for a child's higher education. No
more than $500 can be contributed for any year to an Education IRA for the same
beneficiary. Contributions to an Education IRA are not tax deductible, but
earnings on the IRA account are tax-free and withdrawals are not taxable if
used to pay qualified educational expenses. Education IRA accounts are not
charged the custodial fee described above.

Simplified Employee Pension IRAs (SEP-IRAs)

SEP-IRAs are easily administered retirement plans for small businesses and
self-employed individuals. Annual contributions up to the lesser of $25,000
(for the year 2000) or 15% of compensation may be made to SEP-IRA accounts; the
annual contribution limit is subject to change. SEP-IRAs have the same
investment minimums and custodial fees as Traditional IRAs.

403(b) Plans

403(b) plans are retirement plans for certain tax-exempt organizations and
school systems to which both employers and employees may contribute. Minimum
investment amounts are negotiable.

401(k) Plans

401(k) plans allow employers and employees to make tax-advantaged contributions
to a retirement account. Minimum investment amounts are negotiable.

66
<PAGE>

Opening and Maintaining Your Account, continued

Profit Sharing and Money Purchase Pension Plans

Each plan allows corporations, partnerships and self-employed persons to make
annual, tax-deductible contributions to a retirement account for each person
covered by the plan. A plan may be adopted individually or paired with another
plan to maximize contributions. Minimum investment amounts are negotiable. An
annual custodial fee of $10 per Fund may be charged for any part of a calendar
year in which such a retirement account is invested in the Fund.

For information about the above accounts and plans, please call us at 1-800-
624-5711.

Purchasing Your Shares

The price you pay for shares of a Fund is its net asset value, or " NAV," on
the day we receive your check, wire or telephone purchase instruction in good
order. Certain brokers and other third party intermediaries are authorized to
accept purchase orders on the Funds' behalf. We and our authorized
intermediaries reserve the right not to accept customer orders that are
incomplete or otherwise not in good order, and the intermediaries reserve the
right to accept certain institutional customer orders conditioned on the
understanding that the orders may later be rejected if they cannot be
transmitted to us or processed in a timely manner. If we receive your
investment after the NYSE has closed for the day, the price you will pay is the
Fund's NAV as of the next business day.

You may purchase shares of a SAFECO Fund only if it is qualified for sale in
the state where you live.

UGMA stands for Uniform Gifts to Minors Act; UTMA stands for Uniform
Transfers to Minors Act. Most states have adopted either the UGMA or UTMA,
which regulates custodial accounts for minors.

67
<PAGE>

Purchasing Your Shares, continued

By Mail

If you are opening an account and buying shares for the first time:
1. Complete and sign an account application.
2. Send a check made payable to SAFECO Mutual Funds for the appropriate
amount:
. If you are opening an IRA or UGMA/UTMA account, send at least $1,000
per Fund.
. If you are opening an Education IRA, send $500 per Fund.
. If you choose the Automatic Investment Method or Payroll Deduction
Plan, send at least $1,000 per Fund.*
. If none of the above applies, send a check for at least $2,500 per
Fund made payable to SAFECO Mutual Funds.

If you are buying additional shares:
. Our Automatic Investment Method allows you to make regular monthly
investments by authorizing SAFECO to withdraw a specific amount from
your bank account and invest it in the Fund of your choice.
. The minimum investment amount per Fund is $100 ($50 for investments
in IRA accounts made through the Automatic Investment Method).* For
more information, call (800) 624-5711.
1. Send a check for the appropriate amount. The Fund may charge you a $12
service fee if your check is returned to us by your bank due to non-
sufficient funds or other reasons.
2. Enclose the investment slip from your statement, if available.
--------------------------------------------------------------------------------

Mail to: SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890
* If you are an employer that uses group billing, you may establish a self-
administered Payroll Deduction Plan in any SAFECO Fund. Payroll deduction
amounts are negotiable. For more information, call us at (800) 624-5711.

