<PAGE> 1
[SAFECO LOGO]
SAFECO RESOURCE SERIES TRUST
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS: PAGE:
<S> <C>
Equity Portfolio 2
Bond Portfolio 6
Money Market Portfolio 9
Financial Statements 12
</TABLE>
<PAGE> 3
December 31, 1996 SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PRESIDENT'S LETTER
Dear Shareholder:
We entered 1996 with rather modest expectations for the equity markets and look
what happened. The S&P 500 gained 22.94% on the heels of its astonishing 37.50%
growth in 1995.
The good news is, investors who had the conviction to stay invested in common
stocks were amply rewarded. For the second straight year, we're glad to have
been cautiously "in" the market, rather than "out".
The bad news is that such market conditions can cause amnesia -- Amnesia when it
comes to the volatile nature of the stock market (the S&P 500 delivered 1.32% in
1994), and forgetfulness regarding the diversification that bond and money
market funds provide.
The neglected cousins of 1996 were the bond markets. Bonds struggled through the
year -- despite the fact inflation remained at bay -- reversing directions and
ultimately delivering lack luster total returns. The broader market as measured
by Lehman Brothers Government/Corporate Index returned 2.90% for the year.
Three elements seem to be props for the stock market. Inflation has remained in
control, corporate earnings have continued to grow and there has been a
fundamental shift in the way individuals invest. Investors are increasingly
recognizing the superior long-term potential of stocks, at the same time they
are taking control of more of their retirement savings.
While the shift from traditional company-controlled pensions to employee
directed plans such as 401(k)s seems irreversible, it doesn't seem possible for
the stock market to sustain its present level of growth.
Still, we believe common stocks offer the potential for superior long-term
returns as they have over the past 70 years. At the same time, we remind you of
the historical level of stock market returns. Over the last 20 years, the S&P
500 has averaged 14%, not 23% or 38% as reflected in the performance of the past
two years.
All in all, our 1997 outlook is that the financial markets will do "okay". We
anticipate that bonds will return their current interest rate, and be without
big gains or losses. But then, people should buy bonds for that stream of
interest anyway.
Stocks will have a more difficult time, especially if corporate earnings fail to
meet expectations. Nonetheless, there are always opportunities for stock
pickers. And that's what we do best.
/s/ David F. Hill
-------------
David F. Hill
President
- 1 -
<PAGE> 4
December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
REPORT FROM EQUITY PORTFOLIO MANAGER - RICHARD MEAGLEY
It was another good year for SAFECO RST Equity Investors. SAFECO RST Equity
returned 24.79% for the 12 months ended December 31, while the S&P 500 returned
22.94%
The Portfolio's success was due to staying our course -- that is, focusing on
well-run companies with long-term growth records at good prices and disciplined
selling. The 1996 stock market favored both the type of stocks we favor and the
industries in which we were most heavily invested. Our choices in technology,
our overweighting in financials (especially Chase Manhattan), and our subsequent
underweighting in utilities and oils, enabled us to outperform the S&P.
Setting buy targets and keeping companies in my sights was especially fruitful
in the technology arena. We bought Oracle (database software) when it came into
our range and it took off so strongly, I've taken some profits. SEAGATE
(high-end disc drives) was another big purchase and gainer. Positions we had
established earlier in Intel (computer processor chips) and MICROSOFT (software)
have also performed well.
When I set a buy price, I also set a sell price, and sell when a stock rises to
it. Such was the case with WARNER LAMBERT. I took profits there and moved into
Bristol Myers. I think Bristol can grow faster than its price currently
reflects.
I bought SMITHKLINE after its price fell on a "turn-down" by the Food and Drug
administration. SmithKline has lots of drugs pending approval, and an improving
over-the-counter business.
Frankly, I'm currently concerned about corporate earnings matching expectations.
Hence, companies with cost-cutting ability and a decent dividend are
particularly attractive to me. Those qualities can support return, especially in
times when missed earnings are likely to drag down share prices.
For those reasons, I added to our oil stocks and swapped CENTURY TELEPHONE for
BELL ATLANTIC which has a much better yield and, pending its merger with NYNEX,
savings potential.
Merger-inspired cost-cutting continues at KIMBERLY CLARK and CHASE MANHATTAN. In
fact, things are proceeding so well at Chase, I bought more, making it our
largest holding.
Of late, no industries have been distinctly attractive, and so our purchases
have been widely distributed. The most recent additions to the portfolio include
ELECTRONIC DATA SYSTEMS, ALLIEDSIGNAL, PACIFICCARE, JOHNSON AND JOHNSON, TEXACO
and AMERICAN STORES.
The fact that the market seems precariously high, has not caused me to alter my
strategy. RST Equity's portfolio is about 90 percent large capitalization
companies (over $4 billion). This is no surprise. The type of company I'm
looking for -- well-run companies with long-term, proven growth records -- tend
to grow into large companies.
While I won't speculate on the market, I will predict with absolute confidence
that my investment style will remain the same. And, my personal belief is that
performance will follow.
