<PAGE> 1
[SAFECO MUTUAL FUNDS LOGO]
SAFECO RESOURCE SERIES TRUST
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE> 2
TABLE OF CONTENTS: PAGE:
Equity Portfolio 2
Growth Portfolio 6
Northwest Portfolio 10
Bond Portfolio 14
Financial Statements 17
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December 31, 1996 SAFECO RESOURCE SERIES TRUST
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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
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<PAGE> 4
December 31, 1996
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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.
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SAFECO RESOURCE SERIES TRUST
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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 CHART]
<TABLE>
<CAPTION>
EQUITY PORTFOLIO S&P 500 INDEX
<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>
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<PAGE> 6
December 31, 1996
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PORTFOLIO OF INVESTMENTS
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
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
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SAFECO RESOURCE SERIES TRUST
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PORTFOLIO OF INVESTMENTS
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
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
--------
TEMPORARY INVESTMENTS - 2.9%
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
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INVESTMENT REVIEW
REPORT FROM GROWTH PORTFOLIO MANAGER - THOMAS M. MAGUIRE
For the year ended December 31, 1996, SAFECO RST Growth returned 32.06% widely
outperforming the S&P 500 which returned 22.94%. Due to a positive cash flow
throughout the year, I was able to take advantage of new purchase opportunities
as they arose without having to sell solid holdings which continued to add to
the Fund's performance. Because I look at each portfolio holding on its own
merits, the Fund's performance relative to the S&P 500 was due primarily to the
selection of the Fund's individual holdings.
But the more exciting news is that SAFECO RST Growth beat the S&P with a
portfolio of carefully selected non-S&P companies. This is exciting because
while the S&P stocks appear high priced, smaller company valuations -- including
many stocks held by RST Growth -- remain quite reasonably priced.
I was able to increase holdings in companies with great earnings growth
potential at good valuations, and during the period, we benefited by several of
them -- AMRION (vitamin supplements), DAMARK INTERNATIONAL (catalog retailer),
ULTRAK (closed circuit television) and PHILIP MORRIS to name four.
And while the companies in our portfolio may seem widely diverse, they actually
have common characteristics -- good earnings, good valuations, and good
fundamentals.
Drugs & hospital supply companies remain our largest industry group. People will
use medical products and services regardless of what the economy is doing. And,
in most cases, their use will increase as the population ages. In fact, aging
and increasing pressure to cut medical costs is growing the market for LIFELINE
SYSTEMS' in-home monitoring.
Another one of our healthcare stocks, PENEDERM, an emerging pharmaceutical
company, posted gains with its first drug approval.
SEAGATE, a producer of high-end disc drives with a great balance sheet and cash
flow, performed magnificently during the year. Our holdings in computer systems
were 11.8% of net assets at year end.
As I stated earlier, I see the S&P as highly priced in comparison to smaller
company averages. However, the RST Growth Portfolio is predominantly invested in
fundamentally sound companies with excellent prospects at very reasonable
valuations. I think the result of our "stock picking" is that the Portfolio is
in good shape no matter which sector of the market 1997 favors -- and even
better shape should small companies come into favor.
-6-
<PAGE> 9
SAFECO RESOURCE SERIES TRUST
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INVESTMENT HIGHLIGHTS
As of December 31, 1996
GROWTH PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT:
SINCE FUND INCEPTION ON JANUARY 7, 1993 TO DECEMBER 31, 1996*
================================================================================
[LINE CHART]
<TABLE>
<CAPTION>
GROWTH PORTFOLIO S&P 500 INDEX
<S> <C> <C>
"01/93" 10000 10000
9475 10136
10059 10350
9683 10100
10535 10369
10891 10400
11297 10358
12198 10750
12822 10667
13386 10888
12792 10785
"12/93" 13473 10915
14382 11286
13861 10980
13351 10503
13750 10637
14094 10811
13662 10546
14216 10892
14714 11337
14626 11060
14169 11308
14936 10897
"12/94" 15079 11058
15148 11344
15694 11786
15671 12133
15973 12490
16670 12997
17727 13299
18506 13739
18587 13773
19644 14354
19818 14303
20666 14929
"12/95" 21261 15217
21476 15735
22051 15881
22654 16033
24060 16269
25519 16688
24608 16752
22439 16012
24381 16350
25827 17270
26322 17746
26898 19086
"12/96" 28077 18708
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
=================================================================
<S> <C> <C>
Growth Portfolio 32.06% 30.16%
S&P 500 Index 22.94% 17.42%
=================================================================
</TABLE>
<TABLE>
<CAPTION>
% OF
TEN LARGEST HOLDINGS NET ASSETS
===============================================================
<S> <C>
Seagate Technology, Inc. 5.8%
American Buildings Co. 5.1
MICROS Systems, Inc. 4.8
Penederm, Inc. 3.9
Lifeline Systems, Inc. 3.4
Datascope Corp. 3.4
United Dental Care, Inc. 3.1
Credit Acceptance Corp. 3.0
Philip Morris Cos., Inc. 3.0
Damark International, Inc. 2.8
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES (JULY THROUGH DECEMBER) COST (000'S)
=================================================================
<S> <C>
American Buildings Co. $3,107
Damark International, Inc. 3,002
United Dental Care, Inc. 2,913
Penederm, Inc. 2,669
Rent-Way, Inc. 2,411
</TABLE>
Performance represents the performance of the Growth Portfolio but does not
include 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. 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 January 7, 1993.
