SAFECO TAXABLE BOND TRUST, 485APOS, 1998-02-26

SAFECO TAXABLE BOND TRUST
485APOS, 1998-02-26

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<PAGE>

Registration Nos. 33-22132/811-5574
-----------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. / /
---------------------------
Post-Effective Amendment No. 16 /X/
--------------------------------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 17 /X/
-----------------
(Check appropriate box or boxes.)

SAFECO TAXABLE BOND TRUST
-------------------------
(Exact Name of Registrant as Specified in Charter)

SAFECO Plaza, Seattle, Washington 98185
--------------------------------------------
(Address of Principal Executive Offices) ZIP Code

Registrant's Telephone Number, including Area Code (206) 545-5269
--------------------------------------------------------------------
Name and Address of Agent for Service
-------------------------------------

DAVID F. HILL
SAFECO Plaza
Seattle, Washington 98185

Approximate Date of Proposed Public Offering: Continuous

It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
- -----
on _______________ pursuant to paragraph (b)
- -----
60 days after filing pursuant to paragraph (a)(1)
- -----
X on April 30, 1998 pursuant to paragraph (a)(1)
- -----
75 days after filing pursuant to paragraph (a)(2)
- -----
on _______________ pursuant to paragraph (a)(2) of Rule 485
- -----

If appropriate, check the following box:
/ /This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

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

Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 by declaration made pursuant to Section 24(f) of the
Investment Company Act of 1940 (Act). Pursuant to Rule 24f-2 under the Act,
Registrant's Rule 24f-2 Notice was filed on or about February 26, 1997.

<PAGE>

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

SAFECO TAXABLE BOND TRUST
Contents of Registration Statement

This registration statement consists of the following papers and documents:

- - Cover Sheet

- - Contents of Registration Statement

- - Cross Reference Sheets

- - No-Load Class Shares of:

SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund

--------------------------------------------
PART A - Prospectus

SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund

<PAGE>

--------------------------------------------
PART B - Statement of Additional Information

- - Advisor Class A and Advisor Class B Shares of:

SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO High-Yield Bond Fund
SAFECO Managed Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
SAFECO Money Market Fund

- -------------------------------------------
PART A - Prospectus

PART B - Statement of Additional Information

- - PART C - Other Information

- - Signature Page

- - Exhibits

This filing is made to update the Registration Statement of SAFECO Taxable Bond
Trust. No changes are hereby made to the Prospectuses and Statements of
Additional Information relating to the SAFECO Common Stock Trust, SAFECO
Tax-Exempt Bond Trust, SAFECO Taxable Bond Trust and SAFECO Money Market Trust.

SAFECO TAXABLE BOND TRUST
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund

SAFECO MANAGED BOND TRUST
SAFECO Managed Bond Fund

SAFECO TAX-EXEMPT BOND TRUST
SAFECO Intermediate-Term Municipal Bond Fund

<PAGE>

SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund

SAFECO MONEY MARKET TRUST
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund

No-Load Class Shares

Form N-1A Cross Reference Sheet

Part A

Item No. Location in Prospectus
- -------- ----------------------

Item 1. Cover Page Cover page

Item 2. Synopsis Introduction to the Trusts and the
Funds; Expenses

Item 3. Condensed Financial Financial Highlights; Performance
Information Information

Item 4. General Description of Introduction to the Trusts and the
Registrant Funds; Each Fund's Investment Objective
and Policies; Information about Share
Ownership and Companies that Provide
Services to the Trusts; Risk Factors;
Description of Stocks, Bonds and
Convertible Securities; Description
of Ratings

Item 5. Management of the Trusts Expenses; Portfolio Managers;
Information about Share Ownership and
Companies that Provide Services to the
Trusts

Item 6. Capital Stock and Cover Page; Share Price Calculation;
Other Securities Fund Distributions and How They Are
Taxed; Information About Share Ownership
and Companies that Provide Services to
the Trusts; Persons Controlling Certain
Funds

Item 7. Purchase of Securities How to Purchase Shares; How to
Being Offered Exchange Shares From One Fund to

<PAGE>

Another; How to Systematically Purchase
or Redeem Shares; Telephone
Transactions; Transactions Over the
Internet; Transactions Through
Registered Investment Advisers; Share
Price Calculation; Information about
Share Ownership and Companies That
Provide Services to the Trusts;
Tax-Deferred Retirement Plans; Share
Price Calculation; Account Statements

Item 8. Redemption or Repurchase How to Redeem Shares; How to Exchange
Shares From One Fund to Another; How
to Systematically Purchase or Redeem
Shares; Account Changes and Signature
Requirements; Account Statements;
Telephone Transactions; Transactions
Over the Internet; Transactions Through
Registered Investment Advisers

Item 9. Pending Legal Proceedings Not applicable

SAFECO COMMON STOCK TRUST
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO International Stock Fund
SAFECO Balanced Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund

SAFECO TAXABLE BOND TRUST
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund

SAFECO MANAGED BOND TRUST
SAFECO Managed Bond Fund

SAFECO TAX-EXEMPT BOND TRUST
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund

<PAGE>

SAFECO MONEY MARKET TRUST
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund

No-Load Class Shares

Form N-1A Cross Reference Sheet

Part B

Location in Statement of
Item No. Additional Information
- -------- ----------------------

Item 10. Cover Page Cover page

Item 11. Table of Contents Table of Contents

Item 12. General Information and Not applicable
History

Item 13. Investment Objectives and Investment Policies of the Stock Funds;
Policies Investment Policies of the Taxable Bond
Funds; Investment Policies of the
Managed Bond Fund; Investment Policies
of the Tax-Exempt Bond Funds; Investment
Policies of the Money Market Funds;
Additional Investment Information;
Special Risks of Below Investment Grade
Bonds; Special Risks of Foreign
Investment and Foreign Currency
Transactions; Description of Ratings

Item 14. Management of the Trusts Trustees and Officers

Item 15. Control Persons and Principal Shareholders of Certain Funds
Principal Holders
of Securities

Item 16. Investment Advisory and Investment Advisory and Other Services
Other Services

Item 17. Brokerage Allocation and Brokerage Practices
Other Practices

Item 18. Capital Stock and Other Additional Information on Calculation
Securities of Net Asset Value Per Share

<PAGE>

Item 19. Purchase, Redemption and Additional Information on Calculation of
Pricing of Securities Being Net Asset Value Per Share; Redemption
Offered in Kind

Item 20. Tax Status Additional Tax Information

Item 21. Underwriters Investment Advisory and Other Services

Item 22. Calculation of Performance Additional Performance
Data Information

Item 23. Financial Statements Financial Statements

SAFECO COMMON STOCK TRUST
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
SAFECO U.S. Value Fund

SAFECO TAXABLE BOND TRUST
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO High-Yield Bond Fund

SAFECO MANAGED BOND TRUST
SAFECO Managed Bond Fund

SAFECO TAX-EXEMPT BOND TRUST
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund

SAFECO MONEY MARKET TRUST
SAFECO Money Market Fund

Advisor Class A and Advisor Class B Shares

Form N-1A Cross Reference Sheet

Part A

Item No. Location in Prospectus
- -------- ----------------------

Item 1. Cover Page Cover page

<PAGE>

Item 2. Synopsis Introduction to the Trusts and the
Funds; Expenses

Item 3. Condensed Financial Financial Highlights; Performance
Information Information

Item 4. General Description of Introduction to the Trusts and the
Registrant Funds; Each Fund's Investment Objective
and Policies; Risk Factors; Information
About Share Ownership and Companies that
Provide Services to the Trusts; Risk
Factors; Description of Stocks, Bonds
and Convertible Securities; Ratings
Supplement

Item 5. Management of the Trusts Expenses; Sub-Adviser Information for
the International Fund; Information
About Share Ownership and Companies that
Provide Services to the Trusts;
Portfolio Managers

Item 6. Capital Stock and Other Cover Page; Share Price Calculation;
Securities Information About Share Ownership and
Companies That Provide Services to the
Trusts; Fund Distributions and How They
Are Taxed; Persons Controlling Certain
Funds

Item 7. Purchase of Securities How to Purchase Shares; How to
Being Offered Systematically Purchase or Redeem
Shares; Telephone Transactions;
Distribution Plans; Share Price
Calculation; How to Exchange Shares
from One Fund to Another; Tax-Deferred
Retirement Plans; Transactions Through
Registered Investment Advisors; Account
Statements

Item 8. Redemption or Repurchase How to Redeem Shares; How to
Systematically Purchase or Redeem
Shares; Telephone Transactions; Account
Statements; Account Changes and
Signature Requirements; How to Exchange
Shares from One Fund to Another;
Transactions Through Registered
Investment Advisors

Item 9. Pending Legal Proceedings Not applicable

Part B

Location in Statement
Item No. of Additional Information
- -------- -------------------------

<PAGE>

Item 10. Cover Page Cover page

Item 11. Table of Contents Table of Contents

Item 12. General Information and Not applicable
History

Item 13. Investment Objectives and Investment Policies of the Stock Funds;
Policies Investment Policies of the Taxable Bond
Funds; Investment Policies of the
Managed Bond Fund; Investment Policies
of the Tax-Exempt Bond Funds; Investment
Policies of the Money Market Fund;
Additional Investment Information;
Special Risks of Below Investment Grade
Bonds; Special Risks of Foreign
Investment and Foreign Currency
Transactions; Description of Ratings

Item 14. Management of the Trusts Trustees and Officers

Item 15. Control Persons and Principal Shareholders of Certain Funds
Principal Holders of
Securities

Item 16. Investment Advisory and Investment Advisory and Other Services
Other Services

Item 17. Brokerage Allocation and Brokerage Practices
Other Practices

Item 18. Capital Stock and Other Additional Information on Calculation of
Securities Net Asset Value Per Share

Item 19. Purchase, Redemption and Additional Information on Calculation of
Pricing of Securities Being Net Asset Value Per Share; Redemption
Offered in Kind

Item 20. Tax Status Additional Tax Information

Item 21. Underwriters Investment Advisory and Other Services

Item 22. Calculation of Performance Additional Performance Information
Data

Item 23. Financial Statements Financial Statements

<PAGE>

Part C
- ------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.

<PAGE>
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 WASHINGTON MUNICIPAL BOND FUND
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
SAFECO INSURED MUNICIPAL BOND FUND
SAFECO MONEY MARKET FUND
SAFECO TAX-FREE MONEY MARKET FUND

NO-LOAD CLASS April 30, 1998

Each Fund named above is a series of one of the following trusts (each a
"Trust"): the SAFECO Taxable Bond Trust ("Taxable Bond Trust"), the SAFECO
Managed Bond Trust ("Managed Bond Trust"), the SAFECO Tax-Exempt Bond Trust
("Tax-Exempt Bond Trust"), and the SAFECO Money Market Trust ("Money Market
Trust").

This Prospectus sets forth the information a prospective investor should know
before investing. Please read and retain the Prospectus for future reference. A
Statement of Additional Information, dated April 30, 1998, and incorporated
herein by reference, has been filed with the Securities and Exchange Commission
and is available at no charge upon request by calling one of the numbers listed
below. The Statement of Additional Information and other information about the
Funds are also available on the Securities and Exchange Commission website
(http://www.sec.gov). The Statement of Additional Information contains more
information about many topics in this Prospectus as well as information about
the trustees and officers of the Trusts.

For additional assistance, please call or write:

NATIONWIDE 1-800-624-5711; SEATTLE 206-545-7319
DEAF AND HARD OF HEARING TTY/TDD SERVICE 1-800-438-8718

SAFECO MUTUAL FUNDS
NO-LOAD CLASS SHARES
P.O. BOX 34890
SEATTLE, WA 98124-1890

ALL TELEPHONE CALLS ARE TAPE-RECORDED
FOR YOUR PROTECTION.
- ---------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- ---------------------------------------------------------

-- 1 --
<PAGE>
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE U.S. GOVERNMENT OR ANY BANK, NOR ARE FUND SHARES FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND FUND SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET OR TAX-FREE MONEY MARKET FUNDS
WILL MAINTAIN A STABLE $1.00 SHARE PRICE.

THE CALIFORNIA FUND IS OFFERED FOR SALE ONLY TO RESIDENTS IN THE STATES OF
ARIZONA, NEVADA, OREGON, AND CALIFORNIA. THE WASHINGTON FUND IS OFFERED FOR SALE
ONLY TO RESIDENTS IN THE STATES OF WASHINGTON, CALIFORNIA, AND ARIZONA. THESE
FUNDS ARE NOT PERMITTED TO OFFER OR SELL SHARES TO RESIDENTS OF OTHER STATES.

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

-- 2 --
<PAGE>
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND ("Intermediate Treasury Fund") has
as its investment objective to provide as high a level of current income as is
consistent with the preservation of capital. During normal market conditions,
the Fund will invest at least 65% of its total assets in direct obligations of
the U.S. Treasury.

SAFECO GNMA FUND ("GNMA Fund") has as its investment objective 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. During normal
market conditions, the Fund will invest at least 65% of its total assets in
Government National Mortgage Association ("GNMA") mortgage-backed securities.

SAFECO HIGH-YIELD BOND FUND ("High-Yield Bond Fund") has as its investment
objective to provide a high level of current interest income through the
purchase of high-yield, fixed-income securities. During normal market
conditions, the Fund will invest at least 65% of its total assets in high-yield,
fixed-income securities.

SAFECO MANAGED BOND FUND ("Managed Bond Fund") has as its investment objective
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.

SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND ("Intermediate Municipal Fund"),
SAFECO INSURED MUNICIPAL BOND FUND ("Insured Bond Fund") (FUND SHARES ARE NOT
INSURED -- SEE "EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES" FOR THE NATURE
AND LIMITATIONS OF INSURANCE) and SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
("Washington Fund") each has as its investment objective to provide as high a
level of current interest income exempt from federal income tax as is consistent
with prudent investment risk.

SAFECO MUNICIPAL BOND FUND ("Municipal Fund") has as its investment objective to
provide as high a level of current interest income exempt from federal income
tax as is consistent with the relative stability of capital.

-- 3 --
<PAGE>
SAFECO CALIFORNIA TAX-FREE INCOME FUND ("California Fund") has as its investment
objective 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.

SAFECO MONEY MARKET FUND ("Money Fund") has as its investment objective to seek
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 thirteen months or less.

SAFECO TAX-FREE MONEY MARKET FUND ("Tax-Free Money Fund") has as its investment
objective 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.

There is no assurance that a Fund will achieve its investment objective.

-- 4 --
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction to the Trusts and the Funds 6
Expenses 8
Financial Highlights 10
Each Fund's Investment Objective and Policies 22
Risk Factors 57
Portfolio Managers 64
How to Purchase Shares 66
How to Redeem Shares 71
How to Systematically Purchase or Redeem Shares 74
How to Exchange Shares from One Fund to Another 75
Telephone Transactions 78
Transactions Over the Internet 80
Transactions Through Registered Investment Advisers 81
Share Price Calculation 81
Information about Share Ownership and Companies That Provide
Services to the Trusts 82
Persons Controlling Certain Funds 87
Performance Information 88
Fund Distributions and How They Are Taxed 89
Tax-Deferred Retirement Plans 93
Account Statements 94
Account Changes and Signature Requirements 95
Debt Securities Held by the High-Yield Bond Fund 96
Description of Ratings 97
</TABLE>

-- 5 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS

Each Trust is an open-end management investment company that issues shares
representing one or more series. This Prospectus offers shares of the taxable
fixed-income, tax-exempt income, and money market Funds listed below. The
taxable fixed-income Funds offered are the Intermediate Treasury Fund, the GNMA
Fund, the High-Yield Bond Fund, and the Managed Bond Fund. The Intermediate
Treasury Fund, the GNMA Fund, and the High-Yield Bond Fund (collectively, the
"Bond Funds") are diversified series of the Taxable Bond Trust. The Managed Bond
Fund is a diversified series of the Managed Bond Trust.

The tax-exempt income Funds offered are the Intermediate Municipal Fund, the
Insured Bond Fund, the Municipal Fund, the California Fund, and the Washington
Fund (collectively, the "Tax-Exempt Bond Funds"). Each of the Tax-Exempt Bond
Funds is a diversified series of the Tax-Exempt Bond Trust.

This Prospectus also offers the Money Fund and the Tax-Free Money Fund
(collectively, the "Money Market Funds"), both of which are diversified series
of the Money Market Trust.

THE FUNDS

No-Load Class shares of each Fund listed above are offered through this
Prospectus. Each Fund, except the GNMA Fund, Intermediate Municipal Fund,
Insured Bond Fund, and Tax-Free Money Fund, also offers other classes of shares.

The No-Load Class of each Fund:

/ / Is 100% no-load; there are no initial or contingent deferred sales charges
or Rule 12b-1 fees.

/ / Offers free exchanges as well as easy access to your money through telephone
redemptions, wire transfers, and, in the case of the Money Market Funds
only, redemption checks.

/ / Has a minimum initial investment of $1,000 for regular accounts, $250 for
individual retirement accounts ("IRAs") (except the Tax-Exempt Bond Funds
and Tax-Free Money Fund) and accounts established under the Uniform Gift to
Minors Act ("UGMA") or Uniform Transfer to Minors Act ("UTMA").

-- 6 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS (CONTINUED)

RISK FACTORS

There is, of course, no assurance that a Fund will achieve its investment
objective. See "Each Fund's Investment Objective and Policies" for more
information.

There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the California and Washington Funds concentrate their investments in
geographic regions, they may be subject to special risks. Investors should
carefully consider the investment risks of such geographic concentration before
purchasing shares of those Funds. The High-Yield Bond Fund is subject to special
risks associated with below investment grade securities, sometimes referred to
as "junk" bonds, which it will purchase to pursue its investment objective. The
principal risk associated with the Money Market Funds is that they may
experience a delay or failure in principal or interest payments at maturity of
one or more of the portfolio securities. The Money Market Funds' yields will
fluctuate with general money market interest rates. Also, the value of each of
the Funds, except the Money Market Funds, will normally fluctuate inversely with
changes in interest rates. The Money Market Funds will attempt to maintain a
stable net asset value of $1.00 per share, but there is no assurance that these
Funds will do so.

INVESTMENT ADVISOR

-- 7 --
<PAGE>
EXPENSES

A. SHAREHOLDER TRANSACTION EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND

<TABLE>
<CAPTION>
SALES LOAD
SALES LOAD IMPOSED ON CONTINGENT
IMPOSED ON REINVESTED DEFERRED SALES
PURCHASES DIVIDENDS CHARGE REDEMPTION FEES EXCHANGE FEES
- ----------- ----------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
NONE NONE NONE NONE NONE
</TABLE>

SAFECO Services Corporation ("SAFECO Services"), the transfer agent for the
Funds, charges a $10 fee to wire redemption proceeds.

B. ANNUAL OPERATING EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND

(As a percentage of average net assets)

<TABLE>
<CAPTION>
TOTAL
RULE 12b-1 OTHER OPERATING
FUND FEES + MANAGEMENT FEE + EXPENSES = EXPENSES
- ---------------------------- ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Intermediate Treasury None 0.55% 0.37% 0.92%
GNMA Fund None 0.65% 0.28% 0.93%
High-Yield Bond Fund None 0.65% 0.26% 0.91%
Managed Bond Fund None 0.50% 0.65% 1.15%
Intermediate Municipal Fund None 0.55% 0.28% 0.83%
Insured Bond Fund None 0.65% 0.27% 0.92%
Municipal Fund None 0.42% 0.09% 0.51%
California Fund None 0.55% 0.14% 0.69%
Washington Fund None 0.65% 0.36% 1.01%
Money Fund None 0.50% 0.28% 0.78%
Tax-Free Money Fund None 0.50% 0.14% 0.64%
</TABLE>

The amounts shown are based on the actual expenses paid by shareholders of each
Fund for the year ended December 31, 1997. See "Information about Share
Ownership and Companies That Provide Services to the Trusts" for more
information.

C. EXAMPLE OF EXPENSES

You would pay the following expenses on a $1,000 investment in No-Load Class
shares assuming a 5% annual return. The example

-- 8 --
<PAGE>
EXPENSES (CONTINUED)

also assumes that all dividends and other distributions are reinvested and that
the percentage amounts listed in "Annual Operating Expenses" above remain the
same in the years shown.

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Intermediate Treasury Fund $ 9 $ 29 $ 51 $ 113
GNMA Fund $ 10 $ 30 $ 52 $ 115
High-Yield Bond Fund $ 9 $ 29 $ 50 $ 112
Managed Bond Fund $ 12 $ 37 $ 63 $ 140
Intermediate Municipal Fund $ 8 $ 26 $ 46 $ 103
Insured Bond Fund $ 9 $ 29 $ 51 $ 113
Municipal Fund $ 5 $ 16 $ 29 $ 64
California Fund $ 7 $ 22 $ 38 $ 86
Washington Fund $ 10 $ 32 $ 56 $ 124
Money Fund $ 8 $ 25 $ 43 $ 97
Tax-Free Money Fund $ 7 $ 20 $ 36 $ 80
</TABLE>

The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the No-Load Class of each Fund would bear, directly
or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES AND
EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS AND IT IS NOT A
PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE PERFORMANCE
OF ANY FUND.

-- 9 --
<PAGE>
FINANCIAL HIGHLIGHTS

The amounts shown for each Fund in the Financial Highlights tables that follow
are based upon a single No-Load Class share outstanding throughout the period
indicated. In 1996, the Taxable Bond Trust changed its fiscal year end from
September 30 to December 31, and the Money Market and Tax-Exempt Bond Trusts
changed their fiscal year ends from March 31 to December 31. The following
selected data for the Funds has been derived from financial statements that have
been audited by Ernst & Young LLP, independent auditors. The data should be read
in conjunction with the financial statements, related notes and other
information included in the Trusts' annual reports to shareholders and
incorporated by reference in the Statement of Additional Information. A copy of
the Statement of Additional Information may be obtained by calling one of the
numbers on the first page of this Prospectus.

-- 10 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

<TABLE>
<CAPTION>
FOR THE
PERIOD
FROM
SEPT. 7,
THREE- 1988
FOR THE MONTH (INITIAL
YEAR PERIOD PUBLIC
ENDED ENDED OFFERING)
DEC. 31, DEC. 31, FOR THE YEAR ENDED SEPTEMBER 30 TO SEPT.
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989 30, 1988
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of
period $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74 $ 10.69 $ 10.20 $ 9.83 $ 9.96 $ 9.95 $ 9.93
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.58 0.16 0.54 0.55 0.52 0.60 0.72 0.75 0.77 0.77 0.05
Net realized and
unrealized gain
(loss) on
investments 0.23 0.01 (0.14) 0.50 (1.00) 0.49 0.54 0.37 (0.13) 0.01 0.02
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations 0.81 0.17 0.40 1.05 (0.48) 1.09 1.26 1.12 0.64 0.78 0.07
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.58) (0.16) (0.54) (0.55) (0.52) (0.60) (0.72) (0.75) (0.77) (0.77) (0.05)
Distributions from
capital gains -- -- -- -- -- (0.44) (0.05) -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.58) (0.16) (0.54) (0.55) (0.52) (1.04) (0.77) (0.75) (0.77) (0.77) (0.05)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value at
end of period $ 10.34 $ 10.11 $ 10.10 $ 10.24 $ 9.74 $ 10.74 $ 10.69 $ 10.20 $ 9.83 $ 9.96 $ 9.95
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return 8.29% 1.68%* 4.00% 11.07% (4.56%) 10.51% 12.78% 11.80% 6.65% 8.20% 0.69%*
Net assets at end of
period (000's) $15,698 $ 14,679 $ 14,668 $ 13,774 $ 13,367 $ 14,706 $ 12,205 $ 9,458 $ 6,916 $ 6,249 $ 5,007
Ratio of expenses to
average net assets 0.92% 0.85%**+ 1.01% 0.96% 0.90% 0.99% 0.98% 1.00% 1.00% 0.96% 1.06%**
Ratio of net
investment income
to average net
assets 5.74% 6.30%** 5.30% 5.51% 5.08% 5.52% 6.89% 7.45% 7.76% 7.82% 7.46%**
Portfolio turnover
rate 82.36% 125.42%** 294.25% 124.90% 75.46% 104.94% 37.19% 9.51% 24.71% 4.36% None
</TABLE>

* Not annualized.
** Annualized.
+ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.07%.

-- 11 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO GNMA FUND

<TABLE>
<CAPTION>
FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED SEPTEMBER 30
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of
period $ 9.36 $ 9.26 $ 9.45 $ 9.05 $ 10.03 $ 9.95 $ 9.68 $ 9.16 $ 9.23 $ 9.06 $ 9.13
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.60 0.15 0.60 0.60 0.60 0.67 0.73 0.78 0.76 0.81 0.87
Net realized and
unrealized gain
(loss) on
investments 0.21 0.10 (0.19) 0.40 (0.98) 0.08 0.27 0.52 (0.07) 0.17 (0.07)
------------ ------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations 0.81 0.25 0.41 1.00 (0.38) 0.75 1.00 1.30 0.69 0.98 0.80
------------ ------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.60) (0.15) (0.60) (0.60) (0.60) (0.67) (0.73) (0.78) (0.76) (0.81) (0.87)
------------ ------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at
end of period $ 9.57 $ 9.36 $ 9.26 $ 9.45 $ 9.05 $ 10.03 $ 9.95 $ 9.68 $ 9.16 $ 9.23 $ 9.06
------------ ------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
------------ ------------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Total return 8.97% 2.71%* 4.48% 11.49% (3.91%) 7.81% 10.75% 14.72% 7.77% 11.25% 9.05%
Net assets at end of
period (000's) $38,172 $39,543 $39,703 $44,055 $46,176 $62,720 $56,474 $42,207 $28,587 $27,063 $27,724
Ratio of expenses to
average net assets 0.93% 1.01%** 1.03% 1.01% 0.95% 0.93% 0.94% 0.97% 0.99% 1.02% 1.06%
Ratio of net
investment income
to average net
assets 6.40% 6.43%** 6.42% 6.55% 6.26% 6.71% 7.49% 8.23% 8.28% 8.83% 9.51%
Portfolio turnover
rate 82.70% 51.06%** 47.75% 131.24% 55.12% 70.96% 24.66% 43.80% 90.19% 77.39% 109.53%
</TABLE>

* Not annualized.
** Annualized.

-- 12 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO HIGH-YIELD BOND FUND

<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
SEPTEMBER 7,
1988 (INITIAL
FOR THE YEAR THREE-MONTH PUBLIC
ENDED PERIOD ENDED OFFERING) TO
DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED SEPTEMBER 30 SEPTEMBER 30,
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22 $ 8.92 $ 8.35 $ 7.94 $ 9.33 $ 9.86 $ 9.89
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income 0.77 0.19 0.78 0.79 0.82 0.91 0.83 0.93 1.04 1.11 0.07
Net realized and
unrealized gain
(loss) on
investments 0.31 0.03 0.11 0.13 (0.67) 0.30 0.57 0.41 (1.39) (0.53) (0.03)
------------ ------------ ------- ------- ------- ------- ------- ------- ------ ------ -------------
Total from
investment
operations 1.08 0.22 0.89 0.92 0.15 1.21 1.40 1.34 (0.35) 0.58 0.04
------------ ------------ ------- ------- ------- ------- ------- ------- ------ ------ -------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.77) (0.19) (0.78) (0.79) (0.82) (0.91) (0.83) (0.93) (1.04) (1.11) (0.07)
------------ ------------ ------- ------- ------- ------- ------- ------- ------ ------ -------------
Net asset value at
end of period $ 9.13 $ 8.82 $ 8.79 $ 8.68 $ 8.55 $ 9.22 $ 8.92 $ 8.35 $ 7.94 $ 9.33 $ 9.86
------------ ------------ ------- ------- ------- ------- ------- ------- ------ ------ -------------
------------ ------------ ------- ------- ------- ------- ------- ------- ------ ------ -------------
Total return 12.79% 2.50%* 10.79% 11.43% 1.61% 14.29% 17.52% 18.18% (4.04%) 6.10% 0.37%*
Net assets at end of
period (000's) $71,058 $50,298 $47,880 $39,178 $27,212 $28,291 $19,672 $11,931 $7,786 $9,051 $5,204
Ratio of expenses to
average net assets 0.91% 0.90%** 0.94% 1.01% 1.03% 1.09% 1.05% 1.11% 1.15% 1.11% 1.25%**
Ratio of net
investment income
to average net
assets 8.58% 8.56%** 8.99% 9.28% 9.26% 9.94% 9.66% 11.51% 11.90% 11.52% 10.27%**
Portfolio turnover
rate 85.06% 35.01%** 92.65% 38.03% 63.02% 50.27% 40.66% 32.46% 18.46% 12.57% None
</TABLE>

* Not annualized.
** Annualized.

-- 13 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MANAGED BOND FUND

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1994
(INITIAL PUBLIC
FOR THE YEAR ENDED OFFERING) TO
DECEMBER 31 DECEMBER 31,
1997 1996 1995 1994
-------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 8.35 $ 8.77 $ 8.15 $ 8.68
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.42 0.41 0.44 0.27
Net realized and unrealized gain
(loss) on investments 0.25 (0.42) 0.94 (0.93)
-------- -------- ------- ---------------
Total from investment operations 0.67 (0.01) 1.38 (0.66)
-------- -------- ------- ---------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.42) (0.41) (0.44) (0.27)
Distributions from capital gains -- -- (0.32) --
-------- -------- ------- ---------------
Total distributions (0.42) (0.41) (0.76) (0.27)
-------- -------- ------- ---------------
Net asset value at end of period $ 8.60 $ 8.35 $ 8.77 $ 8.15
-------- -------- ------- ---------------
-------- -------- ------- ---------------
Total return 8.23% 0.02% 17.35% (3.01%)*
Net assets at end of period (000's) $ 4,627 $ 4,215 $ 4,497 $ 4,627
Ratio of expenses to average net assets 1.15% 1.27% 1.16% 1.28%**
Ratio of net investment income to
average net assets 4.98% 4.86% 5.14% 3.88%**
Portfolio turnover rate 176.50% 136.29% 78.78% 132.26%**
</TABLE>

* Not annualized.
** Annualized.

-- 14 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
MARCH 18,
1993
(INITIAL
FOR THE NINE-MONTH PUBLIC
YEAR ENDED PERIOD ENDED FOR THE YEAR ENDED OFFERING) TO
DECEMBER 31, DECEMBER 31, MARCH 31 MARCH 31,
1997 1996 1996 1995 1994 1993
------------- ------------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period $ 10.61 $ 10.49 $ 10.17 $ 10.13 $ 10.25 $ 10.27
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.47 0.35 0.45 0.45 0.40 0.02
Net realized and unrealized gain
(loss) on investments 0.31 0.12 0.32 0.04 (0.12) (0.02)
------------- ------------- ---------- ---------- ---------- -------------
Total from investment operations 0.78 0.47 0.77 0.49 0.28 (0.00)
------------- ------------- ---------- ---------- ---------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.47) (0.35) (0.45) (0.45) (0.40) (0.02)
------------- ------------- ---------- ---------- ---------- -------------
Net asset value at end of period $ 10.92 $ 10.61 $ 10.49 $ 10.17 $ 10.13 $ 10.25
------------- ------------- ---------- ---------- ---------- -------------
------------- ------------- ---------- ---------- ---------- -------------
Total return 7.50% 4.53%* 7.63% 4.97% 2.64% -0.04%*
Net assets at end of period (000's) $ 13,780 $ 14,172 $ 14,981 $ 13,762 $ 10,781 $ 2,345
Ratio of expenses to average net
assets 0.83% 0.89%** 0.84% 0.85% 0.99% 0.98%**
Ratio of net investment income to
average net assets 4.37% 4.40%** 4.29% 4.46% 3.85% 4.25%**
Portfolio turnover rate 10.52% 12.81%** 9.12% 4.27% 1.49% None
</TABLE>

* Not annualized.
** Annualized.

-- 15 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INSURED MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
MARCH 18,
1993 (INITIAL
FOR THE YEAR NINE-MONTH PUBLIC
ENDED PERIOD ENDED FOR THE YEAR ENDED OFFERING) TO
DECEMBER 31, DECEMBER 31, MARCH 31 MARCH 31,
1997 1996 1996 1995 1994 1993
------------- ------------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period $ 10.74 $ 10.46 $ 10.05 $ 9.73 $ 10.26 $ 10.32
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.37 0.48 0.48 0.41 0.02
Net realized and unrealized gain
(loss) on investments 0.62 0.28 0.41 0.32 (0.53) (0.06)
------------- ------------- -------- -------- -------- -------------
Total from investment operations 1.12 0.65 0.89 0.80 (0.12) (0.04)
------------- ------------- -------- -------- -------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (0.50) (0.37) (0.48) (0.48) (0.41) (0.02)
------------- ------------- -------- -------- -------- -------------
Net asset value at end of period $ 11.36 $ 10.74 $ 10.46 $ 10.05 $ 9.73 $ 10.26
------------- ------------- -------- -------- -------- -------------
------------- ------------- -------- -------- -------- -------------
Total return 10.70% 6.31%* 8.95% 8.58% (1.40%) (0.43%*)
Net assets at end of period (000's) $ 16,516 $ 13,187 $ 11,758 $ 8,163 $ 3,306 $ 2,106
Ratio of expenses to average net
assets 0.92% 1.00%** 0.99% 1.08% 1.41% 1.04%**
Ratio of net investment income to
average net assets 4.56% 4.66%** 4.53% 5.11% 3.99% 3.88%**
Portfolio turnover rate 13.02% 14.86%** 3.71% 14.76% 21.19% None
</TABLE>

* Not annualized.
** Annualized.

-- 16 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
FOR THE NINE-MONTH
YEAR PERIOD
ENDED ENDED
DECEMBER DECEMBER FOR THE YEAR ENDED MARCH 31
31, 1997 31, 1996 1996 1995 1994 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning
of period $ 13.98 $ 13.69 $ 13.36 $ 13.27 $ 14.13 $ 13.37 $ 12.95 $ 12.73 $ 12.92 $ 12.85
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.75 0.57 0.76 0.77 0.78 0.81 0.86 0.86 0.88 0.94
Net realized and unrealized
gain (loss) on investments 0.70 0.29 0.33 0.12 (0.55) 0.94 0.48 0.26 0.25 0.36
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.45 0.86 1.09 0.89 0.23 1.75 1.34 1.12 1.13 1.30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from net
investment income (0.75) (0.57) (0.76) (0.77) (0.78) (0.81) (0.86) (0.86) (0.88) (0.94)
Distributions from realized
gains (0.16) -- -- (0.03) (0.31) (0.18) (0.06) (0.04) (0.44) (0.29)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.91) (0.57) (0.76) (0.80) (1.09) (0.99) (0.92) (0.90) (1.32) (0.12)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value at end of
period $ 14.52 $ 13.98 $ 13.69 $ 13.36 $ 13.27 $ 14.13 $ 13.37 $ 12.95 $ 12.73 $ 12.92
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return 10.68% 6.42%* 8.23% 7.10% 1.30% 13.60% 10.57% 9.13% 9.05% 10.49%
Net assets at end of period
(000's) $502,946 $480,970 $480,643 $472,569 $507,453 $541,515 $427,638 $331,647 $286,303 $231,911
Ratio of expenses to average
net assets 0.51% 0.53%** 0.54% 0.56% 0.52% 0.53% 0.54% 0.56% 0.57% 0.60%
Ratio of net investment income
to average net assets 5.31% 5.53%** 5.47% 5.96% 5.49% 5.91% 6.37% 6.68% 6.76% 7.23%
Portfolio turnover rate 13.52% 6.66%** 12.60% 26.96% 22.07% 31.66% 25.18% 38.55% 65.80% 13.56%
</TABLE>

* Not annualized.
** Annualized.

-- 17 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO CALIFORNIA TAX-FREE INCOME FUND

<TABLE>
<CAPTION>
FOR THE YEAR NINE-MONTH
ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED MARCH 31
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------
Net asset value at
beginning of period $ 12.22 $ 11.86 $ 11.54 $ 11.51 $ 12.23 $ 11.60 $ 11.24 $ 11.07 $ 11.02 $ 10.72
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.60 0.47 0.62 0.63 0.66 0.68 0.71 0.71 0.72 0.75
Net realized and
unrealized gain (loss)
on investments 0.76 0.39 0.40 0.13 (0.38) 0.76 0.44 0.23 0.23 0.30
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 1.36 0.86 1.02 0.76 0.28 1.44 1.15 0.94 0.95 1.05
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from net
investment income (0.60) (0.47) (0.62) (0.63) (0.66) (0.68) (0.71) (0.71) (0.72) (0.75)
Distributions from
realized gains (0.05) (0.03) (0.08) (0.10) (0.34) (0.13) (0.08) (0.06) (0.18) --
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.65) (0.50) (0.70) (0.73) (1.00) (0.81) (0.79) (0.77) (0.90) (0.75)
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
Net asset value at end of
period $ 12.93 $ 12.22 $ 11.86 $ 11.54 $ 11.51 $ 12.23 $ 11.60 $ 11.24 $ 11.07 $ 11.02
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
------------ ------------ ------- ------- ------- ------- ------- ------- ------- -------
Total return 11.55% 7.42%* 8.87% 7.01% 1.97% 12.88% 10.43% 8.78% 8.87% 10.09%
Net assets at end of
period (000's) $88,379 $72,084 $70,546 $64,058 $77,056 $79,872 $71,480 $57,066 $47,867 $36,930
Ratio of expenses to
average net assets 0.68% 0.69%** 0.68% 0.70% 0.68% 0.66% 0.67% 0.67% 0.68% 0.71%
Ratio of net investment
income to average net
assets** 4.88% 5.21%** 5.12% 5.65% 5.31% 5.71% 6.13% 6.32% 6.42% 6.86%
Portfolio turnover rate** 9.83% 10.52%** 16.25% 44.10% 32.58% 23.18% 39.35% 22.92% 71.37% 76.95%
</TABLE>

* Not annualized.
** Annualized.

-- 18 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
MARCH 18,
1993
FOR THE NINE-MONTH (INITIAL
YEAR PERIOD PUBLIC
ENDED ENDED FOR THE YEAR ENDED OFFERING)
DECEMBER DECEMBER MARCH 31, TO MARCH
1997 1996 1996 1995 1994 31, 1993
-------- ---------- ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period $10.53 $10.34 $10.10 $ 9.91 $10.27 $10.32
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.37 0.50 0.49 0.44 0.02
Net realized and unrealized gain
(loss) on investments 0.42 0.20 0.27 0.19 (0.35) (0.05)
-------- ---------- ------ ------ ------ ---------
Total from investment operation 0.92 0.57 0.77 0.68 0.09 (0.03)
-------- ---------- ------ ------ ------ ---------
LESS DISTRIBUTIONS
Dividends from net investment income (0.50) (0.37) (0.50) (0.49) (0.44) (0.02)
Distributions from realized gains 0.00 (0.01) (0.03) -- (0.01) --
-------- ---------- ------ ------ ------ ---------
Total distributions (0.50) (0.38) (0.53) (0.49) (0.45) (0.02)
-------- ---------- ------ ------ ------ ---------
Net asset value at end of period $10.95 $10.53 $10.34 $10.10 $ 9.91 $10.27
-------- ---------- ------ ------ ------ ---------
-------- ---------- ------ ------ ------ ---------
Total return 8.94% 5.61%* 7.73% 7.13% 0.68% -0.31%*
Net assets at end of period (000's) $7,288 $6,558 $6,489 $5,953 $2,908 $2,163
Ratio of expenses to average net assets 1.02% 1.10%** 1.07% 1.09% 1.44% 1.04%**
Ratio of net investment income to
average net assets 4.68% 4.78%** 4.78% 5.06% 4.17% 4.47%**
Portfolio turnover rate 11.67% 15.96%** 20.86% 9.23% 17.26% None
</TABLE>

* Not annualized.

** Annualized.

-- 19 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MONEY MARKET FUND

<TABLE>
<CAPTION>
FOR THE YEAR NINE-MONTH
ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, FOR THE YEAR ENDED MARCH 31
1997 1996 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Net asset value at
begining of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.05 0.03 0.05 0.04 0.02 0.03 0.05 0.07 0.08 0.08
------------ ------------ -------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends from
investment income (0.05) (0.03) (0.05) (0.04) (0.02) (0.03) (0.05) (0.07) (0.08) (0.08)
------------ ------------ -------- -------- -------- -------- -------- -------- -------- --------
Net asset value at
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ -------- -------- -------- -------- -------- -------- -------- --------
------------ ------------ -------- -------- -------- -------- -------- -------- -------- --------
Total return 4.93% 3.54%* 5.15% 4.20% 2.48% 2.98% 5.04% 7.60% 8.77% 7.86%
Net assets at end of
period (000's) $176,623 $161,356 $165,122 $171,958 $186,312 $144,536 $184,823 $224,065 $225,974 $177,813
Ratio of expenses to
average net assets 0.78% 0.81%** 0.78% 0.78% 0.79% 0.77% 0.73% 0.70% 0.71% 0.74%
Ratio of net
investment income
to average net
assets 4.82% 4.66%** 5.04% 4.21% 2.47% 3.02% 5.05% 7.34% 8.45% 7.66%
</TABLE>

* Not Annualized.

** Annualized.

++ April 6, 1982 (Initial Public Offering) To March 31, 1983.

-- 20 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO TAX-FREE MONEY MARKET FUND

* Not Annualized.

** Annualized.

-- 21 --
<PAGE>
EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES

The investment objective and investment policies for each Fund are described
below. A Trust's Board of Trustees may change a Fund's (except the California
Fund's) objective without a shareholder vote, but no such change will be made
without prior written notice to shareholders of that Fund (30 days' notice in
the case of the Bond Funds and Managed Bond Fund and 60 days' notice in the case
of the other Funds). In the event a Fund changes its investment objective, the
new objective may not meet the investment needs of every shareholder and may be
different from the objective a shareholder considered appropriate at the time of
initial investment.

It is the policy of both the Money Fund and Tax-Free Money Fund to seek to
maintain a net asset value per share of $1.00.

Each Fund has adopted a number of investment restrictions. If a Fund satisfies a
percentage limitation at the time of investment, a later increase or decrease in
value, assets or other circumstances will not be considered in determining
whether a Fund complies with the applicable policy (except to the extent the
change may impact a Fund's borrowing limits). Unless otherwise stated, the
investment policies and limitations described below are non-fundamental and may
be changed without a shareholder vote.

For a further description of each Fund's investment policies and restrictions,
see the "Overview of Investment Policies" section, the applicable "Investment
Policies" section and the "Additional Investment Information" section of the
Statement of Additional Information.

INVESTMENT POLICIES OF THE BOND FUNDS

INTERMEDIATE TREASURY FUND

The Intermediate Treasury Fund has as its investment objective to provide as
high a level of current income as is consistent with the preservation of
capital. The Intermediate

-- 22 --
<PAGE>
EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

Treasury Fund will seek to maintain a portfolio of U.S. Treasury obligations
with an average dollar weighted maturity of between three and ten years;
however, individual obligations held by the Intermediate Treasury Fund may have
maturities outside that range.

To pursue its investment objective, the Intermediate Treasury Fund:

1. 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 Intermediate Treasury Fund may also invest in
stripped securities that are direct obligations of the U.S. Treasury. Direct
obligations of the U.S. Treasury are supported by the full faith and credit
of the U.S. Government.

2. WILL INVEST UP TO 35% OF ITS TOTAL ASSETS IN:

OTHER U.S. GOVERNMENT SECURITIES, including (a) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, such as securities issued by GNMA; (b)
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"); and (c) securities supported solely by the creditworthiness of the
issuer, such as securities issued by the Tennessee Valley Authority ("TVA").
While U.S. Government securities are considered to be of the highest credit
quality available, they are subject to the same market risks as comparable
debt securities.

CORPORATE DEBT SECURITIES which at the time of purchase are rated in the top
three grades (A or higher) by either Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Services, a division of The McGraw
Hill

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

Companies, Inc. ("S&P"), or, if unrated, determined by SAM to be of
comparable quality to such rated debt securities. In addition to reviewing
ratings, SAM will analyze the quality of rated and unrated corporate bonds
for purchase by the Fund by evaluating various factors that may include the
issuer's capital structure, earnings power and quality of management. See
"Description of Ratings."

3. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
EURODOLLAR BONDS AND MUNICIPAL SECURITIES. See "Additional Investment
Information--Bond Funds and Managed Bond Fund" in the Statement of Additional
Information for more information about these securities.

GNMA FUND

The investment objective of the GNMA Fund is 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.

To pursue its investment objective, the GNMA Fund:

1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS PORTFOLIO
IN MORTGAGE-BACKED SECURITIES ISSUED BY GNMA ("GNMA SECURITIES"). The GNMA
securities in which the GNMA Fund will invest represent ownership in a pool
of mortgage loans or securities collateralized by pools of mortgage loans.
Each mortgage loan in the pool is either insured by the Federal Housing
Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration. Once approved by GNMA, the timely payment of
principal and interest by each mortgage pool is guaranteed by GNMA. The GNMA
guarantee represents a general obligation of the U.S. Treasury.

GNMA securities in which the GNMA Fund may invest include "modified
pass-through" securities or collateralized mortgage obligations ("CMOs").
Modified pass-through

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

securities "pass through" to their holders the scheduled monthly interest and
principal payments relating to mortgage loans in the pool. CMOs are
securities collateralized by a portfolio of mortgage loans or mortgage-backed
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal of the underlying collateral or a combination thereof.
One type of CMO that the GNMA Fund may purchase is interests in real estate
mortgage investment conduits ("REMICs") sponsored by GNMA.

CMO classes may be specially structured in a manner that provides any of a
wide variety of investment characteristics, such as yield, effective maturity
and interest rate sensitivity. As market conditions change, however, and
particularly during periods of rapid or unanticipated changes in market
interest rates, the attractiveness of the CMO classes and the ability of the
structure to provide the anticipated investment characteristics may
significantly change. Such changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.

While the market values of particular securities in which the GNMA Fund
invests may be volatile, or may become volatile under certain conditions, SAM
will seek to manage the Fund so that the volatility of the Fund's portfolio,
taken as a whole, is consistent with the Fund's investment objective.
Unanticipated interest rate changes and other factors may affect the
volatility of securities held by the Fund and the Fund's ability to fully
meet its investment objective.

2. MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN:

OTHER U.S. GOVERNMENT SECURITIES, including (a) securities backed by the full
faith and credit of the U.S. Government,

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

such as U.S. Treasury bills, notes and bonds; (b) securities issued by U.S.
Government agencies or instrumentalities that are not backed by the full
faith and credit of the U.S. Government but are supported by the issuer's
right to borrow from the U.S. Treasury, such as securities issued by FNMA and
FHLMC; and (c) securities supported solely by the creditworthiness of the
issuer, such as securities issued by TVA. While U.S. Government securities
are considered to be of the highest credit quality available, they are
subject to the same market risks as comparable debt securities.

OTHER COLLATERALIZED MORTGAGE OBLIGATIONS issued by the U.S. Government or
one of its agencies or instrumentalities (such as FNMA or FHLMC) or by
private issuers which are collateralized by securities issued by the U.S.
Government or one of its agencies or instrumentalities (such as FNMA or
FHLMC). CMOs are securities collateralized by a portfolio of mortgages or
mortgage-backed securities. The issuer's obligation to make interest and
principal payments on the CMO is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a number of
classes or series that have different maturities and that may represent
interests in some or all of the interest or principal of the underlying
collateral or a combination thereof.

ASSET-BACKED SECURITIES, which represent interests in, or are secured by and
payable from, pools of assets such as (but not limited to) consumer loans,
automobile receivable securities, credit card receivable securities and
installment loan contracts. These securities may be pass-through
certificates, which are similar to mortgage-backed securities, or they may be
asset-backed commercial paper, which is issued by a special purpose entity
organized solely to issue the commercial paper and to purchase interests in
the assets. There is the risk that one or more of the

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

underlying borrowers may default and that recovery on the repossessed
collateral may be unavailable or inadequate to support payments on the
defaulted securities. Like mortgage-backed securities, asset-backed
securities are subject to prepayment risks, which may reduce the overall
return on the investment. Payment of interest and principal ultimately
depends upon borrowers paying the underlying loans. These securities may be
supported by credit enhancements such as letters of credit. The credit
quality of these securities depends upon the quality of the underlying assets
and the level of credit enhancements, such as letters of credit, provided.
There is the risk that one or more of the underlying borrowers may default
and that recovery on repossessed collateral may be unavailable or inadequate
to support payments on the defaulted asset-backed securities. In addition,
asset-backed securities are subject to prepayment risks which may reduce the
overall return of the investment.

CORPORATE DEBT SECURITIES which are investment grade. Investment grade
corporate debt securities are rated in one of the four highest grades
assigned by Moody's or S&P or, if unrated, determined by SAM to be of
comparable quality to such rated debt securities. Moody's deems securities
rated in the fourth category (Baa) to have speculative characteristics. The
GNMA Fund may retain a debt security which is downgraded to below investment
grade after purchase. In the event that, due to a downgrade of one or more
debt securities, an amount in excess of 5% of the Fund's net assets is held
in securities rated below investment grade, SAM will engage in an orderly
disposition of such securities to the extent necessary to ensure that the
Fund's holdings of such securities do not exceed 5% of the Fund's net assets.
For an explanation of ratings, see "Description of Ratings."

See "Risk Factors" for more information.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

HIGH-YIELD BOND FUND

The High-Yield Bond Fund has as its investment objective to provide a high level
of current interest income through the purchase of high-yield, fixed-income
securities. The higher yields that the Fund seeks are usually available from
lower-rated or unrated securities sometimes referred to as "junk bonds." The
maturity of the debt obligations held by the Fund may range from 1 to 30 years.

To pursue its investment objective, the High-Yield Bond Fund:

1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS PORTFOLIO
IN HIGH-YIELD, FIXED-INCOME SECURITIES. The High-Yield Bond Fund may purchase
debt and preferred stock issues (including convertible securities) which are
below investment grade, i.e., rated lower than the top four grades by S&P or
Moody's, or, if not rated by these agencies, in the opinion of SAM, have
credit characteristics comparable to such rated securities. Up to 25% of the
Fund's total assets may be invested in such unrated securities. SAM will
determine the quality of unrated obligations by evaluating the issuer's
capital structure, earnings power and quality of management. Unrated
securities may not be as attractive to as many investors as rated securities.
In addition, the Fund may invest up to 5% of its total assets in securities
which are in default. The Fund will purchase securities which are in default
only when, in SAM's opinion, the potential for high yield outweighs the risk.

While fixed-income securities rated lower than investment grade generally
lack characteristics of a desirable investment, they normally offer a current
yield or yield-to-maturity which is significantly higher than the yield
available from securities rated as investment grade. These securities are
speculative and involve greater investment risks due to the issuers' reduced
creditworthiness and increased likelihood of default and bankruptcy. In
addition,

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

these securities are frequently subordinated to senior securities. For
further explanation of the special risks associated with investing in
lower-rated, fixed-income securities, see "Risk Factors."

For a description of debt ratings, see "Description of Ratings." For a
breakdown of the debt securities held by the High-Yield Bond Fund during the
year ended December 31, 1997, see "Debt Securities Held by the High-Yield
Bond Fund." The High-Yield Bond Fund may retain an issue whose rating has
been changed.

2. MAY INVEST IN FIXED-INCOME SECURITIES WITH EQUITY FEATURES WHEN COMPARABLE IN
YIELD AND RISK TO FIXED-INCOME SECURITIES WITHOUT EQUITY FEATURES, BUT ONLY
WHEN ACQUIRED AS A RESULT OF UNIT OFFERINGS WHICH CARRY AN EQUITY ELEMENT
SUCH AS COMMON STOCK, RIGHTS OR OTHER EQUITY SECURITIES. The Fund will hold
these common stocks, rights or other equity securities until SAM determines
that, in its opinion, the optimal time for sale of the equity security has
been reached.

3. MAY INVEST IN RESTRICTED SECURITIES ELIGIBLE FOR RESALE UNDER RULE 144A
("RULE 144A SECURITIES"), PROVIDED THAT SAM HAS DETERMINED THAT SUCH
SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE BOARD OF TRUSTEES.
Restricted securities may be sold only in offerings registered under the
Securities Act of 1933 ("1933 Act") or in transactions exempt from the
registration requirements under the 1933 Act. Rule 144A under the 1933 Act
provides an exemption for the resale of certain restricted securities to
qualified institutional buyers. Investing in Rule 144A securities could have
the effect of decreasing the liquidity of the Fund's portfolio to the extent
that qualified institutional buyers or other buyers become, for a time,
unwilling to purchase the securities.

4. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES WHICH ARE
RATED LOWER THAN THE TOP THREE GRADES

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

ASSIGNED BY MOODY'S OR S&P OR ARE UNRATED BUT COMPARABLE TO SUCH RATED
SECURITIES IF, IN THE OPINION OF SAM, THE POTENTIAL FOR APPRECIATION IS
GREATER THAN, AND YIELD IS COMPARABLE TO OR GREATER THAN, SIMILARLY-RATED
TAXABLE SECURITIES. Investment in medium and lower quality tax-exempt bonds
involves the same risks as investments in taxable bonds of similar quality.

5. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES OR IN FIXED-INCOME SECURITIES WHICH ARE RATED
IN THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P DURING MARKET
CONDITIONS WHICH, IN THE OPINION OF SAM, ARE UNFAVORABLE FOR SATISFACTORY
PERFORMANCE BY LOWER-RATED OR UNRATED FIXED-INCOME SECURITIES. The Fund may
invest in higher-rated securities when changing economic conditions or other
factors cause the difference in yield between lower-rated and higher-rated
securities to narrow and SAM believes that the risk of loss to principal may
be substantially reduced with a small reduction in yield.

6. MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES BY FOREIGN
ISSUERS. THESE BONDS HAVE INVESTMENT RISKS THAT ARE DIFFERENT FROM THOSE OF
DOMESTIC ISSUERS. SUCH RISKS MAY INCLUDE NATIONALIZATION OF THE ISSUER,
CONFISCATORY TAXATION BY THE FOREIGN GOVERNMENT THAT WOULD INHIBIT THE
ABILITY OF THE ISSUER TO MAKE PRINCIPAL AND INTEREST PAYMENTS TO THE FUND,
LACK OF COMPARABLE PUBLICLY AVAILABLE INFORMATION CONCERNING FOREIGN ISSUERS,
LACK OF COMPARABLE ACCOUNTING AND AUDITING PRACTICES IN FOREIGN COUNTRIES
AND, FINALLY, DIFFICULTY IN ENFORCING CLAIMS AGAINST FOREIGN ISSUERS IN THE
EVENT OF DEFAULT.

Both S&P and Moody's rate Yankee sector debt obligations. If a debt
obligation is unrated, SAM will attempt to analyze a potential investment in
the foreign issuer with respect to

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

quality and risk on the same basis as the rating services. Because public
information is not always comparable to that available on domestic issuers,
this may not be possible. Therefore, while SAM will attempt to select
investments in Yankee sector debt securities on the same basis as its
investments in domestic securities, that may not always be possible.

See "Risk Factors" for more information.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

The Managed Bond Fund has as its investment objective 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.

In pursuing the Managed Bond Fund's investment objective, SAM will seek to
minimize the effects of interest rate risks while pursuing total return by
adjusting the investment portfolio's average maturity in response to interest
rate changes. In general, the Managed Bond Fund's strategy will be to hold
fixed-income securities with shorter maturities as interest rates rise and with
longer maturities as interest rates fall. The fixed-income securities held by
the Managed Bond Fund will have an average dollar-weighted maturity of 10 years
or less; however, individual obligations held by the Managed Bond Fund may have
maturities of over 10 years. SAM reserves the right to modify the Managed Bond
Fund's investment strategy in any respect at any time.

To pursue its investment objective, the Managed Bond Fund:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN BONDS, DEFINED AS
FIXED-INCOME SECURITIES.

2. WILL INVEST PRIMARILY IN INVESTMENT GRADE DEBT SECURITIES; I.E., SECURITIES
RATED IN THE TOP FOUR CATEGORIES BY EITHER S&P OR MOODY'S OR IF NOT RATED,
SECURITIES WHICH, IN SAM'S

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

OPINION, ARE COMPARABLE IN QUALITY TO INVESTMENT GRADE DEBT SECURITIES.
Included in such securities are medium grade debt securities. The Fund will
limit investments in such medium grade debt securities to no more than 10% of
its total assets. Unrated securities are not necessarily of lower quality
than rated securities, but may not be as attractive to investors.

The Fund may retain debt securities which are downgraded to below investment
grade (commonly referred to as "high yield" or "junk" bonds) after purchase.
In the event that due to a downgrade of one or more debt securities an amount
in excess of 5% of the Fund's net assets is held in securities rated below
investment grade, SAM will engage in an orderly disposition of such
securities to the extent necessary to reduce the Fund's holdings of such
securities to no more than 5% of the Fund's net assets. In addition to
reviewing ratings, SAM may analyze the quality of rated and unrated debt
securities purchased for the Fund by evaluating the issuer's capital
structure, earnings power, quality of management and position within its
industry. For a description of debt securities ratings, see "Description of
Ratings."

3. WILL INVEST AT LEAST 50% OF ITS TOTAL ASSETS IN OBLIGATIONS OF OR GUARANTEED
BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES. These obligations
include (a) direct obligations of the U.S. Treasury, such as U.S. Treasury
notes, bills, bonds and stripped securities; (b) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, such as securities issued by GNMA; (c)
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 FNMA and the FHLMC and (d)
securities supported solely

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

by the creditworthiness of the issuer, such as securities issued by the TVA.
While U.S. Government securities are considered to be of the highest credit
quality available, they are subject to the same market risks as comparable
debt securities.

4. MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN CORPORATE DEBT SECURITIES OR
EURODOLLAR BONDS. Eurodollar bonds are bonds issued by either U.S. or foreign
issuers that are traded in the European bond markets and denominated in U.S.
dollars. Eurodollar bonds are subject to the same risks that pertain to
domestic issues, notably, credit risk, market risk and liquidity risk.
Additionally, Eurodollar bonds are subject to certain sovereign risks. One
such risk is the possibility that a foreign government might prevent dollar-
denominated funds from flowing across its borders. Eurodollar bonds issued by
foreign issuers also are subject to the same risks as Yankee sector bonds
discussed below.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

loans. These securities may be supported by credit enhancements such as
letters of credit. The credit quality of these securities depends upon the
quality of the underlying assets and the level of credit enhancements, such
as letters of credit, provided. There is the risk that one or more of the
underlying borrowers may default and that recovery on repossessed collateral
may be unavailable or inadequate to support payments on the defaulted
asset-backed securities. In addition, asset-backed securities are subject to
prepayment risks which may reduce the overall return of the investment.

6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES BY FOREIGN
ISSUERS. These bonds have investment risks that are different from those of
domestic issuers. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign issuers,
lack of comparable accounting and auditing practices in foreign countries
and, finally, difficulty in enforcing claims against foreign issuers in the
event of default.

Both S&P and Moody's rate Yankee sector debt obligations. If a debt
obligation is unrated, SAM will attempt to analyze a potential investment in
the foreign issuer with respect to quality and risk on the same basis as the
rating services. Because public information is not always comparable to that
available on domestic issuers, this may not be possible. Therefore, while SAM
will attempt to select investments in Yankee sector debt securities on the
same basis as its investments in domestic securities, that may not always be
possible.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

7. MAY HOLD CASH AS A TEMPORARY DEFENSIVE MEASURE WHEN MARKET CONDITIONS SO
WARRANT. See "Common Investment Practices of the Bond Funds and Managed Bond
Fund" for more information about cash holdings.

8. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES IF, IN SAM'S
OPINION, THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND YIELD IS
COMPARABLE TO OR GREATER THAN, SIMILARLY RATED TAXABLE SECURITIES.

See "Risk Factors" for more information.

COMMON INVESTMENT PRACTICES OF THE BOND FUNDS AND MANAGED BOND FUND

Each Bond Fund and the Managed Bond Fund may also follow the investment
practices described below:

1. HOLD CASH OR INVEST TEMPORARILY 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 may purchase these short-term
securities as a cash management technique under those circumstances where it
has cash to manage for a short time period, for example, after receiving
proceeds from the sale of securities, interest payments or dividend
distributions from portfolio securities or cash from the sale of Fund shares
to investors. Interest earned from these short-term securities will be
taxable to investors as ordinary income when distributed. The Managed Bond
Fund will invest no more than 5% of its total assets in repurchase agreements
and will not purchase repurchase agreements which mature in more than seven
days.

Each Bond Fund will limit investments in repurchase agreement transactions to
10% of the Fund's net assets. See

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

"Fundamental Policies of the Bond Funds and Managed Bond Fund" below for more
information about the Bond Funds' investments in repurchase agreement
transactions.

2. INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE DESIRABLE
AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. No Fund, however, will engage
primarily in trading for the purpose of short-term profits. A Fund may
dispose of its portfolio securities whenever SAM deems advisable, without
regard to the length of time the securities have been held.

3. PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS.
Under this procedure, a Fund agrees to acquire or sell securities that are to
be issued and delivered against payment in the future, normally 30 days or
less, or 60 days or less. The price, however, is fixed at the time of
commitment. When a Fund purchases when-issued or delayed-delivery securities,
it will earmark liquid, high-quality securities in an amount equal in value
to the purchase price of the security. Use of these techniques may affect a
Fund's share price in a manner similar to the use of leveraging.

FUNDAMENTAL POLICIES OF THE BOND FUNDS AND MANAGED BOND FUND

Except as noted, the following restrictions are fundamental policies of the Bond
Funds and the Managed Bond Fund which cannot be changed without shareholder
vote:

1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(OTHER THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR ITS
INSTRUMENTALITIES).

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

2. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE ISSUER
(OTHER THAN U.S. GOVERNMENT SECURITIES).

3. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES FROM A
BANK (OR SAFECO CORPORATION IN THE CASE OF THE BOND FUNDS) OR AFFILIATES OF
SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN THAT AVAILABLE FROM
COMMERCIAL BANKS. A Fund will not borrow amounts in excess of 20% of its
total assets. A Fund will not purchase securities if outstanding borrowings
are equal to or greater than 5% of its total assets (this 5% policy is
non-fundamental for the Managed Bond Fund). Each Fund intends to exercise its
borrowing authority primarily to meet shareholder redemptions under
circumstances where redemptions exceed available cash.

The Bond Funds (and not the Managed Bond Fund) have adopted the following
additional fundamental investment restrictions which cannot be changed without
shareholder vote:

1. EACH BOND FUND MAY INVEST UP TO 10% (HIGH-YIELD BOND AND INTERMEDIATE
TREASURY FUNDS) AND 5% (GNMA FUND) OF ITS NET ASSETS IN ILLIQUID SECURITIES,
WHICH ARE SECURITIES THAT CANNOT BE SOLD WITHIN SEVEN DAYS IN THE ORDINARY
COURSE OF BUSINESS FOR APPROXIMATELY THE AMOUNT AT WHICH THEY ARE VALUED. Due
to the absence of an active trading market, a Fund may experience difficulty
in valuing or disposing of illiquid securities. SAM determines the liquidity
of the securities under guidelines adopted by the Taxable Bond Trust's Board
of Trustees.

2. EACH BOND FUND MAY INVEST UP TO 10% OF NET ASSETS IN REPURCHASE AGREEMENT
TRANSACTIONS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

or dealer at an agreed-upon date and price reflecting a market rate of
interest unrelated to the coupon rate or maturity of the purchased
securities. Repurchase agreements carry certain risks not associated with
direct investments in securities, including the risk that a Fund will be
unable to dispose of the security during the term of the repurchase agreement
if the security's market value declines, and delays and costs to a Fund if
the other party to the repurchase agreement declares bankruptcy.

INVESTMENT POLICIES OF THE TAX-EXEMPT BOND FUNDS

The investment objective of the Intermediate Municipal, Insured Bond and
Washington Funds is to provide as high a level of current interest income exempt
from federal income tax as is consistent with prudent investment risk. The
investment objective of the Municipal Bond Fund is to provide as high a level of
current interest income exempt from federal income tax as is consistent with the
relative stability of capital. The investment objective of the California Fund
is 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.

To pursue its objective, the Intermediate Municipal Fund will invest primarily
in municipal bonds whose interest is exempt from federal income tax and will
maintain a portfolio having an average dollar- weighted maturity of between
three and ten years; however, individual obligations held by the Fund may have
maturities outside that range. The Insured Bond Fund will invest primarily in
bonds insured by new issue and secondary market insurance policies and on
occasion by portfolio insurance. Insurance does not guarantee the market value
of insured municipal bonds nor the share price of the Insured Bond Fund.

To pursue its objective, the Municipal Fund will invest primarily in investment
grade municipal bonds whose interest

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

is exempt from federal income tax. The California Fund will invest primarily in
investment grade municipal bonds whose interest is exempt from both federal and
California personal income taxes.

To pursue its objective, the Washington Fund will invest primarily in investment
grade municipal bonds whose interest is exempt from federal income tax and that
are issued by the State of Washington or one of its political subdivisions,
municipalities, agencies, instrumentalities or public authorities. The
Washington Fund may not be suitable for every eligible investor. Since the State
of Washington currently has no personal income tax, there are no tax benefits at
the State level to an investor. An investor in the Washington Fund will
generally earn dividend income free from federal income taxes as will an
investor in the Intermediate Municipal, Insured Bond, California and Municipal
Funds.

To pursue its objective, each Tax-Exempt Bond Fund:

1. WILL, DURING NORMAL MARKET CONDITIONS, INVEST AS A MATTER OF FUNDAMENTAL
POLICY AT LEAST 80% OF ITS NET ASSETS IN SECURITIES, THE INTEREST ON WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND, IN THE CASE OF THE CALIFORNIA FUND,
EXEMPT FROM CALIFORNIA PERSONAL INCOME TAX. The Funds do not currently intend
to purchase taxable investments, except as a temporary accommodation or in an
emergency situation.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

municipal bonds. Unrated securities are not necessarily lower in quality than
rated securities, but may not be as attractive to as many investors as rated
securities. A Fund will invest no more than 33% of its total assets in
municipal bonds rated in the fourth highest grade or in comparable unrated
bonds. Such bonds are of medium grade, have speculative characteristics and
are more likely to have a weakened capacity to make principal and interest
payments under changing economic conditions or upon deterioration in the
financial condition of the issuer.

In addition to reviewing ratings, SAM will analyze the quality of rated and
unrated municipal bonds for purchase by a Fund by evaluating various factors
that may include the issuer's or guarantor's financial resources and
liquidity, economic feasibility of revenue bond project financing and general
purpose borrowings, cash flow and ability to meet anticipated debt service
requirements, quality of management, sensitivity to economic conditions,
operating history and any relevant political or regulatory matters. SAM may
also evaluate trends in the economy, the financial markets or specific
geographic areas in determining whether to purchase a bond. For a description
of municipal bond ratings, see "Description of Ratings."

After purchase by a Fund, a municipal bond may be downgraded to below
investment grade or, if unrated, may cease to be comparable to a rated
investment grade security (such below investment grade securities are
commonly referred to as "high-yield" or "junk" bonds). Neither event will
require a Fund to dispose of that security, but SAM will take a downgrade or
loss of comparability into account in determining whether the Fund should
continue to hold the security in its portfolio. A Fund will not hold more
than 5% of its net assets in such below investment grade securities.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

The term "municipal bonds" as used in this Prospectus means those obligations
issued by or on behalf of states, territories or possessions of the United
States and the District of Columbia and their political subdivisions,
municipalities, agencies, instrumentalities or public authorities, the
interest on which in the opinion of bond counsel is exempt from federal
income tax and, in the case of the California Fund, exempt from California
personal income tax.

To pursue its objective, the Insured Bond Fund:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN MUNICIPAL BONDS THAT ARE
COVERED BY INSURANCE GUARANTEEING THE TIMELY PAYMENT OF BOTH PRINCIPAL AND
INTEREST, AND MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN UNINSURED MUNICIPAL
BONDS.

INSURANCE DOES NOT GUARANTEE THE MARKET VALUE OF INSURED MUNICIPAL BONDS NOR
THE SHARE PRICE OF THE INSURED BOND FUND.

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). Such insurance may increase the purchase price as well as the resale value
of the bond. New issue insurance cannot be canceled by the insurer and remains
in force as long as the bond issue is outstanding. Secondary market insurance is
purchased by an investor after the bonds have been initially issued. These
policies normally insure specific bonds for the remainder of their term. Like
new issue insurance, the insurance cannot be canceled by the insurer. The
Insured Bond Fund may invest in bonds insured under a secondary market policy
purchased by a prior investor or may itself purchase secondary market insurance
for uninsured bonds it has purchased. Portfolio insurance is a policy purchased
by

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

the Insured Bond Fund to guarantee specific bonds it has purchased for its
portfolio for only as long as the bonds are held by the Fund. Premiums for new
issue insurance are paid in advance by the issuer of the bond. As a result, the
Insured Bond Fund may pay a higher purchase price for a bond covered by such
insurance. Premiums on secondary market and portfolio insurance are paid
directly by the Insured Bond Fund in accordance with applicable policy terms.
Any premiums paid by the Insured Bond Fund to purchase secondary market or
portfolio insurance policies will be a Fund expense. Such an expense may reduce
the Insured Bond Fund's current yield. The Insured Bond Fund will purchase
insurance policies only from insurance companies rated Aaa by Moody's or AAA by
S&P. Generally, an insurer may not withdraw or cancel coverage on insured
securities held by the Insured Bond Fund other than for non-payment of premium
by the Fund. The Insured Bond Fund may retain any defaulted municipal bond
covered by portfolio insurance. The defaulted bond will be valued based on the
value of the insurance coverage. The insurance value is normally the difference
between the market value of the defaulted security and the market value of
similar non-defaulted securities.

See "Risk Factors" for more information.

COMMON INVESTMENT PRACTICES OF THE TAX-EXEMPT BOND FUNDS

Each of the Funds may also follow the investment practices described below:

1. INVEST IN ANY OF THE FOLLOWING TYPES OF MUNICIPAL BONDS:

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

is a type of revenue bond that is backed by the credit of a private issuer,
generally does not have access to the resources of a municipality for payment
and may involve greater risk. Each Fund intends to invest primarily in
revenue bonds that may be issued to finance various types of projects,
including but not limited to education, hospitals, housing, waste and
utilities. Each Fund will not purchase private activity bonds or any other
type of revenue bonds, the interest on which is subject to the alternative
minimum tax.

GENERAL OBLIGATION BONDS, which are bonds that provide general purpose
financing for state and local governments and are backed by the taxing power
of the state and local government as the case may be. The taxes or special
assessments that can be levied for the payment of principal and interest on
general obligation bonds may be limited or unlimited as to rate or amount.

VARIABLE AND FLOATING RATE OBLIGATIONS, which are municipal obligations that
carry variable or floating rates of interest. Variable rate instruments bear
interest at rates that are readjusted at periodic intervals. Floating rate
instruments bear interest at rates that vary automatically with changes in
specified market rates or indexes, such as the bank prime rate. Accordingly,
as interest rates fluctuate, the potential for capital appreciation or
depreciation of these obligations is less than for fixed rate obligations.
Floating and variable rate obligations carry demand features that permit a
Fund to tender (sell) them back to the issuer at par prior to maturity and on
short notice. A Fund's ability to obtain payment from the issuer at par may
be affected by events occurring between the date the Fund elects to tender
the obligation to the issuer and the date redemption proceeds are payable to
the Fund. A Fund will purchase floating and variable rate obligations only if
at the time of purchase there is a secondary market for such

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

instruments. For purposes of calculating average dollar-weighted maturity,
the Intermediate Municipal Fund will treat variable and floating rate
obligations as having a maturity equal to the period remaining until the date
the Fund can next exercise the demand feature by selling the security back to
the issuer.

PUT BONDS, which are municipal bonds that give the holder the unconditional
right to sell the bond back to the issuer at a specified price and exercise
date and PUT BONDS WITH DEMAND FEATURES. The obligation to purchase the bond
on the exercise date may be supported by a letter of credit or other
arrangement from a bank, insurance company or other financial institution,
the credit standing of which affects the credit quality of the bond. A demand
feature is a put that entitles the Fund holding it to repayment of the
principal amount of the underlying security on no more than 30 days' notice
at any time or at specified intervals.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

municipal lease obligations also contain "non-appropriation" clauses that
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such
purpose on a yearly basis. Some municipal lease obligations of this type are
insured as to timely payment of principal and interest, even in the event of
a failure by the municipality to appropriate sufficient funds to make
payments under the lease. However, in the case of an uninsured municipal
lease obligation, a Fund's ability to recover under the lease in the event of
a non-appropriation or default will be limited solely to the repossession of
leased property without recourse to the general credit of the lessee, and
disposition of the property in the event of foreclosure might prove
difficult. If rent is abated because of damage to the leased property or if
the lease is terminated because monies are not appropriated for the following
year's lease payments, the issuer may default on the obligation causing a
loss to a Fund. A Fund will invest in only those municipal lease obligations
that are, in the opinion of SAM, liquid securities under guidelines adopted
by the Trust's Board of Trustees. Generally, municipal lease obligations will
be determined to be liquid if they have a readily available market after an
evaluation of all relevant factors.

