<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
EQUITY PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
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PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST EQUITY PORTFOLIO
SAFECO RST Equity ended the fourth quarter ahead of its peer funds,
but finished the year behind the growth and income fund pack. For the
year, the Portfolio returned 24.85% while the average growth and income
fund peer returned 26.96%, according to Lipper Analytical Services. The
S&P 500 returned 33.35%. (For five and ten years, your Portfolio's
average returns, 22.80% and 19.24% respectively, remain ahead of the peer
group's 18.06% and 16.03%, and the S&P's 20.25% and 18.02%.)
[PHOTO OF RICH MEAGLEY]
I run the RST Equity Portfolio for no surprises--and contrary to my intent,
the first three quarters of 1997 delivered several unwanted ones. Trouble at a
number of companies in our portfolio held our performance below our peers.
During the fourth quarter we let go of two of them, Advanta
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 24.85%
5 Year 22.80%
10 Year 19.24%
Investment Value
SAFECO RST Equity Portfolio: $58,097
S&P 500 Index: $52,553
SAFECO Equity Fund S&P 500 Index
12/31/87 $10,000 $10,000
1/31/88 10,000 10,421
2/29/88 10,811 10,907
3/31/88 11,530 10,570
4/30/88 11,506 10,687
5/31/88 11,611 10,780
6/30/88 11,553 11,275
7/31/88 11,958 11,232
8/31/88 11,970 10,850
9/30/88 11,831 11,312
10/31/88 12,317 11,627
11/30/88 12,642 11,460
12/31/88 12,598 11,661
1/31/89 12,598 12,515
2/28/89 13,313 12,203
3/31/89 13,095 12,487
4/30/89 13,155 13,135
5/31/89 13,785 13,667
6/30/89 14,197 13,589
7/31/89 14,245 14,817
8/31/89 15,493 15,107
9/30/89 15,663 15,045
10/31/89 15,263 14,696
11/30/89 15,566 14,996
12/31/89 16,014 15,356
1/31/90 14,730 14,325
2/28/90 14,795 14,510
3/31/90 15,352 14,895
4/30/90 14,795 14,522
5/31/90 16,091 15,938
6/30/90 16,143 15,830
7/31/90 16,143 15,779
8/31/90 16,182 14,353
9/30/90 14,756 13,654
10/31/90 14,095 13,595
11/30/90 13,939 14,473
12/31/90 15,179 14,877
1/31/91 15,832 15,526
2/28/91 16,819 16,636
3/31/91 17,233 17,038
4/30/91 17,766 17,079
5/31/91 18,460 17,817
6/30/91 17,446 17,001
7/31/91 18,593 17,793
8/31/91 18,820 18,215
9/30/91 18,420 17,911
10/31/91 18,580 18,151
11/30/91 17,553 17,419
12/31/91 19,254 19,412
1/31/92 20,225 19,051
2/29/92 20,725 19,299
3/31/92 19,596 18,922
4/30/92 19,768 19,479
5/31/92 19,568 19,574
6/30/92 18,354 19,282
7/31/92 19,039 20,071
8/31/92 18,411 19,660
9/30/92 18,482 19,892
10/31/92 19,139 19,960
11/30/92 20,310 20,638
12/31/92 20,805 20,891
1/31/93 21,317 21,065
2/28/93 21,288 21,352
3/31/93 22,197 21,803
4/30/93 21,742 21,276
5/31/93 23,457 21,843
6/30/93 23,530 21,907
7/31/93 23,266 21,819
8/31/93 24,526 22,645
9/30/93 25,259 22,471
10/31/93 25,918 22,936
11/30/93 26,094 22,718
12/31/93 26,612 22,993
1/31/94 28,301 23,775
2/28/94 27,582 23,131
3/31/94 26,472 22,124
4/30/94 27,222 22,408
5/31/94 27,895 22,773
6/30/94 26,894 22,215
7/31/94 27,519 22,944
8/31/94 29,317 23,882
9/30/94 29,020 23,299
10/31/94 29,661 23,821
11/30/94 29,067 22,954
12/31/94 28,991 23,294
1/31/95 29,232 23,897
2/28/95 29,990 24,827
3/31/95 30,420 25,559
4/30/95 31,213 26,310
5/31/95 32,005 27,379
6/30/95 33,021 28,014
7/31/95 33,521 28,941
8/31/95 34,503 29,013
9/30/95 35,846 30,238
10/31/95 35,812 30,129
11/30/95 36,863 31,449
12/31/95 37,292 32,056
1/31/96 38,338 33,145
2/29/96 38,551 33,454
3/31/96 39,036 33,775
4/30/96 39,850 34,272
5/31/96 40,780 35,155
6/30/96 41,517 35,289
7/31/96 39,908 33,730
8/31/96 40,276 34,443
9/30/96 42,719 36,380
10/31/96 44,075 37,383
11/30/96 47,467 40,206
12/31/96 46,535 39,409
1/31/97 49,274 41,868
2/28/97 49,530 42,199
3/31/97 47,434 40,469
4/30/97 48,953 42,881
5/31/97 52,248 45,488
6/30/97 54,430 47,526
7/31/97 58,174 51,307
8/31/97 55,136 48,434
9/30/97 57,147 51,087
10/31/97 55,329 49,383
11/30/97 57,104 51,667
12/31/97 58,097 52,553
</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 -
<PAGE>
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and Viacom, in favor of stocks with greater earnings predictability.
Within the Viacom organization, Blockbuster had continued to languish. Unable
to overcome competition for leisure time attention, the video division made
Viacom a "B-grade" stock and we took it off our list.
Advanta effectively became a higher risk stock by aggressively offering low
introductory rates in its pursuit of market share. The company soon accumulated
$10 billion in credit card receivables issued to what turned out to be higher
risk users.
Mid year, PacifiCare discovered the HMO it acquired, FHP, was in poorer
financial shape than anticipated. That news sent the stock reeling. We held our
position, looking for a come back. Instead the picture grew darker and the stock
blew up a second time.
Even though we outperformed our peers in the fourth quarter, trouble in
technology stocks took a toll on overall returns. High-profile tech stocks
started to miss their numbers. Oracle's stock, off 41% for the quarter, was
brutalized as the company missed earning estimates for the first time in
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.1%
(Bank)
Johnson & Johnson ................................................... 3.0
(Health Care Products)
Kimberly-Clark Corp. ............................................... 2.9
(Manufacturing & Marketing Personal Care Products)
Hartford Financial Services Group, Inc. ............................ 2.9
(Insurance Company)
Federal National Mortgage Association ............................... 2.7
(Mortgage Loan Banker)
American Home Products Corp. ....................................... 2.7
(Pharmaceuticals)
Merck & Co., Inc. .................................................. 2.6
(Health Care Products)
AlliedSignal, Inc. ................................................. 2.6
(Aerospace Products Manufacturer)
Mobil Corp. ........................................................ 2.4
(Oil/Gas Exploration & Production)
Anheuser-Busch Companies, Inc. ..................................... 2.4
(Brewery)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
LARGE-CAP: (OVER $4 BILLION) 93%
<S> <C>
Mid-Cap: ($1 billion-$4
billion) 3%
Cash & Other: 4%
</TABLE>
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<PAGE>
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PORTFOLIO MANAGER LETTER
half a decade. Intel, off 24%, was also punished for disappointing earnings, as
were 3Com and First Data, down 35% and 31%, respectively.
I worked the downdraft in First Data to our advantage, selling when its share
price began to slip and buying it back later at a lower price. This company's
business, credit card processing, is becoming more crowded, but First Data is
still the dominant player.
EDS, a data processing outsourcing company we own, ended the quarter on an up
note. The company stumbled earlier this year and then languished as the quick
fix it promised failed to occur. Finally after six quarters of our owning EDS,
it beat expectations and the stock took off.
I believe more than ever that our strategy is the right one. To make our
50-name portfolio excel in a market that can't tolerate bad news, I am working
to incorporate greater predictability into our equation. I am carefully
considering the sectors in which we invest, and raising the standards for
admission to our portfolio. For example, it's easier to predict Fannie Mae's
earnings than it is to predict Oracle's.
Thus the theme to our purchases and sales, and subsequently to our fourth
quarter comeback, is predictablity. I have added to our stake in companies in
whose earnings I have higher conviction: Fannie Mae, Johnson and Johnson, Allied
Signal and GE. Those additions and good runs by the same companies have reshaped
our top ten holdings.
Conversely, we are less invested in companies with less predictable
earnings--mainly technology and HMOs. Furthermore, I changed the tone of the
technology we do own to more blue chip by adding to Microsoft and Intel.
All said, our year ended on an up note. Even better, its a long-term game. In
longer terms, the RST Equity Portfolio remains well ahead. And, in golf terms:
we're going forward working to get up, get down, stay out of trouble and go on
to the next holding.