Performance information begins on January 31, 1993.
<TABLE>
<CAPTION>
TOP FIVE SALES (JULY THROUGH DECEMBER) PROCEEDS (000'S)
=================================================================
<S> <C>
Family Golf Centers, Inc. $3,605
Ultrak, Inc. 1,837
Kimberly-Clark Corp. 1,427
Pittston Brink's Group 1,322
Ciber, Inc. 1,287
</TABLE>
-7-
<PAGE> 10
December 31, 1996
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- --------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 96.8%
ADVERTISING - 1.3%
50,000 * HA-LO Industries, Inc. $ 1,375
AIR TRANSPORT - 0.6%
35,400 * Pittston Services Group 708
BEVERAGES - 2.5%
94,300 * Canandaigua Wine Co., Inc. 2,688
BUILDING MATERIALS - 8.1%
35,100 * ABT Building Products Corp. 877
234,500 * American Buildings Co. 5,599
25,700 * Diamond Home Services, Inc. 707
49,900 * Fibreboard Corp. 1,684
CHEMICALS - 0.6%
34,800 AT Plastics, Inc. 344
42,800 * Melamine Chemicals, Inc. 353
COMMERCIAL SERVICES - 3.1%
40,000 * FirstService Corp. 165
23,300 * Renter's Choice, Inc. 338
67,500 * Right Management Consultants 1,502
89,400 * Youth Services International, Inc. 1,363
COMPUTER SERVICES - 3.1%
130,000 * Alternative Resources Corp. 2,259
44,960 LCS Industries, Inc. 652
32,500 * ONTRACK Data International, Inc. 487
COMPUTER SOFTWARE - 1.2%
54,000 * Phoenix International Ltd., Inc. 931
14,700 * SPSS, Inc. 410
COMPUTER SYSTEMS - 11.8%
23,300 * Computer Horizons Corp. 897
15,000 * Imtec, Inc. 139
171,400 * MICROS Systems, Inc. 5,271
72,000 * Optimal Robotics Corp. 342
160,000 * Seagate Technology, Inc. 6,320
DRUGS - 2.0%
150,600 * Alpharma, Inc. (Class A) 2,146
DRUGS & HOSPITAL SUPPLIES - 16.7%
70,700 * Andrx Corp 1,140
20,000 * Autonomous Technologies Corp. 80
186,100 * Datascope Corp. 3,722
215,000 * Lifeline Systems, Inc. 3,762
97,000 Medex, Inc. 2,255
160,701 Molecular Devices Corp. 2,501
347,867 * Penederm, Inc. 4,305
20,200 * ResMed, Inc. 444
13,100 * Zonagen, Inc. 123
ELECTRONICS - 2.1%
17,850 * Intermagnetics General Corp. 214
28,400 * JPM Co. 497
53,300 * Ultrak, Inc. 1,626
FINANCIAL SERVICES - 8.0%
54,400 Cole Taylor Financial Group, Inc. 1,442
138,300 * Credit Acceptance Corp. 3,250
125,800 * First Enterprise Financial Group, Inc. 1,179
103,900 First Financial Caribbean Corp. (ADR) 2,883
FOOD & TOBACCO - 3.0%
28,800 Philip Morris Cos., Inc. 3,244
HEALTH CARE - 5.8%
35,000 * Amrion, Inc. 792
72,600 * Health Systems International, Inc. 1,797
14,000 * MedQuist, Inc. 346
111,000 * United Dental Care, Inc. 3,372
HOMEBUILDING - 1.4%
69,000 * American Homestar Corp. 1,570
HOSPITAL MANAGEMENT - 1.4%
115,000 * American Healthcorp, Inc. 1,337
62,000 * Laboratory Specialists of America, Inc. 186
HOUSEHOLD PRODUCTS - 2.4%
136,200 * Lifetime Hoan Corp. 1,600
34,800 * Paragon Trade Brands, Inc. 1,044
LEISURE TIME - 0.4%
20,000 * Laser Storm, Inc. 20
