SAFECO TAX EXEMPT BOND TRUST, 485APOS, 1996-08-01

SAFECO TAX EXEMPT BOND TRUST
485APOS, 1996-08-01

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<PAGE>
Registration Nos. 33-53532/811-7300
------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. _________ /_/

Post-Effective Amendment No. ____8____ /X/

and/or

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

Amendment No. ___8___ /X/
(Check appropriate box or boxes.)

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

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

Registrant's Telephone Number, including Area Code ___(206) 545-5000___

Name and Address of Agent for Service

DAVID F. HILL
SAFECO Plaza
Seattle, Washington 98185
(206) 545-5269

Approximate Date of Proposed Public Offering: Continuous

It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b)
_____ on __________ __, ____ pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
__x__ on September 30, 1996 pursuant to paragraph (a) (1)
_____ 75 days after filing pursuant to paragraph (a) (2)
_____ on __________________ pursuant to paragraph (a) (2) of Rule 485

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

=========================================================================

Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 by declaration made pursuant to Section 24(f) of
the Investment Company Act of 1940 (Act). Pursuant to Rule 24f-2 under
the Act, Registrant's Rule 24f-2 Notice was filed on or about May 30,
1996.

==========================================================================
<PAGE>

SAFECO TAX-EXEMPT BOND TRUST

Contents of Registration Statement

This registration statement consists of the following papers and
documents:

. Cover Sheet

. Contents of Registration Statement

. Cross Reference Sheets

. Advisor Class A and Advisor Class B Shares of:

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

PART A - Prospectus

. Advisor Class A and Advisor Class B Shares of:

SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO Managed Bond Fund
SAFECO Money Market Fund
<PAGE>

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

PART B - Statement of Additional Information

SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund

PART B - Statement of Additional Information

. PART C - Other Information

. Signature Page

. Exhibits

This filing is made to update the Registration Statement of
SAFECO Tax-Exempt Bond Trust to add Advisor Class A and Advisor
Class B shares to certain funds. No changes are hereby made to
the Prospectuses and Statements of Additional Information
relating to the No-Load Class shares of the Registrant, SAFECO
Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO Money
Market Trust and SAFECO Institutional Series Bond Trust.

<PAGE>

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

SAFECO COMMON STOCK TRUST
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund

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

SAFECO MANAGED BOND TRUST
SAFECO Managed Bond Fund

SAFECO MONEY MARKET TRUST
SAFECO Money Market Fund

Advisor Class A and Advisor Class B Shares

Form N-1A Cross Reference Sheet

<TABLE>
<CAPTION>
Part A
------
Item No. Location in Prospectus
-------- ----------------------

Item 1. Cover Page Cover page

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

Item 3. Condensed Financial Financial Highlights; Performance
Information Information
<PAGE>

Item 4. General Description of Each Fund's Investment Objective and
Registrant Policies; Information about Share
Ownership and Companies that Provide
Services to the Trusts

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

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

Item 7. Purchase of Securities Being How to Purchase Shares; How to
Offered Systematically Purchase or Redeem
Shares; How to Exchange Shares From One
Fund to Another; Telephone Transactions;
Shares Price Calculation; Tax-Deferred
Retirement Plans; Account Statements

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

Item 9. Pending Legal Proceedings Not applicable
<PAGE>

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

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

SAFECO MANAGED BOND TRUST
SAFECO Managed Bond Fund

SAFECO MONEY MARKET TRUST
SAFECO Money Market Fund

Advisor Class A and Advisor Class B Shares

Form N-1A Cross Reference Sheet

Part B
------

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

Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information and Not applicable
History

Item 13. Investment Objectives and Overview of Investment Policies;
Policies Additional Investment Information;
Description of Ratings

Item 14. Management of the Trust Trustees and Officers

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

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

Item 17. Brokerage Allocation and Other Brokerage Practices
Practices

Item 18. Capital Stock and Other Additional Information on Calculation of
Securities Net Asset Value Per Share; Conversion of
Advisor Class B Shares
<PAGE>

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

Item 20. Tax Status Additional Tax Information

Item 21. Underwriters Investment Advisory and Other Services

Item 22. Calculation of Performance Additional Performance Information
Data

Item 23. Financial Statements Financial Statements

SAFECO COMMON STOCK TRUST

SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund

Advisor Class A and Advisor Class B Shares

Form N-1A Cross Reference Sheet

Part B
------

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

Item 10. Cover Page Cover Page

Item 11. Table of Contents Table of Contents

Item 12. General Information and Not applicable
History

Item 13. Investment Objectives and Overview of Investment Policies;
Policies Investment Policies of the Growth,
Equity, Income, Northwest, Balanced,
International and Small Company Funds;
Description of Commercial Paper and
Preferred Stock Ratings; Special Risks
of Below Investment Grade Bonds -
Equity, Income, and Small Company Funds

Item 14. Management of the Trust Trustees and Officers
<PAGE>

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

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

Item 17. Brokerage Allocation and Other Brokerage Practices
Practices

Item 18. Capital Stock and Other Not applicable
Securities

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

Item 20. Tax Status Additional Tax Information

Item 21. Underwriters Investment Advisory and Other Services

Item 22. Calculation of Performance Additional Performance Information
Data

Item 23. Financial Statements Financial Statements

Part C
------

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

</TABLE>

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 30, 1996

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.

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

Advisor Class A
Advisor Class B September 30, 1996

____________________________________________________________________

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"). The investment objective for each Fund appears on Page 4.

This Prospectus sets forth the information a prospective investor should
know before investing. PLEASE READ AND RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE. Statements of Additional Information relating to the Advisor
Class A ("Class A") and Advisor Class B ("Class B") shares (collectively
"Advisor Classes"), dated September 30, 1996 and incorporated herein by
this reference, have been filed with the Securities and Exchange
Commission and are available at no charge upon request by calling the
telephone number listed on this page. The Statements of Additional
Information contain more information about many of the topics in this
Prospectus as well as information about the trustees and officers of the
Trusts.

<PAGE>

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

Nationwide 1-800-463-8791

SAFECO Mutual Funds
Advisor Class Shares
P.O. Box 34680
Seattle, WA 98124-1680

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.

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 series of any Trust, or by SAFECO Securities, Inc. ("SAFECO
Securities"). This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by any Trust, any series of any Trust, or
by SAFECO Securities in any state in which such offer or solicitation may
not lawfully be made.

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

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

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

SAFECO INTERMEDIATE-TERM U.S. TREASURY FUND ("Intermediate Treasury Fund")
has as its investment objective to provide as high a level of current
interest income as is consistent with the preservation of capital. During

3
<PAGE>

normal market conditions, the Fund will invest at least 65% of its total
assets in direct obligations of the U.S. Treasury.

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.

4
<PAGE>

Table of Contents
Page

INTRODUCTION TO THE TRUSTS AND THE FUNDS . . . . . . . . . . . . . . 8
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FINANCIAL HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . 15
SUB-ADVISER INFORMATION FOR THE INTERNATIONAL FUND . . . . . . . . . 32
ALTERNATIVE PURCHASE ARRANGEMENT . . . . . . . . . . . . . . . . . . 33
EACH FUND'S INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . 34
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PORTFOLIO MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . 62
HOW TO PURCHASE SHARES . . . . . . . . . . . . . . . . . . . . . . . 65
HOW TO REDEEM SHARES . . . . . . . . . . . . . . . . . . . . . . . . 72
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES . . . . . . . . . . . 74
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER . . . . . . . . . . . 75
TELEPHONE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 76
SHARE PRICE CALCULATION . . . . . . . . . . . . . . . . . . . . . . . 77
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES
THAT PROVIDE SERVICES TO THE TRUSTS . . . . . . . . . . . . . . . . . 79
DISTRIBUTION PLANS . . . . . . . . . . . . . . . . . . . . . . . . . 84
PERSONS CONTROLLING CERTAIN FUNDS . . . . . . . . . . . . . . . . . . 85
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 85
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED . . . . . . . . . . . . . . 86
TAX-DEFERRED RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . 91
ACCOUNT STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 92
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS . . . . . . . . . . . . . 92
DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES . . . . . . . 93
RATINGS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 93

5
<PAGE>

________________________________________

INTRODUCTION TO THE TRUSTS AND THE FUNDS
________________________________________

Each Trust is an open-end management investment company that issues shares
representing one or more series. This Prospectus offers shares of the
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 and the Small Company Fund (collectively, the "Stock
Funds"). Each of the Stock Funds is a diversified series of the Common
Stock Trust.

The taxable fixed-income Funds offered are the Intermediate Treasury Fund
and the Managed Bond Fund (collectively, the "Taxable Fixed-Income
Funds"). The Intermediate Treasury Fund and the Managed Bond Fund are
diversified series of the Taxable Bond Trust and the Managed Bond Trust,
respectively. Prior to September 30, 1996, the name of the Managed Bond
Fund was the SAFECO Fixed Income Portfolio and the name of the Managed
Bond Trust was the SAFECO Institutional Series 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' investment objectives appear on page 4.

The Funds

Each Fund offers multiple classes of shares. The Advisor Classes of
shares are offered to investors who engage the services of an investment
professional through this Prospectus. 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.

6
<PAGE>

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
and wire transfers.

. Has a minimum initial investment of $1,000 for regular accounts
and $250 for individual retirement accounts ("IRAs"). 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 "The Trusts and Each Fund's Investment 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 Small Company Fund invests in small-sized
companies, which involves greater risks than investments in larger, more
established issuers and their securities can be subject to more abrupt and
erratic movements in price. The value of the Intermediate Treasury Fund,
Managed Bond Fund, Municipal Bond Fund, California Fund and Washington
Fund will normally fluctuate inversely with changes in market interest
rates. 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
"The Trusts and Each Fund's Investment Policies" and "Risk Factors" for
more information.

7
<PAGE>

Investment Adviser; Sub-Adviser of International Fund

Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and managed over $2 billion in mutual
fund assets as of June 30, 1996. SAM has been an adviser to mutual funds
and other investment portfolios since 1973 and its predecessors have been
advisers since 1932. The Bank of Ireland Asset Management (U.S.) Limited
(the "Sub-Adviser") acts as a sub-adviser to the International Fund. The
Sub-Adviser is a direct, wholly owned subsidiary of Bank of Ireland Asset
Management Limited (an investment advisory firm), which is headquartered
in Dublin, Ireland, and an indirect, wholly owned subsidiary of the Bank
of Ireland, which is also headquartered in Dublin, Ireland. See
"Information about Share Ownership and Companies that Provide Services to
the Trusts" for more information.

________

EXPENSES
________

A. Shareholder Transaction Expenses for Class A and Class B of Each
Fund

Class A Class B
------- -------

Maximum Sales Charge on 4.50%* NONE
Purchases (As a Percentage
of Offering Price)

Sales Charge on Reinvested NONE NONE
Dividends

Maximum Contingent Deferred NONE* 5.00%**
Sales Charge (CDSC)

Redemption Fees NONE NONE

Exchange Fees NONE NONE

* 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

8
<PAGE>

the first year. See "How to Purchase Shares" on page 65 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" on page 65
for more information.

Sales charge waivers and reduced sales charge purchase plans are available
for Class A shares. See "How to Purchase Shares" on page 65 for more
information. The maximum 5% CDSC on Class B shares applies to redemptions
during the first year after purchase, declining 1% per year and reaching
0% after six years. Class B shares of a Fund convert automatically into
Class A shares of that Fund six years after 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 Advisor Class B Shares"
on page 70 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
----------- ----------- -----------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Management Fee .67% .67% .61% .61% .68% .68%

Rule 12b-1 Fees .25% 1.00% .25% 1.00% .25% 1.00%
Other Expenses .31% .31% .23% .23% .18% .18%
----- ----- ----- ----- ----- -----

Total Operating
Expenses (estimated) 1.23% 1.98% 1.09% 1.84% 1.11% 1.86%

9
<PAGE>

Northwest Fund Balanced Fund International Fund
-------------- ------------- ------------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
Management Fee .73% .73% .75% .75% 1.10% 1.10%
Rule 12b-1 Fees .25% 1.00% .25% 1.00% .25% 1.00%

Other Expenses .36% .36% .24% .24% .23% .23%
----- ----- ----- ----- ----- -----
Total Operating
Expenses (estimated) 1.34% 2.09% 1.24% 1.99% 1.58% 2.33%

Small Company Intermediate
Fund Treasury Fund Managed Bond Fund
------------- ------------- -----------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Management Fee .85% .85% .54% .54% .49% .49%
Rule 12b-1 Fees .25% 1.00% .25% 1.00% .25% 1.00%

Other Expenses .23% .23% .42% .42% .67% .67%
----- ----- ----- ----- ----- -----

Total Operating Expenses
(estimated) 1.33% 2.08% 1.21% 1.96% 1.41% 2.16%

Money Market Fund Municipal Fund California Fund
---------------- -------------- ---------------
Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Management Fee .50% .50% .41% .41% .53% .53%

Rule 12b-1 Fees .00%* .00%* .25% 1.00% .25% 1.00%
Other Expenses .28% .28% .13% .13% .15% .15%
----- ----- ------ ----- ----- -----

Total Operating Expenses
(estimated) .78% .78% .79% 1.54% .93% 1.68%

10
<PAGE>

Washington Fund
---------------

Advisor Advisor
Class A Class B
------- -------

Management Fee .64% .64%
Rule 12b-1 Fees .25% 1.00%

Other Expenses .43% .43%
----- -----

Total Operating Expenses
(estimated) 1.32% 2.07%
</TABLE>

* 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, all of the then-existing shares of each Fund
were redesignated as No-Load Class shares and each Fund commenced offering
Class A and Class B shares. Because Class A and Class B shares have not
previously been offered, expenses do not reflect actual Class A or Class B
expenses. The amounts shown for the Growth, Equity, Income, Northwest,
and Intermediate Treasury Funds are estimated expenses for the Advisor
Classes based on the actual expenses paid by shareholders of the Funds'
other class for the fiscal year ended September 30, 1995, restated as
applicable to reflect fees borne by Class A or Class B shares. The
amounts shown for the Money Market, Municipal Bond, California, and
Washington Funds are estimated expenses for the Advisor Classes based on
the actual expenses paid by shareholders of the Funds' other class for the
fiscal year ended March 31, 1996, restated as applicable to reflect fees
borne by Class A or Class B shares. The amounts shown for the Managed
Bond Fund are estimated expenses for the Advisor Classes based on the
actual expenses paid by shareholders of the Fund's other class for the
fiscal year ended December 31, 1995, restated as applicable to reflect
fees borne by Class A or Class B shares. The amounts shown for the
Balanced, International and Small Company Funds are annualized expenses
for Class A or Class B shares based on the maximum management fee and
estimated "other expenses" for the fiscal period ended September 30, 1996.
The management fees paid by the International and Small Company Funds are
higher than the management fees paid by most other investment companies.
See "Information about Share Ownership and Companies that Provide Services
to the Trusts" on page 79 for more information.

11
<PAGE>

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

Advisor Class A Advisor Class B
--------------- ---------------

Rule 12b-1 service fees 0.25% 0.25%

Rule 12b-1 distribution fees 0.00% 0.75%

Rule 12b-1 distribution fees are asset-based sales charges. Long-term
Class A and Class B shareholders may pay more 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 in each Fund's "Annual Operating
Expenses" above remain the same in the years shown.

Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- -------

Growth
Advisor Class A(1) $57 $82 $110 $187
Advisor Class B
Assuming redemption at end of period(2)(3) $70 $92 $127 $193
Assuming no redemption at end of period(3) $20 $62 $107 $193

Equity
Advisor Class A(1) $56 $78 $102 $172
Advisor Class B
Assuming redemption at end of period(2)(3) $69 $88 $120 $178
Assuming no redemption at end of period(3) $19 $58 $100 $178

Income
Advisor Class A(1) $56 $79 $104 $175
Advisor Class B
Assuming redemption at end of period(2)(3) $69 $89 $121 $181
Assuming no redemption at end of period(3) $19 $59 $101 $181

12
<PAGE>

Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- -------

Northwest
Advisor Class A(1) $58 $ 86 $115 $199
Advisor Class B
Assuming redemption at end of period(2)(3) $71 $ 95 $132 $205
Assuming no redemption at end of period(3) $21 $ 65 $112 $205

Balanced
Advisor Class A(1) $57 $ 83
Advisor Class B
Assuming redemption at end of period(2) $70 $ 92
Assuming no redemption at end of period $20 $ 62

International
Advisor Class A(1) $60 $ 93
Advisor Class B
Assuming redemption at end of period(2) $74 $103
Assuming no redemption at end of period $24 $ 73

Small Company
Advisor Class A(1) $58 $ 85
Advisor Class B
Assuming redemption at end of period(2) $71 $ 95
Assuming no redemption at end of period $21 $ 65

Intermediate Treasury
Advisor Class A(1) $57 $ 82 $109 $185
Advisor Class B
Assuming redemption at end of period(2)(3) $70 $ 92 $126 $191
Assuming no redemption at end of period(3) $20 $ 62 $106 $191

Managed Bond
Advisor Class A(1) $59 $ 88 $119 $206
Advisor Class B
Assuming redemption at end of period(2)(3) $72 $ 98 $136 $213
Assuming no redemption at end of period(3) $22 $ 68 $116 $213

Municipal Bond
Advisor Class A(1) $53 $ 69 $ 87 $138
Advisor Class B
Assuming redemption at end of period(2)(3) $66 $ 79 $104 $145
Assuming no redemption at end of period(3) $16 $ 49 $ 84 $145

California
Advisor Class A(1) $54 $ 73 $ 94 $154
Advisor Class B
Assuming redemption at end of period(2)(3) $67 $ 83 $111 $160
Assuming no redemption at end of period(3) $17 $ 53 $ 91 $160

13
<PAGE>

Fund 1 Year 3 Years 5 Years 10 Years
---- ------ ------- ------- -------

Washington
Advisor Class A(1) $58 $ 85 $114 $197
Advisor Class B
Assuming redemption at end of period(2)(3) $71 $ 95 $131 $203
Assuming redemption at end of period(3) $21 $ 65 $111 $203

Money Market(4)
Advisor Class A $ 8 $ 25 $ 43 $ 97
Advisor Class B $ 8 $ 25 $ 43 $ 97

</TABLE>

(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 at the end of the sixth year.
(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.

____________________

FINANCIAL HIGHLIGHTS
____________________

The amounts shown for each Fund in the Financial Highlights tables that
follow are based upon a single No-Load Class share outstanding throughout
the period indicated and do not reflect Rule 12b-1 fees. Except for the
six-month period ended March 31, 1996, the following selected data for the
Growth, Equity, Income, Northwest, Intermediate Treasury, Managed Bond,
Money Market, Municipal Bond, California and Washington Funds are derived
from financial statements that have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the
financial statements, related notes and other financial information

14
<PAGE>

incorporated by this reference to each Trust's Annual Report and Statement
of Additional Information, which may be obtained by calling the number on
the front page of this Prospectus. The following selected data for the
Balanced, International and Small Company Funds, each of which commenced
operations on January 31, 1996, have been derived from unaudited financial
statements for the period ended March 31, 1996, and are included in their
Trust's Semi-Annual Report and are incorporated by reference in their
Trust's Statement of Additional Information, which may be obtained by
calling the number on the front page of this Prospectus.

15
<PAGE>

<TABLE>
<CAPTION>
SAFECO GROWTH FUND

For the Six Month
Period Ended Year Ended September 30
March 31, 1996
(Unaudited)
---------------- 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $15.83 $17.37 $19.20 $13.98 $17.95 $11.14
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment (loss)
income -- .07 (.02) (.02) (.01) .05
Net realized and
unrealized gain (loss)
on investments 1.50 4.07 .78 5.39 (3.15) 7.77
------ ------ ------ ------ ------ ------
Total from investment
operations 1.50 4.14 .76 5.37 (3.16) 7.82
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS

Dividends from net
investment income -- (.07) -- -- -- (.05)
Distributions from
capital gains (0.17) (5.61) (2.59) (.15) (.81) (.96)
------ ------ ------ ------ ------ ------
Total distributions (0.17) (5.68) (2.59) (.15) (.81) (1.01)
------ ------ ------ ------ ------ ------
Net asset value at
end of period $17.16 $15.83 $17.37 $19.20 $13.98 $17.95
====== ====== ====== ====== ====== ======
Total return** 9.58%+ 23.93% 3.88% 38.43% -17.83% 70.22%
Net assets at end
of period (000's omitted) $193,167 $176,483 $156,108 $158,723 $127,897 $155,429
Ratio of expenses to
average net assets 0.99%++ .98% .95% .91% .91% .90%
Ratio of net investment
income (loss) to average
net assets 0.05%++ .34% -.12% -.10% -.10% .36%
Portfolio turnover rate 137.98%++ 110.44% 71.18% 57.19% 85.38% 49.86%
Avg. Commission rate paid $0.0572 -- -- -- -- --

</TABLE>

16
<PAGE>

Year Ended September 30

1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $17.22 $14.95 $18.13 $15.40 $16.86
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment (loss)
income .14 .53 .35 .24 .31

Net realized and
unrealized gain (loss)
on investments (4.20) 3.17 (.99) 4.31 1.62
------ ------ ------ ------ ------
Total from investment
operations (4.06) 3.70 (.64) 4.55 1.93
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income (.14) (.53) (.48) (.23) (.42)
Distributions from
capital gains (1.88) (.90) (2.06) (1.59) (2.97)
------ ------ ------ ------ ------
Total distributions (2.02) (1.43) (2.54) (1.82) (3.39)
------ ------ ------ ------ ------
Net asset value at
end of period $11.14 $17.22 $14.95 $18.13 $15.40
====== ====== ====== ====== ======
Total return** -23.67% 25.23% -1.47% 32.68% 13.29%*
Net assets at end
of period (000's omitted) $59,164 $81,472 $74,324 $82,703 $68,375
Ratio of expenses to
average net assets 1.01% .94% .98% .92% .85%
Ratio of net investment
income (loss) to average
net assets .88% 3.27% 2.37% 1.46% 1.90%
Portfolio turnover rate 90.48% 11.38% 19.31% 23.61% 46.04%

Avg. Commission rate paid -- -- -- -- --

+ Not annualized.
++ Annualized.
* Unaudited.
** Total return information does not reflect sales loads.
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
SAFECO EQUITY FUND

For the Six Month
Period Ended Year Ended September 30
March 31, 1996
(Unaudited)
---------------- 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $15.31 $13.89 $12.54 $ 9.53 $10.38 $ 8.43
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .14 .34 .23 .17 .15 .17
Net realized and
unrealized gain (loss)
on investments .99 2.59 1.83 3.79 (.09) 2.37
------ ------ ------ ------ ------ ------
Total from investment
operations 1.13 2.93 2.06 3.96 .06 2.54
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS

Dividends from net
investment income (.14) (.34) (.23) (.17) (.15) (.17)
Distributions from
capital gains (.32) (1.17) (.48) (.78) (.76) (.42)
------ ------ ------ ------ ------ ------
Total distributions (.46) (1.51) (.71) (.95) (.91) (.59)
------ ------ ------ ------ ------ ------
Net asset value at
end of period $15.98 $15.31 $13.89 $12.54 $ 9.53 $10.38
====== ====== ====== ====== ====== ======
Total return** 7.50%+ 21.59% 16.51% 41.77% .41% 30.39%
Net assets at end
of period (000's omitted) $636,885 $598,582 $412,805 $148,894 $74,383 $71,586
Ratio of expenses to
average net assets .79%++ .84% .85% .94% .96% .98%
Ratio of net investment
income to average net
assets 1.82%++ 2.38% 1.72% 1.50% 1.34% 1.70%
Portfolio turnover rate 86.93%++ 56.14% 33.33% 37.74% 39.88% 45.21%
Avg. Commission rate paid $0.0600 -- -- -- -- --

</TABLE>

18
<PAGE>

Year Ended September 30

1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $10.10 $ 8.51 $12.23 $11.44 $10.25
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .22 .39 .18 .21 .29
Net realized and
unrealized gain (loss)
on investments (1.28) 2.26 (1.82) 2.83 2.46
----- ------ ------ ------ ------
Total from investment
operations (1.06) 2.65 (1.64) 3.04 2.75
------ ------ ------ ------ ------

LESS DISTRIBUTIONS
Dividends from net
investment income (.22) (.39) (.23) (.22) (.34)
Distributions from
capital gains (.39) (.67) (1.85) (2.03) (1.22)
------ ------ ------ ------ ------
Total distributions (.61) (1.06) (2.08) (2.25) (1.56)
------ ------ ------ ------ ------
Net asset value at
end of period $ 8.43 $10.10 $ 8.51 $12.23 $11.44
====== ====== ====== ====== ======
Total return** -10.73% 32.12% -9.93% 31.75% 29.61%*
Net assets at end
of period (000's omitted) $51,603 $53,892 $45,625 $64,668 $46,740
Ratio of expenses to
average net assets .97% .96% 1.00 .97% .88%
Ratio of net investment
income to average net
assets 2.19% 4.13% 2.16% 1.92% 2.55%
Portfolio turnover rate 51.01% 63.62% 88.19% 85.11% 86.39%
Avg. Commission rate paid -- -- -- -- --

+ Not annualized.
++ Annualized.
* Unaudited.
** Total return information does not reflect sales loads.
</TABLE>

19
<PAGE>

<TABLE>
<CAPTION>
SAFECO INCOME FUND

Year Ended September 30
For the Six Month
Period Ended
March 31, 1996
(Unaudited) 1995 1994 1993 1992 1991
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $19.11 $17.25 $17.79 $16.27 $15.35 $12.89
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .36 .82 .81 .78 .80 .81

Net realized and
unrealized gain (loss)
on investments 1.42 2.71 (.30) 1.52 .96 2.53
------ ------ ------ ------ ------ ------
Total from investment
operations 1.78 3.53 .51 2.30 1.76 3.34
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income (.36) (.82) (.81) (.78) (.80) (.83)
Distributions from
capital gains (.06) (.85) (.24) -- (.04) (.05)
------ ------ ------ ------ ------ ------
Total distributions (.42) (1.67) (1.05) (.78) (.84) (.88)
------ ------ ------ ------ ------ ------
Net asset value at
end of period $20.47 $19.11 $17.25 $17.79 $16.27 $15.35
====== ====== ====== ====== ====== ======
Total return** 9.37%+ 21.04% 2.98% 14.35% 11.75% 26.43%
Net assets at end
of period (000's omitted) $235,395 $217,870 $190,610 $203,019 $181,582 $181,265
Ratio of expenses to
average net assets .85%++ .87% .86% .90% .90% .93%
Ratio of net investment
income to average net
assets 3.59%++ 4.55% 4.59% 4.55% 5.06% 5.58%
Portfolio turnover rate 24.82%++ 31.12% 19.30% 20.74% 20.35% 22.25%

Avg. Commission rate paid $0.0600 -- -- -- -- --
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
Year Ended September 30

1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
Net asset value
at beginning of period $16.44 $14.32 $17.16 $15.52 $12.96
INCOME FROM INVESTMENT
OPERATIONS
Net investment income .85 .81 .78 .78 .78

Net realized and
unrealized gain (loss)
on investments (3.39) 2.12 (1.80) 2.37 3.13
------ ------ ------ ------ ------
Total from investment
operations (2.54) 2.93 (1.02) 3.15 3.91
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
Dividends from net
investment income (.83) (.81) (.98) (.78) (.79)
Distributions from
capital gains (.18) -- (.84) (.73)# (.56)
------ ------ ------ ------ ------
Total distributions (1.01) (.81) (1.82) (1.51) (1.35)
------ ------ ------ ------ ------
Net asset value at
end of period $12.89 $16.44 $14.32 $17.16 $15.52
====== ====== ====== ====== ======
Total return** -16.06% 21.00% -4.61% 21.41% 31.76%*
Net assets at end
of period (000's omitted) $170,153 $232,812 $231,724 $313,308 $102,254
Ratio of expenses to
average net assets .92% .92% .97% .94% .95%
Ratio of net investment
income to average net
assets 5.59% 5.28% 5.58% 4.53% 5.08%
Portfolio turnover rate 19.37% 16.38% 34.13% 33.08% 28.90%

Avg. Commission rate paid -- -- -- -- --

+ Not annualized.
++ Annualized.
* Unaudited.
** Total return information does not reflect sales loads.
# Distributions include $.04 of additional gain arising from investment transactions of securities acquired
in a non-taxable exchange.
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
SAFECO NORTHWEST FUND

For the Period
For the Six For the Nine From February 7,
Month Period Month Period 1991 (Initial
Ended Year Ended Year Ended Ended Year Ended Public Offering)
March 31, 1996 September 30, September 30, September 30, December 31, to
(Unaudited) 1995 1994 1993 1992 December 31, 1991
-------------- ------------ ------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value
at beginning
of period $14.41 $12.59 $12.34 $12.59 $11.37 $10.06
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income .01 .04 .04 .02 .06 .13
Net realized and
unrealized
gain (loss) on
investments 1.01 2.35 .59 (.25) 1.53 1.44
------ ------ ------ ------ ------ ------
Total from
investment
operations 1.02 2.39 .63 (.23) 1.59 1.57
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS

Dividends from
net investment
income (.01) (.04) (.04) (.02) (.06) (.19)
Distributions
from capital
gains (.35) (.53) (.34) -- (.31) (.07)
------ ------ ------ ------ ------ ------
Total (.36) (.57) (.38) (.02) (.37) (.26)
distributions ------ ------ ------ ------ ------ ------
Net asset value at
end of period $15.07 $14.41 $12.59 $12.34 $12.59 $11.37
====== ====== ====== ====== ====== ======
Total return** 7.33% 19.01% 5.19% -1.86%+ 14.08% 14.93%+
Net assets at end
of period (000's
omitted) $43,228 $40,140 $36,383 $39,631 $40,402 $26,434
Ratio of expenses
to average net
assets 1.11%++ 1.09% 1.06% 1.11%++ 1.11% 1.27%++

22
<PAGE>

For the Period
For the Six For the Nine From February 7,
Month Period Month Period 1991 (Initial
Ended Year Ended Year Ended Ended Year Ended Public Offering)
March 31, 1996 September 30, September 30, September 30, December 31, to
(Unaudited) 1995 1994 1993 1992 December 31, 1991
-------------- ------------ ------------- ------------ ------------ -----------------
Ratio of net
investment
income to
average net
assets .14%++ .31% .33% .18%++ .55% 1.14%++
Portfolio turnover
rate 45.32%++ 19.59% 18.46% 14.05%++ 33.34% 27.71%++
Avg. Commission
rate paid $0.0583 -- -- -- -- --
</TABLE>

** Total return information does not reflect sales loads.
+ Not annualized.
++ Annualized.

23
<PAGE>

<TABLE>
CAPTION>
For the period from January 31, 1996
(Initial Public Offering) to March 31, 1996

SAFECO SAFECO
SAFECO International Small Company
Balanced Fund Stock Fund Stock Fund
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- -------------
<S> <C> <C> <C>
Net Asset Value at
Beginning of Period $10.00 $10.00 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income .05 .03 .01
Net Realized and Unrealized Gain (Loss)
on Investment and Foreign
Currency Transactions (.03) .01 .48
------ ------ ------
Total from Investment Operations .02 .04 .49
------ ------ ------

LESS DISTRIBUTIONS
Dividends from Net Investment Income (.05) -- --
Distributions from Realized Gains -- -- --
------ ------ ------

Total Distributions (.05) -- --
------ ------ ------

Net Asset Value at End of Period $ 9.97 $10.04 $10.49
====== ====== ======

Total Return** .17%+ .40%+ 4.90%+

Net Assets at End of Period (000's omitted) $6,353 $6,461 $6,406
Ratio of Expenses to Average Net Assets 1.69%++ 2.53%++ 1.82%++
Ratio of Net Investment Income (Loss)
to Average Net Assets 3.10%++ 1.87%++ .89%++

Portfolio Turnover Rate 351.35%++ 3.97%++ 22.28%++
Average Commission Rate Paid $.0552 $.0250 $.0538
_________________________________

+ Not Annualized.
++ Annualized.
** Total return information does not reflect sales loads.

The information listed above is based on a two month operating history and may not be indicative of longer-term results.
</TABLE>

24
<PAGE>

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

For the Six
Month Period
Ended For the Year Ended September 30
March 31,
1996
(Unaudited) 1995 1994 1993 1992
----------- ---- ---- ---- ----

Net asset value at beginning of period $10.24 $9.74 $10.74 $10.69 $10.20

INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.25 .55 .52 .60 .72

Net realized and unrealized gain
(loss) on investments (0.04) .50 (1.00) .49 .54
------ ------ ------ ------ ------

Total from investment operations 0.21 1.05 (.48) 1.09 1.26
------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (0.25) (.55) (.52) (.60) (.72)

Distributions from capital gains -- -- -- (.44) (.05)
------ ------ ------ ------ ------

Total distributions (0.25) (.55) (.52) (1.04) (.77)
------ ------ ------ ------ ------

Net asset value at end of period $10.20 $10.24 $ 9.74 $10.74 $10.69
====== ====== ====== ====== ======

Total return** 2.03%+ 11.07% -4.56% 10.51% 12.78%

Net assets at end of period (000's
omitted) $14,255 $13,774 $13,367 $14,706 $12,205

Ratio of expenses to average net
assets 1.06%++ .96% .90% .99% .98%

Ratio of net investment income average
net assets 4.83%++ 5.51% 5.08% 5.52% 6.89%

Portfolio turnover rate 228.20%++ 124.9% 75.46% 104.94% 37.19%

** Total return information does not reflect sales loads.
+ Not annualized.
++ Annualized.

25
<PAGE>

</TABLE>

<TABLE>
<CAPTION>
For the Period
From September 7,
For the Year Ended September 30 1988 (Initial
Public Offering)
To September 30,
1991 1990 1989 1988
---- ---- ---- -----------------

Net asset value at beginning of period $ 9.83 $9.96 $9.95 $9.93

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .75 .77 .77 .05

Net realized and unrealized gain
(loss) on investments .37 (.13) (.01) .02
------ ------ ------ ------

Total from investment operations 1.12 .64 .78 .07
------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.75) (.77) (.77) (.05)

Distributions from capital gains -- -- -- --
------ ------ ------ ------

Total distributions (.75) (.77) (.77) (.05)
------ ------ ------ ------

Net asset value at end of period $10.20 $ 9.83 $ 9.96 $ 9.95
====== ====== ====== ======

Total return** 11.80% 6.65% 8.20% .69%+

Net assets at end of period (000's
omitted) $9,458 $6,916 $6,249 $5,007

Ratio of expenses to average net
assets 1.00% 1.00% .96% 1.06%++

26
<PAGE>

For the Period
From September 7,
For the Year Ended September 30 1988 (Initial
Public Offering)
To September 30,
1991 1990 1989 1988
---- ---- ---- -----------------

Ratio of net investment income average
net assets 7.45% 7.76% 7.82% 7.46%++

Portfolio turnover rate 9.51% 24.17% 4.36% None

** Total return information does not reflect sales loads.
+ Not annualized.
++ Annualized.
</TABLE>

<TABLE>
<CAPTION>
SAFECO MANAGED BOND FUND

For the Period From
February 28, 1994
(Initial Public
For the Year Ended Offering) to
December 31, December 31,
1995 1994
----------------- ------------------

Net asset value at beginning of period $8.15 $8.68

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .44 .27

Net realized and unrealized gain
(loss) on investments .94 (.53)
------ ------

Total from investment operations 1.38 (.26)
------ ------

DISTRIBUTIONS TO SHAREHOLDERS FROM:

Net investment income (.44) (.27)

Realized gains on investments (.32) --
------ ------

27
<PAGE>

For the Period From
February 28, 1994
(Initial Public
For the Year Ended Offering) to
December 31, December 31,
1995 1994
----------------- ------------------

Total distributions (.76) (.27)
------ ------

Net asset value at end of period $ 8.77 $ 8.15
====== ======

Total return* 17.35% -3.01%+

Net assets at end of period (000's
omitted) $4,497 $4,627

Ratio of expenses to average net
assets 1.16% 1.28%++

Ratio of net investment income to
average net assets 5.14% 3.88%++

Portfolio turnover rate 78.78% 132.26%++

* Total return information does not reflect sales loads.
+ Not annualized.
++ Annualized.
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
SAFECO MONEY MARKET FUND

Year Ended March 31

1996 1995 1994 1993 1992
---- ---- ---- ---- ----

Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .05 .04 .02 .03 .05

LESS DISTRIBUTIONS:
Dividends from net investment income (.05) (.04) (.02) (.03) (.05)
------ ------ ------ ------ ------

Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====

Total return* 5.15% 4.20% 2.48% 2.98% 5.04%

Net assets at end of period (000's omitted) $165,122 $171,958 $186,312 $144,536 $184,823

Ratio of expenses to average net assets .78% .78% .79% .77% .73%

Ratio of net investment income average net
assets 5.04% 4.21% 2.47% 3.02% 5.05%

Year Ended March 31

1991 1990 1989 1988 1987
---- ---- ---- ---- ----

Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .07 .08 .08 .06 .06

LESS DISTRIBUTIONS:
Dividends from net investment income (.07) (.08) (.08) (.06) (.06)
------ ------ ------ ------ ------

Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====

29
<PAGE>

Year Ended March 31

1991 1990 1989 1988 1987
---- ---- ---- ---- ----

Total return* 7.60% 8.77% 7.86% 6.56% 5.90%

Net assets at end of period (000's omitted) $224,065 $225,974 $177,813 $119,709 $57,998

Ratio of expenses to average net assets .70% .71% .74% .79% .82%

Ratio of net investment income average net
assets 7.34% 8.45% 7.66% 6.49% 5.71%

* Total return information does not reflect a CDSC that may apply to certain shares.
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND

Year Ended March 31

1996 1995 1994 1993 1992
---- ---- ---- ---- ----

Net asset value at beginning of period $13.36 $13.27 $14.13 $13.37 $12.95

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .76 .77 .78 .81 .86

Net realized and unrealized gain
(loss) on investments .33 .12 (.55) .94 .48
------ ------ ------ ------ ------

Total from investment operations 1.09 .89 .23 1.75 1.34
------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.76) (.77) (.78) (.81) (.86)
------ ------ ------ ------ ------

Distributions from realized gains -- (.03) (.31) (.18) (.06)
------ ------ ------ ------ ------

Total distributions (.76) (.80) (1.09) (.99) (.92)
----- ------ ------ ------ ------

Net asset value at end of period $13.69 $13.36 $13.27 $14.13 $13.37
====== ====== ====== ====== ======

Total return* 8.23% 7.10% 1.30% 13.60% 10.57%

Net assets at end of period (000's
omitted) $480,643 $472,569 $507,453 $541,515 $427,638

Ratio of expenses to average net
assets .54% .56% .52% .53% .54%

Ratio of net investment income average
net assets 5.47% 5.96% 5.49% 5.91% 6.37%

Portfolio turnover rate 12.50% 29.96% 22.07% 31.66% 25.18%

* Total return information does not reflect sales loads.
+ Unaudited.

</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
SAFECO MUNICIPAL BOND FUND

Year Ended March 31

1991 1990 1989 1988 1987
---- ---- ---- ---- ----

Net asset value at beginning of period $12.73 $12.92 $12.85 $14.16 $13.74

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .86 .88 .94 .96 .99

Net realized and unrealized gain (loss) on
investments .26 .25 .36 (.91) .63
------ ------ ------ ------ ------

Total from investment operations 1.12 1.13 1.30 .05 1.62
------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.86) (.88) (.94) (.96) (.99)
------ ------ ------ ------ ------

Distributions from realized gains (.04) (.44) (.29) (.40) (.21)
------ ------ ------ ------ ------

Total distributions (.90) (1.32) (1.23) (1.36) (1.20)
------ ------ ------ ------ ------

Net asset value at end of period $12.95 $12.73 $12.92 $12.85 $14.16
====== ====== ====== ====== ======

Total return* 9.13% 9.05% 10.49% .93% 12.49%+

Net assets at end of period (000's omitted) $331,647 $286,303 $231,911 $183,642 $214,745

Ratio of expenses to average net assets .56% .57% .60% .61% .59%

Ratio of net investment income average net
assets 6.68% 6.76% 7.23% 7.42% 7.20%

Portfolio turnover rate 38.55% 65.80% 135.60% 71.91% 23.09%

* Total return information does not reflect sales loads.
+ Unaudited.

</TABLE>

32
<PAGE>

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

Year Ended March 31

1996 1995 1994 1993 1992
---- ---- ---- ---- ----

Net asset value at beginning of period $11.54 $11.51 $12.23 $11.60 $11.24

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .62 .63 .66 .68 .71

Net realized and unrealized gain (loss) on
investments .40 .13 (.38) .76 .44
------ ------ ------ ------ ------

Total from investment operations 1.02 .76 .28 1.44 1.15
------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.62) (.63) (.66) (.68) (.71)
------ ------ ------ ------ ------

Distributions from realized gains (.08) (.10) (.34) (.13) (.08)
------ ------ ------ ------ ------

Total distributions (.70) (.73) (1.00) (.81) (.99)
------ ------ ------ ------ ------

Net asset value at end of period $11.86 $11.54 $11.51 $12.23 $11.60
====== ====== ====== ====== ======

Total return* 8.87% 7.01% 1.97% 12.88% 10.43%

Net assets at end of period (000's omitted) $70,546 $64,058 $77,056 $79,872 $71,480

Ratio of expenses to average net assets .68% .70% .68% .66% .67%

Ratio of net investment income average net
assets 5.12% 5.65% 5.31% 5.71% 6.13%

Portfolio turnover rate 16.25% 44.10% 32.58% 23.18% 39.55%

* Total return information does not reflect sales loads.
+ Unaudited.
++ Distribution includes $.05 per share attributable to the December 31, 1987, capital gain distribution paid in
order to avoid any excise tax due under the Tax Reform Act of 1986.

</TABLE>

33
<PAGE>

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

Year Ended March 31

1991 1990 1989 1988 1987
---- ---- ---- ---- ----

Net asset value at beginning of period $11.07 $11.02 $10.72 $12.14 $11.68

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .71 .72 .75 .76 .80

Net realized and unrealized gain (loss) on
investments .23 .23 .30 (.99) .57
------ ------ ------ ------ ------

Total from investment operations .94 .95 1.05 (.23) 1.37
------ ------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.71) (.72) (.75) (.76) (.80)
------ ------ ------ ------ ------

Distributions from realized gains (.06) (.18) -- (.43)++ (.11)
------ ------ ------ ------ ------

Total distributions (.77) (.90) (.75) (1.19) (.91)
------ ------ ------ ------ ------

Net asset value at end of period $11.24 $11.07 $11.02 $10.72 $12.14
====== ====== ====== ====== ======

Total return* 8.78% 8.87% 10.09% -1.39% 12.25%+

Net assets at end of period (000's omitted) $57,066 $47,867 $36,930 $28,790 $34,792

Ratio of expenses to average net assets .67% .68% .71% .72% .70%

Ratio of net investment income average net
assets 6.32% 6.42% 6.86% 6.99% 6.71%

Portfolio turnover rate 22.92% 71.37% 76.95% 66.72% 44.61%

34
<PAGE>

<TABLE>
<CAPTION>
SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

For the Period From
March 18, 1993
Year Ended Year Ended (Initial Public
March 31, March 31, Year Ended Offering) to
1996 1995 March 31, 1994 March 31, 1993
--------- ---------- -------------- -------------------

Net asset value at beginning of period $10.10 $9.91 $10.27 $10.32

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .50 0.49 0.44 0.02

Net realized and unrealized gain (loss) on .27 0.19 (0.35) (0.05)
investments ------ ------ ------ ------

Total from investment operations .77 0.68 0.09 (0.03)
------ ------ ------ ------

LESS DISTRIBUTIONS:
Dividends from net investment income (.50) (0.49) (0.44) (0.02)

Distribution from realized gains (.03) -- (0.01) --
------ ------ ------ ------

Total distributions (.53) (0.49) (0.45) (0.02)
------ ------ ------ ------

Net asset value at end of period $10.34 $10.10 $ 9.91 $10.27
====== ====== ====== ======

Total return* 7.73% 7.13% .68% -31%+

Net assets at end of period (000's omitted) $6,489 $5,953 $2,908 $2,163

Ratio of expenses to average net assets 1.07% 1.09% 1.44% 1.04%++

Ratio of net investment income to average 4.78% 5.06% 4.17% 4.47%++
net assets

Portfolio turnover rate 20.86% 9.23% 17.26% None

* Total return information does not reflect sales loads.
+ Not annualized.
++ Annualized.

</TABLE>

35
<PAGE>

________________________________________________________________________

SUB-ADVISER INFORMATION FOR THE INTERNATIONAL FUND
________________________________________________________________________

The International Fund's sub-adviser, Bank of Ireland Asset Management
(U.S.) Limited ("BIAM"), has been managing separate accounts for
institutional clients in the United States for six years. BIAM's past
performance in advising these accounts was a key factor in its selection
as the Fund's sub-adviser. The performance illustrated in the table that
follows is based on the return achieved on BIAM's fully discretionary
international equity composite of accounts ("Composite") and is prepared
and presented in accordance with Association of Investment Management and
Research ("AIMR") standards. These returns reflect the time-weighted
total returns achieved by the Composite's constituent accounts, weighted
by reference to their sizes.

<TABLE>
<CAPTION>
For the Periods Ended December 31, 1995

One Year Three Years Five Years Six Years
-------- ----------- ---------- ---------

BIAM Composite 19.24% 16.25% 14.49% 11.25%

Morgan Stanley
Europe, Australia
and Far East Index
("EAFE Index") 11.56% 17.02% 9.71% 3.38%
</TABLE>

The past performance of the Composite is shown after reduction by the
International Fund's maximum investment management and estimated
administrative expenses. The EAFE Index is used for comparison purposes
only. The EAFE Index is an unmanaged index of representative
international stocks that has no management or expense charges.
Performance is based on historical earnings and is not intended to
indicate future performance.

Please keep in mind that the International Fund's performance may differ
from the Composite performance. The International Fund's expenses, timing
of purchases and sales of portfolio securities, availability of cash
flows, brokerage commissions and diversification of the portfolio are all

36
<PAGE>

reasons that might cause the performance of the International Fund to vary
from that of the Composite. In addition, the performance of the Composite
does not reflect sales charges imposed on certain purchases or redemptions
of the International Fund's Class A and Class B shares. There are a
number of ways to calculate performance, and it is possible that if a
different method were used the result would have varied. Finally, the
past performance of the Composite is no guarantee of the future results of
the International Fund.

__________________________________________________________________________

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. 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 at the end of the sixth
year after 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 B Shares of another
Fund. See "Purchasing Advisor 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

37
<PAGE>

(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 1% a year and is completely eliminated with respect to
such shares redeemed more than six years after their purchase. Class B
shares automatically convert to Class A shares (which are subject to lower
continuing charges) six years after the date of issuance.

For more information about each Fund's shares, see "How to Purchase
Shares" beginning on page 65.

__________________________________________________________________________

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 by the applicable
Trust's Board of Trustees without a shareholder vote.

38
<PAGE>

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.

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK,
EITHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE
OPTION OF THE ISSUER). The Fund will purchase convertible
securities if such securities offer a higher yield than an
issuer's common stock and provide reasonable potential for
capital appreciation.

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

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

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

39
<PAGE>

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 TOTAL
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 total assets will be invested in such securities.
The Equity Fund will not purchase a below investment grade bond
rated below Ca by Moody's Investor Service, Inc. ("Moody's") or
CC by Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies ("S&P") or which is in default on the
payment of principal and interest. Bonds rated Ca or CC are
highly speculative and have large uncertainties or major risk
exposures. See "Risk Factors" on page for more information.

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

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 Income Fund invests primarily in common and preferred stock
and in convertible bonds selected for dividend potential. 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
NON-CONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK
EITHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE
OPTION OF THE ISSUER).

The Fund will purchase convertible securities if such securities
offer a higher yield than an issuer's common stock and provide
reasonable potential for capital appreciation. The Income Fund
may invest in convertible corporate bonds that are rated below
investment grade (commonly referred to as "high-yield" or "junk"
bonds) or in comparable, unrated bonds, but less than 35% of the
Income Fund's total assets will be invested in such securities.
Bonds rated Ca by Moody's or CC by S&P are highly speculative and
have large uncertainties or major risk exposures. See "Risk
Factors" on page for more information.

40
<PAGE>

2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS WHICH
ARE ISSUED BY U.S. ISSUERS. Eurodollar bonds are traded in the
European bond market and are denominated in U.S. dollars. The
Fund will purchase Eurodollar bonds through U.S. securities
dealers and hold such bonds in the United States The delivery of
Eurodollar bonds to the Fund's custodian in the United States may
cause slight delays in settlement which are not anticipated to
affect the Fund in any material, adverse manner.

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

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.

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 description of ratings, see the
"Ratings Supplement" attached to this prospectus.

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

41
<PAGE>

Balanced Fund

The Balanced Fund has as its investment objective to seek growth and
income consistent with the preservation of capital. To pursue its
objective, the Balanced Fund will invest primarily in equity and fixed
income securities and will occasionally alter the mix of its equity and
fixed income securities. Such action will be taken in response to
economic conditions and generally in small increments. The Balanced Fund
will not make significant changes in its asset mix in an attempt to "time
the market."

To pursue its investment objective, the Balanced Fund:

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

The Fund will purchase those convertible securities which, in
SAM's opinion, have underlying common stock with potential for
long-term growth. The Fund will purchase convertible securities
which are investment grade, i.e., rated in the top four
categories by either S&P or Moody's. For a description of
ratings, see the "Ratings Supplement" attached to this
prospectus.

2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME
SENIOR SECURITIES. Fixed-income senior 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. 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.

The Fund will purchase only those U.S. Government and investment
grade debt obligations or non-rated debt obligations which in
SAM's view contain the credit characteristics of investment grade
debt obligations. Investment grade obligations (rated between
Aaa - Baa by Moody's and AAA-BBB by S&P) are from high to medium
quality. Medium obligations possess speculative characteristics
and may be more sensitive to economic changes and changes to the
financial condition of issuers.