CERTIFICATES OF PARTICIPATION in municipal lease obligations, which are
certificates issued by state or local governments that entitle the holder of
the certificate to a proportionate interest in the lease purchase payments
made. A Fund will only invest in those COPs that are, in the opinion of SAM,
liquid securities under guidelines adopted by the Trust's Board of Trustees.
Generally, COPs will be determined to be liquid if they have a readily
available market after an evaluation of all relevant factors.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

PARTICIPATION INTERESTS, which are interests in municipal bonds and floating
and variable rate obligations that are owned by banks. These interests carry
a demand feature that permits a Fund holding an interest to tender (sell) it
back to the bank. Generally, the bank will accept tender of the participation
interest with same day notice, but may require up to five days' notice. The
demand feature is usually backed by an irrevocable letter of credit or
guarantee of the bank. The credit rating of the bank may affect the credit
quality of the participation interest.

MUNICIPAL NOTES, which are notes generally issued by an issuer to provide for
short-term capital needs and generally have maturities of one year or less. A
Fund may purchase municipal notes as a medium for its short-term investments,
the interest on which will not be subject to federal income tax when
distributed to the Fund's shareholders. Notes include tax anticipation,
revenue anticipation and bond anticipation notes and tax-exempt commercial
paper. A Fund will invest only in those municipal notes that at the time of
purchase are rated within one of the three highest grades by Moody's or S&P
or, if unrated by any of these agencies, in the opinion of SAM, are of
comparable quality.

2. INVEST IN SHARES OF NO-LOAD, OPEN-END INVESTMENT COMPANIES THAT INVEST IN
TAX-EXEMPT SECURITIES WITH REMAINING MATURITIES OF ONE YEAR OR LESS. Such
shares will be purchased only as a medium for a Fund's short-term investments
if SAM determines that they provide a better combination of yield and
liquidity than a direct investment in short-term, tax-exempt securities. A
Fund will not invest more than 10% of its total assets in shares issued by
other investment companies, will not invest more than 5% of its total assets
in a single investment company, and will not purchase more than 3% of the
outstanding voting securities of a single investment company.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

3. INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE DESIRABLE
AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Each Fund, however, will not
engage primarily in trading for the purpose of short-term profits. A Fund may
dispose of its portfolio securities whenever SAM deems advisable, without
regard to the length of time the securities have been held. The portfolio
turnover rate for each Fund is not expected to exceed 70%.

4. PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS.
Under this procedure, a Fund agrees to acquire or sell securities that are to
be delivered against payment in the future, normally 30 to 45 days. The
price, however, is fixed at the time of commitment. When a Fund purchases
when-issued or delayed-delivery securities, it will earmark liquid,
high-quality securities in an amount equal in value to the purchase price of
the security. Use of this technique may affect a Fund's share price in a
manner similar to leveraging.

5. HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM SECURITIES ISSUED
BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH-QUALITY
COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT AND SHARES OF NO-LOAD, OPEN-END
MONEY MARKET FUNDS. A Fund may purchase these short-term securities as a cash
management technique under those circumstances where it has cash to manage
for a short time period, for example, after receiving proceeds from the sale
of securities, dividend distributions from portfolio securities, or cash from
the sale of Fund shares to investors. Interest earned from these short-term
securities will be taxable to investors as ordinary income when distributed.

FUNDAMENTAL POLICIES OF THE TAX-EXEMPT BOND FUNDS

The following restrictions are fundamental policies of the Tax-Exempt Bond Funds
and cannot be changed without shareholder vote.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, WILL NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(OTHER THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES).

2. EACH FUND WILL NOT INVEST 25% OR MORE OF ITS TOTAL ASSETS IN MUNICIPAL
OBLIGATIONS AND OTHER PERMITTED INVESTMENTS THE INTEREST ON WHICH IS PAYABLE
FROM REVENUES ON SIMILAR TYPES OF PROJECTS SUCH AS: SPORTS, CONVENTION OR
TRADE SHOW FACILITIES; AIRPORTS; MASS TRANSPORTATION; SEWAGE OR SOLID WASTE
DISPOSAL FACILITIES; OR AIR OR WATER POLLUTION CONTROL PROJECTS.

3. THE INTERMEDIATE MUNICIPAL, INSURED BOND AND MUNICIPAL FUNDS WILL NOT INVEST
25% OR MORE OF THEIR TOTAL ASSETS IN SECURITIES WHOSE ISSUERS ARE LOCATED IN
THE SAME STATE.

4. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. A FUND WILL NOT BORROW AMOUNTS IN
EXCESS OF 20% OF ITS TOTAL ASSETS. As a non-fundamental policy of the
Intermediate Municipal, Insured Bond and Washington Funds and a fundamental
policy of the California and Municipal Funds, a Fund will not purchase
securities if borrowings equal to or greater than 5% of its total assets are
outstanding. A Fund intends to primarily exercise its borrowing authority to
meet shareholder redemptions under circumstances where redemptions exceed
available cash.

INVESTMENT POLICIES OF THE MONEY MARKET FUNDS

MONEY FUND

The investment objective of the Money Fund is to seek as high a level of current
income as is consistent with the preservation

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

of capital and liquidity through investment in high-quality money market
instruments maturing in thirteen months or less. To pursue its objective, the
Money Fund:

1. WILL PURCHASE ONLY HIGH-QUALITY SECURITIES THAT, IN THE OPINION OF SAM
OPERATING UNDER GUIDELINES ESTABLISHED BY THE BOARD OF TRUSTEES, PRESENT
MINIMAL CREDIT RISKS AFTER AN EVALUATION OF THE CREDIT QUALITY OF THE ISSUER
OR OF ANY ENTITY PROVIDING A CREDIT ENHANCEMENT FOR THE SECURITY. The Fund
complies with industry-standard guidelines on the quality and maturity of its
investments, which are designed to help maintain a stable $1.00 share price.
The Fund invests in instruments with remaining maturities of 397 days or less
(determined in accordance with Rule 2a-7 under the Investment Company Act of
1940 (the "1940 Act")) and maintains a dollar-weighted average portfolio
maturity of not more than 90 days.

2. MAY INVEST IN COMMERCIAL PAPER OBLIGATIONS. Commercial paper is a short-term
instrument issued by corporations, financial institutions, governmental
entities and other entities. The principal risk associated with commercial
paper is the potential insolvency of the issuer. In addition to commercial
paper obligations of domestic corporations, the Fund may also purchase
dollar-denominated commercial paper issued in the U.S. by foreign entities.
While investments in foreign obligations are intended to reduce risk by
providing further diversification, such investments involve sovereign and
other risks, in addition to the credit and market risks normally associated
with domestic securities. These additional risks include the possibility of
adverse political and economic developments (including political instability)
and the potentially adverse effects of unavailability of public information
regarding issuers, reduced governmental supervision of markets, reduced
liquidity of certain financial markets, and the lack of uniform accounting,
auditing, and financial standards or the application of

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

standards that are different or less stringent than those applied in the U.S.
The Fund will purchase commercial paper issued by foreign entities only if,
in the opinion of SAM, it is of an investment quality comparable to other
obligations that may be purchased by the Fund.

3. MAY INVEST IN NEGOTIABLE AND NON-NEGOTIABLE DEPOSITS, BANKERS' ACCEPTANCES
AND OTHER SHORT-TERM OBLIGATIONS OF U.S. BANKS. Companies in the financial
services industry are subject to various risks related to that industry, such
as government regulation, changes in interest rates, and exposure on loans,
including loans to foreign borrowers. The Fund may also invest in
dollar-denominated obligations issued by foreign banks (including foreign
branches of U.S. banks) provided that, in the opinion of SAM, the obligation
is of an investment quality comparable to other obligations which may be
purchased by the Fund. Foreign banks may not be subject to accounting
standards or governmental supervision comparable to U.S. banks, and there may
be less public information available about their operations. In addition,
foreign obligations may be subject to risks relating to the political and
economic conditions of the foreign country involved, which could affect the
payment of principal and interest.

4. MAY INVEST IN U.S. GOVERNMENT SECURITIES. U.S. government securities include
(a) direct obligations of the U.S. Treasury, (b) securities supported by the
full faith and credit of the U.S. government but that are not direct
obligations of the U.S. Treasury, (c) 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

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

Mortgage Corporation ("FHLMC"), and (d) securities supported solely by the
creditworthiness of the issuer, such as securities issued by the Tennessee
Valley Authority ("TVA").

5. MAY INVEST IN CORPORATE OBLIGATIONS SUCH AS PUBLICLY TRADED BONDS, DEBENTURES
AND NOTES. The securities are used by issuers to borrow money from investors.
The issuer pays the investor a fixed or variable rate of interest, and must
repay the amount borrowed at maturity.

6. MAY INVEST IN EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank obligations
are dollar-denominated certificates of deposit and time deposits issued
outside the U.S. capital markets by foreign branches of U.S. banks and by
foreign banks. Yankee bank obligations are dollar-denominated obligations
issued in the U.S. capital markets by foreign banks.

Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a limited extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
foreign government might prevent dollar-denominated funds from flowing across
its borders. Other risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign issuers,
lack of comparable accounting and auditing practices in foreign countries
and, finally, difficulty in enforcing claims against foreign issuers in the
event of default. Eurodollar and Yankee obligations will undergo the same
credit analysis as domestic issues in which the Fund invests, and foreign
issuers will be required to meet the same tests of financial strength as the
domestic issuers approved for the Fund.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

7. MAY INVEST IN MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage-backed
securities represent interests in pools of mortgage loans and include, but
are not limited to, securities issued by the U.S. Government or one of its
agencies or instrumentalities such as GNMA, FNMA or FHLMC. Principal is paid
back to the Fund as payments are made on the underlying mortgages in the
pool. Accordingly, the Fund receives scheduled monthly principal and interest
payments as well as any unscheduled principal prepayments on the underlying
mortgages. Like other fixed income securities, when interest rates rise, the
value of mortgage-backed securities generally will decline.

Asset-backed securities represent interests in, or are secured by and payable
from, pools of assets such as consumer loans, automobile receivable
securities, credit card receivable securities and installment loan contracts.
These securities may be pass-through certificates, which are similar to
mortgage-backed securities, or they may be asset-backed commercial paper,
which is issued by a special purpose entity organized solely to issue the
commercial paper and to purchase interests in the assets. There is the risk
that one or more of the underlying borrowers may default and that recovery on
the repossessed collateral may be unavailable or inadequate to support
payments on the defaulted securities. Like mortgage-backed securities,
asset-backed securities are subject to prepayment risks, which may reduce the
overall return on the investment. The credit quality of these securities
depends upon the quality of the underlying assets and the level of credit
enhancements, such as letters of credit, provided.

8. MAY PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS. Under this procedure, a Fund agrees to acquire or sell securities that
are to be issued and delivered against payment in the future, normally 30 to
45

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

days. The price, however, is fixed at the time of commitment. When a Fund
purchases when-issued or delayed-delivery securities, it will earmark liquid,
high-quality securities in an amount equal in value to the purchase price of
the security. Use of these techniques may affect a Fund's share price in a
manner similar to the use of leveraging.

9. MAY INVEST UP TO 10% OF ITS NET ASSETS IN ILLIQUID SECURITIES, WHICH ARE
SECURITIES THAT CANNOT BE SOLD WITHIN SEVEN DAYS IN THE ORDINARY COURSE OF
BUSINESS FOR APPROXIMATELY THE AMOUNT AT WHICH THEY ARE VALUED. Due to the
absence of an active trading market, a Fund may experience difficulty in
valuing or disposing of illiquid securities. SAM determines the liquidity of
the securities under guidelines adopted by the Trust's Board of Trustees.

See "Risk Factors" for more information.

TAX-FREE MONEY FUND

The investment objective of the Tax-Free Money Fund is 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. The Tax-Free Money Fund's
investment objective is a fundamental policy that may not be changed without
shareholder approval. The term "municipal obligations" as used in this
Prospectus means those obligations issued by or on behalf of states, territories
or possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest on which in the
opinion of counsel for the issuer is exempt from federal income tax. To pursue
its investment objective, the Tax-Free Money Fund:

1. WILL PURCHASE ONLY HIGH-QUALITY SECURITIES THAT, IN THE OPINION OF SAM
OPERATING UNDER GUIDELINES ESTABLISHED BY THE BOARD OF TRUSTEES, PRESENT
MINIMAL CREDIT RISKS AFTER

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

AN EVALUATION OF THE CREDIT QUALITY OF THE ISSUER OR OF ANY ENTITY PROVIDING
A CREDIT ENHANCEMENT FOR THE SECURITY. The Fund complies with
industry-standard guidelines on the quality and maturity of its investments,
which are designed to help maintain a stable $1.00 share price. The Fund
invests in instruments with remaining maturities of 397 days or less
(determined in accordance with Rule 2a-7 under the 1940 Act) and maintains a
dollar-weighted average portfolio maturity of not more than 90 days.

2. WILL INVEST, DURING NORMAL MARKET CONDITIONS AND AS A MATTER OF FUNDAMENTAL
POLICY, AT LEAST 80% OF ITS NET ASSETS IN SECURITIES THE INTEREST ON WHICH IS
EXEMPT FROM FEDERAL INCOME TAX.

3. WILL INVEST IN MUNICIPAL NOTES. Municipal notes include bond anticipation
notes, tax anticipation notes and revenue anticipation notes, municipal
bonds, and municipal commercial paper. These instruments are generally issued
to provide for short-term capital needs of the issuer.

4. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF NO-LOAD, OPEN-END
INVESTMENT COMPANIES THAT INVEST IN TAX-EXEMPT SECURITIES WITH REMAINING
MATURITIES OF THIRTEEN MONTHS OR LESS. Such shares will be purchased only if
SAM determines that they provide a better combination of yield and liquidity
than a direct investment in short-term, tax-exempt securities. The Fund will
not invest more than 5% of its total assets in a single investment company.

5. MAY INVEST (AS A TEMPORARY ACCOMMODATION OR IN AN EMERGENCY SITUATION) UP TO
20% OF ITS NET ASSETS IN SHORT-TERM TAXABLE INVESTMENTS SUCH AS DIRECT
OBLIGATIONS OF THE U.S. GOVERNMENT, CERTIFICATES OF DEPOSIT AND COMMERCIAL
PAPER MEETING THE NECESSARY QUALITY REQUIREMENTS.

See "Risk Factors" for more information.

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

COMMON INVESTMENT PRACTICES OF THE MONEY MARKET FUNDS

Each Money Market Fund:

1. MAY INVEST IN REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys
securities at one price and simultaneously agrees to sell them back at a
higher price. Delays or losses could result if the counterparty to the
agreement defaults or becomes insolvent. The Money Fund will invest no more
than 10% of total assets in repurchase agreements that mature in more than
seven days. The Tax-Free Money Fund will invest no more that 10% of total
assets in repurchase agreements and will not purchase repurchase agreements
that mature in more than seven days.

2. MAY INVEST IN VARIABLE AND FLOATING RATE INSTRUMENTS. Issuers of floating or
variable rate notes include, but are not limited to, corporations,
partnerships, special purpose entities, the U.S. government, its agencies and
instrumentalities, and municipalities. The interest rates on variable rate
instruments reset periodically on specified dates so as to cause the
instruments' market value to approximate their par value. The interest rates
on floating rate instruments change whenever there is a change in a
designated benchmark rate. Variable and floating rate instruments may have
optional or mandatory put features. In the case of a mandatory put feature,
the Fund would be required to act to keep the instrument.

3. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES ELIGIBLE FOR
RESALE UNDER RULE 144A UNDER THE SECURITIES ACT OF 1933 ("1933 ACT") ("RULE
144A SECURITIES") AND COMMERCIAL PAPER SOLD PURSUANT TO SECTION 4(2) OF THE
1933 ACT ("SECTION 4(2) PAPER"), PROVIDED THAT SAM HAS DETERMINED THAT SUCH
SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE BOARD OF TRUSTEES.
Restricted securities may be sold only in offerings registered under

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

the 1933 Act or in transactions exempt from the registration requirements
under the 1933 Act. Rule 144A under the 1933 Act provides an exemption for
the resale of certain restricted securities to qualified institutional
buyers. Investing in such Rule 144A Securities could have the effect of
decreasing the liquidity of the Fund's portfolio to the extent that qualified
institutional buyers or other buyers become, for a time, unwilling to
purchase the securities. Section 4(2) of the 1933 Act exempts securities sold
by the issuer in private transactions from the 1933 Act's registration
requirements. Because Section 4(2) paper is a restricted security, investing
in Section 4(2) paper could have the effect of decreasing the liquidity of
the Fund's portfolio to the extent that buyers become, for a time, unwilling
to purchase the securities.

FUNDAMENTAL POLICIES OF THE MONEY MARKET FUNDS

The following restrictions are fundamental policies and cannot be changed
without shareholder approval. Each Money Market Fund:

1. MAY INVEST UP TO 5% OF ITS ASSETS IN THE SECURITIES OF ANY ONE ISSUER OTHER
THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES (EXCEPT, WITH RESPECT TO THE TAX-FREE MONEY FUND ONLY, THAT
UP TO 25% OF THAT FUND'S ASSETS MAY BE INVESTED WITHOUT REGARD TO THE 5%
LIMITATION, WHICH 25% DOES NOT INCLUDE SECURITIES ISSUED BY OTHER INVESTMENT
COMPANIES).

2. MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN ANY ONE INDUSTRY (INCLUDING
SECURITIES ISSUED BY FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS),
PROVIDED, HOWEVER, THAT THIS LIMITATION DOES NOT APPLY TO U.S. GOVERNMENT
SECURITIES, OR TO CERTIFICATES OF DEPOSIT OR BANKERS' ACCEPTANCES ISSUED BY
DOMESTIC BANKS. The Tax-Free Money Fund will not invest more than 25% of its
total assets in any one

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EACH FUND'S INVESTMENT
OBJECTIVE AND POLICIES (CONTINUED)

industry, or in municipal obligations and other permitted investments, the
interest on which is payable from revenues on similar types of projects.

3. MAY BORROW MONEY FOR TEMPORARY OR EMERGENCY PURPOSES (BUT NOT FOR INVESTMENT
PURPOSES) FROM A BANK OR AFFILIATES OF SAFECO CORPORATION AT AN INTEREST RATE
NOT GREATER THAN THAT AVAILABLE FROM COMMERCIAL BANKS. A Fund will not borrow
amounts in excess of 20% of total assets and will not purchase securities if
borrowings equal to or greater than 5% of total assets are outstanding. Each
Fund intends to primarily exercise its borrowing authority to meet
shareholder redemptions under circumstances where redemptions exceed
available cash.

In addition to the fundamental policy set forth in number 1, above, the Tax-Free
Money Fund is subject to a more restrictive non-fundamental policy pursuant to
which it may not invest more than 5% of its total assets in the securities of
any one issuer other than U.S. Government securities. Notwithstanding this
policy, the Tax-Free Money Fund may invest up to 25% of its total assets in the
first tier securities of a single issuer for up to three business days after
purchase. First tier securities are securities (1) rated in the highest
short-term category by two nationally recognized statistical rating
organizations ("NRSROs"); (2) rated in the highest short-term rating category by
a single NRSRO if only that NRSRO has assigned the securities a short-term
rating; or (3) unrated, but determined by SAM to be of comparable quality.

RISK FACTORS

There are market risks in all securities transactions. Various factors may cause
the value of a shareholder's investment in a Fund to fluctuate. The principal
risk factor associated with an investment in a mutual fund is that the market
value of its portfolio securities may decrease resulting in a decrease in the

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RISK FACTORS (CONTINUED)

value of a shareholder's investment. The value of each Fund's (except the Money
Market Funds') portfolio will normally fluctuate inversely with changes in
market interest rates. Generally, when market interest rates rise, the price of
the debt securities held by a Fund will fall, and when market interest rates
fall, the price of the debt securities will rise. Also, there is a risk that the
issuer of a bond or other security held in a Fund's portfolio will fail to make
timely payments of principal and interest to the Fund. Included in investment
grade debt securities are securities of medium grade (rated Baa by Moody's or
BBB by S&P) which have speculative characteristics and are more likely to have a
weakened capacity to make principal and interest payments under changing
economic or other conditions than higher grade securities.

It is possible that a major change in interest rates or a default of one or more
of the Money Market Funds' investments could cause their share prices (and the
value of your investment) to fall. The Money Market Funds' yield will fluctuate
with general interest rates.

The prices of GNMA and other mortgage-backed securities, like conventional
fixed-income securities, are inversely affected by changes in interest rate
levels. Because of the likelihood of increased prepayments of mortgages in times
of declining interest rates, the GNMA securities held in a Fund's portfolio have
less potential for capital appreciation than comparable fixed-income securities
and may in fact decrease in value when interest rates fall. Since the Fund must
reinvest scheduled and unscheduled principal payments at prevailing interest
rates, and such interest rates may be higher or lower than the current yield of
the Fund's portfolio, GNMA and other mortgage-backed securities may not be an
effective means to lock in long-term interest rates. Further, purchases of GNMA
or other mortgage-backed securities for the GNMA Fund are based on an
anticipated prepayment rate. During periods of rising interest rates, a decrease
in the prepayment of mortgages is likely. This decrease may cause the average
dollar-

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RISK FACTORS (CONTINUED)

weighted maturity of particular securities held by the GNMA Fund and the GNMA
Fund's portfolio as a whole to increase, thereby decreasing the Fund's share
price during periods of rising interest rates. To the extent that the other
Funds purchase GNMA or other mortgage-backed securities, they would be similarly
affected.

The Managed Bond Fund may invest in stripped securities that are obligations
issued by the U.S. Treasury. Stripped securities are the separate income or
principal components of a debt security. The risks associated with stripped
securities are similar to those of other debt securities, although stripped
securities may be more volatile than other debt securities.

SPECIAL RISKS OF THE HIGH-YIELD BOND FUND

The High-Yield Bond Fund invests primarily in high-yield, fixed-income
securities which are subject to the following risks:

SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS

Yields on high-yield, fixed-income securities will fluctuate over time. During
periods of economic uncertainty or change, the market prices of high-yield,
fixed-income securities may experience increased volatility, which may in turn
cause the net asset value per share of the High-Yield Bond Fund to be volatile.
Lower-quality, fixed-income securities tend to reflect short-term economic and
corporate developments to a greater extent than higher-quality securities which
primarily react to fluctuations in interest rates. Economic downturns or
increases in interest rates can significantly affect the market for high-yield,
fixed-income securities and the ability of issuers to timely repay principal and
interest, increasing the likelihood of defaults. Lower-quality securities
include debt obligations issued as a part of capital restructurings, such as
corporate takeovers or buyouts. Capital restructurings generally involve the
issuance of additional debt on terms different from any current outstanding
debt. As a result, the issuer of the debt is more highly leveraged. During an
economic downturn or

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RISK FACTORS (CONTINUED)

period of rising interest rates, a highly-leveraged issuer may experience
financial difficulties which adversely affect its ability to make principal and
interest payments, meet projected business goals and obtain additional
financing. In addition, the issuer will depend on its cash flow and may depend,
especially in the context of corporate takeovers, on a sale of its assets to
service debt. Failure to realize projected cash flows or asset sales may
seriously impair the issuer's ability to service this greater debt load, which
in turn might cause the Fund to lose all or part of its investment in that
security. SAM will seek to minimize these additional risks through
diversification, careful assessment of the issuer's financial structure,
business plan and management team following any restructuring, and close
monitoring of the issuer's progress toward its financial goals.

ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES

The High-Yield Bond Fund may hold "zero-coupon" and "payment-in-kind"
fixed-income securities. Zero-coupon securities are purchased at a discount
without scheduled interest payments. Payment-in-kind securities receive interest
paid in additional securities rather than cash. The Fund accrues income on these
securities, but does not receive cash interest payments until maturity or
payment date. The Fund intends to distribute substantially all of its income to
its shareholders so that it can be treated as a regulated investment company
under current federal tax law. As a result, if its cash position is depleted,
the Fund may have to sell securities under disadvantageous circumstances to
obtain enough cash to meet its distribution requirement. However, SAM does not
expect non-cash income to materially affect the Fund's operations. Zero-coupon
and payment-in-kind securities are generally subject to greater price
fluctuations due to changes in interest rates than those fixed-income securities
paying cash interest on a schedule until maturity.

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RISK FACTORS (CONTINUED)

LIQUIDITY AND VALUATION

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

CREDIT RATINGS

SAM will periodically research and analyze each issue (whether rated or unrated)
and evaluate such factors as the issuer's interest or dividend coverage, asset
coverage, earnings prospects and managerial strength. This analysis will help
SAM to determine if the issuer has sufficient cash flow and profits to meet
required principal and interest payments and to monitor the liquidity of the
issue. Achievement of a Fund's investment objective will be more dependent on
SAM's credit analysis of bonds rated below the three highest rating categories
than would be the case were the Fund to invest in higher quality debt
securities. This is particularly true for the High-Yield Bond Fund.

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RISK FACTORS (CONTINUED)

SPECIAL RISKS OF THE CALIFORNIA AND WASHINGTON FUNDS

Because the California and Washington Funds each concentrate their investments
in a single state, there is a greater risk of fluctuation in the values of their
portfolio securities than with mutual funds whose investments are more
geographically diverse. Investors should carefully consider the investment risks
of such concentration. The share price of the California and Washington Funds
can be affected by political and economic developments within and by the
financial condition of the respective state, its public authorities and
political subdivisions. See the discussion below and "Investment Risks of
Concentration in California and Washington Issuers" in the Statement of
Additional Information for further information.

The information in the following discussion is drawn primarily from official
statements relating to state securities offerings which are dated prior to the
date of this Prospectus. The California and Washington Funds have not
independently verified any of the information in the discussion below.

CALIFORNIA FUND

After suffering through a severe recession, California's economy has been on a
steady recovery since the start of 1994, with a combination of better than
expected revenues, slowdown in growth of social welfare programs, and continued
spending restraint. Nevertheless, the costs of education, health, welfare and
corrections, driven by California's rapid population growth, are expected to
continue to exert pressure on the State's General Fund. California's long-term
credit ratings, reduced in 1992, were lowered again in 1994 and have not been
fully restored. Its ability to provide assistance to its public authorities and
political subdivisions has been limited. Cutbacks in state aid adversely affect
the financial condition of many local governments, especially counties, which
are already subject to fiscal constraints and are facing their own reduced tax
collections. In addition, some municipally-owned electric utilities may be
adversely affected by the restructuring of the electric utility industry now
underway in California.

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RISK FACTORS (CONTINUED)

In the past, California voters have passed amendments to the California
Constitution and other measures that limit the taxing and spending authority of
California governmental entities. Future voter initiatives could result in
adverse consequences affecting obligations issued by the State and its political
subdivisions. These factors, among others, could reduce the credit standing of
certain issuers of California obligations. At any given time, there are numerous
lawsuits against the State which could affect its revenues and expenditures.

WASHINGTON FUND

The State of Washington's economy consists of both export and local industries.
The State's leading export industries are aerospace, forest products,
agriculture and food processing. The State's manufacturing base includes
aircraft manufacture, which comprised approximately 25% of total manufacturing
in 1995. The Boeing Company is the State's largest employer and has a
significant impact, in terms of overall production, employment and labor
earnings, on the State's economy. As of September 30, 1997, Boeing employed
100,200 people in the State, which represents an addition of approximately
16,000 jobs during 1996 and approximately 13,000 through 1997. The commercial
airline industry is cyclical in nature and future job cuts could have an adverse
effect on the Washington economy. Forest products rank second behind aerospace
in value of total production. Although productivity in the forest products
industry has increased steadily from 1980 to 1990, since 1991 production has
declined and is expected to continue to decline due to federal limitations.
Unemployment in the timber industry is anticipated in certain regions; however,
the impact is not expected to significantly affect the State's overall economic
performance. Growth in agriculture has been an important factor in the State's
economic growth over the past decade. The State is the home of many technology
firms of

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RISK FACTORS (CONTINUED)

which approximately half are computer-related. Microsoft, the world's largest
microcomputer software company, is headquartered in Redmond, Washington.

State law requires a balanced budget. The Governor has a statutory
responsibility to reduce expenditures across the board to avoid any cash deficit
at the end of a biennium. In addition, State law prohibits State tax revenue
growth from exceeding the growth rate of State personal income. To date,
Washington State tax revenue increases have remained substantially below the
applicable limits. At any given time, there are numerous lawsuits against the
State which could affect its revenues and expenditures.

YEAR 2000

Like other mutual funds, financial and business organizations and individuals
around the world, each of the Funds could be adversely affected if the computer
systems used by its investment adviser or other companies that provide services
to the Trusts do not properly process and calculate date-related information
from and after January 1, 2000. This is commonly called the "Year 2000 problem."
SAM, SAFECO Services, and SAFECO Securities, Inc. are taking steps they believe
are reasonably designed to address the Year 2000 problem with respect to the
computer systems that each of them uses and to obtain satisfactory assurances
that comparable steps are being taken by each of the Funds' other, major service
providers. It is not anticipated that the Funds will incur any charges or that
there will be any difficulties in accurate and timely reporting resulting in the
change in year from 1999 to 2000.

PORTFOLIO MANAGERS

INTERMEDIATE TREASURY FUND

The portfolio manager for the Intermediate Treasury Fund is Ronald L. Spaulding,
Chairman of the Board, SAM. Mr. Spaulding has served in various capacities with
SAM and SAFECO Corporation since 1975.

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<PAGE>
PORTFOLIO MANAGERS (CONTINUED)

MANAGED BOND FUND

The portfolio manager for the Managed Bond Fund is Michael Hughes, Assistant
Vice President, SAM. Mr. Hughes was Vice President and a portfolio manager for
First Interstate Capital Management Company from 1995 to 1996, and Vice
President and portfolio manager for First Interstate Bank of California from
1988 to 1995.

GNMA FUND

The portfolio manager for the GNMA Fund is Paul A. Stevenson, Vice President,
SAM. Mr. Stevenson has served as portfolio manager for the Fund since 1988. In
addition, he is an Assistant Vice President of the SAFECO Life Insurance
Company.

HIGH-YIELD BOND FUND

The portfolio manager for the High-Yield Bond Fund is Robert Kern, Assistant
Vice President, SAM. Mr. Kern has served as a securities analyst for SAM since
1994. From 1988 to 1994, Mr. Kern was engaged by the SAFECO Insurance Companies
in the Controller's Department.

MUNICIPAL FUND, CALIFORNIA FUND AND INSURED BOND FUND

The portfolio manager for the Municipal Fund, California Fund and Insured Bond
Fund is Stephen C. Bauer, President, SAM. Mr. Bauer has served as portfolio
manager for each of these Funds since it commenced operations: 1981 for the
Municipal Fund, 1983 for the California Fund and 1992 for the Insured Bond Fund.
Mr. Bauer is the portfolio manager for certain other SAFECO municipal bond
funds, and also serves as a Director of SAM.

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<PAGE>
PORTFOLIO MANAGERS (CONTINUED)

INTERMEDIATE MUNICIPAL FUND AND TAX-FREE MONEY FUND

The portfolio manager for the Intermediate Municipal Fund and Tax-Free Money
Fund is Mary Metastasio, Vice President, SAM. Ms. Metastasio has served in
various positions with SAM since 1985.

WASHINGTON FUND

The portfolio manager for the Washington Fund is Beverly Denny, Assistant Vice
President, SAM. Ms. Denny was the Marketing Director for the SAFECO Mutual Funds
from 1991 to 1993, and has been employed as an investment analyst with SAM since
1993.

MONEY FUND

The portfolio manager for the Money Fund is Naomi Urata, Assistant Vice
President, SAM. Ms. Urata has been employed as an investment analyst for the
SAFECO Mutual Funds since 1993. From 1990 to 1992, Ms. Urata served as Cash
Manager for The Seattle Times.

Each portfolio manager and certain other persons related to SAM and the Funds
are subject to written policies and procedures designed to prevent abusive
personal securities trading. Incorporated within these policies and procedures
are recommendations made by the Investment Company Institute (the trade group
for the mutual fund industry) with respect to personal securities trading by
persons associated with mutual funds. Those recommendations include preclearance
procedures and blackout periods when certain personnel may not trade in
securities that are the same or related securities being considered for purchase
or sale by a Fund.

HOW TO PURCHASE SHARES

A completed and signed application must accompany payment for an initial
purchase by mail and in all cases is necessary before a redemption can be made.
Specific applications for retirement accounts must be completed and signed
before any

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HOW TO PURCHASE SHARES (CONTINUED)

retirement account can be set up. (Not available for the Tax-Free Money Fund or
any of the Tax-Exempt Bond Funds.) The Funds only accept funds drawn in U.S.
dollars and payable through a U.S. bank. The Funds do not accept currency. The
Funds issue shares in uncertificated form, but will issue certificates for whole
shares without charge upon written request. You will be required to post a bond
to replace missing certificates. Please note that SAFECO Services may not be
able to provide participant sub-accounting services for all employee benefit or
pension plans that require such services.

THE FUNDS RESERVE THE RIGHT TO REFUSE ANY OFFER TO PURCHASE SHARES.

INITIAL PURCHASES

MINIMUM INITIAL INVESTMENT $1,000 (IRA, UGMA AND UTMA $250).

Minimum initial investments are negotiable for retirement accounts other than
IRAs. (Not available for the Tax-Free Money Fund or any of the Tax-Exempt Bond
Funds.)

No minimum initial investment is required to establish an Automatic Investment
Method account (except for certain UGMA or UTMA accounts) or Payroll Deduction
Plan.

BY WRITTEN REQUEST

Send a check or money order payable to SAFECO Mutual Funds and a completed and
signed application to the address on the first page of this Prospectus.

BY WIRE

Call toll-free 1-800-624-5711 or, in Seattle, 206-545-7319 for instructions.

Not available for retirement accounts.

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HOW TO PURCHASE SHARES (CONTINUED)

IN PERSON

Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 7528 164th
Avenue NE, Suite A116, in Redmond, Washington. A representative will be
available to assist you in completing your application.

ADDITIONAL PURCHASES

Minimum Additional Investment $100 for all accounts, except for UGMA or UTMA
Automatic Investment Method ("AIM") accounts opened with an initial investment
of $250 or more. These accounts have a minimum additional investment of only
$50. There is no minimum investment for dividend reinvestments.

Minimum additional investments are negotiable for retirement plans other than
IRAs.

BY WRITTEN REQUEST

Send a check or money order payable to SAFECO Mutual Funds to the address on the
first page of this Prospectus. Please specify your account number and the name
of the Fund(s) in which you wish to invest. At SAFECO Services' discretion, and
upon three (3) days' written notice, SAFECO Services reserves the right to close
any account for which investment checks have been returned more than once for
insufficient funds.

BY WIRE

Instruct your bank to send wires to U.S. Bank of Washington, N.A., Seattle,
Washington, ABA #1250-0010-5, Account #0017-086083.

To ensure timely credit to your account, ask your bank to include the following
information in its wire to U.S. Bank of Washington, N.A.:

/ / SAFECO Fund name and class name (No-Load)

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HOW TO PURCHASE SHARES (CONTINUED)

/ / SAFECO account number

/ / Name of the registered owner(s) of the SAFECO account

Delays of purchases caused by inadequate wire instructions are not the
responsibility of the Funds or SAFECO Services.

Your bank may charge a fee for wire services.

BY TELEPHONE

Maximum purchase $100,000 per day, minimum purchase $100 per day.

Monies will be transferred from your predesignated bank account to your existing
Fund account. Your bank may charge a fee if monies are wired to your Fund
account. Please allow 15 business days after selecting this service for it to be
available for first use.

Telephone purchases may be unavailable from some bank accounts and non-bank
financial institutions.

Please read "Telephone Transactions" for important information.

OVER THE INTERNET

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HOW TO PURCHASE SHARES (CONTINUED)

Maximum purchase $100,000 per day, minimum purchase $100 per day.

Purchases over the Internet may be unavailable from some bank accounts and
non-bank financial institutions.

Please read "Transactions Over the Internet" for important information.

IN PERSON

You may make additional investments in person by visiting a SAFECO Investor
Center. Investor Centers are located at 1409 Fifth Avenue and 4333 Brooklyn
Avenue N.E. in Seattle, Washington, and at 7528 164th Avenue NE, Suite A116, in
Redmond, Washington. A representative will be available to assist you.

THROUGH REGISTERED SECURITIES DEALERS

You may open your account and make additional investments through a registered
securities dealer who is responsible for the prompt forwarding of purchase
orders. A dealer may charge a transaction fee and may place more restrictive
conditions on a purchase than would apply if you purchased your shares directly
from a Fund.

THROUGH REGISTERED INVESTMENT ADVISERS

Please read "Transactions Through Registered Investment Advisers" for important
information.

SHARE PURCHASE PRICE

You will buy full and fractional shares at the net asset value ("NAV") next
computed after your check, money order or wire

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HOW TO PURCHASE SHARES (CONTINUED)

is received by the Funds or an authorized financial intermediary, or, with
respect to shares of the Money Market Funds purchased by check or money order,
at the NAV computed on the next business day thereafter. For telephone purchase
orders, you will receive the price per share calculated on the day monies are
received from your bank account. (The Money Fund and Tax-Free Money Fund intend
to maintain a NAV of $1.00.) See "Share Price Calculation" for more information.

HOW TO REDEEM SHARES

BY WRITTEN REQUEST

Shares may be redeemed by sending a letter that specifies your account number,
the Fund's name, and the number of shares or dollar amount you wish to redeem.
The request should be sent to the address on the first page of this Prospectus.
The request must be signed by the appropriate number of owners, and in some
cases, a signature guarantee may be required. In all cases, SAFECO Services must
have a signed and completed application on file before a redemption can be made.
See "Account Changes and Signature Requirements" for more information.

Retirement account shareholders must specify whether or not they elect 10%
federal income tax withholding from a distribution.

BY TELEPHONE

Call 1-800-624-5711 or, in Seattle, 206-545-7319 to reach a representative; or
call 1-800-835-4391 or, in Seattle, 206-545-5113 for our automated system. You
must have previously selected this service on your account application or by
written request. Telephone redemptions are not available for retirement accounts
or shares issued in certificate form. You may request that redemption proceeds
be sent directly to your predesignated bank account or mailed to your account
address of record.

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HOW TO REDEEM SHARES (CONTINUED)

Please read "Telephone Transactions" for important information.

OVER THE INTERNET

Visit the SAFECO Mutual Funds website at http://www.safecofunds.com. You must
have previously mailed a completed and signed on-line services agreement to the
address on the first page of this Prospectus. The on-line services agreement is
available on the website or by contacting SAFECO Services at the address or
phone number on the first page of this Prospectus. Redemptions over the Internet
are not available for retirement accounts or shares issued in certificate form.
You may request that redemption proceeds be sent directly to your predesignated
bank account or mailed to your account address of record.

Please read "Transactions Over the Internet" for important information.

MONEY MARKET FUNDS ONLY -- BY REDEMPTION CHECK

SAFECO Services will send to you, free of charge, redemption checks (drafts)
payable through U.S. Bank of Washington, N.A. Redemption checks are not
available to IRA shareholders or for shares issued in certificate form.
Redemption checks may be made payable to any person or entity and must contain
the proper number of signatures. Redemption checks must be for $500 or more.
Neither the Money Market Funds nor SAFECO Services will be liable for payment of
postdated redemption checks. At SAFECO Services' discretion, and upon three (3)
days' written notice, SAFECO Services reserves the right to close any account
upon which checks have been written more than once without sufficient funds
available. See "Account Changes and Signature Requirements" for further
information.

IN PERSON

Shares may be redeemed in person by visiting a SAFECO Investor Center. Investor
Centers are located at 1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in
Seattle, Washington,

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HOW TO REDEEM SHARES (CONTINUED)

and at 7528 164th Avenue NE, Suite A116, in Redmond, Washington. Funds for
shares redeemed in person may be mailed to your address of record, sent directly
to your bank or retrieved directly from the SAFECO Investor Center once they
become available.

THROUGH REGISTERED SECURITIES DEALERS

Requests for redemption of shares by wire or telephone will be accepted from
registered securities dealers under agreement with each Fund's principal
underwriter. The dealer may charge a transaction fee for any order processed.

THROUGH REGISTERED INVESTMENT ADVISERS

Please read "Transactions Through Registered Investment Advisers" for important
information.

PLEASE NOTE THE FOLLOWING: If your shares were purchased by wire, redemption
proceeds will be available immediately. If shares were purchased by means other
than wire, each Fund reserves the right to hold the proceeds of your redemption
for up to 15 business days after investment or until such time as the Fund has
received assurance that your investment will be honored by the bank on which it
was drawn, whichever occurs first.

SAFECO Services charges a $10 fee to wire redemption proceeds. In addition, some
banks may charge a fee to receive wires.

If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.

Under some circumstances (E.G., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption can be made.

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HOW TO REDEEM SHARES (CONTINUED)

SHARE REDEMPTION PRICE AND PROCESSING

Your shares will be redeemed at the NAV per share next calculated after receipt
by the Funds or an authorized financial intermediary of your request that meets
the redemption requirements of the Funds. The value of the shares you redeem may
be more or less than the dollar amount you purchased, depending on the market
value of the shares at the time of redemption. See "Share Price Calculation" for
more information.

Redemption proceeds will normally be sent on the next business day following
receipt of your redemption request. If your redemption request is received after
the close of trading on the New York Stock Exchange ("NYSE") (normally 1:00 p.m.
Pacific time), proceeds will normally be sent on the second business day
following receipt. Each Fund, however, reserves the right to postpone payment of
redemption proceeds for up to seven days if making immediate payment could
adversely affect its portfolio. In addition, redemptions may be suspended or
payment dates postponed if the NYSE is closed, its trading is restricted or the
Securities and Exchange Commission declares an emergency.

Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the NAV per share
calculated on the day your account is closed and the proceeds will be sent to
you.

HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES

Call 1-800-426-6730 or, in Seattle, 206-545-5530, for more information.

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HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES (CONTINUED)

AUTOMATIC INVESTMENT METHOD ("AIM")

AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount from your bank account and invest the
amount in any Fund. AIM has a minimum of $100 per withdrawal per Fund for all
accounts (except UGMA and UTMA accounts which have a lower $50 minimum for
additional investments, provided that the account was opened with an initial
investment of at least $250).

PAYROLL DEDUCTION PLAN

An employer or other entity using group billing may establish a
self-administered payroll deduction plan. Payroll deduction amounts are
negotiable.

SYSTEMATIC WITHDRAWAL PLAN

This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund).

HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER

An exchange is the redemption of shares of one SAFECO Fund and the purchase of
shares of another SAFECO Fund in accounts that are identically registered, I.E.,
have the same registered owners and account number. For income tax purposes,
depending on the cost or other basis of the shares you exchange, you may realize
a capital gain or loss when you make an exchange. You may purchase shares of a
SAFECO Fund by exchange only if it is qualified for sale in the state where you
reside. Before exchanging into another SAFECO Fund, please read its current
Prospectus.

-- 75 --
<PAGE>
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)

BY WRITTEN REQUEST

Shares may be exchanged by writing SAFECO Services at the address on the first
page of this Prospectus. Please designate the SAFECO Funds you wish to exchange
out of and into as well as your account number. The request must be signed by
the number of owners designated on your account application, and in some cases a
signature guarantee may be required. See "Account Changes and Signature
Requirements" for more information.

If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.

Under some circumstances (E.G., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.

BY TELEPHONE

Exchanges by telephone must be in amounts of $1,000 or more.

Telephone exchanges are not available for shares issued in certificate form.
Please read "Telephone Transactions" for important information.

OVER THE INTERNET

-- 76 --
<PAGE>
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)

services agreement is available on the website or by contacting SAFECO Services
at the address or phone number on the first page of this Prospectus.

Exchanges over the Internet must be in amounts of $1,000 or more.

Exchanges over the Internet are not available for shares issued in certificate
form. Please read "Transactions Over the Internet" for important information.

THROUGH REGISTERED INVESTMENT ADVISERS

Please read "Transactions Through Registered Investment Advisers" for important
information.

LIMITATIONS

Each Fund reserves the right to refuse exchange purchases or simultaneous order
transactions by any person or group if, in SAM'S judgment, the Fund would not be
able to invest the money effectively in accordance with that Fund's investment
objective and policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.

-- 77 --
<PAGE>
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)

one SAFECO Mutual Fund and shortly thereafter reinvested into another SAFECO
Mutual Fund. In order to protect the shareholders of the Funds, SAM reserves the
right to exercise its discretion in determining whether a particular transaction
qualifies as a simultaneous order transaction. In addition to the foregoing
limitations on exchanges and simultaneous order transactions, as described
above, the Funds reserve the right to refuse any offer to purchase shares.

SHARE EXCHANGE PRICE AND PROCESSING

The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received by the Funds or an
authorized financial intermediary. Normally the purchase of the SAFECO Fund you
are exchanging into is executed on the same day. However, each Fund reserves the
right to delay the payment of proceeds and, hence, the purchase in an exchange
for up to seven days if making immediate payment could adversely affect the
portfolio of the Fund whose shares are being redeemed. The exchange privilege
may be modified or terminated with respect to a Fund at any time, upon at least
60 days' notice to shareholders.

TELEPHONE TRANSACTIONS

To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 206-545-7319 between 5:30 a.m. and 7:00 p.m. Pacific time, Monday
through Friday, except certain holidays to reach a representative; or call 1-
800-835-4391 or, in Seattle, 206-545-5113, 24 hours a day for our automated
system. All telephone calls are tape-recorded for your protection. During times
of drastic or unusual market volatility, it may be difficult for you to exercise
the telephone transaction privileges.

To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services

-- 78 --
<PAGE>
TELEPHONE TRANSACTIONS (CONTINUED)

either on your account application or by having submitted a request in writing
to SAFECO Services at the address on the first page of this Prospectus.
Purchasing, redeeming or exchanging shares by telephone allows the Funds and
SAFECO Services to accept telephone instructions from an account owner or a
person preauthorized in writing by an account owner.

Each Fund and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services, in its sole discretion, is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.

SAFECO Services has established security procedures to prevent unauthorized
account access. There can be no assurance, however, that telephone transaction
activity will be completely secure or free from delays or malfunctions. The
Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures may
include requiring the account owner to select the telephone privilege in writing
prior to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services records telephone transactions and may request
certain identifying information from the caller. Neither the Funds nor SAFECO
Services will be responsible for the negligent or wrongful acts of third
parties.

The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice

-- 79 --
<PAGE>
TELEPHONE TRANSACTIONS (CONTINUED)

by the Funds or SAFECO Services. The Funds and SAFECO Services may be liable if
they do not employ reasonable procedures to confirm that telephone transactions
are genuine.

TRANSACTIONS OVER THE INTERNET

You may purchase, sell or exchange shares over the Internet by visiting the
SAFECO Mutual Funds website at http://www.safecofunds.com and using SAFECO
Mutual Funds' On-Line Services (the "On-Line Services"). To use the On-Line
Services, you must complete, sign and mail to SAFECO Services an on-line
services agreement, which is available on the website or by contacting SAFECO
Services at the address or phone number on the first page of this Prospectus.
This agreement will only allow transactions for which you have already
established telephone transaction privileges. Please see "Telephone
Transactions" above.

Each Fund and SAFECO Services reserve the right to refuse any transaction over
the Internet for any reason whatsoever, including if SAFECO Services believes
unauthorized access has occurred or is occurring. The Funds and SAFECO Services
will not be liable for the authenticity of instructions received over the
Internet that SAFECO Services reasonably believes to have been transmitted by an
account owner or preauthorized person.

SAFECO Services has established security procedures, such as firewalls and data
encryption, to prevent unauthorized account access. There can be no assurance,
however, that activity over the Internet will be completely secure or free from
delays or malfunctions. Neither the Funds nor SAFECO Services will be
responsible for the negligent or wrongful acts of third parties. The
shareholder, by signing the on-line services agreement or by using the On-Line
Services, will bear the risk of any such losses.

On-line transaction privileges may be suspended, limited, modified or terminated
at any time without prior notice by the Funds or SAFECO Services.

-- 80 --
<PAGE>
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS

SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the adviser is registered under the Investment
Advisers Act of 1940, has a signed agreement with SAFECO Services and has an
executed power of attorney from the shareholder, in an acceptable form, on file
with SAFECO Services. Advisers may charge a fee to shareholders for their
services. The Trust, the Funds and SAFECO Services have no control over, or
involvement with, the fees charged by advisers for such services. Advisers are
responsible for the prompt forwarding of instructions on shareholders' accounts
to SAFECO Services and are bound by the terms of this Prospectus. The Trust, the
Funds, SAFECO Services and their affiliated companies will not be responsible to
any shareholder for any losses, liabilities, costs or expenses associated with
any investment advice or recommendation provided by the adviser to the
shareholder or for accepting and following any instructions from such adviser on
the shareholder's account(s).

SHARE PRICE CALCULATION

The NAV of the No-Load Class shares of each Fund is computed at the close of
regular trading on the NYSE (normally 1:00 p.m. Pacific time) each day that the
NYSE is open for trading. NAV is determined separately for each class of shares
of each Fund. The NAV of a Fund is calculated by subtracting a Fund's
liabilities from its assets and dividing the result by the number of outstanding
shares. In calculating the net asset value of each class, appropriate
adjustments will be made to each class' NAV to reflect expenses allocated to it.

For each Fund except the Money Market Funds, securities are valued based on
consideration of information with respect to transactions in similar securities,
quotations from dealers and various relationships between securities. Valuations
of a Fund's portfolio securities calculated in a like manner may be

-- 81 --
<PAGE>
SHARE PRICE CALCULATION (CONTINUED)

obtained from a pricing service. Investments for which a representative value
cannot be established are valued at their fair value as determined in good faith
by or under the direction of the Trust's Board of Trustees.

Like most money market funds, each Money Market Fund values the securities it
owns on the basis of amortized cost. Each Fund may use amortized cost valuation
as long as the Trust's Board of Trustees determines that it fairly reflects
market value. Amortized cost valuation involves valuing a security at its cost
and adding or subtracting, ratably to maturity, any discount or premium,
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.

INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS

Each Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993. Each Trust is authorized to issue an unlimited number of shares of
beneficial interest. The Trustees may establish additional series or classes of
shares of the Trusts without the approval of shareholders.

In addition to the No-Load Class of shares, the Intermediate Treasury,
High-Yield Bond, Managed Bond, Municipal, California, Washington and Money Funds
also offer two other classes of shares through a separate prospectus to
investors who engage the services of an investment professional: Advisor Class A
shares and Advisor Class B shares. Advisor Class A shares (except Advisor Class
A shares of the Money Market Fund) are sold subject to an initial sales charge
and Advisor Class B shares are sold subject to a contingent deferred sales
charge. Advisor Class A and Advisor Class B shares incur different expenses than
No-Load Class shares. Accordingly, the

-- 82 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

performance of the three classes will differ. For more information about Advisor
Class A shares and Advisor Class B shares of any Fund, please call
1-800-463-8791.

Each share of a Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, with respect to
the Funds with more than one class of shares, dividends and liquidation proceeds
for each class will likely differ due to the differing expenses borne by each
class.

The Trusts do not intend to hold annual meetings of shareholders of the Funds.
The Trustees will call a special meeting of shareholders of a Fund only if
required under the 1940 Act or in their discretion or upon the written request
of holders of 10% or more of the outstanding shares of the Fund entitled to
vote. Separate votes are taken by each class of shares, Fund, or the Trust if a
matter affects only that class of shares, Fund, or the Trust, respectively.

Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
each Trust Instrument requires that every written obligation of a Trust or a
Fund contain a statement that such obligation may be enforced only against the
assets of a Trust or Fund and generally provides for indemnification out of
Trust or Fund property of any shareholder nevertheless held personally liable
for Trust or Fund obligations, respectively.

Because the Trusts use a combined Prospectus, it is possible that a Fund might
become liable for a misstatement about the series of another Trust contained in
the Prospectus. The Trustees have considered this factor in approving the use of
a single, combined Prospectus.

-- 83 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

SAM is the investment adviser for each Fund under an agreement with each Trust.
Under each agreement, SAM is responsible for the overall management of each
Trust's and each Fund's business affairs. SAM provides investment research,
advice, management and supervision to each Trust and each Fund, and, consistent
with each Fund's investment objectives and policies, SAM determines what
securities will be purchased, retained or sold by each Fund and implements those
decisions. Each Fund pays SAM an annual management fee based on a percentage of
that Fund's net assets ascertained each business day and paid monthly in
accordance with the schedules below. A reduction in the fees paid by a Fund
occurs only when that Fund's net assets reach the dollar amounts of the break
points and applies only to the assets that fall within the specified range:
<TABLE>
<CAPTION>
INTERMEDIATE TREASURY FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

GNMA AND HIGH-YIELD BOND FUNDS

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>

-- 84 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

<TABLE>
<CAPTION>
MANAGED BOND FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%

INTERMEDIATE MUNICIPAL FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
<CAPTION>

INSURED BOND AND WASHINGTON FUNDS

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
<CAPTION>

MUNICIPAL AND CALIFORNIA FUNDS

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%
<CAPTION>

MONEY FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .50 of 1%
$250,000,001 - $500,000,000 .40 of 1%
$500,000,001 - $750,000,000 .30 of 1%
Over $750,000,000 .25 of 1%
</TABLE>

-- 85 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

<TABLE>
<CAPTION>
TAX-FREE MONEY FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
$250,000,001 - $500,000,000 .30 of 1%
Over $500,000,000 .20 of 1%
</TABLE>

The Trusts and each Fund will bear all expenses of their organization,
operations and business not specifically assumed by SAM under each Fund's
management contract. Such expenses may include, among others, custody and
accounting expenses, transfer agency and related expenses, distribution and
shareholder servicing expenses, expenses related to preparing, printing and
delivering prospectuses and shareholder reports, the expenses of holding
shareholders' meetings, legal fees, the compensation of non-interested trustees
of the Trusts, brokerage, taxes and extraordinary expenses.

The distributor for the No-Load Class shares of each Fund under an agreement
with each Trust is SAFECO Securities, Inc. ("SAFECO Securities"), a
broker-dealer registered under the Securities Exchange Act of 1934 and a member
of the National Association of Securities Dealers, Inc. SAFECO Securities
receives no compensation from the Trusts or the Funds for its services as
distributor of the No-Load Class shares.

The transfer, dividend and distribution disbursement and shareholder servicing
agent for the No-Load Class shares of each Fund under an agreement with each
Trust is SAFECO Services. SAFECO Services receives a fee from each Fund for each
shareholder account held in that Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by

-- 86 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.

SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
insurance and related financial services businesses). SAFECO Securities and
SAFECO Services are each located at SAFECO Plaza, Seattle, Washington 98185. SAM
is located at Two Union Square, 25th Floor, Seattle, Washington 98101.

PERSONS CONTROLLING CERTAIN FUNDS

At February 3, 1998, SAFECO Insurance Company of America ("SAFECO Insurance")
controlled the Intermediate Treasury, Intermediate Municipal, Insured Bond and
Washington Funds.

At February 3, 1998, SAM controlled the Managed Bond Fund.

SAFECO Insurance, a Washington corporation and a wholly-owned subsidiary of
SAFECO Corporation, has its principal place of business at SAFECO Plaza,
Seattle, Washington 98185. SAM, a Washington corporation and a wholly-owned
subsidiary of SAFECO Corporation, has its principal place of business at Two
Union Square, 25th Floor, Seattle, WA 98101.

-- 87 --
<PAGE>
PERFORMANCE INFORMATION

The yield, tax-equivalent yield, total return and average annual total return of
each class of a Fund may be quoted in advertisements. For each Fund except the
Money Fund and Tax-Free Money Fund, yield is the annualization on a 360-day
basis of a class' net income per share over a 30-day period divided by the
class' NAV per share on the last day of the period; tax-equivalent yield is,
given an investor's tax bracket, the taxable yield necessary to equal a Fund's
non-taxable yield on an after-tax basis over the same period of time. The
formula for yield and tax-equivalent yield is defined by regulation.
Consequently, the rate of actual income distributions paid by the Funds may
differ from quoted yield figures. Total return is the total percentage change in
an investment in a class of a Fund, assuming the reinvestment of dividends and
capital gains distributions, over a stated period of time. Average annual total
return is the annual percentage change in an investment in a class of a Fund,
assuming the reinvestment of dividends and capital gain distributions, over a
stated period of time. Performance quotations are calculated separately for each
class of a Fund. A Fund's portfolio turnover rate will vary from year to year. A
high portfolio turnover rate involves correspondingly higher transaction costs
in the form of dealer spreads and other costs that a Fund will bear directly.

For the Money Fund and Tax-Free Money Fund, yield is the annualization on a
365-day basis of either Fund's net income over a 7-day period. Effective yield
is the annualization, on a 365-day basis, of either Fund's net income over a
7-day period with dividends reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. For the Tax-Free Money Fund, tax-equivalent yield is, given an
investor's tax bracket, the taxable yield necessary to equal the Fund's yield on
an after-tax basis over the same period of time. The formula for yield and tax-
equivalent yield is defined by regulation. Consequently, the rate of actual
income distributions paid by the Funds may differ from quoted yield figures.
Each Fund's yield will fluctuate.

-- 88 --
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)

From time to time, the Funds may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (E.G., CDA INVESTMENT
TECHNOLOGIES, LIPPER ANALYTICAL SERVICES, INC., and MORNINGSTAR, INC.) and are
reported periodically in national financial publications such as BARRON'S,
BUSINESS WEEK, FORBES, INVESTOR'S BUSINESS DAILY, MONEY MAGAZINE, and THE WALL
STREET JOURNAL. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including, but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performance of relevant indices.

Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. The
yield and (except for the Money Market Funds) share price of each class of a
Fund will fluctuate and your shares, when redeemed, may be worth more or less
than you originally paid for them.

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED

DIVIDEND AND OTHER DISTRIBUTIONS

Each Fund declares dividends on each business day from its net investment income
(which includes accrued interest, earned discount, and other income earned on
portfolio securities less expenses) and shares become entitled to declared
dividends on the next business day after they are purchased for your account. If
you request 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
proceeds of the redemption.

Your dividends and other distributions are reinvested in additional shares of
the distributing Fund at net asset value

-- 89 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

per share, generally determined as of the close of business on the
ex-distribution date, unless you elect in writing to receive dividends and/or
other distributions in cash and that election is provided to SAFECO Services at
the address on the first page of this Prospectus. The election remains in effect
until revoked by written notice to SAFECO Services. For retirement accounts, all
dividends and other distributions declared by a Fund must be invested in
additional shares of that Fund.

States generally treat the pass through of interest earned on U.S. Treasury
securities and other direct obligations of the U.S. government as tax-free
income in the calculation of their state income tax. This treatment may be
dependent upon the maintenance of certain minimum percentages of fund ownership
of these securities. The Intermediate Treasury Fund will invest primarily in
these securities, while the GNMA Fund may occasionally invest a portion of its
portfolio in these securities.

Please remember 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.

TAXES -- GENERAL

Each Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). By so qualifying, a Fund will not be subject to federal income taxes to
the extent it distributes its net investment income and realized capital gains
to its shareholders. Each Fund will inform you as to the amount and nature of
dividends and other distributions to your account. Dividends and other
distributions declared in December, but received by shareholders in January, are
taxable to shareholders in the year in which declared.

-- 90 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

SPECIAL CONSIDERATIONS FOR THE TAX-EXEMPT BOND FUNDS AND THE TAX-FREE MONEY FUND

Each of the Tax-Exempt Bond Funds and the Tax-Free Money Fund intends to
continue to qualify for treatment as a regulated investment company under
Subchapter M of the Code, so as to be able to pay dividends that are exempt from
federal personal income taxes. The portion of dividends representing net
short-term capital gains, however, is not exempt and will be treated as taxable
dividends for federal income tax purposes. In addition, income which is derived
from purchasing certain bonds below their issued price after April 30, 1993,
will be treated as ordinary income for federal income tax purposes.

A portion of a Fund's assets may from time-to-time be temporarily invested in
fixed-income obligations, the interest on which when distributed to the Fund's
shareholders will be subject to federal income taxes. The Funds will not
purchase so-called "non-essential or private activity" bonds, the interest on
which would constitute a preference item for shareholders in determining their
alternative minimum tax.

The excess of net long-term capital gains realized by a Fund over net short-term
capital loss on portfolio transactions does not necessarily result in exemption
under other federal, state or local income taxes. Shareholders of each Fund
should bear in mind that they may be subject to other taxes. If a shareholder
buys shares of a Fund and sells them at a loss within six months, such loss for
federal income tax purposes will be disallowed to the extent of the tax-exempt
interest component of dividends received during such six-month period. If a
shareholder buys shares of a Fund and sells them at a loss within six months, to
the extent not disallowed in the previous paragraph and to the extent of any
long-term capital gains distributions, the loss will be treated as a long-term
capital loss for federal income tax purposes. Individuals who receive Social
Security benefits must use the amount of

-- 91 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

income dividends received from each of the Funds in determining the amount of
any federal income tax due on such benefits. Under the Code, the tax effect on
individuals of receiving dividends from any of the Funds is substantially
different from the tax effect on other types of shareholders.

CALIFORNIA FUND

The California Fund intends to pay dividends that are exempt from California
State personal income taxes. This would not include taxable interest paid on
temporary investments, if any. Generally, the tax treatment of capital gains
under California law is the same as under federal law, but such gains are taxed
at the same rates as ordinary income. Capital gains distributions paid by the
California Fund are treated as long-term capital gains under California law
regardless of how long the shares have been held. Redemptions and exchanges of
the California Fund may result in a capital gain or loss for California income
tax purposes. Under California law, the dividend income from California
municipal bonds is exempt from the California personal income tax applicable to
individual shareholders but is fully taxable for purposes of the California
franchise tax applicable to most corporate shareholders. Shares of the
California Fund will not be subject to the California property tax.

WASHINGTON FUND

Currently the State of Washington has no State personal income tax. Should
Washington State enact a personal income tax, there can be no assurance that
income from the Washington Fund's portfolio securities which is distributed to
shareholders would be exempt from such a tax.

TAX WITHHOLDING INFORMATION

You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you

-- 92 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

provide is correct and that you are not subject to, or are exempt from, backup
withholding for previous under-reporting to the Internal Revenue Service.

Retirement plan distributions may be subject to federal income tax withholding.
However, you may elect not to have any distributions withheld by checking the
appropriate box on the Redemption Request form or by instructing SAFECO Services
in writing at the address on the first page of this Prospectus.

The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Statement of Additional Information for additional tax information. There may be
other federal, state or local tax considerations applicable to a particular
investor. You therefore are urged to consult your tax adviser.

TAX-DEFERRED RETIREMENT PLANS

SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses and non-profit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the SAFECO
Funds may be used as an investment vehicle for these plans.

INDIVIDUAL RETIREMENT ACCOUNT (IRAS). The maximum annual contribution is $2,000
per person. An annual custodial fee will be charged for any part of a calendar
year in which you have an IRA investment in a Fund.

SIMPLIFIED EMPLOYEE PENSION IRA (SEP-IRAS). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Currently,
annual contributions of up to the lesser of $24,000 or 15% of compensation may
be

-- 93 --
<PAGE>
TAX-DEFERRED RETIREMENT PLANS (CONTINUED)

made to SEP-IRA accounts; the annual contribution limit is subject to change.
SEP-IRAs have the same investment minimums and custodial fees as regular IRAs.

403(b) PLANS. 403(b) plans are retirement plans for tax-exempt organizations
and school systems to which employers and employees both 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. SAFECO Services offers a low-cost
administration package that includes a prototype plan, record keeping, testing
and employee communications. Minimum investment amounts are negotiable.

PROFIT-SHARING AND MONEY PURCHASE PENSION PLANS. These plans allow
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. SAFECO Services offers an administration package for
these plans. Minimum investment amounts are negotiable.

THE ASSETS OF THESE PLANS MAY NOT BE INVESTED IN ANY OF THE TAX-EXEMPT BOND
FUNDS OR THE TAX-FREE MONEY FUND.

For information about the above accounts and plans, please call 1-800-278-1985.
For a description of federal income tax withholding on distributions from these
accounts and plans, see "Fund Distributions and How They are Taxed -- Tax
Withholding Information."

ACCOUNT STATEMENTS

Periodically, you will receive an account statement showing your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent to you after

-- 94 --
<PAGE>
ACCOUNT STATEMENTS (CONTINUED)

each transaction that affects your account balance. Please review the
information on each confirmation statement for accuracy immediately upon
receipt. If you do not notify us within 30 days of any processing error, SAFECO
Services will consider the transactions listed on the confirmation statement to
be correct.

ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS

Changes to your account registration or the services you have selected must be
in writing and signed by the person(s) specified on your account application as
having authority to make changes. Send written changes to SAFECO Services at the
address on the first page of this Prospectus. Certain changes to the Automatic
Investment Method and Systematic Withdrawal Plan can be made by telephone if you
have previously selected single signature authorization for your account. You
must specify on your account application the number of signatures required to
authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners to take such
actions has important implications. For example, one owner of a joint tenant
account could redeem money without the co-owner's signature. If you do not
indicate otherwise on the application, the signatures of all account owners will
be required to effect a transaction. Your selection of fewer than all account
owner signatures may be revoked by any account owner who writes to SAFECO
Services at the address on the first page of this Prospectus. SAFECO Services
may require a signature guarantee for a signature that cannot be verified by
comparison to the signature(s) on your account application. A signature
guarantee may be obtained from most financial institutions, including banks,
savings and loans and broker-dealers.

-- 95 --
<PAGE>
DEBT SECURITIES HELD BY THE
HIGH-YIELD BOND FUND

The weighted average ratings of all fixed-income securities, expressed as a
percentage of total investments held by the High-Yield Bond Fund during the
fiscal year ended December 31, 1997, were as follows:

<TABLE>
<CAPTION>
MOODY'S % S&P %
- ------------------- --------- ------------------- ---------
<S> <C> <C> <C>
INVESTMENT GRADE
- --------------------------------------------------------------
Aaa -- AAA --
Aa -- AA --
A -- A --
Baa -- BBB --

<CAPTION>
BELOW INVESTMENT GRADE
- --------------------------------------------------------------
<S> <C> <C> <C>
Ba 14.77% BB 11.99%
B 56.98% B 63.58%
Caa -- CCC --
Ca -- CC --
C -- C --
D --
Not Rated, but Not Rated, but
determined to be determined to be
investment grade investment grade
Not Rated, but Not Rated, but
determined to be determined to be
below investment below investment
grade 20.20% grade 16.37%
</TABLE>

-- 96 --
<PAGE>
DESCRIPTION OF RATINGS

Ratings by Moody's and S&P represent their respective opinions as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.

COMMERCIAL PAPER RATINGS

MOODY'S. Issuers rated Prime-1 have a superior ability for repayment of senior
short-term debt obligations. Issuers rated Prime-2 have a strong ability for
repayment of senior short-term debt obligations. Issuers rated Prime-3 have an
acceptable ability for the repayment of senior short-term debt obligations.

S&P. For issues designated A-1 the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. For issuers
designated A-2 capacity for timely payment is satisfactory. Issuers designated
A-3 have adequate capacity for timely payment.

DEBT RATINGS

MOODY'S

INVESTMENT GRADE:

Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or

-- 97 --
<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)

fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risk appear somewhat larger than
the Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated Baa are considered as medium grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

BELOW INVESTMENT GRADE:

Baa -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa -- Bonds which are rated Caa have poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

-- 98 --
<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)

C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

S&P.

INVESTMENT GRADE:

AAA -- Debt which is rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.

AA -- Debt which is rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.

A -- Debt which is rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.

BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

BELOW INVESTMENT GRADE:

BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the least degree of speculation and "C" the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

C1 -- The rating C1 is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in payment default. The D rating is used when interest
payments or principal payments are not made

-- 99 --
<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)

on the date due, even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such grace period.

Plus (+) or Minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MUNICIPAL NOTES AND OTHER
SHORT-TERM OBLIGATION RATINGS

MOODY'S. Moody's rates municipal notes and other short-term obligations using
Moody's Investment Grade ("MIG").

MIG-1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG-2 -- This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

MIG-3 -- This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

S&P. Ratings for municipal notes and other short-term obligations are
designated by S&P's note rating. S&P's note rating reflects the liquidity
concerns and market-access risk unique to notes. Notes due in three years or
less will likely receive a note rating.

SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

-- 100 --
<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
SAFECO Washington State Municipal Bond Fund

HIGH CURRENT INCOME WITH LONG-TERM GROWTH

SAFECO Income Fund

LONG-TERM GROWTH

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

FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
FEES AND EXPENSES, CALL OR WRITE FOR A FREE PROSPECTUS. PLEASE READ IT CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
<PAGE>
TO REQUEST A PROSPECTUS:
Nationwide: 1-800-426-6730
Seattle: 206-545-5530

FOR 24-HOUR AUTOMATED PERFORMANCE INFORMATION AND TRANSACTIONS:
Nationwide: 1-800-835-4391
Seattle: 206-545-5113

FOR SHAREHOLDER SERVICE*:
Nationwide: 1-800-624-5711
Seattle: 206-545-7319
Deaf and Hard of Hearing TTY/TDD Service:
1-800-438-8718

* All telephone calls are tape-
recorded for your protection.

INTERNET ADDRESS:
http://www.safecofunds.com

E-MAIL: [email protected]

MAILING ADDRESS:
SAFECO Mutual Funds
No-Load Class Shares
P.O. Box 34890
Seattle, WA 98124-1890

EXPRESS/OVERNIGHT MAIL:
SAFECO Mutual Funds
No Load Class Shares
4333 Brooklyn Avenue NE
Seattle, WA 98105

DISTRIBUTOR
SAFECO Securities, Inc.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUSTS, ANY FUND, OR BY
SAFECO SECURITIES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY TRUST, ANY FUND, OR BY SAFECO SECURITIES
IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.

GMF ---

[LOGO]
Printed on Recycled Paper.
-Registered Trademark- Registered trademark of SAFECO Corporation
<PAGE>

SAFECO COMMON STOCK TRUST
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND

SAFECO TAXABLE BOND TRUST:
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO GNMA FUND
SAFECO HIGH-YIELD BOND FUND

SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND

SAFECO TAX-EXEMPT BOND TRUST:
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
SAFECO INSURED MUNICIPAL BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

SAFECO MONEY MARKET TRUST:
SAFECO MONEY MARKET FUND
SAFECO TAX-FREE MONEY MARKET FUND

NO-LOAD CLASS
Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be read
in conjunction with the No-Load Prospectus for each Fund listed above
(collectively, "Funds"). Copies of the Funds' Prospectuses may be obtained by
writing SAFECO Mutual Funds, P.O. Box 34890, Seattle, Washington 98124-1890,
or by calling TOLL FREE:

Nationwide Seattle Area Deaf and Hard of Hearing
1-800-426-6730 206-545-5530 TDD/TTY Service
1-800-438-8718

The date of the most current Prospectuses to which this Statement of Additional
Information relates is April 30, 1998. The date of this Statement of Additional
Information is April 30, 1998.

<PAGE>

<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -----------------
<S> <C>

OVERVIEW OF INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT POLICIES OF THE STOCK FUNDS . . . . . . . . . . . . . . . . . . 4
INVESTMENT POLICIES OF THE BOND FUNDS. . . . . . . . . . . . . . . . . . . 29
INVESTMENT POLICIES OF THE MANAGED BOND FUND . . . . . . . . . . . . . . . 33
INVESTMENT POLICIES OF THE TAX-EXEMPT BOND FUNDS . . . . . . . . . . . . . 37
INVESTMENT POLICIES OF THE MONEY MARKET FUNDS. . . . . . . . . . . . . . . 42
ADDITIONAL INVESTMENT INFORMATION. . . . . . . . . . . . . . . . . . . . . 48
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS. . . . . . . . . . . . . . . 71
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 72
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND
WASHINGTON ISSUERS. . . . . . . . . . . . . . . . . . . . . . . . . . 74
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . . . . 86
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 87
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET
VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . 93
ADDITIONAL INFORMATION ON DIVIDENDS FOR THE MONEY MARKET
FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 102
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . . 111
BROKERAGE PRACTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
DESCRIPTION OF RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . 127

</TABLE>

OVERVIEW OF INVESTMENT POLICIES
- --------------------------------
2
<PAGE>
SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"), SAFECO
Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"),
SAFECO Balanced Fund ("Balanced Fund"), SAFECO International Stock Fund
("International Fund"), SAFECO Small Company Stock Fund ("Small Company Fund")
and SAFECO U.S. Value Fund ("Value Fund") (collectively, "Stock Funds") are each
a series of the SAFECO Common Stock Trust ("Common Stock Trust").

SAFECO Intermediate-Term U.S. Treasury Fund ("Intermediate Treasury Fund"),
SAFECO GNMA Fund ("GNMA Fund") and SAFECO High-Yield Bond Fund ("High-Yield Bond
Fund") (collectively, "Bond Funds") are each a series of the SAFECO Taxable Bond
Trust ("Taxable Bond Trust"). SAFECO Managed Bond Fund ("Managed Bond Fund") is
the only series of SAFECO Managed Bond Trust ("Managed Bond Trust").

SAFECO Intermediate-Term Municipal Bond Fund ("Intermediate Municipal Fund"),
SAFECO Insured Municipal Bond Fund ("Insured Bond Fund"), SAFECO Municipal Bond
Fund ("Municipal Fund"), SAFECO California Tax-Free Income Fund ("California
Fund") and SAFECO Washington State Municipal Bond Fund ("Washington Fund")
(collectively, "Tax-Exempt Bond Funds") are each a series of the SAFECO
Tax-Exempt Bond Trust ("Tax-Exempt Bond Trust").

