SAFECO RESOURCE SERIES TRUST, 485BPOS, 1997-04-22

SAFECO RESOURCE SERIES TRUST
485BPOS, 1997-04-22

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<PAGE>

Registration Nos. 33-06547/811-4717
- - --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/

Pre-Effective Amendment No. /_/
------------

Post-Effective Amendment No. 18 /X/
------------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/

Amendment No. 19 /X/
------------

(Check appropriate box or boxes.)

SAFECO RESOURCE SERIES TRUST
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

SAFECO Plaza, Seattle, Washington 98185
---------------------------------------- --------
(Address of Principal Executive Offices) ZIP Code

Registrant's Telephone Number, including Area Code (206) 545- 5180

NAME AND ADDRESS OF AGENT
FOR SERVICE

DAVID F. HILL
SAFECO Plaza
Seattle, Washington 98185

Approximate Date of Proposed Public Offering: Continuous

It is proposed that this filing will become effective

immediately upon filing pursuant to paragraph (b)
---
X on April 30, 1997 pursuant to paragraph (b)
--- --------------
60 days after filing pursuant to paragraph (a)(1)
---
on pursuant to paragraph (a)(1)
--- --------------
75 days after filing pursuant to paragraph (a)(2)
---
on pursuant to paragraph (a)(2) of Rule 485
--- --------------

If appropriate, check the following box:

/X/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

- - --------------------------------------------------------------------------------
Registrant hereby declares that, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, an indefinite number of its shares have previously been
registered. The notice required by such Rule for Registrant's most recent
fiscal year was filed on or about February 26, 1997. Registrant adopts such
declarations pursuant to Rule 24f-2.
- - --------------------------------------------------------------------------------

<PAGE>

SAFECO RESOURCE SERIES TRUST

Contents of Registration Statment

This registration statement consists of the following papers and documents:

Cover Sheet

Contents of Registration Statement

Cross Reference Sheet

Resource Series Trust
Equity Portfolio
Growth Portfolio
Northwest Portfolio
Small Company Stock Portfolio
Bond Portfolio
Money Market Portfolio

Part A -- Prospectus

Part B -- Statement of Additional Information

Part C -- Other Information

Signature Page

Exhibits

<PAGE>

SAFECO RESOURCE SERIES TRUST

Registration Statement on Form N-1A
Cross Reference Sheet

PART A

Item No. Location in Prospectus
- - -------- ----------------------

1. Cover Page Cover page

2. Synopsis Introduction to the Trust and the
Portfolios; Fund Expenses

3. Condensed Financial Information Financial Highlights; Performance
Information

4. General Description of The Trust and Each Portfolio's
Registrant Investment Policies; Persons
Controlling the Trust

5. Management of the Fund Information about Share Ownership and
Companies that Provide Services to
the Trust; Portfolio Managers

6. Capital Stock and Other Information about Share Ownership and
Securities Companies that Provide Services to
the Trust; Persons Controlling the
Trust; Portfolio Distribution and Tax
Information

7. Purchase of Securities Being Sale and Redemption of Shares
Offered

8. Redemption or Repurchase Sale and Redemption of Shares

9. Pending Legal Proceedings Not applicable

PART B

Item No. Location in Statement
- - -------- of Additional Information
-------------------------
10. Cover page Cover page

11. Table of Contents Cover page

12. General Information and History Not applicable

13. Investment Objectives and Investment Policies; Additional
Policies Investment Information

14. Management of the Fund Trustees and Officers

15. Control Persons and Principal Principal Shareholders of
Holders of Securities the Portfolios

16. Investment Advisory and Other Investment Advisory and Other
Services Services

17. Brokerage Allocation and Other Brokerage Practices
Practices

18. Capital Stock and Other Not Applicable
Securities

19. Purchase, Redemption and Pricing Additional Information on Calculation
of Securities Being Offered of Net Asset Value Per Share

2
<PAGE>

20. Tax Status Distribution and Tax Information

21. Underwriters Investment Advisory and Other
Services

22. Calculations of Performance Data Additional Performance Information

23. Financial Statements Financial Statements

PART C

Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.

3
<PAGE>

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

SAFECO RESOURCE SERIES TRUST PROSPECTUS
SAFECO Plaza
Seattle, Washington 98185 APRIL 30, 1997

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

This Prospectus sets forth the information a prospective investor should know
before investing. PLEASE READ AND RETAIN THE PROSPECTUS FOR FUTURE REFERENCE.
A Statement of Additional Information, dated April 30, 1997 and incorporated
herein by reference, has been filed with the Securities and Exchange
Commission and is available at no charge upon request by calling 1-800-624-5711
or writing SAFECO Securities, Inc., SAFECO Plaza, Seattle, WA 98185. The
Statement of Additional Information and other information about the portfolios
is also available on the Securities and Exchange Commission website at
http://www.sec.gov. The Statement of Additional Information contains more
information about most of the topics in this Prospectus as well as information
about the trustees and officers of the Trust.

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

The GROWTH PORTFOLIO has as its investment objective to seek growth of capital
and the increased income that ordinarily follows from such growth. The Growth
Portfolio ordinarily invests a preponderance of its assets in common stock
selected for potential appreciation.

The NORTHWEST PORTFOLIO has as its investment objective to seek the long-term
growth of capital through investing primarily in Northwest companies. The
Northwest Portfolio invests at least 65% of its total assets in securities
issued by companies with their principal executive offices located in Alaska,
Idaho, Montana, Oregon or Washington (the "Northwest").

The SMALL COMPANY STOCK PORTFOLIO ("Small Company Portfolio") has as its
investment objective to seek long-term growth of capital through investing
primarily in small-sized companies. To pursue its objective, the Small Company
Portfolio will invest primarily in companies with total market capitalization of
less than $1 billion.

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

The MONEY MARKET PORTFOLIO has as its investment objective to seek as high a
level of current income as is consistent with the preservation of capital and
liquidity through investments in high-quality money market instruments maturing
in thirteen months or less. THE MONEY MARKET

1
<PAGE>

PORTFOLIO SEEKS TO MAINTAIN A $1.00 PER SHARE NET ASSET VALUE. SHARES OF THE
MONEY MARKET PORTFOLIO ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE MONEY MARKET PORTFOLIO WILL MAINTAIN
A STABLE $1.00 PER SHARE NET ASSET VALUE.

There are market risks in all securities transactions. There is no assurance
that a Portfolio will achieve its investment objective. See "The Trust and
Each Portfolio's Investment Policies" for more information.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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

2
<PAGE>

TABLE OF CONTENTS

Page
----

Introduction to the Trust and the Portfolios . . . . . . . . . . . . . 4

Fund Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . 7

The Trust and Each Portfolio's Investment Policies . . . . . . . . . . 13

Portfolio Managers . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Information about Share Ownership and Companies that Provide Services
to the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Persons Controlling the Trust. . . . . . . . . . . . . . . . . . . . . 32

Sale and Redemption of Shares. . . . . . . . . . . . . . . . . . . . . 32

Performance Information. . . . . . . . . . . . . . . . . . . . . . . . 33

Portfolio Distributions and Tax Information. . . . . . . . . . . . . . 34

Share Price Calculation. . . . . . . . . . . . . . . . . . . . . . . . 35

Ratings Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3
<PAGE>

- - --------------------------------------------
INTRODUCTION TO THE TRUST AND THE PORTFOLIOS
- - --------------------------------------------

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

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

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

Each Portfolio is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and managed over $2.5 billion in mutual
fund assets as of December 31, 1996. SAM has been an advisor to mutual funds
and other investment portfolios since 1973 and its predecessors have been such
advisers since 1932. See "Information about Share Ownership and Companies that
Provide Services to the Trust" for more information.

4
<PAGE>

There is a risk that the market value of each Portfolio's securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest Portfolio concentrates its investments in geographic
regions, it may be subject to special risks. Investors should carefully
consider the investment risks of such geographic concentration before purchasing
shares of that Portfolio. The Small Company Portfolio, and to a lesser extent,
the Growth Portfolio invest in small-sized companies, which involve greater
risks than investments in larger, more established issuers, and their securities
can be subject to more abrupt and erratic movements in price. The value of the
Bond Portfolio will normally fluctuate inversely with changes in market interest
rates. The principal risk associated with money market funds is that they may
experience a delay or failure in principal or interest payments at maturity of
one or more of the portfolio securities. The Money Market Portfolio's yield
will fluctuate with general money market interest rates. See "The Trust and
Each Portfolio's Investment Policies" for more information.

- - -------------
FUND EXPENSES
- - -------------

A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH PORTFOLIO

Sales Load
Sales Load Imposed on
Imposed on Reinvested Deferred Redemption
Purchases Dividends Sales Load Fees Exchange Fees
- - --------- --------- ---------- ----- -------------

None None None None None

5
<PAGE>

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

Total Annual
Management Other Operating
Portfolio 12b-1 Fees Fee Expenses Expenses
- - --------- ---------- --- ------------- -------------

Equity None .70% .02% .72%

Growth None .72% .07% .79%

Northwest None .70% 0.00% .70%

Small None .85% .10% .95%
Company

Bond None .73% .00% .73%

Money Market None .62% .00% .62%

The amounts shown are actual expenses incurred by the Growth and Equity
Portfolios for the fiscal year ended December 31, 1996. During the year
ended December 31, 1996, SAFECO Life paid for or reimbursed all of the
Other Expenses of the Northwest, Bond and Money Market Portfolios.
Expenses before such reimbursement as a percentage of average net assets
were as follows:

SAFECO Resource Northwest Portfolio 1.11%
SAFECO Resource Bond Portfolio .87%
SAFECO Resource Money Market Portfolio .90%

SAFECO Life Insurance Company ("SAFECO Life") will continue to pay all
Other Expenses of the Northwest, Bond and Money Market Portfolios until
those Portfolio's assets exceed $20 million. Once a Portfolio's net
assets exceed $20 million, all of the Other Expenses of the Portfolio
will be paid by such Portfolio. (See "Persons Controlling the Trust"
for more information.)

The amounts shown for the Small Company Portfolio are estimated expenses
based on the maximum management fee and estimated Other Expenses. SAM will
pay all Other Expenses of the Small Company Portfolio in excess of .10% of
the Portfolio's average annual net assets until such time as the
Portfolio's net assets exceed $20 million. Once the Portfolio's net assets
exceed $20 million, all of the Other Expenses will be paid by the
Portfolio. For the fiscal year ending December 31, 1997, the estimated
Other Expenses for the Small Company Portfolio are expected to total .35%.

6
<PAGE>

C. EXAMPLE OF EXPENSES

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

Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------

Equity $ 7 $ 23 $ 40 $ 89

Growth $ 8 $ 25 $ 44 $ 98

Northwest $ 7 $ 22 $ 39 $ 87

Small Company $ 10 $ 30 $ 53 $ 117

Bond $ 7 $ 23 $ 41 $ 91

Money Market $ 6 $ 20 $ 35 $ 77

The purpose of the table is to assist you in understanding the various costs and
expenses that an investor in each Portfolio would bear, directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. A PORTFOLIO'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS
THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES AND
EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS AND IT IS NOT A
PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE PERFORMANCE
OF ANY PORTFOLIO.

- - --------------------
FINANCIAL HIGHLIGHTS
- - --------------------

The amounts shown for each Portfolio in the Financial Highlights tables that
follow are based upon a single share outstanding throughout the period
indicated. The following selected data has been derived from financial
statements that have been audited by Ernst & Young LLP. The data should be
read in conjunction with the financial statements, related notes and other
financial information included in the Trust's annual report to shareholders
and incorporated by reference in the Trust's Statement of Additional
Information. A copy of the Trust's Statement of Additional Information may
be obtained by calling the number on the front page of this Prospectus.

<PAGE>

FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

SAFECO RESOURCE SERIES TRUST - EQUITY PORTFOLIO

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

<TABLE>
<CAPTION>
July 21, 1987
Year Ended December 31 (Initial Public
Offering)
1996 1995 1994 1993 1992 1991 1990 1989 1988 To Dec. 31, 1987
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING
OF PERIOD $19.24 $16.83 $17.02 $14.20 $13.48 $11.38 $12.35 $10.40 $8.63 $11.98

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .34 .39 .31 .23 .20 .24 .25 .43 .29 .21
Net realized and unrealized
gain (loss) on investments 4.43 4.43 1.21 3.74 .89 2.82 (.90) 2.39 1.95 (2.63)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

Total from investment
operations 4.77 4.82 1.52 3.97 1.09 3.06 (.65) 2.82 2.24 (2.42)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

LESS DISTRIBUTIONS:
Dividends from net investment
income (.34) (.39) (.31) (.23) (.20) (.24) (.25) (.43) (.29) (.21)
Distributions from capital
gains (1.92) (2.02) (1.40) (.92) (.17) (.72) (.07) (.44) (.18) (.72)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

Total distributions (2.26) (2.41) (1.71) (1.15) (.37) (.96) (.32) (.87) (.47) (.93)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

NET ASSET VALUE AT END OF PERIOD $21.75 $19.24 $16.83 $17.02 $14.20 $13.48 $11.38 $12.35 $10.40 $8.63
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

Total Return 24.79% 28.63% 8.94% 27.92% 8.06% 26.85% (5.21%) 27.11% 25.98% (14.29%)+*

Net assets at end of period
(000's omitted) $263,067 $169,479 $102,321 $68,157 $36,064 $20,402 $9,742 $6,366 $3,256 $2,199
Ratio of expenses to average
net assets .72% .75% .77% .73% .73% .73% .73% .73% .73% .74% ++
Ratio of expenses to average
net assets before expense
reimbursement N/A N/A .78% - - - - - - -
Ratio of net investment income
to average net assets 1.72% 2.26% 1.98% 1.71% 1.80% 2.31% 2.71% 4.47% 3.08% 2.89%++
Portfolio turnover ratio 56.99% 69.18% 28.71% 41.35% 24.75% 43.60% 30.13% 50.74% 58.38% 91.62%++
Average Commission Rate Paid $.0584 -- -- -- -- -- -- -- -- --
</TABLE>

* Unaudited
+ Not annualized
++ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

SAFECO RESOURCE SERIES TRUST -GROWTH PORTFOLIO

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

Year Ended December 31 January 7, 1993
(Initial Public Offering)
1996 1995 1994 To 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 (.03) .06 -- .01
Net realized and unrealized gain (loss) 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 -- (.06) -- (.01)
Distributions from capital gains (1.71) (2.36) (.63) (1.44)
-------- -------- ------- --------

Total distributions (1.71) (2.42) (.63) (1.45)
-------- -------- ------- --------

NET ASSET VALUE AT END OF PERIOD $19.26 $15.88 $12.98 $12.16
-------- -------- ------- --------
-------- -------- ------- --------

Total Return 32.06% 41% 11.92% 34.73%+

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
to average net assets (.28%) .55% (.05%) .08%++
Portfolio turnover ratio 75.58% 111.70% 41.24% 108.67%++
Average Commission Rate Paid $.053 -- -- --

</TABLE>

+ Not annualized
++ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

SAFECO RESOURCE SERIES TRUST - NORTHWEST PORTFOLIO

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

INCOME FROM INVESTMENT OPERATIONS:
Net investment income .08 .08 .06 .09
Net realized and unrealized gain (loss) on
investments 1.27 .68 .30 (.06)
-------- -------- ------- --------

Total from investment operations 1.35 .76 .36 .03
-------- -------- ------- --------

LESS DISTRIBUTIONS:
Dividends from net investment income (.08) (.08) (.06) (.09)
Distributions from capital gains -- (.07) -- --
-------- -------- ------- --------

Total distributions (.08) (.15) (.06) (.09)
-------- -------- ------- --------

NET ASSET VALUE AT END OF PERIOD $12.12 $10.85 $10.24 $9.94
-------- -------- ------- --------
-------- -------- ------- --------

Total Return 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 ratio 52.20% 21.30% 7.29% 3.93%++
Average Commission Rate Paid $.0467 -- -- --

</TABLE>

+ Not annualized
++ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

SAFECO RESOURCE SERIES TRUST -BOND PORTFOLIO

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

NET ASSET VALUE AT BEGINNING
OF PERIOD $11.31 $10.20 $11.12 $10.82 $10.80 $10.09 $10.18 $9.83 $9.90 $10.15

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .62 .71 .59 .56 .58 .70 .74 .75 .75 .32
Net realized and unrealized
gain (loss) on investments (.56) 1.11 (.92) .58 .16 .71 (.07) .36 (.06) (.25)

Total from investment
operations .06 1.82 (.33) 1.14 .74 1.41 .67 1.11 .69 .07

LESS DISTRIBUTIONS:
Dividends from net investment
income (.62) (.71) (.59) (.56) (.58) (.70) (.74) (.75) (.75) (.32)
Distributions from capital
gains -- -- -- (.28) (.14) -- (.02) (.01) (.01) --

Total distributions (.62) (.71) (.59) (.84) (.72) (.70) (.76) (.76) (.76) (.32)

NET ASSET VALUE AT END OF PERIOD $10.75 $11.31 $10.20 $11.12 $10.82 $10.80 $10.09 $10.18 $9.83 $9.90

Total Return .54% 17.87% (2.93%) 10.55% 6.82% 13.98% 6.57% 11.30% 7.03% 2.90%+*

Net assets at end of period
(000's omitted) $15,991 $14,257 $13,361 $13,245 $9,172 $4,852 $3,228 $2,700 $2,244 $2,079
Ratio of expenses to average
net assets .73% .72% .72% .73% .74% .74% .74% .73% .74% .74%++
Ratio of expenses to average
net assets before expense
reimbursement .87% .94% .89% - - - - - - -
Ratio of net investment income
to average net assets 5.64% 6.50% 5.53% 5.68% 6.96% 7.26% 7.48% 7.47% 7.37% 7.11%++
Portfolio turnover ratio 140.90% 77.93% 147.22% 60.20% 46.66% 36.31% 7.21% 8.42% 5.36% 2.81%++
</TABLE>

* Unaudited
+ Not annualized
++ Annualized

<PAGE>

FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)

SAFECO RESOURCE SERIES TRUST -MONEY MARKET PORTFOLIO
The supplemental financial information and performance data has been derived
from the Financial Statements and should be read in conjunction therewith.

