<PAGE>
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, two 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 GROWTH PORTFOLIO has as its investment objective to seek growth of capital
and the increased income that ordinarily follows from such growth. The Growth
Portfolio ordinarily invests a preponderance of its assets in common stock
selected for potential appreciation.
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, Inc. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by the Trust or by SAFECO Securities Inc. in any
state in which such offer or solicitation may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
Introduction to the Trust and the Portfolios........ 3
Fund Expenses....................................... 4
Financial Highlights................................ 6
The Trust and Each Portfolio's Investment Policies.. 8
Portfolio Managers.................................. 12
Information about Share Ownership and Companies that
Provide Services to the Trust....................... 12
Persons Controlling the Trust....................... 14
Sale and Redemption of Shares....................... 14
Performance Information............................. 14
Portfolio Distributions and Tax Information......... 15
Share Price Calculation............................. 16
Ratings Supplement.................................. 16
2
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- --------------------------------------------
INTRODUCTION TO THE TRUST AND THE PORTFOLIOS
- --------------------------------------------
The Trust is a series investment company that currently issues shares
representing five mutual funds, two of which, the Equity Portfolio and the
Growth Portfolio, are offered herein (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 Growth Portfolio has as its investment objective to seek growth of capital
and the increased income that ordinarily follows from such growth. To pursue
its objective, the Growth Portfolio ordinarily invests a preponderance of its
assets in common stock selected for potential appreciation.
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.
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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 Growth
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. See "The Trust
and Each Portfolio's Investment Policies" for more information.
- -------------
FUND EXPENSES
- -------------
A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH PORTFOLIO
Sales Load
Sales Load Imposed on
Imposed on Reinvested Deferred Redemption
Purchases Dividends Sales Load Fees Exchange Fees
--------- --------- ---------- ---- -------------
None None None None None
B. ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Total
Operating
Expenses
Management Other After
Portfolio 12b-1 Fees Fee Expenses Reimbursement
--------- ---------- --- -------- -------------
Equity None .72% .03% .75%
Growth* None .72% .07% .79%
* During the year ended December 31, 1995 SAFECO Life Insurance Company
("SAFECO Life") paid for or reimbursed a portion of the Other Expenses
of the Growth Portfolio. Other Expenses for the year ended December 31,
1996 before such reimbursement as a percentage of the Growth Portfolio's
net assets were .12%. SAFECO Life paid all Other Expenses of the Growth
Portfolio until its assets reached $20 million in August 1995. Since
August 1995 the Growth Portfolio has paid all Other Expenses. (See
"Persons Controlling the Trust" for more information.)
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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.
Portfolio 1 Year 3 Years 5 Years 10 Years
--------- ------ ------- ------- --------
Equity $ 8 $24 $42 $93
Growth $ 8 $25 $44 $98
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.
5
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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>
Year Ended December 31 July 21, 1987
(Initial Public
Offering)
1995 1994 1993 1992 1991 1990 1989 1988 To 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 investments 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)
---- ---- ---- ------ ------ ------ ------ ------- -------
LOSS 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 $3.48 11.38 $12.35 $10.40 $8.63
-------- -------- -------- -------- -------- -------- -------- -------- ----------
-------- -------- -------- -------- -------- -------- -------- -------- ----------
Total Return 28.63% 8.94% 27.92% 8.06% 26.35% -5.21 %27.11 25.98% -14.29%++
Net assets at end of period
(000s 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
6
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FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SAFECO Resource Series Trust-Growth Portfolio
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.
<TABLE>
<CAPTION>
Year Ended December 31 January 7, 1993
(Initial Public Offering)
1995 1994 To December 31, 1993
---------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period $12.98 $12.16 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .06 -- .01
Net realized and unrealized gain (loss) on
investments 5.26 1.45 3.60
---- ---- ----
Total from investment operations 5.32 1.45 3.61
---- ---- ----
LESS DISTRIBUTIONS:
Dividends from net investment income (.06) -- (.01)
Distributions from capital gains (2.36) (.63) (1.44)
----- ---- -----
Total distributions (2.42) (.63) (1.45)
----- ---- -----
Net asset value at end of period $15.88 $12.98 $12.16
------------ ------------ ------------
------------ ------------ ------------
Total Return 41% 11.92% 34.73%
Net assets at end of period (000's omitted) $44.458 $16,156 $4,850
Ratio of expenses to average net assets .79% .71% .72%++
Ratio of expenses to average net assets
before expense reimbursements .84% .96% --
Ratio of net investment income
to average net assets .55% .05% .08%++
Portfolio turnover ratio 111.70% 41.24% 108.67%++
</TABLE>
+ Not annualized
++ Annualized
7
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- --------------------------------------------------
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, two of which, the
Equity Portfolio and the Growth Portfolio, are offered herein. Each Portfolio
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
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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.
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.
GROWTH PORTFOLIO
The investment objective of the Growth Portfolio is to seek growth of capital
and the increased income that ordinarily follows from such growth.
To pursue its objective, the Growth Portfolio:
1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. To determine those common stocks
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which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management and earnings power.
2. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN CLOSED-END INVESTMENT COMPANIES
AND INVESTMENT TRUSTS.
3. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK, WHETHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER).
4. 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 an investment in the Growth Portfolio
is that the market value of the portfolio securities may decrease. The Growth
Portfolio's policy of investing in securities believed to have a potential for
growth means that the assets of the Portfolio generally will be subject to
greater risk than may be involved in investing in securities which are not
selected for such growth characteristics.
COMMON INVESTMENT PRACTICES
Each Portfolio 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. 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. 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. 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
10
<PAGE>
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. 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 Portfolio 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 THAT UP TO 25% OF THE VALUE OF THE
PORTFOLIO'S ASSETS (NOT INCLUDING SECURITIES ISSUED BY ANOTHER INVESTMENT
COMPANY) MAY BE INVESTED WITHOUT REGARD TO THIS LIMIT;
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 Portfolios will not concentrate their
assets in particular industries. 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; 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.
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- ------------------
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.
GROWTH PORTFOLIO
The manager for the Growth Portfolio is Thomas M. Maguire, Vice President, SAM.
Mr. Maguire has served as portfolio manager for the Portfolio since it commenced
operations in 1993. He has served as portfolio manager for the SAFECO Growth
Fund since 1989.
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.
- ---------------------------------------------------------------------
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
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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 of .74% of that Portfolio's net assets which is ascertained each business
day and paid monthly.
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 and Growth Portfolios, and all shares of the Portfolios 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.
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SALE AND REDEMPTION OF SHARES
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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.
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PERFORMANCE INFORMATION
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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 Growth Portfolios will fluctuate and
your shares, when redeemed, may be worth more or less than you originally paid
for them.
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
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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.
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
Neither of the Portfolios imposes 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.
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PORTFOLIO DISTRIBUTIONS AND TAX INFORMATION
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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
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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.
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SHARE PRICE CALCULATION
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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
Growth Portfolios, securities are valued on the basis of valuations provided by
a pricing service approved by the Trust's Board of Trustees. In general,
portfolio securities are valued at the last reported sale price on the national
exchange on which the securities are primarily traded, unless there are no
transactions in which case they shall be valued at the last reported bid price.
Securities traded over-the-counter are valued at the last sale price, unless
there is no reported sale price in which case the last reported bid price will
be used. Portfolio securities that 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.
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RATINGS SUPPLEMENT
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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.
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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-edged." 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.
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
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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.
Non-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.
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:
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- 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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