SAFECO TAXABLE BOND TRUST, 485APOS, 1999-02-26

SAFECO TAXABLE BOND TRUST
485APOS, 1999-02-26

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Registration No. 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. 18 /X/
-----------------------------------------------
and/or

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

Amendment No. 19 /X/
-------------------------------
(Check appropriate box or boxes.)

SAFECO Taxable Bond Trust
-------------------------
(Exact Name of Registrant as Specified in Charter)

10865 Willows Road NE, Redmond, WA 98052
----------------------------------------
(Address of Principal Executive Offices) ZIP Code

Registrant's Telephone Number, including
Area Code: 425-376-8212
---------------

Name and Address of Agent for Service
-------------------------------------
DAVID F. HILL
10865 Willows Road NE
Redmond, WA 98052

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)
_X__ 60 days after filing pursuant to paragraph (a)(1)
____ on April 30, 1999 pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on _______________ pursuant to paragraph (a)(2) of Rule 485

<PAGE>

SAFECO Mutual Funds

SAFECO Intermediate-Term U.S. Treasury Fund

SAFECO GNMA Fund

SAFECO High-Yield Bond Fund

SAFECO Managed Bond Fund

SAFECO California Tax-Free Income Fund

SAFECO Municipal Bond Fund

SAFECO Washington State Municipal Bond Fund

SAFECO Intermediate-Term Municipal Bond Fund

SAFECO Insured Municipal Bond Fund

SAFECO Money Market Fund

SAFECO Tax-Free Money Market Fund

Prospectus

No-Load Class

April 30, 1999

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

<PAGE>

TABLE OF CONTENTS

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 State Municipal Bond Fund. . . . . . . . . . . . . . . .

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

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

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

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

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

Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fund Distributions and How They are Taxed. . . . . . . . . . . . . . . . .

YOUR INVESTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

How We Value a Fund's Investment. . . . . . . . . . . . . . . . . . . .

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

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

How to Buy Shares . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

How to Sell Shares. . . . . . . . . . . . . . . . . . . . . . . . . . .

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

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

For More Information. . . . . . . . . . . . . . . . . . . . . . . . . .

<PAGE>

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

- --------------------------------------------------------------------------------
"STRIPS" stands for Separate Trading of Registered Interest and Principal of
Securities. These are Treasury securities that have had their coupons and
principal repayments separated into what affectively become zero-coupon Treasury
bonds.
- --------------------------------------------------------------------------------

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

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

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

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

Corporate debt securities include bonds that are:

- - Rated in the top three grades (A or higher) by either Moody's Investor's
Service, Inc. ("Moody's") or Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies, Inc. ("S&P"), or

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

Since the Intermediate-Term U.S. Treasury Fund invests predominantly in interme
diate U.S. Treasury securities, trading decisions focus on the maturity of the
bonds under consideration. In a falling interest rate environment the Fund buys
longer maturity bonds (e.g., those with maturities from X to X years). In a
rising environment, the Fund buys shorter maturity bonds. The Fund may increase
its allocation to U.S. Government

- --------------------------------------------------------------------------------
BOND RATINGS indicate and issuer's financial strength and ability to meet its
debt obligations. The two main rating services are Moody's and Standard &
Poor's.

INVESTMENT GRADE securities are rated in the top four categories as follows:

MOODY'S S&P
Aaa AAA
Aa AA
A A
Baa BBB
- --------------------------------------------------------------------------------

<PAGE>

Agency bonds when the yield premium, compared with U.S. Treasuries, is
attractive. In no case is the allocation to non-Treasury securities greater than
35%. After choosing the desired maturity, the Fund attempts to exploit pricing
inefficiencies and purchase the cheapest securities in a maturity range or sell
the more expensive securities in a maturity range.

PRINCIPAL RISK FACTORS

The Fund is subject to interest rate risk. Generally, when market interest
rates rise, the price of the Fund's debt securities will fall, and when market
interest rates fall, the price of the Fund's debt securities will rise. Loss of
money is a risk of investing in the Fund.

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

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Intermediate-Term U.S. Treasury Fund by showing how the Fund's performance has
varied from year to year and by showing how the Fund's performance compares over
time to that of the Merrill Lynch Intermediate-Term Treasury Index, a widely
recognized index. As with all mutual funds, past performance is not a
prediction of future performance.

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

[insert bar chart - Intermediate-Term U.S. Treasury Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Merrill Lynch Intermediate-Term Treasury Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Intermediate-Term 9.61% 6.04% 7.83%
U.S. Treasury Fund

Merrill Lynch ________% ________% ________%
Intermediate-Term
Treasury Index*
</TABLE>

* The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio. It does
not include operating expenses or transaction costs. This index is used for
comparison purposes only. Performance is based on historical earnings and does
not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

2
<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
No-Load Class Shares of the Fund are sold without any initial sales charge
(load) or contingent deferred sales charges. There are no exchange or redemption
fees (except a $10.00 charge for wire redemptions).

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The expenses the Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Fund for
the year ended December 31, 1998 adjusted to reflect current fee rates. These
expenses may vary during other time periods.

<TABLE>

<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

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

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

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $__ $___ $___ $_____
</TABLE>

3
<PAGE>

SAFECO GNMA FUND

OBJECTIVE

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

- --------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) is a government-owned
corporation that acquires, packages, and resells mortgages and mortgage purchase
commitments in the form of mortgage-backed securities.
- --------------------------------------------------------------------------------

PRINCIPAL INVESTMENT STRATEGIES

The Fund will invest at least 65% of its total assets in mortgage-backed
securities issued by the GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA). These
securities have the following characteristics:

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

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

- - The Fund may purchase both MODIFIED PASS-THROUGH SECURITIES and
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOs).

- --------------------------------------------------------------------------------
MODIFIED PASS-THROUGH SECURITIES "pass-through" to investors the monthly
interest and principal payments from the mortgage loans in the pool. Although
mortgages are typically issued for 30 years, many homeowners pay off their
mortgages early. As a result, most GNMA certificates have an average life span
of 7-10 years. Because homeowners can pay off their mortgages at any time (by
moving or refinancing) investors in those certificates can never be sure exactly
when they will receive their principal back.

COLLATERIALIZED MORTGAGE OBLIGATIONS CMOs are mortgage-backed securities which
have been grouped into classes to provide a more predictable stream of interest
and principal payments.
- --------------------------------------------------------------------------------

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

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

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

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

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

First would be a desire to move assets in or out of various mortgage-backed
securities sectors based upon their relative value to reduce the allocation to
sectors viewed as overvalued ("rich"), while increasing the exposure to
undervalued ("cheap") sectors. The

4
<PAGE>

portfolio manager will incorporate his outlook on interest rates, and the effect
a movement in the interest rate market may have on a homeowner's decision
whether or not to refinance his/her home mortgage, when determining the relative
values of these sectors. Second, the portfolio manager will generally shorten
or lengthen the Fund's average maturity and duration based upon his long-term
interest rate outlook. Third, the portfolio manager may on occasion need to
raise cash to meet shareholder redemptions. The same criteria used for buy/sell
decisions stated above, plus the ability to get a fair price given then-current
market conditions, is also a consideration. With each potential buy/sell
decision, the portfolio manager also considers the effect each transaction may
have on the performance of the portfolio as a whole.

PRINCIPAL RISK FACTORS

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

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

PERFORMANCE

The tables below provide some indication of the risks of investing in the GNMA
Fund by showing how the Fund's performance has varied from year to year and by
showing how the Fund's performance compares over time to that of the Merrill
Lynch GNMA Index, a widely recognized index of GNMA securities. As with all
mutual funds, past performance is not a prediction of future performance.

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

[insert bar chart - GNMA Fund]

During the 10-year period shown in the chart, the highest quarterly return
reflected above was 6.77% for the quarter ended June 30, 1989; and the lowest
return was -3.58% for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Merrill Lynch GNMA Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
GNMA Fund 6.84% 6.00% 7.98%
Merrill Lynch GNMA Index* ____% ____% ____%
</TABLE>

5
<PAGE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

6
<PAGE>

- --------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including the
provision of research, supervision and assistance in the management of the Fund.

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $____ $____ $____ $____
</TABLE>

7
<PAGE>

SAFECO HIGH-YIELD BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The Fund will invest at least 65% of its portfolio in high-yield, fixed-income
securities rated BB or B.

The Fund may invest in:

- - Debt securities and PREFERRED STOCKS (including CONVERTIBLE SECURITIES)
which are rated below investment grade.

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

- - Restricted securities eligible for resale under Rule 144A, provided that
SAM has determined that such securities are liquid under guidelines adopted
by the Fund's Board of Trustees.

- --------------------------------------------------------------------------------
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.
Preferred stocks generally pay more income and are less volatile than common
stocks.

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

DURATION is the measure of price sensitivity to interest rate changes.

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

Although high-yield debt securities carry greater risks than investment grade
bonds, the portfolio manager seeks to reduce risk by understanding the financial
prospects of the companies the Fund invests in and by maintaining a
well-diversified portfolio.

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

PRINCIPAL RISK FACTORS

Additional risks associated with investment in the Fund include:

8
<PAGE>

- - The risks associated with below-investment grade securities. These include
greater volatility, reduced liquidity and a higher risk of default.

This Fund may be suitable for you if you can tolerate greater risk in pursuit of
higher total returns.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
High-Yield Bond Fund by showing how the Fund's performance has varied from year
to year and by showing how the Fund's performance compares over time to that of
the Merrill Lynch High-Yield Index, a widely recognized index of high-yield
bonds. As with all mutual funds, past performance is not a prediction of future
performance.

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

[insert bar chart - High-Yield Bond Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Merrill Lynch High-Yield Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
High-Yield Bond Fund 4.45% 8.01% 9.11%

Merrill Lynch High-
Yield Index* ____% ____% ____%
</TABLE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

9
<PAGE>

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

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

EXAMPLE

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

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $___ $___ $___ $___
</TABLE>

10
<PAGE>

SAFECO MANAGED BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

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

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

Each security considered for purchase is analyzed in two ways. First, we look
at the security on a stand-alone basis: Is it priced attractively given its
rating and sector? Are we being adequately compensated for any imbedded
structural characteristic, such as puts or calls? Next, we look at how the
security fits into the overall portfolio: What effects would the security have
on overall portfolio yield, duration, and CONVEXITY? How would an investment in
this security affect the portfolio's yield curve exposure, sector weightings and
diversification? Securities are sold when either our relative value analysis
shows another sector of the market is more attractive, or another security
within that sector offers a better value.

- -------------------------------------------------------------------------------
CONVEXITY measures the sensitivity of a bond's price to changes in interest
rate levels.
- -------------------------------------------------------------------------------

PRINCIPAL RISK FACTORS

The Fund is subject to interest rate risk. Generally, when market interest
rates rise the price of the Fund's debt securities will fall, and when market
interest rates fall the price of the Fund's debt securities will rise. Also,
Moody's or S&P could downgrade a security's rating after it has been purchased
by the Fund. If this happens, we will engage in an orderly disposition of
securities to ensure that no more than 5% of the Fund's assets are invested in
below-investment grade securities.

In addition, the Fund carries risks associated with the following securities:

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

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

Loss of money is a risk of investing in the Fund.

11
<PAGE>

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

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Managed Bond Fund by showing how the Fund's performance has varied from year to
year and by showing how the Managed Bond Fund's performance compares over time
to that of the Lehman Brothers Govt./Corp. Index, a widely recognized index.
As with all mutual funds, past performance is not a prediction of future
performance.

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

[insert bar chart - Managed Bond Fund]

Since the Fund's inception in 1994, the highest quarterly return reflected above
was 5.74% for the quarter ended June 30, 1995; and the lowest return was -3.34%
for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Lehman Brothers Government/Corporate Index:

<TABLE>
<CAPTION>
February 28, 1994
(inception)
to December 31, 1998
1 Year --------------------
------
<S> <C> <C>
Managed Bond Fund 8.43% 6.18%

Lehman Brothers _____% _____%
Govt./Corp.
Index*
</TABLE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

12
<PAGE>

are based on the actual expenses of the Fund for the year ended December 31,
1998 adjusted to reflect current fee rates. These expenses may vary during
other time periods.

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating ____%

Expenses

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $___ $___ $___ $___
</TABLE>

13
<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax and California personal income tax (for California
residents).

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

The Fund may invest:

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

When evaluating a bond for purchase, the portfolio manager will take into
consideration, among other things, the yield, the maturity, the call features,
the credit quality (including the underlying rating of insured bonds), the
purpose of the financing, the original offering price, any state or local tax
exemption, and the amount of discount or premium represented by the price
offered. After evaluating these features of a bond, the portfolio manager
compares the bond to the universe of other available bonds, which may have
different features, and will purchase the bond if it appears to offer the best
relative value.

PRINCIPAL RISK FACTORS

The Fund is subject to interest rate risk. Generally, when market interest
rates rise the price of the Fund's debt securities will fall, and when market
interest rates fall the price of the Fund's debt securities will rise. The Fund
may experience greater volatility than a Fund invested in bonds with a shorter
average maturity.

Because the Fund concentrates its investments in a single state, there may be
more fluctuation in the value of securities than with mutual funds whose
portfolios are more geographically diverse. Loss of money is a risk of
investing in the Fund.

This Fund may be suitable for you if you wish to earn income that is free from
federal income tax, and, if you are a California resident, free from state
personal income tax as well.

14
<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
California Tax-Free Income Fund by showing how the Fund's performance has varied
from year to year and by showing how the California Tax-Free income Fund's
performance compares over time to that of the Lehman Brothers Long Municipal
Bond Index, a widely recognized index of municipal bonds having long maturities.
As with all mutual funds, past performance is not a prediction of future
performance.

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

[insert bar chart - California Tax-Free Income Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
California Tax-Free 6.19% 8.83% 8.45%
Income Fund

Lehman Brothers
Long Municipal ____% ____% ____%
Bond Index*
</TABLE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

15
<PAGE>

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $___ $___ $___ $___
</TABLE>

16
<PAGE>

SAFECO MUNICIPAL BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests primarily in bonds rated BBB or better with average maturities
of 15-25 years.

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax.

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

The Fund may invest:

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

PRINCIPAL RISK FACTORS

The Fund is subject to interest rate risk. Generally, when market interest rates
rise the price of the Fund's debt securities will fall, and when market interest
rates fall the price of the Fund's debt securities will rise. The Fund may
experience greater volatility than a Fund invested in bonds with a shorter
average maturity. Loss of money is a risk of investing in the Fund.

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

PERFORMANCE

17
<PAGE>

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

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

[insert bar chart - Municipal Bond Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Municipal Bond Fund 6.35% 6.24% 8.28%

Lehman Brothers Long _____% _____% _____%
Municipal Bond Index*
</TABLE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

18
<PAGE>

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

- --------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including the
provisions of research, supervision and assistance in the management of the
Fund.

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $___ $___ $___ $___
</TABLE>

19
<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

OBJECTIVE

The SAFECO Washington State Municipal Bond Fund seeks to provide as high a level
of current interest income exempt from federal income tax as is consistent with
prudent investment risk. This Fund is available to Washington, California and
Arizona residents.

PRINCIPAL INVESTMENT STRATEGIES

The Fund invests primarily in investment grade municipal bonds issued by the
state of Washington and its agencies and municipalities, with average maturities
of 15-25 years.

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax.

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

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

When evaluating a bond for purchase, the Portfolio Manager will take into
consideration, among other things, the yield, the maturity, the call features,
the credit quality (including the underlying rating of insured bonds), the
purpose of the financing, the original offering price, any state or local tax
exemption, the amount of discount or premium represented by the price offered.
After evaluating these features of a bond, the portfolio manager compares the
bond to the universe of other available bonds, which may have different
features, and will purchase the bond if it appears to offer the best relative
value.

PRINCIPAL RISK FACTORS

Because the Fund concentrates its investments in a single state, there may be
greater fluctuation in the value of securities than with mutual funds whose
portfolios are more geographically diverse. Loss of money is a risk of
investing in the Fund.

This Fund is suitable for investors seeking tax-exempt income from a portfolio
of Washington bonds.

PERFORMANCE

20
<PAGE>

widely recognized broad-based dollar weighted index of municipal
bonds. As with all mutual funds, past performance is not a prediction of future
performance.

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

[insert bar chart -- Washington Municipal Bond Fund]

Since the Fund's inception in 1993, the highest quarterly return reflected above
was 8.58% for the quarter ended March 31, 1995; and the lowest return was -7.42%
for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
March 31, 1993
(commencement
of operations) to
1 Year 5 Years December 31, 1998
------ ------- -----------------
<S> <C> <C> <C>
Washington State Municipal 5.99% 5.44% 6.10%
Bond Fund

Lehman Brothers ____% ____% ____%
Municipal Bond Fund*
</TABLE>

* The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio except that
its components are not restricted to Washington issues. It does not include
operating expenses or transaction costs. This index is used for comparison
purposes only. Performance is based on historical earnings and does not indicate
the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

21
<PAGE>

<TABLE>
<S> <C>
Management Fees ___%

12b-1 Fees 0.00%

Other Expenses ___%

Total Annual Fund Operating Expenses ___%

Fee Waiver* ___%

Net Expenses ___%
</TABLE>

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $___ $___ $___ $_____
</TABLE>

22
<PAGE>

SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The Fund is the most conservative of the SAFECO municipal bond funds. The Fund
invests primarily in bonds rated BBB or better with average maturities of 3 to
10 years. It is designed to provide much of the yield potential of a long-term
bond fund but with less fluctuation in share price.

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax.

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

The Fund may invest:

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

When evaluating a bond for purchase, the portfolio manager will take into
consideration, among other things, the yield, the maturity, the call features,
the credit quality (including the underlying rating of insured bonds), the
purpose of the financing, the original offering price, any state or local tax
exemption, the amount of discount or premium represented by the price offered.
After evaluating these features of a bond, the portfolio manager compares the
bond to the universe of other available bonds, which may have different
features, and will purchase the bond if it appears to offer the best relative
value.

PRINCIPAL RISK FACTORS

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

23
<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Intermediate-Term Municipal Bond Fund by showing how the Intermediate-Term
Municipal Fund's performance has varied from year to year and by showing how the
Fund's performance compares over time to that of the Lehman Brothers 7-Year
Municipal Bond Index, a widely recognized index of municipal bonds. As with all
mutual funds, past performance is not a prediction of future performance.

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

[insert bar chart -- Intermediate-Term Municipal Bond Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
the Lehman Brothers 7-Year Municipal Bond Index:

<TABLE>
<CAPTION>
March 18, 1993
(commencement
of operations)
1 Year 5 Years to December 31, 1998
------ ------- --------------------
<S> <C> <C> <C>
Intermediate-Term 5.33% 5.02% 5.62%
Municipal Bond Fund

Lehman Brothers 7-Year ____% ____% ____%
Municipal Bond Fund*
</TABLE>

* The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio. It does not
include operating expenses or transaction costs. This index is used for
comparison purposes only. Performance is based on historical earnings and does
not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares
may be worth more, or less, than their original value.

FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The expenses the Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of each Fund for
the year ended December 31, 1998 adjusted to reflect current fee rates. These
expenses may vary during other time periods.

24
<PAGE>

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $__ $___ $___ $_____
</TABLE>

25
<PAGE>

SAFECO INSURED MUNICIPAL BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The Fund will invest at least 65% of its assets in municipal bonds that are
covered by insurance guaranteeing the timely payment of both principal and
interest. This insurance may be in the form of NEW ISSUE INSURANCE or SECONDARY
MARKET INSURANCE. Any premiums paid by the Fund to purchase insurance policies
will be a Fund expense and may reduce the Fund's current yield.

- -------------------------------------------------------------------------------
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.

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.
- -------------------------------------------------------------------------------

In addition, the Fund may invest up to 35% of its total assets in uninsured
municipal bonds.

When evaluating a bond for purchase, the portfolio manager will take into
consideration, among other things, the yield, the maturity, the call features,
the credit quality (including the underlying rating of insured bonds), the
purpose of the financing, the original offering price, any state or local tax
exemption, the amount of discount or premium represented by the price offered.
After evaluating these features of a bond, the portfolio manager compares the
bond to the universe of other available bonds, which may have different
features, and will purchase the bond if it appears to offer the best relative
value.

PRINCIPAL RISK FACTORS

Insurance does not guarantee the market value of insured municipal bonds or the
share price of the Fund. The Fund is subject to interest rate risk. Generally,
when market interest rates rise the price of the Fund's debt securities will
fall and when market interest rates fall the price of the Fund's debt securities
will rise. Loss of money is a risk of investing in the Fund.

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

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Insured Municipal Bond Fund by showing how the Insured Municipal Bond Fund's
performance has varied from year to year and by showing how the Fund's
performance compares over time to that of the Lehman Brothers Insured Municipal
Bond Index, a widely recognized

26
<PAGE>

index of insured municipal bonds. As with all mutual funds, past performance is
not a prediction of future performance.

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

[insert bar chart -- Insured Municipal Bond Fund]

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

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's No-Load Class performance compares to
Lehman Brothers Insured Municipal Bond Index:

<TABLE>
<CAPTION>
March 18, 1993
(inception)
1 Year 5 Years to December 31, 1998
------ ------- --------------------
<S> <C> <C> <C>
Insured Municipal Bond Fund 5.90% 6.02% 6.57%

Lehman Brothers Insured ____% ____% ____%
Municipal Bond Index*
</TABLE>

* The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio. It does not
include operating expenses or transaction costs. This index is used for
comparison purposes only. Performance is based on historical earnings and does
not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

27
<PAGE>

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $__ $___ $___ $_____
</TABLE>

28
<PAGE>

SAFECO MONEY MARKET FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

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

- - The Fund may invest in

- COMMERCIAL PAPER of both domestic and foreign issues

- Negotiable and non-negotiable CERTIFICATES OF DEPOSIT, bankers'
acceptances and other short-term obligations of U.S. and foreign banks

- REPURCHASE AGREEMENTS

- VARIABLE AND FLOATING RATE INSTRUMENTS

- U.S. government securities

- ASSET-BACKED SECURITIES

- WHEN-ISSUED SECURITIES

- -------------------------------------------------------------------------------
COMMERCIAL PAPER is a short-term unsecured promissory note issued by a financial
institution or large corporation.

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

REPURCHASE AGREEMENTS are arrangements in which the fund buys securities at one
price and simultaneously agrees to sell them back at a higher price.

VARIABLE AND FLOATING RATE INSTRUMENTS have interest rates that change
periodically in order to keep their market value at par.

ASSET-BACKED SECURITIES represent interests in pools of consumer loans,
automobile loans, credit card loans and installment loan contracts.

WHEN-ISSUED SECURITIES are securities that have not yet been issued but will be
issued in the future.
- -------------------------------------------------------------------------------

PRINCIPAL RISK FACTORS

The Fund's yields will fluctuate with short-term interest rates.

The Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.

The Fund may be suitable for you if you seek maximum safety and stability of
principal.

PERFORMANCE

The tables below provide some indication of the risks of investing in the Money
Market Fund by showing how the Fund's performance has varied from year to year
and by showing how the Money Market Fund's performance compares over time. As
with all mutual funds, past performance is not a prediction of future
performance.

29
<PAGE>

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

[insert bar chart -- Money Market Fund]

During the 10-year period shown in the chart, the highest quarterly return
reflected above was 3.13% for the quarter ended June 30, 1989; and the lowest
return was 0.59% for the quarter ended June 30, 1993.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows past performance for the Fund's No-Load Class:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Money Market Fund 5.08% 4.71% 5.26%

7-day Yield
(period ended
December 31, 1998)
------------------
<S> <C>
Money Market Fund
</TABLE>

FEES AND EXPENSES

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

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

30
<PAGE>

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including the
provision of research, supervision and assistance in the management of the Fund.

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $__ $___ $___ $___
</TABLE>

31
<PAGE>

SAFECO TAX-FREE MONEY MARKET FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

- -------------------------------------------------------------------------------
MUNICIPAL NOTES are issued by cities, counties, states and other government
entities to cover short-term borrowing needs.
- -------------------------------------------------------------------------------

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

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

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

PRINCIPAL RISK FACTORS

The Fund's yields will fluctuate with short-term interest rates.

This Fund may be suitable for you if you seek maximum safety and stability of
principal in an investment that pays federally tax-free income.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Tax-Free Money Market Fund by showing how the Tax-Free Money Market Fund's
performance has varied from year to year and by showing how the Fund's
performance compares over time. As with all mutual funds, past performance is
not a prediction of future performance.

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

[insert bar chart -- Tax-Free Money Market Fund]

32
<PAGE>

During the 10-year period shown in the chart, the highest quarterly return
reflected above was 2.16% for the quarter ended June 30, 1989; and the lowest
return was 0.47% for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows past performance for the Fund's No-Load Class:

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Tax-Free Money Fund 3.07% 3.05% 3.65%

7-day Yield (period ended
December 31, 1998)
------------------
<S> <C>
Tax Free Money Market Fund
</TABLE>

FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
The expenses the Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Fund for
the year ended December 31, 1998 [adjusted to reflect current fee rates]. These
expenses may vary during other time periods.

<TABLE>
<S> <C>
Management Fees ____%

12b-1 Fees 0.00%

Other Expenses ____%

Total Annual Fund Operating Expenses ____%

Fee Waiver* ____%

Net Expenses ____%
</TABLE>

33
<PAGE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
No-Load Class $__ $___ $___ $___
</TABLE>

34
<PAGE>

ADDITIONAL FUND FACTS

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

TEMPORARY DEFENSIVE STRATEGIES. From time to time, a Fund may take temporary
defensive positions that are inconsistent with its principal investment policies
in an attempt to respond to adverse market, economic, political or other
conditions. A Fund taking a temporary defensive position may not achieve its
investment objective.

UNDERSTANDING HOW A FUND INVESTS ITS ASSETS

This prospectus describes some of the investment policies used by the Funds,
including restrictions that limit the percentage of assets that may be invested
in a particular type of security. These limits may be exceeded if, after the
initial investment, market movements cause asset values to change. The Statement
of Additional Information includes additional information concerning the Funds'
investment policies.

GENERAL RISKS OF ALL FUNDS

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

INTEREST RATE RISK. All bond funds are subject to interest rate risk. The
principal value of all SAFECO Bond Funds (except the Money Market Funds) will
fluctuate inversely with changes in interest rates. Generally, when market
interest rates rise the price of the Funds' debt securities will fall and when
market interest rates fall the price of the Funds' debt securities will rise.

YEAR 2000 ISSUES. The common practice in computer programming of using two
digits to identify a year has resulted in what is referred to as the "Year 2000
problem." If not corrected, automated systems could misinterpret or fail to
process dates occurring after December 31, 1999. The Funds may be adversely
affected if the computer systems used by their primary service providers do not
properly process date-related information. SAFECO Asset Management Company
(SAM), the Funds' investment advisor, SAFECO Services Corporation (SAFECO
Services), the Funds' transfer and paying agent, and SAFECO Securities, Inc.
(SAFECO Securities), the Funds' underwriter and distributor, 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 each of the Funds' other major service providers
are taking similar steps to correct programming for systems with which the Funds
interact.

35
<PAGE>

In addition, SAM, SAFECO Services and SAFECO Securities are developing
contingency plans intended to assure that they can quickly respond to unexpected
systems failures or can implement alternate solutions. 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. However, despite the efforts and plans of the Funds' service providers,
computer systems that are non-compliant could have a material adverse effect
on the Funds' business, operations or financial condition. In addition,
securities prices, and therefore the value of the assets held by the Funds,
may also be adversely affected if the companies or governmental units or
agencies whose securities are held by the Funds do not properly process such
date-related information.

36
<PAGE>

MANAGEMENT

SAM is the investment advisor for each Fund, providing investment research,
advice and supervision in the ongoing management of the portfolio. Based on each
Fund's investment objectives and policies, SAM determines what securities the
Fund will purchase, retain or sell and implements those decisions. Each Fund
pays SAM an annual management fee based on a percentage of that Fund's average
daily net assets, ascertained each business day and paid monthly. The Funds paid
SAM advisory and administrative fees at the following rates, as a percentage of
average daily net assets, for the year ended December 31, 1998:

<TABLE>
<S> <C>
Intermediate Term U.S. Treasury .___%

GNMA .___%

High-Yield Bond .___%

Managed Bond .___%

California Tax Free .___%

Municipal Bond .___%

Washington Municipal Bond .___%

Intermediate-Term Municipal Bond .___%

Insured Bond .___%

Money Market .___%

Tax-Free Money Market .___%
</TABLE>

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

PORTFOLIO MANAGERS

INTERMEDIATE-TERM U.S. TREASURY FUND

The Intermediate-Term U.S. Treasury Fund is managed by Ronald L. Spaulding,
Chairman of the Board, SAM. Mr. Spaulding has been managing the Fund since 1988.
He has served in various capacities with SAM and SAFECO Corporation since 1975.

GNMA FUND

The GNMA Fund is managed by Paul A. Stevenson, Vice President of SAM and Vice
President of SAFECO Life Insurance Company. Mr. Stevenson has served as
portfolio manager for the Fund since 1988.

HIGH-YIELD BOND FUND

The High-Yield Bond Fund is managed by Robert Kern, Assistant Vice President,
SAM. Mr. Kern has been managing the Fund since 1996. He has been a securities
analyst for

37
<PAGE>

SAM since 1994, and from 1988 to 1994 was employed in the Controller's
Department at SAFECO Corporation.

MANAGED BOND FUND

The Managed Bond Fund is managed by Michael Hughes, Assistant Vice President,
SAM. Mr. Hughes has been managing the Fund since 1997. From 1995 to 1996 he was
Vice President and a portfolio manager for First Interstate Capital Management
Company, and from 1988 to 1995 he was Vice President and portfolio manager for
First Interstate Bank of California.

CALIFORNIA TAX-FREE INCOME FUND

The California Tax-Free Income Fund is managed by Stephen C. Bauer, President
and Director, SAM. Mr. Bauer has been managing the SAFECO California Tax-Free
Income Fund since 1983.

MUNICIPAL BOND FUND

The Municipal Bond Fund is managed by Stephen C. Bauer, President and Director,
SAM. Mr. Bauer has been managing the SAFECO Municipal Bond Fund since 1981.

WASHINGTON STATE MUNICIPAL BOND FUND

The Washington Municipal Bond Fund is managed by Beverly Denny, Assistant Vice
President, SAM. Ms. Denny has been managing the Fund since 1996. From 1991 to
1993 she was Marketing Director for SAFECO Mutual Funds and an investment
analyst with SAM since 1993.

INTERMEDIATE-TERM MUNICIPAL BOND FUND

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

INSURED MUNICIPAL BOND FUND

The Insured Municipal Bond Fund is managed by Stephen C. Bauer, President and
Director, SAM. Mr. Bauer has been managing the SAFECO Insured Municipal Bond
Fund since 1992.

MONEY MARKET FUND

The Money Market Fund is managed by Naomi Urata, Assistant Vice President, SAM.
Ms. Urata has managed the Fund since 1994. Ms. Urata has been an investment
analyst for SAFECO Mutual Funds since 1993. From 1990 to 1992 she was Cash
Manager for The Seattle Times.

TAX-FREE MONEY MARKET FUND

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

38
<PAGE>

FINANCIAL HIGHLIGHTS

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

INSERT:
FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO GNMA FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO HIGH-YIELD BOND FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MANAGED BOND FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO CALIFORNIA TAX-FREE INCOME FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MUNICIPAL BOND FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
_____________________

39
<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INSURED MUNICIPAL FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MONEY MARKET FUND
_____________________

FINANCIAL HIGHLIGHTS
(FOR A NO-LOAD CLASS SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO TAX-FREE MONEY MARKET FUND

40
<PAGE>

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED

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

CAPITAL GAIN DISTRIBUTIONS represent net profits made on securities which are
sold for more than they originally cost.

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

EX-DISTRIBUTION DATE is the first day that a fund's net asset value is reduced
by the amount of the most recently declared distribution.
- --------------------------------------------------------------------------------

WHEN THE FUNDS PAY DISTRIBUTIONS

Each Fund declares DIVIDENDS each business day. Your shares become entitled
to dividends on the next business day after you purchase them. If you request
a redemption of all your shares at any time during a month, you will receive
all declared dividends through the date of redemption, together with the
proceeds of the redemption. Except for the Money Market and Tax-Free Money
Market Funds, each Fund declares CAPITAL GAIN DISTRIBUTIONS on the last
business day of each year.

HOW DISTRIBUTIONS ARE CREDITED TO YOUR ACCOUNT

We will reinvest your DIVIDENDS and CAPITAL GAIN DISTRIBUTIONS at the NET ASSET
VALUE on the EX-DISTRIBUTION DATE unless you tell us in writing that you wish to
receive your distributions in cash. Retirement accounts must reinvest all
dividends and other distributions in the same Fund.

HOW DISTRIBUTIONS ARE TAXED

Depending on which Fund you invest in, your dividends may be taxable or wholly
or partially tax-free; other distributions will be taxable, regardless of the
Fund that makes them. If distributions are taxable, they must be included in
your taxable income for the year, regardless of whether you reinvest the
distributions or receive them in cash. Depending on the nature of the
distribution, it may be taxed as either ordinary income or capital gains. Thus,
distributions of a Fund's taxable dividends and its net short-term capital gains
will be taxed to you as ordinary income, while distributions of a Fund's net
long-term capital gains (to the extent they exceed its net short-term capital
losses) will be taxable to you as long-term capital gain. The tax treatment of
capital gain distributions as short-term or long-term depends on how long the
Fund held the securities it sold that generated the gain, not on how long you
held your Fund shares. Net long-term capital gain distributions generally are
taxed to you (if you are a noncorporate shareholder) at a maximum federal tax
rate of 20%. We will notify you as to which type of income or gain you are
receiving so you can declare it properly on your tax return. You will be asked
to certify on your account application or on a separate form that the taxpayer
identification number you provide is correct and that you are not subject to, or
are exempt from, backup withholding for previous underreporting to the Internal
Revenue Service. Unless you are subject to backup withholding by the Internal
Revenue Service, we will not withhold taxes.

Certain dividends and other distributions declared by a Fund in October,
November, or December of any year are taxable to its shareholders as though
received on December 31

<PAGE>

of that year if paid to them during the following January. Accordingly, those
distributions will be taxed to the shareholders for the year in which that
December 31 falls.

