<PAGE> 1
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND
NO-LOAD CLASS SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------
Each mutual fund named above ("Fund") is a series of the SAFECO Common Stock
Trust ("Trust"), an open-end, management investment company. The investment
objective for each Fund appears on page 3.
This Prospectus sets forth the information a prospective investor should know
before investing. PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
Statement of Additional Information, dated September 30, 1996 and incorporated
herein by reference, has been filed with the Securities and Exchange Commission
and is available at no charge upon request by calling one of the numbers listed
on this page. The Statement of Additional Information and other material
incorporated by reference herein are also available on the Securities and
Exchange Commission website (http://www.sec.gov). The Statement of Additional
Information contains more information about many of the topics in this
Prospectus as well as information about the trustees and officers of the Trust.
For additional assistance, please call or write:
Nationwide 1-800-624-5711; Seattle 1-206-545-7319
Hearing Impaired TTY/TDD Service 1-800-438-8718
SAFECO Mutual Funds
No-Load Class Shares
P.O. Box 34890
Seattle, WA 98124-1890
ALL TELEPHONE CALLS ARE TAPE-RECORDED
FOR YOUR PROTECTION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR
<PAGE> 2
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE U.S. GOVERNMENT OR ANY BANK, NOR ARE FUND SHARES FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND FUND SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation, other than those contained in this
Prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust, any Fund, or by
SAFECO Securities. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by the Trust, any Fund, or by SAFECO Securities
in any state in which such offer or solicitation may not lawfully be made.
2
<PAGE> 3
SAFECO GROWTH FUND ("Growth Fund") has as its investment objective to seek
growth of capital and the increased income that ordinarily follows from such
growth. The Growth Fund ordinarily invests a preponderance of its assets in
common stock selected primarily for potential appreciation.
SAFECO EQUITY FUND ("Equity Fund") has as its investment objective to seek
long-term growth of capital and reasonable current income. The Equity Fund
invests principally in common stock selected for appreciation and/or dividend
potential and from a long-range investment standpoint.
SAFECO INCOME FUND ("Income Fund") has as its investment objective to seek high
current income and, when consistent with its objective, the long-term growth of
capital. The Income Fund invests primarily in common and preferred stock and in
convertible bonds selected for dividend potential.
SAFECO NORTHWEST FUND ("Northwest Fund") has as its investment objective to seek
long-term growth of capital through investing primarily in Northwest companies.
To pursue its objective, the Fund will invest at least 65% of its total assets
in securities issued by companies with their principal executive offices located
in Alaska, Idaho, Montana, Oregon or Washington ("Northwest").
SAFECO BALANCED FUND ("Balanced Fund") has as its investment objective to seek
growth and income consistent with the preservation of capital. To pursue its
objective, the Balanced Fund will invest primarily in equity and fixed income
securities.
SAFECO INTERNATIONAL STOCK FUND ("International Fund") has as its investment
objective to seek maximum long-term total return (capital appreciation and
income) by investing primarily in common stock of established non-U.S.
companies. To pursue its objective, the International Fund, under normal market
conditions, will invest at least 65% of its total assets in the securities of
companies domiciled in at least five countries, not including the United States.
SAFECO SMALL COMPANY STOCK FUND ("Small Company Fund") has as its investment
objective to seek long-term growth of capital through investing primarily in
small-sized companies. To pursue its objective, the Small Company Fund will
invest primarily in companies with total market capitalization of less than $1
billion.
There is no assurance that a Fund will achieve its investment objective.
3
<PAGE> 4
TABLE OF CONTENTS
Page
----
INTRODUCTION TO THE TRUST AND THE FUNDS.................................... 5
EXPENSES .................................................................. 6
FINANCIAL HIGHLIGHTS....................................................... 8
SUB-ADVISER INFORMATION FOR THE INTERNATIONAL FUND......................... 18
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES.............................. 19
RISK FACTORS............................................................... 28
PORTFOLIO MANAGERS......................................................... 30
HOW TO PURCHASE SHARES..................................................... 32
HOW TO REDEEM SHARES....................................................... 34
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES............................ 36
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER............................ 37
TELEPHONE TRANSACTIONS..................................................... 39
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS........................ 39
SHARE PRICE CALCULATION.................................................... 40
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES
THAT PROVIDE SERVICES TO THE TRUST......................................... 41
PERSONS CONTROLLING CERTAIN FUNDS.......................................... 45
PERFORMANCE INFORMATION.................................................... 45
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED.................................. 46
TAX-DEFERRED RETIREMENT PLANS.............................................. 47
ACCOUNT STATEMENTS......................................................... 48
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS................................. 48
DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES.................... 49
RATINGS SUPPLEMENT ........................................................ 50
4
<PAGE> 5
- -------------------------------------------------
INTRODUCTION TO THE TRUST AND THE FUNDS
- -------------------------------------------------
The Trust is a series investment company that currently issues shares
representing seven diversified mutual funds: Growth Fund, Equity Fund, Income
Fund, Northwest Fund, Balanced Fund, International Fund and Small Company Fund
(collectively, the "Funds").
THE FUNDS
Each Fund offers multiple classes of shares. No-Load Class shares of each Fund
are offered through this prospectus.
The No-Load Class of Each Fund:
- - Is 100% no-load; there are no initial or contingent deferred sales charges or
Rule 12b-1 fees.
- - Offers free exchanges as well as easy access to your money through telephone
redemptions and wire transfers.
- - Has a minimum initial investment of $1,000 for regular accounts and $250 for
individual retirement accounts ("IRAs").
RISK FACTORS
There is, of course, no assurance that a Fund will achieve its investment
objective. See "Each Fund's Investment Objective and Policies" for more
information.
There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest Fund concentrates its investments primarily in the
Northwest, it may be subject to special risks. Investors should carefully
consider the investment risks of such geographic concentration before purchasing
shares of the Northwest Fund. Because the International Fund invests primarily
in foreign securities, it is subject to various risks in addition to those
associated with U.S. investments. For example, the value of the International
Fund depends in part upon currency values, the political and regulatory
environments, and overall economic factors in the countries in which the Fund
invests. The Small Company Fund invests in small-sized companies, which involves
greater risks than investments in larger, more established issuers and their
securities can be subject to more abrupt and erratic movements in price. See
"Each Fund's Investment Objective and Policies" for more information.
5
<PAGE> 6
INVESTMENT ADVISER; SUB-ADVISER OF INTERNATIONAL FUND
Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and managed over $2 billion in mutual fund
assets as of August 31, 1996. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been advisers since
1932. The Bank of Ireland Asset Management (U.S.) Limited (the "Sub-Adviser")
acts as a sub-adviser to the International Fund. The Sub-Adviser is a direct,
wholly-owned subsidiary of Bank of Ireland Asset Management Limited (an
investment advisory firm), which is headquartered in Dublin, Ireland, and an
indirect, wholly-owned subsidiary of the Bank of Ireland, which is also
headquartered in Dublin, Ireland. See "Information about Share Ownership and
Companies that Provide Services to the Trust" for more information.
- -----------
EXPENSES
- -----------
A. SHAREHOLDER TRANSACTION EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND
Sales Charge Contingent
Sales Charge Imposed on Deferred
Imposed on Reinvested Sales Redemption Exchange
Purchases Dividends Charge Fees Fees
- --------- --------- ------ ---- ----
NONE NONE NONE NONE NONE
SAFECO Services Corporation ("SAFECO Services"), the transfer agent for the
Funds, charges a $10 fee to wire redemption proceeds.
6
<PAGE> 7
B. ANNUAL OPERATING EXPENSES FOR THE NO-LOAD CLASS OF EACH FUND (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Total
Management Other Operating
Fund 12b-1 Fees + Fee + Expenses = Expenses
- ---- ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Growth None .67% .31% .98%
Equity None .61% .23% .84%
Income None .68% .18% .86%
Northwest None .73% .36% 1.09%
Balanced None .75% .24% .99%
International None 1.10% .23% 1.33%
Small Company None .85% .23% 1.08%
</TABLE>
The amounts shown are actual expenses incurred by the Growth, Equity, Income and
Northwest Funds for the fiscal year ended September 30, 1995. The amounts shown
for the Balanced, International, and Small Company Funds are annualized expenses
based on the maximum management fee and estimated "other expenses" for the
fiscal period ending September 30, 1996. The management fees paid by the
International and Small Company Funds are higher than the management fees paid
by most other investment companies. See "Information about Share Ownership and
Companies that Provide Services to the Trust" for more information.
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment in No-Load Class
shares assuming a 5% annual return. The example also assumes that all dividends
and other distributions are reinvested and that the percentage amounts listed in
"Annual Operating Expenses" above remain the same in the years shown.
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth $10 $31 $54 $120
Equity $ 9 $27 $47 $104
Income $ 9 $28 $48 $107
Northwest $11 $35 $60 $133
Balanced $10 $32
International $14 $42
Small Company $11 $34
</TABLE>
7
<PAGE> 8
The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in the No-Load Class of each Fund would bear, directly
or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES AND
EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS AND IT IS NOT A
PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE PERFORMANCE
OF ANY FUND.
- -------------------------
FINANCIAL HIGHLIGHTS
- -------------------------
The amounts shown for each Fund in the Financial Highlights tables that follow
are based upon a single share outstanding throughout the period indicated.
Except for the six month (Growth, Equity, Income and Northwest) and two month
and one day (Balanced, International and Small Company) periods ended March 31,
1996, the following selected data for the Funds has been derived from financial
statements that have been audited by Ernst & Young LLP, independent auditors.
The data should be read in conjunction with the financial statements, related
notes and other financial information included in the Trust's annual report to
shareholders and incorporated by reference in the Trust's Statement of
Additional Information. The following selected data for the six month (Growth,
Equity, Income and Northwest) and two month and one day (Balanced, International
and Small Company) periods ended March 31, 1996 has been derived from unaudited
financial statements. The data should be read in conjunction with the financial
statements, related notes and other financial information included in the
Trust's semiannual report to shareholders and incorporated by reference in the
Trust's Statement of Additional Information. A copy of the Trust's Statement of
Additional Information may be obtained by calling one of the numbers on the
front page of this Prospectus.