- 2 -
<PAGE> 5
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
INVESTMENT HIGHLIGHTS
As of December 31, 1996
EQUITY PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT:
SINCE FUND INCEPTION ON JULY 21, 1987 TO DECEMBER 31, 1996*
================================================================================
[LINE GRAPH]
<TABLE>
<CAPTION>
Equity Portfolio: $35,782
S&P 500 Index: $30,977
<S> <C> <C>
"07/87" 10000 10000
10000 10373
10351 10146
10040 7960
7783 7304
"12/87" 7689 7860
7689 8191
8313 8573
8865 8308
8848 8400
8928 8473
8883 8862
9195 8829
9204 8528
9097 8892
9471 9139
9721 9008
"12/88" 9687 9166
9687 9837
10236 9592
10069 9815
10115 10325
10600 10743
10916 10682
10954 11646
11913 11875
12043 11826
11736 11552
11969 11787
"12/89" 12313 12070
11326 11260
11376 11405
11805 11708
11376 11415
12373 12528
12413 12443
12413 12403
12443 11282
11346 10732
10838 10686
10718 11376
"12/90" 11671 11694
12174 12204
12933 13076
13251 13393
13661 13425
14194 14005
13415 13363
14297 13986
14471 14318
14163 14079
14287 14267
13497 13692
"12/91" 14804 15259
15551 14975
15936 15169
15068 14874
15200 15311
15046 15386
14113 15157
14640 15777
14157 15453
14211 15636
14717 15689
15617 16222
"12/92" 15997 16421
16391 16558
16369 16784
17067 17138
16718 16723
18036 17170
18093 17220
17890 17150
18859 17800
19422 17663
19929 18029
20064 17857
"12/93" 20463 18073
21761 18688
21208 18181
20355 17391
20932 17613
21449 17900
20679 17462
21160 18034
22543 18772
22314 18314
22807 18724
22350 18043
"12/94" 22292 18310
22477 18784
23060 19515
23391 20090
24000 20681
24609 21521
25391 22020
25775 22749
26530 22806
27563 23768
27537 23682
28345 24720
"12/95" 28674 25197
29479 26054
29643 26296
30016 26548
30642 26939
31357 27633
31923 27738
30686 26513
30970 27073
32847 28596
33891 29384
36499 31603
"12/96" 35782 30977
</TABLE>
Average Annual Total Return
<TABLE>
<CAPTION>
Since
1 Year 5 Year Inception
================================================================================
<S> <C> <C> <C>
Equity Portfolio 24.79% 19.30% 14.50%
S&P 500 Index 22.94% 15.21% 12.78%
================================================================================
</TABLE>
<TABLE>
<CAPTION>
% of
Ten Largest Holdings Net Assets
================================================================================
<S> <C>
Chase Manhattan Corp. 5.2%
Mobil Corp. 2.6
Viacom, Inc. (Class B) 2.5
AMP, Inc. 2.5
PacifiCare Health Systems, Inc. (Class B) 2.3
Exxon Corp. 2.3
Bristol-Myers Squibb Co. 2.3
Philip Morris Cos., Inc. 2.3
NationsBank Corp. 2.3
Bell Atlantic Corp. 2.3
</TABLE>
<TABLE>
<CAPTION>
Top Five Purchases (July through December) Cost (000's)
================================================================================
<S> <C>
AMP, Inc. $6,574
Bristol-Myers Squibb Co. 5,947
PacifiCare Health Systems, Inc. (Class B) 5,939
Electronic Data Systems Corp. 5,772
PepsiCo., Inc. 5,742
</TABLE>
Performance represents the performance of the Equity Portfolio, but does not
include deductions for administration charges, contingent deferred sales
charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Standard & Poor's 500 Index is an unmanaged index of 500
stocks weighted by market capitalization with dividends reinvested. Management
fees and other portfolio expenses have been applied to the calculation of
Portfolio performance, but not to the index. If portfolio expenses had been
applied to the index, the index values would have been lower. Investment returns
are historical and not predictive of future performance. Portfolio share prices
and investment returns will fluctuate.
* The Portfolio's inception was July 21, 1987. Performance information
begins on July 31, 1987.
<TABLE>
<CAPTION>
Top Five Sales (July through December) Proceeds (000's)
================================================================================
<S> <C>
Century Telephone Enterprise Co. $5,474
Union Pacific Corp. 4,017
Citicorp 3,919
Warner-Lambert Co. 3,914
American General Corp. 3,853
</TABLE>
See notes to Financial Statements
- 3 -
<PAGE> 6
December 31, 1996
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- --------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 97.6%
Autos & Auto Parts - 2.2%
183,000 Echlin, Inc. $ 5,787
Banking & Finance - 7.5%
152,280 Chase Manhattan Corp. 13,591
61,000 NationsBank Corp. 5,963
Beverages - 2.1%
190,000 PepsiCo, Inc. 5,558
Broadcast Media - 4.2%
188,000 * Viacom, Inc. (Class B) 6,556
64,000 Walt Disney Co. 4,456
Chemicals - 2.0%
55,000 Du Pont (E.I.) de Nemours & Co. 5,191
Computer Software - 4.9%
125,000 Electronic Data Systems Corp 5,406
52,000 * Microsoft Corp. 4,297
79,000 * Oracle Corp. 3,298
Computer Systems - 3.6%
95,000 Hewlett-Packard Co. 4,774
120,000 * Seagate Technology, Inc. 4,740
Drugs & Hospital Supplies - 8 4%
100,000 American Home Products Corp. 5,862