SAFECO Money Market Fund ("Money Fund") and SAFECO Tax-Free Money Market Fund
("Tax-Free Money Fund") (collectively, "Money Market Funds") are each a series
of the SAFECO Money Market Trust ("Money Market Trust").

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

With respect to the investment restrictions of the Tax-Exempt Bond Funds and the
Tax-Free Money Fund, the entity that has the ultimate responsibility for the
payment of interest and principal on a particular security generally is deemed
to be its issuer for purposes of such Funds' investment policies. The
identification of the issuer of a tax-exempt security for purposes of
diversification depends on the terms and conditions of the security. For
example, when the assets and revenues of an agency, authority,

3
<PAGE>

instrumentality or other political subdivision are separate from those of the
government creating the subdivision and the security is backed only by the
assets and revenues of the subdivision, such subdivision would be deemed to
be the sole issuer for diversification purposes. Similarly, in the case of
an industrial development bond, if that bond is backed only by the assets and
revenues of the non-governmental user, then such non-governmental user would
be deemed to be the sole issuer for purposes of diversification. If,
however, in either case, the creating government or some other entity
guarantees a security, such a guarantee would be considered a separate
security which must be valued and included in the five percent (5%)
limitation on investments in one issuer.

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

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE STOCK FUNDS
- --------------------------------------

GROWTH FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

4. Purchase securities of companies which have a record of less than 3 years of
continuous operation, including in such 3 years the operation of any predecessor

4
<PAGE>

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

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

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

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

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

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

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

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

5
<PAGE>

sections 1 or 2 above shall prevent any purchase for the purpose of effecting a
merger, consolidation or acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or profit to the principal
underwriter.

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

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

6
<PAGE>

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

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

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

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

5. The Growth Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if by reason thereof the value of its aggregate investment
in such classes of securities would exceed 5% of its total assets.

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

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

8. The Growth Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

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

11. The Growth Fund may invest up to 5% of its total assets in contingent value
rights.

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

7
<PAGE>

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

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

EQUITY FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

8
<PAGE>

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

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

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

9. Purchase or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts. This limitation is
intended to include ownership of real estate through limited partnerships.

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

9
<PAGE>

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

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

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

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

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

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

7. The Equity Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

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

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

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

10
<PAGE>

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

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

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

INCOME FUND

FUNDAMENTAL POLICIES

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

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

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

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

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

11
<PAGE>

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

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

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

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

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

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

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

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

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

12
<PAGE>

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

6. The Income Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if by reason thereof the value of its aggregate investment
in such classes of securities would exceed 5% of its total assets.

13
<PAGE>

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

8. The Income Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

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

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

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

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

NORTHWEST FUND

FUNDAMENTAL POLICIES

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

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

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

14
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

15
<PAGE>

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

16
<PAGE>

5. The Northwest Fund will not purchase puts, calls, straddles, spreads or
any combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities would exceed 5% of its total assets.

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

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

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

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

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

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

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

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

17
<PAGE>

dispose of securities whenever its adviser deems advisable without regard to
the length of time they have been held.

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

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

BALANCED FUND

FUNDAMENTAL POLICIES

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

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

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

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

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

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

18
<PAGE>

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

19
<PAGE>

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

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

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

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

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

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

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

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

20
<PAGE>

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

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

INTERNATIONAL FUND

FUNDAMENTAL POLICIES

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

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

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

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

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

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

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

21
<PAGE>

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

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

22
<PAGE>

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

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

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

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

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

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

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

SMALL COMPANY FUND

FUNDAMENTAL POLICIES

23
<PAGE>

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

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

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

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

24
<PAGE>

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

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

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

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

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

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

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

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

25
<PAGE>

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

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

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

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

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

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

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

VALUE FUND

FUNDAMENTAL POLICIES

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

26
<PAGE>

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

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

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

4. Issue senior securities, except as permitted under the 1940 Act, the rules
or regulations promulgated thereunder or pursuant to a no-action letter or an
exemptive order issued by the Securities and Exchange Commission;

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

6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the U.S. Value Fund may
purchase or sell may purchase financial futures contracts and options and
options on financial futures contracts.

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

27
<PAGE>

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

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

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

4. The U.S. Value Fund will not invest in oil, gas or other mineral
exploration, development programs or leases;

5. The U.S. Value Fund will not invest more than 5% of its net assets in
warrants. Warrants acquired by the Fund in units or attached to securities are
not subject to the 5% limit;

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

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

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

9. The U.S. Value Fund will not purchase any security, if as a result, more
than 15% of its net assets would be invested in securities that are deemed to be
illiquid because they

28
<PAGE>

cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued;

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

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

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

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

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

15. The U.S. Value Fund will not purchase or sell commodities or commodity
contracts.

INVESTMENT POLICIES OF THE BOND FUNDS

FUNDAMENTAL INVESTMENT POLICIES

Each Bond Fund has adopted the following fundamental investment policies. Each
Bond Fund will NOT:

1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if as a result more than five percent (5%) of the
value of its total assets at the time of purchase would be invested in the
securities of such issuer, except that up to twenty-five percent (25%) of the
value of a Fund's assets (which twenty-five percent

29
<PAGE>

25%) shall not include securities issued by another investment company) may
be invested without regard to this five percent (5%) limitation.

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

3. Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal obligations or other permitted investments secured by
real estate or interests therein.

4. Purchase or retain for the Fund's portfolio the securities of any issuer,
if, to the Fund's knowledge, the officers or directors of the Fund, or its
investment adviser, who individually own more than one-half (1/2) of one percent
(1%) of the outstanding securities of such an issuer, together own more than
five percent (5%) of such outstanding securities.

5. High-Yield Bond and Intermediate Treasury Funds only: Borrow money, except
from a bank or SAFECO Corporation or its affiliates at an interest rate not
greater than that available to the Fund from commercial banks, for temporary or
emergency purposes and not for investment purposes, and then only in an amount
not exceeding twenty percent (20%) of the value of the Fund's total assets at
the time of such borrowing.

GNMA Fund only: Borrow money, except from a bank or affiliates of SAFECO
Corporation at an interest rate not greater than that available to the GNMA Fund
from commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty percent
(20%) of its total assets (including borrowings) less liabilities (other than
borrowings) immediately after such borrowing.

Each Fund will not purchase securities if borrowings equal to or greater than
five percent (5%) of the Fund's total assets are outstanding.

6. Pledge, mortgage or hypothecate its assets, except that to secure borrowings
permitted by subparagraph (5) above, it may pledge securities having a market
value at the time of pledge not exceeding ten percent (10%) of the cost of the
Fund's total assets.

7. Purchase or sell commodities or commodity contracts, other than futures
contracts, or invest in oil, gas or other mineral exploration or development
programs or in arbitrage transactions.

8. Make short sales of securities or purchase securities on margin, except for
margin deposits in connection with futures contracts and such short-term credits
as are necessary

30
<PAGE>

for the clearance of transactions.

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

10. Purchase from or sell portfolio securities to any officer or director, the
Fund's investment adviser, principal underwriter or any affiliates or
subsidiaries thereof; provided, however, that this prohibition shall not
prohibit the Fund from purchasing with the up to $7,000,000 raised through the
sale of up to 700,000 shares of common stock to SAFECO Life Insurance Company,
portfolio securities from subsidiaries of SAFECO Corporation prior to the
effective date of the Fund's initial public offering.

11. Purchase securities (other than obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities), if as a result
twenty-five percent (25%) or more of the Fund's total assets would be invested
in one industry (governmental issuers of securities are not considered part of
any one industry).

12. Purchase shares of common stock, other than those issued by other regulated
investment companies (or, with respect to the High-Yield Bond and Intermediate
Treasury Funds only, when the acquisition of such common stocks, rights or other
equity interests is consistent with the High-Yield Bond and Intermediate
Treasury Funds' investment objectives). Generally, the High-Yield Bond and
Intermediate Treasury Funds will only hold such equity securities as a result of
purchases or unit offerings of fixed-income securities which include such equity
securities or in connection with an actual or proposed conversion or exchange of
fixed-income securities.

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

14. Purchase securities of any issuer, if, as a result, more than ten percent
(10%) of any class of securities of such issuer would be owned by the Fund.

31
<PAGE>

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

16. Purchase or otherwise acquire securities which are illiquid or subject to
legal or contractual restrictions on resale, if as a result more than ten
percent (10%) of the Fund's (five percent (5%) of the GNMA Fund's) total assets
would be invested in such securities, except that in the case of the High-Yield
Fund the purchase of Rule 144A securities deemed to be liquid pursuant to
guidelines adopted by the Board of Trustees of the High-Yield Fund shall not be
limited by this restriction.

17. Make loans, except through the purchase of a portion or all of an issue of
debt or money market securities in accordance with its investment objective,
policies and restrictions, or through investments in qualified repurchase
agreements (provided, however, that a Fund shall not invest more than ten
percent (10%) of its total assets in qualified repurchase agreements maturing in
more than seven (7) days), or through qualified loan agreements (by making
secured loans of its portfolio securities which amount to not more than five
percent (5%) of its total assets).

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Fund will not invest more than five percent (5%) of its total assets in
securities of issuers, including their predecessors, which have been in
operation for less than three years.

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

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

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

5. The Fund may purchase "when-issued" or "delayed-delivery" securities or
purchase or sell securities on a "forward commitment" basis.

32
<PAGE>

sum of each investment is insured in full by the Federal Deposit Insurance
Corporation ("FDIC"), (b) in the case of a U.S. bank, it is a member of the
FDIC and (c) in the case of a foreign bank, the security is, in the opinion
of the Fund's investment adviser, of an investment quality comparable with
other debt securities which may be purchased by the Fund. These limitations
do not prohibit investment in securities issued by foreign branches of U.S.
banks, provided the U.S. banks meet the foregoing requirements.

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

8. The Intermediate Treasury Fund may invest up to five percent (5%) of its
total assets in Yankee Sector debt securities and up to five percent (5%) of its
total assets in Eurodollar bonds.

9. The Intermediate Treasury Fund and High-Yield Bond Fund may each invest up
to five percent (5%) of its total assets in securities the interest on which, in
the opinion of counsel for the issuer, is exempt from federal income tax. The
GNMA Fund may not invest in such tax-exempt securities.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

2. Purchase the securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a
result, more than ten percent (10%) of any class of securities of such issuer
will be held by the Fund.

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

33
<PAGE>

4. Purchase securities, if as a result, twenty-five percent (25%) or more of
the Fund's total assets would be invested in the securities of issuers having
their principal business activities in any one industry. Securities of foreign
banks and foreign branches of U.S. banks are considered to be one industry.
This limitation does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to certificates of deposits or
bankers' acceptances issued by domestic banks.

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

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

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

8. Borrow money, except from a bank or SAFECO Corporation or its affiliates at
an interest rate not greater than that available to the Fund from commercial
banks, for temporary or emergency purposes and not for investment purposes, and
then only in an amount not exceeding twenty percent (20%) of the value of the
Fund's total assets (including borrowings) less liabilities (other than
borrowings) immediately after such borrowing.

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

10. Purchase or sell real estate or real estate limited partnerships (unless
acquired as a result of the ownership of securities or instruments) but this
shall not prevent the Fund from investing in permitted investments secured by
real estate or interests therein or in real estate investment trusts.

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

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

13. Issue or sell any senior security, except as permitted under the 1940 Act.

NON-FUNDAMENTAL INVESTMENT POLICIES

34
<PAGE>

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

1. The Fund will not issue long-term debt securities.

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

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

4. The Fund will not invest in or sell (write) puts, calls, straddles, spreads
or any combinations thereof.

5. The Fund will not invest more than five percent (5%) of its total assets in
securities of issuers (including predecessor companies of the issuer) having a
record of less than three years continuous operation.

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

7. The Fund will not invest more than ten percent (10%) of its total assets in
qualified repurchase agreements and will not invest in qualified repurchase
agreements maturing in more than seven (7) days.

8. The Fund will not purchase the securities of any other investment company,
except by purchase in the open market where no commission or profit to a broker
or dealer results from such purchase other than the customary broker's
commissions, or except as part of a merger, consolidation or acquisition. The
Fund shall not invest more than ten percent (10%) of its total assets in shares
of other investment companies, invest more than five percent (5%) of its total
assets in a single investment company nor purchase more than three percent (3%)
of the outstanding voting securities of a single investment company.

9. The Fund will not purchase securities if borrowings equal to or greater than
five percent (5%) of the Fund's total assets are outstanding.

10. The Fund will invest at least sixty-five percent (65%) of its total assets
in fixed income obligations.

11. The Fund will invest at least fifty percent (50%) of its total assets in
obligations of or guaranteed by the U.S. Government, its agencies and
instrumentalities.

12. The Fund may invest up to fifty percent (50%) of its total assets in
corporate debt

35
<PAGE>

securities or Eurodollar bonds.

13. The Fund may invest up to ten percent (10%) of its total assets in Yankee
Sector debt obligations.

14. The Fund may purchase securities on a when-issued or delayed-delivery basis
or may purchase or sell securities on a forward commitment basis.

15. The Fund may temporarily invest its cash in high quality commercial paper,
certificates of deposit, shares of no-load, open-end money market funds
(subject to the percentage limitations set forth in subparagraph 8 above),
repurchase agreements (subject to the limitations set forth in subparagraph 7
above) or any other short-term instrument the Fund's investment adviser deems
appropriate.

16. The Fund may hold cash as a temporary defensive measure when market
conditions so warrant.

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

18. The Fund may invest up to five percent (5%) of its total assets in
securities the interest on which, in the opinion of counsel for the issuer, is
exempt from federal income tax.

WHILE THE MANAGED BOND FUND HAS THE AUTHORITY TO INVEST IN THE FOLLOWING TYPES
OF SECURITIES, IT HAS NO PRESENT INTENTION TO DO SO IN THE COMING YEAR. BEFORE
THE FUND PURCHASES ANY OF THESE SECURITIES, ITS PROSPECTUS WILL BE AMENDED BY
SUPPLEMENT TO IDENTIFY OR DESCRIBE THE SECURITY.

19. The Fund may invest up to five percent (5%) of its total assets in shares of
real estate investment trusts.

20. The Fund may purchase securities subject to legal or contractual
restrictions on resale or illiquid securities, if no more than fifteen percent
(15%) of the Fund's total assets would be invested in such securities.

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

22. The Fund will not buy or sell foreign currency, except as may be necessary
to invest

36
<PAGE>

the proceeds of the sale of any foreign securities held by the Fund in
U.S. dollars.

INVESTMENT POLICIES OF THE TAX-EXEMPT BOND FUNDS

INTERMEDIATE MUNICIPAL, INSURED BOND AND WASHINGTON FUNDS

FUNDAMENTAL INVESTMENT POLICIES

The Intermediate Municipal, Insured Bond and Washington Funds have adopted the
following fundamental policies. Each Fund will NOT:

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

2. Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations or other permitted investments directly from the issuer
in accordance with a Fund's investment objective, policies and restrictions and
the later disposition thereof may be deemed to be underwriting;

3. Purchase or sell real estate, unless acquired as a result of the ownership
of securities or instruments, but this shall not prevent a Fund from investing
in municipal obligations or other permitted investments secured by real estate
or interests therein;

4. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to a Fund from commercial banks,
for temporary or emergency purposes and not for investment purposes, and then
only in an amount not exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than borrowings) immediately
after such borrowing;

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

6. Purchase or sell commodities, commodity contracts or futures;

7. Purchase securities, if as a result, twenty-five percent (25%) or more of a
Fund's total assets would be invested in the securities of issuers having their
principal business activities in any one industry (governmental issuers of
special or general tax-exempt securities are not considered part of any one
industry);

8. Issue or sell any senior security, except as permitted under the Investment
Company

37
<PAGE>

Act of 1940 ("1940 Act");

9. Permit twenty-five percent (25%) or more of a Fund's total assets to be
invested in municipal obligations and other permitted investments, the interest
of which is payable from revenues on similar types of projects. As a matter of
operating policy, similar types of projects may include sports, convention or
trade show facilities; airports or mass transportation; sewage or solid waste
disposal facilities; or air or water pollution control projects;

10. Permit twenty-five percent (25%) or more of a Fund's total assets to be
invested in securities whose issuers are located in the same state. (NOTE: THIS
FUNDAMENTAL POLICY DOES NOT APPLY TO THE WASHINGTON FUND); or

11. During normal market conditions, invest less than eighty percent (80%) of a
Fund's net assets in obligations whose interest, in the opinion of counsel for
the issuer of the obligation, is exempt from federal income tax.

MUNICIPAL AND CALIFORNIA FUNDS

FUNDAMENTAL INVESTMENT POLICIES

The Municipal and California Funds have adopted the following fundamental
investment policies. Each Fund will NOT:

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

2. Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations or other permitted investments directly from the issuer
in accordance with a Fund's investment objective, policies and restrictions and
the subsequent disposition thereof may be deemed to be underwriting;

3. Purchase or sell real estate or real estate limited partnerships, but this
shall not prevent a Fund from investing in municipal obligations or other
permitted investments secured by real estate or interests therein;

4. Purchase or retain for a Fund's portfolio the securities of any issuer if,
to the Fund's knowledge, the officers or directors of the Fund, or its
investment adviser, who individually own more than one-half (1/2) of one percent
(1%) of the outstanding securities of such an issuer, together own more than
five percent (5%) of such outstanding securities;

38
<PAGE>

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

6. Purchase from, or sell portfolio securities to, any officer or director, the
Fund's investment adviser, principal underwriter or any affiliates or
subsidiaries thereof;

7. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to a Fund from commercial banks,
for temporary or emergency purposes and not for investment purposes and then
only in an amount not exceeding twenty percent (20%) of its total assets
(including borrowings) less liabilities (other than borrowings) immediately
after such borrowing;

8. Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph 7 above, a Fund may pledge securities
having a market value at the time of pledge not exceeding ten percent (10%) of
the cost of a Fund's total assets;

9. Make loans, except through the purchase of a portion or all of an issue of
debt securities in accordance with a Fund's investment objective, policies and
restrictions and through investments in qualified repurchase agreements
(provided, however, that a Fund will not invest more than ten percent (10%) of
its total assets in qualified repurchase agreements maturing in more than seven
(7) days);

10. Purchase or sell commodities, commodity contracts or futures or invest in
oil, gas or other mineral exploration or development programs or leases;

11. Make short sales of securities or purchase securities on margin, except
for such short-term credits as are necessary for the clearance of transactions,
or purchase or sell any put or call options or combinations thereof;

12. Knowingly purchase or otherwise acquire any securities that are subject to
legal or contractual restrictions on resale or for which there is no readily
available market;

13. Purchase securities (other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities), if as a result, more than
twenty-five percent (25%) of a Fund's total assets would be invested in one
industry (governmental issuers of special or general tax-exempt securities are
not considered part of any one industry);

14. Purchase an industrial development bond, if as a result of such purchase,
more than five percent (5%) of a Fund's total assets would be invested in
industrial revenue bonds where the payment of principal and interest is the
responsibility of a company with less

<PAGE>

than three years' operating history;

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

16. Permit more than twenty percent (20%) of a Fund's net assets to be invested,
during normal market conditions, in securities whose interest is not, in its
investment adviser's opinion, exempt from federal income tax, as long as the
Fund has its investment objective to provide as high a level of current interest
income exempt from federal income tax as is consistent with the relative
stability of capital. As a matter of operating policy, the Funds' investment
adviser may base its opinion on the opinion of counsel for the issuer of the
security;

17. Permit twenty-five percent (25%) or more of a Fund's total assets to be
invested in municipal obligations and other permitted investments, the interest
of which is payable from revenues on similar types of projects such as sports,
convention or trade show facilities; airports or mass transportation; sewage or
solid waste disposal facilities; or air or water pollution control projects;

18. MUNICIPAL FUND ONLY: Permit twenty-five percent (25%) or more of a Fund's
total assets to be invested in securities whose issuers are located in the same
state; or

19. During normal market conditions, invest less than eighty percent (80%) of a
Fund's net assets in obligations whose interest, in the opinion of counsel for
the issuer, is exempt from federal income tax (and, in the case of the
California Fund, also from California state personal income tax).

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. Each Fund may invest in any of the following types of short-term, tax-exempt
obligations: municipal notes of issuers rated, at the time of purchase, within
one of the

40
<PAGE>

three highest grades assigned by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies
("S&P") or Fitch Investors Services, Inc. ("Fitch"); unrated municipal notes
offered by issuers having outstanding municipal bonds rated within one of the
three highest grades assigned by Moody's, S&P or Fitch; notes issued by or on
behalf of municipal issuers which are guaranteed by the U.S. Government;
tax-exempt commercial paper assigned one of the two highest grades by Moody's,
S&P or Fitch; certificates of deposit issued by banks with assets of
$1,000,000,000 or more; and municipal obligations which have a maturity of one
year or less from the date of purchase. The Funds do not currently intend to
rely on Fitch ratings.

2. Each Fund may invest in obligations of the U.S. Government, its agencies or
instrumentalities or in qualified repurchase agreements, the net interest on
which is taxable.

3. Each Fund may invest in municipal notes including tax anticipation, revenue
anticipation and bond anticipation notes and tax-exempt commercial paper.

4. Each Fund may invest in repurchase agreements for a period longer than seven
days.

5. Each Fund may permit twenty-five percent (25%) or more of its assets to be
invested in industrial development bonds.

6. Each Fund may purchase or sell securities on a "when-issued" or
"delayed-delivery" basis.

In addition, the Intermediate Municipal, Insured Bond and Washington Funds have
adopted the following non-fundamental policies. Each Fund:

1. May not make short sales of securities.

2. May not purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of transactions.

3. May not purchase or sell any put or call options or combinations thereof.

4. May not purchase any security, if as a result, more than fifteen percent
(15%) of its net assets would be invested in illiquid securities.

5. May not invest in oil, gas or other mineral exploration or development
programs or leases.

6. May not invest in real estate limited partnerships.

7. Will not purchase securities if borrowings equal to or greater than five
percent (5%) of

41
<PAGE>
its total assets are outstanding.

INVESTMENT POLICIES OF THE MONEY MARKET FUNDS

MONEY FUND

FUNDAMENTAL INVESTMENT POLICIES

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

1. Purchase securities of any issuer, other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities, if, as a
result, more than five percent (5%) of the value of the Money Fund's assets
would be invested in securities of such issuer;

2. Purchase more than ten percent (10%) of any class of securities of any
issuer. All issues of debt securities of any issuer are considered as one
class;

3. Concentrate more than twenty-five percent (25%) of the value of its total
assets in any one industry including securities issued by foreign banks and
foreign branches of U.S. banks; provided, however, that this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
or its agencies or instrumentalities, or to certificates of deposit or
bankers' acceptances issued by domestic banks;

4. Invest more than five percent (5%) of the Money Fund's total assets in
securities of issuers that with their predecessors have a record of less
than three years' continuous operation;

5. Invest more than five percent (5%) of the Money Fund's total assets in
securities restricted as to disposition under the federal securities laws;

6. Invest more than ten percent (10%) of the Money Fund's total assets in time
deposits, repurchase agreements maturing in more than seven days and other
non-negotiable instruments;

7. Enter into repurchase agreements if, as a result thereof, more than ten
percent (10%) of the Fund's total assets valued at the time of the
transaction would be subject to repurchase agreements maturing in more than
seven days;

8. Make loans to others, except through the purchase of publicly distributed
debt obligations or repurchase agreements;

9. Borrow money, except from a bank or affiliates of SAFECO Corporation at an

42
<PAGE>

interest rate not greater than that available to the Money Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less liabilities
(other than borrowings) immediately after such borrowing. The Money Fund
will not purchase securities if borrowings equal to or greater than five
percent (5%) of the Fund's total assets are outstanding;

10. Make short sales of securities or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of transactions,
or purchase or sell any put or call options or combinations thereof;

11. Pledge, mortgage or hypothecate, or in any other manner transfer as
security for indebtedness any security owned by the Money borrowings
mentioned in paragraph 9 above, and then such pledging, mortgaging or
hypothecating may not exceed fifteen percent (15%) of the Money Fund's
total assets, taken at cost; provided, however, that as a matter of
operating policy the Money Fund will limit any such pledging, mortgaging or
hypothecating to ten percent (10%) of its net assets, taken at market, in
order to comply with certain state investment restrictions;

12. Purchase or retain securities of any issuer if any of the officers or
directors of the Money Fund or its investment adviser owns beneficially
more than one-half of one percent (.5%) of the securities of such issuer
and together own more than five percent (5%) of the securities of such
issuer;

13. Invest in commodities or commodity futures contracts or in real estate,
although the Money Fund may invest in securities which are secured by real
estate and securities of issuers that invest or deal in real estate;

14. Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in securities of issuers that invest in or
sponsor such programs;

15. Purchase securities of other investment companies;

16. Underwrite securities issued by others except to the extent the Money Fund
may be deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities; or

17. Issue or sell any senior security, except that this restriction shall not
be construed to prohibit the Money Fund from borrowing funds (i) on a
temporary basis as permitted by Section 18(g) of the Investment Company Act
of 1940, or (ii) from any bank provided, that immediately after such
borrowing, there is an asset coverage of at least three hundred percent
(300%) for all such borrowings and

43
<PAGE>

provided, further, that in the event that such asset coverage shall at any
time fall below three hundred percent (300%), the Money Fund shall, within
three (3) days thereafter (not including Sundays and holidays), or such
longer period as the Securities and Exchange Commission may prescribe by
rules and regulations, reduce the amount of its borrowings to an extent
that the asset coverage of such borrowings shall be at least three hundred
percent (300%) (for purposes of this restriction, the terms "senior
security" and "asset coverage" shall be understood to have the meaning
assigned to those terms in Section 18 of the Investment Company Act of
1940).

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Money Fund will not invest in securities with unlimited liability;
E.G., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.

2. The Money Fund will not buy or sell foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign securities in the
Fund's portfolio into U.S. dollars.

3. The Money Fund may invest up to five percent (5%) of its total assets in
securities eligible for resale under Rule 144A ("Rule 144A securities") or
Section 4(2) of the 1933 Act ("Section 4(2) securities"), provided that
SAM, the Fund's investment advisor, has determined that such securities
are liquid under guidelines adopted by the Board of Trustees.

TAX-FREE MONEY FUND

FUNDAMENTAL INVESTMENT POLICIES

The Tax-Free Money Fund has adopted the following fundamental policies. The
Tax-Free Money Fund may NOT:

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

44
<PAGE>

2. Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations or other permitted investments directly from the
issuer in accordance with the Tax-Free Money Fund's investment objective,
policies and restrictions and the later disposition thereof may be deemed
to be underwriting;

3. Purchase or sell real estate, but this shall not prevent the Tax-Free Money
Fund from investing in municipal obligations or other permitted investments
secured by real estate or interests therein;

4. Purchase or retain for the Tax-Free Money Fund's portfolio the securities
of any issuer if, to the Tax-Free Money Fund's knowledge, the officers or
directors of the Tax-Free Money Fund, or its investment adviser, who
individually own more than one-half of one percent (.5%) of the outstanding
securities of such an issuer, together own more than five percent (5%) of
such outstanding securities;

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

6. Purchase from, or sell portfolio securities to, any officer or director,
the Tax-Free Money Fund's investment adviser, principal underwriter or any
affiliates or subsidiaries thereof;

7. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the Tax-Free Money Fund
from commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less liabilities
(other than borrowings) immediately after such borrowing. The Tax-Free
Money Fund will not purchase securities if borrowings equal to or greater
than five percent (5%) of the Fund's total assets are outstanding;

8. Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph 7 above, it may pledge securities
having a market value at the time of pledge not exceeding ten percent (10%)
of the cost of the Tax-Free Money Fund's total assets;

9. Make loans, except through the purchase of a portion of an issue of debt
securities in accordance with the Tax-Free Money Fund's investment
objective, policies and restrictions, and through investments in qualified
repurchase agreements;

10. Purchase or sell commodities or commodity contracts or invest in oil, gas
or other

45
<PAGE>

mineral exploration or development programs;

11. Make short sales of securities or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of transactions;

12. Knowingly purchase or otherwise acquire any securities that are subject to
legal or contractual restrictions on resale or for which there is no
readily available market, except, however, the Tax-Free Money Fund may
invest up to ten percent (10%) of its net assets in qualified repurchase
agreements that mature in more than seven (7) days;

13. Purchase securities (other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities), if as a result more
than twenty-five percent (25%) of the Tax-Free Money Fund's total assets
would be invested in any one industry (governmental issuers of special or
general tax-exempt securities are not considered part of any one industry);

14. Purchase an industrial development bond, if as a result of such purchase
more than five percent (5%) of the Tax-Free Money Fund's total assets would
be invested in industrial development bonds where the payment of principal
and interest is the responsibility of a company with less than three years'
operating history;

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

16. Permit more than twenty-five (25%) of its total assets to be invested in
municipal obligations and other permitted investments, the interest on
which is payable from revenues on similar types of projects, such as:
sports, convention or trade show facilities; airports or mass
transportation; sewage or solid waste disposal facilities; or air or water
pollution control projects;

17. Write, purchase or sell puts, calls or combinations thereof; however, the
Tax-Free

46
<PAGE>

Money Fund may purchase municipal obligations subject to standby
commitments, variable rate demand notes or repurchase agreements in accord
with its investment objective and policies;

18. Permit more than twenty percent (20%) of its net assets to be invested,
during normal market conditions, in securities whose interest is NOT, in
the Tax-Free Money Fund's opinion, exempt from federal income tax, as long
as the Fund has as its investment objective to provide as high a level of
current interest income exempt from federal income tax as is consistent
with the relative stability of capital. As a matter of operating policy,
the Tax-Free Money Fund may base its opinion on an opinion of counsel for
the issuer. The Tax-Free Money Fund may invest in taxable securities if
the Fund's investment adviser believes the yields then available on
municipal obligations are not attractive and wishes to defer the investment
in municipal obligations having longer maturities until conditions in the
municipal bond market improve. If any taxable securities are held, as a
matter of operating policy, the Tax-Free Money Fund will not hold more than
five percent (5%) of its total assets in the securities of any one issuer;
or

19. Purchase securities if as a result of such purchase more than five percent
(5%) of the Tax-Free Money Fund's total assets would be invested in
securities where the payment of principal and interest is the
responsibility of a company with less than three years' operating history.

For purposes of the above investment restrictions, the entity which has the
ultimate responsibility for the payment of interest and principal on a
particular security will be deemed to be its issuer.

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Fund will not purchase the securities of any issuer, other than
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if as a result, more than five percent (5%) of the value
of its total assets would be invested in the securities of such issuer.
Notwithstanding this policy, the Tax-Free Money Fund may invest up to 25%
of its total assets in the first tier securities (as defined below) of a
single issuer for up to three business days after purchase. First tier
securities are securities (1) rated in the highest short-term category by
two nationally recognized statistical rating organizations ("NRSROs"); (2)
rated in the highest short-term rating category by a single NRSRO if only
that NRSRO has assigned the securities a short-term rating; or (3) unrated,
but determined by SAM to be of comparable quality.

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2. The Fund will not invest in securities with unlimited liability; E.G.,
securities the holder of which may be assessed for amounts in addition to
the subscription or other price paid for the security.

3. The Fund will not buy or sell foreign currency, except as may be necessary
to convert the proceeds of the sale of foreign securities in the Fund's
portfolio into U.S. dollars.

4. The Fund may purchase shares of no-load, open-end investment companies that
invest in tax-exempt securities with remaining maturities of thirteen (13)
months or less.

5. While the Tax-Free Money Fund does not seek profits from short-term
trading, it may sell any security prior to maturity to enhance yield,
protect principal or improve liquidity.

6. The Fund reserves the right to hold cash, if necessary, as a temporary
defensive measure or in an emergency situation.

7. The Fund may invest up to five percent (5%) of its total assets in Rule
144A securities or Section 4(2) securities, provided that SAM has
determined that such securities are liquid under guidelines adopted by the
Board of Trustees.

ADDITIONAL INVESTMENT INFORMATION

STOCK FUNDS

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

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

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<PAGE>

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

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

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

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

3. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to the
coupon rate or maturity of the purchased securities. Repurchase agreements may
be considered loans of money to the seller of the underlying security, which are
collateralized by the securities underlying the repurchase agreement. A Fund
will not enter into a repurchase agreement unless the agreement is fully
collateralized and the Fund will value the securities underlying the repurchase
agreement daily to assure that this condition is met. If the value of these
securities is less than the repurchase price, plus any agreed-upon additional
amount, the

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<PAGE>

other party to the agreement must provide additional collateral so
that at all times the collateral is at least equal to the repurchase price, plus
any agreed-upon additional amount.

Repurchase agreements carry certain risks not associated with direct investments
in securities, including delays and costs to a Fund if the other party to a
repurchase agreement defaults or becomes bankrupt. Each Fund intends to enter
into repurchase agreements only with banks and dealers in transactions believed
by SAM to present minimum credit risks in accordance with guidelines established
by the Trust's Board of Trustees. SAM will review and monitor the
creditworthiness of those institutions under the Board's general supervision.
Foreign repurchase agreements (Funds that may purchase foreign securities only)
may be less well secured than U.S. repurchase agreements and may be subject to
currency risks. In addition, foreign counterparties may be less creditworthy
than U.S. counterparties.

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

a) Commercial paper must be rated A-1 or A-2 by S&P or Prime-1
or Prime-2 by Moody's or issued by companies with an unsecured
debt issue currently outstanding rated AA by S&P or Aa by Moody's
or higher.

b) Certificates of deposit ("CDs") must be issued by banks or savings
and loan associations that have total assets of at least $1 billion
or, in the case of a bank or savings and loan association not having
total assets of at least $1 billion, the bank or savings and loan
association is insured by the FDIC. The Growth Fund's investments in
CDs issued by FDIC-insured banks or savings and loans having
less than $1 billion in assets will be limited in amount to the
statutory insurance coverage provided by the FDIC.

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

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<PAGE>

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

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

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

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

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

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

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<PAGE>

require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic factors.

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

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

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

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

14. OPTIONS ON EQUITY SECURITIES. The International Fund may purchase and
write (I.E., sell) put and call options on equity securities and the other Funds
(except the Equity Fund) may purchase and write (I.E., sell) covered call
options. A call option is a short-term contract pursuant to which the purchaser
or holder, in return for a premium paid, has the right to buy the equity
security underlying the option at a specified exercise price (the strike price)
at any time during the term of the option (for "American-style" options) or on
the option expiration date (for "European-style" options). The writer of the
call option, who received the premium, has the obligation, upon exercise of the
option, to deliver the underlying equity security against payment of the strike
price. A put option is a similar contract that gives the purchaser or holder,
in return for a premium, the right to

<PAGE>

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

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

With respect to the other Funds, a call option is "covered" only if at the time
the Fund writes the call, the Fund holds in its portfolio on a share-for-share
basis the same security as the call written. A Fund must maintain such security
in its portfolio from the time the Fund writes the call option until the option
is exercised, terminated or expires. The Funds' use of options on equity
securities is subject to certain special risks including the risk that the
market value of the security will move adversely to the Fund's option position.
Additional risks relating to the International Fund's use of options on equity
securities are described below.

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

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<PAGE>

segregated account cash, Treasury bills, or other liquid high-grade
short-term debt obligations of a value equal to the strike price, or (ii) the
Fund holds on a share-for-share basis a put on the same security as the put
written, where the strike price of the put held is equal to or greater than the
strike price of the put written, or less than the strike price of the put
written if the difference is maintained by the Fund in cash, Treasury bills, or
other liquid high-grade short-term obligations in a segregated account with its
custodian.

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

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

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

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<PAGE>

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

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

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

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<PAGE>

the industry or market segment index and will represent at least
50% of the portfolio's holdings in that industry or market segment. No
individual security will represent more than 15% of the amount so segregated,
pledged or escrowed in the case of broadly based stock market stock options or
25% of such amount in the case of industry or market segment index options.

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

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

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

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<PAGE>

trading were halted in a substantial number of stocks included in the index.
If this occurred, the Funds would not be able to close out options that
they had purchased or, in the case of the International Fund, written and, if
restrictions on exercise were imposed, a Fund might be unable to exercise
an option it holds, which could result in substantial losses to the Fund.
The Funds generally will select stock indices that include a number of
stocks sufficient to minimize the likelihood of a trading halt in options on
the index.

Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid.
The ability of the Funds to establish and close out positions on such
options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop in all
index options contracts. The Funds will not purchase or, in the case of
the International Fund, sell any index option contract unless and until the
Funds investment adviser or sub-investment adviser believes the market for
such options has developed sufficiently that the risk in connection with such
transactions is no greater than the risk in connection with options on stocks.

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

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

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<PAGE>

may change before closing. If such a change causes the exercised option to
fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the strike price of the option (times the
applicable multiplier) to the assigned writer. Although the Fund may be able
to minimize the risk by withholding exercise instructions until just before
the daily cutoff time or by selling rather than exercising an option when the
index level is close to the exercise price, it may not be possible to
eliminate this risk entirely because the cutoff times for index options may
be earlier than those fixed for other types of options and may occur before
definitive closing index values are announced.

16. OPTIONS ON DEBT SECURITIES. (International Fund only.) The Fund may
purchase and write (I.E., sell) put and call options on debt securities.
Options on debt are similar to options on stock, except that the option holder
has the right to take or make delivery of a debt security, rather than stock.

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

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

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

<PAGE>

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

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

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

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

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securities. Alternatively, the Fund may write a call option on the foreign
currency. If the foreign currency declines, the option would not be
exercised and the decline in the value of the portfolio securities
denominated in such foreign currency would be offset in part by the premium
the Fund received for the option.

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

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

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

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

The Fund may sell stock index futures to hedge against a decline in the value of
equity securities it holds. The Fund may also buy stock index futures to hedge
against a rise in

<PAGE>

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

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

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

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

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

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

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contracts are subject to the same risks regarding closing transactions and the
CFTC limits as described above in "Stock Index Futures Contracts."

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

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

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

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

22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (International Fund only.)
The Fund may enter into forward foreign currency exchange contracts ("forward
contracts") in several circumstances. When the Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, or when
the Fund anticipates the receipt in a foreign currency of dividends or interest
payments on a security that it holds, the Fund may desire to "lock-in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be.

By entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the underlying
transactions, the Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the U.S. dollar and
the subject foreign currency during the period between the date on which the
security is purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.

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

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of the Fund will thereby be served. The Fund's custodian will place cash or
liquid, high-grade equity or debt securities into a segregated account of the
portfolio in an amount equal to the value of the Fund's total assets committed
to the consummation of forward foreign currency exchange contracts. If the
value of the securities placed in the segregated account declines, additional
cash or securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments with
respect to such contracts.

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

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

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

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

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<PAGE>

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

BOND FUNDS AND MANAGED BOND FUND

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

1. REPURCHASE AGREEMENTS. See the description of such securities under
"Additional Investment Information--Stock Funds."

2. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

3. YANKEE DEBT SECURITIES AND EURODOLLAR BONDS. Yankee debt securities are
securities issued in the U.S. by foreign issuers. These bonds involve
investment risks that are different from those of domestic issuers. Such risks
may include nationalization of the issuer, confiscatory taxation by the foreign
government, establishment of controls by the foreign government that would
inhibit the ability of the issuer to make principal and interest payments to a
Fund, lack of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and auditing practices in foreign
countries and finally, difficulty in enforcing claims against foreign issuers in
the event of default.

SAM will make every effort to analyze potential investments in foreign issuers
on the same basis as the rating services analyze domestic issuers. Because
public information is not always comparable to that available on domestic
issuers, this may not be possible. Therefore, while SAM will make every effort
to select investments in foreign securities on the same basis relative to
quality and risk as its investments in domestic securities, that may not always
be possible.

Eurodollar bonds are bonds issued by either U.S. or foreign issuers that
are traded in the European bond markets and are denominated in U.S. dollars.
Eurodollar bonds issued by foreign issuers are subject to the same risks as
Yankee sector bonds. Additionally, Eurodollar bonds are subject to certain
sovereign risks. One such risk is the possibility that a foreign government
might prevent dollar-denominated funds from flowing across its borders.

4. MUNICIPAL SECURITIES. Municipal securities include obligations issued by or
on

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behalf of the states, territories and possessions of the United States and the
District of Columbia and their political subdivisions, agencies,
instrumentalities or authorities, the interest on which, in the opinion of
counsel to the issuer, is exempt from federal income tax. Generally, when
market interest rates rise, the price of municipal securities will fall, and
when market interest rates fall, the price of these securities will rise. There
is also a risk that the issuer of a municipal security will fail to make timely
payments of principal and interest to the Fund.

5. ILLIQUID SECURITIES. (Bond Funds only). See the description of such
securities under "Additional Investment Information--Stock Funds."

6. RESTRICTED SECURITIES AND RULE 144A SECURITIES. (Bond Funds only). See the
description of such securities under "Additional Investment Information--Stock
Funds."

7. MORTGAGE-BACKED SECURITIES (GNMA Fund only). Unlike conventional bonds, the
principal with respect to mortgage-backed securities is paid back over the
life of the loan rather than at maturity. Consequently, the Fund will receive
monthly scheduled payments of both principal and interest. In addition, the
Fund may receive unscheduled principal payments representing unscheduled
prepayments on the underlying mortgages. Since the Fund must reinvest scheduled
and unscheduled principal payments at prevailing interest rates and such
interest rates may be higher or lower than the current yield of the Fund's
portfolio, mortgage-backed securities may not be an effective means to lock in
long-term interest rates. In addition, while prices of mortgage-backed
securities, like conventional bonds, are inversely affected by changes in
interest rate levels, because of the likelihood of increased prepayments of
mortgages in times of declining interest rates, they have less potential for
capital appreciation than comparable fixed-income securities and may in fact
decrease in value when interest rates fall.

The rate of interest payable on collateralized mortgage obligation ("CMO")
classes may be set at levels that are either above or below market rates at the
time of issuance, so that the securities will be sold at a substantial premium
to, or at a discount from, par value. There is the risk that the Fund may fail
to recover any premium it pays due to market conditions and/or mortgage
prepayments. The Fund will not invest in interest-only or principal-only
classes -- such investments are extremely sensitive to changes in interest
rates.

Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be attractive in
certain interest rate environments but not in others. For example, a CMO may be
structured so that its yield moves in the same direction as market interest
rates - I.E., the yield may increase as rates increase and decrease as rates
decrease - but may do so more rapidly or to a greater degree. Other CMO classes
may be structured to pay floating interest rates that either move in the same
direction or the opposite of short-term interest rates. The market value of
such securities

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may be more volatile than that of a fixed rate obligation. Such interest rate
formulas may be combined with other CMO characteristics.

8. ASSET-BACKED SECURITIES. (GNMA and Managed Bond Fund only). Asset-backed
securities represent interests in, or are secured by and payable from, pools of
assets such as (but not limited to) consumer loans, automobile receivable
securities, credit card receivable securities, and installment loan contracts.
The assets underlying the securities are securitized through the use of trusts
and special purpose corporations. These securities may be supported by credit
enhancements such as letters of credit. Payment of interest and principal
ultimately depends upon borrowers paying the underlying loans. Repossessed
collateral may be unavailable or inadequate to support payments on defaulted
asset-backed securities. In addition, asset-backed securities are subject to
prepayment risks which may reduce the overall return of the investment.

Automobile receivable securities represent undivided fractional interests in a
trust whose assets consist of a pool of automobile retail installment sales
contracts and security interests in vehicles securing the contracts. Payments
of principal and interest on the certificates issued by the automobile
receivable trust are passed through periodically to certificate holders and are
generally guaranteed up to specified amounts by a letter of credit issued by a
financial institution. Certificate holders may experience delays in payments or
losses if the full amounts due on the underlying installment sales contracts are
not realized by the trust because of factors such as unanticipated legal or
administrative costs of enforcing the contracts, or depreciation, damage or loss
of the vehicles securing the contracts.

Credit card receivable securities are backed by receivables from revolving
credit card accounts. Certificates issued by credit card receivable trusts
generally are pass-through securities. Competitive and general economic factors
and an accelerated cardholder payment rate can adversely affect the rate at
which new receivables are credited to an account, potentially shortening the
expected weighted average life of the credit card receivable security and
reducing its yield. Credit card accounts are unsecured obligations of the
cardholder.

9. ZERO COUPON BONDS. (Managed Bond Fund only). Zero coupon bonds do not
make interest payments; instead they are sold at a deep discount from their face
value and are redeemed at face value when they mature. Because zero coupon
bonds do not pay current income, their prices can be very volatile when interest
rates change. In calculating its dividends, the Managed Bond Fund takes into
account as income a portion of the difference between a zero coupon bond's
purchase price and its face value.

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

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TAX-EXEMPT BOND FUNDS

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

1. REPURCHASE AGREEMENTS. See the description of such securities under
"Additional Investment Information--Stock Funds."

2. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

3. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information--Stock Funds."

MONEY MARKET FUNDS

QUALITY AND MATURITY. Pursuant to procedures adopted by the Money Market
Trust's Board of Trustees, the Money Market Funds may purchase only high-quality
securities that SAM believes present minimal credit risks. To be considered
high quality, a security must be rated, or the issuer must have received a
rating for a comparable short-term security, in accordance with applicable rules
in one of the two highest categories for short-term securities by at least two
nationally recognized rating services (or by one, if only one rating service has
rated the security); or, if unrated, the security must be judged by SAM to be of
equivalent quality.

High-quality securities are divided into "first tier" and "second tier"
securities. First tier securities are those deemed to be in the highest rating
category (E.G., A-1 by S&P) and second tier securities are those deemed to be in
the second highest rating category (E.G., A-2 by S&P).

The Money Market Fund may not invest more then 5% of its total assets in second
tier securities. In addition, the Money Market Fund may not invest more than 1%
of its total assets or $1 million (whichever is greater) in the second tier
securities of a single issuer.

The Money Market Funds currently intend to limit their investments to securities
with remaining maturities of 397 days or less, and to maintain a dollar-weighted
average maturity of 90 days or less. When determining the maturity of a
security, a Fund may look to an interest rate reset or demand feature.

A security is considered to be rated if either the security itself is assigned a
rating or the issuer is assigned a rating for comparable short-term debt
obligations. Alternatively, a security (whether or not rated) with an
unconditional demand feature (as defined in Rule 2a-7) may be considered to be
rated if the demand feature or its issuer has been assigned a rating. See
"Description of Ratings" for further explanation of rating categories.

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

1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. See the description of
such securities under "Additional Investment Information--Stock Funds."

2. MUNICIPAL BONDS. Municipal bonds are issued to raise longer-term capital
but, when purchased by the Tax-Free Fund, will have thirteen (13) months or less
remaining until maturity or will have a variable or floating rate of interest.
These issues may be either general obligation bonds or revenue bonds.

3. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain municipal obligations may
carry variable or floating rates of interest. Variable rate instruments bear
interest at rates that are readjusted at periodic intervals so as to cause the
instruments' market value to approximate their par value. Floating rate
instruments bear interest at rates which vary automatically with changes in
specified market rates or indices, such as the bank prime rate. A Fund's right
to obtain payment at par on a demand instrument upon demand could be affected by
events occurring between the date the Fund elects to redeem the instrument and
the date redemption proceeds are due which affect the ability of the issuer to
pay the instrument at par value.

4. TERM PUT BONDS. Term put bonds are variable rate obligations which have a
maturity in excess of one year with the option to put back (sell back) the bonds
on a specified put date. On the put date, the interest rate of the bond is
reset according to current market conditions and accrues at the reset rate until
the next put date. The Fund may also hold mandatory put bonds. Mandatory put
bonds require the holder to take certain action to retain the bonds. Put bonds
are generally credit-enhanced by collateral, guaranteed investment contracts,
surety bonds, a letter of credit or insurance which guarantees the payment of
principal and interest.

5. BOND ANTICIPATION NOTES (BANS). These notes are usually general
obligations of state and local governmental issuers which are sold to obtain
interim financing for projects that will eventually be funded through the sale
of long-term debt obligations or bonds. The ability of an issuer to meet the
obligations on its BANs is primarily dependent on the issuer's access to the
long-term municipal bond market and the likelihood that the proceeds of such
bond sales will be used to pay the principal and interest on the BANs.

6. TAX ANTICIPATION NOTES (TANS). These notes are issued by state and local
governments to finance their current operations. Repayment is generally to be
derived from specific future tax revenues. Tax anticipation notes are usually
general obligations of the issuer. A weakness in an issuer's capacity to raise
taxes due to, among other things, a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs.

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7. REVENUE ANTICIPATION NOTES (RANS). These notes are issued by governments
or governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
project revenues, such as anticipated revenues from another level of government,
could adversely affect an issuer's ability to meet its obligations on
outstanding RANs. In addition, the possibility that the revenues would, when
received, be used to meet other obligations could affect the ability of the
issuer to pay the principal and interest on RANs.

8. TAX-EXEMPT COMMERCIAL PAPER. These are short-term securities issued by
states, municipalities and their agencies. Tax-exempt commercial paper may be
structured similarly to put bonds with credit enhancements, long nominal
maturities, and mandatory put dates, which are agreed upon by the buyer and the
seller at the time of purchase. The put date acts as a maturity date for the
security, and generally will be shorter than the maturities of Project Notes
(PNs), BANs, RANs or TANs. There is a limited secondary market for issues of
tax-exempt commercial paper.

9. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information--Stock Funds."

10. FOREIGN ISSUERS. Obligations of foreign issuers involve certain additional
risks. These risks may include future unfavorable political and economic
developments, withholding taxes, seizures of foreign deposits, currency
controls, interest limitations, or other governmental restrictions that might
affect payment of principal or interest. Additionally, there may be less public
information available about foreign banks and their branches. Foreign issuers
may be subject to less governmental regulation and supervision than U.S.
issuers. Foreign issuers also generally are not bound by uniform accounting,
auditing, and financial reporting requirements comparable to those applicable to
U.S. issuers.

11. SECURITIES ISSUED BY BANKS AND OTHER ISSUERS. Investments may be made in
U.S. dollar-denominated time deposits, certificates of deposit, and bankers'
acceptances of U.S. banks and their branches located outside of the United
States, U.S. branches and agencies of foreign banks, and foreign branches of
foreign banks. The Funds may also invest in U.S. dollar-denominated securities
issued or guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign governments,
foreign government agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance companies and
mortgage bankers, as well as banks.

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branch (generally referred to as sovereign risk). In addition, evidence of
ownership of portfolio securities may be held outside of the U.S. and the Funds
may be subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing the establishment and
operation of U.S. branches do not apply to foreign branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by federal and state
regulation, as well as by governmental action in the country in which the
foreign bank has its head office.

12. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

13. MORTGAGE-BACKED SECURITIES. See the description of such securities under
"Additional Investment Information--Bond Funds and Managed Bond Fund."

14. ASSET-BACKED SECURITIES. See the description of such securities under
"Additional Investment Information--Bond Funds and Managed Bond Fund."

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

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

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

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Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.

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

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

FOREIGN SECURITIES

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

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

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

CURRENCY EXCHANGE RATES

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investments in that country). The International Fund is authorized to employ
certain hedging techniques to minimize this risk. However, to the extent such
transactions do not fully protect the International Fund against adverse changes
in exchange rates, decreases in the value of the currencies of the countries in
which the Fund will invest will result in a corresponding decrease in the U.S.
dollar value of the Fund's assets denominated in those currencies. Further, the
International Fund may incur costs in connection with conversions between
various currencies. Foreign exchange dealers (including banks) realize a profit
based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer or bank normally will offer to sell a foreign
currency to the International Fund at one rate, while offering a lesser rate of
exchange should the Fund desire immediately to resell that currency to the
dealer. Moreover, fluctuations in exchange rates may decrease or eliminate
income available for distribution. For example, if certain foreign currency
losses exceed other investment company taxable income (as defined below under
"Additional Tax Information") during a taxable year, the Fund would not be able
to make ordinary dividend distributions, or distributions made before the losses
were realized would be recharacterized as a return of capital to shareholders
for federal income tax purposes, rather than as an ordinary dividend, reducing
each shareholder's basis in his International Fund shares.

HEDGING TRANSACTIONS (INTERNATIONAL FUND ONLY)

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

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another foreign currency, rather than the U.S. dollar. Cross-hedges may also
create a greater risk of loss than other hedging transactions because they may
involve hedging a currency risk through the U.S. dollar rather than directly to
the U.S. dollar or another currency.

To help reduce certain risks associated with hedging transactions, the Common
Stock Trust's Board of Trustees has adopted the requirement that forward
contracts, options, futures contracts and options on futures contracts be used
on behalf of the Fund as a hedge and not for speculation. In addition to this
requirement, the Board of Trustees has adopted the following percentage
restrictions on the use of options, futures contracts and options on futures
contracts:

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

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

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

INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA FUND

The following is a condensed and general description of conditions
affecting the taxing ability and fiscal condition of the State of California
and its various political subdivisions and their ability to meet their debt
service obligations. Since during normal market conditions the Fund plans to
invest at least 80% of its net assets in bonds issued by California and its
political subdivisions, the investment risk of such concentration should be
carefully considered. The description below summarizes discussions contained
in official statements relating to various types of bonds issued by the State
of California and its political subdivisions. A more detailed description
can be found in such official statements. The California Fund has not
independently verified any of the information presented in this section.

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THE STATE OF CALIFORNIA. The severe economic recession which occurred in
California between 1990 and 1994 seriously affected State tax revenues, caused
increased expenditures for health and welfare programs, and caused a structural
imbalance in the State's budget, with the largest programs supported by the
General Fund -- K-12 schools and community colleges, health and welfare, and
corrections -- growing at rates higher than the growth rates for the principal
revenue sources of the General Fund. As a result, the State experienced
recurring budget deficits and had to use a series of external borrowings to meet
its cash needs.

As a result of the deterioration in the State's budget and cash situation in
fiscal years 1991-92 and 1992-93, rating agencies reduced the State's credit
ratings. Between November 1991 and October 1992 the rating on the State's
general obligation bonds was reduced by S&P from "AAA" to "A+," by Moody's from
"Aaa" to "Aa," and by Fitch from "AAA" to "AA." In July, 1994, based on the
State's inability to eliminate its accumulated deficit, the same three rating
agencies further lowered their ratings on the State's general obligation bonds
to "A," "A1" and "A," respectively.

Since the start of 1994, California's economy and the State's financial
condition have steadily improved, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending
restraint. In 1996, Fitch and S&P raised their respective ratings to "A+."
Nevertheless, the pressures on the General Fund from the programs described
above (education, corrections and welfare, which is in a transition period as a
result of recent federal and state welfare reform initiatives) are expected to
continue.

During the recent recession years, the State deferred certain annual
contributions to the Public Employees Retirement Fund pursuant to legislation
passed for budget savings. That legislation was held to be unconstitutional in
a decision which became final in May, 1997. In satisfaction of the judgment,
the State transferred $1.235 billion from the General Fund to the PERF in July,
1997.

In August, 1997, the Governor signed the Budget Act for fiscal year 1997-98, but
vetoed about $314 million of specific spending items, primarily in health and
welfare and education. The Budget, which reflects the $1.235 billion payment to
PERF mentioned above, anticipates General Fund revenues and transfers of $52.5
billion (a 6.8 percent increase over the final 1996-97 amount), and expenditures
of $52.8 billion (an 8.0 percent increase from the 1996-97 levels) and projects
a decrease in the budget reserve from $408 million at June 30, 1997 to $112
million at June 30, 1998. The Budget Act contains no tax increases and no tax
reductions.

TAX AND SPENDING LIMITATIONS. The taxing powers of California public agencies
are limited by Article XIII A of the State Constitution, added by an initiative
amendment approved by voters on June 6, 1978, and commonly known as Proposition
13.

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Article XIII A limits the maximum ad valorem tax on real property to one percent
of "full cash value" which is defined as "the County Assessor's valuation of
real property as shown on the fiscal year 1975-76 tax bill under 'full cash
value' or, thereafter, the appraised value of real property when purchased,
newly constructed, or a change in ownership has occurred after the 1975
assessment." The full cash value may be adjusted annually to reflect inflation
at a rate not to exceed two percent per year, or reduction in the consumer price
index or comparable local data, or declining property value caused by damage,
destruction, or other factors.

The tax rate limitation referred to above does not apply to ad valorem taxes to
pay the interest and redemption charges on any indebtedness approved by the
voters before July 1, 1978 or any bonded indebtedness for the acquisition or
improvement of real property approved by two-thirds of the votes cast by the
voters voting on the proposition.

Article XIII A also requires a two-thirds vote of the electors prior to the
imposition of any special taxes and totally precludes the imposition of any new
ad valorem taxes on real property or sales or transaction taxes on the sales of
real property.

Legislation adopted in 1979 exempts business inventories from taxation.
However, the same legislation provides a formula for reimbursement by California
to cities and counties, special districts and school districts for the amount of
tax revenues lost by reason of such exemption or adjusted for changes in the
population and the cost of living. Legislation adopted in 1980 provides for
state reimbursements to redevelopment agencies to replace revenues lost due to
the exemption of business inventories from taxation. Such legislation provides
for restoration of business inventory tax revenues through the annual addition
of artificial assessed value, not actually existing in a project area, to the
tax rolls of redevelopment projects. These reimbursements are adjusted for
changes in the population and the cost of living. All such reimbursements are
subject to change or repeal by the Legislature, and they have been changed since
1980. Furthermore, current law generally prohibits the pledging of such
reimbursement revenues to secure redevelopment agency bonds.

Redevelopment agencies in California have no power to levy and collect taxes;
hence, any decrease in property taxes or limitations in the amounts by which
property taxes may increase adversely affects such agencies, which lack the
inherent power to correct for such decreases or limitations.

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proceeds exceed "the cost reasonably born by such entity in providing the
regulation, product, or service." No limit is imposed on appropriation of funds
which are not "proceeds of taxes," on debt service or indebtedness existing or
authorized by January 1, 1979, or subsequently authorized by the voters, or
appropriations required to comply with mandates of courts or the federal
government, or user charges or fees which don't exceed the cost of the service
provided, nor on certain other non-tax funds.

By statute (which has been upheld by the California Court of Appeals), tax
revenues allocated to redevelopment agencies are not "proceeds of taxes" within
the meaning of Article XIII B, and the expenditure of such revenues is therefore
not subject to the limitations under Article XIII B.

The imposition of taxes by local agencies is further limited by the provisions
of an initiative statute ("Proposition 62") approved by the voters on November
4, 1986. The statute (i) requires that any tax for general governmental
purposes imposed by local government entities be approved by resolution or
ordinance adopted by two-thirds vote of the governmental entity's legislative
body and by a majority vote of the electorate of the governmental entity, (ii)
requires that any special tax (defined as a tax levied for other than general
governmental purposes) imposed by a local governmental entity be approved by a
two-thirds vote of the voters within that jurisdiction, (iii) restricts the use
of revenues from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes on
real property by local governmental entities except as permitted by Article XIII
A, (v) prohibits the imposition of transaction taxes and sales taxes on the sale
of real property by local governmental entities and (vi) requires that any tax
imposed by a local governmental entity between May 1, 1985 and November 4, 1986
be ratified by a majority vote of the electorate within two years of the
adoption of the initiative or be terminated by November 15, 1988.

Subsequent decisions of California Courts of Appeal held that all or portions of
the provisions of Proposition 62, including those requiring the submission of
general fund tax measures to the electorate, are unconstitutional. However, on
September 28, 1995, in the case of Santa Clara County Local Transportation
Authority v. Guardino, the California Supreme Court upheld the constitutionality
of Proposition 62. As a result, the annual revenues of any local government or
district as shown in the general fund budget may have to be reduced in any year
to the extent that they rely on the proceeds of any general tax adopted after
May 1, 1985 which has not been approved by majority vote of the electorate.
Pending clarification by the courts or by the California Legislature it remains
uncertain whether the general tax voter approval requirement is applicable to
any tax that was imposed or increased by an ordinance or resolution adopted
prior to December 14, 1995.

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less than a majority vote and that taxes for special purposes be approved by a
two-thirds vote; provides that existing language in the California Constitution
shall not be construed to limit the initiative power with respect to reducing or
repealing any local tax, assessment, fee or charge; prescribes procedures
applicable to all assessments and requires that all assessments be approved by
property owners; prohibits property related fees and charges from exceeding
costs of the service being provided; imposes procedural requirements, including
notice and public hearing, prior to imposition of new or increased fees or
charges on property; and requires that, except for fees for sewer, water and
refuse collection, fees be approved by a majority vote of the fee payers.

Given the turbulent history of California electoral, judicial and legal
proceedings affecting taxation since 1978, it is impossible to predict what
proceedings might occur in the future which would affect the ability of
California and its political subdivisions to service their outstanding
indebtedness.

LEASE FINANCING. Lease-based financing, typically marketed in the form of
certificates of participation or lease revenue bonds, has been extremely popular
in California, since the courts have long held that properly structured
long-term leases do not create "indebtedness" for purposes of constitutional and
statutory debt limitations. The obligation to pay rent thereunder is
nevertheless enforceable, on an annual basis, so long as the leased property is
available for use and occupancy by the government lessee. The risk of rent
abatement (because of construction delays, damage to structures and the like) is
usually mitigated by funded reserves, casualty (including earthquake) insurance
and rental interruption insurance.

In a recent taxpayer suit, Rider v. City of San Diego, traditional financing
structures involving joint powers agencies as well as the long-established lease
exception to the constitutional debt limit were again challenged. Although the
City and the other governmental defendants prevailed both in the trial court and
in the Court of Appeal, the California Supreme Court subsequently granted review
and is expected to decide the case sometime during the 1998 calendar year.

ELECTRIC UTILITY RESTRUCTURING. Like a number of other states, California
recently enacted legislation relating to the restructuring of the electric
utility industry. The legislation generally provides for increased competition
in the supply of electric power and allows retail customers "direct access" in
choosing their supplier. In addition, the legislation provides for an immediate
rate reduction for small users; creates an independent power exchange to
administer a wholesale power pool; creates an independent system operator for
the transmission grid; provides customers and suppliers with nondiscriminating
and comparable access to transmission and distribution services; and allows
utilities to recover uneconomic generation-related costs through a transition
charge or severance fee.

The mandatory provisions of the legislation generally apply to utilities
regulated by the California Public Utilities Commission. Since the State's
political subdivisions are not

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subject to the jurisdiction of the CPUC, the effect of the legislation on
municipally-owned electric utilities is more limited. As a practical matter,
however, it is likely that most municipally-owned utilities will adopt some form
of direct access or pooling programs in order to remain competitive.

The effects of direct access may vary among municipal utilities and cannot be
specifically ascertained at this time. However, some potential effects include:
(i) loss of customers, particularly large industrial and commercial customers,
(ii) increased costs to remaining customers, (iii) decreased revenues, (iv)
decreases in transfers to the municipality's general fund, (v) increased
difficulties in developing new generating resources, (vi) increased difficulties
and higher costs in system financing, (vii) reductions in credit ratings, (viii)
the need to recover stranded investment in facilities from the remaining
customers and (ix) reductions in environmental and social programs relating to
electric utility services.

ORANGE COUNTY BANKRUPTCY. In December 1994, Orange County, together with its
pooled investment funds, filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the funds had suffered significant market
losses in their investments, causing a liquidity crisis for the funds and the
County. More than 200 other public entities, most of which, but not all, are
located in the County, were also depositors in the funds. Orange County has
since embarked on a fiscal recovery plan, based on sharp reductions in services
and personnel, and continues to face fiscal constraints in the aftermath of the
bankruptcy.

Since the Orange County bankruptcy, California's general laws pertaining to the
deposit and investment of public moneys have been significantly revised to limit
the use of higher-risk investments and to provide additional oversight
safeguards at the local level.

The Fund will attempt to achieve geographic diversification by investing in
obligations of issuers which are located in different areas within California as
well as obligations of the State of California itself. In addition, the Fund
will not invest more than 15% of its total assets in tax allocation bonds issued
by California redevelopment agencies. These are operating policies of the Fund
and may be changed without the approval of the Fund's shareholders.

WASHINGTON FUND

WASHINGTON STATE

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information in the discussion is drawn primarily from official statements
relating to securities offerings of the State which are dated prior to the date
of this Statement of Additional Information. This information may be relevant
in evaluating the economic and financial position of the State, but is not
intended to provide all relevant data necessary for a complete evaluation of the
State's economic and financial position. Discussions regarding the financial
health of the State government may not be relevant to municipal obligations
issued by a political subdivision of the State. Furthermore, general economic
conditions discussed may or may not affect issuers of the obligations of the
State. The Washington Fund has not independently verified any of the
information presented in this section.

GENERAL INFORMATION

According to the United States Census Bureau's 1990 Census, Washington
State's population is ranked 18th of the 50 states. During the ten-year time
period from 1980-1990, the State's population increased at an average annual
rate of 1.8%, while the United States population grew at an average annual
rate of 1.1%. The State's population increased at an average annual rate of
approximately 2.5% 1990 to 1993, and at an average annual rate of
approximately 1.8% from 1993 to 1995. From April 1, 1995 to April 1, 1996,
the population growth was approximately 1.6%. The current estimate of the
population of the State is approximately 5.5 million.

The State's largest city, Seattle, is part of an international trade,
manufacturing, high technology and business service corridor which extends along
Puget Sound from Everett to Tacoma. The State's Pacific Coast-Puget Sound
region includes 75% of its population, the major portion of its industrial
activity and the major part of the forests important to its timber and paper
industries. The remainder of the State has agricultural areas primarily devoted
to grain, fruit orchards and dairy operations.

In recent years, the State's economy has diversified with employment in the
trade and service sectors representing an increasing portion of total employment
relative to the manufacturing sector.

The State operates on a July 1 to June 30 fiscal year and on a biennial budget
basis. Fiscal controls are exercised during the biennium through an allotment
process which requires each agency to submit a monthly expenditure plan. The
plan must be approved by the Office of Financial Management, which is the
Governor's budget agency. It provides the authority for agencies to spend funds
within statutory maximums specified in a legislatively adopted budget. State
law requires a balanced biennial budget. Whenever it appears that disbursements
will exceed the aggregate of estimated receipts plus beginning cash surplus, the
Governor is required to reduce allotments, thereby reducing expenditures of
appropriated funds.

As interpreted by the State Supreme Court, Washington's Constitution prohibits
the imposition of net income taxes.

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The State's tax revenues are primarily comprised of excise and ad valorem
taxes. By constitutional provision, the aggregate of all regular (unvoted)
tax levies on real and personal property by State and local taxing districts
cannot exceed 1% of the true and fair value of the property. Excess levies
are subject to voter approval. For the fiscal year ending June 30, 1996,
approximately 76.7% of the State's tax revenues came from general and
selective sales and gross receipts taxes, of which the retail sales tax and
its companion use tax represented 45% of total collections. Business and
occupation tax collections represented about 16.5% and the motor vehicle fuel
tax represented approximately 6.7% of total State taxes for the year. Ad
valorem taxes represented 11.1% of State revenues for the fiscal year 1996.

Expenditures of State revenues are made in accordance with constitutional and
statutory mandates.

STATE EXPENDITURE LIMITATIONS

Initiative 601, which was passed by the voters in November 1993, limits
increases in General Fund-State government expenditures to the average rate of
population and inflation growth, and sets forth a series of guidelines for
limiting tax and expenditure increases and stabilizing long range budget
planning.

Provisions of Initiative 601 establish a procedure for computing a fiscal year
growth factor based on a lagged, three-year average of population and inflation
growth. This growth factor is used to determine a State spending limit for
programs and expenditures supported by the State General Fund. The growth
factor was 5.13% for fiscal year 1996 and is 4.45% for fiscal year 1997, 4.05%
for fiscal year 1998, and 4.01% for fiscal year 1999. The initiative created
two new reserve funds (the Emergency Reserve Fund and the Education Construction
Fund) for depositing revenues in excess of the spending limit and abolished the
current Budget Stabilization Account. Ending balances in the Budget
Stabilization Account were transferred to the State General Fund ($100 million)
and the Pension Reserve Account ($25 million). The initiative also places
restrictions on the addition or transfer of functions to local government unless
there is reimbursement by the State.

The Initiative's requirement for voter approval for new tax measures has
expired. Effective July 1, 1995, taxes can be enacted with a two-thirds
majority of both houses of the State Legislature if resulting General Fund-State
expenditures do not exceed the spending limit. Voter approval is still required
to exceed the spending limit. Thus far, the Initiative has not had a
restrictive impact on the State's budget.

The State Constitution and enabling statutes authorize the incurrence of State
general obligation debt to the payment of which the State's full faith and
credit and taxing power are pledged. With certain exceptions, the amount of
State general obligation debt which may be incurred is limited by constitutional
and statutory restrictions. These limitations are imposed by prohibiting the
issuance of new debt if the new debt would cause the maximum annual debt service
on all thereafter outstanding general obligation debt to exceed a

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specified percentage of the arithmetic mean of general State revenues for the
preceding three years. These limitations apply to the incurrence of new debt
and are not limitations on the amount of debt service which may be paid by the
State in future years.

The State Legislature is obligated to appropriate money for State debt service
requirements. Generally, on or before June 30 of each year, the State Finance
Committee certifies to the State Treasurer the amount required for payment of
bond interest and principal for the coming year. Some general obligation bond
statutes provide that the General Fund will be reimbursed from discrete
revenues, which are not considered general State revenues. Other bonds are
limited obligation bonds not payable from the General Fund. For the 1997-99
Biennium, General Fund-State revenues are projected to be $19.945 billion, an
increase of 9.3% over the 1995-97 Biennium, plus a carry-forward of $513
million. The revenue outlook for the 1997-99 Biennium is stable and the General
Fund is projected to end the Biennium with a $861 million fund balance.

The operating budget for the 1997-99 Biennium calls for an overall expenditure
level of $19.085 billion for the General Fund-State, an increase of $1.4 billion
or 7.6% over the 1995-97 Biennium and within the $19.235 billion expenditure
limit imposed under Initiative 601.

Fifty-eight percent of the General Fund-State budget will go to support public
schools and higher education, representing a $514 million increase in public
school funding and an increase of $137 million in funding for public
universities and colleges.

Social and Health Services funding accounts for approximately 26% of the State
budget, and the criminal justice budget also increased. A 3% across-the-board
salary increase for State employees accounts for $63 million of the increase in
General Fund-State expenditures.

The 1996 Supplemental Budget passed the State Legislature on April 26, 1997, and
Governor Locke signed the budget bill on May 20, 1997. The overall General
Fund-State supplemental budget resulted in a net increase of $150 million.

The Legislature appropriated $62 million of General Fund-State to be used for
school construction, and $12 million to be used for Educational Network funding.
Fifty million from General Fund-State was appropriated to the Transportation
Fund, for use by transportation agencies in 1997-99. A total of nearly $19
million in State funds was appropriated to address the loss of federal funding
for Title IV-A for Juvenile Rehabilitation and for lost federal payment on child
support grants to clients. Caseload and other forecasted workload increases
amounted to approximately $46 million. These appropriated increases were offset
by a General Fund-State reduction of $68 million to reflect downward adjustments
in public school enrollments and social and health services forecasted
caseloads, and by a reduction in debt service payments of $18 million, made
possible by refunding and lower interest rates. The 1997 Legislature also
appropriated about $26 million to address other emergent needs such as Year 2000
computer conversion, and to

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fund other technical and programmatic needs. Approximately $21 million in State
funds was provided to address the devastating damage that resulted from floods,
ice storms, fire protection, and other disasters.

For most municipalities in the State, the fiscal year is the calendar year,
except that school districts have a September 1 - August 31 fiscal year. All
municipalities must maintain balanced budgets. Depending on the type of
municipality, local revenues are derived from ad valorem taxes, excise and gross
receipts taxes, special assessments, fees, user charges and State and federal
grants.

Municipalities incur debt by the issuance of general obligations or other
borrowings which are payable from taxes, though other revenue sources may be
used. Revenue obligations do not constitute debt under constitutional and
statutory limitations as long as taxes are not pledged or used to pay debt
service. Only non-tax revenue from the operation of a project or enterprise
financed by the revenue obligations (and sometimes special assessments on
property benefited from the financed improvements) may be used to pay that debt
service. Usually, revenue bonds are secured by a reserve funded in an amount
based on a factor of debt service. Many municipalities may issue improvement
district obligations payable only from special assessments on benefited
property, but some of those obligations also may be secured by a special
guaranty fund.

ECONOMIC OVERVIEW

Over the past few years, the State's economic performance has remained
relatively strong compared to the United States as a whole. After adjusting for
inflation, growth in personal income in the State increased 4.4% in 1996 over
the 1995 level and an estimated 6.0% in 1997 over the 1996 level.

The State's economic base includes manufacturing and service industries as well
as agricultural and timber production. During 1990-1995, the State experienced
growth in non-manufacturing industries and a decline in manufacturing
industries. The rate of employment growth, which exceeded 4.5% during the
mid-to-late 1980s, has declined since 1991 to an average rate of 1.4%. The 1997
employment growth is expected to be 3.8%.

