<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
EQUITY PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
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PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST EQUITY PORTFOLIO
For the latest six month period, the SAFECO RST Equity Portfolio
delivered 14.26%, outpacing the 12.26% return posted by the Lipper Analytical
Services Growth and Income peer group, but underperforming the 17.70% posted by
the S&P 500 Index. For the 12 months, the Portfolio returned 21.96%, lagging the
Lipper Growth and Income peer group's 23.02% and the S&P 500's 30.15%.
[PHOTO OF RICH MEAGLEY]
The Portfolio outpaced its peer funds in the latest period because the
Lipper peer group, as a whole, owns more small to mid cap companies than
we do and small to mid-cap companies clearly underperformed the S&P 500.
The Portfolio lagged the S&P 500 because we have a lower price-to-earnings
ratio (P/E); and within the S&P 500, higher P/E stocks outperformed lower-P/E
stocks.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 21.96%
5 Year 23.06%
10 Year 18.70%
</TABLE>
INVESTMENT VALUE
SAFECO RST EQUITY PORTFOLIO: $55,510
S&P 500 INDEX: $54,772
<TABLE>
<CAPTION>
SAFECO RST
EQUITY S&P 500
PORTFOLIO INDEX
<S> <C> <C>
06/30/88 $10,000 $10,000
07/31/88 $10,000 $9,962
08/31/88 $10,010 $9,623
09/30/88 $9,893 $10,033
10/31/88 $10,300 $10,312
11/30/88 $10,572 $10,165
12/31/88 $10,535 $10,343
01/31/89 $10,535 $11,100
02/28/89 $11,133 $10,823
03/31/89 $10,950 $11,075
04/30/89 $11,001 $11,650
05/31/89 $11,528 $12,122
06/30/89 $11,872 $12,053
07/31/89 $11,913 $13,141
08/31/89 $12,956 $13,399
09/30/89 $13,098 $13,344
10/31/89 $12,763 $13,034
11/30/89 $13,017 $13,300
12/31/89 $13,391 $13,620
01/31/90 $12,318 $12,706
02/28/90 $12,372 $12,870
03/31/90 $12,838 $13,211
04/30/90 $12,372 $12,880
05/31/90 $13,456 $14,136
06/30/90 $13,500 $14,040
07/31/90 $13,500 $13,995
08/31/90 $13,532 $12,730
09/30/90 $12,339 $12,110
10/31/90 $11,786 $12,058
11/30/90 $11,656 $12,837
12/31/90 $12,693 $13,195
01/31/91 $13,240 $13,770
02/28/91 $14,065 $14,755
03/31/91 $14,411 $15,112
04/30/91 $14,857 $15,148
05/31/91 $15,437 $15,803
06/30/91 $14,589 $15,079
07/31/91 $15,548 $15,782
08/31/91 $15,738 $16,156
09/30/91 $15,403 $15,886
10/31/91 $15,537 $16,099
11/30/91 $14,678 $15,450
12/31/91 $16,101 $17,217
01/31/92 $16,913 $16,897
02/29/92 $17,331 $17,117
03/31/92 $16,387 $16,783
04/30/92 $16,531 $17,276
05/31/92 $16,363 $17,361
06/30/92 $15,348 $17,102
07/31/92 $15,921 $17,802
08/31/92 $15,396 $17,437
09/30/92 $15,456 $17,643
10/31/92 $16,005 $17,703
11/30/92 $16,984 $18,304
12/31/92 $17,398 $18,529
01/31/93 $17,827 $18,684
02/28/93 $17,802 $18,938
03/31/93 $18,562 $19,338
04/30/93 $18,182 $18,870
05/31/93 $19,615 $19,374
06/30/93 $19,677 $19,430
07/31/93 $19,456 $19,352
08/31/93 $20,510 $20,085
09/30/93 $21,122 $19,931
10/31/93 $21,674 $20,343
11/30/93 $21,821 $20,150
12/31/93 $22,254 $20,394
01/31/94 $23,666 $21,087
02/28/94 $23,065 $20,515
03/31/94 $22,137 $19,623
04/30/94 $22,764 $19,874
05/31/94 $23,327 $20,198
06/30/94 $22,490 $19,703
07/31/94 $23,013 $20,350
08/31/94 $24,516 $21,182
09/30/94 $24,268 $20,665
10/31/94 $24,804 $21,128
11/30/94 $24,307 $20,359
12/31/94 $24,243 $20,660
01/31/95 $24,445 $21,195
02/28/95 $25,079 $22,020
03/31/95 $25,439 $22,669
04/30/95 $26,101 $23,336
05/31/95 $26,764 $24,283
06/30/95 $27,614 $24,847
07/31/95 $28,032 $25,669
08/31/95 $28,853 $25,733
09/30/95 $29,976 $26,819
10/31/95 $29,947 $26,723
11/30/95 $30,826 $27,893
12/31/95 $31,185 $28,431
01/31/96 $32,060 $29,398
02/29/96 $32,238 $29,672
03/31/96 $32,643 $29,956
04/30/96 $33,324 $30,398
05/31/96 $34,102 $31,180
06/30/96 $34,718 $31,299
07/31/96 $33,373 $29,917
08/31/96 $33,681 $30,549
09/30/96 $35,723 $32,267
10/31/96 $36,858 $33,156
11/30/96 $39,694 $35,660
12/31/96 $38,914 $34,954
01/31/97 $41,205 $37,135
02/28/97 $41,419 $37,428
03/31/97 $39,666 $35,894
04/30/97 $40,936 $38,033
05/31/97 $43,692 $40,345
06/30/97 $45,516 $42,153
07/31/97 $48,648 $45,506
08/31/97 $46,107 $42,958
09/30/97 $47,789 $45,311
10/31/97 $46,268 $43,800
11/30/97 $47,753 $45,825
12/31/97 $48,583 $46,612
01/31/98 $49,336 $47,127
02/28/98 $53,252 $50,524
03/31/98 $55,027 $53,109
04/30/98 $55,143 $53,643
05/31/98 $54,121 $52,635
06/30/98 $55,510 $54,772
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the
Portfolio to a hypothetical investment in a relevant market index. The index
is unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Equity Portfolio only and
excludes separate account charges such as deductions for administration
charges, contingent deferred sales charges, and mortality and expense risk
premiums.
- 2 -
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Even though our orientation to value caused the Portfolio to lag the index, I
really like the overall strength of our lower-priced, aiming-for-predictable
assets. Admission standards for the RST Equity Portfolio are stringent enough
that I have confidence in our holdings, especially in the event of a market
downturn.
Two new names were admitted to the Portfolio during the second quarter:
Travelers and Washington Mutual. I intend to hold both for a long time, as both
of them are quality acquirers in consolidating industries. Purchased at slightly
less than 13 times estimated expected earnings, in a market that is trading at
over 22 times expected earnings, Washington Mutual is a sound way for us to
participate in the consolidation of the savings and loan industry.
We paid 15 times Traveler's expected earnings estimate. I bought it after it
announced it would merge with CitiCorp to form CitiGroup. In addition to
attractive near-term value, Travelers has the long-term potential to cross-sell
its insurance and investor services to CitiCorp's banking and credit clientele
and vice versa for CitiCorp.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.4%
(Bank)
Hartford Financial Services Group, Inc. ............................ 3.0
(Insurance Company)
Kimberly-Clark Corp. ............................................... 2.8
(Manufacturing & Marketing Personal Care Products)
Abbott Laboratories ................................................. 2.7
(Health Care--Diversified)
Microsoft Corp. .................................................... 2.7
(Computers--Software & Services)
Johnson & Johnson ................................................... 2.7
(Health Care Products)
Merck & Co., Inc. .................................................. 2.6
(Health Care Products)
Federal National Mortgage Association ............................... 2.6
(Mortgage Loan Banker)
Exxon Corp. ........................................................ 2.5
Oil (International Integrated)
Travelers Group, Inc. .............................................. 2.4
Insurance (Multi-Line)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Mid-Cap: ($1 billion-$4 billion) 1%
Cash & Other: 5%
Large-Cap: (over $4 billion) 94%
</TABLE>
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PORTFOLIO MANAGER LETTER
I let go of First Data because I fear consolidation of the financial service
sector will hurt their core business, the processing of merchant transactions.
Four other positions were eliminated during the most recent quarter. I sold
Columbia/HCA, PacifiCare Health Systems, and Electronic Data Systems to further
improve the quality of our holdings and to decrease the volatility of our
returns.
While my intent is to build a portfolio of companies that I can comfortably
hold through thick and thin, I am sensitive to the fact that valuation matters.
Hence, I sold the fourth position, Houston, because it had reached our price
target.
I also sold part of our holdings in Microsoft, Wal-Mart, General Electric,
DuPont, PepsiCo and American Home Products when these companies began to look
expensive. On the flip side I added to our holdings in Hewlett Packard, Dover,
Fannie Mae, Intel and Bell Atlantic when their prices looked right.
The theme to all this, which is evidenced in our portfolio and in our low
turnover, is that we are long-term investors, holding above-average companies in
more predictable industries. For example, there are currently no technical or
cyclical companies in our top-ten.
The market is expensive, and that has made me a very cost and
quality-conscious manager. I am making a concerted effort not to pay too much
for a stock in a market that seems overpriced, or reach too far in a market that
seems precipitous. I am holding only companies I want to own-- companies in
whose long-term outlooks I can take solace.
Rich Meagley
- -------------------------------
Rich Meagley joined SAFECO in 1983. After advancing from analyst to Northwest
Fund Manager, he left the company. He re-joined in January 1995 as Equity
Portfolio Manager. He holds an M.B.A. from the University of Washington, and is
a Chartered Financial Analyst.
- 4 -
<PAGE>
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PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Equity Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 95.5%
AEROSPACE/DEFENSE - 4.2%
240,000 Boeing Co. ........................................ $10,695
95,000 Lockheed Martin Corp. .............................. 10,058
BANKS (MAJOR REGIONAL) - 3.8%
150,000 NationsBank Corp. .................................. 11,475
168,300 U.S. Bancorp ......................................... 7,237
BANKS (MONEY CENTER) - 3.4%
224,000 Chase Manhattan Corp. .............................. 16,912
BEVERAGES (ALCOHOLIC) - 2.2%
230,000 Anheuser-Busch Co., Inc. ........................... 10,853
BEVERAGES (NON-ALCOHOLIC) - 1.2%
140,000 PepsiCo, Inc. ....................................... 5,766
CHEMICALS - 3.8%
120,000 Du Pont (E.I.) de Nemours & Co. ..................... 8,955
215,400 Praxair, Inc. ...................................... 10,083
COMMUNICATIONS EQUIPMENT - 1.5%
138,000 Motorola, Inc. ...................................... 7,254
COMPUTERS (HARDWARE) - 3.7%
165,000 Hewlett-Packard Co. ................................. 9,879
73,000 International Business Machines Corp. ............... 8,381
COMPUTERS (NETWORKING) - 1.0%
155,000 *3Com Corp. ......................................... 4,757
COMPUTERS (SOFTWARE & SERVICES) - 2.7%
124,000 *Microsoft Corp. ................................... 13,439
ELECTRICAL EQUIPMENT - 2.1%
116,000 General Electric Co. ............................... 10,556
ELECTRONICS (SEMICONDUCTORS) - 2.2%
145,000 Intel Corp. ........................................ 10,748
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 2.1%
97,000 Walt Disney Co. ................................... $10,191
FINANCIAL (DIVERSIFIED) - 4.6%
215,000 Federal Home Loan Mortgage Corp. ................... 10,118
208,000 Federal National Mortgage Association ............... 12,636
HEALTH CARE (DIVERSIFIED) - 9.1%
330,000 Abbott Laboratories ................................. 13,489
185,000 American Home Products Corp. ........................ 9,574
75,000 Bristol-Myers Squibb Co. ............................ 8,620
181,500 Johnson & Johnson ................................... 13,386
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.6%
96,000 Merck & Co., Inc. .................................. 12,840
HOUSEHOLD PRODUCTS (NON-DURABLES) - 4.6%
295,000 Kimberly-Clark Corp. ............................... 13,533
100,000 Procter & Gamble Co. ................................ 9,106
INSURANCE (MULTI-LINE) - 7.1%
58,000 American International Group, Inc. .................. 8,468
127,000 Hartford Financial Services Group, Inc. ............ 14,526
198,000 Travelers Group, Inc. .............................. 12,004
MANUFACTURING (DIVERSIFIED) - 4.1%
263,000 AlliedSignal, Inc. ................................. 11,671
245,000 Dover Corp. ......................................... 8,391
OIL (DOMESTIC INTEGRATED) - 2.2%
141,000 Mobil Corp. ........................................ 10,804
OIL (INTERNATIONAL INTEGRATED) - 6.5%
170,000 Exxon Corp. ........................................ 12,123
161,000 Royal Dutch Petroleum Co. (ADR) ...................... 8,825
185,000 Texaco, Inc. ....................................... 11,042
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Equity Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 1.2%
85,000 Schlumberger Ltd. ................................. $ 5,807
PAPER & FOREST PRODUCTS - 1.0%
150,000 Willamette Industries, Inc. ......................... 4,800
RAILROADS - 2.0%
98,000 Burlington Northern Santa Fe Corp. .................. 9,622
RETAIL (DEPARTMENT STORES) - 1.4%
105,000 May Department Stores Co. ........................... 6,878
RETAIL (FOOD CHAINS) - 3.8%
145,000 Albertson's, Inc. ................................... 7,513
453,000 American Stores Co. ................................ 10,957
RETAIL (GENERAL MERCHANDISE) - 1.4%
116,000 Wal-Mart Stores, Inc. ............................... 7,047
SAVINGS & LOANS - 1.4%
157,500 Washington Mutual, Inc. ............................. 6,841
SERVICES (DATA PROCESSING) - 1.2%
79,000 Automatic Data Processing, Inc. ..................... 5,757
TELECOMMUNICATIONS (LONG DISTANCE) - 1.7%
150,000 AT&T Corp. .......................................... 8,569
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 3.5%
208,000 Bell Atlantic Corp. ............................... $ 9,490
140,000 GTE Corp. ........................................... 7,787
TOBACCO - 2.2%
269,000 Philip Morris Cos., Inc. ........................... 10,592
------
TOTAL COMMON STOCKS ................................................. 470,055
------
TEMPORARY INVESTMENTS - 4.3%
COMMERCIAL PAPER:
$5,469,000 Associates Corp. of North America
6.10%, due 7/01/98 ................................... 5,469
15,717,000 Finova Capital Corp.