/s/ Rich Meagley
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 96.4%
AEROSPACE/DEFENSE - 3.9%
139,000 Boeing Co. ........................................ $ 6,802
87,000 Lockheed Martin Corp. ............................... 8,569
AUTO PARTS & EQUIPMENT - 1.3%
140,000 Echlin, Inc. ........................................ 5,066
BANKS (MAJOR REGIONAL) - 2.3%
150,000 NationsBank Corp. ................................... 9,122
BANKS (MONEY CENTER) - 3.1%
110,000 Chase Manhattan Corp. .............................. 12,045
BEVERAGES (ALCOHOLIC) - 2.4%
213,000 Anheuser-Busch Co., Inc. ............................ 9,372
BEVERAGES (NON-ALCOHOLIC) - 1.2%
130,000 PepsiCo, Inc. ....................................... 4,737
CHEMICALS - 3.2%
132,000 Du Pont (E.I.) de Nemours & Co. ..................... 7,928
105,000 Praxair, Inc. ....................................... 4,725
COMPUTERS (HARDWARE) - 3.8%
113,000 Hewlett-Packard Co. ................................. 7,063
73,000 International Business Machines Corp. ............... 7,633
COMPUTERS (NETWORKING) - 1.1%
128,000 *3Com Corp. ......................................... 4,472
COMPUTERS (SOFTWARE & SERVICES) - 3.1%
65,000 *Microsoft Corp. .................................... 8,401
160,000 *Oracle Corp. ....................................... 3,570
ELECTRONICS (SEMICONDUCTORS) - 2.0%
111,000 Intel Corp. ......................................... 7,798
ELECTRIC COMPANIES - 2.0%
285,000 Houston Industries, Inc. ............................ 7,606
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ELECTRICAL EQUIPMENT - 3.4%
65,000 Motorola, Inc. .................................... $ 3,709
125,000 General Electric Co. ................................ 9,172
ENTERTAINMENT - 2.3%
90,000 Walt Disney Co. ..................................... 8,916
FINANCIAL (DIVERSIFIED) - 4.7%
190,000 Federal Home Loan Mortgage Corp. .................... 7,968
185,000 Federal National Mortgage Association ............... 10,557
HEALTH CARE (DIVERSIFIED) - 7.3%
136,000 American Home Products Corp. ....................... 10,404
65,000 Bristol-Myers Squibb Co. ............................ 6,151
175,000 Johnson & Johnson ................................... 11,528
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS) - 4.1%
96,000 Merck and Co., Inc. ................................ 10,200
105,000 SmithKline Beecham, plc. (ADR) ....................... 5,401
HEALTH CARE (HOSPITAL MANAGEMENT) - 1.3%
170,000 Columbia/HCA Healthcare Corp. ....................... 5,036
HEALTH CARE (MANAGED CARE) - 1.0%
75,000 PacifiCare Health Systems, Inc. (Class B) ............ 3,928
HOUSEHOLD PRODUCTS (NON-DURABLES) - 2.9%
231,000 Kimberly-Clark Corp. ............................... 11,391
INSURANCE (MULTI-LINE) - 4.3%
50,000 American International Group, Inc. .................. 5,438
120,000 Hartford Financial Services Group, Inc. ............ 11,228
MANUFACTURING (DIVERSIFIED) - 4.7%
255,000 AlliedSignal, Inc. .................................. 9,929
226,000 Dover Corp. ......................................... 8,164
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Equity Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL (DOMESTIC INTEGRATED) - 2.4%
130,000 Mobil Corp. ........................................ $9,384
OIL (INTERNATIONAL INTEGRATED) - 6.0%
135,000 Exxon Corp. ......................................... 8,260
119,000 Royal Dutch Petroleum Co. (ADR) ...................... 6,448
160,000 Texaco, Inc. ........................................ 8,700
PAPER & FOREST PRODUCTS - 1.1%
139,000 Willamette Industries, Inc. ......................... 4,474
RAILROADS - 2.1%
90,000 Burlington Northern Santa Fe ......................... 8,364
RETAIL (DEPARTMENT STORES) - 1.8%
131,000 May Department Stores Co. ........................... 6,902
RETAIL (FOOD CHAINS) - 4.4%
170,000 Albertson's, Inc. ................................... 8,054
440,000 American Stores Co. ................................. 9,048
RETAIL (GENERAL MERCHANDISE) - 1.6%
160,000 Wal-Mart Stores, Inc. ............................... 6,310
SERVICES (DATA PROCESSING) - 4.4%
110,000 Automatic Data Processing, Inc. ..................... 6,751
100,000 Electronic Data Systems Corp. ....................... 4,394
210,000 First Data Corp. .................................... 6,143
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (LONG DISTANCE) - 1.5%
95,000 AT&T Corp. ........................................ $ 5,819
TELEPHONE - 3.5%
77,000 Bell Atlantic Corp. ................................. 7,007
130,000 GTE Corp. ........................................... 6,793
TOBACCO - 2.2%
185,000 Philip Morris Cos., Inc. ............................ 8,382
------
TOTAL COMMON STOCKS ................................................. 375,262
------
TEMPORARY INVESTMENTS - 3.5%
INVESTMENT COMPANIES:
13,430,244 SSgA Prime Money Market Portfolio ................... 13,430
------
TOTAL TEMPORARY INVESTMENTS .......................................... 13,430
------
TOTAL INVESTMENTS - 99.9% ........................................... 388,692
Other Assets, less Liabilities .......................................... 564
------
NET ASSETS ......................................................... $389,256
------
------
- -----------------------------------------------------------------------------
</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 December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- ----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $299,018) $ 388,692
Receivables:
Dividends and interest 581
Portfolio shares sold 544
----------
Total assets 389,817
LIABILITIES:
Payables:
Investment advisory fees 255
Portfolio shares redeemed 283
Other 23
----------
Total liabilities 561
----------
NET ASSETS $ 389,256
----------
----------
Net Assets consist of:
Net unrealized appreciation 89,674
Paid in capital (par value $.001,
unlimited shares authorized) 299,582
----------
NET ASSETS $ 389,256
----------
----------
PORTFOLIO SHARES OUTSTANDING 15,461
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio
shares outstanding) $ 25.18
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
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STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Equity Portfolio
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- ---------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 5,923
Interest 482
---------
Total investment income 6,405
EXPENSES:
Investment advisory fees 2,429
Legal and auditing fees 20
Custodian fees 17
Trustees' fees 5
Other 13
---------
Total expenses 2,484
---------
NET INVESTMENT INCOME 3,921
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 24,360
Net change in unrealized appreciation 41,547
---------
NET GAIN ON INVESTMENTS 65,907
---------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 69,828
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
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STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Equity Portfolio
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,921 $ 3,679
Net realized gain on investments 24,360 20,981
Net change in unrealized appreciation 41,547 23,643
------------- -------------
Net change in net assets resulting
from operations 69,828 48,303
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,926) (3,679)
Net realized gain on investments (24,356) (20,981)
------------- -------------
Total distributions (28,282) (24,660)
NET PORTFOLIO SHARE TRANSACTIONS 84,643 69,945
------------- -------------
TOTAL CHANGE IN NET ASSETS 126,189 93,588
NET ASSETS AT BEGINNING OF PERIOD 263,067 169,479
------------- -------------
NET ASSETS AT END OF PERIOD $ 389,256 $ 263,067
------------- -------------
------------- -------------
- -----------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS
SHARES:
Sales 5,150 3,791
Reinvestments 1,123 1,134
Redemptions (2,908) (1,636)
------------- -------------
Net change 3,365 3,289
------------- -------------
------------- -------------
AMOUNTS:
Sales $ 128,764 $ 80,468
Reinvestments 28,283 24,660
Redemptions (72,404) (35,183)
------------- -------------
Net change $ 84,643 $ 69,945
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
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
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. 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, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned over 96 percent of the outstanding shares of the Portfolio.
EXPENSES. Prior to May, 1994, SAFECO Life Insurance Company (SAFECO) paid all
the expenses of the Portfolio except for investment advisory fees. Beginning in
May, 1994, the Portfolio is charged for all operating expenses in addition to
investment advisory fees.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1997 $ 185,698
-------------
-------------
Sales for the year ended December 31, 1997 $ 133,086
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at December 31, 1997:
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 96,644
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (6,970)
-------------
Net unrealized appreciation $ 89,674
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 21.75 $ 19.24 $ 16.83 $ 17.02 $ 14.20
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.34 0.39 0.31 0.23
Net realized and unrealized gain on
investments 5.13 4.43 4.43 1.21 3.74
--------- --------- --------- --------- ---------
Total from investment operations 5.40 4.77 4.82 1.52 3.97
LESS DISTRIBUTIONS:
Dividends from net investment income (0.27) (0.34) (0.39) (0.31) (0.23)
Distributions from realized gains (1.70) (1.92) (2.02) (1.40) (0.92)
--------- --------- --------- --------- ---------
Total distributions (1.97) (2.26) (2.41) (1.71) (1.15)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 25.18 $ 21.75 $ 19.24 $ 16.83 $ 17.02
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN 24.85% 24.79% 28.63% 8.94%(A) 27.92%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 389,256 $ 263,067 $ 169,479 $ 102,321 $ 68,157
RATIO OF EXPENSES TO AVERAGE NET ASSETS .75% .72% .75% .77% .73%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A .78% --
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 1.19% 1.72% 2.26% 1.98% 1.71%
PORTFOLIO TURNOVER RATE 41.75% 56.99% 69.18% 28.71% 41.35%
AVERAGE COMMISSION RATE PAID $ 0.0565 $ 0.0584 -- -- --
- ---------------------------------------------------------------------------------------------------
</TABLE>
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Equity Portfolio (one of
the portfolios constituting the SAFECO Resource Series Trust) as of December 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Equity Portfolio of the SAFECO Resource Series Trust at December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 939 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
GROWTH PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST GROWTH PORTFOLIO
Returning 44.55% for the year, while the average growth fund returned
28.08% according to Lipper Analytical Services, SAFECO RST Growth finished 1997
in the top echelon of its peer group.
[PHOTO OF THOMAS M. MAGUIRE]
The Portfolio also outperformed the S&P 500 and Russell 2000 indexes for the
year ended December 31. The broad market indicator returned 33.35% and the
small-cap benchmark climbed 22.36%, respectively.
Contributing to RST Growth's success in 1997 were our radio stocks,
the acquisitions of several companies we owned, and an underweighting in
technology. Our overall success is due to one thing: stock picking.
Its good performance discovered, money poured into SAFECO RST Growth. I used
the new money to start some new positions and add to old favorites. Most
importantly, I was able to keep up performance as the new money came in.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 44.55%
Since Inception* 32.97%
Investment Value
SAFECO RST Growth Fund: $40,587
S&P 500 Index: $24,948
SAFECO RST Growth Fund S&P 500 Index
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
*The Portfolio's inception was January 7, 1993.
Performance information begins on January 31, 1993.
</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 Growth Portfolio only and
excludes separate account charges such as administration charges, contingent
deferred sales charges, and mortality and expense risk premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
I bought Philip Morris, Avon and Boston Scientific (medical technology). The
advantage of investing in these larger cap stocks is that the money goes right
to work and is readily accessible when more intriguing opportunities arise.
I started a new position in Green Tree Financial, a company the Portfolio has
owned in the past. Green Tree's price had fallen on two counts. Wall Street
didn't like its accounting and the entire sub-prime lending sector was under
pressure. Green Tree's core business is financing manufactured housing, but it
is branching into other areas of lending.
I sold Jackson Hewitt, on the news that it would be acquired. The stock
traded up so high, it seemed there was no place left for it to go. By selling
it, I sold the downside risk that's inherently higher in highly-valued
securities.
Jackson Hewitt wasn't our only stock to rise on acquisition news. Inbrands,
SFX Broadcasting, American Radio and Suburban Ostomy, all climbed for the same
reason.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Family Golf Centers, Inc. ......................................... 5.1%
(Golf Recreation Centers)
United Stationers, Inc. ............................................ 4.7
(Office Products Distribution)
Green Tree Financial Corp. ......................................... 4.6
(Financial Services Company)
Chancellor Media Corp. ............................................. 4.2
(Radio Stations)
MICROS Systems, Inc. ............................................... 4.2
(Specialty Software Company)
American Coin Merchandising, Inc. .................................. 2.6
(Leisure Time Activities)
Datascope Corp. .................................................... 2.5
(Medical Products)
Philip Morris Cos., Inc. ........................................... 2.5
(Food, Beverage & Tobacco Company)
Sano Corp. ......................................................... 2.4
(Medical Products)
Lifeline Systems, Inc. ............................................. 2.4
(Medical Products)
</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) 10%
Small-Cap: (under $1 billion) 79%
Cash & Other: 1%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
My favorite stocks continue to be those that haven't yet been discovered and
because they are "unfound" they have ample room to appreciate. Currently they
include Family Golf Centers (driving range facilities), MICROS Systems (point of
sale inventory systems), Tetra Technologies (recycles chemical waste into
specialty chemicals) and United Stationers (office product distributor).
Despite the fact SAFECO RST Growth has been discovered, I remain the same.
And I will keep investing with the same attitude I've held for all these years:
think "outside of the box". I'll keep trying to think and invest creatively and
in doing that I hope to uncover and take opportunities that others fail to see.