Washington's economy consists of both export and local industries. Leading
export industries are aerospace, forest products, agriculture and food
processing. The aerospace, timber and food processing industries together
employ approximately 9% of the State's non-farm workers. However, the
non-manufacturing sector has played an increasingly significant role in
contributing to the State's economy in recent years.

Below is a summary of key industry segments of the State's economy as well as of
selected economic and employment data.

MANUFACTURING. The Boeing Company ("Boeing"), which is the Seattle Metropolitan
Area's largest employer, has several facilities located throughout the area.
Boeing is the

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world's leading manufacturer of commercial airliners and as of September 1997
employed 100,200 people State-wide, primarily at several locations in the Puget
Sound area. While the primary activity of Boeing is the manufacture of
commercial aircraft, Boeing has played leading roles in the aerospace and
military missile programs of the United States and has undertaken a broad
program of diversification activities including Boeing Information and Support
Services. In 1996, Boeing had $22.7 billion in sales and net earnings of $1.1
billion, and a backlog of orders for 717 aircraft, the most in the company's
history. Boeing currently anticipates 1997 sales to be in the $46-47 billion
range. Boeing recently completed two and is currently undertaking one major
expansion project. The company acquired a 212-acre site in Renton (King
County), which is the site of the former Longacres Race Track. The site will be
used as a location for the development of an office complex, the first building
of which is an approximately 500,000 square-foot customer service training
center that was recently completed. In Everett (Snohomish County), Boeing
completed construction of a 5.6 million square-foot assembly plant for the new
777 jetliner. In 1993, Boeing completed a $400 million skin and spar plant and
a composite manufacturing center on 500 acres in Puyallup (Pierce County).

On December 5, 1996, Boeing acquired the former defense and space units of
Rockwell International. On August 1, 1997, Boeing also completed its merger
with McDonnell Douglas Corporation. The merger will not significantly impact
Boeing employment levels in the State.

A total of 218 commercial jet transports were delivered in 1996, compared with
206 for 1995. Defense and space sales of $5.6 billion in 1995 were
approximately 10% higher than in 1994. The projected number of commercial jet
deliveries for 1997 is 340.

TECHNOLOGY-RELATED INDUSTRIES. The State ranks fourth among all states in the
percentage of its work force employed by technology-related industries. It
ranks third among the largest software development centers. The State is the
home of approximately 1000 advanced technology firms of which approximately 50%
are computer-related. Microsoft, headquartered in Redmond, Washington, is the
largest microcomputer software company in the world. In addition, several
biotechnical firms located in the State have attained international acclaim for
their research and development.

TIMBER. Natural forests cover more than 40% of the State's land area, and
forest products rank second behind aerospace in value of total production. The
largest employer in the timber industry is The Weyerhaeuser Company.
Productivity in the State's forest products industry increased steadily from
1980 to 1990. However, since 1991, recessionary influences have resulted in a
production decline. A slight decline is anticipated for the next few years, due
to federally-imposed limitations on the harvest of old-growth timber and the
inability to maintain the previous record levels of production increases.
Although a continued decline in employment is anticipated in certain regions,
the impact is not expected to affect materially the State's overall economic
performance.

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AGRICULTURE AND FOOD PROCESSING. Agriculture and food processing is the State's
most important industry by most measures. Growth in agricultural products was
an integral factor in the State's economic growth in the late 1980s and early
1990s.

FINANCE, INSURANCE AND REAL ESTATE. Employment in finance, insurance and real
estate is estimated to represent 5.1% of the State's wage and salary employment
in 1996. Projections for 1997 show this segment declined slightly to 5.0% of
employment.

TRADE. International trade plays an important role in the State's employment
base and one in six jobs is related to this sector. During the past twenty
years the State has consistently ranked number one or number two in
international exports per capita. Seattle-Tacoma International Airport is the
focus of the region's air traffic and trade. The State, particularly the Puget
Sound Corridor, is a trade center for the Northwest and the State of Alaska. A
system of public ports, the largest of which are the Ports of Seattle and
Tacoma, handle waterborne trade primarily to and from the Far East. These two
Ports each rank among the top 20 ports in the world based on volume of
containerized cargo shipped; on a combined basis they are the second largest
load center for containerized cargo in the United States. Approximately 70% of
the cargo passing through the Ports of Seattle and Tacoma has an ultimate
destination outside the Pacific Northwest. Therefore, trade levels depend
largely on national and world, rather than local, economic conditions.

Growth in retail sales in the State between 1990 and 1992 was higher than that
in the United States. During 1993 through 1995, the rate of growth for retail
sales was lower for the State than for the United States. The State is home to
a number of specialty retail companies that have reached national stature,
including Nordstrom, Eddie Bauer, Costco and Recreational Equipment Inc. (REI).

SERVICES/TOURISM. The highest employment growth in the State since 1981 has
taken place in the services sector, although rate of growth has shown a small
but relatively consistent decline since 1990 from 7% to 4.3% for 1995, and 3.4%
forecast for 1996. Seattle is the location for the Washington State Convention
and Trade Center which opened in June 1988. The State also has many tourist
attractions such as the Olympic and Cascade mountain ranges, ocean beaches and
local wineries.

CONSTRUCTION. Employment in the construction sector in the Puget Sound area
increased 69.2% between 1981 and 1991. The increase in employment in the late
1980s was due in part to the relative affordability of housing compared to other
areas of the country. Construction employment growth flattened between 1991 and
1993, but showed a modest increase in 1994 and leveled again in 1995.
Commercial building, while not increasing at the pace of the 1980s, remains
stable.

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Employment in the government sector has expanded in the State since 1990, but at
a declining rate. State and local government employment has increased at a
faster pace than employment by the federal government, and is projected to add
new jobs through 1996.

LITIGATION

At any given time, including the present, there are numerous lawsuits pending
against the State of Washington which could affect the State's revenues and
expenditures. However, none of the lawsuits is expected to have a material
adverse impact on either State revenues or expenditures.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At February 3, 1998, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Northwest Fund which represented 12.7% of the Fund's
outstanding shares. At February 3, 1998, SAM owned 519,268 shares of the
Balanced Fund which represented 40.1% of the Fund's outstanding shares, and
688,169 shares of the International Fund which represented 51.6% of the Fund's
outstanding shares. At February 3, 1998, SAFECO Corporation owned 500,000 shares
of the Small Company Fund which represented 29.6% of the Fund's outstanding
shares. At February 3, 1998, SAM owned 500,000 shares of the Value Fund, which
represented 58.7% of the Fund's outstanding shares.

At February 3, 1998, SAFECO Insurance owned 500,000 shares of the Intermediate
Treasury Fund, which represented 30.5% of the outstanding shares of the Fund.
At February 3, 1998, SAFECO Corporation owned 500,000 shares of High-Yield
Bond Fund, which represented 5.9% of the Fund's outstanding shares. At February
3, 1998, Charles Schwab & Co., Inc. whose address of record is 101 Montgomery
St., San Francisco, CA 94104, owned 1,825,908 shares of the High-Yield Bond
Fund, which represented 21.4% of the Fund's outstanding shares.

At February 3, 1998, Crista Ministries, whose address of record is P.O. Box
330303, Seattle, WA 98133, owned 98,088 shares of the Managed Bond Fund, which
represented 17.1% of the Fund's outstanding shares, and SAM owned 452,103
shares of the Managed Bond Fund, which represented 79.0% of the Fund's
outstanding shares.

As of February 3, 1998, SAFECO Insurance owned 30.9%, 39.9% and 67.9% of the
outstanding shares of the Intermediate Municipal, Insured Bond and Washington
Funds, respectively.

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insurance and financial services businesses. SAM has its principal place of
business at 25th Floor, Two Union Square, Seattle, WA 98101. Each of SAFECO
Insurance and SAFECO Corporation has its principal place of business at SAFECO
Plaza, Seattle, WA 98185.

Principal shareholders of a Fund may control the outcome of a shareholder vote.

ADDITIONAL TAX INFORMATION

GENERAL

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

Each Fund will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on December 31 (by election) of that year, plus certain other
amounts.

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

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

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Withholding at that rate also is required from dividends and those distributions
for shareholders who otherwise are subject to backup withholding.

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

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

SPECIAL TAX CONSIDERATIONS--INVESTMENT IN FOREIGN SECURITIES

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

PFICS

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

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earnings and net capital gain (the excess of net long-term capital gain over net
short-term capital loss) even if those earnings and gain were not received by
the Fund. In most instances it will be very difficult, if not impossible, to
make this election because of certain requirements thereof.

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

SPECIAL TAX CONSIDERATIONS--HIGH-YIELD BOND FUND

The High-Yield Bond Fund may acquire zero coupon or other securities issued with
original issue discount ("OID"). As a holder of such securities, the Fund must
include in its income the portion of the OID that accrues on the securities
during the taxable year, even if it receives no corresponding payment on them
during the year. Similarly, the High-Yield Bond Fund must include in its gross
income securities it receives as "interest" on payment-in-kind securities.
Because the Fund annually must distribute substantially all of its investment
company taxable income, including any accrued OID and other non-cash income, to
satisfy the distribution requirement and avoid imposition of the excise tax, it
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions will be made from the Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. The Fund may realize capital gains
or losses from those sales, which would increase or decrease its investment
company taxable income and/or net capital gain (the excess of net long-term
capital gain over net short-term capital loss).

SPECIAL TAX CONSIDERATIONS--TAX-EXEMPT BOND FUNDS AND TAX-FREE MONEY FUND

The tax-exempt interest portion of each daily dividend will be based upon the
ratio of a Fund's tax-exempt to taxable income for the entire fiscal year
(average annual method). As a result, the percentage of tax-exempt income for
any particular distribution may be substantially different from the percentage
of a Fund's income that was tax-exempt during the period covered by that
distribution. Each of the Tax-Exempt Bond Funds and the Tax-Free Money Fund
will advise its shareholders of this ratio within 60 days after the close of its
fiscal year.

Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of a Fund is not deductible. In addition, entities or persons who
are "substantial users" (or related persons) of facilities financed by most
"private activity" bonds should consult their tax advisers before purchasing
shares of any of the Tax-Exempt Bond Funds

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or the Tax-Free Money Fund. "Substantial user" is generally defined to include
a "non-exempt person" who regularly uses in a trade or business a part of a
facility financed from the proceeds of most "private activity" bonds.

Each Fund may invest in municipal bonds that are purchased, generally not on
their original issue, with market discount (that is, at a price less than the
principal amount of the bond or, in the case of a bond that was issued with
original issue discount, at a price less than the amount of the issue price plus
accrued original issue discount) ("municipal market discount bonds"). Gain on
the disposition of a municipal market discount bond (other than a bond with a
fixed maturity date within one year from its issuance), generally is treated as
ordinary (taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on such a
bond generally is accrued ratably, on a daily basis, over the period from the
acquisition date to the date of maturity. In lieu of treating the disposition
gain as above, a Fund may elect to include market discount in its gross income
currently, for each taxable year to which it is attributable.

No portion of the dividends or other distributions paid by any Fund is eligible
for the dividends-received deduction allowed to corporations.

In the future, proposals may be introduced before Congress for the purpose of
further restricting or even eliminating the federal income tax exemption for
interest on all or certain types of municipal obligations. If such a proposal
were enacted, the availability of municipal obligations for investment by each
Fund and the value of each Fund's portfolio would be affected. In such event,
each Fund would review its investment objectives and policies.

CALIFORNIA STATE AND LOCAL TAX MATTERS

If a Fund maintains at least 50% of the value of its assets in obligations the
interest on which is exempt from California personal income tax, individual
shareholders of such Fund who are subject to California personal income tax will
not be required to include in their California gross income that portion of
their dividends which the Fund clearly and accurately identifies as directly
attributable to interest earned on obligations, the interest on which is exempt
from California personal income tax. Distributions to such individual
shareholders derived from interest on municipal obligations issued by
governmental authorities in states other than California, short-term capital
gains and other taxable income will be taxed as dividends for purposes of
California personal income taxation. Distributions to individual shareholders
who are subject to California personal income tax that derive from interest,
dividends, short-term capital gains and other ordinary income by a Fund that
does not maintain at least 50% of the value of its assets in obligations the
interest on which is exempt from California personal income tax will be taxed in
their entirety as dividends for purposes of California personal income taxation.
Each Fund's long-term capital gains for federal income tax purposes will be
taxed as long-term capital gains to individual shareholders of the Fund for
purposes of California personal income

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taxation. Gain or loss, if any, resulting from an exchange or redemption of
shares will be recognized in the year of the exchange or redemption. Present
California law taxes both long-term and short-term capital gains at the rates
applicable to ordinary income. Interest on indebtedness incurred or continued
by a shareholder in connection with the purchase of shares of a Fund that pays
dividends exempt from California personal income taxation generally will not be
deductible for California personal income tax purposes. California has an
alternative minimum tax similar to the federal alternative minimum tax.
However, the California alternative minimum tax does not include interest from
private activity bonds as an item of tax preference.

Generally corporate shareholders of the Fund subject to the California franchise
tax will be required to include any gain on an exchange or redemption of shares
and all distributions of exempt-interest, capital gains and other taxable
income, if any, as income subject to such tax.

A Fund will not be subject to California franchise or corporate income tax on
interest income or net capital gain distributed to the shareholders.

Shares of a Fund will be exempt from local property taxes in California.

The foregoing is a general, abbreviated summary of certain of the provisions of
the California Revenue and Taxation Code presently in effect as it directly
governs the taxation of shareholders of a Fund. These provisions are subject to
change by legislative or administrative action, and any such change may be
retroactive with respect to Fund transactions. Shareholders are advised to
consult with their tax advisers for more detailed information concerning
California tax matters.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

GENERAL

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

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

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

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

MONEY MARKET FUNDS

The portfolio instruments of each of the Money Market Funds are valued on the
basis of amortized cost. The valuation of each Money Market Fund's portfolio
securities based upon amortized cost, and the maintenance of each Fund's NAV at
$1.00, are permitted pursuant to Rule 2a-7 under the 1940 Act. Pursuant to that
Rule, each Fund maintains a dollar-weighted average portfolio maturity of 90
days or less, purchases only securities having remaining maturities of thirteen
months or less, and invests only in securities determined by SAM, under
guidelines adopted by the Money Market Trust's Board of Trustees, to be of high
quality and to present minimal credit risks. The Money Market Trust's Board of
Trustees has established procedures designed to stabilize, to the extent
reasonably possible, each Money Market Fund's price-per-share as computed for
the purpose of sales and redemptions at $1.00. These procedures include a
review of each Money Market Fund's portfolio holdings by the Board of Trustees,
at such intervals as the Board deems appropriate, to determine whether a Fund's
net asset value per share, calculated by using available market quotations,
deviates from $1.00 per share and, if so, whether such deviation may result in
material dilution or is otherwise unfair to existing

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shareholders of that Fund. In the event the Board determines that such a
deviation exists in a Fund, the Trustees will take such corrective action with
respect to the Fund as they regard as necessary and appropriate, including, but
not limited to: selling portfolio investments prior to maturity to realize
capital gains or losses or to shorten average portfolio maturity, withholding
dividends, redeeming shares in kind, establishing the NAV by using available
market quotations.

ADDITIONAL PERFORMANCE INFORMATION

GENERAL

Effective September 30, 1996, all of the then-existing shares of each of the
Funds were redesignated No-Load Class shares, and each of the Stock Funds
(except the Value Fund), the Intermediate Treasury Fund, the Managed Bond Fund,
the Municipal Bond Fund, the California Fund, the Washington Fund and the Money
Fund commenced offering Advisor Class A and Advisor Class B shares. The
High-Yield Bond Fund and the Value Fund commenced offering Advisor Class A and
Advisor Class B shares on or about January 31, 1997, and April 30, 1997,
respectively.

THE FOLLOWING HISTORICAL PERFORMANCE FIGURES ARE FOR NO-LOAD CLASS SHARES ONLY.

STOCK FUNDS

The total returns, expressed as a percentage, for the one-, five- and ten-year
periods ended December 31, 1997, for the Growth, Equity and Income Funds were as
follows:

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

<S> <C> <C> <C>
Growth Fund 49.96% 179.39% 445.10%

Equity Fund 24.21% 179.89% 508.53%

Income Fund 26.43% 127.49% 295.68%

</TABLE>

The total returns, expressed as a percentage, for the one-year, five-year and
since initial public offering (82 months) periods ended December 31, 1997, for
the Northwest Fund were as follows:

Since Initial Public Offering
1 Year 5 Years (82 Months)
------ ------- -----------------------------

<S> <C> <C> <C>
Northwest Fund 31.12% 80.29% 138.02%

</TABLE>

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The total returns, expressed as a percentage, for the one-year and since initial
public offering (23 months) periods ended December 31, 1997, for the Balanced,
International, and Small Company Funds were as follows:

Since Initial Public Offering
1 Year (23 Months)
------ -----------------------------

<S> <C> <C>
Balanced Fund 16.64% 29.93%

International Fund 4.55% 19.43%

Small Company Fund 23.38% 54.23%

</TABLE>

The total return, expressed as a percentage, for the eight-month period ended
December 31, 1997, for the Value Fund was 17.50%

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended December 31, 1997,
for the Growth, Equity and Income Funds were as follows:

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

<S> <C> <C> <C>
Growth Fund $14,996 $27,939 $54,510

Equity Fund $12,421 $27,989 $60,853

Income Fund $12,643 $22,749 $39,568

</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year, five-year, and since initial public offering (82
months) periods ended December 31, 1997, for the Northwest Fund were as follows:

Since Initial Public Offering
1 Year 5 Years (82 Months)
------ ------- -----------------------------

<S> <C> <C> <C>
Northwest Fund $13,112 $18,029 $23,802

</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since initial public offering (23 months)
periods ended December 31, 1997, for the Balanced, International and Small
Company Funds were as follows:

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Since Initial Public Offering
1 Year (23 Months)
------ -----------------------------

<S> <C> <C>
Balanced Fund $11,664 $12,993

International Fund $10,455 $11,943

Small Company Fund $12,338 $15,423

</TABLE>

The total return, expressed in dollars and assuming a $10,000 initial
investment, for the eight month period ended December 31, 1997, for the Value
Fund was $11,750.

The average annual total returns for the one-, five- and ten-year periods ended
December 31, 1997, for the Growth, Equity and Income Funds were as follows:

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

<S> <C> <C> <C>
Growth Fund 49.96% 22.81% 18.48%

Equity Fund 24.21% 22.86% 19.79%

Income Fund 26.43% 17.87% 14.75%

</TABLE>

The average annual total returns for the one-year, five-year, and since initial
public offering (82 months) periods ended December 31, 1997, for the Northwest
Fund were as follows:

Since Initial Public Offering
1 Year 5 Years (82 Months)
------ ------- -----------------------------

<S> <C> <C> <C>
Northwest Fund 31.12% 12.51% 13.53%

</TABLE>

The average annual total returns for the one-year and since initial public
offering (23 months) periods ended December 31, 1997, for the Balanced,
International and Small Company Funds were as follows:

Since Initial Public Offering
1 Year (23 Months)
------ -----------------------------

<S> <C> <C>
Balanced Fund 16.64% 14.64%

International Fund 4.55% 9.71%

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Small Company Fund 23.38% 25.36%
</TABLE>

BOND FUNDS AND MANAGED BOND FUND

The yields for the Bond Funds for the 30-day period ended December 31, 1997 were
as follows:

<TABLE>

<S> <C>
Intermediate Treasury Fund 5.04%

GNMA Fund 6.34%

High-Yield Bond Fund 8.43%
</TABLE>

The yield for the Managed Bond Fund for the 30-day period ended December 31,
1997 was 5.27%.

The total returns for each Bond Fund for the one-year, five-year and ten-year
(or since initial public offering) period ended December 31, 1997 were as
follows:

10 Year Period
or Since Initial # of Date of Initial
1 Year 5 Year Public Offering Months Public Offering
------ ------ ---------------- ------ ---------------

<S> <C> <C> <C> <C> <C>
Intermediate
Treasury
Fund 8.29% 35.59% 96.31% 111 September 7, 1988

GNMA Fund 8.97% 34.13% 117.46% (*) 137 July 15, 1986

High-Yield
Bond Fund 12.79% 64.55% 135.17% 111 September 7, 1988

</TABLE>

(*) 10-year period

The total returns for the Managed Bond Fund for the one-year and since initial
public offering (46 months) periods ended December 31, 1997, were as follows:

Since Initial
1 Public Offering
Year (46 Months)
---- -----------
<S> <C> <C>
Managed
Bond Fund 8.23% 23.21%

</TABLE>

96
<PAGE>

The average annual total returns for each Bond Fund for the one-year, five-year
and ten-year (or since initial public offering) period ended December 31, 1997
were as follows:

10 year or
Since Initial # of Date of Initial
1 Year 5 Year Public Offering Months Public Offering
------ ------ --------------- ------ ---------------

<S> <C> <C> <C> <C> <C>
Intermediate
Treasury Fund 8.29% 6.28% 7.56% 111 September 7, 1988

GNMA Fund 8.97% 6.05% 8.08%(*) 137 July 15, 1986

High-Yield Bond
Fund 12.79% 10.47% 9.69% 111 September 7, 1988

</TABLE>

(*) 10-year period.

The average annual total returns for the Managed Bond Fund for the one-year and
since initial public offering (46 months) periods ended December 31, 1997 were
as follows:

1 Since Initial # of Date of Initial
Year Public Offering Months Public Offering
---- --------------- ------ ---------------

<S> <C> <C> <C> <C>
Managed
Bond Fund 8.23% 5.59% 46 February 28, 1994

</TABLE>

TAX-EXEMPT BOND FUNDS

The yield and tax-equivalent yield for the 30-day period ending December 31,
1997 at the maximum federal tax rate of 39.6% for the Municipal, Intermediate
Municipal, Insured Bond and Washington Funds were 4.72% and 7.81%; 3.84% and
6.36%; 4.31% and 7.14%; and 4.41% and 7.30%, respectively, and at the maximum
combined federal and California tax rates of 45.2% for the California Fund, were
4.50% and 8.21%, respectively.

The total returns for the Municipal and California Funds for the one-year,
five-year and ten-year periods ended December 31, 1997 were as follows:

1 Year 5 Years 10 Years

97
<PAGE>

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

<S> <C> <C> <C>
Municipal Fund 10.68% 43.40% 137.23%

California Fund 11.55% 48.34% 139.10%

</TABLE>

The total returns for the Intermediate Municipal, Insured Bond and Washington
Fund for the one-year and since initial public offering (57 months) periods
ended December 31, 1997 were as follows:

Since Initial
Public Offering
1 Year (57 Months)
------- ----------------

<S> <C> <C>
Intermediate Municipal
Fund 7.50% 30.00%

Insured Bond Fund 10.70% 36.14%

Washington
Fund 8.94% 32.63%

</TABLE>

The average annual total returns for the Municipal and California Funds for the
one-year, five-year and ten-year periods ended December 31, 1997 were as
follows:

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

<S> <C> <C> <C>
Municipal Fund 10.68% 7.48% 9.02%

California Fund 11.55% 8.21% 9.11%

</TABLE>

The average annual total returns for the Intermediate Municipal, Insured Bond
and Washington Fund for the one-year and since initial public offering (57
months) periods ended December 31, 1997 were as follows:

Since Initial
Public Offering
1 Year (57 Months)
------- ---------------
<S> <C> <C>

98
<PAGE>

Intermediate Municipal
Fund 7.50% 5.68%

Insured Bond Fund 10.70% 6.71%

Washington 8.94% 6.13%
Fund

</TABLE>

MONEY MARKET FUNDS

The yield and effective yield for the Money Fund for the 7-day period ended
December 31, 1997 were 4.85% and 4.96%, respectively.

The yield and tax-equivalent yield at a tax rate of 39.6% for the Tax-Free Money
Fund for the 7-day period ended December 31, 1997 were 3.44% and 3.50%,
respectively.

CALCULATIONS

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

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

The total return, expressed in dollars, is computed using the following formula:

n
T = P(1+A)

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

Where: T = total return

A = average annual total return

n = number of years

99
<PAGE>

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

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

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

Yield for the Bond Funds, Managed Bond Fund and Tax-Exempt Bond Funds is
computed using the following formula:

a-b 6
Yield = 2[( --- +1) -1]
cd

Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends

d = the maximum offering price per share on the last day of
the period

Yield for the Money Market Funds is computed using the following formula:

(x-y)-z 365
Yield = [ ------- ] = Base Period Return x ---
y 7

Where: x = value of one share at the end of a 7-day period

y = value of one share at the beginning of a 7-day period
($1.00)

z = capital changes during the 7-day period, if any

Effective yield is computed using the following formula:

100
<PAGE>

Effective yield = [(Base Period Return + 1) 365/7] -1

Tax-equivalent yield is computed using the following formula:

eg
Tax-equivalent yield = [ ----- ] + [e (1-g)]
(1-f)

Where: e = yield as calculated above

f = tax rate

g = percentage of yield which is tax-free

During periods of declining interest rates, each Money Market Fund's yield based
on amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder in either Money Market Fund would be
able to obtain a somewhat higher yield than would result if each Fund utilized
market valuations to determine its NAV. The converse would apply in a period of
rising interest rates.

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

The Funds may occasionally reproduce articles or portions of articles about the
Funds written by independent third parties such as financial writers, financial
planners and financial analysts, which have appeared in financial publications
of general circulation or financial newsletters (including but not limited to
BARRONS, BUSINESS WEEK, FABIANS, FORBES, FORTUNE, INVESTOR'S BUSINESS DAILY,
KIPLINGER'S, MONEY MAGAZINE, MORNINGSTAR MUTUAL FUNDS, MUTUAL FUNDS FORECASTER,
MUTUAL FUNDS MAGAZINE, NEWSWEEK, NO-LOAD FUND

101
<PAGE>

INVESTOR, NO-LOAD FUND X, PENSIONS & INVESTMENTS, RUCKEYSER'S MUTUAL FUNDS,
TELESWITCH, TIME MAGAZINE, U.S. NEWS AND WORLD REPORT, YOUR MONEY AND THE WALL
STREET JOURNAL).

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

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

In addition, each Fund may comment on the market and economic outlook in
general, on specific economic events, on how these conditions have impacted its
performance and on how the portfolio manager will or has addressed such
conditions. Each Fund also may provide information on how much certain
investments would return over time.

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

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

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

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

S & P'S COMPOSITE INDEX OF 500 STOCKS - Market value weighted index of 500
stocks most of which are listed on the New York Stock Exchange with some
listed on the American Stock Exchange and Nasdaq.

102
<PAGE>

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

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

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

Information used in advertisements and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:

- --costs associated with aging parents;

- --funding a college education (including its actual and estimated cost);

- --health care expenses (including actual and projected expenses);

- --long-term disabilities (including the availability of, and coverage provided
by, disability insurance); and

- --retirement (including the availability of social security benefits, the tax
treatment of such benefits and statistics and other information relating to
maintaining a particular standard of living and outliving existing assets).

Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in bond funds.

Information in advertisements and materials furnished to present and
prospective investors may include profiles of different types of investors
(i.e., investors with different goals and assets) and different investment
strategies for meeting specific goals. Such information may provide
hypothetical illustrations which include: results of various investment
strategies; performance of an investment in a Fund over various time periods;
and results of diversifying assets among several investments with varying
performance. Information in advertisements and materials furnished to present
and prospective investors may also include quotations (including editorial
comments) and statistics concerning investing in securities, as well as
investing in particular types of securities and the performance of such
securities.

PERFORMANCE INFORMATION AND QUOTED RATINGS ARE INDICATIVE ONLY OF PAST
PERFORMANCE AND ARE NOT INTENDED TO REPRESENT FUTURE INVESTMENT RESULTS.

ADDITIONAL INFORMATION ON DIVIDENDS FOR THE MONEY MARKET FUNDS

Because each Money Market Fund intends to hold its portfolio securities to
maturity and expects that most of its portfolio securities will be valued at
their amortized cost, realized gains or losses should not be a significant
factor in the computation of net income. Should, however, in an unusual
circumstance, either Money Market Fund experience a realized gain or loss, a
shareholder of that Fund could receive an increased, reduced, or no dividend for
a period of time. In such an event, the Money Market Trust's Board of Trustees
would consider whether to adhere to its present dividend policy or to revise it
in light of the then-prevailing circumstances.

TRUSTEES AND OFFICERS

Position(s) Held with the Principal Occupations(s)
Name, Address and Age Trusts During Past 5 Years
- --------------------- ------ -------------------

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

Barbara J. Dingfield Trustee Manager, Corporate Contributions and Community Programs
Microsoft Corporation for Microsoft Corporation, Redmond, Washington, a
One Microsoft Way computer software company; Director
Redmond, WA 98052
(52)

</TABLE>

103
<PAGE>

<S> <C> <C>
and former Executive Vice President of Wright Runstad & Co.,
Seattle, Washington, a real estate development company;
Director of First SAFECO National Life Insurance Company of
New York.

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

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

Richard E. Lundgren Trustee Director of Marketing and Customer Relations, Building Materials
764 S. 293rd Street Distribution, Weyerhaeuser Company, Tacoma, Washington; Director
Federal Way, WA 98032 of First SAFECO National Life Insurance Company of New York.
(60)

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

John W. Schneider Trustee President of Wallingford Group, Inc., Seattle, Washington; former
1808 N. 41st St. President

</TABLE>

104
<PAGE>

<S> <C> <C>
Seattle, WA 98103 of Coast Hotels, Inc., Seattle, Washington; Director of First
(56) SAFECO National Life Insurance Company of New York.

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

Ronald L. Spaulding Vice President Chairman of SAFECO Asset Management Company; Treasurer and Chief
SAFECO Plaza Treasurer Investment Officer of SAFECO Corporation; Vice President of SAFECO
Seattle, WA 98185 Insurance Companies; Director, Vice President and Treasurer of First
(54) SAFECO National Life Insurance Company of New York; former Senior
Portfolio Manager of SAFECO insurance companies and Portfolio Manager
for SAFECO mutual funds. See table under "Investment Advisory and
Other Services."

David H. Longhurst Assistant Controller Assistant Controller of SAFECO Securities, Inc., SAFECO Services
SAFECO Plaza Corporation and SAFECO Asset Management Company; former Senior
Seattle, WA 98185 Manager with Ernst & Young LLP, an independent accounting company.
(40)

Stephen D. Collier Assistant Secretary Assistant Secretary of SAFECO Asset Management Company, SAFECO
(45) Securities, Inc. and SAFECO Services Corporation. He has been an
executive officer of SAFECO Insurance Company and subsidiaries
since 1991.

</TABLE>

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

105
<PAGE>

Each Trustee and officer holds the same position(s) with one other registered
open-end management investment company that has six series companies managed by
SAM.

106
<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
(Common Stock Trust)
<TABLE>
<CAPTION>

Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued As Annual Registrant and
Compensation Part of Fund Benefits Upon Fund Complex
Trustee from Registrant Expenses Retirement Paid to Trustees
------- --------------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A

Barbara J. $7,784.85 N/A N/A $22,750
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W. $7,180.62 N/A N/A $21,000
Hubbard

Richard E. $7,784.85 N/A N/A $22,750
Lundgren

Larry L. Pinnt $7,784.85 N/A N/A $22,750

John W. $7,784.85 N/A N/A $22,750
Schneider

</TABLE>

At February 3, 1998, the Trustees and officers of the Common Stock Trust as a
group owned less than 1% of the outstanding shares of each Stock Fund.

107
<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
(Taxable Bond Trust)

Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued as Annual Registrant and
Compensation Part of Fund Benefits Upon Fund Complex
Trustee from Registrant Expenses Retirement Paid to Trustees
------- --------------- -------- ---------- ----------------
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A

Barbara A. $2,573.76 N/A N/A $22,750
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W. $2,373.96 N/A N/A $21,000
Hubbard

Richard E. $2,573.76 N/A N/A $22,750
Lundgren

Larry L. Pinnt $2,573.76 N/A N/A $22,750

John W. $2,573.76 N/A N/A $22,750
Schneider

</TABLE>

At February 3, 1998, the Trustees and officers of the Taxable Bond Trust as a
group owned less than 1% of the outstanding shares of each Bond Fund.

108
<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
(Managed Bond Trust)

Barbara A. $837.13 N/A N/A $22,750
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W. $773.47 N/A N/A $21,000
Hubbard

Richard E. $837.13 N/A N/A $22,750
Lundgren

Larry L. Pinnt $837.13 N/A N/A $22,750

John W. $837.13 N/A N/A $22,750
Schneider

</TABLE>

At February 3, 1998, the Trustees and officers of the Managed Bond Trust owned
none of the outstanding shares of the Managed Bond Fund.

109
<PAGE>

COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
(Tax-Exempt Bond Trust)
<TABLE>
<CAPTION>

Barbara A. $4,546.50 N/A N/A $22,750
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W. $4,189.00 N/A N/A $21,000
Hubbard

Richard E. $4,546.50 N/A N/A $22,750
Lundgren

Larry L. Pinnt $4,546.50 N/A N/A $22,750

John W. $4,546.50 N/A N/A $22,750
Schneider

</TABLE>

At February 3, 1998, the Trustees and officers of the Tax-Exempt Bond Trust as a
group owned less than 1% of the outstanding shares of each Tax-Exempt Bond Fund.

110
<PAGE>

COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
(Money Market Trust)

Barbara J. $1,818.88 N/A N/A $22,750
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W. $1,675.47 N/A N/A $21,000
Hubbard

Richard E. $1,818.88 N/A N/A $22,750
Lundgren

Larry L. Pinnt $1,818.88 N/A N/A $22,750

John W. $1,818.88 N/A N/A $22,750
Schneider

</TABLE>

At February 3, 1998, the Trustees and officers of the Money Market Trust as a
group owned less than 1% of the outstanding shares of each Money Market Fund.

Mr. Dickey and Mr. Hill are officers of various SAFECO companies and are not
compensated by the Trusts. Similarly, the officers of the Trusts receive no
compensation for their services as officers.

Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of the Trusts are compensated by the
Trusts.

INVESTMENT ADVISORY AND OTHER SERVICES

SAM, SAFECO Securities, Inc. ("SAFECO Securities") and SAFECO Services
Corporation ("SAFECO Services") are wholly owned subsidiaries of SAFECO
Corporation. SAFECO Securities is the principal underwriter of each Fund and
SAFECO

111
<PAGE>

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

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

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

<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trusts SAM Securities Services
- ---- ------ --- ---------- --------
<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director
Trustee

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

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

R.L. Spaulding Vice President Chairman Director Director
Treasurer Director

S.C. Bauer President
Director

D.H. Longhurst Assistant Assistant Assistant Assistant
Controller Controller Controller Controller

S.D. Collier Assistant Assistant Assistant Assistant
Secretary Secretary Secretary Secretary
</TABLE>

112
<PAGE>

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

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

The Trust Instrument of each Trust provides that each Trust will indemnify its
Trustees and its officers against liabilities and expenses reasonably incurred
in connection with litigation in which they may be involved because of their
offices with the Trusts, unless it is adjudicated that they engaged in bad
faith, willful misfeasance, gross negligence, or reckless disregard of the
duties involved in the conduct of their offices. In the case of settlement,
such indemnification will not be provided unless it has been determined -- by a
court or other body approving the settlement, by a majority of a quorum of
Trustees who are neither interested persons of the Trust nor are parties to the
proceeding, based upon a review of readily available facts (rather than a
trial-type inquiry), or in a written opinion of independent counsel -- that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence, or reckless disregard of their duties.

SAM also serves as the investment adviser for other investment companies in
addition to the Funds. Several of these investment companies have investment
objectives similar to those of certain Funds. It is therefore possible that the
same securities will be purchased for both a Fund and another investment company
advised by SAM. When two or more Funds advised by SAM are simultaneously
engaged in the purchase or sale of the same security, the prices and amounts
will be allocated in a manner considered by the officers of the Funds involved
to be equitable to each Fund. It is expected that the opportunity to
participate in volume transactions will produce better executions and prices for
a Fund, generally. In some cases, the price of a security allocated to one Fund
may be higher or lower than the price of a security allocated to another Fund.

For the services and facilities furnished by SAM, each Fund has agreed to pay an
annual fee computed on the basis of the average market value of the net assets
of each Fund ascertained each business day and paid monthly in accordance with
the following schedules. The reduction in fees occurs only at such time as the
respective Fund's net assets reach the dollar amounts of the break points and
applies only to those assets that fall within the specified range. Each Fund
bears all expenses of its operations not specifically assumed by SAM.

GROWTH, EQUITY AND INCOME FUNDS

NET ASSETS ANNUAL FEE

113
<PAGE>

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

NORTHWEST FUND

NET ASSETS ANNUAL FEE

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

BALANCED AND VALUE FUNDS

NET ASSETS ANNUAL FEE

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

INTERNATIONAL FUND

NET ASSETS ANNUAL FEE

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

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

NET ASSETS ANNUAL FEE

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

SMALL COMPANY FUND

114
<PAGE>

NET ASSETS ANNUAL FEE

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

INTERMEDIATE TREASURY FUND

NET ASSETS ANNUAL FEE

$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

GNMA AND HIGH-YIELD BOND FUNDS

NET ASSETS ANNUAL FEE

$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%

MANAGED BOND FUND

NET ASSETS ANNUAL FEE

$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%

INTERMEDIATE MUNICIPAL FUND

NET ASSETS ANNUAL FEE

$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

115
<PAGE>

INSURED BOND AND WASHINGTON FUNDS

NET ASSETS ANNUAL FEE

$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%

MUNICIPAL AND CALIFORNIA FUNDS

NET ASSETS ANNUAL FEE

$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%

MONEY FUND

NET ASSETS ANNUAL FEE

$0 - $250,000,000 .5 of 1%
$250,000,001 - $500,000,000 .4 of 1%
$500,000,001 - $750,000,000 .3 of 1%
Over $750,000,000 .25 of 1%

TAX-FREE MONEY FUND

NET ASSETS ANNUAL FEE

$0 - $100,000,000 .5 of 1%
$100,000,001 - $250,000,000 .4 of 1%
$250,000,001 - $500,000,000 .3 of 1%
Over $500,000,000 .2 of 1%

The following table states the total amounts of compensation paid by the Growth,
Equity, Income, and Northwest Funds to SAM for the year ended December 31, 1997,
the period ended December 31, 1996, and the past two fiscal years.

116
<PAGE>

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996 1995
---- ---- ----- ----
<S> <C> <C> <C> <C>
Growth Fund $2,120,000 $ 327,000 $1,260,000 $1,107,000
Equity Fund $6,481,000 $1,131,000 $3,752,000 $3,151,000
Income Fund $2,285,000 $ 469,000 $1,597,000 $1,348,000
Northwest Fund $ 416,000 $ 80,000 $ 305,000 $ 269,000
</TABLE>

The following table states the total amounts of compensation paid by the
Balanced, International, and Small Company Funds to SAM for the year ended
December 31, 1997, the period ended December 31, 1996, and the period from
January 31, 1996 (initial public offering) to September 30, 1996.

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------
Period from
January 31, 1996
Three Month Period (Initial Public Offering)
December 31, 1997 Ended December 31, 1996 to September 30, 1996
----------------- ----------------------- ---------------------
<S> <C> <C> <C>
Balanced Fund $ 87,000 $15,000 $32,000
International Fund $153,000 $28,000 $53,000
Small Company Fund $151,000 $27,000 $51,000
</TABLE>

The total amount of compensation paid by the Value Fund to SAM for the period
from April 30, 1997 (initial public offering) to December 31, 1997 was $43,000.

The following table states the total amounts of compensation paid by each Bond
Fund to SAM for the year ended December 31, 1997, the period ended December 31,
1996 and the past two fiscal years.

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Three Month
Period Ended
December December 31, September 30, September 30,
<S> <C> <C> <C> <C>
</TABLE>

117
<PAGE>

<TABLE>
<CAPTION>
31, 1997 1996 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Intermediate
Treasury Fund $ 85,000 $21,000 $ 78,000 $ 71,000
GNMA Fund $246,000 $65,000 $270,000 $276,000
High-Yield Bond
Fund $386,000 $82,000 $255,000 $206,000
</TABLE>

The following table states the total amounts of compensation paid by the Managed
Bond Fund to SAM for the past three years.

<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------

December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- ------------------
<S> <C> <C> <C>
Managed
Bond Fund $23,000 $21,000 $23,000
</TABLE>

The following table states the total amounts of compensation paid by each
Tax-Exempt Bond Fund to SAM for the year ended December 31,1997, the period
ended December 31, 1996 and the past two fiscal years.

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Nine Month
Period Ended
December 31, December 31, March 31, March 31,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Municipal Fund $2,041,000 $1,533,000 $2,021,000 $2,011,000

California Fund $424,000 $290,000 $366,000 $364,000

Intermediate
Municipal Fund $77,000 $60,000 $78,000 $67,000

Insured Bond Fund $95,000 $60,000 $57,000 $38,000

Washington Fund $49,000 $32,000 $39,000 $31,000
</TABLE>

The following table states the total amounts of compensation paid by each Money
Market

118
<PAGE>

Fund to SAM for the year ended December 31, 1997, the period ended December 31,
1996 and the past two fiscal years:

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Nine Month
Period Ended
December 31, December 31, March 31, March 31,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Money
Fund $865,000 $630,000 $864,914 $840,727

Tax-Free
Money
Fund $366,000 $284,000 $380,360 $424,888
</TABLE>

CUSTODIAN. State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts, 02170, is the custodian of the securities, cash and
other assets of each Fund (except the International Fund) under an agreement
with each Trust. Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, New York, is the custodian of the securities, cash and other assets of the
International Fund. Chase Manhattan Bank, N.A. has entered into sub-custodian
agreements with several foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.

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

TRANSFER AGENT. SAFECO Services, SAFECO Plaza, Seattle, Washington 98185, is
the transfer, dividend and distribution disbursement and shareholder servicing
agent for the No-Load Class of each Fund under an agreement with each Trust.
SAFECO Services provides, or through subcontracts makes provision for, all
required transfer agent activity, including maintenance of records of each
Fund's No-Load Class shareholders, records of transactions involving each Fund's
No-Load Class shares, and the compilation, distribution, or reinvestment of
income dividends or capital gains distributions.

SAFECO Services is paid a fee for these services equal to $28.00 per Stock Fund
shareholder account; $32.00 per Bond Fund, Tax-Exempt Bond Fund and Managed Bond
Fund shareholder account; and $34.00 per Money Market Fund shareholder account,
but not to exceed .30% of each Fund's average net assets.

119
<PAGE>

The following table shows the fees paid by the Growth, Equity, Income and
Northwest Funds to SAFECO Services during the year ended December 31, 1997, the
period ended December 31, 1996 and the past two fiscal years:

Fiscal Year or Period Ended
---------------------------

Three
Month Period
Ended
December 31, December 31, September 30, September 30,
1997 1996 1996* 1995*
---- ---- ----- -----
<S> <C> <C> <C> <C>
Growth Fund $ 517,000 $ 99,000 $ 384,000 $ 305,000
Equity Fund $2,320,000 $ 378,000 $1,203,000 $1,018,000
Income Fund $ 583,000 $ 123,000 $ 359,000 $ 298,000
Northwest Fund $ 145,000 $ 32,000 $ 105,000 $ 97,000
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The following table shows the fees paid by the Balanced, International and Small
Company Funds to SAFECO Services during the year ended December 31, 1997, the
period ended December 31, 1996 and the period from January 31, 1996 (initial
public offering) to September 30, 1996:

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Period from January
Three Month Period 31, 1996 (Initial
December 31, Ended December 31, Public Offering) to
1997 1996 September 30, 1996*
---- ---- -------------------
<S> <C> <C> <C>
Balanced Fund $23,000 $2,000 $4,000
International $34,000 $2,000 $9,000
Fund
Small Company $50,000 $8,000 $13,000
Fund
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

120
<PAGE>

The total amount of fees paid by the Value Fund to SAFECO Services for the
period from April 30, 1997 (initial public offering) to December 31, 1997 was
$5,000.

The following table shows the fees paid by each Bond Fund to SAFECO Services
during the year ended December 31, 1997, the period ended December 31, 1996 and
the past two fiscal years:

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996* 1995*
---- ----- ----- -----
<S> <C> <C> <C> <C>
Intermediate
Treasury Fund $31,000 $ 6,000 $ 39,000 $ 33,000
GNMA Fund $65,000 $17,000 $111,000 $120,000
High-Yield Bond
Fund $86,000 $17,000 $ 90,000 $ 78,000
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The following table shows the fees paid by the Managed Bond Fund to SAFECO
Services for the years ended December 31, 1997, December 31, 1996 and
December 31, 1995:

<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------

December 31, 1997 December 31, 1996* December 31, 1995*
<S> <C> <C> <C>
Managed Bond
Fund $1,000 $15 $309
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The following table shows the fees paid by each Tax-Exempt Bond Fund to SAFECO
Services for the year ended December 31, 1997, the period ended December 31,
1996 and the past two fiscal years:

121
<PAGE>

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Nine Month
Period
Ended
December 31, December 31, March 31, March 31,
1997 1996* 1996* 1995*
---- ----- ----- -----
<S> <C> <C> <C> <C>
Municipal Fund $327,000 $ 300,000 $ 511,000 $ 532,000
California Fund $ 60,000 $ 48,000 $ 69,000 $ 69,000
Intermediate
Municipal Fund $ 11,000 $ 10,000 $ 17,000 $ 17,000
Insured Bond Fund $ 11,000 $ 9,000 $ 9,000 $ 5,000
Washington Fund $ 3,000 $ 2,000 $ 3,000 $ 3,000
</TABLE>

*Figures reflect fees of $3.10 per shareholder transaction until July, 1996 when
the new fee schedule went into effect.

The following table shows the fees paid by each Money Market Fund to SAFECO
Services for the year ended December 31, 1997, the period ended December 31,
1996 and the past two fiscal years:

<TABLE>
<CAPTION>
Year or Period Ended
--------------------

Nine Month Period
December 31, Ended December 31, March 31, March 31,
1997 1996* 1996* 1995*
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Fund $414,000 $325,000 $424,260 $385,495
Tax-Free
Money Fund $ 64,000 $ 54,000 $ 71,478 $ 74,294
</TABLE>

* Figures reflect fees of $3.10 per shareholder transaction until July, 1996
when the new fee schedule went into effect.

SAFECO Securities is the principal underwriter for the No-Load Class of each
Fund and distributes each Fund's No-Load Class shares on a continuous best
efforts basis under an agreement with each Trust. SAFECO Securities is not
compensated by the Trusts or the

122
<PAGE>

Funds for underwriting, distribution or other activities in connection with
No-Load Class shares.

BROKERAGE PRACTICES

Brokers typically charge commissions or mark-ups/mark-downs to effect securities
transactions. The Funds may also purchase securities from underwriters, the
price of which will include a commission or concession paid by the issuer to the
underwriter. The purchase price of securities purchased from dealers serving as
market makers will include the spread between the bid and asked prices.
Brokerage transactions involving securities of companies domiciled in countries
other than the United States will normally be conducted on the principal stock
exchange of those countries. In most international markets, commission rates
are not negotiable and may be higher than the negotiated commission rates
available in the United States. There is generally less government supervision
and regulation of foreign stock exchanges and broker-dealers than in the United
States.

SAM determines the broker/dealers through whom securities transactions for the
Funds are executed. SAM may select a broker/dealer who may receive a commission
for portfolio transactions exceeding the amount another broker/dealer would have
charged for the same transaction if SAM determines that such amount of
commission is reasonable in relation to the value of the brokerage and research
services performed or provided by the broker/dealer, viewed in terms of either
that particular transaction or SAM's overall responsibilities to the client for
whose account such portfolio transaction is executed and other accounts advised
by SAM. Research services include market information, analysis of specific
issues, presentation of special situations and trading opportunities on a timely
basis, advice concerning industries, economic factors and trends, portfolio
strategy and performance of accounts. Research services come in the form of
written reports, telephone conversations between brokerage security analysts and
members of SAM's staff, and personal visits by such analysts and brokerage
strategists and economists to SAM's office.

Research services are used in advising all accounts, including accounts advised
by related persons of SAM, and not all such services are necessarily used by SAM
in connection with the specific account that paid commissions to the
broker/dealer providing such services. SAM does not acquire research services
through the generation of credits with respect to principal transactions or
transactions in financial futures.

The overall reasonableness of broker commissions paid is evaluated periodically.
Such evaluation includes a review of what competing broker/dealers are willing
to charge for similar types of services and what discounts are being granted by
brokerage firms. The evaluation also considers the timeliness and accuracy of
the research received.

123
<PAGE>

The following table states the total amount of brokerage expenses for the
Growth, Equity, Income and Northwest Funds for the year ended December 31, 1997,
the period ended December 31, 1996, and the past two fiscal years:

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Growth Fund $ 817,674 $ 63,500 $ 518,092 $ 489,983
Equity Fund $ 1,180,261 $ 278,203 $1,224,644 $1,082,137
Income Fund $ 341,428 $ 42,827 $ 286,999 $ 159,717
Northwest $ 63,531 $ 25,566 $ 13,599 $ 6,536
</TABLE>

The following table states the total amount of brokerage expenses for the
Balanced, International and Small Company Funds for the year ended December 31,
1997, the period ended December 31, 1996, and the period from January 31, 1996
(initial public offering) to September 30, 1996:

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Period from January
Three Month Period 31, 1996 (Initial
December 31, Ended December 31, Public Offering) to
1997 1996 September 30, 1996
---- ---- ------------------
<S> <C> <C> <C>
Balanced Fund $ 9,913 $1,548 $ 5,911
International $16,054 $5,311 $22,468
Fund
Small Company $24,185 $4,615 $16,752
Fund
</TABLE>

The total amount of brokerage expenses for the Value Fund for the period from
April 30, 1997 (initial public offering) to December 31, 1997 was $10,224.

REDEMPTION IN KIND

124
<PAGE>

value of the Fund during any 90-day period. Any shares tendered by the
shareholder in excess of the above-mentioned limit may be redeemed through
distribution of the Fund's assets. Any securities or other property so
distributed in kind shall be valued by the same method as is used in computing
NAV. Distributions in kind will be made in readily marketable securities,
unless the investor elects otherwise. Investors may incur brokerage costs in
disposing of securities received in such a distribution in kind.

FINANCIAL STATEMENTS

STOCK FUNDS

The following financial statements of the Stock Funds (other than the Value
Fund) and the report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Common Stock Trust's Annual Report for
the year ended December 31, 1997.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997,
the Three-Month Period Ended December 31, 1996 and the Year Ended
September 30, 1996
Notes to Financial Statements

The following financial statements of the Value Fund and the report thereon of
Ernst and Young LLP, independent auditors, are incorporated herein by reference
to the Common Stock Trust's Annual Report for the year ended December 31, 1997.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Period from April 30, 1997 (initial public
offering) to December 31, 1997
Statement of Changes in Net Assets for the Period from April 30, 1997
(initial public offering) to December 31, 1997
Notes to Financial Statements

BOND FUNDS

The following financial statements of the Bond Funds and the report thereon of
Ernst & Young LLP, independent auditors, are incorporated herein by reference to
the Taxable Bond Trust's Annual Report for the year ended December 31, 1997.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997

125
<PAGE>

Statement of Changes in Net Assets for the Year Ended December 31, 1997,
the Three-Month Period Ended December 31, 1996 and the Year Ended
September 30, 1996
Notes to Financial Statements

MANAGED BOND FUND

The following financial statements of the Managed Bond Fund and the report
thereon of Ernst & Young LLP, independent auditors, are incorporated herein by
reference to the Managed Bond Trust's Annual Report for the year ended December
31, 1997:

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Years ended December 31, 1997
and December 31, 1996.
Notes to Financial Statements

TAX-EXEMPT BOND FUNDS

The following financial statements of the Tax-Exempt Bond Funds and the report
thereon of Ernst & Young LLP, independent auditors, are incorporated herein by
reference to the Tax-Exempt Bond Trust's Annual Report for the year ended
December 31, 1997:

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997
and the Nine-Month Period Ended December 31, 1996
Notes to Financial Statements

MONEY MARKET FUNDS

The following financial statements of the Money Market Funds and the report
thereon of Ernst & Young LLP, independent auditors, are incorporated herein by
reference to the Money Market Trust's Annual Report for the year ended December
31, 1997:

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended
December 31, 1997 and the Nine-Month Period Ended
December 31, 1996
Notes to Financial Statements

126
<PAGE>

Copies of each Trust's No-Load Annual Report accompany this Statement of
Additional Information. Additional copies may be obtained by calling SAFECO
Services at 1-800-426-6730 nationwide or 206-545-5530 in Seattle or by writing
to the address on the first page of this Statement of Additional Information.

DESCRIPTION OF RATINGS

Ratings by Moody's and S&P represent opinions of those organizations as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.

COMMERCIAL PAPER AND PREFERRED STOCK RATINGS

COMMERCIAL PAPER RATINGS

MOODY'S

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

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

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

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

S&P

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

127
<PAGE>

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

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

PREFERRED STOCK RATINGS

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

MOODY'S

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

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

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

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

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

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

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

128
<PAGE>

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

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

S&P

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

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

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

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

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

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

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

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

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

129
<PAGE>

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

BOND RATINGS

MOODY'S

Investment Grade :

Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.

A -- Bonds which are rated "A" possess many favorable investment attributes and
are to be considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa -- Bonds which are rated "Baa" are considered medium-grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Below Investment Grade:

Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds of this class.

B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

130
<PAGE>

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated "C" are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

S&P

Investment Grade:

AAA -- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

A -- Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.

Below Investment Grade :

BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC," "CC," and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to
pay interest and repay principal. "BB" indicates the least degree of speculation
and "C" the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.

C1 -- The rating "C1" is reserved for income bonds on which no interest is being
paid.

D -- Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

131
<PAGE>

PLUS (+) OR MINUS (-): The ratings may be modified from "AA" to "CCC" by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

MUNICIPAL NOTES AND OTHER SHORT-TERM OBLIGATION RATINGS

MOODY'S

Moody's rates municipal notes and other short-term obligations using Moody's
Investment Grade ("MIG").

MIG-2-- This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

MIG-3-- This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

S&P

Ratings for municipal notes and other short-term obligations are designated by
S&P's note rating. S&P's note rating reflects the liquidity concerns and
market-access risk unique to notes. Notes due in three years or less will
likely receive a note rating.

SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

132
<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------

SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO HIGH-YIELD BOND FUND
SAFECO MANAGED BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
SAFECO MONEY MARKET FUND

Advisor Class A
Advisor Class B April 30, 1998

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

Each fund named above ("Fund") is a series of one of the following trusts (each
a "Trust"): the SAFECO Common Stock Trust ("Common Stock Trust"), the SAFECO
Taxable Bond Trust ("Taxable Bond Trust"), the SAFECO Managed Bond Trust
("Managed Bond Trust"), the SAFECO Tax-Exempt Bond Trust ("Tax-Exempt Bond
Trust") or the SAFECO Money Market Trust ("Money Market Trust"). See
"Introduction to the Trusts and the Funds" for an overview of the investment
objectives of each Fund.

This Prospectus sets forth the information a prospective investor should know
before investing. PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
Statement of Additional Information relating to the Advisor Class A ("Class A")
and Advisor Class B ("Class B") shares, dated April 30, 1998 and incorporated
herein by reference, has been filed with the Securities and Exchange Commission
and is available at no charge upon request by calling the telephone number
listed on this page. The Statement of Additional Information and other
information about the Funds are also available on the Securities and Exchange
Commission website (http://www.sec.gov). The Statement of Additional Information
contains more information about many of the topics in this Prospectus as well as
information about the trustees and officers of the Trusts.

For additional assistance, please contact your investment professional, or call
or write:

<TABLE>
<S> <C>
NATIONWIDE 1-800-528-6501 SAFECO MUTUAL FUNDS
ADVISOR CLASS SHARES
P.O. BOX 34680
SEATTLE, WA 98124-1868
</TABLE>

All telephone calls are tape-recorded for your protection.

FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE U.S. GOVERNMENT OR ANY BANK, NOR ARE FUND SHARES FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND FUND SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO
ASSURANCE THAT THE SAFECO MONEY MARKET FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.

THE SAFECO CALIFORNIA TAX-FREE INCOME FUND IS OFFERED FOR SALE ONLY TO RESIDENTS
OF THE STATE OF CALIFORNIA. THE SAFECO WASHINGTON STATE MUNICIPAL BOND FUND IS
OFFERED FOR SALE ONLY TO RESIDENTS OF THE STATE OF WASHINGTON. THESE FUNDS ARE
NOT PERMITTED TO OFFER OR SELL SHARES TO RESIDENTS OF OTHER STATES.
- --------------------------------------------------------------------------------

-- 1 --
<PAGE>
SAFECO GROWTH FUND ("Growth Fund") has as its investment objective to seek
growth of capital and the increased income that ordinarily follows from such
growth. The Growth Fund ordinarily invests a preponderance of its assets in
common stock selected primarily for potential appreciation.

SAFECO EQUITY FUND ("Equity Fund") has as its investment objective to seek
long-term growth of capital and reasonable current income. The Equity Fund
invests principally in common stock selected for appreciation and/or dividend
potential and from a long-range investment standpoint.

SAFECO INCOME FUND ("Income Fund") has as its investment objective to seek high
current income and, when consistent with its objective, the long-term growth of
capital. The Income Fund invests primarily in common and preferred stock and in
convertible bonds selected for dividend potential.

SAFECO NORTHWEST FUND ("Northwest Fund") has as its investment objective to seek
long-term growth of capital through investing primarily in Northwest companies.
To pursue its objective, the Fund will invest at least 65% of its total assets
in securities issued by companies with their principal executive offices located
in Alaska, Idaho, Montana, Oregon, or Washington ("Northwest").

SAFECO INTERNATIONAL STOCK FUND ("International Fund") has as its investment
objective to seek maximum long-term total return (capital appreciation and
income) by investing primarily in common stock of established non-U.S.
companies. To pursue its objective, the International Fund, under normal market
conditions, will invest at least 65% of its total assets in the securities of
companies domiciled in at least five countries, not including the United States.

SAFECO BALANCED FUND ("Balanced Fund") has as its investment objective to seek
growth and income consistent with the preservation of capital. To pursue its
objective, the Balanced Fund will invest primarily in equity and fixed-income
securities.

SAFECO SMALL COMPANY STOCK FUND ("Small Company Fund") has as its investment
objective to seek long-term growth of capital through investing primarily in
small-sized companies. To pursue its objective, the Small Company Fund will
invest primarily in companies with total market capitalization of less than $1
billion.

SAFECO U.S. VALUE FUND ("Value Fund") has as its investment objective to seek
long-term growth of capital and income. To pursue its objective, the Value Fund
will primarily invest in common stocks selected for potential appreciation and
income, using fundamental value analysis.

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND ("Intermediate Treasury Fund") has
as its investment objective to provide as high a level of current income as is
consistent with the preservation of capital. During normal market conditions,
the Fund will invest at least 65% of its total assets in direct obligations of
the U.S. Treasury.

SAFECO HIGH-YIELD BOND FUND ("High-Yield Fund") has as its investment objective
to provide a high level of current interest income through the purchase of
high-yield, fixed-income securities. During normal market conditions, the Fund
will invest at least 65% of its total assets in high-yield, fixed-income
securities.

SAFECO MUNICIPAL BOND FUND ("Municipal Bond Fund") has as its investment
objective to provide as high a level of current interest income exempt from
federal income tax as is consistent with the relative stability of capital.

SAFECO CALIFORNIA TAX-FREE INCOME FUND ("California Fund") has as its investment
objective 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.

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND ("Washington Fund") has as its
investment objective to provide as high a level of current interest income
exempt from federal income tax as is consistent with prudent investment risk.

SAFECO MONEY MARKET FUND ("Money Market Fund") has as its investment objective
to seek 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 thirteen months or less.

There is no assurance that a Fund will achieve its investment objective.

-- 2 --
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
Introduction to the Trusts and the Funds 4

Expenses 6

Financial Highlights 10

Adviser's Institutional Private Account Performance 25

Sub-Adviser's Institutional Private Account Performance 26

Alternative Purchase Arrangement 28

Each Fund's Investment Objective and Policies 28

Risk Factors 51

Portfolio Managers 56

How to Purchase Shares 58

How to Redeem Shares 63

How to Systematically Purchase or Redeem Shares 65

How to Exchange Shares from One Fund to Another 65

Telephone Transactions 66

Share Price Calculation 67

Information about Share Ownership and Companies that Provide Services to
the Trusts 68

Distribution Plans 72

Persons Controlling Certain Funds 73

Performance Information 74

Fund Distributions and How They are Taxed 74

Tax-Deferred Retirement Plans 77

Account Statements 78

Account Changes and Signature Requirements 78

Description of Stocks, Bonds and Convertible Securities 78

Description of Ratings 79

Debt Securities Holdings 81
</TABLE>

-- 3 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS

Each Trust is an open-end management investment company that issues shares
representing one or more series. This Prospectus offers shares of the stock,
taxable fixed-income, tax-exempt income and money market Funds listed below. The
stock Funds offered are the Growth Fund, the Equity Fund, the Income Fund, the
Northwest Fund, the Balanced Fund, the International Fund, the Small Company
Fund, and the Value Fund (collectively, the "Stock Funds"). Each Stock Fund is a
diversified series of the Common Stock Trust.

The taxable fixed-income Funds offered are the Intermediate Treasury Fund, the
High-Yield Bond Fund and the Managed Bond Fund (collectively, the "Taxable
Fixed-Income Funds"). The Intermediate Treasury Fund and the High-Yield Fund are
diversified series of the Taxable Bond Trust. The Managed Bond Fund is a
diversified series of the Managed Bond Trust.

The tax-exempt income Funds offered are the Municipal Bond Fund, the California
Fund, and the Washington Fund (collectively, the "Tax-Exempt Income Funds").
Each of the Tax-Exempt Income Funds is a diversified series of the Tax-Exempt
Bond Trust.

This Prospectus also offers the Money Market Fund, which is a diversified series
of the Money Market Trust.

THE FUNDS

Each Fund offers multiple classes of shares. Class A and Class B shares are
offered to investors who engage the services of an investment professional. For
each Fund (except the Money Market Fund), Class A shares are subject to a
front-end sales charge and pay a Rule 12b-1 fee. Class B shares are not subject
to a front-end sales charge, but may be subject to a contingent deferred sales
charge ("CDSC") and pay a higher Rule 12b-1 fee.

For the Money Market Fund, Class A shares are sold at net asset value with no
front-end sales charge. A front-end sales charge may apply when you exchange
your Class A Money Market Fund shares for Class A shares of other Funds. Money
Market Fund Class B Shares are sold at net asset value and are not subject to a
CDSC upon redemption, provided that the shareholder has remained solely invested
in Money Market Fund Class B shares. A CDSC may apply upon redemption of Money
Market Fund Class B shares that have been exchanged at any time during the
investor's ownership for Class B shares of other Funds. Money Market Fund Class
A and Class B shares do not currently pay Rule 12b-1 fees.

Each Fund:

/ / Offers easy access to your money through telephone redemptions, wire
transfers and, in the case of the Money Market Fund Class A only, redemption
checks.

/ / Has a minimum initial investment of $1,000 for regular accounts, $250 for
individual retirement accounts ("IRAs") and accounts established under the
Uniform Gift to Minors Act ("UGMA") or Uniform Transfer to Minors Act
("UTMA"). No minimum initial investment is required to establish the
Automatic Investment Method ("AIM") or Payroll Deduction Plan.

RISK FACTORS

There is, of course, no assurance that a Fund will achieve its investment
objective. See "Each Fund's Investment Objective and Policies" for more
information.

There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest, California, and Washington Funds concentrate their
investments in geographic regions, they may be subject to special risks.
Investors should carefully consider the investment risks of such geographic
concentration before

-- 4 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS (CONTINUED)

purchasing shares of those Funds. Because the International Fund invests
primarily in foreign securities, it is subject to various risks in addition to
those associated with U.S. investments. For example, the value of the
International Fund depends in part upon currency values, the political and
regulatory environments, and overall economic factors in the countries in which
the Fund invests. The Small Company Fund invests in small-sized companies, which
involve greater risks than investments in larger, more established issuers, and
such securities can be subject to more abrupt and erratic movements in price.
The High-Yield Fund is subject to special risks associated with below investment
grade securities, sometimes referred to as "junk bonds," which it will purchase
to pursue its investment objective. The value of the Intermediate Treasury Fund,
High-Yield Fund, Managed Bond Fund, Municipal Bond Fund, California Fund and
Washington Fund will normally fluctuate inversely with changes in market
interest rates. The Money Market Fund will attempt to maintain a stable net
asset value of $1.00 per share, but there is no assurance that the Fund will do
so. The principal risk associated with money market funds is that they may
experience a delay or failure in principal or interest payments at maturity of
one or more of the portfolio securities. The Money Market Fund's yield will
fluctuate with general money market interest rates. See "Each Fund's Investment
Objective and Policies" and "Risk Factors" for more information.

INVESTMENT ADVISER; SUB-ADVISER OF INTERNATIONAL FUND

Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington, and managed over $4.3 billion in mutual
fund assets as of December 31, 1997. SAM has been an adviser to mutual funds and
other investment portfolios since 1973, and its predecessors have been advisers
since 1932. The Bank of Ireland Asset Management (U.S.) Limited (the
"Sub-Adviser") acts as a sub-adviser to the International Fund. The Sub-Adviser
is a direct, wholly owned subsidiary of Bank of Ireland Asset Management Limited
(an investment advisory firm), which is headquartered in Dublin, Ireland, and an
indirect, wholly owned subsidiary of the Bank of Ireland, which is also
headquartered in Dublin, Ireland. See "Information about Share Ownership and
Companies That Provide Services to the Trusts" for more information.

-- 5 --
<PAGE>
EXPENSES

A. SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A AND CLASS B OF EACH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------- --------
<S> <C> <C>
Maximum Sales Charge on Purchases 4.50%* NONE
(as a Percentage of Offering Price)
Sales Charge on Reinvested Dividends NONE NONE
Maximum Contingent Deferred Sales Charge (CDSC) NONE* 5.00%**
Redemption Fees NONE NONE
Exchange Fees NONE NONE
</TABLE>

* Except for initial purchases of the Money Market Fund. In addition, purchases
of $1,000,000 or more of Class A shares are not subject to a front-end sales
charge, but a 1% CDSC may apply to redemptions made in the first year. See
"How to Purchase Shares" for more information.

** Except for initial purchases of the Money Market Fund. A CDSC may apply to
redemptions from the Money Market Fund that follow exchanges from Class B
shares of another Fund. See "How to Purchase Shares" for more information.

Sales charge waivers and reduced sales charge purchase plans are available for
Class A shares. See "How to Purchase Shares" for more information. The maximum
5% CDSC on Class B shares applies to redemptions during the first year after
purchase, declining to 0% in the first month following the investor's sixth
anniversary from purchase. Class B shares of a Fund convert automatically into
Class A shares of that Fund in the first month following the investor's sixth
anniversary from purchase. Money Market Fund Class B shareholders who
subsequently exchange into Class B of another Fund do not receive credit for the
initial time invested in the Money Market Fund for purposes of calculating any
CDSC due upon redemption or the conversion to Class A Shares. See "Purchasing
Class B Shares" for more information.

SAFECO Services Corporation ("SAFECO Services"), the transfer agent for the
Funds, charges a $10 fee to wire redemption proceeds.

B. ANNUAL OPERATING EXPENSES

(AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
GROWTH FUND EQUITY FUND INCOME FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.65% 0.65% 0.52% 0.52% 0.65% 0.65%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.16% 0.23% 0.47% 0.29% 0.24% 0.18%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.06% 1.88% 1.24% 1.81% 1.14% 1.83%

INTERNATIONAL
NORTHWEST FUND FUND BALANCED FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 1.10% 1.10% 0.75% 0.75%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.42% 0.34% 0.52% 0.54% 0.52% 0.53%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.42% 2.09% 1.87%* 2.64%* 1.52% 2.28%
</TABLE>

-- 6 --
<PAGE>
EXPENSES (CONTINUED)

<TABLE>
<CAPTION>
SMALL COMPANY INTERMEDIATE
FUND VALUE FUND TREASURY FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.85% 0.85% 0.75% 0.75% 0.55% 0.55%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.42% 0.44% 0.47% 0.55% 0.52% 0.32%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.52% 2.29% 1.47% 2.30% 1.32% 1.87%
<CAPTION>

MANAGED BOND
HIGH-YIELD FUND FUND WASHINGTON FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.65% 0.65% 0.50% 0.50% 0.65% 0.65%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.21% 0.17% 0.69% 0.74% 0.42% 0.48%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.10% 1.81% 1.44% 2.24% 1.32% 2.13%
<CAPTION>

MUNICIPAL BOND MONEY MARKET
FUND CALIFORNIA FUND FUND**
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.42% 0.42% 0.55% 0.55% 0.50% 0.50%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0% 0%
Other Expenses 0.28% 0.11% 0.11% 0.08% 0.22% 0.28%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 0.95% 1.53% 0.91% 1.63% 0.72% 0.78%
</TABLE>

* Net of reimbursements by SAM. Absent the reimbursements, total operating
expenses would have been 2.13% and 2.90%, respectively, for the Class A and
Class B shares of the International Fund.

** The Money Market Fund does not have a Rule 12b-1 fee at this time.
Shareholders will be notified in advance by a supplement to this Prospectus
in the event that the Money Market Fund establishes a Rule 12b-1 fee under
its Rule 12b-1 Plan.

Effective September 30, 1996, except for the Value and High-Yield Funds, all of
the then-existing shares of each Fund were redesignated No-Load Class shares and
each Fund commenced offering Class A and Class B shares. The High-Yield Fund and
the Value Fund commenced offering Class A and Class B shares on January 31,
1997, and April 30, 1997, respectively. The amounts shown for the Funds (other
than the Value Fund) are based on the actual expenses paid by the shareholders
of the Funds' Class A and Class B shares for the year ended December 31, 1997.
The amounts shown for the Value Fund are estimated expenses based on the Fund's
maximum management fee, applicable Rule 12b-1 fees, and estimated "other
expenses" for fiscal year 1998. The management fees paid by the International
and Small Company Funds are higher than the management fees paid by most other
investment companies. See "Information about Share Ownership and Companies That
Provide Services to the Trusts" for more information.

Rule 12b-1 fees have the following two components:

<TABLE>
<CAPTION>
CLASS A CLASS B
--------------- ---------------
<S> <C> <C>
Rule 12b-1 service fees 0.25% 0.25%
Rule 12b-1 distribution fees 0.00% 0.75%
</TABLE>

Long-term Class A and Class B shareholders may pay more in sales charges and
12b-1 fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

-- 7 --
<PAGE>
EXPENSES (CONTINUED)
C. EXAMPLE OF EXPENSES

You would pay the following expenses on a $1,000 investment assuming a 5% annual
return and redemption at the end of each time period. The example also assumes
that all dividends and other distributions are reinvested and that the
percentage amounts listed for each Fund in "Annual Operating Expenses" above
remain the same in the years shown.

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Growth
Class A(1) $ 55 $ 77 $ 101 $ 169
Class B
Assuming redemption at end of period(2)(3) $ 69 $ 89 $ 112 $ 179
Assuming no redemption at end of period(3) $ 19 $ 59 $ 102 $ 179
Equity
Class A(1) $ 57 $ 83 $ 110 $ 188
Class B
Assuming redemption at end of period(2)(3) $ 68 $ 87 $ 108 $ 184
Assuming no redemption at end of period(3) $ 18 $ 57 $ 98 $ 184
Income
Class A(1) $ 56 $ 80 $ 105 $ 177
Class B
Assuming redemption at end of period(2)(3) $ 69 $ 88 $ 109 $ 180
Assuming no redemption at end of period(3) $ 19 $ 58 $ 99 $ 180
Northwest
Class A(1) $ 59 $ 88 $ 119 $ 208
Class B
Assuming redemption at end of period(2)(3) $ 71 $ 95 $ 122 $ 209
Assuming no redemption at end of period(3) $ 21 $ 65 $ 112 $ 209
International
Class A(1) $ 63 $ 101 $ 142 $ 254
Class B
Assuming redemption at end of period(2)(3) $ 77 $ 112 $ 150 $ 262
Assuming no redemption at end of period(3) $ 27 $ 82 $ 140 $ 262
Balanced
Class A(1) $ 60 $ 91 $ 124 $ 218
Class B
Assuming redemption at end of period(2)(3) $ 73 $ 101 $ 132 $ 225
Assuming no redemption at end of period(3) $ 23 $ 71 $ 122 $ 225
Small Company
Class A(1) $ 60 $ 91 $ 124 $ 218
Class B
Assuming redemption at end of period(2)(3) $ 73 $ 102 $ 133 $ 226
Assuming no redemption at end of period(3) $ 23 $ 72 $ 123 $ 226
Value Fund
Class A(1) $ 59 $ 89
Class B
Assuming redemption at end of period(2) $ 73 $ 102
Assuming no redemption at end of period $ 23 $ 72
Intermediate Treasury
Class A(1) $ 58 $ 85 $ 114 $ 197
Class B
Assuming redemption at end of period(2)(3) $ 69 $ 89 $ 111 $ 180
Assuming no redemption at end of period(3) $ 19 $ 59 $ 101 $ 180
</TABLE>

-- 8 --
<PAGE>
EXPENSES (CONTINUED)

(1) Includes deduction at the time of purchase of the maximum sales charge.