NET ASSET VALUE AT BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00

INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .05 .05 .04 .03 .03 .06 .08 .08 .07 .03

LESS DISTRIBUTIONS:
Dividends from net investment
income (.05) (.05) (.04) (.03) (.03) (.06) (.08) (.08) (.07) (.03)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

NET ASSET VALUE AT END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -----------

Total Return 4.94% 5.56% 3.65% 2.61% 3.26% 5.67% 7.86% 8.96% 7.11% 2.70%+*

Net assets at end of period
(000's omitted) $12,493 $8,719 9,315 $6,327 $5,399 $4,534 $4,284 $3,275 $2,908 $2,238
Ratio of expenses to average
net assets .62% .62% .63% .64% .68% .74% .73% .73% .74% .74%++
Ratio of expenses to average
net assets before expense
reimbursements .90% .87% .87% - - - - - - -
Ratio of net investment income
to average net assets 4.86% 5.32% 3.63% 2.61% 3.23% 5.54% 7.60% 8.55% 7.00% 6.45%++
</TABLE>

* Unaudited
+ Not annualized
++ Annualized

<PAGE>

- - --------------------------------------------------
THE TRUST AND EACH PORTFOLIO'S INVESTMENT POLICIES
- - --------------------------------------------------

The Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993. The Trust currently consists of six series: Equity Portfolio,
Growth Portfolio, Northwest Portfolio, Small Company Portfolio, Bond Portfolio
and Money Market Portfolio, each of which is a diversified series of the Trust.

The investment objective and investment policies for each Portfolio are
described below. The Trust's Board of Trustees may change a Portfolio's
objective without shareholder vote, but no such change will be made without 30
days' prior written notice to shareholders of that Portfolio. In the event a
Portfolio changes its investment objective, the new objective may not meet the
investment needs of every shareholder and may be different from the objective a
shareholder considered appropriate at the time of initial investment.

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

EQUITY PORTFOLIO

The investment objective of the Equity Portfolio is to seek long-term growth of
capital and reasonable current income. The Equity Portfolio does not seek to
achieve both growth and income with every portfolio security investment.
Rather, it attempts to achieve a reasonable balance between growth and income on
an overall basis.

To pursue its objective, the Equity Portfolio:

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

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

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underlying common stock. The
Portfolio may purchase corporate bonds and preferred stock that convert to
common stock either automatically after a specified period of time or at
the option of the issuer. The Portfolio will purchase convertible
securities which are investment grade, i.e., rated in the top four
categories by either Standard & Poor's Corporation ("S&P") or Moody's.
Moody's Investors Service, Inc. ("Moody's") deems securities rated in the
fourth category (Baa) to have speculative characteristics. The Portfolio
may retain a convertible security that is down-graded to below investment
grade after purchase. The Portfolio will not hold more than 3% of its
total assets in bonds that go into default on the payment of principal and
interest after purchase. For a description of ratings, see the "Ratings
Supplement" in this Prospectus.

3. MAY INVEST UP TO 10% OF TOTAL ASSETS IN REAL ESTATE INVESTMENT TRUSTS
("REITS"). REITs purchase real property, which is then leased, and make
mortgage investments. For federal income tax purposes, REITs attempt to
qualify for beneficial "modified pass-through" tax treatment by annually
distributing at least 95% of their taxable income. If a REIT were unable
to qualify for such tax treatment, it would be taxed as a corporation and
the distributions made to its shareholders would not be deductible by it in
computing its taxable income. REITs are dependent upon the successful
operation of properties owned and the financial condition of lessees and
mortgagors. The value of REIT units fluctuates depending on the underlying
value of the real property and mortgages owned and the amount of cash flow
(net income plus depreciation) generated and paid out. In addition, REITs
typically borrow to increase funds available for investment. Generally,
there is a greater risk associated with REITs that are highly leveraged.

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

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

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

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

GROWTH PORTFOLIO

The investment objective of the Growth Portfolio is to seek growth of capital
and the increased income that ordinarily follows from such growth.

To pursue its objective, the Growth Portfolio:

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1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. To determine those common stocks
which have the potential for long-term growth, SAM will evaluate the
issuer's financial strength, quality of management and earnings power.

2. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN CLOSED-END INVESTMENT COMPANIES
AND INVESTMENT TRUSTS.

3. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK, WHETHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER).

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

The principal risk factor associated with an investment in the Growth
Portfolio is that the market value of the portfolio securities may decrease.
In pursuing its investment objective, the Growth Portfolio may invest a
significant portion of its assets in securities issued by smaller companies.
Companies with small market capitalizations involve more risks than
investments in larger companies. Such companies may include newly formed
companies which have limited product lines, markets or financial resources
and may lack management depth. Therefore, investments in small or newly
formed companies involve greater risks than investments in larger, more
established issuers. Such securities may have limited marketability and can
be subject to more abrupt and erratic movements in price than securities of
larger more established companies. Such volatility in price may in turn
cause the Growth Portfolio's share prices to be volatile.

NORTHWEST PORTFOLIO

The investment objective of the Northwest Portfolio is to seek long-term growth
of capital through investing primarily in Northwest companies. To pursue its
objective, the Northwest Portfolio will invest at least 65% of its total assets
in securities issued by companies with their principal executive offices located
in Alaska, Idaho, Montana, Oregon or Washington.

To pursue its objective, the Northwest Portfolio:

1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCK SELECTED
PRIMARILY FOR POTENTIAL LONG-TERM APPRECIATION. In determining those
common stocks which have the potential for long-term growth, SAM will
evaluate the issuer's financial strength, quality of management and
earnings power.

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<PAGE>

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN THE OPINION
OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE
PORTFOLIO. The Portfolio may purchase corporate bonds and preferred stock
that convert to common stock either automatically after a specified period
of time or at the option of the issuer. The Portfolio will purchase those
convertible securities which, in SAM's opinion, have underlying common
stock with potential for long-term growth. The Portfolio will purchase
convertible securities which are investment grade, i.e., rated in the top
four categories by either S&P or Moody's. Moody's deems securities rated
in the fourth category (Baa) to have speculative characteristics. The
Portfolio may retain a convertible security that is down-graded to below
investment grade after purchase. For a description of ratings, see the
"Ratings Supplement" in this Prospectus. The value of convertible
securities will normally vary with the value of the underlying common stock
and fluctuate inversely with interest rates.

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

The principal risk factor associated with an investment in the Northwest
Portfolio is that the market value of the portfolio securities may decrease. An
investment in the Northwest Portfolio is also subject to different risks than a
portfolio whose securities are issued by more geographically diverse companies.
Since the Portfolio invests primarily in companies with their principal
executive offices located in the Northwest, the number of issuers whose
securities are eligible for purchase is significantly less than for many other
portfolios. Also, some companies whose securities are held in the Portfolio may
primarily distribute products or provide services in a specific locale or in the
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Portfolio may have a predominately
national or partially international market for their products or services and
are more likely to be impacted by national or international trends. As a
result, the performance of the Portfolio may be influenced by business trends or
economic conditions not only in a specific locale or in the Northwest region,
but also on a national or international level depending on the companies whose
securities are held in the Portfolio at any particular time.

BOND PORTFOLIO

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

To pursue its objective, the Bond Portfolio:

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

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<PAGE>

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

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

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

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

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

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

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<PAGE>

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

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

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

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

The YANKEE SECTOR is made up of securities issued in the U.S. by foreign
issuers. These bonds involve investment risks that are different from
those of domestic issuers. Such risks may include nationalization of the
issuer, confiscatory taxation by the foreign government, establishment of
controls by the foreign government that would inhibit the remittance of
amounts due the Bond Portfolio, lack of comparable publicly-available
information concerning foreign issuers, the lack of comparable accounting
and auditing practices in foreign countries and finally, in the event of
default, difficulty of enforcing claims against foreign issuers.

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

SAM will make every effort to analyze potential investments in foreign
issuers on the same basis as the rating services analyze domestic issuers.
Because public information is not always

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

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

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

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

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

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<PAGE>

6. MAY INVEST IN ASSET-BACKED SECURITIES, WHICH REPRESENT INTERESTS IN, OR ARE
SECURED BY AND PAYABLE FROM, POOLS OF ASSETS SUCH AS CONSUMER LOANS,
AUTOMOBILE RECEIVABLE SECURITIES, CREDIT CARD RECEIVABLE SECURITIES, AND
INSTALLMENT LOAN CONTRACTS. These securities may be supported by credit
enhancements such as letters of credit. Payment of interest and principal
ultimately depends upon borrowers paying the underlying loans. There
exists a risk of default by the underlying borrowers and recovery on
repossessed collateral may be unavailable or inadequate to support payments
on asset-backed securities. In addition, asset-backed securities are
subject to prepayment risks which may reduce the overall return of the
investment.

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

MONEY MARKET PORTFOLIO

The investment objective of the Money Market Portfolio is to seek as high a
level of current income as is consistent with the preservation of capital and
liquidity through investments in high-quality money market instruments maturing
in thirteen months or less.

To pursue its objective, the Money Market Portfolio:

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

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

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

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<PAGE>

purchase dollar-denominated commercial paper issued in the U.S. by
foreign entities. While investments in foreign securities are
intended to reduce risk by providing further diversification, such
investments involve sovereign and other risks, in addition to the
credit and market risks normally associated with domestic securities.
These additional risks include the possibility of adverse political
and economic developments (including political instability) and the
potentially adverse effects of unavailability of public information
regarding issuers, reduced governmental supervision regarding
financial markets, reduced liquidity of certain financial markets, and
the lack of uniform accounting, auditing, and financial standards or
the application of standards that are different or less stringent than
those applied in the U.S. The Portfolio will purchase such securities
only if in SAM's opinion the security is of an investment quality
comparable to other obligations which may be purchased by the Money
Market Portfolio.

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

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

(d) Corporate obligations such as publicly traded bonds, debentures and
notes. Bonds and other debt securities are used by issuers to borrow
money from investors. The issuer pays the investor a fixed rate of
interest, and must repay the amount borrowed at maturity. The value
of bonds and other debt securities will normally vary inversely with
interest rates. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise.

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

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

<PAGE>

the issuer's right to borrow from the U.S. Treasury, such as securities
issued by FNMA and FHLMC; and (c) securities supported solely by the
creditworthiness of the issuer, such as securities issued by TVA. While
U.S. Government securities are considered to be of the highest credit
quality available, they are subject to the same market risks as comparable
debt securities.

5. MAY INVEST IN VARIABLE AND FLOATING RATE INSTRUMENTS. Issuers of floating
or variable rate notes include, but are not limited to, corporations,
partnerships, the U.S. Government, its agencies and instrumentalities, and
municipalities. The interest rates on variable rate instruments reset
periodically on specified dates so as to cause the instruments' market
value to approximate their par value. The interest rates on floating rate
instruments change whenever there is a change in a designated benchmark
rate. Variable and floating rate instruments may have put features. These
instruments may have optional put features. Puts may also be mandatory, in
which case the Portfolio would be required to act to keep the instrument.

6. MAY INVEST IN REPURCHASE AGREEMENTS. In a repurchase agreement, the
Portfolio buys securities at one price and simultaneously agrees to sell
them back at a higher price. Delays or losses could result if the
counterparty to the agreement defaults or becomes insolvent. The Portfolio
will not buy repurchase agreements that mature in more than seven days.

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

COMMON INVESTMENT PRACTICES

Each of the Portfolios, except for the Small Company Portfolio and as otherwise
noted, may also follow the investment practices described below:

1. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH-QUALITY COMMERCIAL PAPER,
CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD, OPEN-END MONEY MARKET FUNDS OR
REPURCHASE AGREEMENTS. (Equity, Growth, Northwest and Bond Portfolios
only.) A Portfolio may purchase these short-term securities as a cash
management technique under those circumstances where it has cash to manage
for a short time period, for example, after receiving proceeds from
dividend distributions or the sale of portfolio securities. With respect
to repurchase agreements, each Portfolio will invest no more than 5% of
its total assets in qualified repurchase agreements and will not purchase
repurchase agreements that mature in more than seven days.

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<PAGE>

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

3. MAY EACH INVEST UP TO 5% OF NET ASSETS IN WARRANTS. (Equity, Growth and
Northwest Portfolios only.) Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrant.

4. MAY INVEST UP TO 10% OF TOTAL ASSETS IN RESTRICTED SECURITIES ELIGIBLE FOR
RESALE UNDER RULE 144A ("RULE 144A SECURITIES"), PROVIDED THAT SAM HAS
DETERMINED THAT SUCH SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE
BOARD OF TRUSTEES. Restricted securities may be sold only in offerings
registered under the Securities Act of 1933, as amended ("1933 Act"), or in
transactions exempt from the registration requirements under the 1933 Act.
Rule 144A under the 1933 Act provides an exemption for the resale of
certain restricted securities to qualified institutional buyers. Investing
in restricted securities may increase the Portfolio's illiquidity to the
extent that qualified institutional buyers or other buyers become, for a
time, unwilling to purchase the securities. As a result, the Portfolio may
not be able to sell these securities when its investment adviser deems it
advisable to sell, or may have to sell them at less than fair value. In
addition, market quotations are sometimes less readily available for
restricted securities. Therefore, judgment may at times play a greater
role in valuing these securities than in the case of unrestricted
securities.

5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"), WHICH REPRESENT
SECURITIES ISSUED BY A FOREIGN ISSUER. (Equity, Growth and Northwest
Portfolios only.) ADRs are registered receipts evidencing ownership of an
underlying foreign security. They are typically issued in the United
States by a bank or trust company. ADRs involve risks in addition to risks
normally associated with securities issued by domestic issuers, including
the possibility of adverse political or economic developments in foreign
countries. Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies and there may be less
public or less current information about their operations. In addition to
the risks of foreign investment applicable to the underlying securities,
ADRs may also be subject to the risks that the foreign issuer may not be
obligated to cooperate with the U.S. bank or trust company, or that such
information in the U.S. market may not be current. ADRs which are
structured without sponsorship of the issuer of the underlying foreign
security may also be subject

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to the risk that the foreign issuer may not provide financial and other
material information to the U.S. bank or trust company issuer.

Each of the Portfolios, except for the Small Company Portfolio, is subject to
the following fundamental policies which cannot be changed without shareholder
vote:

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

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

3. MAY NOT PURCHASE SECURITIES OF ANY ISSUER (OTHER THAN OBLIGATIONS OF, OR
GUARANTEED BY, THE U.S. GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES) IF
SUCH PURCHASE WOULD CAUSE MORE THAN TEN PERCENT (10%) OF ANY CLASS OF
SECURITIES OF SUCH ISSUER TO BE HELD BY A PORTFOLIO.

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

5. MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES FROM A BANK OR
AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN THAT
AVAILABLE FROM COMMERCIAL BANKS. Each Portfolio will not borrow amounts in
excess of 5% of its total assets. The Portfolios intend to exercise their
borrowing authority primarily to meet shareholder redemptions under
circumstances where redemptions exceed available cash.

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<PAGE>

SMALL COMPANY PORTFOLIO

The Small Company Portfolio has as its investment objective to seek long-term
growth of capital through investing primarily in small-sized companies. To
pursue its objective, the Small Company Portfolio will invest primarily in
companies with total market capitalization of less than $1 billion.