6.50%, due 7/01/98 .................................. 15,717
INVESTMENT COMPANIES:
3,603 SSgA Prime Money Market Portfolio ........................ 4
------
TOTAL TEMPORARY INVESTMENTS .......................................... 21,190
------
TOTAL INVESTMENTS - 99.8% ........................................... 491,245
Other Assets, less Liabilities ........................................ 1,201
------
NET ASSETS ......................................................... $492,446
------
------
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</TABLE>
* Non income-producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Equity Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $361,462) $ 491,245
Receivables:
Dividends and interest 601
Trust shares sold 1,162
Other 7,278
----------
Total assets 500,286
LIABILITIES:
Payables:
Investment advisory fees 292
Trust shares redeemed 985
Investment securities purchased 6,351
Note payable to affiliate 175
Other 37
----------
Total liabilities 7,840
----------
NET ASSETS $ 492,446
----------
----------
Net Assets consist of:
Accumulated net investment income 2,140
Accumulated net realized gain on investment transactions 14,913
Net unrealized appreciation 129,783
Paid in capital (par value $.001, unlimited shares
authorized) 345,610
----------
NET ASSETS $ 492,446
----------
----------
TRUST SHARES OUTSTANDING 17,120
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Trust shares outstanding) $ 28.77
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
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STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Equity Portfolio
For the Six Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 3,429
Interest 417
---------
Total investment income 3,846
EXPENSES:
Investment advisory 1,641
Legal and auditing 10
Custodian 11
Trustee 4
Other 40
---------
Total expenses 1,706
---------
NET INVESTMENT INCOME 2,140
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 14,913
Net change in unrealized appreciation 40,109
---------
NET GAIN ON INVESTMENTS 55,022
---------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 57,162
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Equity Portfolio
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,140 $ 3,921
Net realized gain on investments 14,913 24,360
Net change in unrealized appreciation 40,109 41,547
------------- -------------
Net change in net assets resulting from operations 57,162 69,828
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (3,926)
Net realized gain on investments -- (24,356)
------------- -------------
Total distributions -- (28,282)
NET TRUST SHARE TRANSACTIONS 46,028 84,643
------------- -------------
TOTAL CHANGE IN NET ASSETS 103,190 126,189
NET ASSETS AT BEGINNING OF PERIOD 389,256 263,067
------------- -------------
NET ASSETS AT END OF PERIOD $ 492,446 $ 389,256
------------- -------------
------------- -------------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 3,212 5,150
Reinvestments -- 1,123
Redemptions (1,553) (2,908)
------------- -------------
Net change 1,659 3,365
------------- -------------
------------- -------------
AMOUNTS:
Sales $ 89,019 $ 128,764
Reinvestments -- 28,283
Redemptions (42,991) (72,404)
------------- -------------
Net change $ 46,028 $ 84,643
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements included herein are only those of the Equity
Portfolio (the Portfolio). The financial statements of the other portfolios are
presented separately. The investment objective of the Portfolio is long term
capital growth.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Securities in the Portfolio traded on a national exchange
or over-the-counter are valued at the last reported sales price, unless there
are no transactions in which case they are valued at the last reported bid
price. Investments in mutual funds are valued at net asset value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions are determined using the
identified cost method.
INCOME RECOGNITION. Dividend income, less foreign taxes withheld (if any), is
recorded on the ex-dividend date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and realized gains are recorded on the last business day of the year.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
- 10 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or other affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned over 93 percent of the
outstanding shares of the Portfolio.
Prior to May, 1994, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the Portfolio except for investment advisory fees. Beginning in May,
1994, the Portfolio is charged for all operating expenses in addition to
investment advisory fees.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the six months ended June 30, 1998 $ 114,263
-------------
-------------
Sales for the six months ended June 30, 1998 $ 74,492
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 300,117
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (170,334)
-------------
Net unrealized appreciation $ 129,783
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
JUNE 30 YEAR ENDED DECEMBER 31
---------------- ---------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 25.18 $ 21.75 $ 19.24 $ 16.83 $ 17.02
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.13 0.27 0.34 0.39 0.31
Net realized and unrealized gain on
investments 3.46 5.13 4.43 4.43 1.21
------- --------- --------- --------- ---------
Total from investment operations 3.59 5.40 4.77 4.82 1.52
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.27) (0.34) (0.39) (0.31)
Distributions from realized gains -- (1.70) (1.92) (2.02) (1.40)
------- --------- --------- --------- ---------
Total distributions -- (1.97) (2.26) (2.41) (1.71)
------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 28.77 $ 25.18 $ 21.75 $ 19.24 $ 16.83
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
TOTAL RETURN 14.26%** 24.85% 24.79% 28.63% 8.94%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 492,446 $ 389,256 $ 263,067 $ 169,479 $ 102,321
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.77%* 0.75% .72% .75% .77%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A N/A .78%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.96%* 1.19% 1.72% 2.26% 1.98%
PORTFOLIO TURNOVER RATE 34.83%* 41.75% 56.99% 69.18% 28.71%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not Annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the period shown (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-TM- A trademark of SAFECO Corporation.
<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
GROWTH PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST GROWTH PORTFOLIO
SAFECO RST Growth Portfolio remains in the top echelon of variable
insurance portfolios and ahead of the broad market. Returning 45.71% for the 12
months ending June 30, the Portfolio outperformed the S&P 500 Index, the Russell
2000 Index and its peer funds. The S&P returned 30.15%, the Russell small-cap
benchmark climbed 16.79% while the average growth
[PHOTO OF THOMAS M. MAGUIRE]
fund delivered 28.06% according to Lipper Analytical Services, Inc.
Despite being down for the quarter (-1.36%), the Portfolio delivered
17.60% for the latest six months, while the average growth fund as measured by
Lipper returned 16.23% in the same period. I've always said that quarter to
quarter it's hard to predict how the Portfolio will do, but over longer time
periods I'm more optimistic.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 45.71%
5 Year 34.38%
Since Inception* 33.45%
</TABLE>
INVESTMENT VALUE
SAFECO RST GROWTH PORTFOLIO: $47,731
S&P 500 INDEX: $29,315
<TABLE>
<CAPTION>
SAFECO RST S&P 500
GROWTH FUND INDEX
<S> <C> <C>
1/31/93 $10,000 $10,000
2/28/93 9,475 10,136
3/31/93 10,059 10,350
4/30/93 9,683 10,100
5/31/93 10,535 10,369
6/30/93 10,891 10,400
7/31/93 11,297 10,358
8/31/93 12,198 10,750
9/30/93 12,822 10,667
10/31/93 13,386 10,888
11/30/93 12,792 10,785
12/31/93 13,473 10,915
1/31/94 14,382 11,286
2/28/94 13,861 10,980
3/31/94 13,351 10,503
4/30/94 13,750 10,637
5/31/94 14,094 10,811
6/30/94 13,662 10,546
7/31/94 14,216 10,892
8/31/94 14,714 11,337
9/30/94 14,626 11,060
10/31/94 15,169 11,308
11/30/94 14,936 10,897
12/31/94 15,079 11,058
1/31/95 15,148 11,344
2/28/95 15,694 11,786
3/31/95 15,671 12,133
4/30/95 15,973 12,490
5/31/95 16,670 12,997
6/30/95 17,727 13,299
7/31/95 18,506 13,739
8/31/95 18,587 13,773
9/30/95 19,644 14,354
10/31/95 19,818 14,303
11/30/95 20,666 14,929
12/31/95 21,261 15,217
1/31/96 21,476 15,735
2/29/96 22,051 15,881
3/31/96 22,654 16,033
4/30/96 24,060 16,269
5/31/96 25,519 16,688
6/30/96 24,608 16,752
7/31/96 22,439 16,012
8/31/96 24,381 16,350
9/30/96 25,827 17,270
10/31/96 26,322 17,746
11/30/96 26,898 19,086
12/31/96 28,077 18,708
1/31/97 29,769 19,875
2/28/97 28,529 20,032
3/31/97 27,480 19,211
4/30/97 26,255 20,356
5/31/97 30,395 21,594
6/30/97 32,757 22,561
7/31/97 34,988 24,356
8/31/97 36,431 22,992
9/30/97 39,419 24,252
10/31/97 38,340 23,443
11/30/97 40,177 24,527
12/31/97 40,587 24,948
1/31/98 40,796 25,223
2/28/98 45,019 27,042
3/31/98 48,391 28,425
4/30/98 50,147 28,711
5/31/98 47,592 28,171
6/30/98 47,731 29,315
</TABLE>
*The Portfolio's inception was January 7, 1993. Performance information
begins on January 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the
Portfolio to a hypothetical investment in a relevant market index. The index
is unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Growth Portfolio only and
excludes separate account charges such as deductions for administration
charges, contingent deferred sales charges, and mortality and expense risk
premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Our performance, the Portfolio's volatility, and the fact that we are often
out of step with the rest of the market are due to one thing: eclectic stock
picking.
Its good performance discovered, RST Growth experienced tremendous asset
growth. Assets more than doubled from $160 million at June 30, 1997 to $367
million at June 30, 1998.
Because of the cash inflow, I bought some larger caps, including: Green Tree
Financial and American Home Products. The advantage of investing in these larger
companies is that I can acquire enough stock to make a difference in the
Portfolio's performance. As well, the money goes right to work and is readily
accessible when more intriguing opportunities arise.
Green Tree, a manufactured housing financier that the Portfolio has owned in
the past, contributed tremendously to RST Growth Portfolio's success so far in
1998. Its stock fell on an accounting controversy and we acquired it on the
cheap.
Then, due to an agreement to merge with Conseco, it climbed to be one of the
last quarter's top performers on the New York Stock Exchange.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Green Tree Financial Corp. ........................................ 6.5%
(Financial Services Company)
Chancellor Media Corp. ............................................. 5.4
(Radio Stations)
United Stationers, Inc. ............................................ 4.7
(Office Equipment & Supplies)
MICROS Systems, Inc. ............................................... 4.0
(Specialty Software Company)
Suburban Lodges of America, Inc. ................................... 3.8
(Lodging--Hotels)
Emmis Broadcasting Corp. (Class A) .................................. 3.4
(Broadcasting--Television, Radio & Cable)
Family Golf Centers, Inc. .......................................... 3.3
(Leisure Time--Products)
Penederm, Inc. ..................................................... 2.7
(Personal Care)
Dura Pharmaceuticals, Inc. ......................................... 2.4
(Health Care--Drugs--General)
Beckman Coulter, Inc. .............................................. 2.0
(Health Care--Medical Products & Supplies)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Large-Cap: (over $4 billion) 10%
Mid-Cap: ($1-$4 billion) 14%
Small-Cap: (under $1 billion) 74%
Cash & Other: 2%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
We bought American Home Products when its stock lost weight on a problem with
its diet drugs. Over the last six months, the stock gained 35% versus the S&P
500's 18%. A practiced acquirer, American Home recently announced a merger with
Monsanto that further solidifies its scientific nature and greatly enhances its
long-term growth prospects.
I like larger caps only when I smell value in them, and that usually rises
off a controversy. My preferred choices continue to be those that are
undiscovered, with ample room to appreciate. My current favorites include:
Family Golf (a consolidator of driving range facilities that has essentially
acquired all its major competition), Dura Pharmaceuticals (a smaller
pharmaceutical company that has created a niche in respiratory drugs), MICROS
Systems (a point of sale inventory systems provider that is simultaneously
cutting costs and expanding its product line and customer base), United
Stationers (the largest player in the consistent business of office product
distribution) and Corrections Corp (the largest private operator of prisons).
As your Portfolio manager, I am working to think and invest creatively, to
keep up our good results, to be thankful when things go well, and to remember
that nothing lasts forever.
Thomas M. Maguire
- -------------------------------
After completing his M.B.A. at the University of Washington, Thomas M. Maguire
joined the company as an equity analyst in 1981 and today is a Vice President.