42
<PAGE>

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

International Fund

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

To pursue its investment objective, the International Fund:

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

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

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

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

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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 the purchase and sale of options, futures
and forward contracts.

See "Risk Factors" for more information about the risks inherent in
securities issued by foreign issuers. For a brief description of common
stocks, preferred stocks, convertible securities, and bonds and other debt
securities, see "Description of Stocks, Bonds and Convertible Securities"
on page 93.

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.

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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 stocks
selected by SAM primarily for appreciation and/or dividend
potential and from a long-range investment standpoint. In
determining those common and preferred stocks which have the
potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power.
Investments in small or newly formed companies involve greater
risks than investments in larger, more established issuers and
their securities can be subject to more abrupt and erratic
movements in price. See "Risk Factors" for more information
about the risks inherent in securities issued by small companies.

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

For a brief description of common stocks, preferred stocks, convertible
securities, and bonds and other debt securities, see "Description of
Stocks, Bonds and Convertible Securities" on page 93.

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

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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 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. SAM will waive its advisory fees for any Growth,
Income, Northwest, Balanced, International or Small Company Fund
assets invested in money market funds. With respect to
repurchase agreements, each Stock Fund will invest no more than
5% of its total assets in repurchase agreements and will not
purchase repurchase agreements that mature in more than seven
days. Counterparties of foreign repurchase agreements may be
less creditworthy than U.S. counterparties.

4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY"
BASIS OR PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT"
BASIS. Under this procedure, a Stock Fund agrees to acquire

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<PAGE>

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" on page 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

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(net income plus depreciation) generated and paid out. In
addition, REITs typically borrow to increase funds available for
investment. Generally, there is a greater risk associated with
REITs that are highly leveraged.

8. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN RESTRICTED
SECURITIES, PROVIDED THAT SAM HAS DETERMINED THAT SUCH SECURITIES
ARE LIQUID UNDER GUIDELINES ADOPTED BY THE COMMON STOCK TRUST'S
BOARD OF TRUSTEES. Restricted securities may be sold only in
offerings registered under the Securities Act of 1933, as amended
("1933 Act"), or in transactions exempt from the registration
requirements under the 1933 Act. Rule 144A under the 1933 Act
provides an exemption for the resale of certain restricted
securities to qualified institutional buyers. Investing in
restricted securities may increase the Stock Funds' illiquidity
to the extent that qualified institutional buyers or other buyers
are 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.

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, WITH RESPECT TO 100% OF
THE VALUE OF THEIR TOTAL ASSETS, MAY NOT PURCHASE MORE THAN 10%
OF ANY CLASS OF SECURITIES OF ANY ONE ISSUER.

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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 IN THE CASE OF THE GROWTH, INCOME, NORTHWEST,
BALANCED, INTERNATIONAL AND SMALL COMPANY FUNDS).

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
and Small Company 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" and "Additional
Investment Information" sections of the Common Stock Trust's 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 weighted maturity
of between three and ten years. Although the average weighted maturity of
the portfolio will fall within a range of three to ten years, 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. These securities 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

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<PAGE>

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 "Ratings Supplement" beginning on
page .

3. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN YANKEE SECTOR DEBT
SECURITIES, EURODOLLAR BONDS AND MUNICIPAL SECURITIES. See
Taxable Bond Trust's Statement of Additional Information for more
information about these securities.

4. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY COMMERCIAL
PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END MONEY
MARKET FUNDS AND HIGH-QUALITY SHORT-TERM SECURITIES ISSUED BY AN
AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT. A Fund may
purchase these short-term securities as a cash management
technique under those circumstances where it has cash to manage
for a short time period, for example, after receiving proceeds
from the sale of securities, interest payments 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. SAM will waive
its advisory fees for Fund assets invested in money market funds.

5. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION
TO BE DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PRACTICES.
The Intermediate Treasury Fund, however, will not engage
primarily in trading for the purpose of short-term profits. The
Intermediate Treasury Fund may dispose of its portfolio

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<PAGE>

securities whenever SAM deems advisable, without regard to the
length of time the securities have been held.

6. MAY PURCHASE OR SELL SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-
DELIVERY" BASIS. Under this procedure, the Intermediate Treasury
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 the
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 the Fund's share price in a manner similar
to leveraging.

The following restrictions are fundamental policies of the Intermediate
Treasury 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 U.S. GOVERNMENT SECURITIES).

2. THE FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS,
MAY NOT PURCHASE MORE THAN 10% OF ANY CLASS OF SECURITIES OF ANY
ONE ISSUER.

3. 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).

4. THE 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. The Fund will not borrow
amounts in excess of 20% of its total assets. 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
redemption under circumstances where redemption requests exceed
available cash.

5. THE 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

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<PAGE>

trading market, the 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.

6. THE 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 Intermediate Treasury
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" and "Additional
Investment Information" sections of the Taxable Bond Trust's 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 maturities of 10
years or less from the date of purchase. 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 FIXED-INCOME
SECURITIES.

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2. WILL INVEST PRIMARILY IN INVESTMENT GRADE DEBT SECURITIES; I.E.,
SECURITIES RATED IN THE TOP FOUR CATEGORIES BY EITHER S&P OR
MOODY'S OR IF NOT RATED, SECURITIES WHICH, IN SAM'S OPINION, ARE
COMPARABLE IN QUALITY TO INVESTMENT GRADE DEBT SECURITIES.
Included in investment grade 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, but no more than 5%
of its total assets will be invested in such securities. 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.
For a description of ratings for debt securities, see "Ratings
Supplement" on page .

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 and bonds; (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. The
Managed Bond Fund will purchase Eurodollar bonds through U.S.
securities dealers and hold such bonds in the United States The
delivery of Eurodollar bonds to the Managed Bond Fund's custodian

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<PAGE>

in the United States may cause slight delays in settlement which
are not anticipated to affect the Managed Bond Fund in any
material, adverse manner. Eurodollar bonds issued by foreign
issuers 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
CONSUMER LOANS, AUTOMOBILE RECEIVABLE SECURITIES, CREDIT CARD
RECEIVABLE SECURITIES, AND INSTALLMENT LOAN CONTRACTS. These
securities may be supported by credit enhancements such as
letters of credit. Payment of interest and principal ultimately
depends upon borrowers paying the underlying loans. There is a
risk that one or more of the underlying borrowers may default and
that recovery on repossessed collateral may be unavailable or
inadequate to support payments on the defaulted asset-backed
securities. In addition, asset-backed securities are subject to
prepayment risks which may reduce the overall return of the
investment.

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

Both S&P and Moody's rate Yankee sector debt obligations. If a
debt obligation is unrated, SAM will make every effort 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 make every effort to select investments
in foreign securities on the same basis, and with comparable
quantities and types of information, as its investments in
domestic securities, that may not always be possible.

7. MAY PURCHASE OR SELL SECURITIES ON A WHEN-ISSUED OR DELAYED-
DELIVERY BASIS. Under this procedure, the Managed Bond Fund
agrees to acquire securities that are to be issued and delivered

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<PAGE>

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 segregate 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, 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. SAM will waive
its advisory fees for Managed Bond Fund assets invested in money
market funds. 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.

THE FOLLOWING RESTRICTIONS ARE FUNDAMENTAL POLICIES OF THE MANAGED BOND
FUND WHICH CANNOT BE CHANGED WITHOUT SHAREHOLDER VOTE.

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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 U.S. GOVERNMENT SECURITIES).

2. THE FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS,
MAY NOT PURCHASE MORE THAN 10% OF ANY CLASS OF SECURITIES OF ANY
ONE ISSUER.

3. 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).

4. THE FUND MAY BORROW MONEY FOR TEMPORARY OR EMERGENCY PURPOSES
ONLY 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 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" and "Additional
Investment Information" sections of the Managed Bond Trust's Statement of
Additional Information.

INVESTMENT POLICIES OF THE TAX-EXEMPT INCOME FUNDS

The investment objective of the Municipal Bond Fund is to seek 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 seek 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 seek 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:

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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
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 35% 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 the Tax-Exempt Bond
Trust's Statement of Additional Information.

After purchase by a Fund, a municipal bond may be downgraded to
below investment grade or, if unrated, may cease to be comparable
to a rated investment grade security (such below investment grade
securities are commonly referred to as "high-yield" or "junk"
bonds). Neither event will require a Fund to dispose of that
security, but SAM will take a downgrade or loss of comparability
into account in determining whether the Fund should continue to
hold the security in its portfolio. Each Tax-Exempt Income Fund

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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 or 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

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obligations carry demand features that permit a Fund to tender
(sell) them back to the issuer at par prior to maturity and on
short notice. A Fund's ability to obtain payment from the issuer
at par may be affected by events occurring between the date the
Fund elects to tender the obligation to the issuer and the date
redemption proceeds are payable to the Fund. 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 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

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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. 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

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<PAGE>

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. SAM will waive
its advisory fees for assets invested in other investment
companies. 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.

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. SAM will waive its advisory fees for Fund assets
invested in money market funds.

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

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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 U.S. GOVERNMENT
SECURITIES).

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.

For a further description of each Fund's investment policies and
restrictions as well as an explanation of ratings, see the "Investment
Objectives and Policies" and "Description of Ratings" sections of the Tax-
Exempt Bond Trust's Statement of Additional Information.

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:

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<PAGE>

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

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 securities 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 such securities, if,
in the opinion of SAM, the security is of an investment quality
comparable to other obligations that may be purchased by the
Fund.

2. MAY INVEST IN NEGOTIABLE AND NON-NEGOTIABLE DEPOSITS, BANKERS'
ACCEPTANCES AND OTHER SHORT-TERM OBLIGATIONS OF U.S. BANKS.
Companies in the financial services industry are subject to
various risks related to that industry, such as government
regulation, changes in interest rates, and exposure on loans,
including loans to foreign borrowers. The Fund may also invest
in dollar-denominated securities issued by foreign banks
(including foreign branches of U.S. banks) provided that, in the
opinion of SAM, the security 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 securities may be subject to risks relating

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to the political and economic conditions of the foreign country
involved, which could affect the payment of principal and
interest.

3. 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 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.

4. 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 limited
extent, Yankee) obligations are subject to certain sovereign
risks. One such risk is the possibility that a foreign
government might prevent dollar-denominated funds from flowing
across its borders. Other risks include: adverse political and
economic developments in a foreign country; the extent and
quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes; and
expropriation or nationalization of foreign issuers. 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.

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

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6. MAY INVEST IN VARIABLE AND FLOATING RATE INSTRUMENTS. 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
put features. These instruments may have optional put features.
Puts may also be mandatory, in which case the Fund would be
required to act to keep the instrument.

7. 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
increasing the Fund's illiquidity to the extent that qualified
institutional buyers or other buyers are 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 increasing the Fund's illiquidity to the extent
that buyers are unwilling to purchase the securities.

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

1. MAY INVEST UP TO 5% OF ITS ASSETS IN THE SECURITIES OF ANY ONE
ISSUER OTHER THAN U.S. GOVERNMENT SECURITIES.

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.

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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" and "Additional
Investment Information" sections of the Money Market Trust's Statement of
Additional Information.

_______________________________________________________________________

RISK FACTORS
_______________________________________________________________________

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

RISK FACTORS OF THE STOCK FUNDS

The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation through investing primarily in securities issued by
smaller companies. As a result, short-term movements in the securities
market may cause the Fund's share price to be volatile.

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

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<PAGE>

the Northwest region but also on a national or international level,
depending on the companies whose securities are held in its portfolio at
any particular time.

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

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

In addition, the International Fund may purchase and sell put and call
options, futures contracts and forward contracts. Risks inherent in the
use of futures, options and forward contracts include: the risk that
interest rates, security prices and currency markets will not move in the
directions anticipated; imperfect correlation between the price of the
future, option or forward 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 Small Company Fund invests in companies with small market
capitalizations which involve more risks than investments in larger
companies. The Small Company Fund may invest to a large extent in 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

67
<PAGE>

abrupt and erratic movements in price than securities of larger, more
established companies, or equity securities in general. The Small Company
Fund will not invest more than 5% of its total assets in the securities of
issuers which together with any predecessors have a record of less than
three years continuous operation.

Risk Factors of the Intermediate Treasury, Managed Bond, Municipal Bond,
California, Washington and Money Market Funds (the "Fixed-Income Funds")

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

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 Tax-Exempt Bond Trust's Statement of
Additional Information for further information.

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

68
<PAGE>

Special Risks of the California Fund
------------------------------------

After suffering through a severe recession, California's economy has been
on a steady recovery since the start of 1994. Nevertheless, the State's
budget problems in recent years have also been caused by the increasing
costs of education, health, welfare and corrections, driven by
California's rapid population growth. These pressures on the State's
General Fund are expected to continue. The State'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 impaired. Cutbacks in
state aid adversely affect the financial condition of many cities,
counties and school districts which are already subject to fiscal
constraints and are facing their own reduced tax collections.

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. These factors, among others, could reduce the credit standing of
certain issuers of California Obligations.

Special Risks of the 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. Boeing anticipates increasing
employment in the State by approximately 4,500 jobs by the end of 1996.
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 in
recent years, declines in production are expected in the future.
Unemployment in the timber industry is anticipated in certain regions;
however the impact is not expected to 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.

69
<PAGE>

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 limit. At any given time, there are
numerous lawsuits against the state which could affect its revenues and
expenditures.

______________________________________________________________________

PORTFOLIO MANAGERS
______________________________________________________________________

Growth Fund

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

Equity Fund

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

Income Fund

The portfolio manager for the Income Fund is Thomas E. Rath, Assistant
Vice President of SAM. Mr. Rath has been a portfolio manager and
securities analyst for SAFECO Corporation since 1994. From 1992 to 1994,
Mr. Rath was a principal and portfolio manager for Meridian Capital
Management, Inc., located in Seattle, Washington. From 1987 to 1992 he
was a portfolio manager and securities analyst for First Interstate Bank,
located in Seattle, Washington, and from 1983 to 1987 he was a securities
analyst for SAFECO Corporation.

70
<PAGE>

Northwest Fund

The portfolio manager for the Northwest Fund is Charles R. Driggs, Vice
President, SAM. Mr. Driggs has served as portfolio manager for the Fund
since 1992. From 1984 through 1992, Mr. Driggs was a securities analyst
for SAM specializing in banks, savings and loan institutions and the
insurance industry.

Balanced Fund

The portfolio managers for the Balanced Fund are Rex L. Bentley, Vice
President, SAM, and Michael C. Knebel, Vice President, SAM. Mr. Bentley
was Vice President and Investment Counsel at the investment advisory firm
of Badgley, Phelps and Bell Investment Counsel, Inc., from 1990 to 1995.
He was a securities analyst for SAFECO Corporation from 1975 to 1983.
Mr. Knebel has served as portfolio manager for certain other SAFECO mutual
funds since 1989.

International Fund

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

Small Company Fund

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

Intermediate Treasury and Managed Bond Funds

The portfolio manager for the Intermediate Treasury and Managed Bond Funds
is Michael C. Knebel, Vice President, SAM. Mr. Knebel has served as
portfolio manager or co-manager for the Managed Bond Fund since 1994. He
has served as portfolio manager for the Intermediate Treasury Fund since
1995. Mr. Knebel has served as portfolio manager and/or co-portfolio
manager for other SAFECO Mutual Funds since 1989.

71
<PAGE>

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 Fund, 1983 for the California Fund and 1992 for the Washington
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. Ms. Denny
was the Marketing Director for the SAFECO Mutual Funds from 1991 to 1993,
and has been employed as an investment analyst with SAFECO Asset
Management since 1993.

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 each of the 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 adviser 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 $250). The minimum
additional investment is $100 (except dividend reinvestment plans).
Minimum initial investments are negotiable for retirement accounts other
than IRAs. No minimum initial investment is required to establish an
Automatic Investment Plan or Payroll Deduction Plan.

Shares of each Fund are available for purchase through investment
professionals who work at broker-dealers, banks and other financial
institutions which have entered into selling agreements with SAFECO

72
<PAGE>

Securities, the distributor of the Funds. Orders received by such
financial institutions before 1:00 p.m. Pacific Time on any day the New
York Stock Exchange ("NYSE") is open for regular trading will be effected
that day, provided that such order is transmitted to SAFECO Services, the
transfer agent for the Funds, prior to 2:00 p.m. Pacific Time on such day.
Investment professionals will be responsible for forwarding the investor's
order to SAFECO Services so that it will be received prior to such time.

Money Market Fund shares will be purchased for your account on the day
payments are received by wire. Payments by means other than wire will
purchase shares the next business day if received prior to 1:00 p.m.
Seattle time and on the second business day if received after 1:00 p.m.
Seattle 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. Sales persons 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 reserve the right to refuse any offer to purchase shares of any
class.

Purchasing Advisor 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" on page for additional information) plus any sales
charge, which will vary with the size of the purchase as shown in the
following schedule:

<TABLE>

73
<PAGE>

<CAPTION>
Sales Charge as
Percentage of
-----------------

Broker
Reallowance as
Amount of Purchase Percentage of
at the Public Offering Net the Offering
Offering Price Price Investment Price
------------------- -------- ---------- ------------

<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%

$50,000 but less than
$100,000 4.00% 4.17% 3.50%

$100,000 but less than
$250,000 3.50% 3.63% 3.00%

$250,000 but less than
$500,000 2.50% 2.56% 2.00%

$500,000 but less than
$1,000,000 2.00% 2.04% 1.00%

$1,000,000 or more NONE* NONE**

</TABLE>

* Purchases of $1,000,000 or more of Class A shares are not subject to a
front-end sales charge, but a 1% CDSC will apply to redemptions made in
the first year.

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

Class A shares of the Money Market Fund are offered at the next determined
net asset value per share (see "Share Price Calculation" on page 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.

74
<PAGE>

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 -- Advisor Class A shares." To the extent that SAFECO Securities
reallows 90% or more of the sales charge to a financial institution, such
financial institution may be deemed to be an underwriter under the 1933
Act.

Except as stated below, broker-dealers of record will be paid commissions
on sales of Class A shares of $1 million or more based on an investor's
cumulative purchases during the one-year period beginning with the date of
the initial purchase at net asset value. Each subsequent one-year
measuring period for these purposes begins with the first net asset value
purchase following the end of the prior period. Such commissions are paid
at the rate of up to .50% except for sales to participant-directed
qualified plans (including a plan sponsored by an employer with 200 or
more eligible employees). Commissions for such plans will be paid at a
rate of up to 1.00%.

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).

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<PAGE>

Sales Charge Waivers -- Class A Shares
--------------------------------------

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

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

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

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

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

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

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;

76
<PAGE>

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

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; and

11. Investments made with the redemption proceeds from Class A
shares of any SAFECO Advisor Series Trust Fund for a 30 day
period commencing September 30, 1996.

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.

77
<PAGE>

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

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

Purchasing Advisor 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
years after their purchase. Former Class B shareholders of the SAFECO
Advisor Series Trust who have converted to 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

78
<PAGE>

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 or the Original
Redemption During 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 at the end of year six.

79
<PAGE>

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

For example, assume an investor purchased 100 shares at $10 per share at a
cost of $1,000. Subsequently, the shareholder acquired 15 additional
shares through dividend reinvestment. During the second year after the
purchase, the investor decided to redeem $500 of his or her investment.
Assuming at the time of the redemption a net asset value of $11 per share,
the value of the investor's shares would be $1,265 (115 shares at $11 per
share). The CDSC would not be applied to the value of the reinvested
dividend shares. Therefore, the 15 shares currently valued at $165.00
would be sold 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 initially
invested in Money Market Fund Class B shares, if a shareholder effects one
or more exchanges among Advisor 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-

80
<PAGE>

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; and (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 (other than tax-free rollovers or
transfers of asset).

Conversion of Advisor Class B Shares
------------------------------------

A shareholder's Class B shares of a Fund will automatically convert to
Class A shares in the same Fund six years after the date of 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 of the month in which the sixth anniversary of the issuance
of Class B shares occurs. 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 contingent deferred
sales charge) and redemption proceeds will be sent to shareholders within
seven days of the receipt of a redemption request. Shareholders who have
purchased shares through broker-dealers, banks or other financial
institutions that sell shares may redeem shares through such firms; if the
shares are held in the "street name" of the broker-dealer, bank or other
financial institution, the redemption must be made through such firm.

Please note the following:

. If your shares were purchased by wire, redemption
proceeds will be available immediately. If shares were
purchased other than by wire, each Fund reserves the
right to hold the proceeds of your redemption for up to
15 business days after investment or until such time as
the Fund has received assurance that your investment will

81
<PAGE>

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 contingent deferred
sales charge) 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) or by mail.

Share Redemption Price and Processing
-------------------------------------

Your shares will be redeemed at the net asset value per share (subject to
any applicable contingent deferred sales charge) 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" on page for more information.

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<PAGE>

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.

________________________________________________________________________

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 (minimum of $100 per withdrawal per
Fund) from your bank account and invest the amount in any Fund.

Payroll Deduction Plan
----------------------

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

Systematic Withdrawal Plan
--------------------------

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

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appropriate cases where the contingent deferred sales charge is being
waived. Please see "Contingent Deferred Sales Charge Waivers" on page
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 shares of any other Fund, based on their next-determined
respective net asset values, without imposition of any sales charges
(except in the case of a subsequent exchange of Class A shares of the
Money Market Fund), 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 PAGE 96. CLASS B SHARES MAY BE
EXCHANGED ONLY FOR CLASS B SHARES OF THE OTHER FUNDS LISTED ON PAGE 96.
The exchange of Class B shares will not be subject to a contingent
deferred sales charge. For purposes of computing the contingent deferred
sales charge, 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" on page for more information. You may purchase shares of
a Fund by exchange only if it is registered for sale in the state where
you reside. Before exchanging into an Advisor class of another Fund,
please be familiar with the Fund's investment objective and policies as
described in "Each Fund's Investment Objective and Policies" beginning on
page of this Prospectus.

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 cover 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 cover of
this Prospectus. Exchange orders will be accepted by telephone provided
that the exchange involves only uncertificated shares or certificated

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shares for which certificates previously have been deposited in the
shareholder's account. See "Telephone Transactions" for more information.

Exchange Limitations
--------------------

The exchange privilege is not intended to provide a means for frequent
trading in response to short-term fluctuations in the market. Excessive
exchange transactions can be disadvantageous to other shareholders and the
Funds. Exchanges out of a Fund are therefore limited to four per calendar
year. In addition, each Fund reserves the right to refuse exchange
purchases by any person or group if, in SAM's judgment, the Fund would be
unable to invest the money effectively in accordance with that Fund's
investment objective and policies or would otherwise potentially be
adversely affected. Although a Fund will attempt to give you prior notice
whenever it is reasonably able to do so, it may impose the restrictions
described in this paragraph at any time.

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 offer may be modified or
terminated with respect to a Fund at anytime, upon at least 60 days'
notice to shareholders.

___________________________________________________________________

TELEPHONE TRANSACTIONS
___________________________________________________________________

To redeem or exchange shares by telephone, call 1-800-463-8791 between
6:00 a.m. and 5:00 p.m. Pacific time, Monday through Friday, except
certain holidays. All telephone calls are tape-recorded for your
protection. During times of drastic or unusual market volatility, it may
be difficult for you to exercise the telephone transaction privilege.

To use the telephone redemption and exchange privileges, you must have
previously selected these services either on your account application or
by having submitted a request in writing to SAFECO Services at the address
on the Prospectus cover. Redeeming or exchanging shares by telephone

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allows the Funds and SAFECO Services to accept telephone instructions from
an account owner or a person preauthorized in writing by an account owner.

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

The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable
procedures to identify the caller. The shareholder will bear the risk of
any resulting loss. The Funds and SAFECO Services will follow certain
procedures designed to make sure that telephone instructions are genuine.
These procedures may include requiring the account owner to select the
telephone privilege in writing prior to first use and to designate persons
authorized to deliver telephone instructions. SAFECO Services tape-
records telephone transactions and may request certain identifying
information from the caller.

The telephone transaction privilege may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO
Services.

_________________________________________________________________________

SHARE PRICE CALCULATION
_________________________________________________________________________

The net asset value per share ("NAV") of each class 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.

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

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are valued according to the broadest and most representative market.
Securities not traded on a national exchange are valued based on
consideration of information with respect to transactions in similar
securities, quotations from dealers and various relationships between
securities. Other assets for which market quotations are unavailable are
valued at their fair value pursuant to guidelines approved by the Trust's
Board of Trustees. 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.

The values of certain of the Stock Funds' portfolio securities are stated
on the basis of valuations provided by a pricing service approved by the
Common Stock Trust's Board of Trustees, unless the Board determines such
does not represent fair value. The service uses information with respect
to transactions in securities, quotations from securities dealers, market
transactions in comparable securities and various relationships between
securities to determine values.

International Fund
------------------

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

Trading in foreign securities, as well as corporate bonds, U.S. Government
securities and money market instruments, 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 International Fund's net asset value. Foreign currency
exchange rates are also generally determined prior to the close of the
NYSE. If quotations are not readily available, or if values have been
materially affected by events occurring after the close of a foreign
market, the security will be valued at fair value as determined in good
faith by SAM or BIAM under procedures established by and under general
supervision of the Common Stock Trust's Board of Trustees.

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

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<PAGE>

to transactions in similar securities, quotations from dealers and various
relationships between securities. The value of each Fixed-Income Fund's
securities are stated on the basis of valuations provided by a pricing
service approved by its respective Trust's Board of Trustees, unless the
Board of Trustees determines that such valuations do not represent fair
value. The service uses information with respect to transactions in
securities, quotations from security dealers, market transactions in
comparable securities, and various relationships between securities to
determine values. Other assets (including securities for which market
quotations are unavailable and restricted securities) are valued at their
fair value as determined in good faith by each Fixed-Income Fund's
respective Trust's Boards 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 Advisor Classes of a Fund's
shares also may differ slightly due to differing allocations of class-
specific expenses. The NAVs of the Advisor Classes of each Fund's shares
will tend to converge, however, immediately after the payment of
dividends.

Call 1-800-463-8791 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.

Each Trust 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.

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<PAGE>

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, 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, a
Fund, or a Trust if a matter affects only that class of shares, Fund, or
Trust, respectively.

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

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

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:

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<PAGE>

Growth, Equity and Income Funds

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

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%

Balanced Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%

International Fund

Net Assets Annual Fee

$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%

Small Company Fund

Net Assets Annual Fee

$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%

Intermediate Treasury Fund

Net Assets Annual Fee

$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

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<PAGE>

Managed Bond Fund

Net Assets Annual Fee

$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%

Money Market Fund

Net Assets Annual Fee

$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%

Municipal and California Funds

Net Assets Annual Fee

$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%

Washington Fund

Net Assets Annual Fee

$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%

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

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<PAGE>

With respect to the International Fund, SAM has a sub-advisory agreement
with the Sub-Adviser. The Sub-Adviser is a direct, wholly owned
subsidiary of the Bank of Ireland Asset Management Limited and is an
indirect, wholly owned subsidiary of Bank of Ireland. The Sub-Adviser has
its headquarters at 26 Fitzwilliam Place, Dublin, Ireland, and its U.S.
office at 2 Greenwich Plaza, Greenwich, Connecticut. The Sub-Adviser was
established in 1987 and manages over $3 billion in assets. Because the
Sub-Adviser is doing business from a location within the United States,
investors will be able to effect service of legal process within the
United States upon the Sub-Adviser, facilitating the enforcement of
judgments against the Sub-Adviser under federal securities laws in United
States courts. However, the Sub-Adviser is a foreign organization and
maintains a substantial portion of its assets outside the United States.
Therefore, the ability of 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:

Net Assets Annual Fee

$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%

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 Street, Dublin, Ireland. The Bank of Ireland is a holding
company whose primary subsidiaries are engaged in banking, insurance,
securities and related financial services, and is located at Lower Baggot
Street, Dublin, Ireland.

The distributor of the Advisor Classes of each Fund's shares 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 (and other distribution) disbursement and
shareholder servicing agent for the Advisor Classes 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

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<PAGE>

SAFECO Services. Any distribution expenses associated with these
arrangements will be borne by SAM.

SAM, SAFECO Securities and SAFECO Services are wholly owned subsidiaries
of SAFECO Corporation (a holding company whose primary subsidiaries are
engaged in the insurance and related financial services businesses) and
are each located at SAFECO Plaza, Seattle, Washington 98185.

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.

The International, Balanced and Small Company Funds expect that their
respective portfolio turnover ratios will not exceed 100% during the
current fiscal year.

______________________________________________________________________

DISTRIBUTION PLANS
______________________________________________________________________

Each Trust, on behalf of the Advisor Classes 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 Advisor Classes of each Fund (the
"Plans"). Pursuant to the Plans, each Advisor class pays SAFECO Securities
a quarterly service fee, at the annual rate of 0.25% of the aggregate
average daily net assets of the Advisor 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 Advisor
Classes 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 Advisor Classes 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.

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<PAGE>

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

SAFECO Securities will receive the proceeds of the initial sales charges
paid upon the purchase of Class A shares and the CDSCs paid upon
applicable redemptions of Class B shares and may use these proceeds for
any of the distribution expenses described above. The amount of sales
charges reallowed to broker-dealers, banks or other financial institutions
who sell Class A shares will equal the percentage of the amount invested
in accordance with the schedule set forth in "Purchasing Advisor Class A
Shares" on page . 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 Advisor Classes 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's 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's expenses
are less than such fees, it will retain its full fees and realize a
profit. Each Fund 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 June 30, 1996, SAM, a wholly owned subsidiary of SAFECO Corporation,
controlled the International and Balanced Funds. At June 30, 1996, SAFECO
Corporation controlled the Small Company Fund. SAFECO Corporation and SAM
have their principal place of business at SAFECO Plaza, Seattle,
Washington 98185.

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<PAGE>

At June 30, 1996, 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, which has its principal place of business at SAFECO
Plaza, Seattle, Washington 98185.

At June 30, 1996, Crown Packaging Corp. PS & P and Massman Construction
Co. PSRT controlled the Managed Bond Fund. Crown Packaging Corp. PS & P's
address of record is 8514 Eager Road, St. Louis, Mo. 63144. Massman
Construction Co. PSRT's address of record is 8901 Stateline, Kansas City,
Mo. 64114.

______________________________________________________________________

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's
net income per share over a 30-day period divided by the class's 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.

For the Money Market Fund, yield is the annualization on a 365-day basis
of the Fund's net income over a 7-day period. Effective yield is the
annualization, on a 365-day basis, of the Money Market Fund's net income
over a 7-day period with dividends reinvested. The effective yield will
be slightly higher than the yield because of the compounding effect of
this assumed reinvestment.

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-

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<PAGE>

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 performances 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 what 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 Growth, Equity, Income,
Northwest and Balanced Funds declare and pay dividends on the last
business day of each calendar quarter; and the International and Small
Company Funds declare and pay dividends annually. Those dividends are
declared and paid 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 in
your account. Each Fund also distributes annually substantially all of
its net short-term capital gain, net capital gain (the excess of net long-
term capital gain over net short-term capital loss) and net gains from
foreign currency transactions, if any. Each Fund may make additional
distributions, if necessary, to avoid a 4% excise tax on certain
undistributed income and capital gain.

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 from a Fund are reinvested in
additional shares of the distributing class at their NAV (without any
sales charge) generally determined as of the close of business on the ex-
distribution date, unless you elect in writing to receive dividends or
other distributions in cash and that election is provided to SAFECO
Services at the address on the Prospectus cover. The election will remain
in effect until you revoke it by written notice in the same manner as the

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<PAGE>

election. For retirement accounts, all dividends and other distributions
declared by a Fund must be invested in additional shares of that Fund.

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

Taxes

Each Fund intends to continue to quality for treatment as a regulated
investment company under Subchapter M of the Code. By so qualifying, a
Fund will not be subject to federal income tax to the extent it
distributes to its shareholders its investment company taxable income
(generally consisting of taxable net investment income, net short-term
capital gains and any net gains from certain foreign currency
transactions) and net capital gain.

Dividends from each Fund's investment company taxable income (whether paid
in cash or additional shares) are generally taxable to you as ordinary
income. Distributions of each Fund's net capital gain (whether paid in
cash or additional shares) are taxable to you as a long-term capital gain,
regardless of how long you have held your Fund shares. Shareholders who
are not subject to tax on their income generally will not be required to
pay tax on distributions. Each Fund will inform you after the end of each
calendar year as to the amount and nature of dividends and other
distributions to your account. Dividends and other distributions declared
in December, but received by you in January, generally are taxable to you
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" on page and "How
to Exchange Shares from One Fund to Another" on page 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

97
<PAGE>

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 Intermediate Treasury Fund
---------------------------------------------------------

States generally treat Fund dividends attributable to interest earned on
U.S. Treasury securities and other direct obligations of the U.S.
Government as tax-free income for state income tax purposes. This
treatment may depend on the maintenance of certain minimum percentages of
Fund ownership of these securities. The Intermediate Treasury Fund will
invest primarily in these securities.

Special Considerations for the Tax-Exempt Income Funds
------------------------------------------------------

Distributions by a Tax-Exempt Income Fund that are designated by it as
"exempt-interest dividends" generally may be excluded by you from your
gross income if the Fund satisfies the requirement that, at the close of
each quarter of its taxable year, at least 50% of the value of its total
assets consists of securities the interest on which is excludable from
gross income under section 103(a) of the Code; each Tax-Exempt Income Fund
intends to continue to satisfy this requirement. The aggregate dividends
excludable from a Tax-Exempt Income Fund's shareholders' gross income may
not exceed that Fund's net tax-exempt income. Your treatment of dividends
from a Tax-Exempt Income Fund for state and local income tax purposes may
differ from the treatment thereof under the Code. Shareholders of each
Tax-Exempt Income Fund should keep in mind that they may be subject to
those taxes.

Interest on indebtedness incurred or continued to purchase or carry shares
of a Tax-Exempt Income Fund will not be deductible for federal income tax
purposes to the extent that Fund's distributions consist of exempt-
interest dividends.

Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income
(including income from tax-exempt sources such as a Tax-Exempt Income
Fund) plus 50% of their benefits exceeds certain base amounts. Exempt-
interest dividends from a Tax-Exempt Income Fund still are tax-exempt to
the extent described above; they are only included in the calculation of
whether a recipient's income exceeds the established amounts.

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<PAGE>

Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by PAB or IDBs should consult
their tax advisers before purchasing shares of a Tax-Exempt Income Fund
because, for users of certain of these facilities, the interest on those
bonds is not exempt from federal income tax. For these purposes, the term
"substantial user" is defined generally to include a "non-exempt person"
who regularly uses in trade or business a part of a facility financed from
the proceeds of PABs or IDBs.

If you buy shares of a Tax-Exempt Income Fund and sell them at a loss
within six months, the loss will be disallowed to the extent of the
exempt-interest dividends you received on those shares, and any loss that
is not disallowed will be treated as a long-term capital loss to the
extent of any distributions of net capital gain on those shares.

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 you will be subject to federal income tax. Moreover,
if a Tax-Exempt Income Fund realizes capital gain as a result of market
transactions, any distribution of that gain will be taxable to its
shareholders.

Tax-exempt interest attributable to certain PABs (including, in the case
of a Fund receiving interest on those bonds, a proportionate part of the
exempt-interest dividends paid by that Fund) is an item of tax preference
for purposes of the alternative minimum tax. Exempt-interest dividends
received by a corporate shareholder also may be indirectly subject to that
tax without regard to whether a Tax-Exempt Income Fund's tax-exempt inter-
est is attributable to those bonds. As a matter of non-fundamental
investment policy, the Tax-Exempt Income Funds will not purchase such
PABs.

Proposals may be introduced before Congress for the purpose of restricting
or eliminating the federal income tax exemption for interest on municipal
securities. If such a proposal were enacted, the availability of
municipal securities for investment by the Tax-Exempt Income Funds and the
value of their portfolios would be affected. In such event, each Tax-
Exempt Income Fund would reevaluate its investment objective and policies.

Special Considerations for the California Fund
----------------------------------------------

The California Fund intends to pay dividends that are exempt from
California state personal income taxes. This would not include taxable
interest earned on temporary investments, if any.

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<PAGE>

Generally, the tax treatment of capital gain under California law is the
same as under federal law. Capital gain 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 shares of the California Fund may result in a capital gain or
loss for California income tax purposes.

Under California law, the dividend income from municipal bonds is tax-
exempt to individual shareholders, but its tax treatment for corporate
shareholders is unclear. Therefore, the portion of the California Fund's
income dividends attributable to these obligations and paid by it to
corporate shareholders may be taxable. Corporate shareholders may wish to
consult their tax advisers regarding this issue.

Shares of the California Fund will not be subject to the California
property tax.

Special Consideration for the Washington Fund
---------------------------------------------

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

Tax Withholding Information

Each Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain
other non-corporate shareholders who do not provide the Fund with a
correct taxpayer identification number. Withholding at that rate also is
required from dividends and capital gain distributions payable to
shareholders who otherwise are subject to backup withholding.

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. In general, if you are entitled to receive an "eligible
rollover distribution" from a qualified employer-sponsored retirement

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<PAGE>

plan, you may establish an IRA and have the distributed amount, other than
employee after-tax contributions, rolled over directly into the IRA. If
an eligible rollover distribution is not directly rolled over to an IRA
(or certain qualified plan), withholding at the rate of 20% will be
required for federal income tax purposes. A distribution from a qualified
plan that is not an "eligible rollover distribution," including a
distribution that is one of a series of substantially equal periodic
payments, generally is subject to regular wage withholding or withholding
at the rate of 10% (depending on the type and amount of the distribution).
However, you may elect not to have withholding apply to any of the latter
(i.e., not "eligible rollover") distributions by checking the appropriate
box on the Redemption Request form or by instructing SAFECO Services in
writing at the address on the Prospectus cover. Please consult your plan
administrator or tax adviser for further information.

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

______________________________________________________________________

TAX-DEFERRED RETIREMENT PLANS
______________________________________________________________________

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

INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). IRAs are tax-deferred retirement
accounts for anyone under age 70-1/2 with earned income. The maximum
annual contribution generally is $2,000 per person ($2,250 for you and a
non-working spouse). Under certain circumstances your contribution will
be deductible for income tax purposes. An annual custodial fee will be
charged for any part of a calendar year in which you have an IRA
investment in a Fund.

SIMPLIFIED EMPLOYEE PENSION IRAS (SEP-IRAS). SEP-IRAs are easily
administered retirement plans for small businesses and self-employed
individuals. Annual contributions up to $22,500 may be made to SEP-IRA
accounts; the annual contribution limit is subject to change. SEP-IRAs
have the same investment minimums and custodial fees as regular IRAs.

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

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<PAGE>

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,
recordkeeping, testing and employee communications. Minimum investment
amounts are negotiable.

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

For information about the above accounts and plans, please 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" on page .

______________________________________________________________________

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 Prospectus cover.)
Certain changes to the Automatic Investment Method and Systematic
Withdrawal Plan can be made by telephone request if you have previously
selected single signature authorization for your account.

102
<PAGE>

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

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

______________________________________________________________________

DESCRIPTION OF STOCKS, BONDS AND CONVERTIBLE SECURITIES
______________________________________________________________________

COMMON STOCKS represent equity interest in a corporation. Although common
stocks have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and overall market and
economic conditions. Smaller companies are especially sensitive to these
factors.

PREFERRED STOCKS are equity securities whose owners have a claim on a
company's earnings and assets before holders of common stock, but after
debt holders. The risk characteristics of preferred stocks are similar to
those of common stocks, except that preferred stocks are generally subject
to less risk than common stocks.

BONDS AND OTHER DEBT SECURITIES are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at 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.

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<PAGE>

CONVERTIBLE SECURITIES are debt or preferred stock which are convertible
into or exchangeable for common stock. The value of convertible corporate
bonds will normally vary inversely with interest rates and the value of
convertible corporate bonds and convertible preferred stock will normally
vary with the value of the underlying common stock.

______________________________________________________________________

RATINGS SUPPLEMENT
______________________________________________________________________

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

Description of Commercial Paper Ratings

MOODY'S. Issuers rated Prime-1 have a superior capacity, issuers rated
Prime-2 have a strong capacity and issuers rated Prime-3 have an
acceptable capacity for the repayment of short-term promissory
obligations.

S&P. Commercial Paper issues rated A are the highest quality obligations.
Issues in this category are regarded as having the greatest capacity for
timely payment. For issues designated A-1 the degree of safety regarding
timely payment is very strong. Issuers designated A-2 also have a strong
capacity for timely payment but not as high as A-1 issuers. Issuers
designated A-3 have a satisfactory capacity for timely payment.

Description of Debt Ratings

Excerpts from Moody's description of its ratings:
------------------------------------------------
Investment Grade:
----------------
Aaa -- Judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." 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 anticipated are most unlikely to impair the
fundamentally strong position of such issues.

Aa -- Judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high grade bonds.

104
<PAGE>

They are rated lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa securities.

A -- Have 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 -- 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 -- 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.

B -- Generally lack characteristics of a desirable investment. Assurance
of interest and principal payments over any long period of time may be
uncertain.

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 -- Represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.

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

Excerpts from S&P's description of its ratings:
----------------------------------------------
Investment Grade:
----------------
AAA -- The highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.

AA -- Very strong capacity to pay interest and repay principal and differs
from the highest rated issues only in small degree.

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.

105
<PAGE>

BBB -- Have 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.

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

Below Investment Grade:
-----------------------
BB, B, CCC, CC -- Predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.

C -- Reserved for income bonds on which no interest is being paid.

D -- In default, and payment of interest and/or repayment of principal is
in arrears.

The weighted average ratings of all debt securities held by the Income
Fund, expressed as a percentage of total investments held during the
fiscal year ended September 30, 1995, were as follows:

106
<PAGE>

<TABLE>
<CAPTION>
Moody's % S&P %
------- - --- --

Investment Grade

Aaa - AAA -

Aa - AA -

A 3.0 A 1.0

Baa 2.6 BBB 4.6

Below Investment Grade

Ba 4.0 BB 4.7

B 4.9 B 3.0

Caa - CCC .6

Ca - CC -

Not Rated, but Not Rated, but
determined to determined to
be investment be investment
grade - grade -

Not Rated, but Not Rated, but
determined to determined to
be below be below
investment grade 3.7 investment grade 4.3

</TABLE>

The Equity Fund did not hold any convertible debt securities during the
fiscal year ended September 30, 1995.

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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 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 Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund

FOR MORE COMPLETE INFORMATION ON ADVISOR CLASS SHARES OF ANY SAFECO MUTUAL
FUND, INCLUDING MANAGEMENT FEES AND EXPENSES, PLEASE CONTACT YOUR
INVESTMENT PROFESSIONAL.

108
<PAGE>

TELEPHONE NUMBERS: PROSPECTUS

<S> <C>

Dealer Services September 30, 1996
Nationwide: (800) 528-6501
Seattle: (206) 545-6409 SAFECO Growth Fund

Literature Order: SAFECO Equity Fund
Nationwide: (800) 463-8792
Seattle: (206) 545-6227 SAFECO Income Fund

Shareholder Services/Telephone Exchange: SAFECO Northwest Fund
MONDAY THROUGH FRIDAY,
6:00 A.M. TO 5:00 P.M. PACIFIC TIME SAFECO Balanced Fund
Nationwide: (800) 463-8791
Seattle: (206) 545-6283 SAFECO International Stock Fund

24-Hour Price and Yield Information SAFECO Small Company Stock Fund
Nationwide: (800) 463-8794
Seattle: (206) 545-6295 SAFECO Intermediate-Term
U.S. Treasury Fund

MAILING ADDRESS: SAFECO Managed Bond Fund

SAFECO MUTUAL FUNDS SAFECO Money Market Fund
Advisor Class Shares
P.O. Box 34890 SAFECO Municipal Bond Fund
Seattle, WA 98124-1890
SAFECO California Tax-Free Income Fund
EXPRESS/OVERNIGHT MAIL:
SAFECO Mutual Funds - A SAFECO Washington State Municipal
Advisor Class Shares Bond Fund
4333 Brooklyn Avenue N.E.
Seattle, WA 98105 Advisor Class A
Advisor Class B
Distributor:
SAFECO Securities, Inc.
P.O. Box 34890
Seattle, WA 98124-1890

</TABLE>

109
<PAGE>

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 30, 1996

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer, solicita-
tion or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.

SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND

Advisor Class A
Advisor Class B

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Funds. A copy of the
Prospectus may be obtained by writing SAFECO Mutual Funds, Advisor Class
Shares, P.O. Box 34890, Seattle, Washington 98124-1890, or by calling TOLL
FREE: 1-800-463-8791.

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.

<PAGE>

________________________________________________________________________

TABLE OF CONTENTS

OVERVIEW OF INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . 1
INVESTMENT POLICIES OF THE GROWTH FUND . . . . . . . . . . . . . . . 1
INVESTMENT POLICIES OF THE EQUITY FUND . . . . . . . . . . . . . . . 5
INVESTMENT POLICIES OF THE INCOME FUND . . . . . . . . . . . . . . . 8
INVESTMENT POLICIES OF THE NORTHWEST FUND . . . . . . . . . . . . . . 11
INVESTMENT POLICIES OF THE BALANCED FUND . . . . . . . . . . . . . . 15
INVESTMENT POLICIES OF THE INTERNATIONAL FUND . . . . . . . . . . . . 18
INVESTMENT POLICIES OF THE SMALL COMPANY FUND . . . . . . . . . . . . 21
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . 24
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS - EQUITY,
INCOME AND SMALL COMPANY FUNDS . . . . . . . . . . . . . . . . . . 40
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . 41
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . . 43
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 43
CONVERSION OF ADVISOR CLASS B SHARES . . . . . . . . . . . . . . . . 47
ADDITIONAL INFORMATION ON CALCULATION OF NET
ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . . 48
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 49
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 56
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . 59
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . 65
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . 66
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 67
DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS . . . . . 67

<PAGE>

OVERVIEW OF INVESTMENT POLICIES

SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"),
SAFECO Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest
Fund"), SAFECO Balanced Fund ("Balanced Fund"), SAFECO International Stock
Fund ("International Fund") and SAFECO Small Company Stock Fund ("Small
Company Fund") (collectively, the "Funds") are each a series of the SAFECO
Common Stock Trust ("Trust"). The investment policies of each Fund are
described in the Prospectus and this Statement of Additional Information.
These policies state the investment practices that the Funds will follow,
in some cases limiting investments to a certain percentage of assets, as
well as those investment activities that are prohibited. The types of
securities (e.g., common stock, U.S. Government securities or bonds) a
Fund may purchase are also disclosed in the Prospectus. Before a Fund
purchases a security that the following policies permit, but which is not
currently described in the Prospectus, the Prospectus will be amended or
supplemented to describe the security. If a policy's percentage
limitation is adhered to immediately after and as a result of the
investment, a later increase or decrease in values, net assets or other
circumstances will not be considered in determining whether a Fund
complies with the applicable limitation.

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

Non-fundamental policies may be changed by the Trust's Board of Trustees
without shareholder approval.

INVESTMENT POLICIES OF THE GROWTH FUND

Fundamental Investment Policies

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

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

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

3. 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. Purchase securities of companies which have a record of less than
3 years of continuous operation, including in such 3 years the
operation of any predecessor company or companies, partnerships,
or individual proprietorship, if the company whose securities are
to be purchased by the Growth Fund has come into existence as a
result of a merger, consolidation, reorganization or purchase of
substantially all of the assets of such predecessor company or
companies, partnership or individual proprietorship, if such
purchase at the time thereof would cause more than 5% of the
Fund's assets to be invested in the securities of such companies.

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

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

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

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

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

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

11. Purchase for nor retain in its portfolio securities issued by any
issuer any of whose officers, directors or security holders is an
officer or director of the Growth Fund, if or so long as the

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<PAGE>

officers or trustees of the Growth Fund, together, own
beneficially more than five percent (5%) of any class of the
securities of such issuer.

12. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or
except when such purchase, although not made in the open market,
is part of a merger, consolidation or acquisition. Such
purchases in the open market will be limited to not more than 5%
of the value of the Growth Fund's total assets. Nothing in this
section or in sections 1 or 2 above shall prevent any purchase
for the purpose of effecting a merger, consolidation or
acquisition of assets expressly approved by the shareholders
after full disclosure of any commission or profit to the
principal underwriter.

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

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

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

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

- 3 -
<PAGE>

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

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

Non-Fundamental Investment Policies

The Growth Fund has adopted the following non-fundamental policies with
respect to its investment activities:

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

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

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

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

5. The Growth Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

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

7. Although the Growth Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the
fundamental policy at section 9 above, it will only do so up to
ten percent (10%) of its net assets in order to comply with state
law.

8. The Growth Fund will invest no more than five percent (5%) of
total assets in qualified repurchase agreements and will not
enter into a repurchase agreement for a period longer than 7
days.

9. The Growth Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, no-load, open-end
money market funds (subject to the fundamental policy limitations
set forth in section 11 above), repurchase agreements (subject to

- 4 -
<PAGE>

the non-fundamental policy limitations in section 8 above) or any
other short-term instrument that SAFECO Asset Management Company
("SAM") deems appropriate.

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

11. The Growth Fund may invest up to 10% of its total assets in
contingent value rights.

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

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

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

INVESTMENT POLICIES OF THE EQUITY FUND

Fundamental Investment Policies

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

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

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

- 5 -
<PAGE>

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

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

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

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

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

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

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

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

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

- 6 -
<PAGE>

grantor of the warrants is the issuer of the underlying
securities.

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

Non-Fundamental Investment Policies

The Equity Fund has adopted the following non-fundamental policies with
respect to its investment activities:

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

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

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

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

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

6. The Equity Fund will not pledge, mortgage, or hypothecate its
portfolio securities to the extent that, at any time, the

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<PAGE>

percentage of pledged securities at market value will exceed 10%
of its net assets.