68
<PAGE>

Purchasing Your Shares, continued

By Wire

If you are buying shares for the first time:
Call (800) 624-5711 for more information.
If you are buying additional shares:
1. Call the number above and let us know you are wiring money to your
account.
2. Have your bank wire at least $100 to the wire address below.
3. Have your bank include the following information:
. SAFECO Fund name
. SAFECO account number
. Name(s) of the account owner(s).
4. Note that delays caused by inadequate wire instructions are not
SAFECO's responsibility.
5. Understand that your bank may charge a fee for wire services.
Have your bank send wires to: U.S. Bank of Washington, N.A., Seattle, WA
ABA#1250-0010-5
Account #153 5000 60709

In Person

Whether you are buying shares for the first time or buying additional
shares:
Visit the SAFECO Investor Center at 4333 Brooklyn Avenue NE, Seattle,
Washington 98105. A representative will help you open your account and
complete the transaction.

69
<PAGE>

Purchasing Your Shares, continued

By Phone

This option is not available for new or retirement accounts.
If you are buying additional shares:
1. To become eligible for this service, you must choose it on your
initial application, or send a written request at least 15 days
prior to your use. You must also designate any other authorized
users.
2. You may purchase no more than $50,000 and no less than $100 in share
value per day.
3. Understand that:
. Money will be transferred from your bank account to your Fund
account.
. Your bank may not allow you to transfer money by phone.
. Your bank may charge a fee to transfer money.
. We record all calls for your protection, and a representative may ask
you for identifying information, such as your Social Security number.
. Although our representatives employ security measures to prevent
unauthorized account access, we cannot assure you that telephone
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO Mutual Funds by phone.
. SAFECO Mutual Funds is not responsible for the negligence or wrongful
acts of third parties.
. We may suspend, limit, modify, or terminate phone transaction
privileges at any time without prior notice.
. We may charge you a $12 service fee if your bank refuses the transfer
from your bank account due to non-sufficient funds or other reasons.
--------------------------------------------------------------------------------
Toll-free Client Services:
1-800-624-5711
24-hour Automated Service Line:
1-800-835-4391

70
<PAGE>

Purchasing Your Shares, continued

On The Internet

This option is not available for new or retirement accounts.
If you are buying additional shares:
1. To become eligible for this service, you must choose it on your
initial application or send a written request at least 15 business
days prior to your use. You must also designate any other authorized
users.
2. You may purchase no more than $50,000 and no less than $100 in share
value per day.
3. Understand that:
. Money will be transferred from your bank account to your Fund
account.
. Your bank may not allow you to transfer money over the Internet.
. Your bank may charge a fee to transfer money.
. Although our Web site employs security measures to prevent
unauthorized account access, we cannot assure you that Internet
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO Mutual Funds over the Internet.
. SAFECO Mutual Funds is not responsible for the negligence or wrongful
acts of third parties.
. We may suspend, limit, modify, or terminate Internet transaction
privileges at any time without prior notice.
. We may charge you a $12 service fee if your bank refuses the transfer
from your bank account due to non-sufficient funds or other reasons.

--------------------------------------------------------------------------------
Visit the SAFECO Mutual Funds Web Site at www.safecofunds.com

71
<PAGE>

Purchasing Your Shares, continued

Through a Registered Securities Dealer,
Bank or Other Financial Institution

Whether you are buying shares for the first time or buying additional
shares:
Understand that:
. Your securities dealer may charge you a fee or impose more
restrictions than if you purchase the shares directly from SAFECO
Mutual Funds. (SAFECO has no control over or involvement in this
fee.)
. Your securities dealer is responsible for the prompt forwarding of
instructions on your account and is bound by the terms of this
prospectus.
. SAFECO is not responsible for the actions and recommendations of your
securities dealer.
. The Funds' transfer agent may pay securities dealers and other
financial intermediaries a servicing fee for providing certain
administrative services to retirement plan and other institutional
omnibus accounts, and the Funds' advisor may pay a portion of such
fees from the advisor's own resources.
--------------------------------------------------------------------------------
Call or visit:
Any registered securities dealer, bank or other financial institution
who has a signed selling agreement with SAFECO.

