SAFECO RESOURCE SERIES TRUST, 497, 1996-05-08

SAFECO RESOURCE SERIES TRUST
497, 1996-05-08

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<PAGE> 1

SAFECO RESOURCE SERIES TRUST PROSPECTUS
SAFECO PLAZA
SEATTLE, WASHINGTON 98185 APRIL 29, 1996
- --------------------------------------------------------------------------------

Each of the portfolios described in this Prospectus is a series of the SAFECO
Resource Series Trust ("Trust"), an open-end, management investment company
consisting of five separate series, three of which are offered herein. Shares of
the Trust are offered to life insurance companies, which may or may not be
affiliated with one another ("Participating Insurance Companies"), for
allocation to certain of their separate accounts established for the purpose of
funding variable life insurance policies and variable annuity contracts
("Variable Contracts") and may also be offered directly to qualified pension and
retirement plans ("Qualified Plans").

The EQUITY PORTFOLIO has as its investment objective to seek long-term growth of
capital and reasonable current income. The Equity Portfolio ordinarily invests
principally in common stocks or securities convertible into common stocks.

The BOND PORTFOLIO has as its investment objective to seek to provide as high a
level of current income as is consistent with the relative stability of capital.
The Bond Portfolio invests primarily in medium-term debt securities.

The MONEY MARKET PORTFOLIO 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 investments in high-quality money market instruments maturing
in thirteen months or less. THE MONEY MARKET PORTFOLIO SEEKS TO MAINTAIN A $1.00
PER SHARE NET ASSET VALUE. SHARES OF THE MONEY MARKET PORTFOLIO ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE
MONEY MARKET PORTFOLIO WILL MAINTAIN A STABLE $1.00 PER SHARE NET ASSET VALUE.

There are market risks in all securities transactions. This Prospectus sets
forth the information a prospective investor should know before investing.
PLEASE READ AND RETAIN THE PROSPECTUS FOR FUTURE REFERENCE. A Statement of
Additional Information, dated April 29, 1996 and incorporated herein by
reference, has been filed with the Securities and Exchange Commission and is
available at no charge upon request by calling 1-800-624-5711 or writing SAFECO
Securities, Inc. SAFECO Plaza, Seattle, WA 98185. The Statement of Additional
Information contains more information about most of the topics in this
Prospectus as well as information about the trustees and officers of the Trust.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------

No dealer, salesperson or other person has been authorized to give any
information or to make any representation, other than those contained in this
Prospectus, and, if given or made, such other information or representations
must not be relied upon as having been authorized by the Trust or SAFECO
Securities. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by the Trust or by SAFECO Securities in any
state in which such offer or solicitation may not lawfully be made.

1
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction to the Trust and the Portfolios.......................................... 3
Fund Expenses......................................................................... 4
Financial Highlights.................................................................. 5
The Trust and Each Portfolio's Investment Policies.................................... 8
Portfolio Managers.................................................................... 14
Information about Share Ownership and Companies that Provide Services to the Trust.... 15
Persons Controlling the Trust......................................................... 16
Sale and Redemption of Shares......................................................... 16
Performance Information............................................................... 16
Portfolio Distributions and Tax Information........................................... 17
Share Price Calculation............................................................... 17
Ratings Supplement.................................................................... 18
</TABLE>

2
<PAGE> 3

INTRODUCTION TO THE TRUST AND THE PORTFOLIOS

The Trust is a series investment company that currently issues shares
representing five mutual funds, three of which are offered herein: Equity
Portfolio, Bond Portfolio and Money Market Portfolio (collectively, the
"Portfolios"). Each Portfolio is a diversified series of the Trust, an open-end,
management investment company that continuously offers to sell and to redeem
(buy back) its shares at the current net asset value per share without any sales
or redemption charges or 12b-1 fees. (See "Share Price Calculation" for more
information.)

Shares of each Portfolio are issued and redeemed in connection with investments
in and payments under certain Variable Contracts issued through separate
accounts of Participating Insurance Companies. Shares of the Trust may also be
offered directly to Qualified Plans. The Participating Insurance Companies and
the Qualified Plans may or may not make all Portfolios of the Trust available
for investment.

Although the Trust does not foresee any disadvantage to Variable Contract owners
arising out of the fact that the Trust may offer its shares to Qualified Plans
and for products offered by Participating Insurance Companies, the interests of
Variable Contract owners or Qualified Plan participants might at some time be in
conflict due to future differences in tax treatment or other considerations.
Therefore, the Trust's Board of Trustees intends to monitor events in order to
identify any material irreconcilable conflicts which may occur and to determine
what action, if any, should be taken in response to such conflicts. If such a
conflict were to occur, one or more insurance company separate accounts or
Qualified Plans might withdraw its investment in the Trust, which might force
the Trust to sell portfolio securities at disadvantageous prices. In addition,
the Trust's Board of Trustees may refuse to sell shares of any Portfolio to any
separate account or Qualified Plan or terminate the offering of shares of any
Portfolio if such action is required by law or regulatory authority or is in the
best interests of the shareholders of any Portfolio.

The Equity Portfolio has as its investment objective to seek long-term growth of
capital and reasonable current income. To pursue its objective, the Equity
Portfolio invests principally in common stocks or securities convertible into
common stocks.

The Bond Portfolio has as its investment objective to seek as high a level of
current income as is consistent with the relative stability of capital. To
pursue its objective, the Bond Portfolio invests primarily in medium-term debt
securities.

The Money Market Portfolio 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 investments in high-quality money market instruments maturing
in thirteen months or less.

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

Each Portfolio is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and manages over $2 billion in mutual fund
assets as of March 31, 1996. SAM has been an advisor to mutual funds and other
investment portfolios since 1973 and its predecessors have been such advisers
since 1932. See "Information about Share Ownership and Companies that Provide
Services to the Trust" for more information.

There is a risk associated with an investment in the Equity and Bond Portfolios
that the market value of each portfolio's securities may decrease and result in
a decrease in the value of a shareholder's investment. The value of the Bond
Portfolio will normally fluctuate inversely with changes in interest rates. The
principal risk associated with investment in the Money Market Portfolio is that
it may experience a delay or failure in principal or interest payments at
maturity of one or more of the portfolio securities. See "The Trust and Each
Portfolio's Investment Policies" for more information.

3
<PAGE> 4

FUND EXPENSES

A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH PORTFOLIO

<TABLE>
<CAPTION>
Sales Load Sales Load Imposed
Imposed on Reinvested Deferred
on Purchases Dividends Sales Load Redemption Fees Exchange Fees
- ------------- ------------------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
None None None None None
</TABLE>

B. ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

<TABLE>
<CAPTION>
Total Operating
Management Other Expenses After
Portfolio 12b-1 Fees Fees Expenses Reimbursement
- -------------- ----------- ---------- -------- ---------------
<S> <C> <C> <C> <C>
Equity None .72% .03% .75%
Bond* None .72% .00% .72%
Money Market* None .62% .00% .62%
</TABLE>

* SAFECO Life Insurance Company ("SAFECO Life") pays all Other Expenses of each
Portfolio until a Portfolio's assets reach $20 million. Once a Portfolio's
assets exceed $20 million, the Other Expenses of the Portfolio will be paid by
such Portfolio. (See "Persons Controlling the Trust" for more information.)

During the Year ended December 31, 1995, SAFECO Life paid for all of the Other
Expenses of the Bond and Money Market Portfolios. Expenses before such
reimbursement as a percentage of net assets were as follows:

<TABLE>
<S> <C>
SAFECO Resource Bond Portfolio .94%
SAFECO Resource Money Market Portfolio .87%
</TABLE>

C. EXAMPLE OF EXPENSES

You would pay the following expenses on a $1,000 investment assuming a 5% annual
return. The example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed in "Total Annual Operating
Expenses After Reimbursement" above remain the same in the years shown.

<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
- -------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity $8 $24 $42 $ 93
Bond $7 $23 $40 $ 89
Money Market $6 $20 $35 $ 77
</TABLE>

The purpose of the tables is to assist you in understanding the various costs
and expenses that an investor in each Portfolio would bear, directly or
indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. A PORTFOLIO'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 PORTFOLIO.

4
<PAGE> 5

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

SAFECO RESOURCE SERIES TRUST - EQUITY PORTFOLIO

The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.

<TABLE>
<CAPTION>
JULY 21, 1987
(INITIAL
PUBLIC
YEAR ENDED DECEMBER 31 OFFERING) TO
1995 1994 1993 1992 1991 1990 1989 1988 DEC. 31, 1987
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at
beginning of period..... $ 16.83 $ 17.02 $ 14.20 $ 13.48 $ 11.38 $12.35 $10.40 $ 8.63 $ 11.98
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... .39 .31 .23 .20 .24 .25 .43 .29 .21
Net realized and
unrealized gain (loss)
on investment......... 4.43 1.21 3.74 .89 2.82 (.90) 2.39 1.95 (2.63)
-------- -------- ------- ------- ------- ------ ------ ------ ------
Total from investment
operations.............. 4.82 1.52 3.97 1.09 3.06 (.65) 2.82 2.24 (2.42)
-------- -------- ------- ------- ------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net
investment income..... (.39) (.31) (.23) (.20) (.24) (.25) (.43) (.29) (.21)
Distributions from
capital gains......... (2.02) (1.40) (.92) (.17) (.72) (.07) (.44) (.18) (.72)
-------- -------- ------- ------- ------- ------ ------ ------ ------
Total distributions....... (2.41) (1.71) (1.15) (.37) (.96) (.32) (.87) (.47) (.93)
-------- -------- ------- ------- ------- ------ ------ ------ ------
NET ASSET VALUE AT END OF
PERIOD.................. $ 19.24 $ 16.83 $ 17.02 $ 14.20 $ 13.48 $11.38 $12.35 $10.40 $ 8.63
======== ======== ======= ======= ======= ====== ====== ====== =========
Total Return.............. 28.63% 8.94% 27.92% 8.06% 26.85% -5.21% 27.11% 25.98% -14.29%+*
Net assets at end of
period
(000's omitted)......... $169,479 $102,321 $68,157 $36,064 $20,402 $9,742 $6,366 $3,256 $ 2,199
Ratio of expenses to
average net assets...... .75% .77% .73% .73% .73% .73% .73% .73% .74%++
Ratio of expenses to
average net assets
before expense
reimbursement........... N/A .78% -- -- -- -- -- -- --
Ratio of net investment
income to average net
assets.................. 2.26% 1.98% 1.71% 1.80% 2.31% 2.71% 4.47% 3.08% 2.89%++
Portfolio turnover
ratio................... 69.18% 28.71% 41.35% 24.75% 43.60% 30.13% 50.74% 58.38% 91.62%++
</TABLE>

* Unaudited
+ Not annualized
++ Annualized

5
<PAGE> 6

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

SAFECO RESOURCE SERIES TRUST - BOND PORTFOLIO

The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.

