SAFECO MANAGED BOND TRUST, 497, 1998-05-01

SAFECO MANAGED BOND TRUST
497, 1998-05-01

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<PAGE>

[LETTERHEAD]

May 1, 1998

VIA ELECTRONIC FILING
- ---------------------

Securities & Exchange Commission
450 Fifth Street NW
Washington, DC 20549

Re: SAFECO Managed Bond Trust (1933 Act No. 33-47859; 1940 Act No. 811-6667)

Ladies and Gentlemen:

The enclosed filing of the above-referenced Registrant's Advisor Class A and
Advisor Class B Prospectus dated April 30, 1998 is made pursuant to Rule 497(c)
of the Securities Act of 1933, as amended.

If you have any comments or questions concerning the filing, please call me at
(206) 548-7075.

Sincerely,

/s/Margaret E. DiDonna
- ----------------------

Margaret E. DiDonna
Counsel

<PAGE>
PROSPECTUS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
SAFECO GROWTH FUND SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND
SAFECO EQUITY FUND SAFECO HIGH-YIELD BOND FUND
SAFECO INCOME FUND SAFECO MANAGED BOND FUND
SAFECO NORTHWEST FUND SAFECO MUNICIPAL BOND FUND
SAFECO INTERNATIONAL STOCK FUND SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO BALANCED FUND SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
SAFECO SMALL COMPANY STOCK FUND SAFECO MONEY MARKET FUND
SAFECO U.S. VALUE FUND
</TABLE>

ADVISOR CLASS A
ADVISOR CLASS B April 30, 1998

Each fund named above ("Fund") is a series of one of the following trusts (each
a "Trust"): the SAFECO Common Stock Trust ("Common Stock Trust"), the SAFECO
Taxable Bond Trust ("Taxable Bond Trust"), the SAFECO Managed Bond Trust
("Managed Bond Trust"), the SAFECO Tax-Exempt Bond Trust ("Tax-Exempt Bond
Trust") or the SAFECO Money Market Trust ("Money Market Trust"). See
"Introduction to the Trusts and the Funds" for an overview of the investment
objectives of each Fund.

This Prospectus sets forth the information a prospective investor should know
before investing. PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. A
Statement of Additional Information relating to the Advisor Class A ("Class A")
and Advisor Class B ("Class B") shares, dated April 30, 1998 and incorporated
herein by reference, has been filed with the Securities and Exchange Commission
and is available at no charge upon request by calling the telephone number
listed on this page. The Statement of Additional Information and other
information about the Funds are also available on the Securities and Exchange
Commission website (http://www.sec.gov). The Statement of Additional Information
contains more information about many of the topics in this Prospectus as well as
information about the trustees and officers of the Trusts.

For additional assistance, please contact your investment professional, or call
or write:

NATIONWIDE 1-800-528-6501
SAFECO MUTUAL FUNDS
ADVISOR CLASS SHARES
P.O. BOX 34680
SEATTLE, WA 98124-1868

ALL TELEPHONE CALLS ARE TAPE-RECORDED FOR YOUR PROTECTION.

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

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

FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
THE U.S. GOVERNMENT OR ANY BANK, NOR ARE FUND SHARES FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY, AND FUND SHARES ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO
ASSURANCE THAT THE SAFECO MONEY MARKET FUND WILL MAINTAIN A STABLE $1.00 SHARE
PRICE.

THE SAFECO CALIFORNIA TAX-FREE INCOME FUND IS OFFERED FOR SALE ONLY TO RESIDENTS
OF THE STATE OF CALIFORNIA. THE SAFECO WASHINGTON STATE MUNICIPAL BOND FUND IS
OFFERED FOR SALE ONLY TO RESIDENTS OF THE STATE OF WASHINGTON. THESE FUNDS ARE
NOT PERMITTED TO OFFER OR SELL SHARES TO RESIDENTS OF OTHER STATES.
- --------------------------------------------------------------------------------

-- 1 --
<PAGE>
SAFECO GROWTH FUND ("Growth Fund") has as its investment objective to seek
growth of capital and the increased income that ordinarily follows from such
growth. The Growth Fund ordinarily invests a preponderance of its assets in
common stock selected primarily for potential appreciation.

SAFECO EQUITY FUND ("Equity Fund") has as its investment objective to seek
long-term growth of capital and reasonable current income. The Equity Fund
invests principally in common stock selected for appreciation and/or dividend
potential and from a long-range investment standpoint.

SAFECO INCOME FUND ("Income Fund") has as its investment objective to seek high
current income and, when consistent with its objective, the long-term growth of
capital. The Income Fund invests primarily in common and preferred stock and in
convertible bonds selected for dividend potential.

SAFECO NORTHWEST FUND ("Northwest Fund") has as its investment objective to seek
long-term growth of capital through investing primarily in Northwest companies.
To pursue its objective, the Fund will invest at least 65% of its total assets
in securities issued by companies with their principal executive offices located
in Alaska, Idaho, Montana, Oregon, or Washington ("Northwest").

SAFECO INTERNATIONAL STOCK FUND ("International Fund") has as its investment
objective to seek maximum long-term total return (capital appreciation and
income) by investing primarily in common stock of established non-U.S.
companies. To pursue its objective, the International Fund, under normal market
conditions, will invest at least 65% of its total assets in the securities of
companies domiciled in at least five countries, not including the United States.

SAFECO BALANCED FUND ("Balanced Fund") has as its investment objective to seek
growth and income consistent with the preservation of capital. To pursue its
objective, the Balanced Fund will invest primarily in equity and fixed-income
securities.

SAFECO SMALL COMPANY STOCK FUND ("Small Company Fund") has as its investment
objective to seek long-term growth of capital through investing primarily in
small-sized companies. To pursue its objective, the Small Company Fund will
invest primarily in companies with total market capitalization of less than $1
billion.

SAFECO U.S. VALUE FUND ("Value Fund") has as its investment objective to seek
long-term growth of capital and income. To pursue its objective, the Value Fund
will primarily invest in common stocks selected for potential appreciation and
income, using fundamental value analysis.

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

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

SAFECO MANAGED BOND FUND ("Managed Bond Fund") has as its investment objective
to provide as high a level of total return as is consistent with the relative
stability of capital through the purchase of investment grade debt securities.

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

SAFECO CALIFORNIA TAX-FREE INCOME FUND ("California Fund") has as its investment
objective to provide as high a level of current interest income exempt from
federal income tax and California state personal income tax as is consistent
with the relative stability of capital.

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND ("Washington Fund") has as its
investment objective to provide as high a level of current interest income
exempt from federal income tax as is consistent with prudent investment risk.

SAFECO MONEY MARKET FUND ("Money Market Fund") has as its investment objective
to seek as high a level of current income as is consistent with the preservation
of capital and liquidity through investment in high-quality money market
instruments maturing in thirteen months or less.

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

-- 2 --
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Introduction to the Trusts and the Funds 4
Expenses 6
Financial Highlights 10
Adviser's Institutional Private Account Performance 25
Sub-Adviser's Institutional Private Account Performance 26
Alternative Purchase Arrangement 27
Each Fund's Investment Objective and Policies 28
Risk Factors 48
Portfolio Managers 53
How to Purchase Shares 54
How to Redeem Shares 59
How to Systematically Purchase or Redeem Shares 61
How to Exchange Shares from One Fund to Another 61
Telephone Transactions 62
Share Price Calculation 63
Information about Share Ownership and Companies that Provide Services to
the Trusts 64
Distribution Plans 68
Persons Controlling Certain Funds 69
Performance Information 69
Fund Distributions and How They are Taxed 70
Tax-Deferred Retirement Plans 72
Account Statements 73
Account Changes and Signature Requirements 73
Description of Stocks, Bonds and Convertible Securities 74
Description of Ratings 74
Debt Securities Holdings 77
</TABLE>

-- 3 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS

Each Trust is an open-end management investment company that issues shares
representing one or more series. This Prospectus offers shares of the stock,
taxable fixed-income, tax-exempt income and money market Funds listed below. The
stock Funds offered are the Growth Fund, the Equity Fund, the Income Fund, the
Northwest Fund, the Balanced Fund, the International Fund, the Small Company
Fund, and the Value Fund (collectively, the "Stock Funds"). Each Stock Fund is a
diversified series of the Common Stock Trust.

The taxable fixed-income Funds offered are the Intermediate Treasury Fund, the
High-Yield Bond Fund and the Managed Bond Fund (collectively, the "Taxable
Fixed-Income Funds"). The Intermediate Treasury Fund and the High-Yield Fund are
diversified series of the Taxable Bond Trust. The Managed Bond Fund is a
diversified series of the Managed Bond Trust.

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

This Prospectus also offers the Money Market Fund, which is a diversified series
of the Money Market Trust.

THE FUNDS

Each Fund offers multiple classes of shares. Class A and Class B shares are
offered to investors who engage the services of an investment professional. For
each Fund (except the Money Market Fund), Class A shares are subject to a
front-end sales charge and pay a Rule 12b-1 fee. Class B shares are not subject
to a front-end sales charge, but may be subject to a contingent deferred sales
charge ("CDSC") and pay a higher Rule 12b-1 fee.

For the Money Market Fund, Class A shares are sold at net asset value with no
front-end sales charge. A front-end sales charge may apply when you exchange
your Class A Money Market Fund shares for Class A shares of other Funds. Money
Market Fund Class B Shares are sold at net asset value and are not subject to a
CDSC upon redemption, provided that the shareholder has remained solely invested
in Money Market Fund Class B shares. A CDSC may apply upon redemption of Money
Market Fund Class B shares that have been exchanged at any time during the
investor's ownership for Class B shares of other Funds. Money Market Fund Class
A and Class B shares do not currently pay Rule 12b-1 fees.

Each Fund:

/ / Offers easy access to your money through telephone redemptions, wire
transfers and, in the case of the Money Market Fund Class A only, redemption
checks.

/ / Has a minimum initial investment of $1,000 for regular accounts, $250 for
individual retirement accounts ("IRAs") and accounts established under the
Uniform Gift to Minors Act ("UGMA") or Uniform Transfer to Minors Act
("UTMA"). No minimum initial investment is required to establish the
Automatic Investment Method ("AIM") or Payroll Deduction Plan.

RISK FACTORS

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

There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest, California, and Washington Funds concentrate their
investments in geographic regions, they may be subject to special risks.
Investors should carefully consider the investment risks of such geographic
concentration before purchasing shares of those Funds. Because the International
Fund invests primarily in foreign securities, it is subject to various risks in
addition to those associated with U.S. investments. For example, the value of
the International Fund depends in part upon currency values, the political and
regulatory environments, and overall economic factors in the countries in which
the Fund invests. The Growth Fund currently has an aggressive investment
approach to seeking capital appreciation and may invest a significant portion of
its assets in securities issued by smaller

-- 4 --
<PAGE>
INTRODUCTION TO THE TRUSTS AND THE FUNDS (CONTINUED)

companies. In addition, the Small Company Fund invests in small-sized companies,
which involve greater risks than investments in larger, more established
issuers, and such securities can be subject to more abrupt and erratic movements
in price. The High-Yield Fund is subject to special risks associated with below
investment grade securities, sometimes referred to as "junk bonds," which it
will purchase to pursue its investment objective. The value of the Intermediate
Treasury Fund, High-Yield Fund, Managed Bond Fund, Municipal Bond Fund,
California Fund and Washington Fund will normally fluctuate inversely with
changes in market interest rates. The Money Market Fund will attempt to maintain
a stable net asset value of $1.00 per share, but there is no assurance that the
Fund will do so. The principal risk associated with money market funds is that
they may experience a delay or failure in principal or interest payments at
maturity of one or more of the portfolio securities. The Money Market Fund's
yield will fluctuate with general money market interest rates. See "Each Fund's
Investment Objective and Policies" and "Risk Factors" for more information.

INVESTMENT ADVISER; SUB-ADVISER OF INTERNATIONAL FUND

Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington, and managed over $4.3 billion in mutual
fund assets as of December 31, 1997. SAM has been an adviser to mutual funds and
other investment portfolios since 1973, and its predecessors have been advisers
since 1932. The Bank of Ireland Asset Management (U.S.) Limited (the
"Sub-Adviser") acts as a sub-adviser to the International Fund. The Sub-Adviser
is a direct, wholly owned subsidiary of Bank of Ireland Asset Management Limited
(an investment advisory firm), which is headquartered in Dublin, Ireland, and an
indirect, wholly owned subsidiary of the Bank of Ireland, which is also
headquartered in Dublin, Ireland. See "Information about Share Ownership and
Companies That Provide Services to the Trusts" for more information.

-- 5 --
<PAGE>
EXPENSES

A. SHAREHOLDER TRANSACTION EXPENSES FOR CLASS A AND CLASS B OF EACH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
-------- --------
<S> <C> <C>
Maximum Sales Charge on Purchases 4.50%* NONE
(as a Percentage of Offering Price)
Sales Charge on Reinvested Dividends NONE NONE
Maximum Contingent Deferred Sales Charge (CDSC) NONE* 5.00%**
Redemption Fees NONE NONE
Exchange Fees NONE NONE
</TABLE>

* Except for initial purchases of the Money Market Fund. In addition, purchases
of $1,000,000 or more of Class A shares are not subject to a front-end sales
charge, but a 1% CDSC will apply to redemptions made in the first eighteen
months except with respect to participant-directed redemptions from qualified
plans. See "How to Purchase Shares" for more information.

** Except for initial purchases of the Money Market Fund. A CDSC may apply to
redemptions from the Money Market Fund that follow exchanges from Class B
shares of another Fund. See "How to Purchase Shares" for more information.

Sales charge waivers and reduced sales charge purchase plans are available for
Class A shares. See "How to Purchase Shares" for more information. The maximum
5% CDSC on Class B shares applies to redemptions during the first year after
purchase, declining to 0% in the first month following the investor's sixth
anniversary from purchase. Class B shares of a Fund convert automatically into
Class A shares of that Fund in the first month following the investor's sixth
anniversary from purchase. Money Market Fund Class B shareholders who
subsequently exchange into Class B of another Fund do not receive credit for the
initial time invested in the Money Market Fund for purposes of calculating any
CDSC due upon redemption or the conversion to Class A Shares. See "Purchasing
Class B Shares" for more information.

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

B. ANNUAL OPERATING EXPENSES

(as a percentage of average net assets)
<TABLE>
<CAPTION>
GROWTH FUND EQUITY FUND INCOME FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.65% 0.65% 0.52% 0.52% 0.65% 0.65%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.16% 0.23% 0.47% 0.29% 0.24% 0.18%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.06% 1.88% 1.24% 1.81% 1.14% 1.83%

INTERNATIONAL
NORTHWEST FUND FUND BALANCED FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 1.10% 1.10% 0.75% 0.75%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.42% 0.34% 0.52% 0.54% 0.52% 0.53%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.42% 2.09% 1.87%* 2.64%* 1.52% 2.28%
<CAPTION>

SMALL COMPANY INTERMEDIATE
FUND VALUE FUND TREASURY FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.85% 0.85% 0.75% 0.75% 0.55% 0.55%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.42% 0.44% 0.47% 0.55% 0.52% 0.32%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.52% 2.29% 1.47% 2.30% 1.32% 1.87%
</TABLE>

-- 6 --
<PAGE>
EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
MANAGED BOND
HIGH-YIELD FUND FUND WASHINGTON FUND
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.65% 0.65% 0.50% 0.50% 0.65% 0.65%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses 0.21% 0.17% 0.69% 0.74% 0.42% 0.48%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 1.10% 1.81% 1.44% 2.24% 1.32% 2.13%

MUNICIPAL BOND MONEY MARKET
FUND CALIFORNIA FUND FUND**
----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.42% 0.42% 0.55% 0.55% 0.50% 0.50%
Rule 12b-1 Fees 0.25% 1.00% 0.25% 1.00% 0% 0%
Other Expenses 0.28% 0.11% 0.11% 0.08% 0.22% 0.28%
------- ------- ------- ------- ------- -------
Total Operating Expenses (estimated) 0.95% 1.53% 0.91% 1.63% 0.72% 0.78%
</TABLE>

* Net of reimbursements by SAM. Absent the reimbursements, total operating
expenses would have been 2.13% and 2.90%, respectively, for the Class A and
Class B shares of the International Fund.

** The Money Market Fund does not have a Rule 12b-1 fee at this time.
Shareholders will be notified in advance by a supplement to this Prospectus
in the event that the Money Market Fund establishes a Rule 12b-1 fee under
its Rule 12b-1 Plan.

Effective September 30, 1996, except for the Value and High-Yield Funds, all of
the then-existing shares of each Fund were redesignated No-Load Class shares and
each Fund commenced offering Class A and Class B shares. The High-Yield Fund and
the Value Fund commenced offering Class A and Class B shares on January 31,
1997, and April 30, 1997, respectively. The amounts shown for the Funds (other
than the Value Fund) are based on the actual expenses paid by the shareholders
of the Funds' Class A and Class B shares for the year ended December 31, 1997.
The amounts shown for the Value Fund are estimated expenses based on the Fund's
maximum management fee, applicable Rule 12b-1 fees, and estimated "other
expenses" for fiscal year 1998. The management fees paid by the International
and Small Company Funds are higher than the management fees paid by most other
investment companies. See "Information about Share Ownership and Companies That
Provide Services to the Trusts" for more information.

Rule 12b-1 fees have the following two components:

<TABLE>
<CAPTION>
CLASS A CLASS B
----------- -----------
<S> <C> <C>
Rule 12b-1 service fees 0.25% 0.25%
Rule 12b-1 distribution fees 0.00% 0.75%
</TABLE>

Long-term Class A and Class B shareholders may pay more in sales charges and
12b-1 fees than the economic equivalent of the maximum front-end sales charge
permitted by the National Association of Securities Dealers, Inc.

C. EXAMPLE OF EXPENSES

You would pay the following expenses on a $1,000 investment assuming a 5% annual
return and redemption at the end of each time period. The example also assumes
that all dividends and other distributions are reinvested and that the
percentage amounts listed for each Fund in "Annual Operating Expenses" above
remain the same in the years shown.