8
<PAGE> 9
FINANCIAL HIGHLIGHTS
(For a No-Load Class Share Outstanding Throughout the Period)
SAFECO GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1996
(UNAUDITED) 1995 1994 1993 1992 1991 1990
----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 15.83 $ 17.37 $ 19.20 $ 13.98 $ 17.95 $ 11.14 $ 17.22
INCOME (LOSS)
FROM
INVESTMENT
OPERATIONS:
Net investment
(loss) income -- .07 (.02) (.02) (.01) .05 .14
Net realized
and unrealized
gain (loss) on
investments 1.50 4.07 .78 5.39 (3.15) 7.77 (4.20)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 1.50 4.14 .76 5.37 (3.16) 7.82 (4.06)
----------- ----------- ----------- ----------- ----------- ----------- -----------
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income -- (.07) -- -- -- (.05) (.14)
Distributions from
capital gains (0.17) (5.61) (2.59) (.15) (.81) (.96) (1.88)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total distributions (0.17) (5.68) (2.59) (.15) (.81) (1.01) (2.02)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net asset value
at end of
period $ 17.16 $ 15.83 $ 17.37 $ 19.20 $ 13.98 $ 17.95 $ 11.14
=========== =========== =========== =========== =========== =========== ===========
Total return 9.58%+ 23.93% 3.88% 38.43% -17.83% 70.22% -23.67%
Net assets at
end of period
(000's omitted) $ 193,167 $ 176,483 $ 156,108 $ 158,723 $ 127,897 $ 155,429 $ 59,164
Ratio of expenses
to average net
assets 0.99%++ .98% .95% .91% .91% .90% 1.01%
Ratio of net
investment
income (loss) to
average net
assets 0.05%++ .34% -.12% -.10% -.10% .36% .88%
Portfolio turnover
rate 137.98%++ 110.44% 71.18% 57.19% 85.38% 49.86% 90.48%
Avg. Commission
rate paid $ 0.0572 -- -- -- -- -- --
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
9
<PAGE> 10
SAFECO GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1989 1988 1987 1986
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 14.95 $ 18.13 $ 15.40 $ 16.86
INCOME (LOSS)
FROM
INVESTMENT
OPERATIONS
Net investment
(loss) income .53 .35 .24 .31
Net realized
and unrealized
gain (loss) on
investments 3.17 (.99) 4.31 1.62
----------- ----------- ----------- -----------
Total from investment
operations 3.70 (.64) 4.55 1.93
----------- ----------- ----------- -----------
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income (.53) (.48) (.23) (.42)
Distributions from
capital gains (.90) (2.06) (1.59) (2.97)
----------- ----------- ----------- -----------
Total distributions (1.43) (2.54) (1.82) (3.39)
----------- ----------- ----------- -----------
Net asset value
at end of
period $ 17.22 $ 14.95 $ 18.13 $ 15.40
----------- ----------- ----------- -----------
Total return 25.23% -1.47% 32.68% 13.29%*
Net assets at
end of period
(000's omitted) $ 81,472 $ 74,324 $ 82,703 $ 68,375
Ratio of expenses
to average net
assets .94% .98% .92% .85%
Ratio of net
investment
income (loss) to
average net
assets 3.27% 2.37% 1.46% 1.90%
Portfolio turnover
rate 11.38% 19.31% 23.61% 46.04%
Avg. Commission -- -- -- --
rate paid
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
10
<PAGE> 11
SAFECO EQUITY FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1996
(UNAUDITED) 1995 1994 1993 1992 1991 1990
----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 15.31 $ 13.89 $ 12.54 $ 9.53 $ 10.38 $ 8.43 $ 10.10
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .14 .34 .23 .17 .15 .17 .22
Net realized
and unrealized
gain (loss) on
investments .99 2.59 1.83 3.79 (.09) 2.37 (1.28)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total from investment
operations 1.13 2.93 2.06 3.96 .06 2.54 (1.06)
---------- ---------- ---------- ---------- ---------- ---------- ----------
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income (.14) (.34) (.23) (.17) (.15) (.17) (.22)
Distributions from
capital gains (.32) (1.17) (.48) (.78) (.76) (.42) (.39)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total distributions (.46) (1.51) (.71) (.95) (.91) (.59) (.61)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net asset value
at end of
period $ 15.98 $ 15.31 $ 13.89 $ 12.54 $ 9.53 $ 10.38 $ 8.43
========== ========== ========== ========== ========== ========== ==========
Total return 7.50%+ 21.59% 16.51% 41.77% .41% 30.39% -10.73%
Net assets at
end of period
(000's omitted) $ 636,885 $ 598,582 $ 412,805 $ 148,894 $ 74,383 $ 71,586 $ 51,603
Ratio of expenses
to average net
assets .79%++ .84% .85% .94% .96% .98% .97%
Ratio of net
investment
income to
average net
assets 1.82%++ 2.38% 1.72% 1.50% 1.34% 1.70% 2.19%
Portfolio turnover
rate 86.93%++ 56.14% 33.33% 37.74% 39.88% 45.21% 51.01%
Avg. Commission
rate paid $ 0.0600 -- -- -- -- --
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
11
<PAGE> 12
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1989 1988 1987 1986
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 8.51 $ 12.23 $ 11.44 $ 10.25
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income .39 .18 .21 .29
Net realized
and unrealized
gain (loss) on
investments 2.26 (1.82) 2.83 2.46
---------- ---------- ---------- ----------
Total from investment
operations 2.65 (1.64) 3.04 2.75
---------- ---------- ---------- ----------
LESS
DISTRIBUTIONS
Dividends from
net
investment
income (.39) (.23) (.22) (.34)
Distributions from
capital gains (.67) (1.85) (2.03) (1.22)
---------- ---------- ---------- ----------
Total distributions (1.06) (2.08) (2.25) (1.56)
---------- ---------- ---------- ----------
Net asset value
at end of
period $ 10.10 $ 8.51 $ 12.23 $ 11.44
========== ========== ========== ==========
Total return 32.12% -9.93% 31.75% 29.61%*
Net assets at
end of period
(000's omitted) $53,892 $45,625 $64,668 $46,740
Ratio of expenses
to average net
assets .96% 1.00% .97% .88%
Ratio of net
investment
income to
average net
assets 4.13% 2.16% 1.92% 2.55%
Portfolio turnover
rate 63.62% 88.19% 85.11% 86.39%
Avg. Commission
rate paid -- -- -- --
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
12
<PAGE> 13
SAFECO INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
FOR THE SIX MONTH
PERIOD ENDED
MARCH 31, 1996
(UNAUDITED) 1995 1994 1993 1992 1991 1990
----------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 19.11 $ 17.25 $ 17.79 $ 16.27 $ 15.35 $ 12.89 $ 16.44
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .36 .82 .81 .78 .80 .81 .85
Net realized
and unrealized
gain (loss) on
investments 1.42 2.71 (.30) 1.52 .96 2.53 (3.39)
-------- -------- -------- -------- -------- -------- --------
Total from investment
operations 1.78 3.53 .51 2.30 1.76 3.34 (2.54)
-------- -------- -------- -------- -------- -------- --------
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income (.36) (.82) (.81) (.78) (.80) (.83) (.83)
Distributions from
capital gains (.06) (.85) (.24) -- (.04) (.05) (.18)
-------- -------- -------- -------- -------- -------- --------
Total distributions (.42) (1.67) (1.05) (.78) (.84) (.88) (1.01)
-------- -------- -------- -------- -------- -------- --------
Net asset value
at end of
period $ 20.47 $ 19.11 $ 17.25 $ 17.79 $ 16.27 $ 15.35 $ 12.89
======== ======== ======== ======== ======== ======== ========
Total return 9.37%+ 21.04% 2.98% 14.35% 11.75% 26.43% -16.06%
Net assets at
end of period
(000's omitted) $235,395 $217,870 $190,610 $203,019 $181,582 $181,265 $170,153
Ratio of expenses
to average net
assets .85%++ .87% .86% .90% .90% .93% .92%
Ratio of net
investment
income to
average net
assets 3.59%++ 4.55% 4.59% 4.55% 5.06% 5.58% 5.59%
Portfolio turnover
rate 24.82%++ 31.12% 19.30% 20.74% 20.35% 22.25% 19.37%
Avg. Commission
rate paid $0.0600 -- -- -- -- --
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
13
<PAGE> 14
<TABLE>
<CAPTION>
SAFECO INCOME FUND YEAR ENDED SEPTEMBER 30
1989 1988 1987 1986
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value
at beginning
of period $ 14.32 $ 17.16 $ 15.52 $ 12.96
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income .81 .78 .78 .78
Net realized
and unrealized
gain (loss) on
investments 2.12 (1.80) 2.37 3.13
-------- -------- -------- --------
Total from investment
operations 2.93 (1.02) 3.15 3.91
-------- -------- -------- --------
LESS
DISTRIBUTIONS
Dividends from
net
investment
income (.81) (.98) (.78) (.79)
Distributions from
capital gains -- (.84) (.73)** (.56)
-------- -------- -------- --------
Total distributions (.81) (1.82) (1.51) (1.35)
-------- -------- -------- --------
Net asset value
at end of
period $ 16.44 $ 14.32 $ 17.16 $ 15.52
======== ======== ======== ========
Total return 21.00% -4.61% 21.41% 31.76%*
Net assets at
end of period
(000's omitted) $232,812 $231,724 $313,308 $102,254
Ratio of expenses
to average net
assets .92% .97% .94% .95%
Ratio of net
investment
income to
average net
assets 5.28% 5.58% 4.53% 5.08%
Portfolio turnover
rate 16.38% 34.13% 33.08% 28.90%
Avg. Commission
rate paid -- -- -- --
</TABLE>
+Not annualized.
++Annualized.
*Unaudited.
**Distributions include $.04 of additional gain arising from investment
transactions of securities acquired in a nontaxable exchange.
14
<PAGE> 15
SAFECO NORTHWEST FUND
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE SIX MONTH MONTH PERIOD
PERIOD ENDED YEAR ENDED YEAR ENDED ENDED
MARCH 31, 1996 SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) 1995 1994 1993
------------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net asset value
at beginning
of period $14.41 $12.59 $12.34 $12.59
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .01 .04 .04 .02
Net realized
and unrealized
gain (loss) on
investments 1.01 2.35 .59 (.25)
---- ---- --- -----
Total from investment
operations 1.02 2.39 .63 (.23)
---- ---- --- -----
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income (.01) (.04) (.04) (.02)
Distributions from
capital gains (.35) (.53) (.34) --
----- ----- ----- ----
Total distributions (.36) (.57) (.38) (.02)
----- ----- ----- -----
Net asset value
at end of
period $15.07 $14.41 $12.59 $12.34
====== ====== ====== ======
Total return 7.33%+ 19.01% 5.19% -1.86%+
Net assets at
end of period
(000's omitted) $43,228 $40,140 $36,383 $39,631
Ratio of expenses
to average net
assets 1.11%++ 1.09% 1.06% 1.11%++
Ratio of net
investment
income to
average net
assets .14%++ .31% .33% .18%++
Portfolio turnover
rate 45.32%++ 19.59% 18.46% 14.05%++
Avg. Commission
rate paid $0.0583 -- -- --
</TABLE>
+Not annualized.