/s/ Thomas M. Maguire
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.9%
BEVERAGES (ALCOHOLIC) - 1.2%
50,900 *Canandaigua Wine Co. ............................. $ 2,819
BROADCASTING (TELEVISION, RADIO, & CABLE) - 7.3%
64,100 *American Radio Systems Corp. ....................... 3,417
136,482 *Chancellor Media Corp. (Class A) ................... 10,185
49,044 *SFX Broadcasting, Inc. (Class A) .................... 3,936
BUILDING MATERIALS - 0.3%
43,000 *ABT Building Products Corp. ........................... 774
CHEMICALS - 0.4%
70,500 Spartech Corp. ...................................... 1,066
CHEMICALS (SPECIALTY) - 1.3%
145,500 *Tetra Technologies, Inc. ........................... 3,065
COMMUNICATIONS EQUIPMENT - 0.1%
17,500 *NewCom, Inc. ......................................... 258
COMPUTERS (HARDWARE) - 4.5%
15,000 *Equitrac Corp. ....................................... 270
221,800 *MICROS Systems, Inc. ............................... 9,981
72,000 *Optimal Robotics Corp. ............................... 549
COMPUTERS (SOFTWARE) - 1.5%
43,799 *Affiliated Computer Services, Inc. ................. 1,152
170,000 *Phoenix International Ltd., Inc. ................... 2,507
COMPUTERS (PERIPHERALS) - 0.6%
127,400 *Tier Technologies ................................... 1,370
COMSUMER FINANCE - 2.0%
190,800 Doral Financial Corp. ............................... 4,842
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
DISTRIBUTORS (FOOD & HEALTH) - 2.7%
92,100 *Nu Skin Asia Pacific, Inc. (Class A) .............. $ 1,681
395,000 Weider Nutrition International, Inc. ................ 4,913
ENGINEERING EQUIPMENT - 0.5%
126,100 *Ultrak, Inc. ....................................... 1,159
ENGINEERING & CONSTRUCTION - 2.4%
224,700 *American Buildings Co. ............................. 5,674
22,000 *Diamond Home Services, Inc. .......................... 157
FINANCIAL (DIVERSIFIED) - 0.6%
178,400 *Credit Acceptance Corp. ............................ 1,383
FINANCIAL (MISC.) - 4.6%
422,000 Green Tree Financial Corp. .......................... 11,051
FOODS - 0.4%
66,000 *Authentic Specialty Foods, Inc. ...................... 899
FOOTWEAR - 0.2%
25,000 *Rocky Shoes & Boots ................................... 381
HEALTH CARE (DIVERSIFIED) - 0.5%
49,000 *Anesta Corp. ......................................... 802
33,000 *OrthAlliance, Inc. (Class A) .......................... 301
HEALTH CARE (DRUGS--GENERAL) - 0.8%
155,400 *Nastech Pharmaceutical Co., Inc. ................... 2,020
HEALTH CARE (DRUGS--MAJOR PHARMACEUTICALS) - 5.5%
175,700 Alpharma, Inc. ...................................... 3,821
70,700 *Andrx Corp. ........................................ 2,421
109,200 *Faulding Inc. ...................................... 1,467
141,300 *Gensia, Inc. ......................................... 821
58,700 Mylan Laboratories, Inc. ............................ 1,229
136,300 *Serologicals Corp. ................................. 3,544
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.4%
16,128 *Amsurg, Inc. (Class A) .............................. $ 121
103,917 *Amsurg, Inc. (Class B) ................................ 805
HEALTH CARE (LONG TERM CARE) - 2.3%
194,500 *Res-Care, Inc. ..................................... 5,640
HEALTH CARE (MANAGED CARE) - 0.5%
107,500 First Commonwealth, Inc. ............................ 1,264
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 13.0%
60,000 *Anika Therapeutics, Inc. ............................. 559
75,000 *Boston Scientific Corp. ............................ 3,441
233,200 *Datascope Corp. .................................... 6,034
116,000 Dentsply International, Inc. ......................... 3,538
49,500 *EDAP TMS S.A. (ADR) ................................... 347
225,300 *Haemonetics Corp. .................................. 3,154
233,900 *Lifeline Systems, Inc. ............................. 5,877
77,100 *PolyMedica Industries, Inc. .......................... 752
141,600 *Quidel Corp. ......................................... 513
26,200 *Resmed Inc. .......................................... 737
177,750 *Sano Corp. ......................................... 5,888
108,000 *UroQuest Medical Corp. ............................... 284
HEALTH CARE (SPECIALIZED SERVICES) - 2.1%
177,700 *American Healthcorp, Inc. . 1,244
87,000 *Laboratory Specialists of America, Inc. .............. 402
233,150 *Prime Medical Services .............................. 3,220
14,800 *United Dental Care, Inc. ............................. 159
HOMEBUILDING - 0.7%
106,875 *American Homestar Corp. ............................ 1,763
HOUSEHOLD FURNITURE & APPLIANCES - 0.4%
101,500 *International Comfort Products Corp. ................. 850
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.2%
121,500 *U.S. Home & Garden, Inc. ............................. 501
HOUSEWARES - 2.3%
196,000 *Home Products International, Inc. .................. 2,303
149,820 Lifetime Hoan Corp. ................................. 1,479
77,800 The First Years, Inc. ............................... 1,789
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INSURANCE (LIFE/HEALTH) - 0.0%
1,400 *ESG Re Limited ..................................... $ 33
INVESTMENT BANKING/BROKERAGE - 1.3%
107,700 *AmeriTrade Holding Corp. ........................... 3,150
LEISURE TIME (PRODUCTS) - 7.9%
353,300 *+American Coin Merchandising, Inc. ................. 6,227
394,450 *Family Golf Centers, Inc. ......................... 12,376
43,300 *Toymax International, Inc. ........................... 373
LODGING-HOTELS- 1.1%
193,500 *Suburban Lodges of America, Inc. ................... 2,576
MACHINERY (DIVERSIFIED) - 0.8%
88,000 Chart Industries, Inc. .............................. 2,008
MANUFACTURING (DIVERSIFIED) - 0.0%
14,400 *ITC Learning Corp. .................................... 52
MANUFACTURING (SPECIALIZED) - 0.1%
27,387 *Intermagnetics General Corp. ......................... 221
NATURAL GAS - 0.2%
72,000 Virginia Gas Co. ...................................... 612
OFFICE EQUIPMENT & SUPPLIES - 7.1%
48,700 *Asia Pacific Wire & Cable Corp. Ltd. ................. 350
280,000 Danka Business Systems (ADR) ......................... 4,463
15,000 *Imtec, Inc. .......................................... 165
87,400 *Open Plan Systems, Inc. .............................. 284
57,950 *TRM Copy Centers Corp. ............................... 514
237,000 *United Stationers .................................. 11,406
PERSONAL CARE - 3.1%
40,000 Avon Products, Inc. ................................. 2,455
492,567 *+Penederm, Inc. .................................... 4,926
RESTAURANTS - 1.4%
86,200 Apple South, Inc. ................................... 1,131
236,000 *Rare Hospitality International, Inc. ............... 2,124
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (DEPARTMENT STORE) - 1.1%
132,100 *Marks Brothers Jewelers, Inc. ..................... $2,180
20,000 *The Dress Barn, Inc. ................................. 568
RETAIL (FOOD CHAINS) - 2.2%
50,000 American Stores Co. ................................. 1,028
349,400 *NPC International, Inc. ............................ 4,236
RETAIL (HOME SHOPPING) - 1.0%
255,500 *Damark International, Inc. ......................... 2,491
RETAIL (SPECIALTY) - 1.9%
165,100 *Funco, Inc. ........................................ 2,456
28,800 *Garden Ridge Corp. ................................... 410
123,300 Heilig-Meyers Co. ................................... 1,480
153,100 *West Coast Entertainment Corp. ....................... 230
RETAIL (SPECIALTY--APPAREL) - 4.5%
197,900 *Concepts Direct, Inc. .............................. 4,156
162,435 *Harold's Stores, Inc. .............................. 1,107
150,262 *Stage Stores, Inc. ................................. 5,616
SERVICES (ADVERTISING/MARKETING) - 1.3%
89,600 *ACI Telecentrics, Inc. ............................... 314
158,500 *APAC Teleservices, Inc. ............................ 2,140
38,860 LCS Industries, Inc. .................................. 563
SERVICES (COMMERCIAL & CONSUMER) - 1.7%
80,000 *FirstService Corp. ................................... 600
20,700 *IntelliQuest Information Group, Inc. ................. 274
16,500 *NCO Group, Inc. ...................................... 425
15,500 *Rent-Way, Inc. ....................................... 287
38,600 *Renters Choice, Inc. ................................. 791
67,500 *Right Management Consultants, Inc. ................... 861
51,000 *UBICS, Inc. .......................................... 765
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SERVICES (DATA PROCESSING) - 0.3%
53,000 *Vanstar Corp. .................................... $ 600
TEXTILES (APPAREL) - 0.1%
15,700 *Sport-Haley, Inc. .................................... 173
TOBACCO - 2.5%
132,000 Philip Morris Cos., Inc. ............................ 5,981
------
TOTAL COMMON STOCKS ................................................. 237,757
------
WARRANTS - 0.0%
COMPUTERS (PERIPHERALS) - 0.0%
17,500 *NewCom, Inc. .......................................... 67
------
TOTAL WARRANTS ........................................................... 67
------
TEMPORARY INVESTMENTS - 1.1%
INVESTMENT COMPANIES:
2,685,940 SSgA Prime Money Market Portfolio .................... 2,686
------
TOTAL TEMPORARY INVESTMENTS ........................................... 2,686
------
TOTAL INVESTMENTS - 100.0% .......................................... 240,510
Liabilities, less Other Assets ........................................ (110)
------
NET ASSETS ......................................................... $240,400
------
------
- -----------------------------------------------------------------------------
</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
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- -----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $199,002)
Unaffiliated Issuers $ 229,357
Affiliated Issuers 11,153
Receivables:
Dividends and interest 145
Portfolio shares sold 845
-----------
Total assets 241,500
LIABILITIES:
Payables:
Investment securities purchased 652
Investment advisory fees 155
Portfolio shares redeemed 271
Other 22
-----------
Total liabilities 1,100
-----------
NET ASSETS $ 240,400
-----------
-----------
Net Assets consist of:
Net unrealized appreciation 41,508
Paid in capital (par value $.001,
unlimited shares authorized) 198,892
-----------
NET ASSETS $ 240,400
-----------
-----------
PORTFOLIO SHARES OUTSTANDING 10,297
-----------
-----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio
shares outstanding) $ 23.35
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Growth Portfolio
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 746
Interest 125
-----------
Total investment income 871
EXPENSES:
Investment advisory fees 1,227
Legal and auditing fees 17
Custodian fees 18
Trustees' fees 5
Other 16
-----------
Total expenses 1,283
-----------
NET INVESTMENT INCOME (LOSS) (412)
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments
Unaffiliated issuers 38,758
Affiliated issuers 341
Net change in unrealized appreciation 24,467
-----------
NET GAIN ON INVESTMENTS 63,566
-----------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 63,154
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Growth Portfolio
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
(In Thousands) 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (412) $ (198)
Net realized gain on investments 39,099 9,047
Net change in unrealized appreciation 24,467 11,913
----------- -----------
Net change in net assets resulting
from operations 63,154 20,762
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (38,691) (8,849)
NET PORTFOLIO SHARE TRANSACTIONS 106,446 53,120
----------- -----------
TOTAL CHANGE IN NET ASSETS 130,909 65,033
NET ASSETS AT BEGINNING OF PERIOD 109,491 44,458
----------- -----------
NET ASSETS AT END OF PERIOD $ 240,400 $ 109,491
----------- -----------
----------- -----------
- -------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS
SHARES:
Sales 5,106 3,213
Reinvestments 1,657 459
Redemptions (2,151) (788)
----------- -----------
Net change 4,612 2,884
----------- -----------
----------- -----------
AMOUNTS:
Sales $ 118,824 $ 58,239
Reinvestments 38,691 8,849
Redemptions (51,069) (13,968)
----------- -----------
Net change $ 106,446 $ 53,120
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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. The Portfolio's net investment loss of $412 thousand was
netted against realized short-term capital gains to reduce the short term
capital gain distributions made on December 31, 1997.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
- 11 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
INVESTMENT ADVISORY FEES. 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, $75 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned over 94 percent of the outstanding shares of the Growth Portfolio.
EXPENSES. Prior to May, 1995, SAFECO Life Insurance Company (SAFECO) paid all
the expenses of the Portfolio except for investment advisory fees. Beginning in
May, 1995, the Portfolio is charged for all operating expenses in addition to
investment advisory fees.
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1997 $ 215,443
-------------
-------------
Sales for the year ended December 31, 1997 $ 147,150
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at December 31, 1997:
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 56,890
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (15,382)
-------------
Net unrealized appreciation $ 41,508
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
5. INVESTMENTS IN AFFILIATES
The Portfolio owned at least 5% of each of the following company's voting
securities during the year ended December 31, 1997.