Through a Registered Investment Advisor

Whether you are buying shares for the first time or buying additional
shares:
Understand that:
. Your advisor may charge you a fee. (SAFECO has no control over or
involvement in this fee.)
. Your advisor is responsible for the prompt forwarding of instructions
on your account and is bound by the terms of this prospectus.
. SAFECO is not responsible for the actions and recommendations of your
advisor.
--------------------------------------------------------------------------------
Call or visit:
Any registered investment advisor meeting the following conditions:
. Has a signed agreement with SAFECO, and
. Has a power of attorney on file with SAFECO.

72
<PAGE>

Selling Your Shares

When you sell shares, we will normally send you a check for the proceeds on the
first business day after we receive your redemption request in good order. If
we receive your request after the NYSE has closed for the day (1:00 p.m.
Pacific time), we will normally send the check two business days later.

The price you receive is the NAV on the day we receive your redemption request.
If we receive your redemption request after the NYSE has closed for the day,
you will receive the NAV as of the next stock market close. Certain brokers and
other third party intermediaries are authorized to accept redemption orders on
the Funds' behalf.

In unusual situations we may suspend or delay payment for redemptions. This may
happen if:

. The NYSE is closed

. NYSE trading is restricted

. The Securities and Exchange Commission declares an emergency

. If you bought shares less than 15 days prior to redemption and SAFECO has
not yet received confirmation that your bank will honor your check or other
transfer

Also, if immediate payment could adversely affect a Fund, we may need to delay
payment for up to seven days.

Distributions from retirement accounts are generally subject to federal income
tax withholding. However, under some circumstances, you may elect not to have
taxes withheld, or to have taxes withheld at a rate other than the prescribed
rate.

73
<PAGE>

Selling Your Shares, continued

By Mail

1. Send a letter specifying:
. Account number
. Fund name
. Redemption amount (number of shares or dollar amount)
2. Have the letter signed by the owner(s) of the account. You must have
specified on your account application the number of signatures
required to authorize the selling of shares.
3. If you are selling shares in a retirement account, let us know the
amount, if any, to withhold for taxes.
4. A signature guarantee may be required for certain transactions.
Please call for details.
We will mail you a redemption check or you may pick it up from the
SAFECO Investor Center when it is ready. If you wish to transfer money
directly to your bank account, you must choose this service on your
initial application or send a written request at least 15 days prior to
using it. SAFECO charges a $20 fee to wire redemption proceeds, and some
banks charge a fee to receive a wire. If you chose the Systematic
Withdrawal Plan, a Fund will automatically sell shares in your account
and send you a monthly withdrawal check. The minimum withdrawal for this
service is $50 per Fund.
For more information call (800) 624-5711.
--------------------------------------------------------------------------------

Mail to: SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890

74
<PAGE>

Selling Your Shares, continued

In Person

Visit the SAFECO Investor Center at 4333 Brooklyn Avenue NE, Seattle,
Washington 98105. A SAFECO representative will be there to help you with
the sale of your shares.
Please bring picture identification.
We will mail you a redemption check or you may pick it up from the
SAFECO Investor Center when it is ready. If you wish to transfer money
directly to your bank account, you must choose this service on your
initial application or send a written request at least 15 days prior to
using it. SAFECO charges a $20 fee to wire redemption proceeds, and some
banks charge a fee to receive a wire.