36,500 * Mikohn Gaming Corp. 192
41,700 * Morrow Snowboards, Inc. 276
</TABLE>
See Notes to Financial Statements
-8-
<PAGE> 11
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- -------------------------------------------------------------------------------
<S> <C>
MANUFACTURING - 1.7%
14,400 * Industrial Training Corp. $ 81
136,300 * Maverick Tube Corp. 1,738
OFFICE EQUIPMENT & SUPPLIES - 0.7%
87,400 * Open Plan Systems, Inc. 765
POLLUTION CONTROL - 1.0%
44,000 * Tetra Technologies, Inc. 1,111
RESTAURANTS - 2.3%
269,300 * NPC International, Inc. 2,222
42,000 * New York Bagel Enterprises 257
RETAIL - 4.8%
326,700 * Damark International, Inc. 3,104
151,843 * Harold's Stores, Inc. 2,183
RETAIL - DEPARTMENT STORES - 0.7%
40,600 * Stage Stores, Inc. 741
RETAIL - SPECIALTY - 9.4%
72,200 * Aaron Rents, Inc. 857
261,800 *+ American Coin Merchandising, Inc. 1,309
4,000 * Funco, Inc. 33
59,300 * Garden Botanika, Inc. 712
82,000 * Garden Ridge Corp. 707
289,300 * Rent-Way, Inc. 2,784
61,000 * The Dress Barn, Inc. 915
77,800 * The First Years, Inc. 1,264
102,500 * Video Update, Inc. (Class A) 404
147,100 * West Coast Entertainment Corp. 1,287
TELECOMMUNICATIONS - 0.7%
89,600 * ACI Telecentrics, Inc. 549
20,900 * EIS International, Inc. 180
--------
TOTAL COMMON STOCKS 105,959
--------
WARRANTS - 0.0%
LEISURE TIME - 0.0%
20,000 * Laser Storm, Inc. 6
--------
TOTAL WARRANTS 6
--------
TEMPORARY INVESTMENTS - 2.3%
INVESTMENT COMPANIES:
$ 2,529,037 Short-Term Investments Co.
(Prime Portfolio) 2,529
--------
TOTAL TEMPORARY INVESTMENTS 2,529
--------
TOTAL INVESTMENTS - 99.1% 108,494
Other Assets, less Liabilities 997
--------
NET ASSETS $109,491
========
</TABLE>
* Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Portfolio controls 5% or more of the outstanding voting shares of the
Company).
See Notes to Financial Statements
-9-
<PAGE> 12
December 31, 1996
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
REPORT FROM NORTHWEST PORTFOLIO MANAGER - CHARLES R. DRIGGS
The RST Northwest Portfolio returned 12.44% for the year ended December 31, 1996
compared to 25.89% for the Northwest 50 Index. The portfolio's heavy weighting
in very small companies held the fund's performance below the benchmark index.
Nineteen ninety-six proved to be a year in which larger company stocks
outperformed. By October, we were heading full steam for larger stocks. We fully
eliminated 11 small company positions and cut two more by half. We added eight
new, larger cap names, among them STARBUCKS, SEQUENT COMPUTER, PRECISION
CASTPARTS (Boeing supplier), AMP, INC. (computer connectors), and INTEL CORP.
(computer chips).
The Portfolio currently has a 34% large cap weighting. Among industries, 22% of
net assets are in banking and about 18% of net assets are invested in
technology-related companies.