-- 7 --
<PAGE>
EXPENSES (CONTINUED)

<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equity
Class A(1) $ 57 $ 83 $ 110 $ 188
Class B
Assuming redemption at end of period(2)(3) $ 68 $ 87 $ 108 $ 184
Assuming no redemption at end of period(3) $ 18 $ 57 $ 98 $ 184
Income
Class A(1) $ 56 $ 80 $ 105 $ 177
Class B
Assuming redemption at end of period(2)(3) $ 69 $ 88 $ 109 $ 180
Assuming no redemption at end of period(3) $ 19 $ 58 $ 99 $ 180
Northwest
Class A(1) $ 59 $ 88 $ 119 $ 208
Class B
Assuming redemption at end of period(2)(3) $ 71 $ 95 $ 122 $ 209
Assuming no redemption at end of period(3) $ 21 $ 65 $ 112 $ 209
International
Class A(1) $ 63 $ 101 $ 142 $ 254
Class B
Assuming redemption at end of period(2)(3) $ 77 $ 112 $ 150 $ 262
Assuming no redemption at end of period(3) $ 27 $ 82 $ 140 $ 262
Balanced
Class A(1) $ 60 $ 91 $ 124 $ 218
Class B
Assuming redemption at end of period(2)(3) $ 73 $ 101 $ 132 $ 225
Assuming no redemption at end of period(3) $ 23 $ 71 $ 122 $ 225
Small Company
Class A(1) $ 60 $ 91 $ 124 $ 218
Class B
Assuming redemption at end of period(2)(3) $ 73 $ 102 $ 133 $ 226
Assuming no redemption at end of period(3) $ 23 $ 72 $ 123 $ 226
Value Fund
Class A(1) $ 59 $ 89
Class B
Assuming redemption at end of period(2) $ 73 $ 102
Assuming no redemption at end of period $ 23 $ 72
Intermediate Treasury
Class A(1) $ 58 $ 85 $ 114 $ 197
Class B
Assuming redemption at end of period(2)(3) $ 69 $ 89 $ 111 $ 180
Assuming no redemption at end of period(3) $ 19 $ 59 $ 101 $ 180
High-Yield
Class A(1) $ 56 $ 78 $ 103 $ 173
Class B
Assuming redemption at end of period(2)(3) $ 68 $ 87 $ 108 $ 177
Assuming no redemption at end of period(3) $ 18 $ 57 $ 98 $ 177
Managed Bond
Class A(1) $ 59 $ 89 $ 120 $ 210
Class B
Assuming redemption at end of period(2)(3) $ 73 $ 100 $ 130 $ 202
Assuming no redemption at end of period(3) $ 23 $ 70 $ 120 $ 202
</TABLE>

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

(1) Includes deduction at the time of purchase of the maximum sales charge.

(2) Includes deduction at the time of redemption of the applicable CDSC.

(3) Ten-year figures assume conversion of Class B shares to Class A shares in
the first month following the investor's sixth anniversary from purchase.

(4) Figures for the Money Market Fund assume that the investor purchased Money
Market Fund shares as an initial investment and made no subsequent
exchanges.

The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in Class A and Class B shares of each Fund would bear,
directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER
OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES
AND EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS, AND IT IS
NOT A PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE
PERFORMANCE OF ANY FUND.

-- 9 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

The amounts shown for each Fund in the Financial Highlights tables that follow
are based upon a single Class A or Class B share outstanding for the period
indicated. Effective September 30, 1996, each Fund (except the Value and
High-Yield Funds) commenced offering Class A and Class B shares. The Value Fund
commenced offering Class A and Class B shares on April 30, 1997 (initial public
offering) and the High-Yield Fund commenced offering Class A and Class B shares
on January 31, 1997. The following selected data has been derived from financial
statements that have been audited by Ernst & Young LLP. The data should be read
in conjunction with the financial statements, related notes and other financial
information included in each Trust's Annual Report to shareholders and
incorporated by reference in the Statement of Additional Information. A copy of
the Statement of Additional Information may be obtained by calling the number on
the first page of this Prospectus.

SAFECO GROWTH FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $16.97 $15.45 $16.94 $15.45
INCOME FROM INVESTMENT OPERATIONS:
Net investment (loss) income (0.02) (0.02) (0.08) (0.05)
Net realized and unrealized gain (loss) on investment
transactions 8.44 1.77 8.33 1.77
------------ ------------ ------------ ------------
Total from investment operations 8.42 1.75 8.25 1.72
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- --
Distributions from realized gains (3.00) (0.23) (3.00) (0.23)
------------ ------------ ------------ ------------
Total distributions (3.00) (0.23) (3.00) (0.23)
------------ ------------ ------------ ------------
Net asset value at end of period $22.39 $16.97 $22.19 $16.94
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return+ 49.61% 11.35% 48.70% 11.15%
Net assets at end of period (000's) $4,076 $ 187 $1,402 $ 116
Ratio of expenses to average net assets 1.06% 1.12%** 1.88% 1.87%**
Ratio of net investment (loss) income to average net assets (0.33%) (0.58%)** (1.16%) (1.38%)**
Portfolio turnover rate 82.57% 82.93%** 82.57% 82.93%**
Average commission rate paid $0.0520 $0.0477 $0.0520 $0.0477
</TABLE>

* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 10 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO EQUITY FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 16.62 $ 15.85 $ 16.60 $ 15.85
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.14 0.04 0.02 0.02
Net realized and unrealized gain (loss) on investment
transactions 3.77 1.35 3.79 1.33
------------- ------------- ------------- -------------
Total from investment operations 3.91 1.39 3.81 1.35
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.14) (0.04) (0.02) (0.02)
Distributions from realized gains (0.84) (0.58) (0.84) (0.58)
------------- ------------- ------------- -------------
Total distributions 0.98) (0.62) (0.86) (0.60)
------------- ------------- ------------- -------------
Net asset value at end of period $ 19.55 $ 16.62 $ 19.55 $ 16.60
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 23.56% 8.78%* 22.93% 8.50%*
Net assets at end of period (000's) $ 7,247 $ 2,894 $ 3,565 $ 355
Ratio of expenses to average net assets 1.24% 0.97%** 1.81% 1.75%**
Ratio of net investment income to average net assets 0.74% 1.38%** 0.12% 0.51%**
Portfolio turnover rate 34.26% 59.34%** 34.26% 59.34%**
Average commission rate paid $ 0.0573 $ 0.0571 $ 0.0573 $ 0.0571
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 11 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 21.15 $ 20.03 $ 21.12 $ 20.03
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.51 0.12 0.38 0.10
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 4.98 1.65 4.94 1.62
------------- ------------- ------------- -------------
Total from investment operations 5.49 1.77 5.32 1.72
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.51) (0.12) (0.38) (0.10)
Distributions from realized gains (2.11) (0.53) (2.11) (0.53)
------------- ------------- ------------- -------------
Total distributions (2.62) (0.65) (2.49) (0.63)
------------- ------------- ------------- -------------
Net asset value at end of period $ 24.02 $ 21.15 $ 23.95 $ 21.12
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 26.15% 8.85%* 25.35% 8.60%*
Net assets at end of period (000's) $ 742 $ 193 $ 798 $ 112
Ratio of expenses to average net assets 1.14% 1.03%** 1.83% 1.79%**
Ratio of net investment income to average net assets 2.50% 2.66%** 1.79% 1.99%**
Portfolio turnover rate 52.14% 37.84%** 52.14% 37.84%**
Average commission rate paid $ 0.0569 $ 0.0573 $ 0.0569 $ 0.0573
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 12 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO NORTHWEST FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $14.06 $13.78 $14.03 $13.78
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.06) (0.01) (0.10) (0.03)
Net realized and unrealized gain (loss) on investment
transactions 4.39 0.29 4.30 0.28
------------ ------------ ------------ ------------
Total from investment operations 4.33 0.28 4.20 0.25
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- --
Distributions from realized gains (1.14) -- (1.14) --
------------ ------------ ------------ ------------
Total distributions (1.14) -- (1.14) --
------------ ------------ ------------ ------------
Net asset value at end of period $17.25 $14.06 $17.09 $14.03
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return+ 30.79% 2.03%* 29.93% 1.81%*
Net assets at end of period (000's) $1,354 $ 369 $1,204 $ 232
Ratio of expenses to average net assets 1.42% 1.40%** 2.09% 2.18%**
Ratio of net investment income to average net assets (0.61%) (0.39%)** (1.30%) (1.19%)**
Portfolio turnover rate 55.42% 67.32%** 55.42% 67.32%**
Average commission rate paid $0.0560 $0.0482 $0.0560 $0.0482
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return would be lower.

-- 13 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INTERNATIONAL STOCK FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.29 $ 10.39 $ 11.28 $ 10.39
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.20 -- 0.18 --
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 0.29 0.95 0.22 0.93
------------- ------------- ------------- -------------
Total from investment operations 0.49 0.95 0.40 0.93
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.21) (0.05) (0.13) (0.04)
Distributions from realized gains (0.02) -- (0.02) --
------------- ------------- ------------- -------------
Total distributions (0.23) (0.05) (0.15) (0.04)
------------- ------------- ------------- -------------
Net asset value at end of period $ 11.55 $ 11.29 $ 11.53 $ 11.28
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 4.30% 9.19%* 3.48% 8.96%*
Net assets at end of period (000's) $ 295 $ 154 $ 331 $ 112
Ratio of expenses to average net assets++ 1.87% 1.41%** 2.64% 2.17%**
Ratio of net investment income to average net assets 0.26% (0.23%)** 0.51% (1.15%)**
Portfolio turnover rate 22.13% 18.51%** 22.13% 18.51%**
Average commission rate paid $0.0246 $0.0223 $0.0246 $0.0223
</TABLE>

* Not Annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 2.13% and 1.72% for the year and
period ended December 31, 1997 and 1996, respectively, for Class A, and 2.90%
and 2.47%, respectively, for Class B.

-- 14 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO BALANCED FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.69 $ 10.38 $ 10.70 $ 10.38
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28 0.09 0.18 0.06
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 1.45 0.44 1.44 0.45
------------ ------------- ------------ -------------
Total from investment operations 1.73 0.53 1.62 0.51
------------ ------------- ------------ -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.28) (0.09) (0.18) (0.06)
Distributions from realized gains (0.54) (0.13) (0.54) (0.13)
------------ ------------- ------------ -------------
Total distributions (0.82) (0.22) (0.72) (0.19)
------------ ------------- ------------ -------------
Net asset value at end of period $ 11.60 $ 10.69 $ 11.60 $ 10.70
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Total return+ 16.29% 5.07%* 15.21% 4.85%*
Net assets at end of period (000's) $ 205 $ 110 $ 331 $ 115
Ratio of expenses to average net assets 1.52% 1.35%++** 2.28% 2.11%++**
Ratio of net investment income to average net assets 2.55% 3.01%** 2.55% 2.23%**
Portfolio turnover rate 101.22% 36.10%** 101.22% 36.10%**
Average commission rate paid $ 0.0521 $ 0.0548 $ 0.0521 $ 0.0548
</TABLE>

* Not Annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.70% and 2.46% for Class A and Class
B, respectively.

-- 15 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO SMALL COMPANY STOCK FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $11.81 $11.51 $11.79 $11.51
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.06) (0.01) (0.10) (0.04)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 2.80 0.31 2.72 0.32
------------ ------------ ------------ ------------
Total from investment operations 2.74 0.30 2.62 0.28
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- --
Distributions from realized gains (0.34) -- (0.34) --
------------ ------------ ------------ ------------
Total distributions (0.34) -- (0.34) --
------------ ------------ ------------ ------------
Net asset value at end of period $14.21 $11.81 $14.07 $11.79
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return+ 23.21% 2.61%* 22.23% 2.43%*
Net assets at end of period (000's) $ 271 $ 135 $ 396 $ 103
Ratio of expenses to average net assets 1.52% 1.42%++** 2.29% 2.18%++**
Ratio of net investment income to average net assets (0.60%) (0.50%)** (1.35%) (1.28%)**
Portfolio turnover rate 60.81% 73.47%** 60.81% 73.47%**
Average commission rate paid $0.0470 $0.0496 $0.0470 $0.0496
</TABLE>

* Not Annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.62% and 2.41% for Class A and Class
B, respectively.

-- 16 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO U.S. VALUE FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
----------------- -----------------
APRIL 30, 1997 APRIL 30, 1997
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) TO OF OPERATIONS) TO
DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Net asset value at beginning of period $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.02
Net realized and unrealized gain (loss) on investment and foreign currency
transactions 1.65 1.65
-------- --------
Total from investment operations 1.73 1.67
-------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.08) (0.02)
Distributions from realized gains (0.47) (0.47)
-------- --------
Total distributions (0.55) (0.49)
-------- --------
Net asset value at end of period $ 11.18 $ 11.18
-------- --------
-------- --------
Total return+ 17.34%* 16.63%*
Net assets at end of period (000's) $ 133 $ 221
Ratio of expenses to average net assets ** 1.48% 2.29%
Ratio of net investment income to average net assets** 1.03% 0.20%
Portfolio turnover rate** 36.37% 36.37%
Average commission rate paid $ 0.0372 $ 0.0372
</TABLE>

* Not Annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.

-- 17 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 10.11 $ 10.10 $ 10.12 $ 10.10
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.55 0.15 0.48 0.14
Net realized and unrealized gain (loss) on investments 0.24 0.01 0.23 0.02
------------- ------------ ------------- ------------
Total from investment operations 0.79 0.16 0.71 0.16
------------- ------------ ------------- ------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.55) (0.15) (0.48) (0.14)
Distributions from capital gains -- -- -- --
------------- ------------ ------------- ------------
Total distributions (0.55) (0.15) (0.48) (0.14)
------------- ------------ ------------- ------------
Net asset value at end of period $ 10.35 $ 10.11 $ 10.35 $ 10.12
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Total return 8.03% 1.63%* 7.27% 1.55%*
Net assets at end of period (000's) $ 365 $ 704 $ 432 $ 223
Ratio of expenses to average net assets 1.32% 1.07%**++ 1.87% 1.72%**++
Ratio of net investment income to average net assets 5.36% 6.07%** 4.78% 5.35%**
Portfolio turnover rate 82.36% 125.42%** 82.36% 125.42%**
</TABLE>

* Not annualized.
** Annualized.
+ Excludes the effects of sales charges. If sales charges were included, the
total return would be lower.
++ Net of reimbursements by advisor. Absent the reimbursements, the ratio of
expenses to average net assets would be 1.30% and 1.95% for Class A and Class
B, respectively.

-- 18 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO HIGH-YIELD BOND FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
ELEVEN-MONTH ELEVEN-MONTH
PERIOD ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1997 1997
------------- -------------
<S> <C> <C>
Net asset value at beginning of period $ 8.83 $ 8.83
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.69 0.63
Net realized and unrealized gain (loss) on investments 0.29 0.29
------------- -------------
Total from investment operations 0.98 0.92
------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.69) (0.63)
Distributions from capital gains -- --
------------- -------------
Total distributions (0.69) (0.63)
------------- -------------
Net asset value at end of period $ 9.12 $ 9.12
------------- -------------
------------- -------------
Total return+ 12.49%* 11.77%*
Net assets at end of period (000's) $ 259 $ 355
Ratio of expenses to average net assets 1.10%** 1.81%**
Ratio of net investment income to average net assets 7.65%** 6.87%**
Portfolio turnover rate 85.06%** 85.06%**
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 19 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MANAGED BOND FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------ ------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 8.35 $ 8.35 $ 8.35 $ 8.35
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.39 0.11 0.32 0.09
Net realized and unrealized gain (loss) on investments 0.25 -- 0.25 --
------------ ------------ ------------ ------------
Total from investment operations 0.64 0.11 0.57 0.09
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.39) (0.11) (0.32) (0.09)
Distributions from capital gains -- -- -- --
------------ ------------ ------------ ------------
Total distributions (0.39) (0.11) (0.32) (0.09)
------------ ------------ ------------ ------------
Net asset value at end of period $ 8.60 $ 8.35 $ 8.60 $ 8.35
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total return+ 7.78% 1.34%* 6.91% 1.15%*
Net assets at end of period (000's) $ 146 $ 140 $ 120 $ 100
Ratio of expenses to average net assets 1.45% 1.30%** 2.23% 2.07%**
Ratio of net investment income to average net assets 4.68% 5.22%** 3.79% 4.45%**
Portfolio turnover rate 176.50% 136.29%** 176.50% 136.29%**
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 20 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MUNICIPAL BOND FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value at beginning of period $ 13.99 $ 13.82 $ 13.98 $ 13.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.68 0.18 0.60 0.15
Net realized and unrealized gain (loss) on investments 0.70 0.17 0.68 0.16
------------- ------------- ------------- -------------
Total from investment operations 1.38 0.35 1.28 0.31
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.68) (0.18) (0.60) (0.15)
Distributions from realized gains (0.16) -- (0.16) --
------------- ------------- ------------- -------------
Total distributions (0.84) (0.18) (0.76) (0.15)
------------- ------------- ------------- -------------
Net asset value at end of period $ 14.53 $ 13.99 $ 14.50 $ 13.98
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 10.17% 2.52%* 9.41% 2.27%*
Net assets at end of period (000's) $ 390 $ 311 $ 502 $ 112
Ratio of expenses to average net assets 0.95% 0.82%** 1.53% 1.50%**
Ratio of net investment income to average net assets 4.86% 5.04%** 4.22% 4.42%**
Portfolio turnover rate 13.52% 6.66%** 13.52% 6.66%**
</TABLE>

* Annualized.
** Not Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 21 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO CALIFORNIA TAX-FREE INCOME FUND

<TABLE>
<CAPTION>
CLASS A CLASS B
------------- -------------
FOR THE THREE-MONTH FOR THE THREE-MONTH
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Net asset value at beginning of period $ 12.23 $ 12.07 $ 12.22 $ 12.07
<S> <C> <C> <C> <C>
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.58 0.15 0.48 0.12
Net realized and unrealized gain (loss) on
investments 0.76 0.19 0.76 0.18
------------- ------------- ------------- -------------
Total from investment operations 1.34 0.34 1.24 0.30
------------- ------------- ------------- -------------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.58) (0.15) (0.48) (0.12)
Distributions from realized gains (0.05) (0.03) (0.05) (0.03)
------------- ------------- ------------- -------------
Total distributions (0.63) (0.18) (0.53) (0.15)
------------- ------------- ------------- -------------
Net asset value at end of period $ 12.94 $ 12.23 $ 12.93 $ 12.22
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 11.29% 2.83%* 10.46% 2.56%*
Net assets at end of period (000's) $ 460 $ 122 $ 501 $ 101
Ratio of expenses to average net assets 0.91% 0.89%** 1.63% 1.64%**
Ratio of net investment income to average net
assets 4.52% 4.84%** 3.71% 4.08%**
Portfolio turnover rate 9.83% 10.52%** 9.83% 10.52%**
</TABLE>

* Not Annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 22 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

Dividends from net investment income (0.46) (0.12) (0.38) (0.10)
Distributions from realized gains -- (0.01) -- (0.01)
------------- ------------- ------------- -------------
Total distributions (0.46) (0.13) (0.38) (0.11)
------------- ------------- ------------- -------------
Net asset value at end of period $ 10.95 $ 10.53 $ 10.97 $ 10.55
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return+ 8.64% 1.94%* 7.75% 1.94%*
Net assets at end of period (000's) $ 360 $ 336 $ 239 $ 211
Ratio of expenses to average net assets 1.32% 1.31%** 2.13% 2.06%**
Ratio of net investment income to average net assets 4.39% 4.49%** 3.58% 3.71%**
Portfolio turnover rate 11.67% 15.96%** 11.67% 15.96%**
</TABLE>

* Not annualized.
** Annualized.
+ Total return excludes the effects of sales charges. If sales charges were
included, the total return for Classes A and B would be lower.