To pursue its investment objective, the Small Company Portfolio:

1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND PREFERRED
STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET CAPITALIZATION OF LESS
THAN $1 BILLION. Companies whose capitalization falls outside this range
after purchase continue to be considered small-capitalized for purposes of
the 65% policy. The Portfolio will invest principally in common stocks
selected by SAM primarily for appreciation and/or dividend potential and
from a long-range investment standpoint. In determining those common and
preferred stocks which have the potential for long-term growth, SAM will
evaluate the issuer's financial strength, quality of management and
earnings power. The Small Company Portfolio invests in companies with
small market capitalizations which involve more risks than investments in
larger companies. Newly formed companies have limited product lines,
markets or financial resources and may lack management depth. Therefore,
investments in small or newly formed companies involve greater risks than
investments in larger, more established issuers. Such securities may have
limited marketability and can be subject to more abrupt and erratic
movements in price. Such volatility in price may in turn cause the Small
Company Portfolio's share prices to be volatile.

2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN SAM'S
OPINION, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY EXCEEDS THE
EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY THE
PORTFOLIO. The Portfolio will purchase convertible securities if such
securities offer a higher yield than an issuer's common stock and provide
reasonable potential for capital appreciation. The Portfolio may invest in
convertible corporate bonds that are rated below investment grade (commonly
referred to as "high-yield" or "junk" bonds) or in comparable, unrated
bonds, but less than 35% of the Portfolio's net assets will be invested in
such securities. Below investment grade bonds are speculative and involve
greater insvestment risks than investment grade bonds due to the issuer's
reduced creditworthiness and increased likelihood of default and
bankruptcy. During periods of economic uncertainty or change, the market
prices of below investment grade bonds may experience increased volatility.
Below investment grade bonds tend to reflect short-term economic and
corporate developments to a greater extent than higher quality bonds.

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<PAGE>

3. MAY INVEST IN BONDS AND OTHER DEBT SECURITIES. The Portfolio may invest in
bonds and other debt securities that are rated investment grade by Moody's
or S&P, or unrated bonds determined by SAM to be of comparable quality to
such rated bonds. Bonds rated in the lowest category of investment grade
(Baa by Moody's and BBB by S&P) and comparable unrated bonds have
speculative characteristics and are more likely to have a weakened capacity
to make principal and interest payments under changing economic conditions
or upon deterioration in the financial condition of the issuer.

After purchase by the Portfolio a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event
will require the Portfolio to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether the
Portfolio should continue to hold the security in its portfolio. In the
event that 35% or more of the Portfolio's net assets is held in securities
rated below investment grade due to a downgrade of one or more corporate
bonds, SAM will engage in an orderly disposition of such securities to the
extent necessary to ensure that the Portfolio's holdings of such
securities remain below 35% of the Portfolio's net assets.

4. MAY INVEST UP TO 5% OF ITS NET ASSETS IN WARRANTS. Warrants are options to
buy a stated number of shares of common stock at a specified price any time
during the life of the warrant. Generally, the value of a warrant will
fluctuate by greater percentages than the value of the underlying common
stock. The primary risk associated with a warrant is that the term of the
warrant may expire before the exercise price of the common stock has been
reached. Under these circumstances, the Portfolio could lose all of its
principal investment in the warrant.

5. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM
SECURITIES ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S.
GOVERNMENT, HIGH QUALITY COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT,
SHARES OF NO-LOAD, OPEN-END MONEY MARKET FUNDS OR REPURCHASE AGREEMENTS.
The Portfolio may purchase these short-term securities as a cash
management technique under those circumstances where it has cash to
manage for a short time period, for example, after receiving proceeds
from the sale of securities, dividend distributions from portfolio
securities or cash from the sale of the Portfolio's shares to investors.
With respect to repurchase agreements, the Portfolio will invest no
more than 5% of its total assets in repurchase agreements and will not
purchase repurchase agreements that mature in more than seven days.
Counterparties of foreign repurchase agreements may be less creditworthy
than U.S. counterparties.

6. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS OR
PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under this
procedure, the Portfolio agrees to acquire securities that are to be issued
and delivered against payment in the future. The price, however, is fixed
at the time of commitment.

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<PAGE>

When the Portfolio purchases when-issued or delayed-delivery securities,
its custodian bank will maintain in a temporary holding account cash, U.S.
Government securities or other high-grade debt obligations having a value
equal to or greater than such commitments. On delivery dates for such
transactions, the Portfolio will meet its obligations from maturities or
sales of the securities held in the temporary holding account or from then-
available cash flow. If the Portfolio chooses to dispose of the right to
acquire a when-issued or delayed delivery security prior to its
acquisition, it could incur a gain or loss due to market fluctuations. Use
of these techniques may affect the Portfolio's share price in a manner
similar to leveraging.

7. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRs"). ADRs are registered
receipts evidencing ownership of an underlying foreign security. They are
typically issued in the United States by a bank or trust company. ADRs
involve risks in addition to risks normally associated with securities
issued by domestic issuers, including the possibility of adverse political
or economic developments in foreign countries. Foreign companies may not
be subject to accounting standards or governmental supervision comparable
to U.S. companies and there may be less public or less current information
about their operations. In addition to the risks of foreign investment
applicable to the underlying securities, ADRs may also be subject to the
risks that the foreign issuer may not be obligated to cooperate with the
U.S. bank or trust company, or that such information in the U.S. market may
not be current. ADRs which are structured without sponsorship of the
issuer of the underlying foreign security may also be subject to the risk
that the foreign issuer may not provide financial and other material
information to the U.S. bank or trust company issuer.

8. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES. Foreign
securities are subject to risks in addition to those inherent in
investments in domestic securities. Foreign investments involve sovereign
risk, which includes the possibility of adverse local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage
(which would prevent currency from being sold). Foreign investments may be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There is generally less publicly available
information about issuers of foreign securities as compared to U.S.
issuers. Many foreign companies are not subject to accounting, auditing
and financial reporting standards and requirements comparable to those
applicable to U.S. companies. Securities of some foreign issuers are less
liquid and more volatile than securities of U.S. issuers. Financial
markets on which foreign securities trade are generally subject to less
governmental regulation as compared to U.S. markets. Foreign brokerage
commissions and custodian fees are generally higher than those in the
United States.

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<PAGE>

9. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE
INVESTMENT TRUSTS ("REITs"). REITs purchase real property, which is then
leased, and make mortgage investments. For federal income tax purposes,
REITs attempt to qualify for beneficial "modified pass-through" tax
treatment by annually distributing at least 95% of their taxable income.
If a REIT were unable to qualify for such tax treatment, it would be taxed
as a corporation and the distributions made to its shareholders would not
be deductible by it in computing its taxable income. REITs are dependent
upon the successful operation of properties owned and the financial
condition of lessees and mortgagors. The value of REIT units fluctuates
depending on the underlying value of the real property and mortgages owned
and the amount of cash flow (net income plus depreciation) generated and
paid out. In addition, REITs typically borrow to increase funds available
for investment. Generally, there is a greater risk associated with REITs
that are highly leveraged.

10. MAY INVEST IN RESTRICTED SECURITIES, PROVIDED THAT SAM HAS DETERMINED THAT
SUCH SECURITIES ARE LIQUID UNDER GUIDELINES ADOPTED BY THE TRUST'S BOARD OF
TRUSTEES. Restricted securities may be sold only in offerings registered
under the Securities Act of 1933, as amended ("1933 Act"), or in
transactions exempt from the registration requirements under the 1933 Act.
Rule 144A under the 1933 Act provides an exemption for the resale of
certain restricted securities to qualified institutional buyers. Investing
in restricted securities may increase the Portfolio's illiquidity to the
extent that qualified institutional buyers or other buyers are unwilling to
purchase the securities. As a result, the Portfolio may not be able to
sell these securities when its investment adviser deems it advisable to
sell, or may have to sell them at less than fair value. In addition,
market quotations are sometimes less readily available for restricted
securities. Therefore, judgment may at times play a greater role in
valuing these securities than in the case of unrestricted securities.

11. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT MATURITY
ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX. The value
of an indexed security is determined by reference to a specific equity
instrument or statistic. The performance of indexed securities depends
largely on the performance of the securities or indices to which they are
indexed, but such securities are also subject to credit risks associated
with the issuer of the security. Indexed securities may also be more
volatile than their underlying instruments.

12. MAY INVEST UP TO 5% OF ITS TOTAL ASSETS IN SECURITIES OF UNSEASONED
ISSUERS. Unseasoned issuers are those companies which, together with any
predecessors, have been in operation for less than three years.

The following restrictions are fundamental policies of the Small Company
Portfolio that cannot be changed without shareholder vote:

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<PAGE>

1. The Small Company Portfolio, with respect to 75% of the value of its total
assets, may not invest more than 5% of its total assets in the securities
of any one issuer (other than U.S. Government securities);

2. The Small Company Portfolio, with respect to 100% of the value of its total
assets, may not purchase more than 10% of the outstanding voting securities
of any one issuer (other than U.S. Government securities);

3. The Small Company Portfolio may borrow money only for temporary or
emergency purposes from a bank or affiliate of SAFECO Corporation at an
interest rate not greater than that available from commercial banks. The
Small Company Portfolio will not borrow amounts in excess of 33% of total
assets or purchase securities if borrowings equal to, or greater than, 5%
of its total assets are outstanding.

For more information, see the "Investment Policies" and "Additional Investment
Information" sections of the Trust's Statement of Additional Information.

- - ------------------
PORTFOLIO MANAGERS
- - ------------------

EQUITY PORTFOLIO

The manager for the Equity Portfolio is Richard D. Meagley, Vice President, SAM.
Mr. Meagley began serving as portfolio manager for the Portfolio in 1995. He is
also the portfolio manager for certain other SAFECO Funds. Prior to these
positions he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAM and the fund manager of
the SAFECO Northwest Fund from 1991 to 1992.

GROWTH PORTFOLIO

The manager for the Growth Portfolio is Thomas M. Maguire, Vice President, SAM.
Mr. Maguire has served as portfolio manager for the Portfolio since it commenced
operations in 1993. He has served as portfolio manager for the SAFECO Growth
Fund since 1989.

NORTHWEST PORTFOLIO

The manager for the Northwest Portfolio is Bill Whitlow. Mr. Whitlow began
serving as portfolio manager for the Portfolio in April 1997. From 1990 to
April 1997, he was a principal and Manager of Pacific Northwest Research for
the brokerage firm of Pacific Crest Securities, located in Seattle,
Washington.

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<PAGE>

SMALL COMPANY PORTFOLIO

The manager for the Small Company Portfolio is Greg Eisen. Mr. Eisen has served
as an investment analyst for SAM since 1992. From 1986 to 1992, Mr. Eisen was
engaged by the SAFECO Insurance Companies as a financial analyst.

BOND PORTFOLIO

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

MONEY MARKET PORTFOLIO

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

Each portfolio manager and certain other persons related to SAM and the
Portfolios are subject to written policies and procedures designed to prevent
abusive personal securities trading. Incorporated within these policies and
procedures are recommendations made by the Investment Company Institute (the
trade group for the mutual fund industry) with respect to personal securities
trading by persons associated with mutual funds. Those recommendations include
preclearance procedures and blackout periods when certain personnel may not
trade in securities that are the same or related securities being considered for
purchase or sale by a Portfolio.

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

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

Shares of the Trust may be owned by the separate accounts of Participating
Insurance Companies and by Qualified Plans (see

30
<PAGE>

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

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

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

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

SAM is the investment adviser for each Portfolio under an agreement with the
Trust. Under the agreement, SAM is responsible for the overall management of
the Trust's and each Portfolio's business affairs. SAM provides investment
research, advice, management and supervision to the Trust and each Portfolio.
Consistent with each Portfolio's investment objectives and policies, SAM
determines what securities will be purchased, retained or sold by each
Portfolio, and implements those decisions. Each Portfolio's turnover rate
(other than the Small Company Portfolio) is set forth in the "Financial
Highlights" section. It is anticipated that the annual turnover rate for the
Small Company Portfolio will not exceed 100%. A Portfolio's turnover rate will
vary from year to year. A high portfolio turnover rate involves correspondingly
higher transaction costs in the form of broker commissions, dealer spreads and
other costs that a Portfolio will bear directly. Each Portfolio pays SAM

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<PAGE>

an annual management fee based on a percentage of that Portfolio's net assets
ascertained each business day and paid monthly in accordance with the following
annual rates: .74% of net assets for the Equity, Growth, Northwest, and Bond
Portfolios, .85% of net assets for the Small Company Portfolio and .65% of net
assets for the Money Market Portfolio.

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

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

- - -----------------------------
PERSONS CONTROLLING THE TRUST
- - -----------------------------

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

- - -----------------------------
SALE AND REDEMPTION OF SHARES
- - -----------------------------

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

Shares are sold to the separate accounts of Participating Insurance Companies
and may also be sold to Qualified Plans. Shares of each Portfolio are purchased
and redeemed at net asset value. Redemptions will be effected by the separate
accounts to meet obligations under the Variable Contracts and by the Qualified
Plans. Variable Contract owners and Qualified Plan participants do not deal
directly with the Trust with

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<PAGE>

respect to acquisition or redemption of shares. The Board of Trustees of the
Trust may refuse to sell shares of any Portfolio to any person, or may suspend
or terminate the offering of shares of any Portfolio if such action is required
by law or by any regulatory authority having jurisdiction or is, in the sole
discretion of the Trustees acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, necessary in the best
interests of the shareholders of such Portfolio.

- - -----------------------
PERFORMANCE INFORMATION
- - -----------------------

Each Portfolio's yield, effective yield, total return and average annual total
return may be quoted in advertisements. Performance figures are indicative only
of past performance and are not intended to represent future investment results.
The yield and share price of the Equity, Growth, Northwest, Small Company and
Bond Portfolios will fluctuate and your shares, when redeemed, may be worth more
or less than you originally paid for them. While the Money Market Portfolio
will attempt to maintain a stable net asset value of $1.00 per share, there
can be no assurance that it will do so. The yield of the Money Market
Portfolio will fluctuate.

EQUITY, GROWTH, NORTHWEST, SMALL COMPANY AND BOND PORTFOLIOS

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

MONEY MARKET PORTFOLIO

Yield is the annualization on a 365-day basis of the Money Market Portfolio's
net income over a 7-day period. Effective yield is the annualization on a 365-
day basis of the Money Market Portfolio's net income over a 7-day period with
dividends reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.

RANKINGS

From time to time, a Portfolio may advertise its rankings. Rankings are
calculated by independent companies that monitor mutual fund performance (e.g.
CDA Technologies, Lipper Analytical Services, Inc. and Morningstar, Inc.) and
are reported periodically in national financial publications such as BARRON'S,
BUSINESS WEEK, FORBES, INVESTOR'S BUSINESS DAILY, MONEY MAGAZINE and THE WALL
STREET JOURNAL. In addition, non-standardized performance figures may accompany
the standardized figures described

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<PAGE>

above. Non-standardized figures may be calculated in a variety of ways,
including but not necessarily limited to, different time periods and different
initial investment amounts. Each Portfolio may also compare its performance to
the performance of the Standard & Poor's 500 Index or other relevant indices.
Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results.

OTHER CHARGES

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

- - -------------------------------------------
PORTFOLIO DISTRIBUTIONS AND TAX INFORMATION
- - -------------------------------------------

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

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

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

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

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

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- - -----------------------
SHARE PRICE CALCULATION
- - -----------------------

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

For the purpose of computing the net asset value per share for the Equity,
Growth, Northwest, Small Company and Bond Portfolios, securities are valued on
the basis of valuations provided by a pricing service approved by the Trust's
Board of Trustees. In general, portfolio securities are valued at the last
reported sale price on the national exchange on which the securities are
primarily traded, unless there are no transactions in which case they shall be
valued at the last reported bid price. Securities traded over-the-counter are
valued at the last sale price, unless there is no reported sale price in which
case the last reported bid price will be used. Portfolio securities that are
traded on a stock exchange and over-the-counter are valued according to the
broadest and most representative market. For bonds and other fixed income
securities, this usually is the over-the-counter market. Long-term corporate
bonds and securities not traded on a national exchange shall be valued based on
consideration of information with respect to transactions in similar securities,
quotations from dealers and various relationships between securities. Other
assets for which a representative value cannot be established are valued at
their fair value as determined in good faith by or under the direction of the
Trust's Board of Trustees.

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

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<PAGE>

- - ------------------
RATINGS SUPPLEMENT
- - ------------------

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

DESCRIPTION OF DEBT RATINGS

MOODY'S

Investment Grade:

Aaa -- Judged to be of the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edged." Interest
payments are protected by a large or an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa -- Judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high-grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A -- Possess many favorable investment attributes and are to be considered
upper medium-grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa -- Considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security
appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Non-Investment Grade:

Ba -- Judged to have speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.