<TABLE>
<CAPTION>
SHARES AT SHARES AT MARKET VALUE
BEGINNING PURCHASES SALES END OF DECEMBER 31,
(In Thousands) OF YEAR ADDITIONS REDUCTIONS YEAR DIVIDENDS 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
American Coin
Merchandising 262 125 34 353 None $ 6,227
Penederm, Inc. 348 145 -- 493 None 4,926
------
$ 11,153
------
------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
JANUARY 7
1993
(COMMENCE-
MENT OF
OPERATIONS) TO
YEAR ENDED DECEMBER 31 DECEMBER 31
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------
<CAPTION>
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 19.26 $ 15.88 $ 12.98 $ 12.16 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.04) (0.03) 0.06 -- 0.01
Net realized and unrealized gain on
investments 8.62 5.12 5.26 1.45 3.60
--------- --------- --------- --------- -----
Total from investment operations 8.58 5.09 5.32 1.45 3.61
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (0.06) -- (0.01)
Distributions from realized gains (4.49) (1.71) (2.36) (0.63) (1.44)
--------- --------- --------- --------- -----
Total distributions (4.49) (1.71) (2.42) (0.63) (1.45)
--------- --------- --------- --------- -----
NET ASSET VALUE AT END OF PERIOD $ 23.35 $ 19.26 $ 15.88 $ 12.98 $ 12.16
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
TOTAL RETURN 44.55% 32.06% 41.00%(A) 11.92%(A) 34.73%**(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 240,400 $ 109,491 $ 44,458 $ 16,156 $ 4,850
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.77% .79% .79% .71% .72%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A .84% .96% --
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (.25%) (.28%) .55% (.05%) .08%*
PORTFOLIO TURNOVER RATE 88.99% 75.58% 111.70% 41.24% 108.67%*
AVERAGE COMMISSION RATE PAID $ 0.0516 $ 0.0530 -- -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Not Annualized. Performance Information for the period ended December 31,
1993 begins on January 31, 1993.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 14 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Growth Portfolio (one of
the portfolios constituting the SAFECO Resource Series Trust) as of December 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the four years in the period
then ended and for the period January 7, 1993 (commencement of operations) to
December 31, 1993. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Growth Portfolio of the SAFECO Resource Series Trust at December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 15 -
<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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 938 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
NORTHWEST PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST NORTHWEST PORTFOLIO
Returning 31.02%, the SAFECO RST Northwest Portfolio finished 1997
well ahead of its peer funds and slightly behind the broad market. Respectively,
the average growth fund delivered 28.08% as measured by Lipper Analytical
Services and the S&P 500 returned 33.35%.
[PHOTO OF WILLIAM B. WHITLOW]
The Portfolio was outpacing the S&P 500 going into the fourth quarter, but
fell behind during the Asian crisis.
Asia was the biggest factor in the entire market's fourth quarter
performance, with the Northwest market being hardest hit. No region has a
larger stake in exporting, and most of that involves the Pacific Rim. And
because the SAFECO RST Northwest Portfolio has substantial exposure to
exporting, the Asia epidemic affected our portfolio as well.
Boeing, Schnitzer Steel, Lattice Semiconductor and
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C>
1 Year 31.02%
Since Inception* 10.47%
Investment Value
SAFECO RST Northwest Portfolio: $16,314
S&P 500 Index: $24,948
Northwest 50 Index: $22,324
SAFECO RST Northwest Portfolio
1/31/93 $10,000
2/28/93 9,385
3/31/93 9,633
4/30/93 9,325
5/31/93 9,563
6/30/93 9,474
7/31/93 9,425
8/31/93 9,623
9/30/93 9,722
10/31/93 9,841
11/30/93 9,901
12/31/93 9,945
1/31/94 10,146
2/28/94 10,496
3/31/94 10,216
4/30/94 10,166
5/31/94 10,055
6/30/94 9,915
7/31/94 10,086
8/31/94 10,526
9/30/94 10,536
10/31/94 10,646
11/30/94 10,396
12/31/94 10,309
1/31/95 10,097
2/28/95 10,258
3/31/95 10,661
4/30/95 10,681
5/31/95 10,812
6/30/95 11,356
7/31/95 12,040
8/31/95 12,292
9/30/95 12,070
10/31/95 11,778
11/30/95 11,517
12/31/95 11,074
1/31/96 11,043
2/29/96 11,349
3/31/96 11,972
4/30/96 12,268
5/31/96 12,452
6/30/96 12,196
7/31/96 11,707
8/31/96 12,023
9/30/96 12,207
10/31/96 11,900
11/30/96 12,390
12/31/96 12,452
1/31/97 13,315
2/28/97 13,294
3/31/97 12,749
4/30/97 13,130
5/31/97 13,962
6/30/97 14,753
7/31/97 16,058
8/31/97 15,636
9/30/97 16,417
10/31/97 15,647
11/30/97 16,438
12/31/97 16,314
*The Portfolio's inception was January 7, 1993. Performance information begins on January 31,
1993.
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C>
1 Year
Since Inception*
Investment Value
SAFECO RST Northwest Portfolio: $16,314
S&P 500 Index: $24,948
Northwest 50 Index: $22,324
S&P 500 Index
1/31/93 $10,000
2/28/93 10,136
3/31/93 10,350
4/30/93 10,100
5/31/93 10,369
6/30/93 10,400
7/31/93 10,358
8/31/93 10,750
9/30/93 10,667
10/31/93 10,888
11/30/93 10,785
12/31/93 10,915
1/31/94 11,286
2/28/94 10,980
3/31/94 10,503
4/30/94 10,637
5/31/94 10,811
6/30/94 10,546
7/31/94 10,892
8/31/94 11,337
9/30/94 11,060
10/31/94 11,308
11/30/94 10,897
12/31/94 11,058
1/31/95 11,344
2/28/95 11,786
3/31/95 12,133
4/30/95 12,490
5/31/95 12,997
6/30/95 13,299
7/31/95 13,739
8/31/95 13,773
9/30/95 14,354
10/31/95 14,303
11/30/95 14,929
12/31/95 15,217
1/31/96 15,735
2/29/96 15,881
3/31/96 16,033
4/30/96 16,269
5/31/96 16,688
6/30/96 16,752
7/31/96 16,012
8/31/96 16,350
9/30/96 17,270
10/31/96 17,746
11/30/96 19,086
12/31/96 18,708
1/31/97 19,875
2/28/97 20,032
3/31/97 19,211
4/30/97 20,356
5/31/97 21,594
6/30/97 22,561
7/31/97 24,356
8/31/97 22,992
9/30/97 24,252
10/31/97 23,443
11/30/97 24,527
12/31/97 24,948
*The Portfolio's inception was January 7, 1993. Performance information begins on January 31,
1993.
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
1 Year
Since Inception*
Investment Value
SAFECO RST Northwest Portfolio: $16,314
S&P 500 Index: $24,948
Northwest 50 Index: $22,324
Northwest 50 Index
1/31/93 $10,000
2/28/93 9,687
3/31/93 10,086
4/30/93 9,859
5/31/93 10,103
6/30/93 9,885
7/31/93 9,531
8/31/93 9,921
9/30/93 9,698
10/31/93 10,046
11/30/93 10,262
12/31/93 10,400
1/31/94 10,714
2/28/94 10,873
3/31/94 10,490
4/30/94 10,458
5/31/94 10,616
6/30/94 10,293
7/31/94 10,374
8/31/94 10,972
9/30/94 10,553
10/31/94 10,490
11/30/94 10,302
12/31/94 10,359
1/31/95 10,314
2/28/95 10,661
3/31/95 10,999
4/30/95 11,330
5/31/95 11,331
6/30/95 12,019
7/31/95 12,474
8/31/95 12,712
9/30/95 13,179
10/31/95 12,874
11/30/95 13,066
12/31/95 13,226
1/31/96 13,663
2/29/96 13,978
3/31/96 13,904
4/30/96 14,739
5/31/96 14,978
6/30/96 14,915
7/31/96 14,186
8/31/96 14,888
9/30/96 15,274
10/31/96 15,167
11/30/96 16,263
12/31/96 16,650
1/31/97 17,395
2/28/97 17,720
3/31/97 17,234
4/30/97 18,005
5/31/97 19,479
6/30/97 20,401
7/31/97 22,261
8/31/97 21,542
9/30/97 23,050
10/31/97 21,529
11/30/97 22,838
12/31/97 22,324
*The Portfolio's inception was January 7, 1993. Performance information begins on January 31,
1993.
</TABLE>
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, or mortality and expense risk
premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Expeditors all suffered with the Asian Flu. Innova declined on the perception
that developing countries would be less able to buy their wireless technology.
In all these cases the problems are more perceived than real. In other words
it's expectations, not orders, that are off.
And while exports were the wrong place to be in the fourth quarter, I'm
convinced they are an important place to be invested long-term. In fact, I added
to our holdings in both Expeditors and Innova after their share prices dropped.
Innova, with only 6% of its business tied to Asia, was simply too cheap to pass
up. And, Expeditors is a net importer of goods. A stronger US dollar should
actually increase its business.
Our best fourth-quarter performers were companies that do business locally.
Regional banks prospered. QFC, Fred Meyer, Albertson's and Costco all posted
substantial gains. I sold QFC on the news that Fred Meyer would acquire the
grocery chain. Had I kept both names we would have had 9% of net assets invested
in the new company.
I sold Assisted Living Concepts for the gain, and I sold
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 4.4%
(Personal Computer Software)
Boeing Co. ......................................................... 4.1
(Aerospace)
Fred Meyer, Inc. ................................................... 4.0
(Department Store)
Costco Companies, Inc. ............................................. 4.0
(Wholesale Membership Warehouse)
Albertson's, Inc. .................................................. 3.9
(Retail Grocer)
Expeditors International of Washington, Inc. ....................... 3.9
(Freight Forwarding)
Eagle Hardware & Garden, Inc. ...................................... 3.7
(Home Improvement Center)
Schnitzer Steel Industries, Inc. ................................... 3.7
(Steel Manufacturing)
Innova Corp. ....................................................... 3.5
(Communications Equipment)
Emeritus Corp. ..................................................... 3.5
(Healthcare - Long Term Care)
</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) 33%
Mid-Cap: ($1-$4 billion) 10%
Small-Cap: (under $1 billion) 55%
Cash & Other: 2%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
PacifiCare for the tax write off. I bought PacifiCare's stock after it blew-up
in June, anticipating a swift recovery for the HMO. Unfortunately, the stock
tumbled a second time when it became clear PacifiCare's merger with FHP wasn't
going well.
The only position of any size I initiated during the quarter was in Protocol
Systems, a medical monitor supplier in Oregon. I like Protocol and I wanted to
keep our weighting in healthcare up.
By taking our gains in connector company AMP, I sold the only non-Northwest
company remaining in our portfolio. Every one of the 35 companies we now own has
operations in the Northwest.
I feel the portfolio is well positioned for 1998. One of the analysts or I
closely follow each company we own. And that's the way it should be. After all,
they're our neighbors.