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

HOW DISPOSITIONS OF SHARES ARE TAXED

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

SPECIAL CONSIDERATIONS

U.S. TREASURY SECURITIES. States generally treat distributions of interest on
U.S. Treasury securities and other direct obligations of the U.S. government as
tax-free income. However, this treatment may depend on the Fund owning a certain
minimum percentage of these securities while the GNMA Fund may occasionally
invest a portion of its portfolio in these securities. The Intermediate-Term
U.S. Treasury Fund will invest primarily in these securities. While the GNMA
Fund may occasionally invest a portion of its portfolio in these securities.

TAX-EXEMPT BOND FUNDS AND THE TAX-FREE MONEY MARKET FUND. Each of the Tax-Exempt
Bond Funds and the Tax-Free Money Market Fund pays dividends that are exempt
from federal income tax. Certain investments may result in taxable income,
however. These include the following:

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

- - Income derived from certain bonds purchased below their issue price will be
treated as ordinary income.

- - Only the Washington State Municipal Bond Fund may purchase so-called
"private activity" bonds, possibly generating interest that would
constitute a preference item for purposes of the federal alternative
minimum tax.

If you buy shares of a Fund and sell them at a loss within six months, you may
deduct only the amount of the loss that exceeds the amount of dividends from
tax-exempt interest that you received during that period (not applicable to
Tax-Free Money Market Fund).

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

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

<PAGE>

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

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

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

WASHINGTON STATE MUNICIPAL BOND FUND. Currently the State of Washington has no
state personal income tax. Should Washington enact a personal income tax, there
can be no assurance that the income from the Washington Municipal Bond Fund
would be exempt from that tax.

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

<PAGE>

YOUR INVESTMENT

HOW WE CALCULATE THE VALUE OF YOUR SHARES

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

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

- --------------------------------------------------------------------------------
The NYSE is closed on the weekends and on the following holidays:

New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day
- --------------------------------------------------------------------------------

HOW WE VALUE A FUND'S INVESTMENTS

For each Fund, except the Money Market Funds, we obtain valuations for the
Fund's investments from a pricing service that provides prices based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the Board of Trustees
believes accurately reflects fair value.

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

OPENING AND MAINTAINING YOUR ACCOUNT

TO OPEN AN ACCOUNT:

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

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

----------------------------------------------
IRA stands for Individual Retirement Account,
which is a type of tax-deferred savings plan.

UGMA stands for Uniform Gifts to Minors Act;
UTMA stands for Uniform Transfer to Minors Act.
Most states have adopted a UGMA or UTMA, which
regulated custodial accounts for minors.
----------------------------------------------

<PAGE>

INVESTING DETAILS

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

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

- - We do not accept currency and can accept only funds drawn in U.S. dollars
on a U.S. bank account.

- - Although we do not normally issue shares in certificate form, we will issue
certificates for whole shares free of charge upon your request. If your
shares are issued in certificate form, you must endorse and submit them
with any sale or exchange request.

- - Checks must be made payable to SAFECO Mutual Funds. Third party checks are
NOT accepted.

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

- - We may require certified copies of supporting documents and a signature
guarantee before we can process some sale and exchange requests (e.g., if
we cannot verify a shareholder's signature or in the event of the death of
an account owner).

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

AUTHORIZING SIGNATURES

On your account application, you will be asked to specify the number of
signatures required to authorize account changes and transactions. Please note
that authorizing fewer than all account owners has important implications. For
example, one owner of a joint tenant account can redeem shares without the
co-owner's signature. If you select fewer than all account owner signatures,
this election may be revoked by an account owner who sends a written request to
SAFECO Mutual Funds. Unless you indicate otherwise, we will require the
signatures of all account owners.

PURCHASING YOUR SHARES. The price you pay for shares is the Fund's NAV on the
day we receive your check, money order, or wire in good order. However, if we
receive your investment after the NYSE has closed for the day, the price you
will pay is the Fund's NAV as of the next business day. For telephone purchase
orders, the price is the NAV on the business day after you call.

<PAGE>

PURCHASING YOUR SHARES

The price you pay for shares is the Fund's NAV on the day we receive your check,
money order, or wire in good order. However, if we receive your investment
after the NYSE has closed for the day, the price you will pay is the Fund's NAV
as of the next business day. For telephone purchase orders, the price is the
NAV on the business day after you call.

HOW TO BUY SHARES

BY MAIL Mail to:
- --------------------------------------------------------------------------------

IF YOU ARE BUYING SHARES FOR THE FIRST TIME: SAFECO Mutual Funds
No-Load Class
1. Complete and sign an account application. P.O. Box 34890
Seattle, WA 98124-1890
2. Send a check made payable to SAFECO Mutual
Funds for the appropriate amount:

- - If you are opening an IRA or UGMA/UTMA
account, send at least $250.

- - If you are opening an Education IRA, send
$500.

- - If you choose the Automatic Investment Plan
or Payroll Deduction Plan for a regular
account on your application, send nothing.

- - If none of the above applies, send a check
for at least $1,000 payable to SAFECO Mutual
Funds.

IF YOU ARE BUYING ADDITIONAL SHARES:

- - AIM allows you to make regular monthly
investments by authorizing SAFECO to withdraw
a specific amount from your bank account and
invest it in the Fund of your choice. The
minimum investment per Fund is $100. This
applies to all accounts except UGMA and UTMA
accounts which have a $50 minimum if you
opened the account with an initial investment
of at least $250. For more information, call
(800) 624-5711.

1. Send a check for the appropriate amount. You
may be charged a fee if your check is returned to
us by your bank due to non-sufficient funds or
other reasons.

2. Enclose the investment slip from your
statement, if available.

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

(*) If you are an employer who uses group billing, you may establish a
self-administered Payroll Deduction Plan in any Fund. Payroll deduction amounts
are negotiable. For more information, call (800) 624-5711.

<PAGE>

BY WIRE Have your bank send wires
to:

IF YOU ARE BUYING SHARES FOR THE FIRST TIME: U.S. Bank of Washington,
N.A.
1. Call (800) 624-5711 for more information. Seattle, WA

IF YOU ARE BUYING ADDITIONAL SHARES: ABA#1250-0010-5

1. Call the number above and let us know Account #153 5000 60709
you are wiring money to your account.

2. Have your bank send at least $100 to the
address at right.

3. Have your bank include the following
information:

- - SAFECO Fund name

- - SAFECO account number

- - Name(s) of the account owner(s).

4. Note that delays caused by inadequate
wire instructions are not SAFECO's
responsibility.

5. Understand that your bank may charge a
fee for wire services.

IN PERSON Visit a SAFECO Investor
Center:

IF YOU ARE BUYING SHARES FOR THE FIRST TIME OR IF 1409 Fifth Avenue,
YOU ARE BUYING ADDITIONAL SHARES: Seattle, WA

A representative will help you open your account 4333 Brooklyn Avenue NE,
and complete the transaction. Checks must be made Seattle, WA
payable to SAFECO Mutual Funds.
7528 164th Avenue NE,
Suite A116, Redmond, WA

<PAGE>

BY PHONE Call:

This option is not available for new or (800) 624-5711 M-F between
retirement accounts. 5:30 a.m. and 7:00 p.m.
Pacific time to speak to a
IF YOU ARE BUYING ADDITIONAL SHARES: representative or

1. To become eligible for this service, you must (800) 835-4391 for our
choose it on your initial application. We must 24-hour Automated Service
receive your written request prior to your use. Line
You must also designate any other authorized
users.

2. You may purchase no more than $100,000 per day
and no less than $100 per day.

3. Understand that:

- - Money will be transferred from your bank
account to your Fund account.

- - Your bank may not allow you to transfer money
by phone.

- - Your bank may charge a fee.

- - We record all calls for your protection, and
a representative may ask you for identifying
information.

- - Although our representatives employ security
measures to prevent unauthorized account
access, we cannot assure you that telephone
activity will be completely secure or free of
delays or malfunctions. You must be willing
to assume the risk of any loss.

- - During times of unusual market volatility,
you may find it difficult to access SAFECO
Mutual Funds by phone.

- - SAFECO Mutual Funds is not responsible for
the negligence or wrongful acts of third
parties.

- - We may suspend, limit, modify, or terminate
phone transaction privileges at any time
without prior notice.

- - You may be charged a fee if your check is
returned to us by your bank due to non-
sufficient funds or other reasons.

<PAGE>

ON THE INTERNET Visit the SAFECO Mutual
Funds Web site:

This option is not available for new or www.safecofunds.com
retirement accounts.

IF YOU ARE BUYING ADDITIONAL SHARES:

1. To become eligible for this service, you must
choose it on your initial application or send a
written request at least 15 business days prior to
your use. You must also designate any other
authorized users.

2. You may purchase no more than $100,000 per day
and no less than $100 per day.

3. Understand that:

- - Money will be transferred from your bank
account to your Fund account.

- - Your bank may not allow you to transfer money
over the Internet.

- - Your bank may charge a fee.

- - Although our Web site employs security
measures to prevent unauthorized account
access, we cannot assure you that Internet
activity will be completely secure or free of
delays or malfunctions. You must be willing
to assume the risk of any loss.

- - SAFECO Mutual Funds is not responsible for
the negligence or wrongful acts of third
parties.

- - We may suspend, limit, modify, or terminate
Internet transaction privileges at any time
without prior notice.

THROUGH A REGISTERED SECURITIES DEALER Call or visit:

WHETHER YOU ARE BUYING SHARES FOR THE FIRST TIME Any registered securities
OR BUYING ADDITIONAL SHARES: dealer who has a signed
dealer agreement with
Understand that: SAFECO.

- - A dealer may charge you a fee or impose more
restrictions than if you purchase the shares
directly from SAFECO Mutual Funds. (SAFECO
has no control over or involvement in this
fee.)

- - Your securities dealer is responsible for the
prompt forwarding of instructions on your
account and is bound by the terms of this
prospectus.

- - SAFECO is not responsible for the actions and
recommendations of your securities dealer.

THROUGH A REGISTERED INVESTMENT ADVISOR Call or visit:

WHETHER YOU ARE BUYING SHARES FOR THE FIRST Any investment advisor
TIME OR BUYING ADDITIONAL SHARES: meeting all of the
following conditions:
Understand that:
- Is registered under
- - Your advisor may charge you a fee. (SAFECO has the Investment
no control over or involvement in this fee.) Advisers Act of 1940,

- - Your advisor is responsible for the prompt - Has a signed agreement
forwarding of instructions on your account with SAFECO, and
and is bound by the terms of this prospectus.

- - SAFECO is not responsible for the actions and - Has a power of
recommendations of your advisor. attorney on file with
SAFECO.

<PAGE>

SELLING YOUR SHARES

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

The price you receive is the NAV on the day we receive your redemption request.
However, if we receive your redemption request after the NYSE has closed for the
day, you will receive the NAV as of the next business day.

If you are selling shares in a retirement account, the distribution may be
subject to federal income tax withholding. Unless you direct us otherwise, we
are required to withhold 31% of the distribution amount for federal tax
purposes. If you would like us to withhold at a different percentage rate, or
elect not to have taxes withheld, please indicate that rate in your redemption
request.

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

- - The NYSE is closed

- - NYSE trading is restricted

- - The Securities and Exchange Commission declares an emergency

- - If you bought shares less than 15 days previous to redemption and SAFECO
has not yet received confirmation that your bank will honor the investment.

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

<PAGE>

HOW TO SELL SHARES

BY MAIL Mail to:

1. Send a letter specifying:
SAFECO Mutual Funds
- - Account number No-Load Class
P.O. Box 34890
- - Fund name Seattle, WA 98124-1890

- - Redemption amount (number of shares or dollar
amount)

2. Have the letter signed by the owner(s) of the
account. You must have specified on your account
application the number of signatures required to
authorize the selling of shares.

3. If you are selling shares in a retirement
account, let us know the amount, if any, to
withhold for taxes or early withdrawal penalties.

We will mail you a redemption check or you may
pick it up from a SAFECO Investor Center when it
is ready. If you wish to have funds transferred
directly to your bank account, you must choose
this service on your initial application or send a
written request at least 15 days prior to using
it. SAFECO charges a $10 fee to wire these
proceeds, and some banks charge a fee to receive a
wire. A signature guarantee may be required for
certain transactions. Please call for details.

If you chose the Systematic Withdrawal Plan, a
Fund will automatically sell shares in your
account and send you a monthly withdrawal check.
The minimum withdrawal for this service is $50 per
Fund.

IN PERSON Visit a SAFECO Investor
Center:

A SAFECO representative will be there to help you 1409 Fifth Avenue,
with the sale of your shares. Please bring Seattle, WA
picture identification.
4333 Brooklyn Avenue NE,
We will mail you a redemption check or you may Seattle, WA
pick it up from a SAFECO Investor Center when it
is ready. If you wish to have funds transferred 7528 164th Avenue NE,
directly to your bank account, you must choose Suite A116, Redmond, WA
this service on your initial application or send a
written request at least 15 days prior to using
it. SAFECO charges a $10 fee to wire these
proceeds, and some banks charge a fee to receive a
wire.

<PAGE>

BY PHONE Call:

This option is not available for retirement (800) 624-5711 M-F between
accounts or for shares issued in certificate form. 5:30 a.m. and 7:00 p.m.
Pacific time for a
Understand that: representative or

- - We record all calls for your protection, and (800) 835-4391 for our
a representative may ask you for identifying 24-hour Automated Service
information. Line

- - During times of unusual market volatility,
you may find it difficult to access SAFECO by
phone.

- - SAFECO is not responsible for the negligence
or wrongful acts of third parties.

- - We may suspend, limit, modify, or terminate
phone transaction privileges at any time
without prior notice.

ON THE INTERNET Visit the SAFECO Mutual
Funds Web site:

This option is not available for retirement www.safecofunds.com
accounts or if shares are issued in certificate
form.

Understand that:

- - SAFECO is not responsible for the negligence
or wrongful acts of third parties.

- - We may suspend, limit, modify, or terminate
Internet transaction privileges at any time
without prior notice.

We will transfer the proceeds from your sale to
your bank account or mail you a redemption check,
or you may pick it up from a SAFECO Investor
Center when it is ready. If you wish to have
funds transferred directly to your bank account,
you must choose this service on your initial
application or send a written request at least 15
days prior to using it. SAFECO charges a $10 fee
to wire these proceeds, and some banks charge a
fee to receive a wire.

<PAGE>

THROUGH A REGISTERED SECURITIES DEALER Call or visit:

A securities dealer that has a contract with the
Fund distributor may submit redemption requests Any registered securities
for you. dealer who has a signed
selling agreement with
SAFECO.
Understand that:

The dealer may charge you a fee. (SAFECO has no
control over or involvement in this fee.)

- - Your securities dealer is responsible for the
prompt forwarding of instructions on your
account and is bound by the terms of this
prospectus.

- - SAFECO is not responsible for the actions and
recommendations of your securities dealer.

THROUGH A REGISTERED INVESTMENT ADVISOR Call or visit:

Understand that: Any investment advisor
meeting all of the
- - Your advisor may charge you a fee. (SAFECO following conditions:
has no control over or involvement in this
fee.) - Is registered under
the Investment
- - Your advisor is responsible for the prompt Advisers Act of 1940,
forwarding of instructions on your account
and is bound by the terms of this prospectus. - Has a signed agreement
with SAFECO, and
- - SAFECO is not responsible for the actions and
recommendations of your advisor. - Has a power of
attorney on file with
SAFECO.

EXCHANGING SHARES FROM ONE FUND TO ANOTHER

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

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

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

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

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

EXCHANGE LIMITATIONS

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

<PAGE>

- - You may enter no more than four exchanges or simultaneous order
transactions in any 12-month period.

- --------------------------------------------------------------------------------
SIMULTANEOUS ORDER TRANSACTIONS involve a redemption from one SAFECO Fund and
reinvestment shortly thereafter into another SAFECO Fund. We will use our
discretion in determining when a simultaneous order transaction takes place.
- --------------------------------------------------------------------------------

- - We reserve the right to refuse exchanges or simultaneous order
transactions. Under normal circumstances, we will give you 60 days' notice
before terminating your exchange privileges. However, in the case where an
exchange could adversely affect the performance and investment objectives
of the Fund, we may terminate privileges without prior notice.

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

HOW TO MAKE AN EXCHANGE

BY MAIL Mail to:

1. Send a letter specifying: SAFECO Mutual Funds
No-Load Class
- - Account number P.O. Box 34890
Seattle, WA 98124-1890
- - Name of the Fund you wish to exchange out of

- - Name of the Fund you wish to exchange into

- - Amount of the exchange (number of shares or
dollar amount)

2. Have the letter signed by the owner(s) of the
account. You must have specified on your account
application the number of signatures required to
authorize the exchange of shares.

IN PERSON Visit a SAFECO Investor
Center:

A representative will be there to help you with 1409 Fifth Avenue,
your exchange. Seattle, WA

4333 Brooklyn Avenue NE,
Seattle, WA

164th Avenue NE, Suite
A116, Redmond, WA

<PAGE>

BY PHONE Call:

This option is not available for shares issued in
certificate form. (800) 624-5711 M-F between
5:30 a.m. and 7:00 p.m.
1. You must exchange $1,000 or more. Pacific time for a
representative or

2. To become eligible for this service, you must
choose it on your initial application or we must (800) 835-4391 for our
have received your written request prior to your 24-hour Automated Service
use. You must also designate any other authorized Line
users.

3. Understand that:

- - We record all calls for your protection, and
a representative may ask you for identifying
information such as your Social Security
number.

- - During times of unusual market volatility,
you may find it difficult to access SAFECO by
phone.

- - SAFECO is not responsible for the negligence
or wrongful acts of third parties.

- - We may suspend, limit, modify, or terminate
phone transaction privileges at any time
without prior notice.

ON THE INTERNET Visit the SAFECO Mutual
Funds Web site:

This option is not available for shares issued in www.safecofunds.com
certificate form.

1. You must exchange $1,000 or more.

2. You are automatically enrolled in this service
unless you decline it on the initial application.

3. Understand that:

- - SAFECO is not responsible for the negligence
or wrongful acts of third parties.

- - We may suspend, limit, modify, or terminate
Internet transaction privileges at any time
without prior notice.

THROUGH A REGISTERED SECURITIES DEALER Call or visit:

A securities dealer that has a contract with the
fund distributor may submit exchange requests for Any registered securities
you. dealer.

Understand that:

- - The dealer may charge you a fee. (SAFECO has no
control over or involvement in this fee.)

- - Your securities dealer is responsible for the
prompt forwarding of instructions on your
account and is bound by the terms of this
prospectus.

- - SAFECO is not responsible for the actions and
recommendations of your securities dealer.

<PAGE>

THROUGH A REGISTERED INVESTMENT ADVISOR Call or visit:

Understand that: Any investment advisor
meeting all of the
- - Your advisor may charge you a fee. (SAFECO following conditions:
has no control over or involvement in this
fee.) - Is registered under
the Investment
Advisors Act of 1940,
- - Your advisor is responsible for the prompt
forwarding of instructions on your account - Has a signed agreement
and is bound by the terms of this prospectus. with SAFECO, and

- - SAFECO is not responsible for the actions and - Has a power of
recommendations of your advisor. attorney on file with
us.

REDEMPTION CHECKS - MONEY MARKET FUNDS ONLY

If you are a shareholder in one of the SAFECO Money Market Funds, we will send
you, upon request and free of charge, redemption checks that allow you to
withdraw funds from your account.

Checks may be made payable to anyone and must be:

- - $500 or more

- - Signed by the authorized account holders

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

MAINTAINING YOUR ACCOUNT

ACCOUNT STATEMENTS

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

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

Maintaining small accounts increases expenses for all shareholders. For this
reason, we may close your account if it falls below $100. If this happens, we
will first give you at least 60 days' notice, then redeem your shares at net
asset value and send the proceeds to you.

We will reinvest into your account any undeliverable and uncashed dividends and
other distribution checks that remain outstanding over six months. This
reinvestment will eflect the NAV next computed after the check is cancelled.
Subsequent distributions may also be reinvested.

<PAGE>

ACCOUNT CHANGES

TO CHANGE YOUR ACCOUNT REGISTRATION:

Send a written request to SAFECO Mutual Funds, P.O. Box 34890, Seattle, WA
98124-1890. Make sure the request is signed by the authorized owner(s) of the
account as specified on your account application.

TO MAKE CHANGES TO YOUR AUTOMATIC INVESTMENT METHOD OR SYSTEMATIC WITHDRAWAL
PLAN:

Send your request in writing as indicated above. Or, if you have previously
selected the single signature authorization for your account and have enrolled
in the telephone option service, you may place your request by telephone.

<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

<PAGE>

FOR MORE INFORMATION

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

ANNUAL/SEMI-ANNUAL REPORTS

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

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

For these documents or to discuss your questions about the Funds,

WRITE TO:

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

CALL: 1-800-624-5711

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

VISIT OUR WEB SITE: www.safecofunds.com

E-MAIL: [email protected]

Or contact the SEC:

WRITE TO: SEC Public Reference Room
450 Fifth Street, N.W.
Washington, DC 20549-6009

CALL: 1-800-SEC-0330

VISIT THE SEC'S WEB SITE: http://www.sec.gov

VISIT THE SEC'S PUBLIC REFERENCE ROOM: Washington, DC 20549-6009

NOTE: THE SEC MAY CHARGE A FEE.

SEC 1940 ACT FILE NUMBERS 811-5574
811-7300
811-3347
811-6667

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

NO-LOAD CLASS

SAFECO COMMON STOCK TRUST: SAFECO TAXABLE BOND TRUST:
SAFECO GROWTH FUND SAFECO INTERMEDIATE-TERM
SAFECO EQUITY FUND U.S. TREASURY FUND
SAFECO INCOME FUND SAFECO HIGH-YIELD BOND FUND
SAFECO NORTHWEST FUND SAFECO GNMA FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND SAFECO MANAGED BOND TRUST:
SAFECO SMALL COMPANY STOCK FUND SAFECO MANAGED BOND FUND
SAFECO U.S.VALUE FUND
SAFECO TAX-EXEMPT BOND TRUST: SAFECO MONEY MARKET TRUST:
SAFECO INTERMEDIATE-TERM MUNICIPAL BOND FUND SAFECO MONEY MARKET FUND
SAFECO INSURED MUNICIPAL BOND FUND SAFECO TAX-FREE MONEY MARKET FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

This Statement of Additional Information ("SAI") is not a prospectus itself. It
should be read in conjunction with the No-Load Prospectus dated April 30, 1999
for each Fund listed above (collectively, "Funds"). To receive a copy of the
Funds' Prospectus, write to: SAFECO Mutual Funds, P.O. Box 34890, Seattle,
Washington 98124-1890, or call:

Nationwide Deaf and Hard of Hearing
800-624-5711 TDD/TTY Service
800-438-8718

The date of the most current Prospectus to which this SAI relates is April 30,
1999.

The date of this SAI is April 30, 1999.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
GENERAL INFORMATION.........................................................................
OVERVIEW OF INVESTMENT POLICIES.............................................................
I. Fundamental Investment Policies....................................................
II. Non-Fundamental Investment Policies
ADDITIONAL INVESTMENT INFORMATION...........................................................
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS...............................................
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS..............................................................
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND
WASHINGTON ISSUERS.................................................................
REDEMPTION IN KIND..........................................................................
INFORMATION ON CALCULATION OF NET ASSET
VALUE PER SHARE....................................................................
PERFORMANCE INFORMATION.....................................................................
INFORMATION ON DIVIDENDS FOR THE
MONEY MARKET FUNDS.................................................................
MANAGEMENT OF THE FUNDS.....................................................................
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF
CERTAIN FUNDS......................................................................
INVESTMENT ADVISORY AND OTHER SERVICES......................................................
BROKERAGE PRACTICES.........................................................................
TAX INFORMATION.............................................................................
FINANCIAL STATEMENTS........................................................................
DESCRIPTION OF RATINGS......................................................................
</TABLE>

<PAGE>

GENERAL INFORMATION

Each of the SAFECO Common Stock Trust (the "Common Stock Trust"), the SAFECO
Managed Bond Trust (the "Managed Bond Trust"), the SAFECO Tax-Exempt Bond Trust
(the "Tax-Exempt Bond Trust"), SAFECO Taxable Bond Trust (the "Taxable Bond
Trust"), and the SAFECO Money Market Trust (the "Money Market Trust") was
established as a Delaware business trust under a Declaration of Trust dated May
13, 1993. All are registered as open-end management investment companies under
the Investment Company Act of 1940, as amended (the "1940 Act").

The Common Stock Trust offers its shares through eight diversified mutual funds:
the SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"),
SAFECO Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"),
SAFECO International Stock Fund ("International Stock Fund"), SAFECO Balanced
Fund ("Balanced Fund"), SAFECO Small Company Fund ("Small Company Fund"), and
SAFECO U.S. Value Fund ("U.S. Value Fund"). The Taxable Bond Trust offers its
shares through three diversified mutual funds: the SAFECO Intermediate-Term U.S.
Treasury Fund ("Intermediate-Term U.S. Treasury Fund"), the SAFECO GNMA Fund
("GNMA Fund"), and the SAFECO High-Yield Bond Fund ("High-Yield Fund"). The
Managed Bond Trust offers it shares through a single mutual fund, the SAFECO
Managed Bond Fund ("Managed Bond Fund"). The Tax-Exempt Bond Trust offers its
shares through five diversified mutual funds (collectively, the "Tax-Exempt Bond
Funds"): the SAFECO Intermediate-Term Municipal Bond Fund ("Intermediate-Term
Municipal Bond Fund"), the SAFECO Insured Municipal Bond Fund ("Insured
Municipal Bond Fund"), the SAFECO Municipal Bond Fund ("Municipal Fund"), the
SAFECO California Tax-Free Income Fund ("California Tax Free Income Fund"), and
the SAFECO Washington State Municipal Bond Fund ("Washington Municipal Bond
Fund"). The Money Market Trust offers its shares through two diversified mutual
funds: the SAFECO Money Market Fund ("Money Market Fund"), and the SAFECO
Tax-Free Money Market Fund ("Tax-Free Money Market Fund").

OVERVIEW OF INVESTMENT POLICIES

The investment policies of the Funds are described in the Prospectuses and this
SAI. 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. The Funds have no intention to purchase
securities that the following

<PAGE>

policies permit, but which are not currently described in the Fund's Prospectus
or SAI. 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 Market 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, 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 can only be changed with the approval of a
"majority of its outstanding voting securities," as defined by the 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.

I. FUNDAMENTAL INVESTMENT POLICIES

The six (6) fundamental investment policies listed below apply to all
Funds:

1. The Fund may not borrow money or issue senior securities,
except as the 1940 Act, any rule or order thereunder, or SEC
staff interpretation thereof, may permit.

2. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the
acquisition,

<PAGE>

disposition or resale of its portfolio securities, under
circumstances where it may be considered to be an underwriter
under the Securities Act of 1933.

3. The Fund may not purchase or sell real estate unless acquired
as a result of ownership of securities or other instruments
and provided that this restriction does not prevent the Fund
from investing in issuers which invest, deal, or otherwise
engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or
interests therein, or exercising rights under agreements
relating to such securities including the right to enforce
security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated
in an orderly manner.

4. The Fund may not purchase or sell physical commodities, unless
acquired as a result of ownership of securities or other
instruments and provided that this restriction does not
prevent the Fund from engaging in transactions involving
futures contracts and options, forward currency contracts,
swap transactions and other financial contracts or investing
in securities that are secured by physical commodities.

5. The Fund may not make loans, provided that this restriction
does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, loaning its assets to
broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

6. The Fund will not purchase securities of any one issuer if, as
a result, more than 5% of the Fund's total assets would be
invested in securities of that issuer or the Fund would own or
hold more than 10% of the outstanding voting securities of
that issuer, except that up to 25% of the Fund's total assets
may be invested without regard to these limitations, and
except that these limitations do not apply to securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities or to securities issued by other open-end
investment companies.

The fundamental policy below applies to all Funds except the Money
Market Fund and the Tax-Free Money Market Fund:

7. The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act,
any rule or order thereunder, or SEC staff interpretation
thereof) of its

<PAGE>

investments in the securities of issuers primarily engaged in the same
industry, provided that this restriction does not limit the Fund from
investing in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities.

The fundamental policy below applies to the MONEY MARKET FUND:

8. The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act,
any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this
restriction does not limit the Fund from investing in
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or certain bank instruments
issued by domestic banks.

The fundamental policy below applies to the TAX-FREE MONEY MARKET FUND:

9. The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act,
any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this
restriction does not limit the Fund from investing in
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities, or governmental issuers of
special or general tax- exempt securities, or certain bank
instruments issued by domestic banks.

The fundamental policy below applies only to the INTERMEDIATE-TERM
MUNICIPAL BOND FUND, INSURED MUNICIPAL BOND FUND, WASHINGTON MUNICIPAL
BOND FUND, CALIFORNIA TAX-FREE INCOME FUND AND TAX-FREE MONEY MARKET
FUND:

10. During normal market conditions, the Fund will not invest less
than 80% of its net assets in obligations whose interest is
exempt from federal income tax and, in the case of the
California Tax-Free Income Fund, also from California state
personal income tax.

<PAGE>

II. NON-FUNDAMENTAL INVESTMENT POLICIES

A. GROWTH FUND

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

1. The Fund will not mortgage, pledge, or hypothecate any of its
assets, provided that this shall not apply to the transfer of
securities in connection with any permissible borrowing or to
collateral arrangements in connection with permissible
activities.

2. The 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.

3. The Fund will not purchase securities for which there is no
readily available market or enter into repurchase agreements
or purchase time deposits maturing in more than seven days, or
purchase OTC options or hold assets set aside to cover OTC
options written by the Fund, if immediately after and as a
result, the value of such securities would exceed, in the
aggregate, 15% of the Fund's net assets.

4. The Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end
money market funds, repurchase agreements (subject to the
non-fundamental restriction on illiquid securities) or any
other short-term instrument that SAFECO Asset Management
Company ("SAM") deems appropriate.

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

6. The Fund will not purchase securities on margin, provided that
the Fund may obtain short-term credits as may be necessary for
the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in
connection with its use of financial options and futures,
forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments.

7. The Fund will not 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

<PAGE>

the total assets of the Fund (taken at market value) to be
invested in foreign securities.

B. EQUITY FUND

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

2. The Fund will not 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 Fund (taken at market
value) to be invested in foreign securities.

3. The 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 Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, repurchase
agreements (subject to the non-fundamental restriction on
illiquid securities) or any other short-term instrument SAM
deems appropriate.

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

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

7. The Fund will not purchase securities on margin, provided that
the Fund may obtain short-term credits as may be necessary for
the clearance of purchases and sales of securities, and
further provided that the Fund may make margin deposits in
connection with its use of financial options and futures,
forward and spot currency contracts,

<PAGE>

swap transactions and other financial contracts or derivative
instruments.

C. INCOME FUND

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

1. The Fund will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not apply
to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements
in connection with permissible activities.

2. The 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.

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

4. The Fund may purchase as temporary investments for
its cash commercial paper, certificates of deposit,
no-load, open-end money market funds, repurchase
agreements (subject to the non-fundamental
restriction on illiquid securities) or any other
short-term instrument SAM deems appropriate.

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

6. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases
and sales of securities, and further provided that
the Fund may make margin deposits in connection with
its use of financial options and futures, forward and
spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

7. The Fund will not 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

<PAGE>

more than 10% of the total assets of the Fund (taken at market
value) to be invested in foreign securities.

D. NORTHWEST FUND

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

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

3. The 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.

4. The Fund may purchase as temporary investments for
its cash commercial paper, certificates of deposit,
shares of no-load, open-end money market funds,
repurchase agreements (subject to the non-fundamental
restriction on illiquid securities) or any other
short-term instrument that SAM deems appropriate.

5. The Fund will not 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 Fund (taken at market value) to
be invested in foreign securities.

6. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases
and sales of securities, and further provided that
the Fund may make margin deposits in connection with
its use of financial options and futures, forward and
spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

<PAGE>

7. The Fund will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not apply
to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements
in connection with permissible activities.

E. BALANCED FUND

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

1. The 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.

2. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases
and sales of securities, and further provided that
the Fund may make margin deposits in connection with
its use of financial options and futures forward and
spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

3. The 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.

4. The Fund will not purchase securities for which there
is no readily available market or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC
options or hold assets set aside to cover OTC options
written by the Fund, if immediately after and as a
result, the value of such securities would exceed, in
the aggregate, 15% of the Fund's net assets.

9
<PAGE>

5. The 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.

F. INTERNATIONAL FUND

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

1. The 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.

10
<PAGE>

G. SMALL COMPANY FUND

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

1. The 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.

financial contracts or derivative instruments.

3. The Fund will not purchase securities for which there
is no readily available market or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC
options or hold assets set aside to cover OTC options
written by the Fund, if immediately after and as a
result, the value of such securities would exceed, in
the aggregate, 15% of the Fund's net assets.

4. The 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

11
<PAGE>

securities, shall not be considered a loan within the
prohibition of this section.

H. U.S. VALUE FUND

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

1. The 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.

5. The 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

12
<PAGE>

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.

I. INTERMEDIATE-TERM U.S. TREASURY
FUND, GNMA FUND, HIGH-YIELD FUND

In addition to the policies described in above-referenced
Funds' Prospectus, the Intermediate-Term U.S. Treasury Fund,
GNMA Fund and High-Yield Fund have adopted the following
non-fundamental investment policies. These policies may be
changed without shareholder approval:

1. The Intermediate Term U.S. 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 is exempt from federal income tax.
The GNMA Fund may not invest in such tax-exempt
securities.

2. 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.

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

4. 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 advisor, 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.

5. The Intermediate Term U.S. Treasury Fund may invest
up to five percent (5%) of its total assets in Yankee
Sector debt

13
<PAGE>

securities and up to five percent (5%) of its total
assets in Eurodollar bonds.

6. The Fund will not purchase securities for which there
is no readily available market, or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC
options or hold assets set aside to cover OTC options
written by the Fund, if immediately after and as a
result, the value of such securities would exceed, in
the aggregate, 15% of the Fund's net assets.

J. MANAGED BOND FUND

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. These policies
may be changed without shareholder approval:

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

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

3. 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.

4. The Fund may invest up to fifty percent (50%) of its
total assets in corporate debt securities or
Eurodollar bonds.

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

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

14
<PAGE>

7. The Fund may temporarily invest its cash in high
quality commercial paper, certificates of deposit,
shares of no-load, open-end money market funds,
repurchase agreements or any other short-term
instrument the Fund's investment advisor deems
appropriate.

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

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

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

11. The Fund will not purchase securities for which there
is no readily available market or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC
options or hold assets set aside to cover OTC options
written by the Fund, if immediately after and as a
result, the value of such securities would exceed, in
the aggregate, 15% of the Fund's net assets.