<TABLE>
<CAPTION>
JULY 21, 1987
(INITIAL
PUBLIC
YEAR ENDED DECEMBER 31 OFFERING) TO
1995 1994 1993 1992 1991 1990 1989 1988 DEC. 31, 1987
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of
period............................... $ 10.20 $ 11.12 $ 10.82 $10.80 $10.09 $10.18 $ 9.83 $ 9.90 $ 10.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ .71 .59 .56 .58 .70 .74 .75 .75 .32
Net realized and unrealized gain
(loss) on investments.............. 1.11 (.92) .58 .16 .71 (.07) .36 (.06) (.25)
------- ------- ------- ------ ------ ------ ------ ------ ------
Total from investment operations....... 1.82 (.33) 1.14 .74 1.41 .67 1.11 .69 .07
------- ------- ------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................. (.71) (.59) (.56) (.58) (.70) (.74) (.75) (.75) (.32)
Distributions from capital gains..... -- -- (.28) (.14) -- (.02) (.01) (.01) --
------- ------- ------- ------ ------ ------ ------ ------ ------
Total distributions.................... (.71) (.59) (.84) (.72) (.70) (.76) (.76) (.76) (.32)
------- ------- ------- ------ ------ ------ ------ ------ ------
Net asset value at end of period....... $ 11.31 $ 10.20 $ 11.12 $10.82 $10.80 $10.09 $10.18 $ 9.83 $ 9.90
======= ======= ======= ====== ====== ====== ====== ====== ======
Total Return........................... 17.87% -2.93% 10.55% 6.82% 13.98% 6.57% 11.30% 7.03% 2.90%+*
Net assets at end of period (000's
omitted)............................. $14,257 $13,361 $13,245 $9,172 $4,852 $3,228 $2,700 $2,244 $ 2,079
Ratio of expenses to average net
assets............................... .72% .72% .73% .74% .74% .74% .73% .74% .74%++
Ratio of expenses to average net assets
before expense reimbursement......... .94% .89% -- -- -- -- -- -- --
Ratio of net investment income to
average net assets................... 6.50% 5.53% 5.68% 6.96% 7.26% 7.48% 7.47% 7.37% 7.11%++
Portfolio turnover ratio............... 77.93% 147.22% 60.20% 46.66% 36.31% 7.21% 8.42% 5.36% 2.81%++
</TABLE>

* Unaudited
+ Not annualized
++ Annualized

6
<PAGE> 7

FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

SAFECO RESOURCE SERIES TRUST -- MONEY MARKET PORTFOLIO

The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.

* Unaudited

+ Not annualized

++ Annualized

7
<PAGE> 8

THE TRUST AND EACH PORTFOLIO'S INVESTMENT POLICIES

The Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993. The Trust currently consists of five series, three of which are
offered herein: Equity Portfolio, Bond Portfolio and Money Market Portfolio,
each of which is a diversified series of the Trust.

The investment objective and investment policies for each Portfolio are
described below. The Trust's Board of Trustees may change a Portfolio's
objective without shareholder vote, but no such change will be made without 30
days' prior written notice to shareholders of that Portfolio. In the event a
Portfolio 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.

Unless otherwise stated, all investment policies and limitations described below
under each Portfolio's description and "Common Investment Practices" are
non-fundamental and may be changed by the Board of Trustees without shareholder
vote. If a Portfolio follows a percentage limitation at the time of investment,
a later increase or decrease in values, net assets or other circumstances will
not be considered in determining whether a Portfolio complies with the
applicable policy (except to the extent the change may impact a Portfolio's
borrowing limits or restrictions on its holding of illiquid securities).

EQUITY PORTFOLIO

The investment objective of the Equity Portfolio is to seek long-term growth of
capital and reasonable current income. The Equity Portfolio 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 objective, the Equity Portfolio:

1. WILL INVEST PRINCIPALLY IN COMMON STOCKS SELECTED BY SAM PRIMARILY FOR
APPRECIATION AND/OR DIVIDEND POTENTIAL AND FROM A LONG-RANGE INVESTMENT
STANDPOINT.

2. MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN SECURITIES CONVERTIBLE INTO
COMMON STOCK (INCLUDING CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO
COMMON STOCKS, WHETHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT
THE OPTION OF THE ISSUER). The Portfolio may invest in convertible securities
if such securities offer a higher yield than an issuer's common stock and
provide reasonable potential for capital appreciation. 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.

The Portfolio may invest in convertible corporate bonds that are rated
investment grade by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("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
are 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.

After purchase by the Portfolio, a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event will
require the Portfolio to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether the
Portfolio should continue to hold the security in its portfolio. The
Portfolio will not hold more than 3% of its total assets in bonds that go
into default on the payment of principal and interest after purchase.

SAM uses S&P and Moody's ratings only as a preliminary indicator of
investment quality. SAM will determine the quality of unrated bonds by
evaluating the issuer's capital structure, earning power and quality of
management. Unrated securities are not necessarily of lower quality than
rated securities, but may not be as attractive to as many investors. In
addition, SAM will periodically monitor the issuer's creditworthiness whether
rated or not rated.

8
<PAGE> 9

3. MAY INVEST UP TO 10% OF TOTAL ASSETS IN REAL ESTATE INVESTMENT TRUSTS
("REITS"). REITs purchase real property which is then leased and make
mortgage investments. REITs are dependent upon the successful operation of
properties owned and the financial condition of lessees and mortgagors. The
value of REITs will fluctuate depending on the underlying value of the real
property and mortgages owned and the amount of cashflow generated and paid
out. In addition, REITs typically borrow to increase funds available for
investment. Generally, there is a greater risk associated with REITs which
are highly leveraged.

4. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN CLOSED-END INVESTMENT COMPANIES
AND INVESTMENT TRUSTS (OTHER THAN REITS).

5. MAY PURCHASE FIXED-INCOME SECURITIES IN ACCORDANCE WITH BUSINESS AND
FINANCIAL CONDITIONS.

6. MAY INVEST IN DEBT SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT
MATURITY IS LINKED TO A SPECIFIC EQUITY SECURITY OR SECURITIES INDEX.

The principal risk factor associated with the Equity Portfolio is that the
market value of its portfolio securities may decrease.

BOND PORTFOLIO

The investment objective of the Bond Portfolio is to seek as high a level of
current income as is consistent with the relative stability of capital.

To pursue its objective, the Bond Portfolio:

1. WILL INVEST PRIMARILY IN MEDIUM-TERM DEBT SECURITIES.

2. MAY INVEST UP TO 50% OF ITS TOTAL ASSETS IN MORTGAGE RELATED
SECURITIES. These securities (a) are either investments in a pool of
mortgages or in securities secured by a pool of mortgages and (b) must be
rated in the top two grades by either S&P or Moody's. Unlike conventional
bonds, the principal on mortgage-related securities is paid back over the
life of the loan rather than at maturity. Consequently, the Bond Portfolio
will receive monthly scheduled payments of both principal and interest. In
addition, the Bond Portfolio may receive unscheduled principal payments
representing unscheduled prepayments on the underlying mortgages which could
lower the overall return of the investment.

Because the Bond Portfolio must reinvest scheduled and unscheduled principal
payments at prevailing interest rates at the time of such investment, and
because such interest rates may be higher or lower than the current yield of
the Bond Portfolio, mortgage-related securities may not be an effective means
to lock in long-term interest rates. In addition, prices of mortgage-related
securities like conventional bonds are inversely affected by changes in
interest rate levels. Because of the likelihood of increased prepayments of
mortgages in times of declining interest rates, they have less potential for
capital appreciation than comparable fixed-income securities and may in fact
decrease in value when interest rates fall. Mortgage-related securities
include:

(a) Government National Mortgage Association ("GNMA") securities, which are
interests in pools of mortgage loans issued by the Federal Housing
Administration or the Farmer's Home Administration or guaranteed by the
Veterans Administration and issued by GNMA. Once approved by GNMA, the
timely payment of principal and interest by each mortgage pool is
guaranteed by GNMA. This guarantee represents a general obligation of the
U.S. Treasury.

(b) Mortgage pass-through securities issued by the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC").

(d) Collateralized Mortgage Obligations ("CMOs"), which are securities that
have been pledged as collateral mortgages or mortgage-backed securities
and are issued by non-government issuers.

(e) Mortgage pass-through bonds and mortgage-backed bonds issued by
non-government issuers. A mortgage pass-through bond is an interest in a
pool of mortgages where the cash flow generated from

9
<PAGE> 10

the mortgage collateral pool is dedicated to the repayment of the bond. A
mortgage-backed bond is a general obligation of an issuer secured by a
first lien on a pool of mortgages.

(f) Securities which are derivatives of securities listed in (a), (b) and (c)
above. Derivative mortgage securities are created from the cash flows of
mortgages or pools of mortgages. While the derivative securities retain
the combination of quality and yield possessed by the underlying
collateral, the cash flows are reshaped to suit various investment
strategies. Examples of such securities include residuals from CMOs,
floating rate notes, inverse floating rate notes, interest only and
principal only strips and junior/senior securities. Certain derivatives
may be extremely risky investments because, among other things, they may
be particularly sensitive to changes in interest rates. (The Portfolio
will not invest in leveraged derivatives.)

3. MAY INVEST UP TO 30% OF ITS TOTAL ASSETS IN DEBT SECURITIES OF ISSUERS IN
EACH OF THE FOLLOWING SECTORS: DOMESTIC INDUSTRIALS, DOMESTIC UTILITIES,
SUPRANATIONALS, YANKEE AND FOREIGN.

SUPRANATIONAL ISSUERS are organizations whose memberships include two or more
national governments and which have a limited right to draw on the resources
of such governments. Examples of such issuers include the World Bank, the
European Investment Bank, the European Economic Community and the European
Coal and Steel Community.

The YANKEE SECTOR is made up of 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 remittance of amounts due the
Bond Portfolio, lack of comparable publicly-available information concerning
foreign issuers, the lack of comparable accounting and auditing practices in
foreign countries and finally, in the event of default, difficulty of
enforcing claims against foreign issuers.