We anticipate employment in the Northwest will be at least 50% above the U.S.
average as Boeing adds 5,000 jobs in 1997 (on top of 13,000 new jobs in 1996)
and as Microsoft's Redmond campus grows from 9,000 to 11,000 employees in 1997.
Furthermore, we expect personal income gains in the Northwest to approach 7%,
versus 5.3% for the United States. After all, Boeing pays an average salary of
$49,000 and Microsoft $59,000.
Economic growth (GDP) should average 3.3% for the West over the next three years
and 2.0% for the US. This regional strength bodes particularly well for the
companies in our portfolio that provide goods and services locally. All in all,
the Northwest is a fine place to invest, and we're stocked up on the region's
premiere companies.
-10-
<PAGE> 13
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
INVESTMENT HIGHLIGHTS
As of December 31, 1996
NORTHWEST PORTFOLIO
ILLUSTRATION OF A $10,000 INVESTMENT:
SINCE FUND INCEPTION ON JANUARY 7, 1993 TO DECEMBER 31, 1996*
================================================================================
[LINE CHART]
<TABLE>
<CAPTION>
NORTHWEST PORTFOLIO S&P 500 INDEX NORTHWEST 50 INDEX
<S> <C> <C>
"01/93" 10000 10000 10000
9385 10136 9687
9633 10350 10086
9325 10100 9859
9563 10369 10103
9474 10400 9885
9425 10358 9531
9623 10750 9921
9722 10667 9698
9841 10888 10046
9901 10785 10262
"12/93" 9945 10915 10400
10146 11286 10714
10496 10980 10873
10216 10503 10490
10166 10637 10458
10055 10811 10616
9915 10546 10293
10086 10892 10374
10526 11337 10972
10536 11060 10553
10646 11308 10490
10396 10897 10302
"12/94" 10309 11058 10359
10097 11344 10314
10258 11786 10611
10661 12133 10999
10681 12490 11330
10812 12997 11331
11356 13299 12019
12040 13739 12474
12292 13773 12712
12070 14354 13179
11778 14303 12874
11517 14929 13066
"12/95" 11074 15217 13226
11043 15725 13663
11349 15872 13978
11972 16024 13904
12268 16260 14739
12452 16679 14978
12196 16742 14915
11707 16012 14186
12023 16350 14888
12207 17270 15274
11900 17746 15167
12390 19086 16263
"12/96" 12452 18708 16650
</TABLE>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
SINCE
1 YEAR INCEPTION
================================================================
<S> <C> <C>
Northwest Portfolio 12.44% 5.76%
Northwest 50 Index 25.89% 13.97%
S&P 500 Index 22.94% 17.42%
================================================================
</TABLE>
<TABLE>
<CAPTION>
% OF
TEN LARGEST HOLDINGS NET ASSETS
===============================================================
<S> <C>
Microsoft Corp. 5.9%
Washington Mutual Savings Bank 5.3
Boeing Co. 5.2
US Bancorp 5.1
Price/Costco, Inc. 4.4
Schnitzer Steel Industries, Inc. 4.3
Sterling Financial Corp. 3.1
Intel Corp. 2.7
Alberton's, Inc. 2.6
NIKE, Inc. 2.5
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE PURCHASES (JULY THROUGH DECEMBER) COST (000'S)
=============================================================
<S> <C>
Intel Corp. $244
AMP, Inc. 207
Starbucks Corp. 200
Precision Castparts Corp. 186
Houston Industries, Inc. 184
</TABLE>
Performance represents the performance of the Northwest 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. The Murphey
Favre Northwest 50 Index is an index of 50 Northwest companies weighted by their
regional impact. Investment management fees have been applied to the calculation
of Portfolio performance, but not to the indexes. If portfolio investment
management fees had been applied to the indexes, 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 January 7, 1993.
Performance information begins on January 31, 1993.