-- 23 --
<PAGE>
FINANCIAL HIGHLIGHTS

(For a Share Outstanding Throughout the Period)

SAFECO MONEY MARKET FUND

* Annualized.
** Not annualized.

-- 24 --
<PAGE>
ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE

The Value Fund's adviser, SAFECO Asset Management Company ("SAM"), has been
managing institutional private accounts (the "SAFECO Composite") since 1979. The
SAFECO Composite had investment objectives, policies, strategies and risks
substantially similar to those of the Value Fund. The data below is provided to
illustrate the past performance of SAM in managing substantially similar
accounts as measured against the S&P 500 Index and does not represent the
performance of the Value Fund.

CALENDAR YEAR TOTAL RETURNS

<TABLE>
<CAPTION>
SAFECO SAFECO S&P 500
YEAR COMPOSITE(A)* COMPOSITE(B)* INDEX**
- ---------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
1988 18.61% 17.70% 16.50%
1989 19.22% 18.29% 31.43%
1990 (4.68%) (5.46%) (3.19%)
1991 28.32% 27.35% 30.55%
1992 12.67% 11.79% 7.68%
1993 10.35% 9.48% 10.00%
1994 3.13% 2.30% 1.33%
1995 36.59% 35.57% 37.50%
1996 24.91% 23.95% 23.25%
1997 21.41% 20.47% 33.38%
</TABLE>

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

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING DECEMBER 31, 1997

<TABLE>
<CAPTION>
PERIOD BEGINNING
APRIL 30, 1997,
ENDING
DECEMBER 31, ONE FIVE TEN
1997* YEAR YEARS YEARS
---------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Value Fund
Class A 17.24%++ -- -- --
Class B 16.63%++ -- -- --
SAFECO Composite(A)* 16.21% 21.41% 18.71% 16.47%
SAFECO Composite(B)* 15.60% 20.47% 17.79% 15.56%
S&P 500 Index** 22.67% 33.38% 20.30% 18.04%
</TABLE>

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

+ Not annualized.

++ Performance excludes sales charges of 4.5% for Class A and a CDSC of 5% for
Class B; if included, total returns would have been 11.96% and 11.63% for
Class A and Class B, respectively.

* The gross performance of the SAFECO Composite in the tables above is shown
after reduction by the Value Fund's 1997 annualized expenses (April 30, 1997
to December 31, 1997) of 1.48% and 2.29% for Class A and Class B,
respectively.

** The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.

All returns presented were calculated on a total return basis and reflect the
reinvestment of capital gains, dividends, and interest. Custodial fees, if any,
were not included in the SAFECO Composite calculation. The SAFECO Composite's
returns are asset-weighted using beginning-of-period market values adjusted for
cash flows.

The Value Fund's size, expenses, timing of purchases and sales of portfolio
securities, availability of cash flows, and brokerage commissions may cause the
performance of the Value Fund to vary from that of the SAFECO Composite. In
addition, the institutional private accounts are not subject to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Value Fund by the Investment Company Act of 1940 and
Subchapter M of the Internal Revenue Code. Consequently, the performance results
for the SAFECO Composite could have been adversely affected if the accounts
included in the Composite had been regulated as investment companies under the
federal securities laws. The

-- 25 --
<PAGE>
ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE (CONTINUED)

investment results of the SAFECO Composite are unaudited and are not intended to
predict or suggest the returns that might be experienced by the Value Fund.
Investors should also be aware that the use of a methodology different from that
used above to calculate the SAFECO Composite's performance could result in
different performance data.

The S&P 500 Index is used for comparison purposes only. The S&P 500 Index is an
unmanaged index of representative U.S.
stocks that has no management or expense charges. Performance is based on
historical earnings and is not intended to indicate future performance of the
Value Fund.

SUB-ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE

The International Fund's sub-adviser, Bank of Ireland Asset Management (U.S.)
Limited ("BIAM"), has been managing separate accounts for institutional clients
in the United States for eight years. These accounts had investment objectives,
policies, strategies and risks substantially similar to those of the
International Fund. BIAM's past performance in advising these accounts was a key
factor in its selection as the Fund's sub-adviser. The performance set forth in
the tables below is based on the return achieved on BIAM's fully discretionary
international equity composite of accounts (the "BIAM Composite"). The BIAM
Composite data is provided to illustrate the past performance of BIAM in
managing substantially similar accounts as measured against the International
Fund and the EAFE Index, and does not represent the performance of the
International Fund.

CALENDAR YEAR TOTAL RETURNS

<TABLE>
<CAPTION>
BIAM BIAM EAFE
YEAR COMPOSITE(A) COMPOSITE(B) INDEX*
- ---------------------------------------- ------------- ----------------- ---------
<S> <C> <C> <C>
1990 (4.19%) (4.96%) (23.20%)
1991 11.11% 10.28% 12.50%
1992 11.51% 10.68% (11.85%)
1993 41.10% 40.11% 32.94%
1994 (7.59%) (8.32%) 8.06%
1995 18.63% 17.75% 11.55%
1996 22.03% 21.14% 6.36%
1997 4.28% 3.49% 2.06%
</TABLE>

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

AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDING DECEMBER 31, 1997

<TABLE>
<CAPTION>
PERIOD BEGINNING
JANUARY 31, 1996,
ONE ENDING FIVE
YEAR DECEMBER 31, 1997 YEARS
------------- ----------------- ---------
<S> <C> <C> <C>
International Fund**
Class A 4.30% 9.53% --
Class B 3.48% 8.96% --
BIAM Composite(A) 4.28% 11.46% 14.50%
BIAM Composite(B) 3.49% 10.61% 13.65%
EAFE Index* 2.06% 4.14% 11.71%
</TABLE>

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

* The Morgan Stanley Europe, Australasia and Far East Index ("EAFE Index") is a
market-weighted aggregate of 20 individual country indices that collectively
represent many of the major markets of the world, excluding Canada and the
United States.

** The performance information of the Class A and Class B shares of the
International Fund reflects the actual performance of the Class A and Class B
shares excluding sales charges for the period September 30, 1996 to December
31, 1997, and the performance of the No-Load Class of the Fund for the period
prior to September 30, 1996. Had the performance reflected sales charges of
4.5% for Class A and a CDSC of 5% for Class B, the one year returns would
have been (.39%) and (1.52%) for Class A and Class B, respectively, and the
January 31, 1996 to December 31, 1997 returns would have been 6.93% and 7.01%
for Class A and Class B, respectively. Performance information would have
been lower for the period prior to September 30, 1996 if Rule 12b-1 fees were
reflected. The gross performance of the Composite in the tables above is
shown after reduction by the International Fund's 1997 reimbursed expenses of
1.87% and 2.64% for Class A and Class B, respectively (absent reimbursements,
expenses would have been 2.13% and 2.90% for Class A and Class B,
respectively).

-- 26 --
<PAGE>
SUB-ADVISER'S INSTITUTIONAL PRIVATE ACCOUNT PERFORMANCE (CONTINUED)

All returns presented were calculated on a total-return basis and reflect the
reinvestment of capital gains, dividends, and interest. Custodial fees, if any,
were not included in the BIAM Composite calculation. The BIAM Composite's
returns are asset-weighted using beginning-of-period market values adjusted for
cash flows.

The International Fund's size, expenses, timing of purchases and sales of
portfolio securities, availability of cash flows, and brokerage commissions may
cause the performance of the International Fund to vary from that of the BIAM
Composite. In addition, the BIAM Composite accounts are not subject to the
diversification requirements, specific tax restrictions, and investment
limitations imposed on the International Fund by the Investment Company Act of
1940 and Subchapter M of the Internal Revenue Code. Consequently, the
performance results for the BIAM Composite could have been adversely affected if
the accounts included in the BIAM Composite had been regulated as investment
companies under the federal securities laws.

The investment results of the BIAM Composite are unaudited and are not intended
to predict or suggest the returns that might be experienced by the International
Fund. Investors should also be aware that the use of a methodology different
from that used above to calculate performance could result in different
performance data.

The EAFE Index is used for comparison purposes only. The EAFE Index is an
unmanaged index of representative international stocks that has no management or
expense charges. Performance is based on historical earnings and is not intended
to indicate future performance of the International Fund.

ALTERNATIVE PURCHASE ARRANGEMENT

This Prospectus offers two classes of shares for each Fund. For each Fund,
except the Money Market Fund, Class A shares are sold at net asset value plus an
initial sales charge of up to 4.5%. Class A shares also pay an annual Rule 12b-1
service fee of 0.25% of the average daily net assets of the Class A shares. For
each Fund, except the Money Market Fund, Class B shares are sold at net asset
value with no initial sales charge, but a CDSC of up to 5% applies to
redemptions made within six years of purchase. Class B shares also pay an annual
Rule 12b-1 service fee of 0.25% of the average daily net assets of the Class B
shares and an annual Rule 12b-1 distribution fee of 0.75% of the average daily
net assets of the Class B shares. Class B shares convert to Class A shares in
the first month following the investor's sixth anniversary from purchase. The
maximum investment amount in Class B shares is $500,000.

Class A and B shares of the Money Market Fund are sold at net asset value, are
not subject to sales charges, and do not currently pay Rule 12b-1 fees. Money
Market Fund Class A and Class B shares may be subject to sales charges if an
investor exchanges into Class A or Class B shares of another Fund. See
"Purchasing Class A Shares" and "Purchasing Class B Shares."

For shareholders of each Fund except the Money Market Fund, the alternative
purchase arrangement permits an investor to choose the method of purchasing
shares that is most beneficial, given the amount of the purchase, the length of
time the investor expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their investment in a
Fund, the accumulated distribution and service fees and CDSCs on Class B shares
prior to conversion would be less than the initial sales charge and accumulated
service fee on Class A shares purchased at the same time.

Class A shares will normally be more beneficial than Class B shares to investors
who qualify for reduced initial sales charges or a sales load waiver on Class A
shares. Class A shares are subject to a service fee (but not a distribution fee)
and, accordingly, pay correspondingly higher dividends per share than Class B
shares. However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all their funds
invested initially and, therefore, would initially own fewer shares.

Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class B shares. The CDSC imposed on the redemption of Class B shares
decreases and is

-- 27 --
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENT (CONTINUED)

completely eliminated with respect to such shares beginning in the first month
following the investor's sixth anniversary from purchase. Class B shares
automatically convert to Class A shares (which are subject to lower continuing
charges) in the first month following the investor's sixth anniversary from
purchase.

See "How to Purchase Shares" for more information about each Fund's shares.

EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES

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

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

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

INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS

GROWTH FUND

The Growth Fund has as its investment objective to seek growth of capital and
the increased income that ordinarily follows from such growth. The Growth Fund
ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation. Such investments may cause its share price
to be more volatile than the Equity and Income Funds.

To pursue its investment objective, the Growth Fund:

1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. To determine those common stocks which
have the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power.

3. MAY INVEST UP TO 5% OF NET ASSETS IN CONTINGENT VALUE RIGHTS. A contingent
value right is a right issued by a corporation that takes on a
preestablished value if the underlying common stock does not attain a target
price by a specified date.

See "Description of Stocks, Bonds and Convertible Securities" for a brief
description of common stocks, preferred stocks, convertible securities, and
bonds and other debt securities.

-- 28 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

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" for more
information.

INCOME FUND

The Income Fund has as its investment objective to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Fund
currently intends to place greatest emphasis on holding common stock,
convertible corporate bonds and convertible preferred stock. SAM will select
securities primarily for current income, but also with a view toward capital
growth when this can be accomplished without conflicting with the Fund's
investment objective.

To pursue its investment objective, the Income Fund:

1. WILL INVEST PRIMARILY IN COMMON STOCK AND ALSO IN CONVERTIBLE AND
NONCONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). The Fund
will purchase convertible securities if such securities offer a higher yield
than an issuer's common stock and provide reasonable potential for capital
appreciation. The Income Fund may invest in convertible corporate bonds that
are rated below investment grade (commonly referred to as "high-yield" or
"junk" bonds) or in comparable, unrated bonds, but less than 35% of the
Income Fund's net assets will be invested in such securities. Bonds rated Ca
by Moody's or CC by S&P are highly speculative and have large uncertainties
or major risk exposures. See "Risk Factors" for more information.

2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS. Eurodollar bonds
are bonds issued by either the U.S. or foreign issuers that are traded in
the European bond market and are denominated in U.S. dollars. Eurodollar
bonds are subject to the same risks that pertain to domestic issues, notably
credit risk, market risk and liquidity risk. Additionally, Eurodollar bonds
are subject to certain sovereign risks. One such risk is the possibility
that a foreign government might prevent dollar-denominated funds from
flowing across its borders. Other risks may include nationalization of the
issuer, confiscatory taxation by the foreign government that would inhibit
the ability of the issuer to make principal and

-- 29 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

interest payments to the Fund, lack of comparable publicly available
information concerning foreign issuers, lack of comparable accounting and
auditing practices in foreign countries and, finally, difficulty in
enforcing claims against foreign issuers in the event of default.

See "Description of Stocks, Bonds and Convertible Securities" for a brief
description of common stocks, preferred stocks, convertible securities, and
bonds and other debt securities. See "Description of Ratings" for a description
of debt securities ratings. See "Debt Securities Holdings" for a breakdown of
the debt securities held by the Income Fund during the year ended December 31,
1997.

NORTHWEST FUND

The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Fund will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in Alaska,
Idaho, Montana, Oregon, or Washington.

To pursue its investment objective, the Northwest Fund:

1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCKS AND PREFERRED
STOCKS OF COMPANIES LOCATED IN THE NORTHWEST SELECTED PRIMARILY FOR
POTENTIAL LONG-TERM APPRECIATION. To determine those common and preferred
stocks which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management, and earnings power. The
Fund generally invests a portion of its assets in smaller companies. See
"Risk Factors" for more information about the risks of investing primarily
in companies located in the Northwest and information about the risks
inherent in geographic concentration generally.

2. MAY OCCASIONALLY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN
THE OPINION OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY
EXCEEDS THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY
THE FUND. The Fund may purchase corporate bonds and preferred stock that
convert to common stock either automatically after a specified period of
time or at the option of the issuer. The Fund will purchase those
convertible securities which, in SAM's opinion, have underlying common stock
with potential for long-term growth. The Fund will purchase convertible
securities which are investment grade, I.E., rated in the top four
categories by either S&P or Moody's.

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of Stocks,
Bonds and Convertible Securities." See "Description of Ratings" for a
description of debt securities ratings.

INTERNATIONAL FUND

The investment objective of the International Fund is to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To pursue its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the United States.

To pursue its investment objective, the International Fund:

1. WILL INVEST PRIMARILY IN COMMON STOCK OF NON-U.S. COMPANIES. Common stock
issued by foreign companies is subject to various risks in addition to those
associated with U.S. investments. For example, the value of the common stock
depends in part upon currency values, the political and regulatory
environments, and overall economic factors in the countries in which the
common stock is issued.

2. MAY INVEST IN PREFERRED STOCK AND CONVERTIBLE SECURITIES ISSUED BY FOREIGN
COMPANIES.

-- 30 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

3. MAY INVEST IN DEBT SECURITIES ISSUED BY FOREIGN COMPANIES AND GOVERNMENTS.
The Fund will make such investments primarily for defensive purposes, but
may also do so where anticipated interest rate movements, or other factors
affecting the degree of risk inherent in a fixed income security, are
expected to change significantly so as to produce appreciation in the
security consistent with the objective of the Fund. The Fund may purchase
sovereign debt instruments issued or guaranteed by foreign governments or
their agencies. Sovereign debt may be in the form of conventional securities
or other types of debt instruments such as loans or loan participations.
Governments or governmental entities responsible for repayment of the debt
may be unable or unwilling to repay principal and interest when due, and may
require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic factors.

4. MAY INVEST IN PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICS"), WHICH INCLUDE
FUNDS OR TRUSTS ORGANIZED AS INVESTMENT VEHICLES TO INVEST IN COMPANIES OF
CERTAIN FOREIGN COUNTRIES. Investors in PFICs bear their proportionate share
of the PFIC's management fees and other expenses. See "Additional Tax
Information" in the Statement of Additional Information.