/s/ William B. Whitlow
William B. Whitlow
- -------------------------------
Bill 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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 97.7%
AEROSPACE/DEFENSE - 4.1%
16,500 Boeing Co. ........................................... $807
AIR FREIGHT - 3.9%
20,000 Expeditors International of Washington, Inc. .......... 770
AIRLINES - 3.5%
18,000 *Alaska Air Group, Inc. ............................... 697
BANKS (MAJOR REGIONAL) - 5.4%
5,264 U.S. Bancorp ........................................... 589
18,600 West Coast Bancorp, Inc. .............................. 470
BIOTECHNOLOGY - 1.2%
27,000 *Corixa Corp. ......................................... 241
BUILDING MATERIALS - 3.4%
27,000 TJ International, Inc. ................................ 668
CHEMICALS (DIVERSIFIED) - 3.1%
17,500 Penford Corp. ......................................... 613
COMMUNICATIONS (EQUIPMENT) - 3.5%
46,000 *Innova Corp. ......................................... 702
COMPUTERS (HARDWARE) - 5.5%
9,000 Hewlett-Packard Co. ................................... 563
26,000 *Sequent Computer Systems, Inc. ....................... 520
COMPUTERS (SOFTWARE & SERVICES) - 6.1%
34,500 *Mentor Graphics Corp. ................................ 334
6,800 *Microsoft Corp. ...................................... 879
ELECTRONICS (SEMICONDUCTORS) - 5.3%
9,000 Intel Corp. ........................................... 632
8,800 *Lattice Semiconductor Corp. ........................... 417
FOOTWEAR - 1.8%
9,000 NIKE, Inc. ............................................ 353
HEALTH CARE (LONG TERM CARE) - 3.5%
55,000 *Emeritus Corp. ....................................... 701
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 5.2%
42,000 *Physio-Control International Corp. .................. $667
35,000 *Protocol Systems, Inc. ............................... 352
IRON & STEEL - 3.7%
26,000 Schnitzer Steel Industries, Inc. ...................... 730
METALS MINING - 1.0%
6,100 *Oregon Metallurgical Corp. ........................... 204
PHOTOGRAPHY/IMAGING - 3.4%
60,000 *Seattle FilmWorks ..................................... 668
RAILROADS - 2.7%
5,700 Burlington Northern Santa Fe 530
RESTAURANTS - 3.3%
17,000 *Starbucks Corp. ...................................... 652
RETAIL (BUILDING SUPPLIES) - 3.7%
38,000 *Eagle Hardware & Garden, Inc. ........................ 736
RETAIL (DEPARTMENT STORES) - 4.0%
22,000 *Fred Meyer, Inc. ..................................... 800
RETAIL (FOOD CHAINS) - 4.0%
16,500 Albertson's, Inc. ..................................... 782
RETAIL (GENERAL MERCHANDISE) - 4.0%
17,600 Costco Companies, Inc. ................................ 785
SAVINGS & LOAN COMPANIES - 9.1%
9,800 Interwest Savings Bank ................................. 370
2,100 Riverview Bancorp ....................................... 37
28,600 *Sterling Financial Corp. ............................. 622
10,000 Washington Mutual Savings Bank ......................... 638
5,282 WesterFed Financial Corp. ............................. 135
TELECOMMUNICATIONS (LONG DISTANCE) - 1.5%
46,000 *General Communications, Inc. (Class A) ............. $ 305
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Northwest Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 1.8%
17,000 *NEXTLINK Communications, Inc. (Class A) ............... 363
-----
TOTAL COMMON STOCKS .................................................. 19,332
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 3.6%
INVESTMENT COMPANIES:
714,925 SSgA Prime Money Market Portfolio ................... $ 715
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 715
-----
TOTAL INVESTMENTS - 101.3% ........................................... 20,047
Liabilities, less Other Assets ........................................ (252)
-----
NET ASSETS .......................................................... $19,795
-----
-----
- -----------------------------------------------------------------------------
</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 December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- ----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost $16,248) $ 20,047
Receivables:
Dividends and interest 10
Portfolio shares sold 75
Other 2
----------
Total assets 20,134
LIABILITIES:
Payables:
Investment advisory fees 13
Portfolio shares redeemed 326
----------
Total liabilities 339
----------
NET ASSETS $ 19,795
----------
----------
Net Assets consist of:
Net unrealized appreciation 3,798
Paid in capital (par value $.001,
unlimited shares authorized) 15,997
----------
NET ASSETS $ 19,795
----------
----------
PORTFOLIO SHARES OUTSTANDING 1,303
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio
shares outstanding) $ 15.20
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Northwest Portfolio
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- ---------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 107
Interest 35
---------
Total investment income 142
EXPENSES:
Investment advisory fees 104
Legal and auditing fees 16
Trustees' fees 3
Custodian fees 5
Other 5
---------
Total expenses before reimbursement 133
Expense reimbursement (29)
---------
Total expenses after reimbursement 104
---------
NET INVESTMENT INCOME 38
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 944
Net change in unrealized appreciation 2,490
---------
NET GAIN ON INVESTMENTS 3,434
---------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 3,472
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Northwest Portfolio
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 38 $ 62
Net realized gain (loss) on
investments 944 (138)
Net change in unrealized appreciation 2,490 970
------ ------
Net change in net assets resulting
from operations 3,472 894
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (38) (62)
Net realized gain on investments (806) --
------ ------
Total Distributions (844) (62)
NET PORTFOLIO SHARE TRANSACTIONS 7,626 2,397
------ ------
TOTAL CHANGE IN NET ASSETS 10,254 3,229
NET ASSETS AT BEGINNING OF PERIOD 9,541 6,312
------ ------
NET ASSETS AT END OF PERIOD $ 19,795 $ 9,541
------ ------
------ ------
- -----------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS
SHARES:
Sales 675 315
Reinvestments 56 3
Redemptions (215) (113)
------ ------
Net change 516 205
------ ------
------ ------
AMOUNTS:
Sales $ 9,917 $ 3,684
Reinvestments 844 46
Redemptions (3,135) (1,333)
------ ------
Net change $ 7,626 $ 2,397
------ ------
------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. 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 December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned 100 percent of the outstanding shares of the Portfolio.
EXPENSES. Currently, SAFECO Life Insurance Company (SAFECO) pays all the
expenses of the Portfolio except for investment advisory fees. When net assets
exceed $20 million, the Portfolio will be charged for all operating expenses
(legal and auditing fees, custodian fees, and other expenses) in addition to
investment advisory fees.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1997 $ 13,857
------
------
Sales for the year ended December 31, 1997 $ 6,542
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at December 31, 1997:
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 4,429
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (631)
------
Net unrealized appreciation $ 3,798
------
------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
JANUARY 7
1993
(COMMENCE-
MENT OF
OPERATIONS) TO
YEAR ENDED DECEMBER 31, DECEMBER 31
----------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 12.12 $ 10.85 $ 10.24 $ 9.94 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.08 0.08 0.06 0.09
Net realized and unrealized gain
(loss) on investments 3.73 1.27 0.68 0.30 (0.06)
--------- --------- --------- --------- -----
Total from investment operations 3.76 1.35 0.76 0.36 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.03) (0.08) (0.08) (0.06) (0.09)
Distributions from realized gains (0.65) -- (0.07) -- --
--------- --------- --------- --------- -----
Total distributions (0.68) (0.08) (0.15) (0.06) (0.09)
--------- --------- --------- --------- -----
NET ASSET VALUE AT END OF PERIOD $ 15.20 $ 12.12 $ 10.85 $ 10.24 $ 9.94
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
TOTAL RETURN (A) 31.02% 12.44% 7.42% 3.65% (.55%)**
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 19,795 $ 9,541 $ 6,312 $ 4,564 $ 3,183
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.73% .70% .71% .71% .72%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 0.94% 1.11% 1.18% 1.23% --
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.27% .78% .81% .72% 1.06%*
PORTFOLIO TURNOVER RATE 47.85% 52.20% 21.30% 7.29% 3.93%*
AVERAGE COMMISSION RATE PAID $ 0.0541 $ 0.0467 -- -- --
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Not annualized. Performance information for the period ended December 31,
1993 begins on January 31, 1993.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been reduced
during the periods shown (See Note 3 of Notes to Financial Statements).
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Northwest Portfolio (one
of the portfolios constituting the SAFECO Resource Series Trust) as of December
31, 1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the four years in the period
then ended and for the period January 7, 1993 (commencement of operations) to
December 31, 1993. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Northwest Portfolio of the SAFECO Resource Series Trust at December 31,
1997, the results of its operations, the changes in its net assets, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 942 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
SMALL COMPANY STOCK PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST SMALL COMPANY STOCK PORTFOLIO
For the period from its inception on April 30, 1997 through December
31, 1997, the SAFECO RST Small Company Stock Portfolio earned a return of
28.40%. During the same period the Russell 2000 Index earned 28.56% while the
S&P 500 returned 23.72%. [PHOTO OF GREG EISEN]
The Portfolio began its operations just about the time when the market for
small cap stocks started its big move upwards after dropping early in the
calendar year. (This rally ended just as October began, and so the
Portfolio actually lost 4.54% in the fourth quarter of 1997, beating the
average fund which gave up 5.66%.)
Some of the significant stock purchases we made since our last report
include:
Platinum Software, which is a developer of financial accounting software
packages, and is in a turnaround phase.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
TOTAL RETURN FOR THE PERIOD
ENDED DECEMBER 31, 1997
<S> <C> <C>
*Since Inception 28.40%
Investment Value
SAFECO RST Small Company Portfolio: $12,829
Russell 2000: $12,858
SAFECO RST Small Company Portfolio Russell 2000
04/30/97 $10,000 $10,000
05/31/97 10,680 11,113
06/30/97 11,230 11,590
07/31/97 12,010 12,131
08/31/97 12,240 12,404
09/30/97 13,450 13,310
10/31/97 12,920 12,718
11/30/97 12,840 12,631
12/31/97 12,829 12,858
*The Portfolio's inception was April 30, 1997.
Performance information begins on April 30, 1997.
</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 Small Company Stock Portfolio
only and excludes separate account charges such as deductions for
administration charges, contingent deferred sales charges, or mortality and
expense risk premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Circle International Group is an integrated freight forwarder that has
already turned around its business. In spite of having to adjust to new
management, Circle was trading significantly cheaper than the competitors in the
industry, with just as bright an outlook.
Seattle FilmWorks is a direct marketing company that sells photo finishing
services to the public. Over the years FilmWorks has managed to grow its
business at a fast rate in a slow-growth industry by creative marketing. They
attract customers by providing value-added services to the basic photo finishing
product.
International Aircraft Investors leases used airframes on an operating lease
basis to airlines. Besides having experienced management, they have a close
relationship with one of the biggest names in aircraft leasing, International
Lease Finance (ILFC). International Aircraft uses this relationship to acquire
planes, usually already on lease, from ILFC.
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Platinum Software Corp. ........................................... 4.2%
(Applications Software)
York Group, Inc. ................................................... 3.6
(Funeral Supplies)
Tracor, Inc. ....................................................... 3.5
(Aerospace Electronics)
Hooper Holmes, Inc. ................................................ 3.3
(Health Care Services)
Stage Stores, Inc. ................................................. 3.3
(Retail Store)
Craig Corp. (Class A) ............................................... 3.0
(Leisure Time)
StaffMark, Inc. .................................................... 3.0
(Staffing Services)
MICROS Systems, Inc. ............................................... 2.9
(Specialty Software Company)
Vallen Corp. ....................................................... 2.7
(Safety Products)
Penederm, Inc. ..................................................... 2.7
(Drug Delivery System)
</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) 6%
Small Cap: 90%
Large Cap: 0% 0%
Cash & Other 4%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
1997 was a year in which returns of large capitalization stocks outperformed
small caps, however, I think our "small" slice of the market is now positioned
to take its turn as leader. The small cap sector looks to be cheaply priced on a
price-to-earnings basis relative to the large cap sector of stocks. In general
smaller cap stocks, especially the stocks held by this Portfolio, have lower
exposure to international sales than the market as a whole and large cap stocks
in particular. This will help if fears about Asia come to fruition.
Looking out to 1998, 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.