++Annualized.
15
<PAGE> 16
SAFECO NORTHWEST FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FEBRUARY 7, 1991
YEAR ENDED (INITIAL PUBLIC
DECEMBER 31, OFFERING) TO
1992 DECEMBER 31, 1991
-------------- -------------------
<S> <C> <C>
Net asset value
at beginning
of period $11.37 $10.06
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income .06 .13
Net realized
and unrealized
gain (loss) on
investments 1.53 1.44
---- ----
Total from investment
operations 1.59 1.57
---- ----
LESS
DISTRIBUTIONS:
Dividends from
net
investment
income (.06) (.19)
Distributions from
capital gains (.31) (.07)
----- -----
Total distributions (.37) (.26)
----- -----
Net asset value
at end of
period $12.59 $11.37
====== ======
Total return 14.08% 14.93%+
Net assets at
end of period
(000's omitted) $40,402 $26,434
Ratio of expenses
to average net
assets 1.11% 1.27%++
Ratio of net
investment
income to
average net
assets .55% 1.14%++
Portfolio turnover
rate 33.34% 27.71%++
Avg. Commission
rate paid -- --
</TABLE>
+Not annualized.
++Annualized.
16
<PAGE> 17
SAFECO BALANCED FUND, INTERNATIONAL FUND, AND SMALL COMPANY FUND
<TABLE>
<CAPTION>
FOR THE PERIOD FROM JANUARY 31, 1996
(INITIAL PUBLIC OFFERING) TO MARCH 31, 1996
-------------------------------------------------------------------
SAFECO SAFECO SAFECO
BALANCED INTERNATIONAL SMALL COMPANY
FUND STOCK FUND STOCK FUND
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .03 .01
Net realized and unrealized gain (Loss)
on investment and foreign
currency transactions (.03) .01 .48
----- --- ---
Total from investment operations .02 .04 .49
--- --- ---
LESS DISTRIBUTIONS:
Dividends from net investment income (.05) -- --
Distributions from realized gains -- -- --
-- -- --
Total Distributions (.05) -- --
----- -- --
Net asset value at end of period $9.97 $10.04 $10.49
===== ====== ======
Total Return .17%+ .40%+ 4.90%+
Net assets at end of period (000's omitted) $6,353 $6,461 $6,406
Ratio of expenses to average net assets 1.69%++ 2.53%++ 1.82%++
Ratio of net investment income (Loss)
to average net assets 3.10%++ 1.87%++ .89%++
Portfolio turnover rate 351.35%++ 3.97%++ 22.28%++
Average commission rate paid $.0552 $.0250 $.0538
</TABLE>
- -------------
+ Not Annualized.
++ Annualized.
The information listed above is based on a two month operating history and may
not be indicative of longer-term results. More information about the Funds is
contained in their Semi-Annual Report to shareholders, which may be obtained
without charge by calling one of the numbers on the first page of this
Prospectus.
17
<PAGE> 18
- ---------------------------------------------------------------
SUB-ADVISER INFORMATION FOR THE INTERNATIONAL FUND
- ---------------------------------------------------------------
The International Fund's sub-adviser, Bank of Ireland Asset Management (U.S.)
Limited ("BIAM"), has been managing separate accounts for institutional clients
in the United States for six years. BIAM's past performance in advising these
accounts was a key factor in its selection as the Fund's sub-adviser. The
performance illustrated in the table that follows is based on the return
achieved on BIAM's fully discretionary international equity composite of
accounts ("Composite") consisting of 27 accounts totaling approximately $2.6
billion which comprised approximately 70.2% of BIAM's assets under management as
of December 31, 1995. These returns reflect the time-weighted total returns
achieved by the Composite's constituent accounts, weighted by reference to their
sizes. The past performance of the Composite is shown after reduction by the
International Fund's maximum investment management and estimated administrative
expenses (1.33% per year).
<TABLE>
<CAPTION>
For the Periods Ended December 31, 1995
One Year Two Years Three Years Four Years Five Years Six Years
-------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BIAM 19.24% 5.26% 16.25% 15.20% 14.49% 11.25%
Morgan
Stanley
Europe,
Australia and
Far East
Index
("EAFE
Index") 11.56% 9.80% 17.02% 9.02% 9.71% 3.38%
</TABLE>
The EAFE Index is used for comparison purposes only. The EAFE Index is an
unmanaged index of representative international stocks that has no management or
expense charges. Performance is based on historical earnings and is not intended
to indicate future performance.
Please keep in mind that the International Fund's performance may differ from
the Composite performance. The International Fund's expenses, timing of
purchases and sales of portfolio securities, availability of cash flows,
brokerage commissions and diversification of the portfolio are all reasons that
might cause the performance of the International Fund to vary from that of the
Composite. There are a number of ways to calculate performance, and it is
possible that if a different method were used the result would have varied.
Finally, the past performance of the Composite is no guarantee of the future
results of the International Fund.
18
<PAGE> 19
- ------------------------------------------------------
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------
The investment objective and investment policies for each Fund are described
below. The Trust's Board of Trustees may change a Fund's objective without
shareholder vote, but no such change will be made without 30 days' prior written
notice to shareholders of that Fund. In the event a Fund changes its investment
objective, the new objective may not meet the investment needs of every
shareholder and may be different from the objective a shareholder considered
appropriate at the time of initial investment.
Each Fund has adopted a number of investment restrictions. If a Fund follows a
percentage limitation at the time of investment, a later increase or decrease in
values, assets or other circumstances will not be considered in determining
whether a Fund complies with the applicable policy (except to the extent the
change may impact a Fund's borrowing limits). Unless otherwise stated, the
investment policies and limitations described below under each Fund's
description and "Common Investment Practices" are non-fundamental and may be
changed without a shareholder vote.
GROWTH FUND
The Growth Fund has as its investment objective to seek growth of capital and
the increased income that ordinarily follows from such growth. The Growth Fund
ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation. Such investments may cause its share price
to be more volatile than the Equity and Income Funds.
To pursue its investment objective, the Growth Fund:
1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. To determine those common stocks
which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management and earnings power.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK,
EITHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION
OF THE ISSUER). The Fund will purchase convertible securities if such
securities offer a higher yield than an issuer's common stock and
provide reasonable potential for capital appreciation.
3. MAY INVEST UP TO 5% OF NET ASSETS IN CONTINGENT VALUE RIGHTS. A
contingent value right is a right issued by a corporation that takes on
a preestablished value if the underlying common stock does not attain a
target price by a specified date.
19
<PAGE> 20
For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities" on page 50.
EQUITY FUND
The Equity Fund has as its investment objective to seek long-term growth of
capital and reasonable current income. The Equity Fund invests principally in
common stock selected for appreciation and/or dividend potential and from a
long-range investment standpoint. The Equity Fund does not seek to achieve both
growth and income with every portfolio security investment. Rather, it attempts
to achieve a reasonable balance between growth and income on an overall basis.
To pursue its investment objective, the Equity Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN EQUITY SECURITIES (WHICH INCLUDE COMMON STOCKS AND PREFERRED
STOCKS). The Fund will invest principally in common stocks selected by
SAM primarily for appreciation and/or dividend potential and from a
long-range investment standpoint.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK,
WHETHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION
OF THE ISSUER), EXCEPT THAT LESS THAN 35% OF ITS NET ASSETS WILL BE
INVESTED IN SUCH SECURITIES. The Equity Fund may invest in convertible
corporate bonds that are rated below investment grade (commonly
referred to as "high-yield" or "junk" bonds) or in comparable, unrated
bonds, but less than 35% of the Equity Fund's net assets will be
invested in such securities. The Equity Fund will not purchase a bond
rated below Ca by Moody's Investors Service, Inc. ("Moody's") or CC by
Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies ("S&P") or which is in default on the payment of principal
and interest. Bonds rated Ca or CC are highly speculative and have
large uncertainties or major risk exposures. See "Risk Factors" on page
30 for more information.
For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities" on page 50. For a description of debt
securities ratings, see the "Ratings Supplement" on page 51.
INCOME FUND
The Income Fund has as its investment objective to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Fund
currently intends to place greatest emphasis on holding common stock,
convertible corporate bonds and convertible preferred stock. SAM will select
securities primarily for current income, but also with a view toward capital
growth when this can be accomplished without conflicting with the Fund's
investment objective.
20
<PAGE> 21
To pursue its investment objective, the Income Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCK AND ALSO IN CONVERTIBLE AND
NON-CONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER).
The Fund will purchase convertible securities if such securities offer
a higher yield than an issuer's common stock and provide reasonable
potential for capital appreciation. The Income Fund may invest in
convertible corporate bonds that are rated below investment grade
(commonly referred to as "high-yield" or "junk" bonds) or in
comparable, unrated bonds, but less than 35% of the Income Fund's net
assets will be invested in such securities. Bonds rated Ca by Moody's
or CC by S&P are highly speculative and have large uncertainties or
major risk exposures. See "Risk Factors" on page 28 for more
information.
2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS WHICH ARE
ISSUED BY U.S. ISSUERS. Eurodollar bonds are traded in the European
bond market and are denominated in U.S. dollars. The Fund will purchase
Eurodollar bonds through U.S. securities dealers and hold such bonds in
the United States. The delivery of Eurodollar bonds to the Fund's
custodian in the United States may cause slight delays in settlement
which are not anticipated to affect the Fund in any material, adverse
manner.
For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities" on page 49. For a description of debt
securities ratings, see the "Ratings Supplement" on page 50.
NORTHWEST FUND
The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Fund will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in Alaska,
Idaho, Montana, Oregon or Washington.