12. The Fund will not 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 Fund (taken at market value) to
be invested in foreign securities.

13. 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.

14. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases
and sales of securities, and further provided that
the Fund may make margin deposits in connection with
its use of financial options and futures, forward and
spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

15
<PAGE>

K. INTERMEDIATE-TERM MUNICIPAL BOND FUND, INSURED MUNICIPAL BOND
FUND, MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND AND
WASHINGTON MUNICIPAL BOND FUND

In addition to the policies described in above-referenced
Funds' Prospectus, the Intermediate-Term Municipal Bond Fund,
Insured Municipal Bond Fund, Municipal Bond Fund, California
Tax-Free Income Fund and Washington Municipal Bond Fund have
adopted the following non-fundamental policies. These policies
may be changed without shareholder approval:

MUNICIPAL BOND FUND AND CALIFORNIA TAX-FREE INCOME FUND:

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, Inc. ("S&P") or IBCA Fitch
Investor Service, 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 that 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 that 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 for federal income tax purposes.

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 twenty-five percent (25%) or
more of its assets in industrial development bonds.

16
<PAGE>

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

6. Each Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits
as may be necessary for the clearance of purchases
and sales of securities, and further provided that
the Fund may make margin deposits in connection with
its use of financial options and futures, forward and
spot currency contracts, swap transactions and other
financial contracts or derivative instruments.

7. Each Fund will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not apply
to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements
in connection with permissible activities.

INTERMEDIATE-TERM MUNICIPAL BOND FUND, INSURED MUNICIPAL BOND
FUND AND WASHINGTON MUNICIPAL BOND FUND:

1. Will not purchase securities if borrowings equal to
or greater than five percent (5%) of its total assets
are outstanding.

2. Will not purchase securities on margin, provided that
the Fund may obtain short-term credits as may be
necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may
make margin deposits in connection with its use of
financial options and futures forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments.

3. Will not purchase securities for which there is no
readily available market, or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold
assets set aside to cover OTC options written by the
Fund, if immediately after and as a result, the value
of such securities would exceed, in the aggregate,
15% of the Fund's net assets.

17
<PAGE>

convention or trade show facilities; airports or mass
transportation; sewage or solid waste disposal
facilities; or air or water pollution control
projects.

5. Will not permit 25% or more of its total assets to be
invested in securities whose issuers are located in
the same state. NOTE: THIS RESTRICTION APPLIES ONLY
TO THE INTERMEDIATE-TERM MUNICIPAL BOND FUND AND
INSURED MUNICIPAL BOND FUND.

L. MONEY MARKET FUND

In addition to the policies described in the Money Market
Fund's Prospectus, the Money Market Fund has adopted the three
non-fundamental policies noted below. These policies may be
changed without shareholder approval:

1. The Money Market 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.

2. The Fund will not purchase securities for which
there is no readily available market, or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, or purchase OTC
options or hold assets set aside to cover OTC
options written by the Fund, if immediately after
and as a result, the value of such securities would
exceed, in the aggregate, 10% of the Fund's net
assets.

3. The Fund will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not
apply to the transfer of securities in connection
with any permissible borrowing or to collateral
arrangements in connection with permissible
activities.

M. TAX-FREE MONEY MARKET FUND

In addition to the policies described in the Tax-Free Money
Market Fund's Prospectus, the Tax-Free Money Market Fund has
adopted the following non-fundamental policies. These policies
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.

18
<PAGE>

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 Market 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.

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 purchase shares of no-load, open-end
investment companies that invest in tax-exempt
securities with remaining maturities of thirteen (13)
months or less.

4. The Fund reserves the right to hold cash, if
necessary, as a temporary defensive measure or in an
emergency situation.

5. The Fund will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not apply
to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements
in connection with permissible activities.

19
<PAGE>

ADDITIONAL INVESTMENT INFORMATION

STOCK FUNDS

The Growth Fund, Equity Fund, Income Fund, Northwest Fund, Balanced Fund,
International Fund, Small Company Fund, and U.S. Value 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 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.

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.

<PAGE>

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 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:

<PAGE>

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.

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

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 may invest up to 15% of net assets in
illiquid securities. Currently, 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

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<PAGE>

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.

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

23
<PAGE>

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 are foreign
corporations (and entities classified as such for federal income tax
purposes) 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 "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.

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<PAGE>

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

25
<PAGE>

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.

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

26
<PAGE>

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>

high-grade short-term debt obligations, or at least five qualified
securities, all of which are stocks of issuers in such industry or
market segment, with a market value at the time the option is written
of not less than 100% of the current index value times the multiplier
times the number of contracts. Such stocks will include stocks that
represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the portfolio's
holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or
escrowed in the case of broadly based stock market stock options or 25%
of such amount in the case of industry or market segment index options.

If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls below
100% of the current index value times the multiplier times the number
of contracts, the 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

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<PAGE>

closing sale and the International Fund may effect closing purchase
transactions, as described above in connection with options on equity
securities.

The purchase and sale of options on stock indices will be subject to
the same risks as options on equity securities, described above. In
addition, the distinctive characteristics of options on indices create
certain risks that are not present with stock options. Index prices may
be distorted if trading of certain stocks included in the index is
interrupted. Trading in index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial
number of stocks included in the index. If this occurred, the 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 advisor or sub-investment advisor
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

29
<PAGE>

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 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-Advisor, 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.

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<PAGE>

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 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

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<PAGE>

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.

If, on the other hand, the Sub-Advisor 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-Advisor'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

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<PAGE>

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.

The Fund's successful use of stock index futures contracts depends upon
the Sub-Advisor'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.

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<PAGE>

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

20. FOREIGN CURRENCY FUTURES CONTRACTS. (INTERNATIONAL FUND ONLY) The
International Fund may buy and sell for hedging purposes futures
contracts on foreign currencies or groups of foreign currencies such as
the European Currency Unit. 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

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<PAGE>

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-Advisor'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.

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

35
<PAGE>

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-Advisor 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-Advisor believes that it is important to have the flexibility to
enter into forward contracts when it is determined that the best
interests of the Fund will thereby be served. The Fund's custodian will
place cash or liquid, high-grade equity or debt securities into a
segregated account of the portfolio in an amount equal to the value of
the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities
placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments
with respect to such contracts.

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<PAGE>

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

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

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

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

37
<PAGE>

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.

23. GEOGRAPHICAL AND ISSUER SIZE LIMITATIONS:

NORTHWEST FUND ONLY. 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.

INTERNATIONAL FUND ONLY. Because the International Fund invests
primarily in foreign securities, it is subject to various risks in
addition to those associated with U.S. investment. 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.

SMALL COMPANY FUND ONLY. The Small Company Fund invests in small-sized
companies which involves greater risks than investment in larger, more
established issuers, and such securities can be subject to more abrupt
and erratic movements in price.

INTERMEDIATE-TERM U.S. TREASURY FUND, GNMA FUND,
HIGH-YIELD FUND AND MANAGED BOND FUND

The Intermediate-Term U.S. Treasury Fund, GNMA Fund, High-Yield Fund and 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.

38
<PAGE>

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 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.

5. ILLIQUID SECURITIES. (INTERMEDIATE-TERM U.S. TREASURY FUND, GNMA FUND,
HIGH-YIELD FUND ONLY). See the description of such securities under
"Additional Investment Information--Stock Funds."

39
<PAGE>

6. RESTRICTED SECURITIES AND RULE 144A SECURITIES. (INTERMEDIATE-TERM U.S.
TREASURY FUND, GNMA FUND, HIGH-YIELD FUND 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 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 FUND 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

40
<PAGE>

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.

10. SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS (HIGH YIELD FUND
ONLY). 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 Fund to be volatile. Lower-quality, fixed-income
securities tend to reflect short-term economic and corporate

41
<PAGE>

developments to a grater 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.
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.

11. ZERO COUPON AND PAYMENT-IN-KIND SECURITIES (HIGH-YIELD FUND ONLY). 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 the
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.

12. LIQUIDITY AND VALUATION ((HIGH-YIELD FUND ONLY). 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

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<PAGE>

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.

INTERMEDIATE-TERM MUNICIPAL BOND FUND, INSURED MUNICIPAL BOND FUND, MUNICIPAL
BOND FUND, CALIFORNIA TAX-FREE INCOME FUND AND WASHINGTON MUNICIPAL BOND FUND

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

1. REPURCHASE AGREEMENTS. See the description of such securities under
"Additional Investment Information -- 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 AND TAX-FREE MONEY MARKET FUND

QUALITY AND MATURITY. Pursuant to procedures adopted by the Money Market Trust's
Board of Trustees, the Money Market Fund and Tax-Free Money Market 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.

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 than 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 Fund and Tax-Free Money Market Fund 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.

<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) 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 and the Tax-Free 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 Money Market 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.

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<PAGE>

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.

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. 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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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 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.

11. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information -- Stock Funds.

12. MORTGAGE-BACKED SECURITIES. See the description of such securities
under "Additional Investment Information--Intermediate-Term U.S.
Treasury Fund, GNMA Fund, High-Yield Fund, and Managed Bond Fund."

13. ASSET-BACKED SECURITIES. See the description of such securities under
"Additional Investment Information--Intermediate-Term U.S. Treasury
Fund, GNMA Fund, High-Yield Fund, and Managed Bond Fund."

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

The Equity, Income, Small Company and Value Funds may invest in, and the other
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 period 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.

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

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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.
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.

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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.

Because the International Fund invests primarily in foreign securities, it is
subject to various risks in addition to those associated with U.S. investment.
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.

CURRENCY EXCHANGE RATES

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

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futures contracts and options on future contracts with the assets on which they
are based; lack of liquid secondary markets and inability to effect closing
transactions; costs associated with effecting such transactions; inadequate
disclosure and/or regulatory controls in certain markets; counterparty default
with respect to transactions not executed on an exchange; trading restrictions
imposed by governments, or securities and commodities exchanges; and
governmental actions affecting the value or liquidity of currencies. Hedging
transactions may be effected in foreign markets or on foreign exchanges and are
subject to the same types of risks that affect foreign securities. See "Special
Risks of Foreign Investments and Foreign Currency Transactions."

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

To help reduce certain risks associated with hedging transactions, the 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.

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INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA TAX-FREE INCOME 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.

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.

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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.

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.

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Redevelopment agencies in California have no power to levy and collect taxes;
hence, any decrease in property taxes or limitations in the amounts by which
property taxes may increase adversely affects such agencies, which lack the
inherent power to correct for such decreases or limitations.

State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6, 1979,
which prohibits government agencies and the State from spending "appropriations
subject to limitation" in excess of the appropriations limit imposed.
"Appropriations subject to limitation" are authorizations to spend "proceeds of
taxes," which consist of tax revenues, certain State subventions and certain
other funds, including proceeds from regulatory licenses, user revenues, certain
State subventions and certain other funds to the extent that such proceeds
exceed "the cost reasonably born by such entity in providing the regulation,
product, or service." No limit is imposed on appropriation of funds which are
not "proceeds of taxes," on debt service or indebtedness existing or authorized
by January 1, 1979, or subsequently authorized by the voters, or appropriations
required to comply with mandates of courts or the federal government, or user
charges or fees 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.

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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.

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.

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.

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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 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

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operating policies of the Fund and may be changed without the approval of the
Fund's shareholders.

WASHINGTON MUNICIPAL BOND FUND

WASHINGTON STATE

A discussion of certain economic, financial and legal matters regarding the
State of Washington follows. During normal market conditions, the Washington
Municipal Bond 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.

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

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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.

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

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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 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.

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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 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%.

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<PAGE>

non-farm workers. However, the non-manufacturing sector has played an
increasingly significant role in contributing to the State's economy in recent
years.

Below is a summary of key industry segments of the State's economy as well as of
selected economic and employment data.

MANUFACTURING. The Boeing Company ("Boeing"), which is the Seattle Metropolitan
Area's largest employer, has several facilities located throughout the area.
Boeing is the world's leading manufacturer of commercial airliners and as of
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.

59
<PAGE>

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.

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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<PAGE>

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.

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. The Trusts have 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.

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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<PAGE>

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- Advisor 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 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 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

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<PAGE>

deviation may result in material dilution or is otherwise unfair to existing
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.

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 interests rates.

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 Growth Fund, Equity Fund,
Income Fund, Northwest Fund, Balanced Fund, International Fund, Small Company
Fund, the Intermediate-Term U.S. Treasury Fund, Managed Bond Fund, Municipal
Bond Fund, California Tax-Free Income Fund, Washington Municipal Bond Fund and
Money Market Fund commenced offering Advisor Class A and Advisor Class B shares.
The High-Yield Fund and U.S. 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.

63
<PAGE>

TOTAL RETURNS AND AVERAGE TOTAL RETURNS

For the following Funds, the total returns, expressed as a percentage, for the
one-, five- and ten-year periods ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------
<S> <C> <C> <C>
GROWTH FUND % % %
EQUITY FUND % % %
INCOME FUND % % %
INTERMEDIATE-TERM U.S. TREASURY FUND % % %
GNMA FUND % % %
HIGH-YIELD FUND % % %
MUNICIPAL BOND FUND % % %
CALIFORNIA TAX-FREE INCOME FUND % % %
</TABLE>

For the following Funds, the total returns, expressed as a percentage, for the
one-year, five-year and since initial public offering periods ended December 31,
1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INITIAL PUBLIC OFFERING
----------- ------- -----------------------------
<S> <C> <C> <C>
NORTHWEST FUND % % % (__months)

INTERMEDIATE-
TERM MUNICIPAL
BOND FUND % % % (__ months)

INSURED
MUNICIPAL BOND
FUND % % % (__ months)

WASHINGTON
MUNICIPAL BOND
FUND % % % (__ months)

</TABLE>

64
<PAGE>

For the following Funds, the total returns, expressed as a percentage, for the
one-year and since initial public offering periods ended December 31, 1998 were
as follows:

<TABLE>
<CAPTION>
1 YEAR SINCE INITIAL PUBLIC OFFERING
------ -----------------------------
<S> <C> <C>
BALANCED FUND % % (__ months)
INTERNATIONAL FUND % % (__ months)
SMALL COMPANY
FUND % % (__ months)
U.S. VALUE FUND % % (__ months)
MANAGED BOND % % (__ months)
FUND
</TABLE>

For the following Funds, the total returns, expressed in dollars and assuming a
$10,000 initial investment, for the one-, five- and ten-year periods ended
December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
GROWTH FUND $ $ $
EQUITY FUND $ $ $
INCOME FUND $ $ $
</TABLE>

For the Northwest Fund, the total returns, expressed in dollars and assuming a
$10,000 initial investment, for the one-year, five-year, and since initial
public offering (94 months) periods ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INITIAL
------ ------- PUBLIC OFFERING
----------------
<S> <C> <C> <C>
NORTHWEST FUND $ $ $
</TABLE>

For the following Funds, the total returns, expressed in dollars and assuming a
$10,000 initial investment, for the one-year and since initial public offering
periods ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR SINCE INITIAL PUBLIC OFFERING
------ -----------------------------
<S> <C> <C> <C>
BALANCED FUND $ $ (__ months)
INTERNATIONAL FUND $ $ (__ months)
SMALL COMPANY FUND $ $ (__ months)
U.S. VALUE FUND $ $ (__ months)
</TABLE>

65
<PAGE>

For the following Funds, the average annual total returns for the one-, five-
and ten-year periods ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
GROWTH FUND % % %
EQUITY FUND % % %
INCOME FUND % % %
INTERMEDIATE-TERM
U.S. TREASURY FUND % % %
GNMA FUND % % %
HIGH-YIELD FUND % % %
MUNICIPAL BOND FUND % % %
CALIFORNIA TAX-FREE
INCOME FUND % % %
</TABLE>

For the following Funds, the average annual total returns for the one-year,
five-year, and since initial public offering periods ended December 31, 1998
were as follows:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INITIAL PUBLIC OFFERING
------ ------- ------------- ---------------
<S> <C> <C> <C> <C>
NORTHWEST FUND % % % (__ months)
INTERMEDIATE-
TERM MUNICIPAL
BOND FUND % % % (__ months)
INSURED
MUNICIPAL BOND
FUND % % % (__ months)
WASHINGTON MUNICIPAL BOND
FUND % % % (__ months)
</TABLE>

For the following Funds, the average annual total returns for the one-year and
since initial public offering periods ended December 31, 1998 were as follows:

<TABLE>
<CAPTION>
1 YEAR SINCE INITIAL PUBLIC OFFERING
------ ------------- ---------------
<S> <C> <C>
BALANCED FUND % % (__ months)
INTERNATIONAL FUND % % (__ months)
SMALL COMPANY
FUND % % (__ months)
U.S. VALUE FUND % % (__ months)
MANAGED BOND FUND % % (__ months)
</TABLE>

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<PAGE>

YIELD AND EFFECTIVE YIELD

For the following Funds, the yields for the 30-day period ended December 31,
1998 were as follows:

INTERMEDIATE-TERM U.S. TREASURY FUND %
GNMA FUND %
HIGH-YIELD FUND %
MANAGED BOND FUND %
</TABLE>

For the following Funds, the yield and tax-equivalent yield at the maximum
federal tax rate of 39.6% for the 30-day period ended December 31, 1998 were as
follows:

YIELD TAX-EQUIVALENT YIELD
----- --------------------
<S> <C> <C>

MUNICIPAL BOND FUND % %
INTERMEDIATE-TERM MUNICIPAL BOND FUND % %
INSURED MUNICIPAL BOND FUND % %
WASHINGTON MUNICIPAL BOND FUND % %
CALIFORNIA TAX-FREE INCOME FUND* % %
</TABLE>

* Maximum combined federal and California tax rates of 45.2%

For the Money Market Funds, the yield and effective yield for the 7-day period
ended December 31, 1998 were as follows:

YIELD EFFECTIVE YIELD
----- ---------------
<S> <C> <C>

MONEY MARKET FUND % %
</TABLE>

For the Tax-Free Money Market Fund, the yield and tax-equivalent yield at the
maximum federal tax rate of 39.6% for the 7-day period ended December 31, 1998
were as follows:

YIELD TAX-EQUIVALENT YIELD
----- --------------------
<S> <C> <C>

TAX-FREE MONEY MARKET FUND % %
</TABLE>

CALCULATIONS

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

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<PAGE>

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 Intermediate-Term U.S. Treasury Fund, GNMA Fund, High-Yield Fund,
Managed Bond Fund and Tax-Exempt Bond Funds is computed using the following
formula:

a-b
Yield = 2[( --- +1) 6 -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

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<PAGE>

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:

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

69
<PAGE>

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 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 advisor (SAM) or any sub-investment
advisor, the investment advisor's parent company (SAFECO Corporation) or the
parent company of any sub-investment advisor, 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.

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<PAGE>

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 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.

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<PAGE>

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.

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.

MANAGEMENT OF THE FUNDS

The Board of Directors has overall responsibility for the operation of each
Fund. Pursuant to such responsibility, the Board of Directors has approved
contracts with various organizations to provide among other things, day to day
management services required by each Fund.

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
(54) Officer. He has been an executive officer of
SAFECO Corporation subsidiaries since 1982.
See table under "Investment Advisory and Other
Services."

72
<PAGE>

POSITION(S) HELD WITH THE PRINCIPAL OCCUPATIONS(S)
NAME, ADDRESS AND AGE TRUSTS DURING PAST 5 YEARS
--------------------- ------ -------------------
<S> <C> <C>

Barbara J. Dingfield Trustee Director of Community Affairs for Microsoft
Microsoft Corporation Corporation, Redmond, Washington, a computer
One Microsoft Way software company; former Director and
Redmond, WA 98052 Executive Vice President of Wright Runstad &
(53) Co., Seattle, Washington, a real estate
development company; Director of First SAFECO
National Life Insurance Company of New York;
Board Chair of United Way of King County;
Board of Managers of Swarthmore College.

David F. Hill* President President of SAFECO Securities, Inc. and
10865 Willows Road NE Trustee SAFECO Services Corporation; Senior Vice
Redmond, WA 98052 President of SAFECO Asset Management Company.
(50) See table under "Investment Advisory and Other
Services."

Richard W. Hubbard* Trustee Retired Vice President and Treasurer of the
1270 NW Blakely Ct. Trust and other SAFECO Trusts; retired Senior
Seattle, WA 98177 Vice President and Treasurer of SAFECO
(69) 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
(61) SAFECO National Life Insurance Company of New
York.

73
<PAGE>

POSITION(S) HELD WITH THE PRINCIPAL OCCUPATIONS(S)
NAME, ADDRESS AND AGE TRUSTS DURING PAST 5 YEARS
--------------------- ------ -------------------
<S> <C> <C>

Larry L. Pinnt Trustee Retired Vice President and Chief Financial
1600 Bell Plaza, Officer U.S. WEST Communications, Seattle,
Room 1802 Washington; Chairman of University of
Seattle, WA 98191 Washington Medical Center Board, Seattle,
(64) Washington; Director of Cascade Natural Gas
Corporation, Seattle, Washington; Director of
First SAFECO National Life Insurance Company
of New York; and a Treasurer of Cancer Care
Alliance, Seattle, Washington.

John W. Schneider Trustee President and sole owner of Wallingford Group,
1808 N. 41st St. Inc., Seattle, Washington; former President of
Seattle, WA 98103 Emerald Development Group, Inc., Seattle,
(57) Washington; Director of First SAFECO National
Life Insurance Company of New York.

Neal Fuller Vice President Vice President, Controller, Assistant
10865 Willows Road NE Controller Secretary and Treasurer of SAFECO Securities,
Redmond, WA 98052 Assistant Secretary Inc. and SAFECO Services Corporation; Vice
(36) President, 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;
Two Union Square Treasurer Treasurer and Chief Investment Officer of
Sixth Avenue and SAFECO Corporation; Vice President of SAFECO
Union Street Insurance Companies; Director, Vice President
Seattle, WA 98101 and Treasurer of First SAFECO National Life
(55) 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."

74
<PAGE>

POSITION(S) HELD WITH THE PRINCIPAL OCCUPATIONS(S)
NAME, ADDRESS AND AGE TRUSTS DURING PAST 5 YEARS
--------------------- ------ -------------------
<S> <C> <C>

David H. Longhurst Assistant Controller Assistant Controller of SAFECO Securities,
10865 Willows Road NE Inc., SAFECO Services Corporation and SAFECO
Redmond, WA 98052 Asset Management Company; former Accounting
(41) Manager of SAFECO Asset Management Company;
former Senior Manager with Ernst & Young LLP,
an independent accounting firm.

Stephen D. Collier Assistant Secretary Assistant Secretary of SAFECO Asset Management
SAFECO Plaza Company, SAFECO Securities, Inc. and SAFECO
4333 Brooklyn Ave., NE Services Corporation. He has been an executive
Seattle, WA 98105 officer of SAFECO Corporation and subsidiaries
(46) since 1991.
</TABLE>

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

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.

75
<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL FROM REGISTRANT
COMPENSATION ACCRUED AS BENEFITS AND FUND
FROM PART OF FUND UPON COMPLEX
TRUSTEE TRUST REGISTRANT EXPENSES RETIREMENT PAID TO TRUSTEES
- ------- ----- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C>

BOH A. DICKEY Common Stock N/A N/A N/A
Taxable Bond N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A
Managed Bond N/A N/A N/A
Money Market N/A N/A N/A
Total Compensation $0

BARBARA J. Common Stock $11,026 N/A N/A
DINGFIELD Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,337 N/A N/A
Total Compensation $30,375

DAVID F. HILL Common Stock N/A N/A N/A
Taxable Bond N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A
Managed Bond N/A N/A N/A
Money Market N/A N/A N/A
Total Compensation $0

RICHARD W. Common Stock $10,345 N/A N/A
HUBBARD Taxable Bond $3,050 N/A N/A
Tax-Exempt Bond $5,472 N/A N/A
Managed Bond $969 N/A N/A
Money Market $2,195 N/A N/A
Total Compensation $28,500

RICHARD E. Common Stock $11,026 N/A N/A
LUNDGREN Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375

76
<PAGE>

LARRY L. PINNT Common Stock $11,026 N/A N/A
Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375

JOHN W. Common Stock $11,026 N/A N/A
SCHNEIDER Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375
</TABLE>

At February 1, 1999, the Trustees and officers of each Trust as a group owned
less than 1% of the outstanding shares of each 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.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At February 1, 1999, SAM controlled the International, Balanced, U.S. Value and
Managed Bond Funds. At February 1, 1999, SAFECO Insurance Company of America
("SAFECO Insurance") controlled the Intermediate-Term U.S. Treasury Fund and
Washington Municipal Bond Fund. SAM is a corporation organized under the laws of
the State of Washington.

At February 1, 1999, SAM owned 27.90% of the Balanced Fund's outstanding shares;
35.27% of the International Fund's outstanding shares; 54.34% of the U.S. Value
Fund's outstanding shares; and 51.13% of the Managed Bond Fund's outstanding
shares. At February 1, 1999, SAFECO Insurance owned 22.87% of the Intermediate-
Term U.S. Treasury Fund's outstanding shares and SAFECO Trust Omnibus Account,
whose address of record is P.O. Box 34730, Seattle, WA 98124, owned 6.87% of
the Intermediate Term U.S. Treasury Fund's outstanding shares. Both SAFECO
Insurance and SAFECO Trust Omnibus Account are under the common control of
SAFECO Corporation for a total control of 29.74% of the Intermediate-Term U.S.
Treasury Fund's outstanding shares. At February 1, 1999, SAFECO Insurance owned
68.58% of the Washington Municipal Bond Fund's outstanding shares.

77
<PAGE>

At February 1, 1999, Charles Schwab & Co., Inc., whose address of record is 101
Montgomery St., San Francisco, CA 94104, held of record 31.34% of the Growth
Fund's outstanding shares; 28.24% of the Equity Fund's outstanding shares; and
28.79% of the California Tax-Free Income Fund's outstanding shares, which it
held on behalf of its customers who are the beneficial owners of such shares. No
Fund is aware of any Schwab customer that beneficially owned 5% or more of its
outstanding shares.

SAM, SAFECO Insurance and SAFECO Trust Company 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.
However, on each proposal or sub-proposal, SAM, SAFECO Insurance Company of
America or other companies under common control with these entities will vote
shares of each Fund that it owns pro rata in accordance with the vote cast by
shareholders of the applicable Fund.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information provided to the
Funds or contained in filings with the SEC regarding the beneficial ownership of
shares of each Fund as of February 1, 1999 by each person who is known by each
Fund to own beneficially, or exercise control or direction over, 5% or more of
the outstanding shares of each Fund.

GROWTH FUND

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>

National Financial Services Corp.
for the Exclusive Benefit of Our
Customers
Attn.: Mutual Funds Dept. 5th Fl. 7,220,438 11.55%
200 Liberty St., 1 World Financial Center
New York, NY 10281-10003
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 19,598,646 31.34%
101 Montgomery Street
San Francisco CA 94104-4122

78
<PAGE>

EQUITY FUND

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 26,057,025 28.24%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

INCOME FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 2,095,637 12.49%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

NORTHWEST FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 215,334 5.64%
101 Montgomery Street
San Francisco CA 94104-4122

SAFECO Insurance Company of America
SAFECO Plaza 450,000 11.78%
Seattle, WA 98185
</TABLE>

BALANCED FUND
<TABLE>
<CAPTION>

Safeco Services Corporation
Retirement Account 129,176 7.08%
Safeco T-13
Seattle, WA 98185-0001
</TABLE>

INTERNATIONAL FUND
<TABLE>
<CAPTION>

79
<PAGE>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Norwest Bank Minnesota, N.A., Trustee
SAFECO 401K Savings Plan 387,723 20.16%
510 Marquette, 5th and Marquette
Minneapolis, MN 55479-0001
</TABLE>

SMALL COMPANY FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
National Financial Services Corp.
for the Exclusive Benefit of Our Customers
200 Liberty Street, 1 World Financial 203,946 6.06%
Attn.: Mutual Funds Dept. 5th Fl.
New York, NY 10281-1003

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 542,991 16.12%
101 Montgomery Street
San Francisco CA 94104-4122

Norwest Bank Minnesota, N.A., Trustee
SAFECO 401K Savings Plan 650,283 19.31%
510 Marquette, 5th and Marquette
Minneapolis, MN 55479-0001
</TABLE>

U.S. VALUE FUND

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 77,240 8.40%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

INTERMEDIATE-TERM U.S. TREASURY FUND
<TABLE>
<CAPTION>

80
<PAGE>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 222,202 10.17%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

HIGH-YIELD FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 1,747,280 17.89%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

MANAGED BOND FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Safeco Asset Management Company
Two Union Square 452,103 51.13%
Sixth Avenue and Union Street
Seattle, WA 98101
Christa Ministries
William Brown V.P. Finance 105,812 11.97%
P.O. Box 330303
Seattle, WA 98133-9703
</TABLE>

CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 2,657,709 28.79%
101 Montgomery Street
San Francisco CA 94104-4122
</TABLE>

WASHINGTON MUNICIPAL BOND FUND
<TABLE>
<CAPTION>

81
<PAGE>

INTERMEDIATE-TERM MUNICIPAL BOND FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza 397,434 28.90%
Seattle, WA 98185
William A. Helsell
10653 Culpepper Ct. N.W. 91,321 6.64%
Seattle, WA 98177-5319
Charles Schwab & Co., Inc.
Exclusive Benefit of its Customers
Attn: Mutual Fund Department 73,347 5.33%
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>

INSURED MUNICIPAL BOND FUND
<TABLE>
<CAPTION>

NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF FUND
- ------------------------ ---------------- ---------------
<S> <C> <C>
SAFECO Insurance Company of America
SAFECO Plaza 605,644 27.49%
Seattle, WA 98185
Charles Schwab & Co., Inc.
Exclusive Benefit of its Customers
Attn: Mutual Fund Department 224,561 10.19%
101 Montgomery Street
San Francisco, CA 94104-4122
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

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

SAM has a sub-advisory agreement with Bank of Ireland Asset Management (U.S.)
Limited. The Sub-Advisor has its headquarters at 26 Fitzwilliam Place, Dublin,
Ireland, and its U.S. office at 2 Greenwich Plaza, Greenwich, Connecticut. The
Sub-Advisor 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:

82
<PAGE>

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 Secretary Assistant Secretary Assistant Secretary
Treasurer 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>

Mr. Dickey is President, Chief Operating Officer and a Director of SAFECO
Corporation and Mr. Spaulding is the Treasurer and a 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

83
<PAGE>

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 advisor 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.

- ---------------------------------------------------------------------------------------
FUND FEE

- ---------------------------------------------------------------------------------------
Net Assets Annual Fee
- ---------------------------------------------------------------------------------------
<S> <C> <C>

Growth, Equity and Income $0 - $250,000,000 .70 of 1%

$250,000,001 - $750,000,000 .65 of 1%

$750,000,001 -
$1,250,000,000 .60 of 1%

Over $1,250,000,000 .55 of 1%
- --------------------------------------------------------------------------------------
Northwest $0 - $250,000,000 .70 of 1%

$250,000,001 - $750,000,000 .65 of 1%

$750,000,001 -
$1,250,000,000 .60 of 1%

Over $1,250,000,000 .55 of 1%
- --------------------------------------------------------------------------------------
International* $0 - $250,000,000 1.00 of 1%

$250,000,001 - $750,000,000 .90 of 1%

Over $750,000,000 .80 of 1%
- --------------------------------------------------------------------------------------
Balanced and U.S. Value $0 - $250,000,000 .70 of 1%

$250,000,001 - $750,000,000 .65 of 1%

$750,000,001 -
$1,250,000,000 .60 of 1%

84
<PAGE>

- ---------------------------------------------------------------------------------------
FUND FEE

Over $1,250,000,000 .55 of 1%
- --------------------------------------------------------------------------------------
Small Company $0 - $250,000,000 .75 of 1%

$250,000,001 - $750,000,000 .70 of 1%

Over $750,000,001 -
$1,250,000,000 .65 of 1%

Over $1,250,000,000 .60 of 1%
- --------------------------------------------------------------------------------------
Intermediate-Term U.S. Treasury $0 - $250,000,000 .55 of 1%

$250,000,001 - $750,000,000 .50 of 1%

$750,000,001 -
$1,250,000,000 .45 of 1%

Over $1,250,000,000 .40 of 1%
- --------------------------------------------------------------------------------------
Insured Municipal and Washington $0c-p$250,000,000 .50 of 1%
Municipal Bond
$250,000,001 - $750,000,000 .45 of 1%

Over $750,000,000 .40 of 1%

- --------------------------------------------------------------------------------------
High-Yield $0 - $250,000,000 .65 of 1%

$250,000,001 - $750,000,000 .55 of 1%

Over $750,000,000 .50 of 1%

- --------------------------------------------------------------------------------------
GNMA $0 - $250,000,000 .55 of 1%

$250,000,001 - $750,000,000 .50 of 1%

$750,000,001 - $1,250,000,000 .45 of 1%

Over $1,250,000,000 .40 of 1%
- --------------------------------------------------------------------------------------
Managed Bond $0 - $750,000,000 .50 of 1%

$750,000,001 - $1,250,000,000 .45 of 1%

Over $1,250,000,000 .40 of 1%
- --------------------------------------------------------------------------------------
Intermediate-Term Municipal Bond $0 - $250,000,000 .50 of 1%

$250,000,001 - 750,000,000 .45 of 1%

Over $750,000,000 .40 of 1%

- --------------------------------------------------------------------------------------
Municipal Bond and California $0 -n$250,000,000 .50 of 1%
Tax-Free Income
$250,000,001 - $750,000,000 .45 of 1%

Over $750,000,000 .40 of 1%

85
<PAGE>

- ---------------------------------------------------------------------------------------
FUND FEE

Money Market $0 - $250,000,000 .50 of 1%

$250,000,001 - $750,000,000 .45 of 1%

$750,000,001 - $1,250,000,000 .40 of 1%

Over $1,250,000,000 .35 of 1%
- --------------------------------------------------------------------------------------
Tax-Free Money Market 0 - $250,000,000 .50 of 1%

$250,000,001 - $750,000,000 .45 of 1%

$750,000,001 - $1,250,000,000 .40 of 1%

Over $1,250,000,000 .35 of 1%
</TABLE>

* Under the sub-advisory agreement between SAM and the Sub-Advisor, the
Sub-Advisor 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-Advisor a fee in
accordance with the schedule below:

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>

86
<PAGE>

The following table states the total amounts of compensation paid by the
following Funds to SAM for the fiscal years ended December 31, 1998 and 1997,
the period ended December 31, 1996, and the prior fiscal year:

FISCAL YEAR OR PERIOD ENDED

THREE MONTH PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1996 1996
----------- ------------ ------------ -------------

<S> <C> <C> <C> <C>
Growth Fund $ $2,120,000 $ 327,000 $1,260,000
Equity Fund $ $6,481,000 $1,131,000 $3,752,000
Income Fund $ $2,285,000 $ 469,000 $1,597,000
Northwest Fund $ $ 416,000 $ 80,000 $ 305,000
Intermediate-
Term U.S.
Treasury Fund $ $ 85,000 $ 21,000 $ 78,000
GNMA Fund $ $ 246,000 $ 65,000 $ 270,000
High-Yield Fund $ $ 386,000 $ 82,000 $ 255,000

</TABLE>

87
<PAGE>

FISCAL YEAR OR PERIOD ENDED
<TABLE>
<CAPTION>

PERIOD FROM
JANUARY
THREE MONTH 31, 1996 (INITIAL
PERIOD ENDED PUBLIC OFFERING)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO SEPTEMBER
1998 1997 1996 30, 1996
---- ---- ---- --------
<S> <C> <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 U.S. Value Fund to SAM for the
fiscal year ended December 31, 1998 and the period from April 30, 1997 (initial
public offering) to December 31, 1997 was $____________ and $43,000,
respectively.