/s/ Greg Eisen
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 December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 93.2%
AEROSPACE/DEFENSE - 2.2%
24,300 *International Aircraft Investors ..................... $228
AIR FREIGHT - 2.0%
2,550 Air Express International Corp. . 78
5,450 Circle International Group, Inc. ....................... 125
BANKS (MAJOR REGIONAL) - 7.5%
4,200 BancFirst Corp. ........................................ 141
11,800 *Hanmi Bank (Los Angeles, CA) .......................... 212
4,825 Independent Bankshares, Inc. ............................ 95
2,350 *Southwest Bancorp of Texas, Inc. ....................... 73
8,600 UnionBancorp, Inc. ..................................... 188
6,300 VRB Bancorp ............................................. 63
BIOTECHNOLOGY - 0.5%
15,900 *Energy BioSystems Corp. ................................ 52
COMMERCIAL SERVICES - 1.6%
11,450 Monro Muffler Brake, Inc. .............................. 165
COMPUTERS (HARDWARE) - 5.0%
5,400 *Equitrac Corp. ......................................... 97
6,600 *MICROS Systems, Inc. .................................. 297
15,000 *Optimal Robotics Corp. ................................ 114
COMPUTERS (SOFTWARE & SERVICES) - 6.3%
36,550 *Platinum Software Corp. ............................... 429
11,250 *SPSS, Inc. ............................................ 217
CONSUMER FINANCE - 1.8%
7,400 Doral Financial Corp. .................................. 188
DISTRIBUTORS (FOOD & HEALTH) - 2.1%
5,850 *JP Foodservice, Inc. .................................. 216
ELECTRONICS (DEFENSE) - 3.5%
11,650 *Tracor, Inc. .......................................... 354
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENGINEERING & CONSTRUCTION - 4.0%
5,150 *American Buildings Co. ............................... $130
8,800 Zurn Industries, Inc. .................................. 277
FINANCIAL (DIVERSIFIED) - 3.5%
10,600 Litchfield Financial Corp. ............................. 205
6,000 *Ocwen Financial Corp. ................................. 153
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 6.0%
23,200 Hooper Holmes, Inc. .................................... 338
13,500 *Vallen Corp. .......................................... 280
HEALTH CARE (SPECIALIZED SERVICES) - 2.5%
22,500 *Ovid Technologies, Inc. ............................... 259
HOUSEWARES - 1.7%
17,550 Lifetime Hoan Corp. .................................... 173
MACHINERY (DIVERSIFIED) - 2.0%
8,800 Chart Industries, Inc. ................................. 201
MANUFACTURING (DIVERSIFIED) - 2.3%
20,600 *Lancer Corp. .......................................... 237
MEDICAL PRODUCTS - 1.5%
15,900 *ZEVEX International, Inc. ............................. 149
OFFICE EQUIPMENT & SUPPLIES - 1.2%
8,600 Unisource Worldwide, Inc. .............................. 123
OIL & GAS (EXPLORATION & PRODUCTION) - 3.6%
29,800 Patina Oil & Gas Corp. ................................. 229
6,600 *Swift Energy Co. ...................................... 139
PERSONAL CARE - 4.8%
27,900 *Penederm, Inc. ........................................ 279
12,900 *Styling Technology Corp. .............................. 210
PHOTOGRAPHY/IMAGING - 2.7%
25,000 *Seattle FilmWorks, Inc. ............................... 278
RAILROADS - 2.6%
3,700 GATX Corp. ............................................. 269
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
REAL ESTATE--NON-AFFILIATED - 3.5%
3,300 Alexandria Real Estate Equities, Inc. ................ $ 104
12,400 Ocwen Asset Investment Corp. ........................... 254
RETAIL (SPECIALTY) - 2.4%
8,400 *Cole National Corp. (Class A) ......................... 251
RETAIL (SPECIALTY-APPAREL) - 3.3%
9,000 *Stage Stores, Inc. .................................... 336
SAVINGS & LOAN COMPANIES - 4.4%
7,235 *Columbia Banking System, Inc. ......................... 195
7,275 Community Savings Bankshares, Inc. ..................... 257
SERVICES (COMMERCIAL & CONSUMER) - 6.6%
9,700 *StaffMark, Inc. ....................................... 307
15,100 The York Group, Inc. ................................... 368
TRUCKS & PARTS - 2.1%
13,800 *Deflecta-Shield Corp .................................. 216
-----
TOTAL COMMON STOCKS ................................................... 9,550
-----
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
PREFERRED STOCK - 3.0%
LEISURE TIME - 3.0%
16,350 *Craig Corp. (Class A) .............................. $ 309
-----
TOTAL PREFERRED STOCK ................................................... 309
-----
TEMPORARY INVESTMENTS - 8.4%
INVESTMENT COMPANIES:
504,523 SSgA Prime Money Market Portfolio ...................... 504
356,909 U.S. Treasury Money Market Portfolio ................... 357
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 861
-----
TOTAL INVESTMENTS - 104.6% ........................................... 10,720
Liabilities, less Other Assets ........................................ (470)
-----
NET ASSETS .......................................................... $10,250
-----
-----
- -----------------------------------------------------------------------------
</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 December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- ----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $9,678) $ 10,720
Receivables:
Portfolio shares sold 41
Dividends and interest 9
----------
Total assets 10,770
LIABILITIES:
Payables:
Investment securities purchased 512
Investment advisory fees 7
Portfolio shares redeemed 1
----------
Total liabilities 520
----------
NET ASSETS $ 10,250
----------
----------
Net Assets consist of:
Net unrealized appreciation 1,043
Paid in capital (par value $.001,
unlimited shares authorized) 9,207
----------
NET ASSETS $ 10,250
----------
----------
PORTFOLIO SHARES OUTSTANDING 831
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio
shares outstanding) $ 12.33
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
For the Period from April 30, 1997 (Commencement of Operations)
to December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends $ 29
Interest 25
-----
Total investment income 54
EXPENSES:
Investment advisory fees 40
Legal and auditing fees 10
Custodian fees 2
Trustees' fees 3
Other 4
-----
Total expenses before reimbursement 59
Expense reimbursement (14)
-----
Total expenses after reimbursement 45
-----
NET INVESTMENT INCOME 9
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments 397
Net change in unrealized appreciation 1,043
-----
NET GAIN ON INVESTMENTS 1,440
-----
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,449
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
For the Period from April 30, 1997 (Commencement of Operations)
to December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- ----------------------------------------------------
<S> <C>
OPERATIONS:
Net investment income $ 9
Net realized gain on investments 397
Net change in unrealized appreciation 1,043
----------
Net change in net assets resulting
from operations 1,449
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net income on investments (9)
Net realized gain (loss) on
investments (397)
----------
Total Distributions (406)
NET PORTFOLIO SHARE TRANSACTIONS 9,207
----------
TOTAL CHANGE IN NET ASSETS 10,250
NET ASSETS AT BEGINNING OF PERIOD --
----------
NET ASSETS AT END OF PERIOD $ 10,250
----------
----------
- ----------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS
SHARES:
Sales 819
Reinvestments 33
Redemptions (21)
----------
Net change 831
----------
----------
AMOUNTS:
Sales $ 9,065
Reinvestments 406
Redemptions (264)
----------
Net change $ 9,207
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. 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 December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned 100 percent of the outstanding shares of the Portfolio.
EXPENSES. 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 period ended December 31, 1997 $ 10,628
------
------
Sales for the period ended December 31, 1997 $ 2,209
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at December 31, 1997:
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 1,458
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (415)
------
Net unrealized appreciation $ 1,043
------
------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT OF
OPERATIONS) TO
DECEMBER 31,
1997
<S> <C>
- ----------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.01
Net realized and unrealized gain on
investments 2.83
------
Total from investment operations 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 $ 12.33
------
------
TOTAL RETURN (A) 28.40%**
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 10,250
RATIO OF EXPENSES TO AVERAGE NET ASSETS .95%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.24%*
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.19%*
PORTFOLIO TURNOVER RATE 47.91%*
AVERAGE COMMISSION RATE PAID $0.0564
- ----------------------------------------------------------
</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>
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- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Small Company Stock
Portfolio (one of the portfolios constituting the SAFECO Resource Series Trust)
as of December 31, 1997, and the related statement of operations, the statement
changes in net assets, and the financial highlights for the period April 30,
1997 (commencement of operations) to December 31, 1997. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Small Company Stock Portfolio of the SAFECO Resource Series Trust at
December 31, 1997, the results of its operations, the changes in its net assets,
and the financial highlights for the period referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 13 -
<PAGE>
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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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 937 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
BOND PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST BOND
PORTFOLIO
Returning 8.41%, the SAFECO RST Bond Portfolio finished 1997 slightly
behind its peer funds and behind the broad market. The average corporate bond
fund delivered 8.57% as measured by Lipper Analytical Services and the Lehman
Government/Corporate Index returned 9.76%.
[PHOTO OF MIKE HUGHES]
Underperformance relative to the Lehman Government/Corporate Index can be
attributed to the nature of the index itself. An index is a "portfolio on
paper," it has no cash, and incurs no transaction costs or fees.
Additionally, the index has no maturity restrictions, while the fund has
traditionally not invested in securities with maturities of ten years or less.
I took over the management responsibilities of the RST Bond Portfolio during
July, 1997. Like my predecessor, I intend to emphasize high-quality
intermediate-term securities in the portfolio. However, unlike my predecessor,
my strategy will not rely on large
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C> <C>
1 Year 8.41%
5 Year 6.63%
10 Year 7.86%
Investment Value
SAFECO RST Bond Portfolio: $21,309
Lehman Gov't/Corp. Index: $23,993
SAFECO RST Bond Portfolio Lehman Gov't/Corp. Index
12/31/87 $10,000 $10,000
01/31/88 10,000 10,343
02/29/88 10,212 10,462
03/31/88 10,333 10,358
04/30/88 10,303 10,298
05/31/88 10,293 10,229
06/30/88 10,222 10,460
07/31/88 10,374 10,401
08/31/88 10,343 10,428
09/30/88 10,343 10,656
10/31/88 10,515 10,845
11/30/88 10,677 10,722
12/31/88 10,703 10,759
01/31/89 10,703 10,902
02/28/89 10,790 10,819
03/31/89 10,747 10,876
04/30/89 10,768 11,107
05/31/89 10,975 11,380
06/30/89 11,215 11,751
07/31/89 11,443 11,996
08/31/89 11,683 11,810
09/30/89 11,552 11,862
10/31/89 11,792 12,162
11/30/89 11,879 12,271
12/31/89 11,912 12,290
01/31/90 11,830 12,121
02/28/90 11,877 12,148
03/31/90 11,912 12,149
04/30/90 11,854 12,037
05/31/90 12,099 12,386
06/30/90 12,240 12,587
07/31/90 12,240 12,743
08/31/90 12,392 12,558
09/30/90 12,345 12,663
10/31/90 12,369 12,831
11/30/90 12,474 13,111
12/31/90 12,695 13,309
01/31/91 12,783 13,458
02/28/91 12,896 13,574
03/31/91 12,984 13,667
04/30/91 13,135 13,824
05/31/91 13,236 13,889
06/30/91 13,198 13,874
07/31/91 13,362 14,049
08/31/91 13,613 14,372
09/30/91 13,815 14,672
10/31/91 13,978 14,803
11/30/91 14,104 14,951
12/31/91 14,470 15,455
01/31/92 14,376 15,226
02/29/92 14,376 15,307
03/31/92 14,282 15,223
04/30/92 14,390 15,314
05/31/92 14,631 15,611
06/30/92 14,845 15,840
07/31/92 15,194 16,246
08/31/92 15,301 16,391
09/30/92 15,609 16,614
10/31/92 15,301 16,359
11/30/92 15,207 16,345
12/31/92 15,457 16,626
01/31/93 15,800 16,988
02/28/93 16,143 17,342
03/31/93 16,229 17,400
04/30/93 16,357 17,534
05/31/93 16,329 17,526
06/30/93 16,629 17,924
07/31/93 16,700 18,038
08/31/93 17,086 18,453
09/30/93 17,186 18,518
10/31/93 17,272 18,594
11/30/93 17,000 18,384
12/31/93 17,087 18,464
01/31/94 17,333 18,741
02/28/94 16,903 18,333
03/31/94 16,550 17,884
04/30/94 16,442 17,735
05/31/94 16,442 17,703
06/30/94 16,427 17,663
07/31/94 16,626 18,016
08/31/94 16,688 18,023
09/30/94 16,534 17,751
10/31/94 16,534 17,731
11/30/94 16,519 17,699
12/31/94 16,587 17,816
01/31/95 16,814 18,158
02/28/95 17,091 18,580
03/31/95 17,188 18,704
04/30/95 17,416 18,964
05/31/95 18,066 19,759
06/30/95 18,213 19,917
07/31/95 18,083 19,839
08/31/95 18,327 20,093
09/30/95 18,522 20,298
10/31/95 18,831 20,596
11/30/95 19,205 20,936
12/31/95 19,551 21,244
01/31/96 19,603 21,375
02/29/96 19,136 20,922
03/31/96 18,946 20,747
04/30/96 18,929 20,603
05/31/96 18,963 20,568
06/30/96 19,102 20,844
07/31/96 19,153 20,892
08/31/96 19,188 20,842
09/30/96 19,378 21,213
10/31/96 19,603 21,707
11/30/96 19,845 22,106
12/31/96 19,656 21,861
01/31/97 19,711 21,887
02/28/97 19,656 21,933
03/31/97 19,419 21,672
04/30/97 19,656 21,989
05/31/97 19,803 22,193
06/30/97 20,040 22,459
07/31/97 20,607 23,147
08/31/97 20,370 22,887
09/30/97 20,699 23,247
10/31/97 21,028 23,619
11/30/97 21,046 23,744
12/31/97 21,309 23,993
</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, or mortality and expense risk
premiums.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
swings in duration (lengthening or shortening the average maturity date of the
Portfolio, in anticipation of their sensitivity to interest rates) to
distinguish this Portfolio from its peer group.