To pursue its investment objective, the Northwest Fund:
1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCKS AND
PREFERRED STOCKS OF COMPANIES LOCATED IN THE NORTHWEST SELECTED
PRIMARILY FOR POTENTIAL LONG-TERM APPRECIATION. To determine those
common and preferred stocks which have the potential for long-term
growth, SAM will evaluate the issuer's financial strength, quality of
management and earnings power. The Fund generally invests a portion of
its assets in smaller companies. See "Risk Factors" for more
information about the risks of investing primarily in companies located
in the Northwest.
21
<PAGE> 22
2. MAY OCCASIONALLY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK
WHEN, IN THE OPINION OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE
SECURITY EXCEEDS THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR
PURCHASE BY THE FUND. The Fund may purchase corporate bonds and
preferred stock that convert to common stock either automatically after
a specified period of time or at the option of the issuer. The Fund
will purchase those convertible securities which, in SAM's opinion,
have underlying common stock with potential for long-term growth. The
Fund will purchase convertible securities which are investment grade,
i.e., rated in the top four categories by either S&P or Moody's.
See "Risk Factors" for more information about the risks inherent in
geographic concentration. For a brief description of common stocks,
preferred stocks, convertible securities, and bonds and other debt
securities, see "Description of Stocks, Bonds and Convertible
Securities" on page 50. For a description of debt securities ratings,
see the "Ratings Supplement" on page 50.
BALANCED FUND
The Balanced Fund has as its investment objective to seek growth and income
consistent with the preservation of capital. To pursue its objective, the
Balanced Fund will invest primarily in equity and fixed income securities and
will occasionally alter the mix of its equity and fixed income securities. Such
action will be taken in response to economic conditions and generally in small
increments. The Balanced Fund will not make significant changes in its asset mix
in an attempt to "time the market."
To pursue its investment objective, the Balanced Fund:
1. WILL ORDINARILY INVEST FROM 50% TO 70% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, WHICH INCLUDE COMMON STOCKS, PREFERRED STOCK AND SECURITIES
CONVERTIBLE INTO COMMON STOCK. The Fund will invest principally in
common stocks selected by SAM primarily for appreciation and/or
dividend potential and from a long-range investment standpoint. The
Fund may purchase corporate bonds and preferred stock that convert to
common stock either automatically after a specified period of time or
at the option of the issuer.
The Fund will purchase those convertible securities which, in SAM's
opinion, have underlying common stock with potential for long-term
growth. The Fund will purchase convertible securities which are
investment grade, i.e., rated in the top four categories by either S&P
or Moody's.
2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SENIOR
SECURITIES. The Fund will purchase only those U.S. Government and
investment grade debt obligations or non-rated debt obligations which
in SAM's view contain the credit characteristics of investment grade
debt obligations. Investment grade obligations (rated between Aaa - Baa
by Moody's and AAA-BBB by S&P) are from high to medium quality. Medium
quality
22
<PAGE> 23
obligations possess speculative characteristics and may be more
sensitive to economic changes and changes to the financial condition of
issuers.
For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities" on page 49. For a description of debt
securities ratings, see the "Ratings Supplement" on page 50.
INTERNATIONAL FUND
The investment objective of the International Fund is to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To pursue its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the United States.
To pursue its investment objective, the International Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCKS OF NON-U.S. COMPANIES. Common
stock issued by foreign companies is subject to various risks in
addition to those associated with U.S. investments. For example, the
value of the common stock depends in part upon currency values, the
political and regulatory environments, and overall economic factors in
the countries in which the common stock is issued.
2. MAY INVEST IN PREFERRED STOCKS AND CONVERTIBLE SECURITIES ISSUED BY
FOREIGN COMPANIES.
3. MAY INVEST IN DEBT SECURITIES ISSUED BY FOREIGN COMPANIES AND
GOVERNMENTS. The Fund will make such investments primarily for
defensive purposes, but may also do so where anticipated interest rate
movements, or other factors affecting the degree of risk inherent in a
fixed income security, are expected to change significantly so as to
produce appreciation in the security consistent with the objective of
the Fund. The Fund may purchase sovereign debt instruments issued or
guaranteed by foreign governments or their agencies. Sovereign debt may
be in the form of conventional securities or other types of debt
instruments such as loans or loan participations. Governments or
governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may
require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic
factors.
4. MAY INVEST IN PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"), WHICH
INCLUDE FUNDS OR TRUSTS ORGANIZED AS INVESTMENT VEHICLES TO INVEST IN
COMPANIES OF CERTAIN FOREIGN COUNTRIES. Investors in PFICs bear their
proportionate share of the PFIC's management fees and other expenses.
See "Additional Tax Information" in the Trust's Statement of Additional
Information.
23
<PAGE> 24
5. MAY PURCHASE AND SELL PUT AND CALL OPTIONS ON SECURITIES, FINANCIAL
INDICES AND FOREIGN CURRENCIES, MAY PURCHASE AND SELL THE FOLLOWING
NON-LEVERAGED DERIVATIVE SECURITIES: FUTURES CONTRACTS AND RELATED
OPTIONS WITH RESPECT TO SECURITIES, FINANCIAL INDICES AND FOREIGN
CURRENCIES, AND MAY ENTER INTO FOREIGN CURRENCY TRANSACTIONS SUCH AS
FORWARD CONTRACTS. The Fund may employ certain strategies and
techniques utilizing these instruments to mitigate its exposure to
changing currency exchange rates, security prices, interest rates and
other factors that affect security values. There is no guarantee that
these strategies and techniques will work.
An option gives an owner the right to buy or sell securities at a
predetermined exercise price for a given period of time. The writer of
an option is obligated to purchase or sell (depending upon the nature
of the option) the underlying securities if the option is exercised
during the specified period of time. A futures contract is an agreement
in which the seller of the contract agrees to deliver to the buyer an
amount of cash equal to a specific dollar amount times the difference
between the value of a security at the close of the last trading day of
the contract and the price at which the agreement is made. A forward
currency contract is an agreement to purchase or sell a foreign
currency at some future time for a fixed amount of U.S. dollars.
The Fund, under normal conditions, will not sell a put or call option
if, as a result thereof, the aggregate value of the assets underlying
all such options (determined as of the date such options are written)
would exceed 25% of the Fund's net assets. The Fund will not purchase a
put or call option or option on a futures contract if, as a result
thereof, the aggregate premiums paid on all options or options on
futures contracts held by the Fund would exceed 20% of its net assets.
In addition, the Fund will not enter into any futures contract or
option on a futures contract if, as a result thereof, the aggregate
margin deposits and premiums required on all such instruments would
exceed 5% of its net assets.
See "Risk Factors" for more information about the risks inherent in securities
issued by foreign issuers and in the purchase and sale of options, futures and
forward contracts. For a brief description of common stocks, preferred stocks,
convertible securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 50.
SMALL COMPANY FUND
The Small Company Fund has as its investment objective to seek long-term growth
of capital through investing primarily in small-sized companies. To pursue its
objective, the Small Company Fund will invest primarily in companies with total
market capitalization of less than $1 billion.
To pursue its investment objective, the Small Company Fund:
1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND
PREFERRED STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET
CAPITALIZATION OF LESS THAN $1 BILLION. Companies whose capitalization
falls outside this range after purchase continue to be considered
small-capitalized for purposes of the 65% policy. The Fund will invest
24
<PAGE> 25
principally in common stocks selected by SAM primarily for appreciation
and/or dividend potential and from a long-range investment standpoint.
In determining those common and preferred stocks which have the
potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power.
Investments in small or newly formed companies involve greater risks
than investments in larger, more established issuers and their
securities can be subject to more abrupt and erratic movements in
price. See "Risk Factors" for more information about the risks inherent
in securities issued by small companies.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN SAM'S
OPINION, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS
THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE
FUND. The Fund will purchase convertible securities if such securities
offer a higher yield than an issuer's common stock and provide
reasonable potential for capital appreciation. The Fund may invest in
convertible corporate bonds that are rated below investment grade
(commonly referred to as "high-yield" or "junk" bonds) or in
comparable, unrated bonds, but less than 35% of the Fund's net assets
will be invested in such securities. Bonds rated Ca by Moody's or CC by
S&P are highly speculative and have large uncertainties or major risk
exposures. See "Risk Factors" on page 28 for more information.
See "Risk Factors" for more information about the risks inherent in small
company issuers. For a brief description of common stocks, preferred stocks,
convertible securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 49. For a description of debt
securities ratings, see the "Ratings Supplement" on page 50.
COMMON INVESTMENT PRACTICES OF THE FUNDS
Each of the Funds may also follow the investment practices described below:
1. MAY INVEST IN BONDS AND OTHER DEBT SECURITIES.
Each Fund may invest in bonds and other debt securities that are rated
investment grade by Moody's or S&P, or unrated bonds determined by SAM
to be of comparable quality to such rated bonds. Bonds rated in the
lowest category of investment grade (Baa by Moody's and BBB by S&P) and
comparable unrated bonds have speculative characteristics and are more
likely to have a weakened capacity to make principal and interest
payments under changing economic conditions or upon deterioration in
the financial condition of the issuer.
After purchase by a Fund, a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event
will require a Fund to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether
the Fund should continue to hold the security in its portfolio. The
Equity Fund will not hold more than 3% of its total assets and the
Income Fund will not hold more than 1% of its total assets in bonds
that go into default on the payment of
25
<PAGE> 26
principal and interest after purchase. In the event that 35% or more of
a Fund's net assets is held in securities rated below investment grade
due to a downgrade of one or more corporate bonds, SAM will engage in
an orderly disposition of such securities to the extent necessary to
ensure that the Fund's holdings of such securities remain below 35% of
the Fund's net assets.
2. MAY INVEST IN WARRANTS. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of
the warrant. Generally, the value of a warrant will fluctuate by
greater percentages than the value of the underlying common stock. The
primary risk associated with a warrant is that the term of the warrant
may expire before the exercise price of the common stock has been
reached. Under these circumstances, a Fund could lose all of its
principal investment in the warrant.
3. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM
SECURITIES ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S.
GOVERNMENT, HIGH QUALITY COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT,
SHARES OF NO-LOAD, OPEN-END MONEY MARKET FUNDS (EXCEPT THE EQUITY FUND)
OR REPURCHASE AGREEMENTS. The Funds may purchase these short-term
securities as a cash management technique under those circumstances
where it has cash to manage for a short time period, for example, after
receiving proceeds from the sale of securities, dividend distributions
from portfolio securities or cash from the sale of Fund shares to
investors. SAM will waive its advisory fees for any Growth, Income,
Northwest, Balanced, International or Small Company Fund assets
invested in money market funds. With respect to repurchase agreements,
each Fund will invest no more than 5% of its total assets in repurchase
agreements and will not purchase repurchase agreements that mature in
more than seven days. Counterparties of foreign repurchase agreements
may be less creditworthy than U.S. counterparties.