5. MAY PURCHASE AND SELL PUT AND CALL OPTIONS ON SECURITIES, FINANCIAL INDICES
AND FOREIGN CURRENCIES, MAY PURCHASE AND SELL THE FOLLOWING NON-LEVERAGED
DERIVATIVE SECURITIES: FUTURES CONTRACTS AND RELATED OPTIONS WITH RESPECT TO
SECURITIES, FINANCIAL INDICES AND FOREIGN CURRENCIES, AND MAY ENTER INTO
FOREIGN CURRENCY TRANSACTIONS SUCH AS FORWARD CONTRACTS. The Fund may employ
certain strategies and techniques utilizing these instruments to mitigate
its exposure to changing currency exchange rates, security prices, interest
rates and other factors that affect security values. There is no guarantee
that these strategies and techniques will work. An option gives an owner the
right to buy or sell securities at a predetermined exercise price for a
given period of time. The writer of an option is obligated to purchase or
sell (depending upon the nature of the option) the underlying securities if
the option is exercised during the specified period of time. A futures
contract is an agreement in which the seller of the contract agrees to
deliver to the buyer an amount of cash equal to a specific dollar amount
times the difference between the value of a security at the close of the
last trading day of the contract and the price at which the agreement is
made. A forward currency contract is an agreement to purchase or sell a
foreign currency at some future time for a fixed amount of U.S. dollars. The
Fund, under normal conditions, will not sell a put or call option if, as a
result thereof, the aggregate value of the assets underlying all such
options (determined as of the date such options are written) would exceed
25% of the Fund's net assets. The Fund will not purchase a put or call
option or option on a futures contract if, as a result thereof, the
aggregate premiums paid on all options or options on futures contracts held
by the Fund would exceed 20% of its net assets. In addition, the Fund will
not enter into any futures contract or option on a futures contract if, as a
result thereof, the aggregate margin deposits and premiums required on all
such instruments would exceed 5% of its net assets.

See "Risk Factors" for more information about the risks inherent in securities
issued by foreign issuers and in the purchase and sale of options, futures and
forward contracts. See "Description of Stocks, Bonds and Convertible Securities"
for a brief description of common stock, preferred stock, convertible
securities, and bonds and other debt securities.

BALANCED FUND

The Balanced Fund has as its investment objective to seek growth and income
consistent with the preservation of capital. To pursue its objective, the
Balanced Fund will invest primarily in equity and 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."

-- 31 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

To pursue its investment objective, the Balanced Fund:

1. WILL ORDINARILY INVEST FROM 50% TO 70% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, WHICH INCLUDE COMMON STOCK, PREFERRED STOCK AND SECURITIES
CONVERTIBLE INTO COMMON STOCK. The Fund will invest principally in common
stocks selected by SAM primarily for appreciation and/or dividend potential
and from a long-range investment standpoint. The Fund may purchase corporate
bonds and preferred stock that convert to common stock either automatically
after a specified period of time or at the option of the issuer.

The Fund will purchase those convertible securities which, in SAM's opinion,
have underlying common stock with potential for long-term growth. The Fund
will purchase convertible securities which are investment grade, i.e., rated
in the top four categories by either S&P or Moody's.

2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SENIOR
SECURITIES. The Fund will purchase only those U.S. Government and investment
grade debt obligations or nonrated debt obligations which in SAM's view
contain the credit characteristics of investment grade debt obligations.
Investment grade obligations (rated between Aaa-Baa by Moody's and AAA-BBB
by S&P) are from high to medium quality. Medium-quality obligations possess
speculative characteristics and may be more sensitive to economic changes
and changes to the financial condition of issuers.

SMALL COMPANY FUND

The Small Company Fund has as its investment objective to seek long-term growth
of capital through investing primarily in small-sized companies. To pursue its
objective, the Small Company Fund will invest primarily in companies with total
market capitalization of less than $1 billion.

To pursue its investment objective, the Small Company Fund:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND PREFERRED
STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET CAPITALIZATION OF LESS THAN
$1 BILLION. Companies whose capitalization falls outside this range after
purchase continue to be considered small-capitalized for purposes of the 65%
policy. The Fund will invest principally in common stock selected by SAM
primarily for appreciation and/or dividend potential and from a long-range
investment standpoint. In determining those common and preferred stock which
have the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management, and earnings power. Investments
in small or newly formed companies involve greater risks than investments in
larger, more established issuers, and their securities can be subject to
more abrupt and erratic movements in price. See "Risk Factors" for more
information about the risks inherent in securities issued by small
companies.

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN SAM'S
OPINION, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE FUND. The
Fund will purchase convertible securities if such securities offer a higher
yield than an issuer's common stock and provide reasonable potential for
capital appreciation. The Fund may invest in convertible corporate bonds
that are rated below investment grade (commonly referred to as "high-yield"
or "junk" bonds) or in comparable, unrated bonds, but less than 35% of the
Fund's net assets will be invested in such securities. Bonds rated Ca by
Moody's or CC by S&P are highly speculative and have large uncertainties or
major risk exposures. See "Risk Factors" for more information.

-- 32 --
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

VALUE FUND

The Value Fund has as its investment objective to seek long-term growth of
capital and income. The Value Fund primarily invests in common stock selected
for potential appreciation and income, using fundamental value analysis. The
Value Fund will invest of least 65% of its assets in common stock and preferred
stock issued by U.S. companies.

To pursue its investment objective, the Value Fund:

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK, EITHER AUTOMATICALLY
AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE ISSUER). The Fund
will purchase convertible securities if such securities offer a higher yield
than an issuer's common stock and provide reasonable potential for capital
appreciation. The Value Fund may invest in convertible corporate bonds that
are rated below investment grade (commonly referred to as "high-yield" or
"junk bonds" or in comparable, unrated bonds, but less than 35% of the Value
Fund's net assets will be invested in such securities. Bonds rated Ca by
Moody's or CC by S&P are highly speculative and have large uncertainties or
major risk exposures. See "Risk Factors" for more information.

COMMON INVESTMENT PRACTICES OF THE STOCK FUNDS

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

1. MAY INVEST IN BONDS AND OTHER DEBT SECURITIES. Each Fund may invest in bonds
and other debt securities that are rated investment grade by Moody's or S&P,
or unrated bonds determined by SAM to be of comparable quality to such rated
bonds. Bonds rated in the lowest category of investment grade (Baa by
Moody's and BBB by S&P) and comparable unrated bonds have speculative
characteristics and are more likely to have a weakened capacity to make
principal and interest payments under changing economic conditions or upon
deterioration in the financial condition of the issuer.

After purchase by a Stock Fund, a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event will
require a Stock Fund to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether the
Fund should continue to hold the security in its portfolio. The Equity Fund
will not hold more than 3% of its total assets and the Income Fund will not
hold more than 1% of its total assets in bonds that go into default on the
payment of principal and interest after purchase. In the event that 35% or
more of a Stock Fund's net assets is held in securities rated below
investment grade due to a downgrade of one or more corporate bonds, SAM will
engage in an orderly disposition of such securities to the extent necessary
to ensure that the Fund's holdings of such securities remain below 35% of
the Fund's net assets.

2. MAY INVEST IN WARRANTS. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrant. Generally, the value of a warrant will fluctuate by greater
percentages than the value of the underlying common stock. The primary risk
associated with a warrant is that the term of the warrant may expire before
the exercise price of the common stock has been reached. Under these
circumstances, a Stock Fund could lose all of its principal investment in
the warrant.

3. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH-QUALITY
COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END

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INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

MONEY MARKET FUNDS (EXCEPT THE EQUITY FUND) OR REPURCHASE AGREEMENTS. The
Stock Funds may purchase these short-term securities as a cash management
technique under those circumstances where it has cash to manage for a short
time period, for example, after receiving proceeds from the sale of
securities, dividend distributions from portfolio securities or cash from
the sale of Fund shares to investors. With respect to repurchase agreements,
the Equity and Northwest Funds will not invest more than 10% of their total
assets in repurchase agreements and the Growth, Equity, Income and Northwest
Funds will not purchase repurchase agreements that mature in more than seven
days. Counterparties of foreign repurchase agreements may be less
creditworthy than U.S. counterparties.

4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS OR
PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under this
procedure, a Stock Fund agrees to acquire securities that are to be issued
and delivered against payment in the future. The price, however, is fixed at
the time of commitment. When a Stock Fund purchases when-issued or
delayed-delivery securities, its custodian bank will maintain in a temporary
holding account cash, U.S. Government securities or other high-grade debt
obligations having a value equal to or greater than such commitments. On
delivery dates for such transactions, the Fund will meet its obligations
from maturities or sales of the securities held in the temporary holding
account or from then-available cash flow. If a Stock Fund chooses to dispose
of the right to acquire a when-issued or delayed delivery security prior to
its acquisition, it could incur a gain or loss due to market fluctuations.
Use of these techniques may affect a Fund's share price in a manner similar
to leveraging.

5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are registered
receipts evidencing ownership of an underlying foreign security. They
typically are issued in the United States by a bank or trust company. In
addition to the risks of foreign investment applicable to the underlying
securities, ADRs may also be subject to the risks that the foreign issuer
may not be obligated to cooperate with the U.S. bank or trust company, or
that such information in the U.S. market may not be current. ADRs which are
structured without sponsorship of the issuer of the underlying foreign
security may also be subject to the risk that the foreign issuer may not
provide financial and other material information to the U.S. bank or trust
company issuer. The International Fund may utilize European Depositary
Receipts ("EDRs"), which are similar instruments. EDRs may be in bearer form
and are designed for use in the European securities markets.

6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES, EXCEPT THE
INTERNATIONAL FUND, WHICH MAY INVEST 100% OF ITS ASSETS IN FOREIGN
SECURITIES. Foreign securities are subject to risks in addition to those
inherent in investments in domestic securities. See "Risk Factors" for more
information about the risks associated with investments in foreign
securities.

7. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE INVESTMENT
TRUSTS ("REITS"). REITs purchase real property, which is then leased, and
make mortgage investments. For federal income tax purposes, REITs attempt to
qualify for beneficial "modified pass-through" tax treatment by annually
distributing at least 95% of their taxable income. If a REIT were unable to
qualify for such tax treatment, it would be taxed as a corporation and the
distributions made to its shareholders would not be deductible by it in
computing its taxable income. REITs are dependent upon the successful
operation of properties owned and the financial condition of lessees and
mortgagors. The value of REIT units fluctuates, depending on the underlying
value of the real property and mortgages owned and the amount of cash flow
(net income plus depreciation) generated and paid out. In addition, REITs
typically borrow to increase funds available for investment. Generally,
there is a greater risk associated with REITs that are highly leveraged.

8. MAY INVEST IN RESTRICTED SECURITIES, PROVIDED THAT SAM HAS DETERMINED THAT
SUCH SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE COMMON STOCK
TRUST'S BOARD OF TRUSTEES. Restricted securities may be sold only in
offerings registered under the Securities Act of 1933, as amended ("1933
Act"), or in transactions exempt from the registration requirements under
the 1933 Act. Rule 144A under the 1933 Act provides an exemption for the
resale of

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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

certain restricted securities to qualified institutional buyers. Investing
in restricted securities may decrease the liquidity of a Stock Fund's
portfolio to the extent that qualified institutional buyers or other buyers
become, for a time, unwilling to purchase the securities. As a result, a
Stock Fund may not be able to sell these securities when its investment
adviser or sub-investment adviser deems it advisable to sell, or may have to
sell them at less than fair value. In addition, market quotations are
sometimes less readily available for restricted securities. Therefore,
judgment may at times play a greater role in valuing these securities than
in the case of unrestricted securities.

9. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT MATURITY
ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX. The value of
an indexed security is determined by reference to a specific equity
instrument or statistic. The performance of indexed securities depends
largely on the performance of the securities or indices to which they are
indexed, but such securities are also subject to credit risks associated
with the issuer of the security. Indexed securities may also be more
volatile than their underlying instruments.

10. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES OF UNSEASONED ISSUERS.
Unseasoned issuers are those companies which, together with any
predecessors, have been in operation for less than three years.

11. MAY (EXCEPT FOR THE EQUITY FUND) PURCHASE AND WRITE (I.E., SELL) COVERED
CALL OPTIONS AND PURCHASE PUT AND CALL OPTIONS ON STOCK INDICES. The Funds
(except the Equity Fund) may employ certain strategies and techniques
utilizing these types of options to mitigate their exposure to factors that
affect security values. (The International Fund may utilize other types of
options as described above under "Each Fund's Investment Objective and
Policies -- International Fund.") There is no guarantee that these
strategies and techniques will work. An option gives an owner the right to
buy or sell securities at a predetermined exercise price for a given period
of time. The writer of a call option is obligated to sell the underlying
securities if the option is exercised during the specified period of time. A
Fund that writes a call option and wishes to terminate the obligation may
effect a "closing purchase transaction" by buying an option of the same
series as the option previously written. Options on stock indices are
similar to options on stock except that, rather than obtaining the right to
take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the stock index upon which the option
is based is greater than (in the case of a call) or less than (in the case
of a put) the strike price of the option. A Fund will write call options on
stocks only if they are covered, and such options must remain covered so
long as the Fund is obligated as a writer. A Fund, under normal conditions,
will not write a call option if, as a result thereof, the aggregate value of
the assets underlying all such options (determined as of the date such
options are written) would exceed 25% of the Fund's net assets. A Fund will
not purchase an option if, as a result thereof, its aggregate investment in
options would exceed 5% of its total assets. The International Fund's
investment in options is not limited by this paragraph. See "Each Fund's
Investment Objective and Policies -- International Fund" for a discussion of
the International Fund's policies regarding investment in options. See "Risk
Factors" for more information about the risks inherent in the purchase and
sale of options.

The following restrictions are fundamental policies of the Stock Funds that
cannot be changed without shareholder vote.

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

2. THE GROWTH, INCOME AND NORTHWEST FUNDS MAY NOT PURCHASE MORE THAN 10% OF ANY
CLASS OF SECURITIES OF ANY ONE ISSUER.

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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE STOCK FUNDS (CONTINUED)

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

4. EACH STOCK FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES,
AND THE GROWTH FUND ONLY FOR EXTRAORDINARY OR EMERGENCY PURPOSES, FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. The Growth, Income, and Northwest
Funds will not borrow amounts in excess of 20%, and the Equity, Balanced,
International, Small Company, and Value Funds will not borrow amounts in
excess of 33% of total assets. A Stock Fund will not purchase securities if
borrowings equal to or greater than 5% of total assets are outstanding for
that Fund.

For more information, see the "Investment Policies of the Stock Funds" and
"Additional Investment Information" sections of the Statement of Additional
Information.

INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND

The investment objective of the Intermediate Treasury Fund is to provide as high
a level of current income as is consistent with the preservation of capital. The
Intermediate Treasury Fund will seek to maintain a portfolio of U.S. Treasury
obligations with an average dollar weighted maturity of between three and ten
years; however, individual obligations held by the Intermediate Treasury Fund
may have maturities outside that range.

To pursue its investment objective, the Intermediate Treasury Fund:

1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN DIRECT OBLIGATIONS OF THE U.S. TREASURY SUCH AS U.S. TREASURY
BILLS, NOTES, AND BONDS. The Intermediate Treasury Fund may also invest in
stripped securities that are direct obligations of the U.S. Treasury. Direct
obligations of the U.S. Treasury are supported by the full faith and credit
of the U.S. Government.

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

OTHER U.S. GOVERNMENT SECURITIES, including (a) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, such as securities issued by the
Government National Mortgage Association ("GNMA"), (b) securities that are
not supported by the full faith and credit of the U.S. Government but are
supported by the issuer's ability to borrow from the U.S. Treasury, such as
securities issued by the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"), and (c) securities
supported solely by the creditworthiness of the issuer, such as securities
issued by the Tennessee Valley Authority ("TVA"). While U.S. Government
securities are considered to be of the highest credit quality available,
they are subject to the same market risks as comparable debt securities.

CORPORATE DEBT SECURITIES which at the time of purchase are rated in the top
three grades (A or higher) by either Moody's or S&P, or, if unrated,
determined by SAM to be of comparable quality to such rated debt securities.
In addition to reviewing ratings, SAM will analyze the quality of rated and
unrated corporate bonds for purchase by the Fund by evaluating various
factors that may include the issuer's capital structure, earnings power and
quality of management. See "Description of Ratings."

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

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<PAGE>
INVESTMENT POLICIES OF THE HIGH-YIELD FUND

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

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

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

While fixed-income securities rated lower than investment grade generally
lack characteristics of a desirable investment, they normally offer a
current yield or yield-to-maturity which is significantly higher than the
yield available from securities rated as investment grade. These securities
are speculative and involve greater investment risks due to the issuers'
reduced creditworthiness and increased likelihood of default and bankruptcy.
In addition, these securities are frequently subordinated to senior
securities. See "Risk Factors" for further explanation of the special risks
associated with investing in lower-rated, fixed-income securities.

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

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

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

4. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN MUNICIPAL SECURITIES WHICH ARE
RATED LOWER THAN THE TOP THREE GRADES ASSIGNED BY MOODY'S OR S&P OR ARE
UNRATED BUT COMPARABLE TO SUCH RATED SECURITIES IF, IN THE OPINION OF SAM,
THE POTENTIAL FOR APPRECIATION IS GREATER THAN, AND YIELD IS COMPARABLE TO
OR GREATER THAN, SIMILARLY RATED TAXABLE SECURITIES. Investment in medium-
and lower-quality tax-exempt bonds involves the same risks as investments in
taxable bonds of similar quality.

5. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES, OR IN FIXED-INCOME SECURITIES WHICH ARE RATED
IN THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P DURING MARKET

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<PAGE>
INVESTMENT POLICIES OF THE HIGH-YIELD FUND (CONTINUED)

CONDITIONS WHICH, IN THE OPINION OF SAM, ARE UNFAVORABLE FOR SATISFACTORY
PERFORMANCE BY LOWER-RATED OR UNRATED FIXED-INCOME SECURITIES. The Fund may
invest in higher-rated securities when changing economic conditions or other
factors cause the difference in yield between lower-rated and higher-rated
securities to narrow and SAM believes that the risk of loss to principal may
be substantially reduced with a small reduction in yield.

6. MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES BY FOREIGN
ISSUERS. Yankee sector debt securities are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Yankee sector debt securities are subject to certain
sovereign risks. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and auditing practices in foreign
countries and, finally, difficulty in enforcing claims against foreign
issuers in the event of default.

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

See "Risk Factors" for more information. See "Description of Stocks, Bonds and
Convertible Securities" for a brief description of common stocks, preferred
stocks, convertible securities, and bonds and other debt securities.

COMMON INVESTMENT PRACTICES OF THE INTERMEDIATE TREASURY FUND AND THE HIGH-YIELD
FUND

The Intermediate Treasury Fund and High-Yield Fund may also follow the
investment practices described below:

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

2. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. Neither Fund,
however, will engage primarily in trading for the purpose of short-term
profits. A Fund may dispose of its portfolio securities whenever SAM deems
advisable, without regard to the length of time the securities have been
held.

