<PAGE> 1
LETTER FROM SAFECO LIFE'S PRESIDENT
DEAR RESOURCE B PARTICIPANT:
We are pleased to present the SAFECO Life Resource B Variable Annuity Annual
Report. Inside you will find schedules of investments and financial statements
for each of the 3 portfolios. In addition, reports from each of the portfolio
managers are provided. The information presented covers the year ending
December 31, 1996.
1996 FINANCIAL MARKET REVIEW
We entered 1996 with rather modest expectations for the equity markets and look
what happened. The Standard & Poor's 500 index gained 22.94% on the heels of
its astonishing 37.50% growth in 1995. The good news is, investors who had the
conviction to stay invested in common stocks were amply rewarded. For the
second straight year, we're glad to have been "in" the market, rather than
"out".
The bad news is that such market conditions can cause amnesia - amnesia when it
comes to the volatile nature of the stock market (which delivered 1.32% in
1994), and forgetfulness regarding the diversification that bonds and money
market funds provide.
The neglected cousins of 1996 were the bond markets. Bonds struggled through
the year -- despite the fact inflation remained at bay -- reversing directions
and ultimately delivering lackluster total returns. The broader market as
measured by Lehman Brothers Government/Corporate Index, returned 2.90% for the
year.
Three elements seem to be props for the stock market. Inflation has remained in
control, corporate earnings have continued to grow and there has been a
fundamental shift in the way individuals invest. Investors are increasingly
recognizing the superior long-term potential of stocks, at the same time they
are taking control of more of their retirement savings.
FINANCIAL OUTLOOK
While the shift from traditional company-controlled pensions to employee
directed plans such as 401(k)s seems irreversible, it doesn't seem possible for
the stock market to sustain its present level of growth. Still, we believe
common stocks offer the potential for superior long-term returns as they have
over the past 70 years. At the same time, we remind you of the historical level
of stock market returns.
All in all, our 1997 outlook is that the financial markets will do "okay". We
anticipate bonds will earn, or nearly earn, their coupons. And that stream of
interest payments is what people should buy bonds for anyway. In short, do not
expect big gains in bond prices, just steady income. Stocks will have a more
difficult time, especially if corporate earnings fail to meet expectations.
Nonetheless, there are always opportunities for stock pickers. And what's what
we do best.
SAFECO LIFE'S COMMITMENT
SAFECO Life remains committed to providing you quality service with efficient
and accurate reporting. We have added new customer service representatives in
our IRA and TSA units as well as toll free telephone lines designed to link you
directly with the service representative handling your account. Watch for news
in 1997 about a voice responsive unit allowing you access to your information
and an investor newsletter to better serve your needs.
We appreciate your business and the opportunity to serve you. Call us at the
toll free number listed on your statement anytime between 7:00 am and 4:30 pm
(PST) if we can be of assistance.
Sincerely,
Richard E. Zunker
President
<PAGE> 2
TABLE OF CONTENTS
PAGE
Financial Statements
Statement of Assets and Liabilities 4
Statement of Operations 5
Statement of Changes in Net Assets 6
Notes to Financial Statements 7
Report of Ernst & Young LLP, Independent Auditors 9
<PAGE> 3
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------
SAFECO SAFECO SAFECO
AS OF DECEMBER 31, 1996 EQUITY BOND MMKT
- ------------------------------------------------------------------------------------------------------------------
-- (In Thousands, Except Per-Unit and Per
Share Amounts) --
<S> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $118,571 $ 9,443 $ 5,104
======= ======= =======
Shares owned 6,101 844 5,104
Net asset value per share $ 21.75 $ 10.75 $ 1.00
------- ------- -------
Investments, at value 132,704 9,073 5,104
Cash 26 2 1
------- ------- -------
Total assets 132,730 9,075 5,105
LIABILITIES:
Mortality and expense risk charge payable 146 10 6
Fees payable 26 2 1
------- ------- -------
Total liabilities 172 12 7
------- ------- -------
NET ASSETS $132,558 $ 9,063 $ 5,098
======= ======= =======
ACCUMULATION UNITS OUTSTANDING 3,328 504 341
======= ======= =======
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $39.829 $17.991 $14.944
======= ======= =======
</TABLE>
* Redemption price per unit is the unit value less any applicable contingent
deferred sales charge.