(2) Includes deduction at the time of redemption of the applicable CDSC.

(3) Ten-year figures assume conversion of Class B shares to Class A shares in
the first month following the investor's sixth anniversary from purchase.

(4) Figures for the Money Market Fund assume that the investor purchased Money
Market Fund shares as an initial investment and made no subsequent
exchanges.

The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in Class A and Class B shares of each Fund would bear,
directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER
OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES
AND EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS, AND IT IS
NOT A PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE
PERFORMANCE OF ANY FUND.

-- 9 --
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

The amounts shown for each Fund in the Financial Highlights tables that follow
are based upon a single Class A or Class B share outstanding for the period
indicated. Effective September 30, 1996, each Fund (except the Value and
High-Yield Funds) commenced offering Class A and Class B shares. The Value Fund
commenced offering Class A and Class B shares on April 30, 1997 (initial public
offering) and the High-Yield Fund commenced offering Class A and Class B shares
on January 31, 1997. The following selected data has been derived from financial
statements that have been audited by Ernst & Young LLP. The data should be read
in conjunction with the financial statements, related notes and other financial
information included in each Trust's Annual Report to shareholders and
incorporated by reference in the Statement of Additional Information. A copy of
the Statement of Additional Information may be obtained by calling the number on
the first page of this Prospectus.

SAFECO GROWTH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------- --------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $16.97 $15.45 $16.94 $15.45

INCOME FROM INVESTMENT OPERATIONS:

Net investment (loss) income (0.02) (0.02) (0.08) (0.05)

Net realized and unrealized gain (loss) on
investment transactions 8.44 1.77 8.33 1.77
------- ------- ------- -------

Total from investment operations 8.42 1.75 8.25 1.72
------- ------- ------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income -- -- -- --

Distributions from realized gains (3.00) (0.23) (3.00) (0.23)
------- ------- ------- -------

Total distributions (3.00) (0.23) (3.00) (0.23)
------- ------- ------- -------

Net asset value at end of period $22.39 $16.97 $22.19 $16.94
------- ------- ------- -------
------- ------- ------- -------

Total return+ 49.61% 11.35% 48.70% 11.15%

Net assets at end of period (000's) $4,076 $187 $1,402 $116

Ratio of expenses to average net assets 1.06% 1.12%** 1.88% 1.87%**

Ratio of net investment (loss) income to average
net assets -0.33% -0.58%** -1.16% -1.38%**

Portfolio turnover rate 82.57% 82.93%** 82.57% 82.93%**

Average commission rate paid $0.0520 $0.0477 $0.0520 $0.0477
</TABLE>

* Not annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 10 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO EQUITY FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.14 0.04 0.02 0.02

Net realized and unrealized gain (loss) on
investment transactions 3.77 1.35 3.79 1.33
-------------- -------------- -------------- --------------

Total from investment operations 3.91 1.39 3.81 1.35
-------------- -------------- -------------- --------------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.14) (0.04) (0.02) (0.02)

Distributions from realized gains (0.84) (0.58) (0.84) (0.58)
-------------- -------------- -------------- --------------

Total distributions 0.98) (0.62) (0.86) (0.60)
-------------- -------------- -------------- --------------

Net asset value at end of period $19.55 $16.62 $19.55 $16.60
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------

Total return+ 23.56% 8.78%* 22.93% 8.50%*

Net assets at end of period (000's) $7,247 $2,894 $3,565 $355

Ratio of expenses to average net assets 1.24% 0.97%** 1.81% 1.75%**

Ratio of net investment income to average net
assets 0.74% 1.38%** 0.12% 0.51%**

Portfolio turnover rate 34.26% 59.34%** 34.26% 59.34%**

Average commission rate paid $0.0573 $0.0571 $0.0573 $0.0571
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 11 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $21.15 $20.03 $21.12 $20.03

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.51 0.12 0.38 0.10

Net realized and unrealized gain (loss) on
investment and foreign currency transactions 4.98 1.65 4.94 1.62
------------- ------------- ------------- -------------

Total from investment operations 5.49 1.77 5.32 1.72
------------- ------------- ------------- -------------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.51) (0.12) (0.38) (0.10)

Distributions from realized gains (2.11) (0.53) (2.11) (0.53)
------------- ------------- ------------- -------------

Total distributions (2.62) (0.65) (2.49) (0.63)
------------- ------------- ------------- -------------

Net asset value at end of period $24.02 $21.15 $23.95 $21.12
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Total return+ 26.15% 8.85%* 25.35% 8.60%*

Net assets at end of period (000's) $742 $193 $798 $112

Ratio of expenses to average net assets 1.14% 1.03%** 1.83% 1.79%**

Ratio of net investment income to average net
assets 2.50% 2.66%** 1.79% 1.99%**

Portfolio turnover rate 52.14% 37.84%** 52.14% 37.84%**

Average commission rate paid $0.0569 $0.0573 $0.0569 $0.0573
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 12 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO NORTHWEST FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $14.06 $13.78 $14.03 $13.78

INCOME FROM INVESTMENT OPERATIONS:

Net investment income (0.06) (0.01) (0.10) (0.03)

Net realized and unrealized gain (loss) on
investment transactions 4.39 0.29 4.30 0.28
------------ ------------ ------------ ------------

Total from investment operations 4.33 0.28 4.20 0.25
------------ ------------ ------------ ------------

LESS DISTRIBUTIONS:

Dividends from net investment income -- -- -- --

Distributions from realized gains (1.14) -- (1.14) --
------------ ------------ ------------ ------------

Total distributions (1.14) -- (1.14) --
------------ ------------ ------------ ------------

Net asset value at end of period $17.25 $14.06 $17.09 $14.03
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

Total return+ 30.79% 2.03%* 29.93% 1.81%*

Net assets at end of period (000's) $1,354 $369 $1,204 $232

Ratio of expenses to average net assets 1.42% 1.40%** 2.09% 2.18%**

Ratio of net investment income to average net
assets -0.61% -0.39%** -1.30% -1.19%**

Portfolio turnover rate 55.42% 67.32%** 55.42% 67.32%**

Average commission rate paid $0.0560 $0.0482 $0.0560 $0.0482
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 13 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO INTERNATIONAL STOCK FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.20 -- 0.18 --

Net realized and unrealized gain (loss) on
investment and foreign currency transactions 0.29 0.95 0.22 0.93
------- ------- ------- -------

Total from investment operations 0.49 0.95 0.40 0.93
------- ------- ------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.21) (0.05) (0.13) (0.04)

Distributions from realized gains (0.02) -- (0.02) --
------- ------- ------- -------

Total distributions (0.23) (0.05) (0.15) (0.04)
------- ------- ------- -------

Net asset value at end of period $11.55 $11.29 $11.53 $11.28
------- ------- ------- -------
------- ------- ------- -------

Total return+ 4.30% 9.19%* 3.48% 8.96%*

Net assets at end of period (000's) $295 $154 $331 $112

Ratio of expenses to average net assets++ 1.87% 1.41%** 2.64% 2.17%**

Ratio of net investment income to average net
assets 0.26% -0.23%** 0.51% -1.15%**

Portfolio turnover rate 22.13% 18.51%** 22.13% 18.51%**

Average commission rate paid $0.0246 $0.0223 $0.0246 $0.0223
</TABLE>

* Not Annualized.

** Annualized.

+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 2.13% and 1.72% for the year and
period ended December 31, 1997 and 1996, respectively, for Class A, and 2.90%
and 2.47%, respectively, for Class B.

-- 14 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO BALANCED FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.28 0.09 0.18 0.06

Net realized and unrealized gain (loss) on
investment and foreign currency transactions 1.45 0.44 1.44 0.45
-------------- ------- -------------- -------

Total from investment operations 1.73 0.53 1.62 0.51
-------------- ------- -------------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.28) (0.09) (0.18) (0.06)

Distributions from realized gains (0.54) (0.13) (0.54) (0.13)
-------------- ------- -------------- -------

Total distributions (0.82) (0.22) (0.72) (0.19)
-------------- ------- -------------- -------

Net asset value at end of period $11.60 $10.69 $11.60 $10.70
-------------- ------- -------------- -------
-------------- ------- -------------- -------

Total return+ 16.29% 5.07%* 15.21% 4.85%*

Net assets at end of period (000's) $205 $110 $331 $115

Ratio of expenses to average net assets 1.52% 1.35%++** 2.28% 2.11%++**

Ratio of net investment income to average net
assets 2.55% 3.01%** 2.55% 2.23%**

Portfolio turnover rate 101.22% 36.10%** 101.22% 36.10%**

Average commission rate paid $0.0521 $0.0548 $0.0521 $0.0548
</TABLE>

* Not Annualized.

** Annualized.

+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.70% and 2.46% for Class A and Class
B, respectively.

-- 15 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO SMALL COMPANY STOCK FUND

<S> <C> <C> <C> <C>
Net asset value at beginning of period $11.81 $11.51 $11.79 $11.51

INCOME FROM INVESTMENT OPERATIONS:

Net investment income (0.06) (0.01) (0.10) (0.04)

Net realized and unrealized gain (loss) on
investment and foreign currency transactions 2.80 0.31 2.72 0.32
-------------- -------------- -------------- --------------

Total from investment operations 2.74 0.30 2.62 0.28
-------------- -------------- -------------- --------------

LESS DISTRIBUTIONS:

Dividends from net investment income -- -- -- --

Distributions from realized gains (0.34) -- (0.34) --
-------------- -------------- -------------- --------------

Total distributions (0.34) -- (0.34) --
-------------- -------------- -------------- --------------

Net asset value at end of period $14.21 $11.81 $14.07 $11.79
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------

Total return+ 23.21% 2.61%* 22.23% 2.43%*

Net assets at end of period (000's) $271 $135 $396 $103

Ratio of expenses to average net assets 1.52% 1.42%++** 2.29% 2.18%++**

Ratio of net investment income to average net
assets (0.60%) (0.50%)** (1.35%) (1.28%)**

Portfolio turnover rate 60.81% 73.47%** 60.81% 73.47%**

Average commission rate paid $0.0470 $0.0496 $0.0470 $0.0496
</TABLE>

* Not Annualized.

** Annualized.

+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.62% and 2.41% for Class A and Class
B, respectively.

-- 16 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO U.S. VALUE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------- --------------
APRIL 30, 1997 APRIL 30, 1997
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
TO TO
DECEMBER 31, DECEMBER 31,
1997 1997
---------------------------------

<S> <C> <C>
Net asset value at beginning of period $10.00 $10.00

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.08 0.02

Net realized and unrealized gain (loss) on
investment and foreign currency transactions 1.65 1.65
-------------- --------------

Total from investment operations 1.73 1.67
-------------- --------------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.08) (0.02)

Distributions from realized gains (0.47) (0.47)
-------------- --------------

Total distributions (0.55) (0.49)
-------------- --------------

Net asset value at end of period $11.18 $11.18
-------------- --------------
-------------- --------------

Total return+ 17.24%* 16.63%*

Net assets at end of period (000's) $133 $221

Ratio of expenses to average net assets ** 1.47% 2.30%

Ratio of net investment income to average net
assets** 1.03% 0.20%

Portfolio turnover rate** 36.37% 36.37%

Average commission rate paid $0.0372 $0.0372
</TABLE>

* Not Annualized.

** Annualized.

+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

-- 17 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.55 0.15 0.48 0.14

Net realized and unrealized gain (loss) on
investments 0.24 0.01 0.23 0.02
------- -------------- ------- --------------

Total from investment operations 0.79 0.16 0.71 0.16
------- -------------- ------- --------------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.55) (0.15) (0.48) (0.14)

Distributions from capital gains -- -- -- --
------- -------------- ------- --------------

Total distributions (0.55) (0.15) (0.48) (0.14)
------- -------------- ------- --------------

Net asset value at end of period $10.35 $10.11 $10.35 $10.12
------- -------------- ------- --------------
------- -------------- ------- --------------

Total return 8.03% 1.63%* 7.27% 1.55%*

Net assets at end of period (000's) $365 $704 $432 $223

Ratio of expenses to average net assets 1.32% 1.07%**++ 1.87% 1.72%**++

Ratio of net investment income to average net
assets 5.36% 6.07%** 4.78% 5.35%**

Portfolio turnover rate 82.36% 125.42%** 82.36% 125.42%**
</TABLE>

* Not annualized.

** Annualized.

+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.30% and 1.95% for Class A and Class
B, respectively.

-- 18 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO HIGH-YIELD BOND FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------- --------------
ELEVEN-MONTH ELEVEN-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1997
---------------------------------
<S> <C> <C>
Net asset value at beginning of period $8.83 $8.83

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.69 0.63

Net realized and unrealized gain (loss) on
investments 0.29 0.29
------- -------

Total from investment operations 0.98 0.92
------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.69) (0.63)

Distributions from capital gains -- --
------- -------

Total distributions (0.69) (0.63)
------- -------

Net asset value at end of period $9.12 $9.12
------- -------
------- -------

Total return+ 12.49%* 11.77%*

Net assets at end of period (000's) $259 $355

Ratio of expenses to average net assets 1.10%** 1.81%**

Ratio of net investment income to average net
assets 7.65%** 6.87%**

Portfolio turnover rate 85.06%** 85.06%**
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 19 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO MANAGED BOND FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.39 0.11 0.32 0.09

Net realized and unrealized gain (loss) on
investments 0.25 -- 0.25 --
------- ------- ------- -------

Total from investment operations 0.64 0.11 0.57 0.09
------- ------- ------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.39) (0.11) (0.32) (0.09)

Distributions from capital gains -- -- -- --
------- ------- ------- -------

Total distributions (0.39) (0.11) (0.32) (0.09)
------- ------- ------- -------

Net asset value at end of period $8.60 $8.35 $8.60 $8.35
------- ------- ------- -------
------- ------- ------- -------

Total return+ 7.78% 1.34%* 6.91% 1.15%*

Net assets at end of period (000's) $146 $140 $120 $100

Ratio of expenses to average net assets 1.45% 1.30%** 2.23% 2.07%**

Ratio of net investment income to average net
assets 4.68% 5.22%** 3.79% 4.45%**

Portfolio turnover rate 176.50% 136.29%** 176.50% 136.29%**
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 20 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO MUNICIPAL BOND FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.68 0.18 0.60 0.15

Net realized and unrealized gain (loss) on
investments 0.70 0.17 0.68 0.16
------- ------- ------- -------

Total from investment operations 1.38 0.35 1.28 0.31
------- ------- ------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.68) (0.18) (0.60) (0.15)

Distributions from realized gains (0.16) -- (0.16) --
------- ------- ------- -------

Total distributions (0.84) (0.18) (0.76) (0.15)
------- ------- ------- -------

Net asset value at end of period $14.53 $13.99 $14.50 $13.98
------- ------- ------- -------
------- ------- ------- -------

Total return+ 10.17% 2.52%* 9.56% 2.27%*

Net assets at end of period (000's) $390 $311 $502 $112

Ratio of expenses to average net assets 0.95% 0.82%** 1.53% 1.50%**

Ratio of net investment income to average net
assets 4.86% 5.04%** 4.22% 4.42%**

Portfolio turnover rate 13.52% 6.66%** 13.52% 6.66%**
</TABLE>

* Annualized.

** Not Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 21 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO CALIFORNIA TAX-FREE INCOME FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.58 0.15 0.48 0.12

Net realized and unrealized gain (loss) on
investments 0.76 0.19 0.76 0.18
------- ------- ------- -------

Total from investment operations 1.34 0.34 1.24 0.30
------- ------- ------- -------

LESS DISTRIBUTIONS:

Dividends from net investment income (0.58) (0.15) (0.48) (0.12)

Distributions from realized gains (0.05) (0.03) (0.05) (0.03)
------- ------- ------- -------

Total distributions (0.63) (0.18) (0.53) (0.15)
------- ------- ------- -------

Net asset value at end of period $12.94 $12.23 $12.93 $12.22
------- ------- ------- -------
------- ------- ------- -------

Total return+ 11.29% 2.83%* 10.46% 2.56%*

Net assets at end of period (000's) $460 $122 $501 $101

Ratio of expenses to average net assets 0.91% 0.89%** 1.63% 1.64%**

Ratio of net investment income to average net
assets 4.52% 4.84%** 3.71% 4.08%**

Portfolio turnover rate 9.83% 10.52%** 9.83% 10.52%**
</TABLE>

* Not Annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 22 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------------- --------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $10.53 $10.45 $10.55 $10.45

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.46 0.12 0.38 0.10

Net realized and unrealized gain (loss) on
investments 0.42 0.09 0.42 0.11
------- ------- ------- -------
Total from investment operation 0.88 0.21 0.80 0.21
------- ------- ------- -------
LESS DISTRIBUTIONS:

Dividends from net investment income (0.46) (0.12) (0.38) (0.10)

Distributions from realized gains -- (0.01) -- (0.01)
------- ------- ------- -------
Total distributions (0.46) (0.13) (0.38) (0.11)
------- ------- ------- -------
Net asset value at end of period $10.95 $10.53 $10.97 $10.55
------- ------- ------- -------
------- ------- ------- -------
Total return+ 8.64% 1.94%* 7.75% 1.94%*

Net assets at end of period (000's) $360 $336 $239 $211

Ratio of expenses to average net assets 1.32% 1.31%** 2.13% 2.06%**

Ratio of net investment income to average net
assets 4.39% 4.49%** 3.58% 3.71%**

Portfolio turnover rate 11.67% 15.96%** 11.67% 15.96%**
</TABLE>

* Not annualized.

** Annualized.

+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 23 --
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
(For a Share Outstanding Throughout the Period)

SAFECO MONEY MARKET FUND

INCOME FROM INVESTMENT OPERATIONS:

Net investment income 0.05 0.01 0.05 0.01

LESS DISTRIBUTIONS:

Dividends from net investment income (0.05) (0.01) (0.05) (0.01)
------ ------ ------ -------

Net asset value at end of period $1.00 $1.00 $1.00 $1.00
------ ------ ------ -------
------ ------ ------ -------

Total return 4.97% 1.21%* 4.94% 1.21%*

Net assets at end of period (000's) 537 295 414 106

Ratio of expenses to average net assets 0.72% 0.55%** 0.78% 0.54%**

Ratio of net investment income to average net
assets 4.91% 5.01%** 4.85% 4.96%**
</TABLE>

* Annualized.

** Not annualized.

-- 24 --
<PAGE>

ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE

The Value Fund's adviser, SAFECO Asset Management Company ("SAM"), has been
managing institutional private accounts (the "SAFECO Composite") since 1979. The
SAFECO Composite had investment objectives, policies, strategies and risks
substantially similar to those of the Value Fund. The data below is provided to
illustrate the past performance of SAM in managing substantially similar
accounts as measured against the S&P 500 Index and does not represent the
performance of the Value Fund.

CALENDAR YEAR TOTAL RETURNS

<TABLE>
<CAPTION>
SAFECO SAFECO S&P 500
YEAR COMPOSITE(A)* COMPOSITE(B)* INDEX**
- ------------------------------------------------------------------------- --------------- --------------- -----------
<S> <C> <C> <C>
1988 18.61% 17.70% 16.50%
1989 19.22% 18.29% 31.43%
1990 (4.68%) (5.46%) (3.19%)
1991 28.32% 27.35% 30.55%
1992 12.67% 11.79% 7.68%
1993 10.35% 9.48% 10.00%
1994 3.13% 2.30% 1.33%
1995 36.59% 35.57% 37.50%
1996 24.91% 23.95% 23.25%
1997 21.41% 20.47% 33.38%
</TABLE>

AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDING DECEMBER 31, 1997

<TABLE>
<CAPTION>
PERIOD BEGINNING APRIL 30,
1997, ONE FIVE TEN
ENDING DECEMBER 31, 1997* YEAR YEARS YEARS
------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Value Fund
Class A 17.24%++
Class B 16.63%++
SAFECO
Composite(A)* 21.41% 18.71% 16.47%
SAFECO
Composite(B)* 20.47% 17.79% 15.56%
S&P 500
Index** 33.38% 20.30% 18.04%
</TABLE>

+ Not annualized.

++ Performance excludes sales charges of 4.5% for Class A and a CDSC of 5% for
Class B; if included, total returns would have been 11.96% and 11.63% for
Class A and Class B, respectively.

* The gross performance of the SAFECO Composite in the tables above is shown
after reduction by the Value Fund's 1997 annualized expenses (April 30, 1997
to December 31, 1997) of 1.48% and 2.29% for Class A and Class B,
respectively.

** The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.

-- 25 --
<PAGE>
ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE (CONTINUED)

All returns presented were calculated on a total return basis and reflect the
reinvestment of capital gains, dividends, and interest. Custodial fees, if any,
were not included in the SAFECO Composite calculation. The SAFECO Composite's
returns are asset-weighted using beginning-of-period market values adjusted for
cash flows.

The Value Fund's size, expenses, timing of purchases and sales of portfolio
securities, availability of cash flows, and brokerage commissions may cause the
performance of the Value Fund to vary from that of the SAFECO Composite. In
addition, the institutional private accounts are not subject to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Value Fund by the Investment Company Act of 1940 and
Subchapter M of the Internal Revenue Code. Consequently, the performance results
for the SAFECO Composite could have been adversely affected if the accounts
included in the Composite had been regulated as investment companies under the
federal securities laws. The investment results of the SAFECO Composite are
unaudited and are not intended to predict or suggest the returns that might be
experienced by the Value Fund. Investors should also be aware that the use of a
methodology different from that used above to calculate the SAFECO Composite's
performance could result in different performance data.

The S&P 500 Index is used for comparison purposes only. The S&P 500 Index is an
unmanaged index of representative U.S. stocks that has no management or expense
charges. Performance is based on historical earnings and is not intended to
indicate future performance of the Value Fund.

SUB-ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE

The International Fund's sub-adviser, Bank of Ireland Asset Management (U.S.)
Limited ("BIAM"), has been managing separate accounts for institutional clients
in the United States for eight years. These accounts had investment objectives,
policies, strategies and risks substantially similar to those of the
International Fund. BIAM's past performance in advising these accounts was a key
factor in its selection as the Fund's sub-adviser. The performance set forth in
the tables below is based on the return achieved on BIAM's fully discretionary
international equity composite of accounts (the "BIAM Composite"). The BIAM
Composite data is provided to illustrate the past performance of BIAM in
managing substantially similar accounts as measured against the International
Fund and the EAFE Index, and does not represent the performance of the
International Fund.

CALENDAR YEAR TOTAL RETURNS

<TABLE>
<CAPTION>
BIAM BIAM EAFE
YEAR COMPOSITE(A) COMPOSITE(B) INDEX*
- -------------------------------------------------------------------------- --------------- --------------- ---------
<S> <C> <C> <C>
1990 (4.19%) (4.96%) (23.20%)
1991 11.11% 10.28% 12.50%
1992 11.51% 10.68% (11.85%)
1993 41.10% 40.11% 32.94%
1994 (7.59%) (8.32%) 8.06%
1995 18.63% 17.75% 11.55%
1996 22.03% 21.14% 6.36%
1997 4.28% 3.49% 2.06%
</TABLE>

-- 26 --
<PAGE>
SUB-ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE (CONTINUED)

AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDING DECEMBER 31, 1997

<TABLE>
<CAPTION>
ONE PERIOD BEGINNING JANUARY 31, 1996, FIVE
YEAR ENDING DECEMBER 31, 1997 YEARS
--------- ----------------------------------- ---------
<S> <C> <C> <C>
International
Fund**
Class A 4.30% 9.53% --
Class B 3.48% 8.96% --
BIAM
Composite(A) 4.28% 14.50%
BIAM
Composite(B) 3.49% 13.65%
EAFE
Index* 2.06% 11.71%
</TABLE>

* The Morgan Stanley Europe, Australia and Far East Index ("EAFE Index") is a
market-weighted aggregate of 20 individual country indices that collectively
represent many of the major markets of the world, excluding Canada and the
United States.

** The performance information of the Class A and Class B shares of the
International Fund reflects the actual performance of the Class A and Class B
shares excluding sales charges for the period September 30, 1996 to December
31, 1997, and the performance of the No-Load Class of the Fund for the period
prior to September 30, 1996. Had the performance reflected sales charges of
4.5% for Class A and a CDSC of 5% for Class B, the one year returns would
have been (.39%) and (1.52%) for Class A and Class B, respectively, and the
January 31, 1996 to December 31, 1997 returns would have been 6.93% and 7.01%
for Class A and Class B, respectively. Performance information would have
been lower for the period prior to September 30, 1996 if Rule 12b-1 fees were
reflected. The gross performance of the Composite in the tables above is
shown after reduction by the International Fund's 1997 reimbursed expenses of
1.87% and 2.64% for Class A and Class B, respectively (absent reimbursements,
expenses would have been 2.13% and 2.90% for Class A and Class B,
respectively).

All returns presented were calculated on a total-return basis and reflect the
reinvestment of capital gains, dividends, and interest. Custodial fees, if any,
were not included in the BIAM Composite calculation. The BIAM Composite's
returns are asset-weighted using beginning-of-period market values adjusted for
cash flows.

The International Fund's size, expenses, timing of purchases and sales of
portfolio securities, availability of cash flows, and brokerage commissions may
cause the performance of the International Fund to vary from that of the BIAM
Composite. In addition, the BIAM Composite accounts are not subject to the
diversification requirements, specific tax restrictions, and investment
limitations imposed on the International Fund by the Investment Company Act of
1940 and Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the BIAM Composite could have been adversely affected if
the accounts included in the BIAM Composite had been regulated as investment
companies under the federal securities laws.

The investment results of the BIAM Composite are unaudited and are not intended
to predict or suggest the returns that might be experienced by the International
Fund. Investors should also be aware that the use of a methodology different
from that used below to calculate performance could result in different
performance data.

-- 27 --
<PAGE>
SUB-ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE (CONTINUED)

The EAFE Index is used for comparison purposes only. The EAFE Index is an
unmanaged index of representative international stocks that has no management or
expense charges. Performance is based on historical earnings and is not intended
to indicate future performance of the International Fund.

ALTERNATIVE PURCHASE ARRANGEMENT

This Prospectus offers two classes of shares for each Fund. For each Fund,
except the Money Market Fund, Class A shares are sold at net asset value plus an
initial sales charge of up to 4.5%. Class A shares also pay an annual Rule 12b-1
service fee of 0.25% of the average daily net assets of the Class A shares. For
each Fund, except the Money Market Fund, Class B shares are sold at net asset
value with no initial sales charge, but a CDSC of up to 5% applies to
redemptions made within six years of purchase. Class B shares also pay an annual
Rule 12b-1 service fee of 0.25% of the average daily net assets of the Class B
shares and an annual Rule 12b-1 distribution fee of 0.75% of the average daily
net assets of the Class B shares. Class B shares convert to Class A shares in
the first month following the investor's sixth anniversary from purchase. The
maximum investment amount in Class B shares is $500,000.

Class A and B shares of the Money Market Fund are sold at net asset value, are
not subject to sales charges, and do not currently pay Rule 12b-1 fees. Money
Market Fund Class A and Class B shares may be subject to sales charges if an
investor exchanges into Class A or Class B shares of another Fund. See
"Purchasing Class A Shares" and "Purchasing Class B Shares."

For shareholders of each Fund except the Money Market Fund, the alternative
purchase arrangement permits an investor to choose the method of purchasing
shares that is most beneficial, given the amount of the purchase, the length of
time the investor expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their investment in a
Fund, the accumulated distribution and service fees and CDSCs on Class B shares
prior to conversion would be less than the initial sales charge and accumulated
service fee on Class A shares purchased at the same time.

Class A shares will normally be more beneficial than Class B shares to investors
who qualify for reduced initial sales charges or a sales load waiver on Class A
shares. Class A shares are subject to a service fee (but not a distribution fee)
and, accordingly, pay correspondingly higher dividends per share than Class B
shares. However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all their funds
invested initially and, therefore, would initially own fewer shares.

Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class B shares. The CDSC imposed on the redemption of Class B shares
decreases and is completely eliminated with respect to such shares beginning in
the first month following the investor's sixth anniversary from purchase. Class
B shares automatically convert to Class A shares (which are subject to lower
continuing charges) in the first month following the investor's sixth
anniversary from purchase.

See "How to Purchase Shares" for more information about each Fund's shares.

EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES

-- 28 --
<PAGE>
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES (CONTINUED)
in the case of the Money Market, Municipal Bond, and Washington Funds, and 30
days' in the case of the other Funds). The California Fund has a fundamental
investment objective that may not be changed without a shareholder vote. In the
event a Fund changes its investment objective, the new objective may not meet
the investment needs of every shareholder and may be different from the
objective a shareholder considered appropriate at the time of initial
investment.

Each Fund has adopted a number of investment restrictions. If a Fund satisfies a
percentage limitation at the time of investment, a later increase or decrease in
value, assets or other circumstances will not be considered in determining
whether the Fund complies with the applicable policy (except to the extent the
change may impact the Fund's borrowing limits). Unless otherwise stated, the
investment policies and limitations described below under each Fund's
description and "Common Investment Practices" are non-fundamental and may be
changed without a shareholder vote.

INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS

GROWTH FUND

The Growth Fund has as its investment objective to seek growth of capital and
the increased income that ordinarily follows from such growth. The Growth Fund
ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation. Such investments may cause its share price
to be more volatile than the Equity and Income Funds.

To pursue its investment objective, the Growth Fund:

1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. To determine those common stocks which
have the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power.

3. MAY INVEST UP TO 5% OF NET ASSETS IN CONTINGENT VALUE RIGHTS. A contingent
value right is a right issued by a corporation that takes on a
preestablished value if the underlying common stock does not attain a target
price by a specified date.

See "Description of Stocks, Bonds and Convertible Securities" for a brief
description of common stocks, preferred stocks, convertible securities, and
bonds and other debt securities.

EQUITY FUND

The Equity Fund has as its investment objective to seek long-term growth of
capital and reasonable current income. The Equity Fund invests principally in
common stock selected for appreciation and/ or dividend potential and from a
long-range investment standpoint. The Equity Fund does not seek to achieve both
growth and income with every portfolio security investment. Rather, it attempts
to achieve a reasonable balance between growth and income on an overall basis.

To pursue its investment objective, the Equity Fund:

-- 29 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN EQUITY SECURITIES (WHICH INCLUDE COMMON STOCKS AND PREFERRED
STOCKS). The Fund will invest principally in common stocks selected by SAM
primarily for appreciation and/or dividend potential and from a long-range
investment standpoint.

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK, WHETHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER), EXCEPT THAT LESS THAN 35% OF ITS NET ASSETS WILL BE INVESTED IN
SUCH SECURITIES. The Equity Fund may invest in convertible corporate bonds
that are rated below investment grade (commonly referred to as "high-yield"
or "junk" bonds) or in comparable, unrated bonds, but less than 35% of the
Equity Fund's net assets will be invested in such securities. The Equity
Fund will not purchase a bond rated below Ca by Moody's Investors Service,
Inc. ("Moody's") or CC by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies ("S&P") or which is in default on the payment of
principal and interest. Bonds rated Ca or CC are highly speculative and have
large uncertainties or major risk exposures. See "Risk Factors" for more
information.

INCOME FUND

The Income Fund has as its investment objective to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Fund
currently intends to place greatest emphasis on holding common stock,
convertible corporate bonds and convertible preferred stock. SAM will select
securities primarily for current income, but also with a view toward capital
growth when this can be accomplished without conflicting with the Fund's
investment objective.

To pursue its investment objective, the Income Fund:

1. WILL INVEST PRIMARILY IN COMMON STOCK AND ALSO IN CONVERTIBLE AND
NONCONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). The Fund
will purchase convertible securities if such securities offer a higher yield
than an issuer's common stock and provide reasonable potential for capital
appreciation. The Income Fund may invest in convertible corporate bonds that
are rated below investment grade (commonly referred to as "high-yield" or
"junk" bonds) or in comparable, unrated bonds, but less than 35% of the
Income Fund's net assets will be invested in such securities. Bonds rated Ca
by Moody's or CC by S&P are highly speculative and have large uncertainties
or major risk exposures. See "Risk Factors" for more information.

2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS. Eurodollar bonds
are bonds issued by either the U.S. or foreign issuers that are traded in
the European bond market and are denominated in U.S. dollars. Eurodollar
bonds are subject to the same risks that pertain to domestic issues, notably
credit risk, market risk and liquidity risk. Additionally, Eurodollar bonds
are subject to certain sovereign risks. One such risk is the possibility
that a foreign government might prevent dollar-denominated funds from
flowing across its borders. Other risks may include nationalization of the
issuer, confiscatory taxation by the foreign government that would inhibit
the ability of the issuer to make principal and interest payments to the
Fund, lack of comparable

-- 30 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

publicly available information concerning foreign issuers, lack of
comparable accounting and auditing practices in foreign countries and,
finally, difficulty in enforcing claims against foreign issuers in the event
of default.

See "Description of Stocks, Bonds and Convertible Securities" for a brief
description of common stocks, preferred stocks, convertible securities, and
bonds and other debt securities. See "Description of Ratings" for a description
of debt securities ratings. See "Debt Securities Holdings" for a breakdown of
the debt securities held by the Income Fund during the year ended December 31,
1997.

NORTHWEST FUND

The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Fund will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in Alaska,
Idaho, Montana, Oregon, or Washington.

To pursue its investment objective, the Northwest Fund:

1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCKS AND PREFERRED
STOCKS OF COMPANIES LOCATED IN THE NORTHWEST SELECTED PRIMARILY FOR
POTENTIAL LONG-TERM APPRECIATION. To determine those common and preferred
stocks which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management, and earnings power. The
Fund generally invests a portion of its assets in smaller companies. See
"Risk Factors" for more information about the risks of investing primarily
in companies located in the Northwest and information about the risks
inherent in geographic concentration generally.

2. MAY OCCASIONALLY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN
THE OPINION OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY
EXCEEDS THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY
THE FUND. The Fund may purchase corporate bonds and preferred stock that
convert to common stock either automatically after a specified period of
time or at the option of the issuer. The Fund will purchase those
convertible securities which, in SAM's opinion, have underlying common stock
with potential for long-term growth. The Fund will purchase convertible
securities which are investment grade, I.E., rated in the top four
categories by either S&P or Moody's.

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities." See "Description of Ratings" for a
description of debt securities ratings.

INTERNATIONAL FUND

The investment objective of the International Fund is to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To pursue its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the United States.

To pursue its investment objective, the International Fund:

1. WILL INVEST PRIMARILY IN COMMON STOCK OF NON-U.S. COMPANIES. Common stock
issued by foreign companies is subject to various risks in addition to those
associated with U.S. investments. For example, the value of the common stock
depends in part upon currency values, the political and regulatory
environments, and overall economic factors in the countries in which the
common stock is issued.

-- 31 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
2. MAY INVEST IN PREFERRED STOCK AND CONVERTIBLE SECURITIES ISSUED BY FOREIGN
COMPANIES.

3. MAY INVEST IN DEBT SECURITIES ISSUED BY FOREIGN COMPANIES AND GOVERNMENTS.
The Fund will make such investments primarily for defensive purposes, but
may also do so where anticipated interest rate movements, or other factors
affecting the degree of risk inherent in a fixed income security, are
expected to change significantly so as to produce appreciation in the
security consistent with the objective of the Fund. The Fund may purchase
sovereign debt instruments issued or guaranteed by foreign governments or
their agencies. Sovereign debt may be in the form of conventional securities
or other types of debt instruments such as loans or loan participations.
Governments or governmental entities responsible for repayment of the debt
may be unable or unwilling to repay principal and interest when due, and may
require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic factors.

4. MAY INVEST IN PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"), WHICH INCLUDE
FUNDS OR TRUSTS ORGANIZED AS INVESTMENT VEHICLES TO INVEST IN COMPANIES OF
CERTAIN FOREIGN COUNTRIES. Investors in PFICs bear their proportionate share
of the PFIC's management fees and other expenses. See "Additional Tax
Information" in the Statement of Additional Information.

5. MAY PURCHASE AND SELL PUT AND CALL OPTIONS ON SECURITIES, FINANCIAL INDICES
AND FOREIGN CURRENCIES, MAY PURCHASE AND SELL THE FOLLOWING NON-LEVERAGED
DERIVATIVE SECURITIES: FUTURES CONTRACTS AND RELATED OPTIONS WITH RESPECT TO
SECURITIES, FINANCIAL INDICES AND FOREIGN CURRENCIES, AND MAY ENTER INTO
FOREIGN CURRENCY TRANSACTIONS SUCH AS FORWARD CONTRACTS. The Fund may employ
certain strategies and techniques utilizing these instruments to mitigate
its exposure to changing currency exchange rates, security prices, interest
rates and other factors that affect security values. There is no guarantee
that these strategies and techniques will work. An option gives an owner the
right to buy or sell securities at a predetermined exercise price for a
given period of time. The writer of an option is obligated to purchase or
sell (depending upon the nature of the option) the underlying securities if
the option is exercised during the specified period of time. A futures
contract is an agreement in which the seller of the contract agrees to
deliver to the buyer an amount of cash equal to a specific dollar amount
times the difference between the value of a security at the close of the
last trading day of the contract and the price at which the agreement is
made. A forward currency contract is an agreement to purchase or sell a
foreign currency at some future time for a fixed amount of U.S. dollars. The
Fund, under normal conditions, will not sell a put or call option if, as a
result thereof, the aggregate value of the assets underlying all such
options (determined as of the date such options are written) would exceed
25% of the Fund's net assets. The Fund will not purchase a put or call
option or option on a futures contract if, as a result thereof, the
aggregate premiums paid on all options or options on futures contracts held
by the Fund would exceed 20% of its net assets. In addition, the Fund will
not enter into any futures contract or option on a futures contract if, as a
result thereof, the aggregate margin deposits and premiums required on all
such instruments would exceed 5% of its net assets.

See "Risk Factors" for more information about the risks inherent in securities
issued by foreign issuers and in the purchase and sale of options, futures and
forward contracts. See "Description of Stocks, Bonds and Convertible Securities"
for a brief description of common stock, preferred stock, convertible
securities, and bonds and other debt securities.

BALANCED FUND

The Balanced Fund has as its investment objective to seek growth and income
consistent with the preservation of capital. To pursue its objective, the
Balanced Fund will invest primarily in equity and

-- 32 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
fixed-income securities and will occasionally alter the mix of its equity and
fixed-income securities. Such action will be taken in response to economic
conditions and generally in small increments. The Balanced Fund will not make
significant changes in its asset mix in an attempt to "time the market."

To pursue its investment objective, the Balanced Fund:

1. WILL ORDINARILY INVEST FROM 50% TO 70% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, WHICH INCLUDE COMMON STOCK, PREFERRED STOCK AND SECURITIES
CONVERTIBLE INTO COMMON STOCK. The Fund will invest principally in common
stocks selected by SAM primarily for appreciation and/or dividend potential
and from a long-range investment standpoint. The Fund may purchase corporate
bonds and preferred stock that convert to common stock either automatically
after a specified period of time or at the option of the issuer.

The Fund will purchase those convertible securities which, in SAM's opinion,
have underlying common stock with potential for long-term growth. The Fund
will purchase convertible securities which are investment grade, i.e., rated
in the top four categories by either S&P or Moody's.

2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SENIOR
SECURITIES. The Fund will purchase only those U.S. Government and investment
grade debt obligations or nonrated debt obligations which in SAM's view
contain the credit characteristics of investment grade debt obligations.
Investment grade obligations (rated between Aaa-Baa by Moody's and AAA-BBB
by S&P) are from high to medium quality. Medium-quality obligations possess
speculative characteristics and may be more sensitive to economic changes
and changes to the financial condition of issuers.

SMALL COMPANY FUND

The Small Company Fund has as its investment objective to seek long-term growth
of capital through investing primarily in small-sized companies. To pursue its
objective, the Small Company Fund will invest primarily in companies with total
market capitalization of less than $1 billion.

To pursue its investment objective, the Small Company Fund:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND PREFERRED
STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET CAPITALIZATION OF LESS THAN
$1 BILLION. Companies whose capitalization falls outside this range after
purchase continue to be considered small-capitalized for purposes of the 65%
policy. The Fund will invest principally in common stock selected by SAM
primarily for appreciation and/or dividend potential and from a long-range
investment standpoint. In determining those common and preferred stock which
have the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management, and earnings power. Investments
in small or newly formed companies involve greater risks than investments in
larger, more established issuers, and their securities can be subject to
more abrupt and erratic movements in price. See "Risk Factors" for more
information about the risks inherent in securities issued by small
companies.

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN SAM'S
OPINION, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE FUND. The
Fund will purchase convertible securities if such securities offer a higher
yield than an issuer's common stock and provide reasonable potential for
capital appreciation. The Fund may invest in convertible corporate bonds
that are rated below

-- 33 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
investment grade (commonly referred to as "high-yield" or "junk" bonds) or
in comparable, unrated bonds, but less than 35% of the Fund's net assets
will be invested in such securities. Bonds rated Ca by Moody's or CC by S&P
are highly speculative and have large uncertainties or major risk exposures.
See "Risk Factors" for more information.

VALUE FUND

The Value Fund has as its investment objective to seek long-term growth of
capital and income. The Value Fund primarily invests in common stock selected
for potential appreciation and income, using fundamental value analysis. The
Value Fund will invest of least 65% of its assets in common stock and preferred
stock issued by U.S. companies.

To pursue its investment objective, the Value Fund:

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK, EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). The Fund
will purchase convertible securities if such securities offer a higher yield
than an issuer's common stock and provide reasonable potential for capital
appreciation. The Value Fund may invest in convertible corporate bonds that
are rated below investment grade (commonly referred to as "high-yield" or
"junk bonds" or in comparable, unrated bonds, but less than 35% of the Value
Fund's net assets will be invested in such securities. Bonds rated Ca by
Moody's or CC by S&P are highly speculative and have large uncertainties or
major risk exposures. See "Risk Factors" for more information.

COMMON INVESTMENT PRACTICES OF THE STOCK FUNDS

Each of the Stock Funds may also follow the investment practices described
below:

1. MAY INVEST IN BONDS AND OTHER DEBT SECURITIES. Each Fund may invest in bonds
and other debt securities that are rated investment grade by Moody's or S&P,
or unrated bonds determined by SAM to be of comparable quality to such rated
bonds. Bonds rated in the lowest category of investment grade (Baa by
Moody's and BBB by S&P) and comparable unrated bonds have speculative
characteristics and are more likely to have a weakened capacity to make
principal and interest payments under changing economic conditions or upon
deterioration in the financial condition of the issuer.

After purchase by a Stock Fund, a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event will
require a Stock Fund to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether the
Fund should continue to hold the security in its portfolio. The Equity Fund
will not hold more than 3% of its total assets and the Income Fund will not
hold more than 1% of its total assets in bonds that go into default on the
payment of principal and interest after purchase. In

-- 34 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
the event that 35% or more of a Stock Fund's net assets is held in
securities rated below investment grade due to a downgrade of one or more
corporate bonds, SAM will engage in an orderly disposition of such
securities to the extent necessary to ensure that the Fund's holdings of
such securities remain below 35% of the Fund's net assets.

2. MAY INVEST IN WARRANTS. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrant. Generally, the value of a warrant will fluctuate by greater
percentages than the value of the underlying common stock. The primary risk
associated with a warrant is that the term of the warrant may expire before
the exercise price of the common stock has been reached. Under these
circumstances, a Stock Fund could lose all of its principal investment in
the warrant.

3. MAY HOLD CASH OR INVEST TEMPORARILY 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 (EXCEPT THE EQUITY FUND) OR REPURCHASE AGREEMENTS. The Stock
Funds may purchase these short-term securities as a cash management
technique under those circumstances where it has cash to manage for a short
time period, for example, after receiving proceeds from the sale of
securities, dividend distributions from portfolio securities or cash from
the sale of Fund shares to investors. With respect to repurchase agreements,
the Equity and Northwest Funds will not invest more than 10% of their total
assets in repurchase agreements and the Growth, Equity, Income and Northwest
Funds will not purchase repurchase agreements that mature in more than seven
days. Counterparties of foreign repurchase agreements may be less
creditworthy than U.S. counterparties.

4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS OR
PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under this
procedure, a Stock Fund agrees to acquire securities that are to be issued
and delivered against payment in the future. The price, however, is fixed at
the time of commitment. When a Stock Fund purchases when-issued or
delayed-delivery securities, its custodian bank will maintain in a temporary
holding account cash, U.S. Government securities or other high-grade debt
obligations having a value equal to or greater than such commitments. On
delivery dates for such transactions, the Fund will meet its obligations
from maturities or sales of the securities held in the temporary holding
account or from then-available cash flow. If a Stock Fund chooses to dispose
of the right to acquire a when-issued or delayed delivery security prior to
its acquisition, it could incur a gain or loss due to market fluctuations.
Use of these techniques may affect a Fund's share price in a manner similar
to leveraging.

5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are registered
receipts evidencing ownership of an underlying foreign security. They
typically are issued in the United States by a bank or trust company. In
addition to the risks of foreign investment applicable to the underlying
securities, ADRs may also be subject to the risks that the foreign issuer
may not be obligated to cooperate with the U.S. bank or trust company, or
that such information in the U.S. market may not be current. ADRs which are
structured without sponsorship of the issuer of the underlying foreign
security may also be subject to the risk that the foreign issuer may not
provide financial and other material information to the U.S. bank or trust
company issuer. The International Fund may utilize European Depositary
Receipts ("EDRs"), which are similar instruments. EDRs may be in bearer form
and are designed for use in the European securities markets.

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INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)
6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES, EXCEPT THE
INTERNATIONAL FUND, WHICH MAY INVEST 100% OF ITS ASSETS IN FOREIGN
SECURITIES. Foreign securities are subject to risks in addition to those
inherent in investments in domestic securities. See "Risk Factors" for more
information about the risks associated with investments in foreign
securities.

7. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE INVESTMENT
TRUSTS ("REITS"). REITs purchase real property, which is then leased, and
make mortgage investments. For federal income tax purposes, REITs attempt to
qualify for beneficial "modified pass-through" tax treatment by annually
distributing at least 95% of their taxable income. If a REIT were unable to
qualify for such tax treatment, it would be taxed as a corporation and the
distributions made to its shareholders would not be deductible by it in
computing its taxable income. REITs are dependent upon the successful
operation of properties owned and the financial condition of lessees and
mortgagors. The value of REIT units fluctuates, depending on the underlying
value of the real property and mortgages owned and the amount of cash flow
(net income plus depreciation) generated and paid out. In addition, REITs
typically borrow to increase funds available for investment. Generally,
there is a greater risk associated with REITs that are highly leveraged.

8. MAY INVEST IN RESTRICTED SECURITIES, PROVIDED THAT SAM HAS DETERMINED THAT
SUCH SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE COMMON STOCK
TRUST'S BOARD OF TRUSTEES. Restricted securities may be sold only in
offerings registered under the Securities Act of 1933, as amended ("1933
Act"), or in transactions exempt from the registration requirements under
the 1933 Act. Rule 144A under the 1933 Act provides an exemption for the
resale of certain restricted securities to qualified institutional buyers.
Investing in restricted securities may decrease the liquidity of a Stock
Fund's portfolio to the extent that qualified institutional buyers or other
buyers become, for a time, unwilling to purchase the securities. As a
result, a Stock Fund may not be able to sell these securities when its
investment adviser or sub-investment adviser deems it advisable to sell, or
may have to sell them at less than fair value. In addition, market
quotations are sometimes less readily available for restricted securities.
Therefore, judgment may at times play a greater role in valuing these
securities than in the case of unrestricted securities.

9. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT MATURITY
ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX. The value of
an indexed security is determined by reference to a specific equity
instrument or statistic. The performance of indexed securities depends
largely on the performance of the securities or indices to which they are
indexed, but such securities are also subject to credit risks associated
with the issuer of the security. Indexed securities may also be more
volatile than their underlying instruments.

10. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES OF UNSEASONED ISSUERS.
Unseasoned issuers are those companies which, together with any
predecessors, have been in operation for less than three years.

11. MAY (EXCEPT FOR THE EQUITY FUND) PURCHASE AND WRITE (I.E., SELL) COVERED
CALL OPTIONS AND PURCHASE PUT AND CALL OPTIONS ON STOCK INDICES. The Funds
(except the Equity Fund) may employ certain strategies and techniques
utilizing these types of options to mitigate their exposure to factors that
affect security values. (The International Fund may utilize other types of
options as described above under "Each Fund's Investment Objective and
Policies -- International Fund.") There is no guarantee that these
strategies and techniques will work. An option gives an owner the right to
buy or sell securities at a predetermined exercise price for a given period
of time. The writer of a call option is obligated to sell the underlying
securities if the option is exercised during the specified period of time. A
Fund that writes a call option and wishes to terminate the

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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

obligation may effect a "closing purchase transaction" by buying an option
of the same series as the option previously written. Options on stock
indices are similar to options on stock except that, rather than obtaining
the right to take or make delivery of stock at a specified price, an option
on a stock index gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than (in the case of a call) or less than (in
the case of a put) the strike price of the option. A Fund will write call
options on stocks only if they are covered, and such options must remain
covered so long as the Fund is obligated as a writer. A Fund, under normal
conditions, will not write a call option if, as a result thereof, the
aggregate value of the assets underlying all such options (determined as of
the date such options are written) would exceed 25% of the Fund's net
assets. A Fund will not purchase an option if, as a result thereof, its
aggregate investment in options would exceed 5% of its total assets. The
International Fund's investment in options is not limited by this paragraph.
See "Each Fund's Investment Objective and Policies -- International Fund"
for a discussion of the International Fund's policies regarding investment
in options. See "Risk Factors" for more information about the risks inherent
in the purchase and sale of options.

The following restrictions are fundamental policies of the Stock Funds that
cannot be changed without shareholder vote.

1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(OTHER THAN U.S. GOVERNMENT SECURITIES).

2. THE GROWTH, INCOME AND NORTHWEST FUNDS MAY NOT PURCHASE MORE THAN 10% OF ANY
CLASS OF SECURITIES OF ANY ONE ISSUER.

3. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE
ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).

4. EACH STOCK FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES,
AND THE GROWTH FUND ONLY FOR EXTRAORDINARY OR EMERGENCY PURPOSES, FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. The Growth, Income, and Northwest
Funds will not borrow amounts in excess of 20%, and the Equity, Balanced,
International, Small Company, and Value Funds will not borrow amounts in
excess of 33% of total assets. A Stock Fund will not purchase securities if
borrowings equal to or greater than 5% of total assets are outstanding for
that Fund.

For more information, see the "Investment Policies of the Stock Funds" and
"Additional Investment Information" sections of the Statement of Additional
Information.

INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND

The investment objective of the Intermediate Treasury Fund is to provide as high
a level of current income as is consistent with the preservation of capital. The
Intermediate Treasury Fund will seek to maintain a portfolio of U.S. Treasury
obligations with an average dollar weighted maturity of between three and ten
years; however, individual obligations held by the Intermediate Treasury Fund
may have maturities outside that range.

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<PAGE>
INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND (CONTINUED)
To pursue its investment objective, the Intermediate Treasury Fund:

1. 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 Intermediate Treasury Fund may also invest in
stripped securities that are direct obligations of the U.S. Treasury. Direct
obligations of the U.S. Treasury are supported by the full faith and credit
of the U.S. Government.

2. WILL INVEST UP TO 35% OF ITS TOTAL ASSETS IN:

OTHER U.S. GOVERNMENT SECURITIES, including (a) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, such as securities issued by the
Government National Mortgage Association ("GNMA"), (b) 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"), and (c) securities
supported solely by the creditworthiness of the issuer, such as securities
issued by the Tennessee Valley Authority ("TVA"). While U.S. Government
securities are considered to be of the highest credit quality available,
they are subject to the same market risks as comparable debt securities.

CORPORATE DEBT SECURITIES which at the time of purchase are rated in the top
three grades (A or higher) by either Moody's or S&P, or, if unrated,
determined by SAM to be of comparable quality to such rated debt securities.
In addition to reviewing ratings, SAM will analyze the quality of rated and
unrated corporate bonds for purchase by the Fund by evaluating various
factors that may include the issuer's capital structure, earnings power and
quality of management. See "Description of Ratings."

3. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
EURODOLLAR BONDS AND MUNICIPAL SECURITIES. See "Additional Investment
Information -- Bond Funds and Managed Bond Fund" in the Statement of
Additional Information for more information about these securities.

INVESTMENT POLICIES OF THE HIGH-YIELD FUND

The High-Yield Fund has as its investment objective to provide a high level of
current interest income through the purchase of high-yield, fixed-income
securities. The higher yields that the Fund seeks are usually available from
lower-rated or unrated securities sometimes referred to as "junk bonds." The
maturity of the debt obligations held by the Fund may range from 1 to 30 years.

To pursue its investment objective, the High-Yield Fund:

1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS PORTFOLIO
IN HIGH-YIELD, FIXED-INCOME SECURITIES. The High-Yield Fund may purchase
debt and preferred stock issues (including convertible securities) which are
below investment grade, I.E., rated lower than the top four grades by S&P or
Moody's, or, if not rated by these agencies, in the opinion of SAM, have
credit characteristics comparable to such rated securities. Up to 25% of the
Fund's total assets may be invested in such unrated securities. SAM will
determine the quality of unrated obligations by evaluating the issuer's
capital structure, earnings power, and quality of management. Unrated
securities may not be as attractive to as many investors as rated
securities. In addition, the Fund may invest up to 5% of its total assets in
securities which are in default. The Fund will purchase securities which are
in default only when, in SAM's opinion, the potential for high yield
outweighs the risk.

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<PAGE>
INVESTMENT POLICIES OF THE HIGH-YIELD FUND (CONTINUED)
While fixed-income securities rated lower than investment grade generally
lack characteristics of a desirable investment, they normally offer a
current yield or yield-to-maturity which is significantly higher than the
yield available from securities rated as investment grade. These securities
are speculative and involve greater investment risks due to the issuers'
reduced creditworthiness and increased likelihood of default and bankruptcy.
In addition, these securities are frequently subordinated to senior
securities. See "Risk Factors" for further explanation of the special risks
associated with investing in lower-rated, fixed-income securities.

See "Description of Ratings" for a description of debt ratings. See "Debt
Securities Holdings" for a breakdown of the debt securities held by the
High-Yield Fund during the year ended December 31, 1997. The High-Yield Fund
may retain an issue whose rating has been changed.

2. MAY INVEST IN FIXED-INCOME SECURITIES WITH EQUITY FEATURES WHEN COMPARABLE
IN YIELD AND RISK TO FIXED-INCOME SECURITIES WITHOUT EQUITY FEATURES, BUT
ONLY WHEN ACQUIRED AS A RESULT OF UNIT OFFERINGS WHICH CARRY AN EQUITY
ELEMENT SUCH AS COMMON STOCK, RIGHTS OR OTHER EQUITY SECURITIES. The Fund
will hold these common stocks, rights or other equity securities until SAM
determines that, in its opinion, the optimal time for sale of the equity
security has been reached.

3. MAY INVEST IN RESTRICTED SECURITIES ELIGIBLE FOR RESALE UNDER RULE 144A
("RULE 144A SECURITIES"), PROVIDED THAT SAM HAS DETERMINED THAT SUCH
SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE BOARD OF TRUSTEES.
Restricted securities may be sold only in offerings registered under the
Securities Act of 1933 ("1933 Act") or in transactions exempt from the
registration requirements under the 1933 Act. Rule 144A under the 1933 Act
provides an exemption for the resale of certain restricted securities to
qualified institutional buyers. Investing in Rule 144A securities could have
the effect of decreasing the liquidity of a Fund's portfolio to the extent
that qualified institutional buyers or other buyers become, for a time,
unwilling to purchase the securities.

4. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES WHICH ARE
RATED LOWER THAN THE TOP THREE GRADES ASSIGNED BY MOODY'S OR S&P OR ARE
UNRATED BUT COMPARABLE TO SUCH RATED SECURITIES IF, IN THE OPINION OF SAM,
THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND YIELD IS COMPARABLE TO
OR GREATER THAN, SIMILARLY RATED TAXABLE SECURITIES. Investment in medium-
and lower-quality tax-exempt bonds involves the same risks as investments in
taxable bonds of similar quality.

5. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES, OR IN FIXED-INCOME SECURITIES WHICH ARE RATED
IN THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P DURING MARKET
CONDITIONS WHICH, IN THE OPINION OF SAM, ARE UNFAVORABLE FOR SATISFACTORY
PERFORMANCE BY LOWER-RATED OR UNRATED FIXED-INCOME SECURITIES. The Fund may
invest in higher-rated securities when changing economic conditions or other
factors cause the difference in yield between lower-rated and higher-rated
securities to narrow and SAM believes that the risk of loss to principal may
be substantially reduced with a small reduction in yield.

6. MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES BY FOREIGN
ISSUERS. These bonds have investment risks that are different from those of
domestic issuers. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and auditing practices in foreign
countries and, finally, difficulty in enforcing claims against foreign
issuers in the event of default.

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<PAGE>
INVESTMENT POLICIES OF THE HIGH-YIELD FUND (CONTINUED)

Both S&P and Moody's rate Yankee sector debt obligations. If a debt
obligation is unrated, SAM will attempt to analyze a potential investment in
the foreign issuer with respect to quality and risk on the same basis as the
rating services. Because public information is not always comparable to that
available on domestic issuers, this may not be possible. Therefore, while
SAM will attempt to select investments in Yankee sector debt securities on
the same basis as its investments in domestic securities, that may not
always be possible.

See "Risk Factors" for more information. See "Description of Stocks, Bonds and
Convertible Securities" for a brief description of common stocks, preferred
stocks, convertible securities, and bonds and other debt securities.

COMMON INVESTMENT PRACTICES OF THE INTERMEDIATE TREASURY FUND AND THE HIGH-YIELD
FUND

The Intermediate Treasury Fund and High-Yield Fund may also follow the
investment practices described below:

1. MAY HOLD CASH OR INVEST TEMPORARILY 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. Each Fund may purchase these
short-term securities as a cash management technique under those
circumstances where it has cash to manage for a short time period, for
example, after receiving proceeds from the sale of securities, interest
payments, dividend distributions from portfolio securities, or cash from the
sale of Fund shares to investors. Interest earned from these short-term
securities will be taxable to investors as ordinary income when distributed.

2. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Neither Fund,
however, will engage primarily in trading for the purpose of short-term
profits. A Fund may dispose of its portfolio securities whenever SAM deems
advisable, without regard to the length of time the securities have been
held.

3. MAY PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS. Under this procedure, a Fund agrees to acquire or sell securities
that are to be delivered against payment in the future, normally 30 to 45
days. The price, however, is fixed at the time of commitment. When a Fund
purchases when-issued or delayed-delivery securities, it will earmark
liquid, high-quality securities in an amount equal in value to the purchase
price of the security. Use of these techniques may affect the Fund's share
price in a manner similar to leveraging.

The following restrictions are fundamental policies of the Intermediate Treasury
Fund and High-Yield Fund which cannot be changed without shareholder vote.

2. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE
ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).

3. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES FROM A
BANK OR SAFECO CORPORATION OR AFFILIATES OF SAFECO CORPORATION AT AN
INTEREST RATE NOT GREATER THAN THAT AVAILABLE FROM COMMERCIAL BANKS. A Fund
will not borrow amounts in excess of 20% of its

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<PAGE>
COMMON INVESTMENT PRACTICES OF THE INTERMEDIATE TREASURY FUND AND THE HIGH-YIELD
FUND (CONTINUED)
total assets. A Fund will not purchase securities if outstanding borrowings
are equal to or greater than 5% of its total assets. Each Fund intends to
exercise its borrowing authority primarily to meet shareholder redemptions
under circumstances where redemption requests exceed available cash.

4. EACH FUND MAY INVEST UP TO 10% OF ITS NET ASSETS IN ILLIQUID SECURITIES,
WHICH ARE SECURITIES THAT CANNOT BE SOLD WITHIN SEVEN DAYS IN THE ORDINARY
COURSE OF BUSINESS FOR APPROXIMATELY THE AMOUNT AT WHICH THEY ARE VALUED.
Due to the absence of an active trading market, a Fund may experience
difficulty in valuing or disposing of illiquid securities. SAM determines
the liquidity of the securities under guidelines adopted by the Taxable Bond
Trust's Board of Trustees.

5. EACH FUND MAY INVEST UP TO 10% OF NET ASSETS IN REPURCHASE AGREEMENT
TRANSACTIONS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including the risk that the Fund will be unable to dispose of
the security during the term of the repurchase agreement if the security's
market value declines, and delays and costs to a Fund if the other party to
the repurchase agreement declares bankruptcy.

For more information see the "Investment Policies of the Bond Funds" and
"Additional Investment Information -- Bond Funds and Managed Bond Fund" sections
of the Statement of Additional Information.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

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

To pursue its investment objective, the Managed Bond Fund:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN BONDS, DEFINED AS
FIXED-INCOME SECURITIES.

2. WILL INVEST PRIMARILY IN INVESTMENT GRADE DEBT SECURITIES; I.E., SECURITIES
RATED IN THE TOP FOUR CATEGORIES BY EITHER S&P OR MOODY'S, OR IF NOT RATED,
SECURITIES WHICH, IN SAM'S OPINION, ARE COMPARABLE IN QUALITY TO INVESTMENT
GRADE DEBT SECURITIES. Included in investment grade debt securities are
securities of medium grade (rated Baa by Moody's or BBB by S&P) which have
speculative characteristics and are more likely to have a weakened capacity
to make principal and interest payments under changing economic or other
conditions than higher-grade securities. The Managed Bond Fund will limit
investments in such medium-grade debt securities to no more than 10% of its
total assets. Unrated securities are not necessarily of lower quality than
rated securities, but may not be as attractive to investors.

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<PAGE>
INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)

The Managed Bond Fund may retain debt securities which are downgraded to
below investment grade (commonly referred to as "high yield" or "junk"
bonds) after purchase. In the event that due to a downgrade of one or more
debt securities an amount in excess of 5% of the Fund's net assets is held
in securities rated below investment grade, SAM will engage in an orderly
disposition of such securities to the extent necessary to reduce the Fund's
holdings of such securities to no more than 5% of the Fund's net assets. In
addition to reviewing ratings, SAM may analyze the quality of rated and
unrated debt securities purchased for the Managed Bond Fund by evaluating
the issuer's capital structure, earnings power, quality of management, and
position within its industry. See "Description of Ratings" for a description
of debt securities ratings.

3. WILL INVEST AT LEAST 50% OF ITS TOTAL ASSETS IN OBLIGATIONS OF OR GUARANTEED
BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES. These
obligations include (a) direct obligations of the U.S. Treasury, such as
U.S. Treasury notes, bills, bonds and stripped securities; (b) securities
supported by the full faith and credit of the U.S. Government but that are
not direct obligations of the U.S. Treasury, such as securities issued by
the GNMA; (c) 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 FNMA and the FHLMC;
and (d) securities supported solely by the creditworthiness of the issuer,
such as securities issued by the TVA. While U.S. Government securities are
considered to be of the highest credit quality available, they are subject
to the same market risks as comparable debt securities.

4. MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN CORPORATE DEBT SECURITIES OR
EURODOLLAR BONDS. Eurodollar bonds are bonds issued by either U.S. or
foreign issuers that are traded in the European bond markets and denominated
in U.S. dollars. Eurodollar bonds are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar bonds are subject to certain sovereign risks. One
such risk is the possibility that a foreign government might prevent
dollar-denominated funds from flowing across its borders. Eurodollar bonds
issued by foreign issuers also are subject to the same risks as Yankee
sector bonds discussed below.

5. MAY INVEST IN ASSET-BACKED SECURITIES, WHICH REPRESENT INTERESTS IN, OR ARE
SECURED BY AND PAYABLE FROM, POOLS OF ASSETS SUCH AS (BUT NOT LIMITED TO)
CONSUMER LOANS, AUTOMOBILE RECEIVABLE SECURITIES, CREDIT CARD RECEIVABLE
SECURITIES, AND INSTALLMENT LOAN CONTRACTS. These securities may be
pass-through certificates, which are similar to mortgage-backed securities,
or they may be asset-backed commercial paper, which is issued by a special
purpose entity organized solely to issue the commercial paper and to
purchase interests in the assets. There is the risk that one or more of the
underlying borrowers may default and that recovery on the repossessed
collateral may be unavailable or inadequate to support payments on the
defaulted securities. Like mortgage-backed securities, asset-backed
securities are subject to prepayment risks, which may reduce the overall
return on the investment. Payment of interest and principal ultimately
depends upon borrowers paying the underlying loans. These securities may be
supported by credit enhancements such as letters of credit. The credit
quality of these securities depends upon the quality of the underlying
assets and the level of credit enhancements, such as letters of credit,
provided. There is the risk that one or more of the underlying borrowers may
default and that recovery on repossessed collateral may be unavailable or
inadequate to support payments on the defaulted asset-backed securities. In
addition, asset-backed securities are subject to prepayment risks which may
reduce the overall return of the investment.

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<PAGE>
INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)
to make principal and interest payments to the Managed Bond Fund, lack of
comparable publicly available information concerning foreign issuers, lack
of comparable accounting and auditing practices in foreign countries and,
finally, difficulty in enforcing claims against foreign issuers in the event
of default.

Both S&P and Moody's rate Yankee sector debt obligations. If a debt
obligation is unrated, SAM will attempt to analyze a potential investment in
the foreign issuer with respect to quality and risk on the same basis as the
rating services. Because public information is not always comparable to that
available on domestic issuers, this may not be possible. Therefore, while
SAM will attempt to select investments in Yankee sector debt securities on
the same basis as its investments in domestic securities, that may not
always be possible.

7. MAY PURCHASE OR SELL SECURITIES ON A WHEN-ISSUED OR DELAYED-DELIVERY BASIS.
Under this procedure, the Managed Bond Fund agrees to acquire securities
that are to be issued and delivered against payment in the future, normally
30 to 45 days. The price, however, is fixed at the time of commitment. When
the Managed Bond Fund purchases when-issued or delayed-delivery securities,
it will earmark liquid, high quality securities in an amount equal in value
to the purchase price of the security. Use of these techniques may affect
the Managed Bond Fund's share price in a manner similar to the use of
leveraging.

8. MAY HOLD CASH OR INVEST TEMPORARILY 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. The Managed Bond Fund may purchase
these short-term securities as a cash management technique under those
circumstances where it has cash to manage for a short time period, for
example, after receiving proceeds from the sale of securities, interest
payments or dividend distributions from portfolio securities or cash from
the sale of Managed Bond Fund shares to investors. Interest earned from
these short-term securities will be taxable to investors as ordinary income
when distributed. With respect to repurchase agreements, the Managed Bond
Fund will invest no more than 5% of its total assets in repurchase
agreements, and will not purchase repurchase agreements which mature in more
than seven days.

9. MAY HOLD CASH AS A TEMPORARY DEFENSIVE MEASURE WHEN MARKET CONDITIONS SO
WARRANT.

10. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES IF, IN SAM'S
OPINION, THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND YIELD IS
COMPARABLE TO OR GREATER THAN, SIMILARLY RATED TAXABLE SECURITIES.

11. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. The Managed Bond
Fund, however, will not engage primarily in trading for the purpose of
short-term profits. The Managed Bond Fund may dispose of its portfolio
securities whenever SAM deems advisable, without regard to the length of
time the securities have been held.

See "Risk Factors" for more information.

The following restrictions are fundamental policies of the Managed Bond Fund
which cannot be changed without shareholder vote.

1. THE FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE ISSUER
(OTHER THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES).

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INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)

2. THE FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE
ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).

3. THE FUND MAY BORROW MONEY FOR TEMPORARY OR EMERGENCY PURPOSES ONLY FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. The Fund will not borrow amounts in
excess of 20% of its total assets. As a non-fundamental policy, the Fund
will not purchase securities if outstanding borrowings are equal to or
greater than 5% of its total assets. The Fund intends to exercise its
borrowing authority primarily to meet shareholder redemptions under
circumstances where redemptions exceed available cash.

For more information, see the "Investment Policies of the Managed Bond Fund" and
"Additional Investment Information -- Bond Funds and Managed Bond Fund" sections
of the Statement of Additional Information.

INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS

The investment objective of the Municipal Bond Fund is to provide as high a
level of current interest income exempt from federal income tax as is consistent
with the relative stability of capital. The investment objective of the
California Fund is 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. The investment objective of
the Washington Fund is to provide as high a level of current interest income
exempt from federal income tax as is consistent with prudent investment risk.

To pursue its investment objective, each of the Tax-Exempt Income Funds:

1. WILL, DURING NORMAL MARKET CONDITIONS, INVEST AS A MATTER OF FUNDAMENTAL
POLICY AT LEAST 80% OF ITS NET ASSETS IN SECURITIES THE INTEREST ON WHICH IS
EXEMPT FROM FEDERAL INCOME TAX AND, IN THE CASE OF THE CALIFORNIA FUND,
EXEMPT FROM CALIFORNIA PERSONAL INCOME TAX. The Tax-Exempt Income Funds do
not currently intend to purchase taxable investments, except as a temporary
accommodation or in an emergency situation.

2. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN MUNICIPAL BONDS (IN THE CASE
OF THE WASHINGTON FUND, ISSUED BY THE STATE OF WASHINGTON OR POLITICAL
SUBDIVISIONS, MUNICIPALITIES, AGENCIES, INSTRUMENTALITIES OR PUBLIC
AUTHORITIES WITHIN THE STATE OF WASHINGTON) HAVING A MATURITY IN EXCESS OF
ONE YEAR THAT AT THE TIME OF ACQUISITION ARE INVESTMENT GRADE; I.E., RATED
IN ONE OF THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P OR, IF UNRATED,
DETERMINED BY SAM TO BE OF COMPARABLE QUALITY. Each Tax-Exempt Income Fund
may invest up to 20% of its total assets in unrated municipal bonds. Unrated
securities are not necessarily lower in quality than rated securities, but
may not be as attractive to as many investors as rated securities. Each
Tax-Exempt Income Fund will invest no more than 33% of its total assets in
municipal bonds rated in the fourth highest grade or in comparable unrated
bonds. Such bonds are of medium grade, have speculative characteristics, and
are more likely to have a weakened capacity to make principal and interest
payments under changing economic conditions or upon deterioration in the
financial condition of the issuer.

In addition to reviewing ratings, SAM will analyze the quality of rated and
unrated municipal bonds for purchase by each Tax-Exempt Income Fund by
evaluating various factors that may include the issuer's or guarantor's
financial resources and liquidity, economic feasibility of revenue bond project
financing and general purpose borrowings, cash flow and ability to meet
anticipated debt service

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)

requirements, quality of management, sensitivity to economic conditions,
operating history, and any relevant political or regulatory matters. SAM may
also evaluate trends in the economy, the financial markets or specific
geographic areas in determining whether to purchase a bond. For a description of
municipal bond ratings, see "Description of Ratings."

After purchase by a Fund, a municipal bond may be downgraded to below investment
grade or, if unrated, may cease to be comparable to a rated investment grade
security (such below investment grade securities are commonly referred to as
"high-yield" or "junk" bonds). Neither event will require a Fund to dispose of
that security, but SAM will take a downgrade or loss of comparability into
account in determining whether the Fund should continue to hold the security in
its portfolio. Each Tax-Exempt Income Fund will not hold more than 5% of its net
assets in such below investment grade securities.

The term "municipal bonds" as used in this Prospectus means those obligations
issued by or on behalf of states, territories or possessions of the United
States and the District of Columbia and their political subdivisions,
municipalities, agencies, instrumentalities or public authorities, the interest
on which in the opinion of bond counsel is exempt from federal income tax and,
in the case of the California Fund, exempt from California personal income tax.

3. MAY INVEST IN ANY OF THE FOLLOWING TYPES OF MUNICIPAL BONDS:

REVENUE BONDS, which are "limited obligation" bonds that provide financing
for specific projects or public facilities. These bonds are backed by
revenues generated by a particular project or facility or by a special tax.
A "resource recovery bond" is a type of revenue bond issued to build waste
facilities or plants. An "industrial development bond" ("IDB") is a type of
revenue bond that is backed by the credit of a private issuer, generally
does not have access to the resources of a municipality for payment, and may
involve greater risk. Each Tax-Exempt Income Fund intends to invest
primarily in revenue bonds that may be issued to finance various types of
projects, including, but not limited to, education, hospitals, housing,
waste, and utilities. Each Tax-Exempt Income Fund will not purchase private
activity bonds ("PABs") or any other type of revenue bonds, the interest on
which is a tax preference item for purposes of the alternative minimum tax.

VARIABLE- AND FLOATING-RATE OBLIGATIONS, which are municipal obligations
that carry variable or floating rates of interest. Variable-rate instruments
bear interest at rates that are readjusted at periodic intervals.
Floating-rate instruments bear interest at rates that vary automatically
with changes in specified market rates or indexes, such as the bank prime
rate. Accordingly, as interest rates fluctuate, the potential for capital
appreciation or depreciation of these obligations is less than for
fixed-rate obligations. Floating- and variable-rate obligations typically
carry demand features that permit a Fund to tender (sell) them back to the
issuer at par prior to maturity and on short notice. A Fund's ability to
obtain payment from the issuer at par may be affected by events occurring
between the date the Fund elects to tender the obligation to the issuer and
the date redemption proceeds are payable to the Fund. Each Tax-Exempt Income
Fund will purchase floating- and variable-rate obligations only if at the
time of purchase there is a secondary market for such instruments.