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

The following restrictions are fundamental policies of the Intermediate Treasury
Fund and High-Yield Fund which cannot be changed without shareholder vote.

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<PAGE>
COMMON INVESTMENT PRACTICES OF THE INTERMEDIATE TREASURY FUND AND THE HIGH-YIELD
FUND (CONTINUED)

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

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

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

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

5. EACH FUND MAY INVEST UP TO 10% OF NET ASSETS IN REPURCHASE AGREEMENT
TRANSACTIONS. Repurchase agreements are transactions in which a Fund
purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. Repurchase
agreements carry certain risks not associated with direct investments in
securities, including the risk that the Fund will be unable to dispose of
the security during the term of the repurchase agreement if the security's
market value declines, and delays and costs to a Fund if the other party to
the repurchase agreement declares bankruptcy.

For more information see the "Investment Policies of the Bond Funds" and
"Additional Investment Information -- Bond Funds and Managed Bond Fund" sections
of the Statement of Additional Information.

INVESTMENT POLICIES OF THE MANAGED BOND FUND

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

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

To pursue its investment objective, the Managed Bond Fund:

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

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

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<PAGE>
INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)

GRADE DEBT SECURITIES. Included in investment grade debt securities are
securities of medium grade (rated Baa by Moody's or BBB by S&P) which have
speculative characteristics and are more likely to have a weakened capacity
to make principal and interest payments under changing economic or other
conditions than higher-grade securities. The Managed Bond Fund will limit
investments in such medium-grade debt securities to no more than 10% of its
total assets. Unrated securities are not necessarily of lower quality than
rated securities, but may not be as attractive to investors.

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

3. WILL INVEST AT LEAST 50% OF ITS TOTAL ASSETS IN OBLIGATIONS OF OR GUARANTEED
BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES. These
obligations include (a) direct obligations of the U.S. Treasury, such as
U.S. Treasury notes, bills, bonds and stripped securities; (b) securities
supported by the full faith and credit of the U.S. Government but that are
not direct obligations of the U.S. Treasury, such as securities issued by
the GNMA; (c) securities that are not supported by the full faith and credit
of the U.S. Government but are supported by the issuer's ability to borrow
from the U.S. Treasury, such as securities issued by the FNMA and the FHLMC;
and (d) securities supported solely by the creditworthiness of the issuer,
such as securities issued by the TVA. While U.S. Government securities are
considered to be of the highest credit quality available, they are subject
to the same market risks as comparable debt securities.

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

5. MAY INVEST IN ASSET-BACKED SECURITIES, WHICH REPRESENT INTERESTS IN, OR ARE
SECURED BY AND PAYABLE FROM, POOLS OF ASSETS SUCH AS (BUT NOT LIMITED TO)
CONSUMER LOANS, AUTOMOBILE RECEIVABLE SECURITIES, CREDIT CARD RECEIVABLE
SECURITIES, AND INSTALLMENT LOAN CONTRACTS. These securities may be
pass-through certificates, which are similar to mortgage-backed securities,
or they may be asset-backed commercial paper, which is issued by a special
purpose entity organized solely to issue the commercial paper and to
purchase interests in the assets. There is the risk that one or more of the
underlying borrowers may default and that recovery on the repossessed
collateral may be unavailable or inadequate to support payments on the
defaulted securities. Like mortgage-backed securities, asset-backed
securities are subject to prepayment risks, which may reduce the overall
return on the investment. Payment of interest and principal ultimately
depends upon borrowers paying the underlying loans. These securities may be
supported by credit enhancements such as letters of credit. The credit
quality of these securities depends upon the quality of the underlying
assets and the level of credit enhancements, such as letters of credit,
provided. There is the risk that one or more of the underlying borrowers may
default and that recovery on repossessed collateral may be unavailable or
inadequate to support payments on the defaulted asset-backed securities. In
addition, asset-backed securities are subject to prepayment risks which may
reduce the overall return of the investment.

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<PAGE>
INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)

6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT SECURITIES,
WHICH ARE SECURITIES ISSUED AND TRADED IN THE UNITED STATES BY FOREIGN
ISSUERS. Yankee sector debt securities are subject to the same risks that
pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Yankee sector debt securities are subject to certain
sovereign risks. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Managed
Bond Fund, lack of comparable publicly available information concerning
foreign issuers, lack of comparable accounting and auditing practices in
foreign countries and, finally, difficulty in enforcing claims against
foreign issuers in the event of default.

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

8. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH-QUALITY
COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END MONEY
MARKET FUNDS OR REPURCHASE AGREEMENTS. The Managed Bond Fund may purchase
these short-term securities as a cash management technique under those
circumstances where it has cash to manage for a short time period, for
example, after receiving proceeds from the sale of securities, interest
payments or dividend distributions from portfolio securities or cash from
the sale of Managed Bond Fund shares to investors. Interest earned from
these short-term securities will be taxable to investors as ordinary income
when distributed. With respect to repurchase agreements, the Managed Bond
Fund will invest no more than 5% of its total assets in repurchase
agreements, and will not purchase repurchase agreements which mature in more
than seven days.

9. MAY HOLD CASH AS A TEMPORARY DEFENSIVE MEASURE WHEN MARKET CONDITIONS SO
WARRANT.

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

11. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES. The Managed Bond
Fund, however, will not engage primarily in trading for the purpose of
short-term profits. The Managed Bond Fund may dispose of its portfolio
securities whenever SAM deems advisable, without regard to the length of
time the securities have been held.

See "Risk Factors" for more information.

The following restrictions are fundamental policies of the Managed Bond Fund
which cannot be changed without shareholder vote.

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

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INVESTMENT POLICIES OF THE MANAGED BOND FUND (CONTINUED)

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

3. THE FUND MAY BORROW MONEY FOR TEMPORARY OR EMERGENCY PURPOSES ONLY FROM A
BANK OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. The Fund will not borrow amounts in
excess of 20% of its total assets. As a non-fundamental policy, the Fund
will not purchase securities if outstanding borrowings are equal to or
greater than 5% of its total assets. The Fund intends to exercise its
borrowing authority primarily to meet shareholder redemptions under
circumstances where redemptions exceed available cash.

For more information, see the "Investment Policies of the Managed Bond Fund" and
"Additional Investment Information -- Bond Funds and Managed Bond Fund" sections
of the Statement of Additional Information.

INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS

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

To pursue its investment objective, each of the Tax-Exempt Income Funds:

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

2. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN MUNICIPAL BONDS (IN THE CASE
OF THE WASHINGTON FUND, ISSUED BY THE STATE OF WASHINGTON OR POLITICAL
SUBDIVISIONS, MUNICIPALITIES, AGENCIES, INSTRUMENTALITIES OR PUBLIC
AUTHORITIES WITHIN THE STATE OF WASHINGTON) HAVING A MATURITY IN EXCESS OF
ONE YEAR THAT AT THE TIME OF ACQUISITION ARE INVESTMENT GRADE; I.E., RATED
IN ONE OF THE FOUR HIGHEST GRADES ASSIGNED BY MOODY'S OR S&P OR, IF UNRATED,
DETERMINED BY SAM TO BE OF COMPARABLE QUALITY. Each Tax-Exempt Income Fund
may invest up to 20% of its total assets in unrated municipal bonds. Unrated
securities are not necessarily lower in quality than rated securities, but
may not be as attractive to as many investors as rated securities. Each
Tax-Exempt Income Fund will invest no more than 33% of its total assets in
municipal bonds rated in the fourth highest grade or in comparable unrated
bonds. Such bonds are of medium grade, have speculative characteristics, and
are more likely to have a weakened capacity to make principal and interest
payments under changing economic conditions or upon deterioration in the
financial condition of the issuer.

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

After purchase by a Fund, a municipal bond may be downgraded to below investment
grade or, if unrated, may cease to be comparable to a rated investment grade
security (such below investment grade securities are commonly referred to as
"high-

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)

yield" or "junk" bonds). Neither event will require a Fund to dispose of that
security, but SAM will take a downgrade or loss of comparability into account in
determining whether the Fund should continue to hold the security in its
portfolio. Each Tax-Exempt Income Fund will not hold more than 5% of its net
assets in such below investment grade securities.

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

3. MAY INVEST IN ANY OF THE FOLLOWING TYPES OF MUNICIPAL BONDS:

REVENUE BONDS, which are "limited obligation" bonds that provide financing
for specific projects or public facilities. These bonds are backed by
revenues generated by a particular project or facility or by a special tax.
A "resource recovery bond" is a type of revenue bond issued to build waste
facilities or plants. An "industrial development bond" ("IDB") is a type of
revenue bond that is backed by the credit of a private issuer, generally
does not have access to the resources of a municipality for payment, and may
involve greater risk. Each Tax-Exempt Income Fund intends to invest
primarily in revenue bonds that may be issued to finance various types of
projects, including, but not limited to, education, hospitals, housing,
waste, and utilities. Each Tax-Exempt Income Fund will not purchase private
activity bonds ("PABs") or any other type of revenue bonds, the interest on
which is a tax preference item for purposes of the alternative minimum tax.

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

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

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

MUNICIPAL LEASE OBLIGATIONS, which are issued by or on behalf of state or
local government authorities to acquire land, equipment or facilities and
may be subject to annual budget appropriations. These obligations themselves
are not normally backed by the credit of the municipality or the state but
are secured by rent payments made by the municipality or by the state
pursuant to a lease. If the lease is assigned, the interest on the
obligation may become taxable. The leases underlying certain municipal lease
obligations provide that lease payments are subject to partial or

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)

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

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

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

MUNICIPAL NOTES, which are notes generally issued by an issuer to provide
for short-term capital needs and generally have maturities of one year or
less. Each Tax-Exempt Income Fund may purchase municipal notes as a medium
for its short-term investments. Municipal Notes include tax anticipation,
revenue anticipation and bond anticipation notes, and tax-exempt commercial
paper. Each Tax-Exempt Income Fund will invest only in those municipal notes
that at the time of purchase are rated within one of the three highest
grades by Moody's or S&P or, if unrated by any of these agencies, in the
opinion of SAM, are of comparable quality.

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

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

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<PAGE>
INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS (CONTINUED)

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

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

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

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

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

3. THE MUNICIPAL BOND FUND WILL NOT INVEST 25% OR MORE OF ITS TOTAL ASSETS IN
SECURITIES WHOSE ISSUERS ARE LOCATED IN THE SAME STATE.

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

See "Description of Ratings" for a description of debt securities ratings. For a
further description of each Fund's investment policies and restrictions as well
as an explanation of ratings, see the "Investment Policies of the Tax-Exempt
Bond Funds."

INVESTMENT POLICIES OF THE MONEY MARKET FUND

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

To pursue its investment objective, the Money Market Fund:

1. WILL PURCHASE ONLY HIGH-QUALITY SECURITIES THAT, IN THE OPINION OF SAM
OPERATING UNDER GUIDELINES ESTABLISHED BY THE MONEY MARKET TRUST'S BOARD OF
TRUSTEES, PRESENT MINIMAL CREDIT RISKS AFTER AN EVALUATION OF THE CREDIT
QUALITY OF AN ISSUER OR OF ANY ENTITY PROVIDING A CREDIT ENHANCEMENT FOR THE
SECURITY. The Fund complies with industry-

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INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

standard guidelines on the quality and maturity of its investments, which
are designed to help maintain a stable $1.00 share price. The Fund invests
in instruments with remaining maturities of 397 days or less and maintains a
dollar-weighted average portfolio maturity of not more than 90 days.

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

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

4. MAY INVEST IN U.S. GOVERNMENT SECURITIES. U.S. Government securities include
(a) direct obligations of the U.S. Treasury, (b) securities supported by the
full faith and credit of the U.S. Government but that are not direct
obligations of the U.S. Treasury, (c) securities that are not supported by
the full faith and credit of the U.S. Government but are supported by the
issuer's ability to borrow from the U.S. Treasury such as securities issued
by the FNMA and the FHLMC, and (d) securities supported solely by the
creditworthiness of the issuer such as securities issued by the Tennessee
Valley Authority (the "TVA"). While these securities are considered to be of
the highest credit quality available, they are subject to the same market
risks as comparable debt securities.

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

6. MAY INVEST IN EURODOLLAR AND YANKEE BANK OBLIGATIONS. Eurodollar bank
obligations are dollar-denominated certificates of deposit and time deposits
issued outside the U.S. capital markets by foreign branches of U.S. banks
and by foreign banks. Yankee bank obligations are dollar-denominated
obligations issued in the United States capital markets by foreign banks.
Eurodollar and Yankee obligations are subject to the same risks that pertain
to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar (and to a lesser extent, Yankee) obligations are
subject to certain sovereign risks. One such risk is the possibility that a
foreign government might prevent dollar-denominated funds from flowing
across its borders. Other risks may include nationalization of the issuer,
confiscatory taxation by the foreign government that would inhibit the
ability of the issuer to make principal and interest payments to the Fund,
lack of comparable publicly available information concerning foreign
issuers, lack of comparable accounting and

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INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

auditing practices in foreign countries and, finally, difficulty in
enforcing claims against foreign issuers in the event of default. Eurodollar
and Yankee obligations will undergo the same credit analysis as domestic
issues in which the Fund invests, and foreign issuers will be required to
meet the same tests of financial strength as the domestic issuers approved
for the Fund.

7. MAY INVEST IN REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund
buys securities at one price and simultaneously agrees to sell them back at
a higher price. Delays or losses could result if the counterparty to the
agreement defaults or becomes insolvent. The Fund will invest no more than
10% of net assets in repurchase agreements that mature in more than seven
days.

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

9. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN RESTRICTED SECURITIES ELIGIBLE
FOR RESALE UNDER RULE 144A UNDER THE 1933 ACT ("RULE 144A SECURITIES") AND
COMMERCIAL PAPER SOLD PURSUANT TO SECTION 4(2) OF THE 1933 ACT ("SECTION
4(2) PAPER"), PROVIDED THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE
LIQUID UNDER GUIDELINES ADOPTED BY THE MONEY MARKET TRUST'S BOARD OF
TRUSTEES. Restricted securities may be sold only in offerings registered
under the 1933 Act or in transactions exempt from the registration
requirements under the 1933 Act. Rule 144A under the 1933 Act provides an
exemption for the resale of certain restricted securities to qualified
institutional buyers. Investing in such 144A Securities could have the
effect of decreasing the liquidity of the Fund's portfolio to the extent
that qualified institutional buyers or other buyers become, for a time,
unwilling to purchase the securities. Section 4(2) of the 1933 Act exempts
securities sold by the issuer in private transactions from the 1933 Act's
registration requirements. Because Section 4(2) paper is a restricted
security, investing in Section 4(2) paper could have the effect of
decreasing the liquidity of the Fund's portfolio to the extent that buyers
become, for a time, unwilling to purchase the securities.

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

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

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INVESTMENT POLICIES OF THE MONEY MARKET FUND (CONTINUED)

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

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

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

1. MAY INVEST UP TO 5% OF ITS ASSETS IN THE SECURITIES OF ANY ONE ISSUER OTHER
THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES.

2. MAY INVEST UP TO 25% OF ITS TOTAL ASSETS IN ANY ONE INDUSTRY (INCLUDING
SECURITIES ISSUED BY FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS),
PROVIDED, HOWEVER, THAT THIS LIMITATION DOES NOT APPLY TO U.S. GOVERNMENT
SECURITIES, OR TO CERTIFICATES OF DEPOSIT OR BANKERS' ACCEPTANCES ISSUED BY
DOMESTIC BANKS.

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

For more information, see the "Investment Policies of the Money Market Fund" and
"Additional Investment Information" sections of the Statement of Additional
Information.

RISK FACTORS

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

RISK FACTORS OF THE STOCK FUNDS

An investment in the Northwest Fund may be subject to different risks than a
mutual fund whose investments are more geographically diverse. Since the
Northwest Fund invests primarily in companies with their principal executive
offices located in the Northwest, the number of issuers whose securities are
eligible for purchase is significantly less than many other mutual funds. Also,
some companies whose securities are held in the Northwest Fund's portfolio may
primarily distribute products or provide services in a specific locale or in the
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Northwest Fund may have a
predominately national or partially international market for their products or
services and are more likely to be impacted by national or international trends.
As a result, the performance of the Northwest Fund may be influenced by business
trends or economic conditions not only in a specific locale or in the Northwest
region but also on a national or international level, depending on the companies
whose securities are held in its portfolio at any particular time.

-- 48 --
<PAGE>
RISK FACTORS (CONTINUED)

The Equity, Income, Small Company and Value Funds may invest in, and the other
Stock Funds as a result of downgrades may own, below investment grade bonds.
Below investment grade bonds are speculative and involve greater investment
risks than investment grade bonds due to the issuer's reduced creditworthiness
and increased likelihood of default and bankruptcy. During periods of economic
uncertainty or change, the market prices of below investment grade bonds may
experience increased volatility. Below investment grade bonds tend to reflect
short-term economic and corporate developments to a greater extent than
higher-quality bonds.

Because the International Fund primarily invests, and the other Funds may
invest, in foreign securities, a Fund may be subject to risks in addition to
those associated with U.S. investments. Foreign investments involve sovereign
risk, which includes the possibility of adverse local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent currency from being sold). Foreign investments may be affected
favorably or unfavorably by changes in currency rates and exchange control
regulations. There is generally less publicly available information about
issuers of foreign securities as compared to U.S. issuers. Many foreign
companies are not subject to accounting, auditing and financial reporting
standards and requirements comparable to those applicable to U.S. companies.
Securities of some foreign issuers are less liquid and more volatile than
securities of U.S. issuers. Financial markets on which foreign securities trade
are generally subject to less governmental regulation as compared to U.S.
markets. Foreign brokerage commissions and custodian fees are generally higher
than those in the United States.

The Funds (except the Equity Fund) may invest in options on stock indices and
may purchase and write (I.E., sell) covered call options. The International Fund
may purchase and sell these as well as other types of put and call options,
futures contracts and forward contracts. Risks inherent in the Funds' use of
options include the risk that security prices will not move in the directions
anticipated; imperfect correlation between the price of the option and the price
of the underlying security; the risk that potential losses may exceed the amount
invested in options; and the reduction or elimination of the opportunity to
profit from increases in the value of the underlying security. Risks inherent in
the International Fund's use of futures, options and forward contracts include:
the risk that interest rates, security prices and currency markets will not move
in the directions anticipated; imperfect correlation between the price of the
future, option or forward contract and the price of the security, interest rate
or currency being hedged; the risk that potential losses may exceed the amount
invested in the contracts themselves; the possible absence of a liquid secondary
market for any particular instrument at any time; the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and the
reduction or elimination of the opportunity to profit from increases in the
value of the security, interest rate or currency being hedged.