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<PAGE>

B -- Generally lack characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.

Caa -- Have poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.

Ca -- Represent obligations which are speculative to a high degree. Such issues
are often in default or have other marked shortcomings.

C -- The lowest-rated class of bonds, and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.

S&P

Investment Grade:

AAA -- Highest rating assigned by S&P. Capacity to pay interest and repay
principal is extremely strong.

AA -- Very strong capacity to pay interest and repay principal. Differs from
the highest rated issues only in small degree.

A -- Strong capacity to pay interest and repay principal, although it is
somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher-rated categories.

BBB -- Adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.

Non-Investment Grade:

BB, B, CCC, CC, and C -- Regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal.
"BB" indicates the least degree of speculation and "C" the highest. While
such debt will likely have some quality and protective characteristics, these
are

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<PAGE>

outweighed by large uncertainties or major exposures to adverse conditions.

C1 -- Reserved for income bonds on which no interest is being paid.

D -- In payment default. The D rating category is used when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.

PLUS (+) OR MINUS (-): Ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations with an original maturity not exceeding one
year.

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

- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.

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

S&P

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

A-1 - Degree of safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety characteristics are denoted with a
plus sign (+) designation.

A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

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<PAGE>

SAFECO RESOURCE SERIES TRUST
EQUITY PORTFOLIO
GROWTH PORTFOLIO
NORTHWEST PORTFOLIO

SMALL COMPANY STOCK PORTFOLIO

BOND PORTFOLIO
MONEY MARKET PORTFOLIO

Statement of Additional Information
--------

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

The date of the most current Prospectus of the Trust to which this Statement of
Additional Information relates is April 30, 1997.

The date of this Statement of Additional Information is April 30, 1997.

Shares of the Trust are offered to life insurance companies, which may or may
not be affiliated with one another ("Participating Insurance Companies"), for
allocation to certain of their separate accounts established for the purpose of
funding variable life insurance policies and variable annuity contracts and may
also be offered directly to qualified pension and retirement plans ("Qualified
Plans"). The Participating Insurance Companies and the Qualified Plans may or
may not make all Portfolios described in this Statement of Additional
Information available for investment.

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

TABLE OF CONTENTS

Investment Policies 2 Additional Performance 16
Information

Additional Investment Information 9 Trustees and Officers 19

Special Risks of Below Investment 15 Investment Advisory and 21
Grade Bonds Other Services

Principal Shareholders of the 15 Brokerage Practices; Distributions 23
Portfolio and Tax Information

Additional Information On Financial Statements 27
Calculation of Net Asset Value 16
Per Share

<PAGE>

INVESTMENT POLICIES

The Equity Portfolio, Growth Portfolio, Northwest Portfolio, Small Company Stock
Portfolio ("Small Company Portfolio"), Bond Portfolio and Money Market Portfolio
(collectively, the "Portfolios") are each a series of the SAFECO Resource Series
Trust ("Trust"). The investment policies of each Portfolio are described in the
Prospectus and this Statement of Additional Information. These policies state
the investment practices that the Portfolios will follow, in some cases limiting
investments to a certain percentage of assets, as well as those investment
activities that are prohibited. The types of securities (e.g., common stock,
U.S. Government securities or bonds) a Portfolio may purchase is also disclosed
in the Prospectus. Before a Portfolio purchases a security that the following
policies permit but which is not currently described in the Prospectus, the
Prospectus will be amended or supplemented to describe the security. The
following information supplements the discussion in the Prospectus of the
investment policies and limitations of each Portfolio.

Each Portfolio's fundamental policies may not be changed without the approval of
a majority of its outstanding voting securities as defined in the Investment
Company Act of 1940 ("1940 Act"). For purposes of such approval, the vote of a
majority of the outstanding voting securities of a Portfolio means the vote, at
a meeting of the shareholders of such Portfolio duly called, (i) of 67% or more
of the voting securities present at such meeting if the holders of more than 50%
of the outstanding voting securities are present or represented by proxy, or
(ii) of more than 50% of the outstanding voting securities, whichever is less.

Fundamental Investment Policies of the Equity Portfolio, Growth Portfolio,
Northwest Portfolio, Bond Portfolio and Money Market Portfolio

Each Portfolio will NOT:

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

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

3. a. With respect to the Equity, Growth, Northwest and Money Market
Portfolios, concentrate its investments in particular industries and
in no event will the respective Portfolio invest twenty-five (25%) or
more of its assets in any one industry. Securities of foreign banks
and

2
<PAGE>

foreign branches of U.S. banks are considered to be one industry.
This limitation does not apply to obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or to
certificates of deposit or bankers' acceptances issued by domestic
banks.

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

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

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

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

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

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

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

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

11. Issue or sell any senior security.

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

FUNDAMENTAL INVESTMENT POLICIES OF THE SMALL COMPANY PORTFOLIO

The Small Company Portfolio will not:

3
<PAGE>

1. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if as a result more than 5% of the value of
the Small Company Portfolio's total assets would be invested in the
securities of such issuer or the Small Company Portfolio would own or hold
more than 10% of the outstanding voting securities of such issuer, except
that up to 25% of the value of such assets (which 25% shall not include
securities issued by another investment company) may be invested without
regard to these limits;

2. Borrow money, except the Small Company Portfolio may borrow money for
temporary and emergency purposes (not for leveraging or investment
purposes) in an amount not exceeding 33 1/3% of its total assets (including
the amount borrowed) less liabilities (other than borrowings). Any
borrowings by the Small Company Portfolio that come to exceed this amount
shall be reduced within three business days to the extent necessary to
comply with the 33 1/3% limit. "Business Day" means any day the New
York Stock Exchange is open for trading;

3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the disposition
of portfolio securities, the Small Company Portfolio may be deemed an
underwriter under federal securities laws;

4. Issue senior securities, except as permitted under the 1940 Act, the rules
or regulations promulgated thereunder or pursuant to a no-action letter
or an exemptive order issued by the Securities and Exchange Commission;

5. Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities) if, as a result, more than 25% of the Small
Company Portfolio's total assets would be invested in securities of
companies whose principal business activities are in the same industry;

6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the Small Company
Portfolio may purchase or sell options or futures contracts and invest in
securities or other instruments backed by physical commodities;

7. Lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties; however, this limit does
not apply to purchases of debt securities or to repurchase agreements; and

8. Purchase or sell real estate, except real estate investment trusts.

NON-FUNDAMENTAL INVESTMENT POLICIES

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

Non-Fundamental Investment Policies of the Equity Portfolio, Growth Portfolio,
Northwest Portfolio, Bond Portfolio and Money Market Portfolio

1. A Portfolio may not participate on a joint or joint and several basis in
any trading account in securities, except that a Portfolio may join with
other transactions executed by the investment adviser or the investment
adviser's parent company and any subsidiary thereof, for the purpose of
seeking better net results on portfolio transactions or lower brokerage
commission rates.

2. A Portfolio may not purchase securities with unlimited liability, i.e.,
securities for which the holder may be assessed for amounts in addition to
the subscription

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<PAGE>

or other price paid for the security.

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

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

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

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

7. A Portfolio may not purchase the securities of any other investment company
or investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase other
than the customary broker's commissions, or except as part of a merger,
consolidation or acquisition. A Portfolio will not invest more than ten
percent (10%) of its total assets in shares of other investment companies,
invest more than five percent (5%) of its total assets in a single
investment company nor purchase more than three percent (3%) of the
outstanding voting securities of a single investment company.

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

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

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

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

11. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which at the time of purchase are split-rated (i.e. rated in
the highest category by one nationally recognized rating organization and
the second highest category by at least one other such organization), are
rated in the second highest rating

5
<PAGE>

category by at least two nationally recognized rating organizations or, if
rated by only one organization are rated in the second highest category by
that organization and which in the opinion of the Money Market Portfolio's
investment adviser present minimal credit risks. However, the Money Market
Portfolio may invest no more than five percent (5%) of total assets in
these securities and may invest only the greater of $1 million or one
percent (1%) of total assets in such securities from the same issuer.

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

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

a. Commercial paper obligations.

b. Negotiable and non-negotiable time deposits and certificates of
deposit, bankers' acceptances and other short-term debt obligations of
banks. The Money Market Portfolio will not invest in any security
issued by a commercial bank unless (a) the bank has total assets of at
least $1 billion or the equivalent in other currencies or, in the case
of United States banks which do not have total assets of at least $1
billion, the aggregate investment made in any one such bank is limited
to $100,000 and the principal sum of such investment is insured in
full by the Federal Deposit Insurance Corporation (FDIC), (b) in the
case of a United States bank, it is a member of the FDIC, and (c) in
the case of a foreign bank, the security is in the opinion of
management of an investment quality comparable with other debt
securities which may be purchased by the Money Market Portfolio.
These limitations do not prohibit investment in securities issued by
foreign branches of U.S. banks, provided the U. S. banks meet the
foregoing requirements.

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

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

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

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

17. The Growth Portfolio will normally invest a preponderance of assets in
common

6
<PAGE>

stocks selected primarily for potential appreciation. The Northwest
Portfolio will invest primarily in shares of common stock selected
primarily for potential appreciation that have been issued by Northwest
companies. In determining these common stocks which have the potential for
long-term growth, the Trust's investment adviser will evaluate the issuer's
financial strength, quality of management and earnings power.

18. The Northwest Portfolio may occasionally invest in securities convertible
into common stock when, in the opinion of SAM, the expected total return of
a convertible security exceeds the expected total return of common stock
eligible for purchase by the Portfolio.

19. The Equity Portfolio may invest up to ten percent (10%) of its total assets
in shares of real estate investment trusts ("REITs"). The Growth and
Northwest Portfolios may invest up to five percent (5%) of their total
assets in shares of real estate investment trusts ("REITs").

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

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

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

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

23. The Equity, Growth, Northwest and Money Market Portfolios of the Trust may
not purchase foreign securities, unless at the time thereof, such purchase
would not cause more than five percent (5%) of the total assets of a
Portfolio (taken at market value) to be invested in foreign securities.
This restriction does not apply to the Bond Portfolio.

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

NON-FUNDAMENTAL INVESTMENT POLICIES OF THE SMALL COMPANY PORTFOLIO

1. The Small Company Portfolio will not make short sales (sales of securities
not presently owned), except where the Portfolio has at the time of sale,
by virtue of its ownership in other securities, the right to obtain at no
additional cost securities equivalent in kind and amount to the securities
to be sold;

2. The Small Company Portfolio will not purchase securities issued by any
other investment company, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except when such
purchase, although not made in the open

7
<PAGE>

market, is part of a merger, consolidation or acquisition. Nothing in this
policy shall prevent any purchase for the purpose of effecting a merger,
consolidation or acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or profit to the
principal underwriter;

3. The Small Company Portfolio will not invest in oil, gas or other mineral
exploration, development programs or leases;

4. The Small Company Portfolio will not invest more than 5% of its net assets
in warrants. Warrants acquired by the Portfolio in units or attached to
securities are not subject to the 5% limit;

5. The Small Company Portfolio will not invest more than 10% of its total
assets in real estate investment trusts, nor will the Portfolio invest in
interests in real estate investment trusts that are not readily marketable
or interests in real estate limited partnerships not listed or traded on
the Nasdaq Stock Market if, as a result, the sum of such interests
considered illiquid and other illiquid securities would exceed 15% of the
Portfolio's net assets;

6. The Small Company Portfolio will not purchase securities on margin, except
that the Portfolio may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments made in
connection with futures contracts and options on futures shall not
constitute purchasing securities on margin;

7. The Small Company Portfolio may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse repurchase
agreements with any party. The Portfolio will not purchase any securities
while borrowings equal to or greater than 5% of its total assets are
outstanding;

8. The Small Company Portfolio will not purchase any security, if as a result,
more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued;

9. The Small Company Portfolio will not make loans to any person, firm or
corporation, but the purchase by the Portfolio of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
persons other than the Portfolio, whether or not the purchase was made upon
the original issue of securities, shall not be considered a loan within the
prohibition of this section;

10. The Small Company Portfolio will not purchase or retain the securities of
any issuer if, to the knowledge of the Portfolio's management, the officers
and Trustees of the Trust and the officers and directors of the investment
adviser to the Portfolio (each owning beneficially more than 0.5% of the
outstanding securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer;

11. The Small Company Portfolio may invest in restricted securities eligible
for resale under Rule 144A, provided that SAM has determined that such
securities are liquid under guidelines adopted by the Board of Trustees;

12. The Small Company Portfolio shall not engage primarily in trading for
short-term profits, but it may from time to time make investments for
short-term purposes when such action is believed to be desirable and
consistent with sound investment policy. The Portfolio may dispose of
securities whenever its adviser deems

8
<PAGE>

advisable without regard to the length of time they have been held;

13. The Small Company Portfolio will not purchase securities of companies which
together with any predecessors have a record of less than 3 years of
continuous operation, if such purchase at the time thereof would cause more
than 5% of the Portfolio's total assets to be invested in the securities of
such companies;

14. The Small Company Portfolio will not purchase puts, calls, straddles,
spreads or any combination thereof, if by reason thereof the value of its
aggregate investment in such classes of securities would exceed 5% of its
total assets; provided, however, that nothing herein shall prevent the
purchase, ownership, holding or sale of warrants where the grantor of the
warrants is the issuer of the underlying securities; and

15. The Small Company Portfolio will not purchase or sell commodities or
commodity contracts.

ADDITIONAL INVESTMENT INFORMATION

Unless otherwise noted, each Portfolio may make some or all of the following
investments, among others, although they may not buy all of the types of
securities that are described.

1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted securities are
securities that may be sold only in a public offering with respect to which
a registration statement is in effect under the Securities Act of 1933
("1933 Act") or, if they are unregistered, pursuant to an exemption from
registration. In recognition of the increased size and liquidity of the
institutional markets for unregistered securities and the importance of
institutional investors in the formation of capital, the Securities and
Exchange Commission ("SEC") has adopted Rule 144A under the 1933 Act, which
is designed to further facilitate efficient trading among institutional
investors by permitting the sale of Rule 144A securities to qualified
institutional buyers. To the extent privately placed securities held by a
Portfolio qualify under Rule 144A and an institutional market develops for
those securities, the Portfolio likely will be able to dispose of the
securities without registering them under the 1933 Act. SAM, acting under
guidelines established by the Trust's Board of Trustees, may determine that
certain securities qualified for trading under Rule 144A are liquid.

Where registration is required, a Portfolio may be obligated to pay all or
part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Portfolio may be permitted to
sell a security under an effective registration statement. If during such
a period adverse market conditions were to develop, the Portfolio might
obtain a less favorable price than prevailed when it decided to sell. To
the extent privately placed securities are illiquid, purchases thereof will
be subject to any limitations on investments in illiquid securities.
Restricted securities for which no market exists are priced at fair value
as determined in accordance with procedures approved and periodically
reviewed by the Trust's Board of Trustees.

2. REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Portfolio purchases securities from a bank or recognized securities dealer
and simultaneously commits to resell the securities to the bank or dealer
at an agreed-upon date and price reflecting a market rate of interest
unrelated to the

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<PAGE>

coupon rate or maturity of the purchased securities. A Portfolio
maintains custody of the underlying securities prior to their repurchase;
thus, the obligation of the bank or dealer to pay the repurchase price on
the date agreed to is, in effect, secured by such securities. If the value
of these securities is less than the repurchase price, plus any agreed-upon
additional amount, the other party to the agreement must provide additional
collateral so that at all times the collateral is at least equal to the
repurchase price, plus any agreed-upon additional amount.

Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value
of the underlying securities and delays and costs to a Portfolio if the
other party to a repurchase agreement becomes bankrupt. Each Portfolio
intends to enter into repurchase agreements only with banks and dealers in
transactions believed by SAM to present minimum credit risks in accordance
with guidelines established by the Trust's Board of Trustees. SAM will
review and monitor the creditworthiness of those institutions under the
general supervision of the Board of Trustees.

3. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
sold within seven days in the ordinary course of business for approximately
the amount at which they are valued. The Portfolios do not intend to
purchase illiquid securities but the market for some securities may become
illiquid following purchase by a Portfolio. Due to the absence of an
active trading market, a Portfolio may experience difficulty in valuing or
disposing of illiquid securities. SAM determines the liquidity of the
securities pursuant to guidelines adopted by the Trust's Board of Trustees.