The FOREIGN SECTOR is made up of securities issued and traded outside of the
U.S. by either U.S. or foreign issuers. These securities may be denominated
in U.S. dollars (e.g., Eurobonds) or foreign currency and may be held in the
U.S. or a foreign country. In addition to the risks discussed in connection
with the Yankee sector, these bonds would be traded in a market subject to
less regulation than U.S. markets and have the liquidity and settlement
problems attendant in some foreign markets. Those bonds denominated in
foreign currencies have the risk of an unfavorable exchange rate fluctuation
subsequent to purchase by the Bond Portfolio.

SAM will make every effort to analyze potential investments in foreign
issuers on the same basis as the rating services analyze domestic issuers.
Because public information is not always comparable to that available on
domestic issuers, this may not be possible. Therefore, while SAM will make
every effort to select investments in foreign securities on the same basis
relative to quality and risk as its investments in domestic securities, it
may not always be able to do so. There are also currency risks associated
with foreign investments.

4. MAY INVEST IN INVESTMENT GRADE AND BELOW INVESTMENT GRADE CORPORATE DEBT
SECURITIES. No more than 20% of the Bond Portfolio's assets will be invested
in corporate debt securities which are rated lower than the top four grades
by S&P or Moody's (such top four grades constitute "investment grade"
securities) or, if not rated, are in the opinion of SAM of less than
investment grade quality.

Bonds which are rated lower than the top four grades by S&P (BB and below)
and Moody's (Ba and below) are referred to as high-yield bonds or "junk
bonds." The Bond Portfolio does not intend to purchase high-yield bonds for
the coming year, but may retain bonds which were investment grade at the time
of purchase but later downgraded to lower than the top four grades assigned
by S&P or Moody's. High-yield bonds normally offer a current yield or
yield-to-maturity which is significantly higher than the yield available from
investment grade bonds. However, high-yield bonds are speculative and involve
greater investment risks due to the issuer's reduced creditworthiness and
increased likelihood of default and bankruptcy. Generally, high-yield bonds
are subject to greater price changes, fluctuations in yield and risk to
principal and income than higher rated bonds of the same maturity. For more
information on ratings

10
<PAGE> 11

see the "Ratings Supplement" section of this Prospectus, and for more
information on the special risks associated with high-yield bonds see the
Trust's Statement of Additional Information.

SAM uses S&P and Moody's ratings only as a preliminary indicator of
investment quality. SAM will periodically research each high-yield bond held
in the Bond Portfolio, whether rated or not rated, to analyze such factors
as the issuer's interest and dividend coverage, asset coverage, earnings
prospects and managerial strength.

5. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES including (a) securities backed by the full
faith and credit of the U.S. Government, such as U.S. Treasury bills, notes
and bonds; (b) securities issued by U.S. Government agencies or
instrumentalities that are not backed by the full faith and credit of the
U.S. Government but are supported by the issuer's right to borrow from the
U.S. Treasury, such as securities issued by FNMA and FHLMC; and (c)
securities supported solely by the creditworthiness of the issuer, such as
securities issued by Tennessee Valley Association ("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.

6. 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 exists a
risk of default by the underlying borrowers and recovery on repossessed
collateral may be unavailable or inadequate to support payments on
asset-backed securities. In addition, asset-backed securities are subject to
prepayment risks which may reduce the overall return of the investment.

Generally, bond values fluctuate inversely with changes in interest rates. The
longer the maturity or the poorer the quality of a bond, the greater volatility
it will have. The principal risks of investment in the Bond Portfolio have been
discussed in connection with specific types of securities above.

MONEY MARKET PORTFOLIO

The investment objective of the Money Market Portfolio is to seek as high a
level of current income as is consistent with the preservation of capital and
liquidity through investments in high-quality money market instruments maturing
in thirteen months or less. The remaining maturity of a money market instrument
is measured from its trade date. The Money Market Portfolio may occasionally
purchase an instrument with a remaining maturity exceeding thirteen months, but
which is eligible for purchase because it has a demand feature permitting the
Portfolio to receive the principal amount of the instrument on no more than 30
days prior notice or at specified intervals of less than thirteen months (except
that variable rate U.S. Government securities are not required to have such a
demand feature).

To pursue its objective, the Money Market Portfolio:

1. WILL PURCHASE SECURITIES WHICH IN THE OPINION OF SAM, OPERATING PURSUANT TO
GUIDELINES ESTABLISHED BY THE BOARD OF TRUSTEES, PRESENT MINIMAL CREDIT RISKS
AFTER AN EVALUATION OF THE CREDIT QUALITY OF THE ISSUER OR OF ANY ENTITY
PROVIDING A CREDIT ENHANCEMENT FOR THE SECURITY AND WHICH AT THE TIME OF
PURCHASE ARE:

(a) Rated in the highest rating category by at least two nationally
recognized rating organizations (for example, A-1 by S&P, P-1 by Moody's,
Duff 1 by Duff & Phelps Credit Rating Company or F-1 by Fitch Investors
Services, Inc., or, if rated by only one organization, rated in the
highest category by that organization); or

(b) Split-rated, i.e., securities which have received the highest rating from
one nationally recognized rating organization and the second highest
rating from at least one other nationally recognized rating organization
(however, no more than 5% of the Money Market Portfolio's total assets
may be invested in split-rated securities and the Portfolio may invest
only the greater of $1 million or 1% of total assets in such securities
from the same issuer); or

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(c) Unrated, but in the opinion of SAM are comparable in quality to
securities that are rated in the highest category or are split-rated (the
Portfolio will invest no more than 20% of total assets in unrated
securities which in the opinion of SAM are comparable to securities in
the highest rating category).

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. The rating of a security with a remaining
maturity greater than thirteen months which has a demand feature is
determined by looking either to the rating of the party ultimately
responsible for payment (for example, a bank issuing a letter of credit or
company providing a guarantee) or to the short and long-term ratings of the
security, depending on whether the demand feature is unconditional or
conditional. See "Ratings Supplement" in this Prospectus for a further
explanation of rating categories.

2. MAY INVEST, SUBJECT TO THE MATURITY AND QUALITY REQUIREMENTS DESCRIBED ABOVE,
IN:

(a) Commercial paper obligations, including obligations sold pursuant to
Section 4(2) ("Section 4(2) paper") of the Securities Act of 1933 ("1933
Act"). Section 4(2) exempts from the registration requirements of the
1933 Act securities sold by the issuer in private transactions. Section
4(2) paper may be purchased by the Money Market Portfolio only if SAM has
determined that such securities are liquid under guidelines adopted by
the Board of Trustees. Because Section 4(2) paper is a restricted
security, investing in Section 4(2) paper could have the effect of
increasing the Money Market Portfolio's illiquidity to the extent buyers
are unwilling to purchase the securities. In addition to commercial paper
obligations of domestic corporations, the Money Market Portfolio may also
purchase dollar-denominated commercial paper issued in the U.S. 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 regarding 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
U.S. The Portfolio will purchase such securities only if in SAM's opinion
the security is of an investment quality comparable to other obligations
which may be purchased by the Money Market Portfolio.

(b) Negotiable and non-negotiable deposits, bankers' acceptances and other
short-term obligations of banks (provided the issuing bank has total
assets of at least $1 billion, or in the case of a bank not having total
assets of at least $1 billion, the bank is a member of and insured by the
Federal Deposit Insurance Corporation in which case the Money Market
Portfolio will limit its investment to the statutory insurance coverage);
and

(c) Dollar-denominated securities issued by foreign banks (including foreign
branches of U.S. banks) provided that in SAM's opinion the security is of
an investment quality comparable to other obligations which may be
purchased by the Money Market Portfolio.

3. WILL MAINTAIN A DOLLAR-WEIGHTED AVERAGE MATURITY OF 90 DAYS OR LESS.

4. MAY INVEST IN OBLIGATIONS OF, OR GUARANTEED BY, THE U.S. GOVERNMENT, ITS
AGENCIES OR INSTRUMENTALITIES including (a) securities backed by the full
faith and credit of the U.S. Government, such as U.S. Treasury bills, notes
and bonds; (b) securities issued by U.S. Government agencies or
instrumentalities that are not backed by the full faith and credit of the
U.S. Government but are supported by the issuer's right to borrow from the
U.S. Treasury, such as securities issued by FNMA and FHLMC; and (c)
securities supported solely by the creditworthiness of the issuer, such as
securities issued by 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.

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The principal risk factor associated with investment in the Money Market
Portfolio is that it may experience a delay or failure in principal or interest
payments at maturity of one or more of the portfolio securities. The Money
Market Portfolio's yield will fluctuate with general money market interest
rates.

COMMON INVESTMENT PRACTICES

Each of the Portfolios may also follow the investment practices described below:

1. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY COMMERCIAL PAPER,
CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END MONEY MARKET FUNDS OR
REPURCHASE AGREEMENTS. (Equity and Bond Portfolios only.) A Portfolio 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 dividend distributions or the sale of
portfolio securities. SAM will waive its management fees for assets invested
in money market funds. With respect to repurchase agreements, each Portfolio
will invest no more than 5% of its total assets in qualified repurchase
agreements and will not purchase repurchase agreements that mature in more
than seven days.

2. MAY INVEST FOR SHORT-TERM PURPOSES WHEN SAM BELIEVES SUCH ACTION TO BE
DESIRABLE AND CONSISTENT WITH SOUND INVESTMENT PROCEDURES. (Equity and Bond
Portfolios only.) A Portfolio, however, will not engage primarily in trading
for the purpose of short-term profits. A Portfolio may dispose of securities
whenever it is deemed advisable without regard to the length of time the
securities have been held.

3. MAY EACH INVEST UP TO 5% OF NET ASSETS IN WARRANTS. (Equity Portfolio only.)
A warrant is an option issued by a corporation that gives the holder the
right to buy the corporation's common stock at a specific price within a
certain time period.

4. MAY INVEST UP TO 10% OF TOTAL ASSETS IN RESTRICTED SECURITIES ELIGIBLE FOR
RESALE UNDER RULE 144A ("RULE 144A SECURITIES"), PROVIDED THAT SAM HAS
DETERMINED THAT SUCH SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE
BOARD OF TRUSTEES. Restricted securities may be sold only in offerings
registered under the Securities Act of 1933 ("1933 Act") or in transactions
exempt from the registration requirements under the 1933 Act. Rule 144A under
the 1933 Act provides an exemption for the resale of certain restricted
securities to qualified institutional buyers. Investing in Rule 144A
securities could have the effect of increasing the Portfolio's illiquidity to
the extent that qualified institutional buyers or other buyers are unwilling
to purchase the securities.