7. The Equity Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

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

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

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

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

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

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

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

INVESTMENT POLICIES OF THE INCOME FUND

Fundamental Policies

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

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<PAGE>

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

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

3. With respect to 100% of the value of its total assets, may not
purchase more than 10% of the outstanding voting securities of
any one issuer (other than U.S. Government securities).

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

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

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

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

- 9 -
<PAGE>

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

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

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

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

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

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

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

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

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<PAGE>

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

Non-Fundamental Investment Policies

The Income Fund has adopted the following non-fundamental policies with
respect to its investment activities:

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

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

3. Although the Income Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the
fundamental policy at section 9 above, it will only do so up to
10% of its net assets.

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

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

6. The Income Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

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

8. The Income Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a
repurchase agreement for a period longer than 7 days.

- 11 -
<PAGE>

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

10. The Income Fund may purchase as temporary investments for its
cash commercial paper, certificates of deposit, no-load, open-end
money market funds (subject to the fundamental policy limitations
set forth in section 11 above), repurchase agreements (subject to
the non-fundamental policy limitations in section 8 above) or any
other short-term instrument SAM deems appropriate.

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

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

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

INVESTMENT POLICIES OF THE NORTHWEST FUND

Fundamental Policies

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

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

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

3. 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. Concentrate its investments in particular industries (other than
obligations issued or guaranteed by the U.S. Government, its

- 12 -
<PAGE>

agencies or instrumentalities) or invest 25% or more of the
Fund's total assets in any one industry (governmental issues of
securities are not considered part of one industry).

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

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

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

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

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

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

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

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

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

14. Participate, on a joint or joint-and-several basis, in any
trading account in securities, except that the Northwest Fund may

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<PAGE>

join with other transactions executed by the investment adviser
or the investment adviser's parent company and any subsidiary
thereof, for the purpose of seeking better net results on
portfolio transactions or lower brokerage commission rates.

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

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

Non-Fundamental Investment Policies

The Northwest Fund has adopted the following policies with respect to its
investment activities:

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

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

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

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

5. The Northwest Fund will not invest in puts, calls, straddles,
spreads or any combinations thereof.

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<PAGE>

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

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

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

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

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

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

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

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

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

- 15 -
<PAGE>

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

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

INVESTMENT POLICIES OF THE BALANCED FUND

Fundamental Policies

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

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

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

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

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

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

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<PAGE>

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

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

Non-Fundamental Investment Policies

The Balanced Fund has adopted the following non-fundamental policies with
respect to its investment activities:

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

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

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

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

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

6. The Balanced Fund will not invest more than 10% of its total
assets in real estate investment trusts, nor will the fund invest
in interests in real estate investment trusts that are not

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<PAGE>

readily marketable or interests in real estate limited
partnerships not listed or traded on the Nasdaq Stock Market
("Nasdaq") if, as a result, the sum of such interests considered
illiquid and other illiquid securities would exceed 15% of the
Fund's net assets.

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

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

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

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

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

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

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

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<PAGE>

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

15. The Balanced Fund will not purchase or sell real estate (except
real estate investment trusts), commodities or commodity
contracts.

INVESTMENT POLICIES OF THE INTERNATIONAL FUND

Fundamental Policies

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

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

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

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

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

5. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if, as a result,
more than 25% of the International Fund's total assets would be

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<PAGE>

invested in securities of companies whose principal business
activities are in the same industry;

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

Non-Fundamental Investment Policies

The International Fund has adopted the following non-fundamental policies
with respect to its investment activities:

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

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

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

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

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

- 20 -
<PAGE>

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

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

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

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

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

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

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

13. The International Fund shall not engage primarily in trading for
short-term profits, but it may from time to time make investments
for short-term purposes when such action is believed to be

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<PAGE>

desirable and consistent with sound investment policy. The Fund
may dispose of securities whenever its adviser deems advisable
without regard to the length of time they have been held.

INVESTMENT POLICIES OF THE SMALL COMPANY FUND

Fundamental Policies

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

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

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

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

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

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

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

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<PAGE>

Non-Fundamental Investment Policies

The Small Company Fund has adopted the following non-fundamental policies
with respect to its investment activities:

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

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

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

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

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

6. The Small Company Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are

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<PAGE>

necessary for the clearance of transactions, and provided that
margin payments made in connection with futures contracts and
options on futures shall not constitute purchasing securities on
margins.

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

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

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

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

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

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

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<PAGE>

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

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

15. The Small Company Fund will not purchase or sell real estate
(except real estate investment trusts), commodities or commodity
contracts.

ADDITIONAL INVESTMENT INFORMATION

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

1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted
securities are securities that may be sold only in a public
offering with respect to which a registration statement is in
effect under the 1933 Act or, if they are unregistered, in a
privately negotiated transaction or pursuant to an exemption from
registration. In recognition of the increased size and liquidity
of the institutional markets for unregistered securities and the
importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A, which is designed to
further facilitate efficient trading among institutional
investors by permitting the sale of Rule 144A securities to
qualified institutional buyers. To the extent privately placed
securities held by a Fund qualify under Rule 144A and an
institutional market develops for those securities, the Fund
likely will be able to dispose of the securities without
registering them under the 1933 Act. SAM, acting under
guidelines established by the Trust's Board of Trustees, may
determine that certain securities qualified for trading under
Rule 144A are liquid.

Where registration is required, a Fund may be obligated to pay
all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the
Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market

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<PAGE>

conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. To the
extent privately placed securities are illiquid, purchases
thereof will be subject to any limitations on investments in
illiquid securities. Restricted securities for which no market
exists are priced at fair value as determined in accordance with
procedures approved and periodically reviewed by the Trust's
Board of Trustees.

2. WARRANTS. A warrant is an option issued by a corporation that
gives the holder the right to buy a stated number of shares of
common stock of the corporation at a specified price within a
designated time period. Warrants may be purchased and sold
separately or attached to stocks or bonds as part of a unit
offering. The term of a warrant may run from two to five years
and in some cases the term may be longer. The exercise price
carried by the warrant is usually well above the prevailing
market price of the underlying common stock at the time the
warrant is issued. The holder of a warrant has no voting rights
and receives no dividends. Warrants are freely transferable and
may trade on the major national exchanges.

Warrants may be speculative. Generally, the value of a warrant
will fluctuate by greater percentages than the value of the
underlying common stock. The primary risk associated with a
warrant is that the term of the warrant may expire before the
exercise price of the common stock has been reached. Under these
circumstances, a Fund could lose all of its principal investment
in the warrant.

A Fund will invest in a warrant only if the Fund has the
authority to hold the underlying common stock. Additionally, if
a warrant is part of a unit offering, a Fund will purchase the
warrant only if it is attached to a security in which the Fund
has authority to invest. In all cases, a Fund will purchase
warrants only after SAM determines that the exercise price for
the underlying common stock is likely to be achieved within the
required time-frame and for which an actively traded market
exists. SAM will make this determination by analyzing the
issuer's financial health, quality of management and any other
factors deemed to be relevant.

3. REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund and the
seller agree at the time of sale to the repurchase of a security
at a mutually agreed upon time and place. The period of maturity
is usually quite short, possibly overnight or a few days,
although it may extend over a number of months. The resale price
is in excess of the purchase price, reflecting an agreed upon
market rate effective for the period of time a Fund's money is
invested in the security (which is not related to the coupon rate
of the purchased security). Repurchase agreements may be
considered loans of money to the seller of the underlying

- 26 -
<PAGE>

security, which are collateralized by the securities underlying
the repurchase agreement. A Fund will not enter into a
repurchase agreement unless the agreement is fully
collateralized. A Fund will take possession of the securities
underlying the repurchase agreement and will value them daily to
assure that this condition is met. In the event that a seller
defaults on a repurchase agreement, a Fund may incur loss in the
market value of the collateral, as well as disposition costs;
and, if a party with whom a Fund has entered into a repurchase
agreement becomes involved in a bankruptcy proceeding, a Fund's
ability to realize the collateral may be limited or delayed and a
loss may be incurred if the collateral securing the repurchase
agreement declines in value during the bankruptcy proceeding.
Foreign repurchase agreements may be less well secured than U.S.
repurchase agreements and may be subject to currency risks. In
addition, foreign counterparties may be less creditworthy than
U.S. counterparties.

4. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSIT. In making
temporary investments in commercial paper and certificates of
deposit, a Fund will adhere to the following guidelines:

a) Commercial paper must be rated A-1 or A-2 by Standard &
Poor's Ratings Services, a division of The McGraw-Hill
Companies ("S&P") or Prime-1 or Prime-2 by Moody's
Investors Service, Inc. ("Moody's") or issued by
companies with an unsecured debt issue currently
outstanding rated AA by S&P or Aa by Moody's or higher.

b) Certificates of deposit must be issued by banks or
savings and loan associations that have total assets of
at least $1 billion or, in the case of a bank or savings
and loan association not having total assets of at least
$1 billion, the bank or savings and loan association is
insured by the Federal Deposit Insurance Corporation in
which case the Growth Fund will limit its investment to
the statutory insurance coverage.

5. CONTINGENT VALUE RIGHTS. A contingent value right ("CVR") is a
right issued by a corporation that takes on a pre-established
value if the underlying common stock does not attain a target
price by a specified date. Generally, a CVR's value will be the
difference between the target price and the current market price
of the common stock on the target date. If the common stock does
attain the target price by the date, the CVR expires without
value. CVRs may be purchased and sold as part of the underlying
common stock or separately from the stock. CVRs may also be
issued to owners of the underlying common stock as the result of
a corporation's restructuring.

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<PAGE>

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

REITs are dependent upon the successful operation of the
properties owned and the financial condition of lessees and
mortgagors. The value of REIT units will fluctuate depending on
the underlying value of the real property and mortgages owned and
the amount of cash flow (net income plus depreciation) generated
and paid out. In addition, REITs typically borrow to increase
funds available for investment. Generally, there is a greater
risk associated with REITs that are highly leveraged.

7. ILLIQUID SECURITIES. Illiquid securities are securities that
cannot be sold within seven days in the ordinary course of
business for approximately the amount at which they are valued.
Due to the absence of an active trading market, a Fund may
experience difficulty in valuing or disposing of illiquid
securities. SAM determines the liquidity of the securities under
guidelines adopted by the Trust's Board of Trustees.

8. CONVERTIBLE SECURITIES. Convertible bonds and convertible
preferred stock may be exchanged for a stated number of shares of
the issuer's common stock at a certain price known as the
conversion price. The conversion price is usually greater than
the price of the common stock at the time the convertible
security is purchased. Generally, the interest rate of
convertible bonds and the yield of convertible preferred stock
will be lower than the issuer's non-convertible securities.
Also, the value of convertible securities will normally vary with
the value of the underlying common stock and fluctuate inversely
with interest rates. However, convertible securities may show
less volatility in value than the issuer's non-convertible
securities. A risk associated with convertible bonds and
convertible preferred stock is that the conversion price of the
common stock will not be attained.

9. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. Under this proce-
dure, a Fund agrees to acquire securities (whose terms and
conditions, including price, have been fixed by the issuer) that
are to be issued and delivered against payment in the future.
Delivery of securities so sold normally takes place 30 to 45 days
(settlement date) after the date of the commitment. No interest
is earned by a Fund prior to the settlement date. The value of
securities sold on a "when-issued" or "delayed-delivery" basis
may fluctuate before the settlement date and the Fund bears the

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<PAGE>

risk of such fluctuation from the date of purchase. A Fund may
dispose of its interest in those securities before delivery.

10. SOVEREIGN DEBT OBLIGATIONS. Sovereign debt instruments are issued
or guaranteed by foreign governments or their agencies.
Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan
participations. Governments or governmental entities responsible
for repayment of the debt may be unable or unwilling to repay
principal and interest when due, and may require renegotiation or
rescheduling of debt payments. Repayment of principal and
interest may depend also upon political and economic factors.

11. INDEXED SECURITIES. Indexed securities are securities whose
prices are indexed to the prices of other securities, securities
indices, currencies, commodities or other financial indicators.
Indexed securities generally are debt securities whose value at
maturity or interest rate is determined by reference to a
specific instrument or statistic. Currency-indexed securities
generally are debt securities whose maturity values or interest
rates are determined by reference to values of one or more
specified foreign currencies. Currency-indexed securities may be
positively or negatively indexed; i.e., their maturity value may
increase when the specified currency value increases, resulting
in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign
currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on
the values of different foreign securities relative to each
other.

The performance of an indexed security depends largely on the
performance of the security, currency or other instrument to
which they are indexed. Performance may also be influenced by
interest rate changes in the United States and foreign countries.
Indexed securities additionally are subject to credit risks
associated with the issuer of the security. Their values may
decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may also be more volatile than
their underlying instruments.

12. PASSIVE FOREIGN INVESTMENT COMPANIES ("PFICs"). PFICs may
include funds or trusts organized as investment vehicles to
invest in companies of certain foreign countries. Investors in a
PFIC bear their proportionate share of the PFIC's management fees
and other expenses. See "Additional Tax Information -- Passive
Foreign Investment Companies" for more information.

13. SHORT SALES AGAINST THE BOX. A Fund may make short sales of
securities or maintain a short position, provided that at all

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<PAGE>

times when a short position is open the Fund owns an equal amount
of such securities or an equal amount of the securities of the
same issuer as the securities sold short (a "short sale against
the box"). Funds engaging in short sales against the box will
incur transaction costs.

14. OPTIONS ON EQUITY SECURITIES. (International Fund only.) The
International Fund may purchase and write (i.e., sell) put and
call options on equity securities that are traded on national
securities exchanges or that are listed on Nasdaq. A call option
is a short-term contract pursuant to which the purchaser or
holder, in return for a premium paid, has the right to buy the
equity security underlying the option at a specified exercise
price (the strike price) at any time during the term of the
option. The writer of the call option, who received the premium,
has the obligation, upon exercise of the option, to deliver the
underlying equity security against payment of the strike price.
A put option is a similar contract that gives the purchaser or
holder, in return for a premium, the right to sell the underlying
equity security at a specified exercise price (the strike price)
during the term of the option. The writer of the put, who
receives the premium, has the obligation to buy the underlying
equity security at the strike price upon exercise by the holder
of the put.

The 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 call option is "covered" if: the
Fund has an immediate right to acquire that security without
additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian);
upon the Fund's conversion or exchange of other securities held
in its portfolio; or the Fund holds a share-for-share basis a
call on the same security as the call written where the strike
price of the call held is equal to or less than the strike price
of the call written or greater than the strike price of the call
written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term debt
obligations in a segregated account with its custodian.

The Fund will write put options on stocks only if they are
covered, and such options must remain covered so long as the Fund
is obligated as a writer. A put option is "covered" if: the Fund
holds in a segregated account cash, Treasury bills, or other
liquid high-grade short-term debt obligations of a value equal to
the strike price; or the Fund holds on a share-for-share basis a
put on the same security as the put written where the strike
price of the put held is equal to or greater than the strike
price of the put written or less than the strike price of the put
written if the difference is maintained by the Fund in cash,

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<PAGE>

Treasury bills, or other liquid high-grade short-term obligations
in a segregated account with its custodian.

The Fund may purchase "protective puts," i.e., put options
acquired for the purpose of protecting a portfolio security from
a decline in market value. In exchange for the premium paid for
the put option, the Fund acquires the right to sell the
underlying security at the strike price of the put regardless of
the extent to which the underlying security declines in value.
The loss to the Fund is limited to the premium paid for, and
transaction costs in connection with, the put plus the initial
excess, if any, of the market price of the underlying security
over the strike price. However, if the market price of the
security underlying the put rises, the profit the Fund realizes
on the sale of the security will be reduced by the premium paid
for the put option less any amount (net of transaction costs) of
which the put may be sold.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on stocks.

If the Fund, as a writer of an option, wishes to terminate the
obligation, it may effect a "closing purchase transaction" by
buying an option of the same series as the option previously
written. Similarly, the holder of an option may liquidate his or
her position by exercising the option or by effecting a "closing
sale transaction, i.e., selling an option of the same series as
the option previously purchased. The Fund may effect closing
sale and purchase transactions. The Fund will realize a profit
from a closing transaction if the price of the transaction is
less than the premium received from writing the option or is more
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from a closing purchase transaction with respect
to a call option is likely to be offset in whole or in part by
appreciation of the underlying equity security owned by the Fund.
There is no guaranty that closing purchase or closing sale
transactions can be effected.

The Fund's use of options on equity securities is subject to
certain special risks, in addition to the risk that the market
value of the security will move adversely to the Fund's option
position. An option position may be closed out only on an
exchange, board of trade or other trading facility that provides
a secondary market for an option of the same series. Although
the Fund will generally purchase or write only those options for
which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise
may exist. In such event it might not be possible to effect

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<PAGE>

closing transactions in particular options, with the result that
the Fund would have to exercise its options in order to realize
any profit and would incur brokerage commissions upon the
exercise of such options and upon the subsequent disposition of
the underlying securities acquired through the exercise of call
options or upon the purchase of underlying securities or the
exercise of put options. If the Fund as a covered call option
writer is unable to effect a closing purchase transaction in a
secondary market, it will not be able to sell underlying security
until the option expires or it delivers the underlying security
upon exercise.

Reasons for the absence of a liquid secondary market on an
exchange can include any of the following: (i) there may be
insufficient trading interest in certain options; (ii)
restrictions imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future
date to discontinue the trading of options (or a particular class
or series of options), in which event the secondary market on
that exchange (or in the class or series of options) would cease
to exist, although outstanding options on that exchange that had
been issued by a clearing corporation as a result of trades on
that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facility of any of the clearing
corporations inadequate, and thereby result in the institution by
an exchange of special procedures that may interfere with the
timely execution of customers' orders.

15. OPTIONS ON STOCK INDICES. (International Fund only.) The
International Fund may purchase and sell (i.e., write) put and
call options on stock indices traded on national securities
exchanges or listed on Nasdaq. 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 stock index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing
level of the stock index upon which the option is based is
greater than (in the case of a call) or less than (in the case of
a put) the strike price of the option. The amount of cash is
equal to such difference between the closing price of the index
and the strike price of the option times a specified multiple
(the "multiplier"). If the option is exercised, the writer is
obligated, in return for the premium received, to make delivery

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<PAGE>

of this amount. Unlike stock options, all settlements are in
cash, and gain or loss depends on price movements in the stock
market generally (or in particular industry or segment of the
market) rather than price movements in individual stocks.

The Fund will write call options on stock indices only if they
are covered, and such options remain covered as long as the Fund
is obligated as a writer. When the Fund writes a call option on
a broadly based stock market index, the Fund will segregate or
put into escrow with its custodian or pledge to a broker as
collateral for the option, cash, Treasury bills or other liquid
high-grade short-term debt obligations, or "qualified securities"
(defined below) with a market value at the time the option is
written of not less than 100% of the current index value times
the multiplier times the number of contracts. A "qualified
security" is an equity security that is listed on a national
securities exchange or listed on Nasdaq against which the Fund
has not written a stock call option and that has not been hedged
by the Fund by the sale of stock index futures.

When the Fund writes a call option on an industry or market
segment index, the Fund will segregate or put into escrow with
its custodian or pledge to a broker as collateral for the option,
cash, Treasury bills or other liquid high-grade short-term debt
obligations, or at least five qualified securities, all of which
are stocks of issuers in such industry or market segment, with a
market value at the time the option is written of not less than
100% of the current index value times the multiplier times the
number of contracts. Such stocks will include stocks that
represent at least 50% of the weighting of the industry or market
segment index and will represent at least 50% of the portfolio's
holdings in that industry or market segment. No individual
security will represent more than 15% of the amount so
segregated, pledged or escrowed in the case of broadly based
stock market stock options or 25% of such amount in the case of
industry or market segment index options.

If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls
below 100% of the current index value times the multiplier times
the number of contracts, the fund will so segregate, escrow, or
pledge an amount in cash, Treasury bills, or other liquid high-
grade short-term obligations equal in value to the difference.
In addition, when the Fund writes a call on an index that is in-
the-money at the time the call is written, the Fund will
segregate with its custodian or pledge to the broker as
collateral, cash or U.S. Government or other liquid high-grade
short-term debt obligations equal in value to the amount by which
the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing

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<PAGE>

sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the
qualified securities falls below 100% of the current index value
times the multiplier times the number of contracts. A call
option is also covered and the Fund need not follow the
segregation requirements set forth in this paragraph if the Fund
holds a call on the same index as the call written where the
strike price of the call held is equal to or less than the strike
price of the call written or greater than the strike price of the
call written if the difference is maintained by the Fund in cash,
Treasury bills or other liquid high-grade short-term obligations
in a segregated account with its custodian.

The Fund will write put options on stock indices only if they are
covered, and such options must remain covered so long as the Fund
is obligated as a writer. A put option is covered if the Fund
holds in a segregated account cash, Treasury bills, or other
liquid high-grade short-term debt obligations of a value equal to
the strike price times the multiplier times the number of
contracts; or the Fund holds a put on the same index as the put
written where the strike price of the put held is equal to or
greater than the strike price of the put written or less than the
strike price of the put written if the difference is maintained
by the Fund in cash, Treasury bills, or other liquid high-grade
short-term debt obligations in a segregated account with its
custodian.

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of puts and calls on stock
indices. The Fund may effect closing sale and purchase
transactions, as described above in connection with options on
equity securities.

The purchase and sale of options on stock indices will be subject
to the same risks as options on equity securities, described
above. In addition, the distinctive characteristics of options
on indices create certain risks that are not present with stock
options. Index prices may be distorted if trading of certain
stocks included in the index is interrupted. Trading in index
options also may be interrupted in certain circumstances, such as
if trading were halted in a substantial number of stocks included
in the index. If this occurred, the Fund would not be able to
close out options that it had purchased or written and, if
restrictions on exercise were imposed, may be unable to exercise
an option it holds, which could result in substantial losses to
the Fund. The Fund generally will purchase or write options only
on stock indices that include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the
index.

Although the markets for certain index option contracts have
developed rapidly, the markets for other index options are still

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<PAGE>

relatively illiquid. The ability to establish and close out
positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that
this market will develop in all index options contracts. The
Fund will not purchase or sell any index option contract unless
and until Bank of Ireland Asset Management (U.S.) Limited (the
"Sub-Adviser"), the Fund's sub-investment adviser, believes the
market for such options has developed sufficiently that the risk
in connection with such transactions is no greater than the risk
in connection with options on stocks.

Price movements in the Fund's equity security portfolio probably
will not correlate precisely with movements in the level of the
index and, therefore, in writing a call on a stock index the Fund
bears the risk that the price of the securities held by the Fund
may not increase as much as the index. In such event, the Fund
would bear a loss on the call that is not completely offset by
movement in the price of the Fund's equity securities. It is
also possible that the index may rise when the Fund's securities
do not rise in value. If this occurred, the Fund would
experience a loss on the call that is not offset by an increase
in the value of its securities portfolio and might also
experience a loss in its securities portfolio. However, because
the value of a diversified securities portfolio will, over time,
tend to move in the same direction as the market, movements in
the value of the Fund's securities in the opposite direction as
the market would be likely to occur for only a short period or to
a small degree.

When the Fund has written a call, there is also a risk that the
market may decline between the time the Fund has a call exercised
against it, at a price which is fixed as of the closing level of
the index on the date of exercise, and the time the Fund is able
to sell stocks in its portfolio. As with stock options, the Fund
will not learn that an index option has been exercised until the
day following the exercise date but, unlike a call on stock where
the Fund would be able to deliver the underlying securities in
settlement, the Fund may have to sell part of its stock portfolio
in order to make settlement in cash, and the price of such stocks
might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially
more risky with options in stock indices than with stock options.

There are also certain special risks involved in purchasing put
and call options on stock indices. If the Fund holds an index
option and exercises it before final determination of the closing
index value for that day, it runs the risk that the level of the
underlying index may change before closing. If such a change
causes the exercised option to fall out-of-the-money, the Fund
will be required to pay the difference between the closing index
value and the strike price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be

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<PAGE>

able to minimize the risk by withholding exercise instructions
until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk
entirely because the cutoff times for index options may be
earlier than those fixed for other types of options and may occur
before definitive closing index values are announced.

16. OPTIONS ON DEBT SECURITIES. (International Fund only.) The Fund
may purchase and write (i.e., sell) put and call options on debt
securities (including U.S. Government debt securities) that are
traded on national securities exchanges or that result from
privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Federal Reserve Bank of New
York ("OTC options"). Options on debt are similar to options on
stock, except that the option holder has the right to take or
make delivery of a debt security, rather than stock.

The Fund will write options only if they are covered, and such
options must remain covered so long as the Fund is obligated as a
writer. An option on debt securities is covered in the same
manner as explained in connection with options on equity
securities, except that, in the case of call options on U.S.
Treasury bills, the Fund might own U.S. Treasury bills of a
different series from those underlying the call option, but with
a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. The principal reason for the
Fund to write an option on one or more of its securities is to
realize through the receipt of the premiums paid by the purchaser
of the option a greater current return than would be realized on
the underlying security alone. Calls on debt securities will not
be written when, in the opinion of the Sub-Adviser, interest
rates are likely to decline significantly, because under those
circumstances the premium received by writing the call likely
would not fully offset the foregone appreciation in the value of
the underlying security.

The Fund may also write straddles (i.e., a combination of a call
and a put written on the same security at the same strike price
where the same issue of the security is considered "cover" for
both the put and the call). In such cases, the Fund will also
segregate or deposit for the benefit of the Fund's broker cash or
liquid high-grade debt obligations equivalent to the amount, if
any, by which the put is in-the-money. The Fund's use of
straddles will be limited to 5% of its net assets (meaning that
the securities used for cover or segregated as described above
will not exceed 5% of the Fund's net assets at the time the
straddle is written). The writing of a call and a put on the
same security at the same strike price where the call and the put
are covered by different securities is not considered a straddle
for purposes of this limit.

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<PAGE>

The Fund may purchase "protective puts" on debt securities in an
effort to protect the value of a security that they own against a
substantial decline in market value. Protective puts are
described above in "Options on Equities."

The Fund does not intend to invest more than 5% of its net assets
at any one time in the purchase of call options on debt
securities.

If the Fund, as a writer of an exchange-traded option, wishes to
terminate the obligation, it may effect a closing purchase or
sale transaction in a manner similar to that discussed above in
connection with options on equity securities. Unlike exchange-
traded options, OTC options generally do not have a continuous
liquid market. Consequently, the Fund will generally be able to
realize the value of an OTC option it has purchased only by
exercising it or reselling it to the dealer who issued it.
Similarly, when the Fund writes an OTC option, it generally will
be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer
to which the Fund originally wrote the OTC option. While the
Fund will seek to enter into OTC options only with dealers who
agree to and who are expected to be able to be capable of
entering into closing transactions with the Fund, there can be no
assurance that the Fund will be able to liquidate an OTC option
at a favorable price at any time prior to expiration. In the
event of insolvency of the other party, the Fund may be unable to
liquidate an OTC option. There is, in general, no guarantee that
closing purchase or closing sale transactions can be effected.
The Fund may not invest more than 15% of its total assets
(determined at the time of investment) in illiquid securities,
including debt securities for which there is not an established
market. The staff of the SEC has taken the position that
purchased OTC options and the assets used as "cover" for written
OTC options are illiquid securities. However, pursuant to the
terms of certain no-action letters issued by the staff, the
securities used as cover for written OTC options may be
considered liquid provided that the Fund sells OTC options only
to qualified dealers who agree that the Fund may repurchase any
OTC option its writes for a maximum price to be calculated by a
predetermined formula. In such cases, the OTC option would be
considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of
the option.

The Fund's purchase and sale of exchange-traded options on debt
securities will be subject to the risks described above in
"Options on Equity Securities."

17. OPTIONS ON FOREIGN CURRENCIES. (International Fund only.) The
Fund may purchase and write put and call options on foreign

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<PAGE>

currencies traded on U.S. or foreign securities exchanges or
boards of trade for hedging purposes. Options on foreign
currencies are similar to options on stock, except that the
option holder has the right to take or make delivery of a
specified amount of foreign currency, rather than stock.

The Fund may purchase and write options to hedge its securities
denominated in foreign currencies. If there is a decline in the
dollar value of a foreign currency in which the Fund's securities
are denominated, the dollar value of such securities will decline
even though the foreign currency value remains the same. To
hedge against the decline of the foreign currency, the Fund may
purchase put options on such foreign currency. If the value of
the foreign currency declines, the gain realized on the put
option would offset, in whole or in part, the adverse effect such
decline would have on the value of the Fund's securities.
Alternatively, the Fund may write a call option on the foreign
currency. If the foreign currency declines, the option would not
be exercised and the decline in the value of the portfolio
securities denominated in such foreign currency would be offset
in part by the premium the Fund received for the option.

If, on the other hand, the Sub-Adviser anticipates purchasing a
foreign security and also anticipates a rise in such foreign
currency (thereby increasing the cost of such security), the Fund
may purchase call options on the foreign currency. The purchase
of such options could offset, at least partially, the effects of
the adverse movements of the exchange rates. Alternatively, the
Fund could write a put option on the currency and, if the
exchange rates move as anticipated, the option would expire
unexercised.

The Fund's successful use of options on foreign currencies
depends upon the Sub-Adviser's ability to predict the direction
of the currency exchange markets and political conditions, which
requires different skills and techniques than predicting changes
in the securities markets generally. For instance, if the
currency being hedged has moved in a favorable direction, the
corresponding appreciation of the Fund's securities denominated
in such currency would be partially offset by the premiums paid
on the options. Furthermore, if the currency exchange rate does
not change, the Fund's net income would be less than if the Fund
had not hedged since there are costs associated with options.

The use of these options is subject to various additional risks.
The correlation between movements in the price of options and the
price of the currencies being hedged is imperfect. The use of
these instruments will hedge only the currency risks associated
with investments in foreign securities, not market risks. The
Fund's ability to establish and maintain positions will depend on
market liquidity. The ability of the Fund to close out an option
depends upon a liquid secondary market. There is no assurance

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<PAGE>

that liquid secondary markets will exist for any particular
option at any particular time.

18. STOCK INDEX FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes stock
index futures contracts traded on a commodities exchange or board
of trade. A stock index futures contract is an Agreement in
which the seller of the contract agrees to deliver to the buyer
an amount of cash equal to a specific dollar amount times the
difference between the value of a specific stock index at the
close of the last trading day of the contract and the price at
which the Agreement is made. No physical delivery of the
underlying stocks in the index is made. When the futures
contract is entered into, each party deposits with a broker or in
a segregated custodial account approximately 5% of the contract
amount, called the "initial margin." Subsequent payments to and
from the broker, called "variation margin," will be made on a
daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures
contracts more or less valuable, a process known as "marking to
the market."

The Fund may sell stock index futures to hedge against a decline
in the value of equity securities it holds. The Fund may also
buy stock index futures to hedge against a rise in the value of
equity securities it intends to acquire. To the extent permitted
by federal regulations, the Fund may also engage in other types
of hedging transactions in stock index futures that are
economically appropriate for the reduction of risks inherent in
the ongoing management of the Fund's equity securities.

The Fund's successful use of stock index futures contracts
depends upon the Sub-Adviser's ability to predict the direction
of the market and is subject to various additional risks. The
correlation between movement in the price of the stock index
future and the price of the securities being hedged is imperfect
and the risk from imperfect correlation increases as the
composition of the Fund's securities portfolio diverges from the
composition of the relevant index. In addition, the ability of
the Fund to close out a futures position depends on a liquid
secondary market. There is no assurance that liquid secondary
markets will exist for any particular stock index futures
contract at any particular time.

Under regulations of the Commodity Futures Trading Commission
("CFTC"), investment companies registered under the 1940 Act are
excluded from regulation as commodity pools or commodity pool
operators if their use of futures is limited in certain specified
ways. The Fund will use futures in a manner consistent with the
terms of this exclusion. Among other requirements, no more than
5% of the Fund's assets may be committed as initial margin on
futures contracts.

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<PAGE>

19. INTEREST RATE FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures
contracts on interest bearing securities (such as U.S. Treasury
bonds, U.S. Treasury notes, U.S. Treasury bills, and GNMA
certificates) or interest rate indices. Futures contracts on
interest bearing securities and interest rate indices are
referred to collectively as "interest rate futures contracts."
The portfolios will engage in transactions in only those futures
contracts that are traded on a commodities exchange or board of
trade.

The Fund may sell an interest rate futures contract to hedge
against a decline in the market value of debt securities it owns.
The Fund may purchase an interest rate futures contract to hedge
against an anticipated increase in the value of debt securities
it intends to acquire. The Fund may also engage in other types
of transactions in interest rate futures contracts that are
economically appropriate for the reduction of risks inherent in
the ongoing management of its futures.

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

20. FOREIGN CURRENCY FUTURES CONTRACTS. (International Fund only.)
The International Fund may buy and sell for hedging purposes
futures contracts on foreign currencies or groups of foreign
currencies such as the European Currency Unit. An European
Currency Unit is a basket of specified amounts of the currencies
of certain member states of the European Economic Community, a
Western European economic cooperative organization including
France, Germany, the Netherlands and the United Kingdom. The
Fund will engage in transactions in only those futures contracts
and other options thereon that are traded on a commodities
exchange or a board of trade. See "Stock Index Futures
Contracts" above for a general description of futures contracts.
The Fund intends to engage in transactions involving futures
contracts as a hedge against changes in the value of the
currencies in which they hold investments or in which they expect

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<PAGE>

to pay expenses or pay for future purchases. The Fund may also
engage in such transactions when they are economically
appropriate for the reduction of risks inherent in their ongoing
management.

The use of these futures contracts is subject to risks similar to
those involved in the use of options of foreign currencies and
the use of any futures contract. The Fund's successful use of
foreign currency futures contracts depends upon the Sub-Adviser's
ability to predict the direction of currency exchange markets and
political conditions. In addition, the correlation between
movements in the price of futures contracts and the price of
currencies being hedged is imperfect, and there is no assurance
that liquid markets will exist for any particular futures
contract at any particular time. Those risks are discussed above
more fully under "Options on Foreign Currencies" and "Stock Index
Futures Contracts."

21. OPTIONS ON FUTURES CONTRACTS. (International Fund only.) The
Fund may, to the extent permitted by applicable regulations,
enter into certain transactions involving options on futures
contracts. An option on a futures contract gives the purchaser
or holder the right, but not the obligation, to assume a position
in a futures contract (a long position if the option is a call
and a short position if the option is a put) at a specified price
at any time during the option exercise period. The writer of the
option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long
position if the option is a put). Upon exercise of the option,
the assumption of offsetting futures positions by the writer and
holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures
contract, an exercise, exceeds, in the case of a call, or is less
than, in the case of a put, the exercise price of the option on
the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or
purchasing an option of the same series. There is no guarantee
that such closing transactions can be effected. The Fund intends
to utilize options on futures contracts for the same purposes
that it intends to use the underlying futures contracts.

Options on futures contracts are subject to risks similar to
those described above with respect to options and futures
contracts. There is also the risk of imperfect correlation
between the option and the underlying futures contract. If there
were no liquid secondary market for a particular option on a
futures contract, the Fund might have to exercise an option it
held in order to realize any profit and might continue to be
obligated under an option it had written until the option expired
or was exercised. If the Fund were unable to close out an option
it had written on a futures contract, it would continue to be

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<PAGE>

required to maintain initial margin and make variation margin
payments with respect to the option position until the option
expired or was exercise against the Fund.

22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (International Fund
only.) The Fund may enter into forward foreign currency exchange
contracts ("forward contracts") in several circumstances. When
the Fund enters into a contract for the purchase or sale of a
security denominated in a foreign currency, or when the Fund
anticipates the receipt in a foreign currency of dividends or
interest payments on a security that it holds, the Fund may
desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as
the case may be. By entering into a forward contract for a fixed
amount of dollars, for the purchase or sale of the amount of
foreign currency involved in the underlying transactions, the
Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period
between the date on which the security is purchased or sold, or
on which the dividend or interest payment is declared, and the
date on which such payments are made or received.

Additionally, when the Sub-Adviser believes that the currency of
a particular foreign country may suffer a substantial decline
against the U.S. dollar, the Fund may enter into a forward
contract for a fixed amount of dollars, to sell the amount of
foreign currency approximating the value of some or all of the
portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible since the
future value of securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date on which the forward contract is entered into
and the date it matures. The projection of short-term currency
market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
The Fund will not enter into forward contracts or maintain a net
exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of foreign
currency in excess of the value of the securities or other
assets denominated in that currency held by the Fund.

Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the long-term
investment decisions made with regard to overall diversification
strategies. However, the Fund believes that it is important to
have the flexibility to enter into forward contracts when it is
determined that the best interests of the Fund will thereby be
served. The Fund's custodian will place cash or liquid, high-
grade equity or debt securities into a segregated account of the

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<PAGE>

portfolio in an amount equal to the value of the Fund's total
assets committed to the consummation of forward foreign currency
exchange contracts. If the value of the securities placed in the
segregated account declines, additional cash or securities will
be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with
respect to such contracts.

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

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

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

The Fund's dealing in forward contracts will be limited to the
transactions described above. Of course, the Fund is not
required to enter into such transactions with regard to its
foreign currency-denominated securities. It also should be
realized that this method of protecting the value of the

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<PAGE>

portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the
securities that are unrelated to exchange rates. Additionally,
although such contracts tend to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might result should
the value of such currency increase.

Although the Fund values its assets daily in terms of U.S.
dollars, it does not intend physically to convert its holdings of
foreign currencies into U.S. dollars on a daily basis. The Fund
will do so from time to time, incurring the costs of currency
conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are
buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS - EQUITY, INCOME AND SMALL
COMPANY FUNDS

Below investment grade bonds (commonly referred to as "high-yield" or
"junk" bonds) have certain additional risks associated with them. Yields
on below investment grade bonds will fluctuate over time. These bonds
tend to reflect short-term economic and corporate developments to a
greater extent than higher quality bonds that primarily react to
fluctuations in interest rates. During an economic downturn or period of
rising interest rates, issuers of below investment grade bonds may
experience financial difficulties that adversely affect their ability to
make principal and interest payments, meet projected business goals and
obtain additional financing. In addition, issuers often rely on cash flow
to service debt. Failure to realize projected cash flows may seriously
impair the issuer's ability to service its debt load that in turn might
cause a Fund to lose all or part of its investment in that security. SAM
will seek to minimize these additional risks through diversification,
careful assessment of the issuer's financial structure, business plan and
management team and monitoring of the issuer's progress toward its
financial goals.

The liquidity and price of below investment grade bonds can be affected by
a number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-
traded market with few participants and may adversely impact the Fund's
ability to dispose of the bonds as well as make valuation of the bonds
more difficult. Because there tend to be fewer investors in below
investment grade bonds, it may be difficult for the Fund to sell these
securities at an optimum time. Consequently, these bonds may be subject

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<PAGE>

to more price changes, fluctuations in yield and risk to principal and
income than higher-rated bonds of the same maturity.

Credit ratings evaluate the likelihood that an issuer will make principal
and interest payments, but may not reflect market value risks associated
with lower-rated bonds. Credit rating agencies may not timely revise
ratings to reflect subsequent events affecting an issuer's ability to pay
principal and interest.

SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

Foreign Securities

Investing in foreign companies and markets involves certain
considerations, including those set forth below, that are not typically
associated with investing in U.S. securities denominated in U.S. dollars
and traded in U.S. markets. Many of the securities held by a Fund will
not be registered under, nor will the issuers thereof be subject to the
reporting requirements of, U.S. securities laws. Accordingly, there may
be less publicly available information about a foreign company than about
a domestic company. Foreign companies are not generally subject to
uniform accounting and auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies.

It is contemplated that most foreign securities will be purchased in over-
the-counter markets or stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities
are located, if that is the best available market. Fixed commissions on
foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges. There is generally less governmental supervision and
regulation of foreign stock exchanges, broker-dealers and issuers than in
the United States.

In addition, with respect to some foreign countries, there is the
possibility of expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of a Fund, political or social
instability, or diplomatic developments that could affect U.S. investments
in those countries. Moreover, individual foreign economics may differ
favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

Currency Exchange Rates

The value of the assets of a Fund as measured in U.S. dollars may be
affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations (including, but not limited to, actions by a
foreign government to devalue its currency, thereby effecting a possibly

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<PAGE>

substantial reduction in the U.S. dollar value of a Fund's investments in
that country). The International Fund is authorized to employ certain
hedging techniques to minimize this risk. However, to the extent such
transactions do not fully protect the International Fund against adverse
changes in exchange rates, decreases in the value of the currencies of the
countries in which the Fund will invest will result in a corresponding
decrease in the U.S. dollar value of the Fund's assets denominated in
those currencies. Further, the International Fund may incur costs in
connection with conversions between various currencies. Foreign exchange
dealers (including banks) realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer
or bank normally will offer to sell a foreign currency to the
International Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer.
Moreover, fluctuations in exchange rates may decrease or eliminate income
available for distribution. For example, if certain foreign currency
losses exceed other investment company taxable income (as defined below
under "Additional Tax Information") during a taxable year, the Fund would
not be able to make ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as a return of
capital to shareholders for federal income tax purposes, rather than as an
ordinary dividend, reducing each shareholder's basis in his International
Fund shares.

Hedging Transactions (International Fund only)

Hedging transactions cannot eliminate all risks of loss to the
International Fund and may prevent the Fund from realizing some potential
gains. The projection of short-term foreign currency and market movements
is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Among the risks of hedging
transactions are: incorrect prediction of the movement of currency
exchange rates and market movements; imperfect correlation of currency
movements in cross-hedges and indirect hedges; imperfect correlation in
the price movements of options, futures contracts and options on future
contracts with the assets on which they are based; lack of liquid
secondary markets and inability to effect closing transactions; costs
associated with effecting such transactions; inadequate disclosure and/or
regulatory controls in certain markets; counterparty default with respect
to transactions not executed on an exchange; trading restrictions imposed
by governments, or securities and commodities exchanges; and governmental
actions affecting the value or liquidity of currencies. Hedging
transactions may be effected in foreign markets or on foreign exchanges
and are subject to the same types of risks that affect foreign securities.
See "Special Risks of Foreign Investments and Foreign Currency
Transactions".

Indirect hedges and cross-hedges are more speculative than other hedges
because they are not directly related to the position or transaction being
hedged. With respect to indirect hedges, movements in the proxy currency
may not precisely mirror movements in the currency in which portfolio
securities are denominated. Accordingly, the potential gain or loss on an

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<PAGE>

indirect hedge may be more or less than if the Fund had directly hedged a
currency risk. Similar risks are associated with cross-hedge
transactions. In a cross-hedge, the foreign currency in which a portfolio
security is denominated is hedged against another foreign currency, rather
than the U.S. dollar. Cross-hedges may also create a greater risk of loss
than other hedging transactions because they may involve hedging a
currency risk through the U.S. dollar rather than directly to the U.S.
dollar or another currency.

In order to help reduce certain risks associated with hedging
transactions, the Board of Trustees has adopted the requirement that
forward contracts, options, futures contracts and options on futures
contracts be used on the behalf of the Fund as a hedge and not for
speculation. In addition to this requirement, the Board of Trustees has
adopted the following percentage restrictions on the use of options,
futures contracts and options on futures contracts:

(i) The Fund will not write a put or call option if, as a
result thereof, the aggregate value of the assets
underlying all such options (determined as of the date
such options are written) would exceed 25% of the Fund's
net assets.

(ii) The Fund will not purchase a put or call option or option
on a futures contract if, as a result thereof, the
aggregate premiums paid on all options or options on
futures contracts held by the Fund would exceed 20% of
the Fund's net assets.

(iii) The Fund will not enter into any futures contract or
option on a futures contract if, as a result thereof, the
aggregate margin deposits and premiums required on all
such instruments would exceed 5% of the Fund's net
assets.

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

At June 30, 1996, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Northwest Fund that represented 17.98% of the
Fund's outstanding shares. SAFECO Insurance is a Washington corporation
and a wholly owned subsidiary of SAFECO Corporation, which has its
principal place of business at SAFECO Plaza, Seattle, Washington 98185.
At June 30, 1996, SAM owned 500,000 shares of the Balanced Fund and
International Stock Fund, which represented 70.78% of each Funds'
outstanding shares. At June 30, 1996, SAFECO Corporation owned 500,000
shares of the Small Company Stock Fund which represented 53.76% of the
Fund's outstanding shares. SAFECO Insurance and SAM are Washington
corporations and wholly owned subsidiaries of SAFECO Corporation, which
has its principal place of business at SAFECO Plaza, Seattle, Washington
98185.

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<PAGE>

ADDITIONAL TAX INFORMATION

General

Each Fund (which is treated as a separate corporation for federal income
tax purposes) intends to continue to qualify for treatment as a "regulated
investment company" ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended ("Code"). In order to qualify for that
treatment, a Fund must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting
generally of net investment income, net short-term capital gain and net
gains from certain foreign currency transactions) ("Distribution Require-
ment") and must meet several additional requirements. For each Fund,
these requirements include the following: (1) the Fund must derive at
least 90% of its gross income each taxable year from dividends, interest,
payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from options, futures, or forward contracts) derived with
respect to its business of investing in securities or those currencies
("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of
securities, or any of the following, that were held for less than three
months -- options or futures (other than those on foreign currencies), or
foreign currencies (or options, futures, or forward contracts thereon)
that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to
securities) ("Short-Short Limitation"); and (3) at the close of each
quarter of the Fund's taxable year, (a) at least 50% of the value of its
total assets must be represented by cash and cash items, U.S. Government
securities, securities of other RICs, and other securities limited, in
respect of any one issuer, to an amount that does not exceed 5% of the
value of the Fund's total assets and that does not represent more than 10%
of the issuer's outstanding voting securities, and (b) not more than 25%
of the value of its total assets may be invested in securities (other than
U.S. Government securities or the securities of other RICs) of any one
issuer.

If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received on
those shares. Investors also should be aware that if shares are purchased
shortly before the record date for any dividend or other distribution, the
shareholder will pay full price for the shares and receive some portion of
the purchase price back as a taxable distribution.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year

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<PAGE>

substantially all of its ordinary income for that year and capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts. Each Fund intends to distribute annually a
sufficient amount of income and capital gains to avoid liability for the
Excise Tax.

Investments in Foreign Securities

For each Fund that may invest in foreign-currency-denominated securities
or engage in foreign currency transactions, or both, gains or losses
(1) from the disposition of foreign currencies, (2) on the disposition of
a debt security denominated in a foreign currency that are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition, and (3) that are
attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends, or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the
time the Fund actually collects the receivables or pays the liabilities,
generally are treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses, may increase
or decrease the amount of investment company taxable income available to a
Fund for distribution to its shareholders.

The International Fund and any other Fund that invests in foreign
securities may be required to pay withholding or other taxes to a foreign
government on the income derived from those securities. If so, the taxes
will reduce the Fund's income available for distributions. Foreign tax
withholding from dividends and interest (if any) is typically set at a
rate between 10% and 15% if there is a treaty with the foreign government
that addresses this issue; if no such treaty exists, the foreign tax
withholding generally would be higher. Moreover, many foreign countries
do not impose taxes on capital gains in respect of investments by foreign
investors.

Passive Foreign Investment Companies ("PFICs")

Certain Funds, including the International Fund, may invest in the stock
of PFICs. A PFIC is a foreign corporation that, in general, meets either
of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain circumstances, if a Fund
holds stock of a PFIC, it will be subject to federal income tax on a
portion of any "excess distribution" received on the stock or of any gain
on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be
included in the Fund's investment company taxable income and, accordingly,

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<PAGE>

will not be taxable to it to the extent that income is distributed to its
shareholders.

If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund would be required to include in income each year its
pro rata share of the QEF's annual ordinary earnings and net capital gain
(the excess of net long-term capital gain over net short-term capital
loss) -- which probably would have to be distributed by the Fund to
satisfy the Distribution Requirement and avoid imposition of the Excise
Tax -- even if those earnings and gain were not received by the Fund. In
most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.

Pursuant to proposed regulations, open-end RICs, such as the Funds, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market
value of any such PFIC's stock over the adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election
was in effect).

The International Fund

If more than 50% of the value of the International Fund's total assets at
the close of any taxable year consists of securities of foreign
corporations, the Fund will be eligible to, and may, file an election with
the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any
foreign and U.S. possessions income taxes paid by it. Pursuant to any
such election, the Fund would treat those taxes as dividends paid to its
shareholders and each shareholder would be required to (1) include in
gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of
those taxes and of any dividend paid by the Fund that represents income
from foreign or U.S. possessions sources as the shareholder's own income
from those sources, and (3) either deduct the taxes deemed paid by the
shareholder in computing the shareholder's taxable income or,
alternatively, use the foregoing information in calculating the foreign
tax credit against the shareholder's federal income tax. The Fund will
report to its shareholders shortly after each taxable year their
respective shares of the Fund's income from sources within, and taxes paid
to, foreign countries and U.S. possessions if it makes this election.

The use of hedging strategies, such as writing (selling) and purchasing
options and futures contracts and entering into forward contracts,
involves complex rules that will determine for income tax purposes the

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<PAGE>

character and timing of recognition of the gains and losses the Interna-
tional Fund realizes in connection therewith. Gains from the disposition
of foreign currencies (except certain gains that may be excluded by future
regulations), and gains from options, futures, and forward contracts
derived by the Fund with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under
the Income Requirement. However, income from the disposition of options
and futures contracts (other than those on foreign currencies) will be
subject to the Short-Short Limitation if they are held for less than three
months. Income from the disposition of foreign currencies, and options,
futures, and forward contracts thereon, that are not directly related to
the Fund's principal business of investing in securities (or options and
futures with respect to securities) and are held for less than three
months also will be subject to the Short-Short Limitation.

If the International Fund satisfies certain requirements, any increase in
value of a position that is part of a "designated hedge" will be offset by
any decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining
whether the Fund satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be included in gross income
for purposes of that limitation. The Fund intends that, when it engages
in hedging transactions, they will qualify for this treatment, but at the
present time it is not clear whether this treatment will be available for
all of the Fund's hedging transactions. To the extent this treatment is
not available, the Fund may be forced to defer the closing out of certain
options, futures, forward contracts, and foreign currency positions beyond
the time when it otherwise would be advantageous to do so, in order for it
to continue to qualify as a RIC.