4. WARRANTS. A warrant is an option issued by a corporation that gives the
holder the right to buy a stated number of shares of common stock of the
corporation at a specified price within a designated time period. Warrants
may be purchased and sold separately or attached to stocks or bonds as part
of a unit offering. The term of a warrant may run from two to five years
and in some cases the term may be longer. The exercise price carried by
the warrant is usually well above the prevailing market price of the
underlying common stock at the time the warrant is issued. The holder of a
warrant has no voting rights and receives no dividends. Warrants are
freely transferable and may trade on the major national exchanges.

Warrants may be speculative. Generally, the value of a warrant will
fluctuate by greater percentages than the value of the underlying common
stock. The primary risk associated with a warrant is that the term of the
warrant may expire before the exercise price of the common stock has been
reached. Under these circumstances, a Portfolio could lose all of its
principal investment in the warrant.

A Portfolio will invest in a warrant only if the Portfolio has the
authority to hold the underlying common stock. Additionally, if a
warrant is part of a unit offering, a Portfolio will purchase the
warrant only if it is attached to a security in which the Portfolio has
authority to invest. In all cases, a Portfolio will purchase warrants
only after SAM determines that, in its opinion, the exercise price for
the underlying common stock is likely to be achieved within the required
time-frame and that an actively traded market exists. SAM will make
this determination by analyzing the issuer's financial health, quality
of management and any other factors deemed to be relevant.

5. REAL ESTATE INVESTMENT TRUSTS. Real estate investment trusts ("REITs")

10
<PAGE>

purchase real property, which is then leased, and make mortgage
investments. For federal income tax purposes REITs attempt to qualify for
beneficial tax treatment by distributing at least 95% of their taxable
income. If a REIT were unable to qualify for such beneficial tax
treatment, it would be taxed as a corporation and distributions to its
shareholders would not be deductible by it in computing its taxable income.

REITs are dependent upon the successful operation of the properties owned
and the financial condition of lessees and mortgagors. The value of REIT
units will fluctuate depending on the underlying value of the real property
and mortgages owned and the amount of cashflow (net income plus
depreciation) generated and paid out. In addition, REITs typically borrow
to increase funds available for investment. Generally there is a greater
risk associated with REITs which are highly leveraged.

6. CONVERTIBLE SECURITIES. Convertible bonds and convertible preferred stock
may be exchanged for a stated number of shares of the issuer's common stock
at a certain price known as the conversion price. The conversion price is
usually greater than the price of the common stock at the time the
convertible security is purchased. Generally, the interest rate of
convertible bonds and the yield of convertible preferred stock will be
lower than the issuer's non-convertible securities. Also, the value of
convertible securities will normally vary with the value of the underlying
common stock and fluctuate inversely with interest rates. However,
convertible securities may show less volatility in value than the issuer's
non-convertible securities. A risk associated with convertible bonds and
convertible preferred stock is that the conversion price of the common
stock will not be attained.

7. YANKEE DEBT SECURITIES AND EURODOLLAR BONDS. (Equity, Growth, Northwest,
Bond and Money Market Portfolios only.) The Yankee Sector is made up of
securities issued in the U.S. by foreign issuers. These bonds involve
investment risks that are different from those of domestic issuers. Such
risks may include nationalization of the issuer, confiscatory taxation by
the foreign government, establishment of controls by the foreign government
that would inhibit the remittance of amounts due a Portfolio, lack of
comparable publicly-available information concerning foreign issuers, lack
of comparable accounting and auditing practices in foreign countries and
finally, difficulty in enforcing claims against foreign issuers in the
event of default.

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

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

8. MORTGAGE-BACKED SECURITIES. (Bond Portfolio only.) Unlike conventional
bonds, the principal with respect to mortgage-backed securities is paid
back over the

11
<PAGE>

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

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

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

9. SHORT-TERM INVESTMENTS. The Equity, Growth, Northwest and Bond Portfolios
may purchase short-term securities under those circumstances where they
have cash to manage for a short-term time period or as a defensive measure
when, in the investment adviser's opinion, business or economic conditions
warrant. Certificates of deposit must be issued by banks or savings and
loan associations which have total assets of at least $1 billion or, in the
case of a bank or savings and loan association not having total assets of
at least $1 billion, the bank or savings and loan association is insured by
the Federal Deposit Insurance Corporation in which case the Portfolio will
limit its investment to the statutory insurance coverage.

10. FOREIGN SECURITIES. Foreign securities are securities issued in and
traded in foreign markets and contain greater risks (including currency
risk) than securities issued in and traded in U.S. markets. The Equity,
Growth, Northwest and Money Market Portfolios may not purchase foreign
securities, unless at the time thereof, such purchase would not cause
more than five percent (5%) of the total assets of a Portfolio (taken at
market value) to be invested in foreign securities. The Money Market
Portfolio may purchase dollar-denominated commercial paper issued in
the U.S. by foreign

12
<PAGE>

entities (as described in the Prospectus). The Small Company Stock
Portfolio may invest up to 10% of its total assets (taken at market
value) in foreign securities. The Bond Portfolio may invest up to 30%
of its total assets (taken at market value) in foreign securities.
While investments in foreign securities are intended to reduce risk by
providing further diversification, such investments involve sovereign
and other risks, in addition to the credit and market risks normally
associated with domestic securities. These additional risks include the
possibility of adverse political and economic developments (including
political instability) and the potentially adverse effects of
unavailability of public information regarding issuers, reduced
governmental supervision regarding financial markets, reduced liquidity
of certain financial markets, and the lack of uniform accounting,
auditing, and financial standards or the application of standards that
are different or less stringent than those applied in the U.S.

11. ASSET-BACKED SECURITIES. (Equity, Growth, Northwest, Bond and Money Market
Portfolios Only.) Asset-backed securities represent interests in, or are
secured by and payable from, pools of assets such as consumer loans,
automobile receivable securities, credit card receivable securities, and
installment loan contracts. The assets underlying the securities are
securitized through the use of trusts and special purpose corporations.
These securities may be supported by credit enhancements such as letters of
credit. Payment of interest and principal ultimately depends upon
borrowers paying the underlying loans. There exists a risk of default by
the underlying borrowers and recovery on repossessed collateral may be
unavailable or inadequate to support payments on asset-backed securities.
In addition, asset-backed securities are subject to prepayment risks which
may reduce the overall return of the investment.

Automobile receivable securities represent undivided fractional interests
in a trust whose assets consist of a pool of automobile retail installment
sales contracts and security interests in vehicles securing the contracts.
Payments of principal and interest on the certificates issued by the
automobile receivable trust are passed through periodically to certificate
holders and are guaranteed up to specified amounts by a letter of credit
issued by a financial institution. Certificate holders may experience
delays in payments or losses if the full amounts due on the underlying
installment sales contracts are not realized by the trust because of
factors such as unanticipated legal or administrative costs of enforcing
the contracts, or depreciation, damage or loss of the vehicles securing the
contracts.

Credit card receivable securities are backed by receivables from
revolving credit card accounts. Certificates issued by credit card
receivable trusts generally are pass-through securities. Competitive
and general economic factors and accelerated cardholder payment rate
can adversely affect the rate at which new receivables are credited to
an account, potentially shortening the expected weighted average life
of the credit card receivable security and reducing its yield. Credit
card accounts are unsecured obligations of the cardholder.

12. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSIT. (Small Company Portfolio
only.) In making temporary investments in commercial paper and
certificates of deposit, the Portfolio will adhere to the following
guidelines:

a) Commercial paper must be rated A-1 or A-2 by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
("S&P") or Prime-1 or Prime-2 by Moody's Investors Services, Inc.
("Moody's") or issued by companies with an unsecured debt issue
currently outstanding rated AA by S&P or Aa by Moody's or higher.

b) Certificates of deposit ("CDs") must be issued by banks or
savings and

13
<PAGE>

loan associations that have total assets of at least $1 billion
or, in the case of a bank or savings and loan association not
having total assets of at least $1 billion, the bank or savings
and loan association is insured by the Federal Deposit Insurance
Corporation ("FDIC").

13. CONTINGENT VALUE RIGHTS. (Small Company Portfolio only.) A contingent value
right ("CVR") is a right issued by a corporation that takes on a pre-
established value if the underlying common stock does not attain a target
price by a specified date. Generally, a CVR's value will be the difference
between the target price and the current market price of the common stock
on the target date. If the common stock does attain the target price by
the date, the CVR expires without value. CVRs may be purchased and sold as
part of the underlying common stock or separately from the stock. CVRs may
also be issued to owners of the underlying common stock as the result of a
corporation's restructuring.

14. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. (Small Company Portfolio
only.) Under this procedure, the Portfolio agrees to acquire securities
(whose terms and conditions, including price, have been fixed by the
issuer) that are to be issued and delivered against payment in the future.
Delivery of securities so sold normally takes place 30 to 45 days
(settlement date) after the date of the commitment. No interest is earned
by the Portfolio prior to the settlement date. The value of securities
sold on a "when-issued" or "delayed-delivery" basis may fluctuate before
the settlement date and the Portfolio bears the risk of such fluctuation
from the date of purchase. The Portfolio may dispose of its interest in
those securities before delivery.

15. SOVEREIGN DEBT OBLIGATIONS. (Small Company Portfolio only.) Sovereign debt
instruments are issued or guaranteed by foreign governments or their
agencies. Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan participations.
Governments or governmental entities responsible for repayment of the debt
may be unable or unwilling to repay principal and interest when due, and
may require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic factors.

16. INDEXED SECURITIES. (Small Company Portfolio only.) Indexed securities are
securities whose prices are indexed to the prices of other securities,
securities indices, currencies, commodities or other financial indicators.
Indexed securities generally are debt securities whose value at maturity or
interest rate is determined by reference to a specific instrument or
statistic. Currency-indexed securities generally are debt securities whose
maturity values or interest rates are determined by reference to values of
one or more specified foreign currencies. Currency-indexed securities may
be positively or negatively indexed; i.e., their maturity value may
increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or
their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a put on
the underlying currency. Currency-indexed securities may also have prices
that depend on the values of different foreign securities relative to each
other.

The performance of an indexed security depends largely on the performance
of the security, currency or other instrument to which they are indexed.
Performance may also be influenced by interest rate changes in the United
States and foreign countries. Indexed securities additionally are subject
to credit risks associated with the issuer of the security. Their values
may decline

14
<PAGE>

substantially if the issuer's creditworthiness deteriorates. Indexed
securities may also be more volatile than their underlying instruments.

17. SHORT SALES AGAINST THE BOX. (Small Company Portfolio only.) The
Portfolio may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Portfolio owns
an equal amount of such securities or an equal amount of the securities of
the same issuer as the securities sold short (a "short sale against the
box"). If the Portfolio engages in short sales against the box, it will
incur transaction costs.

SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS

The Bond Portfolio may invest up to 20% of its assets in below investment grade
bonds (commonly referred to as "high-yield" or "junk" bonds). Certain
additional risks are associated with these bonds. Yields on below investment
grade bonds will fluctuate over time. These bonds tend to reflect short-term
economic and corporate developments to a greater extent than higher quality
bonds which primarily react to fluctuations in interest rates. During an
economic downturn or period of rising interest rates, issuers of below
investment grade bonds may experience financial difficulties which adversely
affect their ability to make principal and interest payments, meet projected
business goals and obtain additional financing. In addition, issuers often rely
on cash flow to service debt. Failure to realize projected cash flows may
seriously impair the issuer's ability to service its debt load which in turn
might cause a Portfolio to lose all or part of its investment in that security.
SAM will seek to minimize these additional risks through diversification,
careful assessment of the issuer's financial structure, business plan and
management team and monitoring of the issuer's progress toward its financial
goals.

The liquidity and price of below investment grade bonds can be affected by a
number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-traded
market with few participants and may adversely impact the Portfolio's ability to
dispose of the bonds as well as make valuation of the bonds more difficult.
Because there tend to be fewer investors in below investment grade bonds, it may
be difficult for the Portfolio to sell these securities at an optimum time.
Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.

Credit ratings evaluate the likelihood that an issuer will make principal and
interest payments, but may not reflect market value risks associated with lower-
rated bonds. Credit rating agencies may not timely revise ratings to reflect
subsequent events affecting an issuer's ability to pay principal and interest.

PRINCIPAL SHAREHOLDERS OF THE PORTFOLIOS

At April 1, 1997 SAFECO Life Insurance Company ("SAFECO Life") owned the
following percentages of the outstanding shares of the Portfolios listed:

Equity 99.5%
Growth 99.9%
Northwest 96.5%
Bond 100%
Money Market 100%

15
<PAGE>

SAFECO Life and SAM are wholly-owned subsidiaries of SAFECO Corporation,
SAFECO Plaza, Seattle, Washington 98185.

ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE

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

Each other Portfolio has selected a pricing service to assist in computing
the value of its securities. Short-term debt securities held by each
Portfolio have a remaining maturity of less than 60 days when purchased, and
securities originally purchased with maturities in excess of 60 days but
which currently have maturities of 60 days or less, may be valued at cost
adjusted for amortization of premiums or accrual of discounts, or under such
other methods as the Board of Trustees may from time to time deem to be
appropriate. The cost of those securities that had original maturities in
excess of 60 days shall be determined by their fair market value up until the
61st day prior to maturity. All other securities and assets in the
portfolios will be appraised in accordance with those procedures established
by the Board of Trustees in good faith in computing the fair market value of
those assets.

ADDITIONAL PERFORMANCE INFORMATION

EQUITY, GROWTH, NORTHWEST AND BOND PORTFOLIOS

The yields for the 30-day period ended December 31, 1996 for the Equity, Growth,
Northwest and Bond Portfolios of the Trust were 1.36%, (.24%), .82% and 6.94%,
respectively.

Yield is computed using the following formula:

a-b 6
Yield = 2 [(--- +1) - 1]
cd

16
<PAGE>

Where: a = dividends and interest earned during the period

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

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends

d = the maximum offering price per share on the last day of
the period

The total returns, expressed as a percentage, for the one-year, five-year and
since inception periods ended December 31, 1996 for the Equity and Bond
Portfolios were as follows:

Since Initial # of Initial
Portfolio 1 Year 5 Year Public Offering Months Public Offering
- - --------- ------ ------ --------------- ------ ---------------

Equity 24.79% 141.70% 257.82% 113 July 21, 1987
Bond .54% 35.84% 102.27% 113 July 21, 1987

The total returns, expressed as a percentage, for the one-year, and since
inception periods ended December 31, 1996 for the Growth and Northwest
Portfolios were as follows:

Since Initial # of Initial
Portfolio 1 Year Public Offering Months Public Offering
- - --------- ------ --------------- ------ ---------------

Growth 32.06% 180.77% 47 January 7, 1993
Northwest 12.44 24.52% 47 January 7, 1993

The average annual total returns, expressed as a percentage, for the one-year,
five-year and since inception periods ended December 31, 1996 for the Equity and
Bond Portfolios were as follows:

Since Initial # of Initial
Portfolio 1 Year 5 Year Public Offering Months Public Offering
- - --------- ------ ------ --------------- ------ ---------------

Equity 24.79% 19.30% 14.50% 113 July 21, 1987
Bond .54% 6.32% 7.77% 113 July 21, 1987

The average annual total returns, expressed as a percentage, for the one-year
and since inception periods ended December 31, 1996 for the Growth and Northwest
Portfolios were as follows:

Since Initial # of Initial
Portfolio 1 Year Public Offering Months Public Offering
- - --------- ------ --------------- ------ ---------------

Growth 32.06% 30.16% 47 January 7, 1993
Northwest 12.44% 5.76% 47 January 7, 1993

The total return is computed using the following formula:

ERV-P
T = ------- X 100
P

17
<PAGE>

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

n -----
A =( \/ ERV/P - 1) x 100

Where: T = total return

A = average annual total return

N = number of years

ERV = ending redeemable value of a hypothetical
$1,000 investment at the end of a specified
period of time

P = a hypothetical initial investment of $1,000

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

MONEY MARKET PORTFOLIO:

The yield and effective yield for the Money Market Portfolio of the Trust for
the 7-day period ended December 31, 1996, are 4.87% and 4.99%, respectively.

Yield is computed using the following formula:

(x-y) -z 365
Yield = [------ ] = Base Period Return X -----
y 7

Where: x = value of one share at the end of a 7-day period

y = value of one share at the beginning of a 7-day
period ($1.00)

z = capital changes during the 7-day period, if any

Effective yield is computed using the following formula:

Effective yield = [(Base Period Return + 1) 365/7 ] -1

18
<PAGE>

TRUSTEES AND OFFICERS

TRUSTEES POSITION HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH TRUST DURING PAST 5 YEARS
- - --------------------- ------------- --------------------

Boh A. Dickey* Trustee President, Chief Operating
SAFECO Plaza and Officer and Director of SAFECO
Seattle, Washington 98185 Chairman Corporation.
(52) He has been an executive
officer of SAFECO Corporation
and its subsidiaries since
1982. Director of First
SAFECO National Life Insurance
Company of New York. See table
under "Investment Advisory and
Other Services."