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)
PUT BONDS, which are municipal bonds that give the holder the unconditional
right to sell the bond back to the issuer at a specified price and exercise
date and PUT BONDS WITH DEMAND FEATURES. The obligation to purchase the bond
on the exercise date may be supported by a letter of credit or other
arrangement from a bank, insurance company or other financial institution,
the credit standing of which affects the credit quality of the bond. A
demand feature is a put that entitles the Fund holding it to repayment of
the principal amount of the underlying security on no more than 30 days'
notice at any time or at specified intervals.

MUNICIPAL LEASE OBLIGATIONS, which are issued by or on behalf of state or
local government authorities to acquire land, equipment or facilities and
may be subject to annual budget appropriations. These obligations themselves
are not normally backed by the credit of the municipality or the state but
are secured by rent payments made by the municipality or by the state
pursuant to a lease. If the lease is assigned, the interest on the
obligation may become taxable. The leases underlying certain municipal lease
obligations provide that lease payments are subject to partial or full
abatement if, because of material damage or destruction of the lease
property, there is substantial interference with the lessee's use or
occupancy of such property. This "abatement risk" may be reduced by the
existence of insurance covering the leased property, the maintenance by the
lessee of reserve funds or the provision of credit enhancements such as
letters of credit. Certain municipal lease obligations also contain
"non-appropriation" clauses that provide that the municipality has no
obligation to make lease or installment purchase payments in future years
unless money is appropriated for such purpose on a yearly basis. Some
municipal lease obligations of this type are insured as to timely payment of
principal and interest, even in the event of a failure by the municipality
to appropriate sufficient funds to make payments under the lease. However,
in the case of an uninsured municipal lease obligation, a Fund's ability to
recover under the lease in the event of a non-appropriation or default will
be limited solely to the repossession of leased property without recourse to
the general credit of the lessee, and disposition of the property in the
event of foreclosure might prove difficult. If rent is abated because of
damage to the leased property or if the lease is terminated because monies
are not appropriated for the following year's lease payments, the issuer may
default on the obligation, causing a loss to a Fund. Each Tax-Exempt Income
Fund will only invest in municipal lease obligations that are, in the
opinion of SAM, liquid securities under guidelines adopted by the Tax-Exempt
Bond Trust's Board of Trustees. Generally, municipal lease obligations will
be determined to be liquid if they have a readily available market after an
evaluation of all relevant factors.

CERTIFICATES OF PARTICIPATION in municipal lease obligations ("COPs"), which
are certificates issued by state or local governments that entitle the
holder of the certificate to a proportionate interest in the lease purchase
payments made. Each Tax-Exempt Income Fund will only invest in COPs that
are, in the opinion of SAM, liquid securities under guidelines adopted by
the Tax-Exempt Bond Trust's Board of Trustees. Generally, COPs will be
determined to be liquid if they have a readily available market after an
evaluation of all relevant factors.

PARTICIPATION INTERESTS, which are interests in municipal bonds and
floating- and variable-rate obligations that are owned by banks. These
interests carry a demand feature that permits a Fund holding an interest to
tender (sell) it back to the bank. Generally, the bank will accept tender of
the participation interest with same day notice, but may require up to five
days' notice. The demand feature is usually backed by an irrevocable letter
of credit or guarantee of the bank. The credit rating of the bank may affect
the credit quality of the participation interest.

MUNICIPAL NOTES, which are notes generally issued by an issuer to provide
for short-term capital needs and generally have maturities of one year or
less. Each Tax-Exempt Income Fund may purchase municipal notes as a medium
for its short-term investments. Municipal Notes include

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS
(CONTINUED)
tax anticipation, revenue anticipation and bond anticipation notes, and
tax-exempt commercial paper. Each Tax-Exempt Income Fund will invest only in
those municipal notes that at the time of purchase are rated within one of
the three highest grades by Moody's or S&P or, if unrated by any of these
agencies, in the opinion of SAM, are of comparable quality.

4. MAY INVEST IN SHARES OF NO-LOAD, OPEN-END INVESTMENT COMPANIES THAT INVEST
IN TAX-EXEMPT SECURITIES WITH REMAINING MATURITIES OF ONE YEAR OR LESS. Such
shares will only be purchased as a medium for a Fund's short-term
investments if SAM determines that they provide a better combination of
yield and liquidity than a direct investment in short-term, tax-exempt
securities. Each Tax-Exempt Income Fund will not invest more than 10% of its
total assets in shares issued by other investment companies, will not invest
more than 5% of its total assets in a single investment company, and will
not purchase more than 3% of the outstanding voting securities of a single
investment company.

5. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Each Tax-Exempt
Income Fund, however, will not engage primarily in trading for the purpose
of short-term profits. A Fund may dispose of its portfolio securities
whenever SAM deems advisable, without regard to the length of time the
securities have been held. The portfolio turnover rate is not expected to
exceed 70%.

6. MAY PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS. Under this procedure, a Tax-Exempt Income Fund agrees to acquire or
sell securities that are to be delivered against payment in the future,
normally 30 to 45 days. The price, however, is fixed at the time of
commitment. When a Fund purchases when-issued or delayed-delivery
securities, it will earmark liquid, high-quality securities in an amount
equal in value to the purchase price of the security. Use of this technique
may affect a Fund's share price in a manner similar to leveraging.

7. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH-QUALITY
COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, AND SHARES OF NO-LOAD, OPEN-END
MONEY MARKET FUNDS. A Tax-Exempt Income Fund may purchase these short-term
securities as a cash management technique under those circumstances where it
has cash to manage for a short time period, for example, after receiving
proceeds from the sale of securities, dividend distributions from portfolio
securities, or cash from the sale of Fund shares to investors. Interest
earned from these short-term securities will be taxable to investors as
ordinary income when distributed.

The following restrictions are fundamental policies of the Tax-Exempt Income
Funds and cannot be changed without shareholder vote.

2. EACH FUND WILL NOT INVEST 25% OR MORE OF ITS TOTAL ASSETS IN MUNICIPAL
OBLIGATIONS AND OTHER PERMITTED INVESTMENTS, THE INTEREST ON WHICH IS
PAYABLE FROM REVENUES ON SIMILAR TYPES OF PROJECTS SUCH AS: SPORTS,
CONVENTION OR TRADE SHOW FACILITIES; AIRPORTS; MASS TRANSPORTATION; SEWAGE
OR SOLID WASTE DISPOSAL FACILITIES; OR AIR OR WATER POLLUTION CONTROL
PROJECTS.

3. THE MUNICIPAL BOND FUND WILL NOT INVEST 25% OR MORE OF ITS TOTAL ASSETS IN
SECURITIES WHOSE ISSUERS ARE LOCATED IN THE SAME STATE.

4. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM

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INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)
COMMERCIAL BANKS. A TAX-EXEMPT INCOME FUND WILL NOT BORROW AMOUNTS IN EXCESS
OF 20% OF ITS TOTAL ASSETS. As a non-fundamental policy of the Washington
Fund and a fundamental policy of the California and Municipal Bond Funds, a
Fund will not purchase securities if borrowings equal to or greater than 5%
of its total assets are outstanding. Each Tax-Exempt Income Fund intends to
primarily exercise its borrowing authority to meet shareholder redemptions
under circumstances where redemptions exceed available cash.

See "Description of Ratings" for a description of debt securities ratings. For a
further description of each Fund's investment policies and restrictions as well
as an explanation of ratings, see the "Investment Policies of the Tax-Exempt
Bond Funds."

INVESTMENT POLICIES OF THE MONEY MARKET FUND

The investment objective of the Money Market Fund is to seek 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 thirteen
months or less.

To pursue its investment objective, the Money Market Fund:

1. WILL PURCHASE ONLY HIGH-QUALITY SECURITIES THAT, IN THE OPINION OF SAM
OPERATING UNDER GUIDELINES ESTABLISHED BY THE MONEY MARKET TRUST'S BOARD OF
TRUSTEES, PRESENT MINIMAL CREDIT RISKS AFTER AN EVALUATION OF THE CREDIT
QUALITY OF AN ISSUER OR OF ANY ENTITY PROVIDING A CREDIT ENHANCEMENT FOR THE
SECURITY. The Fund complies with industry-standard guidelines on the quality
and maturity of its investments, which are designed to help maintain a
stable $1.00 share price. The Fund invests in instruments with remaining
maturities of 397 days or less and maintains a dollar-weighted average
portfolio maturity of not more than 90 days.

2. MAY INVEST IN COMMERCIAL PAPER OBLIGATIONS. Commercial paper is a short-term
instrument issued by corporations, financial institutions, governmental
entities and other entities. The principal risk associated with commercial
paper is the potential insolvency of the issuer. In addition to commercial
paper obligations of domestic corporations, the Fund may also purchase
dollar-denominated commercial paper issued in the United States by foreign
entities. While investments in foreign obligations are intended to reduce
risk by providing further diversification, such investments involve
sovereign and other risks, in addition to the credit and market risks
normally associated with domestic securities. These additional risks include
the possibility of adverse political and economic developments (including
political instability) and the potentially adverse effects of unavailability
of public information regarding issuers, reduced governmental supervision of
financial markets, reduced liquidity of certain financial markets, and the
lack of uniform accounting, auditing, and financial standards or the
application of standards that are different or less stringent than those
applied in the United States. The Fund will only purchase commercial paper
issued by foreign issuers if, in the opinion of SAM, it is of an investment
quality comparable to other obligations that may be purchased by the Fund.

3. MAY INVEST IN NEGOTIABLE AND NONNEGOTIABLE DEPOSITS, BANKERS' ACCEPTANCES
AND OTHER SHORT-TERM OBLIGATIONS OF U.S. BANKS. Companies in the financial
services industry are subject to various risks related to that industry,
such as government regulation, changes in interest rates, and exposure on
loans, including loans to foreign borrowers. The Fund may also invest in
dollar-denominated obligations issued by foreign banks (including foreign
branches of U.S. banks), provided that, in the opinion of SAM, the
obligations is of an investment quality comparable to other obligations
which may be purchased by the Fund. Foreign banks may not be subject to
accounting standards or governmental supervision comparable to U.S. banks,
and there may be

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<PAGE>
INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

less public information available about their operations. In addition,
foreign obligations may be subject to risks relating to the political and
economic conditions of the foreign country involved, which could affect the
payment of principal and interest.

4. MAY INVEST IN U.S. GOVERNMENT SECURITIES. U.S. Government securities include
(a) direct obligations of the U.S. Treasury, (b) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, (c) 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 FNMA and the FHLMC, and (d) securities supported solely by the
creditworthiness of the issuer such as securities issued by the Tennessee
Valley Authority (the "TVA"). While these securities are considered to be of
the highest credit quality available, they are subject to the same market
risks as comparable debt securities.

5. MAY INVEST IN CORPORATE OBLIGATIONS SUCH AS PUBLICLY TRADED BONDS,
DEBENTURES, AND NOTES. The securities are used by issuers to borrow money
from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity.

6. MAY INVEST IN EURODOLLAR AND YANKEE BANK OBLIGATIONS. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time deposits
issued outside the U.S. capital markets by foreign branches of U.S. banks
and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the United States capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a lesser extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
foreign government might prevent dollar-denominated funds from flowing
across its borders. Other risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and auditing practices in foreign
countries and, finally, difficulty in enforcing claims against foreign
issuers in the event of default. Eurodollar and Yankee obligations will
undergo the same credit analysis as domestic issues in which the Fund
invests, and foreign issuers will be required to meet the same tests of
financial strength as the domestic issuers approved for the Fund.

7. MAY INVEST IN REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund
buys securities at one price and simultaneously agrees to sell them back at
a higher price. Delays or losses could result if the counterparty to the
agreement defaults or becomes insolvent. The Fund will invest no more than
10% of total assets in repurchase agreements that mature in more than seven
days.

8. MAY INVEST IN VARIABLE AND FLOATING RATE INSTRUMENTS. Issuers of floating or
variable-rate notes include, but are not limited to, corporations,
partnerships, special purpose entities, the U.S. Government, its agencies
and instrumentalities, and municipalities. The interest rates on variable
rate instruments reset periodically on specified dates so as to cause the
instruments' market value to approximate their par value. The interest rates
on floating-rate instruments change whenever there is a change in a
designated benchmark rate. Variable- and floating-rate instruments may have
optional or mandatory put features. In the case of a mandatory put feature,
the Fund would be required to act to keep the instrument.

9. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES ELIGIBLE
FOR RESALE UNDER RULE 144A UNDER THE 1933 ACT ("RULE 144A SECURITIES") AND
COMMERCIAL PAPER SOLD PURSUANT TO SECTION 4(2) OF THE 1933 ACT ("SECTION
4(2) PAPER"), PROVIDED THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE
LIQUID UNDER GUIDELINES ADOPTED BY THE MONEY MARKET TRUST'S BOARD OF

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INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

TRUSTEES. Restricted securities may be sold only in offerings registered
under the 1933 Act or in transactions exempt from the registration
requirements under the 1933 Act. Rule 144A under the 1933 Act provides an
exemption for the resale of certain restricted securities to qualified
institutional buyers. Investing in such 144A Securities could have the
effect of decreasing the liquidity of the Fund's portfolio to the extent
that qualified institutional buyers or other buyers become, for a time,
unwilling to purchase the securities. Section 4(2) of the 1933 Act exempts
securities sold by the issuer in private transactions from the 1933 Act's
registration requirements. Because Section 4(2) paper is a restricted
security, investing in Section 4(2) paper could have the effect of
decreasing the liquidity of the Fund's portfolio to the extent that buyers
become, for a time, unwilling to purchase the securities.

10. MAY INVEST IN MORTGAGE- AND ASSET-BACKED SECURITIES. Mortgage-backed
securities represent interests in pools of mortgage loans and include, but
are not limited to, securities issued by the U.S. Government or one of its
agencies or instrumentalities such as GNMA, FNMA or FHLMC. Principal is paid
back to the Fund as payments are made on the underlying mortgages in the
pool. Accordingly, the Fund receives scheduled monthly principal and
interest payments as well as any unscheduled principal prepayments on the
underlying mortgages. Like other fixed income securities, when interest
rates rise, the value of mortgage-backed securities generally will decline.

Asset-backed securities represent interests in, or are secured by and
payable from, pools of assets such as consumer loans, automobile receivable
securities, credit card receivable securities and installment loan
contracts. These securities may be pass-through certificates, which are
similar to mortgage-backed securities, or they may be asset-backed
commercial paper, which is issued by a special purpose entity organized
solely to issue the commercial paper and to purchase interests in the
assets. There is the risk that one or more of the underlying borrowers may
default and that recovery on the repossessed collateral may be unavailable
or inadequate to support payments on the defaulted securities. Like
mortgage-backed securities, asset-backed securities are subject to
prepayment risks, which may reduce the overall return on the investment. The
credit quality of these securities depends upon the quality of the
underlying assets and the level of credit enhancements, such as letters of
credit, provided.

11. MAY PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS. Under this procedure, a Fund agrees to acquire or sell securities
that are to be issued and delivered against payment in the future, normally
30 to 45 days. The price, however, is fixed at the time of commitment. When
a Fund purchases when-issued or delayed-delivery securities, it will earmark
liquid, high-quality securities in an amount equal in value to the purchase
price of the security. Use of these techniques may affect a Fund's share
price in a manner similar to the use of leveraging.

12. MAY INVEST UP TO 10% OF ITS NET ASSETS IN ILLIQUID SECURITIES, WHICH ARE
SECURITIES THAT CANNOT BE SOLD WITHIN SEVEN DAYS IN THE ORDINARY COURSE OF
BUSINESS FOR APPROXIMATELY THE AMOUNT AT WHICH THEY ARE VALUED. Due to the
absence of an active trading market, a Fund may experience difficulty in
valuing or disposing of illiquid securities. SAM determines the liquidity of
the securities under guidelines adopted by the Trust's Board of Trustees.

The following restrictions are fundamental policies of the Money Market Fund and
cannot be changed without shareholder approval. The Money Market Fund:

1. MAY INVEST UP TO 5% OF ITS ASSETS IN THE SECURITIES OF ANY ONE ISSUER OTHER
THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES.

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INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

3. MAY BORROW MONEY FOR TEMPORARY OR EMERGENCY PURPOSES (BUT NOT FOR INVESTMENT
PURPOSES) FROM A BANK OR AFFILIATES OF SAFECO CORPORATION AT AN INTEREST
RATE NOT GREATER THAN THAT AVAILABLE FROM COMMERCIAL BANKS. The Fund will
not borrow amounts in excess of 20% of total assets and will not purchase
securities if borrowings equal to or greater than 5% of total assets are
outstanding. The Fund intends to primarily exercise its borrowing authority
to meet shareholder redemptions under the circumstances where redemptions
exceed available cash.

For more information, see the "Investment Policies of the Money Market Fund" and
"Additional Investment Information" sections of the Statement of Additional
Information.

RISK FACTORS

RISK FACTORS OF THE STOCK FUNDS

An investment in the Northwest Fund may be subject to different risks than a
mutual fund whose investments are more geographically diverse. Since the
Northwest Fund invests primarily in companies with their principal executive
offices located in the Northwest, the number of issuers whose securities are
eligible for purchase is significantly less than many other mutual funds. Also,
some companies whose securities are held in the Northwest Fund's portfolio may
primarily distribute products or provide services in a specific locale or in the
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Northwest Fund may have a
predominately national or partially international market for their products or
services and are more likely to be impacted by national or international trends.
As a result, the performance of the Northwest Fund may be influenced by business
trends or economic conditions not only in a specific locale or in the Northwest
region but also on a national or international level, depending on the companies
whose securities are held in its portfolio at any particular time.

The Equity, Income, Small Company and Value Funds may invest in, and the other
Stock Funds as a result of downgrades may own, below investment grade bonds.
Below investment grade bonds are speculative and involve greater investment
risks than investment grade bonds due to the issuer's reduced creditworthiness
and increased likelihood of default and bankruptcy. During periods of economic
uncertainty or change, the market prices of below investment grade bonds may
experience increased volatility. Below investment grade bonds tend to reflect
short-term economic and corporate developments to a greater extent than
higher-quality bonds.

Because the International Fund primarily invests, and the other Funds may
invest, in foreign securities, a Fund may be subject to risks in addition to
those associated with U.S. investments. Foreign investments involve sovereign
risk, which includes the possibility of adverse local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent currency from being sold). Foreign investments may be affected
favorably or unfavorably by changes in currency rates and

-- 51 --
<PAGE>
RISK FACTORS (CONTINUED)
exchange control regulations. There is generally less publicly available
information about issuers of foreign securities as compared to U.S. issuers.
Many foreign companies are not subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Securities of some foreign issuers are less liquid and more volatile
than securities of U.S. issuers. Financial markets on which foreign securities
trade are generally subject to less governmental regulation as compared to U.S.
markets. Foreign brokerage commissions and custodian fees are generally higher
than those in the United States.

The Funds (except the Equity Fund) may invest in options on stock indices and
may purchase and write (I.E., sell) covered call options. The International Fund
may purchase and sell these as well as other types of put and call options,
futures contracts and forward contracts. Risks inherent in the Funds' use of
options include the risk that security prices will not move in the directions
anticipated; imperfect correlation between the price of the option and the price
of the underlying security; the risk that potential losses may exceed the amount
invested in options; and the reduction or elimination of the opportunity to
profit from increases in the value of the underlying security. Risks inherent in
the International Fund's use of futures, options and forward contracts include:
the risk that interest rates, security prices and currency markets will not move
in the directions anticipated; imperfect correlation between the price of the
future, option or forward contract and the price of the security, interest rate
or currency being hedged; the risk that potential losses may exceed the amount
invested in the contracts themselves; the possible absence of a liquid secondary
market for any particular instrument at any time; the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and the
reduction or elimination of the opportunity to profit from increases in the
value of the security, interest rate or currency being hedged.

The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation. The Growth Fund may invest a significant portion of its
assets in securities issued by smaller companies. In addition, the Small Company
Fund invests in companies with small market capitalizations which involve more
risks than investments in larger companies. Such companies may include newly
formed companies which have limited product lines, markets or financial
resources and may lack management depth. The securities of small or newly formed
companies may have limited marketability and may be subject to more abrupt and
erratic movements in price than securities of larger, more established
companies, or equity securities in general. Such volatility in price may, in
turn, cause the Growth Fund's and Small Company Fund's share prices to be
volatile.

RISK FACTORS OF THE INTERMEDIATE TREASURY, HIGH-YIELD, MANAGED BOND,
MUNICIPAL BOND, CALIFORNIA, WASHINGTON, AND MONEY MARKET FUNDS (THE "FIXED-
INCOME FUNDS")

The value of each Fixed-Income Fund (except the Money Market Fund) will normally
fluctuate inversely with changes in market interest rates. Generally, when
market interest rates rise, the price of debt securities held by a Fund will
fall, and when market interest rates fall, the price of the debt securities will
rise. Also, there is a risk that the issuer of a bond or other security held in
a Fund's portfolio will fail to make timely payments of principal and interest
to the Fixed-Income Funds. Included in investment grade debt securities are
securities of medium grade (rated Baa by Moody's or BBB by S&P), which have
speculative characteristics and are more likely to have a weakened capacity to
make principal and interest payments under changing economic or other conditions
than higher-grade securities.

-- 52 --
<PAGE>
RISK FACTORS (CONTINUED)

The Managed Bond and Money Market Fund may invest in mortgage-backed securities.
The prices of mortgage-backed securities, like conventional fixed-income
securities, are inversely affected by changes in interest rate levels. Because
of the likelihood of increased prepayments of mortgages in times of declining
interest rates, mortgage-backed securities have less potential for capital
appreciation than comparable fixed-income securities and may in fact decrease in
value when interest rates fall. Since a Fund must reinvest scheduled and
unscheduled principal payments at prevailing interest rates, and such interest
rates may be higher or lower than the current yield of the Fund's portfolio,
mortgage-backed securities may not be an effective means to lock in long-term
interest rates. Further, purchases of mortgage-backed securities for a Fund are
based on an anticipated prepayment rate. During periods of rising interest
rates, a decrease in the prepayment of mortgages is likely. This decrease may
cause the average dollar-weighted maturity of particular securities held by a
Fund and a Fund's portfolio as a whole to increase, thereby decreasing the
Fund's share price during periods of rising interest rates. To the extent that
the other Funds purchase mortgage-backed securities, they would be similarly
affected.

The Money Market Fund seeks to maintain a stable $1.00 share price. Of course,
there is no guarantee that the Money Market Fund will maintain a stable $1.00
share price. It is possible that a major change in interest rates or a default
on the Money Market Fund's investments could cause its share price (and the
value of your investment) to fall. The Money Market Fund's yield will fluctuate
with general interest rates.

SPECIAL RISKS OF THE HIGH-YIELD FUND

The High-Yield Fund invests primarily in high-yield, fixed-income securities
which are subject to the following risks:

SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS

Yields on high-yield, fixed-income securities will fluctuate over time. During
periods of economic uncertainty or change, the market prices of high-yield,
fixed-income securities may experience increased volatility, which may in turn
cause the net asset value ("NAV") per share of the High-Yield Fund to be
volatile. Lower-quality, fixed-income securities tend to reflect short-term
economic and corporate developments to a greater extent than higher-quality
securities which primarily react to fluctuations in interest rates. Economic
downturns or increases in interest rates can significantly affect the market for
high-yield, fixed-income securities and the ability of issuers to timely repay
principal and interest, increasing the likelihood of defaults. Lower-quality
securities include debt obligations issued as a part of capital restructurings,
such as corporate takeovers or buyouts. Capital restructurings generally involve
the issuance of additional debt on terms different from any current outstanding
debt. As a result, the issuer of the debt is more highly leveraged. During an
economic downturn or period of rising interest rates, a highly leveraged issuer
may experience financial difficulties which adversely affect its ability to make
principal and interest payments, meet projected business goals, and obtain
additional financing. In addition, the issuer will depend on its cash flow and
may depend, especially in the context of corporate takeovers, on a sale of its
assets to service debt.

-- 53 --
<PAGE>
RISK FACTORS (CONTINUED)
Failure to realize projected cash flows or asset sales may seriously impair the
issuer's ability to service this greater debt load, which, in turn, might cause
the Fund to lose all or part of its investment in that security. SAM will seek
to minimize these additional risks through diversification, careful assessment
of the issuer's financial structure, business plan, and management team
following any restructuring, and close monitoring of the issuer's progress
toward its financial goals.

ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES

The High-Yield Fund may hold "zero-coupon" and "payment-in-kind" fixed-income
securities. Zero-coupon securities are purchased at a discount without scheduled
interest payments. Payment-in-kind securities receive interest paid in
additional securities rather than cash. The Fund accrues income on these
securities, but does not receive cash interest payments until maturity or
payment date. The Fund intends to distribute substantially all of its income to
its shareholders so that it can be treated as a regulated investment company
under current federal tax law. As a result, if its cash position is depleted,
the Fund may have to sell securities under disadvantageous circumstances to
obtain enough cash to meet its distribution requirement. However, SAM does not
expect noncash income to materially affect the Fund's operations. Zero-coupon
and payment-in-kind securities are generally subject to greater price
fluctuations due to changes in interest rates than those fixed-income securities
paying cash interest on a schedule until maturity.

LIQUIDITY AND VALUATION

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

CREDIT RATINGS

Rating agencies evaluate the likelihood that an issuer will make principal and
interest payments, but ratings may not reflect market value risks associated
with lower-rated, fixed-income securities. Also, rating agencies may not timely
revise ratings to reflect subsequent events affecting an issuer's ability to pay
principal and interest. SAM uses S&P and Moody's ratings as a preliminary
indicator of investment quality. SAM will periodically research and analyze each
issue (whether rated or unrated) and evaluate such factors as the issuer's
interest or dividend coverage, asset coverage, earnings prospects, and
managerial strength. This analysis will help SAM to determine if the issuer has
sufficient cash flow and profits to meet required principal and interest
payments and to monitor the liquidity of the issue. Achievement of a Fund's
investment objective will be more dependent on SAM's credit analysis of bonds
rated below the three highest rating categories than would be the case were the
Fund to invest in higher- quality debt securities. This is particularly true for
the High-Yield Fund.

SPECIAL RISKS OF THE CALIFORNIA AND WASHINGTON FUNDS

-- 54 --
<PAGE>
RISK FACTORS (CONTINUED)
CALIFORNIA FUND

WASHINGTON FUND

YEAR 2000

-- 55 --
<PAGE>
RISK FACTORS (CONTINUED)

date- related information from and after January 1, 2000. This is commonly
called the "Year 2000 problem." SAM, SAFECO Services, and SAFECO Securities,
Inc. are taking steps they believe are reasonably designed to address the Year
2000 problem with respect to the computer systems that each of them uses and to
obtain satisfactory assurances that comparable steps are being taken by each of
the Funds' other, major service providers. It is not anticipated that the Funds
will incur any charges or that there will be any difficulties in accurate and
timely reporting resulting in the change in year from 1999 to 2000.

PORTFOLIO MANAGERS

GROWTH FUND

The portfolio manager for the Growth Fund is Thomas M. Maguire, Vice President,
SAM. Mr. Maguire has served as portfolio manager for the Fund since 1989.

EQUITY FUND

The portfolio manager for the Equity Fund is Richard D. Meagley, Vice President,
SAM. Mr. Meagley began serving as portfolio manager for the Fund in 1995. He is
also the portfolio manager for certain other SAFECO Funds. Prior to these
positions, he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAM and the fund manager of
the SAFECO Northwest Fund from 1991 to 1992.

INCOME FUND

The portfolio manager for the Income Fund is Thomas E. Rath, Vice President,
SAM. Mr. Rath has been a portfolio manager and securities analyst for SAFECO
Corporation since 1994. From 1992 to 1994, Mr. Rath was a principal and
portfolio manager for Meridian Capital Management, Inc., located in Seattle,
Washington. From 1987 to 1992, he was a portfolio manager and securities analyst
for First Interstate Bank, located in Seattle, Washington.

NORTHWEST FUND

The portfolio manager for the Northwest Fund is Bill Whitlow, Vice President,
SAM. Mr. Whitlow began serving as portfolio manager for the Fund in April 1997.
From 1990 to April 1997, he was a principal and manager of Pacific Northwest
Research for the brokerage firm of Pacific Crest Securities, located in Seattle,
Washington.

BALANCED FUND

The equity portion of the Balanced Fund is co-managed by Rex L. Bentley, Vice
President, SAM, and Lynette D. Sagvold, Assistant Vice President, SAM, and the
fixed-income portion is managed by Michael Hughes, Assistant Vice President,
SAM. Mr. Bentley was Vice President and investment counsel, at the investment
advisory firm of Badgley, Phelps and Bell Investment Counsel, Inc. from 1990 to
1995. Ms. Sagvold was a portfolio manager and analyst for First Interstate Bank
from 1993 to 1995, and a portfolio manager and analyst for Key Trust Company
from 1985 to 1993. Mr. Hughes was Vice President and a portfolio manager for
First Interstate Capital Management Company from 1995 to 1996, and Vice
President and portfolio manager for First Interstate Bank of California from
1988 to 1995.

-- 56 --
<PAGE>
PORTFOLIO MANAGERS (CONTINUED)
INTERNATIONAL FUND

The International Fund is managed by a committee of portfolio managers employed
and supervised by the Sub-Adviser, Bank of Ireland Asset Management (U.S.)
Limited, an investment adviser registered with the SEC. All investment decisions
are made by this committee, and no single person is primarily responsible for
making recommendations to that committee.

SMALL COMPANY FUND

The portfolio manager for the Small Company Fund is Greg Eisen, Assistant Vice
President, SAM. Mr. Eisen has served as an investment analyst for SAM since
1992. From 1986 to 1992, Mr. Eisen was engaged by the SAFECO Insurance Companies
as a financial analyst.

VALUE FUND

The Value Fund is co-managed by Rex L. Bentley, Vice President, SAM, and Lynette
D. Sagvold, Assistant Vice President, SAM. Mr. Bentley was Vice President and
investment counsel at the investment advisory firm of Badgley, Phelps and Bell
Investment Counsel, Inc., from 1990 to 1995. Ms. Sagvold was a portfolio manager
and analyst for First Interstate Bank from 1993 to 1995, and she was a portfolio
manager and analyst for Key Trust Company from 1985 to 1993.

INTERMEDIATE TREASURY FUND

The portfolio manager for the Intermediate Treasury Fund is Ronald Spaulding,
Chairman of the Board, SAM. Mr. Spaulding has served in various capacities with
SAM and SAFECO Corporation since 1975.

HIGH-YIELD FUND

MANAGED BOND FUND

MUNICIPAL BOND AND CALIFORNIA FUNDS

The portfolio manager for the Municipal Bond and California Funds is Stephen C.
Bauer, President, SAM. Mr. Bauer has served as portfolio manager for each Fund
since it commenced operations: 1981 for the Municipal Bond Fund and 1983 for the
California Fund. Mr. Bauer is the portfolio manager for certain other SAFECO
municipal bond funds, and also serves as a Director of SAM.

WASHINGTON FUND

The portfolio manager for the Washington Fund is Beverly Denny, Assistant Vice
President, SAM. Ms. Denny was the Marketing Director for the SAFECO mutual funds
from 1991 to 1993, and has been employed as an investment analyst with SAM since
1993.

-- 57 --
<PAGE>
PORTFOLIO MANAGERS (CONTINUED)
MONEY MARKET FUND

The portfolio manager for the Money Market Fund is Naomi Urata, Assistant Vice
President, SAM. Ms. Urata has been employed as an investment analyst for the
SAFECO mutual funds since 1993. From 1990 to 1992, Ms. Urata served as Cash
Manager for THE SEATTLE TIMES.

Each portfolio manager and certain other persons related to SAM, the Sub-Adviser
and the Funds are subject to written policies and procedures designed to prevent
abusive personal securities trading. Incorporated within these policies and
procedures are recommendations made by the Investment Company Institute (the
trade group for the mutual fund industry) with respect to personal securities
trading by persons associated with mutual funds. Those recommendations include
preclearance procedures and blackout periods when certain personnel may not
trade in securities that are the same or related securities being considered for
purchase or sale by a Fund.

HOW TO PURCHASE SHARES
When placing purchase orders, investors should specify whether the order is for
Class A or Class B shares of a Fund. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.

The minimum initial investment is $1,000 (IRA, UGMA and UTMA $250). The minimum
additional investment is $100 for all accounts, except for UGMA or UTMA
Automatic Investment Method ("AIM") accounts opened with an initial investment
of $250 or more. These accounts have a minimum additional investment of only
$50. Minimum additional investments are negotiable for retirement accounts other
than IRAs. Except as noted above in connection with UGMA and UTMA accounts, no
minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.

Shares of each Fund are available for purchase through investment professionals
who work at broker-dealers, banks and other financial institutions which have
entered into selling agreements with SAFECO Securities, Inc. ("SAFECO
Securities"), the distributor of the Funds. Orders received by such financial
institutions before 1:00 p.m. Pacific time on any day the New York Stock
Exchange ("NYSE") is open for regular trading will be effected that day,
provided that such order is transmitted to SAFECO Services, the transfer agent
for the Funds, prior to 2:00 p.m. Pacific time on such day. Investment
professionals will be responsible for forwarding the investor's order to SAFECO
Services so that it will be received prior to such time.

Broker-dealers, banks and other financial institutions that do not have selling
agreements with SAFECO Securities also may offer to place orders for the
purchase of each Fund's shares. Purchases made through these investment firms
will be effected at the public offering price next determined after the order is
received by SAFECO Services. Such financial institutions may charge the investor
a transaction fee as determined by the financial institution. The fee will be in
addition to the sales charge payable by the investor with respect to Class A
shares, and may be avoided by purchasing shares through a broker-dealer, bank or
other financial institution that has a selling agreement with SAFECO Securities.

Broker-dealers, banks, financial institutions and any other person entitled to
receive compensation for selling or servicing each Fund's shares may receive
different levels of compensation with respect to one particular Class of Fund
shares over another, or additional compensation based on sales of qualified
dealers. Salespersons of broker-dealers, banks and other financial institutions
that sell each Fund's shares are eligible to receive special compensation, the
amount of which varies depending on the amount of shares sold.

-- 58 --
<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)
The Funds only accept funds drawn in U.S. dollars and payable through a U.S.
Bank. The Funds do not accept currency. The Funds issue shares in uncertificated
form, but will issue certificates for whole shares without charge upon written
request. You will be required to post a bond to replace missing certificates.

THE FUNDS RESERVE THE RIGHT TO REFUSE ANY OFFER TO PURCHASE SHARES OF ANY CLASS.

PURCHASING CLASS A SHARES

The public offering price of Class A shares of each Fund except the Money Market
Fund is the next determined net asset value per share (see "Share Price
Calculation" for additional information) plus any sales charge, which will vary
with the size of the purchase as shown in the following schedule:

<TABLE>
<CAPTION>
SALE CHARGE AS BROKER
PERCENTAGE OF REALLOWANCE AS
AMOUNT OF PURCHASE ---------------------- PERCENTAGE OF
AT THE PUBLIC OFFERING NET THE OFFERING
OFFERING PRICE PRICE INVESTMENT PRICE
- --------------------------------------------------------------- --------- ----------- -----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 1.50% 1.52% 1.00%
$1,000,000 or more NONE* See Below**
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% CDSC will apply to redemptions made in the
first year.

** See discussion below for a description of the commissions payable on sales of
Class A shares of $1 million or more.

Class A shares of the Money Market Fund are offered at the next determined net
asset value per share (see "Share Price Calculation" for additional information)
with no initial sales charge. A sales charge will apply to the first exchange
from Class A shares of the Money Market Fund to Class A shares of another Fund.

From time to time, SAFECO Securities may reallow to broker-dealers, banks and
other financial institutions the full amount of the sales charge on Class A
Shares. In some instances, SAFECO Securities may offer these reallowances only
to those financial institutions that have sold or may sell significant amounts
of Class A shares. These commissions also may be paid to financial institutions
that initiate purchases made pursuant to sales charge waivers (1) and (8),
described below under "Sales Charge Waivers -- Class A shares." To the extent
that SAFECO Securities reallows 90% or more of the sales charge to a financial
institution, such financial institution may be deemed to be an underwriter under
the 1933 Act.

Except as stated below, broker-dealers of record will be paid commissions on
sales of Class A shares of $1 million or more based on an investor's (or a
related group of investors') cumulative purchases during the one-year period
beginning with the date of the initial purchase at net asset value and sales to
participant-directed qualified plans sponsored by an employer with 100 or more
eligible employees. Each subsequent one-year measuring period for these purposes
begins with the first net asset value purchase following the end of the prior
period. Each subsequent one-year measuring period for these purposes begins with
the first net asset value purchase following the end of the prior period. A 1%
CDSC may be imposed on certain redemptions made within 18 months of purchase by
these accounts. Commissions are paid at a rate of 1.00% of the amount up to $2
million, .80% of the next $1 million, .50% of the next $47 million and .25%
thereafter. In addition, SAFECO Securities may pay a commission to a
broker-dealer where clients of a particular registered representative invest, at
or about the same time, collectively $1 million or more in one or more of the
Funds. The commission will be payable in lieu of other commissions that might
otherwise be payable under the terms of this Prospectus, and will not be paid
except in connection with a transaction described in the preceding sentence.

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)

The following describes purchases that may be aggregated for purposes of
determining the amount of purchase:

1. Individual purchases on behalf of a single purchaser and the purchaser's
spouse and their children under the age of 21 years. This includes shares
purchased in connection with an employee benefit plan(s) exclusively for the
benefit of such individual(s), such as an IRA, individual plan(s) under
Section 403(b) of the Internal Revenue Code of 1986, as amended ("Code"), or
single-participant Keogh-type plan(s). This also includes purchases made by
a company controlled by such individual(s);

2. Individual purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account, including an employee
benefit plan (such as employer-sponsored pension, profit-sharing and stock
bonus plans, including plans under Code Section 401(k), and medical, life
and disability insurance trusts) other than a plan described in (1) above;
or

3. Individual purchases by a trustee or other fiduciary purchasing shares
concurrently for two or more employee benefit plans of a single employer or
of employers affiliated with each other (excluding an employee benefit plan
described in (2) above).

SALES CHARGE WAIVERS -- CLASS A SHARES

Class A shares are sold at net asset value per share without imposition of sales
charges for the following investments:

1. Registered representatives or full-time employees of broker-dealers, banks
and other financial institutions that have entered into selling agreements
with SAFECO Securities, and the children, spouse and parents of such
representatives and employees, and employees of financial institutions that
directly, or through their affiliates, have entered into selling agreements
with SAFECO Securities;

2. Companies exchanging shares with or selling assets to one or more of the
Funds pursuant to a merger, acquisition or exchange offer;

3. Any of the direct or indirect affiliates of SAFECO Securities;

4. Purchases made through the automatic investment of dividends and
distributions paid by another Fund;

5. Clients of administrators or consultants to tax-qualified employee benefit
plans which have entered into agreements with SAFECO Securities or any of
its affiliates;

6. Retirement plan participants who borrow from their retirement accounts by
redeeming Fund shares and subsequently repay such loans via a purchase of
Fund shares;

7. Retirement plan participants who receive distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in Fund shares, the
proceeds of which are reinvested in Fund shares;

8. Accounts as to which a broker-dealer, bank or other financial institution
charges an account management fee, provided the financial institution has
entered into an agreement with SAFECO Securities regarding such accounts;

9. Current or retired officers, directors, trustees or employees of any SAFECO
mutual fund or SAFECO Corporation or its affiliates and the children, spouse
and parents of such persons; and

10. Investments made with redemption proceeds from mutual funds having a similar
investment objective with respect to which the investor paid a front-end
sales charge.

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)
REINSTATEMENT PRIVILEGE

Shareholders who paid an initial sales charge and redeem their Class A shares in
a Fund have a one-time privilege to reinstate their investment by investing the
proceeds of the redemption at net asset value per share without a sales charge
in Class A shares of that Fund and/or one or more of the other Funds. SAFECO
Services must receive from the investor or the investor's broker-dealer, bank or
other financial institution within 60 days after the date of the redemption both
a written request for reinvestment and a check not exceeding the amount of the
redemption proceeds. The reinstatement purchase will be effected at the net
asset value per share next determined after such receipt.

REDUCED SALES CHARGE PLANS -- CLASS A SHARES

Class A shares of the Funds may be purchased at reduced sales charges either
through the Right of Accumulation or under a Letter of Intent. For more details
on these plans, investors should contact their broker-dealer, bank or other
financial institution or SAFECO Services.

Pursuant to the RIGHT OF ACCUMULATION, investors are permitted to purchase Class
A shares of the Funds at the sales charge applicable to the total of (a) the
dollar amount then being purchased plus (b) the dollar amount equal to the total
purchase price of the investor's concurrent purchases of Class A shares of other
SAFECO Mutual Funds plus (c) the dollar amount equal to the current public
offering price of all Class A shares of Funds already held by the investor. To
receive the Right of Accumulation, at the time of purchase investors must give
their broker-dealers, banks or other financial institutions sufficient
information to permit confirmation of qualification.

In executing a LETTER OF INTENT ("LOI"), an investor should indicate an
aggregate investment amount he or she intends to invest in Class A shares of
Funds in the following thirteen months. The LOI is included as part of the
Account Application. The Class A sales charge applicable to that aggregate
amount then becomes the applicable sales charge on all purchases of Class A
shares made concurrently with the execution of the LOI and in the thirteen
months following that execution. If an investor executes an LOI within 90 days
of a prior purchase of Class A shares, the prior purchase may be included under
the LOI and an appropriate adjustment, if any, with respect to the sales charges
paid by the investor in connection with the prior purchase will be made, based
on the then-current net asset value(s) of the pertinent Fund(s).

If at the end of the thirteen-month period covered by the LOI, the total amount
of purchases does not equal the amount indicated, the investor will be required
to pay the difference between the sales charges paid at the reduced rate and the
sales charges applicable to the purchases actually made. Shares having a value
equal to 5% of the amount specified in the LOI will be held in escrow during the
thirteen-month period (while remaining registered in the investor's name) and
are subject to redemption to assure any necessary payment to SAFECO Securities
of a higher applicable sales charge.

PURCHASING CLASS B SHARES

The public offering price of the Class B shares of each Fund is the next
determined net asset value per share. No initial sales charge is imposed.
However, a CDSC is imposed on certain redemptions of Class B shares. Because
Class B shares are sold without an initial sales charge, the investor receives
Fund shares equal to the full amount of the investment. The maximum investment
amount in Class B shares is $500,000.

Class B shares of a Fund that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) reinvestment of dividends
or other distributions or (b) shares redeemed

-- 61 --
<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)
more than six full years after their purchase. Former Class B shareholders of
the SAFECO Advisor Series Trust who invest in Class B shares of any Fund may
include the length of time of ownership of the former Class B shares for
purposes of calculating any CDSC due upon redemption.

Initial investments in Class B shares of the Money Market Fund are sold with no
initial sales charge and are not subject to a CDSC upon redemption, provided
that the investor has remained invested exclusively in Class B shares of the
Money Market Fund and has not exchanged into Class B Shares of another Fund in
the interim. Money Market Fund Class B shareholders will become subject to a
CDSC calculated in accordance with the table below if they exchange into Class B
shares of another SAFECO Fund and then redeem those shares. The CDSC will also
apply to any Class B shares of the Money Market Fund subsequently acquired by
exchange. Shareholders who initially purchase Money Market Fund Class B shares
do not receive credit for the time initially invested in the Money Market Fund
for purposes of calculating any CDSC due upon redemption of Class B shares of
another SAFECO Fund.

Redemptions of most other Class B shares will be subject to a CDSC. (See
"Contingent Deferred Sales Charge Waivers.") The amount of any applicable CDSC
will be calculated by multiplying the lesser of the original purchase price or
the net asset value of such shares at the time of redemption by the applicable
percentage shown in the table below. Accordingly, no charge is imposed on
increases in the net asset value above the original purchase price:

<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF THE
LESSER OF NET ASSET VALUE AT REDEMPTION
REDEMPTION DURING OR THE ORIGINAL PURCHASE PRICE
- -------------------------------------------------------- ---------------------------------------
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase 1%
Thereafter 0%*
</TABLE>

* Automatically converts to Class A shares in the first month following the
investor's sixth anniversary from purchase.

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and other distributions and
then of amounts representing the cost of shares held for the longest period of
time.

For example, assume an investor purchased 100 shares at $10 per share at a cost
of $1,000. Subsequently, the shareholder acquired 15 additional shares through
dividend reinvestment. During the second year after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of the
redemption a net asset value of $11 per share, the value of the investor's
shares would be $1,265 (115 shares at $11 per share). The CDSC would not be
applied to the value of the reinvested dividend shares. Therefore, the 15 shares
currently valued at $165.00 would be redeemed without a CDSC. The number of
shares needed to fund the remaining $335.00 of the redemption would equal
30.455. Using the lower of cost or market price to determine the CDSC, the
original purchase price of $10.00 per share would be used. The CDSC calculation
would therefore be 30.455 shares times $10.00 per share at a CDSC rate of 4%
(the applicable rate in the second year after purchase) for a total CDSC of
$12.18.

-- 62 --
<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)
Except for the time period during which a shareholder is invested in Money
Market Fund Class B shares, if a shareholder effects one or more exchanges among
Class B shares of the Funds during the six year period, the holding periods for
the shares so exchanged will be counted toward the six-year period.

For federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, recognized on the redemption of shares.
The amount of any CDSC will be paid to SAFECO Securities.

CONTINGENT DEFERRED SALES CHARGE WAIVERS

The CDSC will be waived in the following circumstances: (a) total or partial
redemptions made within one year following the death or disability of a
shareholder; (b) redemptions made pursuant to any systematic withdrawal plan
based on the shareholder's life expectancy, including substantially equal
periodic payments prior to age 59 1/2 which are described in Code section 72(t),
and required minimum distributions after age 70 1/2, including those required
minimum distributions made in connection with customer accounts under Section
403(b) of the Code and other retirement plans; (c) total or partial redemption
resulting from a distribution following retirement in the case of a tax-
qualified employer-sponsored retirement plan; (d) when a redemption results from
a tax-free return of an excess contribution pursuant to Section 408(d)(4) or (5)
of the Code; (e) reinvestment in Class B shares of a Fund within 60 days of a
prior redemption; (f) redemptions pursuant to the Fund's right to liquidate a
shareholder's account involuntarily; (g) redemptions pursuant to distributions
from a tax-qualified employer-sponsored retirement plan that are invested in
Funds and are permitted to be made without penalty pursuant to the Code; and (h)
redemptions in connection with a Fund's systematic withdrawal plan not in excess
of 10% of the value of the account annually.

CONVERSION OF CLASS B SHARES

A shareholder's Class B shares of a Fund will automatically convert to Class A
shares in the same Fund in the first month following the investor's sixth
anniversary from purchase, together with a pro rata portion of all Class B
shares representing dividends and other distributions paid in additional Class B
shares. Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. The conversion will be effected at the
relative net asset values per share of the two classes on the first business day
in the first month following the investor's sixth anniversary from the purchase
of Class B shares. Because the net asset value per share of Class A shares may
be higher than that of Class B shares at the time of conversion, a shareholder
may receive fewer Class A shares than the number of Class B shares converted,
although the dollar value will be the same.

HOW TO REDEEM SHARES

As described below, shares of the Funds may be redeemed at their next-determined
net asset value (subject to any applicable CDSC), and redemption proceeds will
be sent to shareholders within seven days of the receipt of a redemption
request. Shareholders who have purchased shares through broker-dealers, banks or
other financial institutions that sell shares may redeem shares through such
firms; if the shares are held in the "street name" of the broker-dealer, bank or
other financial institution, the redemption must be made through such firm.

Please note the following:

/ / If your shares were purchased by wire, redemption proceeds will be available
immediately. If shares were purchased other than by wire, each Fund reserves
the right to hold the proceeds of your

-- 63 --
<PAGE>
HOW TO REDEEM SHARES (CONTINUED)
redemption for up to 15 business days after investment or until such time as
the Fund has received assurance that your investment will be honored by the
bank on which it was drawn, whichever occurs first.

/ / SAFECO Services charges a $10 fee to wire redemption proceeds. In addition,
some banks may charge a fee to receive wires.

/ / If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.

/ / Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption will be made.

REDEMPTIONS THROUGH BROKER-DEALERS, BANKS AND OTHER FINANCIAL INSTITUTIONS

Shareholders with accounts at broker-dealers, banks and other financial
institutions that sell shares of the Funds may submit redemption requests to
such firms. Broker-dealers, banks or other financial institutions may honor a
redemption request either by repurchasing shares from a redeeming shareholder at
the shares' net asset value per share next computed after the firm receives the
request or by forwarding such requests to SAFECO Services. Redemption proceeds
(less any applicable CDSC) normally will be paid by check. Broker-dealers, banks
and other financial institutions may impose a service charge for handling
redemption transactions placed through them and may impose other requirements
concerning redemptions. Accordingly, shareholders should contact the investment
professional at their broker-dealer, bank or other financial institution for
details.

Redemption requests may also be transmitted to SAFECO Services by telephone (for
amounts of less than $100,000), by mail or by redemption check (Money Market
Fund Class A only). SAFECO Services will send to you, free of charge, redemption
checks (drafts) payable through U.S. Bank of Washington, N.A. Redemption checks
are not available to IRA shareholders or for shares issued in certificate form.
Redemption checks may be made payable to any person or entity and must contain
the proper number of signatures. Redemption checks must be for $500 or more.
Neither the Funds nor SAFECO Services will be liable for payment of postdated
redemption checks. At SAFECO Services' discretion, and upon three (3) days'
written notice, SAFECO Services reserves the right to close any account upon
which checks have been written more than once without sufficient funds
available. See "Account Changes and Signature Requirements" for further
information.

SHARE REDEMPTION PRICE AND PROCESSING

Your shares will be redeemed at the net asset value per share (subject to any
applicable CDSC) next calculated after receipt of your request that meets the
redemption requirements of the Funds. Except for the Money Market Fund, the
value of the shares you redeem may be more or less than the dollar amount you
purchased, depending on the market value of the shares at the time of
redemption. See "Share Price Calculation" for more information.

Redemption proceeds will normally be sent on the next business day following
receipt of your redemption request. If your redemption request is received after
the close of trading on the NYSE (normally 1:00 p.m. Pacific time), proceeds
will normally be sent on the second business day following receipt. Each Fund,
however, reserves the right to postpone payment of redemption proceeds for up to
seven days if making immediate payment could adversely affect its portfolio. In
addition, redemptions may be suspended or payment dates postponed if the NYSE is
closed, its trading is restricted or the Securities and Exchange Commission
declares an emergency.

-- 64 --
<PAGE>
HOW TO REDEEM SHARES (CONTINUED)
Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the net asset
value per share calculated on the day your account is closed and the proceeds
will be sent to you.

HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES

Call your investment professional or SAFECO Services at 1-800-463-8791 for more
information.

AUTOMATIC INVESTMENT METHOD (AIM)

AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount from your bank account and invest the
amount in any Fund. AIM has a minimum of $100 per Fund for all accounts (except
UGMA and UTMA accounts which have a lower $50 minimum for additional
investments, provided that the account was opened with an initial investment of
at least $250).

PAYROLL DEDUCTION PLAN

An employer or other entity using group billing may establish a
self-administered payroll deduction plan in any Fund. Payroll deduction amounts
are negotiable.

SYSTEMATIC WITHDRAWAL PLAN

This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund). Because Class A shares are
subject to sales charges, shareholders should not concurrently purchase shares
with respect to an account which is utilizing a systematic withdrawal plan.
Class B shares may not be suitable for a systematic withdrawal plan, except in
appropriate cases where the CDSC is being waived. Please see "Contingent
Deferred Sales Charge Waivers" for more information.

HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER

Shares of one Class of a Fund may be exchanged for shares of the same Class of
any other Fund, based on their next-determined respective net asset values,
without imposition of any sales charges, provided that the shareholder account
registration remains identical. CLASS A SHARES MAY BE EXCHANGED ONLY FOR CLASS A
SHARES OF THE OTHER FUNDS LISTED ON THE FIRST PAGE OF THIS PROSPECTUS. CLASS B
SHARES MAY BE EXCHANGED ONLY FOR CLASS B SHARES OF THE OTHER FUNDS LISTED ON THE
FIRST PAGE OF THIS PROSPECTUS. The exchange of Class B shares will not be
subject to a contingent deferred sales charge. For purposes of computing the
CDSC, except for the time period during which a shareholder is initially
invested in Class B shares of the Money Market Fund, the length of time of
ownership of Class B shares will be measured from the date of original purchase
and will not be affected by the exchange. Exchanges are not tax free and may
result in a shareholder's realizing a gain or loss, as the case may be, for tax
purposes. See "Fund Distributions and How They Are Taxed" for more information.
You may purchase shares of a Fund by exchange only if it is qualified for sale
in the state where you reside. Before exchanging into Class A or Class B shares
of another Fund, please be familiar with the Fund's investment objective and
policies as described in "Each Fund's Investment Objective and Policies."

-- 65 --
<PAGE>
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER (CONTINUED)
EXCHANGES BY MAIL

Exchange orders should be sent by mail to the investor's broker-dealer, bank or
other financial institution. If a shareholder has an account at SAFECO Services,
exchange orders may be sent to the address set forth on the first page of this
Prospectus.

EXCHANGES BY TELEPHONE

A shareholder may give exchange instructions to the shareholder's broker-dealer,
bank or other financial institution or to SAFECO Services by telephone at the
appropriate toll-free number provided on the first page of this Prospectus.
Exchange orders will be accepted by telephone provided that the exchange
involves only uncertificated shares or certificated shares for which
certificates previously have been deposited in the shareholder's account. See
"Telephone Transactions" for more information.

SHARE EXCHANGE PRICE AND PROCESSING

The shares of the Fund you are exchanging from will be redeemed at the price
next computed after your exchange request is received. Normally the purchase of
the Fund you are exchanging into is executed on the same day. However, each Fund
reserves the right to delay the payment of proceeds and, hence, the purchase in
an exchange for up to seven days if making immediate payment could adversely
affect the portfolio of the Fund whose shares are being redeemed. The exchange
privilege may be modified or terminated with respect to a Fund at any time, upon
at least 60 days' notice to shareholders.

LIMITATIONS

Each Fund reserves the right to refuse exchange purchases or simultaneous order
transactions by any person or group if, in SAM's judgment, the Fund would not be
able to invest the money effectively in accordance with that Fund's investment
objective and policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.

The Funds are not intended to serve as vehicles for frequent trading in response
to short-term fluctuations in the market. Due to the disruptive effect that
market-timing investment strategies can have on efficient portfolio management,
the Funds have instituted certain policies to discourage excessive exchange and
simultaneous order transactions. Exchanges and simultaneous order transactions
which, in SAM's judgment, appear to follow a market-timing strategy are limited
to four in any 12-month period per account holder (or account, in a case where
one person or entity exercises investment discretion over more than one
account). For purposes of these limitations, a "simultaneous order transaction"
is a transaction where a significant portion of an account's assets are redeemed
from one SAFECO Mutual Fund and shortly thereafter reinvested into another
SAFECO Mutual Fund. In order to protect the shareholders of the Funds, SAM
reserves the right to exercise its discretion in determining whether a
particular transaction qualifies as a simultaneous order transaction. In
addition to the foregoing limitations on exchanges and simultaneous order
transactions, as described above, the Funds reserve the right to refuse any
offer to purchase shares.

TELEPHONE TRANSACTIONS

To redeem or exchange shares by telephone, call 1-800-528-6501 between 5:30 a.m.
and 7:00 p.m. Pacific time, Monday through Friday, except certain holidays to
reach a representative; or call 1-800-463-8794 24 hours a day for our automated
system. All telephone calls are tape-recorded for your protection. During times
of drastic or unusual market volatility, it may be difficult for you to exercise
the telephone transaction privileges.

-- 66 --
<PAGE>
TELEPHONE TRANSACTIONS (CONTINUED)

To use the telephone redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
first page of this Prospectus. Redeeming or exchanging shares by telephone
allows the Funds and SAFECO Services to accept telephone instructions from an
account owner or a person preauthorized in writing by an account owner.

Each of the Funds and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services, in its sole discretion, is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.

SAFECO Services has established security procedures to prevent unauthorized
account access. There can be no assurance, however, that telephone transaction
activity will be completely secure or free from delays or malfunctions. The
Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures may
include requiring the account owner to select the telephone privilege in writing
prior to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services may request certain identifying information from
the caller. Neither the Funds nor SAFECO Services will be responsible for the
negligent or wrongful acts of third parties.

The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services. The
Funds and SAFECO Services may be liable if they do not employ reasonable
procedures to confirm that telephone transactions are genuine.

SHARE PRICE CALCULATION

The net asset value per share ("NAV") of each Fund is computed at the close of
regular trading on the NYSE (normally 1:00 p.m. Pacific time) each day that the
NYSE is open for trading. NAV is determined separately for each class of shares
of each Fund. The NAV of a Fund is calculated by subtracting a Fund's
liabilities from its assets and dividing the result by the number of outstanding
shares. In calculating the net asset value of each class, appropriate
adjustments will be made to each class's NAV to reflect expenses allocated to
it.

PORTFOLIO VALUATION FOR THE STOCK FUNDS

The Stock Funds generally value their portfolio securities at the last-reported
sale price on the national exchange on which the securities are primarily
traded, unless there are no transactions, in which case they shall be valued at
the last reported bid price. Securities traded over-the-counter are valued at
the last sale price, unless there is no reported sale price, in which case the
last reported bid price will be used. Portfolio securities that trade on a stock
exchange and over-the-counter are valued according to the broadest and most
representative market. Securities not traded on a national exchange are valued
based on consideration of information with respect to transactions in similar
securities, quotations from dealers and various relationships between
securities. Valuations of portfolio securities calculated in a like manner may
be obtained from a pricing service. Investments for which a representative value
cannot be established are valued at their fair value as determined in good faith
by or under the direction of the Common Stock Trust's Board of Trustees.

-- 67 --
<PAGE>
SHARE PRICE CALCULATION (CONTINUED)
The International Fund will invest primarily, and other Funds may invest from
time to time, in foreign securities. Trading in foreign securities will
generally be substantially completed each day at various times prior to the
close of the NYSE. The values of any such securities are determined as of such
times for purposes of computing the Funds' net asset value. Foreign currency
exchange rates are also generally determined prior to the close of the NYSE.
Foreign portfolio securities are valued on the basis of quotations from the
primary market in which they trade. The value of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or if values have been
materially affected by events occurring after the close of a foreign market, the
security will be valued at fair value as determined in good faith by SAM or BIAM
under procedures established by and under general supervision of the Common
Stock Trust's Board of Trustees.

Options that are traded on national securities exchanges are valued at their
last sale price as of the close of option trading on such exchange. Futures
contracts will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.

PORTFOLIO VALUATION FOR THE FIXED-INCOME FUNDS

For each of the Fixed-Income Funds, except the Money Market Fund, securities are
valued based on consideration of information with respect to transactions in
similar securities, quotations from dealers, and various relationships between
securities. Valuations of a Fixed-Income Fund's portfolio securities calculated
in a like manner may be obtained from a pricing service. Investments for which a
representative value cannot be established are valued at their fair value as
determined in good faith by or under the direction of each Fixed-Income Fund's
respective Trust's Board of Trustees.

Like most money market funds, the Money Market Fund values the securities it
owns on the basis of amortized cost. The Money Market Fund may use amortized
cost valuation as long as the Money Market Trust's Board of Trustees determines
that it fairly reflects market value. Amortized cost valuation involves valuing
a security at its cost and adding or subtracting, ratably to maturity, any
discount or premium, 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 the Money Market Fund maintain a stable
$1.00 share price.

The NAV of the Class B shares of each Fund will generally be lower than the NAV
of Class A shares of the same Fund because of the higher expenses borne by the
Class B shares. The NAVs of the Class A and Class B shares of a Fund also may
differ due to differing allocations of class-specific expenses. The NAVs of the
Class A and Class B shares of a Fund will tend to converge, however, immediately
after the payment of dividends.

Call 1-800-463-8794 for 24-hour price information.

INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS

Each Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993, and is authorized to issue an unlimited number of shares of
beneficial interest. The Board of Trustees of each Trust may establish
additional series or classes of shares of the Trust without approval of
shareholders.

In addition to Class A and Class B shares, each Fund also offers No-Load Class
shares through a separate prospectus to investors who purchase shares directly
from SAFECO Securities. No-Load

-- 68 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)
Class shares are sold without a front-end sales charge or CDSC and are not
subject to Rule 12b-1 fees. Accordingly, the performance of No-Load Class shares
will differ from that of Class A or Class B shares. For more information about
No-Load Class shares of each Fund, please call 1-800-624-5711.

Each share of a Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, due to the
differing expenses borne by the three classes, dividends and liquidation
proceeds for each Class of shares will likely differ. All shares issued are
fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares.

The Trusts do not intend to hold annual meetings of shareholders of the Funds.
The Trustees of a Trust will call a special meeting of shareholders of a Fund of
that Trust only if required under the Investment Company Act of 1940 ("1940
Act"), in their discretion, or upon the written request of holders of 10% or
more of the outstanding shares of a Fund or a Class entitled to vote. Separate
votes are taken by each Class of shares, Fund, or Trust if a matter affects only
that Class of shares, Fund, or Trust, respectively.

Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
each Trust Instrument requires that every written obligation of the Trust or a
Fund thereof contain a statement that such obligation may be enforced only
against the assets of that Trust or Fund, and generally provides for
indemnification out of property of that Trust or Fund of any shareholder
nevertheless held personally liable for Trust or Fund obligations, respectively.

Because the Trusts use a combined Prospectus, it is possible that a Fund might
become liable for a misstatement about the series of another Trust contained in
this Prospectus. The Boards of Trustees have considered this factor in approving
the use of a single combined Prospectus.

<TABLE>
<CAPTION>
GROWTH, EQUITY AND INCOME FUNDS
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $100,000,000 .75 of 1%
$100,000,001 -- $250,000,000 .65 of 1%
$250,000,001 -- $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
</TABLE>

-- 69 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)
<TABLE>
<CAPTION>
NORTHWEST FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .75 of 1%
$250,000,001 -- $500,000,000 .65 of 1%
$500,000,001 -- $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
<CAPTION>

BALANCED AND VALUE FUNDS
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .75 of 1%
$250,000,001 -- $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
<CAPTION>

INTERNATIONAL FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 1.10 of 1%
$250,000,001 -- $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
<CAPTION>

SMALL COMPANY FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .85 of 1%
$250,000,001 -- $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
<CAPTION>

INTERMEDIATE TREASURY FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .55 of 1%
$250,000,001 -- $500,000,000 .45 of 1%
$500,000,001 -- $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
<CAPTION>

HIGH-YIELD FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .65 of 1%
$250,000,001 -- $500,000,000 .55 of 1%
$500,000,001 -- $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>

-- 70 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

<TABLE>
<CAPTION>
MANAGED BOND FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $100,000,000 .50 of 1%
$100,000,001 -- $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%
<CAPTION>

MONEY MARKET FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .50 of 1%
$250,000,001 -- $500,000,000 .40 of 1%
$500,000,001 -- $750,000,000 .30 of 1%
Over $750,000,000 .25 of 1%
<CAPTION>

MUNICIPAL BOND AND CALIFORNIA FUNDS
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $100,000,000 .55 of 1%
$100,000,001 -- $250,000,000 .45 of 1%
$250,000,001 -- $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%
<CAPTION>

WASHINGTON FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $250,000,000 .65 of 1%
$250,000,001 -- $500,000,000 .55 of 1%
$500,000,001 -- $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>

A Trust and each Fund thereof will bear all expenses of their organization,
operations and business not specifically assumed by SAM under each Fund's
management contract. Such expenses may include, among others, custody and
accounting expenses, transfer agency and related expenses, distribution and
shareholder servicing expenses, expenses related to preparing, printing and
delivering prospectuses and shareholder reports, the expenses of holding
shareholders' meetings, legal fees, the compensation of non-interested trustees
of the Trusts, brokerage, taxes and extraordinary expenses.

With respect to the International Fund, SAM has a sub-advisory agreement with
the Sub-Adviser. The Sub-Adviser was established in 1987. The Sub-Adviser is a
direct, wholly owned subsidiary of the Bank of Ireland Asset Management Limited
and is an indirect, wholly owned subsidiary of Bank of Ireland. Bank of Ireland
and its affiliates managed assets for clients worldwide in excess of $26 billion
as of December 31, 1997. The Sub-Adviser has its headquarters at 26 Fitzwilliam
Place, Dublin, Ireland, and its U.S. office at 2 Greenwich Plaza, Greenwich,
Connecticut. Because the Sub-Adviser is doing business from a location within
the United States, investors will be able to effect service of legal process
within the United States upon the Sub-Adviser, under federal securities laws in
United States courts. However, the Sub-Adviser is a foreign organization and
maintains a substantial portion of its assets outside the United States.
Therefore, the ability of investors to enforce judgments against the Sub-Adviser
may be affected by the willingness of foreign courts to enforce judgments of
U.S. courts.

-- 71 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)
Under the agreement, the Sub-Adviser is responsible for providing investment
research and advice used to manage the investment portfolio of the International
Fund. In return, SAM (and not the International Fund) pays the Sub-Adviser a fee
in accordance with the schedule below:

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 -- $50,000,000 .60 of 1%
$50,000,001 -- $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%
</TABLE>

The parent company of the Sub-Adviser, Bank of Ireland Asset Management Limited,
is a direct, wholly owned subsidiary of the Bank of Ireland, which engages in
the investment advisory business and is located at 26 Fitzwilliam Place, Dublin,
Ireland. The Bank of Ireland is a holding company whose primary subsidiaries are
engaged in banking, insurance, securities and related financial services, and is
located at Lower Baggot Street, Dublin, Ireland.

The distributor of the Class A and Class B shares of each Fund under an
agreement with each Trust is SAFECO Securities, a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc.

The transfer, dividend disbursement and shareholder servicing agent for the
Class A and Class B shares of each Fund under an agreement with each Trust is
SAFECO Services. SAFECO Services receives a fee from each Fund for every
shareholder account held in the Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third-party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by
SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.

SAM, SAFECO Securities and SAFECO Services are wholly owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
insurance and financial services businesses). SAFECO Securities and SAFECO
Services are each located at SAFECO Plaza, Seattle, Washington 98185. SAM is
located at Two Union Square, 25th Floor, Seattle, Washington 98101.

As interpreted by courts and administrative agencies, the Glass-Steagall Act and
other applicable laws and regulations limit the ability of a bank or other
depository institution to become an underwriter or distributor of securities.
However, in the opinion of each Trust's management, based on the advice of
counsel, these laws and regulations do not prohibit such depository institutions
from providing services for investment companies. Banks or other depository
institutions may be subject to various state laws regarding such services, and
may be required to register as dealers pursuant to state law.

DISTRIBUTION PLANS

Each Trust, on behalf of the Class A and Class B shares of each Fund, has
entered into a Distribution Agreement (each an "Agreement") with SAFECO
Securities. Each Trust has also adopted a plan pursuant to Rule 12b-1 under the
1940 Act with respect to the Class A and Class B shares of each Fund (the
"Plans"). Pursuant to the Plans, each Class pays SAFECO Securities a quarterly
service fee, at the annual rate of 0.25% of the aggregate average daily net
assets of the class. Class B shares also pay SAFECO Securities a quarterly
distribution fee at the annual rate of 0.75% of the aggregate average daily net
assets of the Class B shares. Although the Money Market Trust has adopted Plans
with respect to the Class A and Class B shares of the Money Market Fund, the
Money Market Trust's

-- 72 --
<PAGE>
DISTRIBUTION PLANS (CONTINUED)

Board of Trustees and SAFECO Securities have agreed not to implement the Plans
at this time. Thus, the Class A and Class B shares of the Money Market Fund do
not currently pay service or distribution fees to SAFECO Securities under the
Money Market Fund Plans. The Money Market Fund Plans will not be implemented
unless authorized by the Money Market Trust's Board of Trustees.

Under the Plans, SAFECO Securities will use the service fees primarily to
compensate persons selling shares of the Funds for the provision of personal
service and/or the maintenance of shareholder accounts. SAFECO Securities will
use the distribution fees under the Class B Plan to offset the commissions it
pays to broker-dealers, banks or other financial institutions for selling each
Fund's Class B shares. In addition, SAFECO Securities will use the distribution
fees under the Class B Plan to offset each Fund's marketing costs attributable
to the Class B shares, such as preparation of sales literature, advertising and
printing and distributing prospectuses and other shareholder materials to
prospective investors. SAFECO Securities also may use the distribution fee to
pay other costs allocated to SAFECO Securities' distribution activities,
including acting as shareholder of record, maintaining account records and other
overhead expenses.

SAFECO Securities will receive the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the CDSCs paid upon applicable
redemptions of Class B shares and may use these proceeds for any of the
distribution expenses described above. The amount of sales charges reallowed to
broker-dealers, banks or other financial institutions who sell Class A shares
will equal the percentage of the amount invested in accordance with the schedule
set forth in "Purchasing Class A Shares." SAFECO Securities, out of its own
resources, will pay a brokerage commission equal to 4.00% of the amount invested
to broker-dealers, banks and other financial institutions who sell Class B
shares. Broker-dealers, banks and other financial institutions who sell Class B
shares of the Money Market Fund will receive the 4.00% brokerage commission at
the time the shareholder exchanges his or her Class B Money Market Fund shares
for Class B shares of another Fund.

During the period they are in effect, the Plans and related Agreements obligate
the Class A and Class B shares of the Funds to which they relate to pay service
and distribution fees to SAFECO Securities as compensation for its service and
distribution activities, not as reimbursement for specific expenses incurred.
Thus, even if SAFECO Securities' expenses exceed its service or distribution
fees for any class, the Class will not be obligated to pay more than those fees
and, if SAFECO Securities' expenses are less than such fees, it will retain its
full fees and realize a profit. Each Fund that has implemented a Rule 12b-1 Plan
will pay the service and distribution fees to SAFECO Securities until either the
applicable Plan or Agreement is terminated or not renewed.

PERSONS CONTROLLING CERTAIN FUNDS

At February 3, 1998, SAM, a Washington corporation and a wholly owned subsidiary
of SAFECO Corporation, controlled the International, Balanced and Value Funds.
At February 3, 1998, SAFECO Corporation controlled the Small Company Fund.

At February 3, 1998, SAFECO Insurance Company of America ("SAFECO Insurance")
controlled the Intermediate Treasury and Washington Funds. SAFECO Insurance is a
Washington corporation and a wholly owned subsidiary of SAFECO Corporation.

At February 3, 1998, SAM controlled the Managed Bond Fund.

SAFECO Corporation and SAFECO Insurance each has its principal place of business
at SAFECO Plaza, Seattle, Washington 98185. SAM has its principal place of
business at Two Union Square, 25th Floor, Seattle, Washington 98101.

-- 73 --
<PAGE>
PERFORMANCE INFORMATION

The yield, total return and average annual total return of each Class of a Fund
may be quoted in advertisements. For each Fund, except the Money Market Fund,
yield is the annualization on a 360-day basis of a Class net income per share
over a 30-day period divided by the Class net asset value per share on the last
day of the period. The formula for the yield calculation is defined by
regulation. Consequently, the rate of actual income distributions paid by the
Funds may differ from quoted yield figures. Total return is the total percentage
change in an investment in a Class of a Fund, assuming the reinvestment of
dividend and capital gain distributions, over a stated period of time. Average
annual total return is the annual percentage change in an investment in a Class
of a Fund, assuming the reinvestment of dividends and capital gain
distributions, over a stated period of time. Performance quotations are
calculated separately for each Class of a Fund. Standardized returns for Class A
shares reflect deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized returns for Class B shares reflect deduction of
the applicable CDSC imposed on a redemption of shares held for the period. SAM
currently anticipates that the U.S. Value Fund's portfolio turnover will not
exceed 100%. A Fund's portfolio turnover rate will vary from year to year. A
higher portfolio turnover rate involves correspondingly higher transaction costs
in the form of broker commissions and dealer spreads and other costs that a Fund
will bear directly.

For the Money Market Fund, yield is the annualization on a 365-day basis of the
Fund's net income over a 7-day period. Effective yield is the annualization, on
a 365-day basis, of the Money Market Fund's net income over a 7-day period with
dividends reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The formula for
yield and tax-equivalent yield is defined by regulation. Consequently, the rate
of actual income distributions paid by the Funds may differ from quoted yield
figures.

From time to time, a Fund may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (E.G., CDA Investment
Technologies, Lipper Analytical Services, Inc., and Morningstar, Inc.) and are
reported periodically in national financial publications such as BARRON'S,
BUSINESS WEEK, FORBES, INVESTOR'S BUSINESS DAILY, MONEY Magazine, and THE WALL
STREET JOURNAL. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performance of relevant indices.

Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. Except
for the Money Market Fund, the yield and share price of each Class of a Fund
will fluctuate, and your shares, when redeemed, may be worth more or less than
you originally paid for them.