<TABLE>
<CAPTION>
TOP FIVE SALES (JULY THROUGH DECEMBER) PROCEEDS (000'S)
=============================================================
<S> <C>
Lattice Semiconductor Corp. $181
Wholesome & Hearty Foods, Inc. 177
Monaco Coach Corp. 147
BMC West Corp. 147
Quality Food Centers, Inc. 121
</TABLE>
-11-
<PAGE> 14
December 31, 1996
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- ------------------------------------------------------------------------------
<S> <C>
COMMON STOCKS - 89.9%
AEROSPACE - 7.3%
4,700 Boeing Co. $ 500
4,000 Precision Castparts Corp. 198
AIR TRANSPORTATION - 1.5%
6,200 Airborne Freight Corp. 145
APPAREL MANUFACTURING - 2.5%
4,000 NIKE, Inc. 239
AUTOS - 1.8%
10,800 * Monaco Coach Corp. 175
BANKS - 9.9%
5,295 * Cascade Bancorp 111
14,580 Northrim Bank 137
2,700 Security Bank Holding Co. 23
10,810 US Bancorp 486
10,400 West Coast Bancorp, Inc. 188
BEVERAGES - 1.2%
11,800 * Redhook Ale Brewery, Inc. 113
BUILDING MATERIALS - 1.6%
6,400 TJ International, Inc. 149
CHEMICALS - 1.6%
51,300 * Consep, Inc. 154
COMMERCIAL SERVICES - 0.9%
5,800 * Barrett Business Services, Inc. 88
COMPUTER SOFTWARE - 6.9%
5,700 * Analogy, Inc. 26
5,500 * Mentor Graphics Corp. 54
6,800 * Microsoft Corp. 562
2,600 * ThrustMaster, Inc. 20
COMPUTER SYSTEMS - 0.7%
4,000 Sequent Computer Systems, Inc. 71
ELECTRICAL EQUIPMENT & ELECTRONICS - 10.3%
5,800 AMP, Inc. 223
14,200 * Flir Systems, Inc. 195
2,000 Intel Corp. 262
4,600 * Lattice Semiconductor Corp. 212
15,300 * Pacific Aerospace & Electronics, Inc. 45
4,300 * Praegitzer Industries, Inc. 44
HEALTH CARE - 2.6%
6,600 * Assisted Living Concepts, Inc. 101
9,800 * Emeritus Corp. 132
5,000 * Procyte Corp. 11
METALS - MISCELLANEOUS - 5.1%
4,600 Oregon Steel Mills, Inc. 77
15,900 Schnitzer Steel Industries, Inc. 407
PAPER & FOREST PRODUCTS - 2.0%
10,300 Longview Fibre Co. 189
POLLUTION CONTROL - 0.3%
15,500 * R-B Rubber Products, Inc. 26
RETAIL - GROCERS - 3.2%
7,000 Albertson's, Inc. 249
10,000 * Carr-Gottstein Foods Co. 38
447 * Quality Food Centers, Inc. 15
RETAIL - OTHER - 8.2%
11,800 * Hollywood Entertainment Corp. 218
4,000 Nordstrom, Inc. 142
16,600 * Price/Costco, Inc. 417
RETAIL - SPECIALTY - 3.3%
27,500 * Egghead, Inc. 144
6,000 * Starbucks Corp. 172
SAVINGS & LOANS / SAVINGS BANKS - 12.1%
6,600 Interwest Saving Bank 213
4,700 Security Bancorp 139
21,100 * Sterling Financial Corp. 298
11,700 Washington Mutual Savings Bank 507
TRANSPORTATION - 2.1%
7,400 Expeditors International of Washington, Inc. 170
2,800 Greenbrier Cos., Inc. 29
UTILITIES - ELECTRIC - 3.7%
8,600 Houston Industries, Inc. 195
2,600 LG&E Energy Corp. 64
2,500 Public Service Co. of Colorado 97
UTILITIES - GAS - 1.1%
6,200 Cascade Natural Gas Corp. 105
--------
TOTAL COMMON STOCKS 8,575
========
</TABLE>
See Notes to Financial Statements
-12-
<PAGE> 15
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL VALUE
AMOUNT (000's)
- ---------------------------------------------------------------------
<S> <C>
WARRANTS - 0.1%
ELECTRICAL EQUIPMENT & ELECTRONICS - 0.1%
15,300 * Pacific Aerospace & Electronics, Inc. $ 10
-------
TOTAL WARRANTS 10
-------
TEMPORARY INVESTMENTS - 7.5%
INVESTMENT COMPANIES:
$470,823 Short-Term Investments Co.
(Prime Portfolio) 471
242,383 Short-Term Investments Co.