4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS
OR PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under
this procedure, a Fund agrees to acquire securities that are to be
issued and delivered against payment in the future. The price, however,
is fixed at the time of commitment. When a Fund purchases when-issued
or delayed-delivery securities, its custodian bank will maintain in a
temporary holding account cash, U.S. Government securities or other
high-grade debt obligations having a value equal to or greater than
such commitments. On delivery dates for such transactions, the Fund
will meet its obligations from maturities or sales of the securities
held in the temporary holding account or from then-available cash flow.
If a Fund chooses to dispose of the right to acquire a when-issued or
delayed delivery security prior to its acquisition, it could incur a
gain or loss due to market fluctuations. Use of these techniques may
affect a Fund's share price in a manner similar to leveraging.
5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are
registered receipts evidencing ownership of an underlying foreign
security. They typically are issued in the United States by a bank or
trust company. In addition to the risks of foreign investment
applicable to the underlying securities, ADRs may also be subject to
the risks that the foreign issuer may not be obligated to cooperate
with the U.S. bank or trust company, or
26
<PAGE> 27
that such information in the U.S. market may not be current. ADRs which
are structured without sponsorship of the issuer of the underlying
foreign security may also be subject to the risk that the foreign
issuer may not provide financial and other material information to the
U.S. bank or trust company issuer. The International Fund may utilize
European Depositary Receipts ("EDRs"), which are similar instruments.
EDRs may be in bearer form and are designed for use in the European
securities markets.
6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES, EXCEPT
THE INTERNATIONAL FUND, WHICH MAY INVEST 100% OF ITS ASSETS IN FOREIGN
SECURITIES. Foreign securities are subject to risks in addition to
those inherent in investments in domestic securities. See "Risk
Factors" on page 30 for more information about the risks associated
with investments in foreign securities.
7. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE
INVESTMENT TRUSTS ("REITS"). REITs purchase real property, which is
then leased, and make mortgage investments. For federal income tax
purposes, REITs attempt to qualify for beneficial "modified
pass-through" tax treatment by annually distributing at least 95% of
their taxable income. If a REIT were unable to qualify for such tax
treatment, it would be taxed as a corporation and the distributions
made to its shareholders would not be deductible by it in computing its
taxable income. REITs are dependent upon the successful operation of
properties owned and the financial condition of lessees and mortgagors.
The value of REIT units fluctuates depending on the underlying value of
the real property and mortgages owned and the amount of cash flow (net
income plus depreciation) generated and paid out. In addition, REITs
typically borrow to increase funds available for investment. Generally,
there is a greater risk associated with REITs that are highly
leveraged.
8. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES,
PROVIDED THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE LIQUID UNDER
GUIDELINES ADOPTED BY THE TRUST'S BOARD OF TRUSTEES. Restricted
securities may be sold only in offerings registered under the
Securities Act of 1933, as amended ("1933 Act"), or in transactions
exempt from the registration requirements under the 1933 Act. Rule 144A
under the 1933 Act provides an exemption for the resale of certain
restricted securities to qualified institutional buyers. Investing in
restricted securities may increase the Funds' illiquidity to the extent
that qualified institutional buyers or other buyers are unwilling to
purchase the securities. As a result, a Fund may not be able to sell
these securities when its investment adviser or sub- investment adviser
deems it advisable to sell, or may have to sell them at less than fair
value. In addition, market quotations are sometimes less readily
available for restricted securities. Therefore, judgment may at times
play a greater role in valuing these securities than in the case of
unrestricted securities.
9. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT
MATURITY ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX.
The value of an indexed
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security is determined by reference to a specific equity instrument or
statistic. The performance of indexed securities depends largely on the
performance of the securities or indices to which they are indexed, but
such securities are also subject to credit risks associated with the
issuer of the security. Indexed securities may also be more volatile
than their underlying instruments.
10. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES OF UNSEASONED
ISSUERS. Unseasoned issuers are those companies which, together with
any predecessors, have been in operation for less than three years.
The following restrictions are fundamental policies of the Funds that cannot be
changed without shareholder vote.
1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY
NOT INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY
ONE ISSUER (OTHER THAN U.S.
GOVERNMENT SECURITIES).
2. THE GROWTH, INCOME AND NORTHWEST FUNDS MAY NOT PURCHASE MORE THAN 10%
OF ANY CLASS OF SECURITIES OF ANY ONE ISSUER.
3. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY
NOT PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY
ONE ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).
4. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES,
AND THE GROWTH FUND ONLY FOR EXTRAORDINARY OR EMERGENCY PURPOSES, FROM
A BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT
GREATER THAN THAT AVAILABLE FROM COMMERCIAL BANKS. The Growth, Income
and Northwest Funds will not borrow amounts in excess of 20%, and the
Equity, Balanced, International and Small Company Funds will not borrow
amounts in excess of 33%, of total assets. A Fund will not purchase
securities if borrowings equal to or greater than 5% of total assets
are outstanding for that Fund.
For more information, see the "Investment Policies" and "Additional Investment
Information" sections of the Trust's Statement of Additional Information.
- ----------------
RISK FACTORS
- ----------------
There are market risks in all securities transactions. Various factors may cause
the value of a shareholder's investment in a Fund to fluctuate. The principal
risk factor associated with an
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<PAGE> 29
investment in a mutual fund like any of the Funds is that the market value of
the portfolio securities may decrease, resulting in a decrease in the value of a
shareholder's investment.
An investment in the Northwest Fund may be subject to different risks than a
mutual fund whose investments are more geographically diverse. Since the
Northwest Fund invests primarily in companies with their principal executive
offices located in the Northwest, the number of issuers whose securities are
eligible for purchase is significantly less than many other mutual funds. Also,
some companies whose securities are held in the Northwest Fund's portfolio may
primarily distribute products or provide services in a specific locale or in the
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Northwest Fund may have a
predominately national or partially international market for their products or
services and are more likely to be impacted by national or international trends.
As a result, the performance of the Northwest Fund may be influenced by business
trends or economic conditions not only in a specific locale or in the Northwest
region but also on a national or international level, depending on the companies
whose securities are held in its portfolio at any particular time.
The Equity, Income and Small Company Funds may invest in below investment grade
bonds, which are speculative and involve greater investment risks than
investment grade bonds due to the issuer's reduced creditworthiness and
increased likelihood of default and bankruptcy. During periods of economic
uncertainty or change, the market prices of below-investment grade bonds may
experience increased volatility. Below-investment grade bonds tend to reflect
short-term economic and corporate developments to a greater extent than higher
quality bonds.
Because the International Fund primarily invests, and the other Funds may
invest, in foreign securities, each Fund is subject to risks in addition to
those associated with U.S. investments. Foreign investments involve sovereign
risk, which includes the possibility of adverse local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent currency from being sold). Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There is generally less publicly available information about
issuers of foreign securities as compared to U.S. issuers. Many foreign
companies are not subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign issuers are less liquid and more volatile than
securities of U.S. issuers. Financial markets on which foreign securities trade
are generally subject to less governmental regulation as compared to U.S.
markets. Foreign brokerage commissions and custodian fees are generally higher
than those in the United States.
In addition, the International Fund may purchase and sell put and call options,
futures contracts and forward contracts. Risks inherent in the use of futures,
options and forward contracts include: the risk that interest rates, security
prices and currency markets will not move in the directions anticipated;
imperfect correlation between the price of the future, option or forward
29
<PAGE> 30
contract and the price of the security, interest rate or currency being hedged;
the risk that potential losses may exceed the amount invested in the contracts
themselves; the possible absence of a liquid secondary market for any particular
instrument at any time; the possible need to defer closing out certain hedged
positions to avoid adverse tax consequences; and the reduction or elimination of
the opportunity to profit from increases in the value of the security, interest
rate or currency being hedged.
The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation through investing primarily in securities issued by smaller
companies. In addition, the Small Company Fund invests in companies with small
market capitalizations which involve more risks than investments in larger
companies. Such companies may include newly formed companies which have limited
product lines, markets or financial resources and may lack management depth. The
securities of small or newly formed companies may have limited marketability and
may be subject to more abrupt and erratic movements in price than securities of
larger, more established companies, or equity securities in general. Such
volatility in price may in turn cause the Growth Fund's and Small Company Fund's
share prices to be volatile.
- -------------------------
PORTFOLIO MANAGERS
- -------------------------
Growth Fund
The portfolio manager for the Growth Fund is Thomas M. Maguire, Vice President,
SAM. Mr. Maguire has served as portfolio manager for the Fund since 1989.
Equity Fund
The portfolio manager for the Equity Fund is Richard D. Meagley, Vice President,
SAM. Mr. Meagley began serving as portfolio manager for the Fund in 1995. He is
also the portfolio manager for certain other SAFECO Funds. Prior to these
positions, he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAM and the fund manager of
the SAFECO Northwest Fund from 1991 to 1992.
Income Fund
The portfolio manager for the Income Fund is Thomas E. Rath, Assistant Vice
President of SAM. Mr. Rath has been a portfolio manager and securities analyst
for SAFECO Corporation since 1994. From 1992 to 1994, Mr. Rath was a principal
and portfolio manager for Meridian Capital Management, Inc., located in Seattle,
Washington. From 1987 to 1992 he was a portfolio
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<PAGE> 31
manager and securities analyst for First Interstate Bank, located in Seattle,
Washington, and from 1983 to 1987 he was a securities analyst for SAFECO
Corporation.
Northwest Fund
The portfolio manager for the Northwest Fund is Charles R. Driggs, Vice
President, SAM. Mr. Driggs has served as portfolio manager for the Fund since
1992. From 1984 through 1992, Mr. Driggs was a securities analyst for SAM
specializing in banks, savings and loan institutions and the insurance industry.
Balanced Fund
The portfolio managers for the Balanced Fund are Rex L. Bentley, Vice President,
SAM, and Michael C. Knebel, Vice President, SAM. Mr. Bentley was Vice President
and Investment Counsel at the investment advisory firm of Badgley, Phelps and
Bell Investment Counsel, Inc., from 1990 to 1995. He was a securities analyst
for SAFECO Corporation from 1975 to 1983. Mr. Knebel has served as portfolio
manager for certain other SAFECO mutual funds since 1989.