5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"), WHICH REPRESENT
SECURITIES ISSUED BY A FOREIGN ISSUER. (Equity Portfolio only.) ADRs are
registered receipts evidencing ownership of an underlying foreign security.
ADRs involve risks in addition to risks normally associated with securities
issued by domestic issuers, including the possibility of adverse political or
economic developments in foreign countries. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to
U.S. companies, there may be less public or less current information about
their operations, and the foreign issuer of the underlying security may not
provide financial and other material information to the issuer of the
receipts. In addition, foreign markets may be less liquid or more volatile
than U.S. markets and may offer less protection to investors. Investments in
foreign securities may also be subject to special risks, such as governmental
regulations of foreign exchange transactions and changes in rates of exchange
between the foreign currency and the U.S. dollar.

Each of the Portfolios is subject to the following fundamental policies which
cannot be changed without shareholder vote:

1. MAY NOT INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE
ISSUER (OTHER THAN SECURITIES ISSUED BY THE U.S. GOVERNMENT, ITS AGENCIES OR
INSTRUMENTALITIES), EXCEPT (I) WITH RESPECT TO THE EQUITY AND BOND
PORTFOLIOS, UP TO 25% OF THE VALUE OF ASSETS (NOT INCLUDING SECURITIES ISSUED
BY ANOTHER INVESTMENT COMPANY) MAY BE INVESTED WITHOUT REGARD TO THIS LIMIT,
AND (II) WITH RESPECT TO THE MONEY MARKET AND BOND PORTFOLIOS, UP TO 100% OF
TOTAL ASSETS MAY BE INVESTED IN OBLIGATIONS OF OR GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES;

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

3. MAY NOT INVEST MORE THAN 25% OF THE TOTAL ASSETS IN ANY ONE INDUSTRY.
SECURITIES OF FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS ARE CONSIDERED
TO BE ONE INDUSTRY. The Equity, Bond and Money Market Portfolios will not
concentrate their assets in particular industries. With respect to the Equity
and Money Market Portfolios, the 25% limitation does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to certificates of deposit or bankers' acceptances
issued by domestic banks. With respect to the Bond Portfolio, the 25%
limitation does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to mortgage-related
securities; and

4. 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. Each Portfolio will not borrow amounts in
excess of 5% of its total assets. The Portfolios intend to exercise their
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 Trust's Statement of Additional Information.

PORTFOLIO MANAGERS

EQUITY PORTFOLIO

The manager for the Equity Portfolio is Richard D. Meagley, Vice President, SAM.
Mr. Meagley has served as portfolio manager for the Portfolio since January
1995. He is also the portfolio manager for other SAFECO Funds. He served from
1992 to 1994 as portfolio manager and analyst 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. From 1983 to 1991 he was an investment portfolio manager and
securities analyst for SAM.

BOND PORTFOLIO

The manager for the Bond Portfolio is Michael C. Knebel, Vice President, SAM.
Mr. Knebel began serving as portfolio manager for the Portfolio in 1995. He has
served as portfolio manager for other SAFECO mutual funds since 1989.

MONEY MARKET PORTFOLIO

The manager for the Money Market Portfolio is Naomi Urata, Assistant Vice
President, SAM. Ms. Urata began serving as portfolio manager for the Portfolio
in 1995. Ms. Urata has served as portfolio manager for another SAFECO mutual
fund since 1994. From 1993 to 1994 she was a Fixed Income Analyst for SAM. From
1990 to 1993 Ms. Urata was Cash Manager for the Seattle Times newspaper,
Seattle, Washington.

Each portfolio manager and certain other persons related to SAM and the
Portfolios 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 personnel may not trade in securities that are the same or related
securities being considered for purchase or sale by a Portfolio.

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

Shares of each Portfolio represent equal proportionate interests in the assets
of that Portfolio only and have identical voting, dividend, redemption,
liquidation and other rights. All shares issued are fully paid and non-
assessable, and shareholders have no preemptive or other right to subscribe to
any additional shares.

Shares of the Trust may be owned by the separate accounts of Participating
Insurance Companies and by Qualified Plans (see "Introduction to the Trust and
the Portfolios"). Pursuant to the Investment Company Act of 1940 (the "1940
Act"), Participating Insurance Companies will solicit voting instructions from
Variable Contract owners with respect to any matters that are presented to a
vote of shareholders . See the separate account prospectus for the Variable
Contract for more information regarding the pass-through of these voting rights.
With respect to Qualified Plans, the Trustees of such plans will vote the shares
held by the Qualified Plans, except that in certain cases such shares may be
voted by a named fiduciary or an investment manager pursuant to the Employee
Retirement Security Act of 1974. There is no pass-through voting to the
participants in the Qualified Plans.

On any matter submitted to a vote of shareholders, all shares of the Portfolios
then issued and outstanding and entitled to vote shall be voted in the aggregate
and not by Portfolio except for matters concerning only a Portfolio. Certain
matters approved by a vote of all shareholders of the Trust may not be binding
on a Portfolio whose shareholders have not approved such matter. The holders of
each share of a Portfolio shall be entitled to one vote for each full share and
a fractional vote for each fractional share. Shares of one Portfolio may not
bear the same economic relationship to the Trust as another Portfolio.

The Trust does not intend to hold annual meetings of shareholders of the
Portfolios. The Trustees will call a special meeting of shareholders of a
Portfolio only if required by the 1940 Act, in their written discretion, or upon
the written notice of holders of 10% or more of the outstanding shares of the
Portfolio entitled to vote.

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

SAM is the investment adviser for each Portfolio under an agreement with the
Trust. Under the agreement, SAM is responsible for the overall management of the
Trust's and each Portfolio's business affairs. SAM provides investment research,
advice, management and supervision to the Trust and each Portfolio. Consistent
with each Portfolio's investment objectives and policies, SAM determines what
securities will be purchased, retained or sold by each Portfolio, and implements
those decisions. Each Portfolio's turnover rate is set forth in the "Financial
Highlights" section. High turnover rates increase transaction costs and may
increase taxable gains. SAM considers these effects when making investment
decisions. Each Portfolio pays SAM an annual management fee based on a
percentage of that Portfolio's net assets ascertained each business day and paid
monthly in accordance with the following annual rates: .74% of net assets for
the Equity and Bond Portfolios and .65% of net assets for the Money Market
Portfolio.

The distributor of each Portfolio's shares under an agreement with the Trust is
SAFECO Securities, Inc. ("SAFECO Securities"), a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. SAFECO Securities is not compensated by the Trust or
any Portfolio for these services.

The transfer, dividend and distribution disbursement and shareholder servicing
agent for each Portfolio under an agreement with the Trust is SAFECO Services
Corporation ("SAFECO Services"). SAFECO Services is not compensated by the Trust
or any Portfolio for these services.

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PERSONS CONTROLLING THE TRUST

At March 31, 1996, SAFECO Life Insurance Company ("SAFECO Life") controlled the
Equity, Bond and Money Market Portfolios, and all shares of the Portfolios of
the Trust were owned by separate accounts of SAFECO Life. SAFECO Life is a stock
life insurance company incorporated under the laws of Washington, with
headquarters at 15411 N.E. 51st Street, Redmond, Washington. SAFECO Life is a
wholly-owned subsidiary of SAFECO Corporation, and is an affiliated company of
SAM, SAFECO Securities and SAFECO Services, the investment adviser, principal
underwriter and transfer agent, respectively, of the Trust. SAFECO Life has
advanced all costs for the organization of the Trust. SAFECO Corporation, SAM,
SAFECO Securities and SAFECO Services have their principal place of business at
SAFECO Plaza, Seattle, Washington 98185.

SALE AND REDEMPTION OF SHARES

Each Portfolio is a series of SAFECO Resource Series Trust, a Delaware business
trust, which issues an unlimited number of shares of beneficial interest. The
Board of Trustees may establish additional series of shares of the trust without
the approval of shareholders.

Shares are sold to the separate accounts of Participating Insurance Companies
and may also be sold to Qualified Plans. Shares of each Portfolio are purchased
and redeemed at net asset value. Redemptions will be effected by the separate
accounts to meet obligations under the Variable Contracts and by the Qualified
Plans. Variable Contract owners and Qualified Plan participants do not deal
directly with the Trust with respect to acquisition or redemption of shares. The
Board of Trustees of the Trust may refuse to sell shares of any Portfolio to any
person, or may suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by any regulatory authority having
jurisdiction or is, in the sole discretion of the Trustees acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Portfolio.

PERFORMANCE INFORMATION

Each Portfolio's yield, effective yield, total return and average annual total
return may be quoted in advertisements. Performance figures are indicative only
of past performance and are not intended to represent future investment results.
The yield and share price of the Equity and Bond Portfolios will fluctuate and
your shares, when redeemed, may be worth more or less than you originally paid
for them. The yield of the Money Market Portfolio will also fluctuate.

EQUITY AND BOND PORTFOLIOS

Yield is the annualization on a 360-day basis of a Portfolio's net income per
share over a 30-day period divided by the Portfolio's net asset value per share
on the last day of the period. Total return is the total percentage change in an
investment in a Portfolio, assuming the reinvestment of dividends and capital
gains distributions over a stated period of time. Average annual total return is
the annual percentage change in an investment in a Portfolio, assuming the
reinvestment of dividends and capital gains distributions, over a stated period
of time.

MONEY MARKET PORTFOLIO

Yield is the annualization on a 365-day basis of the Money Market Portfolio's
net income over a 7-day period. Effective yield is the annualization on a
365-day basis of the Money Market Portfolio'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.

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RANKINGS

From time to time, a Portfolio may advertise its rankings. Rankings are
calculated by independent companies that monitor mutual fund performance (e.g.
CDA Technologies, Lipper Analytical Services, Inc. and Morningstar, Inc.) and
are reported periodically in national financial publications such as Barron's,
Business Week, Forbes, Investor's Business Daily, Money Magazine and The Wall
Street Journal. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including but not necessarily limited to,
different time periods and different initial investment amounts. Each Portfolio
may also compare its performance to the performance of the Standard & Poor's 500
Index and other relevant indices.

