<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
EQUITY PORTFOLIO
----------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST EQUITY PORTFOLIO
SAFECO RST Equity Portfolio beat its peer group for the year and quarter
ended December 31, 1998. The Portfolio was up 24.89% for the year. That put us
in the top 20% of our growth and income peers, whose average return was 16.37%
according to Lipper, Inc.
We again benefited as larger capitalization stocks outperformed smaller
capitalization stocks. The Portfolio, on average, owns a larger percentage of
big companies than the peer group. Our focus on size, quality and predictability
kept us ahead of the average growth and income portfolio.
[PHOTO OF RICH MEAGLEY]
Regarding the S&P 500, the Portfolio was ahead of the broad market index at
the end of November, but had a poor December as technology issues, which we own
less of than the index,
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year 24.89%
5 Year 22.21%
10 Year 19.13%
</TABLE>
INVESTMENT VALUE
SAFECO RST EQUITY PORTFOLIO: $57,596
S&P 500 INDEX: $57,947
<TABLE>
<CAPTION>
SAFECO RST S&P 500
EQUITY PORTFOLIO INDEX
<S> <C> <C>
12/31/88 $10,000 $10,000
01/31/89 $10,567 $10,732
02/28/89 $10,394 $10,465
03/31/89 $10,442 $10,709
04/30/89 $10,942 $11,264
05/31/89 $11,269 $11,721
06/30/89 $11,308 $11,654
07/31/89 $12,298 $12,706
08/31/89 $12,433 $12,955
09/30/89 $12,365 $12,902
10/31/89 $12,115 $12,603
11/30/89 $12,356 $12,860
12/31/89 $12,711 $13,168
01/31/90 $11,692 $12,285
02/28/90 $11,744 $12,443
03/31/90 $12,186 $12,773
04/30/90 $11,744 $12,454
05/31/90 $12,773 $13,668
06/30/90 $12,815 $13,575
07/31/90 $12,845 $13,532
08/31/90 $11,713 $12,308
09/30/90 $11,188 $11,709
10/31/90 $11,065 $11,659
11/30/90 $11,692 $12,412
12/31/90 $12,049 $12,758
01/31/91 $12,567 $13,314
02/28/91 $13,351 $14,266
03/31/91 $13,679 $14,611
04/30/91 $14,102 $14,647
05/31/91 $14,653 $15,279
06/30/91 $13,849 $14,579
07/31/91 $14,759 $15,259
08/31/91 $14,939 $15,621
09/30/91 $14,621 $15,360
10/31/91 $14,749 $15,565
11/30/91 $13,933 $14,938
12/31/91 $15,283 $16,647
01/31/92 $16,054 $16,337
02/29/92 $16,451 $16,550
03/31/92 $15,555 $16,227
04/30/92 $15,691 $16,704
05/31/92 $15,533 $16,786
06/30/92 $14,569 $16,536
07/31/92 $15,113 $17,212
08/31/92 $14,614 $16,859
09/30/92 $14,671 $17,058
10/31/92 $15,192 $17,117
11/30/92 $16,122 $17,698
12/31/92 $16,514 $17,915
01/31/93 $16,921 $18,065
02/28/93 $16,898 $18,311
03/31/93 $17,619 $18,697
04/30/93 $17,258 $18,245
05/31/93 $18,619 $18,732
06/30/93 $18,678 $18,787
07/31/93 $18,469 $18,711
08/31/93 $19,468 $19,419
09/30/93 $20,050 $19,270
10/31/93 $20,574 $19,669
11/30/93 $20,712 $19,482
12/31/93 $21,124 $19,718
01/31/94 $22,465 $20,388
02/28/94 $21,894 $19,836
03/31/94 $21,013 $18,973
04/30/94 $21,609 $19,216
05/31/94 $22,142 $19,529
06/30/94 $21,348 $19,051
07/31/94 $21,845 $19,676
08/31/94 $23,272 $20,480
09/30/94 $23,036 $19,981
10/31/94 $23,544 $20,428
11/30/94 $23,073 $19,685
12/31/94 $23,012 $19,976
01/31/95 $23,204 $20,493
02/28/95 $23,806 $21,290
03/31/95 $24,147 $21,918
04/30/95 $24,776 $22,563
05/31/95 $25,406 $23,479
06/30/95 $26,212 $24,024
07/31/95 $26,608 $24,819
08/31/95 $27,387 $24,881
09/30/95 $28,454 $25,931
10/31/95 $28,427 $25,837
11/30/95 $29,261 $26,969
12/31/95 $29,601 $27,490
01/31/96 $30,433 $28,424
02/29/96 $30,602 $28,689
03/31/96 $30,986 $28,964
04/30/96 $31,633 $29,391
05/31/96 $32,371 $30,147
06/30/96 $32,955 $30,262
07/31/96 $31,678 $28,926
08/31/96 $31,971 $29,537
09/30/96 $33,909 $31,198
10/31/96 $34,987 $32,058
11/30/96 $37,678 $34,479
12/31/96 $36,938 $33,796
01/31/97 $39,112 $35,905
02/28/97 $39,317 $36,188
03/31/97 $37,652 $34,705
04/30/97 $38,858 $36,773
05/31/97 $41,474 $39,009
06/30/97 $43,206 $40,756
07/31/97 $46,178 $43,999
08/31/97 $43,766 $41,536
09/30/97 $45,363 $43,810
10/31/97 $43,919 $42,349
11/30/97 $45,329 $44,308
12/31/97 $46,116 $45,068
01/31/98 $46,831 $45,566
02/28/98 $50,549 $48,850
03/31/98 $52,234 $51,350
04/30/98 $52,344 $51,866
05/31/98 $51,372 $50,976
06/30/98 $52,692 $53,046
07/31/98 $52,050 $52,462