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED

DIVIDENDS AND OTHER DISTRIBUTIONS

The Fixed-Income Funds declare dividends on each business day and pay them on
the last business day of each month; the Equity, Income, Balanced, and Value
Funds declare and pay dividends on the last business day of each calendar
quarter; and the Growth, Northwest, International, and Small Company Funds
declare and pay dividends annually. Each Fund declares dividends from net
investment income (which includes accrued dividends and interest, earned
discount, and other income earned on portfolio securities less expenses). Shares
of each Fund become entitled to receive dividends on the next business day after
they are purchased for your account. Except with respect to the Stock Funds, if
you request 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
proceeds of the redemption.

-- 74 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)
Dividends and other distributions paid by a Fund on each Class of its shares are
calculated at the same time in the same manner. However, except for the Money
Market Fund, because of the higher Rule 12b-1 service and distribution fees
associated with Class B shares, the dividends paid by a Fund on its Class B
shares will be lower than those paid on its Class A shares.

Your dividends and other distributions are reinvested in additional shares of
the distributing Fund at net asset value per share, generally determined as of
the close of business on the ex-distribution date, unless you elect in writing
to receive dividends and/or other distributions in cash and that election is
provided to SAFECO Services at the address on the first page of this Prospectus.
The election remains in effect until revoked by written notice to SAFECO
Services. For retirement accounts, all dividends and other distributions
declared by a Fund must be invested in additional shares of that Fund.

States generally treat the pass-through of interest earned on U.S. Treasury
securities and other direct obligations of the U.S. Government as tax free
income in the calculation of their state income tax. This treatment may be
dependent upon the maintenance of certain percentages of fund ownership in these
securities. The Intermediate Treasury Fund will invest primarily in these
securities, while the other Funds may occasionally invest a portion of their
portfolios in these securities.

Please remember 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.

TAXES

Each Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, a Fund will not be subject to federal income taxes to the extent
it distributes its net investment income and realized capital gains to its
shareholders. Each Fund will inform you as to the amount and nature of dividends
and other distributions to your account. Dividends and other distributions
declared in December, but received by shareholders in January, are taxable to
shareholders in the year in which declared.

When you sell (redeem) shares, it may result in a taxable gain or loss. This
depends upon whether you receive more or less than your adjusted basis for the
shares (which normally takes into account any initial sales charge paid on Class
A shares). An exchange of any Fund's shares for shares of another Fund generally
will have similar tax consequences.

Special rules apply when you dispose of Class A shares of a Fund (except the
Money Market Fund) through a redemption or exchange within 60 days after your
purchase thereof and subsequently reacquire Class A shares of the same Fund or
acquire Class A shares of another Fund without paying a sales charge due to the
exchange privilege or reinstatement privilege. See "How to Purchase Shares --
Reinstatement Privilege" and "How to Exchange Shares from One Fund to Another"
for more information. In these cases, any gain on the disposition of the
original Class A shares will be increased, or any loss decreased, by the amount
of the sales charge paid when you acquired those shares, and that amount will
increase the basis of the shares subsequently acquired. In addition, if you
purchase shares of a Fund (whether pursuant to the reinstatement privilege or
otherwise) within thirty days before or after redeeming other shares of that
Fund (regardless of class) at a loss, all or part of that loss will not be
deductible and will increase the basis of the newly purchased shares.

-- 75 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

SPECIAL CONSIDERATIONS FOR THE TAX-EXEMPT INCOME FUNDS

TAXES

Each Tax-Exempt Income Fund intends to continue to qualify for favorable tax
treatment as a "regulated investment company" under the Internal Revenue Code
("Code") so as to be able to pay dividends that are exempt from federal personal
income taxes. The portion of dividends representing net short-term capital
gains, however, is not exempt and will be treated as taxable dividends for
federal income tax purposes. In addition, income which is derived from
purchasing certain bonds below their issued price after April 30, 1993, will be
treated as ordinary income for federal income tax purposes.

A portion of a Tax-Exempt Income Fund's assets may from time to time be
temporarily invested in fixed-income obligations, the interest on which when
distributed to the Fund's shareholders will be subject to federal income taxes.
As a matter of non-fundamental investment policy, the Tax-Exempt Income Funds
will not purchase so-called "non-essential or private activity" bonds, the
interest on which would constitute a preference item for shareholders in
determining their alternative minimum tax.

The excess of net long-term capital gains realized by a Tax-Exempt Income Fund
over net short-term capital loss on portfolio transactions does not necessarily
result in exemption under other federal, state or local income taxes.
Shareholders of each Tax-Exempt Income Fund should bear in mind that they may be
subject to other taxes. If a shareholder buys shares of a Tax-Exempt Income Fund
and sells them at a loss within six months, such loss for federal income tax
purposes will be disallowed to the extent of the tax-exempt interest component
of dividends received during such six-month period. If a shareholder buys shares
of a Tax-Exempt Income Fund and sells them at a loss within six months, to the
extent not disallowed in the previous paragraph and to the extent of any
long-term capital gains distributions, the loss will be treated as a long-term
capital loss for federal income tax purposes. Individuals who receive Social
Security benefits must use the amount of income dividends received from each of
the Tax-Exempt Income Funds in determining the amount of any federal income tax
due on such benefits. Under the Code, the tax effect on individuals of receiving
dividends from any of the Tax-Exempt Income Funds is substantially different
from the tax effect on other types of shareholders.

CALIFORNIA FUND

The California Fund intends to pay dividends that are exempt from California
state personal income taxes. This would not include taxable interest paid on
temporary investments, if any. Generally, the tax treatment of capital gains
under California law is the same as under federal law, but such gains are taxed
at the same rates as ordinary income. Capital gains distributions paid by the
California Fund are treated as long-term capital gains under California law
regardless of how long the shares have been held. Redemptions and exchanges of
the California Fund may result in a capital gain or loss for California income
tax purposes. Under California law, the dividend income from California
municipal bonds is exempt from the California personal income tax applicable to
individual shareholders but is fully taxable for purposes of the California
franchise tax applicable to most corporate shareholders. Shares of the
California Fund will not be subject to the California property tax.

WASHINGTON FUND

Currently, the State of Washington has no state personal income tax. Should
Washington state enact a personal income tax, there can be no assurance that
income from the Washington Fund's portfolio securities which is distributed to
shareholders would be exempt from such a tax.

-- 76 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)
TAX WITHHOLDING INFORMATION

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.

If the International Fund pays nonrefundable taxes to foreign governments during
the year, the taxes will reduce the Fund's dividends but still be included in
your taxable income. However, you may be able to claim an offsetting credit or
deduction on your tax return for your share of foreign taxes paid by the Fund.

The foregoing is only a summary of some of the important tax considerations
generally affecting each Fund and its shareholders; see the Trusts' Statement of
Additional Information for a further discussion. There may be other federal,
state or local tax considerations applicable to a particular investor. You
therefore are urged to consult your tax adviser.

TAX-DEFERRED RETIREMENT PLANS

SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses, and nonprofit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the Funds
(other than the Tax-Exempt Income Funds) may be used as investment vehicles for
these plans.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). The maximum annual contribution
generally is $2,000 per person. An annual custodial fee will be charged for any
part of a calendar year in which you have an IRA investment in a Fund.

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 $24,000 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 regular IRAs.

403(B) PLANS. 403(b) plans are retirement plans for 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. SAFECO Services offers a low-cost
administration package that includes a prototype plan, record keeping, testing,
and employee communications. Minimum investment amounts are negotiable.

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. SAFECO Services offers an administration package for these plans.
Minimum investment amounts are negotiable.

-- 77 --
<PAGE>
TAX-DEFERRED RETIREMENT PLANS (CONTINUED)
For information about the above accounts and plans, please contact your
investment professional, or call 1-800-278-1985. For a description of federal
income tax withholding on distributions from these accounts and plans, see "Fund
Distributions and How They Are Taxed -- Tax Withholding Information."

ACCOUNT STATEMENTS

Periodically, you will receive an account statement indicating your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.

ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS

Changes to your account registration or the services you have selected must be
in writing and signed by the number of owners specified on your account
application as having authority to make these changes. Send written changes to
the broker-dealer, bank or other financial institution where your account is
maintained. (Changes made to accounts maintained at SAFECO Services should be
sent to the address on the first page of this Prospectus.) Certain changes to
the Automatic Investment Method and Systematic Withdrawal Plan can be made by
telephone request if you have previously selected single signature authorization
for your account.

You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
without the co-owner's signature. If you do not indicate otherwise on the
application, the signatures of all account owners will be required to effect a
transaction. Your selection of fewer than all account owner signatures may be
revoked by any account owner who writes to SAFECO Services or the financial
institution where your account is maintained.

The broker-dealer, bank or financial institution where your account is
maintained or SAFECO Services may require a signature guarantee for a signature
that cannot be verified by comparison to the signature(s) on your account
application. A signature guarantee may be obtained from most financial
institutions, including banks, savings and loans, and broker-dealers.

DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES

COMMON STOCKS represent equity interest in a corporation. Although common stocks
have a history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and overall market and economic
conditions. Smaller companies are especially sensitive to these factors.

PREFERRED STOCKS are equity securities whose owners have a claim on a company's
earnings and assets before holders of common stock, but after debt holders. The
risk characteristics of preferred stocks are similar to those of common stocks,
except that preferred stocks are generally subject to less risk than common
stocks.

BONDS AND OTHER DEBT SECURITIES are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at

-- 78 --
<PAGE>
DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES (CONTINUED)
maturity. The value of bonds and other debt securities will normally vary
inversely with interest rates. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise. Debt securities have
varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Long-term bonds are generally more sensitive to interest rate
changes than short-term bonds.

CONVERTIBLE SECURITIES are debt or preferred stock which is convertible into or
exchangeable for common stock. The value of convertible corporate bonds will
normally vary inversely with interest rates and the value of convertible
corporate bonds and convertible preferred stock will normally vary with the
value of the underlying common stock.

DESCRIPTION OF RATINGS

COMMERCIAL PAPER RATINGS

DEBT RATINGS

MOODY'S. INVESTMENT GRADE:

AAA -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.

BAA -- Bonds which are rated Baa are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for

-- 79 --
<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)

the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.

BELOW INVESTMENT GRADE:

BA -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

CAA -- Bonds which are rated Caa have poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

CA -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.

C -- Bonds which are rated C are the lowest rated Class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

S&P. INVESTMENT GRADE:

AAA -- Debt which is rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.

AA -- Debt which is rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.

BELOW INVESTMENT GRADE:

BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the least degree of speculation and "C" the highest. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.

C1 -- The rating C1 is reserved for income bonds on which no interest is being
paid.

D -- Debt rated D is in payment default. The D rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.

PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

-- 80 --
<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)

MUNICIPAL NOTES AND OTHER SHORT-TERM OBLIGATION RATINGS

MOODY'S. Moody's rates municipal notes and other short-term obligations using
Moody's Investment Grade ("MIG").

MIG-2 -- This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

DEBT SECURITIES HOLDINGS

INCOME FUND

The weighted average ratings of all debt securities held by the Income Fund,
expressed as a percentage of total investments held during the year ended
December 31, 1997, were as follows:

<TABLE>
<CAPTION>
MOODY'S % S&P %
- ------------------------------ ----- ------------------------------ -----
<S> <C> <C> <C>
INVESTMENT GRADE
Aaa --% AAA --%
Aa --% AA --%
A .99% A .99%
Baa 1.16% BBB 1.16%

BELOW INVESTMENT GRADE
Ba 0% BB 0%
B 5.62% B 10.86%
Caa --% CCC 0%
Ca --% CC --%
C --% C --%
D --%
Not Rated, but determined to Not Rated, but determined to
be investment grade --% be investment grade --%
Not Rated, but determined to Not Rated, but determined to
be below investment grade 6.7% be below investment grade 1.48%
</TABLE>

-- 81 --
<PAGE>
DEBT SECURITIES HOLDINGS (CONTINUED)
HIGH-YIELD FUND

The weighted average ratings of all fixed-income securities, expressed as a
percentage of total investments held by the High-Yield Bond during the year
ended December 31, 1997, were as follows:

<TABLE>
<CAPTION>
MOODY'S % S&P %
- ------------------------------ ----- ------------------------------ -----
<S> <C> <C> <C>
INVESTMENT GRADE
Aaa --% AAA --%
Aa --% AA --%
A --% A --%
Baa 0% BBB --%

BELOW INVESTMENT GRADE
Ba 14.77% BB 11.99%
B 56.98% B 63.58%
Caa 0% CCC 0%
Ca --% CC 0%
C --% C --%
D --%
Not Rated, but determined to Not Rated, but determined to
be investment grade --% be investment grade --%
Not Rated, but determined to Not Rated, but determined to
be below investment grade 20.20% be below investment grade 16.37%
</TABLE>

-- 82 --
<PAGE>
SAFECO FAMILY OF FUNDS

STABILITY OF PRINCIPAL

SAFECO Money Market Fund

BOND INCOME

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

TAX-FREE BOND INCOME

SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund

HIGH CURRENT INCOME WITH LONG-TERM GROWTH

SAFECO Income Fund

LONG TERM GROWTH

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

FOR MORE COMPLETE INFORMATION ON CLASS A OR CLASS B SHARES OF ANY SAFECO MUTUAL
FUND, INCLUDING MANAGEMENT FEES AND EXPENSES, PLEASE CONTACT YOUR INVESTMENT
PROFESSIONAL.

<PAGE>

NATIONWIDE: 1-800-528-6501
Extension 1 for Shareholder Services
Extension 2 for Dealer Services
Extension 3 for the Automated Information Line

MAILING ADDRESS:

SAFECO Mutual Funds
Advisor Class Shares
P.O. Box 34890
Seattle, WA 98124-1890

EXPRESS/OVERNIGHT MAIL:

SAFECO Mutual Funds
Advisor Class Shares
4333 Brooklyn Avenue N.E.
Seattle, WA 98105

DISTRIBUTOR:

SAFECO Securities, Inc.

PROSPECTUS

April 30, 1998

SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
SAFECO HIGH-YIELD BOND FUND
SAFECO MANAGED BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
SAFECO MONEY MARKET FUND
CLASS A
CLASS B

GMF 4111 4/98

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Printed on Recycled Paper.
-Registered Trademark- Registered trademark of SAFECO
Corporation

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANY TRUST, ANY FUND, OR BY
SAFECO SECURITIES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY BY ANY TRUST, ANY FUND, OR BY SAFECO SECURITIES
IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
<PAGE>

SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND

SAFECO TAXABLE BOND TRUST:
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO HIGH-YIELD BOND FUND

SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND

SAFECO TAX-EXEMPT BOND TRUST:
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

SAFECO MONEY MARKET TRUST:
SAFECO MONEY MARKET FUND

ADVISOR CLASS A
ADVISOR CLASS B

Statement of Additional Information

This Statement of Additional Information relates to the Advisor Class A
("Class A") and Advisor Class B ("Class B") shares of the Funds listed above
(each a "Fund"). This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Prospectus for the Class A and
Class B shares of the Funds, which may be obtained by writing SAFECO Mutual
Funds, Class A and Class B Shares, P.O. Box 34890, Seattle, Washington
98124-1890, or by calling TOLL FREE: 1-800-463-8791.

The date of the most current Prospectus to which this Statement of Additional
Information relates is April 30, 1998.

The date of this Statement of Additional Information is April 30, 1998.

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TABLE OF CONTENTS

OVERVIEW OF INVESTMENT POLICIES. . . . . . . . . . . . . . . . . . . . . . 3
INVESTMENT POLICIES OF THE STOCK FUNDS . . . . . . . . . . . . . . . . . . 4
INVESTMENT POLICIES OF THE BOND FUNDS. . . . . . . . . . . . . . . . . . . 29
INVESTMENT POLICIES OF THE MANAGED BOND FUND . . . . . . . . . . . . . . . 32
INVESTMENT POLICIES OF THE TAX-EXEMPT BOND FUNDS . . . . . . . . . . . . . 36
INVESTMENT POLICIES OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . 41
ADDITIONAL INVESTMENT INFORMATION. . . . . . . . . . . . . . . . . . . . . 43
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS. . . . . . . . . . . . . . . 65
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS . . 68
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS. . . . . . . . . . . . . . . . . . 78
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 79
CONVERSION OF CLASS B SHARES . . . . . . . . . . . . . . . . . . . . . . . 83
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE . . . . 84
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . 85
ADDITIONAL INFORMATION ON DIVIDENDS FOR THE MONEY MARKET FUND. . . . . . . 97
TRUSTEES AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 97
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . . . .104
BROKERAGE PRACTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . .115
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . . . .117
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . .117
DESCRIPTION OF RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . .119

<PAGE>

OVERVIEW OF INVESTMENT POLICIES

SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"), SAFECO
Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"), SAFECO
Balanced Fund ("Balanced Fund"), SAFECO International Stock Fund ("International
Fund"), SAFECO Small Company Stock Fund ("Small Company Fund") and SAFECO U.S.
Value Fund ("Value Fund") (collectively, "Stock Funds") are each a series of the
SAFECO Common Stock Trust ("Common Stock Trust").

SAFECO Intermediate-Term U.S. Treasury Fund ("Intermediate Treasury Fund") and
SAFECO High-Yield Bond Fund ("High-Yield Bond Fund") (collectively, "Bond
Funds") are series of the SAFECO Taxable Bond Trust ("Taxable Bond Trust"). The
SAFECO Managed Bond Fund ("Managed Bond Fund") is the only series of SAFECO
Managed Bond Trust ("Managed Bond Trust").

SAFECO Municipal Bond Fund ("Municipal Fund"), SAFECO California Tax-Free Income
Fund ("California Fund") and SAFECO Washington State Municipal Bond Fund
("Washington Fund") (collectively, the "Tax-Exempt Bond Funds") are series of
SAFECO Tax-Exempt Bond Trust ("Tax-Exempt Bond Trust").

SAFECO Money Market Fund ("Money Market Fund") is a series of SAFECO Money
Market Trust ("Money Market Trust").

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

With respect to the investment restrictions of the Tax-Exempt Bond Funds, the
entity that has the ultimate responsibility for the payment of interest and
principal on a particular security generally is deemed to be its issuer for
purposes of the Tax-Exempt Bond Funds' investment policies. The identification
of the issuer of a tax-exempt security for purposes of diversification depends
on the terms and conditions of the security. For example, when the assets and
revenues of an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating the subdivision and the
security is backed only by the assets and revenues of the subdivision, such
subdivision would be deemed to be the sole issuer for diversification purposes.
Similarly, in the case of an industrial development bond, if that bond is backed
only by the assets and revenues of the non-governmental user, then such
non-governmental user

<PAGE>

would be deemed to be the sole issuer for purposes of diversification. If,
however, in either case, the creating government or some other entity guarantees
a security, such a guarantee would be considered a separate security which must
be valued and included in each Tax-Exempt Bond Fund's five percent (5%)
limitation on investments in one issuer.

Non-fundamental policies may be changed without shareholder approval.

INVESTMENT POLICIES OF THE STOCK FUNDS

GROWTH FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

with the disposition of any unmarketable or restricted securities which it
may acquire and hold in its portfolio.

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

<PAGE>

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

5. The Growth Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities would exceed 5% of its total
assets.

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

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

8. The Growth Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

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

11. The Growth Fund may invest up to 5% of its total assets in contingent value
rights.

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

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

14. The Growth Fund may invest in restricted securities eligible for resale
under Rule 144A under the 1933 Act, as amended ("Rule 144A"), provided that
SAM has determined that

<PAGE>

such securities are liquid under guidelines adopted by the Board of
Trustees, except that the Fund may invest up to 10% of its total assets in
144A securities that are illiquid.

EQUITY FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

<PAGE>

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

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

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

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

7. The Equity Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

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

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

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

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

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

14. The Equity Fund will not purchase or retain for its portfolio the
securities of any issuer, if, to the Fund's knowledge, the officers or
trustees of the Fund or its investment adviser

<PAGE>

(who individually own more than 0.5% of the outstanding securities of such
issuer), together own more than 5% of such issuer's outstanding securities.

INCOME FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

5. Concentrate its investments in particular industries or companies, but
shall maintain substantial diversification of its investments among
industries and, to the extent deemed practicable by management, among
companies within particular industries; in no event shall the Income Fund
invest more than 25% of its assets in any one industry.

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

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

8. Make loans to any person, firm or corporation, but the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities issued by persons other than the

<PAGE>

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

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

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

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

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

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

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

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

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

<PAGE>

borrowing, there is an asset coverage of at least 300% for all such
borrowings and provided, further, that in the event that such asset
coverage shall at any time fall below 300%, the Income Fund shall, within
three (3) days thereafter (not including Sundays and holidays), or such
longer period as the SEC may prescribe by rules and regulations, reduce the
amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least 300%. For purposes of this restriction, the
terms "senior security" and "asset coverage" shall be understood to have
the meaning assigned to those terms in Section 18 of the 1940 Act.

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

6. The Income Fund will not purchase puts, calls, straddles, spreads or any
combination thereof if by reason thereof the value of its aggregate
investment in such classes of securities would exceed 5% of its total
assets.

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

8. The Income Fund will not enter into a repurchase agreement for a period
longer than 7 days.

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

10. The Income Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end money market
funds (subject to the fundamental

<PAGE>

policy limitations set forth in section 12 above), repurchase agreements
(subject to the non-fundamental policy limitations in section 8 above) or
any other short-term instrument SAM deems appropriate.

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

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

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

NORTHWEST FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

holidays), or such longer period as the SEC may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%. For purposes of
this restriction, the terms "senior security" and "asset coverage" shall be
understood to have the meaning assigned to those terms in Section 18 of the
1940 Act.

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

BALANCED FUND

FUNDAMENTAL INVESTMENT POLICIES

<PAGE>

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

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

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

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

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

INTERNATIONAL FUND

FUNDAMENTAL INVESTMENT POLICIES

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

<PAGE>

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

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

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

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

SMALL COMPANY FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

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

<PAGE>

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

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

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

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

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

U.S. VALUE FUND

FUNDAMENTAL POLICIES

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

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

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

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

4. Issue senior securities, except as permitted under the 1940 Act, the rules
or regulations promulgated thereunder or pursuant to a no-action letter or
an exemptive order issued by the Securities and Exchange Commission;

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

6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the U.S. Value Fund
may purchase financial futures contracts and options and options on
financial futures contracts;

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

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

NON-FUNDAMENTAL INVESTMENT POLICIES

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

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

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

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

4. The U.S. Value Fund will not invest in oil, gas or other mineral
exploration, development programs or leases;

<PAGE>

5. The U.S. Value Fund will not invest more than 5% of its net assets in
warrants. Warrants acquired by the Fund in units or attached to securities
are not subject to the 5% limit;

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

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

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

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

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

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

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

<PAGE>

dispose of securities whenever its adviser deems advisable without regard
to the length of time they have been held;

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

15. The U.S. Value Fund will not purchase or sell commodities or commodity
contracts.

INVESTMENT POLICIES OF THE BOND FUNDS

FUNDAMENTAL INVESTMENT POLICIES

Each Bond Fund has adopted the following fundamental investment policies. Each
Bond Fund will NOT:

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

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

3. Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal obligations or other permitted investments secured
by real estate or interests therein;

4. Purchase or retain for the Fund's portfolio the securities of any issuer,
if, to the Fund's knowledge, the officers or directors of the Fund, or its
investment adviser, who individually own more than one-half (1/2) of one
percent (1%) of the outstanding securities of such an issuer, together own
more than five percent (5%) of such outstanding securities;

5. Borrow money, except from a bank or SAFECO Corporation or its affiliates at
an interest rate not greater than that available to the Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of the value of the Fund's total assets at the time of such

<PAGE>

borrowing;

Each Fund will not purchase securities if borrowings equal to or greater
than five percent (5%) of the Fund's total assets are outstanding;

6. Pledge, mortgage or hypothecate its assets, except that to secure
borrowings permitted by subparagraph (5) above, it may pledge securities
having a market value at the time of pledge not exceeding ten percent (10%)
of the cost of the Fund's total assets;

7. Purchase or sell commodities or commodity contracts, other than futures
contracts, or invest in oil, gas or other mineral exploration or
development programs or in arbitrage transactions;

8. Make short sales of securities or purchase securities on margin, except for
margin deposits in connection with futures contracts and such short-term
credits as are necessary for the clearance of transactions;

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

10. Purchase from or sell portfolio securities to any officer or director, the
Fund's investment adviser, principal underwriter or any affiliates or
subsidiaries thereof; provided, however, that this prohibition shall not
prohibit the Fund from purchasing with the up to $7,000,000 raised through
the sale of up to 700,000 shares of common stock to SAFECO Life Insurance
Company, portfolio securities from subsidiaries of SAFECO Corporation prior
to the effective date of the Fund's initial public offering;

11. Purchase securities (other than obligations issued or guaranteed by the
United States Government, its agencies or instrumentalities), if as a
result twenty-five percent (25%) or more of the Fund's total assets would
be invested in one industry (governmental issuers of securities are not
considered part of any one industry);

12. Purchase shares of common stock, other than those issued by other regulated
investment companies or when the acquisition of such common stocks, rights
or other equity interests is consistent with the Fund's investment
objective. Generally, each Fund will only hold such equity securities as a
result of purchases or unit offerings of fixed-income securities which
include such equity securities or in connection with an actual or proposed
conversion or exchange of fixed-income securities;

<PAGE>

borrowing, there is an asset coverage of at least three hundred percent
(300%) for all such borrowings and provided, further, that in the event
that such asset coverage shall at any time fall below three hundred percent
(300%), the Fund shall, within three (3) days thereafter (not including
Sundays and holidays), or such longer period as the Securities and Exchange
Commission ("SEC") may prescribe by rules and regulations, reduce the
amount of its borrowings to an extent that the asset coverage of such
borrowings shall be at least three hundred percent (300%). For purposes of
this restriction, the terms "senior security" and "asset coverage" shall be
understood to have the meaning assigned to those terms in Section 18 of the
1940 Act;

14. Purchase securities of any issuer, if, as a result, more than ten percent
(10%) of any class of securities of such issuer would be owned by the Fund;

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

16. Purchase or otherwise acquire securities which are illiquid or subject to
legal or contractual restrictions on resale, if as a result more than ten
percent (10%) of the Fund's total assets would be invested in such
securities, except that in the case of the High-Yield Fund the purchase of
Rule 144A Securities deemed to be liquid pursuant to guidelines adopted by
the Board of Trustees of the High-Yield Fund shall not be limited by this
restriction; or

17. Make loans, except through the purchase of a portion or all of an issue of
debt or money market securities in accordance with its investment
objective, policies and restrictions, or through investments in qualified
repurchase agreements (provided, however, that the Fund shall not invest
more than ten percent (10%) of its total assets in qualified repurchase
agreements maturing in more than seven (7) days), or through qualified loan
agreements (by making secured loans of its portfolio securities which
amount to not more than five percent (5%) of its total assets).

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Fund will not invest more than five percent (5%) of its total assets in
securities of issuers, including their predecessors, which have been in
operation for less than three years.

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

3. The Fund will not invest in securities with unlimited liability, I.E.,
securities the holder of

<PAGE>

which may be assessed for amounts in addition to the subscription or other
price paid for the security.

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

5. The Fund may purchase "when-issued" or "delayed-delivery" securities or
purchase or sell securities on a "forward commitment" basis.

6. The Fund will not invest in any security issued by a commercial bank unless
(a) the bank has total assets of at least $1 billion, or the equivalent in
other currencies, or, in the case of a United States bank which does not
have assets of at least $1 billion, the aggregate investment made in any
one such bank is limited to $100,000 and the principal sum of each
investment is insured in full by the Federal Deposit Insurance Corporation
("FDIC"), (b) in the case of a U.S. bank, it is a member of the FDIC and
(c) in the case of a foreign bank, the security is, in the opinion of the
Fund's investment adviser, of an investment quality comparable with other
debt securities which may be purchased by the Fund. These limitations do
not prohibit investment in securities issued by foreign branches of U.S.
banks, provided the U.S. banks meet the foregoing requirements.

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

8. The Intermediate Treasury Fund may invest up to five percent (5%) of its
total assets in Yankee Sector debt securities and up to five percent (5%)
of its total assets in Eurodollar bonds.

9. The Fund may invest up to five percent (5%) of its total assets in
securities the interest on which, in the opinion of counsel for the issuer,
is exempt from federal income tax.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

FUNDAMENTAL INVESTMENT POLICIES

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

1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if as a result more than five percent (5%)
of the value of total assets at the time of purchase would be invested in
the securities of such issuer, except that up to twenty-five percent
(25%) of the value of the Fund's assets (which twenty-five percent
<PAGE>

(25%) shall not include securities issued by another investment company)
may be invested without regard to this five percent (5%) limitation;

2. Purchase the securities of any issuer (other than obligations of or
guaranteed by the U.S. Government, its agencies and instrumentalities) if,
as a result, more than ten percent (10%) of any class of securities of such
issuer will be held by the Fund;

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

4. Purchase securities, if as a result, twenty-five percent (25%) or more of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in any one industry. Securities
of foreign banks and foreign branches of U.S. banks are considered to be
one industry. This limitation does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or to
certificates of deposit or bankers' acceptances issued by domestic banks;

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

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

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

8. Borrow money, except from a bank or SAFECO Corporation or its affiliates at
an interest rate not greater than that available to the Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of the value of the Fund's total assets (including
borrowings) less liabilities (other than borrowings) immediately after such
borrowing;

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

10. Purchase or sell real estate or real estate limited partnerships (unless
acquired as a result of the ownership of securities or instruments) but
this shall not prevent the Fund from investing in permitted investments
secured by real estate or interests therein or in real estate investment
trusts;

11. Purchase or sell commodities, commodity contracts or futures contracts;

<PAGE>

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

13. Issue or sell any senior security, except as permitted under the 1940 Act.

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Fund will not issue long-term debt securities.

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

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

4. The Fund will not invest in or sell (write) puts, calls, straddles, spreads
or any combinations thereof.

5. The Fund will not invest more than five percent (5%) of its total assets in
securities of issuers (including predecessor companies of the issuer)
having a record of less than three years continuous operation.

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

8. The Fund will not purchase the securities of any other investment company,
except by purchase in the open market where no commission or profit to a
broker or dealer results from such purchase other than the customary
broker's commissions, or except as part of a merger, consolidation or
acquisition. The Fund shall not invest more than ten percent (10%) of its
total assets in shares of other investment companies, invest more than five
percent (5%) of its total assets in a single investment company nor
purchase more than three percent (3%) of the outstanding voting securities
of a single investment company.

<PAGE>

9. The Fund will not purchase securities if borrowings equal to or greater
than five percent (5%) of the Fund's total assets are outstanding.

10. The Fund will invest at least sixty-five percent (65%) of its total assets
in fixed income obligations.

11. The Fund will invest at least fifty percent (50%) of its total assets in
obligations of or guaranteed by the U.S. Government, its agencies and
instrumentalities.

12. The Fund may invest up to fifty percent (50%) of its total assets in
corporate debt securities or Eurodollar bonds.

13. The Fund may invest up to ten percent (10%) of its total assets in Yankee
Sector debt obligations.

14. The Fund may purchase securities on a when-issued or delayed-delivery basis
or may purchase or sell securities on a forward commitment basis.

15. The Fund may temporarily invest its cash in high quality commercial paper,
certificates of deposit, shares of no-load, open-end money market funds
(subject to the percentage limitations set forth in subparagraph 8 above),
repurchase agreements (subject to the limitations set forth in subparagraph
7 above) or any other short-term instrument the Fund's investment adviser
deems appropriate.

16. The Fund may hold cash as a temporary defensive measure when market
conditions so warrant.

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

18. The Fund may invest up to five percent (5%) of its total assets in
securities the interest on which, in the opinion of counsel for the issuer,
is exempt from federal income tax.

WHILE THE FUND HAS THE AUTHORITY TO INVEST IN THE FOLLOWING TYPES OF SECURITIES,
IT HAS NO PRESENT INTENTION TO DO SO IN THE COMING YEAR. BEFORE THE FUND
PURCHASES ANY OF THESE SECURITIES, THE PROSPECTUS WILL BE AMENDED BY SUPPLEMENT
TO IDENTIFY OR DESCRIBE THE SECURITY.

19. The Fund may invest up to five percent (5%) of its total assets in shares
of real estate investment trusts.

20. The Fund may purchase securities subject to legal or contractual
restrictions on resale or

<PAGE>

illiquid securities, if no more than fifteen percent (15%) of the Fund's
total assets would be invested in such securities.

22. The Fund will not buy or sell foreign currency, except as may be necessary
to invest the proceeds of the sale of any foreign securities held by the
Fund in U.S. dollars.

INVESTMENT POLICIES OF THE TAX-EXEMPT BOND FUNDS

WASHINGTON FUND

FUNDAMENTAL INVESTMENT POLICIES

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

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

2. Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations or other permitted investments directly from the
issuer in accordance with the Fund's investment objective, policies and
restrictions and the later disposition thereof may be deemed to be
underwriting;

3. Purchase or sell real estate, unless acquired as a result of the ownership
of securities or instruments, but this shall not prevent the Fund from
investing in municipal obligations or other permitted investments secured
by real estate or interests therein;

4. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the Fund from commercial
banks, for temporary or emergency purposes and not for investment purposes,
and then only in an amount not exceeding twenty percent (20%) of its total
assets (including borrowings) less liabilities (other than borrowings)
immediately after such borrowing;

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

<PAGE>

6. Purchase or sell commodities, commodity contracts or futures;

7. Purchase securities, if as a result, twenty-five percent (25%) or more of
the Fund's total assets would be invested in the securities of issuers
having their principal business activities in any one industry
(governmental issuers of special or general tax-exempt securities are not
considered part of any one industry);

8. Issue or sell any senior security, except as permitted under the 1940 Act;

9. Permit twenty-five percent (25%) or more of the Fund's total assets to be
invested in municipal obligations and other permitted investments, the
interest on which is payable from revenues on similar types of projects. As
a matter of operating policy, similar types of projects may include sports,
convention or trade show facilities; airports or mass transportation;
sewage or solid waste disposal facilities; or air or water pollution
control projects; or

10. During normal market conditions, invest less than eighty percent (80%) of
the Fund's net assets in obligations the interest on which, in the opinion
of counsel for the issuer of the obligation, is exempt from federal income
tax.

FUNDAMENTAL INVESTMENT POLICIES

MUNICIPAL FUND AND CALIFORNIA FUND

The Municipal Bond and California Funds have adopted the following fundamental
investment policies. The Funds will NOT:

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

2. Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations or other permitted investments directly from the
issuer in accordance with a Fund's investment objective, policies and
restrictions and the subsequent disposition thereof may be deemed to be
underwriting;

4. Purchase or retain for a Fund's portfolio the securities of any issuer if,
to the Fund's knowledge, the officers or directors of the Fund, or its
investment adviser, who

<PAGE>

individually own more than one-half (1/2) of one percent (1%) of the
outstanding securities of such an issuer, together own more than five
percent (5%) of such outstanding securities;

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

6. Purchase from, or sell portfolio securities to, any officer or director,
the Fund's investment adviser, principal underwriter or any affiliates or
subsidiaries thereof;

7. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to a Fund from commercial
banks, for temporary or emergency purposes and not for investment purposes
and then only in an amount not exceeding twenty percent (20%) of its total
assets (including borrowings) less liabilities (other than borrowings)
immediately after such borrowing;

9. Make loans, except through the purchase of a portion or all of an issue of
debt securities in accordance with a Fund's investment objective, policies
and restrictions and through investments in qualified repurchase agreements
(provided, however, that a Fund will not invest more than ten percent (10%)
of its total assets in qualified repurchase agreements maturing in more
than seven (7) days);

10. Purchase or sell commodities, commodity contracts or futures or invest in
oil, gas or other mineral exploration or development programs or leases;

11. Make short sales of securities or purchase securities on margin, except for
such short-term credits as are necessary for the clearance of transactions,
or purchase or sell any put or call options or combinations thereof;

12. Knowingly purchase or otherwise acquire any securities that are subject to
legal or contractual restrictions on resale or for which there is no
readily available market;

13. Purchase securities (other than obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities), if as a result, more
than twenty-five percent (25%) of a Fund's total assets would be invested
in one industry (governmental issuers of special or general tax-exempt
securities are not considered part of any one industry);

14. Purchase an industrial development bond, if as a result of such purchase,
more than five

<PAGE>

percent (5%) of a Fund's total assets would be invested in industrial
revenue bonds where the payment of principal and interest is the
responsibility of a company with less than three years' operating history;

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

16. Permit more than twenty percent (20%) of a Fund's net assets to be
invested, during normal market conditions, in securities the interest on
which is not, in its investment adviser's opinion, exempt from federal
income tax, as long as the Fund has its investment objective to provide as
high a level of current interest income exempt from federal income tax as
is consistent with the relative stability of capital. As a matter of
operating policy, the Funds' investment adviser may base its opinion on the
opinion of counsel for the issuer of the security;

17. Permit twenty-five percent (25%) or more of a Fund's total assets to be
invested in municipal obligations and other permitted investments, the
interest on which is payable from revenues on similar types of projects
such as sports, convention or trade show facilities; airports or mass
transportation; sewage or solid waste disposal facilities or air or water
pollution control projects;

18. MUNICIPAL FUND ONLY: Permit twenty-five percent (25%) or more of the
Fund's total assets to be invested in securities whose issuers are located
in the same state; or

19. During normal market conditions, invest less than eighty percent (80%) of a
Fund's net assets in obligations the interest on which, in the opinion of
counsel for the issuer, is exempt from federal income tax (and, in the case
of the California Fund, also from California state personal income tax).

WASHINGTON FUND, MUNICIPAL FUND AND CALIFORNIA FUND

NON-FUNDAMENTAL INVESTMENT POLICIES

In addition to the policies described in the Prospectus, the Washington,
Municipal Bond and California Funds have adopted the following non-fundamental
policies, which may be changed without shareholder approval:

<PAGE>

1. Each Fund may invest in any of the following types of short-term,
tax-exempt obligations: municipal notes of issuers rated, at the time of
purchase, within one of the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies ("S&P") or Fitch Investors Services,
Inc. ("Fitch"); unrated municipal notes offered by issuers having
outstanding municipal bonds rated within one of the three highest grades
assigned by Moody's, S&P or Fitch; notes issued by or on behalf of
municipal issuers which are guaranteed by the U.S. Government; tax-exempt
commercial paper assigned one of the two highest grades by Moody's, S&P or
Fitch; certificates of deposit issued by banks with assets of
$1,000,000,000 or more and municipal obligations which have a maturity of
one year or less from the date of purchase. The Funds do not currently
intend to rely on Fitch ratings.

2. Each Fund may invest in obligations of the U.S. Government, its agencies or
instrumentalities or in qualified repurchase agreements, the net interest
on which is taxable.

3. Each Fund may invest in municipal notes including tax anticipation, revenue
anticipation and bond anticipation notes and tax-exempt commercial paper.

4. Each Fund may invest in repurchase agreements for a period longer than
seven days.

5. Each Fund may permit twenty-five percent (25%) or more of its assets to be
invested in industrial development bonds.

6. Each Fund may purchase or sell securities on a "when-issued" or
"delayed-delivery" basis.

In addition, the Washington Fund has adopted the following non-fundamental
policies. The Washington Fund:

1. May not make short sales of securities.

2. May not purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of transactions.

3. May not purchase or sell any put or call options or combinations thereof.

4. May not purchase any security, if as a result, more than fifteen percent
(15%) of its net assets would be invested in illiquid securities.

5. May not invest in oil, gas or other mineral exploration or development
programs or leases.

<PAGE>

6. May not invest in real estate limited partnerships.

7. Will not purchase securities if borrowings equal to or greater than five
percent (5%) of its total assets are outstanding.

INVESTMENT POLICIES OF THE MONEY MARKET FUND

FUNDAMENTAL INVESTMENT POLICIES

The Money Market Fund has adopted the following fundamental policies. The Money
Market Fund will NOT:

1. Purchase securities of any issuer, other than obligations of, or guaranteed
by, the U.S. Government, its agencies or instrumentalities, if, as a
result, more than five percent (5%) of the value of the Fund's assets would
be invested in securities of such issuer;

2. Purchase more than ten percent (10%) of any class of securities of any
issuer. All issues of debt securities of any issuer are considered as one
class;

4. Invest more than five percent (5%) of the Fund's total assets in securities
of issuers that with their predecessors have a record of less than three
years' continuous operation;

5. Invest more than five percent (5%) of the Fund's total assets in securities
restricted as to disposition under the federal securities laws;

6. Invest more than ten percent (10%) of the Fund's total assets in time
deposits, repurchase agreements maturing in more than seven days and other
non-negotiable instruments;

8. Make loans to others, except through the purchase of publicly distributed
debt obligations or repurchase agreements;

9. Borrow money, except from a bank or affiliates of SAFECO Corporation at an
interest rate not greater than that available to the Fund from commercial
banks, for temporary or emergency purposes and not for investment purposes,
and then only in an amount not exceeding twenty percent (20%) of its total
assets (including borrowings) less liabilities

<PAGE>

(other than borrowings) immediately after such borrowing. The Fund will
not purchase securities if borrowings in excess of five percent (5%) of
the Fund's total assets are outstanding;

11. Pledge, mortgage or hypothecate, or in any other manner transfer as
security for indebtedness any security owned by the Fund, except as may be
necessary in connection with permissible borrowings mentioned in paragraph
9 above, and then such pledging, mortgaging or hypothecating may not exceed
fifteen percent (15%) of the Fund's total assets, taken at cost; provided,
however, that as a matter of operating policy the Fund will limit any such
pledging, mortgaging or hypothecating to ten percent (10%) of its net
assets, taken at market, in order to comply with certain state investment
restrictions;

12. Purchase or retain securities of any issuer if any of the officers or
directors of the Fund or its investment adviser owns beneficially more than
one-half (1/2) of one percent (1%) of the securities of such issuer and
together own more than five percent (5%) of the securities of such issuer;

13. Invest in commodities or commodity futures contracts or in real estate,
although the Fund may invest in securities which are secured by real estate
and securities of issuers that invest or deal in real estate;

14. Invest in interests in oil, gas or other mineral exploration or development
programs, although it may invest in securities of issuers that invest in or
sponsor such programs;

15. Purchase securities of other investment companies;

16. Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter, under the federal securities laws, in
connection with the disposition of portfolio securities; or

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

<PAGE>

NON-FUNDAMENTAL INVESTMENT POLICIES

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

1. The Fund will not invest in securities with unlimited liability; E.G.,
securities the holder of which may be assessed for amounts in addition to
the subscription or other price paid for the security.

2. The Fund will not buy or sell foreign currency, except as may be necessary
to convert the proceeds of the sale of foreign securities in the Fund's
portfolio into U.S. dollars.

3. The Fund may invest up to five percent (5%) of its total assets in
restricted securities eligible for resale under Rule 144A ("Rule 144A
securities") or Section 4(2) of the Securities Act of 1933 ("Section 4(2)
securities"), provided that SAM, the Fund's investment adviser, has
determined that such securities are liquid under guidelines adopted by the
Money Market Trust's Board of Trustees.

ADDITIONAL INVESTMENT INFORMATION

STOCK FUNDS

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

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

<PAGE>

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

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

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

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

2. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Fund purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated
to the coupon rate or maturity of the purchased securities. Repurchase
agreements may be considered loans of money to the seller of the underlying
security, which are collateralized by the securities underlying the
repurchase agreement. A Fund will not enter into a repurchase agreement
unless the agreement is fully collateralized and the Fund will value the
securities underlying the repurchase agreement daily to assure that this
condition is met. If the value of these securities is less than the
repurchase price, plus any agreed-upon additional amount, the other party
to the agreement must provide additional collateral so that at all times
the collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount.

<PAGE>

Repurchase agreements carry certain risks not associated with direct
investments in securities, including delays and costs to a Fund if the
other party to a repurchase agreement defaults or becomes bankrupt. Each
Fund intends to enter into repurchase agreements only with banks and
dealers in transactions believed by SAM to present minimum credit risks in
accordance with guidelines established by the Trust's Board of Trustees.
SAM will review and monitor the creditworthiness of those institutions
under the Board's general supervision. Foreign repurchase agreements
(Funds that may purchase foreign securities only) may be less well secured
than U.S. repurchase agreements and may be subject to currency risks. In
addition, foreign counterparties may be less creditworthy than U.S.
counterparties.

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

a) Commercial paper must be rated A-1 or A-2 by S&P or Prime-1 or Prime-2
by Moody's or issued by companies with an unsecured debt issue currently
outstanding rated AA by S&P or Aa by Moody's or higher.

b) Certificates of deposit ("CDs") must be issued by banks or savings and
loan associations that have total assets of at least $1 billion or, in the
case of a bank or savings and loan association not having total assets of
at least $1 billion, the bank or savings and loan association is insured by
the Federal Deposit Insurance Corporation ("FDIC"). The Growth Fund's
investments in CDs issued by FDIC-insured banks or savings and loans having
less than $1 billion in assets will be limited in amount to the statutory
insurance coverage provided by FDIC.

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

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

REITs are dependent upon the successful operation of the properties owned
and the financial condition of lessees and mortgagors. The value of REIT
units will fluctuate

<PAGE>

depending on the underlying value of the real property and mortgages owned
and the amount of cash flow (net income plus depreciation) generated and
paid out. In addition, REITs typically borrow to increase funds available
for investment. Generally, there is a greater risk associated with REITs
that are highly leveraged.

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

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

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

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

<PAGE>

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

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

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

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

14. OPTIONS ON EQUITY SECURITIES. The International Fund may purchase and write
(I.E., sell) put and call options on equity securities and the other Funds
(except the Equity Fund) may purchase and write (I.E., sell) covered call
options. A call option is a short-term contract pursuant to which the
purchaser or holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise price (the
strike price) at any time during the term of the option (for
"American-style" options) or on the option expiration date (for
"European-style" options). The writer of the call option, who received the
premium, has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the strike price. A put
option is a similar contract that gives the purchaser or holder, in return
for a premium, the right to sell the underlying equity security at a
specified exercise price (the strike price) during the term of the option.
The writer of the put, who receives the premium, has the obligation to buy
the underlying equity security at the strike price upon exercise by the
holder of the put.

The Funds will write call options on stocks only if they are covered, and
such options must remain covered so long as a Fund is obligated as a
writer. For purposes of

<PAGE>

writing covered call options, the Funds defined "covered" differently.
With respect to the International Fund, a call option is "covered" if: the
Fund has an immediate right to acquire that security: (i) without
additional cash consideration (or for additional cash consideration held in
a segregated account by its custodian), or (ii) upon the Fund's conversion
or exchange of other securities held in its portfolio, or (iii) the Fund
holds on a share-for-share basis a call on the same security as the call
written where the strike price of the call held is equal to or less than
the strike price of the call written, or greater than the strike price of
the call written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term debt obligations in a
segregated account with its custodian.

With respect to the other Funds, a call option is "covered" only if at the
time the Fund writes the call, the Fund holds in its portfolio on a
share-for-share basis the same security as the call written. A Fund must
maintain such security in its portfolio from the time the Fund writes the
call option until the option is exercised, terminated or expires. The
Funds' use of options on equity securities is subject to certain special
risks including the risk that the market value of the security will move
adversely to the Fund's option position. Additional risks relating to the
International Fund's use of options on equity securities are described
below.

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

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

<PAGE>

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

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

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

Reasons for the absence of a liquid secondary market on an exchange can
include any of the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions imposed by an exchange on
opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv) unusual or
unforeseen circumstances may interrupt normal operations on an exchange;
(v) the facilities of an exchange or a clearing corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
exchange (or in the class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by a
clearing corporation as a result of trades on that exchange would continue
to be exercisable in accordance with their terms.

<PAGE>

There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at times, render certain of the
facilities of any of the clearing corporations inadequate, and thereby
result in the institution by an exchange of special procedures that may
interfere with the timely execution of customers' orders.

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

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

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

<PAGE>

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

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

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

<PAGE>

include a number of stocks sufficient to minimize the likelihood of a
trading halt in options on the index.

Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively illiquid.
The ability of the Funds to establish and close out positions on such
options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop in all
index options contracts. The Funds will not purchase or, in the case of
the International Fund, sell any index option contract unless and until
the Funds investment adviser or sub-investment adviser believes the market
for such options has developed sufficiently that the risk in connection
with such transactions is no greater than the risk in connection with
options on stocks.

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

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

There are also certain special risks involved in purchasing put and call
options on stock indices. If a Fund holds an index option and exercises
it before final determination of the closing index value for that day, it
runs the risk that the level of the underlying index may change before
closing. If such a change causes the exercised option to fall
out-of-the-money, the Fund will be required to pay the difference between
the closing index value and the strike price of the option (times the
applicable multiplier) to the assigned writer. Although the Fund may be
able to minimize the risk by withholding exercise instructions until just
before the daily cutoff time or by selling rather than exercising an

<PAGE>

option when the index level is close to the exercise price, it may not be
possible to eliminate this risk entirely because the cutoff times for index
options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.

16. OPTIONS ON DEBT SECURITIES. (INTERNATIONAL FUND ONLY.) The Fund may
purchase and write (I.E., sell) put and call options on debt securities.
Options on debt are similar to options on stock, except that the option
holder has the right to take or make delivery of a debt security, rather
than stock.

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

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

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

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

If the Fund, as a writer of an exchange-traded option, wishes to terminate
the obligation, it may effect a closing purchase or sale transaction in a
manner similar to that discussed

<PAGE>

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

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

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

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

<PAGE>

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

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

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

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

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

<PAGE>

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

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

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

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

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

20. FOREIGN CURRENCY FUTURES CONTRACTS. (INTERNATIONAL FUND ONLY.) The
International Fund may buy and sell for hedging purposes futures contracts
on foreign currencies or

<PAGE>

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

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

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

<PAGE>

option it held in order to realize any profit and might continue to be
obligated under an option it had written until the option expired or was
exercised. If the Fund were unable to close out an option it had written
on a futures contract, it would continue to be required to maintain initial
margin and make variation margin payments with respect to the option
position until the option expired or was exercised against the Fund.

22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (INTERNATIONAL FUND ONLY.)
The Fund may enter into forward foreign currency exchange contracts
("forward contracts") in several circumstances. When the Fund enters into
a contract for the purchase or sale of a security denominated in a foreign
currency, or when the Fund anticipates the receipt in a foreign currency of
dividends or interest payments on a security that it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the U.S.
dollar equivalent of such dividend or interest payment, as the case may be.

By entering into a forward contract for a fixed amount of dollars, for the
purchase or sale of the amount of foreign currency involved in the
underlying transactions, the Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between
the U.S. dollar and the subject foreign currency during the period between
the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such
payments are made or received.

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

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

<PAGE>

a daily basis so that the value of the account will equal the amount of the
Fund's commitments with respect to such contracts.

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

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

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

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

<PAGE>

and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire to resell that currency to the dealer.

BOND FUNDS AND MANAGED BOND FUND

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

1. REPURCHASE AGREEMENTS. See the description of such securities under
"Additional Investment Information--Stock Funds."

2. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

3. YANKEE DEBT SECURITIES AND EURODOLLAR BONDS. Yankee debt securities are
securities issued in the U.S. by foreign issuers. These bonds involve
investment risks that are different from those of domestic issuers. Such
risks may include nationalization of the issuer, confiscatory taxation by
the foreign government, establishment of controls by the foreign government
that would inhibit the ability of the issuer to make principal and interest
payments to a Fund, lack of comparable publicly available information
concerning foreign issuers, lack of comparable accounting and auditing
practices in foreign countries and finally, difficulty in enforcing claims
against foreign issuers in the event of default.

SAM will make every effort to analyze potential investments in foreign
issuers on the same basis as the rating services analyze domestic issuers.
Because public information is not always comparable to that available on
domestic issuers, this may not be possible. Therefore, while SAM will make
every effort to select investments in foreign securities on the same basis
relative to quality and risk as its investments in domestic securities,
that may not always be possible.

Eurodollar bonds are bonds issued by either U.S. or foreign issuers
that are traded in the European bond markets and denominated in U.S.
dollars. Eurodollar bonds issued by foreign issuers are subject to the
same risks as Yankee sector bonds. Additionally, Eurodollar bonds are
subject to certain sovereign risks. One such risk is the possibility
that a foreign government might prevent dollar-denominated funds from
flowing across its borders.

4. MUNICIPAL SECURITIES. Municipal securities include obligations issued by
or on behalf of the states, territories and possessions of the United
States and the District of Columbia and their political subdivisions,
agencies, instrumentalities or authorities, the interest on which, in the
opinion of counsel to the issuer, is exempt from federal income tax.
Generally, when market interest rates rise, the price of municipal
securities will fall, and when market interest rates fall, the price of
these securities will rise. There is also a risk that the issuer of a
municipal security will fail to make timely payments of principal and

<PAGE>

interest to the Fund.

The Bond Funds may also purchase the following types of securities:

1. RESTRICTED SECURITIES AND RULE 144a SECURITIES. See the description of
such securities under "Additional Investment Information--Stock Funds."

2. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information--Stock Funds."

The Managed Bond Fund may also purchase the following types of securities:

1. ASSET-BACKED SECURITIES. Asset-backed securities represent interests in,
or are secured by and payable from, pools of assets such as (but not
limited to) consumer loans, automobile receivable securities, credit card
receivable securities, and installment loan contracts. The assets
underlying the securities are securitized through the use of trusts and
special purpose corporations. These securities may be supported by credit
enhancements such as letters of credit. Payment of interest and principal
ultimately depends upon borrowers paying the underlying loans. Repossessed
collateral may be unavailable or inadequate to support payments on
defaulted asset-backed securities. In addition, asset-backed securities
are subject to prepayment risks which may reduce the overall return of the
investment.

Automobile receivable securities represent undivided fractional interests
in a trust whose assets consist of a pool of automobile retail installment
sales contracts and security interests in vehicles securing the contracts.
Payments of principal and interest on the certificates issued by the
automobile receivable trust are passed through periodically to certificate
holders and are generally guaranteed up to specified amounts by a letter of
credit issued by a financial institution. Certificate holders may
experience delays in payments or losses if the full amounts due on the
underlying installment sales contracts are not realized by the trust
because of factors such as unanticipated legal or administrative costs of
enforcing the contracts, or depreciation, damage or loss of the vehicles
securing the contracts.

Credit card receivable securities are backed by receivables from revolving
credit card accounts. Certificates issued by credit card receivable trusts
generally are pass-through securities. Competitive and general economic
factors and an accelerated cardholder payment rate can adversely affect the
rate at which new receivables are credited to an account, potentially
shortening the expected weighted average life of the credit card receivable
security and reducing its yield. Credit card accounts are unsecured
obligations of the cardholder.

2. ZERO COUPON BONDS. Zero coupon bonds do not make interest payments;
instead they are sold at a deep discount from their face value and are
redeemed at face value when they mature. Because zero coupon bonds do not
pay current income, their prices can be

<PAGE>

very volatile when interest rates change. In calculating its dividends,
the Managed Bond Fund takes into account as income a portion of the
difference between a zero coupon bond's purchase price and its face value.

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

TAX-EXEMPT BOND FUNDS

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

1. REPURCHASE AGREEMENTS. See the description of such securities under
"Additional Investment Information--Stock Funds."

2. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

3. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information--Stock Funds."

MONEY MARKET FUND

QUALITY AND MATURITY. Pursuant to procedures adopted by the Money Market
Trust's Board of Trustees, the Fund may purchase only high-quality securities
that SAM believes present minimal credit risks. To be considered high quality,
a security must be rated, or the issuer must have received a rating for a
comparable short-term security, in accordance with applicable rules in one of
the two highest categories for short-term securities by at least two nationally
recognized rating services (or by one, if only one rating service has rated the
security); or, if unrated, the security must be judged by SAM to be of
equivalent quality.

The Fund may not invest more than five percent (5%) of its total assets in
second tier securities. In addition, the Fund may not invest more than one
percent (1%) of its total assets or $1 million (whichever is greater) in the
second tier securities of a single issuer.

The Fund currently intends to limit its investments to securities with remaining
maturities of 397 days or less, and to maintain a dollar-weighted average
maturity of 90 days or less. When determining the maturity of a security, the
Fund may look to an interest rate reset or demand feature.

<PAGE>

A security is considered to be rated if either the security itself is assigned a
rating or the issuer is assigned a rating for comparable short-term debt
obligations. Alternatively, a security (whether or not rated) with an
unconditional demand feature (as defined in Rule 2a-7 under the 1940 Act) may be
considered to be rated if the demand feature or its issuer has been assigned a
rating. See "Description of Ratings" for further explanation of rating
categories.

The Money Market Fund may make the following investments, among others, although
it may not buy all of the types of securities that are described.

1. RESTRICTED SECURITIES AND RULE 144a SECURITIES. See the description of
such securities under "Additional Investment Information--Stock Funds."

2. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain municipal obligations may
carry variable or floating rates of interest. Variable rate instruments
bear interest at rates that are readjusted at periodic intervals so as to
cause the instruments' market value to approximate their par value.
Floating rate instruments bear interest at rates which vary automatically
with changes in specified market rates or indices, such as the bank prime
rate. The Fund's right to obtain payment at par on a demand instrument
upon demand could be affected by events occurring between the date the Fund
elects to redeem the instrument and the date redemption proceeds are due
which affect the ability of the issuer to pay the instrument at par value.

3. TERM PUT BONDS. Term put bonds are variable rate obligations which have a
maturity in excess of one year with the option to put back (sell back) the
bonds on a specified put date. On the put date, the interest rate of the
bond is reset according to current market conditions and accrues at the
reset rate until the next put date. The Fund may also hold mandatory put
bonds. Mandatory put bonds require the holder to take certain action to
retain the bonds. Put bonds are generally credit-enhanced by collateral,
guaranteed investment contracts, surety bonds, a letter of credit or
insurance which guarantees the payment of principal and interest.

4. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information--Stock Funds."

5. FOREIGN ISSUERS. Obligations of foreign issuers involve certain additional
risks. These risks may include future unfavorable political and economic
developments, withholding taxes, seizures of foreign deposits, currency
controls, interest limitations, or other governmental restrictions that
might affect payment of principal or interest. Additionally, there may be
less public information available about foreign banks and their branches.
Foreign issuers may be subject to less governmental regulation and
supervision than U.S. issuers. Foreign issuers also generally are not
bound by uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.

6. SECURITIES ISSUED BY BANKS AND OTHER ISSUERS. Investments may be made in
U.S. dollar-denominated time deposits, certificates of deposit, and
bankers' acceptances of

<PAGE>

U.S. banks and their branches located outside of the United States, U.S.
branches and agencies of foreign banks and foreign branches of foreign
banks. The Fund may also invest in U.S. dollar-denominated securities
issued or guaranteed by other U.S. or foreign issuers, including U.S. and
foreign corporations or other business organizations, foreign governments,
foreign government agencies or instrumentalities and U.S. and foreign
financial institutions, including savings and loan institutions, insurance
companies and mortgage bankers, as well as banks.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by governmental
regulation. Payment of interest and principal on these obligations may
also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidence of
ownership of portfolio securities may be held outside of the U.S. and the
Fund may be subject to the risks associated with the holding of such
property overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.

7. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information--Stock Funds."

8. MORTGAGE-BACKED SECURITIES. Unlike conventional bonds, the principal with
respect to mortgage-backed securities issued by GNMA ("GNMA securities") is
paid back over the life of the loan rather than at maturity.
Consequently, the Fund will receive monthly scheduled payments of both
principal and interest. In addition, the Fund may receive unscheduled
principal payments representing unscheduled prepayments on the underlying
mortgages. Since the Fund must reinvest scheduled and unscheduled
principal payments at prevailing interest rates and such interest rates may
be higher or lower than the current yield of the Fund's portfolio, GNMA
securities may not be an effective means to lock in long-term interest
rates. In addition, while prices of GNMA securities, like conventional
bonds, are inversely affected by changes in interest rate levels, because
of the likelihood of increased prepayments of mortgages in times of
declining interest rates, they have less potential for capital appreciation
than comparable fixed-income securities and may in fact decrease in value
when interest rates fall.

The rate of interest payable on collateralized mortgage obligation ("CMO")
classes may be set at levels that are either above or below market rates at
the time of issuance, so that the securities will be sold at a substantial
premium to, or at a discount from, par value. There is the risk that the
Fund may fail to recover any premium it pays due to market conditions
and/or mortgage prepayments. The Fund will not invest in interest-only or

<PAGE>

principal-only classes -- such investments are extremely sensitive to
changes in interest rates.

Some CMO classes are structured to pay interest at rates that are adjusted
in accordance with a formula, such as a multiple or fraction of the change
in a specified interest rate index, so as to pay at a rate that will be
attractive in certain interest rate environments but not in others. For
example, a CMO may be structured so that its yield moves in the same
direction as market interest rates - I.E., the yield may increase as rates
increase and decrease as rates decrease - but may do so more rapidly or to
a greater degree. Other CMO classes may be structured to pay floating
interest rates that either move in the same direction or the opposite of
short-term interest rates. The market value of such securities may be more
volatile than that of a fixed rate obligation. Such interest rate
formulas may be combined with other CMO characteristics.

9. ASSET-BACKED SECURITIES. See the description of such securities under
"Additional Investment Information--Bond Funds and Managed Bond Fund."

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

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

Credit ratings evaluate the likelihood that an issuer will make principal and
interest payments, but may not reflect market value risks associated with
lower-rated bonds. Credit rating agencies

<PAGE>

may not timely revise ratings to reflect subsequent events affecting an issuer's
ability to pay principal and interest.

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

FOREIGN SECURITIES

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

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

CURRENCY EXCHANGE RATES

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

<PAGE>

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

HEDGING TRANSACTIONS (INTERNATIONAL FUND ONLY)

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

To help reduce certain risks associated with hedging transactions, the Common
Stock Trust's Board of Trustees has adopted the requirement that forward
contracts, options, futures contracts and options on futures contracts be used
on the behalf of the Fund as a hedge and not for speculation. In addition to
this requirement, the Board of Trustees has adopted the following percentage
restrictions on the use of options, futures contracts and options on futures
contracts:

<PAGE>

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

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

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

INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA FUND

The following is a condensed and general description of conditions affecting the
taxing ability and fiscal condition of the State of California and its various
political subdivisions and their ability to meet their debt service obligations.
Since during normal market conditions the Fund plans to invest at least 80% of
its net assets in bonds issued by California and its political subdivisions, the
investment risk of such concentration should be carefully considered. The
description below summarizes discussions contained in official statements
relating to various types of bonds issued by the State of California and its
political subdivisions. A more detailed description can be found in such
official statements. The California Fund has not independently verified any of
the information presented in this section.

Since the start of 1994, California's economy and the State's financial
condition have steadily improved, with a combination of better than expected
revenues, slowdown in growth of social

<PAGE>

welfare programs, and continued spending restraint. In 1996, Fitch and S&P
raised their respective ratings to "A+." Nevertheless, the pressures on the
General Fund from the programs described above (education, corrections and
welfare, which is in a transition period as a result of recent federal and state
welfare reform initiatives) are expected to continue.

<PAGE>

exemption of business inventories from taxation. Such legislation provides for
restoration of business inventory tax revenues through the annual addition of
artificial assessed value, not actually existing in a project area, to the tax
rolls of redevelopment projects. These reimbursements are adjusted for changes
in the population and the cost of living. All such reimbursements are subject
to change or repeal by the Legislature, and they have been changed since 1980.
Furthermore, current law generally prohibits the pledging of such reimbursement
revenues to secure redevelopment agency bonds.

State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6, 1979,
which prohibits government agencies and the State from spending "appropriations
subject to limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues, certain State subventions and certain
other funds, including proceeds from regulatory licenses, user revenues, certain
State subventions and certain other funds to the extent that such proceeds
exceed "the cost reasonably born by such entity in providing the regulation,
product, or service." No limit is imposed on appropriation of funds which are
not "proceeds of taxes," on debt service or indebtedness existing or authorized
by January 1, 1979, or subsequently authorized by the voters, or appropriations
required to comply with mandates of courts or the federal government, or user
charges or fees which don't exceed the cost of the service provided, nor on
certain other non-tax funds.

<PAGE>

An initiative constitutional amendment known as Proposition 218 and also called
the "Right to Vote on Taxes Act" was approved by the voters on November 5, 1996.
This measure added Articles XIII C and XIII D to the State Constitution. The
measure requires that general tax increases by all local government entities be
approved by not less than a majority vote and that taxes for special purposes be
approved by a two-thirds vote; provides that existing language in the California
Constitution shall not be construed to limit the initiative power with respect
to reducing or repealing any local tax, assessment, fee or charge; prescribes
procedures applicable to all assessments and requires that all assessments be
approved by property owners; prohibits property related fees and charges from
exceeding costs of the service being provided; imposes procedural requirements,
including notice and public hearing, prior to imposition of new or increased
fees or charges on property; and requires that, except for fees for sewer, water
and refuse collection, fees be approved by a majority vote of the fee payers.

<PAGE>

The mandatory provisions of the legislation generally apply to utilities
regulated by the California Public Utilities Commission. Since the State's
political subdivisions are not subject to the jurisdiction of the CPUC, the
effect of the legislation on municipally-owned electric utilities is more
limited. As a practical matter, however, it is likely that most
municipally-owned utilities will adopt some form of direct access or pooling
programs in order to remain competitive.

WASHINGTON FUND

<PAGE>

WASHINGTON STATE

A discussion of certain economic, financial and legal matters regarding the
State of Washington follows. During normal market conditions, the Washington
Fund will generally invest at least 80% of its net assets in bonds issued by
Washington and its political subdivisions, municipalities, agencies,
instrumentalities or public authorities. Therefore, the investment risk of such
concentration should be carefully considered. The information in the discussion
is drawn primarily from official statements relating to securities offerings of
the State which are dated prior to the date of this Statement of Additional
Information. This information may be relevant in evaluating the economic and
financial position of the State, but is not intended to provide all relevant
data necessary for a complete evaluation of the State's economic and financial
position. Discussions regarding the financial health of the State government
may not be relevant to municipal obligations issued by a political subdivision
of the State. Furthermore, general economic conditions discussed may or may not
affect issuers of the obligations of the State. The Washington Fund has not
independently verified any of the information presented in this section.

GENERAL INFORMATION

According to the United States Census Bureau's 1990 Census, Washington State's
population is ranked 18th of the 50 states. During the ten-year time period
from 1980-1990, the State's population increased at an average annual rate of
1.8%, while the United States population grew at an average annual rate of 1.1%.
The State's population increased at an average annual rate of approximately 2.5%
1990 to 1993, and at an average annual rate of approximately 1.8% from 1993 to
1995. From April 1, 1995 to April 1, 1996, the population growth was
approximately 1.6%. The current estimate of the population of the State is
approximately 5.5 million.

In recent years, the State's economy has diversified with employment in the
trade and service sectors representing an increasing portion of total employment
relative to the manufacturing sector.

<PAGE>

As interpreted by the State Supreme Court, Washington's Constitution prohibits
the imposition of net income taxes.

The State's tax revenues are primarily comprised of excise and ad valorem taxes.
By constitutional provision, the aggregate of all regular (unvoted) tax levies
on real and personal property by State and local taxing districts cannot exceed
1% of the true and fair value of the property. Excess levies are subject to
voter approval. For the fiscal year ending June 30, 1996, approximately 76.7%
of the State's tax revenues came from general and selective sales and gross
receipts taxes, of which the retail sales tax and its companion use tax
represented 45% of total collections. Business and occupation tax collections
represented about 16.5% and the motor vehicle fuel tax represented approximately
6.7% of total State taxes for the year. Ad valorem taxes represented 11.1% of
State revenues for the fiscal year 1996.

Expenditures of State revenues are made in accordance with constitutional and
statutory mandates.

STATE EXPENDITURE LIMITATIONS

<PAGE>

outstanding general obligation debt to exceed a specified percentage of the
arithmetic mean of general State revenues for the preceding three years. These
limitations apply to the incurrence of new debt and are not limitations on the
amount of debt service which may be paid by the State in future years.

<PAGE>

ECONOMIC OVERVIEW

Below is a summary of key industry segments of the State's economy as well as of
selected economic and employment data.

MANUFACTURING. The Boeing Company ("Boeing"), which is the Seattle Metropolitan
Area's largest employer, has several facilities located throughout the area.
Boeing is the world's leading manufacturer of commercial airliners and as of
September 1997 employed 100,200 people State-wide, primarily at several
locations in the Puget Sound area. While the primary activity of Boeing is the
manufacture of commercial aircraft, Boeing has played leading roles in the
aerospace and military missile programs of the United States and has undertaken
a broad program of diversification activities including Boeing Information and
Support Services. In 1996, Boeing had $22.7 billion in sales and net earnings
of $1.1 billion, and a backlog of orders for 717 aircraft, the

<PAGE>

most in the company's history. Boeing currently anticipates 1997 sales to be in
the $46-47 billion range. Boeing recently completed two and is currently
undertaking one major expansion project. The company acquired a 212-acre site
in Renton (King County), which is the site of the former Longacres Race Track.
The site will be used as a location for the development of an office complex,
the first building of which is an approximately 500,000 square-foot customer
service training center that was recently completed. In Everett (Snohomish
County), Boeing completed construction of a 5.6 million square-foot assembly
plant for the new 777 jetliner. In 1993, Boeing completed a $400 million skin
and spar plant and a composite manufacturing center on 500 acres in Puyallup
(Pierce County).

<PAGE>

TRADE. International trade plays an important role in the State's
employment base and one in six jobs is related to this sector. During
the past twenty years the State has consistently ranked number one or
number two in international exports per capita. Seattle-Tacoma
International Airport is the focus of the region's air traffic and
trade. The State, particularly the Puget Sound Corridor, is a trade
center for the Northwest and the State of Alaska. A system of public
ports, the largest of which are the Ports of Seattle and Tacoma,
handle waterborne trade primarily to and from the Far East. These two
Ports each rank among the top 20 ports in the world based on volume of
containerized cargo shipped; on a combined basis they are the second
largest load center for containerized cargo in the United States.
Approximately 70% of the cargo passing through the Ports of Seattle
and Tacoma has an ultimate destination outside the Pacific Northwest.
Therefore, trade levels depend largely on national and world, rather
than local, economic conditions.

Growth in retail sales in the State between 1990 and 1992 was higher
than that in the United States. During 1993 through 1995, the rate of
growth for retail sales was lower for the State than for the United
States. The State is home to a number of specialty retail companies
that have reached national stature, including Nordstrom, Eddie Bauer,
Costco and Recreational Equipment Inc. (REI).

SERVICES/TOURISM. The highest employment growth in the State since
1981 has taken place in the services sector, although rate of growth
has shown a small but relatively consistent decline since 1990 from 7%
to 4.3% for 1995, and 3.4% forecast for 1996. Seattle is the location
for the Washington State Convention and Trade Center which opened in
June 1988. The State also has many tourist attractions such as the
Olympic and Cascade mountain ranges, ocean beaches and local wineries.

CONSTRUCTION. Employment in the construction sector in the Puget
Sound area increased 69.2% between 1981 and 1991. The increase in
employment in the late 1980s was due in part to the relative
affordability of housing compared to other areas of the country.
Construction employment growth flattened between 1991 and 1993, but
showed a modest increase in 1994 and leveled again in 1995.
Commercial building, while not increasing at the pace of the 1980s,
remains stable.

FEDERAL, STATE AND LOCAL GOVERNMENT. Employment in the government
sector represents approximately 19% of all wage and salary employment
in the State on a combined basis. Seattle is the regional
headquarters for a number of federal government agencies, and the
State receives an above-average share of defense expenditures.
Employment in the government sector has expanded in the State since
1990, but at a declining rate. State and local government employment
has increased at a faster pace than employment by the federal
government, and is projected to add new jobs through 1996.

LITIGATION

At any given time, including the present, there are numerous lawsuits
pending against the State of Washington which could affect the State's
revenues and expenditures. However, none of the lawsuits is expected
to have a material adverse impact on either State revenues or
expenditures.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

<PAGE>

At February 3, 1998, SAFECO Insurance Company of America ("SAFECO
Insurance") owned 500,000 shares of the Northwest Fund, which
represented 12.7% of the Fund's outstanding shares. At February 3,
1998, SAM owned 519,268 shares of the Balanced Fund, which represented
40.1% of the Fund's outstanding shares; 688,169 shares of the
International Stock Fund, which represented 51.6% of the Fund's
outstanding shares; and 500,000 shares of the Value Fund, which
represented 58.7% of the Fund's outstanding shares. At February 3,
1998, SAFECO Corporation owned 500,000 shares of the Small Company
Stock Fund, which represented 29.6% of the Fund's outstanding shares.

At February 3, 1998, SAFECO Insurance owned 500,000 shares of the
Intermediate Treasury Fund, which represented 30.5% of the outstanding
shares of the Fund. At February 3, 1998, SAFECO Corporation owned
500,000 shares of the High-Yield Bond Fund, which represented 5.9% of
the outstanding shares of the Fund; and Charles Schwab & Co. Inc., 101
Montgomery St., San Francisco, CA 94104, owned 1,825,908 shares of the
High-Yield Bond Fund, which represented 21.4% of the Fund's
outstanding shares.

At February 3, 1998, SAFECO Insurance owned 502,372 shares of the
Washington Fund, which represented 67.9% of the Fund's outstanding
shares.