OTHER CHARGES

None of the Portfolios impose a sales charge. However, other charges payable by
all shareholders include investment advisory fees. These charges affect each
Portfolio's calculation of yield, effective yield, total return and average
annual total return.

PORTFOLIO DISTRIBUTIONS AND TAX INFORMATION

Each Portfolio intends to continue to elect and to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code by
distributing substantially all of its net investment income and net capital
gains to its shareholders (the separate accounts of Participating Insurance
Companies and Qualified Plans) and meeting other requirements of the Internal
Revenue Code relating to the sources of its income and diversification of its
assets.

Each Portfolio is treated as a separate entity for federal income tax purposes
and, therefore, the investments and results of the Portfolios are not aggregated
for purposes of determining net ordinary income (loss) or net realized capital
gains (losses).

All dividends are distributed to shareholders (separate accounts of
Participating Insurance Companies and Qualified Plans) and will be automatically
reinvested in trust shares. Dividends and distributions made by the Portfolios
to the separate accounts are taxable, if at all, to the Participating Insurance
Companies; they are not taxable to Variable Contract owners. Dividends and
distributions made by the Portfolios to Qualified Plans are not taxable to the
Qualified Plans or to the participants thereunder.

In addition to the diversification requirements in Subchapter M, each Portfolio
is required to satisfy diversification requirements of Section 817(h) of the
Internal Revenue Code and the Investment Company Act. Failure to comply with the
requirements of Section 817(h) could result in taxation of the insurance company
and immediate taxation of the owners of variable annuity and variable life
insurance contracts to the full extent of appreciation under the contracts.

Variable Contracts owners should refer to the prospectuses relating to their
contracts regarding the federal income tax treatment of ownership of such
contracts. Also see Distributions and Tax Information in the Statement of
Additional Information.

SHARE PRICE CALCULATION

The net asset value per share of a Portfolio is determined by subtracting the
liabilities of the Portfolio from its assets, valued at market, and dividing the
result by the number of outstanding shares. Shares of the Portfolios of the
Trust are sold and redeemed at the net asset value next determined after receipt
by the transfer agent of the sales order or request for redemption in good
order. There is no sales charge. Net asset value per share is computed as of the
close of regular trading of the New York Stock Exchange (currently 1:00 P.M.
Pacific Time) each day that the Exchange is open for trading.

For the purpose of computing the net asset value per share for the Equity and
Bond Portfolios, securities are valued on the basis of valuations provided by a
pricing service approved by the Trust's Board of Trustees. In

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general, portfolio securities are valued at the last reported sale price on the
national exchange on which the securities are primarily traded, unless there are
no transactions in which case they shall be valued at the last reported bid
price. Securities traded over-the-counter are valued at the last sale price,
unless there is no reported sale price in which case the last reported bid price
will be used. Portfolio securities that are traded on a stock exchange and
over-the-counter are valued according to the broadest and most representative
market. For bonds and other fixed income securities, this usually is the
over-the-counter market. Long-term corporate bonds and securities not traded on
a national exchange shall be 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 a
representative value cannot be established are valued at their fair value as
determined in good faith by or under the direction of the Trust's Board of
Trustees.

The Money Market Portfolio intends to maintain a net asset value per share of
$1.00. There can be no assurance that it will be able to maintain this constant
value per share. The shares of the Money Market Portfolio are neither insured,
nor guaranteed, by the U.S. Government. The Money Market Portfolio's securities
are valued on the basis of amortized cost. Amortized cost valuation, which may
be used so long as the Board of Trustees believes that it fairly reflects market
value, 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
provides stability of net asset value per share. For additional information
concerning the impact of amortized cost on the calculation of net asset value,
see "Additional Information Concerning Calculation of Net Asset Value Per Share"
in the Statement of Additional Information.

RATINGS SUPPLEMENT

Ratings by Moody's Investors Service, Inc. ("Moody's")and Standard & Poor's
Ratings Group ("S&P"), represent the respective opinions of those organizations
as to the investment quality of the rated obligations. Investors should realize
these ratings do not constitute a guarantee that the principal and interest
payable under these obligations will be paid when due.

DESCRIPTION OF DEBT RATINGS

MOODY'S

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 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. 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 -- Have 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 -- 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 have speculative characteristics as
well.

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NON-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. Uncertainty of position characterizes bonds in this class.

B -- Generally lack characteristics of a 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 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 to a high degree. Such issues
are often in default or have other marked shortcomings.

C -- The lowest-rated class of bonds. Issues so rated have extremely poor
prospects of ever attaining any real investment standing.

CON.(. . .) -- The security depends upon the completion of some act or the
fulfillment of some condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Parenthetical rating
denotes probable credit stature upon completion of construction or elimination
of basis of condition.

S&P

INVESTMENT GRADE:

AAA -- 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. Differs from the
highest-rated issues only in a 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.

BBB -- 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.

NOT INVESTMENT GRADE:

BB, B, CCC, CC -- Regarded, on balance, as 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. Payment of interest and/or repayment of principal is in
arrears.

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.

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PRIME-1 -- Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:

-- Leading market positions in well-established industries.

-- High rates of return on funds employed.

-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

-- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.

PRIME-2 -- Issuers (or supporting institutions) rated Prime-2 (P-2) have a
strong ability for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.

S&P

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.

A-1 -- 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.

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SAFECO RESOURCE SERIES TRUST

EQUITY PORTFOLIO

BOND PORTFOLIO

MONEY MARKET PORTFOLIO

STATEMENT OF ADDITIONAL INFORMATION

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

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Trust. A copy of the Prospectus
may be obtained by calling 1-800-624-5711 or by writing SAFECO Securities, Inc.,
S-3 SAFECO Plaza, Seattle, Washington 98185.

The date of the most current Prospectus of the Trust to which this
Statement of Additional Information relates is April 29, 1996.

The date of the Statement of Additional Information is April 29, 1996.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies................................................................... 1
Additional Investment Information..................................................... 5
Special Risks of Below Investment Grade Bonds......................................... 8
Principal Shareholders of the Portfolio............................................... 9
Additional Information On Calculation of Net Asset Value Per Share.................... 9
Additional Performance Information.................................................... 9
Trustees and Officers................................................................. 11
Investment Advisory and Other Services................................................ 12
Brokerage Practices: Distributions and Tax Information................................ 14
Financial Statements.................................................................. 16
</TABLE>

INVESTMENT POLICIES

The Equity Portfolio, Bond Portfolio and Money Market Portfolio
(collectively, the "Portfolios") are each a series of the SAFECO Resource Series
Trust ("Trust"). The investment policies of each Portfolio are described in the
Prospectus and this Statement of Additional Information. These policies state
the investment practices that the Portfolios 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 Portfolio may purchase is also disclosed
in the Prospectus. Before a Portfolio 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 Portfolio complies
with the applicable limitation. The following information supplements the
discussion in the Prospectus of the investment policies and limitations of each
Portfolio.

FUNDAMENTAL INVESTMENT POLICIES

Each Portfolio'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 ("1940 Act"). For purposes of such approval, the
vote of a majority of the outstanding voting securities of a Portfolio means the
vote, at a meeting of the shareholders of such Portfolio duly called, (i) of 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) of more than 50% of the outstanding voting securities, whichever
is less.

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EACH PORTFOLIO WILL NOT:

1. Invest more than five percent (5%) of any Portfolio's total assets in the
securities of any one issuer (other than securities issued by the U.S.
Government, its agencies and instrumentalities), except (i) with respect to
the Equity, Bond and Money Market Portfolios, up to twenty-five percent (25%)
of the value of each Portfolio's assets (not including securities issued by
another investment company) may be invested without regard to this limit and
(ii) with respect to the Bond and Money Market Portfolios, up to one hundred
percent (100%) of total assets may be invested in obligations of or
guaranteed by the U.S. Government, its agencies or instrumentalities.

2. Purchase securities of any issuer (other than obligations of, or guaranteed
by, the U.S. Government, its agencies and instrumentalities) if such purchase
would cause more than ten percent (10%) of any class of securities of such
issuer to be held by a Portfolio.

3. a. With respect to the Equity and Money Market Portfolios, concentrate its
investments in particular industries and in no event will the respective
Portfolio invest twenty-five (25%) or more of its assets 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 deposit or bankers' acceptances
issued by domestic banks.

b. With respect to the Bond Portfolio, invest more than twenty-five percent
(25%) of its assets in securities of issuers in the same industry. This
restriction does not apply to mortgage-related securities or to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

4. Invest more than five percent (5%) of the total assets of any Portfolio in
securities of issuers which with their predecessors have a record of less
than three years continuous operation.

5. Make loans to others, except through the purchase of publicly-distributed
debt obligations or repurchase agreements.

6. Borrow money, except from banks or affiliates of SAFECO Corporation at an
interest rate not greater than that available to a Portfolio from commercial
banks, and then only for temporary or emergency purposes and not for
investment purposes, and in an amount not exceeding five percent (5%) of a
Portfolio's assets at the time of borrowing.

7. Make short sales (sales of securities not presently owned) or purchase
securities on margin, except where the Trust has at the time of the sale by
virtue of its ownership in other securities the right to obtain securities
equivalent in kind and amount to the securities sold and except for such
short-term credits as are necessary for the clearance of transactions,
respectively.

8. Purchase or retain the securities of any issuer any of whose officers,
directors or security holders is an officer or trustee of the Trust if, or
so long as, any such officer or trustee owns beneficially more than one-half
( 1/2) of one percent (1%) of such securities and the officers or trustees
of the Trust, together own beneficially more than five percent (5%) of such
securities.

9. Invest in commodities or commodity futures contracts or in real estate,
except the Trust may invest in securities which are secured by real estate
and securities which are of issuers which invest in or deal in real estate.

10. Underwrite securities issued by others, except to the extent that the Trust
may be deemed to be an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.

11. Issue or sell any senior security.

12. Purchase from or sell portfolio securities to any officer or director, the
Trust's investment adviser, principal underwriter or any affiliates or
subsidiaries thereof.

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NON-FUNDAMENTAL INVESTMENT POLICIES

In addition to the policies described in the Prospectus, each Portfolio has
adopted the following non-fundamental policies that may be changed by the
Trust's Board of Trustees without shareholder approval:

1. A Portfolio may not participate on a joint or joint and several basis in any
trading account in securities, except that a Portfolio 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.

2. A Portfolio may not purchase securities with unlimited liability, e.g.
securities for which the holder may be assessed for amounts in addition to
the subscription or other price paid for the security.