See Notes to Financial Statements
4
<PAGE> 4
SAFECO RESOURCE VARIABLE ACCOUNT B
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------
YEAR ENDED DECEMBER 31, 1996
SAFECO SAFECO SAFECO
EQUITY BOND MMKT
----------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain
distributions $12,467 $ 495 $ 241
EXPENSES:
Mortality and expense risk charge 1,394 111 63
------- ------- -------
NET INVESTMENT INCOME 11,073 384 178
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments 4,626 (20) -
Net change in unrealized appreciation 7,840 (425) -
------- ------- -------
NET GAIN (LOSS) ON INVESTMENTS 12,466 (445) -
------- ------- -------
NET CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $23,539 $ (61) $ 178
======= ======= =======
</TABLE>
See Notes to Financial Statements
5
<PAGE> 5
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
SAFECO SAFECO SAFECO
EQUITY BOND MMKT
---------------------- ---------------------- ----------------------
1996 1995 1996 1995 1996 1995
---------------------- ---------------------- ----------------------
-- (In Thousands) --
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 11,073 $ 9,089 $ 384 $ 422 $ 178 $ 187
Net realized gain (loss) on
investments 4,626 2,869 (20) (29) - -
Net change in unrealized
appreciation 7,840 5,057 (425) 773 - -
--------- --------- --------- --------- --------- ---------
Net change in net assets
resulting from operations 23,539 17,015 (61) 1,166 178 187
NET ACCUMULATION UNIT TRANSACTIONS 19,372 18,584 405 89 478 (473)
--------- --------- --------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 42,911 35,599 344 1,255 656 (286)
NET ASSETS AT BEGINNING OF PERIOD 89,647 54,048 8,719 7,464 4,442 4,728
--------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF PERIOD $ 132,558 $ 89,647 $ 9,063 $ 8,719 $ 5,098 $ 4,442
========= ========= ========= ========= ========= =========
OTHER INFORMATION
Increase (Decrease) in Units and
Amounts
UNITS:
Sales 925 905 87 87 717 587
Redemptions (371) (257) (65) (86) (684) (621)
--------- --------- --------- --------- --------- ---------
Net change 554 648 22 1 33 (34)
========= ========= ========= ========= ========= =========
AMOUNTS:
Sales $ 32,687 $ 25,905 $ 1,555 $ 1,469 $ 10,520 $ 8,274
Redemptions (13,315) (7,321) (1,150) (1,380) (10,042) (8,747)
--------- --------- --------- --------- --------- ---------
Net change $ 19,372 $ 18,584 $ 405 $ 89 $ 478 $ (473)
========= ========= ========= ========= ========= =========
DECEMBER 31, 1996:
Paid in capital $ 79,810 $ 6,681 $ 3,856
Par value per unit None None None
Accumulation units authorized Unlimited Unlimited Unlimited
Accumulation units owned by
SAFECO 200 200 200
</TABLE>
See Notes to Financial Statements
6
<PAGE> 6
SAFECO RESOURCE VARIABLE ACCOUNT B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Resource Variable Account B (Variable Account B) is registered under
the Investment Company Act of 1940, as amended, as a segregated unit
investment trust of SAFECO Life Insurance Company (SAFECO), a wholly-owned
subsidiary of SAFECO Corporation. Variable Account B is comprised of 12
portfolios. The information contained in this financial statement relates to
the sub-accounts invested in shares of the three portfolios designated
below.