At February 3, 1998, Crista Ministries, PO Box 330303, Seattle, WA 98133,
owned 98,088 shares of the Managed Bond Fund, which represented 17.1% of the
Fund's outstanding shares; and SAM owned 452,103 shares of the Managed Bond
Fund, which represented 79.0% of the Fund's outstanding shares.

SAFECO Insurance and SAM are Washington corporations and wholly owned
subsidiaries of SAFECO Corporation. SAFECO Corporation is a
Washington corporation and a holding company whose primary
subsidiaries are engaged in the insurance and financial services
businesses. SAM has its principal place of business at 25th Floor,
Two Union Square, Seattle, WA 98101. Each of SAFECO Insurance and
SAFECO Corporation has its principal place of business at SAFECO
Plaza, Seattle, WA 98185.

Principal shareholders of a Fund may control the outcome of a
shareholder vote.

ADDITIONAL TAX INFORMATION

GENERAL

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

<PAGE>

Each Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital
gain net income for the one-year period ending on December 31 (by
election) of that year, plus certain other amounts.

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

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

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

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

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

SPECIAL TAX CONSIDERATIONS--INVESTMENT IN FOREIGN SECURITIES

<PAGE>

will be included in shareholders taxable income. However, the
International Fund intends to make an election which will allow
shareholders to claim an offsetting credit or deduction on their tax
return for their share of foreign taxes paid by the Fund.

PFICS

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

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

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

SPECIAL TAX CONSIDERATIONS--HIGH-YIELD BOND FUND

The High-Yield Bond Fund may acquire zero coupon or other securities
issued with original issue discount ("OID"). As a holder of such
securities, the Fund must include in its income the portion of the OID
that accrues on the securities during the taxable year, even if it
receives no corresponding payment on them during the year. Similarly,
the High-Yield Bond Fund must include in its gross income securities
it receives as "interest" on payment-in-kind securities. Because the
Fund annually must distribute substantially all of its investment
company taxable income, including any accrued OID and other non-cash
income, to satisfy the distribution requirement and avoid imposition
of the excise tax, it may be required in a particular year to
distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. Those distributions will be made
from the Fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The Fund may realize capital gains or
losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain (the excess
of net long-term capital gain over net short-term capital loss).

<PAGE>

SPECIAL CONSIDERATIONS FOR THE TAX-EXEMPT BOND FUNDS

The tax-exempt interest portion of each daily dividend will be based
upon the ratio of a Tax-Exempt Bond Fund's tax-exempt to taxable
income for the entire fiscal year (average annual method). As a
result, the percentage of tax-exempt income for any particular
distribution may be substantially different from the percentage of a
Tax-Exempt Bond Fund's income that was tax-exempt during the period
covered by that distribution. Each Tax-Exempt Bond Fund will advise
its shareholders of this ratio within 60 days after the close of its
fiscal year.

Interest on indebtedness incurred or continued by a shareholder to
purchase or carry shares of a Tax-Exempt Bond Fund is not deductible.
In addition, entities or persons who are "substantial users" (or
related persons) of facilities financed by most "private activity"
bonds should consult their tax advisers before purchasing shares of
any of the Tax-Exempt Bond Funds. "Substantial user" is generally
defined to include a "non-exempt person" who regularly uses in a trade
or business a part of a facility financed from the proceeds of most
"private activity" bonds.

Each Tax-Exempt Bond Fund may invest in municipal bonds that are
purchased, generally not on their original issue, with market discount
(that is, at a price less than the principal amount of the bond or, in
the case of a bond that was issued with original issue discount, at a
price less than the amount of the issue price plus accrued original
issue discount) ("municipal market discount bonds"). Gain on the
disposition of a municipal market discount bond (other than a bond
with a fixed maturity date within one year from its issuance),
generally is treated as ordinary (taxable) income, rather than capital
gain, to the extent of the bond's accrued market discount at the time
of disposition. Market discount on such a bond generally is accrued
ratably, on a daily basis, over the period from the acquisition date
to the date of maturity. In lieu of treating the disposition gain as
above, a Tax-Exempt Bond Fund may elect to include market discount in
its gross income currently, for each taxable year to which it is
attributable.

No portion of the dividends or other distributions paid by any
Tax-Exempt Bond Fund is eligible for the dividends-received deduction
allowed to corporations.

In the future, proposals may be introduced before Congress for the
purpose of further restricting or even eliminating the federal income
tax exemption for interest on all or certain types of municipal
obligations. If such a proposal were enacted, the availability of
municipal obligations for investment by each Tax-Exempt Bond Fund and
the value of each Tax-Exempt Bond Fund's portfolio would be affected.
In such event, each Tax-Exempt Bond Fund would review its investment
objectives and policies.

CALIFORNIA STATE AND LOCAL TAX MATTERS

<PAGE>

personal income tax. Distributions to such individual shareholders
derived from interest on municipal obligations issued by governmental
authorities in states other than California, short-term capital gains
and other taxable income will be taxed as dividends for purposes of
California personal income taxation. Distributions to individual
shareholders who are subject to California personal income tax that
derive from interest, dividends, short-term capital gains and other
ordinary income by a Fund that does not maintain at least 50% of the
value of its assets in obligations the interest on which is exempt
from California personal income tax will be taxed in their entirety as
dividends for purposes of California personal income taxation. Each
Fund's long-term capital gains for federal income tax purposes will be
taxed as long-term capital gains to individual shareholders of the
Fund for purposes of California personal income taxation. Gain or
loss, if any, resulting from an exchange or redemption of shares will
be recognized in the year of the exchange or redemption. Present
California law taxes both long-term and short-term capital gains at
the rates applicable to ordinary income. Interest on indebtedness
incurred or continued by a shareholder in connection with the purchase
of shares of a Fund that pays dividends exempt from California
personal income taxation generally will not be deductible for
California personal income tax purposes. California has an
alternative minimum tax similar to the federal alternative minimum
tax. However, the California alternative minimum tax does not include
interest from private activity bonds as an item of tax preference.

Generally corporate shareholders of the Fund subject to the California
franchise tax will be required to include any gain on an exchange or
redemption of shares and all distributions of exempt-interest, capital
gains and other taxable income, if any, as income subject to such tax.

A Fund will not be subject to California franchise or corporate income
tax on interest income or net capital gain distributed to the
shareholders.

Shares of a Fund will be exempt from local property taxes in
California.

The foregoing is a general, abbreviated summary of certain of the
provisions of the California Revenue and Taxation Code presently in
effect as it directly governs the taxation of shareholders of a Fund.
These provisions are subject to change by legislative or
administrative action, and any such change may be retroactive with
respect to Fund transactions. Shareholders are advised to consult
with their tax advisers for more detailed information concerning
California tax matters.

CONVERSION OF CLASS B SHARES

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

<PAGE>

any other SAFECO Fund. Shareholders who have converted Class B shares
of the SAFECO Advisor Series Trust ("Advisor Series Shares") into
Class B shares of a Fund may calculate the holding period from the
date of the purchase of the Advisor Series Shares. For purposes of
conversion to Class A shares, Class B shares purchased through the
reinvestment of dividends and other distributions paid in respect of
Class B shares will be held in a separate sub-account; each time any
Class B shares in the shareholder's regular account (other than those
in the sub-account) convert to Class A shares, a pro rata portion of
the Class B shares in the sub-account will also convert to Class A
shares. The portion will be determined by the ratio that the
shareholder's Class B shares converting to Class A shares bears to the
shareholder's total Class B shares not acquired through dividends and
other distributions.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

GENERAL

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

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

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

<PAGE>

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

MONEY MARKET FUND

The portfolio instruments of the Money Market Fund are valued on the
basis of amortized cost. The valuation of the Money Market Fund's
portfolio securities based upon amortized cost, and the maintenance of
the Money Market Fund's NAV at $1.00, are permitted pursuant to Rule
2a-7 under the 1940 Act. Pursuant to that rule, the Money Market Fund
maintains a dollar-weighted average portfolio maturity of 90 days or
less, purchases only securities having remaining maturities of 397
days or less, and invests only in securities determined by SAM, under
guidelines adopted by the Money Market Trust's Board of Trustees, to
be of high quality and to present minimal credit risks. The Board of
Trustees has established procedures designed to stabilize, to the
extent reasonably possible, the Money Market Fund's price-per-share as
computed for the purpose of sales and redemptions at $1.00. These
procedures include a review of the Money Market Fund's portfolio
holdings by the Board of Trustees, at such intervals as the Board
deems appropriate, to determine whether the Fund's NAV, calculated by
using available market quotations, deviates from $1.00 per share and,
if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders of the Money Market Fund.
In the event the Board determines that such a deviation exists in the
Fund, the Trustees will take such corrective action with respect to
the Money Market Fund as they regard as necessary and appropriate,
including, but not limited to: selling portfolio investments prior to
maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends or redeeming shares in kind,
or establishing the NAV by using available market quotations.

ADDITIONAL PERFORMANCE INFORMATION

GENERAL

Effective September 30, 1996, all of the then-existing shares of each
Fund, except the Value Fund and the High-Yield Bond Fund, were
redesignated No-Load Class shares and each Fund commenced offering
Class A and Class B shares. The High-Yield Bond Fund and the Value
Fund commenced offering Class A and Class B shares on or about January
31, 1997, and April 30, 1997, respectively. Except with respect to
the High-Yield Bond and Value Funds, the performance information that
follows reflects (1) the actual performance of Class A and Class B
shares of the Funds for the year ended December 31, 1997; (2) the
actual performance of Class A and Class B shares of the Funds for the
period September 30, 1996 to December 31, 1996; and (3) the
performance of the No-Load Class shares of each Fund, restated to
reflect the sales charges but not the Rule 12b-1 fees of Class A and
Class B shares, for the periods prior to September 30, 1996.
Performance information for the periods prior to September 30, 1996,

<PAGE>

would have been lower if these Rule 12b-1 fees were reflected. With
respect to the High-Yield Bond Fund, the performance information that
follows reflects: (1) the actual performance of Class A and Class B
shares of the Fund for the period from January 31, 1997 to December
31, 1997 and (2) the performance of the No-Load Class shares of the
Fund, restated to reflect the sales charge but not the Rule 12b-1 fees
of Class A and Class B shares, for the periods prior to January 31,
1997. Performance information for the periods prior to January 31,
1997, would have been lower if these Rule 12b-1 fees were reflected.
The performance information for the Value Fund reflects actual
performance of the Class A and Class B shares of the Fund since April
30, 1997 (initial public offering).

THE FOLLOWING HISTORICAL PERFORMANCE FIGURES ARE FOR CLASS A AND CLASS
B SHARES ONLY.

STOCK FUNDS

The total returns, expressed as a percentage, for the one-, five- and
ten-year periods ended December 31, 1997, for the Growth, Equity and
Income Funds were as follows:

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund 49.61% 48.70% 178.73% 176.54% 443.81% 439.54%
Equity Fund 23.56% 22.93% 178.41% 176.29% 505.31% 500.70%
Income Fund 26.15% 25.35% 126.92% 124.95% 294.69% 291.25%
</TABLE>

The total returns, expressed as a percentage, for the one-year,
five-year and since initial public offering (82 months) periods ended
December 31, 1997, for the Northwest Fund were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year 5 Years (82 Months)
------ ------- -----------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Northwest Fund 30.79% 29.93% 79.70% 78.14% 137.25% 135.18%
</TABLE>

The total returns, expressed as a percentage, for the one-year and
since initial public offering (23 months) periods ended December 31,
1997, for the Balanced, International, and Small Company Funds were as
follows:

<PAGE>

<TABLE>
<S> <C> <C> <C> <C>
International Fund 4.30% 3.48% 19.06% 17.88%
Small Company Fund 23.21% 22.23% 54.02% 52.54%
</TABLE>

The total returns, expressed as a percentage, for the eight-month
period ended December 31, 1997, for the Value Fund were 17.34% for
Class A and 16.63% for Class B.

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended
December 31, 1997, for the Growth, Equity and Income Funds were as
follows:

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund $14,996 $14,887 $27,939 $27,687 $54,510 $54,018
Equity Fund $12,350 $12,269 $27,828 $27,575 $60,501 $59,952
Income Fund $12,572 $12,540 $22,615 $22,503 $39,333 $39,140
</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year, five-year and since initial public
offering (82 months) periods ended December 31, 1997, for the
Northwest Fund were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year 5 Years (82 Months)
------ ------- -----------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Northwest Fund $13,079 $12,993 $17,970 $17,814 $23,725 $23,518
</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since initial public offering (23
months) periods ended December 31, 1997, for the Balanced,
International and Small Company Funds were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year (23 Months)
------ -----------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balanced Fund $11,629 $11,521 $12,949 $12,803
International Fund $10,430 $10,348 $11,906 $11,788
Small Company Fund $12,321 $12,223 $15,402 $15,254
</TABLE>

<PAGE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the eight month period ended December 31, 1997, for
the Value Fund were $11,734 for Class A and $11,663 for Class B.

The average annual total returns for the one-, five- and ten-year
periods ended December 31, 1997, for the Growth, Equity and Income
Funds were as follows:

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund 49.61% 48.70% 22.75% 22.56% 18.45% 18.36%
Equity Fund 23.56% 22.93% 22.73% 22.54% 19.73% 19.64%
Income Fund 26.15% 25.35% 17.81% 17.60% 14.72% 14.62%
</TABLE>

The average annual total returns for the one-year, five-year and since
initial public offering (82 months) periods ended December 31, 1997,
for the Northwest Fund were as follows:

The average annual total returns for the one-year and since initial
public offering (23 months) periods ended December 31, 1997, for the
Balanced, International and Small Company Funds were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year (23 Months)
------ -----------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balanced Fund 16.29% 15.21% 14.44% 13.76%
International Fund 4.30% 3.48% 9.53% 8.96%
Small Company Fund 23.21% 22.23% 25.27% 24.64%
</TABLE>

BOND FUNDS AND MANAGED BOND FUND

The yields for the Intermediate Treasury, High-Yield Bond and Managed
Bond Funds for the 30-day period ended December 31, 1997 were as
follows:

<PAGE>

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Intermediate Treasury Fund 4.81% 4.18%
High-Yield Bond Fund 7.85% 7.47%
Managed Bond Fund 4.74% 4.01%
</TABLE>

The total returns for the Intermediate Treasury and High-Yield
Bond Funds for the one-year, five-year, and since initial public
offering (111 months) periods ended December 31, 1997, were as
follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year 5 Years (111 Months)
------ ------- ------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Intermediate
Treasury Fund 8.03% 7.27% 35.18% 34.14% 95.72% 94.21%
High-Yield
Bond Fund 12.49% 11.77% 64.10% 63.05% 134.53% 133.04%
</TABLE>

The total returns for the Managed Bond Fund for the one-year and since
initial public offering (46 months) periods ended December 31, 1997,
were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year (46 Months)
------ -----------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Managed Bond
Fund 7.78% 6.91% 22.76% 21.54%
</TABLE>

The average annual total returns for the Intermediate Treasury and
High-Yield Bond Funds for the one-year, five-year and since initial
public offering (111 months) periods ended December 31, 1997, were as
follows:

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Treasury Fund 8.03% 7.27% 6.21% 6.05% 7.53% 7.44%
High-Yield
Bond Fund 12.49% 11.77% 10.41% 10.27% 9.65% 9.58%
</TABLE>

The average annual total returns for the Managed Bond Fund for the
one-year and since initial public offering (46 months) periods ended
December 31, 1997, were as follows:

TAX-EXEMPT BOND FUNDS

The yields and tax-equivalent yields for the 30-day period ended
December 31, 1997, at the maximum federal tax rate of 39.6% for the
Municipal, California, and Washington Funds, and at the maximum
combined federal (and California tax rates of 45.2% for the California
Fund), were as follows:

<TABLE>
<CAPTION>
Class A Class B
------- -------

Tax-equivalent Tax-equivalent
Yield Yield Yield Yield
----- ----- ----- -----
<S> <C> <C> <C> <C>
Municipal Fund 4.06% 6.72% 3.74% 6.19%
California Fund 4.10% 7.48% 3.53% 6.44%
Washington Fund 3.91% 6.47% 3.28% 5.43%
</TABLE>

The total returns for the Municipal and California Funds for the
one-year, five-year and ten-year periods ended December 31, 1997, were
as follows:

<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
California Fund 11.29% 10.46% 48.02% 46.53% 138.60% 136.19%
</TABLE>

The total returns for the Washington Fund for the one-year and since
initial public offering (57 months) periods ended December 31, 1997,
were as follows:

<TABLE>
<CAPTION>
Since Initial
Public Offering
1 Year (57 Months)
------ -----------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Washington
Fund 8.64% 7.75% 32.17% 31.09%
</TABLE>

The average annual total returns for the Municipal and California
Funds for the one-year, five-year and ten-year periods ended December
31, 1997, were as follows:

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Municipal Fund 10.17% 9.56% 7.38% 7.20% 8.97% 8.88%
California Fund 11.29% 10.46% 8.16% 7.94% 9.09% 8.97%
</TABLE>

The average annual total returns for the Washington Fund for the
one-year and since initial public offering (57 months) periods ended
December 31, 1997, were as follows:

MONEY MARKET FUND

The yields and effective yields for the Money Market Fund for the
7-day period ended December 31, 1997, were as follows:

<PAGE>

<TABLE>
<CAPTION>
Class A Class B
------- -------

Yield Effective Yield Yield Effective Yield
----- --------------- ----- ---------------
<S> <C> <C> <C> <C>
Money Market Fund 4.95% 5.07% 4.99% 5.11%
</TABLE>

CALCULATIONS

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

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

The total return, expressed in dollars, is computed using the
following formula:

n
T = P(1+A)

The average annual total return is computed using the following
formula:

n
A = (root ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

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

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

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

Yield for the Bond Funds, Managed Bond Fund and Tax-Exempt Bond Funds
is computed using the following formula:

<PAGE>

a-b 6
Yield = 2[( --- +1) -1]
cd

Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of
reimbursements)

c = the average daily number of shares
outstanding during the period that were entitled
to receive dividends

d = the maximum offering price per share on the
last day of the period

Yield for the Money Market Fund is computed using the following
formula:

(x-y)-z 365
Yield = [ ------- ] = Base Period Return x ---
y 7

Where: x = value of one share at the end of a 7-day period

y = value of one share at the beginning of a 7-day
period ($1.00)

z = capital changes during the 7-day period, if any

Effective yield is computed using the following formula:

Effective yield = [(Base Period Return + 1) 365/7] -1

Tax-equivalent yield is computed using the following formula:

eg
Tax-equivalent yield = [ ----- ] + [e (1-g)]
(1-f)

Where: e = yield as calculated above

<PAGE>

f = tax rate

g = percentage of yield which is tax-free

During periods of declining interest rates, the Money Market Fund's
yield based on amortized cost may be higher than the yield based on
market valuations. Under these circumstances, a shareholder in the
Money Market Fund would be able to obtain a somewhat higher yield than
would result if the Fund utilized market valuations to determine its
NAV. The converse would apply in a period of rising interest rates.

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

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

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

<PAGE>

attributable to the portfolio manager, of the investment style used to
manage a Fund's portfolio, the research methodologies underlying
securities selection and a Fund's investment objective and (iv)
information about particular securities held in a Fund's portfolio.

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

In addition, each Fund may comment on the market and economic outlook
in general, on specific economic events, on how these conditions have
impacted its performance and on how the portfolio manager will or has
addressed such conditions. Each Fund also may provide information on
how much certain investments would return over time.

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

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

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

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

S & P'S COMPOSITE INDEX OF 500 STOCKS - Market value weighted
index of 500 stocks most of which are listed on the New York
Stock Exchange with some listed on the American Stock Exchange
and Nasdaq.

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

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

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

- --costs associated with aging parents;

- --funding a college education (including its actual and estimated cost);

- --health care expenses (including actual and projected expenses);

- --long-term disabilities (including the availability of, and coverage provided
by, disability insurance); and

Such information may also address different methods for saving money and the
results of such methods, as well as the benefits of investing in bond funds.

PERFORMANCE INFORMATION AND QUOTED RATINGS ARE INDICATIVE ONLY OF PAST
PERFORMANCE AND ARE NOT INTENDED TO REPRESENT FUTURE INVESTMENT
RESULTS.

<PAGE>

ADDITIONAL INFORMATION ON DIVIDENDS FOR THE MONEY MARKET FUND

Because the Money Market Fund intends to hold its portfolio securities
to maturity and expects that most of its portfolio securities will be
valued at their amortized cost, realized gains or losses should not be
a significant factor in the computation of net income. Should,
however, in an unusual circumstance, the Money Market Fund experience
a realized gain or loss, a shareholder of the Money Market Fund could
receive an increased, reduced, or no dividend for a period of time.
In such an event, the Money Market Trust's Board of Trustees would
consider whether to adhere to its present dividend policy or to revise
it in light of the then-prevailing circumstances.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
Position(s) Held with the Principal Occupations(s)
Name, Address and Age Trusts During Past 5 Years
- --------------------- ------ -------------------
<S> <C> <C>
Boh A. Dickey* Chairman and Trustee President, Chief Operating Officer, and
SAFECO Plaza Director of SAFECO Corporation. Previously,
Seattle, WA 98185 Executive Vice President and Chief Financial
(53) Officer. He has been an executive officer of
SAFECO Corporation subsidiaries since 1982.
See table under "Investment Advisory and Other
Services."

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

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

Richard W. Hubbard Trustee Retired Vice President and Treasurer of the Trust
1270 NW Blakely Ct. and other SAFECO Trusts; retired Senior Vice
Seattle, WA 98177 President and
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
(68) Treasurer of SAFECO Corporation; former President
of SAFECO Asset Management Company; Director of
First SAFECO National Life Insurance Company of
New York; Member of Diocese of Olympia Investment
Committee.

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

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

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

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

Ronald L. Spaulding Vice President Chairman of SAFECO Asset Management Company;
SAFECO Plaza Treasurer Treasurer and Chief Investment Officer of SAFECO
Seattle, WA 98185
</TABLE>

<PAGE>

<TABLE>
<S> <C> <C>
(54) Corporation; Vice President of SAFECO Insurance
Companies; Director, Vice President and Treasurer
of First SAFECO National Life Insurance Company
of New York; former Senior Portfolio Manager of
SAFECO insurance companies and Portfolio Manager
for SAFECO mutual funds. See table under
"Investment Advisory and Other Services."

David H. Longhurst Assistant Controller Assistant Controller of SAFECO Securities, Inc.,
SAFECO Plaza SAFECO Services Corporation and SAFECO Asset
Seattle, WA 98185 Management Company; former Senior Manager with
(40) Ernst & Young LLP, an independent accounting company.

Stephen D. Collier Assistant Secretary Assistant Secretary of SAFECO Asset Management
(45) Company, SAFECO Securities, Inc. and SAFECO Services
Corporation. He has been an executive officer
of SAFECO Insurance Company and subsidiaries
since 1991.
</TABLE>

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

Each Trustee and officer holds the same position(s) with another
registered open-end, management investment company that has, in the
aggregate, six series companies managed by SAM.

<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
(Common Stock Trust)
For The Fiscal Year Ended December 31, 1997

<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara Dingfield $7,784.85 N/A N/A $22,750
David F. Hill N/A N/A N/A N/A
Richard W. Hubbard $7,180.62 N/A N/A $21,000
Richard E. Lundgren $7,784.85 N/A N/A $22,750
Larry L. Pinnt $7,784.85 N/A N/A $22,750
John W. Schneider $7,784.85 N/A N/A $22,750
</TABLE>

At February 3, 1998, the Trustees and officers of the Common Stock
Trust as a group owned less than 1% of the outstanding shares of each
Stock Fund.

<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
(Taxable Bond Trust)
For the Fiscal Year Ended December 31, 1997

<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara Dingfield $2,573.76 N/A N/A $22,750
David F. Hill N/A N/A N/A N/A
Richard W. Hubbard $2,375.96 N/A N/A $21,000
Richard E. Lundgren $2,573.76 N/A N/A $22,750
Larry L. Pinnt $2,573.76 N/A N/A $22,750
John W. Schneider $2,573.76 N/A N/A $22,750
</TABLE>

At February 3, 1998, the Trustees and officers of the Taxable Bond
Trust as a group owned less than 1% of the outstanding shares of each
Bond Fund.

<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
(Managed Bond Trust)
For the Fiscal Year Ended December 31, 1997

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from Registrant
Aggregate Accrued as Part Annual Benefits and Fund
Compensation of Fund Upon Complex Paid
Trustee from Registrant Expenses Retirement to Trustees
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara Dingfield $837.13 N/A N/A $22,750
David F. Hill N/A N/A N/A N/A
Richard W. Hubbard $773.47 N/A N/A $21,000
Richard E. Lundgren $837.13 N/A N/A $22,750
Larry L. Pinnt $837.13 N/A N/A $22,750
John W. Schneider $837.13 N/A N/A $22,750
</TABLE>

At February 3, 1998, the Trustees and officers of the Managed Bond Trust owned
less than 1% of the outstanding shares of the Managed Bond Fund.

<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
(Tax-Exempt Bond Trust)
For the Fiscal Year Ended December 31, 1997

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from Registrant
Aggregate Accrued as Part Annual Benefits and Fund
Compensation of Fund Upon Complex Paid
Trustee from Registrant Expenses Retirement to Trustees
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara Dingfield $4,546.5 N/A N/A $22,750
David F. Hill N/A N/A N/A N/A
Richard W. Hubbard $4,189 N/A N/A $21,000
Richard E. Lundgren $4,546.5 N/A N/A $22,750
Larry L. Pinnt $4,546.5 N/A N/A $22,750
John W. Schneider $4,546.5 N/A N/A $22,750
</TABLE>

At February 3, 1998, the Trustees and officers of the Tax-Exempt Bond Trust as a
group owned less than 1% of the outstanding shares of each Tax-Exempt Bond Fund.

<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
(Money Market Trust)
For the Fiscal Year Ended December 31, 1997

<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated from Registrant
Aggregate Accrued as Part Annual Benefits and Fund
Compensation of Fund Upon Complex Paid
Trustee from Registrant Expenses Retirement to Trustees
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara Dingfield $1,818.88 N/A N/A $22,750
David F. Hill N/A N/A N/A N/A
Richard W. Hubbard $1,675.47 N/A N/A $21,000
Richard E. Lundgren $1,818.88 N/A N/A $22,750
Larry L. Pinnt $1,818.88 N/A N/A $22,750
John W. Schneider $1,818.88 N/A N/A $22,750
</TABLE>

At February 3, 1998, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of the Money Market Fund.

Mr. Dickey and Mr. Hill are officers of various SAFECO companies and are not
compensated by the Trusts. Similarly, the officers of the SAFECO Trusts receive
no compensation for their service as officers.

Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of a Trust are compensated by that Trust.

INVESTMENT ADVISORY AND OTHER SERVICES

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

SAM has a sub-advisory agreement with Bank of Ireland Asset Management (U.S.)
Limited.

<PAGE>

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

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

<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trusts SAM Securities Services
- ---- ------ --- ---------- --------
<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director
Trustee

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

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

R.L. Spaulding Vice President Chairman Director Director
Treasurer Director

S.C. Bauer President
Director

D.H. Longhurst Assistant Assistant Assistant Assistant
Controller Controller Controller Controller

S.D. Collier Assistant Assistant Assistant Assistant
Secretary Secretary Secretary Secretary
</TABLE>

<PAGE>

GROWTH, EQUITY AND INCOME FUNDS

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
</TABLE>

NORTHWEST FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%

<PAGE>

$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
</TABLE>

BALANCED AND VALUE FUNDS

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
</TABLE>

INTERNATIONAL FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
</TABLE>

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%
</TABLE>

SMALL COMPANY FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
</TABLE>

<PAGE>

INTERMEDIATE TREASURY FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000, 001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%
</TABLE>

HIGH-YIELD BOND FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000, 001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>

MANAGED BOND FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .50 of 1%
$100,000, 001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%
</TABLE>

MUNICIPAL AND CALIFORNIA FUNDS

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%
</TABLE>

WASHINGTON FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%
</TABLE>

<PAGE>

MONEY FUND

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .5 of 1%
$250,000,001 - $500,000,000 .4 of 1%
$500,000,001 - $750,000,000 .3 of 1%
Over $750,000,000 .25 of 1%
</TABLE>

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Three Month
Period Ended
December December 31, September 30, September 30,
31, 1997 1996 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Growth Fund $2,120,000 $ 327,000 $1,260,000 $1,107,000
Equity Fund $6,481,000 $1,131,000 $3,752,000 $3,151,000
Income Fund $2,285,000 $ 469,000 $1,597,000 $1,348,000
Northwest Fund $ 416,000 $ 80,000 $ 305,000 $ 269,000
</TABLE>

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Period from
January 31,
Three Month 1996 (Initial
Period Ended Public Offering) to
December 31, 1997 December 31, 1996 September 30, 1996
----------------- ----------------- -------------------
<S> <C> <C> <C>
Balanced Fund $ 87,000 $15,000 $32,000
International Fund $153,000 $28,000 $53,000
Small Company Fund $151,000 $27,000 $51,000
</TABLE>

<PAGE>

The total amount of compensation paid by the Value Fund to SAM for the period
from April 30, 1997 (initial public offering) to December 31, 1997 was $43,000.

The following table states the total amounts of compensation paid by each Bond
Fund to SAM for the year ended December 31, 1997, the period ended December 31,
1996, and the past two fiscal years.

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Three Month
Period Ended
December December 31, September 30, September 30,
31, 1997 1996 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Intermediate $ 85,000 $21,000 $ 78,000 $ 71,000
Treasury Fund

High-Yield Bond $386,000 $82,000 $255,000 $206,000
Fund
</TABLE>

The following table states the total amounts of compensation paid by the Managed
Bond Fund to SAM for the past three years.

Fiscal Year Ended
-----------------

<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Managed
Bond Fund $23,000 $21,000 $23,000
</TABLE>

The following table states the total amounts of compensation paid by each
Tax-Exempt Bond Fund to SAM for the year ended December 31, 1997, the period
ended December 31, 1996, and the past two fiscal years.

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Nine Month
Period Ended
December 31, December 31, March 31, March 31,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Municipal Fund $2,041,000 $1,533,000 $2,021,000 $2,011,000

<PAGE>

California Fund $ 424,000 $ 290,000 $ 366,000 $ 364,000

Washington Fund $ 49,000 $ 32,000 $ 39,000 $ 31,000
</TABLE>

The following table states the total amounts of compensation paid by the Money
Market Fund to SAM for the year ended December 31, 1997, the period ended
December 31, 1996, and the past two fiscal years:

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Nine Month
Period Ended
December 31, December 31, March 31, March 31,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Money Fund $865,000 $630,000 $864,914 $840,727
</TABLE>

DISTRIBUTION ARRANGEMENTS. SAFECO Securities is the principal underwriter for
each Fund and distributes the Class A and Class B shares of each Fund under
Distribution Agreements with each Trust that require SAFECO Securities to use
its best efforts, consistent with its other businesses, to sell shares of the
Funds. Shares of the Funds are offered continuously.

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

Among other things, each Plan provides that (1) SAFECO Securities will submit to
each Trust's Board of Trustees at least quarterly, and the Trustees will review,
reports regarding all amounts expended under the Plan and the purposes for which
such expenditures were made, (2) the Plan will continue in effect so long as it
is approved at least annually and any material amendment thereto is approved, by
each Trust's Board of Trustees, including those Trustees who are not "interested
persons" of the Trusts and who have no direct or indirect financial interest in
the operation of the Plan or any agreement related to the Plan, acting in person
at the meeting called for that purpose, (3) payments by a Fund under the Plan
shall not be materially increased without the affirmative vote of the holders of
a majority of the outstanding voting securities of the relevant class of that
Fund and (4) while the Plan remains in effect, the selection and nomination of
Trustees who are not "interested persons" of the Trusts shall be committed to
the discretion of the Trustees who are not "interested persons" of the Trusts.

In reporting amounts expended under the Plans to each Trust's Board of Trustees,
SAFECO Securities will allocate expenses attributable to the sale of Class A and
Class B shares to such Class A or Class B based on the ratio of sales of shares
of such class to the sales of all Class A and Class B shares. Expenses
attributable to a specific class will be allocated to that class.

<PAGE>

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

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

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

CUSTODIAN. State Street Bank and Trust Company, 1776 Heritage Drive, North
Quincy, Massachusetts 02170, is the custodian of the securities, cash and other
assets of each Fund (except the International Fund) under agreements with each
Trust. Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New
York, is the custodian of the securities, cash and other assets of the
International Fund. Chase Manhattan Bank, N.A. has entered into sub-custodian
agreements with several foreign banks and clearing agencies, pursuant to which
portfolio securities purchased outside the United States are maintained in the
custody of these entities.

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

TRANSFER AGENT. SAFECO Services, SAFECO Plaza, Seattle, Washington 98185, is
the transfer, dividend and distribution disbursement and shareholder servicing
agent for the Class A and Class B shares of each Fund under an agreement with
each Trust. SAFECO Services provides, or through subcontracts makes provision
for, all required transfer agent activity, including maintenance of records of
each Fund's Class A and Class B shareholders, records of transactions involving
each Fund's Class A and Class B shares, and the compilation, distribution, or
reinvestment of income dividends or capital gains distributions.

<PAGE>

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996* 1995*
---- ---- ----- -----
<S> <C> <C> <C> <C>
Growth Fund $ 517,000 $ 99,000 $ 384,000 $ 305,000
Equity Fund $2,320,000 $ 378,000 $1,203,000 $1,018,000
Income Fund $ 583,000 $ 123,000 $ 359,000 $ 298,000
Northwest Fund $ 145,000 $ 32,000 $ 105,000 $ 97,000
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Period from January
Three Month Period 31, 1996 (Initial Public
December 31, Ended December 31, Offering) to September
1997 1996 30, 1996*
---- ---- ---------
<S> <C> <C> <C>
Balanced Fund $23,000 $2,000 $ 4,000

International $34,000 $2,000 $ 9,000
Fund

Small Company $50,000 $8,000 $13,000
Fund
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The total amount of fees paid by the Value Fund to SAFECO Services for the
period from April 30, 1997 (initial public offering) to December 31, 1997 was
$5,000.

The following table shows the fees paid by each Bond Fund to SAFECO Services
during the year ended December 31, 1997, the period ended December 31, 1996, and
the past two fiscal years:

<PAGE>

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996* 1995*
---- ---- ----- -----
<S> <C> <C> <C> <C>
Intermediate $31,000 $ 6,000 $ 39,000 $ 33,000
Treasury Fund

High-Yield Bond $86,000 $17,000 $ 90,000 $ 78,000
Fund
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The following table shows the fees paid by the Managed Bond Fund to SAFECO
Services for the years ended December 31, 1997, December 31, 1996 and December
31, 1995:

Fiscal Year Ended
-----------------

<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996* December 31, 1995*
----------------- ------------------ ------------------
<S> <C> <C> <C>
Managed Bond
Fund $1,000 $15 $309
</TABLE>

* The fees paid to SAFECO Services reflect fees of $3.10 per shareholder
transaction until July, 1996 when the new fee schedule went into effect.

The following table shows the fees paid by each Tax-Exempt Bond Fund to SAFECO
Services for the year ended December 31, 1997, the period ended December 31,
1996, and the past two fiscal years:

Fiscal Year or Period Ended
---------------------------

<TABLE>
<CAPTION>
Nine Month
Period Ended
December 31, December March 31, March 31,
1997 31, 1996* 1996* 1995*
---- --------- ----- -----
<S> <C> <C> <C> <C>
Municipal Fund $327,000 $ 300,000 $ 511,000 $ 532,000
California Fund $ 60,000 $ 48,000 $ 69,000 $ 69,000
Washington Fund $ 3,000 $ 2,000 $ 3,000 $ 3,000
</TABLE>

<PAGE>

*Figures reflect fees of $3.10 per shareholder transaction until July, 1996 when
the new fee schedule went into effect.

The following table shows the fees paid by the Money Market Fund to SAFECO
Services for the year ended December 31, 1997, the period ended December 31,
1996, and the past two fiscal years:

Year or Period Ended
---------------------

<TABLE>
<CAPTION>
Nine Month
Period Ended
December 31, December 31, March 31, March 31,
1997 1996* 1996* 1995*
---- ----- ----- -----
<S> <C> <C> <C> <C>
Money Fund $414,000 $325,000 $424,260 $385,495
</TABLE>

* Figures reflect fees of $3.10 per shareholder transaction until July, 1996
when the new fee schedule went into effect.

BROKERAGE PRACTICES

<PAGE>

The overall reasonableness of broker commissions paid is evaluated periodically.
Such evaluation includes review of what competing broker/dealers are willing to
charge for similar types of services and what discounts are being granted by
brokerage firms. The evaluation also considers the timeliness and accuracy of
the research received.

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Three Month
Period Ended
December 31, December 31, September 30, September 30,
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Growth Fund $ 817,674 $ 63,500 $ 518,092 $ 489,983
Equity Fund $ 1,180,261 $ 278,203 $ 1,224,644 $ 1,082,137
Income Fund $ 341,428 $ 42,827 $ 286,999 $ 159,717
Northwest $ 63,531 $ 25,566 $ 13,599 $ 6,536
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year or Period Ended
---------------------------

Period from January
Three Month Period 31, 1996 (Initial
December 31, Ended December 31, Public Offering) to
1997 1996 September 30, 1996
---- ---- ------------------
<S> <C> <C> <C>
Balanced Fund $ 9,913 $ 1,548 $ 5,911
International $ 16,054 $ 5,311 $ 22,468
Fund
Small Company $ 24,815 $ 4,615 $ 16,752
Fund
</TABLE>

<PAGE>

The total amount of brokerage expenses for the Value Fund for the period from
April 30, 1997 (initial public offering) to December 31, 1997 was $10,224.

REDEMPTION IN KIND

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

FINANCIAL STATEMENTS

STOCK FUNDS

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997, the
Three-Month Period Ended December 31, 1996 and the Year Ended September 30,
1996
Notes to Financial Statements

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Period from April 30, 1997 (initial public
offering) to December 31, 1997
Statement of Changes in Net Assets for the Period from April 30, 1997 (initial
public offering) to December 31, 1997
Notes to Financial Statements

BOND FUNDS

<PAGE>

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997, the
Three-Month Period Ended December 31, 1996 and the Year Ended September 30,
1996
Notes to Financial Statements

MANAGED BOND FUND

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Years ended December 31, 1997 and
December 31, 1996.
Notes to Financial Statements

TAX-EXEMPT BOND FUNDS

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997 and
the Nine-Month Period Ended December 31, 1996
Notes to Financial Statements

MONEY MARKET FUND

The following financial statements of the Money Market Fund and the report
thereon of Ernst & Young LLP, independent auditors, are incorporated herein by
reference to the Money Market Trust's Annual Report for the year ended December
31, 1997:

Portfolio of Investments as of December 31, 1997

<PAGE>

Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December 31, 1997 and
the Nine-Month Period Ended December 31, 1996
Notes to Financial Statements

Copies of each Trust's Advisor Class Annual Report accompany this Statement of
Additional Information. Additional copies may be obtained by calling SAFECO
Services at 1-800-463-8791 nationwide or by writing to the address on the first
page of this Statement of Additional Information.

DESCRIPTION OF RATINGS

COMMERCIAL PAPER AND PREFERRED STOCK RATINGS

COMMERCIAL PAPER RATINGS

MOODY'S

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

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

<PAGE>

S&P

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

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

PREFERRED STOCK RATINGS

MOODY'S

<PAGE>

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

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

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

S&P

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

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

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

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

<PAGE>

BOND RATINGS

MOODY'S

Investment Grade :

Below Investment Grade:

<PAGE>

Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.

Ca -- Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.

C -- Bonds which are rated "C" are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

S&P

Investment Grade:

AAA -- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.

Below Investment Grade:

C1 -- The rating "C1" is reserved for income bonds on which no interest is being
paid.

PLUS (+) OR MINUS (-): The ratings may be modified from "AA" to "CCC" by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

<PAGE>

MUNICIPAL NOTES AND OTHER SHORT-TERM OBLIGATION RATINGS

MOODY'S

Moody's rates municipal notes and other short-term obligations using Moody's
Investment Grade ("MIG").

MIG-2-- This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.

MIG-3-- This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.

S&P

SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

GMF ----
<PAGE>

SAFECO TAXABLE BOND TRUST
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements:

Part A

None

Part B

The following financial statements for each series of the Registrant for the
year ended December 31, 1997 including the report thereon of Ernst & Young LLP,
independent auditors, are incorporated by reference in Part B of this
Registration Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statements of Changes in Net Assets for the Year Ended
December 31, 1997, the Three-Month Period Ended December 31, 1996 and
the Year Ended September 30, 1996
Notes to Financial Statements

The following financial statements of the Managed Bond Trust and the report
thereon by Ernst & Young, LLP, independent auditors, are incorporated by
reference in Part B of this Registration Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year ended December 31, 1997
Statement of Changes in Net Assets for the Years Ended December 31, 1997
and December 31, 1996
Notes to Financial Statements

The following financial statements for the Tax-Exempt Bond Trust for the year
ended December 31, 1997 including the report thereon of Ernst & Young LLP,
independent auditors, are incorporated by reference in Part B of this
Registration Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended
December 31, 1997 and the Nine-Month Period Ended December 31, 1996
Notes to Financial Statements

The following financial statements of the Common Stock Trust (other than the
Value Fund) for the year ended December 31, 1997 including the report thereon
of Ernst & Young LLP, independent auditors, are incorporated by reference in
Part B of this Registration Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year Ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended
December 31, 1997, the Three-Month Period Ended December 31,

<PAGE>

1996 and the Year Ended September 30, 1996
Notes to Financial Statements

The following financial statements of the Value Fund for the year ended December
31, 1997 including the report thereon of Ernst & Young LLP, independent
auditors, are incorporated by reference in Part B of this Registration
Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Period from April 30, 1997
(initial public offering) to December 31, 1997
Statement of Changes in Net Assets for the Period from
April 30, 1997 (initial public offering) to December 31, 1997
Notes to Financial Statements

The following financial statements of the Money Market Trust for the year ended
December 31, 1997 including the report thereon of Ernst & Young LLP, independent
auditors, are incorporated by reference in Part B of this Registration
Statement.

Portfolio of Investments as of December 31, 1997
Statement of Assets and Liabilities as of December 31, 1997
Statement of Operations for the Year ended December 31, 1997
Statement of Changes in Net Assets for the Year Ended December
31, 1997 and the Nine-Month Period Ended December 31, 1996
Notes to Financial Statements

(b) Exhibits:

[*]Exhibit
Number Description of Document Page
- ------ ----------------------- ----

(27.1-3) Financial Data Schedules (filed herewith)

(1) Trust Instrument/Certificate of Trust *
(2) Bylaws *
(3) Inapplicable

(4) Form of Stock Certificate *
(5) Investment Advisory and Management Contract *

(6) Form of Distribution Agreement **
Form of Selling Dealer Agreement **
(7) Inapplicable

(8) Custody Agreement with State Street Bank ***
Form of Amendment to Custody Agreement with
State Street Bank and Trust Company (filed herewith)

(9) Form of Transfer Agent Agreement **

(10) Opinion and Consent of Counsel for No-Load Class *

Opinion and Consent of Counsel for

<PAGE>

Advisor Class A and Advisor Class B **

(11) Consent of Independent Auditors (filed herewith)

(12) Registrant's Annual Report for the Year +
Ended December 31, 1997, including Financial Statements

Annual Report for SAFECO Managed Bond Trust for +
the Year Ended December 31, 1997, including
Financial Statements

Annual Report for SAFECO Money Market Trust for +
the Year Ended December 31, 1997, including
Financial Statements

Annual Report for SAFECO Common Stock Trust for +
the Year Ended December 31, 1997 Including
Financial Statements

Annual Report for SAFECO Tax-Exempt Bond Trust +
for the Year Ended December 31, 1997,
Including Financial Statements

(13) Subscription Agreement *
(14) Prototype 401(k)/Profit Sharing Plan *
(15) Rule 12b-1 Plan (Advisor Class A) **
Rule 12b-1 Plan (Advisor Class B) **

(16) Calculation of Performance Information-
No-Load Class *
Calculation of Performance Information-
Advisor Class A **
Calculation of Performance Information-
Advisor Class B **
(17) See Exhibits 27.1-3 (filed herewith)

(18) Rule 18f-3 Plan **

* Filed as an exhibit to Post-Effective Amendment No. 10 filed with the SEC
on or about January 31, 1996.

** Filed as an exhibit to Post-Effective Amendment No. 11 filed with the
SEC on or about August 1, 1996.

*** Filed as an exhibit to Post-Effective Amendment No. 15 filed with the
SEC on or about April 30, 1997.

+ Annual Reports for the Advisor Classes and the No-Load Class of the
Registrant, SAFECO Common Stock Trust, SAFECO Managed Bond Trust, SAFECO
Money Market Trust and SAFECO Tax-Exempt Bond Trust were filed with the
SEC on or about February 25, 1998.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services) and
SAFECO Securities, Inc. (SAFECO Securities), each a Washington corporation. SAM
is the

<PAGE>

investment advisor, SAFECO Services is the transfer agent and SAFECO Securities
is the principal underwriter for each of the SAFECO Mutual Funds. The SAFECO
Mutual Funds consist of six Delaware business trusts: SAFECO Common Stock
Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust, SAFECO Money
Market Trust, SAFECO Managed Bond Trust (formerly SAFECO Institutional Series
Trust) and SAFECO Resource Series Trust. The SAFECO Common Stock Trust
consists of eight mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO
Income Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO
Balanced Fund, SAFECO Small Company Stock Fund and SAFECO U.S. Value Fund. The
SAFECO Taxable Bond Trust consists of three mutual funds: SAFECO
Intermediate-Term U.S. Treasury Fund, SAFECO GNMA Fund and SAFECO High-Yield
Bond Fund. The SAFECO Tax-Exempt Bond Trust consists of five mutual funds:
SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured Municipal Bond
Fund, SAFECO Municipal Bond Fund, SAFECO California Tax-Free Income Fund and
SAFECO Washington State Municipal Bond Fund. The SAFECO Money Market Fund
consists of two mutual funds: SAFECO Money Market Fund and SAFECO Tax-Free Money
Market Fund. The SAFECO Managed Bond Trust consists of one mutual fund: Managed
Bond Fund (formerly Fixed-Income Portfolio). The SAFECO Resource Series Trust
consists of six mutual funds: Equity Portfolio, Growth Portfolio, Northwest
Portfolio, Small Company Stock Portfolio, Bond Portfolio and Money Market
Portfolio.

SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, SAFECO Insurance Company of Illinois, an Illinois corporation and
SAFECO Insurance Company of Pennsylvania, a Pennsylvania corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Surplus Lines Insurance
Company, a Washington corporation, and Market Square Holding, Inc., a Minnesota
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, First SAFECO National Life
Insurance Company of New York, a New York corporation, and WM Life Insurance
Company, an Arizona corporation. WM Life Insurance Company owns 100% of Empire
Life Insurance Company, a Washington corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General America
Corp. of Texas, a Texas corporation, Talbot Financial Corporation, a Washington
corporation, Goldware & Taylor Insurance Service, a California corporation and
SAFECO Select Insurance Services, Inc., a California corporation. F.B. Beattie
& Co., Inc. owns 100% of F.B. Beattie Insurance Services, Inc., a California
corporation. General America Corp. of Texas is Attorney-in-fact for SAFECO
Lloyds Insurance Company, a Texas corporation. Talbot Financial Corporation
owns 100% of Talbot Agency, Inc., a New Mexico corporation. Talbot Agency, Inc.
owns 100% of PNMR Securities, Inc., a Washington corporation. SAFECO Properties
Inc. owns 100% of the following, each a Washington corporation: SAFECARE
Company, Inc. and Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the
following, each a Washington corporation: RIA Development, Inc., S.C. Arkansas,
Inc., S.C. Bellevue/Lynn, S.C. Bellevue, Inc.,

<PAGE>

S.C. Everett, Inc., S.C. Everett/Lynn, S.C. Lynden, Inc., S.C. Lynden/Lynn,
S.C. Marysville, Inc., S.C. Northgate, Inc., S.C. Northgate/LR1, L.L.C., S.C.
Vancouver, Inc., S.C. Vancouver/Lynn (Joint Venture), SAFECARE S.C.
Bakersfield, Inc. and SAFECARE S.C. Bakersfield/Lynn Limited Partnership.
SAFECARE Company, Inc. owns 50% of Lifeguard Ventures, Inc., a California
corporation, and S.C. River Oaks, Inc., a Washington corporation. Winmar
Company, Inc. owns 100% of the following: C-W Properties, Inc., Gem State
Investors, Inc., Kitsap Mall, Inc., WNY Development, Inc., Winmar Cascade,
Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar Redmond, Inc. and
Winmar of Kitsap, Inc., each a Washington corporation, and Capitol Court
Corp., a Wisconsin corporation, SAFECO Properties of Boise, Inc., an Idaho
corporation, SCIT, Inc., a Massachusetts corporation, Valley Fair Shopping
Centers, Inc., a Delaware corporation, WDI Golf Club, Inc., a California
corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of Texas,
Inc., a Texas corporation, and Winmar of the Desert, Inc., a California
corporation. Winmar Oregon, Inc. owns 100% of the following, each an Oregon
corporation: North Coast Management, Inc., Pacific Surfside Corp., Winmar of
Jantzen Beach, Inc. and W-P Development, Inc., and 100% of the following,
each a Washington corporation: Washington Square, Inc. and Winmar Pacific,
Inc.

SAFECO Corporation, a Washington corporation, owns 100% of American States
Financial Corporation, an Indiana corporation. American States Financial
Corporation owns 100% of American States Insurance Company, an Indiana
corporation. American States Insurance Company owns 100% of the following
Indiana corporations: American Economy Insurance Company, American States
Preferred Insurance Company, American States Life Insurance company, and City
Insurance Agency, Inc. American States Insurance Company owns 100% of Insurance
Company of Illinois, an Illinois corporation, and American States Lloyds
Insurance Company, a Texas corporation. American Economy Insurance Company owns
100% of American States Insurance Company of Texas, a Texas corporation.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

At February 3, 1998, Registrant had the following number of shareholders:

Title of Class Number of
Shareholders of Record

Safeco Intermediate-Treasury Fund
<S> <C>
No-Load Class 514

Advisor Class A 13

Advisor Class B 11

SAFECO GNMA Fund

No-Load Class 1,735

SAFECO High-Yield Bond Fund

No-Load Class 2,230
</TABLE>

<PAGE>

Title of Class Number of
Shareholders of Record
<S> <C>
Advisor Class A 16

Advisor Class B 26
</TABLE>

ITEM 27. INDEMNIFICATION

Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain liabilities,
subject to specified conditions and limitations.

Under the indemnification provisions in the Registrant's Trust Instrument and
subject to the limitations described in the paragraph below, every person who
is, or has been, a trustee, officer, employee or agent of the Registrant shall
be indemnified by the Registrant or the appropriate Series of the Registrant to
the fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being, or having been, a trustee, officer, employee or
agent and against amounts paid or incurred by him or her in the settlement
thereof. As used in this paragraph, "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other liabilities.

No indemnification will be provided to a trustee, officer, employee or agent:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (a) to be liable to the Registrant or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
not to have acted in good faith in the reasonable belief that his or her
action was in the best interest of the Registrant; or (ii) in the event of
settlement, unless there has been a determination that such trustee, officer,
employee or agent did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
or her office; (a) by the court or other body approving the settlement, (b)
by the vote of at least a majority of a quorum of those trustees who are
neither interested persons, as that term is defined by the Investment Company
Act of 1940, of the Registrant nor are the parties to the proceeding based
upon a review of readily available facts (as opposed to a full trial type
inquiry); or (c) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial type inquiry).

To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described above may be paid by
the Registrant or applicable Series from time to time prior to final
disposition thereof upon receipt of an undertaking by or on behalf of such
trustee, officer, employee or agent that such amount will be paid over by him
or her to the Registrant or the applicable Series if it is ultimately
determined that he or she is not entitled to indemnification under the Trust

<PAGE>

Instrument; provided, however, that either (i) such trustee, officer, employee
or agent shall have provided appropriate security for such undertaking, (ii)
the Registrant is insured against such losses arising out of such advance
payments or (iii) either a majority of the trustees who are neither interested
persons, as that term is defined by the Investment Company Act of 1940, of the
Registrant nor parties to the proceeding, or independent legal counsel in a
written opinion, shall have determined, based on a review of readily available
facts (as opposed to a full trial type inquiry), that there is reason to
believe that such trustee, officer, employee or agent, will not be disqualified
from indemnification under Registrant's Trust Instrument.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers, employees and agents of the
Registrant pursuant to such provisions of the Trust Instrument or statutes or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in said Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a trustee,
officer, employee or agent of the Registrant in the successful defense of any
such action, suit or proceeding) is asserted by such a trustee, officer,
employee or agent in connection with the shares of any series of the
Registrant, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in said Act and will be governed by the
final adjudication of such issue.

Under an agreement with its distributor ("Distribution Agreement"),
Registrant has agreed to indemnify, defend and hold the distributor, the
distributor's several directors, officers and employees, and any person who
controls the distributor within the meaning of Section 15 of the 1933 Act,
free and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection therewith)
which the distributor, its directors, officers or employees, or any such
controlling person may incur, under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or arising out of or
based upon any alleged omission to state a material fact required to be
stated or necessary to make the Registration Statement not misleading.

In no event shall anything contained in the Distribution Agreement be
construed so as to protect the distributor against any liability to the
Registrant or its shareholders to which the distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of its duties, or by reason of its reckless disregard of its
obligations and duties under the Distribution Agreement, and further provided
that the Registrant shall not indemnify the distributor for conduct set forth
in this paragraph.

Under an agreement with its transfer agent ("Transfer Agent Agreement"),
Registrant has agreed to indemnify and hold the transfer agent harmless against
any losses, claims, damages, liabilities or expenses (including reasonable
attorneys' fees and expenses) resulting from: (1) any claim, demand, action or
suit brought by any person other than the Registrant, including by a
shareholder, which names the transfer agent and/or the Registrant as a party,
and is not based on and does not result from the transfer agent's willful
misfeasance, bad faith or negligence or reckless

<PAGE>

disregard of duties, and arises out of or in connection with the transfer
agent's performance under the Transfer Agent Agreement; or (2) any claim,
demand, action or suit (except to the extent contributed to by the transfer
agent's willful misfeasance, bad faith or negligence or reckless disregard of
duties) which results from the negligence of the Registrant, or from the
transfer agent acting upon any instruction(s) reasonably believed by it to have
been executed or communicated by any person duly authorized by the Registrant,
or as a result of the transfer agent acting in reliance upon advice reasonably
believed by the transfer agent to have been given by counsel for the
Registrant, or as a result of the transfer agent acting in reliance upon any
instrument or stock certificate reasonably believed by it to have been genuine
and signed, countersigned or executed by the proper person.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The investment adviser to Registrant, SAM, serves as an adviser to: (a)
twenty-five series (portfolios) of six registered investment companies,
including six series of an investment company that serves as an investment
vehicle for variable insurance products and (b) a number of pension funds not
affiliated with SAFECO Corporation or its affiliates. The directors and
officers of SAM serve in similar capacities with SAFECO Corporation or its
affiliates. The information set forth under "Investment Advisory and Other
Services" in the Registrant's Statement of Additional Information is
incorporated by reference.

ITEM 29. PRINCIPAL UNDERWRITER

(a) SAFECO Securities, Inc., the principal underwriter for Registrant, also
acts as the principal underwriter for each class of each series of the
SAFECO Common Stock Trust, SAFECO Tax-Exempt Bond Trust, SAFECO Money
Market Trust, SAFECO Managed Bond Trust and SAFECO Resource Series Trust.
In addition, SAFECO Securities, Inc. is the principal underwriter for the
sale of variable annuity contracts (SAFECO Resource Variable Account B and
SAFECO Separate Account C) and variable universal life insurance policies
(SAFECO Separate Account SL) issued by SAFECO Life Insurance Company, and
variable annuity contracts (SAFECO Separate Account S) issued by First
SAFECO National Life Insurance Company of New York.

(b) The information set forth under "Investment Advisory and Other Services"
in the Statement of Additional Information is incorporated by reference.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA
02170, maintains physical possession of the accounts, books and documents of
the Registrant relating to its activities as custodian of the Registrant.
SAFECO Asset Management Company, Two Union Square, Seattle, Washington
98101, maintains physical possession of all other accounts, books or
documents of the Registrant required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules promulgated thereunder.

ITEM 31. MANAGEMENT SERVICES

Inapplicable.

<PAGE>

ITEM 32. UNDERTAKINGS

Registrant undertakes to furnish each person to whom a prospectus is delivered
with a copy of the Registrant*s latest annual report to shareholders, upon
request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereto duly
authorized, in the City of Seattle, and State of Washington on the 23rd day
of February, 1998.

SAFECO TAXABLE BOND TRUST

By /s/ David F. Hill
-------------------------------------
David F. Hill, President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.

Name Title Date
---- ----- ----

/s/ David F. Hill++ President and Trustee 2/23/98
- ------------------------------ Principal Executive Officer
David F. Hill

RONALD L. SPAULDING* Vice President 2/23/98
- ------------------------------ Treasurer
Ronald L. Spaulding

NEAL A. FULLER* Vice President, Controller 2/23/98
- ------------------------------ and Assistant Secretary
Neal A. Fuller

/s/ Boh A. Dickey++ Chairman and Trustee 2/23/98
- ------------------------------
Boh A. Dickey

BARBARA J. DINGFIELD* Trustee 2/23/98
- ------------------------------
Barbara J. Dingfield

RICHARD W. HUBBARD* Trustee 2/23/98
- ------------------------------
Richard W. Hubbard

RICHARD E. LUNDGREN* Trustee 2/23/98
- ------------------------------
Richard E. Lundgren

LARRY L. PINNT* Trustee 2/23/98
- ------------------------------
Larry L. Pinnt

JOHN W. SCHNEIDER* Trustee 2/23/98
- ------------------------------
John W. Schneider

*By: /s/ Boh A. Dickey
-------------------------
Boh A. Dickey
Attorney-in-Fact

*By: /s/ David F. Hill
-------------------------
David F. Hill
Attorney-in-Fact

++ Trustees who are interested persons as defined by the 1940 Act.
<PAGE>

Registration Nos. 33-22132/811-5574

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

EXHIBITS

FORM N-1A

REGISTRATION STATEMENT
POST-EFFECTIVE AMENDMENT NO. 16

Under

The Securities Act of 1933

and

AMENDMENT NO. 17

Under

The Investment Company Act of 1940

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

SAFECO Taxable Bond Trust
(Exact Name of Registrant as Specified in Charter)

SAFECO Plaza
Seattle, Washington 98185
(Address of Principal Executive Offices)

206-545-5180
(Registrant's Telephone Number, including Area Code)

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

<PAGE>

SAFECO TAXABLE BOND TRUST

Form N-1A

Post-Effective Amendment No. 16

Exhibit Index

Exhibit
Number Description of Document Page
- ------- ----------------------- ----

(27.1-3) Financial Data Schedules

(99.8) Form of Amendment to Custody Agreement with
State Street Bank and Trust Company

(99.11) Consent of Independent Auditors

(99.12) Registrant's Report for Year Ended
December 31, 1997+ including Financial
Statements

+ Registrant's Annual Report was filed with the SEC on or about
February 25, 1998 and is hereby incorporated by reference.

<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE TAXABLE BOND TRUST AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000833045
<NAME> SAFECO TAXABLE BOND TRUST
<SERIES>
<NUMBER> 3
<NAME> SAFECO GNMA FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 35,858
<INVESTMENTS-AT-VALUE> 37,234
<RECEIVABLES> 1,514
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 576
<TOTAL-LIABILITIES> 576
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 39,367
<SHARES-COMMON-STOCK> 3,989
<SHARES-COMMON-PRIOR> 4,226
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,571)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,376
<NET-ASSETS> 38,172
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,779
<OTHER-INCOME> 0
<EXPENSES-NET> 354
<NET-INVESTMENT-INCOME> 2,425
<REALIZED-GAINS-CURRENT> 411
<APPREC-INCREASE-CURRENT> (437)
<NET-CHANGE-FROM-OPS> 3,273
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,425)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 872
<NUMBER-OF-SHARES-REDEEMED> (1,290)
<SHARES-REINVESTED> 181
<NET-CHANGE-IN-ASSETS> (1,371)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,983)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 246
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 108
<AVERAGE-NET-ASSETS> 37,911
<PER-SHARE-NAV-BEGIN> 9.36
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> (0.60)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.57
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE TAXABLE BOND TRUST AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000833045
<NAME> SAFECO TAXABLE BOND TRUST
<SERIES>
<NUMBER> 01
<NAME> SAFECO HIGH YIELD BOND FUND NO-LOAD CLASS
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 67,388
<INVESTMENTS-AT-VALUE> 69,815
<RECEIVABLES> 2,283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,098
<PAYABLE-FOR-SECURITIES> 163
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 263
<TOTAL-LIABILITIES> 426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,584
<SHARES-COMMON-STOCK> 7,786
<SHARES-COMMON-PRIOR> 5,703
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (339)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,427
<NET-ASSETS> 71,672
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,637
<OTHER-INCOME> 0
<EXPENSES-NET> 540
<NET-INVESTMENT-INCOME> 5,097
<REALIZED-GAINS-CURRENT> 954
<APPREC-INCREASE-CURRENT> 1,194
<NET-CHANGE-FROM-OPS> 7,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,097)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,581
<NUMBER-OF-SHARES-REDEEMED> (10,838)
<SHARES-REINVESTED> 361
<NET-CHANGE-IN-ASSETS> 21,374
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,293)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 386
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154
<AVERAGE-NET-ASSETS> 59,464
<PER-SHARE-NAV-BEGIN> 8.82
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> 0.31
<PER-SHARE-DIVIDEND> (0.77)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.13
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 67,388
<INVESTMENTS-AT-VALUE> 69,815
<RECEIVABLES> 2,283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,098
<PAYABLE-FOR-SECURITIES> 163
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 263
<TOTAL-LIABILITIES> 426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,584
<SHARES-COMMON-STOCK> 28
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (339)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,427
<NET-ASSETS> 71,672
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,637
<OTHER-INCOME> 0
<EXPENSES-NET> 540
<NET-INVESTMENT-INCOME> 5,097
<REALIZED-GAINS-CURRENT> 954
<APPREC-INCREASE-CURRENT> 1,194
<NET-CHANGE-FROM-OPS> 7,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,097)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,374
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,293)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 386
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154
<AVERAGE-NET-ASSETS> 59,464
<PER-SHARE-NAV-BEGIN> 8.83
<PER-SHARE-NII> 0.69
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.69)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.12
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 67,388
<INVESTMENTS-AT-VALUE> 69,815
<RECEIVABLES> 2,283
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 72,098
<PAYABLE-FOR-SECURITIES> 163
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 263
<TOTAL-LIABILITIES> 426
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,584
<SHARES-COMMON-STOCK> 39
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (339)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,427
<NET-ASSETS> 71,672
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,637
<OTHER-INCOME> 0
<EXPENSES-NET> 540
<NET-INVESTMENT-INCOME> 5,097
<REALIZED-GAINS-CURRENT> 954
<APPREC-INCREASE-CURRENT> 1,194
<NET-CHANGE-FROM-OPS> 7,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,097)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27
<NUMBER-OF-SHARES-REDEEMED> (1)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 21,374
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,293)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 386
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 154
<AVERAGE-NET-ASSETS> 59,464
<PER-SHARE-NAV-BEGIN> 8.83
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.29
<PER-SHARE-DIVIDEND> (0.63)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.12
<EXPENSE-RATIO> 1.81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 16,357
<INVESTMENTS-AT-VALUE> 16,777
<RECEIVABLES> 271
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,048
<PAYABLE-FOR-SECURITIES> 451
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102
<TOTAL-LIABILITIES> 553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,328
<SHARES-COMMON-STOCK> 1,518
<SHARES-COMMON-PRIOR> 1,452
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (253)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 420
<NET-ASSETS> 16,495
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,034
<OTHER-INCOME> 0
<EXPENSES-NET> 148
<NET-INVESTMENT-INCOME> 886
<REALIZED-GAINS-CURRENT> (57)
<APPREC-INCREASE-CURRENT> 416
<NET-CHANGE-FROM-OPS> 1,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (886)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,014
<NUMBER-OF-SHARES-REDEEMED> (988)
<SHARES-REINVESTED> 40
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (196)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 15,523
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.58)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 16,357
<INVESTMENTS-AT-VALUE> 16,777
<RECEIVABLES> 271
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,048
<PAYABLE-FOR-SECURITIES> 451
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102
<TOTAL-LIABILITIES> 553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,328
<SHARES-COMMON-STOCK> 35
<SHARES-COMMON-PRIOR> 70
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (253)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 420
<NET-ASSETS> 16,495
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,034
<OTHER-INCOME> 0
<EXPENSES-NET> 148
<NET-INVESTMENT-INCOME> 886
<REALIZED-GAINS-CURRENT> (57)
<APPREC-INCREASE-CURRENT> 416
<NET-CHANGE-FROM-OPS> 1,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (886)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22
<NUMBER-OF-SHARES-REDEEMED> (59)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (196)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 15,523
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> (0.55)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 16,357
<INVESTMENTS-AT-VALUE> 16,777
<RECEIVABLES> 271
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,048
<PAYABLE-FOR-SECURITIES> 451
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102
<TOTAL-LIABILITIES> 553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,328
<SHARES-COMMON-STOCK> 42
<SHARES-COMMON-PRIOR> 22
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (253)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 420
<NET-ASSETS> 16,495
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,034
<OTHER-INCOME> 0
<EXPENSES-NET> 148
<NET-INVESTMENT-INCOME> 886
<REALIZED-GAINS-CURRENT> (57)
<APPREC-INCREASE-CURRENT> 416
<NET-CHANGE-FROM-OPS> 1,245
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (886)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26
<NUMBER-OF-SHARES-REDEEMED> (7)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 889
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (196)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 85
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63
<AVERAGE-NET-ASSETS> 15,523
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 1.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>

EXHIBIT 99.8

FORM OF AMENDMENT TO CUSTODY AGREEMENT

<PAGE>

FORM OF
AMENDMENT TO THE CUSTODIAN CONTRACT

AGREEMENT made by and between State Street Bank and Trust Company (the
"Custodian") and SAFECO ____________ Trust (the "Fund").

WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated as of March 31, 1997 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and

WHEREAS, the Custodian and the Fund desire to amend the Custodian Contract
to provide for the maintenance of the Fund's foreign securities, and cash
incidental to transactions in such securities, in the custody of certain foreign
banking institutions and foreign securities depositories acting as
sub-custodians in conformity with the requirements of Rule 17f-5 under the
Investment Company Act of 1940,

NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and conditions:

1. Appointment of Foreign Sub-Custodians.

The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Fund's securities and other assets maintained
outside the United States the foreign banking institutions and foreign
securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in the
Custodian Contract, together with a certified resolution of the Fund's
Board of Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian.
Upon receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians for maintaining
custody of the Fund's assets.

2. Assets to be Held.

The Custodian shall limit the securities and other assets maintained in the
custody of the foreign sub-custodians to: (a) "foreign securities", as
defined in paragraph (c)(1) of Rule 17f-5 under the Investment Company Act
of 1940, and (b) cash and cash equivalents in such amounts as the Custodian
or the Fund may determine to be reasonably necessary to effect the Fund's
foreign securities transactions. The Custodian shall identify on its books
as belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.

<PAGE>

3. Foreign Securities Systems.

Except as may otherwise be agreed upon in writing by the Custodian and the
Fund, assets of the Funds shall be maintained in a clearing agency which
acts as a securities depository or in a book-entry system for the central
handling of securities located outside of the United States (each a
"Foreign Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof.

4. Holding Securities.

The Custodian may hold securities and other non-cash property for all of
its customers, including the Fund, with a foreign sub-custodian in a single
account that is identified as belonging to the Custodian for the benefit of
its customers, provided however, that (i) the records of the Custodian with
respect to securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry those securities
and other non-cash property belonging to the Fund and (ii) the Custodian
shall require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.

5. Agreements with Foreign Banking Institutions.

Each agreement with a foreign banking institution shall provide that: (a)
the Fund's assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for their
safe custody or administration; (b) beneficial ownership of the Fund's
assets will be freely transferable without the payment of money or value
other than for custody or administration; (c) adequate records will be
maintained by the Custodian identifying the assets as belonging to the
Fund; (d) officers of or auditors employed by, or other representatives of
the Custodian, including to the extent permitted under applicable law the
independent public accountants for the Fund, will be given access to the
books and records of the foreign banking institution relating to its
actions under its agreement with the Custodian; and (e) assets of the Fund
held by the foreign sub-custodian will be subject only to the instructions
of the Custodian or its agents.

6. Access of Independent Accountants of the Fund.

Upon request of the Fund, the Custodian will use its best efforts to
arrange for the independent accountants of the Fund to be afforded access
to the books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement with
the Custodian.

<PAGE>

7. Reports by Custodian.

The Custodian will supply to the Fund from time to time, as mutually agreed
upon, statements in respect of the securities and other assets of the Fund
held by foreign sub-custodians, including but not limited to an
identification of entities having possession of the Fund's securities and
other assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking institution
for the Custodian on behalf of its customers indicating, as to securities
acquired for the Fund, the identity of the entity having physical
possession of such securities.

8. Transactions in Foreign Custody Account.

(a) Except as otherwise provided in paragraph (b) of this Section 8, the
provision of Sections 2.2 and 2.7 of the Custodian Contract shall apply,
mutatis mutandis to the foreign securities of the Fund held outside the
United States by foreign sub-custodians.

(b) Notwithstanding any provision of the Custodian Contract to the
contrary, settlement and payment for securities received for the account of
the Fund and delivery of securities maintained for the account of the Fund
may be effected in accordance with the customary established securities
trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with
the expectation of receiving later payment for such securities from such
purchaser or dealer.

(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of the Custodian Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.

9. Liability of Foreign Sub-Custodians.

Each agreement pursuant to which the Custodian employs a foreign banking
institution as a foreign sub-custodian shall require the institution to
exercise reasonable care in the performance of its duties and to indemnify,
and hold harmless, the Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in connection
with the institution's performance of such obligations. At the election of
the Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking institution
as a consequence of any such loss, damage, cost, expense, liability or
claim if and to the extent that the Fund has not been made whole for any
such loss, damage, cost, expense, liability or claim.

<PAGE>

10. Liability of Custodian.

The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in the Custodian Contract and, regardless of
whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 13 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 10, in delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund for any
loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.

11. Reimbursement for Advances.

If the Fund requires the Custodian to advance cash or securities for any
purpose including the purchase or sale of foreign exchange or of contracts
for foreign exchange, or in the event that the Custodian or its nominee
shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time
held for the account of the Fund shall be security therefor and should the
Fund fail to repay the Custodian promptly, the Custodian shall be entitled
to utilize available cash and to dispose of such Fund assets to the extent
necessary to obtain reimbursement.

12. Monitoring Responsibilities.

The Custodian shall furnish annually to the Fund, during the month of June,
information concerning the foreign sub-custodians employed by the
Custodian. Such information shall be similar in kind and scope to that
furnished to the Fund in connection with the initial approval of the
Custodian Contract. In addition, the Custodian will promptly inform the
Fund in the event that the Custodian learns of a material adverse change in
the financial condition of a foreign sub-custodian or any material loss of
the assets of the Fund or in the case of any foreign sub-custodian not the
subject of an exemptive order from the Securities and Exchange Commission
is notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case computed
in accordance with generally accepted U.S. accounting principles).

13. Branches of U.S. Banks.

(a) Except as otherwise set forth in this amendment to the Custodian
Contract, the provisions hereof shall not apply where the custody of the
Funds assets is maintained in a foreign branch of a banking institution

<PAGE>

which is a "bank" as defined by Section 2(a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of the Custodian Contract.

(b) Cash held for the Fund in the United Kingdom shall be maintained in an
interest bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.

14. Tax Law.

The Custodian shall have no responsibility or liability for any obligations
now or hereafter imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of the United States of America or any state or
political subdivision thereof. It shall be the responsibility of the Fund
to notify the Custodian of the obligations imposed on the Fund or the
Custodian as custodian of the Fund by the tax law of jurisdictions other
than those mentioned in the above sentence, including responsibility for
withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.

15. Applicability of Custodian Contract

Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full
force and effect.

<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of *[date].

ATTEST SAFECO __________________________ TRUST

By:
Name:
Name:

Title:

ATTEST: STATE STREET BANK AND TRUST COMPANY

By:
Name:
Name: Ronald E. Logue

Title:

<PAGE>

EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights", "Investment Advisory and Other Services" and "Financial Statements"
in Post-Effective Amendment No. 16 to the Registration Statement (Form N-1A, No.
33-22132) and related No-Load Class and Advisor Class A and Advisor Class B
Prospectuses of SAFECO Taxable Bond Trust.

We also consent to the incorporation by reference therein of our report dated
January 30, 1998 with respect to the financial statements of SAFECO Taxable
Bond Trust as of and for the period ended December 31, 1997 and the related
financial statement schedules included in its 1997 Annual Report filed with
the Securities and Exchange Commission.

/s/ Ernst & Young LLP
- -------------------------

Seattle, Washington
February 23, 1998