55,000 Bristol-Myers Squibb Co. 5,981
66,000 Schering-Plough Corp. 4,274
86,000 SmithKline Beecham, plc (ADR) 5,848
Electrical Equipment & Electronics - 7.8%
170,000 AMP, Inc. 6,524
55,000 General Electric Co. 5,438
31,000 Intel Corp. 4,059
73,000 Motorola, Inc. 4,480
Electric Utility - 2.1%
240,000 Houston Industries, Inc. 5,430
Financial Services - 6.3%
135,000 Advanta Corp. (Class B) $5,518
50,000 Federal Home Loan Mortgage Corp. 5,506
150,000 Federal National Mortgage Association 5,587
Food & Tobacco - 4.2%
100,000 ConAgra, Inc. 4,975
53,000 Philip Morris Cos., Inc. 5,969
Health Care - 1.4%
75,000 Johnson & Johnson 3,731
Hospital Management - 2.3%
72,200 * PacifiCare Health Systems, Inc. (Class B) 6,155
Household Products - 3.9%
52,700 Colgate-Palmolive Co. 4,862
58,000 Kimberly-Clark Corp. 5,525
Insurance - 3.9%
41,500 American International Group, Inc. 4,492
86,000 ITT Hartford Group, Inc. 5,805
Manufacturing - 2.1%
78,000 AlliedSignal, Inc. 5,226
4,600 Dover Corp. 231
Paper & Forest Products - 1.8%
68,500 Willamette Industries, Inc. 4,769
Petroleum & Petroleum Services - 8.7%
62,000 Exxon Corp. 6,076
56,000 Mobil Corp. 6,846
27,000 Royal Dutch Petroleum Co. (ADR) 4,610
55,000 Texaco, Inc. 5,397
Pollution Control - 2.0%
197,000 Browning-Ferris Industries, Inc. 5,171
Retail - 3.9%
107,400 May Department Stores Co. 5,021
225,000 Wal-Mart Stores, Inc. 5,147
</TABLE>
See notes to Financial Statements
- 4 -
<PAGE> 7
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- -----------------------------------------------------------------
<S> <C>
Retail - Grocers - 4.1%
145,000 Albertson's, Inc. $ 5,166
140,000 American Stores Co. 5,723
Telecommunications - 2.2%
135,000 AT&T Corp. 5,872
Transportation - 1.8%
55,000 Burlington Northern Santa Fe 4,751
Utilities - Telephone - 4.2%
92,000 Bell Atlantic Corp. 5,957
113,000 GTE Corp. 5,142
--------
TOTAL COMMON STOCKS 256,743
--------
</TABLE>
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- -----------------------------------------------------------
TEMPORARY INVESTMENTS - 2.9%
<S> <C>
Investment Companies:
$ 7,747,616 Short-Term Investments Co.
(Prime Portfolio) $ 7,748
---------
TOTAL TEMPORARY INVESTMENTS 7,748
---------
TOTAL INVESTMENTS - 100.5% 264,491
Liabilities, less Other Assets (1,424)
---------
NET ASSETS $ 263,067
=========
</TABLE>
* Non-income producing security.
See Notes to Financial Statements
- 5 -
<PAGE> 8
December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
REPORT FROM BOND PORTFOLIO MANAGER - MICHAEL C. KNEBEL
For the year ended December 31, 1996, SAFECO RST Bond returned 0.54% while the
broader market as measured by Lehman Brothers Government/Corporate Index (which
includes no investment expenses or transaction costs) returned 2.90%.
The Portfolio is actively managed using a trend-following strategy: that is, we
reduce the Portfolio's average maturity as rates rise, and increase it as rates
fall. In general, under this strategy, returns at first lag a market change and
then surpass the market as the new trend takes hold. A market which changes
course frequently, however, wreaks havoc on trend-following strategies. In other
words, our strategy suffered from a recurrent case of whiplash in 1996.
RST Bond's 12-month return was affected largely by losses we experienced when
rates rose rapidly and unexpectedly in the early part of the year. We'd begun
the year with a long average maturity (a high sensitivity to changes in interest
rates) in response to 1995's bull market. In the second and third quarters we
recouped our losses by maintaining a shorter average maturity as rates continued
climbing. In the fourth quarter, we increased the portfolio's duration to just
under four years. Nonetheless, the portfolio's duration was and still is,
considerably shorter than the broad market duration. Ironically, our decision to
maintain a more defensive posture by keeping a shorter average maturity (and
hence, a lesser price sensitivity to changes in interest rates) caused us to lag
the competition. The good/bad news is that as rates reverted upward again in
December, our defensive strategy is finally paying off.
In addition to taking a defensive posture, we have gradually reduced the
portfolio's allocation to corporate bonds as yield spreads have narrowed,
diminishing the attractiveness of this sector over Treasuries.
Looking ahead, we expect market volatility to continue and the investment
environment to remain challenging. Renewed economic strength will likely
rekindle inflation fears which, in turn, may prompt speculation that the Federal
Reserve will raise short-term interest rates. We will seek to increase the
portfolio's yield while maintaining its conservative risk profile, and that
should better insulate the portfolio from the effects of gyrating interest
rates.