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
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------

<S> <C> <C> <C>
MANAGED
BOND FUND $___________ $23,000 $21,000
</TABLE>

88
<PAGE>

FISCAL YEAR OR PERIOD ENDED

NINE MONTH PERIOD
DECEMBER DECEMBER ENDED
31, 1998 31, 1997 DECEMBER 31, 1996 MARCH 31, 1996
-------- -------- ----------------- --------------

<S> <C> <C> <C> <C>
MUNICIPAL BOND FUND $ $2,041,000 $1,533,000 $2,021,000
CALIFORNIA TAX-FREE INCOME FUND $ $ 424,000 $ 290,000 $ 366,000
INTERMEDIATE-TERM MUNICIPAL
BOND FUND $ $ 77,000 $ 60,000 $ 78,000
INSURED MUNICIPAL BOND FUND $ $ 95,000 $ 60,000 $ 57,000
WASHINGTON MUNICIPAL BOND FUND $ $ 49,000 $ 32,000 $ 39,000

MONEY MARKET FUND $ $865,000 $630,000 $864,914

TAX-FREE MONEY MARKET FUND $ $366,000 $284,000 $380,360

</TABLE>

ADMINISTRATION AND ACCOUNTING AGREEMENT. The Administration and Accounting
Agreement between each Fund and SAM is a service contract and not an investment
advisory agreement (the "Agreement"). Under the Agreement, SAM will serve as
each Fund's accounting agent and administrator, performing such functions as:
calculate the net asset value of each Fund's accounting agent and financial
records, prepare the financial statements semiannually, make regulatory filings,
and coordinate contractual relationships and communications between each Fund
and its service providers. Under the Agreement, each Fund will pay SAM an
administrative services fee of 0.05% of the average daily net assets up to the
first $200,000,000 and 0.01% of its net assets thereafter,

<PAGE>

and an accounting fee of 0.04% of its average daily net assets up to the first
$200,000,000 and 0.01% of its net assets thereafter.

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. ________________, 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.

The following table shows the fees paid by the following Funds to SAFECO
Services during the fiscal years ended December 31, 1998 and 1997, the period
ended December 31, 1996 and the prior fiscal year:

FISCAL YEAR OR PERIOD ENDED
---------------------------
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1996 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>
GROWTH FUND $2,931,409 $517,000 $99,000 $384,000
EQUITY FUND $3,738,800 $2,320,000 $378,000 $1,203,000
INCOME FUND $711,514 $583,000 $123,000 $359,000
NORTHWEST
FUND $219,818 $145,000 $32,000 $105,000
</TABLE>

<PAGE>
FISCAL YEAR OR PERIOD ENDED
---------------------------
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1996 1996*
---- ---- ---- -----
<S> <C> <C> <C> <C>

INTERMEDIATE-TERM U.S.
TREASURY FUND $45,108 $31,000 $6,000 $39,000
GNMA FUND $65,322 $65,000 $17,000 $111,000
HIGH-YIELD
FUND $135,041 $86,000 $17,000 $90,000
</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.

91
<PAGE>

FISCAL YEAR OR PERIOD ENDED
---------------------------
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 31,
THREE MONTH 1996 (INITIAL
PERIOD ENDED PUBLIC OFFERING)
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO SEPTEMBER 30,
1998 1997 1996 1996*
---- ---- ---- ---------
<S> <C> <C> <C> <C>
BALANCED
FUND $55,835 $23,000 $2,000 $4,000
INTERNATIONAL
FUND $58,317 $34,000 $2,000 $9,000
SMALL
COMPANY
FUND $132,224 $50,000 $8,000 $13,000
</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 total amount of fees paid by the U.S. Value Fund to SAFECO Services for the
fiscal year ended December 31, 1998 and the period from April 30, 1997 (initial
public offering) to December 31, 1997 were $24,738 and $5,000, respectively.

The following table shows the fees paid by the Managed Bond Fund to SAFECO
Services for the fiscal years ended December 31, 1998, 1997, and 1996:

FISCAL YEAR ENDED
-----------------
<TABLE>
<CAPTION>

DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996*
----------------- ----------------- -----------------
<S> <C> <C> <C>
MANAGED BOND
FUND $7,397 $1,000 $15
</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.

92
<PAGE>

The following table shows the fees paid by the following Funds to SAFECO
Services for the fiscal years ended December 31, 1998 and 1997, the period ended
December 31, 1996 and the prior fiscal year:

FISCAL YEAR OR PERIOD ENDED
<TABLE>
<CAPTION>
NINE MONTH
PERIOD ENDED
DECEMBER DECEMBER DECEMBER 31, MARCH 31,
31, 1998 31, 1997 1996* 1996*
-------- -------- ----- -----
<S> <C> <C> <C> <C>
MUNICIPAL
BOND FUND $335,019 $327,000 $300,000 $ 511,000
CALIFORNIA
TAX-FREE
INCOME FUND $89,834 $ 60,000 $ 48,000 $ 69,000
INTERMEDIATE-
TERM
MUNICIPAL
BOND FUND $10,861 $ 11,000 $ 10,000 $ 17,000
INSURED
MUNICIPAL
BOND FUND $16,207 $ 11,000 $ 9,000 $ 9,000
WASHINGTON
MUNICIPAL
BOND FUND $6,327 $ 3,000 $ 2,000 $ 3,000
MONEY
MARKET FUND $481,900 $414,000 $325,000 $ 424,260
TAX-FREE
MONEY
MARKET FUND $62,182 $ 64,000 $ 54,000 $ 71,478
</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 Funds for underwriting, distribution or other
activities in connection with No-Load Class shares.

93
<PAGE>

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.

<PAGE>

The following table states the total amount of brokerage expenses for the
following Funds for the fiscal years ended December 31, 1998 and 1997, the
period ended December 31, 1996, and the prior fiscal year:

FISCAL YEAR OR PERIOD ENDED
---------------------------
THREE MONTH
PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1997 1996 1996
----------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C>
Growth Fund $2,693,078 $ 817,674 $ 63,500 $ 518,092
Equity Fund $1,204,661 $1,180,261 $278,203 $1,224,644
Income Fund $ 344,745 $ 341,428 $ 42,827 $ 286,999
Northwest $ 48,671 $ 63,531 $ 25,566 $ 13,599
</TABLE>

The following table states the total amount of brokerage expenses for following
Funds for the fiscal years ended December 31, 1998 and 1997, the period ended
December 31, 1996, and the period from January 31, 1996 (initial public
offering) to September 30, 1996:

FISCAL YEAR OR PERIOD ENDED
---------------------------
PERIOD FROM
JANUARY
THREE MONTH 31, 1996 (INITIAL
PERIOD ENDED PUBLIC OFFERING)
DECEMBER 31, DECEMBER 31, TO SEPTEMBER
1998 DECEMBER 31, 1997 1996 30, 1996
------------ ----------------- ------------ --------
<S> <C> <C> <C> <C>
Balanced Fund $16,890 $ 9,913 $1,548 $ 5,911
International Fund $16,320 $16,054 $5,311 $22,468
Small Company Fund $92,111 $24,185 $4,615 $16,752
</TABLE>

The total amount of brokerage expenses for the U.S. Value Fund for the fiscal
year ended December 31, 1998 and the period from April 30, 1997 (initial public
offering) to December 31, 1997 were $14,106 and $10,224, respectively.

95
<PAGE>

TAX INFORMATION

GENERAL

Each Fund is treated as a separate corporation for federal income tax purposes
and intends to continue to qualify for treatment as a "regulated investment
company" ("RIC") under Subchapter M of the Internal Revenue Code of 1986
("Code"). To qualify for that treatment, a Fund must distribute to its
shareholders for each taxable year at least 90% of the sum of its investment
company taxable income (consisting generally of taxable net investment income
and net short-term capital gain plus its net income excludable from gross income
under section 103(a) of the Code ("Distribution Requirement") and must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of securities or foreign currencies, or other income (including
gains from options, futures or forward contracts) derived with respect to its
business of investing in securities or those currencies ("Income Requirement").
Each Fund intends to make sufficient distributions to shareholders to relieve it
from liability for federal income tax and the excise described below.

If a Fund failed to qualify for treatment as a RIC for any taxable year, (1) it
would be taxed at corporate rates on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and (2) the shareholders would treat all those distributions,
including distributions of net capital gain (the excess of net long-term capital
gain over net short-term capital loss) and distributions that otherwise would be
"exempt-interest dividends" described below in "Special Tax Considerations --
Tax-Exempt Bond Funds and Tax-Free Money Fund," as dividends (that is, ordinary
income) to the extent of the Fund's earnings and profits. In addition, the Fund
could be required to recognize unrealized gains, pay substantial taxes and
interest, and make substantial distributions before requalifying for RIC
treatment.

Dividends paid by a Fund will qualify as "exempt-interest dividends," and thus
will be excludable from its shareholders' gross income for federal income tax
purposes, if the Fund satisfies the requirement that, at the close of each
quarter of its taxable year, at least 50% of the value of its total assets
consists of securities the interest on which is excludable from gross income
under section 103(a); each Tax-Exempt Bond Fund and the Tax-Free Money Fund
(collectively "Tax-Exempt Funds") intends to continue to satisfy this
requirement. The aggregate dividends excludable from a Tax-Exempt Fund's
shareholders' gross income may not exceed its net tax-exempt income.
Shareholders' treatment of dividends from a Tax-Exempt Fund under state and
local income tax laws may differ from the treatment thereof under the Code.
Investors should consult their tax advisers concerning this matter.

A Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year at least 98% of
its ordinary income and capital gain net income for that year, plus certain
other amounts.

96
<PAGE>

If shares of a Fund are sold at a loss after being held for six months or less,
the loss will be disallowed to the extent of exempt-interest dividends received
on those shares, and any part of the loss that is not disallowed 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
(other than an exempt-interest dividend), 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 taxable
dividends and those distributions for shareholders who otherwise are subject to
backup withholding.

SPECIAL TAX CONSIDERATIONS -- INVESTMENT IN DERIVATIVES (ALL FUNDS)

Purchasing and writing (selling) options involve complex rules that will
determine for income tax purposes the amount, character and timing of
recognition of the gains and losses a Fund realizes in connection therewith.
Gains from options derived by a Fund with respect to its business of investing
in securities will be treated as qualifying income under the Income Requirement.

When a covered call option written (sold) by a Fund expires, the Fund realizes a
short-term capital gain equal to the amount of the premium it received for
writing the option. When a Fund terminates its obligations under such an option
by entering into a closing transaction, it realizes a short-term capital gain
(or loss), depending on whether the cost of the closing transaction is less (or
more) than the premium it received when it wrote the option. When a covered call
option written by a Fund is exercised, the Fund is treated as having sold the
underlying security, producing long-term or short-term capital gain or loss,
depending on the holding period of the underlying security and whether the sum
of the option price received on the exercise plus the premium received when it
wrote the option is more or less than the basis of the underlying security.

If a Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option or short sale or, in the case of the
International Fund, a futures or forward contract) with respect to any stock,
debt instrument (other than "straight debt"), or partnership interest the fair
market value of which exceeds its adjusted basis -- and enters into a
"constructive sale" of the same or substantially similar property, the Fund will
be treated as having made an actual sale thereof, with the result that it will
recognize gain at that time. A constructive sale generally consists of a short
sale, an offsetting notional principal contract, or a futures or forward
contract entered into by a Fund or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale. The foregoing will not apply, however, to any transaction
during any taxable year that otherwise would be treated as a constructive sale
if the transaction is

97
<PAGE>

closed within 30 days after the end of that year and the Fund holds the
appreciated financial position unhedged for 60 days after that closing (I.E., at
no time during that 60-day period is the Fund's risk of loss regarding that
position reduced by reason of certain specified transactions with respect to
substantially similar or related property, such as having an option to sell,
being contractually obligated to sell, making a short sale, or granting an
option to buy substantially identical stock or securities).

SPECIAL TAX CONSIDERATIONS -- INTERNATIONAL FUND

The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward currency contracts, involves
complex rules that will determine for income tax purposes the amount, character
and timing of recognition of the gains and losses the International Fund
realizes in connection therewith. Gain from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures and forward currency contracts derived by the
International Fund with respect to its business of investing in securities or
foreign currencies, will be treated as qualifying income under the Income
Requirement.

Certain futures and foreign currency contracts in which the International Fund
may invest may be subject to section 1256 of the Code ("section 1256
contracts"). Any section 1256 contracts held by the International Fund at the
end of each taxable year, other than contracts with respect to which it has made
a "mixed straddle" election, must be "marked-to-market" (that is, treated as
having been sold at that time for their fair market value) for federal income
tax purposes, with the result that unrealized gains or losses will be treated as
though they were realized. Sixty percent of any net gain or loss recognized on
these deemed sales, and 60% of any net realized gain or loss from any actual
sales of section 1256 contracts, will be treated as long-term capital gain or
loss, and the balance will be treated as short-term capital gain or loss.
Section 1256 contracts also may be marked-to-market for purposes of the Excise
Tax. These rules may operate to increase the amount that the International Fund
must distribute to satisfy the Distribution Requirement, which will be taxable
to its shareholders as ordinary income, and to increase the net capital gain it
recognizes, without in either case increasing the cash available to it. The
International Fund may elect to exclude certain transactions from the operation
of section 1256, although doing so may have the effect of increasing the
relative proportion of net short-term capital gain (taxable as ordinary income)
and/or increasing the amount of dividends that must be distributed to meet the
Distribution Requirement and avoid imposition of the Excise Tax.

Section 988 of the Code also may apply to forward currency contracts and options
on foreign currencies. Under section 988 each foreign currency gain or loss
generally is computed separately and treated as ordinary income or loss. In the
case of overlap between sections 1256 and 988, special provisions determine the
character and timing of any income, gain or loss.

98
<PAGE>

Code section 1092 (dealing with straddles) also may affect the taxation of
certain hedging instruments in which the International Fund may invest. Section
1092 defines a "straddle" as offsetting positions with respect to actively
traded personal property; for these purposes, options, futures, and forward
currency contracts are personal property. Under that section, any loss from the
disposition of a position in a straddle generally may be deducted only to the
extent the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. In addition, these rules may postpone the recognition of loss that
otherwise would be recognized under the mark-to-market rules discussed above.
The regulations under section 1092 also provide certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new offsetting
position is acquired within a prescribed period, and "short sale" rules
applicable to straddles. If the International Fund makes certain elections, the
amount, character, and timing of recognition of gains and losses from the
affected straddle positions would be determined under rules that vary according
to the elections made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences to the International
Fund of straddle transactions are not entirely clear.

SPECIAL TAX CONSIDERATIONS -- INVESTMENT IN FOREIGN SECURITIES

The International Fund and any other Fund that invests in foreign securities may
be required to pay income 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 generally will be 30%.
Amounts withheld for foreign taxes will reduce the amount of dividend
distributions to shareholders.

The International Fund intends to make an election that will allow shareholders
to claim an offsetting credit or deduction on their tax return for their share
of foreign taxes paid by the Fund. Pursuant to this election, which the
International Fund may make if more than 50% of the value of its total assets at
the close of any taxable year consists of securities of foreign corporations,
the Fund would treat foreign income and withholding taxes as dividends paid to
its shareholders and each shareholder (1) would be required to include in gross
income, and treat as paid by the shareholder, the shareholder's proportionate
share of those taxes, (2) would be required to treat that share of those taxes
and of any dividend paid by the Fund that represents income from foreign sources
as the shareholder's own income from those sources, and (3) could either deduct
the foreign taxes deemed paid by the shareholder in computing taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against the shareholder's federal income tax. If the Fund makes this
election, it will report to its shareholders shortly after each taxable year
their respective shares of the foreign taxes it paid and its income from sources
within foreign countries. Individuals who have no more than $300 ($600 for
married persons filing jointly) of creditable foreign taxes included on Forms
1099 and all of whose foreign source income is "qualified passive income" may
elect each year to be exempt from the extremely complicated foreign tax credit
limitation and will be able to

99
<PAGE>

claim a foreign tax credit without having to file the detailed Form 1116 that
otherwise is required.

Gains or losses resulting from exchange rate fluctuations between the time a
Fund accrues interest or other receivables, or accrues expenses or other
liabilities, denominated in a foreign currency and the time the Fund actually
collects the receivables or pays the liabilities are treated as ordinary income
or loss. Similarly, gains or losses on forward currency contracts or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of its disposition also are treated as
ordinary gain or loss. These gains, referred to under the Code as "section 988"
gains or losses, increase or decrease the amount of a Fund's investment company
taxable income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of its net capital gain.
If a Fund's distributions exceed its taxable income in any year because of
currency-related losses or otherwise, all or a portion of its dividends may be
treated as a return of capital to its shareholders for tax purposes. To minimize
the risk of a return of capital, a 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 capital
gain or lower capital loss when you sell your shares.

PFICs

Certain Funds may invest in the stock of PFICs. A PFIC is a foreign corporation
- -- other than a "controlled foreign corporation" (I.E., a foreign corporation in
which, on any day during its taxable year, more than 50% of the total voting
power of all voting stock therein or the total value of all stock therein is
owned, directly, indirectly, or constructively, by "U.S. shareholders," defined
as U.S. persons that individually own, directly, indirectly, or constructively,
at least 10% of that voting power) as to which the Fund is a U.S. shareholder --
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 it distributes that income to its shareholders.

If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
the Fund probably would have to distribute to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if

100
<PAGE>

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.

Each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the stock over a
Fund's adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also may deduct (as an ordinary, not capital, loss) the excess,
if any, of its adjusted basis in PFIC stock over the fair market value thereof
as of the taxable year-end, but only to the extent of any net mark-to-market
gains with respect to that stock included in income by the Fund for prior
taxable years. A Fund's adjusted basis in each PFIC's stock subject to the
election would be adjusted to reflect the amounts of income included and
deductions taken thereunder (and under regulations proposed in 1992 that
provided a similar election with respect to the stock of certain PFICs).

SPECIAL TAX CONSIDERATIONS -- HIGH-YIELD FUND AND MANAGED BOND FUND

The High-Yield Fund and the Managed Bond Fund may acquire zero coupon or other
securities issued with original issue discount ("OID"). As a holder of such
securities, each 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 Fund
must include in its gross income securities it receives as "interest" on
payment-in-kind securities. Because each 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 a Fund's cash
assets or from the proceeds of sales of portfolio securities, if necessary. A
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.

SPECIAL TAX CONSIDERATIONS -- TAX-EXEMPT FUNDS

The tax-exempt interest portion of each daily dividend will be based upon the
ratio of a Tax-Exempt Fund's tax-exempt to taxable income for the entire fiscal
year (average annual method). As a result, the percentage of tax-exempt interest
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 Tax-Exempt 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 generally 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 advisors before
purchasing shares of any Tax-Exempt Funds. "Substantial user" is generally
defined to include a "non-exempt person" who

101
<PAGE>

regularly uses in a trade or business a part of a facility financed from the
proceeds of most "private activity" bonds.

Each Tax-Exempt 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
OID, at a price less than the amount of the issue price plus accrued OID)
("municipal market discount bonds"). 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. 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. 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.

Each Fund may invest in municipal bonds that are purchased with "market
discount." For these purposes, market discount is the amount by which a bond's
purchase price is exceeded by its stated redemption price at maturity or, in the
case of a bond that was issued with OID, the sum of its issue price plus accrued
OID ("municipal market discount bonds"). Market discount less than the product
of (1) 0.25% of the redemption price at maturity times and (2) the number of
complete years to maturity after the taxpayer acquired the bond is disregarded.
Market discount generally is accrued ratably, on a daily basis, over the period
from the acquisition date to the date of maturity. Gain on the disposition of
such a 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. In lieu of treating the disposition gain as described above, the
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 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 Fund and the value of its portfolio would be affected. In such event,
each Tax-Exempt Fund would review its investment objectives and policies.

CALIFORNIA STATE AND LOCAL TAX MATTERS

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<PAGE>

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 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 advisors for more detailed information concerning
California tax matters.

103
<PAGE>

their combined adjusted gross income does not exceed $150,000) is not affected
by the spouse's active participant status. In addition, if your spouse is not
employed and you file a joint return, you may establish a separate IRA for your
spouse and contribute up to a total of $4,000 to the two IRAs, provided that
neither contribution exceeds $2,000. If your employer's plan qualifies as a
SIMPLE, permits voluntary contributions, and meets certain requirements, you may
make voluntary contributions to that plan that are treated as deductible IRA
contributions.

Even if you are not in one of the categories described in the preceding
paragraph, you may find it advantageous to invest in Fund shares through
nondeductible IRA contributions, up to certain limits, because all dividends and
other distributions on your shares are then not immediately taxable to you or
the IRA; they become taxable only when distributed to you. To avoid penalties,
your interest in an IRA must be distributed, or start to be distributed, to you
not later than the end of the taxable year in which you attain age 70 1/2.
Distributions made before age 59 1/2, in addition to being taxable, generally
are subject to a penalty equal to 10% of the distribution, except in the case of
death or disability or where the distribution is rolled over into another
qualified plan or certain other situations.

ROTH IRAS. A shareholder whose adjusted gross income (or combined adjusted gross
income with his or her spouse) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for a
shareholder whose adjusted gross income does not exceed $100,000 (or is not
married filing a separate return), certain distributions from traditional IRAs
may be rolled over to a Roth IRA and any of the shareholder's traditional IRAs
may be converted to a Roth IRA; these rollover distributions and conversions
are, however, subject to federal income tax.

Contributions to a Roth IRA are not deductible; however, earnings accumulate
tax-free in a Roth IRA, and withdrawals of earnings are not subject to federal
income tax if the account has been held for at least five years (or in the case
of earnings attributable to rollover contributions from or conversions of a
traditional IRA, the rollover or conversion occurred more than five years before
the withdrawal) and the account holder has reached age 59 1/2 (or certain other
conditions apply).

EDUCATION IRAS. Although not technically for retirement savings, an Education
IRA provides a vehicle for saving for a child's higher education. An Education
IRA may be established for the benefit of any minor, and any person whose
adjusted gross income does not exceed certain levels may contribute to an
Education IRA, provided that no more than $500 may be contributed for any year
to Education IRAs for the same beneficiary. Contributions are not deductible and
may not be made after the beneficiary reaches age 18; however, earnings
accumulate tax-free, and withdrawals are not subject to tax if used to pay the
qualified higher education expenses of the beneficiary (or a member of his or
her family).

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<PAGE>

which is not subject to the complicated nondiscrimination rules that generally
apply to qualified retirement plans, will allow certain employees to make
elective contributions of up to $6,000 per year and will require the employer to
make either matching contributions up to 3% of each such employee's salary or a
2% nonelective contribution.

Withholding at the rate of 20% is required for federal income tax purposes on
certain distributions (excluding, for example, certain periodic payments) from
the foregoing retirement plans (except IRAs and SEPs), unless the recipient
transfers the distribution directly to an "eligible retirement plan" (including
IRAs and other qualified plans) that accepts those distributions. Other
distributions generally are subject to regular wage withholding or withholding
at the rate of 10% (depending on the type and amount of the distribution),
unless the recipient elects not to have any withholding apply. Investors should
consult their plan administrator or tax adviser for further information.

FINANCIAL STATEMENTS

The following financial statements of each Trust and the report thereon of
____________, independent auditors, are incorporated herein by reference to each
respective Trust's Annual Report for the year ended December 31, 1998.

Portfolio of Investments as of December 31, 1998 Statement of Assets
and Liabilities as of December 31, 1998 Statement of Operations for
the Year Ended December 31, 1998 Statement of Changes in Net Assets
for the Years Ended December 31, 1998
and December 31, 1997
Notes to Financial Statements

Copies of each Trust's No-Load Annual Report accompany this SAI. Additional
copies may be obtained by calling SAFECO Services at 1-800-426-6730 nationwide
or by writing to the address on the first page of this SAI.

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.

105
<PAGE>

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.

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

106
<PAGE>

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.

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.

107
<PAGE>

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.

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

108
<PAGE>

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.

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.

109
<PAGE>

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.

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").

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<PAGE>

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.

111

<PAGE>

SAFECO 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

SAFECO U.S. Value Fund

SAFECO Intermediate-Term U.S. Treasury Fund

SAFECO High-Yield Bond Fund

SAFECO Managed Bond Fund

SAFECO California Tax-Free Income Fund

SAFECO Municipal Bond Fund

SAFECO Washington State Municipal Bond Fund

SAFECO Money Market Fund

PROSPECTUS

Advisor Class A

Advisor Class B

April 30, 1999

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

<PAGE>

Table of Contents
<TABLE>
<S> <C>
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 CALIFORNIA TAX-FREE INCOME FUND............................

SAFECO MUNICIPAL BOND FUND........................................

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND.......................

SAFECO MONEY MARKET FUND..........................................

ADDITIONAL FUND FACTS.............................................

MANAGEMENT........................................................

PORTFOLIO MANAGERS................................................

FINANCIAL HIGHLIGHTS..............................................

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED.........................

YOUR INVESTMENT...................................................

HOW WE CALCULATE THE VALUE OF YOUR SHARES....................

HOW WE VALUE A FUND'S INVESTMENTS............................

PURCHASING YOUR SHARES.......................................

HOW TO BUY SHARES............................................

CHOOSING A CLASS OF SHARES...............................

SALES CHARGE REDUCTIONS AND WAIVERS......................

SELLING YOUR SHARES..........................................

HOW TO SELL SHARES...........................................

EXCHANGING SHARES FROM ONE FUND TO ANOTHER...................
<PAGE>

MAINTAINING YOUR ACCOUNT.....................................

FOR MORE INFORMATION.........................................
</TABLE>

<PAGE>

SAFECO GROWTH FUND

OBJECTIVE

The SAFECO Growth Fund seeks growth of capital and the increased income that
ordinarily follows from such growth.

PRINCIPAL INVESTMENT STRATEGIES

The Growth Fund will invest most of its assets in COMMON STOCKS selected
primarily for potential appreciation. When evaluating a stock for purchase, the
portfolio manager considers the following factors:

- The strength of the company's balance sheet

- The quality of the management team

- The rate at which the company's earnings are
projected to grow in the future

---------------------------------------------------------
COMMON STOCKS represent equity interest in a corporation.
Stockholders participate in earnings if dividends are
declared and have a claim to the assets of a corporation
at dissolution, behind bondholders and preferred stock
owners.
---------------------------------------------------------

The manager seeks undervalued stocks with above-average growth potential.
Although the portfolio may include companies of all sizes, companies meeting the
manager's criteria for earnings growth are typically small in size and therefore
quite volatile.

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Growth Fund. The value of your
investment in the Growth Fund will go up and down with the prices of the
securities in which the Growth Fund invests. The price of common stocks rises
and falls in response to many factors, including the historical and prospective
earnings of the issuers of the stock, the value of their assets, general
economic conditions, interest rates, investor perception and market liquidity.

Many of the stocks in this portfolio are more volatile than the general market.
You should be prepared to see fluctuations in share price and variable
investment returns. Due to the aggressive nature of the Growth Fund, you should
invest in it only if you are prepared to withstand market fluctuations over a
period of several years.

PERFORMANCE

The tables below provide some indication of the risks of investing in the Growth
Fund by showing how the Growth Fund's performance has varied from year to year
and by showing how the Growth Fund's performance compares over time to that of
the Standard and Poor's 500 Composite Stock Price Index (S&P 500), a widely
recognized unmanaged index of stock performance. As with all mutual funds, past
performance is not a prediction of future performance.
<PAGE>

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price gain
or loss. The returns reflected in the bar chart below do not reflect sales
charges. If the sales charges were reflected, the returns would be lower than
those shown.

[insert bar chart - Growth Fund]. [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

During the 10-year period shown in the bar chart, the highest quarterly return
was 31.27% for the quarter ended March 31, 1991, and the lowest return was
- -29.15% for the quarter ended September 30, 1990.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's Class A and Class B share performance
compared to the S&P 500:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
SAFECO Growth Fund*
Class A -0.23% 17.88% 16.08%
Class B -1.62% 18.33% 16.41%
S&P 500** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for
Class B shares. Without these charges, the Fund's Class A returns would
have been ___, ___ and ___ , for 1, 5 and 10 years, respectively; and
the Fund's Class B returns would have been ____, ___ and ___, for 1, 5
and 10 years, respectively.

** The S&P 500 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 dividends, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. This index is used for
comparison purposes only. Performance is based on historical earnings and
does not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more or less than their original cost.
<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 5.75%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to
redemptions made in the first twelve months except with respect to
participant-directed redemptions from qualified plans.

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Growth Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Growth Fund
for the year ended December 31, 1998 adjusted to reflect current fee rates.
These expenses may vary during other time periods.

<TABLE>
<CAPTION>
Class A Class B
<S> <C> <C>
Management Fees ___% ___%
12b-1 Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Annual Fund Operating Expenses ___% ___%
Fee Waiver* ___% ___%
Net Expenses ___% ___%
</TABLE>

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

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end of
period $___ $___ $___ $___
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO EQUITY FUND

OBJECTIVE

The SAFECO Equity Fund seeks long-term growth of capital and reasonable current
income.

PRINCIPAL INVESTMENT STRATEGIES

The Equity Fund 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 typically invests in common stocks of large, established
companies that are proven performers. When selecting stocks for the Equity Fund,
the portfolio manager looks for companies having:

- - Consistent earnings growth

- - Attractive dividend income

- - Good value relative to the overall market

-----------------------------------------------------------------------
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. Preferred stock generally pay more income and are less
volatile than common stocks.
-----------------------------------------------------------------------

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Equity Fund. The value of your
investment in the Equity Fund will go up and down with the prices of the
securities in which the Equity Fund invests. The price of common stocks rises
and falls in response to many factors, including the historical and prospective
earnings of the issuers of the stock, the value of their assets, general
economic conditions, interest rates, investor perception and market liquidity.
The Equity Fund may be suitable for you if you seek an attractive total return
on your investment but are uncomfortable with a more aggressive growth fund.

PERFORMANCE

The tables below provide some indication of the risks of investing in the Equity
Fund by showing how the Fund's performance has varied from year to year and by
showing how the Equity Fund's performance compares over time to that of the S&P
500, a widely recognized unmanaged index of stock performance. As with all
mutual funds, past performance is not a prediction of future performance.

[insert bar chart - Equity Fund] [THIS CHART COVERS ONLY THE CLASS WITH LONGEST
PERIOD OF RETURNS.]
<PAGE>

During the 10-year period shown in the bar chart, the highest quarterly return
was 18.72% for the quarter ended December 31, 1998, and the lowest return was
- -16.44% for the quarter ended September 30, 1990.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Equity Fund's Class A and Class B share
performance compares to the S&P 500:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
SAFECO Equity Fund*
Class A 19.16% 20.44% 19.13%
Class B 18.15% 20.87% 19.43%
S&P 500** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for Class B
shares. Without these charges, the Fund's Class A returns would have been
___, ___ and ___ , for 1, 5 and 10 years, respectively; and the Fund's
Class B returns would have been ____, ___ and ___, for 1, 5 and 10 years,
respectively.

Returns and principal value vary with market conditions. When sold, shares may
be worth more or less than their original cost.

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 5.75%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None
<PAGE>

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

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Equity Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Equity Fund
for the year ended December 31, 1998 adjusted to reflect current fee rates.
These expenses may vary during other time periods.

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees ___% ___%
12b-1 Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Annual Fund Operating Expenses ___% ___%
Fee Waiver* ___% ___%
Net Expenses ___% ___%
</TABLE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of
.40% per annum of the Fund's average daily net assets ("Expense
Limitation"). This arrangement does not include the Fund's advisory fee,
Rule 12b-1 fee, brokerage commissions, taxes, interest or extraordinary
expenses. To the extent that the aggregate amount SAM paid or assumed in
any prior months in a given year (May 1, 1999 through April 30, 2009)
exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

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

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A
shares after six years.
<PAGE>

SAFECO INCOME FUND

OBJECTIVE

The SAFECO Income Fund seeks high current income and, when consistent with its
objective, long-term growth of capital.

PRINCIPAL INVESTMENT STRATEGIES

The Income Fund will invest primarily in common stocks and also in CONVERTIBLE
and PREFERRED STOCKS (including CORPORATE BONDS and preferred stocks that
convert to common stock either automatically after a specified period of time or
at the option of the issuer).

When selecting securities, the portfolio manager seeks companies having:

- - Strong earnings

- - A history of dividend growth

- - Attractive share prices

- - Excellent growth potential

---------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS are corporate debt securities which can
be converted or exchanged for common stock. The value of convertible
corporate bonds will normally rise as the value of the underlying
stock falls.

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. Preferred stocks generally pay more income
and are less volatile than common stocks.
---------------------------------------------------------------------

Less than 35% of the Fund's net assets will be invested in convertible corporate
bonds that are rated below investment grade or comparable unrated bonds
(commonly referred to as "junk" high-yield bonds).

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Income Fund. The value of your
investment in the Income Fund will go up and down with the prices of the
securities in which the Income Fund invests. The price of common stocks rises
and falls in response to many factors, including the historical and prospective
earnings of the issuers of the stock, the value of their assets, general
economic conditions, interest rates, investor perception and market liquidity.