The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation. The Growth Fund may invest a significant portion of its
assets in securities issued by smaller companies. In addition, the Small Company
Fund invests in companies with small market capitalizations which involve more
risks than investments in larger companies. Such companies may include newly
formed companies which have limited product lines, markets or financial
resources and may lack management depth. The securities of small or newly formed
companies may have limited marketability and may be subject to more abrupt and
erratic movements in price than securities of larger, more established
companies, or equity securities in general. Such volatility in price may, in
turn, cause the Growth Fund's and Small Company Fund's share prices to be
volatile.

RISK FACTORS OF THE INTERMEDIATE TREASURY, HIGH-YIELD, MANAGED BOND, MUNICIPAL
BOND, CALIFORNIA, WASHINGTON, AND MONEY MARKET FUNDS (THE "FIXED-INCOME FUNDS")

The value of each Fixed-Income Fund (except the Money Market Fund) will normally
fluctuate inversely with changes in market interest rates. Generally, when
market interest rates rise, the price of debt securities held by a Fund will
fall, and when market interest rates fall, the price of the debt securities will
rise. Also, there is a risk that the issuer of a bond or other security held in
a Fund's portfolio will fail to make timely payments of principal and interest
to the Fixed-Income

-- 49 --
<PAGE>
RISK FACTORS (CONTINUED)

Funds. Included in investment grade debt securities are securities of medium
grade (rated Baa by Moody's or BBB by S&P), which have speculative
characteristics and are more likely to have a weakened capacity to make
principal and interest payments under changing economic or other conditions than
higher-grade securities.

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

The Managed Bond and Money Market Fund may invest in mortgage-backed securities.
The prices of mortgage-backed securities, like conventional fixed-income
securities, are inversely affected by changes in interest rate levels. Because
of the likelihood of increased prepayments of mortgages in times of declining
interest rates, mortgage-backed securities have less potential for capital
appreciation than comparable fixed-income securities and may in fact decrease in
value when interest rates fall. Since a Fund must reinvest scheduled and
unscheduled principal payments at prevailing interest rates, and such interest
rates may be higher or lower than the current yield of the Fund's portfolio,
mortgage-backed securities may not be an effective means to lock in long-term
interest rates. Further, purchases of mortgage-backed securities for a Fund are
based on an anticipated prepayment rate. During periods of rising interest
rates, a decrease in the prepayment of mortgages is likely. This decrease may
cause the average dollar-weighted maturity of particular securities held by a
Fund and a Fund's portfolio as a whole to increase, thereby decreasing the
Fund's share price during periods of rising interest rates. To the extent that
the other Funds purchase mortgage-backed securities, they would be similarly
affected.

The Money Market Fund seeks to maintain a stable $1.00 share price. Of course,
there is no guarantee that the Money Market Fund will maintain a stable $1.00
share price. It is possible that a major change in interest rates or a default
on the Money Market Fund's investments could cause its share price (and the
value of your investment) to fall. The Money Market Fund's yield will fluctuate
with general interest rates.

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

SPECIAL RISKS OF THE HIGH-YIELD FUND

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

SENSITIVITY TO ECONOMIC AND CORPORATE DEVELOPMENTS

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

-- 50 --
<PAGE>
RISK FACTORS (CONTINUED)

issuer will depend on its cash flow and may depend, especially in the context of
corporate takeovers, on a sale of its assets to service debt. Failure to realize
projected cash flows or asset sales may seriously impair the issuer's ability to
service this greater debt load, which, in turn, might cause the Fund to lose all
or part of its investment in that security. SAM will seek to minimize these
additional risks through diversification, careful assessment of the issuer's
financial structure, business plan, and management team following any
restructuring, and close monitoring of the issuer's progress toward its
financial goals.

ZERO-COUPON AND PAYMENT-IN-KIND SECURITIES

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

LIQUIDITY AND VALUATION

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

CREDIT RATINGS

Rating agencies evaluate the likelihood that an issuer will make principal and
interest payments, but ratings may not reflect market value risks associated
with lower-rated, fixed-income securities. Also, rating agencies may not timely
revise ratings to reflect subsequent events affecting an issuer's ability to pay
principal and interest. SAM uses S&P and Moody's ratings as a preliminary
indicator of investment quality. SAM will periodically research and analyze each
issue (whether rated or unrated) and evaluate such factors as the issuer's
interest or dividend coverage, asset coverage, earnings prospects, and
managerial strength. This analysis will help SAM to determine if the issuer has
sufficient cash flow and profits to meet required principal and interest
payments and to monitor the liquidity of the issue. Achievement of a Fund's
investment objective will be more dependent on SAM's credit analysis of bonds
rated below the three highest rating categories than would be the case were the
Fund to invest in higher- quality debt securities. This is particularly true for
the High-Yield Fund.

SPECIAL RISKS OF THE CALIFORNIA AND WASHINGTON FUNDS

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

-- 51 --
<PAGE>
RISK FACTORS (CONTINUED)

CALIFORNIA FUND

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

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

WASHINGTON FUND

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

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

YEAR 2000

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

-- 52 --
<PAGE>
PORTFOLIO MANAGERS

GROWTH FUND

The portfolio manager for the Growth Fund is Thomas M. Maguire, Vice President,
SAM. Mr. Maguire has served as portfolio manager for the Fund since 1989.

EQUITY FUND

The portfolio manager for the Equity Fund is Richard D. Meagley, Vice President,
SAM. Mr. Meagley began serving as portfolio manager for the Fund in 1995. He is
also the portfolio manager for certain other SAFECO Funds. Prior to these
positions, he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAM and the fund manager of
the SAFECO Northwest Fund from 1991 to 1992.

INCOME FUND

The portfolio manager for the Income Fund is Thomas E. Rath, Vice President,
SAM. Mr. Rath has been a portfolio manager and securities analyst for SAFECO
Corporation since 1994. From 1992 to 1994, Mr. Rath was a principal and
portfolio manager for Meridian Capital Management, Inc., located in Seattle,
Washington. From 1987 to 1992, he was a portfolio manager and securities analyst
for First Interstate Bank, located in Seattle, Washington.

NORTHWEST FUND

The portfolio manager for the Northwest Fund is Bill Whitlow, Vice President,
SAM. Mr. Whitlow began serving as portfolio manager for the Fund in April 1997.
From 1990 to April 1997, he was a principal and manager of Pacific Northwest
Research for the brokerage firm of Pacific Crest Securities, located in Seattle,
Washington.

BALANCED FUND

The equity portion of the Balanced Fund is co-managed by Rex L. Bentley, Vice
President, SAM, and Lynette D. Sagvold, Assistant Vice President, SAM, and the
fixed-income portion is managed by Michael Hughes, Assistant Vice President,
SAM. Mr. Bentley was Vice President and investment counsel, at the investment
advisory firm of Badgley, Phelps and Bell Investment Counsel, Inc. from 1990 to
1995. Ms. Sagvold was a portfolio manager and analyst for First Interstate Bank
from 1993 to 1995, and a portfolio manager and analyst for Key Trust Company
from 1985 to 1993. Mr. Hughes was Vice President and a portfolio manager for
First Interstate Capital Management Company from 1995 to 1996, and Vice
President and portfolio manager for First Interstate Bank of California from
1988 to 1995.

INTERNATIONAL FUND

The International Fund is managed by a committee of portfolio managers employed
and supervised by the Sub-Adviser, Bank of Ireland Asset Management (U.S.)
Limited, an investment adviser registered with the SEC. All investment decisions
are made by this committee, and no single person is primarily responsible for
making recommendations to that committee.

SMALL COMPANY FUND

The portfolio manager for the Small Company Fund is Greg Eisen, Assistant Vice
President, SAM. Mr. Eisen has served as an investment analyst for SAM since
1992. From 1986 to 1992, Mr. Eisen was engaged by the SAFECO Insurance Companies
as a financial analyst.

VALUE FUND

The Value Fund is co-managed by Rex L. Bentley, Vice President, SAM, and Lynette
D. Sagvold, Assistant Vice President, SAM. Mr. Bentley was Vice President and
investment counsel at the investment advisory firm of Badgley, Phelps and Bell
Investment Counsel, Inc., from 1990 to 1995. Ms. Sagvold was a portfolio manager
and analyst for First Interstate Bank from 1993 to 1995, and she was a portfolio
manager and analyst for Key Trust Company from 1985 to 1993.

-- 53 --
<PAGE>
PORTFOLIO MANAGERS (CONTINUED)

INTERMEDIATE TREASURY FUND

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

HIGH-YIELD FUND

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

MANAGED BOND FUND

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

MUNICIPAL BOND AND CALIFORNIA FUNDS

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

WASHINGTON FUND

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

MONEY MARKET FUND

The portfolio manager for the Money Market Fund is Naomi Urata, Assistant Vice
President, SAM. Ms. Urata has been employed as an investment analyst for the
SAFECO mutual funds since 1993. From 1990 to 1992, Ms. Urata served as Cash
Manager for THE SEATTLE TIMES.

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

HOW TO PURCHASE SHARES

When placing purchase orders, investors should specify whether the order is for
Class A or Class B shares of a Fund. All share purchase orders that fail to
specify a Class will automatically be invested in Class A shares.

The minimum initial investment is $1,000 (IRA, UGMA and UTMA $250). The minimum
additional investment is $100 for all accounts, except for UGMA or UTMA
Automatic Investment Method ("AIM") accounts opened with an initial investment
of $250 or more. These accounts have a minimum additional investment of only
$50. Minimum additional investments are negotiable for retirement accounts other
than IRAs. Except as noted above in connection with UGMA and UTMA accounts, no
minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)

Shares of each Fund are available for purchase through investment professionals
who work at broker-dealers, banks and other financial institutions which have
entered into selling agreements with SAFECO Securities, Inc. ("SAFECO
Securities"), the distributor of the Funds. Orders received by such financial
institutions (or their authorized designees) before 1:00 p.m. Pacific time on
any day the New York Stock Exchange ("NYSE") is open for regular trading will be
effected that day, provided that such order is transmitted to SAFECO Services,
the transfer agent for the Funds, prior to the agreed upon time. Investment
professionals will be responsible for forwarding the investor's order to SAFECO
Services so that it will be received prior to the agreed upon time.

Broker-dealers, banks and other financial institutions that do not have selling
agreements with SAFECO Securities also may offer to place orders for the
purchase of each Fund's shares. Purchases made through these investment firms
will be effected at the public offering price next determined after the order is
received by SAFECO Services. Such financial institutions may charge the investor
a transaction fee as determined by the financial institution. The fee will be in
addition to the sales charge payable by the investor with respect to Class A
shares, and may be avoided by purchasing shares through a broker-dealer, bank or
other financial institution that has a selling agreement with SAFECO Securities.

Broker-dealers, banks, financial institutions and any other person entitled to
receive compensation for selling or servicing each Fund's shares may receive
different levels of compensation with respect to one particular Class of Fund
shares over another, or additional compensation based on sales of qualified
dealers. Salespersons of broker-dealers, banks and other financial institutions
that sell each Fund's shares are eligible to receive special compensation, the
amount of which varies depending on the amount of shares sold.

The Funds only accept funds drawn in U.S. dollars and payable through a U.S.
Bank. The Funds do not accept currency. The Funds issue shares in uncertificated
form, but will issue certificates for whole shares without charge upon written
request. You will be required to post a bond to replace missing certificates.

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

PURCHASING CLASS A SHARES

The public offering price of Class A shares of each Fund except the Money Market
Fund is the next determined net asset value per share (see "Share Price
Calculation" for additional information) plus any sales charge, which will vary
with the size of the purchase as shown in the following schedule:

<TABLE>
<CAPTION>
Sale Charge As Broker
Percentage of Reallowance As
------------------------ Percentage of
Amount of Purchase Offering Net the Offering
at the Public Offering Price Price Investment Price
- ------------------------------------------------ ----------- ----------- -----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 but less than $100,000 4.00% 4.17% 3.50%
$100,000 but less than $250,000 3.50% 3.63% 3.00%
$250,000 but less than $500,000 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000 1.50% 1.52% 1.00%
$1,000,000 or more NONE* See Below**
</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% CDSC will apply to redemptions made in the
first eighteen months, except with respect to participant-directed redemptions
from qualified plans.

** See discussion below for a description of the commissions payable on sales of
Class A shares of $1 million or more.

Class A shares of the Money Market Fund are offered at the next determined net
asset value per share (see "Share Price Calculation" for additional information)
with no initial sales charge. A sales charge will apply to the first exchange
from Class A shares of the Money Market Fund to Class A shares of another Fund.

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)

From time to time, SAFECO Securities may reallow to broker-dealers, banks and
other financial institutions the full amount of the sales charge on Class A
Shares. In some instances, SAFECO Securities may offer these reallowances only
to those financial institutions that have sold or may sell significant amounts
of Class A shares. These commissions also may be paid to financial institutions
that initiate purchases made pursuant to sales charge waivers (1) and (8),
described below under "Sales Charge Waivers -- Class A shares." To the extent
that SAFECO Securities reallows 90% or more of the sales charge to a financial
institution, such financial institution may be deemed to be an underwriter under
the 1933 Act.

Except as stated below, broker-dealers of record will be paid commissions on (i)
sales of Class A shares to participant-directed qualified benefit plans and (ii)
sales of Class A shares of $1 million or more based on an investor's (or a
related group of investors') cumulative purchases during each successive one
year period beginning on the date of the initial purchase at net asset value. A
1% CDSC will be imposed on redemptions made within the first 18 months, except
with respect to participant-directed redemptions from qualified plans.

Commissions on sales of Class A shares to participant-directed qualified benefit
plans with 200 or more eligible employees are paid at the rate of 1.00% of the
amount up to $2 million, .80% of the next $1 million, .50% of the next $47
million and .25% thereafter. Commissions on sales of Class A shares to
participant-directed qualified benefit plans with 50 to 199 eligible employees
are paid at the rate of .25% of the amount sold. Commissions on sales of Class A
shares of $1 million or more, as described above, including sales of $1 million
or more to participant-directed qualified benefit plans (with 50 to 199 eligible
employees) are paid at the rate of .50% of the amount up to $50 million and .25%
thereafter. In addition, SAFECO Securities may pay a commission to a
broker-dealer where clients of a particular registered representative invest, at
or about the same time, collectively $1 million or more in one or more of the
Funds. The commission will be payable in lieu of other commissions that might
otherwise be payable under the terms of this Prospectus, and will not be paid
except in connection with a transaction described in the preceding sentence.

The following describes purchases that may be aggregated for purposes of
determining the amount of purchase:

1. Individual purchases on behalf of a single purchaser and the purchaser's
spouse and their children under the age of 21 years. This includes shares
purchased in connection with an employee benefit plan(s) exclusively for the
benefit of such individual(s), such as an IRA, individual plan(s) under
Section 403(b) of the Internal Revenue Code of 1986, as amended ("Code"), or
single-participant Keogh-type plan(s). This also includes purchases made by
a company controlled by such individual(s);

2. Individual purchases by a trustee or other fiduciary purchasing shares for a
single trust estate or a single fiduciary account, including an employee
benefit plan (such as employer-sponsored pension, profit-sharing and stock
bonus plans, including plans under Code Section 401(k), and medical, life
and disability insurance trusts) other than a plan described in (1) above;
or

3. Individual purchases by a trustee or other fiduciary purchasing shares
concurrently for two or more employee benefit plans of a single employer or
of employers affiliated with each other (excluding an employee benefit plan
described in (2) above).

SALES CHARGE WAIVERS -- CLASS A SHARES

Class A shares are sold at net asset value per share without imposition of sales
charges for the following investments:

1. Registered representatives or full-time employees of broker-dealers, banks
and other financial institutions that have entered into selling agreements
with SAFECO Securities, and the children, spouse and parents of such
representatives and employees, and employees of financial institutions that
directly, or through their affiliates, have entered into selling agreements
with SAFECO Securities;

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)

2. Companies exchanging shares with or selling assets to one or more of the
Funds pursuant to a merger, acquisition or exchange offer;

3. Any of the direct or indirect affiliates of SAFECO Securities;

4. Purchases made through the automatic investment of dividends and
distributions paid by another Fund;

5. Clients of administrators or consultants to tax-qualified employee benefit
plans which have entered into agreements with SAFECO Securities or any of
its affiliates;

6. Retirement plan participants who borrow from their retirement accounts by
redeeming Fund shares and subsequently repay such loans via a purchase of
Fund shares;

7. Retirement plan participants who receive distributions from a tax-qualified
employer-sponsored retirement plan, which is invested in Fund shares, the
proceeds of which are reinvested in Fund shares;

8. Accounts as to which a broker-dealer, bank or other financial institution
charges an account management fee, provided the financial institution has
entered into an agreement with SAFECO Securities regarding such accounts;

9. Current or retired officers, directors, trustees or employees of any SAFECO
mutual fund or SAFECO Corporation or its affiliates and the children, spouse
and parents of such persons; and

10. Investments made with redemption proceeds from mutual funds having a similar
investment objective with respect to which the investor paid a front-end
sales charge.

REINSTATEMENT PRIVILEGE

Shareholders who paid an initial sales charge and redeem their Class A shares in
a Fund have a one-time privilege to reinstate their investment by investing the
proceeds of the redemption at net asset value per share without a sales charge
in Class A shares of that Fund and/or one or more of the other Funds. SAFECO
Services must receive from the investor or the investor's broker-dealer, bank or
other financial institution within 60 days after the date of the redemption both
a written request for reinvestment and a check not exceeding the amount of the
redemption proceeds. The reinstatement purchase will be effected at the net
asset value per share next determined after such receipt.

REDUCED SALES CHARGE PLANS -- CLASS A SHARES

Class A shares of the Funds may be purchased at reduced sales charges either
through the Right of Accumulation or under a Letter of Intent. For more details
on these plans, investors should contact their broker-dealer, bank or other
financial institution or SAFECO Services.