Any income the International Fund earns from writing options is taxed as
short-term capital gain. If the Fund enters into a closing purchase
transaction, it will have a short-term capital gain or loss based on the
difference between the premium it received for the option it wrote and the
premium it pays for the option it buys. If an option written by the Fund
expires without being exercised, the premium it receives also will be a
short-term gain. If such an option is exercised and the Fund thus sells
the securities subject to the option, the premium the Fund receives will
be added to the exercise price to determine the gain or loss on the sale.
Losses on written covered calls and purchased puts on securities,
excluding certain "qualified covered call" options on equity securities,
may be long-term capital losses, if the security covering the option was
held for more than twelve months prior to the writing of the option. The
Fund will not write so many options that it could fail to continue to
qualify as a RIC.

Certain of the International Fund's options, futures, and forward
contacts, including options and futures on currencies, will be treated as
"Section 1256 contracts." Section 1256 contracts held by the Fund at the

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<PAGE>

end of its taxable year will be "marked-to-market" (that is, treated as
sold for their fair market value, with the result that unrealized gains or
losses are treated as though they were realized), and those gains and
losses will be recognized for tax purposes, at that time. Any net gains
or losses recognized on those deemed sales, and gains or losses from
actual closings or settlements of Section 1256 contracts, will be
characterized as 60% long-term capital gain or loss and 40% short-term
capital gain or loss regardless of the Fund's holding period for the
contract. The Fund will be required to distribute any such net gains to
its shareholders even though it may not have closed the transactions and
received cash to pay the distributions.

Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the International Fund may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
apply to transactions where a position is sold at a loss and a new
offsetting position is acquired within a prescribed period, and "short
sale" rules applicable to straddles. If the Fund makes certain elections,
the amount, character, and timing of the recognition of gains and losses
from the affected straddle positions will be determined under rules that
vary according to the elections made. Because only a few of the
regulations implementing the straddle rules have been promulgated, the tax
consequences of straddle transactions to the Fund are not entirely clear.

The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the Funds. No attempt is
made to present a complete explanation of the federal tax treatment of
their activities, and this discussion is not intended as a substitute for
careful tax planning. Accordingly, potential investors are urged to
consult with their own tax advisors for more detailed information and for
information regarding any state, local or foreign taxes applicable to the
Funds and to distributions therefrom.

CONVERSION OF ADVISOR CLASS B SHARES

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<PAGE>

through an exchange, or a series of exchanges, the date on which the
original Advisor Class B shares were purchased. Holders of Class B shares
of the former SAFECO Advisor Series Trust ("Advisor Series Shares") who
have converted those shares to Advisor Class B Shares of a Fund may calcu-
late the holding period from the date of the purchase of the Advisor
Series Shares. For purposes of conversion to Advisor Class A shares,
Advisor Class B shares purchased through the reinvestment of dividends and
other distributions paid in respect of Advisor Class B shares will be held
in a separate sub-account; each time any Advisor Class B shares in the
shareholder's regular account (other than those in the sub-account)
convert to Advisor Class A shares, a pro rata portion of the Advisor Class
B shares in the sub-account will also convert to Advisor Class A shares.
The portion will be determined by the ratio that the shareholder's Advisor
Class B shares converting to Advisor Class A shares bears to the share-
holder's total Advisor Class B shares not acquired through dividends and
other distributions.

The availability of the conversion feature is subject to the continuing
applicability of a ruling of the Internal Revenue Service that (1) the
dividends and other distributions paid on Advisor Class A and Advisor
Class B shares will not result in "preferential dividends" under the Code
and (2) the conversion of shares does not constitute a taxable event. If
the conversion feature ceased to be available, the Advisor Class B shares
of each Fund would not be converted and would continue to be subject to
the higher ongoing expenses of the Advisor Class B shares beyond six years
from the date of purchase. SAM has no reason to believe that this
condition for the availability of the conversion feature will not continue
to be met.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

Each Fund determines its NAV by subtracting its liabilities (including
accrued expenses and dividends payable) from its total assets (the market
value of the securities the Fund holds plus cash and other assets,
including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAVs of the Advisor
classes of each Fund are calculated as of the close of regular trading on
the New York Stock Exchange ("Exchange") every day the Exchange is open
for trading. The Exchange is closed on the following days: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

Each Fund has selected a pricing service to assist in computing the value
of its securities. There are a number of pricing services available and
the decision as to whether, or how, a pricing service should be used by a
Fund will be subject to review by the Trust's Board of Trustees.

Short-term debt securities held by each Fund's portfolio having a
remaining maturity of less than 60 days when purchased, and securities

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<PAGE>

originally purchased with maturities in excess of 60 days but which
currently have maturities of 60 days or less, may be valued at cost
adjusted for amortization of premiums or accrual of discounts, or under
such other methods as the Board of Trustees may from time to time deem to
be appropriate. The cost of those securities that had original maturities
in excess of 60 days shall be determined by their fair market value as of
the 61st day prior to maturity. All other securities and assets in the
portfolios will be appraised in accordance with those procedures
established by the Board of Trustees in good faith in computing the fair
market value of those assets.

Trading in foreign securities will generally be substantially completed
each day at various times prior to the close of the Exchange. The value
of any such securities are determined as of such times for purposes of
computing the International Fund's NAV. Foreign currency exchange rates
are also generally determined prior to the close of the Exchange. If an
extraordinary event occurs after the close of an exchange on which that
security is traded, the security will be valued at fair value as
determined in good faith by the Sub-Adviser under procedures established
by and under general supervision of the Fund's Board of Trustees.

Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close
of option trading on such exchange. Futures contracts the International
Fund will enter into will be marked to market daily, and options thereon
are valued at their last sale price, as of the close of the applicable
commodities exchange. Quotations of foreign securities in a foreign
currency are converted into U.S. dollar equivalents at the current rate
obtained by a recognized bank or dealer. Forward contracts are valued at
the current cost of covering or offsetting such contracts.

ADDITIONAL PERFORMANCE INFORMATION

Effective September 30, 1996, all of the then-existing shares of each Fund
were redesignated No-Load Class shares and each Fund commenced offering
Advisor Class A and Advisor Class B shares. The performance information
that follows is based on the original shares of each Fund, recalculated to
reflect the sales charges of the Advisor Classes. The performance figures
quoted do not reflect Advisor Class Rule 12b-1 fees, which if reflected
would cause the performance figures to be lower than those indicated.

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended September 30, 1995, for the Growth, Equity and Income
Funds were as follows:

- 54 -

<PAGE>

<TABLE>
<CAPTION>
1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund 18.35% 18.93% 138.05% 147.27% 237.03% 252.91%

Equity Fund 16.12% 16.59% 151.11% 160.94% 355.54% 377.00%

Income Fund 15.60% 16.04% 92.32% 99.38% 198.06% 212.11%

</TABLE>

The total returns, expressed as a percentage, for the one-year and since-
inception (55 months) periods ended September 30, 1995, for the Northwest
Fund were as follows:

1 Year Since Initial Effective Date
------ (55 Months)
----------------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B

Northwest Fund 13.66% 14.01% 53.78% 59.08%
</TABLE>

The total returns, expressed as a percentage, for the one-, five- and ten-
year periods ended March 31, 1996, for the Growth, Equity and Income Funds
were as follows:

- 55 -
<PAGE>

<TABLE>
<CAPTION>
1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund 23.31% 24.12% 84.21% 90.89% 196.74% 210.72%

Equity Fund 20.14% 20.80% 119.87% 128.23% 269.22% 286.61%

Income Fund 19.84% 20.49% 78.69% 85.11% 151.09% 162.92%

</TABLE>

The total returns, expressed as a percentage, for the one-year, five-year
and since-inception (61 months) periods ended March 31, 1996, for the
Northwest Fund were as follows:

Since Initial Effective Date
1 Year 5 years (61 Months)
------ ------- ----------------------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund 18.04% 18.60% 61.49% 67.10% 65.05% 71.89%
</TABLE>

The total returns, expressed as a percentage, for the two month period
from inception to March 31, 1996 for the Balanced, International, and
Small Company Funds were as follows:

- 56 -
<PAGE>

2 Month Period From
Inception to March 31, 1996
--------------------------

Advisor Advisor
Class A Class B
------- -------

Balanced Fund -4.34% -4.83%

International Fund -4.12% -4.60%

Small Company Fund 0.18% -0.10%

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended September 30,
1995, for the Growth, Equity and Income Funds were as follows:

<TABLE>
<CAPTION>
1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund $11,835 $11,893 $23,805 $24,727 $33,703 $35,291

Equity Fund $11,612 $11,659 $25,111 $26,094 $45,554 $47,700

Income Fund $11,560 $11,604 $19,232 $19,938 $29,806 $31,211

</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since-inception (55 months) periods ended
September 30, 1995, for the Northwest Fund were as follows:

- 57 -

<PAGE>

<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year (55 Months)
------ ----------------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Northwest Fund $11,366 $11,401 $15,378 $15,908

</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended March 31, 1996,
for the Growth, Equity and Income Funds were as follows:

1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund $12,331 $12,412 $18,421 $19,089 $29,674 $31,072

Equity Fund $12,014 $12,080 $21,987 $22,823 $36,922 $38,661

Income Fund $11,984 $12,049 $17,869 $18,511 $25,109 $26,292
</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year, five-year and since-inception (61 months)
periods ended March 31, 1996, for the Northwest Fund were as follows:

- 58 -
<PAGE>

<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year 5 years (61 Months)
------ ------- ----------------------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund $11,804 $11,860 $16,149 $16,710 $16,505 $17,189

</TABLE>

The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the two month period from inception to March 31, 1996, for
the Balanced, International and Small Company Funds were as follows:

2 Month Period From
Inception to March 31, 1996
---------------------------
Advisor Advisor
Class A Class B
------- -------

Balanced Fund $ 9,566 $9,517

International Fund $ 9,588 $9,540

Small Company Fund $10,018 $9,990

The average annual total returns for the one-, five- and ten-year periods
ended September 30, 1995, for the Growth, Equity and Income Funds were as
follows:

- 59 -

<PAGE>

<TABLE>
<CAPTION>
1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund 18.35% 18.93% 18.94% 19.85% 12.92% 13.44%

Equity Fund 16.12% 16.59% 20.22% 21.15% 16.37% 16.91%

Income Fund 15.60% 16.04% 13.97% 14.80% 11.54% 12.05%

</TABLE>

The average annual total returns for the one-year and since-inception
(55 months) periods ended September 30, 1995, for the Northwest Fund were
as follows:

Since Initial Effective Date
1 Year (55 Months)
------ ----------------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>

Northwest Fund 13.66% 14.01% 9.84% 10.66%

</TABLE>

- 60 -
<PAGE>

The average annual total returns for the one-, five- and ten-year periods
ended March 31, 1996, for the Growth, Equity and Income Funds were as
follows:

<TABLE>
<CAPTION>
1 Year 5 years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Growth Fund 23.31% 24.12% 13.00% 13.80% 11.49% 12.01%

Equity Fund 20.14% 20.80% 17.07% 17.94% 13.95% 14.48%

Income Fund 19.84% 20.49% 12.31% 13.11% 9.64% 10.15%

</TABLE>

The average annual total returns for the one-year, five year and since-
inception (61 months) periods ended March 31, 1996, for the Northwest Fund
were as follows:

Since Initial Effective Date
1 Year 5 years (61 Months)
------ ------- ----------------------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Northwest Fund 18.04% 18.60% 10.06% 10.81% 10.36% 11.24%
</TABLE>

- 61 -
<PAGE>

Calculations
------------

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

ERV-P
T = ----- x 100
P

The total return, expressed in dollars, is computed using the following
formula:
n
T = P(1+A)

The average annual total return is computed using the following formula:

A = (square root of n ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical investment of
$1,000 at the end of a specified period of time

P = a hypothetical initial investment of $1,000 or
$10,000 (when total return is expressed in dollars)

In making the above calculation, all dividends and capital gain
distributions are assumed to be reinvested at the respective Fund's NAV on
the reinvestment date, and the maximum sales charge for each Class is
applied.

In addition to performance figures, the Funds may advertise their rankings
as calculated by independent rating services that monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical
Services, Inc., Morningstar, Inc., and Wiesenberger Investment Companies
Service). These rankings may be among mutual funds with similar
objectives and/or size or with mutual funds in general. In addition, the
Funds may advertise rankings which are in part based upon subjective
criteria developed by independent rating services to measure relative
performance. Such criteria may include methods to account for levels of
risk and potential tax liability, sales commissions and expense and
turnover ratios. These rating services may also base the measure of
relative performance on time periods deemed by them to be representative
of up and down markets.

The Funds may occasionally reproduce articles or portions of articles
about the Funds written by independent third parties such as financial

- 62 -
<PAGE>

writers, financial planners and financial analysts, which have appeared in
financial publications of general circulation or financial newsletters
(including but not limited to BARRONS, BUSINESS WEEK, FORBES, FORTUNE,
INVESTOR'S BUSINESS DAILY, KIPLINGER'S, MONEY MAGAZINE, NEWSWEEK, PENSIONS
& INVESTMENTS, TIME MAGAZINE, U.S. NEWS AND WORLD REPORT, AND THE WALL
STREET JOURNAL).

Each Fund may compare its performance against the following unmanaged
indices that (unless otherwise noted in the advertisement) assume
reinvestment of dividends:

AMEX (AMERICAN STOCK EXCHANGE) MAJOR MARKET INDEX - Price
weighted (high priced issues have more influence than low-priced
issues) average of 20 Blue Chip stocks.

DOW JONES INDUSTRIAL AVERAGE - Price weighted average of 30
actively-traded Blue Chip stocks.

NASDAQ PRICE INDEX - Market value weighted (impact of a
component's price change is proportionate to the overall market
value of the issue) index of approximately 3500 over-the-counter
stocks.

S & P's COMPOSITE INDEX OF 500 STOCKS - Market value weighted
index of 500 stocks most of which are listed on the New York
Stock Exchange with some listed on the American Stock Exchange
and Nasdaq.

WILSHIRE 5000 EQUITY INDEX - Market value weighted index of
approximately 5000 stocks including all stocks on the New York
and American Exchanges.

MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX - Market value
weighted index of approximately 1200 companies located throughout
the world.

RUSSELL 2000 INDEX - The 2000 smallest firms in the Russell 3000
Index which is composed of the 3000 largest companies in the
United States as measured by capitalization.

Each Fund may present in its advertisements and sales literature (i) a
biography or the credentials of its portfolio manager (including but not
limited to educational degrees, professional designations, work
experience, work responsibilities and outside interests), (ii) current
facts (including but not limited to number of employees, number of
shareholders, business characteristics) about its investment adviser (SAM)
or any sub-investment adviser, the investment adviser's parent company
(SAFECO Corporation) or the parent company of any sub-investment adviser,
or the SAFECO Family of Funds, (iii) descriptions, including quotations
attributable to the portfolio manager, of the investment style used to
manage a Fund's portfolio, the research methodologies underlying

- 63 -
<PAGE>

securities selection and a Fund's investment objective and (iv)
information about particular securities held in a Fund's portfolio.

From time to time, each Fund may discuss its performance in relation to
the performance of relevant indices and/or representative peer groups.
Such discussions may include how a Fund's investment style (including but
not limited to portfolio holdings, asset types, industry/sector weightings
and the purchase and sale of specific securities) contributed to such
performance.

In addition, each Fund may comment on the market and economic outlook in
general, on specific economic events, on how these conditions have
impacted its performance and on how the portfolio manager will or has
addressed such conditions.

Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS

Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
---------------- ------------------ --------------------

Boh A. Dickey* Chairman and Executive Vice President, Chief
SAFECO Plaza Trustee Financial Officer and Director of
Seattle, Washington 98185 SAFECO Corporation. Director of
(51) First SAFECO National Life
Insurance Company of New York.
He has been an executive officer
of SAFECO Corporation and its
subsidiaries since 1982. See
table under "Investment Advisory
and Other Services."

Barbara J. Dingfield Trustee Manager, Corporate Contributions
Microsoft Corporation and Community Programs for
One Microsoft Way Microsoft Corporation, Redmond,
Redmond, Washington 98052 Washington, a computer software
(50) company; Director and former
Executive Vice President of
Wright Runstad & Co., Seattle,
Washington, a real estate
development company; Director
of First SAFECO National Life
Insurance Company of New York.

- 64 -
<PAGE>

Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and other
Seattle, Washington 98177 SAFECO Trusts; retired Senior
(67) Vice President and Treasurer of
SAFECO Corporation; former
President of SAFECO Asset
Management Company; Director of
First SAFECO National Life
Insurance Company of New York.

Richard E. Lundgren Trustee Director of Marketing and
764 S. 293rd Street Customer Relations, Building
Federal Way, Washington 98032 Materials Distribution,
(58) Weyerhaeuser Company, Tacoma,
Washington; Director of First
SAFECO National Life Insurance
Company of New York.

Larry L. Pinnt Trustee Retired Vice President and Chief
1600 Bell Plaza Financial Officer of US WEST
Room 1802 Communications, Seattle,
Seattle, Washington 98191 Washington; Director of Key Bank
(61) of Washington, Seattle,
Washington; Director of
University of Washington Medical
Center, Seattle, Washington;
Director of First SAFECO National
Life Insurance Company of New
York; Director of Cascade Natural
Gas Corporation, Seattle,
Washington.

John W. Schneider Trustee President of Wallingford Group,
1808 N 41st St. Inc., Seattle, Washington;
Seattle, Washington 98103 former President of Coast Hotels,
(54) Inc., Seattle, Washington;
Director of First SAFECO National
Life Insurance Company of New
York.

David F. Hill President President of SAFECO Securities
SAFECO Plaza Inc. and SAFECO Services
Seattle, Washington 98185 Corporation; Senior Vice
(47) President of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."

- 65 -

<PAGE>

Neal A. Fuller Vice President Vice President, Controller,
SAFECO Plaza Controller Assistant Secretary and Treasurer
Seattle, Washington 98185 Assistant Secretary of SAFECO Securities, Inc. and
(34) SAFECO Services Corporation;
Vice President, Controller,
Secretary and Treasurer of SAFECO
Asset Management Company. See
table under "Investment Advisory
and Other Services."

Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice
Seattle, Washington 98185 President and Treasurer of SAFECO
(52) Corporation; Director and Vice
President of SAFECO Life
Insurance Company; former senior
Portfolio Manager of SAFECO
insurance companies' taxable bond
portfolios; former Portfolio
Manager for several SAFECO mutual
funds. See Table under
"Investment Advisory and Other
Services."
</TABLE>

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

- 66 -

<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995

Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation from As Part of Fund Benefits Upon Fund Complex Paid
Trustee Registrant Expenses Retirement to Trustees
------- ----------------- --------------- --------------- ------------------

Barbara J. Dingfield $3,708 N/A N/A $22,737

Richard E. Lundgren $3,708 N/A N/A $22,737

L.D. McClean $3,425 N/A N/A $21,000

Larry L. Pinnt $3,708 N/A N/A $22,737

John W. Schneider $3,708 N/A N/A $22,737

Boh A. Dickey $0 N/A N/A $0

Richard W. Hubbard $3,875 N/A N/A $24,150
</TABLE>

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management investment companies that have, in
the aggregate, twenty-four series companies managed by SAM.

The officers of the Trust receive no compensation for their service as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.

INVESTMENT ADVISORY AND OTHER SERVICES

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

- 67 -
<PAGE>

SAM has a sub-advisory Agreement with Bank of Ireland Asset Management
(U.S.) Limited. The Sub-Adviser has its headquarters at 26 Fitzwilliam
Place, Dublin Ireland and its U.S. office at 2 Greenwich Plaza, Greenwich,
Connecticut. The Sub-Adviser is a direct, wholly owned subsidiary of Bank
of Ireland Asset Management Limited (an investment advisory firm) that is
located at 26 Fitzwilliam Place, Dublin, Ireland. The Sub-Adviser is an
indirect, wholly owned subsidiary of Bank of Ireland (a holding company
whose primary subsidiaries are engaged in banking, insurance, securities
and related financial services), which is located at Lower Baggot Street,
Dublin, Ireland.

The following individuals have the following positions and offices with
the Trust, SAM, SAFECO Securities and SAFECO Services:

<TABLE>
CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
---- ----- --- ---------- --------

B. A. Dickey Chairman Director Director
Trustee Chairman

D. F. Hill President Senior Vice President President
President Director Director
Director Secretary Secretary

N. A. Fuller Vice President Vice President Vice Vice
Controller Controller President Controller President Controller
Assistant Secretary Secretary Assistant Secretary Assistant Secretary
Treasurer Treasurer Treasurer

R.L. Spaulding Vice President Vice Director Director
Treasurer Chairman
Director

S. C. Bauer President
Director
</TABLE>

Mr. Dickey is Chief Financial Officer, Executive Vice President and a
director of SAFECO Corporation and Mr. Spaulding is Treasurer of SAFECO
Corporation. Messrs. Dickey and Spaulding are also directors of other
SAFECO Corporation subsidiaries.

- 68 -
<PAGE>

In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed
for or on behalf of the Trust and each Fund that includes furnishing
office facilities, books, records and personnel to manage the Trust's and
each Fund's affairs and paying certain expenses.

The Trust's Trust Instrument provides that the Trust will indemnify its
Trustees and its officers against liabilities and expenses reasonably
incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless it is adjudicated that
they engaged in bad faith, wilful misfeasance, gross negligence, or
reckless disregard of the duties involved in the conduct of their offices.
In the case of settlement, such indemnification will not be provided
unless it has been determined -- by a court or other body approving the
settlement or other disposition, or by a majority of disinterested
Trustees, based upon a review of readily available facts, or in a written
opinion of independent counsel -- that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence, or reckless
disregard of their duties.

SAM also serves as the investment adviser for other investment companies
in addition to the Funds. Several of these investment companies have
investment objectives similar to those of certain Funds. It is therefore
possible that the same securities will be purchased for both a Fund and
another investment company advised by SAM. When two or more funds advised
by SAM are simultaneously engaged in the purchase or sale of the same
security, the prices and amounts will be allocated in accordance with a
formula considered by the officers of the funds involved to be equitable
to each fund. In some cases this system could have a detrimental effect
on the price or value of the security as far as a Fund is concerned. In
other cases, however, the ability of a Fund to participate in volume
transactions will produce better executions and prices for the Fund.

For the services and facilities furnished by SAM, each Fund has agreed to
pay an annual fee computed on the basis of the average market value of the
net assets of each Fund ascertained each business day and paid monthly in
accordance with the following schedules. The reduction in fees occurs
only at such time as the respective Fund's net assets reach the dollar
amounts of the break points and applies only to those assets that fall
within the specified range:

Growth, Equity and Income Funds

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%

- 69 -
<PAGE>

Northwest Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%

Balanced Fund

Net Assets Annual Fee

$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%

International Fund

Net Assets Annual Fee

$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%

Small Company Fund

Net Assets Annual Fee

$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%

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

Net Assets Annual Fee

$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%

- 70 -

<PAGE>

Presently, the most restrictive expense ratio limitation imposed by any
such state is 2.5% of the first $30 million of a Fund's average daily net
assets, 2.0% of the next $70 million of such assets, and 1.5% of the
remaining net assets. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to a reimbursement, that month's
advisory fee will be reduced or postponed, with any adjustment made after
the end of the fiscal year.

The following table states the total amounts of compensation paid to SAM
for the past three fiscal years for the Growth, Equity and Income Funds
and the three fiscal periods for the Northwest Fund:

Fiscal Year or Period Ended

September 30 September 30 September 30
1995 1994 1993
------------ ----------- ------------

Growth Fund $1,107,000 $1,096,000 $1,068,000
Equity Fund $3,151,000 $1,676,000 $ 749,000
Income Fund $1,348,000 $1,363,000 $1,353,000

<TABLE>
<CAPTION>
9 Month
Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

Northwest Fund $269,000 $287,000 $228,000

</TABLE>

DISTRIBUTION ARRANGEMENTS. SAFECO Securities is the principal underwriter
for each Fund and acts as the distributor of the Advisor Class A and
Advisor Class B shares of each Fund under a Distribution Agreement with
the Trust that requires SAFECO Securities to use its best efforts,
consistent with its other businesses, to sell shares of the Funds. Shares
of the Funds are offered continuously.

Under separate plans of distribution pertaining to the Advisor Class A and
Advisor Class B shares of each Fund adopted by the Trust in the manner
prescribed under Rule 12b-1 under the 1940 Act (each a "Plan"), each
Advisor Class pays fees described in the Prospectus.

- 71 -
<PAGE>

Among other things, each Plan provides that (1) SAFECO Securities will
submit to the Trust's board of trustees at least quarterly, and the
Trustees will review, reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect so long as it is approved at least annually and
any material amendment thereto is approved, by the Trust's board of
trustees, including those Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in the
operation of the Plan or any agreement related to the Plan, acting in
person at the meeting called for that purpose, (3) payments by a Fund
under the Plan shall not be materially increased without the affirmative
vote of the holders of a majority of the outstanding voting securities of
the relevant Advisor Class of that Fund and (4) while the Plan remains in
effect, the selection and nomination of Trustees who are not "interested
persons" of the Trust shall be committed to the discretion of the Trustees
who are not "interested persons" of the Trust.

In reporting amounts expended under the Plans to the Trustees, SAFECO
Securities will allocate expenses attributable to the sale of each Advisor
Class of Fund shares to such Advisor Class based on the ratio of sales of
shares of such Advisor Class to the sales of all Advisor Classes of
shares. Expenses attributable to a specific Advisor Class will be
allocated to that Advisor Class.

In approving the adoption of each Plan, the Trustees determined that the
adoption was in the best interests of the Funds' shareholders.

In the event that a Plan is terminated or not continued with respect to
the Advisor Class A or Advisor Class B shares, (i) no fees would be owed
by a Fund to SAFECO Securities with respect to that class, and (ii) a Fund
would not be obligated to pay SAFECO Securities for any amounts expended
under the Plan not previously recovered by SAFECO Securities.

The Plans comply with rules of the National Association of Securities
Dealers, Inc. which limit the annual asset-based sales charges and service
fees that a mutual fund may impose on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class.
The rules also limit the aggregate of all front-end, deferred and asset-
based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
that class, plus interest at the prime rate plus 1% per annum.

U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington
98111, is the custodian of the securities, cash and other assets of each
Fund (except the International Fund) under an agreement with the Trust.
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New
York is the custodian of the securities, cash and other assets of the

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<PAGE>

International Fund. Chase Manhattan Bank, N.A. has entered into sub-
custodian agreements with several foreign banks and clearing agencies,
pursuant to which portfolio securities purchased outside the United States
are maintained in the custody of these entities. Ernst & Young LLP, 999
Third Avenue, Suite 3500, Seattle, Washington 98104, is the independent
auditor of each Fund's financial statements.

SAFECO Services, SAFECO Plaza, Seattle, Washington 98185 is the transfer,
dividend and distribution disbursement and shareholder servicing agent for
the Advisor classes of each Fund under an Agreement with the Trust.
SAFECO Services provides, or through subcontracts makes provision for, all
required transfer agent activity, including maintenance of records of each
Fund's Advisor Class shareholders, records of transactions involving each
Fund's Advisor Class shares, and the compilation, distribution, or
reinvestment of income dividends or capital gains distributions. SAFECO
Services is paid a fee for these services equal to $28.00 per shareholder
account, but not to exceed .30% of each Fund's average net assets. The
following table shows the fees paid by each Fund to SAFECO Services during
the past three fiscal years or periods:

Fiscal Year or Period Ended*

September 30 September 30 September 30
1995 1994 1993
------------ ------------ -------------

Growth Fund $ 305,000 $ 210,000 $ 169,000
Equity Fund $1,018,000 $ 370,000 $ 143,000
Income Fund $ 298,000 $ 264,000 $ 259,000

9 Month
Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

Northwest Fund $97,000 $85,000 $56,000

</TABLE>

------------------
* Table reflects fees of $3.10 per shareholder transaction payable
pursuant to the prior fee schedule.

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<PAGE>

BROKERAGE PRACTICES

SAM and the Sub-Adviser place orders for the purchase or sale of Fund
portfolio securities based on various factors, including:

(1) Which broker gives the best execution, (i.e., which broker is
able to trade the securities in the size and at the price desired
and on a timely basis);

(2) Whether the broker is known as being reputable; and

(3) All other things being equal, which broker has provided useful
research services.

Such research services as are furnished during the year (e.g., written
reports analyzing economic and financial characteristics of industries and
companies, telephone conversations between brokerage security analysts and
members of SAM's and the Sub-Adviser's staff, and personal visits by such
analysts and brokerage strategists and economists) are used to advise all
clients including the Funds, but not all such research services furnished
are used by it to advise the Funds. Excess commissions or mark-ups are
not paid to any broker or dealer for research services or for any other
reason. During the fiscal year ended September 30, 1995, for the Growth,
Income, Equity and Northwest Funds, 100% of each Fund's total brokerage
expenses were commissions paid to brokers providing research services.
The following table states the total amount of brokerage expense for each
Fund for the past three fiscal years for the Growth, Equity and Income
Funds and for the three fiscal periods for the Northwest Fund:

Fiscal Year

September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------

Growth Fund $ 489,983 $220,350 $197,179
Equity Fund $1,082,137 $731,184 $223,474
Income Fund $ 159,717 $111,612 $106,893

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<PAGE>

Year Ended Year Ended Period Ended
September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

Northwest Fund $6,536 $11,409 $10,390

</TABLE>

REDEMPTION IN KIND

If the Trust concludes that cash payment upon redemption to a shareholder
would be prejudicial to the best interest of the other shareholders of a
Fund, a portion of the payment may be made in kind. The Trust has elected
to be governed by Rule 18(f)(1) under the Investment Company Act of 1940,
pursuant to which the Trust must redeem shares tendered by a shareholder
of a Fund solely in cash up to the lesser of $250,000 or 1% of a net asset
value of a Fund during any 90-day period. Any shares tendered by the
shareholder in excess of the above-mentioned limit may be redeemed through
distribution of a Fund's assets. Any securities or other property so
distributed in kind shall be valued by the same method as is used in
computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur
brokerage costs in disposing of securities received in such a distribution
in kind.

FINANCIAL STATEMENTS

The following financial statements for the Growth, Equity, Income and
Balanced Funds and the report thereon of Ernst & Young LLP, independent
auditors, are incorporated herein by reference to the Trust's Annual
Report for the year ended September 30, 1995.

Portfolio of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operations for the Year Ended September 30, 1995
Statement of Changes in Net Assets for the Years Ended
September 30, 1995 and September 30, 1994
Notes to Financial Statements

The following unaudited financial statements for each Fund are
incorporated herein by reference to the Trust's Semi-Annual Report for the
period ended March 31, 1996.

- 75 -

<PAGE>

Portfolio of Investments as of March 31, 1996 (unaudited)
Statement of Assets and Liabilities as of March 31, 1996
(unaudited)
Statement of Operation for the Period Ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended March 31,
1996 (unaudited)
March 31, 1996 Notes to Financial Statements (unaudited)

A copy of the Trust's Annual and Semi-Annual Report accompanies this
Statement of Additional Information. Additional copies may be obtained by
calling SAFECO Services at 1-800-463-8791 or by writing to the address on
the Prospectus cover.

DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS

Commercial Paper Ratings

MOODY's. Issuers rated Prime-1 have a superior capacity, issuers rated
Prime-2 have a strong capacity and issuers rated Prime-3 have an
acceptable capacity for the repayment of short-term promissory
obligations.

S&P. Commercial paper rated A are the highest quality obligations.
Issues in this category are regarded as having the greatest capacity for
timely payment. For issues designated A-1 the degree of safety regarding
timely payment is very strong. Issues designated A-2 also have a strong
capacity for timely payment but not as high as A-1 issuers. Issues
designated A-3 have a satisfactory capacity for timely payment.

Preferred Stock Ratings

Generally, a preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends. A preferred
stock rating differs from a bond rating since it is assigned to an equity
issue which is different from, and subordinated to, a debt issue.

Excerpts from Moody's description of its preferred stock ratings:

aaa - Top-quality preferred stock. This rating indicates good asset
protection and the least risk of dividend impairment within the universe
of preferred stocks.

aa - High-grade preferred stock. This rating indicates that there is a
reasonable assurance that earnings and asset protection will remain
relatively well maintained in the foreseeable future.

- 76 -
<PAGE>

a - Upper-medium grade preferred stock. While risks are judged to be
somewhat greater than in the "aaa" and "aa" classifications, earnings and
asset protections are, nevertheless, expected to be maintained at adequate
levels.

baa - Medium grade preferred stock, neither highly protected nor poorly
secured. Earnings and asset protection appear adequate at present but may
be questionable over any great length of time.

ba - Considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very
moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

b - Generally lacks the characteristics of a desirable investment.
Assurance of dividend payments and maintenance of other terms of the issue
over any long period of time may be small.

caa - Likely to be in arrears on dividend payments. This rating
designation does not purport to indicate the future status of payments.

ca - Speculative in a high degree and is likely to be in arrears on
dividends with little likelihood of eventual payments.

c - Lowest rated class of preferred or preference stock. Issues so rated
can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Excerpts from S&P's description of its preferred stock ratings:

AAA - The highest rating that may be assigned by S&P to a preferred stock
issue and indicates an extremely strong capacity to pay the preferred
stock obligations.

AA - Qualifies as a high-quality fixed-income security. The capacity to
pay preferred stock obligations is very strong, although not as
overwhelming as for issues rated "AAA."

A - Backed by a sound capacity to pay the preferred stock obligations,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.

BBB - Backed by an adequate capacity to pay the preferred stock
obligations. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to make payments for a preferred stock in this
category than for issues in the "A" category.

BB, B, CCC - Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominately speculative with respect to the issuer's
capacity to pay preferred stock obligations. "BB" indicates the lowest
degree of speculation and "CCC" the highest degree of speculation. While

- 77 -
<PAGE>

such issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.

CC - The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.

C - A preferred stock rated "C" is a non-paying issue.

D - A preferred stock rated "D" is a non-paying issue with issuer in
default on debt instruments.

NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Plus (+) or Minus (-) To provide more detailed indications of preferred
stock quality, 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.

- 78 -

<PAGE>

SUBJECT TO COMPLETION, DATED JULY 30, 1996

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer, solicita-
tion or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.

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

SAFECO MANAGED BOND TRUST:
SAFECO MANAGED BOND FUND

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

SAFECO MONEY MARKET TRUST:
SAFECO MONEY MARKET FUND

Advisor Class A
Advisor Class B

Statement of Additional Information

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the funds listed above (each a
"Fund"). A copy of the Prospectus may be obtained by writing SAFECO
Mutual Funds, P.O. Box 34890, Seattle, Washington 98124-1890, or by
calling TOLL FREE: 1-800-463-8791

The date of the most current Prospectus of the Funds to which this
Statement of Additional Information relates is September 30, 1996.

The date of this Statement of Additional Information is September 30,
1996.

<PAGE>

_________________________________________________________________________

TABLE OF CONTENTS

INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . 1
INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND . . . . . . . . 2
INVESTMENT POLICIES OF THE MANAGED BOND FUND . . . . . . . . . . . . 5
INVESTMENT POLICIES OF THE TAX-EXEMPT FIXED INCOME FUNDS . . . . . . 9
INVESTMENT POLICIES OF THE MONEY MARKET FUND . . . . . . . . . . . . 14
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . . . . . . . . . 16
INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA
AND WASHINGTON ISSUERS . . . . . . . . . . . . . . . . . . . . . . . 22
PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS . . . . . . . . . . . . . . . 33
ADDITIONAL TAX INFORMATION . . . . . . . . . . . . . . . . . . . . . 34
CONVERSION OF ADVISOR CLASS B SHARES . . . . . . . . . . . . . . . . 36
ADDITIONAL INFORMATION ON CALCULATION OF
NET ASSET VALUE PER SHARE . . . . . . . . . . . . . . . . . . . . . . 36
ADDITIONAL PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . 38
ADDITIONAL INFORMATION ON DIVIDENDS . . . . . . . . . . . . . . . . . 45
TRUSTEES AND OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . 45
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . . . . 51
BROKERAGE PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . 57
REDEMPTION IN KIND . . . . . . . . . . . . . . . . . . . . . . . . . 57
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 58
DESCRIPTION OF RATINGS . . . . . . . . . . . . . . . . . . . . . . . 59

<PAGE>

INVESTMENT POLICIES

SAFECO Intermediate-Term Treasury Fund ("Intermediate Treasury Fund") and
SAFECO Managed Bond Fund ("Managed Bond Fund") (collectively the "Taxable
Fixed Income Funds") are series of SAFECO Taxable Bond Trust ("Taxable
Bond Trust") and SAFECO Managed Bond Trust ("Managed Bond Trust"),
respectively.

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

SAFECO Money Market Fund ("Money Market Fund") is a series of SAFECO Money
Market Trust ("Money Market Trust").

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

Generally, the entity that has the ultimate responsibility for the payment
of interest and principal on a particular security is deemed to be its
issuer for purposes of the Tax-Exempt Fixed Income Funds' investment
policies. The identification of the issuer of a tax-exempt security for
purposes of diversification depends on the terms and conditions of the
security. For example, when the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the security is
backed only by the assets and revenues of the subdivision, such
subdivision would be deemed to be the sole issuer for diversification
purposes. Similarly, in the case of an industrial development bond, if
that bond is backed only by the assets and revenues of the non-
governmental user, then such non-governmental user would be deemed to be
the sole issuer for purposes of diversification. If, however, in either
case, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security which must be
valued and included in each Tax-Exempt Fixed Income Fund's five percent
(5%) limitation on investments in one issuer.
<PAGE>

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

Non-fundamental policies may be changed by each Trust's Board of Trustees
without shareholder approval.

INVESTMENT POLICIES OF THE INTERMEDIATE TREASURY FUND

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

Fundamental Investment Policies

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

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

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

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

2
<PAGE>

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

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

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

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

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

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

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

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

12. Purchase shares of common stock, other than those issued by other
regulated investment companies only, when the acquisition of such

3
<PAGE>

common stocks, rights or other equity interests is consistent
with the Fund's investment objective. Generally, the Fund will
only hold such equity securities as a result of purchases or unit
offerings of fixed-income securities which include such equity
securities or in connection with an actual or proposed conversion
or exchange of fixed-income securities;

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

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

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

16. Purchase or otherwise acquire securities which are illiquid or
subject to legal or contractual restrictions on resale, if as a
result more than ten percent (10%) of the Fund's total assets
would be invested in such securities; or

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

<PAGE>

Non-Fundamental Investment Policies

In addition to the policies described in the Prospectus, the Intermediate
Treasury Fund has adopted the following non-fundamental investment
policies which may be changed by the Taxable Bond Trust's Board of
Trustees without shareholder approval:

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

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

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

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

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

6. The Fund will not invest in any security issued by a commercial
bank unless (a) the bank has total assets of at least $1 billion,
or the equivalent in other currencies, or, in the case of a
United States bank which does not have assets of at least $1
billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal sum of each investment is
insured in full by the Federal Deposit Insurance Corporation
("FDIC"), (b) in the case of a U.S. bank, it is a member of the
FDIC and (c) in the case of a foreign bank, the security is, in
the opinion of the Fund's investment adviser, of an investment
quality comparable with other debt securities which may be
purchased by the Fund. These limitations do not prohibit
investment in securities issued by foreign branches of U.S.
banks, provided the U.S. banks meet the foregoing requirements.

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

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

5
<PAGE>

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

INVESTMENT POLICIES OF THE MANAGED BOND FUND

Fundamental Investment Policies

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

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

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

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

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

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

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

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

6
<PAGE>

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

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

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

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

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

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

Non-Fundamental Investment Policies

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

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

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

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

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

7
<PAGE>

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

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

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

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

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

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

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

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

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

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

15. The Fund may temporarily invest its cash in high quality
commercial paper, certificates of deposit, shares of no-load,
open-end money market funds (subject to the percentage
limitations set forth in subparagraph 8 above), repurchase
agreements (subject to the limitations set forth in subparagraph

8
<PAGE>

7 above) or any other short-term instrument the Fund's investment
adviser deems appropriate.

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

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

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

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

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

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

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

22. The Fund will not buy or sell foreign currency, except as may be
necessary to invest the proceeds of the sale of any foreign
securities held by the Fund in U.S. dollars.

INVESTMENT POLICIES OF THE TAX-EXEMPT FIXED INCOME FUNDS

Fundamental Investment Policies

The WASHINGTON FUND has adopted the following fundamental investment
policies. The Washington Fund will NOT:

1. Purchase the securities of any issuer (except the U.S.
Government, its agencies or instrumentalities) if as a result
more than five percent (5%) of the value of the Fund's total
assets would be invested in the securities of such issuer, except
that up to twenty-five percent (25%) of the value of the Fund's
total assets (which twenty-five percent (25%) shall not include

9
<PAGE>

securities issued by another investment company) may be invested
without regard to this five percent (5%) limitation;

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

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

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

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

6. Purchase or sell commodities, commodity contracts or futures;

7. Purchase securities, if as a result, twenty-five percent (25%) or
more of the Fund's total assets would be invested in the
securities of issuers having their principal business activities
in any one industry (governmental issuers of special or general
tax-exempt securities are not considered part of any one
industry);

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

9. Permit twenty-five percent (25%) or more of the Fund's total
assets to be invested in municipal obligations and other
permitted investments, the interest on which is payable from
revenues on similar types of projects. As a matter of operating
policy, similar types of projects may include sports, convention
or trade show facilities; airports or mass transportation; sewage
or solid waste disposal facilities; or air or water pollution
control projects; or

10. During normal market conditions, invest less than eighty percent
(80%) of the Fund's net assets in obligations the interest on

10
<PAGE>

which, in the opinion of counsel for the issuer of the
obligation, is exempt from federal income tax.

The MUNICIPAL BOND and CALIFORNIA Funds have adopted the following
fundamental investment policies. The Funds will NOT:

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

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

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

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

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

6. Purchase from, or sell portfolio securities to, any officer or
director, the Fund's investment adviser, principal underwriter or
any affiliates or subsidiaries thereof;

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

<PAGE>

8. Pledge, mortgage or hypothecate its assets, except that, to
secure borrowings permitted by subparagraph 7 above, a Fund may
pledge securities having a market value at the time of pledge not
exceeding ten percent (10%) of the cost of a Fund's total assets;

9. Make loans, except through the purchase of a portion or all of an
issue of debt securities in accordance with a Fund's investment
objective, policies and restrictions and through investments in
qualified repurchase agreements (provided, however, that a Fund
will not invest more than ten percent (10%) of its total assets
in qualified repurchase agreements maturing in more than seven
(7) days);

10. Purchase or sell commodities, commodity contracts or futures or
invest in oil, gas or other mineral exploration or development
programs or leases;

11. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions, or purchase or sell any put or call
options or combinations thereof;

12. Knowingly purchase or otherwise acquire any securities that are
subject to legal or contractual restrictions on resale or for
which there is no readily available market;

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

14. Purchase an industrial development bond, if as a result of such
purchase, more than five percent (5%) of a Fund's total assets
would be invested in industrial revenue bonds where the payment
of principal and interest is the responsibility of a company with
less than three years' operating history;

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

12
<PAGE>

the terms "senior security" and "asset coverage" shall be
understood to have the meanings assigned to those terms in
Section 18 of the 1940 Act);

16. Permit more than twenty percent (20%) of a Fund's net assets to
be invested, during normal market conditions, in securities the
interest on which is not, in its investment adviser's opinion,
exempt from federal income tax, as long as the Fund has its
investment objective to provide as high a level of current
interest income exempt from federal income tax as is consistent
with the relative stability of capital. As a matter of operating
policy, the Funds' investment adviser may base its opinion on the
opinion of counsel for the issuer of the security;

17. Permit twenty-five percent (25%) or more of a Fund's total assets
to be invested in municipal obligations and other permitted
investments, the interest on which is payable from revenues on
similar types of projects such as sports, convention or trade
show facilities; airports or mass transportation; sewage or solid
waste disposal facilities or air or water pollution control
projects;

18. Municipal Bond Fund Only: Permit twenty-five percent (25%) or
more of the Fund's total assets to be invested in securities
whose issuers are located in the same state; or

19. During normal market conditions, invest less than eighty percent
(80%) of a Fund's net assets in obligations the interest on
which, in the opinion of counsel for the issuer, is exempt from
federal income tax (and, in the case of the California Fund, also
from California state personal income tax).

Non-Fundamental Investment Policies

Each Fund has adopted the following non-fundamental policies with respect
to its investment activities:

1. Each Fund may invest in any of the following types of short-term,
tax-exempt obligations: municipal notes of issuers rated, at the
time of purchase, within one of the three highest grades assigned
by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies ("S&P")
or Fitch Investors Services, Inc. ("Fitch"); unrated municipal
notes offered by issuers having outstanding municipal bonds rated
within one of the three highest grades assigned by Moody's, S&P
or Fitch; notes issued by or on behalf of municipal issuers which
are guaranteed by the U.S. Government; tax-exempt commercial
paper assigned one of the two highest grades by Moody's, S&P or
Fitch; certificates of deposit issued by banks with assets of
$1,000,000,000 or more and municipal obligations which have a
maturity of one year or less from the date of purchase.

13
<PAGE>

2. Each Fund may invest in obligations of the U.S. Government, its
agencies or instrumentalities or in qualified repurchase
agreements, the net interest on which is taxable.

3. Each Fund may invest in municipal notes including tax
anticipation, revenue anticipation and bond anticipation notes
and tax-exempt commercial paper.

4. Each Fund may invest in repurchase agreements for a period longer
than seven days.

5. Each Fund may permit twenty-five percent (25%) or more of its
assets to be invested in industrial development bonds.

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

In addition, the Washington Fund has adopted the following non-fundamental
policies. The Washington Fund:

1. May not make short sales of securities.

2. May not purchase securities on margin, except that a Fund may
obtain such short-term credits as are necessary for the clearance
of transactions.

3. May not purchase or sell any put or call options or combinations
thereof.

4. May not purchase any security, if as a result, more than fifteen
percent (15%) of its net assets would be invested in illiquid
securities.

5. May not invest in oil, gas or other mineral exploration or
development programs or leases.

6. May not invest in real estate limited partnerships.

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

INVESTMENT POLICIES OF THE MONEY MARKET FUND

Fundamental Investment Policies

The Money Market Fund has adopted the following fundamental policies. The
Money Market Fund will NOT:

1. Purchase securities of any issuer, other than obligations of, or
guaranteed by, the U.S. Government, its agencies or
instrumentalities, if, as a result, more than five percent (5%) of

14
<PAGE>

the value of the Fund's assets would be invested in securities of
such issuer;

2. Purchase more than ten percent (10%) of any class of securities of
any issuer. All issues of debt securities of any issuer are
considered as one class;

3. Concentrate more than twenty-five percent (25%) of the value of its
total assets in any one industry including securities issued by
foreign banks and foreign branches of U.S. banks; provided, however,
that this limitation does not apply to obligations issued or
guaranteed by the U.S. Government, or its agencies or
instrumentalities, or to certificates of deposit or bankers'
acceptances issued by domestic banks;

4. Invest more than five percent (5%) of the Fund's total assets in
securities of issuers that with their predecessors have a record of
less than three years' continuous operation;

5. Invest more than five percent (5%) of the Fund's total assets in
securities restricted as to disposition under the federal securities
laws;

6. Invest more than ten percent (10%) of the Fund's total assets in
time deposits, repurchase agreements maturing in more than seven
days and other non-negotiable instruments;

7. Enter into repurchase agreements if, as a result thereof, more than
ten percent (10%) of the Fund's total assets valued at the time of
the transaction would be subject to repurchase agreements maturing
in more than seven days;

8. Make loans to others, except through the purchase of publicly
distributed debt obligations or repurchase agreements;

9. Borrow money, except from a bank or affiliates of SAFECO Corporation
at an interest rate not greater than that available to the Fund from
commercial banks, for temporary or emergency purposes and not for
investment purposes, and then only in an amount not exceeding twenty
percent (20%) of its total assets (including borrowings) less
liabilities (other than borrowings) immediately after such
borrowing. The Fund will not purchase securities if borrowings in
excess of five percent (5%) of the Fund's total assets are
outstanding;

10. Make short sales of securities or purchase securities on margin,
except for such short-term credits as are necessary for the
clearance of transactions, or purchase or sell any put or call
options or combinations thereof;

11. Pledge, mortgage or hypothecate, or in any other manner transfer as
security for indebtedness any security owned by the Fund, except as

15
<PAGE>

may be necessary in connection with permissible borrowings mentioned
in paragraph 9 above, and then such pledging, mortgaging or
hypothecating may not exceed fifteen percent (15%) of the Fund's
total assets, taken at cost; provided, however, that as a matter of
operating policy the Fund will limit any such pledging, mortgaging
or hypothecating to ten percent (10%) of its net assets, taken at
market, in order to comply with certain state investment
restrictions;

12. Purchase or retain securities of any issuer if any of the officers
or directors of the Fund or its investment adviser owns beneficially
more than one-half (1/2) of one percent (1%) of the securities of
such issuer and together own more than five percent (5%) of the
securities of such issuer;

13. Invest in commodities or commodity futures contracts or in real
estate, although the Fund may invest in securities which are secured
by real estate and securities of issuers that invest or deal in real
estate;

14. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in securities of
issuers that invest in or sponsor such programs;

15. Purchase securities of other investment companies;

16. Underwrite securities issued by others except to the extent the Fund
may be deemed to be an underwriter, under the federal securities
laws, in connection with the disposition of portfolio securities; or

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

Non-Fundamental Investment Policies

The Money Market Fund has adopted the following non-fundamental policies
with respect to its investment activities:

16
<PAGE>

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

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

3. The Fund may invest up to five percent (5%) of its total assets in
restricted securities eligible for resale under Rule 144A ("Rule
144A securities") or Section 4(2) of the Securities Act of 1933
("Section 4(2) securities"), provided that SAFECO Asset Management
Company ("SAM"), the Fund's investment advisor, has determined that
such securities are liquid under guidelines adopted by the Board of
Trustees.