From 1984 to 1989, he co-managed the SAFECO Equity Fund.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 100.1%
AUTO PARTS & EQUIPMENT - 1.6%
608,500 *+Precision Auto Care, Inc. $ 6,009
BANKS (MAJOR REGIONAL) - 0.3%
39,900 Provident Bankshares Corp. .......................... 1,177
BIOTECHNOLOGY - 0.3%
65,000 *CryoLife, Inc. ..................................... 1,024
BROADCASTING (TELEVISION, RADIO, & CABLE) - 9.2%
64,100 *American Tower Corp. (Class A) ...................... 1,598
396,564 *Chancellor Media Corp. ............................ 19,692
259,900 *Emmis Broadcasting Corp. (Class A) ................. 12,426
BUILDING MATERIALS - 0.2%
76,000 *Hospitality Worldwide Services ........................ 684
CHEMICALS (SPECIALTY) - 0.6%
145,500 *Tetra Technologies, Inc. ........................... 2,401
COMMUNICATIONS EQUIPMENT - 1.9%
47,000 *DSC Communications Corp. ........................... 1,410
19,300 *NewCom, Inc. ......................................... 183
106,000 Scientific-Atlanta, Inc. ............................ 2,690
90,000 *World Access, Inc. ................................. 2,700
COMPUTERS (HARDWARE) - 4.4%
40,300 *Equitrac Corp. ....................................... 801
443,600 *MICROS Systems, Inc. .............................. 14,680
72,000 *Optimal Robotics Corp. ............................... 846
COMPUTERS (PERIPHERALS) - 0.0%
1,200 *Quantum Corp. ......................................... 25
COMPUTERS (SOFTWARE AND SERVICES) - 2.2%
32,000 *Affiliated Computer Services, Inc. ................ $1,232
213,200 *Discreet Logic, Inc. ............................... 2,478
255,000 *Phoenix International Ltd., Inc. ................... 4,144
15,100 *TRO Learning, Inc. ................................... 131
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CONSUMER FINANCE - 1.6%
311,100 Doral Financial Corp. ............................... 5,444
25,000 *Waterside Capital Corp. .............................. 284
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.0%
4,000 *Action Performance Cos., Inc. ........................ 129
CONTAINERS (METAL & GLASS) - 0.0%
48,600 *Ontro, Inc. .......................................... 188
DISTRIBUTORS (FOOD & HEALTH) - 3.2%
260,100 *Nu Skin Enterprises, Inc. (Class A) ................. 5,072
395,000 Weider Nutrition International, Inc. ................ 6,715
DRUG & HOSPITAL SUPPLY - 0.3%
45,100 *Zonagen, Inc. ........................................ 989
ELECTRICAL EQUIPMENT - 0.7%
96,700 *PCD, Inc. .......................................... 1,656
126,100 *Ultrak, Inc. ....................................... 1,072
ENGINEERING & CONSTRUCTION - 1.2%
149,700 *American Buildings Co. ............................. 4,454
7,200 *Morrison Knudsen Corp. ............................... 101
ENTERTAINMENT - 0.7%
70,600 *Championship Auto Racing Teams, Inc. ............... 1,288
26,644 *SFX Entertainment, Inc. (Class A) ................... 1,222
FINANCIAL (DIVERSIFIED) - 1.1%
125,600 *BNC Mortgage, Inc. ................................ $1,382
178,400 *Credit Acceptance Corp. ............................ 1,516
96,900 *United Panam Financial Corp. ......................... 993
FINANCIAL (MISCELLANEOUS) - 6.5%
554,300 Green Tree Financial Corp. ......................... 23,731
FOOTWEAR - 0.1%
25,000 *Rocky Shoes & Boots, Inc. ............................ 356
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DIVERSIFIED) - 0.8%
24,300 American Home Products Corp. ........................ 1,258
81,900 *Anesta Corp. ....................................... 1,182
33,000 *OrthAlliance, Inc. (Class A) .......................... 478
HEALTH CARE (DRUGS-GENERAL) - 3.4%
392,000 *Dura Pharmaceuticals, Inc. ......................... 8,771
466,000 *+Nastech Pharmaceutical Co., Inc. .................. 3,786
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 3.2%
175,700 Alpharma, Inc. ...................................... 3,865
64,200 *Andrx Corp. ........................................ 2,359
141,300 *Gensia, Inc. ......................................... 565
58,700 Mylan Laboratories, Inc. ............................ 1,765
39,300 *PharmaPrint, Inc. .................................... 403
70,000 *Serologicals Corp. ................................. 2,257
45,000 *SuperGen, Inc. ....................................... 453
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.2%
16,128 *AmSurg Corp. (Class A) ................................ 123
103,917 *AmSurg Corp. (Class B) ................................ 727
HEALTH CARE (MANAGED CARE) - 0.9%
12,500 *Birner Dental Management Services, Inc. ............... 78
204,200 +First Commonwealth, Inc. ........................... 3,063
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 7.7%
62,100 *Anika Therapeutics, Inc. ........................... $ 908
128,100 Beckman Coulter, Inc. ............................... 7,462
217,400 *Datascope Corp. .................................... 5,775
65,300 *EDAP TMS S.A. (ADR) ................................... 306
233,300 *Haemonetics Corp. .................................. 3,733
231,000 *Lifeline Systems, Inc. ............................. 4,274
422,100 *PolyMedica Industries, Inc. ........................ 3,799
195,100 *Quidel Corp. ......................................... 610
236,200 *Senetek, plc (ADR) .................................... 827
36,400 *Urologix, Inc. ....................................... 309
108,000 *UroQuest Medical Corp. ............................... 284
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (SPECIALIZED SERVICES) - 1.2%
177,700 *American Healthcorp, Inc. .......................... 1,755
97,000 *Laboratory Specialists of America, Inc. .............. 455
233,150 *Prime Medical Services, Inc. ....................... 2,186
HOMEBUILDING - 0.7%
106,875 *American Homestar Corp. ............................ 2,558
HOUSEHOLD FURNITURE & APPLIANCES - 0.3%
95,700 *International Comfort Products Corp. ............... 1,160
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.2%
118,500 *U.S. Home & Garden, Inc. ............................. 763
HOUSEWARES - 1.4%
155,600 First Years, Inc. ................................... 2,956
196,000 *Home Products International, Inc. .................. 2,279
INSURANCE (LIFE-HEALTH) - 0.4%
30,000 Conseco, Inc. ....................................... 1,403
LEISURE TIME (PRODUCTS) - 4.2%
162,300 *American Coin Merchandising, Inc. .................. 3,205
471,925 *Family Golf Centers, Inc. ......................... 11,946
43,300 *Toymax International, Inc. ........................... 298
LODGING (HOTELS) - 3.8%
917,800 *+Suburban Lodges of America, Inc. ................ $13,882
MACHINERY (DIVERSIFIED) - 1.2%
125,700 Chart Industries, Inc. .............................. 3,001
14,200 *Innovative Valve Technologies, Inc. .................. 105
201,100 *ITEQ, Inc. ......................................... 1,496
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
MANUFACTURING (DIVERSIFIED) - 1.7%
14,400 *ITC Learning Corp. .................................... 94
10,000 *Maverick Tube Corp. .................................. 116
90,900 *Nortek, Inc. ....................................... 2,795
123,900 *Recovery Engineering, Inc. ......................... 2,610
59,000 *SurModics, Inc. ...................................... 693
MANUFACTURING (SPECIALIZED) - 1.1%
15,000 Diebold, Inc. ......................................... 433
252,500 *Teardrop Golf Co. .................................. 2,525
74,900 *Telco Systems, Inc. ................................ 1,063
1,900 *Zomax Optical Media, Inc. ............................. 29
NATURAL GAS - 0.1%
72,000 Virginia Gas Co. ...................................... 441
OFFICE EQUIPMENT & SUPPLIES - 7.3%
47,200 *Asia Pacific Wire & Cable Corp., Ltd. ................ 248
168,100 Danka Business Systems (ADR) ......................... 1,986
15,000 *Imtec, Inc. .......................................... 186
87,400 *Open Plan Systems, Inc. .............................. 202
491,950 *+TRM Copy Centers Corp. ............................ 7,010
264,200 *United Stationers, Inc. ........................... 17,107
PERSONAL CARE - 2.8%
34,900 *French Fragrances, Inc. .............................. 545
492,567 *+Penederm, Inc. .................................... 9,851
REAL ESTATE INVESTMENT TRUST - 1.1%
15,600 CCA Prison Realty Trust ................................ 478
156,000 *Corrections Corp. of America ........................ 3,666
RESTAURANTS - 2.3%
148,200 Apple South, Inc. .................................. $1,936
89,050 *Rainforest Cafe, Inc. .............................. 1,236
240,000 *Rare Hospitality International, Inc. ............... 3,525
100,500 *Schlotzsky's, Inc. ................................. 1,608
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (BUILDING SUPPLIES) - 0.5%
73,500 *Eagle Hardware & Garden, Inc. ...................... 1,700
RETAIL (DEPARTMENT STORES) - 0.7%
69,200 *Marks Brothers Jewelers, Inc. ...................... 1,349
51,700 *Rainbow Rentals, Inc. ................................ 549
27,000 *Value City Department Stores, Inc. ................... 567
RETAIL (DISCOUNTERS) - 0.1%
41,000 *Filene's Basement Corp. .............................. 224
RETAIL (FOOD CHAINS) - 1.3%
8,500 American Stores Co. ................................... 206
362,400 *NPC International, Inc. ............................ 4,439
RETAIL (GENERAL MERCHANDISE) - 0.2%
15,000 *Happy Kids, Inc. ..................................... 206
26,125 Phillips-Van Heusen Corp. ............................. 385
RETAIL (HOME SHOPPING) - 0.8%
295,200 *Damark International, Inc. ......................... 2,509
RETAIL (SPECIALTY) - 1.6%
45,700 *1-800 Contacts, Inc. ................................. 697
17,500 *800-JR Cigar, Inc. ................................... 346
165,100 *Funco, Inc. ........................................ 2,332
58,800 *Garden Ridge Corp. ................................. 1,139
49,000 *Travis Boats & Motor, Inc. ......................... 1,201
153,100 *West Coast Entertainment Corp. ....................... 258
RETAIL (SPECIALTY-APPAREL) - 3.4%
284,600 *+Concepts Direct, Inc. ............................. 4,340
170,556 *Harold's Stores, Inc. .............................. 1,300
155,962 *Stage Stores, Inc. ................................. 7,057
SERVICES (ADVERTISING/MARKETING) - 0.5%
89,600 *ACI Telecentrics, Inc. ............................. $ 56
204,300 *APAC Teleservices, Inc. ............................ 1,194
38,860 LCS Industries, Inc. .................................. 569
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SERVICES (COMMERCIAL & CONSUMER) - 5.2%
64,600 *Bluegreen Corp. ...................................... 569
175,000 *Compass International Services Corp. ............... 1,663
80,000 *FirstService Corp. ................................. 1,020
454,900 *+IntelliQuest Information Group, Inc. .............. 4,549
313,750 *NCO Group, Inc. .................................... 6,903
65,100 *Renters Choice, Inc. ............................... 1,847
67,500 *Right Management Consultants, Inc. ................... 911
47,500 SunSource, Inc. ..................................... 1,033
40,300 *UBICS, Inc. .......................................... 554
SERVICES (DATA PROCESSING) - 0.2%
53,000 *Vanstar Corp. ........................................ 772
SERVICES (EMPLOYMENT) - 1.1%
68,800 *ACSYS, Inc. .......................................... 946
42,600 *Alternative Resources Corp. .......................... 527
377,800 *Hall, Kinion & Associates, Inc. .................... 2,527
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 1.0%
286,600 *CellStar Corp. ..................................... 3,708
TELEPHONE - 0.4%
131,900 *Innotrac Corp. ..................................... 1,253
TOBACCO - 1.1%
106,000 Philip Morris Cos., Inc. ............................ 4,174
------
TOTAL COMMON STOCKS ................................................. 367,753
------
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
WARRANTS - 0.0%
COMPUTERS (PERIPHERALS) - 0.0%
17,500 *NewCom, Inc. ...................................... $ 44
CONTAINERS (METAL & GLASS) - 0.0%
48,600 *Ontro, Inc. ........................................... 33
------
TOTAL WARRANTS ........................................................... 77
------
TEMPORARY INVESTMENTS - 1.2%
COMMERCIAL PAPER:
$4,041,000 Finova Capital Corp. 6.50, due 7/01/98 ............... 4,041
INVESTMENT COMPANIES:
204,580 SSgA Prime Money Market Portfolio ...................... 205
------
TOTAL TEMPORARY INVESTMENTS ........................................... 4,246
------
TOTAL INVESTMENTS - 101.3% .......................................... 372,076
Liabilities, less Other Assets ...................................... (4,705)
------
NET ASSETS ......................................................... $367,371
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non income-producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Portfolio controls 5% or more of the outstanding voting shares of the
Company).