Pursuant to the RIGHT OF ACCUMULATION, investors are permitted to purchase Class
A shares of the Funds at the sales charge applicable to the total of (a) the
dollar amount then being purchased plus (b) the dollar amount equal to the total
purchase price of the investor's concurrent purchases of Class A shares of other
SAFECO Mutual Funds plus (c) the dollar amount equal to the current public
offering price of all Class A shares of Funds already held by the investor. To
receive the Right of Accumulation, at the time of purchase investors must give
their broker-dealers, banks or other financial institutions sufficient
information to permit confirmation of qualification.

In executing a LETTER OF INTENT ("LOI"), an investor should indicate an
aggregate investment amount he or she intends to invest in Class A shares of
Funds in the following thirteen months. The LOI is included as part of the
Account Application. The Class A sales charge applicable to that aggregate
amount then becomes the applicable sales charge on all purchases of Class A
shares made concurrently with the execution of the LOI and in the thirteen
months following that execution. If an investor executes an LOI within 90 days
of a prior purchase of Class A shares, the prior purchase may be included under
the LOI and an appropriate adjustment, if any, with respect to the sales charges
paid by the investor in connection with the prior purchase will be made, based
on the then-current net asset value(s) of the pertinent Fund(s).

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HOW TO PURCHASE SHARES (CONTINUED)

If at the end of the thirteen-month period covered by the LOI, the total amount
of purchases does not equal the amount indicated, the investor will be required
to pay the difference between the sales charges paid at the reduced rate and the
sales charges applicable to the purchases actually made. Shares having a value
equal to 5% of the amount specified in the LOI will be held in escrow during the
thirteen-month period (while remaining registered in the investor's name) and
are subject to redemption to assure any necessary payment to SAFECO Securities
of a higher applicable sales charge.

PURCHASING CLASS B SHARES

The public offering price of the Class B shares of each Fund is the next
determined net asset value per share. No initial sales charge is imposed.
However, a CDSC is imposed on certain redemptions of Class B shares. Because
Class B shares are sold without an initial sales charge, the investor receives
Fund shares equal to the full amount of the investment. The maximum investment
amount in Class B shares is $500,000.

Class B shares of a Fund that are redeemed will not be subject to a CDSC to the
extent that the value of such shares represents: (a) reinvestment of dividends
or other distributions or (b) shares redeemed more than six full years after
their purchase. Former Class B shareholders of the SAFECO Advisor Series Trust
who invest in Class B shares of any Fund may include the length of time of
ownership of the former Class B shares for purposes of calculating any CDSC due
upon redemption.

Initial investments in Class B shares of the Money Market Fund are sold with no
initial sales charge and are not subject to a CDSC upon redemption, provided
that the investor has remained invested exclusively in Class B shares of the
Money Market Fund and has not exchanged into Class B Shares of another Fund in
the interim. Money Market Fund Class B shareholders will become subject to a
CDSC calculated in accordance with the table below if they exchange into Class B
shares of another SAFECO Fund and then redeem those shares. The CDSC will also
apply to any Class B shares of the Money Market Fund subsequently acquired by
exchange. Shareholders who initially purchase Money Market Fund Class B shares
do not receive credit for the time initially invested in the Money Market Fund
for purposes of calculating any CDSC due upon redemption of Class B shares of
another SAFECO Fund.

Redemptions of most other Class B shares will be subject to a CDSC. (See
"Contingent Deferred Sales Charge Waivers.") The amount of any applicable CDSC
will be calculated by multiplying the lesser of the original purchase price or
the net asset value of such shares at the time of redemption by the applicable
percentage shown in the table below. Accordingly, no charge is imposed on
increases in the net asset value above the original purchase price:

<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF THE
LESSER OF NET ASSET VALUE AT
REDEMPTION
REDEMPTION DURING OR THE ORIGINAL PURCHASE PRICE
- -------------------------------------------------------------- -----------------------------------
<S> <C>
1st Year Since Purchase 5%
2nd Year Since Purchase 4%
3rd Year Since Purchase 3%
4th Year Since Purchase 3%
5th Year Since Purchase 2%
6th Year Since Purchase 1%
Thereafter 0%*
</TABLE>

* Automatically converts to Class A shares in the first month following the
investor's sixth anniversary from purchase.

In determining whether a CDSC is applicable to a redemption, the calculation
will be made in a manner that results in the lowest possible rate. It will be
assumed that the redemption is made first of amounts representing shares
acquired pursuant to the reinvestment of dividends and other distributions and
then of amounts representing the cost of shares held for the longest period of
time.

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<PAGE>
HOW TO PURCHASE SHARES (CONTINUED)

For example, assume an investor purchased 100 shares at $10 per share at a cost
of $1,000. Subsequently, the shareholder acquired 15 additional shares through
dividend reinvestment. During the second year after the purchase, the investor
decided to redeem $500 of his or her investment. Assuming at the time of the
redemption a net asset value of $11 per share, the value of the investor's
shares would be $1,265 (115 shares at $11 per share). The CDSC would not be
applied to the value of the reinvested dividend shares. Therefore, the 15 shares
currently valued at $165.00 would be redeemed without a CDSC. The number of
shares needed to fund the remaining $335.00 of the redemption would equal
30.455. Using the lower of cost or market price to determine the CDSC, the
original purchase price of $10.00 per share would be used. The CDSC calculation
would therefore be 30.455 shares times $10.00 per share at a CDSC rate of 4%
(the applicable rate in the second year after purchase) for a total CDSC of
$12.18.

Except for the time period during which a shareholder is invested in Money
Market Fund Class B shares, if a shareholder effects one or more exchanges among
Class B shares of the Funds during the six year period, the holding periods for
the shares so exchanged will be counted toward the six-year period.

For federal income tax purposes, the amount of the CDSC will reduce the gain or
increase the loss, as the case may be, recognized on the redemption of shares.
The amount of any CDSC will be paid to SAFECO Securities.

CONTINGENT DEFERRED SALES CHARGE WAIVERS

The CDSC will be waived in the following circumstances: (a) total or partial
redemptions made within one year following the death or disability of a
shareholder; (b) redemptions made pursuant to any systematic withdrawal plan
based on the shareholder's life expectancy, including substantially equal
periodic payments prior to age 59 1/2 which are described in Code section 72(t),
and required minimum distributions after age 70 1/2, including those required
minimum distributions made in connection with customer accounts under Section
403(b) of the Code and other retirement plans; (c) total or partial redemption
resulting from a distribution following retirement in the case of a
tax-qualified employer-sponsored retirement plan; (d) when a redemption results
from a tax-free return of an excess contribution pursuant to Section 408(d)(4)
or (5) of the Code; (e) reinvestment in Class B shares of a Fund within 60 days
of a prior redemption; (f) redemptions pursuant to the Fund's right to liquidate
a shareholder's account involuntarily; (g) redemptions pursuant to distributions
from a tax-qualified employer-sponsored retirement plan that are invested in
Funds and are permitted to be made without penalty pursuant to the Code; and (h)
redemptions in connection with a Fund's systematic withdrawal plan not in excess
of 10% of the value of the account annually.

CONVERSION OF CLASS B SHARES

A shareholder's Class B shares of a Fund will automatically convert to Class A
shares in the same Fund in the first month following the investor's sixth
anniversary from purchase, together with a pro rata portion of all Class B
shares representing dividends and other distributions paid in additional Class B
shares. Class B shares so converted will no longer be subject to the higher
expenses borne by Class B shares. The conversion will be effected at the
relative net asset values per share of the two classes on the first business day
in the first month following the investor's sixth anniversary from the purchase
of Class B shares. Because the net asset value per share of Class A shares may
be higher than that of Class B shares at the time of conversion, a shareholder
may receive fewer Class A shares than the number of Class B shares converted,
although the dollar value will be the same.

HOW TO REDEEM SHARES
As described below, shares of the Funds may be redeemed at their next-determined
net asset value (subject to any applicable CDSC), and redemption proceeds will
be sent to shareholders within seven days of the receipt of a redemption
request. Shareholders who have purchased shares through broker-dealers, banks or
other financial institutions that sell shares may redeem shares through such
firms; if the shares are held in the "street name" of the broker-dealer, bank or
other financial institution, the redemption must be made through such firm.

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HOW TO REDEEM SHARES (CONTINUED)

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.

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

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

REDEMPTIONS THROUGH BROKER-DEALERS, BANKS AND OTHER FINANCIAL INSTITUTIONS

Shareholders with accounts at broker-dealers, banks and other financial
institutions that sell shares of the Funds may submit redemption requests to
such firms. Broker-dealers, banks or other financial institutions may honor a
redemption request either by repurchasing shares from a redeeming shareholder at
the shares' net asset value per share next computed after the firm receives the
request or by forwarding such requests to SAFECO Services. Redemption proceeds
(less any applicable CDSC) normally will be paid by check. Broker-dealers, banks
and other financial institutions may impose a service charge for handling
redemption transactions placed through them and may impose other requirements
concerning redemptions. Accordingly, shareholders should contact the investment
professional at their broker-dealer, bank or other financial institution for
details.

Redemption requests may also be transmitted to SAFECO Services by telephone (for
amounts of less than $100,000), by mail or by redemption check (Money Market
Fund Class A only). SAFECO Services will send to you, free of charge, redemption
checks (drafts) payable through U.S. Bank of Washington, N.A. Redemption checks
are not available to IRA shareholders or for shares issued in certificate form.
Redemption checks may be made payable to any person or entity and must contain
the proper number of signatures. Redemption checks must be for $500 or more.
Neither the Funds nor SAFECO Services will be liable for payment of postdated
redemption checks. At SAFECO Services' discretion, and upon three (3) days'
written notice, SAFECO Services reserves the right to close any account upon
which checks have been written more than once without sufficient funds
available. See "Account Changes and Signature Requirements" for further
information.

SHARE REDEMPTION PRICE AND PROCESSING

Your shares will be redeemed at the net asset value per share (subject to any
applicable CDSC) next calculated after receipt of your request that meets the
redemption requirements of the Funds. Except for the Money Market Fund, the
value of the shares you redeem may be more or less than the dollar amount you
purchased, depending on the market value of the shares at the time of
redemption. See "Share Price Calculation" for more information.

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

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

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<PAGE>
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES

Call your investment professional or SAFECO Services at 1-800-463-8791 for more
information.

AUTOMATIC INVESTMENT METHOD (AIM)

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

PAYROLL DEDUCTION PLAN

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

SYSTEMATIC WITHDRAWAL PLAN

This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund). Because Class A shares are
subject to sales charges, shareholders should not concurrently purchase shares
with respect to an account which is utilizing a systematic withdrawal plan.
Class B shares may not be suitable for a systematic withdrawal plan, except in
appropriate cases where the CDSC is being waived. Please see "Contingent
Deferred Sales Charge Waivers" for more information.

HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER

Shares of one Class of a Fund may be exchanged for shares of the same Class of
any other Fund, based on their next-determined respective net asset values,
without imposition of any sales charges, provided that the shareholder account
registration remains identical. CLASS A SHARES MAY BE EXCHANGED ONLY FOR CLASS A
SHARES OF THE OTHER FUNDS LISTED ON THE FIRST PAGE OF THIS PROSPECTUS. CLASS B
SHARES MAY BE EXCHANGED ONLY FOR CLASS B SHARES OF THE OTHER FUNDS LISTED ON THE
FIRST PAGE OF THIS PROSPECTUS. The exchange of Class B shares will not be
subject to a contingent deferred sales charge. For purposes of computing the
CDSC, except for the time period during which a shareholder is initially
invested in Class B shares of the Money Market Fund, the length of time of
ownership of Class B shares will be measured from the date of original purchase
and will not be affected by the exchange. Exchanges are not tax free and may
result in a shareholder's realizing a gain or loss, as the case may be, for tax
purposes. See "Fund Distributions and How They Are Taxed" for more information.
You may purchase shares of a Fund by exchange only if it is qualified for sale
in the state where you reside. Before exchanging into Class A or Class B shares
of another Fund, please be familiar with the Fund's investment objective and
policies as described in "Each Fund's Investment Objective and Policies."

EXCHANGES BY MAIL

Exchange orders should be sent by mail to the investor's broker-dealer, bank or
other financial institution. If a shareholder has an account at SAFECO Services,
exchange orders may be sent to the address set forth on the first page of this
Prospectus.

EXCHANGES BY TELEPHONE

A shareholder may give exchange instructions to the shareholder's broker-dealer,
bank or other financial institution or to SAFECO Services by telephone at the
appropriate toll-free number provided on the first page of this Prospectus.
Exchange orders will be accepted by telephone provided that the exchange
involves only uncertificated shares or certificated shares for which
certificates previously have been deposited in the shareholder's account. See
"Telephone Transactions" for more information.

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

SHARE EXCHANGE PRICE AND PROCESSING

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

LIMITATIONS

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. Therefore, 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. A Fund may be adversely
affected in a number of ways, including, for example, when a person or entity
pursuing a market-timing strategy engages in exchanges or simultaneous order
transactions involving relatively large sums in a relatively small fund. The
refusal of such exchange purchases or simultaneous order transactions may occur
without prior notice.

Also, excessive exchange and simultaneous order transactions increase
transactions costs for all shareholders. Therefore in order to reduce
transaction costs, exchange and simultaneous order transactions (or any
combination thereof) will be limited to 4 in any 12 month period per fund per
account. Exchange purchases or simultaneous order transactions may be refused
before an account holder has engaged in 4 such transactions 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.

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

TELEPHONE TRANSACTIONS

To redeem or exchange shares by telephone, call 1-800-528-6501 between 5:30 a.m.
and 7:00 p.m. Pacific time, Monday through Friday, except certain holidays to
reach a representative; or call 1-800-463-8794 24 hours a day for our automated
system. All telephone calls are tape-recorded for your protection. During times
of drastic or unusual market volatility, it may be difficult for you to exercise
the telephone transaction privileges.

To use the telephone redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
first page of this Prospectus. Redeeming or exchanging shares by telephone
allows the Funds and SAFECO Services to accept telephone instructions from an
account owner or a person preauthorized in writing by an account owner.

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

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<PAGE>
TELEPHONE TRANSACTIONS (CONTINUED)

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

The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services. The
Funds and SAFECO Services may be liable if they do not employ reasonable
procedures to confirm that telephone transactions are genuine.

SHARE PRICE CALCULATION

The net asset value per share ("NAV") of each Fund is computed at the close of
regular trading on the NYSE (normally 1:00 p.m. Pacific time) each day that the
NYSE is open for trading. NAV is determined separately for each class of shares
of each Fund. The NAV of a Fund is calculated by subtracting a Fund's
liabilities from its assets and dividing the result by the number of outstanding
shares. In calculating the net asset value of each class, appropriate
adjustments will be made to each class's NAV to reflect expenses allocated to
it.

PORTFOLIO VALUATION FOR THE STOCK FUNDS

The Stock Funds generally value their portfolio securities at the last-reported
sale price on the national exchange on which the securities are primarily
traded, unless there are no transactions, in which case they shall be valued at
the last reported bid price. Securities traded over-the-counter are valued at
the last sale price, unless there is no reported sale price, in which case the
last reported bid price will be used. Portfolio securities that trade on a stock
exchange and over-the-counter are valued according to the broadest and most
representative market. Securities not traded on a national exchange are valued
based on consideration of information with respect to transactions in similar
securities, quotations from dealers and various relationships between
securities. Valuations of portfolio securities calculated in a like manner may
be obtained from a pricing service. Investments for which a representative value
cannot be established are valued at their fair value as determined in good faith
by or under the direction of the Common Stock Trust's Board of Trustees.

The International Fund will invest primarily, and other Funds may invest from
time to time, in foreign securities. Trading in foreign securities will
generally be substantially completed each day at various times prior to the
close of the NYSE. The values of any such securities are determined as of such
times for purposes of computing the Funds' net asset value. Foreign currency
exchange rates are also generally determined prior to the close of the NYSE.
Foreign portfolio securities are valued on the basis of quotations from the
primary market in which they trade. The value of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or if values have been
materially affected by events occurring after the close of a foreign market, the
security will be valued at fair value as determined in good faith by SAM or BIAM
under procedures established by and under general supervision of the Common
Stock Trust's Board of Trustees.

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<PAGE>
SHARE PRICE CALCULATION (CONTINUED)

Options that are traded on national securities exchanges are valued at their
last sale price as of the close of option trading on such exchange. Futures
contracts will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.

PORTFOLIO VALUATION FOR THE FIXED-INCOME FUNDS

For each of the Fixed-Income Funds, except the Money Market Fund, securities are
valued based on consideration of information with respect to transactions in
similar securities, quotations from dealers, and various relationships between
securities. Valuations of a Fixed-Income Fund's portfolio securities calculated
in a like manner may be obtained from a pricing service. Investments for which a
representative value cannot be established are valued at their fair value as
determined in good faith by or under the direction of each Fixed-Income Fund's
respective Trust's Board of Trustees.

Like most money market funds, the Money Market Fund values the securities it
owns on the basis of amortized cost. The Money Market Fund may use amortized
cost valuation as long as the Money Market Trust's Board of Trustees determines
that it fairly reflects market value. Amortized cost valuation involves valuing
a security at its cost and adding or subtracting, ratably to maturity, any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the security. This method minimizes the effect of changes in
a security's market value and helps the Money Market Fund maintain a stable
$1.00 share price.

The NAV of the Class B shares of each Fund will generally be lower than the NAV
of Class A shares of the same Fund because of the higher expenses borne by the
Class B shares. The NAVs of the Class A and Class B shares of a Fund also may
differ due to differing allocations of class-specific expenses. The NAVs of the
Class A and Class B shares of a Fund will tend to converge, however, immediately
after the payment of dividends.

Call 1-800-463-8794 for 24-hour price information.

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

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

In addition to Class A and Class B shares, each Fund also offers No-Load Class
shares through a separate prospectus to investors who purchase shares directly
from SAFECO Securities. No-Load Class shares are sold without a front-end sales
charge or CDSC and are not subject to Rule 12b-1 fees. Accordingly, the
performance of No-Load Class shares will differ from that of Class A or Class B
shares. For more information about No-Load Class shares of each Fund, please
call 1-800-624-5711.