3. A Portfolio may not purchase or sell put or call options or combinations
thereof.

4. A Portfolio may not invest in oil, gas or other mineral exploration or
development programs or in arbitrage transactions.

5. A Portfolio may not trade in foreign exchange, except as may be necessary to
convert the proceeds of the sale of foreign portfolio securities into U.S.
dollars.

6. A Portfolio may not enter into a repurchase agreement for longer than seven
days.

7. A Portfolio may 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. A Portfolio will 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. The Trust's
investment adviser will waive its advisory fees for assets invested in other
investment companies.

8. The Trust's Equity and Bond Portfolios may purchase as temporary investments
for their cash commercial paper, certificates of deposit, no-load, open-end
money market funds (subject to the limitations in subparagraph 7 above),
repurchase agreements (subject to the limitations in subparagraph 6 above)
or any other short-term instrument that the Trust's investment adviser deems
appropriate.

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

9. While the Trust will not engage primarily in trading in the Equity and Bond
Portfolios for the purpose of short-term profits, it may at times make
investments for short-term purposes when such action is believed to be
desirable and consistent with sound investment procedures. The Trust will
dispose of securities whenever it is deemed advisable without regard to the
length of time the securities have been held.

10. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which at the time of purchase are rated in the highest rating
category by at least two nationally recognized rating organizations or, if
rated by only one organization, are rated in the highest category by that
organization, and which in the opinion of the Money Market Portfolio's
investment adviser present minimal credit risks.

11. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which at the time of purchase are split-rated (i.e. rated in
the highest category by one nationally recognized rating organization and
the second highest category by at least one other such organization), are
rated in the second highest rating category by at least two nationally
recognized rating organizations or, if rated by only one organization are
rated in the second highest category by that organization and which in the
opinion of the Money Market Portfolio's investment adviser present minimal
credit risks. However, the Money Market Portfolio may invest no

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<PAGE> 24

more than five percent (5%) of total assets in these securities and may
invest only the greater of $1 million or one percent (1%) of total assets in
such securities from the same issuer.

12. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which are unrated if such securities are determined to be
comparable in quality to securities rated as described in paragraphs 10 and
11 and which in the opinion of the Money Market Portfolio's investment
adviser present minimal credit risks. The Money Market Portfolio will invest
no more than twenty percent (20%) of total assets in unrated securities
which in SAM's opinion are comparable to securities in the highest rating
category. Purchases of unrated securities which in SAM's opinion are
comparable to split-rated securities are subject to the five percent (5%)
and one percent (1%) limitations described in paragraph 11.

13. Subject to the maturity requirements stated in the Money Market Portfolio's
investment objective and the quality and credit risk requirements set forth
in paragraphs 10-12, the Money Market Portfolio may purchase the following
types of securities:

a. Commercial paper obligations.

b. Negotiable and non-negotiable deposits, bankers' acceptances and other
short-term debt obligations of banks. The Money Market Portfolio 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 United States banks which do not have total
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 such investment
is insured in full by the Federal Deposit Insurance Corporation (FDIC),
(b) in the case of a United States bank, it is a member of the FDIC, and
(c) in the case of a foreign bank, the security is in the opinion of
management of an investment quality comparable with other debt securities
which may be purchased by the Money Market Portfolio. 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.

c. Corporate obligations such as publicly-traded bonds, debentures and
notes.

14. The Trust may not invest more than five percent (5%) of the net assets of
the Equity Portfolio in warrants valued at the lower of cost or market.
Warrants acquired as a result of unit offerings or attached to securities
may be deemed without value for purposes of the five percent (5%)
limitation.

15. A Portfolio will not issue long-term debt securities.

16. A Portfolio will not invest in any security for the purpose of acquiring or
exercising control or management of the issuer.

17. The Equity Portfolio may invest up to ten percent (10%) of its total assets
in shares of real estate investment trusts ("REITs").

18. The Equity Portfolio may invest up to 5% of total assets in closed-end
investment companies and investment trusts (other than REITS).

19. The Equity Portfolio may purchase fixed-income securities in accordance with
business and financial conditions.

20. A Portfolio may invest up to 10% of total assets in restricted securities
eligible for resale under Rule 144A ("Rule 144A securities"), provided that
SAM has determined that such securities are liquid under guidelines adopted
by the Board of Trustees.

WHILE THE TRUST CAN INVEST IN THE TYPES OF SECURITIES OR ENGAGE IN THE PRACTICES
WHICH FOLLOW IF THE APPLICABLE LIMITATIONS ARE MET, IT HAS NO PRESENT INTENTION
TO DO SO IN THE COMING YEAR. BEFORE THE TRUST PURCHASES THESE TYPES OF
SECURITIES OR ENGAGES IN THESE PRACTICES WITHIN THE ALLOWED LIMITS, THE
PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED TO DESCRIBE THE SECURITY.

21. The Equity and Money Market Portfolios of the Trust may not purchase foreign
securities, unless at the time thereof, such purchase would not cause more
than five percent (5%) of the total assets of a Portfolio

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<PAGE> 25

(taken at market value) to be invested in foreign securities. This restriction
does not apply to the Bond Portfolio.

22. A Portfolio may not pledge, mortgage or hypothecate portfolio securities,
except that to secure borrowings permitted by the fundamental policy on
borrowing, a Portfolio may pledge securities having a market value at the
time of the pledge not exceeding ten percent (10%) of the Portfolio's net
assets.

ADDITIONAL INVESTMENT INFORMATION

Each Portfolio may make some or all of 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 Securities Act of 1933
("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. To the
extent privately placed securities held by a Portfolio qualify under Rule
144A and an institutional market develops for those securities, the
Portfolio 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 Portfolio 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 Portfolio may be permitted to
sell a security under an effective registration statement. If during such a
period adverse market conditions were to develop, the Portfolio 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. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Portfolio 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. A Portfolio
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.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value
of the underlying securities and delays and costs to a Portfolio if the
other party to a repurchase agreement becomes bankrupt. Each Portfolio
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. YANKEE DEBT SECURITIES AND EURODOLLAR BONDS. The Yankee Sector is made up of
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 remittance of amounts due a Portfolio, lack of
comparable publicly-available information concerning foreign issuers,

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lack of comparable accounting and auditing practices in foreign countries
and finally, difficulty in enforcing claims against foreign issuers in the
event of default.

Eurodollar Bonds are denominated in U.S. dollars. A Portfolio will purchase
Eurodollar Bonds through U.S. securities dealers and hold such bonds in the
U.S. The delivery of Eurodollar Bonds to a Portfolio's custodian in the
U.S. may cause slight delays in settlement which are not anticipated to
affect the Portfolio in any material, adverse manner. Eurodollar Bonds
issued by foreign issuers are subject to the same risks as Yankee Sector
bonds.

4. MORTGAGE-BACKED SECURITIES. Unlike conventional bonds, the principal with
respect to mortgage-backed securities is paid back over the life of the loan
rather than at maturity. Consequently, the GNMA Portfolio will receive
monthly scheduled payments of both principal and interest. In addition, the
GNMA Portfolio may receive unscheduled principal payments representing
unscheduled prepayments on the underlying mortgages. Since the GNMA
Portfolio must reinvest scheduled and unscheduled principal payments at
prevailing interest rates at the time of such investment and such interest
rates may be higher or lower than the current yield of the GNMA Portfolio's
portfolio, mortgage-backed securities may not be an effective means to lock
in long-term interest rates. In addition, while prices of mortgage-backed
securities, like conventional bonds, are inversely affected by changes in
interest rate levels, because of the likelihood of increased prepayments of
mortgages in times of declining interest rates, they have less potential for
capital appreciation than comparable fixed-income securities and may in fact
decrease in value when interest rates fall.

The rate of interest payable on CMO classes may be set at levels that are
either above or below market rates at the time of issuance, so that the
securities will be sold at a substantial premium to, or at a discount from,
par value. If the mortgage assets underlying an CMO experience greater than
anticipated principal prepayments, an investor may fail to recoup fully its
initial investment even though the security is government-issued or
guaranteed.

Some CMO classes are structured to pay interest at rates that are adjusted
in accordance with a formula, such as a multiple or fraction of the change
in a specified interest rate index, so as to pay at a rate that will be
attractive in certain interest rate environments but not in others. For
example, a CMO may be structured so that its yield moves in the same
direction as market interest rates -- i.e., the yield may increase as rates
increase and decrease as rates decrease -- but may do so more rapidly or to
a greater degree. Other CMO classes may be structured to pay floating
interest rates that either move in the same direction or the opposite of
short-term interest rates. The market value of such securities may be more
volatile than that of a fixed rate obligation. Such interest rate formulas
may be combined with other CMO characteristics. The GNMA Portfolio will not
invest in interest-only or principal-only classes -- such investments are
extremely sensitive to changes in interest rates.

5. 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 Portfolio may experience difficulty in valuing or disposing of
illiquid securities. SAM determines the liquidity of the securities pursuant
to guidelines adopted by the Trust's Board of Trustees.

6. 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

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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 Portfolio could lose all of its
principal investment in the warrant.

A Portfolio will invest in a warrant only if the Portfolio has the
authority to hold the underlying common stock. Additionally, if a warrant
is part of a unit offering, a Portfolio will purchase the warrant only if
it is attached to a security in which the Portfolio has authority to
invest. In all cases, a Portfolio 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 that 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.

7. REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts ("REITs")
purchase real property, which is then leased, and make mortgage investments.
For federal income tax purposes REITs attempt to qualify for beneficial tax
treatment by distributing at least 95% of their taxable income. If a REIT
were unable to qualify for such beneficial tax treatment, it would be taxed
as a corporation and distributions 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 cashflow (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 which are highly leveraged.

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. SHORT-TERM INVESTMENTS. The Equity and Bond Portfolios may purchase
short-term securities under those circumstances where they have cash to
manage for a short-term time period or as a defensive measure when, in the
investment adviser's opinion, business or economic conditions warrant.
Certificates of deposit must be issued by banks or savings and loan
associations which 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 Portfolio will limit
its investment to the statutory insurance coverage.