By Phone

This option is not available for shares issued in certificate form, and
is not available for IRA accounts unless you are age 59-1/2 or older.
Understand that:
. We record all calls for your protection, and a representative may ask
you for identifying information, such as your Social Security number.
. Although our representatives employ security measures to prevent
unauthorized account access, we cannot assure you that telephone
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO by phone.
. SAFECO is not responsible for the negligence or wrongful acts of
third parties.
. We may suspend, limit, modify, or terminate phone transaction
privileges at any time without prior notice.
We will mail you a redemption check or you may pick it up from the
SAFECO Investor Center when it is ready. If you wish to transfer money
directly to your bank account, you must choose this service on your
initial application or send a written request at least 15 days prior to
using it. SAFECO charges a $20 fee to wire redemption proceeds, and some
banks charge a fee to receive a wire.
--------------------------------------------------------------------------------
Toll-free Client Services:
1-800-624-5711
24-hour Automated Service Line:
1-800-835-4391

75
<PAGE>

Selling Your Shares, continued

On The Internet

This option is not available for retirement accounts or if shares are
issued in certificate form.
Understand that:
. Although our Web site employs security measures to prevent
unauthorized account access, we cannot assure you that Internet
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO Mutual Funds over the Internet.
. SAFECO is not responsible for the negligence or wrongful acts of
third parties.
. We may suspend, limit, modify, or terminate Internet transaction
privileges at any time without prior notice.
We will transfer the proceeds from your sale to your bank account or
mail you a redemption check, or you may pick it up from the SAFECO
Investor Center when it is ready. If you wish to transfer money directly
to your bank account, you must choose this service on your initial
application or send a written request at least 15 days prior to using
it. SAFECO charges a $20 fee to wire redemption proceeds, and some banks
charge a fee to receive a wire.
--------------------------------------------------------------------------------
Visit the SAFECO Mutual Funds Web Site at www.safecofunds.com

76
<PAGE>

Selling Your Shares, continued

Through a Registered Securities Dealer, Bank
or Other Financial Institution

A securities dealer that has a contract with the Fund distributor may
submit redemption requests for you.
Understand that:
. Your securities dealer may charge you a fee for this service. (SAFECO
has no control over or involvement in this fee.)
. Your securities dealer is responsible for the prompt forwarding of
instructions on your account and is bound by the terms of this
prospectus.
. SAFECO is not responsible for the actions and recommendations of your
securities dealer.
--------------------------------------------------------------------------------
Call or visit:
Any registered securities dealer who has a signed selling agreement with
SAFECO.

Through a Registered Investment Advisor

An investment advisor may submit redemption requests for you.
Understand that:
. Your advisor may charge you a fee. (SAFECO has no control over or
involvement in this fee.)
. Your advisor is responsible for the prompt forwarding of instructions
on your account and is bound by the terms of this prospectus.
. SAFECO is not responsible for the actions and recommendations of your
advisor.
--------------------------------------------------------------------------------
Call or visit:
Any registered investment advisor meeting the following conditions:
. Has a signed agreement with SAFECO, and
. Has a power of attorney on file with SAFECO.

77
<PAGE>

Exchanging Shares From One Fund to Another

An exchange is when you sell shares of one Fund and buy shares of another Fund
in the same account with the same account owner(s). Here are some things you
should know about exchanges:

. Under normal circumstances, we will buy shares of the Fund into which you
are exchanging on the same day that we process your order to sell.

. If immediate payment could adversely affect a Fund, we may need to delay
the redemption of shares for up to seven days.

. Mutual fund exchanges are taxable events. You may realize a capital gain or
loss when you make an exchange.

. Always read the prospectus before making an exchange into a Fund that is
new to you.

Exchange Limitations

Keep in mind that mutual funds are not intended to be used as vehicles for
frequent trading in response to short-term market fluctuations. Market-timing
and similar investment strategies disrupt efficient portfolio management and
increase transaction costs for all shareholders. For this reason, we have
instituted certain policies to discourage excessive exchange or simultaneous
order transactions.

Simultaneous order transactions
involve a redemption from one
SAFECO Fund and reinvestment
immediately or shortly thereafter
into another SAFECO Fund. We will
use our discretion in determining
when a simultaneous order
transaction takes place.

. You may enter no more than four exchanges or simultaneous order
transactions per calendar year. However, we reserve the right to refuse
exchanges or simultaneous order transactions at any time. In addition, in the
case where an exchange could adversely affect the performance and investment
objective of the Fund, we may terminate exchange privileges without prior
notice. Under normal circumstances, we will give you 60 days' notice before
terminating your exchange privileges. These limitations will not affect your
ability to redeem your shares from any of the Funds, but may prevent you from
purchasing the shares of another Fund with your redemption proceeds.