There are special risks associated with bonds, including convertible corporate
bonds, that are rated below investment grade. These risks include greater
volatility, reduced liquidity and a higher risk of default. The Income Fund may
be suitable for you if you want a current income component to your stock
investments.
<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the Income
Fund by showing how the Income Fund's performance has varied from year to year
and by showing how the Income Fund's performance compares over time to that of
the S&P 500, a widely recognized unmanaged index of stock performance. As with
all mutual funds, past performance is not a prediction of future performance.

[insert bar chart - Income Fund] [THIS CHART COVERS ONLY THE CLASS WITH LONGEST
PERIOD OF RETURNS.]

During the 10-year period shown in the bar chart, the highest quarterly return
was 14.55% for the quarter ended December 31, 1998, and the lowest return was
- -17.50% for the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Income Fund's Class A and Class B share
performance compares to the S&P 500:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
SAFECO Income Fund*
Class A 0.84% 15.20% 12.81%
Class B 0.03% 15.77% 13.20%
S&P 500** ___% ___% ___%
</TABLE>
- ------------
* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for Class B
shares. Without these charges, the Fund's Class A returns would have been
___, ___ and ___ , for 1, 5 and 10 years, respectively; and the Fund's
Class B returns would have been ____, ___ and ___, for 1, 5 and 10 years,
respectively.

Returns and principal value vary with market conditions. When sold, shares may
be worth more or less than their original cost.
<PAGE>

FEES AND EXPENSES

SHAREHOLDER TRANSACTION FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 5.75%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Income Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Income Fund
for the year ended December 31, 1998 adjusted to reflect current fee rates.
These expenses may vary during other time periods.

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month,
the rate of .40% per annum of the Fund's average daily net assets
("Expense Limitation"). This arrangement does not include the Fund's
advisory fee, Rule 12b-1 fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM
paid or assumed in any prior months in a given year (May 1, 1999
through April 30, 2009) exceed the Expense Limitation, SAM may offset
such amounts against the Expense Limitation for the current month.
<PAGE>

--------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A shares after
six years.

<PAGE>

SAFECO NORTHWEST FUND

OBJECTIVE

The SAFECO Northwest Fund seeks long-term growth of capital through investing
primarily in Northwest companies.

PRINCIPAL INVESTMENT STRATEGIES

The Northwest Fund 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.

When selecting stocks, the portfolio manager looks for companies with:

- - Principal executive offices in Alaska, Idaho, Montana, Oregon or
Washington

- - Faster earnings growth than their competitors

- - A share price that represents good value

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Fund. The value of your investment
in the Fund will go up and down with the prices of the securities in which the
Fund invests. The price of common stocks rises and falls in response to many
factors, including the historical and prospective earnings of the issuers of the
stock, the value of their assets, general economic conditions, interest rates,
investor perception and market liquidity.

The Northwest Fund carries special risks due to its geographic concentration.
These include a smaller universe of securities to choose from and fluctuations
in the regional economy. Many of the companies whose securities are purchased
for the Northwest Fund are small in size and may therefore be more volatile. The
Northwest Fund may be suitable for you if you seek long-term growth and are
prepared to withstand the risks associated with geographic concentration.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Northwest Fund by showing how the Northwest Fund's performance has varied from
year to year and by showing how the Northwest Fund's performance compares over
time to that of the S&P 500, a widely recognized unmanaged index of stock
performance. As with all mutual funds, past performance is not a prediction of
future performance.

chart below do not reflect sales charges. If the sales charges were
reflected, the returns would be lower than those shown.

[insert bar chart - Northwest Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

Since the Northwest Fund's inception in 1991, the highest quarterly return was
21.05% for the quarter ended December 31, 1998, and the lowest return was
- -20.43% for the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Northwest Fund's Class A and Class B share
performance compares to the S&P 500:

<TABLE>
<CAPTION>
February 7, 1991
(inception) to
1 year 5 years December 31, 1998
------ ------- -----------------
<S> <C> <C> <C>
SAFECO Northwest Fund*
Class A -1.76% 11.81% 11.41%
Class B -2.63% 12.28% 11.87%
S&P 500** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___ , for 1, 5 and 10 years,
respectively; and the Fund's Class B returns would have been ____, ___
and ___, for 1, 5 and 10 years, respectively.

** The S&P 500 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 dividends, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing. This
index is used for comparison purposes only. Performance is based on
historical earnings and does not indicate the Fund's future
performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more or less than their original cost.

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 5.75%* None
<PAGE>

Class A Class B
------- -------
Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Northwest Fund pays before distributing net investment income
to shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Northwest
Fund for the year ended December 31, 1998 adjusted to reflect current fee rates.
These expenses may vary during other time periods.

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month,
the rate of .40% per annum of the Fund's average daily net assets
("Expense Limitation"). This arrangement does not include the Fund's
advisory fee, Rule 12b-1 fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM
paid or assumed in any prior months in a given year (May 1, 1999
through April 30, 2009) exceed the Expense Limitation, SAM may offset
such amounts against the Expense Limitation for the current month.

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

- -------------------------------------------------------------------------------
<PAGE>

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
------ ------- ------- ---------
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end of $___ $___ $___ $___
period
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares after
six years.
<PAGE>

SAFECO INTERNATIONAL STOCK FUND

OBJECTIVE

The SAFECO International Stock Fund seeks maximum long-term total return
(capital appreciation and income) by investing primarily in common stock of
established non-U.S. companies.

PRINCIPAL INVESTMENT STRATEGIES

The International Stock Fund invests at least 65% of its total assets in the
securities of companies domiciled in at least five countries, not including
the United States. When selecting stocks, the International Stock Fund's
sub-advisor focuses on stocks that:

- - Appear undervalued

- - Are liquid and readily traded on established overseas exchanges

In an attempt to reduce the risks associated with fluctuations in foreign
currency values, security prices and interest rates, the Fund may invest in
non-leveraged DERIVATIVE SECURITIES such as futures contracts and options.

- -----------------------------------------------------------------------------
DERIVATIVE SECURITIES are instruments that derive their value from other
securities. For example, an option is a derivative instrument that derives
its value from the security that can be purchased with the option.
- -----------------------------------------------------------------------------

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the International Stock Fund. The
value of your investment in the International Stock Fund will go up and down
with the prices of the securities in which the International Stock Fund
invests. The price of common stocks rises and falls in response to many
factors, including the historical and prospective earnings of the issuers of
the stock, the value of their assets, general economic conditions, interest
rates, investor perception and market liquidity.

There are special risks associated with investing outside the United States.
These include regional political or economic instability and currency
fluctuations. Although the International Stock Fund anticipates having low
exposure to emerging markets, you should still expect considerable
fluctuation in the value of the Fund's shares. The International Stock Fund
may be suitable for you if you want exposure to international securities
markets.

Investment in derivative securities are subject to the risk that the
portfolio manager may take a position opposite to the direction in which the
market actually moves. Also, there may be an imperfect correlation between
the price of the future or option contract and the price of the underlying
security. In addition, there may not be a liquid secondary market in which to
resell the derivative security.

<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
International Stock Fund by showing how the International Stock Fund's
performance has varied from year to year and by showing how the International
Stock Fund's performance compares over time to that of the Morgan Stanley
Capital International Europe, Australia, Far East (MSCI EAFE) Index. MSCI
EAFE Index is an unmanaged index representative of international securities
markets. As with all mutual funds, past performance is not a prediction of
future performance.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - International Stock Fund] [THIS CHART COVERS ONLY THE CLASS
WITH LONGEST PERIOD OF RETURNS.]

Since the International Stock Fund's inception in 1996, the highest quarterly
return was 19.24% for the quarter ended December 31, 1998, and the lowest
return was -17.39% for the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the International Stock Fund's Class A and
Class B share performance compares to the MSCI EAFE Index:
<TABLE>
<CAPTION>
January 31, 1996
(inception) to
1 Year December 31, 1998
------ -----------------
<S> <C> <C>
International Stock Fund*
Class A 8.56% 9.20%

Class B 7.88% 9.36%

MSCI EAFE Index**
</TABLE>
- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___ , for 1, 5 and 10 years,
respectively; and the Fund's Class B returns would have been ____, ___
and ___, for 1, 5 and 10 years, respectively.

** Morgan Stanley Capital International Europe, Australia, Far East Index
is unmanaged, reflects reinvested dividends and is representative of
international securities markets. The index reflects the reinvestment
of dividends, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. This index is used for
comparison purposes only. Performance is based on historical earnings
and does not indicate the Fund's future performance.

<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 5.75%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the International Stock Fund pays before distributing net
investment income to shareholders are shown below. These expenses are stated
as a percentage of average daily net assets and are based on the actual
expenses of the International Stock Fund for the year ended December 31, 1998
adjusted to reflect current fee rates. These expenses may vary during other
time periods.
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees ___% ___%
12b-1 Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Annual Fund Operating Expenses ___% ___%
Fee Waiver* ___% ___%
Net Expenses ___% ___%
</TABLE>

<PAGE>

include the Fund's advisory fee, Rule 12b-1 fee, brokerage commissions,
taxes, interest or extraordinary expenses. To the extent that the
aggregate amount SAM paid or assumed in any prior months in a given
year (May 1, 1999 through April 30, 2009) exceed the Expense Limitation,
SAM may offset such amounts against the Expense Limitation for the
current month.

- --------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provisions of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

This example is intended to help you compare the cost of investing in the
International Stock Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in the International Stock Fund for the time
periods indicated. The example also assumes that your investment has a 5%
return each year and that the International Stock Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, costs
based on these assumptions would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>

Class A $___ $___ $___ $___

Class B
Assuming redemption at end of
period $___ $___ $___ $___
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares after
six years.

<PAGE>

SAFECO BALANCED FUND

OBJECTIVE

The SAFECO Balanced Fund seeks growth and income consistent with the
preservation of capital.

PRINCIPAL INVESTMENT STRATEGIES

The Balanced Fund will ordinarily invest from 50% to 70% of its total assets
in equity securities, which include common stocks and preferred stocks.

When selecting stocks, the portfolio managers focus on companies that:

- - Are undervalued, as measured by low price/earnings ratios and high
dividend yields

- - Have good long-term appreciation potential

In addition, the Balanced Fund will invest at least 25% of its total assets
in fixed-income securities. These include U.S. government securities,
investment-grade debt obligations, and certain non-rated debt obligations
that the portfolio managers believe meet the standards of INVESTMENT-GRADE.

The Fund may buy investment-grade CONVERTIBLE SECURITIES if they offer:

- - A higher yield than common stocks

- - A potential for capital appreciation

- -----------------------------------
BOND RATINGS indicate an issuer's
financial strength and ability to
meet its debt obligations. The two
main rating services are Moody's
and Standard & Poor's. INVESTMENT-
GRADE securities are rated in
the top four categories as
follows:
MOODY'S S&P
Aaa AAA
Aa AA
A A
Baa BBB
- -----------------------------------
- -----------------------------------
CONVERTIBLE SECURITIES are debt
or preferred stock which may be
exchanged for common stock.
Their prices are influenced by
changes in interest rates and
the values of the assets into
which they may be exchanged.
- -----------------------------------

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Balanced Fund. The value of your
investment in the Balanced Fund will go up and down with the prices of the
securities in which the Balanced Fund invests. The price of common stocks
rises and falls in response to many factors, including the historical and
prospective earnings of the issuers of the stock, the value of their assets,
general economic conditions, interest rates, investor perception and market
liquidity. The price of bonds will normally fluctuate inversely with changes
in interest rates. Generally, when market interest rates rise the price of
the Balanced Fund's debt securities will fall, and when market interest rates
fall the price of the Balanced Fund's debt securities will rise. Since the
portfolio includes both stocks and bonds, the Balanced Fund may be suitable
for you if you are an investor who wants exposure to equity and debt
securities in a single investment.

<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Balanced Fund by showing how the Fund's performance has varied from year to
year and by showing how the Balanced Fund's performance compares over time to
that of the S&P 500, a widely recognized unmanaged index of stock
performance. As with all mutual funds, past performance is not a prediction
of future performance.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - Balanced Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

Since the Balanced Fund's inception in 1996, the highest quarterly return was
10.17% for the quarter ended December 31, 1998; and the lowest return was
- -3.84% for the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Balanced Fund's Class A and Class B share
performance compares to the S&P 500:
<TABLE>
<CAPTION>

January 31, 1996
(inception) to
1 year December 31, 1998
------ -----------------
<S> <C> <C>
SAFECO Balanced Fund*
Class A 7.02% 11.84%
Class B 6.30% 12.09%
S&P 500** ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___ , for 1, 5 and 10 years,
respectively; and the Fund's Class B returns would have been ____, ___
and ___, for 1, 5 and 10 years, respectively.

** The S&P 500 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 dividends, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing. This
index is used for comparison purposes only. Performance is based on
historical earnings and does not indicate the Fund's future
performance.

Returns and principal value vary with market conditions. When sold, shares
may be worth more or less than their original cost.

<PAGE>

FEES AND EXPENSES

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>
* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months except with respect to participant-directed
redemptions from qualified plans.

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Fund pays before distributing net investment income to
shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Fund for
the year ended December 31, 1998 adjusted to reflect current fee rates. These
expenses may vary during other time periods.
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees __% __%
12b-1 Fees 0.25% 1.00%
Other Expenses __% __%
Total Annual Fund Operating Expenses __% __%
Fee Waiver* __% __%
Net Expenses __% __%
</TABLE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month,
the rate of .40% per annum of the Fund's average daily net assets
("Expense Limitation"). This arrangement does not include the Fund's
advisory fee, Rule 12b-1 fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM
paid or assumed in any prior months in a given year (May 1, 1999
through April 30, 2009) exceed the Expense Limitation, SAM may offset
such amounts against the Expense Limitation for the current month.

<PAGE>

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

This example is intended to help you compare the cost of investing in the
Balanced Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in the Balanced Fund for the time periods indicated.
The example also assumes that your investment has a 5% return each year and
that the Balanced Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end of
period $___ $___ $___ $___
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares after
six years.

<PAGE>

SAFECO SMALL COMPANY STOCK FUND

OBJECTIVE

The SAFECO Small Company Stock Fund seeks long-term growth of capital through
investing primarily in small-sized companies.

PRINCIPAL INVESTMENT STRATEGIES

The Small Company Stock Fund invests at least 65% of its total assets in
common stocks and preferred stocks of small-sized companies with total market
capitalization at the time of investment of less than $1 billion.

When selecting stocks for the Fund, the manager looks for companies having:

- - Long-term appreciation potential based on above-average or improving
earnings growth rates

- - Attractive relative values

- - A policy of reinvesting earnings back into the company rather than
paying dividends to shareholders

Typically, the portfolio will be broadly diversified among companies and
industries. However certain industry sectors may be emphasized at times.

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the Small Company Stock Fund. The
value of your investment in the Small Company Stock Fund will go up and down
with the prices of the securities in which the Fund invests. The price of
common stocks rises and falls in response to many factors, including the
historical and prospective earnings of the issuers of the stock, the value of
their assets, general economic conditions, interest rates, investor
perception and market liquidity.

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. Because small-company
stocks can be quite volatile, you should invest in the Fund only if you can
withstand wide fluctuations in share price.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Small Company Stock Fund by showing how the Fund's performance has varied
from year to year and by showing how the Small Company Stock Fund's
performance compares over time to that of the Russell 2000 Index, a
recognized unmanaged index representative of small cap stocks. As with all
mutual funds, past performance is not a prediction of future performance.

<PAGE>

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - Small Company Stock Fund] [THIS CHART COVERS ONLY THE CLASS
WITH LONGEST PERIOD OF RETURNS.]

Since the Small Company Stock Fund's inception in 1996, the highest quarterly
return was 19.73% for the quarter ended September 30, 1997, and the lowest
return was -33.97% for the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's Class A and Class B share
performance compares to the Russell 2000 Index:
<TABLE>
<CAPTION>
January 31, 1996
(inception) to
1 Year December 31, 1998
------ -----------------
<S> <C> <C>
SAFECO Small Company Stock Fund*
Class A -25.47% 4.84%
Class B -26.54% 4.89%
Russell 2000 Index** ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___ , for 1, 5 and 10 years,
respectively; and the Fund's Class B returns would have been ____, ___
and ___, for 1, 5 and 10 years, respectively.

** The Russell Index 2000 is an unmanaged index containing stocks of 2000
companies whose market capitalization is less than $X billion. The
index reflects the reinvestment of dividends, if any, but does not
reflect fees, brokerage commissions, or other expenses of investing.
This index is used for comparison purposes only. Performance is based
on historical earnings and does not indicate the Fund's future
performance.

Returns and principal value vary with market conditions. When sold, shares
may be worth more or less than their original cost.

<PAGE>

FEES AND EXPENSES

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Small Company Stock Fund pays before distributing net
investment income to shareholders are shown below. These expenses are stated
as a percentage of average daily net assets and are based on the actual
expenses of the Small Company Stock Fund for the year ended December 31, 1998
adjusted to reflect current fee rates. These expenses may vary during other
time periods.
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees __% __%
12b-1 Fees 0.25% 1.00%
Other Expenses __% __%
Total Annual Fund Operating Expenses __% __%
Fee Waiver* __% __%
Net Expenses __% __%
</TABLE>
* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month,
the rate of .40% per annum of the Fund's average daily net assets
("Expense Limitation"). This arrangement does not include the Fund's
advisory fee, Rule 12b-1 fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that

<PAGE>

the aggregate amount SAM paid or assumed in any prior months in a given
year (May 1, 1999 through April 30, 2009) exceed the Expense
Limitation, SAM may offset such amounts against the Expense Limitation
for the current month.
- ------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including the
provision of research, supervision and assistance in the management of the Fund.

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

EXAMPLE

This example is intended to help you compare the cost of investing in the
Small Company Stock Fund with the cost of investing in other mutual funds. It
assumes that you invest $10,000 in the Small Company Stock Fund for the time
periods indicated. The example also assumes that your investment has a 5%
return each year and that the Fund's operating expenses remain the same.
Although your actual costs may be higher or lower, costs based on these
assumptions would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end of $___ $___ $___ $___
period
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO U.S. VALUE FUND

OBJECTIVE

The SAFECO U.S. Value Fund seeks long-term growth of capital and income by
investing in stocks selected for their attractive relative values.

PRINCIPAL INVESTMENT STRATEGIES

To pursue its objective, the U.S. Value Fund invests primarily in common
stocks selected for potential appreciation and income using a FUNDAMENTAL
VALUE ANALYSIS. The Fund focuses on large, established companies with low
price/earnings ratios and above-average earnings and dividend growth. The
Fund typically diversifies across all major sectors of the economy.

- -------------------------------
FUNDAMENTAL VALUE ANALYSIS of
common stocks emphasizes asset
value more than earnings
projections. Its opposite,
growth investing, focuses more
on earnings growth.
- -------------------------------

PRINCIPAL RISK FACTORS

Loss of money is a risk of investing in the U.S. Value Fund. The value of
your investment in the U.S. Value Fund will go up and down with the prices of
the securities in which the U.S. Value Fund invests. The price of common
stocks rises and falls in response to many factors, including the historical
and prospective earnings of the issuers of the stock, the value of their
assets, general economic conditions, interest rates, investor perception and
market liquidity. Many of the stocks in this portfolio are more volatile than
the general market. You should be prepared to see fluctuations in share prive
and variable investment returns. The Fund may be suitable for you if you are
a long-term investor with moderate risk tolerance.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
U.S. Value Fund by showing how the Fund's performance has varied from year to
year and by showing how the U.S. Value Fund's performance compares over time
to that of the S&P 500, a widely recognized unmanaged index of stock
performance. As with all mutual funds, past performance is not a prediction
of future performance.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - U.S. Value Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

<PAGE>

Since the Fund's inception in 1997, the highest quarterly return was 16.27%
for the quarter ended December 31, 1998, and the lowest return was -9.79% for
the quarter ended September 30, 1998.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the U.S. Value Fund's Class A and Class B
share performance compares to the S&P 500:
<TABLE>
<CAPTION>
April 30, 1997
(inception) to
1 Year December 31, 1998
------ -----------------
<S> <C> <C>
U.S. Value Fund*
Class A 6.76% 14.41%
Class B 6.18% 14.89%
S&P 500** % %
</TABLE>
- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___ , for 1, 5 and 10 years,
respectively; and the Fund's Class B returns would have been ____, ___
and ___, for 1, 5 and 10 years, respectively.

** The S&P 500 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 dividends, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing. This
index is used for comparison purposes only. Performance is based on
historical earnings and does not indicate the Fund's future
performance.

FEES AND EXPENSES

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

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

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the U.S. Value Fund pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses
of the U.S. Value Fund for the year ended December 31, 1998 adjusted to
reflect current fee rates. These expenses may vary during other time periods.
<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees __% __%
12b-1 Fees 0.25% 1.00%
Other Expenses __% __%
Total Annual Fund Operating Expenses __% __%
Fee Waiver* __% __%
Net Expenses __% __%
</TABLE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of
.40% per annum of the Fund's average daily net assets ("Expense Limitation").
This arrangement does not include the Fund's advisory fee, Rule 12b-1 fee,
brokerage commissions, taxes, interest or extraordinary expenses. To the
extent that the aggregate amount SAM paid or assumed in any prior months in a
given year (May 1, 1999 through April 30, 2009) exceed the Expense
Limitation, SAM may offset such amounts against the Expense Limitation for
the current month.

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provisions of research, supervision and assistance in the management of
the Fund.

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

<PAGE>

EXAMPLE

This example is intended to help you compare the cost of investing in the
U.S. Value Fund with the cost of investing in other mutual funds. It assumes
that you invest $10,000 in the U.S. Value Fund for the time periods
indicated. The example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, costs based on these assumptions would
be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>

Class A $___ $___ $___ $___
Class B
Assuming redemption at end of $___ $___ $___ $___
period
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

- -------------------------------------------------------------------------------
"STRIPS" stands for Separate Trading of Registered Interest and Principal of
Securities. These are Treasury securities that have had their coupons and
principal repayments separated into what effectively become zero-coupon
Treasury bonds.
- -------------------------------------------------------------------------------

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

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

Corporate debt securities include bonds that 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 Companies, Inc. ("S&P"), or

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

- ------------------------------------------------------------------------------
BOND RATINGS indicate an issuer's financial strength and ability to meet its
debt obligations. The two main rating services are Moody's and Standard &
Poor's. INVESTMENT GRADE securities are rated in the top four categories as
follows:

MOODY'S S&P
Aaa AAA
Aa AA
A A
Baa BBB
- ------------------------------------------------------------------------------

Since the Intermediate-Term U.S. Treasury Fund invests predominantly in
intermediate U.S. Treasury securities, trading decisions focus on the maturity
of the bonds under consideration. In a falling interest rate environment the
Fund buys longer maturity bonds (e.g., those with maturities from x to x years).
In a rising environment, the Fund buys shorter maturity bonds (e.g., those with
maturities from x to x years). The Fund may increase its allocation to U.S.
Government Agency bonds when the yield premium, compared with U.S. Treasuries,
is attractive. In no case is the allocation to non-

<PAGE>

Treasury securities greater than 35%. After choosing the desired maturity,
the Fund attempts to exploit pricing inefficiencies and purchase the cheapest
securities in a maturity range or sell the more expensive securities in a
maturity range.

PRINCIPAL RISK FACTORS

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

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Intermediate-Term U.S. Treasury Fund by showing how the Intermediate-Term U.S.
Treasury Fund's performance has varied from year to year and by showing how the
Fund's performance compares over time to that of the Merrill Lynch
Intermediate-Term Treasury Index, a widely recognized index. As with all mutual
funds, past performance is not a prediction of future performance.

[insert bar chart - Intermediate-Term U.S. Treasury Fund]
[THIS CHART COVERS ONLY THE CLASS WITH LONGEST PERIOD OF RETURNS.]

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Intermediate-Term U.S. Treasury Fund's Class A
and Class B share performance compares to Merrill Lynch Intermediate-Term
Treasury Index:

<PAGE>

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Intermediate-Term U.S. Treasury Fund*
Class A 4.17% 4.80% 7.25%
Class B 3.30% 5.23% 7.58%
Merrill Lynch Intermediate-Term
Treasury Index** ___% ___% ___%

</TABLE>
- ------------

* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for Class B
shares. Without these charges, the Fund's Class A returns would have been
___, ___ and ___, for 1, 5 and 10 years, respectively; and the Fund's
Class B returns would have been ____, ___ and ___, for 1, 5 and 10 years,
respectively.

** The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio. It
does not include operating expenses or transaction costs. This index is
used for comparison purposes only. Performance is based on historical
earnings and does not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at None 5.00%**
redemption or the original purchase amount)

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of
amount redeemed) None None

Exchange Fee None None

</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months except with respect to participant-directed
redemptions from qualified plans.

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Intermediate-Term U.S. Treasury Fund pays before distributing
net investment income to shareholders are shown below. These expenses are stated
as a percentage of average daily net assets and are based on the actual expenses
of the Intermediate-Term U.S. Treasury Fund for the year ended December 31, 1998
adjusted to reflect current fee rates. These expenses may vary during other time
periods.

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees ___% __%

12b-1 Fees 0.25% 1.00%

Other Expenses ___% __%

Total Annual Fund Operating Expenses ___% __%

Fee Waiver* __% __%

Net Expenses __% __%
</TABLE>

<PAGE>

SAM paid or assumed in any prior months in a given year (May 1, 1999 through
April 30, 2009) exceed the Expense Limitation, SAM may offset such amounts
against the Expense Limitation for the current month.

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end $___ $___ $___ $___
of period
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO HIGH-YIELD BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

The High-Yield Bond Fund will invest at least 65% of its portfolio in
high-yield, fixed-income securities rated BB or B.

The Fund may invest in:

- - Debt securities and PREFERRED STOCKS (including CONVERTIBLE SECURITIES)
which are rated below investment grade.

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

- - Restricted securities eligible for resale under Rule 144A, provided that
SAM has determined that such securities are liquid under guidelines adopted
by the Fund's Board of Trustees.

- ------------------------------------------------------------------------------
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. Preferred stocks generally pay more income and are less volatile
than common stocks.

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

DURATION is the measure of price sensitivity to interest rate changes.

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

Although high-yield debt securities carry greater risks than investment grade
bonds, the portfolio manager seeks to reduce risk by understanding the financial
prospects of the companies the High-Yield Bond Fund invests in and by
maintaining a well-diversified portfolio.

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

PRINCIPAL RISK FACTORS

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

<PAGE>

Additional risks associated with investment in the Fund include:

- - The risks associated with below-investment grade securities. These include
greater volatility, reduced liquidity and a higher risk of default.

This High-Yield Bond Fund may be suitable for you if you can tolerate greater
risk in pursuit of higher total returns.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
High-Yield Bond Fund by showing how the High-Yield Bond Fund's performance has
varied from year to year and by showing how the High-Yield Bond Fund's
performance compares over time to that of the Merrill Lynch High-Yield Index, a
widely recognized index of high-yield bonds. As with all mutual funds, past
performance is not a prediction of future performance.

[insert bar chart - High-Yield Bond Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the High-Yield Bond Fund's Class A and Class B
share performance compares to the Merrill Lynch High-Yield Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
High-Yield Bond Fund*
Class A -0.38% 6.94% 8.57%
Class B -1.61% 7.29% 8.90%
Merrill Lynch High-Yield Index** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___, for 1, 5 and 10 years, respectively;
and the Fund's Class B returns would have been ____, ___ and ___, for 1,
5 and 10 years, respectively.

<PAGE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at None 5.00%**
redemption or the original purchase amount)

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

<PAGE>

<TABLE>
<CAPTION>
Class Class
----- -----
A B
--- ---
<S> <C> <C>
Management Fees ___% ___%
12b-1 Fees 0.25% 1.00%
Other Expenses ___% ___%
Total Annual Fund Operating Expenses ___% ___%
Fee Waiver* ___% ___%
Net Expense ___% ___%
</TABLE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of
.40% per annum of the Fund's average daily net assets ("Expense
Limitation"). This arrangement does not include the Fund's advisory fee,
Rule 12b-1 fee, brokerage commissions, taxes, interest or extraordinary
expenses. To the extent that the aggregate amount SAM paid or assumed in
any prior months in a given year (May 1, 1999 through April 30, 2009)
exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO MANAGED BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

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

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

Each security considered for purchase is analyzed in two ways. First, we look
at the security on a stand-alone basis: Is it priced attractively given its
rating and sector? Are we being adequately compensated for any imbedded
structural characteristic, such as puts or calls? Next, we look at how the
security fits into the overall portfolio: What effects would the security
have on overall portfolio yield, duration, and CONVEXITY? How would an
investment in this security affect the portfolio's yield curve exposure,
sector weightings and diversification? Securities are sold when either our
relative value analysis shows another sector of the market is more
attractive, or another security within that sector offers a better value.

PRINCIPAL RISK FACTORS

The Managed Bond Fund is subject to interest rate risk. Generally, when
market interest rates rise the price of the Managed Bond Fund's debt
securities will fall, and when market interest rates fall the price of the
Managed Bond Fund's debt securities will rise. Also, Moody's or S&P could
downgrade a security's rating after it has been purchased by the Fund. If
this happens, we will engage in an orderly disposition of securities to
ensure that no more than 5% of the Fund's assets are invested in
below-investment grade securities.

In addition, the Fund carries risks associated with the following securities:

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

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

Loss of money is a risk of investing in the Fund.

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

<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Managed Bond Fund by showing how the Fund's performance has varied from year
to year and by showing how the Managed Bond Fund's performance compares over
time to that of the Lehman Brothers Govt./Corp. Index, a widely recognized
index. As with all mutual funds, past performance is not a prediction of
future performance.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - Managed Bond Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

Since the Managed Bond Fund's inception in 1994, the highest quarterly return
reflected above was 5.74% for the quarter ended June 30, 1995; and the lowest
return was -3.34% for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's Class A and Class Be share performance
compares to the Lehman Brothers Government/Corporate Index:

<TABLE>
<CAPTION>
February 28, 1994
(inception) to
1 year December 31, 1998
------ -----------------
<S> <C> <C>
Managed Bond Fund*
Class A 3.02% 4.98%
Class B 1.67% 5.18%
Lehman Brothers Govt./Corp.
Index** ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___, for 1, 5 and 10 years, respectively;
and the Fund's Class B returns would have been ____, ___ and ___, for 1,
5 and 10 years, respectively.

** The index is unmanaged and reflects reinvested dividends. It is
generally representative of the securities that comprise the Fund's
portfolio. It does not include operating expenses or transaction costs.
This index is used for comparison purposes only. Performance is based on
historical earnings and does not indicate the Fund's future performance.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Managed Bond Fund pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses of
the Fund for the year ended December 31, 1998 adjusted to reflect current fee
rates. These expenses may vary during other time periods.

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month, the
rate of .40% per annum of the Fund's average daily net assets ("Expense
Limitation"). This arrangement does not include the Fund's advisory fee, Rule
12b-1 fee, brokerage commissions, taxes, interest or extraordinary expenses.
To the extent that the aggregate amount SAM paid or assumed in any prior
months in a given year (May 1, 1999 through April 30, 2009) exceed the
Expense Limitation, SAM may offset such amounts against the Expense
Limitation for the current month.

<PAGE>

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
Class A $___ $___ $___ $___
Class B
Assuming redemption at end of $___ $___ $___ $___
period
Assuming no redemption $___ $___ $___ $___
</TABLE>

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND

OBJECTIVE

PRINCIPAL INVESTMENT STRATEGIES

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

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax and California personal income tax (for California
residents).

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

The Fund may invest:

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

PRINCIPAL RISK FACTORS

The California Tax-Free Fund is subject to interest rate risk. Generally, when
market interest rates rise the price of the California Tax-Free Fund's debt
securities will fall, and when market interest rates fall the price of the
California Tax-Free Fund's debt securities will rise. The California Tax-Free
Fund may experience greater price volatility than a fund invested in bonds with
a shorter average maturity, but may offer more stable yield or higher returns
than such funds.

Because the California Tax-Free Fund concentrates its investments in a single
state, there may be more fluctuation in the value of securities than with mutual
funds whose portfolios are more geographically diverse. Loss of money is a risk
of investing in the Fund.

<PAGE>

The California Tax-Free Fund may be suitable for you if you wish to earn income
that is free from federal income tax, and, if you are a California resident,
free from state personal income tax as well.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
California Tax-Free Income Fund by showing how the Fund's performance has varied
from year to year and by showing how the California Tax-Free Income Fund's
performance compares over time to that of the Lehman Brothers Long Municipal
Bond Index, a widely recognized index of municipal bonds having long maturities.
As with all mutual funds, past performance is not a prediction of future
performance.

[insert bar chart - California Tax-Free Income Fund] [THIS CHART COVERS ONLY THE
CLASS WITH LONGEST PERIOD OF RETURNS.]

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's Class A and Class B share performance
compares to the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
California Tax-Free Income Fund*
Class A 0.97% 5.71% 7.88%
Class B -0.02% 6.01% 8.20%
Lehman Brothers Long Municipal
Bond Index** ___% ___% ___%
</TABLE>
- ------------

* As required by Securities and Exchange Commission regulations, the
Fund's returns reflect the imposition of the maximum sales charge for
Class A shares and the deduction of the maximum deferred sales charge
for Class B shares. Without these charges, the Fund's Class A returns
would have been ___, ___ and ___, for 1, 5 and 10 years, respectively;
and the Fund's Class B returns would have been ____, ___ and ___, for 1,
5 and 10 years, respectively.

** The index is unmanaged and reflects reinvested dividends. It is
representative of the securities that comprise the Fund's portfolio
except that its components are not restricted to California issues. It
does not include operating expenses or transaction costs. This index is
used for comparison purposes only. Performance is based on historical
earnings and does not indicate the Fund's future performance.

<PAGE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at
redemption or the original purchase amount) None 5.00%**

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months except with respect to participant-directed
redemptions from qualified plans.

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the California Tax-Free Fund pays before distributing net
investment income to shareholders are shown below. These expenses are stated as
a percentage of average daily net assets and are based on the actual expenses of
the California Tax-Free Fund for the year ended December 31, 1998 adjusted to
reflect current fee rates. These expenses may vary during other time periods.

<PAGE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the
Fund's aggregate operating expenses which exceed, in any given month,
the rate of .40% per annum of the Fund's average daily net assets
("Expense Limitation"). This arrangement does not include the Fund's
advisory fee, Rule 12b-1 fee, brokerage commissions, taxes, interest
or extraordinary expenses. To the extent that the aggregate amount SAM
paid or assumed in any prior months in a given year (May 1, 1999
through April 30, 2009) exceed the Expense Limitation, SAM may offset
such amounts against the Expense Limitation for the current month.