Each share of a Fund is entitled to participate equally in dividends and other
distributions and the proceeds of any liquidation except that, due to the
differing expenses borne by the three classes, dividends and liquidation
proceeds for each Class of shares will likely differ. All shares issued are
fully paid and non-assessable, and shareholders have no preemptive or other
right to subscribe to any additional shares.

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

-- 64 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

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

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

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

<TABLE>
<CAPTION>
GROWTH, EQUITY AND INCOME FUNDS

<S> <C>
NET ASSETS ANNUAL FEE
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%

NORTHWEST FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
<CAPTION>

BALANCED AND VALUE FUNDS

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
</TABLE>

-- 65 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

<TABLE>
<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%

SMALL COMPANY FUND

NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
<CAPTION>

INTERMEDIATE TREASURY FUND

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

HIGH-YIELD FUND

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

MANAGED BOND FUND

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

MONEY MARKET FUND

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

-- 66 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

<TABLE>
<CAPTION>
MUNICIPAL BOND AND CALIFORNIA FUNDS

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

WASHINGTON FUND

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

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

With respect to the International Fund, SAM has a sub-advisory agreement with
the Sub-Adviser. The Sub-Adviser was established in 1987. The Sub-Adviser is a
direct, wholly owned subsidiary of the Bank of Ireland Asset Management Limited
and is an indirect, wholly owned subsidiary of Bank of Ireland. Bank of Ireland
and its affiliates managed assets for clients worldwide in excess of $26 billion
as of December 31, 1997. The Sub-Adviser has its headquarters at 26 Fitzwilliam
Place, Dublin, Ireland, and its U.S. office at 2 Greenwich Plaza, Greenwich,
Connecticut. Because the Sub-Adviser is doing business from a location within
the United States, investors will be able to effect service of legal process
within the United States upon the Sub-Adviser, under federal securities laws in
United States courts. However, the Sub-Adviser is a foreign organization and
maintains a substantial portion of its assets outside the United States.
Therefore, the ability of investors to enforce judgments against the Sub-Adviser
may be affected by the willingness of foreign courts to enforce judgments of
U.S. courts.

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

<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%
</TABLE>

The parent company of the Sub-Adviser, Bank of Ireland Asset Management Limited,
is a direct, wholly owned subsidiary of the Bank of Ireland, which engages in
the investment advisory business and is located at 26 Fitzwilliam Place, Dublin,
Ireland. The Bank of Ireland is a holding company whose primary subsidiaries are
engaged in banking, insurance, securities and related financial services, and is
located at Lower Baggot Street, Dublin, Ireland.

-- 67 --
<PAGE>
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES THAT PROVIDE SERVICES TO THE
TRUSTS (CONTINUED)

The distributor of the Class A and Class B shares of each Fund under an
agreement with each Trust is SAFECO Securities, a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc.

The transfer, dividend disbursement and shareholder servicing agent for the
Class A and Class B shares of each Fund under an agreement with each Trust is
SAFECO Services. SAFECO Services receives a fee from each Fund for every
shareholder account held in the Fund. SAFECO Services may enter into
subcontracts with registered broker-dealers, third-party administrators and
other qualified service providers that generally perform shareholder,
administrative, and/or accounting services which would otherwise be provided by
SAFECO Services. Fees incurred by a Fund for these services will not exceed the
transfer agency fee payable to SAFECO Services. Any distribution expenses
associated with these arrangements will be borne by SAM.

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

As interpreted by courts and administrative agencies, the Glass-Steagall Act and
other applicable laws and regulations limit the ability of a bank or other
depository institution to become an underwriter or distributor of securities.
However, in the opinion of each Trust's management, based on the advice of
counsel, these laws and regulations do not prohibit such depository institutions
from providing services for investment companies. Banks or other depository
institutions may be subject to various state laws regarding such services, and
may be required to register as dealers pursuant to state law.

DISTRIBUTION PLANS

Each Trust, on behalf of the Class A and Class B shares of each Fund, has
entered into a Distribution Agreement (each an "Agreement") with SAFECO
Securities. Each Trust has also adopted a plan pursuant to Rule 12b-1 under the
1940 Act with respect to the Class A and Class B shares of each Fund (the
"Plans"). Pursuant to the Plans, each Class pays SAFECO Securities a quarterly
service fee, at the annual rate of 0.25% of the aggregate average daily net
assets of the class. Class B shares also pay SAFECO Securities a quarterly
distribution fee at the annual rate of 0.75% of the aggregate average daily net
assets of the Class B shares. Although the Money Market Trust has adopted Plans
with respect to the Class A and Class B shares of the Money Market Fund, the
Money Market Trust's Board of Trustees and SAFECO Securities have agreed not to
implement the Plans at this time. Thus, the Class A and Class B shares of the
Money Market Fund do not currently pay service or distribution fees to SAFECO
Securities under the Money Market Fund Plans. The Money Market Fund Plans will
not be implemented unless authorized by the Money Market Trust's Board of
Trustees.

Under the Plans, SAFECO Securities will use the service fees primarily to
compensate persons selling shares of the Funds for the provision of personal
service and/or the maintenance of shareholder accounts. SAFECO Securities will
use the distribution fees under the Class B Plan to offset the commissions it
pays to broker-dealers, banks or other financial institutions for selling each
Fund's Class B shares. In addition, SAFECO Securities will use the distribution
fees under the Class B Plan to offset each Fund's marketing costs attributable
to the Class B shares, such as preparation of sales literature, advertising and
printing and distributing prospectuses and other shareholder materials to
prospective investors. SAFECO Securities also may use the distribution fee to
pay other costs allocated to SAFECO Securities' distribution activities,
including acting as shareholder of record, maintaining account records and other
overhead expenses.

SAFECO Securities will receive the proceeds of the initial sales charges paid
upon the purchase of Class A shares and the CDSCs paid upon applicable
redemptions of Class B shares and may use these proceeds for any of the
distribution expenses

-- 68 --
<PAGE>
DISTRIBUTION PLANS (CONTINUED)

described above. The amount of sales charges reallowed to broker-dealers, banks
or other financial institutions who sell Class A shares will equal the
percentage of the amount invested in accordance with the schedule set forth in
"Purchasing Class A Shares." SAFECO Securities, out of its own resources, will
pay a brokerage commission equal to 4.00% of the amount invested to
broker-dealers, banks and other financial institutions who sell Class B shares.
Broker-dealers, banks and other financial institutions who sell Class B shares
of the Money Market Fund will receive the 4.00% brokerage commission at the time
the shareholder exchanges his or her Class B Money Market Fund shares for Class
B shares of another Fund.

During the period they are in effect, the Plans and related Agreements obligate
the Class A and Class B shares of the Funds to which they relate to pay service
and distribution fees to SAFECO Securities as compensation for its service and
distribution activities, not as reimbursement for specific expenses incurred.
Thus, even if SAFECO Securities' expenses exceed its service or distribution
fees for any class, the Class will not be obligated to pay more than those fees
and, if SAFECO Securities' expenses are less than such fees, it will retain its
full fees and realize a profit. Each Fund that has implemented a Rule 12b-1 Plan
will pay the service and distribution fees to SAFECO Securities until either the
applicable Plan or Agreement is terminated or not renewed.

PERSONS CONTROLLING CERTAIN FUNDS

At April 3, 1998, SAM, a Washington corporation and a wholly owned subsidiary of
SAFECO Corporation, controlled the International, Balanced and Value Funds.

At April 3, 1998, SAFECO Insurance Company of America ("SAFECO Insurance")
controlled the Intermediate Treasury and Washington Funds. SAFECO Insurance is a
Washington corporation and a wholly owned subsidiary of SAFECO Corporation.

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

SAFECO Corporation and SAFECO Insurance each has its principal place of business
at SAFECO Plaza, Seattle, Washington 98185. SAM has its principal place of
business at Two Union Square, 25th Floor, Seattle, Washington 98101.

PERFORMANCE INFORMATION

The yield, total return and average annual total return of each Class of a Fund
may be quoted in advertisements. For each Fund, except the Money Market Fund,
yield is the annualization on a 360-day basis of a Class net income per share
over a 30-day period divided by the Class net asset value per share on the last
day of the period. The formula for the yield calculation is defined by
regulation. Consequently, the rate of actual income distributions paid by the
Funds may differ from quoted yield figures. Total return is the total percentage
change in an investment in a Class of a Fund, assuming the reinvestment of
dividend and capital gain distributions, over a stated period of time. Average
annual total return is the annual percentage change in an investment in a Class
of a Fund, assuming the reinvestment of dividends and capital gain
distributions, over a stated period of time. Performance quotations are
calculated separately for each Class of a Fund. Standardized returns for Class A
shares reflect deduction of the Fund's maximum initial sales charge at the time
of purchase, and standardized returns for Class B shares reflect deduction of
the applicable CDSC imposed on a redemption of shares held for the period. SAM
currently anticipates that the U.S. Value Fund's portfolio turnover will not
exceed 100%. A Fund's portfolio turnover rate will vary from year to year. A
higher portfolio turnover rate involves correspondingly higher transaction costs
in the form of broker commissions and dealer spreads and other costs that a Fund
will bear directly.

For the Money Market Fund, yield is the annualization on a 365-day basis of the
Fund's net income over a 7-day period. Effective yield is the annualization, on
a 365-day basis, of the Money Market Fund's net income over a 7-day period with

-- 69 --
<PAGE>
PERFORMANCE INFORMATION (CONTINUED)

dividends reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The formula for
yield and tax-equivalent yield is defined by regulation. Consequently, the rate
of actual income distributions paid by the Funds may differ from quoted yield
figures.

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

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

FUND DISTRIBUTIONS AND HOW THEY ARE TAXED

DIVIDENDS AND OTHER DISTRIBUTIONS

The Fixed-Income Funds declare dividends on each business day and pay them on
the last business day of each month; the Equity, Income, Balanced, and Value
Funds declare and pay dividends on the last business day of each calendar
quarter; and the Growth, Northwest, International, and Small Company Funds
declare and pay dividends annually. Each Fund declares dividends from net
investment income (which includes accrued dividends and interest, earned
discount, and other income earned on portfolio securities less expenses). Shares
of each Fund become entitled to receive dividends on the next business day after
they are purchased for your account. Except with respect to the Stock Funds, if
you request redemption of all your shares at any time during a month, you will
receive all declared dividends through the date of redemption, together with the
proceeds of the redemption.

Dividends and other distributions paid by a Fund on each Class of its shares are
calculated at the same time in the same manner. However, except for the Money
Market Fund, because of the higher Rule 12b-1 service and distribution fees
associated with Class B shares, the dividends paid by a Fund on its Class B
shares will be lower than those paid on its Class A shares.

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

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

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

-- 70 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

TAXES

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

When you sell (redeem) shares, it may result in a taxable gain or loss. This
depends upon whether you receive more or less than your adjusted basis for the
shares (which normally takes into account any initial sales charge paid on Class
A shares). An exchange of any Fund's shares for shares of another Fund generally
will have similar tax consequences.

Special rules apply when you dispose of Class A shares of a Fund (except the
Money Market Fund) through a redemption or exchange within 60 days after your
purchase thereof and subsequently reacquire Class A shares of the same Fund or
acquire Class A shares of another Fund without paying a sales charge due to the
exchange privilege or reinstatement privilege. See "How to Purchase Shares --
Reinstatement Privilege" and "How to Exchange Shares from One Fund to Another"
for more information. In these cases, any gain on the disposition of the
original Class A shares will be increased, or any loss decreased, by the amount
of the sales charge paid when you acquired those shares, and that amount will
increase the basis of the shares subsequently acquired. In addition, if you
purchase shares of a Fund (whether pursuant to the reinstatement privilege or
otherwise) within thirty days before or after redeeming other shares of that
Fund (regardless of class) at a loss, all or part of that loss will not be
deductible and will increase the basis of the newly purchased shares.

SPECIAL CONSIDERATIONS FOR THE TAX-EXEMPT INCOME FUNDS

TAXES

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

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

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

-- 71 --
<PAGE>
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED (CONTINUED)

CALIFORNIA FUND

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

WASHINGTON FUND

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

TAX WITHHOLDING INFORMATION

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

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

If the International Fund pays nonrefundable taxes to foreign governments during
the year, the taxes will reduce the Fund's dividends but still be included in
your taxable income. However, you may be able to claim an offsetting credit or
deduction on your tax return for your share of foreign taxes paid by the Fund.

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

TAX-DEFERRED RETIREMENT PLANS

SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses, and nonprofit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the Funds
(other than the Tax-Exempt Income Funds) may be used as investment vehicles for
these plans.

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

SIMPLIFIED EMPLOYEE PENSION IRAS (SEP-IRAS). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Annual
contributions up to the lesser of $24,000 or 15% of compensation may be made to
SEP-IRA accounts; the annual contribution limit is subject to change. SEP-IRAs
have the same investment minimums and custodial fees as regular IRAs.

-- 72 --
<PAGE>
TAX-DEFERRED RETIREMENT PLANS (CONTINUED)
403(B) PLANS. 403(b) plans are retirement plans for tax-exempt organizations
and school systems to which both employers and employees may contribute. Minimum
investment amounts are negotiable.

401(K) PLANS. 401(k) plans allow employers and employees to make tax-advantaged
contributions to a retirement account. SAFECO Services offers a low-cost
administration package that includes a prototype plan, record keeping, testing,
and employee communications. Minimum investment amounts are negotiable.

PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. Each plan allows corporations,
partnerships, and self-employed persons to make annual, tax-deductible
contributions to a retirement account for each person covered by the plan. A
plan may be adopted individually or paired with another plan to maximize
contributions. SAFECO Services offers an administration package for these plans.
Minimum investment amounts are negotiable.

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

ACCOUNT STATEMENTS

Periodically, you will receive an account statement indicating your current Fund
holdings and transactions affecting your account. Confirmation statements will
be sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.

ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS

Changes to your account registration or the services you have selected must be
in writing and signed by the number of owners specified on your account
application as having authority to make these changes. Send written changes to
the broker-dealer, bank or other financial institution where your account is
maintained. (Changes made to accounts maintained at SAFECO Services should be
sent to the address on the first page of this Prospectus.) Certain changes to
the Automatic Investment Method and Systematic Withdrawal Plan can be made by
telephone request if you have previously selected single signature authorization
for your account.

You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
without the co-owner's signature. If you do not indicate otherwise on the
application, the signatures of all account owners will be required to effect a
transaction. Your selection of fewer than all account owner signatures may be
revoked by any account owner who writes to SAFECO Services or the financial
institution where your account is maintained.

The broker-dealer, bank or financial institution where your account is
maintained or SAFECO Services may require a signature guarantee for a signature
that cannot be verified by comparison to the signature(s) on your account
application. A signature guarantee may be obtained from most financial
institutions, including banks, savings and loans, and broker-dealers.

-- 73 --
<PAGE>
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 is convertible into or
exchangeable for common stock. The value of convertible corporate bonds will
normally vary inversely with interest rates and the value of convertible
corporate bonds and convertible preferred stock will normally vary with the
value of the underlying common stock.

DESCRIPTION OF RATINGS

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

COMMERCIAL PAPER RATINGS

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

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

DEBT RATINGS

Moody's

INVESTMENT GRADE:

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

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

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<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)
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.

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.

S&P

INVESTMENT GRADE:

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

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

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

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

BELOW INVESTMENT GRADE:

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

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

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<PAGE>
DESCRIPTION OF RATINGS (CONTINUED)
D -- Debt rated D is in payment default. The D rating is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period.

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

MUNICIPAL NOTES AND OTHER SHORT-TERM OBLIGATION RATINGS

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

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

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

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

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

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

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

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<PAGE>
DEBT SECURITIES HOLDINGS

INCOME FUND

The weighted average ratings of all debt securities held by the Income Fund,
expressed as a percentage of total investments held during the year ended
December 31, 1997, were as follows:

<TABLE>
<CAPTION>
MOODY'S % S&P %
- ------------------------------ ----- ------------------------------ -----
<S> <C> <C> <C>
INVESTMENT GRADE
- ---------------------------------------------------------------------------------
Aaa -- AAA --
Aa -- AA --
A .99% A .99%
Baa 1.16% BBB 1.16%

BELOW INVESTMENT GRADE
- ---------------------------------------------------------------------------------
Ba -- BB --
B 5.62% B 10.86%
Caa -- CCC --
Ca -- CC --
C -- C --
D --
Not Rated, but determined to Not Rated, but determined to
be investment grade -- be investment grade --
Not Rated, but determined to Not Rated, but determined to
be below investment grade 6.7% be below investment grade 1.48%
</TABLE>

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<PAGE>
DEBT SECURITIES HOLDINGS (CONTINUED)
HIGH-YIELD FUND

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

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

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<PAGE>
SAFECO FAMILY OF FUNDS

STABILITY OF PRINCIPAL

SAFECO Money Market Fund

BOND INCOME

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

TAX-FREE BOND INCOME

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

HIGH CURRENT INCOME WITH LONG-TERM GROWTH

SAFECO Income Fund

LONG TERM GROWTH

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

FOR MORE COMPLETE INFORMATION ON CLASS A OR CLASS B SHARES OF ANY SAFECO MUTUAL
FUND, INCLUDING MANAGEMENT FEES AND EXPENSES, PLEASE CONTACT YOUR INVESTMENT
PROFESSIONAL.
<PAGE>
NATIONWIDE: 1-800-528-6501
Extension 1 for Shareholder Services
Extension 2 for Dealer Services
Extension 3 for the Automated Information Line

MAILING ADDRESS:

SAFECO Mutual Funds
Advisor Class Shares
P.O. Box 34890
Seattle, WA 98124-1890

EXPRESS/OVERNIGHT MAIL:

SAFECO Mutual Funds
Advisor Class Shares
4333 Brooklyn Avenue N.E.
Seattle, WA 98105

DISTRIBUTOR:

SAFECO Securities, Inc.

PROSPECTUS

April 30, 1998

SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND
SAFECO U.S. VALUE FUND
SAFECO INTERMEDIATE-TERM
U.S. TREASURY FUND
SAFECO HIGH-YIELD BOND FUND
SAFECO MANAGED BOND FUND
SAFECO MUNICIPAL BOND FUND
SAFECO CALIFORNIA TAX-FREE INCOME FUND
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND
SAFECO MONEY MARKET FUND
CLASS A
CLASS B

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

GMF 4111 4/98

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