International Fund
The International Fund is managed by a committee of portfolio managers employed
and supervised by the Sub-Adviser, Bank of Ireland Asset Management (U.S.)
Limited, an investment adviser registered with the SEC. All investment decisions
are made by this committee and no single person is primarily responsible for
making recommendations to that committee.
Small Company Fund
The portfolio manager for the Small Company Fund is Greg Eisen. Mr. Eisen has
served as an investment analyst for SAM since 1992. From 1986 to 1992, Mr. Eisen
was engaged by the SAFECO Insurance Companies as a financial analyst.
Each portfolio manager and certain other persons related to SAM, the Sub-Adviser
and the Funds are subject to written policies and procedures designed to prevent
abusive personal securities trading. Incorporated within these policies and
procedures are recommendations made by the Investment Company Institute (the
trade group for the mutual fund industry) with respect to personal securities
trading by persons associated with mutual funds. Those recommendations include
preclearance procedures and blackout periods when certain personnel may not
trade in securities that are the same or related securities being considered for
purchase or sale by a Fund.
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<PAGE> 32
- ------------------------------
HOW TO PURCHASE SHARES
- ------------------------------
A completed and signed application must accompany payment for an initial
purchase by mail and in all cases is necessary before a redemption can be made.
Specific applications for retirement accounts must be completed and signed
before any retirement account can be set up. The Funds only accept funds drawn
in U.S. dollars and payable through a U.S. bank. The Funds do not accept
currency. The Funds issue shares in uncertificated form, but will issue
certificates for whole shares without charge upon written request. You will be
required to post a bond to replace missing certificates.
THE FUNDS RESERVE THE RIGHT TO REFUSE ANY OFFER TO PURCHASE SHARES.
INITIAL PURCHASES
MINIMUM INITIAL INVESTMENT $1,000 (IRA $250).
Minimum initial investments are negotiable for retirement accounts other than
IRAs.
No minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.
BY WRITTEN REQUEST
Send a check or money order made payable to No-Load Class of the applicable Fund
and a completed and signed application to the address on the Prospectus cover.
BY WIRE
Call toll-free 1-800-624-5711 or, in Seattle, 545-7319 for instructions.
Not available for retirement accounts.
IN PERSON
Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 15411 N.E.
51st Street in Redmond, Washington. A representative will assist you in
completing your application.
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<PAGE> 33
ADDITIONAL PURCHASES
MINIMUM ADDITIONAL INVESTMENT $100 (EXCEPT DIVIDEND REINVESTMENTS).
Minimum additional investments are negotiable for retirement accounts other than
IRAs.
BY WRITTEN REQUEST
Send a check or money order made payable to No-Load Class of the applicable Fund
to the address on the Prospectus cover. Please specify your account number.
BY WIRE
Instruct your bank to send wires to U.S. Bank of Washington, N.A., Seattle,
Washington, ABA #1250-0010-5, Account #0017-086083.
To ensure timely credit to your account, ask your bank to include the following
information in its wire to U.S. Bank of Washington, N.A.:
. SAFECO Fund name and class name
. SAFECO account number
. Name of the registered owner(s) of the SAFECO account
Delays of purchases caused by inadequate wire instructions are not the
responsibility of the Funds or SAFECO Services.
Your bank may charge a fee for wire services.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319. You must have previously selected
this service on your account application or by written request. Not available to
open a new account or for retirement accounts.
Maximum purchase $100,000 per day, minimum purchase $100 per day.
Monies will be transferred from your predesignated bank account to your existing
Fund account. Your bank may charge a fee if monies are wired to your Fund
account. Please allow 15 business days after selecting this service for it to be
available for first use.
Telephone purchases may be unavailable from some bank accounts and non-bank
financial institutions.
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<PAGE> 34
Please read "Telephone Transactions" on page 40 for other important information.
IN PERSON
You may complete your initial application and make additional investments in
person by visiting a SAFECO Investor Center. Investor Centers are located at
1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at
15411 N.E. 51st Street in Redmond, Washington. A licensed representative will be
available to assist you in completing your application.
THROUGH REGISTERED SECURITIES DEALERS
You may open your account and make additional investments through a registered
securities dealer who is responsible for the prompt forwarding of purchase
orders. A dealer may charge a transaction fee and may place more restrictive
conditions on a purchase than would apply if you purchased your shares directly
from a Fund.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 41 for
important information.
SHARE PURCHASE PRICE
You will buy full and fractional shares at the NAV next computed after your
check, money order or wire has been received. For telephone purchase orders, you
will receive the price per share calculated on the day monies are received from
your bank account. See "Share Price Calculation" on page 41 for more
information.
- ---------------------------
HOW TO REDEEM SHARES
- ---------------------------
BY WRITTEN REQUEST
Shares may be redeemed by sending a letter which specifies your account number,
the Fund's name and applicable class, and the number of shares or dollar amount
you wish to redeem. The request should be sent to the address on the Prospectus
cover. The request must be signed by the appropriate number of owners and in
some cases a signature guarantee may be required. In all cases, SAFECO Services
must have a signed and completed application on file before a redemption can be
made. See "Account Changes and Signature Requirements" on page 49 for more
information.
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<PAGE> 35
Retirement account shareholders must specify whether or not they elect 10%
federal income tax withholding from a distribution other than an "eligible
rollover distribution."
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319. You must have previously
selected this service on your account application or by written request.
Telephone redemptions are not available for retirement accounts or shares issued
in certificate form. You may request that redemption proceeds be sent directly
to your predesignated bank or mailed to your account address of record.
Please read "Telephone Transactions" on page 39 for other important information.
IN PERSON
Shares may be redeemed in person by visiting a SAFECO Investor Center. Investor
Centers are located at 1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in
Seattle, Washington, and at 15411 N.E. 51st Street in Redmond, Washington. Funds
for shares redeemed in person may be mailed to your address of record, sent
directly to your bank or retrieved directly from the SAFECO Investor Center once
they become available.
THROUGH REGISTERED SECURITIES DEALERS
Requests for redemption of shares by wire or telephone will be accepted from
registered securities dealers under agreement with each Fund's principal
underwriter. The dealer may charge a transaction fee for any order processed.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 41 for
important information.
PLEASE NOTE THE FOLLOWING:
If your shares were purchased by wire, redemption proceeds will be available
immediately. If shares were purchased other than by wire, each Fund reserves the
right to hold the proceeds of your redemption for up to 15 business days after
investment or until such time as the Fund has received assurance that your
investment will be honored by the bank on which it was drawn, whichever occurs
first.
SAFECO Services charges a $10 fee to wire redemption proceeds. In addition, some
banks may charge a fee to receive wires.
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<PAGE> 36
If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption will be made.
SHARE REDEMPTION PRICE AND PROCESSING
Your shares will be redeemed at the NAV next calculated after receipt of your
request that meets the redemption requirements of the Funds. The value of the
shares you redeem may be more or less than the dollar amount you purchased,
depending on the market value of the shares at the time of redemption. See
"Share Price Calculation" on page 40 for more information.
Redemption proceeds will normally be sent on the next business day following
receipt of your redemption request. If your redemption request is received after
the close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time), proceeds will normally be sent on the second business day following
receipt. Each Fund, however, reserves the right to postpone payment of
redemption proceeds for up to seven days if making immediate payment could
adversely affect its portfolio. In addition, redemptions may be suspended or
payment dates postponed if the New York Stock Exchange is closed, its trading is
restricted or the Securities and Exchange Commission declares an emergency.
Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the NAV calculated
on the day your account is closed and the proceeds will be sent to you.
- --------------------------------------------------------------
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES
- --------------------------------------------------------------
Call 1-800-426-6730 or 206-545-5530, in Seattle, for more information.
AUTOMATIC INVESTMENT METHOD (AIM)
AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount (minimum of $100 per withdrawal per Fund)
from your bank account and invest the amount in any Fund.
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PAYROLL DEDUCTION PLAN
An employer or other entity using group billing may establish a
self-administered payroll deduction plan in any Fund. Payroll deduction amounts
are negotiable.
SYSTEMATIC WITHDRAWAL PLAN
This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund) on or about the fifth business
day of every month.
- --------------------------------------------------------------
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER
- --------------------------------------------------------------
An exchange is the redemption of shares of one SAFECO Fund and the purchase of
shares of another SAFECO Fund in accounts which are identically registered;
i.e., have the same registered owners and account number. For income tax
purposes, depending on the cost or other basis of the shares you exchange, you
may realize a capital gain or loss when you make an exchange. You may purchase
shares of a SAFECO Fund by exchange only if it is registered for sale in the
state where you reside. Before exchanging into another SAFECO Fund, please read
its current Prospectus.
BY WRITTEN REQUEST
Shares may be exchanged by writing SAFECO Services at the address on the
Prospectus cover. Please designate the SAFECO Funds and classes you wish to
exchange out of and into as well as your account number. The request must be
signed by the number of owners designated on your account application and in
some cases a signature guarantee may be required. See "Account Changes and
Signature Requirements" for more information.
If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319.
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<PAGE> 38
Exchanges by telephone must be in amounts of $1,000 or more. Telephone exchanges
are not available for shares issued in certificate form.
Please read "Telephone Transactions" on page 39 for other important information.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page 41 for
important information.
SHARE EXCHANGE PRICE AND PROCESSING
The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received. Normally, the
purchase of the SAFECO Fund you are exchanging into is executed on the same day.
However, each Fund reserves the right to delay the payment of proceeds and,
hence, the purchase in an exchange for up to seven days if making immediate
payment could adversely affect the portfolio of the Fund whose shares are being
redeemed. The exchange privilege may be modified or terminated with respect to a
Fund at any time, upon at least 60 days' notice to shareholders.
LIMITATIONS
Each Fund reserves the right to refuse exchange purchases or simultaneous order
transactions by any person or group if, in SAM's judgment, the Fund would not be
able to invest the money effectively in accordance with that Fund's investment
objective and policies or would otherwise potentially be adversely affected.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.
The Funds are not intended to serve as vehicles for frequent trading in response
to short-term fluctuations in the market. Due to the disruptive effect that
market-timing investment strategies can have on efficient portfolio management,
the Funds have instituted certain policies to discourage excessive exchange and
simultaneous order transactions. Exchanges and simultaneous order transactions
which, in SAM's judgment, appear to follow a market-timing strategy are limited
to 4 in any 12 month period per account holder (or account, in a case where one
person or entity exercises investment discretion over more than one account).