ADDITIONAL INVESTMENT INFORMATION

Intermediate Treasury Fund

The Intermediate Treasury Fund may make the following investments, among
others, although it may not buy all of the types of securities that are
described.

1. Restricted Securities and Rule 144A Securities. Restricted
securities are securities that may be sold only in a public offering
with respect to which a registration statement is in effect under
the 1933 Act or, if they are unregistered, in a privately negotiated
transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional
markets for unregistered securities and the importance of
institutional investors in the formation of capital, the Securities
and Exchange Commission ("SEC") has adopted Rule 144A under the 1933
Act, which is designed to further facilitate efficient trading among
institutional investors by permitting the sale of Rule 144A
securities to qualified institutional buyers without registration
under the 1933 Act. To the extent privately placed securities held
by the Fund qualify under Rule 144A and an institutional market
develops for those securities, the Fund likely will be able to
dispose of the securities without registering them under the 1933
Act. SAM, acting under guidelines established by the Trust's Board
of Trustees, may determine that certain securities qualified for
trading under Rule 144A are liquid.

Where registration is required, the Fund may be obligated to pay all
or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. To the extent privately placed
securities are illiquid, purchases thereof will be subject to any

17
<PAGE>

limitations on investments in illiquid securities. Restricted
securities for which no market exists are priced at fair value as
determined in accordance with procedures approved and periodically
reviewed by the Trust's Board of Trustees.

2. Repurchase Agreements. Repurchase agreements are transactions in
which the 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. The Fund maintains custody
of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the
date agreed to is, in effect, secured by such securities. If the
value of these securities is less than the repurchase price, plus
any agreed-upon additional amount, the other party to the agreement
must provide additional collateral so that at all times the
collateral is at least equal to the repurchase price, plus any
agreed-upon additional amount.

The Fund intends to enter into repurchase agreements only with banks
and dealers in transactions believed by SAM to present minimum
credit risks in accordance with guidelines established by the
Trust's Board of Trustees. SAM will review and monitor the
creditworthiness of those institutions under the general supervision
of the Board of Trustees.

3. When-Issued or Delayed-Delivery Securities. Under this procedure,
the Fund agrees to acquire securities (whose terms and conditions,
including price, have been fixed by the issuer) that are to be
issued and delivered against payment in the future. Delivery of
securities so sold normally takes place 30 to 45 days (settlement
date) after the date of the commitment. No interest is earned by
the Fund prior to the settlement date. The value of securities sold
on a when-issued or delayed-delivery basis may fluctuate before the
settlement date and the Fund bears the risk of such fluctuation from
the date of purchase. The Fund may dispose of its interest in those
securities before delivery.

The Fund will commit to purchase such securities only with the
intent of actually acquiring the securities when issued. Assets
which are short-term, high-quality obligations will be segregated in
anticipation of making payments for securities purchased on a when-
issued basis.

4. Yankee Debt Securities and Eurodollar Bonds. Yankee debt securities
are securities issued in the U.S. by foreign issuers. These bonds
involve investment risks that are different from those of domestic
issuers. Such risks may include nationalization of the issuer,
confiscatory taxation by the foreign government, establishment of
controls by the foreign government that would inhibit the ability of
the issuer to make principal and interest payments to the Fund, lack

18
<PAGE>

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

SAM will make every effort to analyze potential investments in
foreign issuers on the same basis as the rating services analyze
domestic issuers. Because public information is not always
comparable to that available on domestic issuers, this may not be
possible. Therefore, while SAM will make every effort to select
investment in foreign securities on the same basis relative to
quality and risk as its investments in domestic securities, that may
not always be possible.

Eurodollar bonds are denominated in U.S. dollars. The Fund will
purchase Eurodollar bonds through U.S. securities dealers and hold
such bonds in the U.S. The delivery of Eurodollar bonds to the
Fund's custodian in the U.S. may cause slight delays in settlement
which are not anticipated to affect the Fund in any material,
adverse manner. Eurodollar bonds issued by foreign issuers are
subject to the same risks as Yankee sector bonds.

5. Municipal Securities. Municipal securities include obligations
issued by or on behalf of the states, territories and possessions of
the United States and the District of Columbia and their political
subdivisions, agencies, instrumentalities or authorities, the
interest on which, in the opinion of counsel to the issuer, is
exempt from federal income tax. Generally, when market interest
rates rise, the price of municipal securities will fall, and when
market interest rates fall, the price of these securities will rise.
There is also a risk that the issuer of a municipal security will
fail to make timely payments of principal and interest to the Fund.

6. Illiquid Securities. Illiquid securities are securities that cannot
be sold within seven days in the ordinary course of business for
approximately the amount at which they are valued. Due to the
absence of an active trading market, the 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.

Managed Bond Fund

The Managed Bond Fund may make the following investments, among others,
although it may not buy all of the types of securities that are described.

1. Repurchase Agreements. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 17.

<PAGE>

2. When-Issued or Delayed-Delivery Securities. See the description of
such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 17.

3. Yankee Debt Securities and Eurodollar Bonds. See the description of
such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 18.

4. Municipal Securities. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 18.

5. Asset-backed Securities. 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. The
assets underlying the securities are securitized through the use of
trusts and special purpose corporations. These securities may be
supported by credit enhancements such as letters of credit. Payment
of interest and principal ultimately depends upon borrowers paying
the underlying loans. Repossessed collateral may be unavailable or
inadequate to support payments on defaulted asset-backed securities.
In addition, asset-backed securities are subject to prepayment risks
which may reduce the overall return of the investment.

Automobile receivable securities represent undivided fractional
interests in a trust whose assets consist of a pool of automobile
retail installment sales contracts and security interests in
vehicles securing the contracts. Payments of principal and interest
on the certificates issued by the automobile receivable trust are
passed through periodically to certificate holders and are generally
guaranteed up to specified amounts by a letter of credit issued by a
financial institution. Certificate holders may experience delays in
payments or losses if the full amounts due on the underlying
installment sales contracts are not realized by the trust because of
factors such as unanticipated legal or administrative costs of
enforcing the contracts, or depreciation, damage or loss of the
vehicles securing the contracts.

Credit card receivable securities are backed by receivables from
revolving credit card accounts. Certificates issued by credit card
receivable trusts generally are pass-through securities.
Competitive and general economic factors and an accelerated
cardholder payment rate can adversely affect the rate at which new
receivables are credited to an account, potentially shortening the
expected weighted average life of the credit card receivable
security and reducing its yield. Credit card accounts are unsecured
obligations of the cardholder.

<PAGE>

Tax-Exempt Fixed Income Funds

The Tax-Exempt Fixed Income Funds may make the following investments,
among others, although they may not buy all of the types of securities
that are described.

1. Repurchase Agreements. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 17.

2. When-Issued or Delayed-Delivery Securities. Under this procedure,
the Fund agrees to acquire securities (whose terms and conditions,
including price, have been fixed by the issuer) that are to be
issued and delivered against payment in the future. Delivery of
securities so sold normally takes place 30 to 45 days (settlement
date) after the date of the commitment. No interest is earned by
the Fund prior to the settlement date. The value of securities sold
on a when-issued or delayed-delivery basis may fluctuate before the
settlement date and the Fund bears the risk of such fluctuation from
the date of purchase. The Fund may dispose of its interest in those
securities before delivery.

3. Illiquid Securities. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 19.

Money Market Fund

The Money Market Fund may make the following investments, among others,
although it may not buy all of the types of securities that are described.

1. Quality and Maturity. Pursuant to procedures adopted by the Money
Market Trust's Board of Trustees, the Fund may purchase only high-
quality securities that SAM believes present minimal credit risks.
To be considered high quality, a security must be rated, or the
issuer must have received a rating for a comparable short-term
security, in accordance with applicable rules in one of the two
highest categories for short-term securities by at least two
nationally recognized rating services (or by one, if only one rating
service has rated the security); or, if unrated, judged to be of
equivalent quality by SAM.

High-quality securities are divided into "first tier" and "second
tier" securities. First tier securities are those deemed to be in
the highest rating category (e.g., A-1 by S&P) and second tier
securities are those deemed to be in the second highest rating
category (e.g., A-2 by S&P).

The Fund may not invest more than five percent (5%) of its total
assets in second tier securities. In addition, the Fund may not
invest more than one percent (1%) of its total assets or $1 million

<PAGE>

(whichever is greater) in the second tier securities of a single
issuer.

The Fund currently intends to limit its investments to securities
with remaining maturities of 397 days or less, and to maintain a
dollar-weighted average maturity of 90 days or less. When
determining the maturity of a security, the Fund may look to an
interest rate reset or demand feature.

A security is considered to be rated if either the security itself
is assigned a rating or the issuer is assigned a rating for
comparable short-term debt obligations. Alternatively, a security
(whether or not rated) with an unconditional demand feature (as
defined in Rule 2a-7 under the 1940 Act) may be considered to be
rated if the demand feature or its issuer has been assigned a
rating. See "Description of Ratings" on page for further
explanation of rating categories.

2. Restricted Securities and Rule 144A Securities. See the description
of such securities under "Additional Investment Information--
Intermediate Treasury Fund" on page 16.

3. Variable and Floating Rate Instruments. Certain
municipalobligations may carry variable or floating rates of
interest. Variable rate instruments bear interest at rates that are
readjusted at periodic intervals so as to cause the instruments'
market value to approximate their par value. Floating rate
instruments bear interest at rates which vary automatically with
changes in specified market rates or indices, such as the bank prime
rate. The Fund's right to obtain payment at par on a demand
instrument upon demand could be affected by events occurring between
the date the Fund elects to redeem the instrument and the date
redemption proceeds are due which affect the ability of the issuer
to pay the instrument at par value.

4. Term Put Bonds. Term put bonds are variable rate obligations which
have a maturity in excess of one year with the option to put back
(sell back) the bonds on a specified put date. On the put date, the
interest rate of the bond is reset according to current market
conditions and accrues at the reset rate until the next put date.
The Fund may also hold mandatory put bonds. Mandatory put bonds
require the holder to take certain action to retain the bonds. Put
bonds are generally credit-enhanced by collateral, guaranteed
investment contracts, surety bonds, a letter of credit or insurance
which guarantees the payment of principal and interest.

5. Illiquid Securities. See the description of such securities under
"Additional Investment Information--Intermediate Treasury Fund" on
page 19.

6. Foreign Issuers. Obligations of foreign issuers involve certain
additional risks. These risks may include future unfavorable

<PAGE>

political and economic developments, withholding taxes, seizures of
foreign deposits, currency controls, interest limitations, or other
governmental restrictions that might affect payment of principal or
interest. Additionally, there may be less public information
available about foreign banks and their branches. Foreign issuers
may be subject to less governmental regulation and supervision than
U.S. issuers. Foreign issuers also generally are not bound by
uniform accounting, auditing and financial reporting requirements
comparable to those applicable to U.S. issuers.

7. Securities Issued by Banks. Investments may be made in U.S. dollar-
denominated time deposits, certificates of deposit, and bankers'
acceptances of U.S. banks and their branches located outside of the
United States, U.S. branches and agencies of foreign banks and
foreign branches of foreign banks. The Fund may also invest in U.S.
dollar-denominated securities issued or guaranteed by other U.S. or
foreign issuers, including U.S. and foreign corporations or other
business organizations, foreign governments, foreign government
agencies or instrumentalities and U.S. and foreign financial
institutions, including savings and loan institutions, insurance
companies and mortgage bankers, as well as banks.

The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or
may be limited by the terms of a specific obligation and by
governmental regulation. Payment of interest and principal on these
obligations may also be affected by governmental action in the
country of domicile of the branch (generally referred to as
sovereign risk). In addition, evidence of ownership of portfolio
securities may be held outside of the U.S. and the Fund may be
subject to the risks associated with the holding of such property
overseas. Various provisions of federal law governing the
establishment and operation of U.S. branches do not apply to foreign
branches of U.S. banks.

Obligations of U.S. branches and agencies of foreign banks may be
general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and
by federal and state regulation, as well as by governmental action
in the country in which the foreign bank has its head office.

INVESTMENT RISKS OF CONCENTRATION IN CALIFORNIA AND WASHINGTON ISSUERS

CALIFORNIA FUND

The following is a condensed and general description of the judicial,
legislative and electoral proceedings affecting the taxing ability and
fiscal condition of the State of California and its various political
subdivisions which have occurred since June 1978. All of these
proceedings affect the continuing ability of California political
subdivisions to meet their debt service obligations. Since during normal
market conditions the Fund plans to invest at least 80% of its net assets

23
<PAGE>

in bonds issued by California and its political subdivisions, the
investment risk of such concentration should be carefully considered. The
description below summarizes discussions contained in official statements
relating to various types of bonds issued by the State of California and
its political subdivisions. A more detailed description can be found in
such official statements. The California Fund has not independently
verified any of the information presented in this section.

The taxing powers of California public agencies are limited by Article
XIII A of the State Constitution, added by an initiative amendment
approved by voters on June 6, 1978, and commonly known as Proposition 13.
Article XIII A limits the maximum ad valorem tax on real property to one
percent of "full cash value" which is defined as "the County Assessor's
valuation of real property as shown on the fiscal year 1975-76 tax bill
under 'full cash value' or, thereafter, the appraised value of real
property when purchased, newly constructed, or a change in ownership has
occurred after the 1975 assessment." The full cash value may be adjusted
annually to reflect inflation at a rate not to exceed two percent per
year, or reduction in the consumer price index or comparable local data,
or declining property value caused by damage, destruction, or other
factors.

The tax rate limitation referred to above does not apply to ad valorem
taxes to pay the interest and redemption charges on any indebtedness
approved by the voters before July 1, 1978 or any bonded indebtedness for
the acquisition or improvement of real property approved by two-thirds of
the votes cast by the voters voting on the proposition. Article XIII A
also requires a two-thirds vote of the electors prior to the imposition of
any special taxes and totally precludes the imposition of any new ad
valorem taxes on real property or sales or transaction taxes on the sales
of real property. The validity of Article XIII A has been upheld by both
the California Supreme Court and the United States Supreme Court.

Legislation adopted in 1979 exempts business inventories from taxation.
However, the same legislation provides a formula for reimbursement by
California to cities and counties, special districts and school districts
for the amount of tax revenues lost by reason of such exemption or
adjusted for changes in the population and the cost of living.
Legislation adopted in 1980 provides for state reimbursements to
redevelopment agencies to replace revenues lost due to the exemption of
business inventories from taxation. Such legislation provides for
restoration of business inventory tax revenues through the annual addition
of artificial assessed value, not actually existing in a project ^ area,
to the tax rolls of redevelopment projects. These reimbursements are
adjusted for changes in the population and the cost of living. All such
reimbursements are subject to change or repeal by the Legislature, and
they have been changed since 1980. Furthermore, current law generally
prohibits the pledging of such reimbursement revenues to secure
redevelopment agency bonds.

Redevelopment agencies in California have no power to levy and collect
taxes; hence, any decrease in property taxes or limitations in the amounts

<PAGE>

by which property taxes may increase adversely affects such agencies,
which lack the inherent power to correct for such decreases or
limitations.

State and local government agencies in California and the State itself are
subject to annual "appropriation limits" imposed by Article XIII B, an
initiative constitutional amendment approved by the voters on November 6,
1979, which prohibits government agencies and the State from spending
"appropriations subject to limitation" in excess of the appropriations
limit imposed. "Appropriations subject to limitation" are authorizations
to spend "proceeds of taxes", which consist of tax revenues, certain State
subventions and certain other funds, including proceeds from regulatory
licenses, user revenues, certain State subventions and certain other funds
to the extent that such proceeds exceed "the cost reasonably born by such
entity in providing the regulation, product, or service." No limit is
imposed on appropriation of funds which are not "proceeds of taxes", on
debt service or indebtedness existing or authorized by January 1, 1979, or
subsequently authorized by the voters, or appropriations required to
comply with mandates of courts or the federal government, or user charges
or fees that do not exceed the cost of the service provided, nor on
certain other non-tax funds.

By statute (which has been upheld by the California Court of Appeals), tax
revenues allocated to redevelopment agencies are not "proceeds of taxes"
within the meaning of Article XIII B, and the expenditure of such revenues
is therefore not subject to the limitations under Article XIII B.

The imposition of taxes by local agencies is further limited by the
provisions of an initiative statute ("Proposition 62") approved by the
voters on November 4, 1986. The statute (i) requires that any tax for
general governmental purposes imposed by local government entities be
approved by resolution or ordinance adopted by two-thirds vote of the
governmental entity's legislative body and by a majority vote of the
electorate of the governmental entity, (ii) requires that any special tax
(defined as a tax levied for other than general governmental purposes)
imposed by a local governmental entity be approved by a two-thirds vote of
the voters within that jurisdiction, (iii) restricts the use of revenues
from a special tax to the purposes or for the service for which the
special tax was imposed, (iv) prohibits the imposition of ad valorem taxes
on real property by local governmental entities except as permitted by
Article XIII A, (v) prohibits the imposition of transaction taxes and
sales taxes on the sale of real property by local governmental entities
and (vi) requires that any tax imposed by a local governmental entity on
or after May 1, 1985 be ratified by a majority vote of the electorate
within two years of the adoption of the initiative or be terminated by
November 15, 1988.

Subsequent decisions of California Courts of Appeal held that all or
portions of the provisions of Proposition 62, including those requiring
the submission of general fund tax measures to the electorate, are
unconstitutional. However, on September 28, 1995, in the case of Santa
Clara County Local Transportation Authority v. Guardino, the California

<PAGE>

Supreme Court upheld the constitutionality of Proposition 62. As a
result, the annual revenues of any local government or district as shown
in the general fund budget must be reduced in any year to the extent that
they rely on the proceeds of any general tax which has not been approved
by majority vote of the electorate. Senate Bill No. 1590 has been
introduced in the California Legislature in an effort to clarify whether
the general tax voter approval requirement is applicable to any tax that
was imposed or increased by an ordinance or resolution adopted prior to
December 14, 1995. If adopted, Senate Bill No. 1590 will apply the
Guardino decision prospectively only.

An initiative petition called the "Right to Vote on Taxes Act" is expected
to qualify for the November 5, 1996 general election ballot. If this
measure receives the requisite number of signatures for inclusion on the
ballot and if it is approved by majority vote of the electorate, it will
add Articles XIII C and XIII D to the State Constitution. The measure
requires that general tax increases by all local government entities be
approved by not less than a majority vote and that taxes for special
purposes be approved by a two-thirds vote; provides that existing language
in the California Constitution shall not be construed to limit the
initiative power with respect to reducing or repealing any local tax,
assessment, fee or charge; prescribes procedures applicable to all
assessments and requires that all assessments be approved by property
owners; prohibits property related fees and charges from exceeding costs
of the service being provided; imposes procedural requirements, including
notice and public hearing, prior to imposition of new or increased fees or
charges on property; and requires that, except for fees for sewer, water
and refuse collection, fees be approved by a majority vote of the fee
payers.

Generally, revenues derived from most utility property assessed by the
State Board of Equalization are allocated as follows: (i) each
jurisdiction, including redevelopment project areas, receives up to 102
percent of its prior year State-assessed revenue; and (ii) if countrywide
revenues generated from such utility property are less than the previous
year's revenue or greater than 102 percent of the previous year's
revenues, each jurisdiction shares the burden of the shortfall or benefit
from the excess revenues by a specified formula. This provision applies
to all utility property except railroads whose valuation will continue to
be allocated to individual tax rate areas. In a 1991 Superior Court
ruling, the valuation method used by the State Board to value unitary
utility property was declared illegal and a new method was imposed,
resulting in significantly lower values and therefore significantly
reduced property tax revenues. One of the effects of the decision was to
entitle the principal utility plaintiff to a refund of $9 million. As a
result of this case, the State Board along with certain counties signed a
settlement agreement with several affected utilities providing for an
orderly 10.5% phase-down of tax assessments over fiscal years 1992-93,
1993-94 and 1994-95.

Lease-based financing, typically marketed in the form of certificates of
participation, has been extremely popular in California, since the courts

<PAGE>

have long held that properly structured long-term leases do not create
"indebtedness" for purposes of constitutional and statutory debt
limitations. The obligation to pay rent thereunder is nevertheless
enforceable, on an annual basis, so long as the leased property is
available for use and occupancy by the government lessee. The risk of
rent abatement (because of construction delays, damage to structures and
the like) is usually mitigated by funded reserves, casualty insurance and
rental interruption insurance.

Given the turbulent history of California electoral, judicial and legal
proceedings affecting taxation since 1978, it is impossible to predict
what proceedings might occur in the future that would affect the ability
of California and its political subdivisions to service their outstanding
indebtedness. In addition, there are both nuclear and non-nuclear
electric power authorities in California that are financed in whole or in
part by so-called "take or pay" or "hell or high water" contracts. Court
decisions outside of the State of California have called into question the
enforceability of such contracts.

The State of California recently issued general obligation bonds in March,
1996. The related Official Statement for that bond issue disclosed that
the recent recession has seriously affected State tax revenues, has caused
increased expenditures for health and welfare programs, and has caused a
structural imbalance in the State's budget, with the largest programs
supported by the General Fund -- K-12 schools and community colleges,
health and welfare, and corrections -- growing at rates higher than the
growth rates for the principal revenue sources of the General Fund. As a
result, the State has experienced recurring budget deficits and has had to
use a series of external borrowings to meet its cash needs.

The Governor's budget proposal for 1996-97 released January 10, 1996,
projects General Fund revenues and transfers in the 1995-96 fiscal year of
$45 billion (an increase of approximately $900 million over the projection
contained in the original 1995-96 Budget Act) and expenditures of $44.2
billion (an increase of approximately $800 million over the amount shown
in the original 1995-96 Budget Act). The Governor's Budget for 1996-97
estimates General Fund revenues and transfers of about $45.6 billion,
which would leave a balance of approximately $400 million in the budget
reserve, the Special Fund for Economic Uncertainties, at June 30, 1997.

As a result of the deterioration in the State's budget and cash situation
in fiscal years 1991-92 and 1992-93, rating agencies reduced the State's
credit ratings. Between November 1991 and October 1992 the rating on the
State's general obligation bonds was reduced by Standard & Poor's Ratings
Group from "AAA" to "A+" and by Moody's Investors Service from "Aaa" to
"Aa" and by Fitch Investors Service, Inc. from "AAA" to "AA." On July 15,
1994, based on the State's inability to eliminate its accumulated deficit,
the same three rating agencies further lowered their ratings on the
State's general obligation bonds to "A," "A1" and "A", respectively. More
recently, however, Fitch Investors Service, Inc. raised its rating from
"A" to "A+." It is not possible to predict the future course of the
State's credit ratings.

<PAGE>

On December 6, 1994, Orange County, California, together with its pooled
investment funds, filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the funds had suffered significant
market losses in their investments, causing a liquidity crisis for the
funds and the County. More than 200 other public entities, most of which,
but not all, are located in the County, were also depositors in the funds.
As of mid-January, 1995, the County estimated the funds' loss at about
$1.69 billion, or 23% of their initial deposits of approximately $7.5
billion. Many of the entities which deposited moneys in the funds,
including the County, faced interim or extended cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. Orange County has embarked on a fiscal recovery plan
based on sharp reductions in services and personnel, and rescheduling of
outstanding short-term debt using certain new revenues transferred to
Orange County from other local governments pursuant to special legislation
approved by the bankruptcy judge on May 15, 1996. The State has no
existing obligation with respect to any outstanding obligations or
securities of Orange County or any of the other participating entities.

The Fund will attempt to achieve geographic diversification by investing
in obligations of issuers that are located in different areas within
California as well as obligations of the State of California itself. In
addition, the Fund will not invest more than 15% of its total assets in
tax allocation bonds issued by California redevelopment agencies. These
are operating policies of the Fund and may be changed without the approval
of the Fund's shareholders.

WASHINGTON FUND

Washington State

A discussion of certain economic, financial and legal matters regarding
the State of Washington follows. During normal market conditions, the
Washington Fund will generally invest at least 80% of its net assets in
bonds issued by Washington and its political subdivisions, municipalities,
agencies, instrumentalities or public authorities. Therefore, the
investment risk of such concentration should be carefully considered. The
information in the discussion is drawn primarily from official statements
relating to securities offerings of the State which are dated prior to the
date of this Statement of Additional Information. This information may be
relevant in evaluating the economic and financial position of the State,
but is not intended to provide all relevant data necessary for a complete
evaluation of the State's economic and financial position. Discussions
regarding the financial health of the State government may not be relevant
to municipal obligations issued by a political subdivision of the State.
Furthermore, general economic conditions discussed may or may not affect
issuers of the obligations of the State. The Washington Fund has not
independently verified any of the information presented in this section.

<PAGE>

General Information

According to the U.S. Census Bureau's 1990 Census, Washington State's
population is ranked 18th of the 50 states. During the ten-year time
period from 1980-1990, the State's population increased at an average
annual rate of 1.8%, while the U.S. population grew at an average annual
rate of 1.1%. The State's population increased at an average annual rate
of approximately 2.5% 1990 to 1993, and at an average annual rate of
approximately 1.8% from 1993 to 1995.

The State's largest city, Seattle, is part of an international trade,
manufacturing, high technology and business service corridor which extends
along Puget Sound from Everett to Tacoma. The State's Pacific Coast-Puget
Sound region includes 75% of its population, the major portion of its
industrial activity and the major part of the forests important to its
timber and paper industries. The remainder of the State has agricultural
areas primarily devoted to grain, fruit orchard and dairy operations.

The State's economy has recently diversified with employment in the trade
and service sectors representing an increasing portion of total employment
relative to the manufacturing sector. The rate of economic growth as
measured by employment in the State was 2.0% in 1992, 1.3% in 1993, 2.3%
in 1994, 2.1% in 1995, and 2.2% in 1996.

The State operates on a July 1 to June 30 fiscal year and on a biennial
budget basis. Fiscal controls are exercised during the biennium through
an allotment process which requires each agency to submit a monthly
expenditure plan. The plan must be approved by the Office of Financial
Management, which is the Governor's budget agency. It provides the
authority for agencies to spend funds within statutory maximums specified
in a legislatively adopted budget. State law requires a balanced biennial
budget. Whenever it appears that disbursements will exceed the aggregate
of estimated receipts plus beginning cash surplus, the Governor is
required to reduce allotments, thereby reducing expenditures of
appropriated funds.

As interpreted by the State Supreme Court, Washington's Constitution
prohibits the imposition of net income taxes.

The State's tax revenues are primarily comprised of excise and ad valorem
taxes. By constitutional provision, the aggregate of all regular (unvoted)
tax levies on real and personal property by state and local taxing
districts cannot exceed 1% of the true and fair value of the property.
Excess levies are subject to voter approval. For the fiscal year ending
June 30, 1995, approximately 78.5% of the State's tax revenues came from
general and selective sales and gross receipts taxes, of which the retail
sales tax and its companion use tax represented 46% of total collections.
Business and occupation tax collections represented about 16.6% and the
motor vehicle fuel tax represented approximately 7.0% of total State taxes
for the year. Ad valorem taxes represented 10.8% of State revenues for
the fiscal year 1995.

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<PAGE>

Expenditures of State revenues are made in accordance with constitutional
and statutory mandates.

State Expenditure Limitations

Initiative 601, which passed by the voters in November 1993, limits
increases in General Fund-State government expenditures to the average
rate of population and inflation growth, and sets forth a series of
guidelines for limiting tax and expenditure increases and stabilizing long
range budget planning.

Provisions of Initiative 601 establish a procedure for computing a fiscal
year growth factor based on a lagged, three-year average of population and
inflation growth. This growth factor is used to determine a state
spending limit for programs and expenditures supported by the State
General Fund. The growth factor is 5.13% for fiscal year 1996 and 4.47%
for fiscal year 1997. The initiative creates two new reserve funds (the
Emergency Reserve Fund and the Education Construction Fund) for depositing
revenues in excess of the spending limit and abolishes the current Budget
Stabilization Account. Ending balances in the Budget Stabilization
Account were transferred to the State General Fund ($100 million) and the
Pension Reserve Account ($25 million). The initiative also places
restrictions on the addition or transfer of functions to local government
unless there is reimbursement by the State.

The Initiative's requirement for voter approval for new tax measures has
expired. Effective July 1, 1995, taxes can be enacted with a two-thirds
majority of both houses of the State Legislature if resulting General
Fund-State expenditures do not exceed the spending limit. Voter approval
is still required to exceed the spending limit. Thus far, the Initiative
has not had a restrictive impact on the State's budget. However, the
State expects its expenditures to be constrained by the Initiative
beginning in the 1997-99 Biennium.

The State Constitution and enabling statutes authorize the incurrence of
State general obligation debt to the payment of which the State's full
faith and credit and taxing power are pledged. With certain exceptions,
the amount of State general obligation debt which may be incurred is
limited by constitutional and statutory restrictions. These limitations
are imposed by prohibiting the issuance of new debt if the new debt would
cause the maximum annual debt service on all thereafter outstanding
general obligation debt to exceed a specified percentage of the arithmetic
mean of general State revenues for the preceding three years. These
limitations apply to the incurrence of new debt and are not limitations on
the amount of debt service which may be paid by the State in future years.

The State Legislature is obligated to appropriate money for State debt
service
requirements. Generally, on or before June 30 of each year, the State
Finance Committee certifies to the State Treasurer the amount required for
payment of bond interest and principal for the coming year. Some general

<PAGE>

obligation bond statutes provide that the General Fund will be reimbursed
from discrete revenues
which are not considered general State revenues. Other bonds are limited
obligation bonds not payable from the General Fund. For the 1995-97
Biennium, General Fund-State revenues are projected to be $17.395 billion,
an increase of 4.5% over the 1993-95 Biennium, plus a carry-forward of
$559 million. The revenue outlook for the 1995-97 Biennium is stable and
the General Fund is projected to end the Biennium with a $341 million fund
balance.

The State Legislature passed a 1993-95 Biennium Budget on May 6, 1993, and
the Governor signed the budget bill on May 28, 1993. The 1993-95 Biennium
Budget contained $650 million in general tax increases, $163 million in
other revenues, $700 million in program and administrative reductions, and
$622 million in fund shifts (such as to federal funding sources). The
1994 Supplemental Budget passed the State Legislature on March 14, 1994,
and the Governor signed the Supplemental Budget bill on April 6, 1994.
The 1994 Supplemental Budget included $48 million in tax cuts, an $11
million revenue increase from a variety of sources and $168 million in
additional expenditures, many of which represented one time investments.

The 1995 Supplemental Budget passed the State Legislature on May 1, 1995
and was signed by Governor Lowry on May 9, 1995. The 1995 Supplemental
Budget made adjustments to expenditure authority for State agencies for
the last quarter of the Biennium. These budget adjustments reflected the
most recent enrollment and caseload estimates and addressed significant
unexpected expenses, including extraordinary costs of $47 million incurred
in one of the worst forest fire years since 1970. The 1995 Legislature
also appropriated $110 million from the General Fund to provide school
construction funding in the K-12 system. Overall, the 1995 Supplemental
Budget expenditure adjustments and other 1993-95 appropriation bills in
the 1995 Legislative session increased expenditures by $114.5 million.

During the 1995 legislative session, Governor Lowry vetoed two bills that
would have cut taxes: House Bill 1997, an ongoing property tax bill that
would cost $92 million in the 1995-97 budget period and House bill 1023,
which would roll back business and occupation taxes, along with several
other taxes, by $176.3 million in the 1995-97 Biennium.

For most municipalities in the State, the fiscal year is the calendar year
except that school districts have a September 1 - August 31 fiscal year.
All municipalities must maintain balanced budgets. Depending on the type
of municipality, local revenues are derived from ad valorem taxes, excise
and gross receipts taxes, special assessments, fees, user charges and
State and federal grants.

Municipalities incur debt by the issuance of general obligations or other
borrowings which are payable from taxes, though other revenue sources may
be used. Revenue obligations do not constitute debt under constitutional
and statutory limitations as long as taxes are not pledged or used to pay
debt service. Only non-tax revenue from the operation of a project or

31
<PAGE>

enterprise financed by the revenue obligations (and sometimes special
assessments on property benefitted from the financed improvements) may be
used to pay that debt service. Usually, revenue bonds are secured by a
reserve funded in an amount based on a factor of debt service. Many
municipalities may issue improvement district obligations payable only
from special assessments on benefitted property, but some of those
obligations also may be secured by a special guaranty fund.

Economic Overview

Over the past few years, the State's economic performance has remained
relatively strong compared to the U.S. as a whole. After adjusting for
inflation, growth in personal income in the State increased 3.7% in 1995
over the 1994 level.

The State's economic base includes manufacturing and service industries as
well as agricultural and timber production. During 1990-1995, the State
experienced growth in non-manufacturing industries and a decline in
manufacturing industries. The rate of employment growth, which exceeded
4.5% during the mid-to-late 1980's, has declined since 1991 to an average
rate of 1.4%. The 1996 employment growth is expected to be 1.46%.

Washington's economy consists of both export and local industries. Leading
export industries are aerospace, forest products, agriculture and food
processing. The aerospace, timber and food processing industries together
employ approximately 9% of the State's non-farm workers. However, the non-
manufacturing sector has played an increasingly significant role in
contributing to the State's economy in recent years.

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

Manufacturing. The Boeing Company ("Boeing"), which is the Seattle
Metropolitan Area's largest employer, has several facilities located
throughout the area. Boeing is the world's leading manufacturer of
commercial airliners and as of April 1996 employed approximately 74,000
people state-wide, primarily at several locations in the area. Boeing
anticipates bringing total employment in the State to approximately 78,500
by the end of 1996. While the primary activity of Boeing is the
manufacture of commercial aircraft, Boeing has played leading roles in the
aerospace and military missile programs of the U.S. and has undertaken a
broad program of diversification activities including Boeing Information
and Support Services. In 1995, Boeing had $19.5 billion in sales and net
earnings of $393 million, and a backlog of orders totaling $72.3 billion.
Boeing currently anticipates 1996 sales to be in the $22 billion range.

Boeing recently completed two and is currently undertaking one major
expansion project. The company recently acquired a 212-acre site in
Renton (King County), which is the site of the former Longacres Race
Track. The site will be used as a location for the development of an
office complex, the first building of which will be a 500,000 square-foot
customer service training center. In Everett (Snohomish County), Boeing

32
<PAGE>

completed construction of a 5.6 million square-foot assembly plant for the
new 777 jetliner. In 1993, Boeing completed a $400 million skin and spar
plant and a composite manufacturing center on 500 acres in Puyallup
(Pierce County).

A total of 206 commercial jet transports were delivered in 1995, compared
with 270 for 1994. Defense and space sales of $5.6 billion were
approximately 10% higher than in 1994. The 10-week strike by the
International Association of Machinist and Aerospace Workers (IAM)
resulted in the delay of approximately 30 commercial jet transport
deliveries during the fourth quarter. During the first quarter of 1996,
deliveries for all models were limited by the recovery from the strike. A
total of 40 commercial jet transports were delivered, compared with 59 in
the first quarter of 1995.

Technology-Related Industries. The State ranks fourth among all states in
the percentage of its work force employed by technology-related
industries. It ranks third among the largest software development
centers. The State is the home of approximately 1000 advanced technology
firms of which approximately 50% are computer-related. Microsoft,
headquartered in Redmond, Washington, is the largest microcomputer
software company in the world. In addition, several biotechnical firms
located in the State have attained international acclaim for their
research and development.

Timber. Natural forests cover more than 40% of the State's land area and
forest products rank second behind aerospace in terms of total production.
The primary employer in the timber industry is The Weyerhaeuser Company.
Productivity in the State's forest products industry increased steadily
from 1980 to 1990. However, since 1991, recessionary influences have
resulted in a production decline. A slight decline is anticipated for
1996 and for the next few years, due to federally-imposed limitations on
the harvest of old-growth timber and the inability to maintain the
previous record levels of production increases. Although a continued
decline in employment is anticipated for 1996 in certain regions, the
impact is not expected to affect materially the State's overall economic
performance.

Agriculture and Food Processing. Agriculture and food processing is the
State's most important industry by most measures. Growth in agricultural
products was an integral factor in the State's economic growth in the late
1980s and early 1990s.

Finance, Insurance and Real Estate. Employment in finance, insurance and
real estate is estimated to represent 5.2% of the State's wage and salary
employment in 1995. Projections for 1996 show this segment holding steady
at 5.2% of employment.

Trade. International trade plays an important role in the State's
employment base and one in six jobs is related to this area. During the
past twenty years the State has consistently ranked number one or number
two in international exports per capita. Seattle-Tacoma International

<PAGE>

Airport is the focus of the region's air traffic and trade. The State,
particularly the Puget Sound Corridor, is a trade center for the Northwest
and the State of Alaska. A system of public ports, the largest of which
are the Ports of Seattle and Tacoma, handle waterborne trade primarily to
and from the Far East. These two Ports each rank among the top 20 ports
in the world based on volume of containerized cargo shipped.
Approximately 70% of the cargo entering the Ports of Seattle and Tacoma
has an ultimate destination outside the Pacific Northwest. Therefore,
trade levels depend largely on national and world, rather than local,
economic conditions.

Growth in retail sales in the State between 1990 and 1992 was higher than
that in the United States. During 1993 through 1995, the rate of growth
for retail sales was lower for the State than for the United States. The
State is home to a number of specialty retail companies that have reached
national stature, including Nordstrom, Eddie Bauer, Costco and
Recreational Equipment Inc. (REI).

Services/Tourism. The highest employment growth in the State since 1981
has taken place in the services sector, although rate of growth has shown
small but relatively consistent decline since 1990 from 7% to 4.3%%
forecast for 1995. Seattle is the location for the Washington State
Convention and Trade Center which opened in June 1988. The State also has
many tourist attractions such as the Olympic and Cascade mountain ranges,
ocean beaches and local wineries.

Construction. Employment in the construction sector in the Puget Sound
area increased 69.2% between 1981 and 1991. The increase in employment in
the late 1980s was due in part to the affordability of housing compared to
other areas of the country. Construction employment growth flattened
between 1991 and 1993, but showed a modest increase in 1994 and leveled
again in 1995. Commercial building, while not increasing at the pace of
the 1980s, remains stable.

Federal, State and Local Government. Employment in the government sector
represents approximately 19% of all wage and salary employment in the
State on a combined basis. Seattle is the regional headquarters for a
number of federal government agencies and the State receives an above-
average share of defense expenditures. Employment in the government
sector has expanded in the State since 1990, but at a declining rate.
State and local government employment has increased at a faster pace than
employment by the federal government, and is projected to add new jobs
through 1996.

Litigation

At any given time, including the present, there are numerous lawsuits
pending against the State of Washington which could affect the State's
revenues and expenditures. However, none of the lawsuits are expected to
have a material adverse impact on either State revenues or expenditures.

34
<PAGE>

PRINCIPAL SHAREHOLDERS OF CERTAIN FUNDS

Intermediate Treasury Fund

At June 30, 1996, SAFECO Insurance Company of America ("SAFECO Insurance")
owned 500,000 shares of the Intermediate Treasury Fund which represented
35.40% of the outstanding shares of the Fund. SAFECO Insurance is a
Washington Corporation and a wholly-owned subsidiary of SAFECO
Corporation, which has its principal place of business at SAFECO Plaza,
Seattle, Washington 98185.

Managed Bond Fund

At June 30, 1996, Principal Shareholders of the Managed Bond Fund were as
follows. Crista Ministries, PO Box 330303, Seattle, WA 98133, owned
90,590 shares, which represented 18.4% of the Fund's outstanding shares.
Massman Construction Co. PSRT, 8901 Stateline, Kansas City, MO 64114,
owned 231,260 shares, which represented 47% of the Fund's outstanding
shares. Crown Packaging Corp. PS&P, 8514 Eager Road, St. Louis, MO
63144, owned 154,595 shares, which represented 31.4% of the Fund's
outstanding shares.

Washington Fund

At June 30, 1996, SAFECO owned 79.6% of the outstanding shares of the
Washington Fund. SAFECO is a wholly-owned subsidiary of SAFECO
Corporation, a Washington corporation, having its principal place of
business at SAFECO Plaza, Seattle Washington 98185.

ADDITIONAL TAX INFORMATION

General

35
<PAGE>

not exceed 5% of the value of the Fund's total assets, and (b) not more
than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of
any one issuer.

If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term,
capital loss to the extent of any capital gain distributions received on
those shares and, in the case of shares of a Tax-Exempt Fixed Income Fund,
the loss will be disallowed to the extent of any exempt-interest dividends
received on those shares. Investors also should be aware that if shares
are purchased shortly before the record date for any dividend or capital
gain distribution, the shareholder will pay full price for the shares and
receive some portion of the purchase price back as a taxable distribution.

Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax")
to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary (taxable) income for that year and
capital gain net income for the one-year period ending on October 31
(November 30 in the case of a Tax-Exempt Fixed Income Fund) of that year,
plus certain other amounts. Each Fund intends to distribute annually a
sufficient amount of income and capital gains to avoid liability for the
Excise Tax.

Special Considerations for the Tax-Exempt Fixed Income Funds

The "exempt-interest" portion of each daily dividend declared by a Tax-
Exempt Fixed Income Fund will be based upon the ratio of its tax-exempt to
taxable income for the entire taxable year (average annual method). As a
result, the percentage of any particular dividend that is treated as tax-
exempt may be substantially different from the percentage of income earned
during the period covered by that dividend that actually was tax-exempt.
Each Tax-Exempt Fixed Income Fund will advise its shareholders of this
ratio within 60 days after the close of its fiscal year (March 31).

Each Tax-Exempt Fixed Income Fund may invest in municipal bonds that are
purchased, generally not on their original issue, with market discount
(that is, at a price less than the principal amount of the bond or, in the
case of a bond that was issued with original issue discount, at a price
less than the amount of the issue price plus accrued original issue
discount) ("municipal market discount bonds"). Gain on the disposition of
a municipal market discount bond (other than a bond with a fixed maturity
date within one year from its issuance), generally is treated as ordinary
(taxable) income, rather than capital gain, to the extent of the bond's
accrued market discount at the time of disposition. Market discount on
such a bond generally is accrued ratably, on a daily basis, over the
period from the acquisition date to the date of maturity. In lieu of

36
<PAGE>

treating the disposition gain as above, a Fund may elect to include market
discount in its gross income currently, for each taxable year to which it
is attributable.

No portion of the dividends or other distributions paid by any Tax-Exempt
Fixed Income Fund is eligible for the dividends-received deduction allowed
to corporations.

The foregoing is only a general summary of some of the important federal
income tax considerations generally affecting the Funds. No attempt is
made to present a complete explanation of the federal tax treatment of
their activities, and this discussions is not intended as a substitute for
careful tax planning. For example, dividends paid by the Tax-Exempt Fixed
Income Funds may be subject to state and local income taxes (except to the
extent noted in the Prospectus in the case of dividends paid by the
California Fund). Accordingly, potential investors are urged to consult
with their own tax advisers for more detailed information and for
information regarding any state, local or foreign taxes applicable to the
Funds and to distributions therefrom.

CONVERSION OF ADVISOR CLASS B SHARES

Advisor Class B shares of a Fund will automatically convert to Advisor
Class A shares of that Fund, based on the relative net asset values per
share ("NAVs") of the Classes, as of the close of business on the first
business day of the month in which the sixth anniversary of the
shareholder's purchase of such Advisor Class B shares occurs. For the
purpose of calculating the holding period required for conversion of
Advisor Class B shares of each Fund except the Money Market Fund, the date
of purchase shall mean (1) the date on which such Advisor Class B shares
were purchased, or (2) for Advisor Class B shares obtained through an
exchange, or a series of exchanges, the date on which the original Advisor
Class B shares were purchased. For the purpose of calculating the holding
period required for conversion of Advisor Class B shares of the Money
Market Fund, the date of purchase shall mean the date on which those
shares were first exchanged for Advisor Class B shares of any other SAFECO
Fund. Holders of Class B shares of the SAFECO Advisor Series Trust
("Advisor Series Shares") who have converted those shares to Advisor Class
B shares may calculate the holding period from the date of the purchase of
the Advisor Series Shares.

For purposes of conversion to Advisor Class A shares, Advisor Class B
shares purchased through the reinvestment of dividends and other
distributions paid in respect of Advisor Class B shares will be held in a
separate sub-account; each time any Advisor Class B shares in the
shareholder's regular account (other than those in the sub-account)
convert to Advisor Class A shares, a pro rata portion of the Advisor Class

37
<PAGE>

B shares in the sub-account will also convert to Advisor Class A shares.
The portion will be determined by the ratio that the shareholder's Advisor
Class B shares converting to Advisor Class A shares bears to the
shareholder's total Advisor Class B shares not acquired through dividends
and other distributions.

ADDITIONAL INFORMATION ON CALCULATION OF
NET ASSET VALUE PER SHARE

Each Fund determines its NAV by subtracting its liabilities (including
accrued expenses and dividends payable) from its total assets (the market
value of the securities the Fund holds plus cash and other assets,
including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAVs of the Advisor
Classes of each Fund are calculated as of the close of regular trading on
the New York Stock Exchange ("Exchange") every day the Exchange is open
for trading. The Exchange is closed on the following days: New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.

Short-term debt securities held in a Fund's portfolio having a remaining
maturity of less than 60 days when purchased and securities originally
purchased with maturities in excess of 60 days, but which currently have
maturities of 60 days or less, may be valued at cost adjusted for
amortization of premiums or accrual of discounts if in the judgment of
each Board of Trustees such methods of valuation are appropriate or under
such other methods as a Board of Trustees may from time to time deem to be
appropriate. The cost of those securities that had original maturities in
excess of 60 days shall be determined by their fair market value as of the
61st day prior to maturity. All other securities and assets in the
portfolio will be appraised in accordance with those procedures
established by each Board of Trustees in good faith in computing the fair
market value of those assets.

Each Fund has selected a pricing service to assist in computing the value
of its portfolio securities. There are a number of pricing services
available and the decision as to whether, or how, a pricing service should
be used by a Fund will be subject to review by each Trust's Board of
Trustees.

38
<PAGE>

The portfolio instruments of the Money Market Fund are valued on the basis
of amortized cost. The valuation of the Money Market Fund's portfolio
securities based upon amortized cost, and the maintenance of the Money
Market Fund's NAV at $1.00, are permitted pursuant to Rule 2a-7 under the
1940 Act. Pursuant to that rule, the Money Market Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less, purchases
only securities having remaining maturities of thirteen months or less,
and invests only in securities determined by SAM, under guidelines adopted
by the Money Market Trust's Board of Trustees, to be of high quality and
to present minimal credit risks. The Board of Trustees has established
procedures designed to stabilize, to the extent reasonably possible, the
Money Market Fund's price-per-share as computed for the purpose of sales
and redemptions at $1.00. These procedures include a review of the Money
Market Fund's portfolio holdings by the Board of Trustees, at such
intervals as the Board deems appropriate, to determine whether the Fund's
NAV, calculated by using available market quotations, deviates from $1.00
per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing shareholders of the Money
Market Fund. In the event the Board determines that such a deviation
exists in the Fund, the Trustees will take such corrective action with
respect to the Money Market Fund as they regard as necessary and
appropriate, including: selling portfolio investments prior to maturity to
realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends, redeeming shares in kind, establishing the NAV by
using available market quotations; or such other measures as the Trustees
deem appropriate.

ADDITIONAL PERFORMANCE INFORMATION

Effective September 30, 1996, all of the then-existing shares of each Fund
were redesignated No-Load Class shares and each Fund commenced offering
Advisor Class A and Advisor Class B shares.

Yields for the Intermediate Treasury, Managed Bond, and Tax-Exempt Fixed
Income Funds.

The yield and total return calculations set forth below are for the dates
indicated and are not a prediction of future results. The performance
information that follows is based on the original shares of each Fund.
The performance figures quoted do not reflect any applicable Advisor Class
Rule 12b-1 fees, which if reflected would cause the performance figures to
be lower than those indicated.

The yields for the Advisor Classes of the Intermediate Treasury Fund for
the 30-day period ended September 30, 1995 would have been as follows:

39
<PAGE>

Advisor Class A Advisor Class B
--------------- ---------------

Intermediate Treasury Fund 5.16% 4.41%

The yields for the Advisor Classes of the Intermediate Treasury Fund for
the 30-day period ended March 31, 1996 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------

Intermediate Treasury Fund 4.22% 3.47%

The yields for the Advisor Classes of the Managed Bond Fund for the 30-day
period ended December 31, 1995 would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------

Managed Bond Fund 4.53% 3.78%

The yields and tax-equivalent yields for the 30-day period ending
March 31, 1996 at the maximum federal tax rate of 39.6% for the Advisor
Classes of the Municipal, California, and Washington Funds and at the
maximum combined federal and California tax rates of 46.2% for the
California Fund, would have been as follows:

Advisor Class A Advisor Class B
--------------- ---------------

Tax-equivalent Tax-equivalent
Yield Yield Yield Yield
----- ---------- ----- ----------

Municipal Fund 4.81% 7.96% 4.06% 6.72%

California Fund 4.79% 8.90% 4.04% 7.51%

Washington Fund 4.37% 7.24% 3.62% 5.99%

<PAGE>

Yield is computed using the following formula:

ab 6
Yield = 2[( --- +1) - 1]
cd
Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of
reimbursements)

c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = the maximum offering price per share on the last
day of the period

Tax-equivalent yield is computed using the following formula:

eg
Tax-equivalent yield = [-----] + [e(1-g)]
(1-f)
Where: e = yield as calculated above

f = tax rate

g = percentage of "yield" which is tax-free

Yield for the Money Market Fund

The yields and effective yields for the Advisor Classes of the Money
Market Fund for the 7-day period ended March 31, 1996 would have been as
follows:

Advisor Class A Advisor Class B
--------------- ---------------

Effective Effective
Yield Yield Yield Yield
----- -------- ----- --------

Money Market Fund 4.60% 4.70% 4.60% 4.70%

Yield is computed using the following formula:

41
<PAGE>

(x-y) - z 365
Yield = [--------] = Base Period Return x -----
y 7

Where: x = value of one share at the end of a 7-day
period

y = value of one share at the beginning of a 7-
day period ($1.00)

z = capital changes during the 7-day period, if
any

Effective yield is computed using the following formula:

Effective yield = [(Base Period Return + 1) 365/7]
- 1

Tax-equivalent yield is computed using the following formula:

eg
Tax-equivalent yield = [ ----- ] + [e (1-g)]
1-f
Where: e = yield as calculated above

f = tax rate

g = percentage of yield which is tax-free

During periods of declining interest rates, the Fund's yield based on
amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder in the Fund would be able to
obtain a somewhat higher yield than would result if the Fund utilized
market valuations to determine its NAV. The converse would apply in a
period of rising interest rates.