- 6 -
<PAGE> 9
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
INVESTMENT HIGHLIGHTS
As of December 31 1996
BOND PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT:
SINCE FUND INCEPTION ON JULY 21, 1987 TO DECEMBER 31, 1996*
================================================================================
[LINE GRAPH]
<TABLE>
<CAPTION>
Bond Portfolio: $20,227
Lehman Gov't/Corp.: $22,512
<S> <C> <C>
"07/87" 10000 10000
10000 9944
10010 9730
9861 10095
10070 10159
"12/87" 10290 10298
10290 10651
10508 10774
10633 10667
10602 10605
10591 10534
10519 10772
10675 10711
10643 10738
10643 10974
10820 11168
10986 11042
"12/88" 11013 11079
11013 11227
11103 11141
11058 11200
11081 11438
11294 11719
11540 12101
11775 12353
12022 12161
11887 12215
12134 12524
12223 12637
"12/89" 12258 12656
12173 12482
12222 12510
12258 12511
12197 12396
12450 12755
12595 12962
12595 13123
12751 12932
12703 13040
12727 13213
12836 13501
"12/90" 13063 13705
13154 13859
13270 13978
13361 14074
13516 14236
13620 14303
13581 14287
13749 14467
14008 14800
14215 15109
14383 15244
14513 15396
"12/91" 14890 15915
14793 15680
14793 15763
14697 15676
14807 15770
15055 16076
15276 16312
15634 16730
15744 16879
16062 17108
15744 16847
15648 16831
"12/92" 15906 17121
16259 17494
16611 17858
16700 17919
16832 18057
16803 18048
17111 18457
17185 18576
17582 19003
17685 19069
17773 19147
17493 18931
"12/93" 17583 19014
17836 19300
17393 18879
17030 18416
16919 18263
16919 18231
16903 18189
17109 18552
17172 18560
17014 18280
17014 18260
16998 18227
"12/94" 17068 18347
17302 18699
17586 19133
17687 19261
17921 19529
18590 20347
18741 20510
18607 20430
18858 20692
19059 20903
19377 21210
19762 21560
"12/95" 20118 21877
20171 22012
19691 21546
19495 21365
19478 21217
19513 21181
19656 21465
19709 21514
19744 21463
19940 21845
20171 22354
20420 22765
"12/96" 20227 22512
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
1 Year 5 Year Inception
================================================================================
<S> <C> <C> <C>
Bond Portfolio 0.54% 6.32% 7.77%
Lehman Gov't/Corp. Index 2.90% 7.18% 9.02%
================================================================================
</TABLE>
<TABLE>
<CAPTION>
% of
Ten Largest Holdings Net Assets
================================================================================
<S> <C>
U.S. Treasury Note, 6.375%, due 8/15/02 42.1%
U.S. Treasury Principal Strip, due 8/15/99 13.8
U.S. Treasury Note, 7.50%, due 2/15/05 10.6
U.S. Treasury Note, 6.50%, due 5/31/01 4.7
Ford Motor Credit Co. 3.7
Walt Disney Co. 3.1
Pacific Gas & Electric Co. 3.1
Dayton Hudson Corp. 1.7
Manitoba (Province) 1.6
Associates Corp. of North America 1.6
</TABLE>
Weighted Average Maturity 4.70 Years
Performance represents the performance of the Bond Portfolio, but does not
include deductions for administration charges, contingent deferred sales
charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Lehman Gov't/Corp. Index is a representative total return
benchmark for the Portfolio. Investment management fees have been applied to the
calculation of Portfolio performance, but not to the index. If portfolio
investment management fees had been applied to the index, the index values would
have been lower. Investment returns are historical and not predictive of future
performance. Portfolio share prices and investment returns will fluctuate.
* The Portfolio's inception was July 21, 1987. Performance information
begins on July 31, 1987.