Barbara J. Dingfield Trustee Manager, Corporate
Microsoft Corporation Contributions and Community
One Microsoft Way Programs for Microsoft
Redmond, Washington 98052 Corporation, Redmond,
(51) Washington, a computer
software company; Director
and former Executive Vice
President, Wright Runstad &
Co., Seattle, Washington, a
real estate development
company; Director of First
SAFECO National Life Insurance
Company of New York.

Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and
Seattle, Washington 98177 other SAFECO Trusts; retired
(68) Senior Vice President and
Treasurer of SAFECO
Corporation; former President
of SAFECO Asset Management
Company; Director of First
SAFECO National Life Insurance
Company of New York.

Richard E. Lundgren Trustee Director of Marketing and
764 S. 293rd Street Customer Relations, Building
Federal Way, Washington Materials Distribution,
98032 Weyerhaeuser Company, Tacoma,
(59) Washington; Director of First
SAFECO National Life Insurance
Company of New York.

Larry L. Pinnt Trustee Retired Vice President and
1600 Bell Plaza, Room 1802 Chief Financial Officer of
Seattle, Washington 98191 U.S. WEST Communications,
(61) Seattle, Washington; Director
of Key Bank of Washington;
Director of University of
Washington Medical Center,
Seattle, Washington; Director
of First SAFECO National Life
Insurance Company of New York;
Director of Cascade Natural
Gas Corporation, Seattle,
Washington.

19
<PAGE>

TRUSTEES POSITION HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH TRUST DURING PAST 5 YEARS
- - --------------------- ------------- --------------------

John W. Schneider Trustee President of Wallingford
1808 N. 41st Street Group, Inc., an international
Seattle, Washington 98103 trading and business/real
(55) estate development consulting
firm, Seattle, Washington;
former President of Coast
Hotels, Inc.; Director of
First SAFECO National Life
Insurance Company of New York.

David F. Hill* President and President of SAFECO
SAFECO Plaza Trustee Securities, Inc. and SAFECO
Seattle, Washington 98185 Services Corporation; Senior
(48) Vice President of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."

Neal A. Fuller Vice President Vice President, Controller,
SAFECO Plaza Controller Assistant Secretary and
Seattle, Washington 98185 Assistant Treasurer of SAFECO
(34) Secretary Securities, Inc. and SAFECO
Services Corporation. Vice
President, Controller,
Secretary and Treasurer of
SAFECO Asset Management
Company. See table under
"Investment Advisory and Other
Services."

Ronald L. Spaulding Vice President Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice
Seattle, WA 98185 President and Treasurer of
(52) SAFECO Corporation; Director
and Vice President of SAFECO
Life Insurance Company; former
senior Portfolio Manager of
SAFECO insurance companies'
taxable bond portfolios;
former Portfolio Manager for
several SAFECO mutual funds.
See Table under "Investment
Advisory and Other Services."

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

At April 1, 1997 none of the Trustees and officers of the Trust owned
shares of any series of the Trust.

20
<PAGE>

COMPENSATION TABLE

FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996

Total
Pension or Compensation
Retirement From
Benefits Estimated Registrant and
Aggregate Accrued As Annual Fund Complex
Compensation Part of Fund Benefits Upon Paid to
Trustee from Registrant Expenses Retirement Trustees
- - ------- --------------- ------------ ------------- --------------

Boh A. Dickey N/A N/A N/A N/A

Barbara J. $4,359 $0 $0 $27,938
Dingfield

David F. Hill N/A N/A N/A N/A

Richard W.,
Hubbard $4,359 $0 $0 $25,750

Richard E.
Lundgren $4,359 $0 $0 $27,938

Larry L. Pinnt $4,359 $0 $0 $27,938

John W.
Schneider $4,359 $0 $0 $27,938

Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of the Trust are compensated by the
Trust.

Each Trustee also serves as Trustee for five other registered open-end,
management investment companies that have, in the aggregate, nineteen series
companies managed by SAM.

INVESTMENT ADVISORY AND OTHER SERVICES

SAM, SAFECO Securities, Inc. ("SAFECO Securities") and SAFECO Services
Corporation ("SAFECO Services") are wholly-owned subsidiaries of SAFECO
Corporation. SAFECO Securities is the principal underwriter and SAFECO Services
is the transfer, dividend and distribution disbursement and shareholder
servicing agent for each Portfolio under agreements with the Trust.

21
<PAGE>

The following individuals have the following positions and offices with the
Trust, SAM, SAFECO Securities and SAFECO Services:

Name Trust SAM SAFECO SAFECO
- - ---- ----- --- Securities Services
---------- --------

B. A. Dickey Chairman Director Director
Trustee

D. F. Hill President Senior President President
Trustee Vice Director Director
President Secretary Secretary
Director

N. A. Fuller Vice Vice Vice Vice
President President President President
Controller Controller Controller Controller
Assistant Secretary Assistant Assistant
Secretary Treasurer Secretary Secretary
Treasurer Treasurer

R. A. Spaulding Vice Chairman Director Director
President Director
Treasurer

S. C. Bauer President
Director

D. H. Longhurst Assistant Assistant Assistant
Controller Controller Controller

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

In connection with the investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed for or
on behalf of the Trust and each Portfolio that include furnishing office
facilities, books, records and personnel to manage the Trust's and each
Portfolio's affairs and paying certain expenses.

For the services and facilities furnished by SAM, the Trust has agreed to pay an
annual fee of .74% for the Equity, Growth, Northwest and Bond Portfolios, .85%
for the Small Company Portfolio and .65% for the Money Market Portfolio computed
on the basis of the average market value of the net assets of each Portfolio
ascertained each business day and paid monthly. During its last three fiscal
years, the Trust paid SAM the following investment advisory fees for each
Portfolio:

22
<PAGE>

Investment Advisory Fees Paid to SAM

Years Ended
December 31 December 31 December 31
Portfolio 1996 1995 1994
- - --------- -----------------------------------------

Equity $1,488,000 $961,000 $623,000
Bond $ 113,000 $ 93,000 $ 96,000
Northwest $ 56,000 $ 40,000 $ 28,000
Growth $ 519,000 $200,000 $ 68,000
Money Market $ 63,000 $ 54,000 $ 47,000

State Street Bank and Trust, 1776 Heritage Drive, North Quincy, MA, 02170 is the
custodian of the securities and cash of each Portfolio under an agreement with
the Trust. Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, Washington
98104 is the independent auditor of each Portfolio's financial statements.

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

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

BROKERAGE PRACTICES

Brokers typically charge commissions or mark-ups/mark-downs to effect
securities transactions. The Portfolios may also purchase securities from
underwriters, the price of which will include a commission or concession paid
by the issuer to the underwriter. The purchase price of securities purchased
from dealers serving as market makers will include the spread between the bid
and asked prices. Brokerage transactions involving securities of companies
domiciled in countries other than the United States will normally be
conducted on the principal stock exchange of those countries. In most
international markets, commission rates are not negotiable and may be higher
than the negotiated commission rates available in the United States. There
is generally less government supervision and regulation of foreign stock
exchanges and broker-dealers than in the United States.

SAM determines the broker/dealers through whom securities transactions for the
Portfolios are executed. SAM may select a broker/dealer who may receive a
commission for portfolio transactions exceeding the amount another
broker/dealer would have charged for the same transaction if SAM determines
that such amount of commission is reasonable in relation to the value of the
brokerage and research services performed or provided by the broker/dealer,
viewed in terms of either that particular transaction or SAM's overall
responsibilities to the client for whose account such portfolio transaction is
executed and other accounts advised by SAM. Research services include market
information, analysis of specific issues, presentation of special situations
and trading opportunities on a timely basis, advice concerning industries,
economic factors and trends, portfolio strategy and performance of accounts.

Research services are used in advising all accounts, including accounts
advised by related persons of SAM, and not all such services are necessarily
used by SAM in connection with the specific account that paid commissions to
the broker/dealer providing such services. SAM does not acquire research
services through the generation of credits with respect to principal
transactions or transactions in financial futures.

The overall reasonableness of broker commissions paid is evaluated
periodically. Such evaluation includes review of what competing
broker/dealers are willing to charge for similar types of services and what
discounts are being granted by brokerage firms. The evaluation also considers
the timeliness and accuracy of the research received.

23
<PAGE>

The following table states the total amount brokerage expenses for the
portfolios listed for the fiscal years ending December 31, 1996, 1995,
and 1994 respectively:

Years Ended
December 31 December 31 December 31
Portfolio 1996 1995 1994
- - --------- -----------------------------------------

Equity $314,000 $286,000 $138,000
-------- -------- --------
Northwest $8,000 $1,000 $1,000
-------- -------- --------
Growth $135,000 $82,000 $23,000
-------- -------- --------

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

DISTRIBUTIONS AND TAX INFORMATION

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

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

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

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

TAX INFORMATION. Each Portfolio intends to continue to qualify and elect to be
treated as a regulated investment company under Subchapter M of the Internal
Revenue Code for each taxable year by complying with all applicable requirements
regarding the sources of its income, the diversification of its assets, and the

24
<PAGE>

timing of its distributions. Each Portfolio's policy is to distribute to its
shareholders all of its investment company taxable income and any net realized
capital gains for each fiscal year in a manner that complies with the
distribution requirements of the Internal Revenue Code, so that a Portfolio will
not be subject to any federal income tax or excise taxes based on net income.

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

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

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

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

25
<PAGE>

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

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

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

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

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

26
<PAGE>

FINANCIAL STATEMENTS

The following financial statements for the Growth, Equity, Bond, Northwest
and Money Market Portfolios and the report thereon of Ernst & Young LLP,
independent auditors, are incorporated herein by reference to the Resource
Series Trust's Annual Report for the year ended December 31, 1996:

Portfolio of Investments as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statement of Changes in Net Assets for the Years Ended December 31, 1996 and
December 31, 1995
Notes to Financial Statements

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

27
<PAGE>

SAFECO RESOURCE SERIES TRUST

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

PART A

None

PART B

(a) The following financial statements for each Portfolio of the Registrant
except the Small Company Portfolio, for the year ended December 31, 1996
including the report thereon of Ernst & Young LLP, independent auditors,
are incorporated by reference to the Resource Series Trust's Annual Report
for the period ended December 31, 1996:

Portfolio of Investments as of December 31, 1996
Statement of Assets and Liabilities as of December 31, 1996
Statement of Operations for the Year Ended December 31, 1996
Statement of Changes in Net Assets for the Years Ended
December 31, 1996 and December 31, 1995
Notes to Financial Statements

(b) Exhibits:

Exhibit Number Description of Document Page
- - -------------- ----------------------- ----

(27.1-5) Financial Data Schedules

(99.1) Trust Instrument/Certificate of Trust +

(99.2) Bylaws +

(99.3) Inapplicable

(99.4) Inapplicable

(99.5) Investment Advisory and Management +
Contract

(99.6) Distribution Agreement +

(99.7) Inapplicable

(99.8) Custody Agreement

(99.9a) Transfer Agent Agreement +

(99.9b) Fund Participation Agreement +

<PAGE>

(99.10) Opinion and Consent of Counsel

(99.11) Consent of Independent Auditors

(99.12) Registrant's Annual Report for the
Year Ended December 31, 1996 including
Financial Statments ++

(99.13) Agreement Governing Contribution
to SAFECO Resource Series Trust
by SAFECO Life Insurance Company
dated June 23, 1986. +

(99.14) Inapplicable

(99.15) Inapplicable

(99.16) Calculation of Performance Information +

(99.17) See (27.1) above

(99.18) Inapplicable

+ Filed as an exhibit to Post-Effective Amendment No. 16 filed with the SEC
on April 26, 1996

++ Registrant's Annual Report was filed with the SEC on or about
February 26, 1997. The Report contains the financial statements
incorporated by reference in the Registrant's Statement of Additional
Information.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services) and
SAFECO Securities, Inc. (SAFECO Securities), each a Washington corporation.
SAM is the investment advisor, SAFECO Services is the transfer agent and
SAFECO Securities is the principal underwriter for each of the SAFECO Mutual
Funds. The SAFECO Mutual Funds consist of six Delaware business trusts:
SAFECO Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond
Trust, SAFECO Money Market Trust, SAFECO Managed Bond Trust (formerly SAFECO
Institutional Series Trust) and SAFECO Resource Series Trust. The SAFECO
Common Stock Trust consists of eight mutual funds: SAFECO Growth Fund, SAFECO
Equity Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO International
Stock Fund, SAFECO Balanced Fund, SAFECO Small Company Stock Fund and SAFECO
U.S. Value Fund. The SAFECO Taxable Bond Trust consists of three mutual
funds: SAFECO Intermediate-Term U.S. Treasury Fund, SAFECO GNMA Fund and
SAFECO High-Yield Bond Fund. The SAFECO Tax-Exempt Bond Trust consists of
five mutual funds: SAFECO Intermediate-Term Municipal Bond Fund, SAFECO
Insured Municipal Bond Fund, SAFECO Municipal Bond Fund, SAFECO California
Tax-Free Income Fund and SAFECO Washington State Municipal Bond Fund. The
SAFECO Money Market Fund consists of two mutual funds: SAFECO Money Market
Fund and SAFECO Tax-Free Money Market Fund. The SAFECO Managed Bond Trust
consists of one mutual fund: Managed Bond Fund (formerly Fixed-Income
Portfolio). The SAFECO Resource Series Trust consists of six mutual funds:
Equity Portfolio, Growth Portfolio, Northwest Portfolio, Small Company Stock
Portfolio, Bond Portfolio and Money Market Portfolio.

SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance

<PAGE>

Company, a Missouri corporation, and SAFECO Insurance Company of Illinois, an
Illinois corporation. SAFECO Corporation owns 20% of Agena, Inc., a Washington
corporation. SAFECO Insurance Company of America owns 100% of SAFECO Surplus
Lines Insurance Company, a Washington corporation, and Market Square Holding,
Inc., a Minnesota corporation. SAFECO Life Insurance Company owns 100% of
SAFECO National Life Insurance Company, a Washington corporation, and First
SAFECO National Life Insurance Company of New York, a New York corporation.
SAFECO Administrative Services, Inc. owns 100% of Employee Benefit Claims of
Wisconsin, Inc. and Wisconsin Pension and Group Services, Inc., each a Wisconsin
corporation. General America Corporation owns 100% of COMAV Managers, Inc., an
Illinois corporation, F.B. Beattie & Co., Inc., a Washington corporation,
General America Corp. of Texas, a Texas corporation, Talbot Financial
Corporation, a Washington corporation and SAFECO Select Insurance Services,
Inc., a California corporation. F.B. Beattie & Co., Inc. owns 100% of F.B.
Beattie Insurance Services, Inc., a California corporation. General America
Corp. of Texas is Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas
corporation. Talbot Financial Corporation owns 100% of Talbot Agency, Inc., a
New Mexico corporation. Talbot Agency, Inc. owns 100% of PNMR Securities, Inc.,
a Washington corporation. SAFECO Properties Inc. owns 100% of the following,
each a Washington corporation: RIA Development, Inc., SAFECARE Company, Inc. and
Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each a
Washington corporation: S.C. Bellevue, Inc., S.C. Everett, Inc., S.C.
Marysville, Inc., S.C. Simi Valley, Inc. and S.C. Vancouver, Inc. SAFECARE
Company, Inc. owns 50% of Lifeguard Ventures, Inc., a California corporation,
50% of Mission Oaks Hospital, Inc., a California corporation, S.C. River Oaks,
Inc., a Washington corporation, Mississippi Health Services, Inc., a Louisiana
corporation, and Safecare Texas, Inc., a Texas corporation. S.C. Simi Valley,
Inc. owns 100% of Simi Valley Hospital, Inc., a Washington corporation. Winmar
Company, Inc. owns 100% of the following: Barton Street Corp., C-W Properties,
Inc., Gem State Investors, Inc., Kitsap Mall, Inc., WNY Development, Inc.,
Winmar Cascade, Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar
Redmond, Inc. and Winmar of Kitsap, Inc., each a Washington corporation, and
Capitol Court Corp., a Wisconsin corporation, SAFECO Properties of Boise, Inc.,
an Idaho corporation, SCIT, Inc., a Massachusetts corporation, Valley Fair
Shopping Centers, Inc., a Delaware corporation, WDI Golf Club, Inc., a
California corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of
Texas, Inc., a Texas corporation, Winmar of Wisconsin, Inc., a Wisconsin
corporation, and Winmar of the Desert, Inc., a California corporation. Winmar
Oregon, Inc. owns 100% of the following, each an Oregon corporation: North Coast
Management, Inc., Pacific Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P
Development, Inc., and 100% of the following, each a Washington corporation:
Washington Square, Inc. and Winmar Pacific, Inc.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

At April 1, 1997 (i) SAFECO Life Insurance Company was the sole shareholder
of the Money Market Portfolio and Bond Portfolio; (ii) SAFECO Life Insurance
Company and SAFECO Asset Management Company owned all of the shares of the
Northwest Portfolio; and SAFECO Life Insurance Company and two other insurance
companies owned all of the shares of the Equity and Growth Portfolios.