Total Return and Average Annual Total Return for the Intermediate
Treasury, Managed Bond, and Tax-Exempt Fixed Income Funds.

The performance information that follows is based on the original shares
of each Fund, recalculated to reflect the sales charges of the Advisor
Classes. The performance figures quoted do not reflect any applicable
Advisor Class Rule 12b-1 fees, which if reflected would cause the
performance figures to be lower than those indicated.

The total returns for the Advisor Classes of the Intermediate Treasury
Fund for the one-year, five-year and since initial public offering periods
ending September 30, 1995 would have been as follows:

42
<PAGE>

<TABLE>
<CAPTION>
Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
------ ------- --------------- ------ ---------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Intermediate
Treasury Fund 6.07% 6.07% 41.06% 45.10% 62.78% 70.45% 84 September 7, 1988

</TABLE>

The total returns for the Advisor Classes of the Intermediate Treasury
Fund for the one-year, five-year and since initial public offering periods
ending March 31, 1996 would have been as follows:

Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
------ ------- --------------- ------ ---------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Intermediate
Treasury Fund 4.65% 4.58% 36.89% 41.34% 66.08% 73.91% 90 September 7, 1988
</TABLE>

The total returns for the Advisor Classes of the Managed Bond Fund for the
period from February 28, 1994 (initial public offering) through December
31, 1995, would have been as follows:

43
<PAGE>

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
----- --------------- ------ ---------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Managed Bond Fund 12.07% 12.35% 8.70% 9.82% 22 February 28, 1994

</TABLE>

The total returns for the Advisor Classes of the Municipal and California
Funds for the one-year, five-year and ten-year periods ending March 31,
1996 would have been as follows:

1 Year 5 Years 10 Years
------ ------- -------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Municipal Fund 3.36% 3.23% 40.84% 45.47% 110.25% 120.16%

California
Fund 3.97% 3.87% 41.43% 46.09% 104.10% 113.72%

</TABLE>

The total returns for the Advisor Classes of the Washington Fund for the
one-year period (and since inception) ended March 31, 1996 would have been
as follows:

<PAGE>

<TABLE>
Since Initial Effective Date
1 Year (36 Months)
------ ---------------------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Washington Fund 2.88% 2.73% 10.97% 13.20%

</TABLE>

The average annual total returns for the Advisor Classes of the
Intermediate Treasury Fund for the one-year, five-year and since initial
public offering periods ended September 30, 1995 would have been as
follows:

<TABLE>
<CAPTION

Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
------- ------- --------------- ------ ---------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Intermediate
Treasury 6.07% 6.07% 7.12% 7.82% 7.21% 7.92% 84 September 7, 1988
</TABLE>

The average annual total returns for the Advisor Classes of the
Intermediate Treasury Fund for the one-year, five-year and since initial
public offering period ended March 31, 1996 would have been as follows:

<PAGE>

<TABLE>
<CAPTION>
Since Initial # of Date of Initial
1 Year 5 Years Public Offering Months Public Offering
----- ------ --------------- ------ --------------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Intermediate
Treasury 4.65% 4.58% 6.48% 7.17% 7.00% 7.66% 90 September 7, 1988

</TABLE>

The average annual total returns for the Advisor Classes of the Managed
Bond Fund for the period from February 28, 1994 (initial public offering)
through December 31, 1995 would have been as follows:

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ --------------- ------ ---------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Managed Bond
Fund 12.07% 12.35% 4.66% 5.24% 22 February 28, 1994
</TABLE>

The average annual total returns for the Advisor Classes of the Municipal
and California Funds for the one-year, five-year and ten year periods
ending March 31, 1996 would have been as follows:

<PAGE>

<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------

Advisor Advisor Advisor Advisor Advisor Advisor
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------

Municipal
Fund 3.36% 3.23% 7.09% 7.78% 7.71% 8.21%

California
Fund 3.97% 3.87% 7.18% 7.88% 7.39% 7.89%
</TABLE>

The average annual total returns for the Advisor Classes of the Washington
Fund for the one-year period (and since inception) ended March 31, 1996
would have been as follows:

Since Initial # of Date of Initial
1 Year Public Offering Months Public Offering
------ --------------- ------- ---------------

Advisor Advisor Advisor Advisor
Class A Class B Class A Class B
------- ------- ------- -------

Washington
Fund 2.88% 2.73% 3.53% 4.22% 36 March 18, 1993

</TABLE>

<PAGE>

The total return is computed using the following formula:

ERV-P
T = [ ----- ] x 100
P

Where: T = ending redeemable value of a hypothetical
$1,000 investment at the end of a
specified period of time

P = a hypothetical initial investment of $1,000

The average annual total return is computed using the following formula:

nA = ([SQUARE ROOT] ERV/P - 1) x 100

Where: T = total return

A = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical
$1,000 investment at the end of a specified
period of time

P = a hypothetical initial investment of $1,000

In making the above calculation all dividends and capital gain
distributions are assumed to be reinvested at the Fund's NAV on the rein-
vestment date.

In addition to performance figures, each Fund may advertise its ranking as
calculated by independent rating services which monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical
Services, Inc. and Morningstar, Inc.). These rankings may be among mutual
funds with similar objectives and/or size or with mutual funds in general
and may be based on relative performance during periods deemed by the
rating services to be representative of up and down markets.

The Funds may upon occasion reproduce articles or portions of articles
about the Funds written by independent third parties such as financial
writers, financial planners and financial analysts, and appearing in
financial publications of general circulation or financial newsletters
(including but not limited to BARRONS, BUSINESS WEEK, FORBES, FORTUNE,

48
<PAGE>

INVESTOR'S BUSINESS DAILY, KIPLINGER'S, MONEY MAGAZINE, NEWSWEEK, PENSIONS
& INVESTMENTS, TIME MAGAZINE, U.S. NEWS AND WORLD REPORT AND THE WALL
STREET JOURNAL).

Each Fund may also present in its advertisements and sales literature (i)
a biography or the credentials of its portfolio manager (including but not
limited to educational degrees, professional designations, work
experience, work responsibilities and outside interests); (ii) current
facts (including but not limited to number of employees, number of
shareholders, business characteristics) about its investment adviser (SAM)
the investment adviser's parent company (SAFECO Corporation) or the SAFECO
Family of Funds; (iii) descriptions, including quotations attributable to
the portfolio manager, of the investment style used to manage a Fund's
portfolio, the research methodologies underlying securities selection and
a Fund's investment objective; and (iv) information about particular
securities held in a Fund's portfolio.

Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.

ADDITIONAL INFORMATION ON DIVIDENDS

Because the Money Market Fund intends to hold its portfolio securities to
maturity and expects that most of its portfolio securities will be valued
at their amortized cost, realized gains or losses should not be a signifi-
cant factor in the computation of net income. Should, however, in an
unusual circumstance, the Money Market Fund experience a realized gain or
loss, a shareholder of the Money Market Fund could receive an increased,
reduced, or no dividend for a period of time. In such an event, the Money
Market Trust's Board of Trustees would consider whether to adhere to its
present dividend policy or to revise it in light of the then-prevailing
circumstances.

49
<PAGE>

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with the Trusts During Past 5 Years
---------------- ---------------- -----------------------

Boh A. Dickey* Chairman and Trustee Executive Vice President, Chief Financial
SAFECO Plaza Officer and Director of SAFECO Corporation. He
Seattle, Washington 98185 has been an executive officer of SAFECO
(51) Corporation subsidiaries since 1982. See table
under "Investment Advisory and Other Services."

Barbara J. Dingfield Trustee Manager, Corporate Contributions and Community
Microsoft Corporation Programs for Microsoft Corporation, Redmond,
One Microsoft Way Washington, a computer software company;
Redmond, Washington 98052 Director and former Executive Vice President of
(50) Wright Runstad & Co., Seattle, Washington, a
real estate development company; Director of
First SAFECO National Life Insurance Company of
New York.

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

Richard E. Lundgren Trustee Director of Marketing and Customer Relations,
764 S. 293rd Street Building Materials Distribution, Weyerhaeuser
Federal Way, Washington 98032 Company, Tacoma, Washington; Director of First
(58) SAFECO National Life Insurance Company of New
York.

Larry L. Pinnt Trustee Retired Vice President and Chief Financial
1600 Bell Plaza Officer U.S. WEST Communications, Seattle,
Room 1802 Washington; Director of Key Bank of Washington,
Seattle, Washington 98191 Seattle, Washington; Director of University of
(61) Washington Medical Center, Seattle, Washington;
Director of Cascade Natural Gas Corporation,
Seattle, Washington; Director of First SAFECO
National Life Insurance Company of New York.

50
<PAGE>

Position(s) Held Principal Occupation(s)
Name and Address with the Trusts During Past 5 Years
---------------- ---------------- -----------------------

John W. Schneider Trustee President of Wallingford Group, Inc., Seattle,
1808 N 41st St. Washington; former President of Coast Hotels,
Seattle, Washington 98103 Inc., Seattle, Washington; Director of First
(54) SAFECO National Life Insurance Company of New
York.

David F. Hill President President of SAFECO Securities, Inc. and SAFECO
SAFECO Plaza Services Corporation; Senior Vice President of
Seattle, Washington 98185 SAFECO Asset Management Company. See table
(47) under "Investment Advisory and other Services."

Neal A. Fuller Vice President Controller Vice President, Controller, Assistant Secretary
SAFECO Plaza Assistant Secretary and Treasurer of SAFECO Securities, Inc. and
Seattle, Washington 98185 SAFECO Services Corporation; Vice President,
(34) Controller, Secretary and Treasurer of SAFECO
Asset Management Company. See table under
"Investment Advisory and Other Services."

Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset Management
SAFECO Plaza Treasurer Company; Vice President and Treasurer of
Seattle, Washington 98185 SAFECO Corporation; Vice President of SAFECO
(52) Life Insurance Company; former Senior Fund
Manager of SAFECO insurance companies; former
Fund Manager for several SAFECO mutual funds.
See table under "Investment Advisory and Other
Services."

</TABLE>

<PAGE>

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

<TABLE>
<CAPTION>
COMPENSATION TABLE
(Taxable Bond Trust)
For the Fiscal Year Ended September 30, 1995
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation from As Part of Fund Benefits Upon Fund Complex Paid to
Trustee Registrant Expenses Retirement Trustees
------- ---------------- --------------- -------------- ------------------

Barbara J. Dingfield $2,360 N/A N/A $22,737

Richard E. Lungren $2,360 N/A N/A $22,737

L.D. McClean $2,118 N/A N/A $21,000

Larry L. Pinnt $2,360 N/A N/A $22,737

John W. Schneider $2,360 N/A N/A $22,737

Boh A. Dickey $0 N/A N/A $0

Richard W. Hubbard $2,568 N/A N/A $24,150
</TABLE>

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management companies that have, in the
aggregate, twenty-eight series companies managed by SAM.

The officers of the Trust receive no compensation for their services as
officers, or if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Taxable Bond Trust as a
group owned less than 1% of the outstanding shares of the Intermediate
Treasury Fund.

52
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE
(Managed Bond Trust)
For the Fiscal Year Ended December 31, 1995

Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated From Registrant and
Trustee Compensation from As Part of Fund Annual Benefits Fund Complex Paid
--------- Registrant Expenses Upon Retirement to Trustees
---------------- --------------- ---------------- ------------------

Barbara J. Dingfield $852 N/A N/A $23,875

Richard E. Lundgren $852 N/A N/A $23,875

L.D. McClean $785 N/A N/A $22,000

Larry L. Pinnt $852 N/A N/A $23,875

John W. Schneider $852 N/A N/A $23,875

Boh A. Dickey $0 N/A N/A $0

Richard W. Hubbard $960 N/A N/A $26,900

</TABLE>

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as Trustee for six
other registered open-end management companies that have, in the
aggregate, thirty series companies managed by SAM.

The officers of the Trust received no compensation for their services as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Managed Bond Trust
owned none of the outstanding shares of the Managed Bond Fund.

53
<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE
(Money Market Trust)
For the Fiscal Year Ended March 31, 1996
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation As Part of Fund Benefits Fund Complex Paid to
Trustee from Registrant Expenses Upon Retirement Trustees
-------- --------------- ---------------- --------------- -------------------

Barbara J. Dingfield $2,095 N/A N/A $24,813

Richard E. Lundgren $2,095 N/A N/A $24,813

L.D. McClean $2,095 N/A N/A $24,813

Larry L. Pinnt $2,095 N/A N/A $24,813

John W. Schneider $2,095 N/A N/A $24,813

Boh A. Dickey $0 N/A N/A $0

Richard W. Hubbard $2,095 N/A N/A $23,000
</TABLE>

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of the Trust are
compensated by the Trust. Each Trustee also serves as trustee for six
other registered open-end, management investment companies that have, in
the aggregate, twenty-nine series companies managed by SAM.

The officers of the Trust receive no compensation for their service as
officers or, if applicable, as Trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Fund.

<PAGE>

<TABLE>
<CAPTION>
COMPENSATION TABLE
(Tax-Exempt Bond Trust)
For the Fiscal Year Ended March 31, 1996
Pension or
Retirement Total Compensation
Aggregate Benefits Accrued Estimated Annual From Registrant and
Compensation As Part of Fund Benefits Fund Complex Paid to
Trustee from Registrant Expenses Upon Retirement Trustees
------- --------------- ---------------- --------------- -------------------

Barbara J. Dingfield $4,547 N/A N/A $24,813

Richard E. Lundgren $4,547 N/A N/A $24,813

L.D. McClean $4,547 N/A N/A $24,813

Larry L. Pinnt $4,547 N/A N/A $24,813

John W. Schneider $4,547 N/A N/A $24,813

Boh A. Dickey $0 N/A N/A $0

Richard W. Hubbard $4,547 N/A N/A $23,000
</TABLE>

Currently, there is no pension, retirement, or other plan or any
arrangement pursuant to which Trustees or officers of a Trust are
compensated by that Trust. Each Trustee also serves as trustee for six
other registered open-end, management investment companies that have, in
the aggregate, twenty-six series companies managed by SAM.

The officers of a Trust received no compensation for their services as
officers or, if applicable, trustees.

At June 30, 1996, the Trustees and officers of the Trust as a group owned
less than 1% of the outstanding shares of each Taxable Bond Fund.

55
<PAGE>

INVESTMENT ADVISORY AND OTHER SERVICES

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

The following individuals have the following positions and offices with
the Trust, SAM, SAFECO Securities and SAFECO Services.

<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
---- ----- --- ---------- --------

B. A. Dickey Chairman Director Director
Trustee Chairman

B. F. Hill President Senior President President
Vice Director Secretary
President Secretary Director
Director

N. A. Fuller Vice President Vice Vice President Vice
Controller President Controller President
Assistant Controller Assistant Controller
Secretary Secretary Secretary Assistant
Treasurer Treasurer Secretary
Treasurer

R. L. Spaulding Vice President Vice Director Director
Treasurer Chairman
Director

S.C. Bauer President
Director

</TABLE>

<PAGE>

In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed
for or on behalf of the Trust and each Fund, that includes furnishing
office facilities, books, records and personnel to manage the Trust's and
each Fund's affairs and paying certain expenses.

Each Trust's Trust Instrument provides that the Trust will indemnify its
Trustees and its officers against liabilities and expenses reasonably
incurred in connection with litigation in which they may be involved
because of their offices with the Trust, unless it is adjudicated that
they engaged in bad faith, wilful misfeasance, gross negligence, or
reckless disregard of the duties involved in the conduct of their offices.
In the case of settlement, such indemnification will not be provided
unless it has been determined -- by a court or other body approving the
settlement or other disposition, or by a majority of disinterested
Trustees, based upon a review of readily available facts, or in a written
opinion of independent counsel -- that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.

Intermediate Treasury Fund

Net Assets Fee
$0 - $250,000,000 .55 of 1%
$250,000,001 - $500,000,000 .45 of 1%
$500,000,001 - $750,000,000 .35 of 1%
Over $750,000,000 .25 of 1%

<PAGE>

Managed Bond Fund

Net Assets Fee
$0 - $100,000,000 .50 of 1%
$100,000,001 - $250,000,000 .40 of 1%
Over $250,000,000 .35 of 1%

Washington Fund

Net Assets Fee

$0 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
$500,000,001 - $750,000,000 .45 of 1%
Over $750,000,000 .35 of 1%

Municipal and California Funds

Net Assets Fee
$0 - $100,000,000 .55 of 1%
$100,000,001 - $250,000,000 .45 of 1%
$250,000,001 - $500,000,000 .35 of 1%
Over $500,000,000 .25 of 1%

Money Market Fund

Net Assets Fee
$0 - $250,000,00 .5 of 1%
$250,000,001 - $500,000,000 .4 of 1%
$500,000,001 - $750,000,000 .3 of 1%
Over $750,000,000 .25 of 1%

Each Fund bears all expenses of its operations not specifically assumed by
SAM. SAM has agreed to reimburse each Fund for the amount by which a
Fund's expenses in any full fiscal year (excluding interest expense,
taxes, brokerage expenses, and extraordinary expenses) exceed the limits
prescribed by any state in which a Fund's shares are qualified for sale.
Presently, the most restrictive expense ratio limitation imposed by any
such state is 2.5% of the first $30 million of a Fund's average daily net
assets, 2.0% of the next $70 million of such assets, and 1.5% of the
remaining net assets. For the purpose of determining whether a Fund is
entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to a reimbursement, that month's
advisory fee will be reduced or postponed, with any adjustment made after
the end of the fiscal year.

The following states the total amounts of compensation paid by each Fund
to SAM for the past three fiscal years or periods (or since its initial
public offering in the case of the Managed Bond Fund):

58
<PAGE>

Intermediate Treasury Fund

Year Ended

September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

$71,000 $77,000 $72,000

Managed Bond Fund

Year or Period Ended

February 28, 1994
(Initial Public Offering) to
December 31, 1995 December 31, 1994
----------------- ----------------------------

$22,720 $15,869

Money Market Fund

Year or Period Ended

March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------
<S> <C> <C>

$864,914 $840,727 $690,549

</TABLE>

Tax-Exempt Fixed Income Funds

Year Ended

March 31, March 31, March 31,
1996 1995 1994
--------- --------- ---------

Municipal Bond Fund $2,020,685 $2,010,754 $2,248,615

California Fund 365,684 364,000 455,055

Washington Fund 39,038 31,475 18,350

59
<PAGE>

Distribution Arrangements. SAFECO Securities is the principal underwriter
for each Fund and acts as the distributor of the Advisor Class A and
Advisor Class B shares of each Fund under a Distribution Agreement with
the Trust that requires SAFECO Securities to use its best efforts,
consistent with its other businesses, to sell shares of the Funds. Shares
of the Funds are offered continuously.

Under separate plans of distribution pertaining to the Advisor Class A and
Advisor Class B shares of each Fund adopted by each Trust in the manner
prescribed under Rule 12b-1 under the 1940 Act (each a "Plan"), each
Advisor Class pays fees described in the Prospectus.

Among other things, each Plan provides that (1) SAFECO Securities will
submit to each Trust's Board of Trustees at least quarterly, and the
Trustees will review, reports regarding all amounts expended under the
Plan and the purposes for which such expenditures were made, (2) the Plan
will continue in effect so long as they are approved at least annually and
any material amendment thereto is approved, by each respective Trust's
Board of Trustees, including those Trustees who are not "interested
persons" of each Trust and who have no direct or indirect financial
interest in the operation of the Plan or any agreement related to the
Plan, acting in person at the meeting called for that purpose, (3)
payments by a Fund under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the
outstanding voting securities of the relevant Advisor Class of that Fund
and (4) while the Plan remains in effect, the selection and nomination of
Trustees who are not "interested persons" of each Trust shall be committed
to the discretion of each Trustees who are not "interested persons" of
each Trust.

In reporting amounts expended under the Plans to each Trust's Board of
Trustees, SAFECO Securities will allocate expenses attributable to the
sale of each Advisor Class of Fund shares to such Advisor Class based on
the ratio of sales of shares of such Advisor Class to the sales of all
Advisor Classes of shares. Expenses attributable to a specific Advisor
Class will be allocated to that Advisor Class.

In approving the adoption of each Plan, each Trust's Board of Trustees
determined that the adoption was in the best interests of the Funds'
shareholders.

60
<PAGE>

U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington
98111, is the custodian of the securities, cash and other assets of each
Fund under an agreement with each Trust. Ernst & Young LLP, 999 Third
Avenue, Suite 3500, Seattle, Washington 98104, is the independent auditor
of each Fund's financial statements.

SAFECO Services provides, or through subcontracts makes provision for, all
required transfer agency activity, including maintenance of records of
each Fund's shareholders, records of transactions involving each Fund's
shares, and the compilation, distribution, or reinvestment of income
dividends or capital gains distribution. For the Intermediate Treasury,
Managed Bond and Tax-Exempt Fixed Income Funds, SAFECO Services is paid a
fee for these services equal to $32.00 per shareholder account, but not to
exceed .30% of each Fund's average net assets. For the Money Market Fund,
SAFECO Services is paid a fee of $34.00 per shareholder account, but not
to exceed .30% of each Fund's average net assets. The following tables
shows the fees paid by each Fund to SAFECO Services during the past three
fiscal years.

Intermediate Treasury Fund

Year Ended*

September 30, 1995 September 30, 1994 September 30, 1993
------------------ ------------------ ------------------

$33,000 $25,000 $23,000

Managed Bond Fund*

Year or Period Ended

February 28, 1994
(Initial Public Offering) to
December 31, 1995 December 31, 1994
----------------- ---------------------------
$309 $96

61
<PAGE>

Money Market Fund

Year Ended*

March 31, 1996 March 31, 1995 March 31, 1994
-------------- -------------- --------------

$424,260 $385,495 $308,090

Tax-Exempt Bond Funds

Year or Period Ended*

March 31, March 31, March 31,
1996 1995 1994
----------- --------- ---------

Municipal Bond Fund $511,005 $531,978 $557,561

California Fund 68,839 68,840 66,667

Washington Fund 2,842 3,219 2,801

* Tables reflect fees of $3.10 per shareholder transaction payable
pursuant to the prior fee schedule.

BROKERAGE PRACTICES

SAM places orders for the purchase or sale of each Fund's portfolio
securities based on various factors including:

(1) Which broker gives the best execution (i.e., which broker is able
to trade the securities in the size and at the price desired and on
a timely basis);

(2) Whether the broker is known as being reputable; and,

(3) All other things being equal, which broker has provided useful
research services.

<PAGE>

members of SAM's staff, and personal visits by such analysts and brokerage
strategists and economists) are used to advise all clients including the
Funds, but not all such research services furnished are used by it to
advise the Funds. Excess commissions or mark-ups to any broker or dealer
for research services or for any other reason. Purchases and sales of
portfolio securities are transacted with the issuer or with a primary
market maker acting as principal for the securities on a net basis with no
commission being paid by the Funds. Transactions placed through dealers
serving as primary market makers reflect the spread between the bid and
asked prices. Occasionally the Funds may make purchases of underwritten
issues at prices that include underwriting fees.

REDEMPTION IN KIND

If a Trust concludes that cash payment upon redemption to a shareholder of
a Fund would be prejudicial to the best interest of other shareholders of
a Fund, a portion of the payment may be made in kind. The Trust has
elected to be governed by Rule 18(f)(1) under the Investment Company Act
of 1940, pursuant to which the Trust must redeem shares tendered by a
shareholder of a Fund solely in cash up to the lesser of $250,000 or 1% of
a net asset value of a Fund during any 90-day period. Any shares tendered
by the shareholder in excess of the above-mentioned limit may be redeemed
through distribution of a Fund's assets. Any securities or other property
so distributed in kind shall be valued by the same method as is used in
computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur
brokerage costs in disposing of securities received in such a distribution
in kind.

FINANCIAL STATEMENTS

The following financial statements for the Intermediate Treasury Fund and
the report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Taxable Bond Trust's Annual Report
for the year ended September 30, 1995.

Portfolio of Investments as of September 30, 1995
Statement of Assets and Liabilities as of September 30, 1995
Statement of Operation for the Year Ended September 30, 1995
Statement of Changes in Net Assets for the Years Ended September
30, 1995 and September 30, 1994
Notes to Financial Statements

The following unaudited financial statements for the Intermediate Treasury
Fund are incorporated herein by reference to the Taxable Bond Trust's
Semi-Annual Report for the period ending March 31, 1996.

Portfolio of Investments as of March 31, 1996 (unaudited)
Statement of Assets and Liabilities as of March 31, 1996
(unaudited)

63
<PAGE>

Statement of Operations for the Year Ended March 31, 1996
(unaudited)
Statement of Changes in Net Assets for the Period Ended March 31,
1996 (unaudited)
March 31, 1996 Notes to Financial Statements (unaudited)

The following financial statements for the Managed Bond Fund and the
report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Managed Bond Trust's Annual Report
for the year ended December 31, 1995:

Portfolio of Investments as of December 31, 1995
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the Year Ended December 31, 1995
Statement of Changes in Net Assets for the Years Ended December 31,
1995 and December 31, 1994
Notes to Financial Statements

The following financial statements for the Money Market Fund and the
report thereon of Ernst & Young LLP, independent auditors, are
incorporated herein by reference to the Money Market Trust's Annual Report
for the year ended March 31, 1996:

Portfolio of Investments as of March 31, 1996
Statement of Assets and Liabilities as of March 31, 1996
Statement of Operations for the Year Ended March 31, 1996
Statement of Changes in Net Assets for the Years Ended March 31,
1996 and March 31, 1995
Notes to Financial Statements

The following financial statements for the Municipal Bond, California and
Washington Funds and the report thereon of Ernst & Young LLP, independent
auditors, are incorporated herein by reference to the Tax-Exempt Bond
Trust's Annual Report for the year ended March 31, 1996:

A copy of each Trusts' Annual Report and the Semi-Annual Report of the
Intermediate Treasury Fund accompanies this Statement of Additional
Information. Additional copies may be obtained by calling SAFECO Services
at 1-800-463-8791 or by writing to the address on the Prospectus cover.

DESCRIPTION OF RATINGS

Ratings by Moody's and S&P represent opinions of those organizations as to
the investment quality of the rated obligations. Investors should realize

64
<PAGE>

these ratings do not constitute a guarantee that the principal and
interest payable under these obligations will be paid when due.

Description of Bond Ratings

Moody's

Investment Grade Descriptions:

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 edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.

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

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

Below Investment Grade Descriptions:

Ba -- 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.

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 -- Have poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

<PAGE>

Ca -- Represent obligations which are speculative in a high degree. Such
issues are often in default or have other marked short-comings.

C -- The lowest-rated class of bonds. Issues so rated have extremely poor
prospects of ever attaining any real investment standing.

S&P

Investment Grade Descriptions:

AAA -- Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

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

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

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

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

Below Investment Grade Descriptions:

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

C -- Reserved for income bonds on which no interest is being paid.

D -- In default, and payment of interest and/or repayment of principal is
in arrears.

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

<PAGE>

Description of Commercial Paper Ratings
Moody's.

Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations with an original maturity not
exceeding one year.

Prime-1: Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:

. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
. Well-established access to a range of financial markets and
assured sources of alternate liquidity.

Prime-2: Issuers (or supporting institutions) rated Prime-2 (P-2) have a
strong ability for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.

Standard & Poor's.

A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days.

A-1: This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus sign (+)
designation.

A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.

Description of Ratings for Municipal Notes,
Tax-Exempt Demand Notes and Other Short-Term Obligations

Standard & Poor's

Ratings for municipal notes and other short-term obligations are
designated by Standard & Poor's note rating. These ratings reflect

67
<PAGE>

liquidity concerns and market access risks unique to notes. Notes due in
three years or less will likely receive a note rating.

SP-1 Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest.

Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.

The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature.
The long-term debt rating symbols are used for bonds to denote the long-
term maturity and the commercial paper rating symbols are used to denote
the put option (for example, "AAA/A-1+"). For the newer "demand notes,"
Standard & Poor's note rating symbols, combined with the commercial paper
symbols, are used (for example, "SP-1+/A-1+").

Moody's

Moody's rates municipal notes and other short-term obligations using
Moody's Investment Grade (MIG). A short-term obligation having a demand
feature (a variable-rate demand obligation) will be designated VMIG. This
distinction recognizes differences between short-term credit risk and
long-term credit risk as well as differences between short-term issues
making payments on fixed maturity dates (MIG) and those making payments on
periodic demand (VMIG).

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

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

68
<PAGE>
<PAGE>

SAFECO TAX-EXEMPT BOND TRUST

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits
------- ---------------------------------

(a) Financial Statements:

Financial Highlights for a single No-Load Class share of (i)
SAFECO Municipal Bond Fund and SAFECO California Tax-Free Income
Fund for each of the ten fiscal years ended March 31, 1996; (ii)
SAFECO Washington State Municipal Bond Fund for the period from
March 18, 1993 (Initial Public Offering) to March 31, 1993 and
for each of three fiscal years ended March 31, 1996 are included
in Part A of this Registration Statement. Financial Statements
for each of these Funds for the fiscal year ended March 31, 1996
and the report thereon of Ernst & Young LLP, independent
auditors, are incorporated by reference into Part B of this
Registration Statement and were filed with the SEC on or about
May 30, 1996 for SAFECO Tax-Exempt Bond Trust.

Financial Highlights for a single No-Load Class share of (i)
SAFECO Growth Fund, SAFECO Equity Fund and SAFECO Income Fund for
each of the ten fiscal years ended September 30, 1995; (ii)
SAFECO Northwest Fund for the period from February 7, 1991
(Initial Public Offering) to December 31, 1991, the fiscal year
ended December 31, 1992, the nine month period ended September
30, 1993 and the fiscal years ended September 30, 1994 and 1995
and (iii) each series of SAFECO Common Stock Trust for the period
ended March 31, 1996 (unaudited), are included in Part A of this
Registration Statement. Financial Statements for SAFECO Growth
Fund, SAFECO Equity Fund, SAFECO Income Fund and SAFECO Northwest
Fund for the fiscal year ended September 30, 1995 and the report
thereon of Ernst & Young LLP, independent auditors, and Financial
Statements for each series of SAFECO Common Stock Trust for the
six month period ended March 31, 1996 (unaudited) are
incorporated by reference into Part B of this Registration
Statement and were filed with the SEC on or about November 30,
1995 and May 30, 1996, respectively, for SAFECO Common Stock
Trust.

Financial Highlights for a single No-Load Class share of SAFECO
Intermediate-Term U.S. Treasury Fund for the period from
September 7, 1988 (Initial Public Offering) to September 30,
1988, and for each of the seven fiscal years ended September 30,
1995 and for the six month period ended March 31, 1996
(unaudited) are included in Part A of this Registration
Statement. Financial Statements for the fiscal year ended
September 30, 1995 and the report thereon of Ernst & Young LLP,
<PAGE>

independent auditors, and Financial Statements for the six month
period ended March 31, 1996 (unaudited) are incorporated by
reference into Part B of this Registration Statement and were
filed with the SEC on or about November 30, 1995 and May 30,
1996, respectively, for SAFECO Taxable Bond Trust.

Financial Highlights for a single No-Load Class share of SAFECO
Managed Bond Fund for the period from February 28, 1994 (Initial
Public Offering) to December 31, 1994 and for the fiscal year
ended December 31, 1995 are included in Part A of this
Registration Statement. Financial Statements for the fiscal year
ended December 31, 1995 and the report thereon of Ernst & Young
LLP, independent auditors, are incorporated by reference into
Part B of this Registration Statement and were filed with the SEC
on or about February 29, 1996 for SAFECO Managed Bond Trust.

Financial Highlights for a single No-Load Class share of SAFECO
Money Market Fund for each of the ten fiscal years ended March
31, 1996, are included in Part A of this Registration Statement.
Financial Statements for the fiscal year ended March 31, 1996 and
the report thereon of Ernst & Young LLP, independent auditors,
are incorporated by reference into Part B of this Registration
Statement and were filed with the SEC on or about May 30, 1996
for SAFECO Money Market Trust.

Financial Statements from the Registrant's Annual Report are
filed as Exhibit 12.

(b) Exhibits:

Exhibit
Number Description of Document Page
------- ----------------------- ----

(27.1-5) Financial Data Schedules

(1) Trust Instrument/Certificate of Trust *

(2) Bylaws *

(3) Inapplicable

(4) Form of Stock Certificate *

(5) Investment Advisory and Management Contract *

C-2
<PAGE>

Exhibit
Number Description of Document Page
------- ----------------------- ----

(6) Form of Distribution Agreement
Form of Selling Dealer Agreement

(7) Inapplicable

(8) Custody Agreement with U.S. Bank *

(9) Form of Transfer Agent Agreement *

(10) Opinion and Consent of Counsel for *
No-Load Class
Opinion and Consent of Counsel for Advisor
Class A and Advisor Class B

(11) Consent of Independent Auditors

(12) Registrant's Annual Report for the Year +
Ended March 31, 1996 Including Financial
Statements

Annual Report for SAFECO Common Stock Trust ++
for the Year Ended September 30, 1995
Including Financial Statements

Semi-Annual Report for SAFECO Common Stock ++
Trust for the Period Ended March 31, 1996
Including (Unaudited) Financial Statements

Annual Report for SAFECO Taxable Bond Trust ++
for the Year Ended September 30, 1995
Including Financial Statements

Semi-Annual Report for SAFECO Taxable Bond ++
Trust for the Period Ended March 31, 1996
Including (Unaudited) Financial Statements

Annual Report for SAFECO Managed Bond Trust +++
for the Year Ended December 31, 1995
Including Financial Statements

C-3
<PAGE>

Exhibit
Number Description of Document Page
------- ----------------------- ----

Annual Report for SAFECO Money Market Trust +
for the Year Ended March 31, 1996 Including
Financial Statements

(13) Subscription Agreement *

(14) Prototype 401(k)/Profit Sharing Plan **

(15) Rule 12b-1 Plan (Advisor Class A)
Rule 12b-1 Plan (Advisor Class B)

(16) Calculation of Performance Information - *
No-Load Class
Calculation of Performance Information -
Advisor Class A
Calculation of Performance Information -
Advisor Class B

(17) Inapplicable

(18) Rule 18f-3 Plan

* Filed as an exhibit to Post-Effective Amendment No. 4 filed with
the SEC on May 30, 1995.

** Filed as an exhibit to Post-Effective Amendment No. 8 of the
SAFECO Common Stock Trust filed with the SEC on November 17,
1995.

+ Annual Reports for Registrant and SAFECO Money Market Trust were
filed with the SEC on or about May 30, 1995.

++ Annual and Semi-Annual (Unaudited) Reports for SAFECO Common
Stock Trust and SAFECO Taxable Bond Trust were filed with the SEC
on or about November 30, 1995 and May 30, 1996, respectively.

C-4
<PAGE>

+++ Annual Report for SAFECO Managed Bond Trust was filed with the
SEC on or about February 29, 1996.

Item 25. Persons Controlled by or Under Common Control With Registrant
------- -------------------------------------------------------------

SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services)
and SAFECO Securities, Inc. (SAFECO Securities), each a Washington
corporation. SAM is the investment advisor, SAFECO Services is the
transfer agent and SAFECO Securities is the principal underwriter for each
of the SAFECO Mutual Funds. The SAFECO Mutual Funds consist of seven
Delaware business trusts: SAFECO Common Stock Trust, SAFECO Taxable Bond
Trust, SAFECO Tax-Exempt Bond Trust, SAFECO Advisor Series Trust, SAFECO
Money Market Trust, SAFECO Managed Bond Trust (formerly SAFECO
Institutional Series Trust) and SAFECO Resource Series Trust. The SAFECO
Common Stock Trust consists of seven mutual funds: SAFECO Growth Fund,
SAFECO Equity Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO
International Stock Fund, SAFECO Balanced Fund and SAFECO Small Company
Stock Fund. The SAFECO Taxable Bond Trust consists of three mutual funds:
SAFECO Intermediate-Term U.S. Treasury Fund, SAFECO GNMA Fund and SAFECO
High-Yield Bond Fund. The SAFECO Tax-Exempt Bond Trust consists of five
mutual funds: SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured
Municipal Bond Fund, SAFECO Municipal Bond Fund, SAFECO California Tax-
Free Income Fund and SAFECO Washington State Municipal Bond Fund. The
SAFECO Advisor Series Trust consists of eight mutual funds: Advisor Equity
Fund, Advisor Northwest Fund, Advisor Intermediate-Term Treasury Fund,
Advisor GNMA Fund, Advisor U.S. Government Fund, Advisor Municipal Bond
Fund, Advisor Intermediate-Term Municipal Bond Fund and Advisor Washington
Municipal Bond Fund. The SAFECO Money Market Trust consists of two mutual
funds: SAFECO Money Market Fund and SAFECO Tax-Free Money Market Fund.
The SAFECO Managed Bond Trust consists of one mutual fund: Managed Bond
Fund (formerly SAFECO Fixed Income Portfolio). The SAFECO Resource Series
Trust consists of five mutual funds: Equity Portfolio, Growth Portfolio,
Northwest Portfolio, Bond Portfolio and Money Market Portfolio.

SAFECO Corporation, a Washington corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General
Insurance Company of America, First National Insurance Company of America,
SAFECO Life Insurance Company of America, SAFECO Assigned Benefits Service
Company, SAFECO Administrative Services, Inc., SAFECO Properties Inc.,
SAFECO Credit Company, Inc., SAFECO Asset Management Company, SAFECO
Securities, Inc., SAFECO Services Corporation, SAFECO Trust Company and
General America Corporation. SAFECO Corporation owns 100% of SAFECO
National Insurance Company, a Missouri corporation, and SAFECO Insurance
Company of Illinois, an Illinois corporation. SAFECO Corporation owns 20%
of Agena, Inc., a Washington corporation. SAFECO Insurance Company of
America owns 100% of SAFECO Surplus Lines Insurance Company, a Washington
corporation, and Market Square Holding, Inc., a Minnesota corporation.
SAFECO Life Insurance Company owns 100% of SAFECO National Life Insurance

C-5
<PAGE>

Company, a Washington corporation, and First SAFECO National Life
Insurance Company of New York, a New York corporation. SAFECO
Administrative Services, Inc. owns 100% of Employee Benefit Claims of
Wisconsin, Inc. and Wisconsin Pension and Group Services, Inc., each a
Wisconsin corporation. General America Corporation owns 100% of COMAV
Managers, Inc., an Illinois corporation, F.B. Beattie & Co., Inc., a
Washington corporation, General America Corp. of Texas, a Texas
corporation, and Talbot Financial Corporation, a Washington corporation.
F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance Services,
Inc., a California corporation. General America Corp. of Texas is
Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas corporation.
Talbot Financial Corporation owns 100% of Talbot Agency, Inc., a New
Mexico corporation. Talbot Agency, Inc. owns 100% of PNMR Securities,
Inc., a Washington corporation. SAFECO Properties Inc. owns 100% of the
following, each a Washington corporation: RIA Development, Inc., SAFECARE
Company, Inc. and Winmar Company, Inc. SAFECARE Company, Inc. owns 100%
of the following, each a Washington corporation: S.C. Bellevue, Inc., S.C.
Everett, Inc., S.C. Marysville, Inc., S.C. Simi Valley, Inc. and S.C.
Vancouver, Inc. SAFECARE Company, Inc. owns 50% of Lifeguard Ventures,
Inc., a California corporation, 50% of Mission Oaks Hospital, Inc., a
California corporation, S.C. River Oaks, Inc., a Washington corporation,
Mississippi Health Services, Inc. a Louisiana corporation, and Safecare
Texas, Inc., a Texas corporation. S.C. Simi Valley, Inc. owns 100% of
Simi Valley Hospital, Inc., a Washington corporation. Winmar Company,
Inc. owns 100% of the following: Barton Street Corp., C-W Properties,
Inc., Gem State Investors, Inc., Kitsap Mall, Inc., WNY Development, Inc.,
Winmar Cascade, Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar
Redmond, Inc. and Winmar of Kitsap, Inc., each a Washington corporation,
and Capitol Court Corp., a Wisconsin corporation, SAFECO Properties of
Boise, Inc., an Idaho corporation, SCIT, Inc., a Massachusetts
corporation, Valley Fair Shopping Centers, Inc., a Delaware corporation,
WDI Golf Club, Inc., a California corporation, Winmar Oregon, Inc., an
Oregon corporation, Winmar of Texas, Inc., a Texas corporation, Winmar of
Wisconsin, Inc., a Wisconsin corporation, and Winmar of the Desert, Inc.,
a California corporation. Winmar Oregon, Inc. owns 100% of the following,
each an Oregon corporation: North Coast Management, Inc., Pacific Surfside
Corp., Winmar of Jantzen Beach, Inc. and W-P Development, Inc., and 100%
of the following, each a Washington corporation: Washington Square, Inc.
and Winmar Pacific, Inc.

Item 26. Number of Holders of Securities
------- -------------------------------

At June 30, 1996 Registrant had 11,040, 372, 321, 1,648, and 76
shareholders of record in its No-Load Class of SAFECO Municipal Bond Fund,
SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured Municipal
Bond Fund, SAFECO California Tax-Free Income Fund and SAFECO Washington
State Municipal Bond Fund, respectively. At June 30, 1996 there were no
shareholders of record of Advisor Class A or Advisor Class B of SAFECO
Municipal Bond Fund, SAFECO California Tax-Free Income Fund or SAFECO
Washington State Municipal Bond Fund.

C-6
<PAGE>

Item 27. Indemnification
------- ---------------

Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain
liabilities, subject to specified conditions and limitations.

Under the indemnification provisions in the Registrant's Trust Instrument
and subject to the limitations described in the paragraph below, every
person who is, or has been, a trustee, officer, employee or agent of the
Registrant shall be indemnified by the Registrant or the appropriate
Series of the Registrant to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him or
her in connection with any claim, action, suit or proceeding in which he
or she becomes involved as a party or otherwise by virtue of his or her
being, or having been, a trustee, officer, employee or agent and against
amounts paid or incurred by him or her in the settlement thereof. As used
in this paragraph, "claim," "action," "suit" or "proceeding" shall apply
to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other
liabilities.

No indemnification will be provided to a trustee, officer, employee or
agent: (i) who shall have been adjudicated by a court or body before which
the proceeding was brought (a) to be liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his or her
office, or (b) not to have acted in good faith in the reasonable belief
that his or her action was in the best interest of the Registrant; or (ii)
in the event of settlement, unless there has been a determination that
such trustee, officer, employee or agent did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office; (a) by the court or
other body approving the settlement, (b) by the vote of at least a
majority of a quorum of those trustees who are neither interested persons,
as that term is defined by the Investment Company Act of 1940, of the
Registrant nor are the parties to the proceeding based upon a review of
readily available facts (as opposed to a full trial type inquiry); or (c)
by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial type inquiry).

To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any
claim, action, suit or proceeding of the character described above may be
paid by the Registrant or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf
of such trustee, officer, employee or agent that such amount will be paid

C-7
<PAGE>

over by him or her to the Registrant or the applicable Series if it is
ultimately determined that he or she is not entitled to indemnification
under the Trust Instrument; provided, however, that either (i) such
trustee, officer, employee or agent shall have provided appropriate
security for such undertaking, (ii) the Registrant is insured against such
losses arising out of such advance payments or (iii) either a majority of
the trustees who are neither interested persons, as that term is defined
by the Investment Company Act of 1940, of the Registrant nor parties to
the proceeding, or independent legal counsel in a written opinion, shall
have determined, based on a review of readily available facts (as opposed
to a full trial type inquiry), that there is reason to believe that such
trustee, officer, employee or agent, will not be disqualified from
indemnification under Registrant's Trust Instrument.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, employees and agents
of the Registrant pursuant to such provisions of the Trust Instrument or
statutes or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in said Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by
a trustee, officer, employee or agent of the Registrant in the successful
defense of any such action, suit or proceeding) is asserted by such a
trustee, officer, employee or agent in connection with the shares of any
series of the Registrant, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in said Act
and will be governed by the final adjudication of such issue.

Under an agreement with its distributor ("Distribution Agreement"),
Registrant has agreed to indemnify, defend and hold the distributor, the
distributor's several directors, officers and employees, and any person
who controls the distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which the distributor, its directors, officers or
employees, or any such controlling person may incur, under the 1933 Act or
under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact required to be stated or necessary to make the Registration
Statement not misleading.

In no event shall anything contained in the Distribution Agreement be
construed so as to protect the distributor against any liability to the
Registrant or its shareholders to which the distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or by reason of its reckless disregard

C-8
<PAGE>

of its obligations and duties under the Distribution Agreement, and
further provided that the Registrant shall not indemnify the distributor
for conduct set forth in this paragraph.

Under an agreement with its transfer agent, Registrant has agreed to
indemnify and hold the transfer agent harmless against any losses, claims,
damages, liabilities or expenses (including reasonable attorneys' fees and
expenses) resulting from: (1) any claim, demand, action or suit brought by
any person other than the Registrant, including by a shareholder, which
names the transfer agent and/or the Registrant as a party, and is not
based on and does not result from the transfer agent's willful
misfeasance, bad faith or negligence or reckless disregard of duties, and
arises out of or in connection with the transfer agent's performance
hereunder; or (2) any claim, demand, action or suit (except to the extent
contributed to by the transfer agent's willful misfeasance, bad faith or
negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from the transfer agent acting upon any
instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a
result of the transfer agent acting in reliance upon advice reasonably
believed by the transfer agent to have been given by counsel for the
Registrant, or as a result of the transfer agent acting in reliance upon
any instrument or stock certificate reasonably believed by it to have been
genuine and signed, countersigned or executed by the proper person.

Item 28. Business and Other Connections of Investment Adviser
------- ----------------------------------------------------

The investment adviser to the Registrant, SAFECO Asset Management Company,
serves as an adviser to: (a) thirty-one series (portfolios) of seven
registered investment companies, including five series of an investment
company that serves as an investment vehicle for variable insurance
products and (b) a number of pension funds not affiliated with SAFECO
Corporation or its affiliates. The directors and officers of SAM serve in
similar capacities with SAFECO Corporation or its affiliates. The
information set forth under "Investment Advisory and Other Services" in
the Statement of Additional Information is incorporated by reference.

Item 29. Principal Underwriter
------- ---------------------

(a) SAFECO Securities, Inc., the principal underwriter for each class
of each series of Registrant, also acts as the principal
underwriter for each class of each series of the SAFECO Common
Stock Trust, SAFECO Taxable Bond Trust, SAFECO Money Market
Trust, SAFECO Managed Bond Trust. SAFECO Resource Series Trust
and SAFECO Advisor Series Trust. In addition, SAFECO Securities
Inc. is the principal underwriter for SAFECO Separate Account C,

C-9
<PAGE>

SAFECO Variable Account B and SAFECO Separate Account SL, all of
which are variable insurance products.

(b) The information set forth under "Investment Advisory and Other
Services" in the Statement of Additional Information is
incorporated by reference.

Item 30. Location of Accounts and Records
------- --------------------------------

U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington
98101 maintains physical possession of the accounts, books and documents
of the Registrant relating to its activities as custodian of the
Registrant. SAFECO Asset Management Company, SAFECO Plaza, Seattle,
Washington, 98185, maintains physical possession of all other accounts,
books or documents of the Registrant required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder.

Item 31. Management Services
------- -------------------

Inapplicable.

Item 32. Undertakings
------- ------------

Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

C-10
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned
thereto duly authorized, in the City of Seattle and State of Washington on
the 30th day of July, 1996.

SAFECO TAX-EXEMPT BOND TRUST

By /S/DAVID F. HILL
---------------------------
David F. Hill, President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.

Name Title Date
---- ----- ----

/S/ DAVID F. HILL President 7/30/96
-------------------------- Principal Executive Officer ______________
David F. Hill

RONALD L. SPAULDING* Vice President 7/30/96
-------------------------- Treasurer ______________
Ronald L. Spaulding

NEAL A. FULLER* Vice President 7/30/96
-------------------------- Controller and ______________
Neal A. Fuller Assistant Secretary

/S/ BOH A. DICKEY++ Chairman and Trustee 7/30/96
-------------------------- ______________
Boh A. Dickey

BARBARA J. DINGFIELD* Trustee 7/30/96
------------------------- ______________
Barbara J. Dingfield

7/30/96
______________
<PAGE>

7/30/96
______________

RICHARD W. HUBBARD*++ Trustee 7/30/96
-------------------------- ______________
Richard W. Hubbard

RICHARD E. LUNDGREN* Trustee 7/30/96
------------------------- ______________
Richard E. Lundgren

LARRY L. PINNT* Trustee 7/30/96
-------------------------- ______________
Larry L. Pinnt

JOHN W. SCHNEIDER* Trustee 7/30/96
-------------------------- ______________
John W. Schneider

7/30/96
______________

</TABLE>

*By: /S/ BOH A. DICKEY
----------------------
Boh A. Dickey
Attorney-in-Fact

*By: /S/ DAVID F. HILL
----------------------
David F. Hill
Attorney-in-Fact

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

<PAGE>

POWER OF ATTORNEY

SAFECO TAX-EXEMPT BOND TRUST, a Delaware business trust (the "Trust"), and
each of its undersigned officers and trustees, hereby nominates,
constitutes and appoints Boh A. Dickey and David F. Hill (with full power
to each of them to act alone) its/his/her true and lawful attorney-in-fact
and agent, for it/him/her and on its/his/her behalf and in its/his/her
name, place and stead in any and all capacities, to make, execute and sign
any and all amendments to the Trust's registration statement on Form N-1A
under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, as well as any and all registration statements on
Form N-14, and to file with the Securities and Exchange Commission and any
other regulatory authority having jurisdiction over the offer and sale of
shares of beneficial interest of the Trust, any such amendment or
registration statement and any and all supplements thereto or to any
prospectus or statement of additional information forming a part of the
registration statement, as well as any and all exhibits and other
documents necessary or desirable to the amendment or supplement process,
granting to such attorneys and each of them, full power and authority to
do and perform each and every act requisite and necessary and/or
appropriate as fully and with all intents and purposes as the Trust itself
and the undersigned officers and trustees themselves might or could do.