For purposes of these limitations a "simultaneous order transaction" is a
transaction where a significant portion of an account's assets are redeemed from
one SAFECO Mutual Fund and shortly thereafter reinvested into another SAFECO
Mutual Fund. In order to protect the shareholders of the Funds, SAM reserves the
right to exercise its discretion in determining whether a particular transaction
qualifies as a simultaneous order transaction. In addition to the foregoing
limitations on exchanges and simultaneous order transactions, as described
above, the Funds reserve the right to refuse any offer to purchase shares.
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<PAGE> 39
- -----------------------------
TELEPHONE TRANSACTIONS
- -----------------------------
To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 206- 545-7319 between 5:30 a.m. and 7:00 p.m. Pacific time, Monday
through Friday, except certain holidays. All telephone calls are tape-recorded
for your protection. During times of drastic or unusual market volatility, it
may be difficult for you to exercise the telephone transaction privilege.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone allows
the Funds and SAFECO Services to accept telephone instructions from an account
owner or a person preauthorized in writing by an account owner.
Each of the Funds and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services, in its sole discretion, is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.
The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures may
include requiring the account owner to select the telephone privilege in writing
prior to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services tape-records telephone transactions and may
request certain identifying information from the caller.
The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services. The
Funds and SAFECO Services may be liable if they do not employ reasonable
procedures to confirm that telephone transactions are genuine.
- -----------------------------------------------------------------
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS
- -----------------------------------------------------------------
SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the
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<PAGE> 40
adviser is registered under the Investment Advisers Act of 1940, has a signed
agreement with SAFECO Services and has an executed power of attorney from the
shareholder, in an acceptable form, on file with SAFECO Services. Advisers may
charge a fee to shareholders for their services. The Trust, the Funds and SAFECO
Services have no control over or involvement with, the fees charged by advisers
for such services. Advisers are responsible for the prompt forwarding of
instructions on shareholders' accounts to SAFECO Services and are bound by the
terms of this Prospectus. The Trust, the Funds, SAFECO Services and their
affiliated companies will not be responsible to any shareholder for any losses,
liabilities, costs or expenses associated with any investment advice or
recommendation provided by the adviser to the shareholder or for accepting and
following any instructions from such adviser on the shareholder's account(s).
- -----------------------------
SHARE PRICE CALCULATION
- -----------------------------
The NAV of the No-Load Class shares of each Fund is computed at the close of
regular trading on the New York Stock Exchange ("NYSE") (normally 1:00 p.m.
Pacific time) each day that the NYSE is open for trading. NAV is determined
separately for each class of shares of each Fund. The NAV of a Fund is
calculated by subtracting a Fund's liabilities from its assets and dividing the
result by the number of outstanding shares. In calculating the net asset value
of each class, appropriate adjustments will be made to each class's NAV to
reflect expenses allocated to it.
In general, portfolio securities are valued at the last reported sale price on
the national exchange on which the securities are primarily traded, unless there
are no transactions in which case they shall be valued at the last reported bid
price. Securities traded over-the-counter are valued at the last sale price,
unless there is no reported sale price in which case the last reported bid price
will be used. Portfolio securities that trade on a stock exchange and
over-the-counter are valued according to the broadest and most representative
market. Securities not traded on a national exchange are valued based on
consideration of information with respect to transactions in similar securities,
quotations from dealers and various relationships between securities. Other
assets for which market quotations are unavailable are valued at their fair
value pursuant to guidelines approved by the Trust's Board of Trustees. The
International Fund will invest primarily, and the other Funds may invest from
time to time, in foreign securities. Trading in foreign securities will
generally be substantially completed each day at various times prior to the
close of the NYSE. The values of any such securities are determined as of such
times for purposes of computing the Funds' net asset value. Foreign currency
exchange rates are also generally determined prior to the close of the NYSE. If
quotations are not readily available, or if values have been materially affected
by events occurring after the close of a foreign market, the security will be
valued at fair value as determined in good faith by SAM or BIAM under procedures
established by and under general supervision of the Fund's Board of Trustees.
Foreign portfolio securities are valued on the basis of quotations from the
primary market in which they trade. The value of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
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<PAGE> 41
The values of certain of the Funds' portfolio securities may be stated on the
basis of quotations provided by a pricing service, unless the Board determines
that such does not represent fair value. The service uses information with
respect to transactions in securities, quotations from securities dealers,
market transactions in comparable securities and various relationships between
securities to determine values.
INTERNATIONAL FUND
Options that are traded on national securities exchanges are valued at their
last sale price as of the close of option trading on such exchange. Futures
contracts will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
- -------------------------------------------------------------
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES
THAT PROVIDE SERVICES TO THE TRUST
- -------------------------------------------------------------
Each Fund is a series of SAFECO Common Stock Trust, a Delaware business trust
established by a Trust Instrument dated May 13, 1993. The Trust is authorized to
issue an unlimited number of shares of beneficial interest. The Board of
Trustees may establish additional series or classes of shares of the Trust
without approval of shareholders.
In addition to the No-Load Class of shares, each Fund also offers two other
classes of shares through a separate prospectus to investors who engage the
services of an investment professional: Advisor Class A shares and Advisor Class
B shares. Advisor Class A shares are sold subject to an initial sales charge and
Advisor Class B shares are sold subject to a contingent deferred sales charge.
Advisor Class A and Advisor Class B shares also incur different expenses than
No-Load Class shares. Accordingly, the performance of the three classes will
differ. For more information about Advisor Class A shares and Advisor Class B
shares of each Fund, please call 1-800-463-8794.
Each share of a Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, due to the
differing expenses borne by the three classes, dividends and liquidation
proceeds for each class of shares will likely differ. All shares issued are
fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares.
The Trust does not intend to hold annual meetings of shareholders of the Funds.
The Trustees will call a special meeting of shareholders of a Fund only if
required under the 1940 Act, in their discretion, or upon the written request of
holders of 10% or more of the outstanding shares of the
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<PAGE> 42
Fund entitled to vote. Separate votes are taken by each class of shares, a Fund,
or the Trust if a matter affects only that class of shares, a Fund, or the
Trust, respectively.
Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
the Trust Instrument requires that every written obligation of the Trust or Fund
contain a statement that such obligation may be enforced only against the assets
of the Trust or Fund and generally provides for indemnification out of Trust or
Fund property of any shareholder nevertheless held personally liable for Trust
or Fund obligations, respectively.
Because the Trust may use a combined Prospectus to offer other classes of
shares, it is possible that a Fund might become liable for a misstatement about
the series of another Trust contained in a combined Prospectus. The Board of
Trustees has considered this factor in approving the use of a single, combined
Prospectus.
SAM is the investment adviser for each Fund under an agreement with the Trust.
Under the agreement, SAM is responsible for the overall management of the
Trust's and each Fund's business affairs. SAM provides investment research,
advice, management and supervision to the Trust and each Fund, and, consistent
with each Fund's investment objectives and policies, SAM determines what
securities will be purchased, retained or sold by each Fund and implements those
decisions. Each Fund pays SAM an annual management fee based on a percentage of
that Fund's net assets ascertained each business day and paid monthly in
accordance with the schedules below. A reduction in the fees paid by a Fund
occurs only when that Fund's net assets reach the dollar amounts of the break
points and applies only to the assets that fall within the specified range:
GROWTH, EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
<CAPTION>
NORTHWEST FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
BALANCED FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
<CAPTION>
INTERNATIONAL FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
<CAPTION>
SMALL COMPANY FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
</TABLE>
The Trust and each Fund will bear all expenses of their organization, operations
and business not specifically assumed by SAM under each Fund's management
contract. Such expenses may include, among others, custody and accounting
expenses, transfer agency and related expenses, distribution and shareholder
servicing expenses, expenses related to preparing, printing and delivering
prospectuses and shareholder reports, the expenses of holding shareholders'
meetings, legal fees, the compensation of non-interested trustees of the Trusts,
brokerage, taxes and extraordinary expenses.
With respect to the International Fund, SAM has a sub-advisory agreement with
the Sub-Adviser. The Sub-Adviser is a direct, wholly-owned subsidiary of the
Bank of Ireland Asset Management Limited and is an indirect, wholly-owned
subsidiary of Bank of Ireland. The Sub-Adviser has its headquarters at 26
Fitzwilliam Place, Dublin, Ireland, and its U.S. office at 2 Greenwich Plaza,
Greenwich, Connecticut. The Sub-Adviser was established in 1987 and manages over
$3 billion in assets. Because the Sub-Adviser is doing business from a location
within the United States, investors will be able to effect service of legal
process within the United States upon the Sub- Adviser, facilitating the
enforcement of judgments against the Sub-Adviser under federal securities laws
in United States courts. However, the Sub-Adviser is a foreign organization and
maintains a substantial portion of its assets outside the United States.
Therefore, the ability of
43
<PAGE> 44
investors to enforce judgments against the Sub-Adviser may be affected by the
willingness of foreign courts to enforce judgments of United States courts.
Under the sub-advisory agreement, the Sub-Adviser is responsible for providing
investment research and advice used to manage the investment portfolio of the
International Fund. In return, SAM (and not the International Fund) pays the
Sub-Adviser a fee in accordance with the schedule below:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%
</TABLE>
The parent company of the Sub-Adviser, Bank of Ireland Asset Management Limited,
is a direct, wholly-owned subsidiary of the Bank of Ireland, which engages in
the investment advisory business and is located at 26 Fitzwilliam Place, Dublin,
Ireland. The Bank of Ireland is a holding company whose primary subsidiaries are
engaged in banking, insurance, securities and related financial services, and is
located at Lower Baggot Street, Dublin, Ireland.
The distributor of the No-Load Class of each Fund's shares under an agreement
with the Trust is SAFECO Securities, Inc. ("SAFECO Securities"), a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. SAFECO Securities receives no
compensation from the Trust or the Funds for its services as distributor of the
No-Load Class.
The transfer, dividend and distribution disbursement and shareholder servicing
agent for the No- Load Class of each Fund under an agreement with the Trust is
SAFECO Services. SAFECO Services receives a fee from each Fund for every
shareholder account held in the Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by
SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.
SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
the insurance and financial services businesses) and are each located at SAFECO
Plaza, Seattle, Washington 98185.