08/31/98 $45,329 $44,902
09/30/98 $48,497 $47,779
10/31/98 $52,802 $51,662
11/31/98 $56,208 $54,792
12/31/98 $57,596 $57,947
</TABLE>
Performance represents the performance of the Equity Portfolio, but does not
include deductions for administration charges, contingent deferred sales
charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Standard & Poor's 500 Index is an unmanaged index of
500 stocks weighted by market capitalization with dividends reinvested.
Management fees and other portfolio expenses have been applied to the
calculation of Portfolio performance, but not to the index. If portfolio
expenses had been applied to the index, the index values would have been
lower. lnvestment returns are historical and not predictive of future
performance. Portfolio share prices and investment returns will fluctuate.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
surged. The S&P returned 28.58% for the year. Most of it, 21.28%, came during
the fourth quarter.
We ended 1998 holding 47 companies. Turnover in the Portfolio remained low
and steady, at 31.57%.
In the last six months, most of the changes in the Portfolio have come from
market action, partial sales and additions. During the year I added only seven
new names to our Portfolio, and I deleted ten. The changes were made to increase
the overall quality and earnings predictability of the companies in the
Portfolio.
Alphabetically our new names are Abbott Laboratories, Bestfoods, CitiGroup,
Procter & Gamble, Schlumberger, US Bancorp, and Washington Mutual. The names we
no longer own are: Boeing, Columbia/HCA Healthcare, Echlin, Electronic Data
Systems, First Data, GTE, Houston Industries, Oracle, Pacificare Health Systems
and SmithKline Beecham.
Only two of those sales came in the last half of the year. I eliminated
Boeing and GTE during the fourth quarter. Boeing was sold because the earnings
prospects for the next several years
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chase Manhattan Corp. ............................................. 3.3%
(Bank)
Microsoft Corp. .................................................... 3.2
(Computers--Software & Services)
Intel Corp. ........................................................ 3.2
(Electronics--Semiconductors)
Kimberly-Clark Corp. ............................................... 3.1
(Manufacturing & Marketing Personal Care Products)
Johnson & Johnson ................................................... 3.0
(Health Care--Diversified)
Federal National Mortgage Association ............................... 3.0
(Mortgage Loan Banker)
General Electric Co. ............................................... 2.9
(Electrical Equipment)
Abbott Laboratories ................................................. 2.9
(Health Care--Diversified)
Merck & Co., Inc. .................................................. 2.7
(Health Care--Drugs-Major Pharmaceuticals)
Washington Mutual, Inc. ............................................ 2.6
(Savings & Loans)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Large-Cap: (over $4 billion) 95%
Mid-Cap: ($1 billion-$4 billion) 1%
Small-Cap: (under $1 billion) 0%
Cash & Other: 4%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
have deteriorated greatly. In October of 1997, I believed Boeing would overcome
its production inefficiencies and the 'Asia effect'. When it became clear this
wasn't going to happen, I abandoned the position.
GTE was eliminated because the Portfolio also holds Bell Atlantic, the
company acquiring GTE. Owning both positions wasn't prudent. I reduced our
position sizes in Anheuser-Busch and Burlington Northern when the stock prices
reached my near-term targets.
One new position was added in the last six months: Bestfoods. The company has
reasonable growth prospects and was selling at 22 times estimated 1999's
earnings per share while the S&P 500 sells at 24-25 times.
In keeping with what I've done in the past, I added to existing holdings when
I liked their price and sold parts of positions when they were on the high side.