IN WITNESS WHEREOF, SAFECO TAX-EXEMPT BOND TRUST has caused this power of
attorney to be executed in its name by its President and attested by its
Secretary, and the undersigned officers and trustees have each executed
such power of attorney, on this 15 day of January, 1995.

SAFECO TAX-EXEMPT BOND TRUST

By: /s/ David F. Hill
------------------------
David F. Hill
President

ATTEST:

/s/ Neal A. Fuller
--------------------
Neal A. Fuller
Assistant Secretary

(Signatures Continue on Next Page)
<PAGE>

Name Title
---- ------

/s/ David F. Hill President
------------------------- Principal Executive Officer
David F. Hill

/s/ Ronald L. Spaulding Vice President and Treasurer
-------------------------
Ronald L. Spaulding

/s/ Neal A. Fuller Vice President Controller
------------------------- Assistant Secretary
Neal A. Fuller (Principal Financial Officer)

/s/ Boh A. Dickey Chairman and Trustee
-------------------------
Boh A. Dickey

/s/ Barbara J. Dingfield Trustee
-------------------------
Barbara J. Dingfield

/s/ Richard W. Hubbard Trustee
-------------------------
Richard W. Hubbard

/s/ Richard E. Lundgren Trustee
-------------------------
Richard E. Lundgren

/s/ L. D. McClean Trustee
-------------------------
L. D. McClean

/s/ Larry L. Pinnt Trustee
-------------------------
Larry L. Pinnt

/s/ John W. Schneider Trustee
-------------------------
John W. Schneider
<PAGE>

Registration Nos. 33-53532
811-7300
==========================================================================
EXHIBITS

FORM N-1A

REGISTRATION STATEMENT

POST-EFFECTIVE AMENDMENT NO. 8

Under

The Securities Act of 1933

and

POST-EFFECTIVE AMENDMENT NO. 8

Under

The Investment Company Act of 1940

_________________

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

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

206-545-5000
(Registrant's Telephone Number, including Area Code)

=========================================================================
<PAGE>

SAFECO TAX-EXEMPT BOND TRUST

Form N-1A

Post-Effective Amendment No. 8

Exhibit Index

Exhibit
Number Description of Document
------- -----------------------

(27.1-5) Financial Data Schedules

(99.6) Form of Distribution Agreement
Form of Selling Dealer Agreement

(99.9) Form of Transfer Agent Agreement

(99.10) Opinion and Consent of Counsel for
Advisor Class A and Advisor Class B

(99.11) Consent of Independent Auditors

(99.15) Rule 12b-1 Plan (Advisor Class A)
Rule 12b-1 Plan (Advisor Class B)

(99.16) Calculation of Performance Information -
Advisor Class A
Calculation of Performance Information -
Advisor Class B

(99.18) Rule 18f-3 Plan

<PAGE>

<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 1
<NAME> SAFECO MUNICIPAL BOND FUND
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 440,042
<INVESTMENTS-AT-VALUE> 482,571
<RECEIVABLES> 8,573
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 491,147
<PAYABLE-FOR-SECURITIES> 8,409
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,095
<TOTAL-LIABILITIES> 10,504
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 441,739
<SHARES-COMMON-STOCK> 35,106
<SHARES-COMMON-PRIOR> 35,373
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,626)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,529
<NET-ASSETS> 480,643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 29,366
<OTHER-INCOME> 0
<EXPENSES-NET> 2,630
<NET-INVESTMENT-INCOME> 26,736
<REALIZED-GAINS-CURRENT> 2,608
<APPREC-INCREASE-CURRENT> 11,135
<NET-CHANGE-FROM-OPS> 40,479
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (26,736)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,285
<NUMBER-OF-SHARES-REDEEMED> (28,766)
<SHARES-REINVESTED> 1,214
<NET-CHANGE-IN-ASSETS> 8,074
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (6,233)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,021
<INTEREST-EXPENSE> 27
<GROSS-EXPENSE> 2,630
<AVERAGE-NET-ASSETS> 488,845
<PER-SHARE-NAV-BEGIN> 13.36
<PER-SHARE-NII> 0.76
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> (0.76)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.69
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 5
<NAME> SAFECO WASHINGTON STATE MUNICIPAL BOND FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE RATE> 1
<INVESTMENTS-AT-COST> 6,258
<INVESTMENTS-AT-VALUE> 6,421
<RECEIVABLES> 109
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44
<TOTAL-LIABILITIES> 44
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,326
<SHARES-COMMON-STOCK> 628
<SHARES-COMMON-PRIOR> 590
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 163
<NET-ASSETS> 6,489
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 359
<OTHER-INCOME> 0
<EXPENSES-NET> 66
<NET-INVESTMENT-INCOME> 293
<REALIZED-GAINS-CURRENT> 28
<APPREC-INCREASE-CURRENT> 124
<NET-CHANGE-FROM-OPS> 445
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (293)
<DISTRIBUTIONS-OF-GAINS> (20)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50
<NUMBER-OF-SHARES-REDEEMED> (15)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 536
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (8)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39
<INTEREST-EXPENSE> 1
<GROSS-EXPENSE> 66
<AVERAGE-NET-ASSETS> 6,141
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.50
<PER-SHARE-GAIN-APPREC> 0.27
<PER-SHARE-DIVIDEND> (0.50)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
<PAGE>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000893565
<NAME> SAFECO TAX EXEMPT BOND TRUST
<SERIES>
<NUMBER> 2
<NAME> SAFECO CALIFORNIA TAX FREE INCOME FUND

FORM OF DISTRIBUTION AGREEMENT
------------------------------

This DISTRIBUTION AGREEMENT, made this ____ day of _______, 1996,
by and between SAFECO TAX-EXEMPT BOND TRUST, a Delaware business trust
("Trust"), and SAFECO SECURITIES, INC., a Washington corporation
("Distributor").

WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and has caused its
shares of beneficial interest ("Shares") to be registered for sale to the
public under the Securities Act of 1933 ("1933 Act") and various state
securities laws; and

WHEREAS, the Trust offers for public sale distinct series of
Shares, each corresponding to a distinct portfolio as listed on Exhibit A
to this Agreement ("Series"); and

WHEREAS, the Trust's Board of Trustees has divided the Shares of
each Series into one or more classes (each a "Class"), designated No-Load
Class or Advisor Class A or Advisor Class B (latter two classes "Advisor
Classes"), as listed on Exhibit A; and

WHEREAS, the Trust wishes to retain the Distributor as the
principal underwriter in connection with the offering and sale of the
Classes of Shares of each Series listed on Exhibit A (as amended from time
to time) to this Agreement and to furnish certain other services to the
Trust as specified in this Agreement; and

WHEREAS, this Agreement has been approved in conformity with
Section 15(c) under the 1940 Act; and

WHEREAS, the Distributor is willing to act as principal
underwriter and to furnish such services on the terms and conditions
hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed as follows:

1. APPOINTMENT OF DISTRIBUTOR. The Trust hereby appoints
the Distributor as principal underwriter in connection with the offering
and sale of the Shares of each Class of each Series. The Trust authorizes
the Distributor, as exclusive agent for the Trust, for any existing Series
and upon the commencement of operations of any future Series, and subject
to applicable federal and state law and the Trust Instrument and Bylaws of
the Trust: (a) to promote the Shares; (b) to solicit orders for the
purchase of the Shares subject to such terms and conditions as the Trust
may specify; and (c) to accept orders for the purchase or redemption of
the Shares on behalf of the Trust; provided, however, that the Trust or
the Distributor, at the discretion of either party, may reject any
purchase order. The Distributor shall comply with all applicable federal
and state laws and offer the Shares on an agency or "best efforts" basis
under which the Trust shall issue only such Shares as are actually sold.
<PAGE>

The Distributor shall have the right to use any list of shareholders of
the Trust or any Series or any other list of investors which it obtains in
connection with its provision of services under this Agreement; provided,
however, that the Distributor shall not sell or knowingly provide such
list or lists to any unaffiliated person of the Trust without the consent
of the Trust's Board of Trustees. Nothing in this Agreement shall
prohibit affiliates of the Distributor from selling or knowingly providing
to persons unaffiliated with the Trust, the names of customers of other
SAFECO companies or partnerships who also happen to be shareholders of the
Trust.

2. DUTIES OF TRUST. The Trust agrees to register the Shares
with the Securities and Exchange Commission, state and other regulatory
bodies, and to prepare and file from time to time such Prospectuses,
Statements of Additional Information, amendments, reports and other
documents as may be necessary to maintain the Trust's registration
statement on Form N-1A ("Registration Statement"). Each Series shall bear
all expenses related to preparing and typesetting such Prospectuses,
Statements of Additional Information and other materials required by law
and such other expenses, including printing and mailing expenses, related
to such Series' communications with persons who are shareholders of that
Series.

3. DUTIES OF DISTRIBUTOR. The Distributor shall print and
distribute to prospective investors Prospectuses, and shall print and
distribute, upon request, to prospective investors Statements of
Additional Information, and may print and distribute such other sales
literature, reports, forms and advertisements in connection with the sale
of the Shares as comply with the applicable provisions of federal and
state law. In connection with such sales and offers of sale, the
Distributor shall give only such information and make only such statements
or representations as are contained in the Prospectus, Statement of
Additional Information, or in information furnished in writing to the
Distributor by the Trust, and the Trust shall not be responsible in any
way for any other information, statements or representations given or made
by the Distributor or its representatives or agents. Except as
specifically provided in this Agreement, the Trust shall bear none of the
expenses of the Distributor in connection with its offer and sale of the
Shares.

4. OTHER BROKER-DEALERS. The Distributor may enter into
dealer agreements with registered and qualified securities dealers for the
resale of the Shares at the public offering price. The form of any such
dealer agreement shall be mutually agreed upon and approved by the Trust
and the Distributor. The Distributor may sell Advisor Class A Shares of a
Series to dealers at such discounts from the public offering price as are
set forth in the Advisor Class Prospectus and/or the dealer agreement
between the Distributor and the dealer, but neither such discounts nor
commissions shall exceed the sales charge or discounts referred to in the
Advisor Class Prospectus.

- 2 -
<PAGE>

5. PUBLIC OFFERING PRICE. The public offering price of each
Class of Shares is equal to the net asset value per Share determined in
accordance with, and in the manner set forth in, the applicable Prospectus
contained in the Registration Statement. With respect to Advisor Class A
Shares, such price shall reflect the imposition of a front-end sales
charge, if any, as described in the Advisor Class Prospectus contained in
the Registration Statement. The Trust shall furnish the Distributor with
a statement of each computation of public offering price and of the
details entering into such computation.

6. REPURCHASE OF SHARES. The Distributor may at its sole
discretion repurchase Shares offered for sale by the shareholders.
Repurchase of each Class of Shares by the Distributor shall be at the
price determined in accordance with, and in the manner set forth in, the
applicable Prospectus contained in the Registration Statement. With
respect to Advisor Class A and Advisor Class B Shares, such price shall
reflect the subtraction of a contingent deferred sales charge, if any,
computed in accordance with, and in the manner set forth in, the Advisor
Class Prospectus contained in the Registration Statement.

At the end of each business day, the Distributor shall notify by
any appropriate means, the Trust and SAFECO Services Corporation, the
Trust's transfer agent, of the orders for repurchase of each Class of
Shares received by the Distributor since the last such report, the amount
to be paid for such Shares, and the identity of the shareholders offering
Shares for repurchase. Upon such notice, the Trust shall pay the
Distributor such amounts as are required by the Distributor for the
repurchase of such Shares in cash or in the form of a credit against
monies due the Trust from the Distributor as proceeds from the sale of
Shares. The Trust reserves the right to suspend such repurchase right
upon written notice to the Distributor. The Distributor further agrees to
act as agent for the Trust to receive and transmit promptly to the Trust's
transfer agent shareholder requests for redemption of Shares.

7. COMPENSATION. As compensation for providing services
under this Agreement:

(a) The Distributor shall retain the front-end sales charge,
if any, on purchases of Advisor Class A Shares as set forth in the Advisor
Class Prospectus contained in the Registration Statement. The Distributor
is authorized to collect the gross proceeds derived from the sale of the
Advisor Class A Shares, remit the net asset value thereof to the Trust
upon receipt of the proceeds and retain the front-end sales charge, if
any.

(b) The Distributor shall receive all contingent deferred
sales charges applied on redemptions of Advisor Class A and Advisor Class
B Shares of each Series. Whether and at what rate a contingent deferred
sales charge will be imposed with respect to a redemption shall be
determined in accordance with, and in the manner set forth in, the Advisor
Class Prospectus contained in the Registration Statement.

- 3 -
<PAGE>

(c) The Distributor shall receive distribution and service
fees payable at the rate and under the terms and conditions set forth in
plans of distribution ("Plans") adopted with respect to the Advisor
Classes of each Series of the Trust, as amended from time to time and
subject to any further limitations on such fees as the Board may impose.

(d) The Distributor may reallow any or all of the front-end
or contingent deferred sales charges and distribution or service fees
which it is paid under this Agreement and the Plans to such dealers as the
Distributor may from time to time determine.

(e) The Distributor will receive no commission or other
remuneration for selling or repurchasing No-Load Class Shares.

8. INDEMNIFICATION.

(a) The Trust agrees to indemnify, defend and hold the
Distributor, its several directors, officers and employees, and any person
who controls the Distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending
such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which the Distributor, its directors, officers or
employees, or any such controlling person may incur, under the 1933 Act or
under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in the Registration
Statement or arising out of or based upon any alleged omission to state a
material fact required to be stated or necessary to make the Registration
Statement not misleading.

(b) In no event shall anything contained in this Agreement be
construed so as to protect the Distributor against any liability to the
Trust or its shareholders to which the Distributor would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence
in the performance of its duties, or by reason of its reckless disregard
of its obligations and duties under this Agreement, and further provided
that the Trust shall not indemnify the Distributor for conduct set forth
in this subparagraph 8(b).

(c) The Distributor agrees to indemnify, defend and hold the
Trust, its several trustees, officers and employees and any person who
controls the Trust within the meaning of Section 15 of the 1933 Act, free
and harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in connection
therewith) which the Trust, its trustees, officers or employees or any
such controlling person may incur, under the 1933 Act or under common law
or otherwise, arising out of or based upon any alleged untrue statement of
a material fact contained in information furnished in writing by the
Distributor to the Trust for use in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact in
connection with such information required to be stated in the Registration

- 4 -
<PAGE>

Statement or necessary to make such information not misleading. As used
in this subparagraph 8(c), the term "employee" shall not include a
corporate entity under contract to provide services to the Trust or any
Series, or any employee of such a corporate entity, unless such person is
otherwise an employee of the Trust.

9. CERTIFICATES. The Trust shall not be required to issue
certificates representing Shares. If the Trust elects to issue
certificates and a shareholder request for certificates is transmitted
through the Distributor, the Trust will cause certificates evidencing the
Shares owned to be issued in such names and denominations as the
Distributor shall from time to time direct, provided that no certificates
shall be issued for fractional Shares.

10. WITHDRAWAL OF OFFERING. The Trust reserves the right at
any time to withdraw all offerings of any or all Classes of any or all
Series by written notice to the Distributor at its principal office.

11. INDEPENDENT CONTRACTOR STATUS. The Distributor is an
independent contractor and shall act as agent for the Trust only in
respect to the sale and redemption of the Shares.

12. NON-EXCLUSIVE SERVICES. The services of the Distributor
to the Trust under this Agreement are not to be deemed exclusive, and the
Distributor shall be free to render similar services or other services to
others so long as its services hereunder are not impaired thereby.

13. USE OF NAME. In the event this Agreement is terminated
by either party or upon written notice from the Distributor at any time,
the Trust hereby agrees that it will eliminate from its name any reference
to the name of "SAFECO." The Trust shall have the non-exclusive use of the
name "SAFECO" in whole or in part only so long as this Agreement is
effective or until such notice is given. Notwithstanding this
subparagraph and in the event this Agreement is terminated by either
party, the Distributor may elect to permit the Trust to continue to use
the name "SAFECO" under such terms and conditions as the Distributor shall
set forth in writing.

14. EFFECTIVE DATE/RENEWAL. This Agreement will become
effective with respect to each Series on the date first written above or
such later date as indicated on Exhibit A and, unless sooner terminated as
provided herein, will continue in effect for two years from the above
written date. Thereafter, if not terminated, this Agreement shall
continue in effect with respect to each Series for successive annual
periods ending on the same date of each year, provided that such
continuance is specifically approved at least annually (i) by the Trust's
Board of Trustees or (ii) with respect to any given Series, by a vote of a
majority of the outstanding voting securities of that Series (as defined
in the 1940 Act), provided that in either event the continuance is also
approved by a majority of the Trust's trustees who are neither interested
persons (as defined in the 1940 Act) of the Trust or the Distributor by

- 5 -
<PAGE>

vote cast at a meeting called for the purpose of voting on such
continuance.

15. AMENDMENT. This Agreement may be amended by the parties
only if the terms of the amendment are either (i) approved by the Trust's
Board of Trustees or, (ii) with respect to any given Series, by a vote of
a majority of the outstanding voting securities of that Series at a duly
called meeting of the shareholders. In either case, the majority of the
trustees, who are neither interested persons of the Trust or the
Distributor, must approve the amendment.

16. TERMINATION. This Agreement is terminable with respect
to any Series or in its entirety without penalty by the Trust's Board of
Trustees, by vote of a majority of the outstanding voting securities of
each affected Series (as defined in the 1940 Act), or by the Distributor,
on not less than 60 days' notice to the other party and will be terminated
upon the mutual written consent of the Distributor and the Trust. This
Agreement will also automatically and immediately terminate in the event
of its assignment.

17. LIMITATION OF LIABILITY. The Distributor is hereby
expressly put on notice of (i) the limitation of shareholder, officer and
trustee liability as set forth in the Trust Instrument of the Trust and
(ii) of the provisions in the Trust Instrument permitting the
establishment of separate Series and limiting the liability of each Series
to obligations of that Series. The Distributor agrees that obligations
assumed by the Trust pursuant to this Agreement are in all cases assumed
on behalf of a particular Series and each such obligation shall be limited
in all cases to that Series and its assets. The Distributor further
agrees that it shall not seek satisfaction of any such obligation from the
shareholders or any individual shareholder of the Trust nor from the
officers or trustees or any individual officer or trustee of the Trust.

18. DEFINITIONS. As used in this Agreement, the term(s):

(a) "net assets" shall have the meaning ascribed to it in the
Trust's Trust Instrument;

(b) "assignment", "interested person", and "majority of the
outstanding voting securities" shall have the meanings given to them by
Section 2(a) of the 1940 Act, subject to such exemptions as may be granted
by the Securities and Exchange Commission by any rule, regulation or
order.

(c) "Registration Statement" shall mean the registration
statement most recently filed by the Trust with the Securities and
Exchange Commission and effective under the 1940 Act and the 1933 Act, as
such Registration Statement is amended by any amendments thereto at the
time in effect;

(d) "Prospectus" and "Statement of Additional Information" shall
mean, respectively, the form of prospectus and statement of additional

- 6 -
<PAGE>

information for the No-Load Class or the Advisor Classes of each Series
filed by the Trust as part of the Registration Statement.

19. ENTIRE AGREEMENT. This Agreement embodies the entire
Agreement between the Distributor and the Trust with respect to the
services to be provided by the Distributor to the Trust and each Series
and supersedes any prior written or oral agreement between those parties.

20. MISCELLANEOUS. The captions in this Agreement are
included for convenience of reference only and in no way define or limit
any of the provisions hereof or otherwise affect their construction or
effect. This Agreement may be executed in counterparts, each of which
taken together shall constitute one and the same instrument. The
Distributor understands that the rights and obligations of each Series
under the Trust Instrument are separate and distinct from those of any and
all other Series.

21. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Washington.

IN WITNESS WHEREOF, the parties hereto caused this Agreement to
be executed by their officers thereunto duly authorized.

Attest: SAFECO TAX-EXEMPT BOND TRUST

By: ________________________ By: ________________________
Assistant Secretary President

Attest: SAFECO SECURITIES, INC.

By: ________________________ By: ________________________
Assistant Secretary President

- 7 -
<PAGE>

EXHIBIT A
SAFECO TAX-EXEMPT BOND TRUST

The SAFECO Tax-Exempt Bond Trust consists of the following Series and
Classes:

1. SAFECO Intermediate-Term Municipal Bond Fund
No-Load Class

2. SAFECO Insured Municipal Bond Fund
No-Load Class

3. SAFECO Municipal Bond Fund
No-Load Class
Advisor Class A
Advisor Class B

4. SAFECO California Tax-Free Income Fund
No-Load Class
Advisor Class A
Advisor Class B

5. SAFECO Washington State Municipal Bond Fund
No-Load Class
Advisor Class A
Advisor Class B

As of __-__-96
<PAGE>
<PAGE>

FORM OF SELLING DEALER AGREEMENT

This Selling Dealer Agreement ("Agreement") is entered into by and between
SAFECO Securities, Inc. ("Distributor") and the undersigned broker-dealer
("Broker-Dealer") effective as of the date written below.

WHEREAS, Distributor is a broker-dealer registered with the Securities and
Exchange Commission and the National Association of Securities Dealers,
Inc. ("NASD") and is the general distributor and principal underwriter of
the Advisor Class A and Advisor Class B shares ("Shares") of the SAFECO
mutual funds ("Funds") listed in Exhibit A (which Exhibit A may be amended
from time to time by Distributor without notice to Broker-Dealer);

WHEREAS, Distributor agrees to sell to Broker-Dealer Shares issued by each
Fund and such classes thereof that are purchased by Distributor from the
Funds for resale on a best efforts basis by Broker-Dealer as principal and
Broker-Dealer agrees to tender Shares directly to the Funds or their agent
for redemption or repurchase;

THEREFORE Distributor and Broker-Dealer agree as follows:

1. Distribution of Shares. Broker-Dealer shall offer and sell Shares at
the public offering price next determined after the order is received, in
accordance with the terms of the then current Trust prospectus and
statement of additional information ("Prospectus").

2. Compensation.

(a) Distributor shall provide Broker-Dealer with appropriate
compensation for selling the Shares, in accordance with the then current
schedule of dealer compensation which will be available from Distributor
upon request and be set forth in the then current Prospectus. Broker-
Dealer will not be entitled to any concession on the purchase of a Fund's
Shares through the reinvestment of any distributions made by such Fund.
Such reinvestments will be made at net asset value per share. Purchases
of Shares made under a cumulative purchase privilege shall be considered
an individual transaction for the purpose of determining the concession
from the public offering price to which Broker-Dealer is entitled.

(b) Where a Fund has adopted a plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan"), Distributor may elect from
time to time to make payments to Broker-Dealer as provided under such Plan
(in addition to the compensation, if any, provided for in paragraph 2(a)
of this Agreement) for providing distribution and other related services.
Such payments shall be made in the amount set forth in the schedule of
distribution payments and service payments issued by, and available upon
request from, Distributor. Broker-Dealer will not be paid such fees until
Distributor has received the service and distribution fees described in
the then current Prospectus for the period in which Broker-Dealer provides
the distribution and other related services. Broker-Dealer agrees to
provide to Distributor at least annually or as required by the Trust s
<PAGE>

Board of Trustees a description of the services provided by Broker-Dealer
pursuant to this paragraph.

(c) Upon notice to Broker-Dealer, Distributor or any Fund may
from time to time change, amend or discontinue any discount, concession,
distribution payment or service payment schedule issued by Distributor
from time to time and may issue a new or replacement schedule. Broker-
Dealer shall have no vested interest in any type, amount or rate of
discount, concession, distribution or service payment. Broker-Dealer
shall have no claim against Distributor or any Fund by virtue of any
change or diminution in the rate or amount of, or discontinuance of,
discount, concession, distribution or service payment in connection with
the sale of any Shares.

3. Redemptions-Repurchases.

(a) Shares presented to Distributor for redemption will be
redeemed at the net asset value of such Shares in accordance with the then
current Prospectus; provided that redemptions of Shares subject to the
imposition of a contingent deferred sales charge ("CDSC Shares") will be
redeemed at the net asset value of such Shares, less any applicable
contingent deferred sales charge, as set forth in the then current
Prospectus.

(b) Repurchases of Shares will be made at the net asset value of
such Shares; provided that repurchases of CDSC Shares will be made at the
net asset value of such Shares, less any applicable contingent deferred
sales charges, as set forth in the then current Prospectus.

(c) Broker-Dealer shall be responsible for determining, in
accordance with the then current Prospectus, whether, and the extent to
which, a contingent deferred sales charge is applicable to a redemption of
Shares from a customer account; and Broker-Dealer agrees to present
immediately to Distributor any contingent deferred sales charge to which
such redemption was subject. If Broker-Dealer holds Shares subject to a
contingent deferred sales charge, it shall have the capability to track
and account for such charges; and Distributor reserves the right, at its
discretion, to verify that capability through inspection of Broker-
Dealer s tracking and accounting system or otherwise.

4. Distribution Activities.

(a) No person is authorized to make any representations
concerning the Shares of the Funds and classes thereof for public use
except those contained in the then current Prospectus, and other printed
sales literature authorized and issued by Distributor or the Funds'
investment manager, SAFECO Asset Management Company ("SAM"). Broker-
Dealer shall not use any sales literature, supplemental sales literature

<PAGE>

or advertising material (including material disseminated through radio,
television or other electronic media) of any kind without prior written
approval of Distributor, unless it has been furnished by Distributor for
such purposes. Broker-Dealer agrees to indemnify Distributor, the Funds,
SAM and the Funds' transfer agent, SAFECO Services Corporation ("Transfer
Agent"), and all directors, trustees, officers, employees and "control
persons" within the meaning of the securities laws ("Control Persons") of
each of them, for any loss, injury, damage, expense or liability arising
from or based upon any alleged or untrue statements or representations
made by Broker-Dealer, other than statements contained in the then current
Prospectus(es) or authorized printed sales literature. Distributor agrees
to indemnify Broker-Dealer, and all directors, trustees, officers,
employees, affiliates and Control Persons of each of them, for any loss,
injury, damage, expense or liability arising from or based upon the
Distributor's failure to fulfill its obligations hereunder, and any
alleged untrue or misleading statements or omissions contained in the
Prospectus(es) for the Funds or authorized printed sales literature
supplied to the Broker-Dealer by the Distributor or any of its affiliates.

(b) Distributor shall furnish Broker-Dealer, without charge
and upon request, reasonable quantities of the Prospectuses, periodic
shareholder reports and sales literature authorized by Distributor for
public use. Broker-Dealer shall not distribute or make available to
investors any printed information furnished by Distributor which is marked
"FOR DEALER USE ONLY" or which otherwise indicates that it is confidential
or not intended to be distributed to investors.

(c) Broker-Dealer agrees to distribute the then current
Prospectuses and shareholder reports to customers in compliance with
applicable regulatory requirements, except to the extent that Distributor
or its affiliates expressly undertake, in writing, to do so on Broker-
Dealer's behalf. In connection with sales and offers to sell Shares,
Broker-Dealer will furnish each person to whom any such sale or offer is
made with a copy of the then current Prospectus for the issuing Fund prior
to or concurrently with the receipt of any order. Broker-Dealer shall not
be required to furnish a copy of the Funds's statement(s) of additional
information, unless applicable state law so requires.

(d) Broker-Dealer shall not offer or sell Shares in any state
where the Shares are not qualified for sale under the state's blue sky
laws or other regulations.

5. Orders.

(a) Distributor will treat all orders as not entitled to any
reduced sales charge beyond that accorded to the amount of the purchase
order as determined by the schedule set forth in the then current
Prospectus, unless Broker-Dealer advises Distributor otherwise in writing
when placing the order.

<PAGE>

(b) All orders are subject to acceptance and rejection by the
Distributor. Distributor reserves the right in its discretion to suspend
sales or to withdraw the offering of Shares of any Fund or classes
thereof, in whole or in part, or to make a limited offering of such
Shares.

(c) Distributor shall not accept from Broker-Dealer any
conditional orders for Shares. Delivery of share certificates, if any,
for Shares purchased shall be made by the Funds only against receipt of
the purchase price. If payment for Shares purchased is not received
within seven days, or any lesser period as may be required by law, the
sale may be cancelled forthwith without any responsibility or liability on
Distributor's or the applicable Fund's part (in which case Broker-Dealer
will be responsible for any loss, including loss of profit, suffered by
the Fund resulting from Broker-Dealer's failure to make payment as
aforesaid), or, at Distributor's option, Distributor may sell the Shares
ordered back to the Fund (in which case Distributor may hold Broker-Dealer
responsible for any loss including loss of profit suffered by Distributor
resulting from Broker-Dealer's failure to make payment as aforesaid).

(d) If Broker-Dealer uses telephonic, telex, telegraphic or
facsimile means to transmit orders, exchanges or redemptions on behalf of
customers for Shares, Broker-Dealer hereby agrees to indemnify
Distributor, the Funds, SAM, the Transfer Agent and all directors,
trustees, officers, and employees of each, for any loss, injury, damage,
expense or liability as a result of Distributor's actions based on such
telephonic, telex, telegraphic or facsimile orders, exchanges or
redemption requests if an order, exchange or redemption request placed by
Broker-Dealer was erroneous or not authentic and Distributor, in good
faith acts on such request, or if Distributor has refused to execute such
request for any reason.

(e) Broker-Dealer shall not withhold placing customers' orders
for any Shares so as to profit as a result of such withholding. Broker-
Dealer shall not purchase any Shares except for the purpose of covering
purchase orders already received by Broker-Dealer. Broker-Dealer shall
not purchase any Shares from Distributor other than for bona fide
investment or for the purpose of covering purchase orders already
received. Neither Distributor nor Broker-Dealer shall, as principal,
purchase Shares from a record holder at a price lower than the bid price
(net asset value per share less any applicable contingent deferred sales
charge) next quoted by or for the issuing Fund.

6. Offering Prices. Upon request, Distributor will furnish Broker-Dealer
with public offering prices for the Shares in accordance with the then
current Prospectus; and Broker-Dealer agrees to quote such prices subject
to confirmation by Distributor on any Shares offered by Broker-Dealer for
sale.

<PAGE>

7. Status. In all sales of Shares to the public, Broker-Dealer shall act
in the capacity of independent contractor as a dealer for Broker-Dealer's
own account and in no transaction shall Broker-Dealer have any authority
to act or hold itself out as agent for Distributor, the Trust or any Fund.
Nothing in this Agreement including the use of the words "discount,"
"concession" or "payment" shall cause Broker-Dealer to be a partner,
employee or agent of the Distributor or give Broker-Dealer any authority
to act for Distributor, the Trust or any Fund. Neither Distributor, the
Trust or any Fund nor any affiliates, directors, officers, employees or
agents of each shall be liable for any obligation, act or omission of
Broker-Dealer, its directors, officers, registered representatives,
employees or agents. Broker-Dealer is solely responsible for training and
supervising its Associated Persons as defined in the Securities Exchange
Act of 1934. Broker-Dealer and its Associated Persons shall be
responsible to determine the suitability of the Funds, and any class
thereof, as an investment for its customers.

8. Refunds. If, within seven business days after confirmation by
Distributor of Broker-Dealer's original purchase order for Shares, such
Shares are repurchased by the issuing Fund or by Distributor for the
account of such Fund or are tendered for redemption by the customer, (i)
Broker-Dealer shall forthwith refund to Distributor the full discount
retained by, or concession paid to, Broker-Dealer on the original sale
pursuant to paragraph 2(a) of this Agreement and any distribution payments
and service payments relating thereto made to Broker-Dealer pursuant to
paragraph 2(b) of this Agreement and (ii) Distributor shall, as
applicable, forthwith pay to such Fund Distributor's share of the sales
charge on the original sale by Distributor, and shall also pay such Fund
the refund received under clause (i). Broker-Dealer shall refund to the
Fund immediately upon receipt the amount of any dividends or distributions
paid to Broker-Dealer as nominee for Broker-Dealer's customers with
respect to redeemed or repurchased Shares to the extent that the proceeds
of such redemption or repurchase may include the dividends or
distributions payable on such Shares. In the case of certificated Shares,
Broker-Dealer shall be notified by Distributor of such repurchase or
redemption within ten days of the date on which a properly executed Share
certificate and stock power together with appropriate supporting papers is
delivered to Distributor or to such Fund; and in the case of
uncertificated Shares, Broker-Dealer shall be notified by Distributor of
such repurchase or redemption within ten days of such repurchase or
redemption.

9. Multiple Classes. Broker-Dealer agrees in connection with any
Fund that offers multiple classes of Shares to comply with any policies
regarding the sale of classes of Shares as provided to Broker-Dealer from
time to time by the Distributor.

10. Representations. By signing this Agreement, Broker-Dealer
represents and warrants that it (i) is a registered broker-dealer under

<PAGE>

the Securities Exchange Act of 1934, as amended; (ii) is qualified to act
as a broker-dealer in each jurisdiction and state in which it will offer
Shares; (iii) is a member in good standing of the NASD; and (iv) will
maintain such registrations, qualifications and memberships throughout the
term of this Agreement. The termination of Broker-Dealer's membership
with the NASD will immediately and automatically terminate this Agreement.
Broker-Dealer shall comply with all applicable federal laws, the laws of
each jurisdiction and state in which it will offer Shares and the rules
and regulations of the NASD or any other regulatory or self-regulatory
organization now or hereafter in existence whose rules and regulations
govern the offer and sale of Shares.

11. Indemnification.

(a) Broker-Dealer shall indemnify and hold harmless the
Trust, Distributor and its affiliates, directors, officers, employees,
agents and Control Persons of each in the event that Broker-Dealer, its
directors, officers, employees, registered representatives or agents
violate any law, rule or regulation, or any provision of this Agreement,
which results in losses, claims, damages, liabilities or expenses
(including reasonable attorneys' fees and expenses) to the Trusts or any
Fund, Distributor and its affiliates, directors, officers, employees,
agents or Control Persons. Broker-Dealer shall also indemnify and hold
harmless the Trusts and Funds, Distributor and its affiliates, directors,
officers, employees, agents and Control persons against all losses,
claims, damages, liabilities or expenses (including reasonable attorneys'
fees and expenses) resulting from (i) the willful, reckless or negligent
violation of any law, regulation, contract or any other arrangement by
Broker-Dealer, its directors, officers, employees, registered
representatives or agents or (ii) any allegation arising out of or in
connection with any offers or sales of Shares by Broker-Dealer, its
registered representatives or agents.

(b) Distributor shall indemnify and hold harmless the Trust
and the Broker-Dealer, and the affiliates, directors, officers, employees,
agents and Control Persons of each in the event that Distributor, its
directors, officers, employees, registered representatives or agents
violate any law, rule or regulation, or any provision of this Agreement,
which results in losses, claims, damages, liabilities or expenses
(including reasonable attorneys' fees and expenses) to the Trusts or any
Fund, Broker-Dealer and its affiliates, directors officers, employees,
agents or Control Persons. Distributor shall also indemnify and hold
harmless the Trust, Broker-Dealer and its affiliates, directors, officers,
employees, agents and Control persons against all losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and
expenses) resulting from (i) the willful, reckless or negligent violation
of any law, regulation, contract or any other arrangement by Distributor,
its directors, officers, employees, registered representatives or agents

<PAGE>

or (ii) any allegation arising out of or in connection with any offers or
sales of Shares by Distributor, its registered representatives or agents.

12. Enforcement of Rights. Any controversy or claim arising out of or
relating to this Agreement or the validity, interpretation or breach
thereof, which is not settled by agreement among the parties, shall be
settled exclusively by arbitration in Seattle, Washington, in accordance
with the rules then in effect for the NASD and/or the American Arbitration
Association. The arbitrators may allocate attorneys' fees and arbitration
costs between the parties. Judgement upon the award rendered in any such
arbitration may be enforced in any court having jurisdiction.

13. Termination. Either party hereto may cancel this Agreement upon
fifteen (15) days' written notice to the other party. Upon termination of
this Agreement, all authorizations, rights and obligations hereunder shall
cease except:

(i) the provisions with respect to status of Broker-Dealer
set forth in Section 7;

(ii) the obligation to settle accounts set forth in
Section 8;

(iii) the provisions with respect to representations made by
the Broker-Dealer in Section 10;

(iv) the provisions with respect to indemnification set forth
in Section 11; and

(v) the provisions with respect to enforcement of rights set
forth in Section 12.

14. Communications. All communications to Distributor should be sent
to SAFECO Securities, Inc., SAFECO Plaza, Seattle, WA 98185. Any notices
to Broker-Dealer shall be duly given if mailed, faxed or telegraphed to
Broker-Dealer at the address specified below.

15. Governing Law. This Agreement shall be binding upon receipt by the
Distributor in Seattle, Washington, of a counterpart hereof duly accepted
and signed by Broker-Dealer, and shall be construed in accordance with the
laws of the State of Washington.

<PAGE>

16. Entire Agreement. This Agreement shall constitute the entire
agreement between the parties with respect to the matters addressed.

SAFECO SECURITIES, INC.

By:_______________________
David F. Hill
President

Accepted: ___________________________________
Broker-Dealer

___________________________________
Street Address

___________________________________
City State Zip Code

By: ___________________________________
Signature

___________________________________
Name and Title

___________________________________
Contact Person

___________________________________
Date

<PAGE>

EXHIBIT A

SAFECO COMMON STOCK TRUST:

SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund

SAFECO TAXABLE BOND TRUST:
Intermediate-Term U.S. Treasury Fund

SAFECO TAX-EXEMPT BOND TRUST:
SAFECO Municipal Bond Fund
SAFECO California Municipal Bond Fund
SAFECO Washington Municipal Bond Fund

SAFECO MONEY MARKET TRUST:
Money Market Fund

SAFECO MANAGED BOND TRUST:
SAFECO Managed Bond Fund

FORM OF TRANSFER AGENT AGREEMENT
--------------------------------

THIS AGREEMENT is made and entered into this _____ day of
_______, 1996, between SAFECO TAX-EXEMPT BOND TRUST ("Trust"), a Delaware
business trust, and SAFECO SERVICES CORPORATION ("SAFECO Services"), a
Washington corporation.

WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end, management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and has caused
its shares of beneficial interest ("Shares") to be registered for sale to
the public under the Securities Act of 1933, as amended ("1933 Act"), and
various state securities laws; and

WHEREAS, the Trust offers for public sale distinct series of
Shares, each corresponding to a distinct portfolio ("Series"); and

WHEREAS, the Trust's Board of Trustees has divided the shares of
each Series into one or more classes of Shares (each a "Class"),
designated No-Load Class, and Advisor Class A or Advisor Class B (latter
two classes "Advisor Classes"), as listed on Exhibit A hereto; and

WHEREAS, the Trust wishes to retain SAFECO Services as its
transfer agent, dividend and distribution disbursement agent, and
shareholder services agent with respect to the Classes of Shares of
beneficial interest in each Series listed on Exhibit A to this Agreement;
and

WHEREAS, SAFECO Services is qualified and authorized to act in
such capacities;

NOW, THEREFORE, it is agreed by the parties hereto as follows:

1. APPOINTMENT. The Trust on behalf of each Series hereby appoints
SAFECO Services as transfer agent, dividend and distribution disbursement
agent, and shareholder services agent for each Series, and SAFECO Services
agrees to act as such upon the terms and conditions set forth herein.

2. DOCUMENTS. The Trust agrees to deliver to SAFECO Services the
following documents to enable SAFECO Services to exercise its functions
under this Agreement: (a) copies of all basic corporate documentation,
including the Trust's Trust Instrument and Bylaws; (b) evidence of
creation and authorization for issue and sale of the Trust's Shares; (c)
evidence of the status of the Trust's Shares under applicable laws,
including copies of the current registration statement or post-effective
amendments to the registration statement of the Trust's securities under
the 1933 Act, copies of current prospectuses and evidence of compliance
with all applicable state securities laws. The Trust shall furnish
promptly to SAFECO Services a copy of any amendment or supplement to the
above-mentioned documents. The Trust shall furnish to SAFECO Services any
additional documents requested by SAFECO Services as necessary to perform
the services required hereunder.
<PAGE>

3. DUTIES OF SAFECO SERVICES. SAFECO Services shall perform as
agent of each Series, the following duties:

(a) With respect to each Series' Advisor Class Shares:

(1) Calculate the 12b-1 payments to brokers and any
broker trail commissions.

(2) Develop, monitor and maintain all systems
necessary to implement and operate the two-tier
distribution system, including the conversion
feature applicable to Advisor Class B Shares, as
described in the registration statement and
related documents of the Trust, as they may be
amended from time to time.

(3) Calculate the contingent deferred sales charge
amounts, if any, upon redemption of Advisor Class
A or Advisor Class B Shares and deduct such
amounts from redemption proceeds.

(4) Calculate the front-end sales charge, if any, at
the time of purchase of Advisor Class A Shares
and deduct such amounts from purchase amounts.

(5) Determine the dates of conversion applicable to
Advisor Class B Shares and effect same.

(b) Maintain a complete computerized record of shareholders by
Series and Class including, name(s) in which the Shares are registered,
address, account number, broker/dealer or registered representative number
(if required), type of account, number of Shares owned in certificate and
non-certificate form, dates and amounts of purchases and redemptions, and
dates and amounts of dividends and capital gains distributed and
reinvested, together with cost amounts.

(c) With respect to requests for the purchase, repurchase,
redemption or transfer of the Shares and the receipt or disbursement of
monies, maintain records of all such transactions for each Series and
Class and from these records furnish to the Trust, as heretofore agreed,
the following for each Series and Class:

(1) Number of Shares purchased and dollar net asset
value per Share.

(2) Number of Shares repurchased or redeemed and
dollar net asset value per Share.

(3) Number of accumulated Shares outstanding.

(4) Number of opened and closed accounts.

- 2 -
<PAGE>

(5) Current number of shareholder accounts.

(d) With respect to requests for the purchase of Shares of a
Series received by SAFECO Securities, Inc., principal underwriter of each
Series' Shares, from authorized broker/dealers, and orders for the
repurchase of such Shares from authorized broker/dealers, SAFECO Services
shall accept and execute such orders at the prices per share next computed
in accordance with Rule 22c-1 under the 1940 Act, deducting any applicable
front-end or contingent deferred sales charge from the purchase or
redemption of Advisor Class A or Advisor Class B Shares.

(e) Following receipt of payments, upon receipt of proper
instructions, SAFECO Services, as transfer agent, shall prepare computer
input entries to register Shares of each Series and Class upon its books
in such name or names as directed. If the Trust elects to issue
certificates representing Shares of a Series or Class, such certificates
shall be issued, recorded and forwarded for delivery to the proper
person(s) upon request. Whether or not certificates evidencing ownership
are issued, a confirmation showing the registration and listing the
purchase transaction shall be mailed to the Trust's shareholders.

(f) Upon receipt of Shares of a Series or Class for redemption
or repurchase, in good delivery form, SAFECO Services shall prepare
computer input entries to clear the Advisor Class Shares out of the
shareholders' accounts and effect prompt payment to the authorized
broker/dealer or the shareholder.

(g) With respect to Advisor Class Shares, upon request, send
duplicate confirmations to broker-dealers, banks and other financial
institutions of their clients' activity.

(h) New investors or shareholders of the Trust may forward
monies directly to SAFECO Services for the purchase of Shares of any Class
of a Series under various plans as described in the Trust's then current
prospectuses.

With respect to such plans, SAFECO Services for the Classes
of each Series shall:

(1) Receive monies for the purchase of full and
fractional Shares with respect to any of the
plans. When purchase orders are received by
SAFECO Services in proper form, they shall be
time-stamped and priced in accordance with Rule
22c-1 under the 1940 Act, deducting any
applicable front-end sales charge.

(2) Prepare computer input entries to effect the
issuance of confirmations, registration of the
Shares and recording of cost amounts in
shareholder accounts; record Shares and net asset
value amounts; record Shares and aggregate dollar

- 3 -
<PAGE>

amounts for updating Blue Sky records, production
reports, etc.

(3) Secure signed applications from each shareholder
which shall include details as to registration of
Shares, social security number, birth date (for
accounts which require it), citizenship, type of
account, broker/dealer and registered
representative (if required).

(4) Obtain back-up withholding certificates (e.g.,
Forms W-8 and W-9) from each shareholder.

(5) Maintain signed applications, correspondence,
etc. for individual shareholders.

(6) Accept redemption orders as described in the
Trust's then current prospectuses directly from
shareholders, or their qualified agents, upon
tender of properly endorsed certificates which
meet the redemption requirements of the Trust.
Shares not represented by certificates tendered
by the presentation of a written request signed
by the shareholder may be accepted without a
signature guarantee provided a signature is on
file with SAFECO Services.

(7) Disburse proceeds for Shares tendered for
redemption at the net asset value per share next
computed after receipt of tender in accordance
with Rule 22c-1 under the 1940 Act, deducting any
applicable contingent deferred sales charge.

(i) Take all actions necessary to complete any transaction in
connection with any exchange privileges as described in the Trust's then
current prospectuses.

(j) Maintain a bank account in its own name with any bank which
qualifies under the Bylaws of the Trust, for the deposit of funds received
in payment of Shares and for the withdrawal of funds in payment of
repurchases or redemptions of Shares, expenses and dividends and capital
gains distributions. After each computer run, written instructions,
signed by authorized officers or other authorized signatories are to be
forwarded to such bank requesting the transfer of net balance to or from
the Series' custodian account with such bank.

(k) Take actions necessary in connection with any "withdrawal
plan," as described in the Trust's then current prospectuses including
making the monthly or quarterly payments to the plan participant, and
informing the Trust with regard to the Shares of each Class of each Series
redeemed and total dollar amount involved on each payment date. Although
a withdrawal plan terminates upon the death of the shareholder, SAFECO

- 4 -
<PAGE>

Services shall not be responsible for any payments made or other action
taken in accordance with the provisions of the withdrawal plan until it
has knowledge of such death.

(l) Take actions necessary in connection with the purchase of
Advisor Class A Shares under any "reinstatement privilege", "right of
accumulation" or "letter of intent," as described in the Trust's then
current Advisor Class prospectus including with respect to the letter of
intent placing in escrow the applicable percentage of Shares.

(m) In the case of the registration and transfer of Shares
referred to in Section (b) above, treat the person in whose name Shares of
any Series are registered as the owner thereof for all purposes, and
SAFECO Services shall not be bound to recognize any other person, whether
or not SAFECO Services shall have notice thereof, except as expressly
provided under applicable state law.

(n) Use reasonable efforts to assure the accuracy of the records
maintained under this Agreement and issue certificates or register Shares
only to those persons or entities entitled thereto.

(o) When a transfer of Shares is demanded, take reasonable steps
to ascertain whether or not a transfer of the Shares requested is duly
authorized. If SAFECO Services fails to take such reasonable steps, it
will be liable to any insured party for any damages incurred as a result.
SAFECO Services' transfer obligations shall run to the owners of
beneficial interest in the Shares as well as to the owners of record.
SAFECO Services shall take reasonable steps to ascertain the identity and
authority of each signatory who is acting in a representative capacity.

(p) Before permitting a transfer of Shares, take reasonable
efforts to ensure that the transferee is properly described and that the
transfer instructions for the Shares are clear and not ambiguous or
subject to doubt.

(q) Upon receipt of proper instructions, compile, distribute or
reinvest authorized dividends and capital gains distributions to each of
the Series' shareholders. In this regard data shall be accumulated to
enable SAFECO Services to provide and process year-end income tax
information for shareholders, states and the Internal Revenue Service.
Where required, taxes shall be withheld from alien shareholders with
foreign addresses and accumulated for surrender to the Internal Revenue
Service.

(r) Prior to each meeting of the Trust's or any Series' or
Class' shareholders, address the proxy cards, prepare the proxy cards,
notice of meeting of shareholders and proxy statement for mailing, and
mail them to the shareholders entitled to vote at such meeting. Upon
their return by the shareholders, SAFECO Services shall examine them and
prepare a tabulation that provides the following information for the
Trust, Series or Class as the case may be:

- 5 -
<PAGE>

(1) Number of Shares outstanding and entitled to vote
on the record date for the meeting.

(2) Number of Shares voted by proxy.

(3) Number of Shares voting "for" each proposal.

(4) Number of Shares voting "against" each proposal.

(5) Number of Shares voting "abstain" for each
proposal.

(6) Number of shareholders involved in each above
instance.

(s) Prepare a certified list of shareholders eligible to vote at
each meeting of the Trust, or any Series or Classes thereof, which shall
be available on the day of the meeting. SAFECO Services shall also
prepare an "Affidavit of Mailing" to be available for reading at each
meeting stating that on the appropriate date a responsible, named indi-
vidual caused the notice of meeting, proxy card and proxy statement to be
mailed by United States mail, postage prepaid, to each and every
shareholder of the Shares entitled to vote at the meeting.