. You may buy shares of a SAFECO Fund by exchange only if it is qualified for
sale in the state where you live.

78
<PAGE>

Exchanging Shares From One Fund to Another, continued

How to Make an Exchange

By Mail

1. Send a letter specifying:
. Account number
. Name of the Fund you wish to exchange out of
. Name of the Fund you wish to exchange into
. Amount of the exchange (number of shares or dollar amount)
2. Have the letter signed by the owner(s) of the account. You must have
specified on your account application the number of signatures
required to authorize the exchange of shares.
--------------------------------------------------------------------------------

Mail to: SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890

In Person

Visit the SAFECO Investor Center at 4333 Brooklyn Avenue NE, Seattle,
Washington 98105. A representative will be there to help you with your
exchange.

79
<PAGE>

Exchanging Shares From One Fund to Another, continued

By Phone

This option is not available for shares issued in certificate form.
1. You must exchange $1,000 or more.
2. To become eligible for this service, you must choose it on your
initial application or we must have received your written request
prior to your use. You must also designate any other authorized
users.
3. Understand that:
. We record all calls for your protection, and a representative may ask
you for identifying information, such as your Social Security number.
. Although our representatives employ security measures to prevent
unauthorized account access, we cannot assure you that telephone
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO by phone.
. SAFECO is not responsible for the negligence or wrongful acts of
third parties.
. We may suspend, limit, modify, or terminate telephone transaction
privileges at any time without prior notice.
--------------------------------------------------------------------------------
Toll-free Client Services:
1-800-624-5711
24-hour Automated Service Line:
1-800-835-4391

80
<PAGE>

Exchanging Shares From One Fund to Another, continued

On the Internet

This option is not available for shares issued in certificate form.
1. You must exchange $1,000 or more in share value.
2. You are automatically enrolled in this service unless you decline it
on your initial application.
3. Understand that:
. Although our Web site employs security measures to prevent
unauthorized account access, we cannot assure you that Internet
activity will be completely secure or free of delays or malfunctions.
So long as we follow reasonable security procedures, you must be
willing to assume the risk of any loss.
. During times of unusual market volatility, you may find it difficult
to access SAFECO over the Internet.
. SAFECO is not responsible for the negligence or wrongful acts of
third parties.
. We may suspend, limit, modify, or terminate Internet transaction
privileges at any time without prior notice.
--------------------------------------------------------------------------------
Visit the SAFECO Mutual Funds Web Site at www.safecofunds.com

Through a Registered Securities Dealer, Bank
or Other Financial Institution

A securities dealer that has a contract with the Fund distributor may
submit exchange requests for you.
Understand that:
. The dealer may charge you a fee. (SAFECO has no control over or
involvement in this fee.)
. Your securities dealer is responsible for the prompt forwarding of
instructions on your account and is bound by the terms of this
prospectus.
. SAFECO is not responsible for the actions and recommendations of your
securities dealer.
--------------------------------------------------------------------------------
Call or visit:
Any registered securities dealer.

81
<PAGE>

Exchanging Shares From One Fund to Another, continued

Through a Registered Investment Advisor

A registered investment advisor may submit exchange requests for you.
Understand that:
. Your advisor may charge you a fee. (SAFECO has no control over or
involvement in this fee.)
. Your advisor is responsible for the prompt forwarding of instructions
on your account and is bound by the terms of this prospectus.
. SAFECO is not responsible for the actions and recommendations of your
advisor.

--------------------------------------------------------------------------------
Call or visit:
Any registered investment advisor meeting all of the following
conditions:
. Has a signed agreement with SAFECO, and
. Has a power of attorney on file with us.

Redemption Checks -- Money Market Funds Only

If you are a shareholder in one of the SAFECO Money Market Funds, we will send
you, upon request and free of charge, redemption checks that allow you to
withdraw funds from your account. Redemption checks are not available for IRA
accounts.