44
<PAGE> 45
- ------------------------------------------
PERSONS CONTROLLING CERTAIN FUNDS
- ------------------------------------------
At June 30, 1996, SAM, a wholly-owned subsidiary of SAFECO Corporation,
controlled the International and Balanced Funds. At June 30, 1996, SAFECO
Corporation controlled the Small Company Fund. SAFECO Corporation and SAM have
their principal place of business at SAFECO Plaza, Seattle, Washington 98185.
- --------------------------------
PERFORMANCE INFORMATION
- --------------------------------
The yield, total return and average annual total return of each class of a Fund
may be quoted in advertisements. Yield is the annualization on a 360-day basis
of a class's net income per share over a 30-day period divided by the class's
NAV on the last day of the period. Total return is the total percentage change
in an investment in a class of a Fund, assuming the reinvestment of dividend and
capital gains distributions, over a stated period of time. Average annual total
return is the annual percentage change in an investment in a class of a Fund,
assuming the reinvestment of dividends and capital gains distributions, over a
stated period of time. Performance quotations are calculated separately for each
class of a Fund. A Fund's portfolio turnover rate will vary from year to year. A
high portfolio turnover rate involves correspondingly higher transaction costs
in the form of broker commissions and dealer spreads and other costs that a Fund
will bear directly.
From time to time, a Fund may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (e.g., CDA Investment
Technologies, Lipper Analytical Services, Inc., and Morningstar, Inc.), and are
reported periodically in national financial publications such as Barron's,
Business Week, Forbes, Investor's Business Daily, Money Magazine, and The Wall
Street Journal. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performance of relevant indices.
Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. The
yield and share price of each class of a Fund will fluctuate and your shares,
when redeemed, may be worth more or less than you originally paid for them.
45
<PAGE> 46
- ----------------------------------------------------
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED
- ----------------------------------------------------
DIVIDEND AND OTHER DISTRIBUTIONS
The Growth, Equity, Income, Northwest and Balanced Funds declare dividends on
the last business day of each calendar quarter and the International and Small
Company Funds declare dividends annually. Each Fund declares dividends from its
net investment income (which includes accrued dividends and interest, earned
discount, and other income earned on portfolio securities less expenses) and
such shares become entitled to declared dividends on the next business day after
shares are purchased for your account.
A shareholder's dividends and other distributions are reinvested in additional
shares of the distributing Fund at net asset value per share generally
determined as of the close of business on the ex-distribution date, unless the
shareholder elects in writing to receive dividends or other distributions in
cash and that election is provided to SAFECO Services at the address on the
Prospectus cover.
The election remains in effect until revoked by written notice by the
shareholder in the same manner as the distribution election. For retirement
accounts, all dividends and other distributions declared by a Fund must be
invested in additional shares of that Fund.
Please remember that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares, then
receive part of the price back as a taxable distribution.
TAXES
Each Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, a Fund will
not be subject to federal income taxes to the extent it distributes its net
investment income and realized capital gains to its shareholders. Each Fund will
inform you as to the amount and nature of dividends and other distributions to
your account. Dividends and distributions declared in December, but received by
shareholders in January, are taxable to shareholders in the year in which
declared.
TAX WITHHOLDING INFORMATION
You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you provide is correct and that you are
not subject to, or are exempt from, backup withholding for previous
underreporting to the Internal Revenue Service.
46
<PAGE> 47
Retirement plan distributions may be subject to federal income tax withholding.
However, you may elect not to have any distributions withheld by checking the
appropriate box on the Redemption Request form or by instructing SAFECO Services
in writing at the address on the Prospectus cover.
If the International Fund pays nonrefundable taxes to foreign governments during
the year, the taxes will reduce the Fund's dividends but still be included in
your taxable income. However, you may be able to claim an offsetting credit or
deduction on your tax return for your share of foreign taxes paid by the Fund.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Trust's Statement of Additional Information for a further discussion. There may
be other federal, state or local tax considerations applicable to a particular
investor. You therefore are urged to consult your tax adviser.
- --------------------------------------
TAX-DEFERRED RETIREMENT PLANS
- --------------------------------------
SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses and nonprofit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the Funds
may be used as investment vehicles for these plans.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAs). IRAs are tax-deferred retirement accounts
for anyone under age 70 1/2 with earned income. The maximum annual contribution
generally is $2,000 per person ($2,250 for you and a non-working spouse). Under
certain circumstances your contribution will be deductible for income tax
purposes. An annual custodial fee will be charged for any part of a calendar
year in which you have an IRA investment in a Fund.
SIMPLIFIED EMPLOYEE PENSION IRAs (SEP-IRAs). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Annual
contributions up to $22,500 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 employers and employees both may contribute. Minimum
investment amounts are negotiable.
401(k) PLANS. 401(k) plans allow employers and employees to make tax-advantaged
contributions to a retirement account. SAFECO Services offers a low-cost
administration
47
<PAGE> 48
package that includes a prototype plan, recordkeeping, testing and employee
communications. Minimum investment amounts are negotiable.
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. Each plan allows corporations,
partnerships and self-employed persons to make annual, tax-deductible
contributions to a retirement account for each person covered by the plan. A
plan may be adopted individually or paired with another plan to maximize
contributions. SAFECO Services offers an administration package for these plans.
Minimum investment amounts are negotiable.
For information about the above accounts and plans, please call 1-800-278-1985.
- -------------------------
ACCOUNT STATEMENTS
- -------------------------
Periodically, you will receive an account statement indicating your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.
- -------------------------------------------
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS
- -------------------------------------------
Changes to your account registration or the services you have selected must be
in writing and signed by the number of owners specified on your account
application as having authority to make these changes. Send written changes to
SAFECO Services at the address on the Prospectus cover. Certain changes to the
Automatic Investment Method and Systematic Withdrawal Plan can be made by
telephone request if you have previously selected single signature authorization
for your account.
You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
or change the account registration to single ownership without the co-owner's
signature. If you do not indicate otherwise on the application, the signatures
of all account owners will be required to effect a transaction. Your selection
of fewer than all account owner signatures may be revoked by any account owner
who writes to SAFECO Services at the address on the Prospectus cover.
48
<PAGE> 49
SAFECO Services may require a signature guarantee for a signature that cannot be
verified by comparison to the signature(s) on your account application. A
signature guarantee may be obtained from most financial institutions, including
banks, savings and loans and broker-dealers.
- -------------------------------------------------------------------
DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES
- -------------------------------------------------------------------
COMMON STOCKS represent equity interest in a corporation. Although common stocks
have a history of long-term growth in value, their prices fluctuate based on
changes in a company's financial condition and overall market and economic
conditions. Smaller companies are especially sensitive to these factors.
PREFERRED STOCKS are equity securities whose owners have a claim on a company's
earnings and assets before holders of common stock, but after debt holders. The
risk characteristics of preferred stocks are similar to those of common stocks,
except that preferred stocks are generally subject to less risk than common
stocks.
BONDS AND OTHER DEBT SECURITIES are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. The value of bonds and other
debt securities will normally vary inversely with interest rates. In general,
bond prices rise when interest rates fall, and bond prices fall when interest
rates rise. Debt securities have varying degrees of quality and varying levels
of sensitivity to changes in interest rates. Long-term bonds are generally more
sensitive to interest rate changes than short-term bonds.
CONVERTIBLE SECURITIES are debt or preferred stock which are convertible into or
exchangeable for common stock. The value of convertible corporate bonds will
normally vary inversely with interest rates and the value of convertible
corporate bonds and convertible preferred stock will normally vary with the
value of the underlying common stock.
49
<PAGE> 50
- -----------------------
RATINGS SUPPLEMENT
- -----------------------
Ratings by Moody's and S&P represent their respective opinions as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.
DESCRIPTION OF DEBT RATINGS
Excerpts from Moody's description of its ratings:
Investment Grade:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than the Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Below Investment Grade:
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
50
<PAGE> 51
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa have poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
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.
Excerpts from S&P's description of its ratings:
Investment Grade:
AAA -- Debt which is rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA -- Debt which is rated AA has a very strong capacity to pay interest and
repay principal and differs from the higher rated issues only in small degree.
A -- Debt which is rated A has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
Below Investment Grade:
BB, B, CCC, CC, C -- Debt which is rated BB, B, CCC, CC, or C is predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
C1 -- Debt which is rated C1 is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. Interest payment, or principal payments
are not made on the date due even if the applicable grace period has not
expired, unless S&P believes that such payments will be made during such grace
period.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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<PAGE> 52
The weighted average ratings of all debt securities held by the Income Fund,
expressed as a percentage of total investments held during the fiscal year ended
September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Moody's % S&P %
- ------- --- --- ---
Investment Grade
<S> <C> <C> <C>
Aaa - AAA -
Aa - AA -
A 3.0 A 1.0
Baa 2.6 BBB 4.6
<CAPTION>
Below Investment Grade
<S> <C> <C> <C>
Ba 4.0 BB 4.7
B 4.9 B 3.0
Caa - CCC .6
Ca - CC -
Not Rated, but Not Rated, but
determined to determined to
be investment be investment
grade - grade -
Not Rated, but Not Rated, but
determined to determined to
be below be below
investment grade 3.7 investment grade 4.3
</TABLE>
The Equity Fund did not hold any convertible debt securities during the fiscal
year ended September 30, 1995.
52
<PAGE> 53
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 Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
FEES AND EXPENSES, PLEASE CALL OR WRITE FOR A FREE PROSPECTUS. PLEASE READ IT
CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
53
<PAGE> 54
TO REQUEST A PROSPECTUS:
Nationwide: 1-800-426-6730
Seattle: 545-5530
FOR 24-HOUR PRICE AND PERFORMANCE
INFORMATION:
Nationwide: 1-800-835-4391
Seattle: 545-5113
FOR ACCOUNT INFORMATION OR TELEPHONE
TRANSACTIONS*:
Nationwide: 1-800-624-5711
Seattle: 545-7319
Hearing Impaired TTY/TDD Service:
1-800-438-8718
*All telephone calls are tape-
recorded for your protection.
INTERNET: http://networth.galt.com/safeco
EMAIL: [email protected]
MAILING ADDRESS:
SAFECO MUTUAL FUNDS
P.O. Box 34890
Seattle, WA 98124-1890
EXPRESS/OVERNIGHT MAIL:
SAFECO Mutual Funds
No-Load Class Shares
4333 Brooklyn Avenue N.E.
Seattle, WA 98105
DISTRIBUTOR:
SAFECO Securities, Inc.