<TABLE>
<CAPTION>
Portfolio Credit Quality
MOODY'S S&P MOODY'S S&P
================================================================================
<S> <C> <C> <C>
U.S. Gov't U.S. Gov't 71.2% 71.2%
Aaa AAA 1.3 1.3
Aa AA 1.6 1.6
A A 21.1 21.1
Baa BBB 1.7 1.7
Temporary Investments 1.0 1.0
Cash and Other Assets, less Liabilities 2.1 2.1
------------------
Total 100.0% 100.0%
------------------
</TABLE>
- 7 -
<PAGE> 10
December 31, 1996
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
BOND PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C>
ASSET BACKED SECURITIES - 1.3%
Financial - 1.3%
$209 Chevy Chase Auto ABS
Series 1996-1, Class A
6.60%, due 12/15/02 $ 212
--------
TOTAL ASSET BACKED SECURITIES 212
--------
CORPORATE BONDS - 24.5%
Banking & Finance - 3.9%
250 Associates Corp. of North America
8.80%, due 8/01/98 260
135 BankAmerica Corp.
9.50%, due 4/01/01 149
200 Grand Metropolitan Investment Corp.
8.625%, due 8/15/01 216
Canadian Provinces, U.S. Funds - 1.6%
250 Manitoba (Province)
7.75%, due 2/01/02 263
Entertainment - 3.1%
500 Walt Disney Co.
6.375%, due 3/30/01 498
Finance - Auto - 3.7%
600 Ford Motor Credit Co.
6.25%, due 8/11/00 594
Finance - Consumer - 1.6%
250 Household Finance Corp.
7.625%, due 6/15/99 257
Oil & Gas - 1.6%
250 Texaco Capital, Inc.
6.875%, due 7/15/99 253
Retail - 1.7%
250 Dayton Hudson Corp.
9.40%, due 2/15/01 273
Utilities - Electric - 6.0%
500 Pacific Gas & Electric Co.
5.375%, due 8/01/98 495
250 Public Services Electric & Gas Co.
6.00%, due 1/01/98 250
200 Virginia Electric & Power Co.
6.25%, due 8/01/98 200
Utilities - Telephone - 1.3%
200 GTE Corp.
8.85%, due 3/01/98 206
--------
TOTAL CORPORATE BONDS 3,914
--------
U.S. GOVERNMENT SECURITIES - 71.2%
U.S. Treasury Notes - 57.4%
1,580 7.50%, due 2/15/05 1,690
750 6.50%, due 5/31/01 758
6,685 6.375%, due 8/15/02 6,729
U.S. Treasury Principal Strip - 13.8%
2,575 0.00%, due 8/15/99 2,204
--------
TOTAL U.S. GOVERNMENT SECURITIES 11,381
--------
TEMPORARY INVESTMENTS - 0.9%
151 Short-Term Investments Co.
(Prime Portfolio) 151
--------
TOTAL TEMPORARY INVESTMENTS 151
--------
TOTAL INVESTMENTS - 97.9% 15,658
Other Assets, less Liabilities 333
--------
NET ASSETS $ 15,991
========
</TABLE>
See Notes to Financial Statements
- 8 -
<PAGE> 11
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
REPORT FROM MONEY MARKET PORTFOLIO MANAGER - NAOMI URATA
For the 12 months ended December 31, 1996, the SAFECO RST Money Market returned
4.94%. Ninety-day commercial paper rates began 1996 at 5.50% and then fell to
the year's low, 5.12%, in February. Rates rose from there to 5.52% by the end of
June, and then fluctuated in a narrow range to end the year at 5.63%.
The year began with an inverted yield curve for one-day to one-year maturities;
that is, for paper under one year, rates were higher on shorter-term paper than
they were on longer-term paper. (The yield curve illustrates the difference in
yield paid by different maturities of like securities.) The curve remained
inverted until it flattened in May. In June, it changed back to a more-normal
upward sloping curve as investors began to anticipate a possible tightening of
interest rates by the Federal Reserve.
The changing level and shape of the yield curve are driven by expectations about
economic activity. In the first quarter of 1996 rates moved lower to stimulate
economic growth. The yield curve inverted because investors believed that rates
would come down. Now investor sentiment is that the economy is growing at a pace
which might cause higher inflation and rates are rising for one-day to one-year
paper. The thinking is that rising rates will slow the economy somewhat and
prevent prices from rising too fast.
At year end, the average maturity of the SAFECO RST Money Portfolio was 35 days.
I invested in U.S. agency securities and commercial paper issued by top tier
corporations. All of the securities bear a fixed rate of interest and had
maturities that were less than 13 months.
I added the following new issuers' paper to the Portfolio's approved list:
Associates Corporation, a financial services company, Smith Barney, a brokerage
firm, and Xerox Corporation, an industrial company. All of these issuers are
rated in the top tier. I do not invest in companies rated in the second tier
category as they do not fit my conservative investment style.
In the next few months, I believe the Federal Reserve will hold rates steady.
After that, there is no consensus on whether they will ease or tighten. While
economic data is mixed, recently, the market has responded negatively -- with
rising rates -- to strength in the housing and manufacturing sectors. I will
continue to maintain an average maturity that is appropriate to current market
conditions, while seeking as high a level of current income as is compatible
with preserving capital.
- 9 -
<PAGE> 12
December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT HIGHLIGHTS
As of December 31, 1996
MONEY MARKET PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT:
SINCE FUND INCEPTION ON JULY 21, 1987 TO DECEMBER 31, 1996*
================================================================================
<TABLE>
<CAPTION>
Money Market Portfolio: $16,704
<S> <C>
"07/87" 10000
10052
10103
10154
10209
"12/87" 10264
10323
10378
10432
10485
10535
10593
10651
10709
10776
10842
10913
"12/88" 10983
11057
11140
11215
11300
11386
11468
11564
11650
11733
11894
11972
"12/89" 12048
12133
12205
12282
12362
12443
12519
12601
12680
12752
12835
12915
"12/90" 12995
13072
13137
13200
13270
13332
13384
13450
13512
13572
13628
13679
"12/91" 13732
13777
13814
13856
13895
13932
13975
14017
14052
14082
14111
14145
"12/92" 14179
14212
14240
14273
14303
14330
14365
14395
14428
14457
14486
14516
"12/93" 14549
14583
14612
14644
14679
14722
14765
14810
14864
14913
14966
15017
"12/94" 15080
15154
15219
15288
15358
15437
15505
15577
15643
15705
15785
15857
"12/95" 15918
15993
16051
16110
16175
16243
16301
16371
16437
16506
16568
16635
"12/96" 16704
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Return
Since
1 Year 5 Year Inception
================================================================================
<S> <C> <C> <C>
Money Market Portfolio 4.94% 4.00% 5.60%
</TABLE>
Weighted Average Maturity 35 days
<TABLE>
<CAPTION>
Portfolio Credit Quality
================================================================================
<S> <C>
Highest Quality(1) 100%
Split-Rated(2) --%
Not Rated(3) --%
</TABLE>
Performance represents the performance of the Money Market Portfolio, but
does not include deductions for administration charges, contingent deferred
sales charges, or mortality and expense risk premiums.
Performance of the Portfolio assumes the reinvestment of all dividends and
capital gains. Investment returns are historical and not predictive of future
performance. Portfolio share prices and investment returns will fluctuate.
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.
* The Portfolio's inception was July 21, 1987. Performance information
begins on July 31, 1987.
1 Rated highest quality by at least two nationally recognized rating
organizations or, when rated by only one organization, received its
highest rating.
2 Rated highest by one organization and second highest by another.
3 Although unrated, comparable in credit quality to securities in the
highest or split-rated categories, in the opinion of SAFECO Asset
Management Company, the Portfolio's investment advisor.
- 10 -
<PAGE> 13
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000's) (000's)
- --------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER - 84.0%
Asset Backed - 13.9%
$550 Apreco, Inc.