(Treasury Portfolio) 242
-------
TOTAL TEMPORARY INVESTMENTS 713
-------
TOTAL INVESTMENTS - 97.5% 9,298
Other Assets, less Liabilities 243
-------
NET ASSETS $ 9,541
=======
</TABLE>
* Non-income producing security.
See Notes to Financial Statements
-13-
<PAGE> 16
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.
-14-
<PAGE> 17
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 CHART]
<TABLE>
<CAPTION>
BOND PORTFOLIO LEHMAN GOV'T/CORP.
<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>
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
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
Weighted Average Maturity 4.70 Years
</TABLE>
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>
-15-
<PAGE> 18
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
-16-
<PAGE> 19
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------
AS OF DECEMBER 31, 1996 EQUITY GROWTH NW BOND
- --------------------------------------------------------------------------------------------------------------------------------
-- (In Thousands, Except Per-Share Amounts) --
<S> <C> <C> <C> <C>
ASSETS:
Investments, at Cost $216,364 $ 91,453 $7,990 $15,672
======== ======== ====== =======
Investments, at Value $264,491 $108,494* $9,298 $15,658
Receivables:
Investment securities sold 1,397 -- 120 --
Dividends and interest 460 49 11 291
Trust shares sold 1,168 1,181 140 55
-------- -------- ------ -------
Total assets 267,516 109,724 9,569 16,004
LIABILITIES:
Payables:
Investment securities purchased 4,079 -- -- --
Investment advisory fees 164 65 5 10
Trust shares redeemed 188 152 7 3
Dividends payable -- -- 16 --
Other 18 16 -- --
-------- -------- ------ -------
Total liabilities 4,449 233 28 13
-------- -------- ------ -------
NET ASSETS $263,067 $109,491 $9,541 $15,991
======== ======== ====== =======
Net Assets consist of:
Net unrealized appreciation (depreciation) $ 48,127 $ 17,041 $1,308 $ (14)
Accumulated net realized loss on investment transactions -- -- (138) (420)
Paid in capital (par value $.001 per share, unlimited shares authorized) 214,940 92,450 8,371 16,425
-------- -------- ------ -------
NET ASSETS $263,067 $109,491 $9,541 $15,991
======== ======== ====== =======
Trust shares outstanding 12,096 5,684 787 1,487
======== ======== ====== =======
NET ASSET VALUE PER SHARE
(Net assets divided by Trust shares outstanding) $ 21.75 $ 19.26 $12.12 $ 10.75
======== ======== ====== =======
</TABLE>
* Includes $1,309 of investments in an affiliated issuer. See Note 5.
See Notes to Financial Statements
-17-
<PAGE> 20
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
EQUITY GROWTH NW BOND
------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,483 $ 260 $ 62 --
Interest 730 109 56 $ 983
------- ------- ----- -----
Total investment income 5,213 369 118 983
EXPENSES:
Investment advisory fees 1,488 519 56 112
Legal and auditing fees 17 14 14 14
Custodian fees 16 23 12 4
Trustees' fees 7 5 4 3
Other 6 6 3 1
------- ------- ----- -----
Total expenses before reimbursement 1,534 567 89 134
Expense reimbursement (Note 4) -- -- (33) (22)
------- ------- ----- -----
Total expenses after reimbursement 1,534 567 56 112
------- ------- ----- -----
Net investment income (loss) 3,679 (198) 62 871
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 20,981 9,047 (138) (188)
Net change in unrealized appreciation 23,643 11,913 970 (583)
------- ------- ----- -----
Net gain (loss) on investments 44,624 20,960 832 (771)
------- ------- ----- -----
Net change in net assets
resulting from operations $48,303 $20,762 $ 894 $ 100
======= ======= ===== =====
</TABLE>
See Notes to Financial Statements
-18-
<PAGE> 21
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------------
EQUITY GROWTH
---------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
1996 1995 1996 1995
----------------------------------------------------
-- (In Thousands) --
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 3,679 $ 3,027 $ (198) $ 153
Net realized gain (loss) on investments 20,981 15,778 9,047 5,752
Net change in unrealized appreciation 23,643 14,951 11,913 4,187
-------- -------- -------- -------
Net change in net assets resulting from
operations 48,303 33,756 20,762 10,092