ITEM 27. INDEMNIFICATION

Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain liabilities,
subject to specified conditions and limitations.

Under the indemnification provisions in the Registrant's Trust Instrument and
subject to the limitations described in the paragraph below, every person who
is, or has been, a trustee, officer, employee or agent of the Registrant shall
be indemnified by the Registrant or the appropriate Series of the Registrant to
the fullest extent permitted
<PAGE>

by law against liability and against all expenses reasonably incurred or paid by
him or her in connection with any claim, action, suit or proceeding in which he
or she becomes involved as a party or otherwise by virtue of his or her being,
or having been, a trustee, officer, employee or agent and against amounts paid
or incurred by him or her in the settlement thereof. As used in this paragraph,
"claim," "action," "suit" or "proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal or other, including appeals), actual or
threatened, and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.

No indemnification will be provided to a trustee, officer, employee or agent:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (a) to be liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, or (b) not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Registrant; or (ii) in the event of settlement, unless
there has been a determination that such trustee, officer, employee or agent did
not engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office: (a) by
the court or other body approving the settlement, (b) by the vote of at least a
majority of a quorum of those trustees who are neither interested persons, as
that term is defined by the Investment Company Act of 1940 ("1940 Act"), of the
Registrant nor parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial type inquiry) or (c) by written
opinion of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial type inquiry).

To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described above may be paid by the
Registrant or applicable Series from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such trustee, officer,
employee or agent that such amount will be paid over by him or her to the
Registrant or the applicable Series if it is ultimately determined that he or
she is not entitled to indemnification under the Trust Instrument; provided,
however, that either (i) such trustee, officer, employee or agent shall have
provided appropriate security for such undertaking, (ii) the Registrant is
insured against such losses arising out of such advance payments or (iii) either
a majority of the trustees who are neither interested persons, as that term is
defined by the 1940 Act, of the Registrant nor parties to the proceeding, or
independent legal counsel in a written opinion, shall have determined, based on
a review of readily available facts (as opposed to a full trial type inquiry),
that there is reason to believe that such trustee, officer, employee or agent,
will not be disqualified from indemnification under Registrant's Trust
Instrument.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 ("1933 Act") may be permitted to trustees, officers, employees and agents
of the Registrant pursuant to such provisions of the Trust Instrument or
statutes or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in said Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer,
employee or agent of the Registrant in the successful defense of any such
action, suit or proceeding) is asserted by such trustee, officer, employee or
agent in connection with the shares of any series of the Registrant, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
<PAGE>

Under an agreement with its distributor ("Distribution Agreement"), Registrant
has agreed to indemnify, defend and hold the distributor, the distributor's
several directors, officers and employees, and any person who controls the
distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
distributor, its directors, officers or employees, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in the Distribution Agreement be construed so as to protect the
distributor against any liability to the Registrant or its shareholders to which
the distributor would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations and duties under the Distribution
Agreement, and further provided that the Registrant shall not indemnify the
distributor for such conduct.

Under an agreement with its transfer agent, Registrant has agreed to
indemnify and hold the transfer agent harmless against any losses, claims,
damages, liabilities or expenses (including reasonable attorneys' fees and
expenses) resulting from: (1) any claim, demand, action or suit brought by
any person other than the Registrant, including by a shareholder, which names
the transfer agent and/or the Registrant as a party, and is not based on and
does not result from the transfer agent's willful misfeasance, bad faith or
negligence or reckless disregard of duties, and arises out of or in
connection with the transfer agent's performance pursuant to the Transfer
Agent Agreement; or (2) any claim, demand, action or suit (except to the
extent contributed to by the transfer agent's willful misfeasance, bad faith
or negligence or reckless disregard of duties) which results from the
negligence of the Registrant, or from the transfer agent acting upon any
instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Registrant, or as a result
of the transfer agent acting in reliance upon advice reasonably believed by
the transfer agent to have been given by counsel for the Registrant, or as a
result of the transfer agent acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

The investment adviser to the Registrant, SAM, serves as an adviser to (a)
twenty-five series (portfolios) of six registered investment companies,
including six series of Registrant, and (b) a number of pension funds not
affiliated with SAFECO Corporation or its affiliates. The directors and
officers of SAM serve in similar capacities with SAFECO Corporation or its
affiliates. The information set forth under "Investment Advisory and Other
Services" in the Registrant's Statement of Additional Information is
incorporated by reference.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) SAFECO Securities, Inc., the principal underwriter for the Registrant, also
acts as the principal underwriter for the sale of variable annuity
contracts (SAFECO Resource Variable Account B and SAFECO Separate Account
C) and variable universal life insurance policies (SAFECO Separate Account
SL) issued by SAFECO Life Insurance Company as well as for the SAFECO
Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond
Trust, SAFECO Money Market Trust, and SAFECO Managed Bond Trust (formerly
SAFECO Institutional Series Trust).

<PAGE>

(b) The information set forth under "Investment Advisory and Other Services" of
Registrant's Statement of Additional Information is incorporated by
reference.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy,
Massachusetts 02170 maintains physical possession of the accounts, books and
documents of Registrant relating to its activities as custodian of the
Registrant. SAFECO Asset Management Company, SAFECO Plaza, Seattle,
Washington, 98185, maintains physical possession of all other accounts, books
or documents of the Registrant required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated thereunder.

ITEM 31. MANAGEMENT SERVICES

Inapplicable.

ITEM 32. UNDERTAKINGS

Registrant, on behalf of the Small Company Stock Portfolio undertakes to file
a post-effective amendment to this Registration Statement, using financial
statements which need not be certified, within four to six months from the
effective date of Registrant's 1933 Act Registration Statement.

Registrant also undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereto duly
authorized, in the City of Seattle, and State of Washington on the 21st day of
April, 1997.

SAFECO RESOURCE SERIES TRUST

By: /s/ David F. Hill
-------------------------
David F. Hill

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.

Name Title Date
---- ----- ----

/s/ David F. Hill President and Trustee 4/21/97
- - --------------------- Principal Executive --------------------
++ David F. Hill Officer

RONALD L. SPAULDING* Vice President 4/21/97
- - --------------------- Treasurer --------------------
Ronald L. Spaulding

NEAL A. FULLER* Vice President 4/21/97
- - --------------------- Controller --------------------
Neal A. Fuller Assistant Secretary

/s/ Boh A. Dickey ++ Chairman and Trustee 4/21/97
- - --------------------- --------------------
Boh A. Dickey

BARBARA J. DINGFIELD* Trustee 4/21/97
- - --------------------- --------------------
Barbara J. Dingfield

RICHARD W. HUBBARD++* Trustee 4/21/97
- - --------------------- --------------------
Richard W. Hubbard

RICHARD E. LUNDGREN* Trustee 4/21/97
- - --------------------- --------------------
Richard E. Lundgren

LARRY L. PINNT* Trustee 4/21/97
- - --------------------- --------------------
Larry L. Pinnt

JOHN W. SCHNEIDER* Trustee 4/21/97
- - --------------------- --------------------
John W. Schneider

*By /s/ Boh A. Dickey
-------------------------------
Boh A. Dickey
Attorney-in-Fact

*By /s/ David F. Hill
-------------------------------
David F. Hill
Attorney-in-Fact

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

<PAGE>

SAFECO RESOURCE SERIES TRUST

FORM N-1A

Post-Effective Amendment No. 18

Exhibit Index

Exhibit Number Description of Document Page
- - -------------- ----------------------- ----

(27.1-5) Financial Data Schedules 10

(99.8) Custody Agreement with State Street 11
Bank and Trust

(99.10) Opinion and Consent of Counsel 12

(99.11) Consent of Independent Auditors 13

(99.12) Registrant's Annual Report for 15
Year Ended December 31, 1996+ including
Financial Statements

+ Registrant's Annual Report for the year ended December 31,
1996 including financial statements was filed with the SEC
on or about February 26, 1996.

<PAGE>
<ARTICLE> 6
<CIK> 0000795892
<NAME> SAFECO RESOURCE SERIES TRUST
<SERIES>
<NUMBER> 1
<NAME> SAFECO RST EQUITY PORTFOLIO
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 216,364
<INVESTMENTS-AT-VALUE> 264,491
<RECEIVABLES> 3,025
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 267,516
<PAYABLE-FOR-SECURITIES> 4,079
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 370
<TOTAL-LIABILITIES> 4,449
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214,940
<SHARES-COMMON-STOCK> 12,096
<SHARES-COMMON-PRIOR> 8,807
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48,127
<NET-ASSETS> 263,067
<DIVIDEND-INCOME> 4,483
<INTEREST-INCOME> 730
<OTHER-INCOME> 0
<EXPENSES-NET> 1,534
<NET-INVESTMENT-INCOME> 3,679
<REALIZED-GAINS-CURRENT> 20,981
<APPREC-INCREASE-CURRENT> 23,643
<NET-CHANGE-FROM-OPS> 48,303
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,679)
<DISTRIBUTIONS-OF-GAINS> (20,981)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,791
<NUMBER-OF-SHARES-REDEEMED> (1,636)
<SHARES-REINVESTED> 1,134
<NET-CHANGE-IN-ASSETS> 93,588
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,534
<AVERAGE-NET-ASSETS> 213,922
<PER-SHARE-NAV-BEGIN> 19.24
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 4.43
<PER-SHARE-DIVIDEND> (0.34)
<PER-SHARE-DISTRIBUTIONS> (1.92)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.75
<EXPENSE-RATIO> 0.72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000795892
<NAME> SAFECO RESOURCE SERIES TRUST
<SERIES>
<NUMBER> 4
<NAME> SAFECO RST GROWTH PORTFOLIO
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 91,453
<INVESTMENTS-AT-VALUE> 108,494
<RECEIVABLES> 1,230
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109,724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 233
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92,450
<SHARES-COMMON-STOCK> 5,684
<SHARES-COMMON-PRIOR> 2,800
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,041
<NET-ASSETS> 109,491
<DIVIDEND-INCOME> 260
<INTEREST-INCOME> 109
<OTHER-INCOME> 0
<EXPENSES-NET> 567
<NET-INVESTMENT-INCOME> (198)
<REALIZED-GAINS-CURRENT> 9,047
<APPREC-INCREASE-CURRENT> 11,913
<NET-CHANGE-FROM-OPS> 20,762
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (8,849)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,213
<NUMBER-OF-SHARES-REDEEMED> (788)
<SHARES-REINVESTED> 459
<NET-CHANGE-IN-ASSETS> 65,033
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 519
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 567
<AVERAGE-NET-ASSETS> 71,929
<PER-SHARE-NAV-BEGIN> 15.88
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 5.12
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.26
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000795892
<NAME> SAFECO RESOURCE SERIES TRUST
<SERIES>
<NUMBER> 5
<NAME> SAFECO RST NORTHWEST PORTFOLIO
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 7,990
<INVESTMENTS-AT-VALUE> 9,298
<RECEIVABLES> 271
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,569
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28
<TOTAL-LIABILITIES> 28
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,371
<SHARES-COMMON-STOCK> 787
<SHARES-COMMON-PRIOR> 582
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (138)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,308
<NET-ASSETS> 9,541
<DIVIDEND-INCOME> 62
<INTEREST-INCOME> 56
<OTHER-INCOME> 0
<EXPENSES-NET> 56
<NET-INVESTMENT-INCOME> 62
<REALIZED-GAINS-CURRENT> (138)
<APPREC-INCREASE-CURRENT> 970
<NET-CHANGE-FROM-OPS> 894
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (62)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 315
<NUMBER-OF-SHARES-REDEEMED> (113)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 3,229
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 89
<AVERAGE-NET-ASSETS> 7,999
<PER-SHARE-NAV-BEGIN> 10.85
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.12
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000795892
<NAME> SAFECO RESOURCE SERIES TRUST
<SERIES>
<NUMBER> 2
<NAME> SAFECO RST BOND PORTFOLIO
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 15,672
<INVESTMENTS-AT-VALUE> 15,658
<RECEIVABLES> 346
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,004
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13
<TOTAL-LIABILITIES> 13
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,425
<SHARES-COMMON-STOCK> 1,487
<SHARES-COMMON-PRIOR> 1,261
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (420)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14)
<NET-ASSETS> 15,991
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 983
<OTHER-INCOME> 0
<EXPENSES-NET> 112
<NET-INVESTMENT-INCOME> 871
<REALIZED-GAINS-CURRENT> (188)
<APPREC-INCREASE-CURRENT> (583)
<NET-CHANGE-FROM-OPS> 100
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (871)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 464
<NUMBER-OF-SHARES-REDEEMED> (319)
<SHARES-REINVESTED> 81
<NET-CHANGE-IN-ASSETS> 1,734
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134
<AVERAGE-NET-ASSETS> 15,432
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> (0.56)
<PER-SHARE-DIVIDEND> (0.62)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.75
<EXPENSE-RATIO> 0.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>
<ARTICLE> 6
<CIK> 0000795892
<NAME> SAFECO RESOURCE SERIES TRUST
<SERIES>
<NUMBER> 3
<NAME> SAFECO RST MONEY MARKET PORTFOLIO
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 12,549
<INVESTMENTS-AT-VALUE> 12,549
<RECEIVABLES> 363
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 419
<TOTAL-LIABILITIES> 419
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,493
<SHARES-COMMON-STOCK> 12,493
<SHARES-COMMON-PRIOR> 8,719
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12,493
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 553
<OTHER-INCOME> 0
<EXPENSES-NET> 62
<NET-INVESTMENT-INCOME> 491
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 491
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (491)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,941
<NUMBER-OF-SHARES-REDEEMED> (43,658)
<SHARES-REINVESTED> 491
<NET-CHANGE-IN-ASSETS> 3,774
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 62
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 90
<AVERAGE-NET-ASSETS> 10,096
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00

</TABLE>

<PAGE>

CUSTODIAN CONTRACT
Between
SAFECO RESOURCE SERIES TRUST
and
STATE STREET BANK AND TRUST COMPANY

Trust/Series

<PAGE>

TABLE OF CONTENTS

PAGE

1. Employment of Custodian and Property to be Held By It. . . . . . . . . 1

2. Duties of the Custodian with Respect to Property
of the Trust Held by the Custodian . . . . . . . . . . . . . . . . . . 2

2.1 Holding Securities. . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Delivery of Securities. . . . . . . . . . . . . . . . . . . . . . 2
2.3 Registration of Securities. . . . . . . . . . . . . . . . . . . . 3
2.4 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Payments for Shares . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Collection of Income. . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Payment of Trust Monies . . . . . . . . . . . . . . . . . . . . . 4
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased . . . . . . . . . . . . . . . . . 5
2.9 Payments for Repurchases or Redemptions
of Shares of the Trust. . . . . . . . . . . . . . . . . . . . . . 6
2.10 Appointment of Agents . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Deposit of Trust Assets in Securities System. . . . . . . . . . . 6
2.12 Trust Assets Held in the Custodian's Direct
Paper System. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Ownership Certificates for Tax Purposes . . . . . . . . . . . . . 8
2.14 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.15 Communications Relating to Portfolio
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.16 Proper Instructions . . . . . . . . . . . . . . . . . . . . . . . 9
2.17 Actions Permitted Without Express Authority . . . . . . . . . . . 9
2.18 Evidence of Authority . . . . . . . . . . . . . . . . . . . . . . 9

3. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

4. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

5. Reports to Trust by Independent Public Accountants . . . . . . . . . . 10

6. Compensation of Custodian. . . . . . . . . . . . . . . . . . . . . . . 10

7. Responsibility of Custodian. . . . . . . . . . . . . . . . . . . . . . 10

<PAGE>

8. Effective Period, Termination and Amendment. . . . . . . . . . . . . . 11

9. Successor Custodian. . . . . . . . . . . . . . . . . . . . . . . . . . 12

10. Interpretive and Additional Provisions . . . . . . . . . . . . . . . . 12

11. Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

12. Massachusetts Law to Apply . . . . . . . . . . . . . . . . . . . . . . 13

13. Custodian Representation . . . . . . . . . . . . . . . . . . . . . . . 13

14. Limitation of Liability. . . . . . . . . . . . . . . . . . . . . . . . 13

15. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

16. Shareholder Communications . . . . . . . . . . . . . . . . . . . . . . 14

<PAGE>

CUSTODIAN CONTRACT

This Contract between SAFECO Resource Series Trust , a business trust
organized and existing under the laws of Delaware, having its principal place of
business at SAFECO Plaza, Seattle, Washington 98185 hereinafter called the
"Trust", and State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",

WITNESSETH:

WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and

WHEREAS, the Trust currently offers shares in five series, the Equity
Portfolio, Growth Portfolio, Northwest Portfolio, Bond Portfolio, and Money
Market Portfolio (such series together with all other series subsequently
established by the Trust and made subject to this Contract in accordance with
paragraph 11, being herein referred to as the "Portfolio(s)");

NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:

1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT

The Trust hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Trust pursuant to the provisions of the Trust Instrument
of the Trust and the Trust's Bylaws. The Trust on behalf of the Portfolio(s)
agrees to deliver to the Custodian all securities and cash of the Portfolios,
and all payments of income, payments of principal or capital distributions
received by it with respect to all securities owned by the Portfolio(s) from
time to time, and the cash consideration received by it for such new or treasury
shares of capital stock of the Trust representing interests in the Portfolios,
("Shares") as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of a Portfolio held or received by the Portfolio
and not delivered to the Custodian.