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Growth Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $314,271)
Unaffiliated Issuers $ 319,585
Affiliated Issuers 52,491
Receivables:
Dividends and interest 88
Investments securities sold 2,475
Portfolio shares sold 1,236
-----------
Total assets 375,875
LIABILITIES:
Payables:
Investment securities purchased 7,014
Investment advisory fees 215
Portfolio shares redeemed 1,237
Other 38
-----------
Total liabilities 8,504
-----------
NET ASSETS $ 367,371
-----------
-----------
Net Assets consist of:
Accumulated net investment loss (666)
Accumulated net realized gain on investment transactions 28,877
Net unrealized appreciation 57,805
Paid in capital (par value $.001, unlimited shares
authorized) 281,355
-----------
NET ASSETS $ 367,371
-----------
-----------
PORTFOLIO SHARES OUTSTANDING 13,378
-----------
-----------
NET ASSET VALUE PER SHARE
(Net assets divided by Trust shares outstanding) $ 27.46
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Growth Portfolio
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 452
Interest 96
-----------
Total investment income 548
EXPENSES:
Investment advisory 1,148
Legal and auditing 8
Custodian 15
Trustees 3
Other 40
-----------
Total expenses 1,214
-----------
NET INVESTMENT INCOME (LOSS) (666)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments
Unaffiliated issuers 28,877
Affiliated issuers 4
Net change in unrealized appreciation 16,297
-----------
NET GAIN ON INVESTMENTS 45,178
-----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 44,512
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Growth Portfolio
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (666) $ (412)
Net realized gain on investments 28,881 39,099
Net change in unrealized appreciation 16,297 24,467
----------- -----------
Net change in net assets resulting from operations 44,512 63,154
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments -- (38,691)
NET PORTFOLIO SHARE TRANSACTIONS 82,459 106,446
----------- -----------
TOTAL CHANGE IN NET ASSETS 126,971 130,909
NET ASSETS AT BEGINNING OF PERIOD 240,400 109,491
----------- -----------
NET ASSETS AT END OF PERIOD $ 367,371 $ 240,400
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 5,251 5,106
Reinvestments -- 1,657
Redemptions (2,170) (2,151)
----------- -----------
Net change 3,081 4,612
----------- -----------
----------- -----------
AMOUNTS:
Sales $ 140,209 $ 118,824
Reinvestments -- 38,691
Redemptions (57,750) (51,069)
----------- -----------
Net change $ 82,459 $ 106,446
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements include herein are only those of the Growth
Portfolio (the Portfolio). The financial statements of the other Trust
portfolios are presented separately. The investment objective of the Portfolio
is long term capital growth.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Securities in the Portfolio traded on a national exchange
or over-the-counter are valued at the last reported sales price, unless there
are no transactions in which case they are valued at the last reported bid
price. Investments in other mutual funds are valued at the net asset value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions are determined using the
identified cost method.
INCOME RECOGNITION. Interest is accrued on Portfolio investments daily.
Dividend income, less foreign taxes withheld (if any), is recorded on the
ex-dividend date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and distributions of realized gains are recorded on the last business day
of December each year.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income or excise tax provision is required.
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned over 89 percent of the
outstanding shares of the Growth Portfolio.
Prior to May, 1995, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the Portfolio except for investment advisory fees. Beginning in May,
1995, when net assets exceeded $20 million, the Portfolio is charged for all
operating expenses in addition to investment advisory fees.
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the six-month period ended June 30,
1998 $ 183,977
-------------
-------------
Sales for the six-month period ended June 30, 1998 $ 99,151
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 84,919
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (27,114)
-------------
Net unrealized appreciation $ 57,805
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
5. INVESTMENTS IN AFFILIATES
Each of the companies is listed below because the Portfolio owned at least 5%
of the company's voting securities during the six-month period ended June 30,
1998.
<TABLE>
<CAPTION>
SHARES AT SHARES AT MARKET VALUE
BEGINNING PURCHASES SALES END OF JUNE 30
(In Thousands) OF PERIOD ADDITIONS REDUCTIONS PERIOD DIVIDENDS 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Concepts Direct, Inc. 198 91 4 285 None $ 4,340
First Commonwealth, Inc. 107 98 1 204 None 3,063
Intelliquest Information
Group, Inc. 21 434 -- 455 None 4,550
Nastech Pharmaceutical
Co., Inc. 155 311 -- 466 None 3,786
Penederm, Inc. 493 -- -- 493 None 9,851
Precision Auto Care, Inc. -- 609 -- 609 None 6,009
Suburban Lodges of
America, Inc. 194 724 -- 918 None 13,882
TRM Copy Centers Corp. 58 434 -- 492 None 7,010
------
$ 52,491
------
------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30 YEAR ENDED DECEMBER 31
---------------- ---------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 23.35 $ 19.26 $ 15.88 $ 12.98 $ 12.16
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.05) (0.04) (0.03) 0.06 --
Net realized and unrealized gain on
investments 4.16 8.62 5.12 5.26 1.45
------- --------- --------- --------- ---------
Total from investment operations 4.11 8.58 5.09 5.32 1.45
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- (0.06) --
Distributions from realized gains -- (4.49) (1.71) (2.36) (0.63)
------- --------- --------- --------- ---------
Total distributions -- (4.49) (1.71) (2.42) (0.63)
------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 27.46 $ 23.35 $ 19.26 $ 15.88 $ 12.98
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
TOTAL RETURN 17.60%** 44.55% 32.06% 41.00%(A) 11.92%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 367,371 $ 240,400 $ 109,491 $ 44,458 $ 16,156
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78%* 0.77% .79% .79% .71%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A .84% .96%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.43)%* (.25)% (.28)% .55% (.05)%*
PORTFOLIO TURNOVER RATE 64.74%* 88.99% 75.58% 111.70% 41.24%*
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not Annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 15 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 938 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-TM- A trademark of SAFECO Corporation.
<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
NORTHWEST PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST NORTHWEST PORTFOLIO
For the six months ended June 30, 1998, the Portfolio returned 6.45%
versus the Lipper Analytical Services average of 16.23%. For the latest
12 months it was Portfolio 17.71%, peer group 28.06%. The WM Group Northwest 50
Index returned 15.87% for the six months and 26.80% for the one year periods.
[PHOTO OF WILLIAM B. WHITLOW]
The reasons for our underperformance relative to the broad market
involve the nature of our investing universe. Tech stocks and
Asia-affected stocks did poorly and the Northwest economy has more tech stocks
and roughly twice the Asian exposure of other regions. Further exacerbating the
situation is that the Portfolio owns a lot of small-cap stocks, which also did
poorly. (In the
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 17.71%
5 Year 12.88%
Since Inception* 10.73%
</TABLE>
INVESTMENT VALUE
SAFECO RST NORTHWEST PORTFOLIO: $17,366
S&P 500 INDEX: $29,315
WM GROUP NORTHWEST 50 INDEX: $25,865
<TABLE>
<CAPTION>
SAFECO RST
NORTHWEST S&P 500 NORTHWEST
PORTFOLIO INDEX 50 INDEX
<S> <C> <C> <C>
1/31/93 $10,000 $10,000 $10,000
2/28/93 9,385 10,136 9,687
3/31/93 9,633 10,350 10,086
4/30/93 9,325 10,100 9,859
5/31/93 9,563 10,369 10,103
6/30/93 9,474 10,400 9,885
7/31/93 9,425 10,358 9,531
8/31/93 9,623 10,750 9,921
9/30/93 9,722 10,667 9,698
10/31/93 9,841 10,888 10,046
11/30/93 9,901 10,785 10,262
12/31/93 9,945 10,915 10,400
1/31/94 10,146 11,286 10,714
2/28/94 10,496 10,980 10,873
3/31/94 10,216 10,503 10,490
4/30/94 10,166 10,637 10,458
5/31/94 10,055 10,811 10,616
6/30/94 9,915 10,546 10,293
7/31/94 10,086 10,892 10,374
8/31/94 10,526 11,337 10,972
9/30/94 10,536 11,060 10,553
10/31/94 10,646 11,308 10,490
11/30/94 10,396 10,897 10,302
12/31/94 10,309 11,058 10,359
1/31/95 10,097 11,344 10,314
2/28/95 10,258 11,786 10,661
3/31/95 10,661 12,133 10,999
4/30/95 10,681 12,490 11,330
5/31/95 10,812 12,997 11,331
6/30/95 11,356 13,299 12,019
7/31/95 12,040 13,739 12,474
8/31/95 12,292 13,773 12,712
9/30/95 12,070 14,354 13,179
10/31/95 11,778 14,303 12,874
11/30/95 11,517 14,929 13,066
12/31/95 11,074 15,217 13,226
1/31/96 11,043 15,735 13,663
2/29/96 11,349 15,881 13,978
3/31/96 11,972 16,033 13,904
4/30/96 12,268 16,269 14,739
5/31/96 12,452 16,688 14,978
6/30/96 12,196 16,752 14,915
7/31/96 11,707 16,012 14,186
8/31/96 12,023 16,350 14,888
9/30/96 12,207 17,270 15,274
10/31/96 11,900 17,746 15,167
11/30/96 12,390 19,086 16,263
12/31/96 12,452 18,708 16,650
1/31/97 13,315 19,875 17,395
2/28/97 13,294 20,032 17,720
3/31/97 12,749 19,211 17,234
4/30/97 13,130 20,356 18,005
5/31/97 13,962 21,594 19,479
6/30/97 14,753 22,561 20,401
7/31/97 16,058 24,356 22,261
8/31/97 15,636 22,992 21,542
9/30/97 16,417 24,252 23,050
10/31/97 15,647 23,443 21,529
11/30/97 16,438 24,527 22,838
12/31/97 16,314 24,948 22,324
1/31/98 16,121 25,223 22,237
2/28/98 17,763 27,042 24,507
3/31/98 17,892 28,425 25,676
4/30/98 18,364 28,711 25,579
5/31/98 17,001 28,171 24,343
6/30/98 17,366 29,315 25,865
</TABLE>
*The Portfolio's inception was January 7, 1993. Performance information
begins on January 31, 1993.
The performance graph compares a hypothetical $10,000 investment in the
Portfolio to a hypothetical investment in two relevant market indexes. Each
index is unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Northwest Portfolio only and
excludes separate account charges such as deductions for administration
charges, contingent deferred sales charges, and mortality and expense risk
premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
latest quarter, the Russell 2000 Index, which has a median market cap of $395
million versus the Portfolio's $516 million, tumbled 4.6%.)
Innova, a small, communications tech stock affected by Asia cascaded 67% over
the quarter as the yen declined, advancing the Japanese's competitive position.
Both Lattice Semiconductor and Sequent Computer suffered substantial declines
for the quarter (45% and 34% respectively) as Asian orders dwindled. Boeing's
postponement of a major order further hurt Sequent. Boeing was down 9% for the
six months, but appears to be overcoming the problems created by their attempt
to increase production 140%--a difficult task for any management.
Seattle FilmWorks share price fell and I bought more. I anticipate better
earnings and exciting new product developments going forward. I am not going to
sell these hard hit stocks. I think they represent a lot of potential. Eagle
Hardware did. We held it through hardware's hard times last year, and in the
last three months, it gained 31%.
We've also benefited from researching, visiting and buying Morrison Knudsen
before Wall Street discovered it. Rescued from chapter 11, given a clean
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 5.6%
(Personal Computer Software)
Eagle Hardware & Garden, Inc. ...................................... 5.2
(Home Improvement Center)
Physio-Control Int'l ................................................ 4.8
(Health-Care Medical Products & Supplies)
Costco Companies, Inc. ............................................. 4.1
(Wholesale Membership Warehouse)
Morrison Knudsen Corp. ............................................. 3.7
(Engineering & Construction)
Starbucks Corp. .................................................... 3.5
(Restaurants)
Boeing Co. ......................................................... 3.4
(Aerospace)
Weyerhaeuser Co. ................................................... 3.3
(Paper & Forest Products)
Washington Mutual Savings Bank ...................................... 3.2
(Savings & Loan Companies)
Seattle FilmWorks, Inc. ............................................ 3.1
(Photography/Imaging)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Large-Cap: (over $4 billion) 37%
Mid-Cap: ($1-$4 billion) 3%
Small-Cap: (under $1 billion) 59%
Cash & Other: 1%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
slate and honest management this Construction Engineering Company is putting
together positive earnings.
Physio Control (defibrillators) was up over 50% in the last quarter on the
news that it would be purchased by Medtronic. Microsoft did well, as usual, up
68% in the last six months. Starbucks stock continues to perk, as it expands in
Europe and Costco is doing well adding new services.
With lumber near the bottom of cycle, I took a full position in Weyerhaeuser.
The company represented the best value in the group and has a new CEO, from whom
we expect good things.
I bought Ambassadors International, a Spokane-based specialty travel company,
and Cavanaugh, a Spokane-based hotel chain. I participated in the IPO of
Washington Banking. My strategy here is to take small positions in small banks
in healthy economies.
In summary, I feel pretty shaken by the last six months, but whole. I like
the valuations and the outlooks of the 38 stocks that comprise the Portfolio.
Our outlook for the Northwest Economy is that it will slow, but continue to
outperform the nation. We don't know what toll Asia will take, so we have
limited our exposure there. I expect technology to become a bigger component of
our economy and offer more consistent growth as the sector matures. It also
seems to me that smaller undervalued companies are bound to return to favor, and
that good things come to those who wait.