- -------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.
<PAGE>

SAFECO MUNICIPAL BOND FUND

OBJECTIVE

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

PRINCIPAL INVESTMENT STRATEGIES

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

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax.

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

The Fund may invest:

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

When evaluating a bond for purchase, the portfolio manager will take into
consideration, among other things, the yield, the maturity, the call
features, the credit quality (including the underlying rating of insured
bonds), the purpose of the financing, the original offering price, any state
or local tax exemption, and the amount of discount or premium represented by
the price offered. After evaluating these features of a bond, the portfolio
manager compares the bond to the universe of other available bonds, which may
have different features, and will purchase the bond if it appears to offer
the best relative value.

PRINCIPAL RISK FACTORS

The Municipal Bond Fund is subject to interest rate risk. Generally, when
market interest rates rise the price of the Fund's debt securities will fall,
and when market interest rates fall the price of the Fund's debt securities
will rise. The Municipal Bond Fund may experience greater price volatility
than a fund invested in bonds with a shorter average maturity, but may offer
more stable yield or higher returns than such funds. Loss of money is a risk
of investing in the Fund. This Fund may be suitable for you if you seek high
current tax-exempt income and relative stability of principal.

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Municipal Bond Fund by showing how the Fund's performance has varied from year
to year and by showing how the Municipal Bond Fund's performance compares over
time to that of the Lehman Brothers Long Municipal Bond Index, a widely
recognized index of municipal bonds having long maturities. As with all mutual
funds, past performance is not a prediction of future performance.

<PAGE>

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - Municipal Bond Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Municipal Bond Fund's Class A and Class Be
share performance compares to the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Municipal Bond Fund*
Class A 0.99% 5.05% 7.67%
Class B 0.08% 5.40% 8.01%
Lehman Brothers Long Municipal
Bond Index** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for Class B
shares. Without these charges, the Fund's Class A returns would have been
___, ___ and ___, for 1, 5 and 10 years, respectively; and the Fund's
Class B returns would have been ____, ___ and ___, for 1, 5 and 10 years,
respectively.

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

<PAGE>

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at None 5.00%**
redemption or the original purchase amount)

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months except with respect to participant-directed
redemptions from qualified plans.

** The CDSC reduces to zero after six years from purchase.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Municipal Bond Fund pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses of
the Fund for the year ended December 31, 1998 adjusted to reflect current fee
rates. These expenses may vary during other time periods.

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of
.40% per annum of the Fund's average daily net assets ("Expense
Limitation"). This arrangement does not include the Fund's advisory fee,
Rule 12b-1 fee, brokerage commissions, taxes, interest or extraordinary
expenses. To the extent that the aggregate amount SAM paid or assumed in
any prior months in a given year (May 1, 1999 through April 30, 2009)
exceed the Expense Limitation, SAM may offset such amounts against the
Expense Limitation for the current month.

<PAGE>

- --------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.

<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

OBJECTIVE

PRINCIPAL INVESTMENT STRATEGIES

The Washington State Municipal Bond Fund invests primarily in investment
grade municipal bonds issued by the state of Washington and its agencies and
municipalities, with average maturities of 15-25 years.

The Fund will invest:

- - At least 80% of its assets in securities whose interest is exempt from
federal income tax.

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

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

When evaluating a bond for purchase, the portfolio manager will take into
consideration, among other things, the yield, the maturity, the call
features, the credit quality (including the underlying rating of insured
bonds), the purpose of the financing, the original offering price, any state
or local tax exemption, and the amount of discount or premium represented by
the price offered. After evaluating these features of a bond, the portfolio
manager compares the bond to the universe of other available bonds, which may
have different features, and will purchase the bond if it appears to offer
the best relative value.

PRINCIPAL RISK FACTORS

The Washington State Municipal Bond Fund is subject to interest rate risk.
Generally, when market interest rates rise the price of the Washington State
Municipal Bond Fund's debt securities will fall, and when market interest
rates fall the price of the Fund's debt securities will rise.

Because the Washington State Municipal Bond Fund concentrates its investments
in a single state, there may be greater fluctuation in the value of
securities than with mutual funds whose portfolios are more geographically
diverse. Loss of money is a risk of investing in the Washington State
Municipal Bond Fund.

The Washington State Municipal Bond Fund is suitable for investors seeking
tax-exempt income from a portfolio of Washington bonds.

<PAGE>

PERFORMANCE

The tables below provide some indication of the risks of investing in the
Washington State Municipal Bond Fund by showing how the Fund's performance
has varied from year to year and by showing how the Washington State
Municipal Bond Fund's performance compares over time to that of the Lehman
Brothers Long Municipal Bond Index, a widely recognized index of municipal
bonds having long maturities. As with all mutual funds, past performance is
not a prediction of future performance.

Total return is a measure of investment performance over a period of time. It
includes dividends and capital gain distributions, as well as share price
gain or loss. The returns reflected in the bar chart below do not reflect
sales charges. If the sales charges were reflected, the returns would be
lower than those shown.

[insert bar chart - Washington Municipal Bond Fund] [THIS CHART COVERS ONLY THE
CLASS WITH LONGEST PERIOD OF RETURNS.]

Since the Fund's inception in 1993, the highest quarterly return reflected
above was 8.58% for the quarter ended March 31, 1995; and the lowest return
was -7.42% for the quarter ended March 31, 1994.

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows how the Fund's Class A and Class B share performance
compares to the Lehman Brothers Long Municipal Bond Index:

<TABLE>
<CAPTION>
March 18, 1993
(inception) to
1 year 5 years December 31, 1998
------ ------- -----------------
<S> <C> <C> <C>
Washington State Municipal Bond
Fund*
Class A 0.62% 4.27% 5.06%
Class B -0.45% 4.57% 5.50%
Lehman Brothers Govt./Corp.
Index** ___% ___% ___%
</TABLE>

- ------------
* As required by Securities and Exchange Commission regulations, the Fund's
returns reflect the imposition of the maximum sales charge for Class A
shares and the deduction of the maximum deferred sales charge for Class B
shares. Without these charges, the Fund's Class A returns would have been
___, ___ and ___, for 1, 5 and 10 years, respectively; and the Fund's
Class B returns would have been ____, ___ and ___, for 1, 5 and 10 years,
respectively.

** The index is unmanaged and reflects reinvested dividends. It is generally
representative of the securities that comprise the Fund's portfolio except
that its components are not restricted to Washington issues. It does not
include operating expenses or transaction costs. This index is used for
comparison purposes only. Performance is based on historical earnings and
does not indicate the Fund's future performance.

<PAGE>

Returns and principal value vary with market conditions. When sold, shares may
be worth more, or less, than their original value.

FEES AND EXPENSES

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) 4.50%* None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at None 5.00%
redemption or the original purchase amount)

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months except with respect to participant-directed
redemptions from qualified plans.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Washington State Municipal Bond Fund pays before distributing
net investment income to shareholders are shown below. These expenses are stated
as a percentage of average daily net assets and are based on the actual expenses
of the Washington State Municipal Bond Fund for the year ended December 31, 1998
adjusted to reflect current fee rates. These expenses may vary during other time
periods.

<PAGE>

* SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of .40%
per annum of the Fund's average daily net assets ("Expense Limitation"). This
arrangement does not include the Fund's advisory fee, Rule 12b-1 fee, brokerage
commissions, taxes, interest or extraordinary expenses. To the extent that the
aggregate amount SAM paid or assumed in any prior months in a given year (May 1,
1999 through April 30, 2009) exceed the Expense Limitation, SAM may offset such
amounts against the Expense Limitation for the current month.

- --------------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

* Expenses for Class B shares reflect their conversion to Class A shares
after six years.
<PAGE>

SAFECO MONEY MARKET FUND

OBJECTIVE

PRINCIPAL INVESTMENT STRATEGIES

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

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

- - The Fund may invest in

- COMMERCIAL PAPER of both domestic and foreign issues

- Negotiable and non-negotiable CERTIFICATES OF DEPOSIT, bankers'
acceptances and other short-term obligations of U.S. and foreign
banks

- REPURCHASE AGREEMENTS

- VARIABLE AND FLOATING RATE INSTRUMENTS

- U.S. government securities

- ASSET-BACKED SECURITIES

- WHEN-ISSUED SECURITIES

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

COMMERCIAL PAPER is a short-term unsecured promissory note issued by a
financial institution or large corporation.

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

REPURCHASE AGREEMENTS are arrangements in which the fund buys securities at
one price and simultaneously agrees to sell them back at a higher price.

VARIABLE AND FLOATING RATE INSTRUMENTS have interest rates that change
periodically in order to keep their market value at par.

ASSET-BACKED SECURITIES represent interests in pools of consumer loans,
automobile loans, credit card loans and installment loan contracts.

WHEN-ISSUED SECURITIES are securities that have not yet been issued but will
be issued in the future.
- -----------------------------------------------------------------------------

PRINCIPAL RISK FACTORS

The Money Market Fund's yields will fluctuate with short-term interest rates.

The Money Market Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. Although the Money
Market Fund seeks to preserve the value of your investment at $1.00 per share,
it is possible to lose money by investing in the Fund.

<PAGE>

The Money Market Fund may be suitable for you if you seek maximum safety and
stability of principal.

PERFORMANCE

[insert bar chart - Money Market Fund] [THIS CHART COVERS ONLY THE CLASS WITH
LONGEST PERIOD OF RETURNS.]

AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1998

The following table shows past performance for the Fund's Class A and Class B
shares:

<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Money Market Fund
Class A 4.92% 4.69% 5.25%
Class B 4.76% 4.66% 5.24%
</TABLE>

<TABLE>
<CAPTION>
7-day Yield
(period ended
December 31, 1998)
------------------
<S> <C>
Money Market Fund
Fees and Expenses
</TABLE>

<PAGE>

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Maximum Sales Charge (load) imposed on purchases
(as a percentage of offering price) None None

Maximum deferred sales charge (load) (as a
percentage of the lesser of net asset value at None None*
redemption or the original purchase amount)

Maximum sales charge (load) imposed on reinvested
dividends (as a percentage of offering price) None None

Redemption fee (as a percentage of amount redeemed) None None

Exchange Fee None None
</TABLE>

* A CDSC may apply if you redeem Money Market Fund shares that were purchased by
exchange from another Fund.

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)

The expenses the Money Market Fund pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses of
the Money Market Fund for the year ended December 31, 1998 adjusted to reflect
current fee rates. These expenses may vary during other time periods.

<TABLE>
<CAPTION>
Class A Class B
------- -------
<S> <C> <C>
Management Fees ___% ___%
12b-1 Fees* 0.00% 0.00%
Other Expenses ___% ___%
Total Annual Fund Operating Expenses ___% ___%
Fee Waiver** ___% ___%
Net Expenses ___% ___%
</TABLE>

* The Money Market Fund does notn currently pay any 12b-1 fees.

** SAM has agreed, from May 1, 1999 through April 30, 2009, to pay the Fund's
aggregate operating expenses which exceed, in any given month, the rate of .30%
per annum of the Fund's average daily net assets ("Expense Limitation"). This
arrangement does not include the Fund's advisory fee, Rule 12b-1 fee, brokerage
commissions, taxes, interest or extraordinary expenses. To the extent that the
aggregate amount SAM paid or assumed in any prior months in a given year (May 1,
1999 through April 30, 2009) exceed the Expense Limitation, SAM may offset such
amounts against the Expense Limitation for the current month.

<PAGE>

- -----------------------------------------------------------------------------
MANAGEMENT FEES are paid to SAM for investment advisory services including
the provision of research, supervision and assistance in the management of
the Fund.

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

EXAMPLE

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
Class A* $___ $___ $___ $___

Class B** $___ $___ $___ $___
</TABLE>

* The Money Market Fund does not have Class A sales charges and does not
currently pay any 12b-1 fees.

** The Money Market Fund does not currently pay any 12b-1 fees or, except
for shares purchased by exchange from another Fund, any CDSC

<PAGE>

ADDITIONAL FUND FACTS

TEMPORARY DEFENSIVE STRATEGIES. From time to time, a Fund may take temporary
defensive positions that are inconsistent with its principal investment
policies, in an attempt to respond to adverse market, economic, political or
other conditions. A Fund taking a temporary defensive position may not achieve
its investment objective.

UNDERSTANDING HOW A FUND INVESTS ITS ASSETS

GENERAL RISKS OF ALL FUNDS

<PAGE>

effect on the Funds' business, operations or financial condition. In
addition, securities prices, and therefore the value of the assets held by
the Funds, may also be adversely affected if the companies or governmental
units or agencies whose securities are held by the Funds do not properly
process such date-related information.

<PAGE>

MANAGEMENT

SAM is the investment advisor for each Fund, providing investment research,
advice and supervision in the ongoing management of the portfolio. Based on each
Fund's investment objectives and policies, SAM determines what securities the
Fund will purchase, retain or sell and implements those decisions. Each Fund
pays SAM an annual advisory fee based on a percentage of that Fund's average
daily net assets, ascertained each business day and paid monthly. The Funds paid
SAM advisory and administrative fees at the following rates, as a percentage of
average daily net assets, for the year ended December 31, 1998:

<TABLE>
<S> <C>
Growth __%
Equity __%
Income __%
Northwest __%
International Stock __%
Balanced __%
Small Company Stock __%
U.S. Value __%
Intermediate Term U.S. Treasury __%
High-Yield Bond __%
Managed Bond __%
California Tax-Free __%
Municipal Bond __%
Washington Municipal Bond __%
Money Market __%
</TABLE>

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

The Bank of Ireland Asset Management (U.S.) Limited (the "Sub-Advisor") acts as
a sub-advisor to the International Stock Fund. The Sub-Advisor 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.

<PAGE>

PORTFOLIO MANAGERS

GROWTH FUND

The Growth Fund is managed by Thomas M. Maguire, Vice President of SAFECO
Asset Management (SAM). Mr. Maguire has served as portfolio manager since
1989.

EQUITY FUND

The Equity Fund is managed by Richard D. Meagley, Vice President of SAM. Mr.
Meagley has been managing the Fund since 1995. For two years before that, he
served as portfolio manager and analyst for Kennedy Associates, Inc., an
investment advisory firm located in Seattle, Washington. From 1991 to 1992, he
was an Assistant Vice President of SAM and portfolio manager of the SAFECO
Northwest Fund.

INCOME FUND

The Income Fund is managed by Thomas E. Rath, Vice President of SAM. Mr. Rath
has served as portfolio manager since 1994. For two years prior to joining
SAFECO, he 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. From 1983 to 1987, he was a securities analyst for SAFECO
Corporation.

NORTHWEST FUND

The Northwest Fund is managed by Bill Whitlow, Vice President of SAM. Mr.
Whitlow began managing the Fund in April 1997. From 1990 to 1997, he was a
principal and director of research for the brokerage firm of Pacific Crest
Securities in Seattle, Washington.

INTERNATIONAL STOCK FUND

The International Stock Fund is managed by a committee of portfolio managers at
BIAM, an investment advisor registered with the Securities and Exchange
Commission. All investment decisions are made by this committee and no single
person is primarily responsible for making recommendations to the committee.
BIAM was established in 1987 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 $___ billion as of December 31, 1998.

BALANCED FUND

The Balanced Fund is managed by three individuals. The equity portion is
co-managed by Rex L. Bentley, Vice President of SAM and Lynette D. Sagvold,
Assistant Vice President of SAM. Mr. Bentley and Ms. Sagvold have been
managing the Fund since 1996. From 1990 to 1995, Mr. Bentley was Vice
President and Investment Counsel at the investment advisory firm of Badgley,
Phelps and Bell Investment Counsel, Inc. From 1975 to 1983, he was a
securities analyst for SAFECO Corporation. Ms. Sagvold was a portfolio
manager and analyst for First

<PAGE>

Interstate Bank. From 1985 to 1993, she was a portfolio manager and analyst
for Key Trust Company.

The fixed-income portion is managed by Michael Hughes, Assistant Vice President
of SAM. Mr. Hughes has been managing the fixed-income portion of the Fund since
1997. From 1995 to 1996, he was Vice President and a portfolio manager for First
Interstate Capital Management Company. From 1988 to 1995, he was Vice President
and a portfolio manager for First Interstate Bank of California.

SMALL COMPANY STOCK FUND

The Small Company Stock Fund is managed by Greg and is an Assistant Vice
President of SAM. Mr. Eisen has been managing the Fund since its inception in
1996. From 1992 to 1996, he served as an investment analyst for SAM. From
1986 to 1992, he was a financial analyst for SAFECO Insurance Companies.

U.S. VALUE FUND

The U.S. Value Fund is co-managed by Rex L. Bentley, Vice President of SAM,
and Lynette D. Sagvold, Assistant Vice President of SAM. Mr. Bentley and Ms.
Sagvold have been managing the U.S. Value Fund since its inception in 1996.
From 1990 to 1995, Mr. Bentley was Vice President and Investment Counsel at
the investment advisory firm of Badgley, Phelps and Bell Investment Counsel,
Inc. From 1975 to 1983, he was a securities analyst for SAFECO Corporation.
From 1993 to 1995, Ms. Sagvold was a portfolio manager and analyst for First
Interstate Bank. From 1985 to 1993, she was a portfolio manager and analyst
for Key Trust Company.

INTERMEDIATE-TERM U.S. TREASURY FUND

The Intermediate-Term U.S. Treasury Fund is managed by Ronald L. Spaulding,
Chairman of the Board, SAM. Mr. Spaulding has been managing the Fund since
1988. He has served in various capacities with SAM and SAFECO Corporation
since 1975.

HIGH-YIELD BOND FUND

The High-Yield Bond Fund is managed by Robert Kern, Assistant Vice President,
SAM. Mr. Kern has been managing the Fund since 1996. He has been a securities
analyst for SAM since 1994 and from 1988 to 1994 was employed in the
Controller's Department at SAFECO Corporation.

MANAGED BOND FUND

The Managed Bond Fund is managed by Michael Hughes, Assistant Vice President,
SAM. Mr. Hughes has been managing the Fund since 1997. From 1995 to 1996 he was
Vice President and a

<PAGE>

portfolio manager for First Interstate Capital Management Company, and from
1988 to 1995 he was Vice President and portfolio manager for First Interstate
Bank of California.

CALIFORNIA TAX-FREE INCOME FUND

The California Tax-Free Income Fund is managed by Stephen C. Bauer, President
and Director, SAM. Mr. Bauer has been managing the SAFECO California Tax-Free
Income Fund since 1983.

MUNICIPAL BOND FUND

The Municipal Bond Fund is managed by Stephen C. Bauer, President and
Director, SAM. Mr. Bauer has been managing the SAFECO Municipal Bond Fund
since 1981.

WASHINGTON STATE MUNICIPAL BOND FUND

The Washington Municipal Bond Fund is managed by Beverly Denny, Assistant
Vice President, SAM. Ms. Denny has been managing the Fund since 1996. From
1991 to 1993 she was Marketing Director for SAFECO Mutual Funds and an
investment analyst with SAM since 1993.

MONEY MARKET FUND

The Money Market Fund is managed by Naomi Urata, Assistant Vice President,
SAM. Ms. Urata has managed the Fund since 1994. Ms. Urata has been an
investment analyst for SAFECO Mutual Funds since 1993. From 1990 to 1992 she
was Cash Manager for The Seattle Times.

<PAGE>

FINANCIAL HIGHLIGHTS

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

INSERT:

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO GROWTH FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO EQUITY FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INCOME FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO NORTHWEST FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INTERNATIONAL STOCK FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO BALANCED FUND

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

<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO SMALL COMPANY STOCK FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO U.S. VALUE FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO HIGH-YIELD BOND FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MANAGED BOND FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO CALIFORNIA TAX-FREE INCOME FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MUNICIPAL BOND FUND

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

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B SHARE OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO WASHINGTON MUNICIPAL BOND FUND

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

<PAGE>

FINANCIAL HIGHLIGHTS
(FOR A CLASS A AND A CLASS B OUTSTANDING THROUGHOUT THE PERIOD)
SAFECO MONEY MARKET FUND

<PAGE>

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED

WHEN THE FUNDS PAY DISTRIBUTIONS

The Equity, Income, Balanced and U.S. Value Funds declare DIVIDENDS on the last
business day of each calendar quarter. The Growth, Northwest, International
Stock and Small Company Stock Funds declare dividends on the last business day
of each calendar year. The Intermediate-Term U.S. Treasury, High-Yield Bond,
Managed Bond, California Tax-Free Income, Washington State Municipal Bond and
Money Market Funds declare dividends each business day. If you request a
redemption of all your shares at any time during a month, you will receive all
declared dividends through the date of redemption. All Funds, except the Money
Market Fund, declare CAPITAL GAIN DISTRIBUTIONS on the last business day of each
year. Shares become eligible for dividends on the next business day after they
are purchased for your account.

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

DIVIDENDS are distributions of a Fund's net investment income--including
dividends earned on stocks and interest income earned on bonds--less expenses.

CAPITAL GAIN DISTRIBUTIONS represent net profits made on portfolio securities
that are sold for more than they originally cost.

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

EX-DISTRIBUTION DATE is the first day that a fund's net asset value is
reduced by the amount of the most recently declared distribution.

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

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.

HOW DISTRIBUTIONS ARE CREDITED TO YOUR ACCOUNT

We will reinvest your DIVIDENDS and CAPITAL GAIN DISTRIBUTIONS at the NET ASSET
VALUE on the EX-DISTRIBUTION DATE unless you tell us in writing that you wish to
receive your distributions in cash.

Retirement accounts must reinvest all dividends and other distributions in the
same Fund.

HOW DISTRIBUTIONS ARE TAXED

Depending on which Fund you invest in, your dividends may be taxable or wholly
or partly tax-free; other distributions will be taxable, regardless of the Fund
that makes them. If taxable, they must be included in your taxable income for
the year, regardless of whether you reinvest the distributions or receive them
in cash. Depending on the nature of the distribution, it may be taxed as either
ordinary income or capital gains. We will notify you as to which type of income
or gain you are receiving so you can declare it properly on your tax return.
Unless you are subject to backup withholding by the Internal Revenue Service, we
will not withhold taxes.

<PAGE>

If the International Stock Fund pays nonrefundable taxes to foreign governments
during the year, those taxes will reduce the Fund's dividends but still will 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.

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.

If you sell shares in a retirement account, the redemption proceeds may be
subject to federal income tax withholding. Unless you direct us otherwise, we
generally are required to withhold 20% of the distribution amount for federal
tax purposes. If you would like us to withhold at a different percentage rate,
or elect not to have taxes withheld, please indicate that rate in your
redemption request.

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 of those shares and subsequently reacquire Class A shares of the same
Fund or acquire Class A shares of another SAFECO Fund without paying a sales
charge due to the exchange privilege or reinstatement privilege. 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.

SPECIAL CONSIDERATIONS

TAX-EXEMPT BOND FUNDS. Each of the Tax-Exempt Bond Funds (California Tax-Free
Income Fund, Municipal Bond Fund and Washington State Municipal Bond Fund) pays
dividends that are exempt from federal income tax. Certain investments may
result in taxable income, however. These include the following:

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

<PAGE>

- - Income derived from certain bonds purchased below their issue price, will
be treated as ordinary income.

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

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

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

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

<PAGE>

YOUR INVESTMENT

HOW WE CALCULATE THE VALUE OF YOUR SHARES

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

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

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

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

HOW WE VALUE A FUND'S INVESTMENTS

For each Fund, except the Money Market Fund, we obtain valuations for the Fund's
investments from a pricing service that provides prices based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the Board of Trustees
believes accurately reflects fair value.

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

INVESTING DETAILS

There are several things you must understand before you buy, sell or exchange
shares:

- - When placing purchase orders, you should specify whether the order is for
Class A or Class B shares of a Fund, otherwise your purchase order will
automatically be invested in Class A shares.

<PAGE>

- - We do not accept currency and can accept only funds drawn in U.S. dollars
on a U.S. bank account.

- - Checks must be made payable to SAFECO Mutual Funds. Third party checks are
not accepted.

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

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

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

AUTHORIZING SIGNATURES

On your account application, you will be asked to specify the number of
signatures required to authorize account changes and transactions. Please note
that authorizing fewer than all account owners has important implications. For
example, one owner of a joint tenant account can redeem shares without the
co-owner's signature. If you select fewer than all account owner signatures,
this election may be revoked by any account owner who sends a written request to
SAFECO Mutual Funds or the financial institution where your account is
maintained. Unless you indicate otherwise, we will require the signatures of all
account owners.

<PAGE>

CHOOSING A CLASS OF SHARES

This prospectus offers two classes of Fund shares: Class A shares and
Class B shares. Each class has a different combination of sales charges and
ongoing fees, allowing you to choose the one that best meets your needs. You
should make this decision carefully based on:

- - the amount you wish to invest

- - the different sales charges that apply to each share class

- - whether you qualify for any reduction or waiver of sales charges

- - the length of time you plan to keep the investment and

- - the class expenses

CLASS A SHARES. You may purchase Class A shares of any Fund, except the
Money Market Fund, at the "offering price"--for the Stock Funds that is a price
equal to the Fund's net asset value plus a maximum sales charge of 5.75%, and
for the Fixed Income Funds that is a price equal to the Fund's net asset value
plus a maximum sales charge of 4.5%, imposed at the time of purchase. Class A
shares of any Fund, except the Money Market Fund, are subject to ongoing Rule
l2b-1 fees of up to 0.25% of their average daily net assets. These fees are
lower than the ongoing Rule 12b-1 fees for Class B shares.

Class A 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.

If you choose to invest in Class A shares of any Fund, except the Money
Market Fund, you will pay a sales charge at the time of each purchase. The table
below shows the charges both as a percentage of offering price and as a
percentage of the amount you invest. If you invest more, the sales charge will
be lower. You may qualify for a reduced sales charge or the sales charge may be
waived as described below.

Fixed Income Funds**

<TABLE>
<CAPTION>
Sales Charge As Percentage of
Amount of Purchase at the Public ------------------------------------------
Offering Price Offering Price Net Investment
---------------------------------- -------------- --------------
<S> <C> <C>
Less than $50,000 4.50% 4.71%
$50,000 but less than $100,000 4.00% 4.17%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 1.50% 1.52%
$1,000,000 or more NONE*
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to redemptions
made in the first twelve months, except with respect to participant-directed
redemptions from qualified plans.

<PAGE>

** Intermediate-Term U.S. Treasury Fund, High-Yield Bond Fund, Managed Bond
Fund, Municipal Bond Fund, California Tax-Free Income Fund, Washington State
Municipal Bond Fund.

Stock Funds **

<TABLE>
<CAPTION>
Sales Charge As Percentage of
Amount of Purchase at the Public ------------------------------------------
Offering Price Offering Price Net Investment
---------------------------------- -------------- --------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more NONE*
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% deferred sales charge will apply to
redemptions made in the first twelve months, except with respect to
participant-directed redemptions from qualified plans.

** Growth Fund, Equity Fund, Income Fund, Northwest Fund, International
Stock Fund, Balanced Fund, Small Company Stock Fund, U.S. Value Fund.

Subject to certain requirements, the following purchases of Class A shares by
may be aggregated for purposes of determining the amount of purchase:

- - Individual purchases on behalf of a single purchaser and the purchaser's
spouse and their children under the age of 21 years;

- - 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; or

- - 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.

CLASS B SHARES. You may purchase Class B shares of any Fund at net
asset value with no initial sales charge. As a result, the entire amount of your
purchase is invested immediately. However, if you sell the shares within 6 years
of purchase, you will pay a "contingent deferred sales charge" ("CDSC') at the
time of sale of up to 5.00% at the time of sale. Class B shares of any Fund,
except the Money Market Fund, are subject to ongoing Rule l2b-1 fees of up to
1.00% of their average daily net assets. This Rule l2b-1 fee is higher than the
ongoing Rule l2b-1 fees for Class A shares. Class B shares are offered for sale
only for purchases of less than $500,000.

<PAGE>

Class B shares of the Money Market Fund are sold at net asset value,
are not subject to sales charges (except for shares of the Money Market Fund
that were purchased by exchange from another Fund), and do not currently pay
Rule 12b-1 fees.

If you choose to invest in Class B shares, you will pay a sales charge
if you sell those shares within 6 years of purchase. The CDSC imposed on sales
of Class B shares will be calculated by multiplying the original purchase cost
or the current market value of the shares being sold, whichever is less, by the
percentage shown on the following chart. The longer you hold the shares, the
lower the rate of the CDSC. The CDSC may be waived as described below. Any
period of time you held Class B shares of the Money Market Fund will not be
counted when determining your CDSC if you sell shares that were purchased by
exchange from the Money Market Fund.

<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%
After Six Years 0%
</TABLE>

CONVERSION OF CLASS B SHARES. If you buy Class B shares and hold them
for 6 years, we will automatically convert them to Class A shares without
charge. Any period of time you held Class B shares of the Money Market Fund
which were exchanged for the shares of the Fund being sold will be excluded from
the 6-year period. At this time, we also will convert to Class A shares any
Class B shares that you purchased with reinvested dividends and other
distributions on the shares being distributed. We do this to lower your
investment costs.

When we convert your Class B shares, you will receive Class A shares in
an amount equal to the value of your Class B shares. However, because Class A
and Class B shares have different prices, you may receive more or fewer Class A
shares after the conversion. The dollar value will be the same, so you will not
have lost any money as a result of the conversion.

UNDERSTANDING RULE 12b-1 FEES. Each Fund has adopted a plan under Rule
12b-1 that allows it to pay distribution and sales fees for the sale of its
shares and for services provided to shareholders. Because these fees are paid
out of the Fund's assets on an ongoing basis, over time these fees will increase
the cost of your investment and may cost you more than paying other types of
sales charges.

<PAGE>

SALES CHARGE REDUCTIONS AND WAIVERS

We offer a number of ways to reduce or eliminate the initial sales
charge on Class A shares or the CDSC on Class B. If you think you may be
eligible, contact SAFECO or your financial advisor for further information.

REDUCING YOUR CLASS A SALES CHARGE. We offer two programs designed to
reduce your Class A sales charge. You may choose one of these programs to
combine multiple purchases of Class A shares of SAFECO Mutual Funds to take
advantage of the reduced sales charges listed in the schedule above. Please
complete the appropriate section of your account application, contact your
financial advisor or SAFECO if you would like to take advantage of these
programs.

- RIGHTS OF ACCUMULATION - Lets you combine for purposes of
calculating sales charges (a) the dollar amount of your current
purchase with (b) the dollar amount of concurrent purchases of Class A
shares of other SAFECO Mutual Funds, and (c) the dollar amount equal
to the current offering price of all Class A shares of SAFECO
Mutual Funds you hold.

- LETTER OF INTENT - Lets you purchase Class A shares of any SAFECO
Mutual Fund over a 13-month period and receive the same sales
charge as if all shares had been purchased at once.

WAIVER OF CLASS A SHARES SALES CHARGE. Class A shares are sold at net asset
value per share without any 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 SAFECO Mutual 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 other
distributions paid by another SAFECO Mutual 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;

<PAGE>

6. Retirement plan participants who borrow from their retirement
accounts by redeeming SAFECO Mutual Fund shares and subsequently
repay such loans via a purchase of SAFECO Mutual Fund shares;

7. Retirement plan participants who receive distributions from a
tax-qualified employer-sponsored retirement plan which is
invested in SAFECO Mutual Fund shares, the proceeds of which are
reinvested in SAFECO Mutual 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.

REINSTATEMENT PRIVILEGE. If you paid an initial sales charge and redeem
your Class A shares in a Fund you have a one-time privilege to reinstate your
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. You or your broker-dealer, bank or other financial
institution must provide SAFECO Services with a written request for
reinvestment and a check not exceeding the amount of the redemption proceeds
within 60 days of the date of the redemption. The reinstatement purchase will
be effected at the net asset value per share next determined after such
receipt.

CDSC WAIVERS. SAFECO is notified at the time of redemption the CDSC for
Class B shares is currently 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 Internal
Revenue Code ("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;

<PAGE>

(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.

SAFECO will calculate the CDSC applicable to a redemption in a manner that
results in the lowest possible rate. SAFECO will assume 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 Class B 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.

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.

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 above under "Sales Charge Waivers -- Class A shares." To the extent
that SAFECO Securities

<PAGE>

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.

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 below:

<TABLE>
<CAPTION>
Fixed Income Funds*
------------------------------------------------------------------------------------
Amount of Purchase at the Public Broker Reallowance As Percentage of the
Offering Price Offering Investment
-------------------------------- ---------------------------------------
<S> <C>
Less than $50,000 4.00%

$50,000 but less than $100,000 3.50%

$100,000 but less than $250,000 3.00%

$250,000 but less than $500,000 2.00%

$500,000 but less than $1,000,000 1.00%

$1,000,000 or more 0

</TABLE>

* Intermediate-Term U.S. Treasury Fund, High-Yield Bond Fund, Managed Bond
Fund, Municipal Bond Fund, California Tax-Free Income Fund and Washington
Municipal Bond Fund.

<TABLE>
<CAPTION>
Stock Funds**
------------------------------------------------------------------------------------
Amount of Purchase at the Public Broker Reallowance As Percentage of the
Offering Price Offering Investment
-------------------------------- ---------------------------------------
<S> <C>
Less than $50,000 5.00%

$50,000 but less than $100,000 3.75%

$100,000 but less than $250,000 3.00%

$250,000 but less than $500,000 2.00%

$500,000 but less than $1,000,000 1.50%

$1,000,000 or more 0

</TABLE>

** Growth Fund, Equity Fund, Income Fund, Northwest Fund, International Fund,
Balanced Fund, Small Company Fund and U.S. Value Fund.

Except as stated below, broker-dealers of record may 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 each successive one
year period beginning on the date of the initial purchase at net asset value and
(ii) sales of class A shares to qualified benefit plans. A 1% CDSC will be
imposed on redemptions made within the first 12 months, except with respect to
participant-directed redemptions from qualified plans.

Commissions on sales of Class A shares of $1 million or more (except for sales
to certain qualified benefit plans--see below) may be paid up to a rate of 1.00%
of the amount up to $3 million, .50% of the next $47 million and .25%
thereafter.

Commissions on sales of Class A shares to qualified retirement plans may be paid
as follows:

<PAGE>

<TABLE>
<CAPTION>
NUMBER OF PLAN PARTICIPANTS INVESTED AMOUNT SOLD COMMISSION
IN SAFECO FUNDS ----------- ----------
- -------------------------------------
<S> <C> <C>
50-199 under $1 million .50%

50-199 $1 million or more 1.00% up to $3 million
.50% of the next $47 million
.25% thereafter

200 or more no minimum 1.00% up to $3 million
.50% of the next $47 million
.25% thereafter

</TABLE>

SAFECO Securities reserves the right to charge back commissions if plan sales
fail to meet the above criteria.