10. FOREIGN SECURITIES. Foreign securities are securities issued in and traded
in foreign markets and contain greater risks (including currency risk) than
securities issued in and traded in U.S. markets. The Equity and Money Market
Portfolios of the Trust may not purchase foreign securities, unless at the
time thereof, such purchase would not cause more than five percent (5%) of
the total assets of a Portfolio (taken at market value) to be invested in
foreign securities. This restriction does not apply to the Bond Portfolio.
This restriction is not intended to limit the Money Market Portfolio which
may purchase dollar-denominated commercial paper issued in the U.S. by
foreign entities (as described in the Prospectus). 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

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economic developments (including political instability) and the potentially
adverse effects of unavailability of public information regarding issuers,
reduced governmental supervision regarding 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 U.S.

11. 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. There exists a risk of default by the
underlying borrowers and recovery on repossessed collateral may be
unavailable or inadequate to support payments on 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 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 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.

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

The Bond Portfolio may invest up to 20% of its assets in below investment
grade bonds (commonly referred to as "high-yield" or "junk" bonds). Certain
additional risks are associated with these bonds. 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 which 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 which 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 which in turn
might cause a Portfolio 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 Portfolio'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 Portfolio to sell these securities at an optimum time.
Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.

8
<PAGE> 29

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.

PRINCIPAL SHAREHOLDERS OF THE PORTFOLIOS

At March 31, 1996, SAFECO Life Insurance Company ("SAFECO Life") owned
100%, of the outstanding shares of each of the Equity, Bond and Money Market
Portfolios. SAFECO Life is a wholly-owned subsidiary of SAFECO Corporation,
SAFECO Plaza, Seattle, Washington 98185.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

The portfolio instruments of the Money Market Portfolio are valued on the
basis of amortized cost. The valuation of the Money Market Portfolio securities
based upon its amortized cost and the maintenance of its net asset value per
share at $1.00 is permitted pursuant to Rule 2a-7 under the 1940 Act. Pursuant
to that rule, the Money Market Portfolio has established the following policies:
the Portfolio will maintain a dollar-weighted average portfolio maturity of 90
days or less, purchase only securities having remaining maturities of thirteen
months or less and invest only in securities determined by SAM under guidelines
adopted by the Board of Trustees to be of high quality with minimal credit
risks. The Board of Trustees has established procedures designed to stabilize,
to the extent reasonably possible, the Portfolio's price-per-share as computed
for the purpose of sales and redemptions at $1.00. These procedures include a
review of the Portfolio's holdings by the Board of Trustees, at such intervals
as it may deem appropriate, to determine whether the Portfolio's net asset value
per share, calculated by using available market quotations, deviates from $1.00
per share and, if so, whether such deviation may result in material dilution or
is otherwise unfair to existing contract owners. In the event the Board of
Trustees determines that such a deviation exists, it will take such corrective
action as it regards 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 net asset value per share by using available market quotations;
or taking such other measures as it may deem appropriate.

Each other Portfolio 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
Portfolio will be subject to review by the Trust's Board of Trustees. Short-term
debt securities held by each Portfolio have a remaining maturity of less than 60
days when purchased, and securities originally purchased with maturities in
excess of 60 days but which currently have maturities of 60 days or less, may be
valued at cost adjusted for amortization of premiums or accrual of discounts, or
under such other methods as the 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.

ADDITIONAL PERFORMANCE INFORMATION

EQUITY AND BOND PORTFOLIOS

The yields for the 30-day period ended December 31, 1995 for the Equity and
Bond Portfolios of the Trust were 1.39% and 6.53%, respectively.

Yield is computed using the following formula:

<TABLE>
<S> <C> <C>
a-b
Yield = 2 [( +1) 6 -1]
---------
cd
</TABLE>

Where: a = dividends and interest earned during the period

b = expenses accrued for the period (net of reimbursements)

9
<PAGE> 30

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

The total returns, expressed as a percentage, for the one-year, five-year and
since inception periods ended December 31, 1995 for the Equity and Bond
Portfolios were as follows:

<TABLE>
<CAPTION>
SINCE INITIAL # OF INITIAL
PORTFOLIO 1 YEAR 5 YEAR PUBLIC OFFERING MONTHS PUBLIC OFFERING
- --------- ------ ------ --------------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Equity 28.63% 145.68% 186.74% 101 July 21, 1987
Bond 17.87% 54.01% 101.18% 101 July 21, 1987
</TABLE>

The average annual total returns, expressed as a percentage, for the
one-year, five-year and since inception periods ended December 31, 1995 for the
Equity and Bond Portfolios were as follows:

<TABLE>
<CAPTION>
SINCE INITIAL # OF INITIAL
PORTFOLIO 1 YEAR 5 YEAR PUBLIC OFFERING MONTHS PUBLIC OFFERING
- --------- ------ ------ --------------- ------ -----------------
<S> <C> <C> <C> <C> <C>
Equity 28.63% 19.69% 13.33% 101 July 21, 1987
Bond 17.87% 9.02% 8.66% 101 July 21, 1987
</TABLE>

The total return is computed using the following formula:

The average annual total return is computed using the following formula:

<TABLE>
<S> <C> <C>
_______
A = (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 $1,000 investment at the
end of a specified period of time
P = a hypothetical initial investment of $1,000
</TABLE>

In making the above calculations, all dividends and capital-gain
distributions are assumed to be reinvested at the respective Portfolio's NAV on
the reinvestment date.

MONEY MARKET PORTFOLIO:

The yield and effective yield for the Money Market Portfolio of the Trust
for the 7-day period ended December 31, 1995, are 3.73% and 3.79%, respectively.

Yield is computed using the following formula:

<TABLE>
<S> <C> <C> <C> <C>
(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
</TABLE>

Effective yield is computed using the following formula:

<TABLE>
<S> <C> <C>
365/7
Effective yield = [(Base Period Return + 1) ] -1
</TABLE>

10
<PAGE> 31

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
TRUSTEES POSITION HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH TRUST DURING PAST 5 YEARS
--------------------- ------------- --------------------
<S> <C> <C>
Boh A. Dickey* Trustee Executive Vice President, Chief Financial
SAFECO Plaza and Officer and Chairman Director of SAFECO
Seattle, Washington 98185 Chairman Corporation. He has been an executive officer of
(51) SAFECO Corporation subsidiaries since 1982.
Director of First SAFECO National Life Insurance
Company of New York; 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,
(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, Washington 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.
L. D. McClean* Trustee Retired Assistant Secretary of SAFECO
7231 91st Avenue S.E. Corporation and its property and casualty and
Mercer Island, Washington life insurance affiliates; Director of First
98040 SAFECO National Life Insurance Company of New
(69) York; former President of the SAFECO Mutual
Funds; former Director of SAFECO Asset
Management Company, SAFECO Securities, Inc. and
SAFECO Services Corporation.
Larry L. Pinnt Trustee Retired Vice President and Chief Financial
1600 Bell Plaza, Room 1802 Officer of U.S. WEST Communications, Seattle,
Seattle, Washington 98191 Washington; Director of Key Bank of Washington;
(61) 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, Inc., Seattle,
1808 N. 41st Street Washington; former President of Coast Hotels,
Seattle, Washington 98103 Inc.; Director of First SAFECO National Life
(54) Insurance Company of New York.
David F. Hill President+ President of the SAFECO Mutual Funds, SAFECO
SAFECO Plaza Securities, Inc. and SAFECO Services Corporation
Seattle, Washington 98185 Senior Vice President of SAFECO Asset Management
(47) Company. See table under "Investment Advisory
and Other Services."
Neal A. Fuller Vice President Vice President, Controller, Assistant Secretary
SAFECO Plaza Controller Controller and Treasurer of SAFECO Securities,
Seattle, Washington 98185 Assistant Inc. and Assistant SAFECO Services Corporation.
(33) Secretary Vice President, Secretary Controller, Secretary
and Treasurer of SAFECO Asset Management
Company. See table under "Investment Advisory
and Other Services."
</TABLE>

11
<PAGE> 32

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

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

+ As of May 1, 1996. Prior to that date, R.E. Zunker, the President of SAFECO
Life Insurance Company, served as the President of the Trust.

For the fiscal year ended December 31, 1995, the Trustees of the Trust not
employed by SAFECO Corporation or its affiliates, as a group received $95,500
for their services as such Trustees. The officers received no compensation for
their services as officers or, if applicable, as Trustees.

At March 31, 1996, the Trustees and officers of the Trust as a group owned
none of the outstanding shares of the Trust.

COMPENSATION TABLE

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
PENSION OR FROM
RETIREMENT ESTIMATED REGISTRANT
AGGREGATE BENEFITS ACCRUED ANNUAL AND FUND
COMPENSATION AS PART OF FUND BENEFITS UPON COMPLEX PAID
TRUSTEE FROM REGISTRANT EXPENSES RETIREMENT TO TRUSTEES
------- --------------- ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Barbara J. Dingfield $3,716 $0 $0 $23,875
Richard E. Lundgren $3,716 $0 $0 $23,875
L.D. McClean $3,316 $0 $0 $22,000
Larry L. Pinnt $3,716 $0 $0 $23,875
John W. Schneider $3,716 $0 $0 $23,875
Boh A. Dickey $ 0 $0 $0 $ 0
Richard W. Hubbard $3,316 $0 $0 $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 investment companies that have, in the aggregate,
twenty-six series companies managed by SAM.

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 and SAFECO Services
is the transfer, dividend and distribution disbursement and shareholder
servicing agent for each Portfolio under agreements with the Trust.

12
<PAGE> 33

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
---- ----- --- ---------- --------
<S> <C> <C> <C> <C>
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 President Vice President
Controller Controller Controller Controller
Assistant Secretary Assistant Assistant
Secretary Secretary Secretary
Treasurer Treasurer
R.A. Spaulding Vice President Vice Chairman Director Director
Treasurer Director
S.C. Bauer President
Director
</TABLE>

Mr. Dickey is Executive Vice President and Chief Financial Officer of
SAFECO Corporation, and Mr. Spaulding is Treasurer of SAFECO Corporation.
Messrs. Dickey and Spaulding are also directors of other SAFECO Corporation
subsidiaries.

In connection with the 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 Portfolio that include furnishing office
facilities, books, records and personnel to manage the Trust's and each
Portfolio's affairs and paying certain expenses.