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,679) (3,027) -- (153)
Net realized gain on investments (20,981) (15,778) (8,849) (5,752)
Net Trust share transactions 69,945 52,207 53,120 24,115
-------- -------- -------- -------
TOTAL CHANGE IN NET ASSETS 93,588 67,158 65,033 28,302
NET ASSETS AT BEGINNING OF PERIOD 169,479 102,321 44,458 16,156
-------- -------- -------- -------
NET ASSETS AT END OF PERIOD $263,067 $169,479 $109,491 $44,458
======== ======== ======== =======
OTHER INFORMATION
Increase (Decrease) in Fund Shares
and Amounts
SHARES:
Sales 3,791 2,832 3,213 1,537
Reinvestments 1,134 977 459 341
Redemptions (1,636) (1,083) (788) (323)
-------- -------- -------- -------
Net change 3,289 2,726 2,884 1,555
======== ======== ======== =======
AMOUNTS:
Sales $ 80,468 $ 54,206 $ 58,239 $23,605
Reinvestments 24,660 18,805 8,849 5,420
Redemptions (35,183) (20,804) (13,968) (4,910)
-------- -------- -------- -------
Net change $ 69,945 $ 52,207 $ 53,120 $24,115
======== ======== ======== =======
</TABLE>
See Notes to Financial Statements
-19-
<PAGE> 22
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Continued)
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------
NW BOND
------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
1996 1995 1996 1995
------------------------------------------------
-- (In Thousands) --
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 62 $ 45 $ 871 $ 843
Net realized gain (loss) on investments (138) 66 (188) 116
Net change in unrealized appreciation 970 196 (583) 1,162
------- ------ ------- -------
Net change in net assets resulting from operations 894 307 100 2,121
Distributions to shareholders from:
Net investment income (62) (45) (871) (843)
Net realized gain on investments -- (41) -- --
Net Trust share transactions 2,397 1,527 2,505 (382)
------- ------ ------- -------
TOTAL CHANGE IN NET ASSETS 3,229 1,748 1,734 896
NET ASSETS AT BEGINNING OF PERIOD 6,312 4,564 14,257 13,361
------- ------ ------- -------
NET ASSETS AT END OF PERIOD $ 9,541 $6,312 $15,991 $14,257
======= ====== ======= =======
OTHER INFORMATION
Increase (Decrease) in Fund Shares
and Amounts
SHARES:
Sales 315 176 464 266
Reinvestments 3 5 81 75
Redemptions (113) (45) (319) (390)
------- ------ ------- -------
Net change 205 136 226 (49)
======= ====== ======= =======
AMOUNTS:
Sales $ 3,684 $1,973 $ 5,170 $ 2,941
Reinvestments 46 57 871 843
Redemptions (1,333) (503) (3,536) (4,166)
------- ------ ------- -------
Net change $ 2,397 $1,527 $ 2,505 $ (382)
======= ====== ======= =======
</TABLE>
See Notes to Financial Statements
-20-
<PAGE> 23
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 Equity, Growth,
Northwest (NW), and Bond 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, Growth, Northwest 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.
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, Growth, Northwest 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.
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 Portfolios had the following amounts of accumulated undistributed net
realized loss on investment transactions at December 31, 1996. For Federal
income tax purposes, these amounts represent capital loss carryforwards which
expire as follows:
<TABLE>
<CAPTION>
Portfolio Amounts Expiration Dates
--------- -------- ----------------
<S> <C> <C>
Bond $420,000 2002-2004
Northwest 138,000 2004
</TABLE>
-21-
<PAGE> 24
December 31, 1996
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------
EQUITY GROWTH NW BOND
- ----------------------------------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <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 $94,747 $6,142* $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 $53,530 $3,640* $15,198
======== ======= ====== =======
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the time
of purchase, had a maturity of one year or less.
* The Northwest Portfolio engaged in purchases and sales transactions with
funds that have a common investment advisor, SAFECO Asset Management
Company. These purchases and sales transactions were made at current
market value pursuant to rule 17a-7 under the Investment Company Act of
1940 and amounted to $1,402 and $865, respectively.