In the past, Portfolio performance was heavily dependent on the duration
decision. The Portfolio suffered when it had a duration that was either too long
or too short and interest rates suddenly changed course. The duration of your
Portfolio will not fluctuate as widely as it has in the past. I plan to keep the
portfolio duration within plus or minus 15% of the benchmark index's duration.
While duration will remain an important factor in my investment strategy,
equally important will be sector positioning, credit selection, and maturity
structure within the portfolio. To the extent the prospectus allows, the
Portfolio will consider utilizing mortgage-backed securities, triple-B rated
corporate bonds, and securities with maturities longer than ten years.
During the quarter, we re-
structured the portfolio to perform better under a wider range of interest rate
scenarios. At quarter end, the Portfolio held 61% of its assets in U.S. Treasury
obligations, 26% in high-grade corporate bonds, 11% in mortgage-backed
securities, and 2% cash. At quarter end, the portfolio's effective duration of
5.3 years is equal to the duration of the Lehman Brothers Intermediate
Government/Corporate Bond Index at 5.3 years.
The fundamentals behind bond bullishness remain intact. Inflation is under
wraps and even falling. Meanwhile, the dollar is strong, encouraging foreign
investors to buy U.S. bonds. Leading
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
U.S. Treasury Note, 6.50%, due 10/15/06 ........................... 29.4%
U.S. Treasury Note, 6.375%, due 9/30/01 ............................ 18.9
U.S. Treasury Note, 7.25%, due 8/15/04 .............................. 5.3
FNMA #313626 ........................................................ 4.9
U.S. Treasury Principal Strips, due 5/15/07 ......................... 4.3
Associates Corp. of North America ................................... 3.3
Bear Stearns Co., Inc. ............................................. 3.1
Midland Bank Plc Notes .............................................. 3.0
FNMA REMIC 1993-11, 7.35%, due 6/25/07 .............................. 2.9
Bausch & Lomb ....................................................... 2.9
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO CREDIT
QUALITY
<S> <C>
AAA/U.S. Gov't/Agency: 75%
AA: 3%
A: 14%
BBB: 6%
Cash and Other Assets: 2%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
commodity prices are dropping, signaling that the benign inflationary
environment will likely continue. Still, bonds have come a long way, and will
have great difficulty matching 1997 gains-- unless the Asia crisis substantially
impacts the U.S. economy.
/s/ Mike Hughes
Mike Hughes
- -------------------------------
Michael G. 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>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 11.3%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 4.9%
$800 9.50%, due 2/01/21 ................................... $ 874
COLLATERIZED MORTGAGE OBLIGATION (CMO) - 5.7%
500 FNMA REMIC 1993-11 7.35%, due 6/25/07 .................. 517
500 FHLMC REMIC 1587 6.50%, due 10/15/08 ................... 501
FINANCIAL MISCELLANEOUS - 0.7%
130 Chevy Chase Auto ABS Series 1996-1 (Class A) 6.60%, due
12/15/02 ............................................... 130
-----
TOTAL ASSET BACKED SECURITIES ......................................... 2,022
-----
CORPORATE BONDS - 28.9%
BANKING & FINANCE - 1.2%
200 Grand Metropolitan Investment Corp. 8.625%, due
8/15/01 ................................................ 216
BANKS - MAJOR REGIONAL - 3.0%
500 Midland Bank Plc Notes 7.65%, due 5/01/25 .............. 544
BANKS - MONEY CENTER - 0.8%
135 BankAmerica Corp. 9.50%, due 4/01/01 ................... 148
CANADIAN PROVINCES - 1.5%
250 Manitoba (Province) 7.75%, due 2/01/02 ................. 264
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL - DIVERSIFIED - 8.3%
$450 Federal Home Loan Mortgage Corp. 6.943%, due
3/21/07 .............................................. $ 478
500 Federal Home Loan Mortgage Corp. 6.875%, due 11/22/06 ...509
500 Ford Motor Credit Co. 6.55%, due 9/10/02 ............... 506
FINANCIAL - MISCELLANEOUS - 3.3%
500 Associates Corp. of North America 8.55%, due 7/15/09 ... 581
INVESTMENT BANKING & BROKERAGE - 4.9%
545 Bear Stearns Cos., Inc. 6.75%, due 12/15/07 ............ 548
325 Donaldson, Lufkin & Jenrette, Inc. 6.90%, due
10/01/07 ............................................... 332
RETAIL - 1.5%
250 Dayton Hudson Corp. 9.40%, due 2/15/01 ................. 271
RETAIL - SPECIALTY - 2.9%
500 Bausch & Lomb, Inc. 6.56%, due 8/12/26 ................. 512
UTILITIES - TELEPHONE - 1.5%
250 US WEST, Inc. 7.30%, due 1/15/07 ....................... 259
-----
TOTAL CORPORATE BONDS ................................................. 5,168
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT AND AGENCY SECURITIES - 57.9%
U.S. TREASURY NOTES - 53.6%
$ 875 7.25%, due 8/15/04 .................................. $ 946
5,025 6.50%, due 10/15/06 .................................. 5,262
3,305 6.375%, due 9/30/01 .................................. 3,374
U.S. TREASURY PRINCIPAL STRIPS - 4.3%
1,330 0.00%, due 5/15/07 ..................................... 771
-----
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES .......................... 10,353
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 1.6%
INVESTMENT COMPANIES:
$278 SSgA Prime Money Market Portfolio ................... $ 278
-----
TOTAL TEMPORARY INVESTMENTS ............................................. 278
-----
TOTAL INVESTMENTS - 99.7% ............................................ 17,821
Other Assets, less Liabilities ........................................... 60
-----
NET ASSETS .......................................................... $17,881
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- ----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (cost $17,327) $ 17,821
Receivables:
Interest 271
Portfolio shares sold 5
Other 1
----------
Total assets 18,098
LIABILITIES:
Payables:
Investment advisory fees 12
Investment securities purchased 192
Portfolio shares redeemed 13
----------
Total liabilities 217
----------
NET ASSETS $ 17,881
----------
----------
Net Assets consist of:
Accumulated net realized loss on
investment transactions (536)
Net unrealized appreciation 493
Paid in capital (par value $.001,
unlimited shares authorized) 17,924
----------
NET ASSETS $ 17,881
----------
----------
PORTFOLIO SHARES OUTSTANDING 1,620
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio
shares outstanding) $ 11.04
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Bond Portfolio
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- --------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 1,062
EXPENSES:
Investment advisory fees 120
Legal and auditing fees 18
Custodian fees 3
Trustees' fees 4
Other 2
--------
Total expenses before reimbursement 147
Expense reimbursement (27)
--------
Total expenses after reimbursement 120
--------
NET INVESTMENT INCOME 942
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized loss on investments (116)
Net change in unrealized appreciation 507
--------
NET GAIN ON INVESTMENTS 391
--------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 1,333
--------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Bond Portfolio
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 942 $ 871
Net realized (loss) on investments (116) (188)
Net change in unrealized appreciation 507 (583)
------ ------
Net change in net assets resulting
from operations 1,333 100
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (942) (871)
NET PORTFOLIO SHARE TRANSACTIONS 1,499 2,505
------ ------
TOTAL CHANGE IN NET ASSETS 1,890 1,734
NET ASSETS AT BEGINNING OF PERIOD 15,991 14,257
------ ------
NET ASSETS AT END OF PERIOD $ 17,881 $ 15,991
------ ------
------ ------
- -----------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS
SHARES:
Sales 458 464
Reinvestments 85 81
Redemptions (411) (319)
------ ------
Net change 132 226
------ ------
------ ------
AMOUNTS:
Sales $ 5,091 $ 5,170
Reinvestments 942 871
Redemptions (4,534) (3,536)
------ ------
Net change $ 1,499 $ 2,505
------ ------
------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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
INVESTMENT ADVISORY FEES. 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 December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned 100 percent of the outstanding shares of the Portfolio.
EXPENSES. Currently, SAFECO Life Insurance Company (SAFECO) pays all the
expenses of the Portfolio except for investment advisory fees. When net assets
exceed $20 million, the Portfolio will be charged for all operating expenses
(legal and auditing fees, custodian fees, and other expenses) in addition to
investment advisory fees.
- 11 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1997
(including $16,385 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 25,703
------
------
Sales for the year ended December 31, 1997
(including $17,831 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 24,095
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
Unrealized appreciation (depreciation) at December 31, 1997:
<TABLE>
<CAPTION>
($ in Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 493
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value 0
------
Net unrealized appreciation $ 493
------
------
- -----------------------------------------------------------------
</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
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 10.75 $ 11.31 $ 10.20 $ 11.12 $ 10.82
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.61 0.62 0.71 0.59 0.56
Net realized and unrealized gain
(loss) on investments 0.29 (0.56) 1.11 (0.92) 0.58
--------- --------- --------- --------- ---------
Total from investment operations 0.90 0.06 1.82 (0.33) 1.14
LESS DISTRIBUTIONS:
Dividends from net investment income (0.61) (0.62) (0.71) (0.59) (0.56)
Distributions from realized gains -- -- -- -- (0.28)
--------- --------- --------- --------- ---------
Total distributions (0.61) (0.62) (0.71) (0.59) (0.84)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 11.04 $ 10.75 $ 11.31 $ 10.20 $ 11.12
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN (A) 8.41% 0.54% 17.87% (2.93%) 10.55%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 17,881 $ 15,991 $ 14,257 $ 13,361 $ 13,245
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.74% .73% .72% .72% .73%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 0.90% .87% .94% .89% --
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.75% 5.64% 6.50% 5.53% 5.68%
PORTFOLIO TURNOVER RATE 151.43% 140.90% 77.93% 147.22% 60.20%
- ---------------------------------------------------------------------------------------------------
</TABLE>
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been reduced
during the periods shown (See Note 3 of Notes to Financial Statements).