(t) Countersign all certificates to be issued to shareholders of
the Trust upon receipt of payments for the Shares and request a
certificate or certificates representing the Shares being purchased.

(u) Contract from time to time with other persons to provide
software or computer time. SAFECO Services shall advise the Trust of any
such arrangements.

4. APPOINTMENT OF AGENTS. SAFECO Services may at any time or times
in its discretion appoint (and may at any time remove) one or more other
parties as agent to perform any or all of the services specified hereunder
and carry out such provisions of this Agreement as SAFECO Services may
from time to time direct; provided, however, that the appointment of any
such agent shall not relieve SAFECO Services of any of its
responsibilities or liabilities hereunder.

5. RECORD KEEPING AND OTHER INFORMATION. SAFECO Services shall
create and maintain all records required by all applicable laws, rules and
regulations relating to the services to be performed under this Agreement,
including but not limited to records required by Section 31(a) of the 1940
Act and the Rules thereunder, as the same may be amended from time to
time. All records shall be the property of the Trust and shall be
available for inspection and use by the Trust at all times. Where
applicable, such records shall be maintained by SAFECO Services for the
periods and in the places required by Rule 31a-2 under the 1940 Act.

6. NET ASSET VALUE. Wherever used herein, the term "net asset
value" shall mean the "net asset value" as computed for each Series or

- 6 -
<PAGE>

Class in accordance with the Trust's Trust Instrument and Bylaws. If any
amendment is made to said Trust Instrument or Bylaws that changes the
method of said computation, the Trust shall give SAFECO Services immediate
notice of such amendment.

7. PROPER INSTRUCTIONS. The term "proper instructions" used in this
Agreement shall be deemed to mean any written instructions signed by
authorized persons or any oral instructions delivered in accordance with
Trust requirements.

8. DISBURSEMENT OF FUNDS. Funds deposited in the bank account
maintained by SAFECO Services shall not be disbursed to any trustee,
officer or employee of the Trust. This provision shall not be deemed to
apply to dividend payments to any trustee, officer, or employee in his or
her capacity as shareholder. Neither shall this provision apply to the
above individuals upon payments to them for any Shares redeemed for their
personal accounts.

9. COMPENSATION. SAFECO Services shall receive from each Class of
each Series of the Trust a fee in accordance with the arrangements
described in Exhibit B hereto as such Exhibit may be amended from time to
time. Exhibit B may be amended or additional Exhibits may be added, as
deemed necessary from time to time by written agreement between the Trust
and SAFECO Services. Deletion of Exhibit B shall be in accordance with
the termination provisions in paragraph 16 of this Agreement. Each
Exhibit B and any amendments thereto shall be dated and signed by the
parties to this Agreement.

10. Certification of Officers/Reliance upon Certifications.
------------------------------------------------------

(a) The Secretary or Assistant Secretary of the Trust shall be,
and is hereby, directed to certify to SAFECO Services the names of the
officers of the Trust, and their respective signatures, and in case of any
change of any holder of any such office, the fact of such change, and the
name of such new officer and the office held by him or her, together with
specimens of his or her signature. SAFECO Services is hereby authorized
to honor any instructions given to SAFECO Services by any such new officer
in respect of whom it has received any such certificate with the same
force and effect (and not otherwise), as if such new officer were named in
this Agreement in the place of any person with the same title of office.

(b) The Secretary or Assistant Secretary of the Trust shall be,
and is hereby, authorized and directed to notify SAFECO Services promptly
in writing of any change of officers as above provided, and that until
SAFECO Services has actually received and accepted such notice of any such
change, SAFECO Services is hereby authorized and directed to act in
pursuance of this Agreement and the latest certificates theretofore
received by it; and SAFECO Services shall be indemnified and saved
harmless from any loss suffered or liability incurred by it in so acting,
even though any such officer may have been changed.

- 7 -
<PAGE>

11. AUDITS, INSPECTIONS AND VISITS. SAFECO Services shall make
available during regular business hours all records and other data created
and maintained pursuant to this Agreement for reasonable audit and
inspection by the Trust, any agent or person designated by the Trust, or
any regulatory agency having authority over the Trust. Upon reasonable
notice by the Trust, SAFECO Services shall make available during regular
business hours its facilities and premises employed in connection with its
performance of this Agreement for reasonable visits by the Trust, any
agent or person designated by the Trust, or any regulatory agency having
authority over the Trust.

12. ACTS OF GOD, Etc. SAFECO Services shall not be liable for delays
or errors occurring by reason of circumstances beyond its control,
including but not limited to acts of civil or military authority, national
emergencies, work stoppages, fire, flood, catastrophe, acts of God, war,
riot or failure of communications equipment of common carriers or power
supply. In the event of equipment breakdowns beyond its control, SAFECO
Services shall at no additional expense to the Trust take reasonable steps
to minimize service interruptions and mitigate their effects but shall
have no liability whatsoever with respect thereto.

13. Liability and Indemnification.
-----------------------------

(a) SAFECO Services shall use reasonable care in the performance
of its duties under this Agreement.

(b) SAFECO Services shall not be liable for, or considered to
be, the custodian of any money called for or represented by any check,
draft, or other instrument for the payment of money delivered to it, or on
behalf of the Trust.

(c) The Trust shall indemnify and hold SAFECO Services
harmless against any losses, claims, damages, liabilities or expenses
(including reasonable attorneys' fees and expenses) resulting from:

(1) any claim, demand, action or suit brought by any
person other than the Trust, including by a
shareholder, which names SAFECO Services and/or
the Trust as a party, and is not based on and
does not result from SAFECO Services' willful
misfeasance, bad faith or negligence or reckless
disregard of duties, and arises out of or in
connection with SAFECO Services' performance
hereunder; or

(2) any claim, demand, action or suit (except to the
extent contributed to by SAFECO Services' willful
misfeasance, bad faith, negligence or reckless
disregard of duties) which results from the
negligence of the Trust, or from SAFECO Services
acting upon any instruction(s) reasonably

- 8 -
<PAGE>

believed by it to have been executed or
communicated by any person duly authorized by the
Trust, or as a result of SAFECO Services acting
in reliance upon advice reasonably believed by
SAFECO Services to have been given by counsel for
the Trust, or as a result of SAFECO Services
acting in reliance upon any instrument or stock
certificate reasonably believed by it to have
been genuine and signed, countersigned or
executed by the proper person.

14. EFFECTIVE DATE/RENEWAL. This Agreement shall become effective
with respect to the Trust and each Series on the date first written above
or such later date as indicated on Exhibit A or B and, unless sooner
terminated as provided herein, will continue in effect for two years from
the above written date. Thereafter, if not terminated, this Agreement
shall continue in effect with respect to each Series for successive annual
periods ending on the same date of each year, provided that such
continuance is specifically approved at least annually by a vote of the
Board, including the vote of a majority of the trustees who are neither
interested persons of SAFECO Services nor of the Trust at a meeting called
for the purpose of voting on such continuance.

15. AMENDMENT. This Agreement may be modified by written mutual
consent, such consent on the part of the Trust to be authorized by the
vote of the Board of Trustees.

16. Termination.
-----------

(a) Either party hereto may, at any time on no less than sixty
(60) days prior written notice to the other, terminate this Agreement with
respect to the Trust or any Series (by deleting such Series from Exhibits
A and B) without the payment of any penalty.

(b) Upon termination each Series shall pay to SAFECO Services
such compensation as may be due as of the date of such termination and
shall likewise reimburse SAFECO Services for its costs, expenses and dis-
bursements.

(c) If a successor transfer agent is appointed by the Board of
Trustees, SAFECO Services shall, upon termination, deliver to such
successor transfer agent at the office of the transfer agent all transfer
records then held hereunder and all funds or other properties of the Trust
and deposited with or held by it hereunder.

(d) If no successor transfer agent is appointed, SAFECO Services
shall, in like manner, at its office, upon receipt of a certified copy of
a vote of the Board of Trustees deliver such transfer records, funds and
other properties in accordance with such vote.

- 9 -
<PAGE>

(e) In the event that no written order designating a successor
transfer agent or certified copy of a vote of the Board shall have been
delivered to SAFECO Services on or before the date when such termination
shall become effective, then SAFECO Services shall have the right to
deliver to a bank or trust company doing business in Seattle, Washington,
of its own selection, having proper qualifications, all transfer records,
funds and other properties held by SAFECO Services and all instruments
held by it relative thereto and all other property held by it under this
Agreement. Thereafter such bank or trust company shall be the successor
of SAFECO Services under this Agreement.

(f) In the event that transfer records, funds and other
properties remain in the possession of SAFECO Services after the date of
termination hereof owing to failure of the Trust to procure the certified
copy above referred to, or of the trustees to appoint a successor transfer
agent, SAFECO Services shall be entitled to fair compensation for its
services during such period and the provisions of this Agreement relating
to the duties and obligations of SAFECO Services shall remain in full
force and effect.

17. LIMITATION OF LIABILITY. SAFECO Services is hereby expressly put
on notice of (i) the limitation of shareholder, officer and trustee
liability as set forth in the Trust Instrument of the Trust and (ii) of
the provisions in the Trust Instrument permitting the establishment of
separate Series and limiting the liability of each Series to obligations
of that Series. SAFECO Services hereby agrees that obligations assumed by
the Trust pursuant to this Agreement are in all cases assumed on behalf of
a particular Series and each such obligation shall be limited in all cases
to that Series and its assets. SAFECO Services agrees that it shall not
seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Trust nor from the officers or trustees or
any individual officer or trustee of the Trust.

18. ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between SAFECO Services and the Trust with respect to the services to be
provided by SAFECO Services to the Trust and each Class of each Series and
supersedes any prior written or oral agreement between those parties.

19. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in counterparts, each of which taken together
shall constitute one and the same instrument. SAFECO Services understands
that the rights and obligations of each Series under the Trust Instrument
are separate and distinct from those of any and all other Series.

20. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Washington and, to the extent
it involves any United States statute, in accordance with the laws of the
United States.

- 10 -
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their proper officers as of the day and year first above
written.

SAFECO TAX-EXEMPT BOND TRUST

By __________________________________
David F. Hill, President

By __________________________________
, Assistant Secretary

SAFECO SERVICES CORPORATION

By __________________________________
David F. Hill, President

By __________________________________
, Assistant Secretary

- 11 -
<PAGE>

EXHIBIT A
SAFECO TAX-EXEMPT BOND TRUST

The SAFECO Tax-Exempt Bond Trust consists of the following Series and
Classes:

1. SAFECO Intermediate-Term Municipal Bond Fund
No-Load Class

2. SAFECO Insured Municipal Bond Fund
No-Load Class

3. SAFECO Municipal Bond Fund
No-Load Class
Advisor Class A
Advisor Class B

4. SAFECO California Tax-Free Income Fund
No-Load Class
Advisor Class A
Advisor Class B

5. SAFECO Washington State Municipal Bond Fund
No-Load Class
Advisor Class A
Advisor Class B

As of __________ __, 1996
<PAGE>

EXHIBIT B
SAFECO TAX-EXEMPT BOND TRUST
ALL SERIES
ALL CLASSES

FEE SCHEDULES

SAFECO Services shall receive from each class of each series
(collectively, "Fund") of the Trust an annual fee equal to $32 per
account, but not to exceed a maximum of .30% of the average net assets of
the Fund, which amount shall be calculated on a monthly basis (by
averaging the number of shareholder accounts at the beginning and end of
each month) and shall be billed and paid monthly. With respect to any
omnibus account maintained by a financial intermediary which is providing
shareholder services under a written sub-administration agreement with
SAFECO Services, the annual fee will be calculated based upon the average
number of underlying individual shareholder accounts comprising the
omnibus account.

SAFECO Services Corporation SAFECO Tax-Exempt Bond Trust
on behalf of each Series

By: ________________________ By: _______________________
Its: President Its: President

Attest:____________________ Attest: ___________________
Assistant Secretary Assistant Secretary

As of __ _, 1996
<PAGE>
<PAGE>

KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800

July 29, 1996

SAFECO Tax-Exempt Bond Trust
SAFECO Plaza
Seattle, Washington 98185

Dear Sir or Madam:

You have requested our opinion regarding certain matters in
connection with:

1. The issuance of the No-Load Class of shares of beneficial
interest of SAFECO Tax-Exempt Bond Trust ("Trust") in the
following designated series: SAFECO Municipal Bond Fund;
SAFECO California Tax-Free Income Fund; SAFECO
Intermediate-Term Municipal Bond Fund; SAFECO Insured
Municipal Bond Fund; and SAFECO Washington State
Municipal Bond Fund (each, a "Series"); and

2. The issuance of the Advisor Class A and Advisor Class B
of shares of beneficial interest in the following
designated Series: SAFECO Municipal Bond Fund; SAFECO
California Tax-Free Income Fund; and SAFECO Washington
State Municipal Bond Fund.

We have, as special counsel, participated in the preparation of
the Trust's organizational documents and in various other matters
concerning the Trust. We have examined copies, either certified or
otherwise proved to be genuine, of the Trust Instrument dated May 13, 1993
("Trust Instrument") and By-Laws of the Trust, the minutes of meetings of
the trustees, and other documents relating to the organization and
operation of the Trust and the Series, and we generally are familiar with
its business. Based on the foregoing, it is our opinion that the
unlimited number of unissued shares of each above-mentioned Class of the
specified Series, which are currently being registered, when issued in
accordance with the Trust Instrument and By-Laws of the Trust and subject
to compliance with the Securities Act of 1933, the Investment Company Act
of 1940, and applicable state laws regulating the offer and sale of
securities, will be legally issued, fully paid, and nonassessable by the
Trust or any Series.

The Trust is a business trust established pursuant to the
Delaware Business Trust Act ("Delaware Act"). The Delaware Act provides
that a shareholder of the Trust is entitled to the same limitation of
personal liability extended to shareholders of for-profit corporations.
<PAGE>

SAFECO Tax-Exempt Bond Trust
July 29, 1996
Page 2

To the extent that the Trust or any of its shareholders become subject to
the jurisdiction of courts in states which do not have statutory or other
authority limiting the liability of business trust shareholders, such
courts might not apply the Delaware Act and could subject Trust
shareholders to liability.

To guard against this risk, the Trust Instrument: (i) requires
that every written obligation of the Trust contain a statement that such
obligation may only be enforced against the assets of the Trust; however,
the omission of such a disclaimer will not operate to create personal
liability for any shareholder; and (ii) provides for indemnification out
of Trust property of any shareholder held personally liable for the
obligations of the Trust. Thus, the risk of a Trust shareholder incurring
financial loss beyond his or her investment because of shareholder
liability is limited to circumstances in which: (i) a court refuses to
apply Delaware law; (ii) no contractual limitation of liability was in
effect; and (iii) the Trust itself would be unable to meet its
obligations.

We hereby consent to the filing of this opinion in connection
with Post-Effective Amendment No. 8 to the Trust's Registration Statement
on Form N-1A (File Nos. 33-53532 and 811-7300) to be filed with the
Securities and Exchange Commission.

Sincerely yours,

KIRKPATRICK & LOCKHART LLP

By: /s/ Dana L. Platt
-------------------------
Dana L. Platt
<PAGE>
<PAGE>

EXHIBIT NO. 99.11

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights", "Investment Advisory and Other Services" and "Financial
Statements" in Post-Effective Amendment No. 8 to the registration
statement (Form N-1A, No. 33-53532) and related Advisor Class A and
Advisor Class B Prospectuses of SAFECO Tax Exempt Bond Trust.

We also consent to the incorporation by reference therein of our report
dated April 26, 1996 with respect to the financial statements of SAFECO
Tax Exempt Bond Trust as of and for the year ended March 31, 1996
included in the 1996 Annual Report filed with the Securities and
Exchange Commission.

Seattle, Washington
July 29, 1996
<PAGE>
<PAGE>

SAFECO TAX-EXEMPT BOND TRUST--ADVISOR CLASS A SHARES

PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940

WHEREAS, SAFECO Tax-Exempt Bond Trust ("Trust") is registered
under the Investment Company Act of 1940, as amended ("1940 Act"), as an
open-end management investment company, and has caused its shares of
beneficial interest to be registered for sale to the public under the
Securities Act of 1933 ("1933 Act") and various state securities laws; and

WHEREAS, the Trust offers for public sale distinct series of
shares of beneficial interest, each corresponding to a distinct portfolio
(collectively, "Series"); and

WHEREAS, the Trust desires to adopt a Plan of Distribution
("Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to the
Advisor Class A shares of Series included in Exhibit A; and

WHEREAS, the Trust has entered into a Distribution Agreement
("Agreement") with SAFECO Securities, Inc. ("SAFECO Securities") pursuant
to which SAFECO Securities has agreed to serve as Distributor of the
Advisor Class A shares of each such Series;

NOW, THEREFORE, the Trust hereby adopts this Plan with respect to
the Advisor Class A shares of each Series in accordance with Rule 12b-1
under the 1940 Act.

1. A. Each Series is authorized to pay to SAFECO
Securities, as compensation for SAFECO Securities' services as Distributor
of the Series' Advisor Class A shares, a service fee at the rate of 0.25%
on an annualized basis of the average daily net assets of the Series'
Advisor Class A shares. Such fee shall be calculated and accrued daily
and paid monthly unless the Board designates some other interval.

B. Any Series may pay a service fee to SAFECO
Securities at a lesser rate than the fee specified in paragraph 1A of this
Plan, as agreed upon by the Trust's Board of Trustees ("Board") and SAFECO
Securities and as approved in the manner specified in paragraph 4 of this
Plan.

2. As Distributor of the Advisor Class A shares of each
Series, SAFECO Securities may spend such amounts as it deems appropriate
on any activities or expenses primarily intended to result in the sale of
the Series' Advisor Class A shares or the servicing and maintenance of
shareholder accounts, including, but not limited to, compensation to
employees of SAFECO Securities; compensation to and expenses, including
overhead and telephone and other communications expenses, of SAFECO
Securities and broker-dealers who engage in or support the distribution of
shares or who service shareholder accounts; the printing of prospectuses,
statements of additional information, and reports for other than existing
shareholders; and the preparation, printing and distribution of sales
literature and advertising materials.
<PAGE>

3. This Plan shall not take effect with respect to the
Advisor Class A shares of any Series unless it first has been approved by
a vote of the then sole shareholder of the Advisor Class A shares of the
Series.

4. This Plan shall not take effect with respect to the
Advisor Class A shares of any Series unless it first has been approved,
together with any related agreements, by votes of a majority of both (a)
the Board and (b) those Trustees of the Trust who are not "interested
persons" of the Trust and have no direct or indirect financial interest in
the operation of this Plan or any agreements related thereto ("Independent
Trustees"), cast in person at a meeting (or meetings) called for the
purpose of voting on such approval; and until the Trustees who approve the
Plan's taking effect with respect to such Series' Advisor Class A shares
have reached the conclusion required by Rule 12b-1(e) under the 1940 Act.

5. After approval as set forth in paragraphs 3 and 4, this
Plan shall continue in full force and effect with respect to the Advisor
Class A shares of such Series for so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 4.

6. SAFECO Securities shall provide to the Board and the
Board shall review, at least quarterly, a written report of the amounts
expended with respect to the Advisor Class A shares of each Series by
SAFECO Securities under this Plan and the Agreement and the purposes for
which such expenditures were made. SAFECO Securities shall submit only
information regarding amounts expended for "service activities," as
defined in this paragraph 6, to the Board in support of the service fee
payable hereunder.

For purposes of this Plan, "service activities" shall
mean activities covered by the definition of "service fee" contained in
Section 26(b) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. including the provision by SAFECO Securities of,
or SAFECO Securities arrangement for the provision of, personal,
continuing services to investors in the Advisor Class A shares of the
Series. Overhead and other expenses of SAFECO Securities related to its
"service activities," including telephone and other communications
expenses, may be included in the information regarding amounts expended
for such activities.

7. This Plan may be terminated with respect to the Advisor
Class A shares of any Series at any time by vote of the Board, by vote of
a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Advisor Class A shares of that
Series.

8. This Plan may not be amended to increase materially the
amount of service fees provided for in paragraph 1A hereof with respect to
the Advisor Class A shares of any Series unless such amendment is approved
by a vote of a majority of the outstanding voting securities of the

- 2 -
<PAGE>

Advisor Class A shares of that Series, and no material amendment to the
Plan shall be made unless approved in the manner provided for in paragraph
4 hereof.

9. The amount of the service fee payable by any Series to
SAFECO Securities under paragraph 1A hereof and the Agreement is not
related directly to expenses incurred by SAFECO Securities on behalf of
such Series in serving as Distributor of the Advisor Class A shares, and
paragraph 2 hereof and the Agreement do not obligate the Series to
reimburse SAFECO Securities for such expenses. The service fees set forth
in paragraph 1A hereof will be paid by the Series to SAFECO Securities
until either the Plan or the Agreement is terminated or not renewed. If
either the Plan or the Agreement is terminated or not renewed with respect
to the Advisor Class A shares of any Series, any expenses incurred by
SAFECO Securities on behalf of the Series in excess of payments of the
service fees specified in paragraph 1A hereof and the Agreement which
SAFECO Securities has received or accrued through the termination date are
the sole responsibility and liability of SAFECO Securities, and are not
obligations of the Series.

10. While this Plan is in effect, the selection and
nomination of the Trustees who are not interested persons of the Trust
shall be committed to the discretion of the Trustees who are not
interested persons of the Trust.

11. As used in this Plan, the terms "majority of the
outstanding voting securities" and "interested person" shall have the same
meaning as those terms have in the 1940 Act.

12. The Trust shall preserve copies of this Plan (including
any amendments thereto) and any related agreements and all reports made
pursuant to paragraph 6 hereof for a period of not less than six years
from the date of this Plan, the first two years in an easily accessible
place.

13. SAFECO Securities or any other person asserting any right
or claim under this Plan is hereby expressly put on notice of (i) the
limitation of shareholder, officer and Trustee liability as set forth in
the Trust Instrument of the Trust and (ii) of the provisions in the Trust
Instrument permitting the establishment of separate Series and limiting
the liability of each Series to obligations of that Series. Obligations
assumed by the Trust pursuant to this Plan are in all cases assumed on
behalf of a particular Series and each such obligation shall be limited in
all cases to that Series and its assets. SAFECO Securities or any other
person asserting any right or claim under this Plan shall not seek
satisfaction of any obligation, right or claim from the shareholders or
any individual shareholder of the Trust nor from the officers or Trustees
or any individual officer or trustee of the Trust.

- 3 -
<PAGE>

IN WITNESS WHEREOF, the Trust has executed this Plan of
Distribution on the day and year set forth below in Seattle, Washington.

Date: __________ __, 1996

ATTEST: SAFECO TAX-EXEMPT BOND TRUST

By: ____________________________ By: ___________________________
Assistant Secretary President

- 4 -
<PAGE>

EXHIBIT A
SAFECO TAX-EXEMPT BOND TRUST

This Plan of Distribution pursuant to Rule 12b-1 applies to the following
Series:

1. SAFECO Municipal Bond Fund

2. SAFECO California Tax-Free Income Fund

3. SAFECO Washington State Municipal Bond Fund

As of __/__/96
<PAGE>
<PAGE>

SAFECO TAX-EXEMPT BOND TRUST--ADVISOR CLASS B SHARES

FORM OF
PLAN OF DISTRIBUTION PURSUANT TO RULE 12b-1
UNDER THE INVESTMENT COMPANY ACT OF 1940

WHEREAS, the Trust offers for public sale distinct series of
shares of beneficial interest, each corresponding to a distinct portfolio
(collectively, "Series"); and

WHEREAS, the Trust desires to adopt a Plan of Distribution
("Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to the
Advisor Class B shares of Series included in Exhibit A; and

NOW, THEREFORE, the Trust hereby adopts this Plan with respect to
the Advisor Class B shares of each Series in accordance with Rule 12b-1
under the 1940 Act.

1. A. Each Series is authorized to pay to SAFECO
Securities, as compensation for SAFECO Securities' services as Distributor
of the Series' Advisor Class B shares, a distribution fee at the rate of
0.75% on an annualized basis of the average daily net assets of the
Series' Advisor Class B shares. Such fee shall be calculated and accrued
daily and paid monthly unless the Board designates some other interval.

B. Each Series is authorized to pay to SAFECO
Securities, as compensation for SAFECO Securities' services as Distributor
of the Series' Advisor Class B shares, a service fee at the rate of 0.25%
on an annualized basis of the average daily net assets of the Series'
Advisor Class B shares. Such fee shall be calculated and accrued daily
and paid monthly unless the Board designates some other interval.

C. Any Series may pay a distribution or service fee
to SAFECO Securities at a lesser rate than the fees specified in
paragraphs 1A and 1B, respectively, of this Plan, in either case as agreed
upon by the Trust's Board of Trustees ("Board") and SAFECO Securities and
as approved in the manner specified in paragraph 4 of this Plan.

2. As Distributor of the Advisor Class B shares of each
Series, SAFECO Securities may spend such amounts as it deems appropriate
on any activities or expenses primarily intended to result in the sale of
the Series' Advisor Class B shares or the servicing and maintenance of
shareholder accounts, including, but not limited to, compensation to
<PAGE>

employees of SAFECO Securities; compensation to and expenses, including
overhead and telephone and other communications expenses, of SAFECO
Securities and broker-dealers who engage in or support the distribution of
shares or who service shareholder accounts; the printing of prospectuses,
statements of additional information, and reports for other than existing
shareholders; and the preparation, printing and distribution of sales
literature and advertising materials.

3. This Plan shall not take effect with respect to the
Advisor Class B shares of any Series unless it first has been approved by
a vote of the then sole shareholder of the Advisor Class B shares of the
Series.

4. This Plan shall not take effect with respect to the
Advisor Class B shares of any Series unless it first has been approved,
together with any related agreements, by votes of a majority of both (a)
the Board and (b) those Trustees of the Trust who are not "interested
persons" of the Trust and have no direct or indirect financial interest in
the operation of this Plan or any agreements related thereto ("Independent
Trustees"), cast in person at a meeting (or meetings) called for the
purpose of voting on such approval; and until the Trustees who approve the
Plan's taking effect with respect to such Series' Advisor Class B shares
have reached the conclusion required by Rule 12b-1(e) under the 1940 Act.

5. After approval as set forth in paragraphs 3 and 4, this
Plan shall continue in full force and effect with respect to the Advisor
Class B shares of such Series for so long as such continuance is
specifically approved at least annually in the manner provided for
approval of this Plan in paragraph 4.

6. SAFECO Securities shall provide to the Board and the
Board shall review, at least quarterly, a written report of the amounts
expended with respect to the Advisor Class B shares of each Series by
SAFECO Securities under this Plan and the Agreement and the purposes for
which such expenditures were made. SAFECO Securities shall submit only
information regarding amounts expended for "distribution activities," as
defined in this paragraph 6, to the Board in support of the distribution
fee payable hereunder and shall submit only information regarding amounts
expended for "service activities," as defined in this paragraph 6, to the
Board in support of the service fee payable hereunder.

For purposes of this Plan, "distribution activities"
shall mean any activities in connection with SAFECO Securities'
performance of its obligations under this Plan or the Agreement that are
not deemed "service activities." "Service activities" shall mean
activities covered by the definition of "service fee" contained in Section
26(b) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. including the provision by SAFECO Securities of,
or SAFECO Securities arrangement for the provision of, personal,
continuing services to investors in the Advisor Class B shares of the
Series. Overhead and other expenses of SAFECO Securities related to their
"distribution activities" or "service activities," including telephone and

- 2 -
<PAGE>

other communications expenses, may be included in the information
regarding amounts expended for such activities.

7. This Plan may be terminated with respect to the Advisor
Class B shares of any Series at any time by vote of the Board, by vote of
a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Advisor Class B shares of that
Series.

8. This Plan may not be amended to increase materially the
amount of distribution fees provided for in paragraph 1A hereof or the
amount of service fees provided for in paragraph 1B hereof with respect to
the Advisor Class B shares of any Series unless such amendment is approved
by a vote of a majority of the outstanding voting securities of the
Advisor Class B shares of that Series, and no material amendment to the
Plan shall be made unless approved in the manner provided for in paragraph
4 hereof.

9. The amount of the distribution and service fees payable
by the Series to SAFECO Securities under paragraphs 1A and 1B hereof and
the Agreement is not related directly to expenses incurred by SAFECO
Securities on behalf of such Series in serving as Distributor of the
Advisor Class B shares, and paragraph 2 hereof and the Agreement do not
obligate the Series to reimburse SAFECO Securities for such expenses. The
distribution and service fees set forth in paragraphs 1A and 1B hereof
will be paid by the Series to SAFECO Securities until either the Plan or
the Agreement is terminated or not renewed. If either the Plan or the
Agreement is terminated or not renewed with respect to the Advisor Class B
shares of any Series, any expenses incurred by SAFECO Securities on behalf
of the Advisor Class B shares of the Series in excess of payments of the
distribution and service fees specified in paragraphs 1A and 1B hereof and
the Agreement which SAFECO Securities has received or accrued through the
termination date are the sole responsibility and liability of SAFECO
Securities, and are not obligations of the Series.

11. As used in this Plan, the terms "majority of the
outstanding voting securities" and "interested person" shall have the same
meaning as those terms have in the 1940 Act.

13. SAFECO Securities or any other person asserting any right
or claim under this Plan is hereby expressly put on notice of (i) the

- 3 -
<PAGE>

limitation of shareholder, officer and Trustee liability as set forth in
the Trust Instrument of the Trust and (ii) of the provisions in the Trust
Instrument permitting the establishment of separate Series and limiting
the liability of each Series to obligations of that Series. Obligations
assumed by the Trust pursuant to this Plan are in all cases assumed on
behalf of a particular Series and each such obligation shall be limited in
all cases to that Series and its assets. SAFECO Securities or any other
person asserting any right or claim under this Plan shall not seek
satisfaction of any obligation, right or claim from the shareholders or
any individual shareholder of the Trust nor from the officers or Trustees
or any individual officer or trustee of the Trust.

IN WITNESS WHEREOF, the Trust has executed this Plan of
Distribution on the day and year set forth below in Seattle, Washington.

Date: _________ __, 1996

ATTEST: SAFECO TAX-EXEMPT BOND TRUST

By: _______________________ By: ________________________
Assistant Secretary President

- 4 -
<PAGE>

EXHIBIT A
SAFECO TAX-EXEMPT BOND TRUST

This Plan of Distribution pursuant to Rule 12b-1 applies to the following
Series:

1. SAFECO Municipal Bond Fund

2. SAFECO California Tax-Free Income Fund

3. SAFECO Washington State Municipal Bond Fund

As of __/__/96
<PAGE>
<PAGE>

SAFECO MUNICIPAL BOND FUND -- CLASS A

Calculation of Performance Quotations

The "yield" for the SAFECO Municipal Bond Fund for the 30-day period ended
March 31, 1996, is calculated as follows:

2,229,644 - 314,621 6
Yield = 2[(----------------------+1) -1] = 4.81%
35,248,343 x 13.69

Where: $2,229,644 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$314,621 = expenses accrued during the
period

35,258,343 = average daily number of
shares outstanding during
the period

$13.69 = offering price per share on
March 31, 1996

The "tax-equivalent yield" is computed using the following formula:

<S> <C>
4.81% x 1
Tax-equivalent yield = [----------------] + [4.81% x (1-100%)] = 7.96%
(1 - .396)
</TABLE>

Where: 4.81% = "yield" as calculated above

39.6% = tax rate

100% = percentage of "yield" which is tax free
<PAGE>

SAFECO MUNICIPAL BOND FUND -- CLASS A

Calculation of Performance Quotations

The total return and average annual total return for the Fund for the one-
year, five-year, and ten-year periods ended March 31, 1996 are calculated
as follows:

1 Year
------ 1
Total return = $10,000.00 (1 + .0336) = $10,336

1,033.60 - 1,000
Total return = (---------------------) = 3.36%
1,000.00
<TABLE>
<CAPTION>

<S> <C>

--------------------
Average Annual Total Return = (1(SQUARE ROOT) 1,033.60 / 1,000.00 -1) = 3.36%
</TABLE>

Where: 1 = number of years

$1,033.60 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

$10,000.00 = a hypothetical investment of
$10,000

.0336 = the average annual total return

5-Year
------ 5
Total return = $10,000.00 (1 + .0709) = $14,084

1,408.40 - 1,000
Total return = (---------------------) = 40.84%
1,000.00
______________________
Average Annual Total Return = (5(SQUARE ROOT) 1,408.40 / 1,000.00 -1) =
7.09%
Where: 5 = number of years
<PAGE>

$1,408.40 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000

$10,000.00 = a hypothetical investment
of $10,000

.0709 = the average annual total
return

10-Year
------- 10
Total return = $10,000.00 (1 + .0771) = $21,025

2,102.50 - 1,000
Total return = (---------------------) = 110.25%
1,000.00
______________________
Average Annual Total Return = (10(SQUARE ROOT) 2,102.50 / 1,000.00 -1) =
7.71%
Where: 10 = number of years

$2,102.50 = ending redeemable value
of a hypothetical
$1,000 investment at
the end of a specified
period of time

$1,000.00 = a hypothetical
investment of $1,000

$10,000.00 = a hypothetical
investment of $10,000

.0771 = the average annual
total return
<PAGE>

SAFECO MUNICIPAL BOND FUND -- CLASS B

Calculation of Performance Quotations

The "yield" for the SAFECO Municipal Bond Fund for the 30-day period ended
March 31, 1996, is calculated as follows:

2,229,644 - 611,300 6
Yield = 2[(----------------------+1) -1] = 4.06%
35,258,343 x 13.69

Where: $2,229,644 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$611,300 = expenses accrued during the
period

35,258,343 = average daily number of
shares outstanding during
the period

$13.69 = offering price per share on
March 31, 1996

The "tax-equivalent yield" is computed using the following formula:

<S> <C>
4.06% x 1
Tax-equivalent yield = [----------------] + [4.06% x (1-100%)] = 6.72%
(1 - .396)
</TABLE>

Where: 4.06% = "yield" as calculated above

39.6% = tax rate

100% = percentage of "yield" which is tax free
<PAGE>

SAFECO MUNICIPAL BOND FUND -- CLASS B

Calculation of Performance Quotations

The total return and average annual total return for the Fund for the one-
year, five-year, and ten-year periods ended March 31, 1996 are calculated
as follows:

1 Year
------ 1
Total return = $10,000.00 (1 + .0323) = $10,323

1,032.30 - 1,000
Total return = (---------------------) = 3.23%
1,000.00
<TABLE>
<CAPTION>

<S> <C>

--------------------
Average Annual Total Return = (1(SQUARE ROOT) 1,032.30 / 1,000.00 -1) = 3.23%
</TABLE>

Where: 1 = number of years

$1,032.30 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

$10,000.00 = a hypothetical investment of
$10,000

.0323 = the average annual total return

5-Year
------ 5
Total return = $10,000.00 (1 + .0778) = $14,547

1,454.70 - 1,000
Total return = (---------------------) = 45.47%
1,000.00
______________________
Average Annual Total Return = (5(SQUARE ROOT) 1,454.70 / 1,000.00 -1) =
7.78%
Where: 5 = number of years
<PAGE>

$1,454.70 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000

$10,000.00 = a hypothetical investment
of $10,000

.0778 = the average annual total
return

10-Year
------- 10
Total return = $10,000.00 (1 + .0821) = $22,016

2,201.60 - 1,000
Total return = (---------------------) = 120.16%
1,000.00
______________________
Average Annual Total Return = (10(SQUARE ROOT) 2,201.60 / 1,000.00 -1) =
8.21%
Where: 10 = number of years

$2,201.60 = ending redeemable value
of a hypothetical
$1,000 investment at
the end of a specified
period of time

$1,000.00 = a hypothetical
investment of $1,000

$10,000.00 = a hypothetical
investment of $10,000

.0821 = the average annual
total return
<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND -- CLASS A

Calculation of Performance Quotations

The "yield" for the SAFECO Washington State Municipal Bond Fund for the
30-day period ended March 31, 1996 is calculated as follows:

30,560 - 7,406 6
Yield = 2[(----------------------+1) -1] = 4.37%
620,747 x 10.34

Where: $30,560 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$7,406 = expenses accrued during the
period

620,747 = average daily number of
shares outstanding during
the period

$10.34 = offering price per share on
March 31, 1996

<S> <C>
4.37% x 1
Tax-equivalent yield = 2[(--------------] + [4.37% x (1-100%)] = 7.24%
(1 - .396)
</TABLE>
Where: 4.37 = "yield" as calcuated above

39.6% = tax rate

100% = percentage of "yield" which
is tax free
<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND -- CLASS A

Calculation of Performance Quotations

The total return and average annual total return for the Fund for the one-
year and 36-month (since initial effective date of Registration Statement)
periods ending March 31, 1996 are calculated as follows:

1 Year
------ 1
Total return = $10,000.00 (1 + .0762) = $10,762.00

1,028.80 - 1,000
Total return = (---------------------) = 2.88%
1,000.00
----------------------
Average Annual Total Return = (1(SQUARE ROOT) 1,028.80 / 1,000.00 -1) =
2.88%
Where: 1 = number of years

0.0288 = average annual total return

$10,000.00 = a hypothetical investment of
$10,000

$1,028.80 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

Since Inception (36 Months)
-------------------------- 3
Total return = $10,000.00 (1 + .0409) = $10,835.00

1,109.70 - 1,000
Total return = (---------------------) = 10.97%
1,000.00
______________________
Average Annual Total Return = (3(SQUARE ROOT) 1,109.70 / 1,000.00 -1) =
3.53%
Where: 3 = number of years

0.0353 = average annual total
return

$10,000.00 = a hypothetical investment
of $10,000
<PAGE>

$1,109.70 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000
<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND -- CLASS B

Calculation of Performance Quotations

The "yield" for the SAFECO Washington State Municipal Bond Fund for the
30-day period ended March 31, 1996 is calculated as follows:

30,560 - 11,367 6
Yield = 2[(----------------------+1) -1] = 3.62%
620,747 x 10.34

Where: $30,560 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$11,367 = expenses accrued during the
period

620,747 = average daily number of
shares outstanding during
the period

$10.34 = offering price per share on
March 31, 1996

The "tax-equivalent yield" is computed using the following formula:

3.62% x 1
Tax-equivalent yield = [-----------------] + [3.62% x (1-100%)] = 5.99%
(1 - .396)

Where: $3.62% = "yield" as calculated above

$39.6 = tax rate

100% = percentage of "yield" which
is tax free
<PAGE>

SAFECO WASHINGTON STATE MUNICIPAL BOND FUND -- CLASS B

Calculation of Performance Quotations

1 Year
------ 1
Total return = $10,000.00 (1 + .0762) = $10,762.00

1,027.30 - 1,000
Total return = (---------------------) = 2.73%
1,000.00
----------------------
Average Annual Total Return = (1.00(SQUARE ROOT) 1,027.30 / 1,000.00 -1) =
2.73%
Where: 1 = number of years

0.0273 = average annual total return

$10,000.00 = a hypothetical investment of
$10,000

$1,027.30 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

Since Inception (36 Months)
-------------------------- 3
Total return = $10,000.00 (1 + .0409) = $10,835.00

1,132.00 - 1,000
Total return = (---------------------) = 13.20%
1,000.00
______________________
Average Annual Total Return = (3(SQUARE ROOT) 1,132.00 / 1,000.00 -1) =
4.22%
Where: 3 = number of years

0.0422 = average annual total
return

$10,000.00 = a hypothetical investment
of $10,000
<PAGE>

$1,132.00 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000
<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND -- CLASS A

Calculation of Performance Quotations

The "yield" for the SAFECO California Tax Free Income Fund for the 30-day
period ended March 31, 1996, is calculated as follows:

331,162 - 53,132 6
Yield = 2[(----------------------+1) -1] = 4.79%
5,935,349 x 11.86

Where: $331,162 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$53,132 = expenses accrued during the
period

5,935,349 = average daily number of
shares outstanding during
the period

$11.86 = offering price per share on
March 31, 1996

The "tax-equivalent yield" is computed using the following formula:

<S> <C>
4.79% x 1
Tax-equivalent yield = [----------------] + [4.79% x (1-100%)] = 8.90%
(1 - .462)
</TABLE>

Where: 4.79% = "yield" as calculated above

46.2% = combined federal & state tax rate

100% = percentage of "yield" which is tax free
<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND -- CLASS A

Calculation of Performance Quotations

The total return and average annual total return for the Fund for the one-
year, five-year, and ten-year periods ended March 31, 1996 are calculated
as follows:

1 Year
------ 1
Total return = $10,000.00 (1 + .0397) = $10,397

1,039.70 - 1,000
Total return = (---------------------) = 3.97%
1,000.00
<TABLE>
<CAPTION>

<S> <C>

--------------------
Average Annual Total Return = (1(SQUARE ROOT) 1,039.70 / 1,000.00 -1) = 3.97%
</TABLE>

Where: 1 = number of years

$1,039.70 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

$10,000.00 = a hypothetical investment of
$10,000

.0397 = the average annual total return

5-Year
------ 5
Total return = $10,000.00 (1 + .0718) = $14,143

1,414.30 - 1,000
Total return = (---------------------) = 41,43%
1,000.00

______________________
Average Annual Total Return = (5(SQUARE ROOT) 1,414.30 / 1,000.00 -1) =
7.18%
Where: 5 = number of years
<PAGE>

$1,414.30 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000

$10,000.00 = a hypothetical investment
of $10,000

.0718 = the average annual total
return

10-Year
------- 10
Total return = $10,000.00 (1 + .0739) = $20,410

2,041.00 - 1,000
Total return = (---------------------) = 104.10%
1,000.00
______________________
Average Annual Total Return = (10(SQUARE ROOT) 2,041.00 / 1,000.00 -1) =
7.39%
Where: 10 = number of years

$2,041.00 = ending redeemable value
of a hypothetical
$1,000 investment at
the end of a specified
period of time

$1,000.00 = a hypothetical
investment of $1,000

$10,000.00 = a hypothetical
investment of $10,000

.0739 = the average annual
total return
<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND -- CLASS B

Calculation of Performance Quotations

The "yield" for the SAFECO California Tax Free Income Fund for the 30-day
period ended March 31, 1996, is calculated as follows:

331,162 - 96,428 6
Yield = 2[(----------------------+1) -1] = 4.04%
5,935,349 x 11.86

Where: $331,162 = dividends and interest (as
defined in the instructions
to Item 22(b)(ii) of Form N-
1A) earned during the period

$96,428 = expenses accrued during the
period

5,935,349 = average daily number of
shares outstanding during
the period

$11.86 = offering price per share on
March 31, 1996

The "tax-equivalent yield" is computed using the following formula:

<S> <C>
4.04% x 1
Tax-equivalent yield = [----------------] + [4.04% x (1-100%)] = 7.51%
(1 - .462)
</TABLE>

Where: 4.04% = "yield" as calculated above

46.2% = combined federal & state tax rate

100% = percentage of "yield" which is tax free
<PAGE>

SAFECO CALIFORNIA TAX-FREE INCOME FUND -- CLASS B

Calculation of Performance Quotations

The total return and average annual total return for the Fund for the one-
year, five-year, and ten-year periods ended March 31, 1996 are calculated
as follows:

1 Year
------ 1
Total return = $10,000.00 (1 + .0387) = $10,387

1,038.70 - 1,000
Total return = (---------------------) = 3.87%
1,000.00
<TABLE>
<CAPTION>

<S> <C>

--------------------
Average Annual Total Return = (1(SQUARE ROOT) 1,038.70 / 1,000.00 -1) = 3.87%
</TABLE>

Where: 1 = number of years

$1,038.70 = ending redeemable value of a
hypothetical $1,000 investment at
the end of a specified period of
time

$1,000.00 = a hypothetical investment of $1,000

$10,000.00 = a hypothetical investment of
$10,000

.0387 = the average annual total return

5-Year
------ 5
Total return = $10,000.00 (1 + .0788) = $14,609

1,460.90 - 1,000
Total return = (---------------------) = 46.09%
1,000.00
______________________
Average Annual Total Return = (5(SQUARE ROOT) 1,460.90 / 1,000.00 -1) =
7.88%
Where: 5 = number of years
<PAGE>

$1,460.90 = ending redeemable value of
a hypothetical $1,000
investment at the end of a
specified period of time

$1,000.00 = a hypothetical investment
of $1,000
$10,000.00 = a hypothetical investment
of $10,000

.0788 = the average annual total
return

10-Year
------- 10
Total return = $10,000.00 (1 + .0789) = $21,372

2,137.20 - 1,000
Total return = (---------------------) = 113.72%
1,000.00
______________________
Average Annual Total Return = (10(SQUARE ROOT) 2,137.00 / 1,000.00 -1) =
7.89%

Where: 10 = number of years

$2,137.00 = ending redeemable value
of a hypothetical
$1,000 investment at
the end of a specified
period of time

$1,000.00 = a hypothetical
investment of $1,000

$10,000.00 = a hypothetical
investment of $10,000

.0789 = the average annual
total return
<PAGE>
<PAGE>

SAFECO Tax-Exempt Bond Trust
Multiple Class Plan

This Multiple Class Plan ("Plan") sets forth the multiple
class structure for those series of SAFECO Tax-Exempt Bond Trust ("Trust")
listed on Exhibit A (each a "Fund," together "Funds"), as amended from
time to time, as required by Rule 18f-3 under the Investment Company Act
of 1940 ("1940 Act").

A. General Description of the Classes Offered.
------------------------------------------

1. NO-LOAD CLASS SHARES: No-Load Class shares are offered
directly to the public by SAFECO Securities, Inc. without
any sales charge, redemption fee, or Rule 12b-1 fee.

2. Advisor Class A Shares
----------------------

Advisor Class A shares are offered only to investors who
engage the services of an investment professional.

Advisor Class A shares are subject to a maximum initial
sales charge of 4.50%, which is waived or reduced to the
extent provided for in the then-current Advisor Class A
prospectus.

Advisor Class A Shares are subject to an annual service
fee of .25% of the average daily net assets of the
Advisor Class A shares of each Fund pursuant to a Rule
12b-1 plan of distribution.

Advisor Class A shares are subject to a contingent
deferred sales charge ("CDSC") on redemptions of shares
(i) purchased without an initial sales charge due to a
sales charge waiver for purchases of $1 million or more
and (ii) held less than one year. The Advisor Class A
CDSC is equal to 1% of the lesser of: (i) the net asset
value of the shares at the time of purchase or (ii) the
net asset value of the shares at the time of redemption.
Advisor Class A shares held one year or longer and
Advisor Class A shares acquired through reinvestment of
dividends or capital gain distributions on shares
otherwise subject to a Class A CDSC are not subject to
the CDSC.

3. Advisor Class B Shares
----------------------

Advisor Class B shares are offered only to investors who
engage the services of an investment professional.
<PAGE>

Advisor Class B shares are subject to a maximum CDSC of
5%. The maximum CDSC for Advisor Class B shares is equal
to 5% of the lesser of: (i) the net asset value of the
shares at the time of purchase or (ii) the net asset
value of the shares at the time of redemption.

The CDSC is waived or reduced to the extent provided for
in the then-current Advisor Class B prospectus. In
addition, Advisor Class B shares held six years or longer
and Advisor Class B shares acquired through reinvestment
of dividends or capital gain distributions are not
subject to the CDSC.

Advisor Class B shares are subject to an annual service
fee of .25% of average daily net assets and a
distribution fee of .75% of average daily net assets of
the Advisor Class B shares of each Fund, each paid
pursuant to a Rule 12b-1 plan of distribution.

Advisor Class B shares convert to Advisor Class A shares
approximately six years after issuance at relative net
asset value.

B. Expense Allocations of Each Class
---------------------------------

In addition to the distribution and service fees described above,
certain other expenses may be attributable to a particular class of shares
of each Fund. Expenses attributable to a specific class of shares are
charged directly to the net assets of that class, and are thus borne on a
pro rata basis by the outstanding shares of that class.

Each class may pay a different amount of the following other
expenses:

1. transfer agent fees identified as being
attributable to a specific class of shares;

2. stationery, printing, postage and delivery
expenses related to preparing and distributing
materials such as shareholder reports,
prospectuses and proxy statements to current
shareholders of a specific class of shares;

3. expenses of administrative personnel and services
as required to support the shareholders of a
specific class of shares;

4. Trustees' fees or expenses incurred as a result
of issues relating to a specific class of shares;

- 2 -
<PAGE>

5. accounting expenses relating solely to a specific
class of shares;

6. auditors' fees, litigation expenses and legal
fees and expenses relating to a specific class of
shares; and

7. expenses incurred in connection with shareholders
meetings as a result of issues relating to a
specific class of shares.

C. Exchange Privileges
-------------------

No-Load Class, Advisor Class A, and Advisor Class B
shares of each Fund may be exchanged for shares of the
corresponding class of other Funds of the Trust or of other
SAFECO Mutual Funds. Exchanges may be limited to the extent
provided for in the then-current prospectus of each class.

D. Additional Information
----------------------

Each Fund's prospectus contains additional information
about the classes and the multiple class structure. This Plan is
subject to the terms of the then-current prospectus for the
applicable classes; provided, however, that none of the terms set
forth in any such prospectus shall be inconsistent with the terms
of the classes contained in this Plan.

E. Date of Effectiveness
---------------------

This Plan is effective as of the date hereof, provided
that the Plan shall not become effective with respect to any Fund
unless the Board of Trustees of the Trust ("Trustees") has found
that the Plan is in the best interests of each class individually
and each Fund as a whole, and further provided that the Plan has
first been approved by the vote of a majority of the Trustees and
by a vote of a majority of the Trustees who are not "interested
persons" of the Trust as defined in the 1940 Act.

Date ____________________

- 3 -
<PAGE>

EXHIBIT A
SAFECO TAX-EXEMPT BOND TRUST

This Multiple Class Plan pursuant to Rule 18f-3 applies to the following
Funds:

1. SAFECO Municipal Bond Fund

2. SAFECO California Tax-Free Income Fund

3. SAFECO Washington State Municipal Bond Fund
<PAGE>