5.30%, due 2/14/97 $ 546
500 Ciesco L.P.
5.28%, due 1/17/97 499
700# Receivables Capital Corp. 4(2)
5.62%, due 1/23/97 698
Banks & Finance - 4.0%
500 Associates Corp. of North America
5.28%, due 3/04/97 495
Banks-Foreign - 8.0%
500 National Australia Funding (DE), Inc.
5.45, due 1/13/97 499
500 Westpac Capital Corp.
5.32, due 1/30/97 498
Finance-Auto - 11.9%
500 Ford Motor Credit Co.
5.39%, due 1/28/97 498
500 General Motors Acceptance Corp.
5.32%, due 2/20/97 496
500 New Center Asset Trust
5.30%, due 5/08/97 491
Finance-Consumer - 4.4%
550 Household Finance Corp.
5.31%, due 1/10/97 549
Finance-Diversified & Business - 11.9%
500 General Electric Capital Corp.
5.32%, due 1/15/97 499
500 Heller Financial, Inc.
5.40%, due 2/11/97 497
500 Transamerica Finance Corp.
5.30%, due 1/27/97 498
Finance-Equipment Lease - 4.4%
550 International Lease Finance Corp.
5.27%, due 2/04/97 547
Finance - 4.8%
600 Dean Witter, Discover
5.55%, due 1/07/97 599
Financial Services-Brokerage - 8.0%
$550 Merrill Lynch & Co., Inc.
5.31%, due 1/31/97 $ 548
450 Smith Barney Inc. CP
5.31%, due 1/02/97 450
Insurance-Non-Affiliated Multi-Line - 4.0%
500 Prudential Funding Corp.
5.30%, due 2/13/97 497
Metals - 4.4%
550 BHP Finance (USA), Inc.
5.35%, due 2/25/97 546
Miscellaneous - 4.3%
550 Tasmanian Public Finance Corp.
5.34%, due 4/17/97 541
--------
TOTAL COMMERCIAL PAPER 10,491
--------
U.S. GOVERNMENT & AGENCY SECURITIES - 9.8%
180 Federal Home Loan Bank
5.23%, due 1/07/97 180
500 Federal Home Loan Mortgage Corp.
5.3%, due 1/06/97 500
545 Federal Home Loan Mortgage Corp.
5.4%, due 1/15/97 544
--------
TOTAL U.S. GOVERNMENT &
AGENCY SECURITIES 1,224
--------
OTHER INVESTMENTS - 6.7%
Investment Companies:
660 Short-Term Investments Co.
(Prime Portfolio) 660
174 Short-Term Investments Co.
(Treasury Portfolio) 174
--------
TOTAL OTHER INVESTMENTS 834
--------
TOTAL INVESTMENTS - 100.5% 12,549
Liabilities, Less Other Assets (56)
--------
NET ASSETS $ 12,493
========
</TABLE>
# Security exempt from registration and restricted as to resale only to
dealers or through a dealer to an "accredited investor" or a "qualified
institutional buyer." At December 31, 1996, such security is
Receivables Capital Corp. (4)2 at 5.62%, acquired 12/18/96, due
1/23/97. The total market value of this security is $697,596 or 5.6% of
net assets.
See Notes to Financial Statements
- 11 -
<PAGE> 14
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------
As of December 31, 1996 EQUITY BOND MMKT
- ---------------------------------------------------------------------------------------------------------------------------
-- (In Thousands, Except Per-Share Amounts) --
<S> <C> <C> <C>
ASSETS:
Investments, at Cost $216,364 $ 15,672 $12,549
======== ======== =======
Investments, at Value $264,491 $ 15,658 $12,549
Receivables:
Investment securities sold 1,397 -- --
Dividends and interest 460 291 3
Trust shares sold 1,168 55 360
-------- -------- -------
Total assets 267,516 16,004 12,912
LIABILITIES:
Payables:
Investment securities purchased 4,079 -- --
Investment advisory fees 164 10 6
Trust shares redeemed 188 3 413
Dividends payable -- -- --
Other 18 -- --
-------- -------- -------
Total liabilities 4,449 13 419
-------- -------- -------
NET ASSETS $263,067 $ 15,991 $12,493
======== ======== =======
Net Assets consist of:
Net unrealized appreciation (depreciation) $ 48,127 $ (14) --
Accumulated net realized loss on investment transactions -- (420) --
Paid in capital (par value $.001 per share, unlimited shares authorized) 214,940 16,425 $12,493
-------- -------- -------
NET ASSETS $263,067 $ 15,991 $12,493
======== ======== =======
Trust shares outstanding 12,096 1,487 12,493
======== ======== =======
Net asset value per share
(Net assets divided by Trust shares outstanding) $ 21.75 $ 10.75 $ 1.00
======== ======== =======
</TABLE>
See Notes to Financial Statements
- 12 -
<PAGE> 15
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------
For the Year Ended December 31, 1996
EQUITY BOND MMKT
---------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
Investment income:
Dividends $ 4,483 -- --
Interest 730 $ 983 $ 553
------- ----- -----
Total investment income 5,213 983 553
Expenses:
Investment advisory fees 1,488 112 62
Legal and auditing fees 17 14 14
Custodian fees 16 4 11
Trustees' fees 7 3 3
Other 6 1 --
------- ----- -----
Total expenses before reimbursement 1,534 134 90
Expense reimbursement (Note 4) -- (22) (28)
------- ----- -----
Total expenses after reimbursement 1,534 112 62
Net investment income (loss) 3,679 871 491
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments 20,981 (188) --
Net change in unrealized appreciation 23,643 (583) --
------- ----- -----
Net gain (loss) on investments 44,624 (771) --
------- ----- -----
Net change in net assets resulting from operations $48,303 $ 100 $ 491
======= ===== =====
</TABLE>
See Notes to Financial Statements
- 13 -
<PAGE> 16
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------------------------------------
EQUITY BOND MMKT
------------------------ ---------------------- -----------------------
For the Year Ended December 31
1996 1995 1996 1995 1996 1995
--------- --------- -------- -------- -------- --------
-- (In Thousands) --
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 3,679 $ 3,027 871 $ 843 $ 491 $ 468
Net realized gain (loss) on investments 20,981 15,778 (188) 116 -- --
Net change in unrealized appreciation 23,643 14,951 (583) 1,162 -- --
--------- --------- -------- -------- -------- --------