Checks may be made payable to anyone and must be:

. $500 or more

. Signed by the authorized account holders

If you write more than one check against insufficient funds, we may close your
account.

Maintaining Your Account

Account Statements

Each quarter you will receive an account statement showing your Fund holdings
and any transactions that have occurred during the statement period. You will
also receive a statement after each transaction that affects your account
balance, other than investments made using our Automatic Investment Method.
Please review the statement for accuracy as soon as you receive it. If you
don't notify us within 30 days, we will assume the transactions listed on your
statement are correct.

82
<PAGE>

Maintaining Your Account, continued

We will also be sending you semi-annual and annual reports. To reduce the
volume of mail, we will send only one copy of these reports and the prospectus
to a household (same surname, same address) unless you request otherwise.

Certain documents may be delivered to you electronically, at your request.

Maintaining and servicing small accounts increases expenses for all
shareholders. For this reason, we may close your account if it falls below
$100. If this happens, we will first give you at least 60 days' notice, then
redeem your shares at net asset value and send the proceeds to you. In
addition, accounts with balances under $1,000 in a Fund will be charged a $12
"small account" fee. The small account fee will automatically be deducted from
your account. The valuation of accounts and the fee deduction are expected to
take place during the last five business days of December. We will waive the
fee if combined SAFECO Mutual Fund balances for the same shareholder tax ID
number exceed $10,000.

We will reinvest into your account any dividends and distribution checks that
are returned to us as "undeliverable" that remain outstanding over six months
after the issue date. This reinvestment will reflect the NAV next computed
after the check is cancelled. Subsequent distributions may also be reinvested.

Account Changes

To change your account registration:

Call (800) 624-5711 to request a change of registration form. Make sure the
form is signed by the authorized owner(s) of the account as specified on your
account application. We may require certified copies of supporting documents
(e.g., death certificates and court orders) and a signature guarantee before we
can process the request.

To make changes to your Automatic Investment Method or Systematic Withdrawal
Plan:

Send your request in writing to SAFECO Mutual Funds, P.O. Box 34890, Seattle,
WA 98124-1890. Or, if you have previously selected the single signature
authorization for your account and have enrolled in the telephone option
service, you may place your request by telephone.

83
<PAGE>

SAFECO Family of Funds

Stability of Principal

SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund

Bond Income

SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund

Tax-Free Bond Income

SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund

High Current Income with Long-Term Growth

SAFECO Dividend Income Fund

Long-Term Growth

SAFECO Growth Opportunities Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Balanced Fund
SAFECO Small Company Value Fund
SAFECO U.S. Value Fund

<PAGE>

For More Information

If you would like more information, the following documents are available free
upon request:

Annual/Semi-annual Reports

Additional information about a Fund's investments is available in the Fund's
annual and semi-annual reports. In a Fund's annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected its performance during the last fiscal year.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the Funds. A current SAI is on
file with the Securities and Exchange Commission, is incorporated herein by
reference and is legally considered part of this prospectus.

For copies of these documents or for other information about the Funds:

Write to: SAFECO Mutual Funds
P.O. Box 34890
Seattle, WA 98124-1890

Call: 1-800-624-5711

Deaf and Hard of Hearing TTY/TDD Service: 1-800-438-8718

Visit our Web site: www.safecofunds.com

E-Mail: [email protected]

Or contact the SEC: [Note: The SEC may charge a fee to copy documents]

Write to: SEC Public Reference Section
Washington, DC 20549-0102

E-Mail: [email protected]

Visit the SEC Web site: http://www.sec.gov

Visit the SEC: SEC Public Reference Room
450 Fifth Street, N.W.
Washington, DC

Information on the operation of the SEC's Public Reference Room is available by
calling the SEC at 1-202-942-8090
SEC 1940 Act File Numbers 811-5574
811-7300
811-3347
811-6667

85
<PAGE>

Notes

86
<PAGE>

Notes

87
<PAGE>

Notes