TAX-DEFERRED RETIREMENT PLANS AND ACCOUNTS. SAFECO Services offers a variety of
tax-deferred retirement plans and accounts for individuals, businesses, and
nonprofit organizations. You may establish an account under one of the following
that allow you to defer investment income from federal income tax while you save
for retirement. Many of the Funds (other than the Tax-Exempt Bond Funds) may be
used as investment vehicles for these plans and accounts.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). The maximum annual contribution generally
is $2,000 per person. An annual custodial fee may 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

<PAGE>
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.

For information about the above accounts and plans, please contact your
investment professional, or call 1-800-528-6501.

HOW TO BUY SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
By Mail Mail to:
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
IF YOU ARE BUYING SHARES FOR THE FIRST TIME: Your securities dealer or other
investment professional can assist
you with your investment
1. Complete and sign an account application

2. Send a check made payable to SAFECO Mutual Funds for the SAFECO Mutual Funds
appropriate amount: Class A & B Shares
send at P.O. Box 419241
- If you are opening an IRA or UGMA/UTMA account, Kansas City, MO 64141-6214
least $250.

- If you are opening an Education IRA, send $500.

- If you choose the Automatic Investment Plan or Payroll
Deduction Plan for a regular account on your application,
send nothing.*

- If none of the above applies, send a check for at least
$1,000 made out to the full name of the Fund.

IF YOU ARE BUYING ADDITIONAL SHARES: For overnight delivery:

Our Automatic Investment Method (AIM) allows you to make regular
monthly investments by authorizing SAFECO to withdraw a specific SAFECO Mutual Funds
amount from your bank account and invest it in the Fund of your Class A & B Shares
choice. c/o NFOS
30 W. 9th Street
The minimum amount per investment per Fund is $100. This applies to Kansas City, MO 64105
all accounts except UGMA and UTMA accounts, which have a $50 minimum
if you opened the account with an initial investment of at least $250.
For more information call (800) 624-5711.

1. Send a check for the appropriate amount.

2. Enclose the investment slip from your statement, if available.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BY WIRE HAVE YOUR BANK SEND WIRES TO:
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
IF YOU ARE BUYING SHARES FOR THE FIRST TIME: Your securities dealer or other
investment professional can assist
you with your investment
1. Call (800) 528-6501 for more information.

IF YOU ARE BUYING ADDITIONAL SHARES:

1. Call the number above and let us know you are wiring money Investors Fiduciary Trust
to your account. Company
Kansas City, MO
2. Have your bank send at least $100 to the address at right.

3. Have your bank include the following information: ABA #101003621
DDA #7560923
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
* If you are an employer who uses group billing, you may establish a
self-administered Payroll Deduction Plan in any Fund. Payroll deduction
amounts are negotiable. For more informaion call (800)528-6501.
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
- SAFECO Fund name For further credit to:

- Class A or B shares

- SAFECO account number Account owner name, Fund # and
Account #
- Name(s) of the account owner(s).

4. Note that delays caused by inadequate wire instructions are not
SAFECO's responsibility.

5. Understand that your bank may charge a fee for wire services.

- ---------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
BY PHONE CALL
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
This option is not available for new or retirement accounts. Call your securities dealer
IF YOU ARE BUYING ADDITIONAL SHARES: or other investment professional
to place an order for
1. To become eligible for this service, you must choose it on your additional shares or:
initial application. We must receive your written request
prior to your use. You must also designate any other authorized
users. (800) 528-6501 M-F between
7:00 a.m. and 5:30 p.m.
2. You may purchase no more than $100,000 per day and no less Pacific time to speak to a
than $100 per day. representative or

3. Understand that

- If you securities dealer maintains an account for you; holding (800)463-8794 for our
your Fund shares in the dealer's "street name," you must 24-hour Automated Service Line
contact the investment professional at your securities dealer
to place an order in your SAFECO Mutual Funds account.

- Money will be transferred from your bank account to your fund
account.

- Your bank may not allow you to transfer money by phone.

- Your bank may charge a fee.

- We record all calls for your protection, and a representative
may ask you for identifying information.

- Although our representatives employ security measures to prevent
unauthorized account access, we cannot assure you that telephone
activity will be completely secure or free of delays or malfunctions.
You must be willing to assume the risk of any loss.

- During times of unusual market volatility, you may find it
difficult to access SAFECO Mutual Funds by phone.

- SAFECO Mutual Funds is not responsible for the negligence or
wrongful acts of third parties.

- We may suspend, limit, modify, or terminate phone transaction
privileges at any time without prior notice.

- You may be charged a fee if your check is returned to us by your
bank due to non-sufficient funds or other reasons.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
THROUGH A REGISTERED SECURITIES DEALER CALL OR VISIT
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
WHETHER YOU ARE BUYING SHARES FOR THE FIRST TIME OR BUYING
ADDITIONAL SHARES: Any registered securities
dealer, bank or other
financial institution that has a
UNDERSTAND THAT: signed selling agreement
with SAFECO
- Your securities dealer is responsible for the prompt forwarding
of instructions on your account and is bound by the terms of
this prospectus.

- SAFECO is not responsible for the actions and recommendations
of your securities dealer.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

HOW TO SELL YOUR SHARES

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

The price you receive is the NAV on the day we receive your redemption request
(subject to any applicable CDSC). However, if we receive your redemption request
after the NYSE has closed for the day, you will receive the NAV as of the next
business day.

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

- - The NYSE is closed

- - NYSE trading is restricted

- - The Securities and Exchange Commission declares an emergency

- - You bought shares less than 15 days previous to redemption and SAFECO has
not yet received confirmation that your bank will honor the investment.

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

<PAGE>

- --------------------------------------------------------------------------------------------------------------------
BY MAIL MAIL TO:
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Send a letter specifying: If you purchased your shares
- Account number through a securities dealer or
- Fund name other investment professional
- Redemption amount (number of shares or dollar amount) who holds your shares in its
"street name," you must redeem
2. Have the letter signed by the owner(s) of the account. You must have shares through that firm.
specified on your account application the number of signatures required
to authorize the selling of shares. If you own the shares directly:

3. If you are selling shares in a retirement account let us know the amount, SAFECO Mutual Funds
if any, to withhold for taxes or early withdrawal penalties. Class A & B Shares
P.O. Box 419241
4. A signature guarantee may be required for certain transactions. Please Kansas City, MO 64141-6241
call for details.
For overnight delivery:
We will mail you a redemption check. If you wish to have funds transferred
directly to your bank account, you must choose this service on your initial SAFECO Mutual Funds
application or send a written request at least 15 days prior to using it. Class A & B Shares
SAFECO charges a $10 fee to wire redemption proceeds, and some banks charge a c/o NFDS
fee to receive a wire. 330 W. 9th Street
Kansas City, MO 64105
If you choose the Systematic Withdrawal Plan, a Fund will automatically sell
shares in your account and send you a monthly withdrawal check. The minimum
withdrawal for this service is $50 per Fund. For more information call (800)
528-6501.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

- ----------------------------------------------------------------------------------------------------------------------
BY PHONE CALL:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
This option is not available for retirement accounts or for shares issued Call your securities dealer or
certificate form. other investment professional for
assistance or:
Understand that:
- We record all calls for your protection, and a representative may ask (800) 528-6501 M-F between
you for identifying information. 7:00 a.m. and 5:30 p.m.
Pacific time for a
- Although our representatives employ security measures to prevent representative or
unauthorized account access, we cannot assure you that telephone
activity will be completely secure or free of delays or malfunctions. (800) 463-8794 for our 24-hour
You must be willing to assume the risk of any loss. Automated Service Line

- During times of unusual market volatility, you may find it
difficult to access SAFECO by phone.

- SAFECO is not responsible for the negligence or wrongful acts of third
parties.

- We may suspend, limit, modify, or terminate phone transaction
privileges at any time without prior notice.

We will mail you a redemption check or you may pick it up from a SAFECO
Investor Center when it is ready. If you wish to have funds transferred
directly to your bank account, you must choose this service on your initial
application or send a written request at least 15 days prior to using it.
SAFECO charges a $10 fee to wire redemption proceeds, and some banks charge a
fee to receive a wire.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

- ----------------------------------------------------------------------------------------------------------------------
THROUGH A REGISTERED SECURITIES DEALER CALL OR VISIT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Your securities dealer may submit redemption requests for you. Any registered securities
dealer, bank or other
financial institution that
Understand that: has a signed agreement with
- - SAFECO is not responsible for the actions and recommendations of SAFECO.
your securities dealer.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

EXCHANGING SHARES FROM ONE FUND TO ANOTHER

An exchange is when you sell shares of one Fund and buy shares of another in the
same account with the same owner(s). 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 CDSC. For
purposes of computing the CDSC, except for the time period during which a
shareholder is invested in Class B shares of the Money Market

<PAGE>

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.

Here are some things you should know about exchanges:

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

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

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

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

EXCHANGE LIMITATIONS

- - You may enter no more than four exchanges or
simultaneous order transactions in any 12-month
period.

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

SIMULTANEOUS ORDER TRANSACTIONS involve a
redemption from one SAFECO Fund and reinvestment
shortly thereafter into another SAFECO Fund. We
will use our discretion in determining when a
simultaneous order transaction takes place.

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

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

<PAGE>

HOW TO MAKE AN EXCHANGE

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BY MAIL MAIL TO:
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Send a letter specifying: Your securities dealer or other
- Account number investment professional can
- Name of the Fund you wish to exchange out of assist you with your investment or:
- Name of the Fund you wish to exchange into
- Amount of the exchange (number of shares or dollar amount) SAFECO Mutual Funds
Class A & B Shares
2. Have the letter signed by the owner(s) of the account. You must have P.O. Box 419241
specified on your account application the number of signatures required to Kansas City, MO 64141-6241
authorize the exchange of shares.
For overnight delivery:

SAFECO Mutual Funds
Class A & B Shares
c/o NFDS
330 W. 9th Street
Kansas City, MO 64105
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
BY PHONE CALL:
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
This option is not available for shares issued in certificate form.
Call your securities dealer or other
1. You must exchange $1,000 or more. investment professional for
assistance or:
2. To become eligible for this service, you must choose it on your initial
application or we must have received your written request prior to your (800) 528-6501 M-F between 7:00 a.m.
use. You must also designate any other for a representative or authorized and 5:30 p.m. Pacific time
users. (800) 463-8794 for our 24-hour
Automated Service Line
3. Understand that:

- We record all calls for your protection, and a representative
may ask you for identifying information such as your social security
number.

- During times of unusual market volatility, you may find it difficult
to access SAFECO by phone.

- SAFECO is not responsible for the negligence or wrongful acts of third
parties.

- We may suspend, limit, modify, or terminate phone transaction
privileges at any time without prior notice.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
THROUGH A REGISTERED SECURITIES DEALER CALL OR VISIT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Your securities dealer may submit exchange requests for you.
Any registered securities dealer,
Understand that: bank or other financial institution
that has an agreement with SAFECO.
- - Your securities dealer is responsible for the prompt forwarding of
instructions on your account and is bound by the terms of this Prospectus.

- - SAFECO is not responsible for the actions and recommendations of your
securities dealer.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

REDEMPTION CHECKS - MONEY MARKET FUND CLASS A SHARES ONLY

If you are a Class A shareholder in the SAFECO Money Market Fund, we will send
you, upon request and free of charge, redemption checks that allow you to
withdraw funds from your account.

Checks may be made payable to anyone and must be:
- - $500 or more
- - Signed by the authorized account holders

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

<PAGE>

MAINTAINING YOUR ACCOUNT

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.

We will reinvest into your account any undeliverable and uncashed dividends and
other distribution checks that remain outstanding over six months. This
reinvestment will reflect the NAV next computed after the check is cancelled.
Subsequent distributions may also be reinvested.

ACCOUNT CHANGES

TO CHANGE YOUR ACCOUNT REGISTRATION:

If you purchased your shares through an investment professional who maintains an
investment account for you and holds your shares in "street name" you should
send your account registration changes or other requests to that firm. If shares
are registered directly in your name, you may send a written request to SAFECO
Mutual Funds, Class A&B Shares, P.O. Box 419241, Kansas City, MO 64141-6241.
Make sure the request is signed by the authorized owner(s) of the account as
specified on your account application.

TO MAKE CHANGES TO YOUR AUTOMATIC INVESTMENT METHOD OR SYSTEMATIC WITHDRAWAL
PLAN:

Send your request in writing to SAFECO Mutual Funds as indicated above. Or, if
you have previously selected the single signature authorization for your account
and have enrolled in the telephone option service, you may place your request by
telephone.

<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

<PAGE>

FOR MORE INFORMATION

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

ANNUAL/SEMI-ANNUAL REPORTS

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

STATEMENT OF ADDITIONAL INFORMATION (SAI)

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

For these documents or to discuss your questions about the Funds, contact the
investment professional at your broker-dealer, registered investment advisor
bank or other financial institution, or

WRITE TO:
SAFECO Mutual Funds
Class A & B Shares
P.O. Box 34890
Seattle, WA 98124-1890

CALL: 1-800-528-6501

E-MAIL: [email protected]

Or contact the SEC:

WRITE TO: SEC Public Reference Room 450 Fifth Street, N.W., Washington, DC
20549-6009

CALL: 1-800-SEC-0330

VISIT THE SEC'S WEB SITE: http://www.sec.gov

VISIT THE SEC'S PUBLIC REFERENCE ROOM: Washington, DC 20549-6009

NOTE: THE SEC MAY CHARGE A FEE.

SEC 1940 ACT FILE NUMBERS 811-6167
811-5574
811-7300
811-3347
811-6667

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

ADVISOR CLASS A
ADVISOR CLASS B

SAFECO COMMON STOCK TRUST: SAFECO TAXABLE BOND TRUST:
SAFECO GROWTH FUND SAFECO INTERMEDIATE-TERM
SAFECO EQUITY FUND U.S. TREASURY FUND
SAFECO INCOME FUND SAFECO HIGH-YIELD BOND FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND SAFECO MANAGED BOND TRUST:
SAFECO INTERNATIONAL STOCK FUND SAFECO MANAGED BOND FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S.VALUE FUND
SAFECO TAX-EXEMPT BOND TRUST: SAFECO MONEY MARKET TRUST:
SAFECO MUNICIPAL BOND FUND SAFECO MONEY MARKET FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

This Statement of Additional Information ("SAI") is not a prospectus itself. It
should be read in conjunction with the Class A and Class B Shares Prospectus
dated April 30, 1999 for each Fund listed above (collectively, "Funds"). To
receive a copy of the Funds' Prospectus, write to: SAFECO Mutual Funds, Class A
and B Shares, P.O. Box 34890, Seattle, Washington 98124-1890, or call:

Nationwide
800-528-6501

The date of the most current Prospectus to which this SAI relates is April 30,
1999.

The date of this SAI is April 30, 1999.

<PAGE>

TABLE OF CONTENTS
<TABLE>

<S> <C>
GENERAL INFORMATION.........................................................................
OVERVIEW OF INVESTMENT POLICIES.............................................................
I. Fundamental Investment Policies....................................................
II. Non-Fundamental Investment Policies
ADDITIONAL INVESTMENT INFORMATION...........................................................
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS...............................................
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS..............................................................
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND
WASHINGTON ISSUERS.................................................................
REDEMPTION IN KIND..........................................................................
REDUCED SALES CHARGE PLANS..................................................................
CONVERSION OF CLASS B SHARES................................................................
INFORMATION ON CALCULATION OF NET ASSET
VALUE PER SHARE....................................................................
PERFORMANCE INFORMATION.....................................................................
INFORMATION ON DIVIDENDS FOR THE
MONEY MARKET FUNDS.................................................................
MANAGEMENT OF THE FUNDS.....................................................................
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF
CERTAIN FUNDS......................................................................
INVESTMENT ADVISORY AND OTHER SERVICES......................................................
BROKERAGE PRACTICES.........................................................................
TAX INFORMATION.............................................................................
FINANCIAL STATEMENTS........................................................................
DESCRIPTION OF RATINGS......................................................................
</TABLE>

<PAGE>

GENERAL INFORMATION

The Common Stock Trust offers its shares through eight diversified mutual funds:
the SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"),
SAFECO Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"),
SAFECO International Stock Fund ("International Fund"), SAFECO Balanced Fund
("Balanced Fund"), SAFECO Small Company Stock Fund ("Small Company Fund"), and
SAFECO U.S. Value Fund ("U.S. Value Fund"). The Taxable Bond Trust offers its
shares through three diversified mutual funds: the SAFECO Intermediate-Term U.S.
Treasury Fund ("Intermediate-Term U.S. Treasury Fund"), the SAFECO GNMA Fund
("GNMA Fund"), and the SAFECO High-Yield Bond Fund ("High-Yield Fund"). The
Managed Bond Trust offers its shares through a single mutual fund, the SAFECO
Managed Bond Fund ("Managed Bond Fund"). The Tax-Exempt Bond Trust offers its
shares through five diversified mutual funds (collectively, the "Tax Exempt Bond
Funds"): the SAFECO Intermediate-Term Municipal Bond Fund ("Intermediate-Ter
Municipal Bond Fund"), the SAFECO Insured Municipal Bond Fund ("Insured
Municipal Bond Fund"), the SAFECO Municipal Fund ("Municipal Fund"), the SAFECO
California Tax-Free Income Fund ("California Tax Free Income Fund"), and the
SAFECO Washington State Municipal Bond Fund ("Washington Municipal Bond Fund").
The Money Market Trust offers its shares through two diversified mutual funds:
the SAFECO Money Market Fund ("Money Market Fund"), and the SAFECO Tax-Free
Money Market Fund ("Tax-Free Money Market Fund").

Four of the Funds offer only No-Load Class Shares. They are: the GNMA Fund, the
Intermediate-Term Municipal Bond Fund, the Insured Municipal Bond Fund, and the
Tax-Free Money Market Fund. All of the other Funds offer multiple classes of
shares. Class A and Class B shares of each Fund are described in this SAI. In
general, Class A shares are sold subject to a front-end 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 and pay a higher 12b-1 fee.

OVERVIEW OF INVESTMENT POLICIES

<PAGE>

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. The Funds have no intention to purchase securities that the
following policies permit, but which are not currently described in the Fund's
Prospectus or SAI. 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 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, 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.

Non-fundamental policies may be changed without shareholder approval.

I. FUNDAMENTAL INVESTMENT POLICIES

The six (6) fundamental investment policies LISTED BELOW apply to all
Funds:

1. The Fund may not borrow money or issue senior securities,
except as the 1940 Act, any rule or order thereunder, or SEC
staff interpretation thereof, may permit.

2
<PAGE>

2. The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the
acquisition, disposition or resale of its portfolio
securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.

3
<PAGE>

The fundamental policy below applies to all Funds except the Money
Market Fund and the Tax-Free Money Market Fund:

7. The Fund will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act,
any rule or order thereunder, or SEC staff interpretation
thereof) of its investments in the securities of issuers
primarily engaged in the same industry, provided that this
restriction does not limit the Fund from investing in
obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.

The fundamental policy below applies to the MONEY MARKET FUND:

The fundamental policy below applies only to the WASHINGTON MUNICIPAL
BOND FUND AND CALIFORNIA TAX-FREE INCOME FUND:

9. During normal market conditions, the Fund will not invest less
than 80% of its net assets in obligations whose interest is
exempt from federal income tax and, in the case of the
California Tax-Free Income Fund, also from California state
personal income tax.

II. NON-FUNDAMENTAL INVESTMENT POLICIES

A. GROWTH FUND

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

2. The 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.

4
<PAGE>

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

7. The Fund will not 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 Fund (taken at market
value) to be invested in foreign securities.

B. EQUITY FUND

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

1. The Fund will not mortgage, pledge, or hypothecate any
of its assets, provided that this shall not apply to
the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.

5
<PAGE>

2. The Fund will not 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 Fund (taken at market value) to be invested in
foreign securities.

3. The 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 Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit,
repurchase agreements (subject to the non-fundamental
restriction on illiquid securities) or any other
short-term instrument SAM deems appropriate.

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

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

7. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments.

C. INCOME FUND

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

6
<PAGE>

2. The 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.

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

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

D. NORTHWEST FUND

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

7
<PAGE>

4. The Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, shares
of no-load, open-end money market funds repurchase
agreements (subject to the non-fundamental restriction
on illiquid securities) or any other short-term
instrument that SAM deems appropriate.

5. The Fund will not 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 Fund (taken at market value) to be invested in
foreign securities.

6. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments.

7. The Fund will not mortgage, pledge, or hypothecate any
of its assets, provided that this shall not apply to
the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.

E. BALANCED FUND

8
<PAGE>

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

2. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.

3. The 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.

4. The Fund will not purchase securities for which there
is no readily available market or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

5. The 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.

F. INTERNATIONAL FUND

1. The 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

9
<PAGE>

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.

2. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.

3. The 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.

4. The Fund will not purchase securities for which there
is no readily available market or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

5. The 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.

G. SMALL COMPANY FUND

1. The Fund will not invest more than 10% of its total
assets in real estate investment trusts, nor will the
Fund invest in

10
<PAGE>

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.

2. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.

3. The Fund will not purchase securities for which there
is no readily available market or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

4. The 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.

H. U.S. VALUE FUND

1. The 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

11
<PAGE>

other illiquid securities would exceed 15% of the
Fund's net assets.

2. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.

3. The 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.

4. The Fund will not purchase securities for which there
is no readily available market or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

5. The 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.

I. INTERMEDIATE-TERM U.S. TREASURY
FUND, HIGH-YIELD FUND

In addition to the policies described in above-referenced
Funds' Prospectus, the Intermediate-Term U.S. Treasury Fund
and High-Yield Fund have adopted the following non-fundamental
investment policies. These policies may be changed without
shareholder approval:

1. The Intermediate Term U.S. Treasury Fund and High-Yield
Bond Fund may each invest up to five percent (5%) of
its

12
<PAGE>

total assets in securities the interest on which is
exempt from federal income tax.

2. 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.

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

4. 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.

5. The Intermediate Term U.S. 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.

7. The Fund will not mortgage, pledge, or hypothecate any
of its assets, provided that this shall not apply to
the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.

13
<PAGE>

J. MANAGED BOND FUND

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

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

3. 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.

4. The Fund may invest up to fifty percent (50%) of its
total assets in corporate debt securities or Eurodollar
bonds.

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

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

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

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

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

11. The Fund will not purchase securities for which there
is no readily available market or enter into repurchase
agreements or purchase time deposits maturing in more

14
<PAGE>

than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

12. The Fund will not 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 Fund (taken at market value) to be invested in
foreign securities.

13. 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.

14. The Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments.

K. MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND AND WASHINGTON
MUNICIPAL BOND FUND

In addition to the policies described in above-referenced
Funds' Prospectus, the Municipal Bond Fund, California
Tax-Free Income Fund and Washington Municipal Bond Fund have
adopted the following non-fundamental policies. These policies
may be changed without shareholder approval:

MUNICIPAL BOND FUND AND CALIFORNIA TAX-FREE INCOME FUND:

15
<PAGE>

or on behalf of municipal issuers that 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 that have a maturity of one year or less
from the date of purchase. The Funds do not currently
intend to rely on Fitch ratings.

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 twenty-five percent (25%) or more
of its assets in industrial development bonds.

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

6. Each Fund will not purchase securities on margin,
provided that the Fund may obtain short-term credits as
may be necessary for the clearance of purchases and
sales of securities, and further provided that the Fund
may make margin deposits in connection with its use of
financial options and futures, forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments.

7. Each Fund will not mortgage, pledge, or hypothecate any
of its assets, provided that this shall not apply to
the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.

In addition, the WASHINGTON MUNICIPAL BOND FUND has adopted
the following non-fundamental policies. Each Fund:

1. Will not purchase securities if borrowings equal to or
greater than five percent (5%) of its total assets are
outstanding.

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<PAGE>

2. Will not purchase securities on margin, provided that
the Fund may obtain short-term credits as may be
necessary for the clearance of purchases and sales of
securities, and further provided that the Fund may make
margin deposits in connection with its use of financial
options and futures forward and spot currency
contracts, swap transactions and other financial
contracts or derivative instruments.

3. Will not purchase securities for which there is no
readily available market, or enter into repurchase
agreements or purchase time deposits maturing in more
than seven days, or purchase OTC options or hold assets
set aside to cover OTC options written by the Fund, if
immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the
Fund's net assets.

4. Will not permit 25% or more 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. 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.

5. Will not permit 25% or more of its total assets to be
invested in securities whose issuers are located in the
same state.

L. MONEY MARKET FUND

1. The Money Market 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.

<PAGE>

immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the
Fund's net assets.

3. The Fund will not mortgage, pledge, or hypothecate any
of its assets, provided that this shall not apply to
the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in
connection with permissible activities.

ADDITIONAL INVESTMENT INFORMATION

STOCK FUNDS

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 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.

18
<PAGE>

19
<PAGE>

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.

20
<PAGE>

investment. Generally, there is a greater risk associated with REITs
that are highly leveraged.

11. INDEXED SECURITIES. Indexed securities are securities whose prices are
indexed to the prices of other securities, securities indices,
currencies, commodities or other

21
<PAGE>

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.

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 indirectly bear their
proportionate share of the PFIC's management fees and other expenses.
See "Tax Information" for more information.

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,

22
<PAGE>

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.

23
<PAGE>

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.

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.

24
<PAGE>

closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or a clearing corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary
market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had
been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their
terms. There is no assurance that higher than anticipated trading
activity or other unforeseen events might not, at times, render certain
of the 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.

25
<PAGE>

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.

26
<PAGE>

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.

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.

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

27
<PAGE>

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.

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.

28
<PAGE>

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 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.

29
<PAGE>

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."

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.

30
<PAGE>

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.

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

31
<PAGE>

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'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."

32
<PAGE>

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."

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,

33
<PAGE>

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.

34
<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.

23. GEOGRAPHICAL AND ISSUER SIZE LIMITATIONS. (NORTHWEST FUND ONLY) 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

35
<PAGE>

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.

(INTERNATIONAL FUND ONLY). Because the International Fund invests
primarily in foreign securities, it is subject to various risks in
addition to those associated with U.S. investment. 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.

SMALL COMPANY FUND ONLY: The Small Company Fund invests in small-sized
companies which involves greater risks than investment in larger, more
established issuers, and such securities can be subject to more abrupt
and erratic movements in price.

INTERMEDIATE-TERM U.S. TREASURY FUND,
HIGH-YIELD FUND AND MANAGED BOND FUND

The Intermediate-Term U.S. Treasury Fund, High-Yield Fund and 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.

<PAGE>

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.

5. ILLIQUID SECURITIES. (INTERMEDIATE-TERM U.S. TREASURY FUND AND
HIGH-YIELD FUND ONLY). See the description of such securities under
"Additional Investment Information--Stock Funds."

6. RESTRICTED SECURITIES AND RULE 144A SECURITIES. (INTERMEDIATE-TERM U.S.
TREASURY FUND AND HIGH-YIELD FUND ONLY). See the description of such
securities under "Additional Investment Information--Stock Funds."

7. ASSET-BACKED SECURITIES. (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.

37
<PAGE>

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.

8. 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.

SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS (HIGH YIELD FUND
ONLY). 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 Fund to be volatile. Lower-quality, fixed-income
securities tend to reflect short-term economic and corporate
developments to a grater 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

38
<PAGE>

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 (HIGH YIELD-FUND ONLY). 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 the
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.

LIQUIDITY AND VALUATION ((HIGH-YIELD FUND ONLY). 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.

MUNICIPAL BOND FUND, CALIFORNIA TAX-FREE INCOME FUND AND WASHINGTON MUNICIPAL
BOND FUND

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

39
<PAGE>

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 Money Market 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 Money Market Fund currently intends 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, the Fund may look to an interest rate reset or demand feature.

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.

40
<PAGE>

2. MUNICIPAL BONDS. Municipal bonds are issued to raise longer-term
capital but, 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.

41
<PAGE>

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.

9. ILLIQUID SECURITIES. See the description of such securities under
"Additional Investment Information -- Stock Funds."

10. SECURITIES ISSUED BY BANKS AND OTHER ISSUERS. Investments may be made
in U.S. dollar-denominated time deposits, certificates of deposit, and
bankers' acceptances of U.S. banks and their branches located outside
of the United States, U.S. branches and agencies of foreign banks, and
foreign branches of foreign banks. The Fund may also invest in U.S.
dollar-denominated securities issued or guaranteed by other U.S. or
foreign issuers, including U.S. and foreign corporations or other
business organizations, foreign governments, foreign government
agencies or instrumentalities, and U.S. and foreign financial
institutions, including savings and loan institutions, insurance
companies and mortgage bankers, as well as banks.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulation. Payment of interest and principal on these
obligations may also be affected by governmental action in the country
of domicile of the branch (generally referred to as sovereign risk). In
addition, evidence of ownership of portfolio securities may be held
outside of the U.S. and the Fund may be subject to the risks associated
with the holding of such property overseas. Various provisions of
federal law governing the establishment and operation of U.S. branches
do not apply to foreign branches of U.S. banks.

42
<PAGE>

11. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. See the description of such
securities under "Additional Investment Information -- Stock Funds."

12. MORTGAGE-BACKED SECURITIES. See the description of such securities
under "Additional Investment Information--Intermediate-Term U.S.
Treasury Fund, High-Yield Fund, and Managed Bond Fund."

13. ASSET-BACKED SECURITIES. See the description of such securities under
"Additional Investment Information--Intermediate-Term U.S. Treasury
Fund, High-Yield Fund, and Managed Bond Fund."

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

43
<PAGE>

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS

FOREIGN SECURITIES

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.

44
<PAGE>

CURRENCY EXCHANGE RATES

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."

45
<PAGE>

INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA TAX-FREE INCOME FUND

46
<PAGE>

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.

47
<PAGE>

48
<PAGE>

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.

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.

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

49
<PAGE>

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.

50
<PAGE>

WASHINGTON MUNICIPAL BOND FUND

WASHINGTON STATE

51
<PAGE>

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

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.

52
<PAGE>

Expenditures of State revenues are made in accordance with constitutional and
statutory mandates.

STATE EXPENDITURE LIMITATIONS

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.

53
<PAGE>

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 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 fund other technical and programmatic needs.
Approximately $21 million in State funds

54
<PAGE>

was provided to address the devastating damage that resulted from floods, ice
storms, fire protection, and other disasters.

ECONOMIC OVERVIEW

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.

<PAGE>

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).

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.

56
<PAGE>

57
<PAGE>

LITIGATION

REDEMPTION IN KIND

SALES CHARGE WAIVERS

We offer a number of ways to reduce or eliminate the initial sales charge
on Class A shares or the CDSC on Class B. If you think you may be eligible,
contact SAFECO or your financial advisor for further information.

WAIVER OF CLASS A SHARES SALES CHARGE. Class A shares are sold at net
asset value per share without any sales charges for the following investments:

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;

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<PAGE>

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;

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.

CDSC WAIVERS. The CDSC for Class B shares currently is 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;

59
<PAGE>

(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.

REINSTATEMENT PRIVILEGE. If you paid an initial sales charge and redeem your
Class A shares in a Fund you have a one-time privilege to reinstate your
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. You or your broker-dealer, bank or other financial
institution must provide SAFECO Services with a written request for reinvestment
and a check not exceeding the amount of the redemption proceeds within 60 days
of the date of the redemption. The reinstatement purchase will be effected at
the net asset value per share next determined after such receipt.

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 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

60
<PAGE>

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.

INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

GENERAL

Each Fund (other than the Money Market Fund) determines its net asset value per
share ("NAV") by subtracting its liabilities (including accrued expenses and
dividends payable) from its total assets (the market value of the securities the
Fund holds plus cash and other assets, including interest accrued but not yet
received) and dividing the result by the total number of shares outstanding. The
NAV of 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.

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.

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<PAGE>

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 Fund's NAV at $1.00, are
permitted pursuant to Rule 2a-7 under the 1940 Act. Pursuant to that Rule, the
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 Money Market Trust's 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 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 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.

The principal risk associated with the Money Market Fund 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 yields will
fluctuate with general money market interests rates.

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 years ended December

62
<PAGE>

31, 1998 and 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, 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 year ended December 31, 1998 and
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.