William B. Whitlow
- -------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
re-joining SAFECO in April 1997 as Northwest Portfolio Manager, he was Director
of Research at Pacific Crest Securities. He holds a BA in chemistry from the U.
of Colorado and an MBA from the U. of Calif. at Berkeley. He is a CFA and a
member of the Washington State Governor's Council of Economic Advisors.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Northwest Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.9%
AEROSPACE/DEFENSE - 3.4%
20,000 Boeing Co. .......................................... $ 891
AIR FREIGHT - 2.8%
17,000 Expeditors International of Washington, Inc. .......... 748
BANKS (DOMESTIC) - 1.4%
25,300 Heritage Financial Corp. .............................. 373
BANKS (MAJOR REGIONAL) - 5.2%
18,692 U.S. Bancorp ........................................... 804
22,600 West Coast Bancorp, Inc. .............................. 557
BANKS (REGIONAL) - 1.1%
21,000 *Washington Banking Co. ............................... 284
BIOTECHNOLOGY - 0.9%
33,000 *Corixa Corp. ......................................... 227
BUILDING MATERIALS - 2.8%
24,000 TJ International, Inc. ................................ 723
CHEMICALS (DIVERSIFIED) - 2.8%
24,000 Penford Corporation .................................... 726
COMMUNICATIONS EQUIPMENT - 4.3%
43,000 GST Telecommunications, Inc. .......................... 621
101,000 *Innova Corp. ......................................... 518
COMPUTERS (HARDWARE) - 4.5%
11,000 Hewlett-Packard Co. ................................... 659
44,000 *Sequent Computer Systems, Inc. ....................... 531
COMPUTERS (SOFTWARE & SERVICES) - 5.6%
13,600 *Microsoft Corp. .................................... 1,474
ELECTRONICS (SEMICONDUCTORS) - 4.1%
11,000 Intel Corp. ........................................... 815
8,800 *Lattice Semiconductor Corp. .......................... 250
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENGINEERING & CONSTRUCTION - 3.7%
70,000 *Morrison Knudsen Corp. ............................. $ 984
HEALTH CARE (LONG TERM CARE) - 3.0%
67,000 *Emeritus Corp. ....................................... 792
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 7.9%
48,000 *Physio-Control International Corp. ................. 1,263
93,000 *Protocol Systems, Inc. ............................... 802
IRON & STEEL - 2.9%
32,000 Schnitzer Steel Industries, Inc. ...................... 756
LEISURE TIME (PRODUCTS) - 3.0%
26,000 *Ambassadors International, Inc. ...................... 788
LODGING (HOTELS) - 1.7%
34,000 *Cavanaughs Hospitality Corp. .......................... 444
PAPER & FOREST PRODUCTS - 3.2%
18,500 Weyerhaeuser Co. ...................................... 855
PHOTOGRAPHY/IMAGING - 3.1%
106,000 *Seattle FilmWorks, Inc. .............................. 818
RAILROADS - 0.3%
900 Burlington Northern Santa Fe Corp. ..................... 88
RESTAURANTS - 3.4%
17,000 *Starbucks Corp. ...................................... 908
RETAIL (BUILDING SUPPLIES) - 5.2%
59,000 *Eagle Hardware & Garden, Inc. ...................... 1,364
RETAIL (DEPARTMENT STORES) - 2.9%
18,000 *Fred Meyer, Inc. ..................................... 765
RETAIL (FOOD CHAINS) - 2.4%
12,000 Albertson's, Inc. ..................................... 622
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Northwest Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (GENERAL MERCHANDISE) - 4.1%
17,000 Costco Companies, Inc. ............................ $ 1,072
SAVINGS & LOANS - 9.5%
9,800 InterWest Bancorp, Inc. ............................... 425
23,000 Riverview Bancorp, Inc. ............................... 382
29,600 *Sterling Financial Corp. ............................. 673
19,500 Washington Mutual, Inc. ............................... 847
6,282 WesterFed Financial Corp. ............................. 154
TELECOMMUNICATIONS (LONG DISTANCE) - 1.3%
55,000 *General Communications, Inc. (Class A) ................ 333
TELEPHONE - 2.4%
17,000 *NEXTLINK Communications, Inc. (Class A) ............... 644
-----
TOTAL COMMON STOCKS .................................................. 25,980
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 1.4%
INVESTMENT COMPANIES:
363,380 SSgA Prime Money Market Portfolio ................... $ 363
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 363
-----
TOTAL INVESTMENTS - 100.3% ........................................... 26,343
Liabilities, less Other Assets ......................................... (78)
-----
NET ASSETS .......................................................... $26,265
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non income-producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Northwest Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $22,346) $ 26,343
Receivables:
Dividends and interest 10
Investment securities sold 480
Portfolio shares sold 31
Other 6
----------
Total assets 26,870
LIABILITIES:
Payables:
Investment advisory fees 15
Investment securities purchased 527
Portfolio shares redeemed 29
Other 34
----------
Total liabilities 605
----------
NET ASSETS $ 26,265
----------
----------
Net Assets consist of:
Accumulated net investment loss (50)
Accumulated net realized gain on investment transactions 1,113
Net unrealized appreciation 3,997
Paid in capital (par value $.001, unlimited shares
authorized) 21,205
----------
NET ASSETS $ 26,265
----------
----------
TRUST SHARES OUTSTANDING 1,623
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 16.18
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Northwest Portfolio
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 49
Interest 18
---------
Total investment income 67
EXPENSES:
Investment advisory 86
Legal and auditing 8
Trustees 3
Custodian 3
Reports to shareholders 22
Other 1
---------
Total expenses before reimbursement 123
Expense reimbursement (6)
---------
Total expenses after reimbursement 117
---------
NET INVESTMENT LOSS (50)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 1,113
Net change in unrealized appreciation 200
---------
NET GAIN (LOSS) ON INVESTMENTS 1,313
---------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,263
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Northwest Portfolio
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (50) $ 38
Net realized gain (loss) on investments 1,113 944
Net change in unrealized appreciation 200 2,490
------ ------
Net change in net assets resulting from operations 1,263 3,472
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (38)
Net realized gain on investments -- (806)
------ ------
Total Distributions -- (844)
NET TRUST SHARE TRANSACTIONS 5,207 7,626
------ ------
TOTAL CHANGE IN NET ASSETS 6,470 10,254
NET ASSETS AT BEGINNING OF PERIOD 19,795 9,541
------ ------
NET ASSETS AT END OF PERIOD $ 26,265 $ 19,795
------ ------
------ ------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN TRUST SHARES AND AMOUNTS
SHARES:
Sales 468 675
Reinvestments -- 56
Redemptions (148) (215)
------ ------
Net change 320 516
------ ------
------ ------
AMOUNTS:
Sales $ 7,564 $ 9,917
Reinvestments -- 844
Redemptions (2,357) (3,135)
------ ------
Net change $ 5,207 $ 7,626
------ ------
------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements included herein are only those of the Northwest
Portfolio (the Portfolio). The financial statements of the other portfolios are
presented separately. The investment objective of the Portfolio is long term
capital growth.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Securities in the Portfolio traded on a national exchange
or over-the-counter are valued at the last reported sales price, unless there
are no transactions in which case they are valued at the last reported bid
price. Investments in other mutual funds are valued at net asset value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions are determined using the
identified cost method.
INCOME RECOGNITION. Dividend income, less foreign taxes withheld (if any), is
recorded in the ex-dividend date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and realized gains are recorded on the last business day of December each
year.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Historically, SAFECO Life Insurance Company (SAFECO) paid all the expenses of
the Portfolio except for investment advisory fees because net assets were less
than $20 million. In January, 1998, net assets surpassed $20 million. Thus, the
Portfolio is now charged for all operating expenses in addition to investment
advisory fees. These expenses include legal and auditing fees, custodian fees,
and other expenses.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the six months ended June 30, 1998 $ 9,629
------
------
Sales for the six months ended June 30, 1998 $ 4,294
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 6,374
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (2,376)
------
Net unrealized appreciation $ 3,998
------
------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30 YEAR ENDED DECEMBER 31
---------------- ---------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.20 $ 12.12 $ 10.85 $ 10.24 $ 9.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.03) 0.03 0.08 0.08 0.06
Net realized and unrealized gain
(loss) on investments 1.01 3.73 1.27 0.68 0.30
------ --------- --------- --------- ---------
Total from investment operations 0.98 3.76 1.35 0.76 0.36
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.03) (0.08) (0.08) (0.06)
Distributions from realized gains -- (0.65) -- (0.07) --
------ --------- --------- --------- ---------
Total distributions -- (0.68) (0.08) (0.15) (0.06)
------ --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 16.18 $ 15.20 $ 12.12 $ 10.85 $ 10.24
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
TOTAL RETURN (A) 6.45%** 31.02% 12.44% 7.42% 3.65%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 26,265 $ 19,795 $ 9,541 $ 6,312 $ 4,564
RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.00%* 0.73% .70% .71% .71%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.05%* 0.94% 1.11% 1.18% 1.23%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (0.04)* 0.27% .78% .81% .72%
PORTFOLIO TURNOVER RATE 37.41%* 47.85% 52.20% 21.30% 7.29%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 942 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-TM- A trademark of SAFECO Corporation.
<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
SMALL COMPANY STOCK PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST SMALL COMPANY STOCK PORTFOLIO
The RST SAFECO Small Company Stock Portfolio finished the six and
twelve months ending June 30, 1998 far ahead of its peers and benchmark index.
[PHOTO OF GREG EISEN]
For the trailing six months, the Portfolio earned 17.60%, more than double
the 7.06% return of the average small cap fund, according to Lipper Analytical
Services and more than triple the Russell 2000 Index's 5.27%.
For the past 12 months, the Portfolio earned a return of 34.46%,
versus the peer group's 18.35%. The Russell 2000 Index returned 16.79%.
The Portfolio outperformed its peers in the six and 12-month periods due to
large gains in numerous individual stocks. In other words, the results are
attributable to stock selection.
As of June 30, three of our stocks were up 100% or better on a year to date
basis: Penederm,
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 34.46%
*Since Inception 42.36%
</TABLE>
INVESTMENT VALUE
SAFECO RST SMALL COMPANY PORTFOLIO: $14,138
RUSSELL 2000 INDEX: $12,143
<TABLE>
<CAPTION>
SAFECO RST
SMALL COMPANY RUSSELL
PORTFOLIO 2000
<S> <C> <C>
05/31/97 $10,000 $10,000
06/30/97 $10,515 $10,429
07/31/97 $11,245 $10,916
08/31/97 $11,461 $11,162
09/30/97 $12,594 $11,977
10/31/97 $12,097 $11,444
11/30/97 $12,022 $11,366
12/31/97 $12,022 $11,570
01/31/98 $11,944 $11,388
02/28/98 $13,115 $12,230
03/31/98 $14,509 $12,734
04/30/98 $15,133 $12,804
05/31/98 $14,460 $12,108
06/30/98 $14,138 $12,143
</TABLE>
* The Portfolio's inception was May 1, 1997. Performance information begins
on May 1, 1997.
The performance graph compares a hypothetical $10,000 investment in the
Portfolio to a hypothetical investment in a relevant market index. The index
is unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Small Company Stock Portfolio
only and excludes separate account charges such as deductions for
administration charges, contingent deferred sales charges, and mortality and
expense risk premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Platinum Software, and Ovid Technologies. Each of these was purchased in a large
enough weighting to contribute meaningfully to the return of the Portfolio. Many
of our other picks had double digit gains.
Penederm, one of our largest positions, increased substantially on the news
it would be purchased by Mylan.
Platinum Software is simply a company with a good product (enterprise
software).
Ovid, an internet stock that aggregates and sells access to published medical
information remains one of my favorites. The company is already profitable,
building a great franchise and positioning itself as the gatekeeper to medical
information retrieval.
Stage Stores, a retailer making cosmopolitan margins in lower cost locations,
also held its place in our top ten.
Litchfield Financial is new to our top holdings. It's a financial services
company with consistent earnings growth that specializes in rural land and
time-share loans. I've increased our holdings there each time its price moved
into the range of what I think represents good value.
Chart Industries manufactures gas containment tanks and
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Cole National Corp.-Cl A ........................................... 4.5%
(Retail--Specialty)
Platinum Software Corp. ............................................ 4.3
(Applications Software)
Penederm, Inc. ..................................................... 4.2
(Personal Care)
Litchfield Financial ................................................ 4.2
(Financial--Diversified)
Chart Industries, Inc. ............................................. 4.0
(Machinery--Diversified)
Ovid Technologies ................................................... 3.7
(Health Care--Specialized Services)
Walker Interactive Systems, Inc. ................................... 3.7
(Computers--Software & Services)
Stage Stores, Inc. ................................................. 3.5
(Retail--Specialty Apparel)
Styling Tech. Corp. ................................................ 3.2
(Personal Care)
Equitrac Corp. ..................................................... 2.9
(Computers--Hardware)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Mid-Cap: ($1-$4 billion) 4%
Small-Cap:
Large (over $750 million) 0%
Medium ($250-$750) 19%
Small (under $250 million) 69%
Cash & Other: 8%
Large-Cap: (over $4 billion) 0%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
related equipment. It has currently come under some pressure, but has earnings
growth and free cash flow that look good for the long term. Further, Chart's
acquisition of a similar UK company should soon add to earnings in what is
already a profitable business.
We witnessed a full 10% correction in the Russell 2000 Index from April 21st
to late June, something the large cap universe did not have to endure.
Looking out to the rest of 1998, the small cap sector is very well positioned
versus large caps. As a group they are cheaper on most valuation measures and I
believe they can grow earnings at a faster rate than the S&P 500.
The Portfolio will remain invested in small cap stocks that we believe are
good businesses at good values relative to their earnings prospects, or are
cheap by some other yardstick we feel is appropriate. The Portfolio will remain
broadly diversified across the range of industry sectors.
