<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
Financial Statements 10
<PAGE> 3
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------------------------------
AS OF DECEMBER 31, 1996 EQUITY GROWTH
- -----------------------------------------------------------------------------------------------------------------
-- In Thousands (Except Per-Share Amounts) --
<S> <C> <C>
ASSETS:
Investments, at Cost $216,364 $ 91,453
======== ========
Investments, at Value $264,491 $108,494*
-------- --------
Receivables:
Investment securities sold 1,397 --
Dividends and interest 460 49
Trust shares sold 1,168 1,181
-------- --------
Total assets 267,516 109,724
LIABILITIES:
Payables:
Investment securities purchased 4,079 --
Investment advisory fees 164 65
Trust shares redeemed 188 152
Dividends payable -- --
Other 18 16
-------- --------
Total liabilities 4,449 233
-------- --------
NET ASSETS $263,067 $109,491
======== ========
Net Assets consist of:
Net unrealized appreciation (depreciation) $ 48,127 $ 17,041
Accumulated net realized loss on investment transactions -- --
Paid in capital (par value $.001 per share, unlimited shares authorized) 214,940 92,450
-------- --------
NET ASSETS $263,067 $109,491
======== ========
Trust shares outstanding 12,096 5,684
======== ========
Net asset value per share
(Net assets divided by Trust shares outstanding) $ 21.75 $ 19.26
======== ========
</TABLE>
* Includes $1,309 of investments in an affiliated issuer. See Note 4.
See Notes to Financial Statements
-10-
<PAGE> 13
SAFECO RESOURCE SERIES TRUST
- -------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
EQUITY GROWTH
- -------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,483 $ 260
Interest 730 109
------- -------
Total investment income 5,213 369
EXPENSES:
Investment advisory fees 1,488 519
Legal and auditing fees 17 14
Custodian fees 16 23
Trustees' fees 7 5
Other 6 6
------- -------
Total expenses before reimbursement 1,534 567
Expense reimbursement (Note 3) -- --
------- -------
Total expenses after reimbursement 1,534 567
------- -------
NET INVESTMENT INCOME (LOSS) 3,679 (198)
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on investments 20,981 9,047
Net change in unrealized appreciation 23,643 11,913
------- -------
Net gain (loss) on investments 44,624 20,960
------- -------
Net change in net assets resulting from operations $48,303 $20,762
======= =======
</TABLE>
See Notes to Financial Statements
-11-
<PAGE> 14
December 31, 1996
- --------------------------------------------------------------------------------
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
-12-
<PAGE> 15
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 and Growth
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 Growth 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. Other securities not traded on a national
exchange or over-the-counter are valued based on consideration of information
with respect to 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 and Growth 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.
-13-
<PAGE> 16
December 31, 1996
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
PORTFOLIOS
---------------------
EQUITY GROWTH
- ----------------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C>
Purchases for the year ended December 31, 1996 $163,521 $94,747
======== =======
Sales for the year ended December 31, 1996 $114,873 $53,530
======== =======
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the time
of purchase, had a maturity of one year or less.
UNREALIZED APPRECIATION (DEPRECIATION) AT DECEMBER 31, 1996:
<TABLE>
<CAPTION>
-- ($ in Thousands) --
<S> <C>
Aggregate gross unrealized appreciation for investment
securities in which there is an excess of value over identified cost $52,162 $22,736
Aggregate gross unrealized depreciation for investment
securities in which there is an excess of identified cost over value (4,035) (5,695)
------- -------
Net unrealized appreciation (depreciation) $48,127 $17,041
======= =======
</TABLE>
3. 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 Growth 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.
4. 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 beginning 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>
-14-
<PAGE> 17
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 3 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 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
-15-
<PAGE> 18
December 31, 1996 SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. FINANCIAL HIGHLIGHTS (Continued)
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 JANUARY 7, 1993
(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 3 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 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
-16-
<PAGE> 19
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 and Growth 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 and Growth 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
-17-