Net change in net assets resulting from
operations 48,303 33,756 100 2,121 491 468
Distributions to shareholders from:
Net investment income (3,679) (3,027) (871) (843) (491) (468)
Net realized gain on investments (20,981) (15,778) -- -- -- --
Net Trust share transactions 69,945 52,207 2,505 (382) 3,774 (596)
--------- --------- -------- -------- -------- --------
Total change in net assets 93,588 67,158 1,734 896 3,774 (596)
Net assets at beginning of period 169,479 102,321 14,257 13,361 8,719 9,315
--------- --------- -------- -------- -------- --------
Net assets at end of period $ 263,067 $ 169,479 $ 15,991 $ 14,257 $ 12,493 $ 8,719
========= ========= ======== ======== ======== ========
Other Information
Increase (Decrease) in Fund Shares
and Amounts
Shares:
Sales 3,791 2,832 464 266 46,941 21,270
Reinvestments 1,134 977 81 75 491 432
Redemptions (1,636) (1,083) (319) (390) (43,658) (22,298)
--------- --------- -------- -------- -------- --------
Net change 3,289 2,726 226 (49) 3,774 (596)
========= ========= ======== ======== ======== ========
Amounts:
Sales $ 80,468 $ 54,206 $ 5,170 $ 2,941 $ 46,941 $ 21,270
Reinvestments 24,660 18,805 871 843 491 432
Redemptions (35,183) (20,804) (3,536) (4,166) (43,658) (22,298)
--------- --------- -------- -------- -------- --------
Net change $ 69,945 $ 52,207 $ 2,505 $ (382) $ 3,774 $ (596)
========= ========= ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
- 14 -
<PAGE> 17
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
SAFECO Resource Series Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust is comprised of five Portfolios. These
financial statements present information related to the original three
Portfolios--the Equity, Bond, and Money Market (MMKT) Portfolios. Each of the
Portfolios has different investment objectives. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other
insurance companies. The following is a summary of significant accounting
policies consistently followed by the Trust in the preparation of its
financial statements. The policies are in conformity with generally accepted
accounting principles, which permits management to make certain estimates and
assumptions at the date of the financial statements.
SECURITY VALUATION -- Securities in the Equity and Bond Portfolios traded on
a national exchange or over-the-counter are valued at the last reported sales
price, unless there are no transactions in which case they are valued at the
last reported bid price. Long-term corporate bonds and other securities not
traded on a national exchange or over-the-counter are valued based on
consideration of information with respect to transactions in bonds,
quotations from bond dealers, market transactions in comparable securities
and various relationships between securities. Securities in the Money Market
Portfolio purchased at par are valued at cost. All other short-term
securities are valued at amortized cost.
SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date. Realized gains and losses on investment transactions are determined
using the identified cost method.
INCOME RECOGNITION -- Interest is accrued on Portfolio investments daily.
Dividend income, less foreign taxes withheld (if any), is recorded on the
ex-dividend date.
DIVIDENDS TO SHAREHOLDERS -- In the Equity and Bond Portfolios, dividends to
shareholders from net investment income and realized gains on security
transactions (if any) are recorded on the last business day of December each
year. In the Money Market Portfolio, dividends from net investment income are
declared as of the close of each business day and payment is made as of the
last business day of each month.
FEDERAL INCOME TAX -- It is the Trust's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
2. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The Bond Portfolio had $420,000 of accumulated undistributed net realized
loss on investment transactions at December 31, 1996. For Federal income tax
purposes, this amount represents capital loss carryforwards which expire
between the years 2002 and 2004.
- 15 -
<PAGE> 18
December 31, 1996
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
PORTFOLIOS
-----------------------
EQUITY BOND
--------- --------
-- ($ in Thousands) --
<S> <C> <C>
PURCHASES for the year ended December 31, 1996 (including $16,594
of U.S. Government and Agency Securities in the Bond Portfolio) $ 163,521 $ 17,344
========= ========
SALES for the year ended December 31, 1996 (including $14,298
of U.S. Government and Agency Securities in the Bond Portfolio) $ 114,873 $ 15,198
========= ========
Purchases and sales amounts exclude short-term investments which, at the time
of purchase, had a maturity of one year or less
UNREALIZED APPRECIATION (DEPRECIATION) AT DECEMBER 31, 1996:
-- ($ in Thousands) --
Aggregate gross unrealized appreciation for investment securities in which
there is an excess of value over identified cost $ 52,162 $ 109
Aggregate gross unrealized depreciation for investment securities in which
there is an excess of identified cost over value (4,035) (123)
--------- --------
Net unrealized appreciation (depreciation) $ 48,127 $ (14)
========= ========
</TABLE>
4. INVESTMENT ADVISORY FEES, EXPENSE REIMBURSEMENT AND OTHER TRANSACTIONS WITH
AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Trust. For the Equity and Bond Portfolios, the fee is based on average daily
net assets at an annual rate of .74 percent. For the Money Market Portfolio,
the fee is based on average daily net assets at an annual rate of .65
percent.