Greg Eisen
- -------------------------------
Greg Eisen joined SAFECO in 1986. He holds a BA from Rutgers University and is a
Certified Public Accountant and a Chartered Financial Analyst.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 89.3%
AEROSPACE/DEFENSE - 5.1%
43,250 *Hawker Pacific Aerospace ............................. $481
41,950 *International Aircraft Investors ...................... 362
BANKS (MAJOR REGIONAL) - 0.2%
2,200 UnionBancorp, Inc. ..................................... 41
BANKS (REGIONAL) - 5.2%
11,500 *Cowlitz Bancorp ....................................... 138
16,350 *Hanmi Bank (Los Angeles, CA) .......................... 323
25,000 South Umpqua Bank ...................................... 350
4,800 *VRB Bancorp ............................................ 48
BIOTECHNOLOGY - 0.7%
81,900 *Energy BioSystems Corp. .............................. 113
COMMUNICATIONS EQUIPMENT - 0.5%
17,000 *Innova Corp. .......................................... 87
COMPUTERS (HARDWARE) - 6.6%
24,400 *Equitrac Corp. ....................................... 485
13,200 *MICROS Systems, Inc. ................................. 437
15,000 *Optimal Robotics Corp. ............................... 176
COMPUTERS (SOFTWARE & SERVICES) - 10.3%
29,550 *Platinum Software Corp. .............................. 720
16,250 *SPSS, Inc. ........................................... 378
41,400 *Walker Interactive Systems, Inc. ..................... 611
ELECTRICAL EQUIPMENT - 1.4%
32,000 *Integrated Sensor Solutions, Inc. .................... 170
8,130 *ZEVEX International, Inc. ............................. 58
FINANCIAL (DIVERSIFIED) - 6.5%
33,100 Litchfield Financial Corp. ............................ 695
24,900 *Ragen Mackenzie Group, Inc. .......................... 377
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 5.9%
8,500 Hooper Holmes, Inc. .................................. $179
135,000 *InnerDyne, Inc. ...................................... 346
23,100 *Vallen Corp. ......................................... 459
HEALTH CARE (SPECIALIZED SERVICES) - 5.8%
25,900 *Ovid Technologies, Inc. .............................. 615
50,000 *Pentegra Dental Group, Inc. .......................... 344
INSURANCE (PROPERTY-CASUALTY) - 1.1%
15,500 *American Safety Insurance Group, Ltd. ................ 182
MACHINERY (DIVERSIFIED) - 4.0%
28,000 Chart Industries, Inc. ................................ 668
MANUFACTURING (DIVERSIFIED) - 6.8%
20,600 *Lancer Corp. ......................................... 332
63,000 *Plasma-Therm, Inc. ................................... 394
30,400 *Zindart Limited (ADR) ................................. 412
OIL & GAS (EXPLORATION & PRODUCTION) - 1.7%
40,800 Patina Oil & Gas Corp. ................................ 286
PERSONAL CARE - 9.8%
25,500 *French Fragrances, Inc. .............................. 398
35,300 *Penederm, Inc. ....................................... 706
23,100 *Styling Technology Corp. ............................. 531
PHOTOGRAPHY/IMAGING - 2.3%
49,800 *Seattle FilmWorks, Inc. .............................. 384
RETAIL (FOOD CHAINS) - 2.8%
32,000 Ingles Markets, Inc. .................................. 464
RETAIL (SPECIALTY) - 4.5%
18,600 *Cole National Corp. (Class A) ......................... 744
RETAIL (SPECIALTY-APPAREL) - 3.5%
13,000 *Stage Stores, Inc. ................................... 588
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SAVINGS & LOAN COMPANIES - 1.4%
7,275 Community Savings Bankshares, Inc. .................. $ 240
SERVICES (COMMERCIAL & CONSUMER) - 3.2%
12,022 *Monro Muffler Brake, Inc. ............................ 189
9,400 *StaffMark, Inc. ...................................... 344
-----
TOTAL COMMON STOCKS .................................................. 14,855
-----
PREFERRED STOCK - 2.2%
ENTERTAINMENT - 2.2%
32,700 *Craig Corp. (Class A) ................................. 366
-----
TOTAL PREFERRED STOCK ................................................... 366
-----
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 10.3%
INVESTMENT COMPANIES:
791 SSgA Prime Money Market Portfolio .................... $ 1
U.S. FEDERAL AGENCY & SPONSORS:
1,706,000 FHLMC Discount Note
5.50%, due 7/01/98 ................................... 1,706
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 1,707
-----
TOTAL INVESTMENTS - 101.8% ........................................... 16,928
Liabilities, less Other Assets ........................................ (301)
-----
NET ASSETS .......................................................... $16,627
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
* Non income-producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Small Company Stock Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $14,995) $ 16,928
Receivables:
Dividends and interest 8
Due from affiliate 16
Portfolio shares sold 218
Investment securities sold 25
----------
Total assets 17,195
LIABILITIES:
Payables:
Investment securities purchased 537
Investment advisory fees 11
Portfolio shares redeemed 20
----------
Total liabilities 568
----------
NET ASSETS $ 16,627
----------
----------
Net Assets consist of:
Accumulated net investment loss (16)
Accumulated net realized gain on investment transactions 998
Net unrealized appreciation (depreciation) 1,933
Paid in capital (par value $.001, unlimited shares
authorized) 13,712
----------
NET ASSETS $ 16,627
----------
----------
TRUST SHARES OUTSTANDING 1,147
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 14.50
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- --------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 25
Interest 22
-----
Total investment income 47
EXPENSES:
Investment advisory 56
Legal and auditing 5
Custodian 11
Trustees 3
Other 1
-----
Total expenses before reimbursement 76
Expense reimbursement (13)
-----
Total expenses after reimbursement 63
-----
NET INVESTMENT LOSS (16)
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 997
Net change in unrealized appreciation 891
-----
NET GAIN ON INVESTMENTS 1,888
-----
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,872
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH APRIL 30, 1997
PERIOD (COMMENCEMENT OF
ENDED OPERATIONS) TO
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (16) $ 9
Net realized gain on investments 997 397
Net change in unrealized appreciation 891 1,043
---------- ------
Net change in net assets resulting from operations 1,872 1,449
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net income on investments -- (9)
Net realized gain (loss) on investments -- (397)
---------- ------
Total Distributions -- (406)
NET TRUST SHARE TRANSACTIONS 4,505 9,207
---------- ------
TOTAL CHANGE IN NET ASSETS 6,377 10,250
NET ASSETS AT BEGINNING OF PERIOD 10,250 --
---------- ------
NET ASSETS AT END OF PERIOD $ 16,627 $ 10,250
---------- ------
---------- ------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 380 819
Reinvestments -- 33
Redemptions (65) (21)
---------- ------
Net change 315 831
---------- ------
---------- ------
AMOUNTS:
Sales $ 5,443 $ 9,065
Reinvestments -- 406
Redemptions (938) (264)
---------- ------
Net change $ 4,505 $ 9,207
---------- ------
---------- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements included herein are only those of the Small Company
Stock Portfolio (the Portfolio). The financial statements of the other
portfolios are presented separately. The investment objective of the Portfolio
is long term capital growth.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Securities in the Portfolio traded on a national exchange
or over-the-counter are valued at the last reported sales price, unless there
are no transactions in which case they are valued at the last reported bid
price. Investments in other mutual funds are valued at net asset value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions are determined using the
identified cost method.
INCOME RECOGNITION. Dividend income, less foreign taxes withheld (if any), is
recorded on the ex-dividend date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and realized gains are recorded on the last business day of December each
year.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .85
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Currently, SAFECO Asset Management Company pays all other expenses (i.e.,
expenses other than investment advisory fees) in excess of .10 percent of the
Portfolio's average annual net assets. When net assets exceed $20 million, the
Portfolio will be charged for all operating expenses.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the six months ended June 30, 1998 $ 9,513
------
------
Sales for the six months ended June 30, 1998 $ 6,037
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 2,803
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (870)
------
Net unrealized appreciation $ 1,933
------
------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
APRIL 30, 1997
SIX-MONTH (COMMENCEMENT OF
PERIOD ENDED OPERATIONS) TO
JUNE 30 DECEMBER 31
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 12.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (0.01) 0.01
Net realized and unrealized gain
(loss) on investments 2.18 2.83
------ ------
Total from investment operations 2.17 2.84
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.01)
Distributions from realized gains -- (0.50)
------ ------
Total distributions -- (0.51)
------ ------
NET ASSET VALUE AT END OF PERIOD $ 14.50 $ 12.33
------ ------
------ ------
TOTAL RETURN (A) 17.60%** 28.40%**
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 16,627 $ 10,250
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95%* .95%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.15%* 1.24%*
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (0.24%)* 0.19%*
PORTFOLIO TURNOVER RATE 95.68%* 47.91%*
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 937 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-TM- A trademark of SAFECO Corporation.
<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
BOND PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST BOND
PORTFOLIO
The RST Bond Portfolio returned 4.35% for the six months ending June
30, 1998, compared to 3.59% for the median manager in its Lipper Analytical
Services Insurance Portfolio peer group. The twelve month comparison is 10.96%
vs. 9.42% respectively. The Portfolio's benchmark index, the Lehman Brothers
Government/Corporate Bond Index--which incurs no
[PHOTO OF MICHAEL HUGHES]
fees or expenses--returned 4.17% and 11.28% for the six and twelve month
time periods. Before fees and expenses the RST Bond Portfolio
outperformed its benchmark index in both periods by returning 4.73% and 11.70%
for the six and twelve months ending June 30, 1998 respectively.
This outperformance can be generally attributed to the strategic changes I
made last year to
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 10.96%
5 Year 5.98%
10 Year 7.92%
</TABLE>
INVESTMENT VALUE
SAFECO RST BOND PORTFOLIO: $21,435
LEHMAN GOV'T/CORP. INDEX: $23,894
<TABLE>
<CAPTION>
LEHMAN
SAFECO RST GOV'T/CORP.
BOND PORTFOLIO INDEX
<S> <C> <C>
06/30/88 10,000 10,000
07/31/88 10,000 9,943
08/31/88 9,971 9,969
09/30/88 9,971 10,187
10/31/88 10,136 10,367
11/30/88 10,292 10,250
12/31/88 10,317 10,285
01/31/89 10,317 10,422
02/28/89 10,401 10,343
03/31/89 10,359 10,398
04/30/89 10,380 10,618
05/31/89 10,580 10,879
06/30/89 10,811 11,234
07/31/89 11,031 11,468
08/31/89 11,262 11,290
09/30/89 11,136 11,339
10/31/89 11,367 11,626
11/30/89 11,451 11,731
12/31/89 11,483 11,749
01/31/90 11,404 11,588
02/28/90 11,449 11,613
03/31/90 11,483 11,614
04/30/90 11,427 11,507
05/31/90 11,663 11,841
06/30/90 11,799 12,033
07/31/90 11,799 12,182
08/31/90 11,945 12,006
09/30/90 11,900 12,105
10/31/90 11,923 12,266
11/30/90 12,024 12,534
12/31/90 12,237 12,723
01/31/91 12,322 12,865
02/28/91 12,431 12,976
03/31/91 12,516 13,066
04/30/91 12,662 13,216
05/31/91 12,759 13,278
06/30/91 12,723 13,263
07/31/91 12,880 13,430
08/31/91 13,123 13,739
09/30/91 13,317 14,026
10/31/91 13,474 14,151
11/30/91 13,596 14,293
12/31/91 13,949 14,774
01/31/92 13,858 14,556
02/29/92 13,858 14,633
03/31/92 13,768 14,552
04/30/92 13,871 14,640
05/31/92 14,104 14,924
06/30/92 14,310 15,143
07/31/92 14,646 15,531
08/31/92 14,749 15,669
09/30/92 15,047 15,882
10/31/92 14,749 15,639
11/30/92 14,659 15,625
12/31/92 14,901 15,894
01/31/93 15,231 16,240
02/28/93 15,562 16,578
03/31/93 15,644 16,635
04/30/93 15,768 16,763
05/31/93 15,741 16,754
06/30/93 16,030 17,135
07/31/93 16,099 17,244
08/31/93 16,470 17,641
09/30/93 16,567 17,703
10/31/93 16,650 17,775
11/30/93 16,388 17,574
12/31/93 16,472 17,652
01/31/94 16,709 17,916
02/28/94 16,294 17,526
03/31/94 15,953 17,096
04/30/94 15,850 16,955
05/31/94 15,850 16,924
06/30/94 15,835 16,885
07/31/94 16,027 17,223
08/31/94 16,087 17,230
09/30/94 15,939 16,969
10/31/94 15,939 16,951
11/30/94 15,924 16,920
12/31/94 15,989 17,032
01/31/95 16,208 17,359
02/28/95 16,475 17,762
03/31/95 16,569 17,881
04/30/95 16,788 18,129
05/31/95 17,415 18,889
06/30/95 17,557 19,040
07/31/95 17,431 18,966
08/31/95 17,666 19,209
09/30/95 17,854 19,404
10/31/95 18,152 19,690
11/30/95 18,513 20,015
12/31/95 18,847 20,309
01/31/96 18,897 20,434
02/29/96 18,447 20,001
03/31/96 18,263 19,833
04/30/96 18,247 19,696
05/31/96 18,280 19,663
06/30/96 18,413 19,926
07/31/96 18,463 19,972
08/31/96 18,497 19,924
09/30/96 18,680 20,279
10/31/96 18,897 20,751
11/30/96 19,130 21,133
12/31/96 18,948 20,899
01/31/97 19,001 20,924
02/28/97 18,948 20,968
03/31/97 18,719 20,718
04/30/97 18,948 21,021
05/31/97 19,089 21,216
06/30/97 19,318 21,471
07/31/97 19,865 22,128
08/31/97 19,636 21,880
09/30/97 19,953 22,223
10/31/97 20,270 22,579
11/30/97 20,288 22,699
12/31/97 20,542 22,937
01/31/98 20,895 23,260
02/28/98 20,821 23,214
03/31/98 20,877 23,286
04/28/98 20,951 23,402
05/31/98 21,212 23,653
06/30/98 21,435 23,894
</TABLE>
The performance graph compares a hypothetical $10,000 investment in the
Portfolio to a hypothetical investment in a relevant market index. The index
is unmanaged. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Bond Portfolio only and
excludes separate account charges such as deductions for administration
charges, contingent deferred sales charges, and mortality and expense risk
premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
increase the Portfolio's competitiveness by utilizing a more balanced approach.