UNREALIZED APPRECIATION (DEPRECIATION) AT DECEMBER 31, 1996:
<TABLE>
<CAPTION>
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
Aggregate gross unrealized appreciation for investment
securities in which there is an excess of value over identified cost $ 52,162 $22,736 $1,937 $ 109
Aggregate gross unrealized depreciation for investment
securities in which there is an excess of identified cost over value (4,035) (5,695) (629) (123)
-------- ------- ------ -----
Net unrealized appreciation (depreciation) $ 48,127 $17,041 $1,308 $ (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, Growth, Northwest and Bond Portfolios, the fee is
based on average daily net assets at an annual rate of .74 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.
5. INVESTMENTS IN AFFILIATES
Because the Growth Portfolio owned more that 5% of the voting securities of
American Coin Merchandising at December 31, 1996, it is considered an
affiliate of the Portfolio. The Growth Portfolio's investment activity
associated with this company for the year ended December 31, 1996 is as
follows:
<TABLE>
<S> <C>
Shares owned at begining of period 34,000
Shares purchased 227,800
Shares sold --
--------
Shares owned at end of period 261,800
========
Market Value at end of period $ 1,309
========
Dividends during period --
========
</TABLE>
-22-
<PAGE> 25
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. 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.
-23-
<PAGE> 26
December 31, 1996
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
JANUARY 7, 1993
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
----------------------------------------- OPERATIONS) TO
1996 1995 1994 DECEMBER 31, 1993
----------------------------------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.88 $ 12.98 $ 12.16 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) 0.06 -- 0.01
Net realized and unrealized gain on investments 5.12 5.26 1.45 3.60
-------- ------- ------- -------
Total from investment operations 5.09 5.32 1.45 3.61
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.06) -- (0.01)
Distributions from realized gains (1.71) (2.36) (0.63) (1.44)
-------- ------- ------- -------
Total distributions (1.71) (2.42) (0.63) (1.45)
-------- ------- ------- -------
Net asset value at end of period $ 19.26 $ 15.88 $ 12.98 $ 12.16
======== ======= ======= =======
Total return 32.06% 41.00%(A) 11.92%(A)
34.73%**(A)
Net assets at end of period (000's omitted) $109,491 $44,458 $16,156 $ 4,850
Ratio of expenses to average net assets .79% .79% .71% .72%*
Ratio of expenses to average net assets
before expense reimbursements ++ N/A .84% .96% --
Ratio of net investment income (loss) to average net assets (.28%) .55% (.05%) 0.08%*
Portfolio turnover rate 75.58% 111.70% 41.24% 108.67%*
Average Commission Rate Paid $ 0.0530 -- -- --
</TABLE>
* Annualized.
** Not Annualized. Performance information for the period ended December 31,
1993 begins on January 31, 1993.
++ 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.
-24-
<PAGE> 27
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
NORTHWEST PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
JANUARY 7, 1993
YEAR ENDED DECEMBER 31 (COMMENCEMENT OF
- --------------------------------------------------------------------------------------------------- OPERATIONS) TO
1996 1995 1994 DECEMBER 31, 1993
- --------------------------------------------------------------------------------------------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.85 $10.24 $ 9.94 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.08 0.08 0.06 0.09
Net realized and unrealized gain (loss) on investments 1.27 0.68 0.30 (0.06)
------- ------ ------ ------
Total from investment operations 1.35 0.76 0.36 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.08) (0.08) (0.06) (0.09)
Distributions from realized gains -- (0.07) -- --
------- ------ ------ ------
Total distributions (0.08) (0.15) (0.06) (0.09)
------- ------ ------ ------
Net asset value at end of period $ 12.12 $10.85 $ 10.24 $ 9.94
======= ====== ======= ======
Total return (A) 12.44% 7.42% 3.65% (.55%)**
Net assets at end of period (000's omitted) $ 9,541 $6,312 $4,564 $3,183
Ratio of expenses to average net assets .70% .71% .71% .72%*
Ratio of expenses to average net assets
before expense reimbursements ++ 1.11% 1.18% 1.23% --
Ratio of net investment income to average net assets .78% .81% .72% 1.06%*
Portfolio turnover rate 52.20% 21.30% 7.29% 3.93%*
Average Commission Rate Paid $0.0467 -- -- --
</TABLE>
* Annualized.
** Not Annualized. Performance information for the period ended December 31,
1993 begins on January 31, 1993.
++ 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).
-25-
<PAGE> 28
December 31, 1996 SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
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).
-26-
<PAGE> 29
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, Growth, Northwest, and Bond
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, Growth, Northwest, and Bond 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
-27-