For the services and facilities furnished by SAM, the Trust has agreed to
pay an annual fee of .74% for the Equity and Bond Portfolios, and .65% for the
Money Market Portfolio computed on the basis of the average market value of the
net assets of each Portfolio ascertained each business day and paid monthly.
During its last three fiscal years, the Trust paid SAM the following investment
advisory fees for each Portfolio:

INVESTMENT ADVISORY FEES PAID TO SAM

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
PORTFOLIO 1995 1994 1993
--------- ------------ ------------ ------------
<S> <C> <C> <C>
Equity.................................... $961,000 $623,000 $368,000
Bond...................................... $ 93,000 $ 96,000 $ 79,000
Money Market.............................. $ 54,000 $ 47,000 $ 37,000
</TABLE>

U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington
98111, is the custodian of the securities and cash of each Portfolio under an
agreement with the Trust. Ernst & Young LLP, 999 Third Avenue, Suite 3500,
Seattle, Washington 98104 is the independent auditor which audits the financial
statements of the Trust.

SAFECO Services, SAFECO Plaza, Seattle, Washington 98185, is the transfer,
dividend distribution disbursement and shareholder servicing agent for each
Portfolio under an agreement with the Trust. SAFECO Services is responsible for
all required transfer agent activity, including maintenance of records for each
Portfolio's shareholders, records of transactions involving each Portfolio's
shares and the compilation, distribution, or reinvestment of income dividends or
capital gains distributions. SAFECO Services is not compensated by the Trust or
the Portfolios for these services.

13
<PAGE> 34

SAFECO Securities is the principal underwriter for each Portfolio and
distributes each Portfolio's shares on a continuous best efforts basis under an
agreement. SAFECO Securities is not compensated by the Trust or the Portfolios
for underwriting, distribution or other activities.

BROKERAGE PRACTICES

SAM places orders for the purchase or sale of each Portfolio's portfolio
securities. In deciding which broker to use in a given transaction SAM uses the
following criteria:

1. Which broker gives the best execution, (i.e., which broker is able to trade
the securities in the amounts and at the price desired and on a timely
basis);

2. Whether the broker is known to SAM as being reputable; and

3. All other things being equal, which broker has provided useful research
services to SAM.

Such research services as are furnished to SAM 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 staff, and personal visits by such analysts and brokerage
strategists and economists to SAM's office) are used by SAM to advise all of its
clients including the Portfolios, but not all such research services furnished
to SAM are used by it to advise the Portfolios. SAM will not pay excess
commissions or mark-ups to any broker or dealer for research services or for any
other reason. During the fiscal year or period ended December 31, 1995, 100% of
the total brokerage expenses for the Equity Portfolio were commissions paid to
brokers providing research services. The Equity Portfolio incurred and paid
brokerage expenses of $286,000, $138,000, and $123,000 for the fiscal years
ended December 31, 1995, 1994 and 1993 respectively.

Because the portfolio securities purchased and sold by the Bond and Money
Market Portfolios are traded on a principal basis, no commission is charged.

DISTRIBUTIONS AND TAX INFORMATION

Distributions. The Portfolios will receive income in the form of dividends
and interest earned on their investments in securities. This income, less the
expenses incurred in their operations, is the Portfolios' net investment income,
substantially all of which will be declared as dividends to the Portfolios'
shareholders (the separate accounts of Participating Insurance Companies and
Qualified Plans).

The Portfolios also may derive capital gains or losses in connection with
sales or other dispositions of their portfolio securities. Any net gain a
Portfolio may realize from transactions involving investments held less than the
period required for long-term capital gain or loss recognition or otherwise
producing short-term capital gain or loss recognition or otherwise producing
short-term capital gains and losses (taking into account any carryover of
capital losses from previous years), although technically a distribution from
capital gains, will be distributed to shareholders with and as part of income
dividends. If during any year a Portfolio realizes a net gain on transactions
involving investments held more than the period required for long-term capital
gain or loss recognition or otherwise producing long-term capital gains and
losses, the Portfolio will have a net long-term capital gain. After deduction of
the amount of any net short-term capital loss, the balance (to the extent not
offset by any capital losses carried over from previous years) will be
distributed and treated as long-term capital gains in the hands of the
shareholders regardless of the length of time for the Portfolio's shares may
have been held.

Any per-share dividend or distribution paid by a Portfolio reduces the
Portfolio's net asset value per share on the date paid by the amount of the
dividend or distribution per share. Accordingly, a dividend or distribution paid
shortly after a purchase of shares by a shareholder would represent, in
substance, a partial return of capital (to the extent it is paid on the shares
so purchased), even though it would be subject to income taxes.

As stated in the Prospectus, dividends and other distributions will
generally be made in the form of additional shares of the Portfolios.

14
<PAGE> 35

Tax Information. Each Portfolio intends to continue to qualify and elect to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code for each taxable year by complying with all applicable requirements
regarding the sources of its income, the diversification of its assets, and the
timing of its distributions. Each Portfolio's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Internal Revenue Code, so that a Portfolio will
not be subject to any federal income tax or excise taxes based on net income.

In order to qualify as a regulated investment company, a Portfolio must,
among other things, (a) derive at least 90% of its gross income each year from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock or securities or foreign
currency gains related to investments in stocks or other securities, or other
income (generally including gains from options, futures or forward contracts)
derived with respect to the business of investing in stock, securities or
currency, (b) derive less than 30% of its gross income each year from the sale
or other disposition of stock or securities (or options thereon) held less than
three months (excluding some amounts otherwise included in income as a result of
certain hedging transactions), and (c) diversify its holders so that, at the end
of each fiscal quarter, (i) at least 50% of the market value of its assets is
represented by cash, cash items, U.S. Government securities, securities of other
regulated investment companies and other securities limited, for purposes of
this calculation, in the case of other securities of any one issuer to an amount
not greater than 5% of the Portfolio's assets or 10% of the voting securities of
the issuer, and (ii) not more than 25% of the value of its assets is invested in
the securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies). As such, and by complying
with the applicable provisions of the Internal Revenue Code, a Portfolio will
not be subject to federal income tax on taxable income (including realized
capital gains) that is distributed to shareholders in accordance with the timing
requirements of the Internal Revenue Code. If a Portfolio is unable to meet
certain requirements of the Internal Revenue Code, it may be subject to taxation
as a corporation.

The Portfolios intend to declare and pay dividends and other distributions,
as stated in the Prospectus. In order to avoid the payment of any federal excise
tax based on net income, a Portfolio must declare on or before December 31 of
each year, and pay on or before January 31 of the following year, distributions
at least equal to 98% of its ordinary income for that calendar year and at least
98% of the excess of any capital gains over any capital losses realized in the
one-year period ending October 31 of that year, together with any undistributed
amounts of ordinary income and capital gains (in excess of capital losses) from
the previous calendar year.

The Trust and the Portfolios intend to comply with the requirements of
Section 817(h) of the Internal Revenue Code and related regulations, including
certain diversification requirements that are in addition to the diversification
requirements of Subchapter M and the Investment Company Act. Failure to comply
with the requirements of Section 817(h) could result in taxation of the
insurance company and immediate taxation of the owners of variable contracts to
the full extent of appreciation under the contracts.

Shares of a Portfolio underlying variable contracts that comply with the
requirements of Section 817(h) and related regulations will generally be treated
as owned by the insurance company and not by the owners of variable contracts.
In that case, income derived from the appreciation in shares of the Portfolio
would not be currently taxable to the owners of variable contracts. Owners of
variable contracts that do not comply with the requirements of Section 817(h)
would generally be subject to immediate taxation of the appreciation under the
contracts.

Section 817(h) requires that the investment portfolios underlying variable
life insurance and variable annuity contracts be "adequately diversified".
Section 817(h) contains a safe harbor provision which provides that a variable
life insurance or variable annuity contract will meet the diversification
requirements if, as of the close of each calendar quarter, (i) the assets
underlying the contract meet the diversification standards for a regulated
investment company under Subchapter M of the Internal Revenue Code, and (ii) no
more than 55% of the total assets of the account consist of cash, cash items,
U.S. Government securities and securities of regulated investment companies.

15
<PAGE> 36

Treasury Department regulations provide an alternative test to the safe
harbor provision to meet the diversification requirements. Under these
regulations, an investment portfolio will be adequately diversified if (i) not
more than 55% of the value of its total assets is represented by any one
investment; (ii) not more than 70% of the value of its total assets is
represented by any two investments; (iii) not more than 80% of the value of its
total assets is represented by any three investments; and (iv) not more than 90%
of the value of its total assets is represented by any four investments. These
limitations are increased for investment portfolios which are invested in whole
or in part of U.S. Treasury securities.

Stock of a regulated investment company, such as a Portfolio, held in an
insurance company's separate accounts underlying variable life insurance or
variable annuity contracts may be treated as a single investment for purposes of
the diversification rules of Section 817(h). A special rule in Section 817(h),
however, allows a shareholder of a regulated investment company to
"look-through" the company and treat a pro rata share of the company's assets as
owned directly by the shareholder. This special "look-through" rule may make it
easier to comply with the diversification requirements of Section 817(h). To
qualify for "look-through" treatment, public access to the regulated investment
company must generally be limited to (i) the purchase of a variable contract,
(ii) life insurance companies' general accounts, and (iii) qualified pension or
retirement plans. Interests in the Portfolios are sold only to insurance company
separate accounts to fund the benefits of variable contracts, and may be sold to
qualified pension and retirement plans.

Even if the diversification requirements of Section 817(h) are met, the
owner of a variable contract might be subject to current federal income taxation
if the owner has excessive control over the investments underlying the contract.
The Treasury Department has indicated that guidelines might be forthcoming that
address this issue. At this time, it is impossible to predict where they may be
issued, what the guidelines will include and the extent, if any, to which they
may be retroactive.

In order to maintain the variable contracts' status as annuities or
insurance contracts, the Trust may in the future find it necessary, and reserves
the right, to take certain actions, including, without limitation, amending a
Portfolio's investment objective (upon SEC or shareholder approval) or
substituting shares of one Portfolio for another.

FINANCIAL STATEMENTS

The following financial statements 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 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

A copy of the Trust's Annual Report accompanies this Statement of
Additional Information. Additional copies may be obtained by calling
1-800-624-5711 or by writing to the address on the Prospectus cover.

16
<PAGE> 37

FINANCIAL STATEMENTS

SAFECO RESOURCE SERIES TRUST

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 19
Statement of Assets and Liabilities as of December 31, 1995........................... 20
Statement of Operations for the Year Ended December 31, 1995.......................... 21
Statement of Changes in Net Assets for the Years Ended December 31, 1995 and 1994..... 22
Portfolio of Investments as of December 31, 1995...................................... 24
Notes to Financial Statements......................................................... 32
</TABLE>