I limited the range in which the portfolio's average maturity would be allowed
to fluctuate, and concentrated my efforts on creating additional value through
sector rotation, yield curve positioning, and credit selection.
The market environment over the last twelve months has been particularly
favorable towards fixed income securities. Inflation is low and shows no signs
of accelerating. The economy, which grew very rapidly during the first quarter,
is showing welcome signs of moderation due to the continuing Asian economic
crisis. The Federal Reserve, which has not changed the Fed Funds Rate since
March of 1997, is likely to remain on hold for the next several months, at
least. And, the growing federal budget surplus is shrinking the available supply
of U.S. Treasury Bonds.
During the quarter, we moved portions of the Portfolio into and out of
investment grade corporate bonds as this sector cheapened, richened and
cheapened again relative to U.S. Treasuries. We sold some holdings in the very
rich 10 year maturity sector of the yield curve and bought a higher yielding
combination of securities with maturities of 2 and 20 years. Finally, we
concentrated our holding in issues insulated from the problems in Asia, such as
U.S. Treasuries, and agency mortgage-backed securities and notes.
At quarter end, the Portfolio held 46% of its assets in U.S. Treasury
obligations, 24% in high-grade corporate bonds, 24% in mortgage-backed
securities, 2% in U.S. agency debentures, 1% in AAA asset-backed securities and
3% in cash. The Portfolio's
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
U.S. Treasury Note, 7.50%, due 11/15/16 ........................... 14.4%
U.S. Treasury Principal Strips, due 5/15/07 ........................ 12.7
U.S. Treasury Note, 7.25%, due 8/15/04 ............................. 12.6
FNMA #313626, 9.50%, due 2/01/21 .................................... 4.1
FNMA Remic 1993-23, 6.70%, due 7/25/19 .............................. 3.7
U.S. Treasury Note, 6.875%, due 3/31/00 ............................. 3.1
Tandy Corp., 6.95%, due 9/01/07 ..................................... 2.7
FNMA G93-33 J, 6.75%, due 6/25/22 ................................... 2.6
FNMA (Class C), 6.74%. due 8/25/07 .................................. 2.5
FNMA REMIC 1993-11, 7.35%, due 6/25/07 .............................. 2.5
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO CREDIT QUALITY
<S> <C>
AAA/U.S. Gov't/Agency: 76%
AA: 4%
A: 16%
BBB: 3%
Cash and Other Assets: 1%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
effective duration was 5.6 years on June 30, 1998, slightly longer than the
duration of the Lehman Brothers Government/Corporate Bond Index at 5.5 years.
The wild card for the fixed income markets is the continuing Asian economic
crisis. If the crisis continues to worsen, U.S. economic growth could be
adversely affected. Under this scenario U.S. Treasuries will increase in value
due to a flight to quality bid from global investors, diminished inflationary
pressures, and the perception that the next Fed move will be to lower interest
rates. Corporate bond spread would widen as earnings come under increased
pressure. If the Asian economic crisis abates, U.S. economic growth could
reaccelerate increasing inflationary pressures and the likelihood of a Fed
tightening. Under this scenario, U.S. Treasuries decrease in value and corporate
bond spreads tighten.
Michael Hughes
- -------------------------------
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a B.S. in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a chartered financial analyst.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 24.4%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 4.0%
$783 9.50%, due 2/01/21 ................................... $ 848
COLLATERALIZED MORTGAGE OBLIGATION (CMO) - 17.4%
323 FHLMC REMIC 1534
6.00%, due 5/15/22 ..................................... 321
500 FHLMC REMIC 1587
6.50%, due 10/15/08 .................................... 505
200 FHLMC REMIC 1688
6.00%, due 10/15/07 .................................... 200
530 FNMA G93-33 J
6.75%, due 6/25/22 ..................................... 545
280 FNMA REMIC 1992-108
7.00%, due 7/25/07 ..................................... 290
500 FNMA REMIC 1993-11
7.35%, due 6/25/07 ..................................... 516
750 FNMA REMIC 1993-23
6.70%, due 7/25/19 ..................................... 760
475 FNMA REMIC 1993-44PH
6.75%, due 5/25/19 ..................................... 486
FINANCIAL (DIVERSIFIED) - 3.0%
96 Chevy Chase Auto ABS Series 1996-1 (Class A)
6.60%, due 12/15/02 ..................................... 96
500 FNMA (Class C)
6.74%, due 8/25/07 ..................................... 523
-----
TOTAL ASSET BACKED SECURITIES ......................................... 5,090
-----
CORPORATE BONDS - 22.2%
BANKING & FINANCE - 1.0%
200 Grand Metropolitan Investment Corp.
8.625%, due 8/15/01 .................................... 215
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
BANKS (MAJOR REGIONAL) - 0.9%
185 U.S. Bancorp
6.75%, due 10/15/05 .................................... 192
BANKS (MONEY CENTER) - 0.7%
$135 BankAmerica Corp.
9.50%, due 4/01/01 .................................... $147
BUILDING MATERIALS - 1.8%
365 Hanson Overseas
6.75%, due 9/15/05 ..................................... 377
CANADIAN PROVINCES - 1.3%
250 Manitoba (Province)
7.75%, due 2/01/02 ..................................... 264
ENGINEERING & CONSTRUCTION - 1.5%
280 Halliburton Co.
6.75%, due 2/01/27 ..................................... 306
FINANCE (CONSUMER) - 1.8%
360 Household Finance Corp.
7.25%, due 7/15/03 ..................................... 376
FINANCIAL (DIVERSIFIED) - 2.7%
320 St. Paul Companies, Inc.
7.33%, due 8/18/06 ..................................... 219
205 St. Paul Companies, Inc.
7.05%, due 3/07/07 ..................................... 347
INVESTMENT BANKING/BROKERAGE - 4.0%
370 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 .................................... 385
450 Lehman Brothers Holdings, Inc.
6.50%, due 4/15/08 ..................................... 451
RETAIL (GENERAL MERCHANDISE) - 1.3%
250 Dayton Hudson Corp.
9.40%, due 2/15/01 ..................................... 270
RETAIL (COMPUTERS & ELECTRONICS) - 2.7%
545 Tandy Corp.
6.95%, due 9/01/07 ..................................... 566
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (SPECIALTY) - 2.5%
$ 500 Bausch & Lomb, Inc.
6.56%, due 8/12/26 ................................... $ 513
-----
TOTAL CORPORATE BONDS ................................................. 4,628
-----
U.S. GOVERNMENT AND AGENCY SECURITIES - 49.1%
U.S. FEDERAL AGENCY NOTES - 3.8%
500 Federal Home Loan Mortgage Corp.
6.875%, due 11/22/06 ................................... 513
255 Federal Home Loan Mortgage Corp.
6.943%, due 3/21/07 .................................... 276
U.S. TREASURY NOTES - 32.6%
2,500 7.50%, due 11/15/16 .................................. 3,002
2,405 7.25%, due 8/15/04 ................................... 2,618
115 6.50%, due 10/15/06 .................................... 122
385 6.375%, due 9/30/01 .................................... 394
640 6.875%, due 3/31/00 .................................... 654
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. TREASURY PRINCIPAL STRIPS - 12.7%
$4,310 0.00%, due 5/15/07 ................................. $ 2,638
-----
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES .......................... 10,217
-----
TEMPORARY INVESTMENTS - 2.9%
INVESTMENT COMPANIES:
601 SSgA Prime Money Market Portfolio ...................... 601
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 601
-----
TOTAL INVESTMENTS - 98.6% ............................................ 20,536
Other Assets, less Liabilities .......................................... 299
-----
NET ASSETS .......................................................... $20,835
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Bond Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $20,188) $ 20,536
Receivables:
Dividends and interest 251
Portfolio shares sold 105
Other receivable 33
----------
Total assets 20,925
LIABILITIES:
Payables:
Investment advisory fees 12
Portfolio shares redeemed 44
Other 34
----------
Total liabilities 90
----------
NET ASSETS $ 20,835
----------
----------
Net Assets consist of:
Accumulated net investment income 542
Accumulated net realized loss on investment transactions (124)
Net unrealized appreciation 348
Paid in capital (par value $.001, unlimited shares
authorized) 20,069
----------
NET ASSETS $ 20,835
----------
----------
PORTFOLIO SHARES OUTSTANDING 1,809
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 11.52
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Bond Portfolio
For the Six-Month Period Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- ----------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 614
EXPENSES:
Investment advisory 71
Legal and auditing 9
Custodian 1
Trustees 3
Reports to shareholders 21
--------
Total expenses before reimbursement 105
Expense reimbursement (33)
--------
Total expenses after reimbursement 72
--------
NET INVESTMENT INCOME 542
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 413
Net change in unrealized appreciation (146)
--------
NET GAIN ON INVESTMENTS 267
--------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 809
--------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Bond Portfolio
(Unaudited)
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 542 $ 942
Net realized gain (loss) on investments 413 (116)
Net change in unrealized appreciation (146) 507
------ ------
Net change in net assets resulting from operations 809 1,333
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (942)
Net realized gain on investments -- --
------ ------
Total distributions -- (942)
NET TRUST SHARE TRANSACTIONS 2,145 1,499
------ ------
TOTAL CHANGE IN NET ASSETS 2,954 1,890
NET ASSETS AT BEGINNING OF PERIOD 17,881 15,991
------ ------
NET ASSETS AT END OF PERIOD $ 20,835 $ 17,881
------ ------
------ ------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 429 458
Reinvestments -- 85
Redemptions (239) (411)
------ ------
Net change 190 132
------ ------
------ ------
AMOUNTS:
Sales $ 4,840 $ 5,091
Reinvestments -- 942
Redemptions (2,695) (4,534)
------ ------
Net change $ 2,145 $ 1,499
------ ------
------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements included herein are only those of the Bond Portfolio
(the Portfolio). The financial statements of the other portfolios are presented
separately. The investment objective of the Portfolio is high current income
consistent with relative stability of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Investment securities are stated on the basis of
valuations provided by a pricing service, which uses information with respect to
transactions in securities, quotations from securities dealers, market
transactions in comparable securities and various relationships between
securities in determining value. Short-term investments purchased at par are
valued at cost. All other short-term investments are valued at amortized cost.
Investments in other mutual funds are valued at net asset value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions are determined using the
identified cost method.
INCOME RECOGNITION. Interest is accrued on Portfolio investments daily.
Dividend income from investments in mutual funds is recorded on the ex-dividend
date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and realized gains are recorded on the last business day of December each
year.
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Historically, SAFECO Life Insurance Company (SAFECO) paid all the expenses of
the Portfolio except for investment advisory fees because net assets were less
than $20 million. In June, 1998, net assets surpassed $20 million. Thus, the
Portfolio is now charged for all operating expenses in addition to investment
advisory fees. These expenses include legal and auditing fees, custodian fees,
and other expenses.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the six months ended June 30, 1998
(including $9,797 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 16,913
------
------
Sales for the six months ended June 30, 1998
(including $10,961 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 14,847
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at June 30, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 350
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (2)
------
Net unrealized appreciation $ 348
------
------
- -----------------------------------------------------------------
</TABLE>
5. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The Portfolio had $536 thousand of accumulated undistributed net realized
loss on investment transactions at December 31, 1997. For Federal income tax
purposes, this represents a capital loss carryforward which will expire during
the years 2002 through 2005.
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
--------- ---------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.04 $ 10.75 $ 11.31 $ 10.20 $ 11.12
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.30 0.61 0.62 0.71 0.59
Net realized and unrealized gain
(loss) on investments 0.18 0.29 (0.56) 1.11 (0.92)
--------- --------- --------- --------- ---------
Total from investment operations 0.48 0.90 0.06 1.82 (0.33)
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.61) (0.62) (0.71) (0.59)
Distributions from realized gains -- -- -- -- --
--------- --------- --------- --------- ---------
Total distributions -- (0.61) (0.62) (0.71) (0.59)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 11.52 $ 11.04 $ 10.75 $ 11.31 $ 10.20
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN (A) 4.35%** 8.41% 0.54% 17.87% (2.93)%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 20,835 $ 17,881 $ 15,991 $ 14,257 $ 13,361
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.76%* 0.74% .73% .72% .72%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.10%* 0.90% .87% .94% .89%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.67%* 5.75% 5.64% 6.50% 5.53%
PORTFOLIO TURNOVER RATE 159.78%* 151.43% 140.90% 77.93% 147.22%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not Annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
- 13 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 940 8/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-TM- A trademark of SAFECO Corporation.