Upon receipt of "Proper Instructions" (within the meaning of Section 2.16),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, but only in accordance with an applicable
vote by the Board of Trustees of the Trust on behalf of the applicable
Portfolio(s). The Custodian covenants with the Trust that each agreement
whereby the Custodian employs any such sub-custodian shall provide that the
sub-custodian will be liable to the Custodian for losses and liabilities caused
by the negligence or willful misconduct of the sub-custodian. The Trust, on
behalf of the Portfolio(s), agrees that, so long as the Custodian has complied
with its obligation set forth in the preceding sentence, the Custodian shall
have no more or less responsibility or liability to the Trust on account of any
actions or omissions of any sub-custodian so employed by it on behalf of the
Trust than any such sub-custodian has to the Custodian.

<PAGE>

2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE TRUST HELD BY THE
CUSTODIAN

2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for
the account of each Portfolio all non-cash property, including all
securities owned by such Portfolio, other than (a) securities which are
maintained pursuant to Section 2.11 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as "Securities
System" and (b) commercial paper of an issuer for which State Street Bank
and Trust Company acts as issuing and paying agent ("Direct Paper") which
is deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.12.

2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver securities
owned by a Portfolio held by the Custodian or in a Securities System
account of the Custodian or in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account") only upon receipt of Proper
Instructions from the Trust on behalf of the applicable Portfolio, which
may be continuing instructions when deemed appropriate by the parties, and
only in the following cases:

1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;

2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;

3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.11 hereof;

4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;

5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;

6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.10 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; PROVIDED that, in any such
case, the new securities are to be delivered to the Custodian;

7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street

<PAGE>

delivery" custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for such
securities except as may arise from the Custodian's own negligence or
willful misconduct;

8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;

9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;

10) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Trust, for delivery to such Transfer Agent or to the
holders of Shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Trust, related to the
Portfolio ("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and

11) For any other proper Trust purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from the Trust on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Trustees signed by an officer of the Trust and certified by the
Secretary or an Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper Trust
purpose, and naming the person or persons to whom delivery of such
securities shall be made.

2.3 REGISTRATION OF SECURITIES. Securities held by the Custodian (other than
bearer securities) shall be registered in the name of the Portfolio or in
the name of any nominee of the Trust on behalf of the Portfolio or of any
nominee of the Custodian which nominee shall be assigned exclusively to the
Portfolio. All securities accepted by the Custodian on behalf of the
Portfolio under the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Trust directs the Custodian to
maintain securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Trust on such securities and
to notify the Trust on a best efforts basis only of relevant corporate
actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.

2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank
account or accounts in the name of each Portfolio of the Trust, subject
only order by the Custodian acting pursuant to the terms of this Contract,
and shall hold in such account or accounts,

<PAGE>

subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Trusts held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; PROVIDED, however, that
every such bank or trust company shall be qualified to act as a custodian
under the Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust company
shall on behalf of each applicable Portfolio be approved by vote of a
majority of the Board of Trustees of the Trust. Such funds shall be
deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.

2.5 PAYMENTS FOR SHARES. The Custodian shall receive from the distributor for
the Shares or from the Transfer Agent of the Trust and deposit into the
account of the appropriate Portfolio such payments as are received for
Shares of that Portfolio issued or sold from time to time by the Trust.
The Custodian will provide timely notification to the Trust on behalf of
each such Portfolio and the Transfer Agent of any receipt by it of payments
for Shares of such Portfolio.

2.6 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer securities if, on the date of payment
by the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to such Portfolio's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall collect
interest when due on securities held hereunder.

2.7 PAYMENT OF TRUST MONIES. Upon receipt of Proper Instructions from the
Trust on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian shall
pay out monies of a Portfolio in the following cases only:

1) Upon the purchase of securities, options, futures contracts or options
on futures contracts for the account of the Portfolio but only (a)
against the delivery of such securities or evidence of title to such
options, futures contracts or options on futures contracts to the
Custodian (or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the Investment
Company Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose) registered
in the name of the Portfolio or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in Section 2.11
hereof; (c) in the

<PAGE>

case of a purchase involving the Direct Paper System, in accordance
with the conditions set forth in Section 2.12; (d) in the case of
repurchase agreements entered into between the Trust on behalf of the
Portfolio and the Custodian, or another bank, or a broker-dealer which
is a member of NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Portfolio or (e) for transfer to a time deposit account of the Trust
in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Trust as
defined in Section 2.16;

2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;

3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Section 2.9 hereof;

4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Trust whether or
not such expenses are to be in whole or part capitalized or treated as
deferred expenses;

5) For the payment of any dividends or capital gain distributions on
Shares of the Portfolio declared pursuant to the governing documents
of the Trust;

6) For any other proper purpose, BUT ONLY upon receipt of, in addition to
Proper Instructions from the Trust on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees of the Trust
signed by an officer of the Trust and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons to
whom such payment is to be made.

2.8 LIABILITY FOR PAYMENT IN ADVANCE OF RECEIPT OF SECURITIES PURCHASED.
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Trust on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Trust for such securities to the same extent as if
the securities had been received by the Custodian.

<PAGE>

2.9 PAYMENTS FOR REPURCHASES OR REDEMPTIONS OF SHARES OF THE TRUST. From such
funds as may be available for the purpose but subject to the limitations of
the Trust Instrument and Trust's Bylaws and any applicable votes of the
Board of Trustees of the Trust pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a
request for redemption or repurchase of their Shares.

2.10 APPOINTMENT OF AGENTS. The Custodian may with the approval of an officer
of the Trust appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
PROVIDED, however, that the appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities hereunder. Neither the
Custodian nor the subcustodian shall be entitled to reimbursement by the
Trust or any Portfolios for any fees or expenses of any agent.

2.11 DEPOSIT OF TRUST ASSETS IN SECURITIES SYSTEMS. The Custodian may deposit
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:

1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;

2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Portfolio;

3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices from
the Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Trust at its
request. Upon request, the

<PAGE>

Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio
in the form of a written advice or notice and shall furnish to the
Trust on behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the
account of the Portfolio.

4) The Custodian shall provide the Trust for the Portfolio with any
report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;

5) The Custodian shall have received from the Trust on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 8 hereof;

6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from use
of the Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the Securities
System; at the election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the
extent that the Portfolio has not been made whole for any such loss or
damage.

2.12 TRUST ASSETS HELD IN THE CUSTODIAN'S DIRECT PAPER SYSTEM. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:

1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Trust on
behalf of the Portfolio;

2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;

3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;

4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry

<PAGE>

on the records of the Custodian to reflect such transfer and receipt
of payment for the account of the Portfolio;

5) The Custodian shall furnish the Trust on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Trust on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the account of the
Portfolio;

6) The Custodian shall provide the Trust on behalf of the Portfolio with
any report on its system of internal accounting control as the Trust
may reasonably request from time to time.

2.13 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to securities of each Portfolio held by it and in connection with
transfers of securities.

2.14 PROXIES. The Custodian shall, with respect to the securities held
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.

2.15 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions
of Section 2.3, the Custodian shall transmit promptly to the Trust for each
Portfolio all written information (including, without limitation, pendency
of calls and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put options
written by the Trust on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian
from issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to the
Portfolio all written information received by the Custodian from issuers of
the securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio desires
to take action with respect to any tender offer, exchange offer or any
other similar transaction, the Portfolio shall notify the Custodian at
least three business days prior to the date on which the Custodian is to
take such action.

2.16 PROPER INSTRUCTIONS. Proper Instructions as used throughout this Article 2
means a writing signed by two persons as the Board of Trustees shall have
from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the Custodian
reasonably believes

<PAGE>

them to have been given by a person authorized to give such instructions
with respect to the transaction involved. The Trust shall cause all oral
instructions to be confirmed in writing. The Custodian shall confirm all
oral instructions with an officer of the Trust if written instructions are
not received within a week after the instructions are given. Upon receipt
of a certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford
adequate safeguards for the Portfolios' assets.

2.17 ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY. The Custodian may in its
discretion, without express authority from the Trust on behalf of each
applicable Portfolio:

1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, PROVIDED that all such payments shall be approved by an
officer of the Trust on behalf of the Portfolio;

2) surrender securities in temporary form for securities in definitive
form;

3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and

4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Trust.

2.18 EVIDENCE OF AUTHORITY. The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or
on behalf of the Trust. The Custodian may receive and accept a certified
copy of a vote of the Board of Trustees of the Trust as conclusive evidence
(a) of the authority of any person to act in accordance with such vote or
(b) of any determination or of any action by the Board of Trustees pursuant
to the Trust Bylaws as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of
written notice to the contrary.

3. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF
NET ASSET VALUE AND NET INCOME

The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Trust to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio.

4. RECORDS

<PAGE>

The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Trust under the Investment Company
Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Trust and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Trust and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Trust's request, supply the Trust with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Trust and for such compensation as shall be agreed upon between the
Trust and the Custodian, include certificate numbers in such tabulations.

5. REPORTS TO TRUST BY INDEPENDENT PUBLIC ACCOUNTANTS

The Custodian shall provide the Trust, on behalf of each of the Portfolios
at such times as the Trust may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Trust to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.

6. COMPENSATION OF CUSTODIAN

The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Trust on
behalf of each applicable Portfolio and the Custodian.

7. RESPONSIBILITY OF CUSTODIAN

So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties. The Custodian shall
be held to the exercise of reasonable care in carrying out the provisions of
this Contract, but shall be kept indemnified by and shall be without liability
to the Trust for any action taken or omitted by it in good faith without
negligence, misfeasance, or misconduct of the Custodian or any of its
subcustodians or agents, or any of the Custodian's or any agent's employees in
the performance of the Custodian's duties under this agreement. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Trust) on all matters, and shall be without liability for any action
reasonably taken or omitted in good faith pursuant to such advice.

<PAGE>

If the Trust on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Trust or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Trust on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall agree to indemnify the Custodian in an amount and form satisfactory to it.

If the Trust requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio, any property at any time held for the account of
the applicable Portfolio shall be security therefor and should the Trust fail to
repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent necessary
to obtain reimbursement.

8. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT

This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; PROVIDED, however that the
Custodian shall not with respect to a Portfolio act under Section 2.11 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Trust has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.12 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio; PROVIDED FURTHER, however, that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Trust Bylaws,
and further provided, that the Trust on behalf of one or more of the Portfolios
may at any time by action of its Board of Trustees (i) substitute another bank
or trust company for the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the Comptroller of
the Currency or upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.

Upon termination of the Contract, the Trust on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.

9. SUCCESSOR CUSTODIAN

If a successor custodian for the Trust, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Trust, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all cash,

<PAGE>

securities and any earned income associated with those securities (as received)
of each applicable Portfolio then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each such Portfolio
held in a Securities System.

If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of Trustees
of the Trust, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.

In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.

In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.

10. INTERPRETIVE AND ADDITIONAL PROVISIONS

In connection with the operation of this Contract, the Custodian and the
Trust on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, PROVIDED that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Trust Instrument or the Trust's
Bylaws. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.

11. ADDITIONAL FUNDS

In the event that the Trust establishes one or more series of Shares in
addition to the Equity Portfolio, Growth Portfolio, Northwest Portfolio, Bond
Portfolio and Money Market Portfolio with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.

<PAGE>

12. MASSACHUSETTS LAW TO APPLY

This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.

13. CUSTODIAN REPRESENTATION

The Custodian represents that it does meet, and will continue to meet at
all times that this Contract is in effect, the requirements of the rules and
regulations promulgated pursuant to Section 17(f) of the Investment Company Act
of 1940, as amended.

14. LIMITATION OF LIABILITY

The Custodian is hereby expressly put on notice of (i) the limitation of
shareholder, officer and trustee liability as set forth in the Trust Instrument
of the Trust and (ii) of the provisions in the Trust Instrument permitting the
establishment of separate Series and limiting the liability of each Series to
obligations of that Series. The Custodian hereby agrees that obligations
assumed by the Trust pursuant to this Contract are in all cases assumed on
behalf of a particular Series and each such obligation shall be limited in all
cases to that Series and its assets. The Custodian agrees that it shall not
seek satisfaction of any such obligation from the shareholders or any individual
shareholder of the Trust nor from the officers or trustees or any individual
officer or trustee of the Trust.

15. MISCELLANEOUS

This Agreement shall be binding on and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that this Agreement shall not be assignable by the Trust without the written the
written consent of the Custodian or by the Custodian without the written consent
of the Trust. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
in counterparts, each of which taken together shall constitute one and the same
instrument.

16. SHAREHOLDER COMMUNICATIONS

Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Trust to indicate whether it authorizes the
Custodian to provide the Trust's name, address, and share position to requesting
companies whose stock the Trust own. If the Trust tells the Custodian "no", the
Custodian will not provide this information to requesting companies. If the
Trust tells the Custodian "yes" or do not check either "yes" or "no" below, the
Custodian is

<PAGE>

required by the rule to treat the Trust as consenting to disclosure of this
information for all securities owned by the Trust or any funds or accounts
established by the Trust. For the Trust's protection, the Rule prohibits
the requesting company from using the Trust's name and address for any purpose
other than corporate communications. Please indicate below whether the Trust
consents or objects by checking one of the alternatives below.

YES [ ] The Custodian is authorized to release the Trust's name, address,
and share positions.

NO [X] The Custodian is not authorized to release the Trust's name,
address, and share positions.

<PAGE>

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 31st day of March, 1997.

ATTEST SAFECO RESOURCE SERIES TRUST

/s/ David H. Longhurst By /s/ Neal A. Fuller
- - -------------------------- ------------------------------------

ATTEST STATE STREET BANK AND TRUST COMPANY

/s/ Francine S. Hayes By /s/ Ronald E. Logue
- - -------------------------- ------------------------------------
Executive Vice President

<PAGE>

AMENDED AND RESTATED OPINION OF COUNSEL

April 21, 1997

SAFECO Resource Series Trust
SAFECO Plaza
Seattle, WA 98185

Ladies and Gentlemen:

I have acted as counsel to the Trust in connection with filing with the
Securities and Exchange Commission of Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A for the shares of each series of the Trust
(the "Shares"). I have made such examination of law and have examined such
records and documents as in my judgment are necessary or appropriate to enable
me to render the following opinion:

1. The Trust is a duly formed and validly existing business trust under the
laws of the State of Delaware.

2. The Trust is authorized to issue an unlimited number of shares which have
been divided into six series: Equity Portfolio, Money Market Portfolio, Bond
Portfolio, Growth Portfolio, Northwest Portfolio, and Small Company Stock
Portfolio.

3. The Shares, when issued pursuant to the terms, provisions and conditions
set forth in the above-referenced Registration Statement relating to the Shares,
will be validly issued, fully paid and non-assessable by the Trust.

I hereby consent to the filing of this opinion as an Exhibit to said
Registration Statement.

Respectfully submitted,

/s/ Mark A. Chapleau
- - -----------------------

Mark A. Chapleau

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Financial
Highlights", "Investment Advisory and Other Services" and "Financial Statements"
in Post-Effective Amendment No. 18 to the registration statement (Form N-1A,
No. 33-06547) and related prospectuses of SAFECO Resource Series Trust.

We also consent to the incorporation by reference therein of our report dated
January 31, 1997 with respect to the financial statements of SAFECO Resource
Series Trust as of and for the year ended December 31, 1996 included in the 1996
Annual Report filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP
- - ---------------------

Seattle, Washington
April 21, 1997