- 13 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Bond Portfolio (one of the
portfolios constituting the SAFECO Resource Series Trust) as of December 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Bond Portfolio of the SAFECO Resource Series Trust at December 31, 1997,
the results of its operations, the changes in its net assets, and the financial
highlights for each of the periods referred to above, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 14 -
<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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 940 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO RESOURCE SERIES TRUST
MONEY MARKET PORTFOLIO
------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1997
SAFECO RST MONEY MARKET PORTFOLIO
In the year ending December 31, 1997, the RST Money Market Portfolio
returned 5.08% while the average money market fund, according to Lipper
Analytical Services, returned 4.90%.
Ninety-day commercial paper rates started the quarter at 5.46% and traded in
a range between 5.46% and 5.72% with no move by the Federal Reserve. The yield
curve out to one year remained flat for most of the quarter and ended
with slightly lower rates in the one-year period. The lower rates
reflected the market's sentiment that the Fed would hold rates steady for a
while then the next move would be to reduce rates.
[PHOTO OF NAOMI URATA]
During 1997, I extended the seven-day weighted average maturity of the
Portfolio from 35 days to 71 days. I
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1997
<S> <C>
1 Year 5.08%
5 Year 4.36%
10 Year 5.51%
Investment Value
SAFECO RST Money Market Portfolio: $17,196
SAFECO RST Money Market Portfolio
12/31/87 $10,000
01/31/88 10,048
02/29/88 10,094
03/31/88 10,141
04/30/88 10,196
05/31/88 10,250
06/30/88 10,304
07/31/88 10,357
08/31/88 10,415
09/30/88 10,475
10/31/88 10,537
11/30/88 10,594
12/31/88 10,651
01/31/89 10,707
02/28/89 10,758
03/31/89 10,818
04/30/89 10,877
05/31/89 10,937
06/30/89 11,010
07/31/89 11,078
08/31/89 11,151
09/30/89 11,222
10/31/89 11,298
11/30/89 11,384
12/31/89 11,460
01/31/90 11,632
02/28/90 11,731
03/31/90 11,819
04/30/90 11,907
05/31/90 11,993
06/30/90 12,072
07/31/90 12,160
08/31/90 12,242
09/30/90 12,320
10/31/90 12,409
11/30/90 12,482
12/31/90 12,562
01/31/91 12,646
02/28/91 12,731
03/31/91 12,808
04/30/91 12,894
05/31/91 12,977
06/30/91 13,051
07/31/91 13,139
08/31/91 13,220
09/30/91 13,303
10/31/91 13,384
11/30/91 13,452
12/31/91 13,517
01/31/92 13,588
02/29/92 13,652
03/31/92 13,710
04/30/92 13,777
05/31/92 13,837
06/30/92 13,898
07/31/92 13,958
08/31/92 14,010
09/30/92 14,066
10/31/92 14,115
11/30/92 14,155
12/31/92 14,198
01/31/93 14,240
02/28/93 14,278
03/31/93 14,319
04/30/93 14,358
05/31/93 14,394
06/30/93 14,427
07/31/93 14,457
08/31/93 14,491
09/30/93 14,525
10/31/93 14,559
11/30/93 14,588
12/31/93 14,622
01/31/94 14,651
02/28/94 14,677
03/31/94 14,708
04/30/94 14,737
05/31/94 14,768
06/30/94 14,798
07/31/94 14,826
08/31/94 14,857
09/30/94 14,888
10/31/94 14,921
11/30/94 14,949
12/31/94 14,984
01/31/95 15,018
02/28/95 15,059
03/31/95 15,101
04/30/95 15,145
05/31/95 15,198
06/30/95 15,246
07/31/95 15,300
08/31/95 15,353
09/30/95 15,413
10/31/95 15,481
11/30/95 15,543
12/31/95 15,613
01/31/96 15,680
02/29/96 15,755
03/31/96 15,823
04/30/96 15,891
05/31/96 15,959
06/30/96 16,023
07/31/96 16,095
08/31/96 16,163
09/30/96 16,228
10/31/96 16,299
11/30/96 16,358
12/31/96 16,417
01/31/97 16,481
02/28/97 16,543
03/31/97 16,601
04/30/97 16,671
05/31/97 16,734
06/30/97 16,799
07/31/97 16,867
08/31/97 16,929
09/30/97 16,998
10/31/97 17,066
11/30/97 17,128
12/31/97 17,196
</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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
accomplished this by adding some one year paper of Abbey National PLC, a British
bank, with a 5.94% yield, and Bayerische Landesbank, a German bank, with a 5.87%
yield.
I invested in commercial paper issued by top-tier corporations, bank notes,
and certificates of deposit, a broad range of assets to seek the best return for
our money market investors. One security has a rate that floats. It is issued by
Merrill Lynch & Co. and carries an attractive floating rate based on banks'
prime rate. Banks are slower to lower their prime rates in a falling rate
environment and quicker to raise rates in a rising rate environment so this
security should continue to perform well.
It appears that the Federal Reserve will not raise interest rates in the next
few months as previously thought because inflation has remained low. Oil prices
are down due to greater supplies from OPEC and other countries. The Asian
financial turmoil is expected to reduce demand for many products, keeping prices
low. The dollar has increased in value against Southeast Asian currencies,
lowering the price of imports. The lower-costing imports put pressure on the
price of domestic products due to increased competition. As a result, economists
are beginning to think that the next move by the Fed may be an ease or lowering
of interest rates in 1998. The timing is uncertain. Therefore, I will continue
to keep a longer average maturity to retain higher-yielding assets in the
Portfolio for as long as possible.
/s/ Naomi Urata
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 December 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMERCIAL PAPER - 91.3%
ASSET BACKED - 10.1%
$900 Ciesco L.P. 5.68%, due 1/27/98 ........................ $896
900 #Receivables Capital Corp. 4(2) 5.88%, due 1/26/98 (acquired
12/15/97) .............................................. 896
BANKS - DOMESTIC - 4.5%
800 BankBoston N.A. B.N 5.90%, due 7/23/98 ................. 800
BANKS - FOREIGN - 18.0%
900 Abbey National Bank 5.875%, due 12/22/98 ............... 899
900 Bayerische LandesBank 5.81%, due 12/17/98 .............. 900
500 Societe Generale NY 6.20%, due 5/12/98 ................. 501
900 Westpac Capital Corp. 5.70%, due 3/05/98 ............... 891
CONGLOMERATES - 4.5%
800 B.A.T. Capital Corp. 5.90%, due 1/23/98 ................ 797
FINANCE - AUTO - 9.8%
900 Ford Motor Credit Co. 5.95%, due 1/09/98 ............... 899
850 General Motors Acceptance Corp.
5.52%, due 2/25/98 ..................................... 843
FINANCE - CONSUMER - 10.1%
900 Associates Corp. of N.A. 5.50%, due 1/08/98 ............ 899
900 Household Finance Corp. 5.54%, due 1/13/98 ............. 898
FINANCE - DIVERSIFIED & BUSINESS - 14.9%
900 Finova Capital 5.72%, due 1/16/98 ...................... 898
900 General Electric Capital Corp. 5.91%, due 1/14/98 ...... 898
850 Heller Financial, Inc. 5.90%, due 2/10/98 .............. 844
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCIAL SERVICES - BROKERAGE - 9.6%
$800 *Merrill Lynch & Co., Inc. 5.43%, due 12/21/98 ...... $ 800
900 Morgan Stanley Dean Witter 5.59%, due 1/22/98 .......... 897
MACHINERY - 5.1%
900 Stanley Works 5.59%, due 1/30/98 ....................... 896
METALS - 4.9%
850 BHP Finance (USA), Inc. 5.59%, due 1/05/98 ............. 850
-----
TOTAL COMMERCIAL PAPER ............................................... 16,202
-----
OTHER INVESTMENTS - 7.4%
INVESTMENT COMPANIES:
871 SSgA Prime Money Market Portfolio ...................... 871
448 SSgA Prime U.S. Treasury Money Market Portfolio ........ 448
-----
TOTAL OTHER INVESTMENTS ............................................... 1,319
-----
TOTAL INVESTMENTS - 98.7% ............................................ 17,521
Other Assets, less Liabilities .......................................... 236
-----
NET ASSETS .......................................................... $17,757
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
# Security exempt from registration and restricted as to resale only to dealers,
or through a dealer to an "accredited investor" or a "qualified institutional
buyer". The market value of this security is $896,325 or 5.05% of net assets.
* Securities have variable rates which change periodically based on specified
market rates or indices. Rate shown is in effect on December 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Money Market Portfolio
As of December 31, 1997
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
- ----------------------------------------------------
<S> <C>
ASSETS:
Investments, at value (Cost $17,521) $ 17,521
Receivables:
Interest 53
Portfolio shares sold 652
Other 2
----------
Total assets 18,228
LIABILITIES:
Payables:
Investment advisory fees 10
Portfolio shares redeemed 461
----------
Total liabilities 471
----------
NET ASSETS $ 17,757
----------
----------
PORTFOLIO SHARES OUTSTANDING
(Par Value $.001, unlimited shares
authorized) 17,757
----------
----------
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 Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands)
- ------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest $ 946
------
EXPENSES:
Investment advisory fees 108
Legal and auditing fees 18
Custodian fees 5
Trustees' fees 4
Other 1
------
Total expenses before reimbursement 136
Expense reimbursement (28)
------
Total expenses after reimbursement 108
------
NET INVESTMENT INCOME AND NET CHANGE
IN NET ASSETS RESULTING FROM
OPERATIONS $ 838
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Money Market Portfolio
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
(In Thousands) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 838 $ 491
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (838) (491)
NET PORTFOLIO SHARE TRANSACTIONS 5,264 3,774
------------- -------------
TOTAL CHANGE IN NET ASSETS 5,264 3,774
NET ASSETS AT BEGINNING OF PERIOD 12,493 8,719
------------- -------------
NET ASSETS AT END OF PERIOD $ 17,757 $ 12,493
------------- -------------
------------- -------------
- -----------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES
AND AMOUNTS*
Sales 90,491 46,941
Reinvestments 838 491
Redemptions (86,065) (43,658)
------------- -------------
Net change 5,264 3,774
------------- -------------
------------- -------------
- -----------------------------------------------------------------------
</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
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, which approximates
market value.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
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
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. 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 December 31, 1997.
AFFILIATE OWNERSHIP. At December 31, 1997, SAFECO Life Insurance Company
owned 100 percent of the outstanding shares of the Portfolio.
EXPENSES. Currently, SAFECO Life Insurance Company (SAFECO) pays all the
expenses of the Portfolio except for investment advisory fees. When net assets
exceed $20 million, the Portfolio will be charged for all operating expenses
(legal and auditing fees, custodian fees, and other expenses) in addition to
investment advisory fees.
- 9 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.05 0.05 0.05 0.04 0.03
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.05) (0.05) (0.04) (0.03)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN(A) 5.08% 4.94% 5.56% 3.65% 2.61%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 17,757 $ 12,493 $ 8,719 $ 9,315 $ 6,327
RATIO OF EXPENSES TO AVERAGE NET ASSETS .64% .62% .62% .63% .64%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ .81% .90% .87% .87% --
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.97% 4.86% 5.32% 3.63% 2.61%
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</TABLE>
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been reduced
during the periods shown (See Note 3 of Notes to Financial Statements).
- 10 -
<PAGE>
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the SAFECO Money Market Portfolio
(one of the portfolios constituting the SAFECO Resource Series Trust) as of
December 31, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
SAFECO Money Market Portfolio of the SAFECO Resource Series Trust at December
31, 1997, the results of its operations, the changes in its net assets, and the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
- 11 -
<PAGE>
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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
INDEPENDENT AUDITORS:
Ernst & Young, LLP
GMF 941 2/98
RECYCLE LOGO Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark-Registered trademark of
SAFECO Corporation.