<TABLE>
<CAPTION>
SUB-ACCOUNT UNDERLYING PORTFOLIO
--------------------------------------------------------------------------------------------
<S> <C>
SAFECO Resource Series Trust --
SAFECO Resource Equity (SAFECO Equity) Equity Portfolio
SAFECO Resource Bond (SAFECO Bond) Bond Portfolio
SAFECO Resource Money Market (SAFECO MMKT) Money Market Portfolio
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Investments in portfolio shares are carried in the
statement of assets and liabilities at net asset value as reported by the
respective Portfolio. Realized gains or losses on securities transactions
are determined using the First-In First-Out (FIFO) cost method. Security
transactions are recorded on the trade date.
DISTRIBUTIONS -- The net investment income and realized capital gains of
Variable Account B are not distributed, but are retained and reinvested for
the benefit of accumulation unit owners.
FEDERAL INCOME TAX -- Operations of Variable Account B are included in the
federal income tax return of SAFECO, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax
law, no income taxes are payable with respect to operations of Variable
Account B.
3. EXPENSES
A mortality and expense risk charge is deducted by SAFECO from Variable
Account B on a daily basis which is equal, on an annual basis, to 1.25% of
the average daily net asset value of Variable Account B. The mortality risks
assumed by SAFECO arise from its contractual obligation to make annuity
payments after the annuity date for the life of the participant and to waive
withdrawal charges in the event of the death of a participant. The expense
risk assumed by SAFECO is that the costs of administering the contracts and
Variable Account B will exceed the amount received from the administration
charge.
The following expenses may be deducted from a contractholder's account by
SAFECO and not directly from Variable Account B. As a fee for expenses
associated with the administration of the contract owner's account, an
annual charge of $30 may be deducted by SAFECO from the accumulated value of
each contract on the date the initial purchase payment is invested and on
each certificate anniversary. In the event that a participant withdraws all
or a portion of the participant's accumulation account, a contingent
deferred sales charge is imposed on withdrawals of purchase payments in the
first eight certificate years. Any premium tax levied by a state or
government entity with respect to the Variable Account B contract will be
charged against the contract. Fees and charges may vary by product.
7
<PAGE> 7
December 31, 1996 SAFECO RESOURCE VARIABLE ACCOUNT B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------
SAFECO SAFECO SAFECO
EQUITY BOND MMKT
-------------------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
PURCHASES for the year ended December 31, 1996 $46,553 $ 2,256 $12,206
======= ======= =======
SALES for the year ended December 31, 1996 $16,050 $ 1,465 $11,549
======= ======= =======
</TABLE>
5. ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------
SAFECO SAFECO SAFECO
EQUITY BOND MMKT
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1992 $18.704 $14.882 $13.335
December 31, 1993 23.630 16.253 13.516
December 31, 1994 25.424 15.559 13.837
December 31, 1995 32.321 18.117 14.417
December 31, 1996 39.829 17.991 14.944
</TABLE>
8
<PAGE> 8
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS OF SAFECO LIFE INSURANCE COMPANY AND
PARTICIPANTS OF SAFECO RESOURCE VARIABLE ACCOUNT B
We have audited the accompanying statements of assets and liabilities of certain
Sub-Accounts of SAFECO Resource Variable Account B (comprising, respectively,
the SAFECO Resource Equity, SAFECO Resource Bond, and SAFECO Resource Money
Market Sub-Accounts) as of December 31, 1996, and the related statements of
operations, the statements of changes in net assets, and the accumulation unit
data for each of the periods indicated therein. These financial statements and
accumulation unit data are the responsibility of the SAFECO Resource Variable
Account B's management. Our responsibility is to express an opinion on these
financial statements and accumulation unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and accumulation
unit data are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and accumulation unit data. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with SAFECO Resource
Series Trust. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and accumulation unit data referred to
above present fairly, in all material respects, the financial position of each
of the respective Sub-Accounts of SAFECO Resource Variable Account B as listed
above at December 31, 1996, the results of their operations, the changes in
their net assets, and the accumulation unit data for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
SIGNATURE
Seattle, Washington
January 31, 1997
9