The Portfolios may borrow money for temporary purposes from SAFECO
Corporation or its affiliates at interest rates equivalent to commercial bank
interest rates.
At December 31, 1996, SAFECO Life Insurance Company owned more than 99% of
the outstanding shares of each portfolio.
Prior to May 5, 1994, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the portfolios except for investment advisory fees. Since May 5,
1994, any portfolio with net assets in excess of $20 million has been charged
for all other operating expenses, including legal and auditing fees,
trustees' fees, custodian fees, and other expenses. For portfolios with net
assets less than $20 million, SAFECO continues to pay the portfolios' other
operating expenses.
- 16 -
<PAGE> 19
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
EQUITY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 19.24 $ 16.83 $ 17.02 $ 14.20 $ 13.48
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.34 0.39 0.31 0.23 0.20
Net realized and unrealized gain on investments 4.43 4.43 1.21 3.74 0.89
-------- -------- -------- -------- --------
Total from investment operations 4.77 4.82 1.52 3.97 1.09
LESS DISTRIBUTIONS:
Dividends from net investment income (0.34) (0.39) (0.31) (0.23) (0.20)
Distributions from realized gains (1.92) (2.02) (1.40) (0.92) (0.17)
-------- -------- -------- -------- --------
Total distributions (2.26) (2.41) (1.71) (1.15) (0.37)
-------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 21.75 $ 19.24 $ 16.83 $ 17.02 $ 14.20
======== ======== ======== ======== ========
TOTAL RETURN 24.79% 28.63% 8.94%(A) 27.92%(A) 8.06%(A)
NET ASSETS AT END OF PERIOD (000'S OMITTED) $263,067 $169,479 $102,321 $ 68,157 $ 36,064
RATIO OF EXPENSES TO AVERAGE NET ASSETS .72% .75% .77% .73% .73%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS ++ N/A N/A .78% -- --
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 1.72% 2.26% 1.98% 1.71% 1.80%
PORTFOLIO TURNOVER RATE 56.99% 69.18% 28.71% 41.35% 24.75%
AVERAGE COMMISSION RATE PAID $ 0.0584 -- -- -- --
</TABLE>
++ See Note 4 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 4 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 17 -
<PAGE> 20
December 31, 1996
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
<TABLE>
<CAPTION>
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
-----------------------------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 11.31 $ 10.20 $ 11.12 $ 10.82 $ 10.80
Income from investment operations:
Net investment income 0.62 0.71 0.59 0.56 0.58
Net realized and unrealized gain (loss) on investments (0.56) 1.11 (0.92) 0.58 0.16
-------- -------- ---------- ---------- ----------
Total from investment operations 0.06 1.82 (0.33) 1.14 0.74
Less distributions:
Dividends from net investment income (0.62) (0.71) (0.59) (0.56) (0.58)
Distributions from realized gains -- -- -- (0.28) (0.14)
-------- -------- ---------- ---------- ----------
Total distributions (0.62) (0.71) (0.59) (0.84) (0.72)
-------- -------- ---------- ---------- ----------
Net asset value at end of period $ 10.75 $ 11.31 $ 10.20 $ 11.12 $ 10.82
======== ======== ========== ========== ==========
Total return (A) 0.54% 17.87% (2.93%) 10.55% 6.82%
NET ASSETS AT END OF PERIOD (000'S OMITTED) $ 15,991 $ 14,257 $ 13,361 $ 13,245 $ 9,172
RATIO OF EXPENSES TO AVERAGE NET ASSETS .73% .72% .72% .73% .74%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS ++ .87% .94% .89% -- --
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 5.64% 6.50% 5.53% 5.68% 6.96%
PORTFOLIO TURNOVER RATE 140.90% 77.93% 147.22% 60.20% 46.66%
</TABLE>
++ See Note 4 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 4 of Notes to Financial
Statements).
- 18 -
<PAGE> 21
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations:
Net investment income 0.05 0.05 0.04 0.03 0.03
Less distributions:
Dividends from net investment income (0.05) (0.05) (0.04) (0.03) (0.03)
------- ------- ------- ------- -------
Net asset value at end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return (A) 4.94% 5.56% 3.65% 2.61% 3.26%
NET ASSETS AT END OF PERIOD (000'S OMITTED) $12,493 $ 8,719 $ 9,315 $ 6,327 $ 5,399
RATIO OF EXPENSES TO AVERAGE NET ASSETS .62% .62% .63% .64% .68%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS ++ .90% .87% .87% -- --
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 4.86% 5.32% 3.63% 2.61% 3.23%
</TABLE>
++ See Note 4 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 4 of Notes to Financial
Statements).
- 19 -
<PAGE> 22
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
SAFECO Resource Series Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of certain Portfolios of SAFECO Resource Series
Trust (comprising, respectively, the Equity, Bond, and Money Market Portfolios),
as of December 31, 1996, and the related statements of operations, the
statements of changes in net assets, and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Equity, Bond, and Money Market Portfolios of SAFECO Resource Series Trust at
December 31, 1996, the results of their operations, the changes in their net
assets, and the financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
January 31, 1997