TOTAL RETURNS AND AVERAGE TOTAL RETURNS

For the following Funds, the total returns, expressed as a percentage, for the
one-, five- and ten-year periods ended December 31, 1998 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 % % % % % %
EQUITY FUND % % % % % %
INCOME FUND % % % % % %
INTERMEDIATE TREASURY FUND % % % % % %
HIGH-YIELD FUND % % % % % %
MUNICIPAL BOND FUND % % % % % %
CALIFORNIA TAX FREE FUND % % % % % %
</TABLE>

For the following Funds, the total returns, expressed as a percentage, for the
one-year, five-year and since initial public offering periods ended December 31,
1998 were as follows:
<TABLE>
<CAPTION>

1 Year 5 Years Since Initial Public Offering
------ ------- ------------- ---------------
Class Class Class Class Class Class
A B A B A B
------- ------- ------- ------ ----- -----

63
<PAGE>

<S> <C> <C> <C> <C> <C> <C> <C>
NORTHWEST FUND % % % % % % (__ months)
WASHINGTON MUNICIPAL BOND FUND % % % % % % (__ months)
</TABLE>

For the following Funds, the total returns, expressed as a percentage, for the
one-year and since initial public offering periods ended December 31, 1998 were
as follows:
<TABLE>
<CAPTION>

1 Year Since Initial Public Offering
------ ------------- ---------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCED FUND % % % % (__ months)
INTERNATIONAL FUND % % % % (__ months)
SMALL COMPANY FUND % % % % (__ months)

U.S. VALUE FUND % % % % (__ months)
MANAGED BOND FUND % % % % (__ months)

For the following Funds, the total returns, expressed in dollars and assuming a
$10,000 initial investment, for the one-, five- and ten-year periods ended
December 31, 1998 were as follows:

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 $ $ $ $ $ $
EQUITY FUND $ $ $ $ $ $
INCOME FUND $ $ $ $ $ $
</TABLE>

1 Year 5 Years Since Initial
------ ------- Public Offering
---------------
Class Class Class Class
----- ----- ----- -----
A B A B
- - - -

<S> <C> <C> <C> <C> <C>
NORTHWEST FUND $ $ $ $ $
</TABLE>

64
<PAGE>

1 Year Since Initial Public Offering
----- ------------- ---------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCED FUND $ $ $ $ (__ months)
INTERNATIONAL FUND $ $ $ $ (__ months)
SMALL COMPANY FUND $ $ $ $ (__ months)

U.S. VALUE FUND $ $ $ $ (__ months)
</TABLE>

65
<PAGE>

For the following Funds, the average annual total returns for the one-, five-
and ten-year periods ended December 31, 1998 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 % % % % % %
EQUITY FUND % % % % % %
INCOME FUND % % % % % %
INTERMEDIATE TREASURY FUND % % % % % %
HIGH-YIELD BOND FUND % % % % % %
MUNICIPAL BOND FUND % % % % % %
CALIFORNIA TAX FREE FUND % % % % % %
</TABLE>

For the following Funds, the average annual total returns for the one-year,
five-year, and since initial public offering periods ended December 31, 1998
were as follows:
<TABLE>
<CAPTION>

1 Year 5 Years Since Initial Public Offering
------ ------- ------------- ---------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHWEST FUND % % % % % % (__ months)
WASHINGTON MUNICIPAL BOND FUND % % % % % % (__ months)
</TABLE>

For the following Funds, the average annual total returns for the one-year and
since initial public offering periods ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>

1 Year Since Initial Public Offering
------ ------------- ---------------

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

<S> <C> <C> <C> <C> <C>
BALANCED FUND % % % % (__ months)
INTERNATIONAL FUND % % % % (__ months)
SMALL COMPANY FUND % % % % (__ months)
U.S. VALUE FUND % % % % (__ months)
MANAGED BOND FUND % % % % (__ months)
</TABLE>

66
<PAGE>

YIELD AND EFFECTIVE YIELD

For the following Funds, the yields for the 30-day period ended December 31,
1998 were as follows:
<TABLE>
<CAPTION>

Class A Class B
------- -------
<S> <C> <C>
INTERMEDIATE TREASURY FUND % %
HIGH-YIELD FUND % %
MANAGED BOND FUND % %
</TABLE>

For the following Funds, the yield and tax-equivalent yield at the maximum
federal tax rate of 39.6% for the 30-day period ended December 31, 1998 at the
maximum federal tax rate of 39.6% were as follows:
<TABLE>
<CAPTION>

Yield Tax-Equivalent Yield
----- --------------------
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
MUNICIPAL BOND FUND % % % %
WASHINGTON MUNICIPAL BOND FUND % % % %
CALIFORNIA TAX-FREE INCOME FUND* % % % %
</TABLE>

* maximum combined federal and California tax rates of 45.2%

For the Money Market Fund, the yield and effective yield at the maximum federal
tax rate of 39.6% for the 7-day period ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>

Yield Effective Yield
----- ---------------
<S> <C> <C>
MONEY MARKET FUND % %
</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)

67
<PAGE>

The average annual total return is computed using the following formula:
<TABLE>

<S> <C> <C>
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)
</TABLE>

Yield for the Bond Funds, Managed Bond Fund and Tax-Exempt Bond Funds is
computed using the following formula:

a-b
Yield = 2[( --- +1) (6) -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

68
<PAGE>

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

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

69
<PAGE>

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 FUND INVESTOR,
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 advisor (SAM) or any sub-investment
adviser, the investment advisor's parent company (SAFECO Corporation) or the
parent company of any sub-investment advisor, 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.

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.

70
<PAGE>

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

- - 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.

71
<PAGE>

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.

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.

MANAGEMENT OF THE FUNDS

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 Director of SAFECO
SAFECO Plaza Corporation. Previously, Executive Vice President and
Seattle, WA 98185 Chief Financial Officer. He has been an executive officer
(54) of SAFECO Corporation subsidiaries since 1982. See table
under "Investment Advisory and Other Services."
</TABLE>

<PAGE>

Position(s) Held with the Principal Occupations(s)
Name, Address and Age Trusts During Past 5 Years
--------------------- ------ -------------------

<S> <C> <C>
Barbara J. Dingfield Trustee Director of Community Affairs for Microsoft Corporation,
Microsoft Corporation Redmond, Washington, a computer software company; former
One Microsoft Way Director and Executive Vice President of Wright Runstad &
Redmond, WA 98052 Co., Seattle, Washington, a real estate development
(53) company; Director of First SAFECO National Life Insurance
Company of New York; Board Chair of United Way of King
County; Board of Managers of Swarthmore College.

David F. Hill* President President of SAFECO Securities, Inc. and SAFECO Services
10865 Willows Road NE Trustee Corporation; Senior Vice President of SAFECO Asset
Redmond, WA 98052 Management Company. See table under "Investment Advisory
(50) 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
Seattle, WA 98177 of SAFECO Corporation; former President of SAFECO Asset
(69) 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, Building
764 S. 293rd Street Materials Distribution, Weyerhaeuser Company, Tacoma,
Federal Way, WA 98032 Washington; Director of First SAFECO National Life
(61) Insurance Company of New York.

</TABLE>

<PAGE>

Position(s) Held with the Principal Occupations(s)
Name, Address and Age Trusts During Past 5 Years
--------------------- ------ -------------------

Larry L. Pinnt Trustee Retired Vice President and Chief Financial Officer U.S.
1600 Bell Plaza, WEST Communications, Seattle, Washington; Chairman of
Room 1802 University of Washington Medical Center Board, Seattle,
Seattle, WA 98191 Washington; Director of Cascade Natural Gas Corporation,
(64) Seattle, Washington; Director of First SAFECO National Life
Insurance Company of New York; and a Treasurer of Cancer
Care Alliance, Seattle, Washington.

John W. Schneider Trustee President and sole owner of Wallingford Group, Inc.,
1808 N. 41st St. Seattle, Washington; former President of Emerald
Seattle, WA 98103 Development Group, Inc., Seattle, Washington; Director of
(57) First SAFECO National Life Insurance Company of New York.

Neal Fuller Vice President Vice President, Controller, Assistant Secretary and
10865 Willows Road NE Controller Treasurer of SAFECO Securities, Inc. and SAFECO Services
Redmond, WA 98052 Assistant Secretary Corporation; Vice President, Controller, Secretary and
(36) 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; Treasurer and
Two Union Square Treasurer Chief Investment Officer of SAFECO Corporation; Vice
Sixth Avenue and President of SAFECO Insurance Companies; Director, Vice
Union Street President and Treasurer of First SAFECO National Life
Seattle, WA 98101 Insurance Company of New York; former Senior Portfolio
(55) Manager of SAFECO insurance companies and Portfolio Manager
for SAFECO mutual funds. See table under "Investment
Advisory and Other Services."
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
Position(s) Held with the Principal Occupations(s)
Name, Address and Age Trusts During Past 5 Years
- --------------------- ------------------------- ------------------------
<S> <C> <C>
David H. Longhurst Assistant Controller Assistant Controller of SAFECO Securities, Inc.,
10865 Willows Road NE former Accounting Manager of SAFECO Asset Management Company;
Redmond, WA 98052 SAFECO Services Corporation and SAFECO Asset Management Company;
(41) former Senior Manager with Ernst & Young LLP,
an independent accounting firm.

Stephen D. Collier Assistant Secretary Assistant Secretary of SAFECO Asset Management Company,
SAFECO Plaza SAFECO Securities, Inc. and SAFECO Services Corporation.
4333 Brooklyn Ave., NE He has been an executive officer of SAFECO Corporation and
Seattle, WA 98105 subsidiaries since 1991.
(46)

</TABLE>

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

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.

75
<PAGE>

COMPENSATION TABLE FOR CURRENT TRUSTEES
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

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

<S> <C> <C> <C> <C> <C>
BOH A. DICKEY Common Stock N/A N/A N/A
Taxable Bond N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A
Managed Bond N/A N/A N/A
Money Market N/A N/A N/A $0
Total Compensation

BARBARA J. Common Stock $11,026 N/A N/A
DINGFIELD Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,337 N/A N/A
Total Compensation $30,375

DAVID F. HILL Common Stock N/A N/A N/A
Taxable Bond N/A N/A N/A
Tax-Exempt Bond N/A N/A N/A
Managed Bond N/A N/A N/A
Money Market N/A N/A N/A
Total Compensation

RICHARD W. Common Stock $10,345 N/A N/A
HUBBARD Taxable Bond $3,050 N/A N/A
Tax-Exempt Bond $5,472 N/A N/A
Managed Bond $969 N/A N/A
Money Market $2,195 N/A N/A
Total Compensation $28,500

RICHARD E. Common Stock $11,026 N/A N/A
LUNDGREN Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375

</TABLE>

76
<PAGE>

<TABLE>

<S> <C> <C> <C> <C> <C>
LARRY L. PINNT Common Stock $11,026 N/A N/A
Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375

JOHN W. Common Stock $11,026 N/A N/A
SCHNEIDER Taxable Bond $3,250 N/A N/A
Tax-Exempt Bond $5,832 N/A N/A
Managed Bond $1,033 N/A N/A
Money Market $2,339 N/A N/A
Total Compensation $30,375

</TABLE>

At February 1, 1999, the Trustees and officers of each Trust as a group owned
less than 1% of the outstanding shares of each 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.

CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At February 1, 1999, SAM owned 27.90% of the Balanced Fund's outstanding shares;
35.27% of the International Fund's outstanding shares; 54.34% of the U.S. Value
Fund's outstanding shares; and 51.13% of the Managed Bond Fund's outstanding
shares. At February 1, 1999, SAFECO Insurance owned 22.87% of the
Intermediate-Term U.S. Treasury Fund's outstanding shares and SAFECO Trust
Omnibus Account, whose address of record is P.O. Box 34730, Seattle, WA 98124,
owned 6.87% of the Intermediate Term U.S. Treasury Fund's outstanding shares.
Both SAFECO Insurance and SAFECO Trust Omnibus Account are under the common
control of SAFECO Corporation for a total control of 29.74% of the
Intermediate-Term U.S. Treasury Fund's outstanding shares. At February 1,
1999, SAFECO Insurance owned 68.58% of the Washington Municipal Bond Fund's
outstanding shares.

77
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

GROWTH FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>
National Financial Services Corp.
for the Exclusive Benefit of Our
Customers
Attn.: Mutual Funds Dept. 5th Fl. 7,220,438 11.55%
200 Liberty St., 1 World Financial Center
New York, NY 10281-10003

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 19,598,646 31.34%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

78
<PAGE>

EQUITY FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>
Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 26,057,025 28.24%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

INCOME FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 2,095,637 12.49%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

NORTHWEST FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 215,334 5.64%
101 Montgomery Street
San Francisco CA 94104-4122

SAFECO Insurance Company of America
SAFECO Plaza 450,000 11.78%
Seattle, WA 98185

</TABLE>

BALANCED FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Safeco Asset Management Company
Two Union Square 509,268 27.90%
Sixth Avenue and Union Street
Seattle, WA 98101
Safeco Services Corporation
Retirement Account 129,176 7.08%
Safeco T-13
Seattle, WA 98185-0001

</TABLE>

INTERNATIONAL FUND

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street 678,169 35.27%
Seattle, WA 98101
Norwest Bank Minnesota, N.A., Trustee

</TABLE>

79
<PAGE>

<TABLE>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

SAFECO 401K Savings Plan 387,723 20.16%
510 Marquette, 5th and Marquette
Minneapolis, MN 55479-0001

</TABLE>

SMALL COMPANY FUND
<TABLE>
<CAPTION>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>
National Financial Services Corp.
for the Exclusive Benefit of Our Customers
200 Liberty Street, 1 World Financial 203,946 6.06%
Attn.: Mutual Funds Dept. 5th Fl.
New York, NY 10281-1003

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 542,991 16.12%
101 Montgomery Street
San Francisco CA 94104-4122

Norwest Bank Minnesota, N.A., Trustee
SAFECO 401K Savings Plan 650,283 19.31%
510 Marquette, 5th and Marquette
Minneapolis, MN 55479-0001

</TABLE>

U.S. Value Fund

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Safeco Asset Management Company
Two Union Square
Sixth Avenue and Union Street 500,000 54.34%
Seattle, WA 98101

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 77,240 8.40%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

INTERMEDIATE-TERM U.S. TREASURY FUND

<TABLE>
<CAPTION>
Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

SAFECO Insurance Company of America
SAFECO Plaza 500,000 22.87%
Seattle, WA 98185
Safeco Trust Omnibus Account
P.O. Box 34730 150,121 6.87%
Seattle, WA 98124-1730

</TABLE>

80
<PAGE>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 222,202 10.17%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

HIGH-YIELD FUND
<TABLE>
<CAPTION>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 1,747,280 17.89%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

MANAGED BOND FUND
<TABLE>
<CAPTION>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Safeco Asset Management Company
Two Union Square 452,103 51.13%
Sixth Avenue and Union Street
Seattle, WA 98101

Christa Ministries
William Brown V.P. Finance 105,812 11.97%
P.O. Box 330303
Seattle, WA 98133-9703

</TABLE>

CALIFORNIA TAX-FREE INCOME FUND
<TABLE>
<CAPTION>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

Charles Schwab & Co. Inc.
Exclusive Benefit of Its Customers
Attn: Mutual Fund Department 2,657,709 28.79%
101 Montgomery Street
San Francisco CA 94104-4122

</TABLE>

WASHINGTON MUNICIPAL BOND FUND
<TABLE>
<CAPTION>

Name of Beneficial Owner Number of Shares Percent of Fund
- ------------------------ ---------------- ---------------
<S> <C> <C>

SAFECO Insurance Company of America
SAFECO Plaza 502,372 68.58%
Seattle, WA 98185

William A. Helsell
10653 Culpepper Ct. N.W. 51,064 6.97%
Seattle, WA 98177-5319

</TABLE>

81
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

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

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 Secretary Assistant Secretary Assistant Secretary
Treasurer Treasurer Treasurer

R.L. Spaulding Vice President Chairman Director Director
Treasurer Director

S.C. Bauer President
Director

D.H. Longhurst Assistant Controller Assistant Controller Assistant Controller Assistant Controller

S.D. Collier Assistant Secretary Assistant Secretary Assistant Secretary Assistant Secretary

</TABLE>

82
<PAGE>

</TABLE>

83
<PAGE>

- -----------------------------------------------------------------------------------
FUND FEE
- -----------------------------------------------------------------------------------
<S> <C> <C>
$750,000,001 - $1,250,000,000 .60 of 1%
Over $1,250,000,000 .55 of 1%
- -----------------------------------------------------------------------------------
Northwest $0 - $250,000,000 .70 of 1%
$250,000,001 - $750,000,000 .65 of 1%
$750,000,001 - $1,250,000,000 .60 of 1%
Over $1,250,000,000 .55 of 1%
- -----------------------------------------------------------------------------------
International* $0 - $250,000,000 1.00 of 1%
$250,000,001 - $750,000,000 .90 of 1%
Over $750,000,000 .80 of 1%
- -----------------------------------------------------------------------------------
Balanced and U.S. Value $0 - $250,000,000 .70 of 1%
$250,000,001 - $750,000,000 .65 of 1%
$750,000,001 - $1,250,000,000 .60 of 1%
Over $1,250,000,000 .55 of 1%
- -----------------------------------------------------------------------------------
Small Company $0 - $250,000,000 .75 of 1%
$250,000,001 - $750,000,000 .70 of 1%
Over $750,000,001 - $1,250,000,000 .65 of 1%
Over $1,250,000,000 .60 of 1%
- -----------------------------------------------------------------------------------
Intermediate-Term U.S. Treasury $0 - $250,000,000 .55 of 1%
$250,000,001 - $750,000,000 .50 of 1%
$750,000,001 - $1,250,000,000 .45 of 1%
Over $1,250,000,000 .40 of 1%
- -----------------------------------------------------------------------------------
Washington Municipal Bond $0 - $250,000,000 .50 of 1%
$250,000,001 - $750,000,000 .45 of 1%

Over $750,000,000 .40 of 1%

- -----------------------------------------------------------------------------------
High-Yield $0 - $250,000,000 .65 of 1%
$250,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .50 of 1%

- -----------------------------------------------------------------------------------
Managed Bond $0 - $750,000,000 .50 of 1%
$750,000,001 - $1,250,000,000 .45 of 1%
Over $1,250,000,000 .40 of 1%
- -----------------------------------------------------------------------------------

</TABLE>

84
<PAGE>

- -----------------------------------------------------------------------------------
FUND FEE
- -----------------------------------------------------------------------------------
<S> <C> <C>
Municipal Bond and California Tax-Fr $0 -n$250,000,000 .50 of 1%
$250,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .40 of 1%

- -----------------------------------------------------------------------------------
Money Market $0 - $250,000,000 .50 of 1%
$250,000,001 - $750,000,000 .45 of 1%

$750,000,001 - $1,250,000,000 .40 of 1%
Over $1,250,000,000 .35 of 1%

</TABLE>

- --------------------------------------------------------------------------------
* Under the sub-advisory agreement between SAM and the Sub-Advisor,
the Sub-Advisor 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-Advisor a fee in accordance with the schedule below:

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>

85
<PAGE>

FISCAL YEAR OR PERIOD ENDED

Three Month Period Ended
December 31, 1998 December 31, 1997 December 31, 1996 September 30, 1996
----------------- ----------------- ------------------------ ------------------
<S> <C> <C> <C> <C>
Growth Fund $ $2,120,000 $ 327,000 $1,260,000
Equity Fund $ $6,481,000 $1,131,000 $3,752,000
Income Fund $ $2,285,000 $ 469,000 $1,597,000
Northwest Fund $ $ 416,000 $ 80,000 $ 305,000
Intermediate-Term
U.S. Treasury Fund $ $ 85,000 $ 21,000 $ 78,000
High-Yield Fund $ $ 386,000 $ 82,000 $ 255,000

</TABLE>

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<PAGE>

FISCAL YEAR OR PERIOD ENDED

<TABLE>
<CAPTION>
Period from
January
Three Month 31, 1996 (Initial
Period Ended Public Offering)
December 31, December 31, December 31, to September
1998 1997 1996 30, 1996
------------ ------------ ------------ -----------------
<S> <C> <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 following table states the total amounts of compensation paid by the Managed
Bond Fund to SAM for the past three years.

Fiscal Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
MANAGED
BOND FUND $___________ $23,000 $21,000

</TABLE>

87
<PAGE>

FISCAL YEAR OR PERIOD ENDED

Nine Month Period Ended
December 31, 1998 December 31, 1997 December 31, 1996 March 31, 1996
----------------- ----------------- ----------------------- --------------
<S> <C> <C> <C> <C>
MUNICIPAL BOND FUND $ $2,041,000 $1,533,000 $2,021,000
CALIFORNIA TAX-
FREE INCOME FUND $ $ 424,000 $ 290,000 $ 366,000
WASHINGTON
MUNICIPAL BOND FUND $ $ 49,000 $ 32,000 $ 39,000

MONEY MARKET FUND $ $ 865,000 $ 630,000 $ 864,914

</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.

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 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

88
<PAGE>

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 my use the 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 below:

Fixed Income Funds*
---------------------------------------------------------------------------------
Amount of Purchase at the Public Broker Reallowance As Percentage
Offering Price of the Offering Investment
-------------------------------- --------------------------------
<S> <C>
Less than $50,000 4.00%
$50,000 but less than $100,000 3.50%
$100,000 but less than $250,000 3.00%
$250,000 but less than $500,000 2.00%
$500,000 but less than $1,000,000 1.00%
$1,000,000 or more 0

</TABLE>

* Intermediate-Term U.S. Treasury Fund, High-Yield Bond Fund, Managed Bond Fund,
Municipal Bond Fund, California Tax-Free Income Fund and Washington Municipal
Bond Fund.

Stock Funds**
---------------------------------------------------------------------------------
Amount of Purchase at the Public Broker Reallowance As Percentage
Offering Price of the Offering Investment
-------------------------------- --------------------------------
<S> <C>
Less than $50,000 5.00%
$50,000 but less than $100,000 3.75%
$100,000 but less than $250,000 3.00%
$250,000 but less than $500,000 2.00%
$500,000 but less than $1,000,000 1.50%
$1,000,000 or more 0

</TABLE>

** Growth Fund, Equity Fund, Income Fund, Northwest Fund, International Fund,
Balanced Fund, Small Company Fund and U.S. Value Fund.

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

89
<PAGE>

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 of another Fund.

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.

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.

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'

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<PAGE>

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.

ADMINISTRATION AND ACCOUNTING AGREEMENT. The Administration and Accounting
Agreement between each Fund and SAM is a service contract and not an investment
advisory agreement (the "Agreement"). Under the Agreement, SAM will serve as
each Fund's accounting agent and administrator, performing such functions as:
calculate the net asset value of each Fund's accounting agent and financial
records, prepare the financial statements semiannually, making regulatory
filings, and coordinate contractual relationships and communications between
each Fund and its service providers. Under the Agreement, each Fund will pay SAM
an administrative services fee of 0.05% of the average daily net assets up to
the first $200,000,000 and 0.01% of its net assets thereafter, and an accounting
fee of 0.04% of its average daily net assets up to the first $200,000,000 and
0.01% of its net assets thereafter.

AUDITOR. [________________], 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.

91
<PAGE>

FISCAL YEAR OR PERIOD ENDED
Three Month Period
December 31, December 31, Ended September 30,
1998 1997 December 31, 1996 1996
----------- ------------ ------------------- --------------
<S> <C> <C> <C> <C>
GROWTH $ $ 517,000 $ 99,000 $ 384,000
FUND

EQUITY FUND $ $ 2,320,000 $ 378,000 $ 1,203,000

INCOME $ $ 583,000 $ 123,000 $ 359,000
FUND

NORTHWEST $ $ 145,000 $ 32,000 $ 105,000
FUND

INTERMEDIATE $ $ 31,000 $ 6,000 $ 39,000
TREASURY
FUND

HIGH-YIELD $ $ 86,000 $ 17,000 $ 90,000
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.

FISCAL YEAR OR PERIOD ENDED

Period from
January 31, 1996
Three Month Period (Initial Public
December 31, December 31, Ended Offering) to
1998 1997 December 31, 1996 September 30, 1996
----------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
BALANCED $ $ 23,000 $ 2,000 $ 4,000
FUND

</TABLE>

92
<PAGE>

FISCAL YEAR OR PERIOD ENDED

INTERNATIONAL $ $ 34,000 $ 2,000 $ 9,000
FUND

SMALL $ $ 50,000 $ 8,000 $ 13,000
COMPANY
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
fiscal year ended December 31, 1998 and the period from April 30, 1997 (initial
public offering) to December 31, 1997 were $____________ and $5,000,
respectively.

The following table shows the fees paid by the Managed Bond Fund to SAFECO
Services for the fiscal years ended December 31, 1998, 1997, and 1996:

FISCAL YEAR ENDED
December 31, 1998 December 31, 1997 December 31, 1996*
----------------- ----------------- ------------------
<S> <C> <C> <C>
MANAGED $___________ $1,000 $15
BOND 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 following Funds to SAFECO
Services for the fiscal years ended December 31, 1998 and 1997, the period ended
December 31, 1996 and the prior fiscal year:

Nine Month Period
December 31, December 31, Ended
1998 1997 December 31, 1996* March 31, 1996*
------------- ------------- ------------------ ---------------
<S> <C> <C> <C> <C>
MUNICIPAL $ $ 327,000 $ 300,000 $ 511,000
BOND FUND

CALIFORNIA $ $ 60,000 $ 48,000 $ 69,000
TAX-FREE FUND

WASHINGTON $ $ 3,000 $ 2,000 $ 3,000
MUNICIPAL BOND FUND

MONEY $ $ 414,000 $ 325,000 $ 424,260
MARKET FUND
</TABLE>

*Figures reflect fees of $3.10 per shareholder transaction until July, 1996 when
the new fee schedule went into effect.

BROKERAGE PRACTICES

94
<PAGE>

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.

95
<PAGE>

FISCAL YEAR OR PERIOD ENDED
<TABLE>
<CAPTION>

THREE MONTH
PERIOD ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ----------------- ----------------- ------------------

<S> <C> <C> <C> <C>
Growth Fund $2,693,078 $ 817,674 $ 63,500 $ 518,092
Equity Fund $1,204,661 $1,180,261 $ 278,203 $1,224,644
Income Fund $ 344,745 $ 341,428 $ 42,827 $ 286,999
Northwest $ 48,671 $ 63,531 $ 25,566 $ 13,599
</TABLE>

FISCAL YEAR OR PERIOD ENDED

PERIOD FROM
JANUARY 31, 1996
THREE MONTH (INITIAL PUBLIC
PERIOD ENDED OFFERING) TO
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1996
----------------- ----------------- ----------------- ------------------

<S> <C> <C> <C> <C>
Balanced Fund $16,890 $ 9,913 $1,548 $ 5,911
International Fund $16,320 $16,054 $5,311 $22,468
Small Company Fund $92,111 $24,185 $4,615 $16,752
</TABLE>

96
<PAGE>

TAX INFORMATION

GENERAL

97
<PAGE>

SPECIAL TAX CONSIDERATIONS -- INVESTMENT IN DERIVATIVES (ALL FUNDS)

98
<PAGE>

SPECIAL TAX CONSIDERATIONS -- INTERNATIONAL FUND

Code section 1092 (dealing with straddles) also may affect the taxation of
certain hedging instruments in which the International Fund may invest. Section
1092 defines a

99
<PAGE>

"straddle" as offsetting positions with respect to actively traded personal
property; for these purposes, options, futures, and forward currency contracts
are personal property. Under that section, any loss from the disposition of a
position in a straddle generally may be deducted only to the extent the loss
exceeds the unrealized gain on the offsetting position(s) of the straddle. In
addition, these rules may postpone the recognition of loss that otherwise would
be recognized under the mark-to-market rules discussed above. The regulations
under section 1092 also provide certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If the International Fund makes certain elections, the amount,
character, and timing of recognition of gains and losses from the affected
straddle positions would be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the straddle
rules have been promulgated, the tax consequences to the International Fund of
straddle transactions are not entirely clear.

SPECIAL TAX CONSIDERATIONS -- INVESTMENT IN FOREIGN SECURITIES

100
<PAGE>

PFICs

Each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of

101
<PAGE>

the fair market value of the stock over a Fund's adjusted basis therein as of
the end of that year. Pursuant to the election, a Fund also may deduct (as an
ordinary, not capital, loss) the excess, if any, of its adjusted basis in PFIC
stock over the fair market value thereof as of the taxable year-end, but only to
the extent of any net mark-to-market gains with respect to that stock included
in income by the Fund for prior taxable years. A Fund's adjusted basis in each
PFIC's stock subject to the election would be adjusted to reflect the amounts of
income included and deductions taken thereunder (and under regulations proposed
in 1992 that provided a similar election with respect to the stock of certain
PFICs).

SPECIAL TAX CONSIDERATIONS -- HIGH-YIELD FUND AND MANAGED BOND FUND

SPECIAL TAX CONSIDERATIONS -- TAX-EXEMPT FUNDS

Each Tax-Exempt 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

102
<PAGE>

amount of the bond or, in the case of a bond that was issued with OID, at a
price less than the amount of the issue price plus accrued OID) ("municipal
market discount bonds"). 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. 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. 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 Tax-Exempt Fund
is eligible for the dividends-received deduction allowed to corporations.

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.

103
<PAGE>

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.

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.

TRADITIONAL IRAS. Certain investors may obtain tax advantages by establishing an
IRA. Specifically, except as noted below, if neither you nor your spouse is an
active participant in a qualified employer or government retirement plan, or if
either you or your spouse is an active participant in such a plan and your
adjusted gross income does not exceed a certain level, each of you may deduct
cash contributions made to an IRA in an amount for each taxable year not
exceeding the lesser of 100% of your earned income or $2,000. However
[Notwithstanding the foregoing], a married investor who is not an active
participant in such a plan and files a joint income tax return with his or her
spouse (and their combined adjusted gross income does not exceed $150,000) is
not affected by the spouse's active participant status. In addition, if your
spouse is not employed and you file a joint return, you may establish a separate
IRA for your spouse and contribute up to a total of $4,000 to the two IRAs,
provided that neither contribution exceeds $2,000. If your employer's plan
qualifies as a SIMPLE, permits voluntary contributions, and meets certain
requirements, you may make voluntary contributions to that plan that are treated

104
<PAGE>

as deductible IRA contributions.

SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES - SIMPLE. An employer with no more
than 100 employees that does not maintain another retirement plan instead may
establish a SIMPLE either as separate IRAs or as part of a Code section 401(k)
plan. A SIMPLE, which is not subject to the complicated nondiscrimination rules
that generally apply to qualified retirement plans, will allow certain employees
to make elective contributions of up to $6,000 per year and will require the
employer to make either matching contributions up to 3% of each such employee's
salary or a 2% nonelective contribution.

105
<PAGE>

directly to an "eligible retirement plan" (including IRAs and other qualified
plans) that accepts those distributions. Other distributions generally are
subject to regular wage withholding or withholding at the rate of 10% (depending
on the type and amount of the distribution), unless the recipient elects not to
have any withholding apply. Investors should consult their plan administrator or
tax adviser for further information.

FINANCIAL STATEMENTS
- --------------------

The following financial statements of each Trust and the report thereon of
[______________], independent auditors, are incorporated herein by reference to
each respective Trust's Annual Report for the year ended December 31, 1998.

Copies of each Trust's No-Load Annual Report accompany this SAI. Additional
copies may be obtained by calling SAFECO Services at 1-800-528-6501 nationwide
or by writing to the address on the first page of this SAI.

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.

106
<PAGE>

- 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.

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

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

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"

107
<PAGE>

classification, earnings and asset protection are, nevertheless, expected to be
maintained at adequate levels.

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.

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<PAGE>

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.

BOND RATINGS

MOODY'S

Investment Grade :

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<PAGE>

Below Investment Grade:

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.

110
<PAGE>

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.

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.

S&P

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

111
<PAGE>

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

112

<PAGE>

SAFECO TAXABLE BOND TRUST
PART C
OTHER INFORMATION

ITEM 23. EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------ ----------------------- ----
<S> <C> <C>
(1) Trust Instrument/Certificate of Trust *

(2) Bylaws *

(3) Instrument Defining Rights of Security Holders +

(4) Investment Advisory Contract (to be filed)

(5) Form of Distribution Agreement **
Form of Selling Dealer Agreement **

(6) Inapplicable

(7) Custody Agreement with State Street ***
Bank and Trust Company
Amendment to Custody Agreement ****

(8) Form of Transfer Agent Agreement **
Form of Administration and Fund Accounting (to be filed)
Agreement

(9) Opinion of Counsel ++

(10) Consent of Independent Auditors (to be filed)

(11) Inapplicable

(12) Subscription Agreement *

(13) Rule 12b-1 Plan (Advisor Class A) **
Rule 12b-1 Plan (Advisor Class B) **

(14) Financial Data Schedules (to be filed)

<PAGE>

(15) Rule 18f-3 Plan **
</TABLE>

+ Incorporating by reference the relevant disclosure from Exhibits (1) and
(2).

++ Filed as an exhibit to Post-Effective Amendment No. 17 filed with the SEC
on or about April 28, 1998.

* 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 exhibits to Post-Effective Amendments No. 15 and 16 filed with the
SEC on or about April 30, 1997 and February 26, 1998, respectively.

**** Filed as an exhibit to Post-Effective Amendment No. 16 filed with the SEC
on or about February 26, 1998.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND

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 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 Trust
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

2
<PAGE>

and General America Corporation. SAFECO Corporation owns 100% of SAFECO
National Insurance Company, a Missouri corporation, SAFECO Insurance Company
of Illinois, an Illinois corporation. General Insurance Company of America
owns 100% of SAFECO Insurance Company of Pennsylvania, a Pennsylvania
corporation and SAFECO U.K. Limited, a corporation organized under the laws of
the United Kingdom. SAFECO Insurance Company of America owns 100% of SAFECO
Surplus Lines Insurance Company, a Washington corporation, and SAFECO
Management Corporation, a New York corporation. SAFECO Life Insurance Company
owns 100% of SAFECO National Life Insurance Company and Empire Life Insurance
Company, both Washington corporations, First SAFECO National Life Insurance
Company of New York, a New York 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, SAFECO Select Insurance Services, Inc., a California
corporation, and R.F. Bailey Holdings Limited, a U.K. 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 and American States Lloyds Insurance
Company, both Texas corporations. R.F. Bailey Holdings Limited owns 100% of
R.F. Bailey (Underwriting Agencies) Limited, a U.K. corporation. Talbot
Financial Corporation owns 100% of Talbot Agency, Inc., a New Mexico
corporation. Talbot Agency, Inc. owns 100% of SAFECO Investment Services,
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., S.C. Marysville, Inc., 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: Kitsap Mall, 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,
SCIT, Inc., a Massachusetts 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 Washington Square, Inc., a Washington corporation.

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. American Economy Insurance
Company owns 100% of American States Insurance Company of Texas, a Texas
corporation.

3
<PAGE>

All subsidiaries are included in consolidated financial statements. In
addition, SAFECO Life Insurance Company files a separate financial statement,
in connection with its issuance of registered products.

ITEM 25. 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, judgments,
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

4
<PAGE>

under the Trust 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

5
<PAGE>

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 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 26. 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 serve 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 27. 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 28. 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

6
<PAGE>

Company Act of 1940 and the rules promulgated thereunder.

ITEM 29. MANAGEMENT SERVICES

Inapplicable.

ITEM 30. UNDERTAKINGS

Inapplicable.

7
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this Registration Statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Seattle, and State of Washington on the ___ day of February, 1999.

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.

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ David F. Hill President and Trustee _____, 1999
- ------------------------- Principal Executive Officer
David F. Hill

RONALD L. SPAULDING* Vice President _____, 1999
- ------------------------- Treasurer
Ronald L. Spaulding

NEAL A. FULLER* Vice President, Controller _____, 1999
- ------------------------- and Assistant Secretary
Neal A. Fuller

/s/ Boh A. Dickey Chairman and Trustee _____, 1999
- -------------------------
Boh A. Dickey

BARBARA J. DINGFIELD* Trustee _____, 1999
- -------------------------
Barbara J. Dingfield

RICHARD W. HUBBARD* Trustee _____, 1999
- -------------------------
Richard W. Hubbard

RICHARD E. LUNDGREN* Trustee _____, 1999
- -------------------------
Richard E. Lundgren

LARRY L. PINNT* Trustee _____, 1999
- -------------------------
Larry L. Pinnt

JOHN W. SCHNEIDER* Trustee _____, 1999
- -------------------------
John W. Schneider
</TABLE>

8
<PAGE>

*By: /s/ David F. Hill
----------------------------
Attorney-in-Fact