<PAGE>
June 30, 1998
[SAFECO LOGO]
SEMIANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
MONEY MARKET PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
JUNE 30, 1998
SAFECO RST MONEY MARKET PORTFOLIO
In the twelve-month period ending June 30, 1998, the SAFECO RST Money
Market Portfolio's total return was 5.03%, slightly lower than the average money
fund return of 5.21%, calculated by Lipper Analytical Services. The Money Market
Portfolio's return was very attractive compared to the Consumer Price Index,
which rose
[PHOTO OF NAOMI URATA]
1.68% for the 12 months ending June 30, 1998.
For the six months, the Portfolio returned 2.39% compared to its peer
funds' return of 2.54%.
Interest rates from 1 to 120 days remained inverted over the first half of
the year (That is, the one day rate was more than the 120 day rate), reflecting
a belief that the Federal Reserve will not change the
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED JUNE 30, 1998
<TABLE>
<S> <C>
1 Year 5.03%
5 Year 4.59%
10 Year 5.43%
</TABLE>
INVESTMENT VALUE
SAFECO RST MONEY MARKET PORTFOLIO: $16,967
<TABLE>
<CAPTION>
SAFECO RST MONEY
MARKET PORTFOLIO
<S> <C>
06/30/88 $10,000
07/31/88 10,054
08/31/88 10,109
09/30/88 10,172
10/31/88 10,235
11/30/88 10,302
12/31/88 10,367
01/31/89 10,438
02/28/89 10,516
03/31/89 10,587
04/30/89 10,667
05/31/89 10,748
06/30/89 10,826
07/31/89 10,917
08/31/89 10,997
09/30/89 11,075
10/31/89 11,228
11/30/89 11,302
12/31/89 11,373
01/31/90 11,454
02/28/90 11,521
03/31/90 11,594
04/30/90 11,669
05/31/90 11,746
06/30/90 11,818
07/31/90 11,895
08/31/90 11,970
09/30/90 12,038
10/31/90 12,116
11/30/90 12,191
12/31/90 12,267
01/31/91 12,339
02/28/91 12,401
03/31/91 12,460
04/30/91 12,527
05/31/91 12,585
06/30/91 12,634
07/31/91 12,696
08/31/91 12,755
09/30/91 12,812
10/31/91 12,865
11/30/91 12,912
12/31/91 12,963
01/31/92 13,005
02/29/92 13,041
03/31/92 13,080
04/30/92 13,116
05/31/92 13,152
06/30/92 13,193
07/31/92 13,232
08/31/92 13,265
09/30/92 13,293
10/31/92 13,321
11/30/92 13,353
12/31/92 13,385
01/31/93 13,416
02/28/93 13,443
03/31/93 13,473
04/30/93 13,502
05/31/93 13,527
06/30/93 13,560
07/31/93 13,588
08/31/93 13,620
09/30/93 13,647
10/31/93 13,674
11/30/93 13,703
12/31/93 13,734
01/31/94 13,766
02/28/94 13,794
03/31/94 13,824
04/30/94 13,857
05/31/94 13,897
06/30/94 13,938
07/31/94 13,981
08/31/94 14,031
09/30/94 14,077
10/31/94 14,128
11/30/94 14,176
12/31/94 14,236
01/31/95 14,305
02/28/95 14,367
03/31/95 14,432
04/30/95 14,498
05/31/95 14,572
06/30/95 14,636
07/31/95 14,705
08/31/95 14,767
09/30/95 14,826
10/31/95 14,901
11/30/95 14,968
12/31/95 15,027
01/31/96 15,097
02/29/96 15,152
03/31/96 15,208
04/30/96 15,268
05/31/96 15,333
06/30/96 15,388
07/31/96 15,454
08/31/96 15,516
09/30/96 15,581
10/31/96 15,640
11/30/96 15,703
12/31/96 15,769
01/31/97 15,835
02/28/97 15,890
03/31/97 15,951
04/30/97 16,019
05/31/97 16,083
06/30/97 16,154
07/31/97 16,222
08/31/97 16,285
09/30/97 16,357
10/31/97 16,429
11/30/97 16,495
12/31/97 16,570
01/31/98 16,637
02/28/98 16,700
03/31/98 16,768
04/30/98 16,834
05/31/98 16,894
06/30/98 16,967
</TABLE>
The performance graph shows a hypothetical $10,000 investment in the
Portfolio. Past performance is not predictive of future performance.
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Performance represents the performance of the Money Market Portfolio only and
excludes separate account charges such as deductions for administration
charges, contingent deferred sales charges, and mortality and expense risk
premiums.
The Money Market Portfolio seeks to maintain a $1.00 per share net asset
value. Shares of the Money Market Portfolio are neither insured nor
guaranteed by the U.S. Government. There is no assurance that the Money
Market Portfolio will maintain a stable $1.00 per share net asset value.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Federal Funds rate in the near-term. From 120 days out to one year, yields climb
sharply reflecting the possibility that the Fed may take action toward the end
of the year.
It appears that the Fed will hold rates steady for the third quarter, but may
increase rates slightly toward the end of the year if growth continues at a high
pace. On the one hand, the Asian crisis is expected to slow Gross Domestic
Product growth from 5.4% in the first quarter to about 1.2% due to a
deterioration in trade and a reduction in inventories. On the other hand,
consumer spending remains very strong and we see a modest pick up in consumer
prices, especially medical care.
As a result, I have been buying securities with short maturities out to 30
days and long securities in the one-year area. This lowered the average maturity
of the Portfolio from 70 days to 40 days. As the one-year pieces mature, I plan
to buy more, although the yields are lower now than when I first started buying
them a year ago.
I diversify the portfolio so that I have no more than 5% of any one issuer. I
look for issuers with a large amount of commercial paper to issue or with
slightly lower ratings as their offerings are often cheaper. I hold a number of
floating rate securities with attractive yields. If the Fed should start to
raise rates, these floaters will help the Portfolio to respond quickly as their
interest rates roll to the higher levels.
Naomi Urata
- -------------------------------
Naomi Urata joined SAFECO in 1993 as a fixed-income analyst and began managing
the Money Market Portfolio in August of 1994. She holds a Master in Management
from Yale University and is a Chartered Financial Analyst.
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Money Market Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMERCIAL PAPER - 83.6%
BANKS (FOREIGN) - 19.2%
$1,000 B.A.T. Capital Corp.
5.65%, due 7/08/98 ................................... $ 999
1,000 Countrywide Funding Corp.
5.62%, due 7/15/98 ..................................... 998
1,000 National Australia Bank Group
5.54%, due 7/06/98 ..................................... 999
900 National Bank of Canada
5.50%, due 7/13/98 ..................................... 900
BANKS (MAJOR REGIONAL) - 8.9%
800 BankBoston N.A. B.N.
5.90%, due 7/23/98 ..................................... 800
1,000 *Fleet National Bank
6.01%, due 4/15/99 ................................... 1,004
BANKS (REGIONAL) - 4.4%
900 *American Express Centurion Bank
5.58%, due 1/14/99 ..................................... 900
FINANCE (AUTO) - 4.9%
1,000 General Motors Acceptance Corp.
5.54%, due 7/10/98 ..................................... 999
FINANCE (CONSUMER) - 4.9%
1,000 Associates Corp. of North America
6.10%, due 7/01/98 ................................... 1,000
FINANCE (DIVERSIFIED & BUSINESS) - 19.6%
1,000 Finova Capital Corp.
6.50%, due 7/01/98 ................................... 1,000
1,000 General Electric Capital Corp.
5.57%, due 7/07/98 ..................................... 999
1,000 Heller Financial, Inc.
5.65%, due 7/17/98 ..................................... 997
1,000 *PHH Corp.
5.60%, due 11/03/98 .................................... 999
INVESTMENTS (BANK/BROKERAGE) - 13.7%
1,000 #*Goldman Sachs and Company (144A) 5.66%, due 7/13/99
(acquired 4/08/98) ................................... 1,000
1,000 Lehman Hutton Holding, Inc.
5.58%, due 7/14/98 ..................................... 998
800 *Merrill Lynch & Co., Inc.
5.73%, due 12/21/98 .................................... 800
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PHOTOGRAPHY/IMAGING - 3.1%
$ 636 Xerox Corp.
5.55%, due 7/09/98 .................................. $ 635
RETAIL (GENERAL MERCHANDISE) - 4.9%
1,000 *Racetrac Capital L.L.C.
5.61%, due 4/01/18 ................................... 1,000
-----
TOTAL COMMERCIAL PAPER AND FLOATING RATE NOTES ....................... 17,027
-----
CORPORATE BONDS - 13.3%
BANKS (FOREIGN) - 8.8%
$ 900 Abbey National Bank
5.875%, due 12/22/98 ................................... 900
900 Bayerische LandesBank
5.81%, due 12/17/98 .................................... 900
FINANCIAL (DIVERSIFIED) - 4.5%
900 *Morgan Stanley, Dean Witter, Discover and Co.
5.79%, due 3/13/01 ..................................... 900
-----
TOTAL CORPORATE BONDS ................................................. 2,700
-----
TEMPORARY INVESTMENTS - 0.1%
INVESTMENT COMPANIES:
$ 21 SSgA Prime Money Market Portfolio ....................... 21
-----
TOTAL TEMPORARY INVESTMENTS .............................................. 21
-----
TOTAL INVESTMENTS - 97.0% ............................................ 19,748
Other Assets, less Liabilities .......................................... 608
-----
NET ASSETS .......................................................... $20,356
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# Security is exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer". The market value of such security is $1,000,000 and
represents 4.9% of net assets.
* Securities have variable rates which change periodically based on specified
market rates or indices. Rates shown are those in effect on June 30, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Money Market Portfolio
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $19,748) $ 19,748
Receivables:
Dividends and interest 132
Portfolio shares sold 855
Other receivable 17
----------
Total assets 20,752
LIABILITIES:
Payables:
Investment advisory fees 11
Portfolio shares redeemed 263
Other 122
----------
Total liabilities 396
----------
NET ASSETS $ 20,356
----------
----------
PORTFOLIO SHARES OUTSTANDING
(Par Value $.001, unlimited shares authorized) 20,356
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 1.00
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Money Market Portfolio
For the Six-Month Ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- --------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 548
EXPENSES:
Investment advisory 63
Legal and auditing 9
Custodian 2
Trustees 3
Reports to shareholders 20
------
Total expenses before reimbursement 97
Expense reimbursement (17)
------
Total expenses after reimbursement 80
------
NET INVESTMENT INCOME AND NET CHANGE
IN NET ASSETS RESULTING FROM OPERATIONS $ 468
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Money Market Portfolio
(Unaudited)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED YEAR ENDED
JUNE 30 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 468 $ 838
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (468) (838)
NET TRUST SHARE TRANSACTIONS 2,599 5,264
------------- -------------
TOTAL CHANGE IN NET ASSETS 2,599 5,264
NET ASSETS AT BEGINNING OF PERIOD 17,757 12,493
------------- -------------
NET ASSETS AT END OF PERIOD $ 20,356 $ 17,757
------------- -------------
------------- -------------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS*
Sales 49,411 90,491
Reinvestments 468 838
Redemptions (47,280) (86,065)
------------- -------------
Net change 2,599 5,264
------------- -------------
------------- -------------
</TABLE>
- -------------------------------------------------------------------------
* Because share value is equal to $1.00, dollar amounts and share amounts are
identical.
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
SAFECO Resource Series Trust (the Trust) is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end management
investment company. The Trust consists of six portfolios. Shares of the Trust
Portfolios are available as funding vehicles for certain variable annuity and
variable life products sold by SAFECO Life Insurance Company and other insurance
companies.
The financial statements included herein are only those of the Money Market
Portfolio (the Portfolio). The financial statements of the other portfolios are
presented separately. The investment objective of the Portfolio is current
income while preserving capital and liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles, which
permit management to make certain estimates and assumptions at the date of the
financial statements.
SECURITY VALUATION. Securities in the Portfolio purchased at par are valued
at cost. All other securities are valued at amortized cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions (if any) are determined
using the identified cost method.
INCOME RECOGNITION. Interest is accrued on Portfolio investments daily.
Dividend income on investments in mutual funds is recorded on the ex-dividend
date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income are declared as of the close of each business day and payment is made as
of the last business day of each month.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .65
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at interest rates
comparable to commercial bank lending rates.
LINE OF CREDIT. The Trust, together with all other management investment
companies for which SAFECO Asset Management Company serves as investment
advisor, has line of credit arrangements with certain financial institutions.
Under these arrangements, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at June 30, 1998.
At June 30, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Historically, SAFECO Life Insurance Company (SAFECO) paid all the expenses of
the Portfolio except for investment advisory fees because net assets were less
than $20 million. During the first quarter of 1998, net assets surpassed $20
million. Thus, the portfolio is now charged for all operating expenses in
addition to investment advisory fees. These expenses include legal and auditing
fees, custodian fees, and other expenses.
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
ENDED
JUNE 30 YEAR ENDED DECEMBER 31
--------- ---------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS:
Dividends from net investment income (0.02) (0.05) (0.05) (0.05) (0.04)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN(A) 2.39%** 5.08% 4.94% 5.56% 3.65%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 20,356 $ 17,757 $ 12,493 $ 8,719 $ 9,315
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.83%* 0.64% .62% .62% .63%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.01%* 0.81% .90% .87% .87%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.86%* 4.97% 4.86% 5.32% 3.63%
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not Annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 941 8/98
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This report must be preceded or
accompanied by a current prospectus.
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