While I added to 23 names during the fourth quarter, three saw their position
sizes increase materially. American International Group, May Department Stores,
and Pepsico were trading at 21 times, 16 times, and 26 times estimated 1999
earnings per share, respectively, when I added to them.
In the third quarter, I added substantially to Washington Mutual when I
thought it was at a reasonable price/earnings ratio and I sold down Hartford
Financial Services as it had gained steadily to become the second largest
holding in the Portfolio. I felt, given the Hartford's valuation level and my
overall exposure to financial stocks, that it was prudent to substantially
reduce the position size. Diversified Financial and Banking and Finance
companies comprised 9.4% of net assets at year-end.
We began our walk to quality almost two years ago and so far, we have been
rewarded. Rather than move too quickly and stumble, I intend to keep the same
path and the same pace. It looks, to me, like the road ahead could be rough.
Richard 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Equity Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 96.0%
AEROSPACE/DEFENSE - 2.1%
140,000 Lockheed Martin Corp. ............................. $11,865
BANKING & FINANCE - 3.9%
170,000 BankAmerica Corp. .................................. 10,221
235,000 Citigroup, Inc. .................................... 11,632
BANKS (MAJOR REGIONAL) - 1.2%
187,000 U.S. Bancorp ......................................... 6,638
BANKS (MONEY CENTER) - 3.3%
270,000 Chase Manhattan Corp. .............................. 18,377
BEVERAGES (ALCOHOLIC) - 1.6%
135,000 Anheuser-Busch Co., Inc. ............................ 8,859
BEVERAGES (NON-ALCOHOLIC) - 1.7%
235,000 PepsiCo, Inc. ....................................... 9,620
CHEMICALS - 3.3%
170,000 Du Pont (E.I.) de Nemours & Co. ..................... 9,021
270,000 Praxair, Inc. ....................................... 9,518
COMMUNICATIONS EQUIPMENT - 1.4%
125,000 Motorola, Inc. ...................................... 7,633
COMPUTERS (HARDWARE) - 5.0%
207,000 Hewlett-Packard Co. ................................ 14,141
73,000 International Business Machines Corp. .............. 13,487
COMPUTERS (NETWORKING) - 1.3%
165,000 *3Com Corp. ......................................... 7,394
COMPUTERS (SOFTWARE & SERVICES) - 3.2%
130,000 *Microsoft Corp. ................................... 18,029
ELECTRICAL EQUIPMENT - 2.9%
160,000 General Electric Co. ............................... 16,330
ELECTRONICS (SEMICONDUCTORS) - 3.2%
151,000 Intel Corp. ........................................ 17,903
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ENTERTAINMENT - 1.6%
291,000 Walt Disney Co. ................................... $ 8,730
FINANCIAL (DIVERSIFIED) - 5.5%
215,000 Federal Home Loan Mortgage Corp. ................... 13,854
228,000 Federal National Mortgage Association ............... 16,872
FOODS - 1.0%
100,000 Bestfoods ............................................ 5,325
HEALTH CARE (DIVERSIFIED) - 10.9%
330,000 Abbott Laboratories ................................. 16,170
253,000 American Home Products Corp. ....................... 14,247
100,000 Bristol-Myers Squibb Co. ........................... 13,381
202,000 Johnson & Johnson ................................... 16,943
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 2.7%
100,000 Merck & Co., Inc. .................................. 14,769
HOUSEHOLD PRODUCTS (NON-DURABLES) - 4.9%
320,000 Kimberly-Clark Corp. ............................... 17,440
110,000 Procter & Gamble Co. ............................... 10,044
INSURANCE (MULTI-LINE) - 3.3%
127,000 American International Group, Inc. ................. 12,271
110,000 Hartford Financial Services Group, Inc. ............. 6,036
MANUFACTURING (DIVERSIFIED) - 5.2%
325,000 AlliedSignal, Inc. ................................. 14,402
395,000 Dover Corp. ........................................ 14,467
OIL (DOMESTIC INTEGRATED) - 2.3%
145,000 Mobil Corp. ........................................ 12,633
OIL (INTERNATIONAL INTEGRATED) - 4.2%
137,000 Exxon Corp. ........................................ 10,018
195,000 Royal Dutch Petroleum Co. (ADR) ...................... 9,336
80,000 Texaco, Inc. ........................................ 4,230
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Equity Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OIL & GAS (DRILLING & EQUIPMENT) - 0.9%
110,000 Schlumberger Ltd. ................................. $ 5,074
PAPER & FOREST PRODUCTS - 1.3%
215,000 Willamette Industries, Inc. ......................... 7,203
RAILROADS - 1.5%
251,100 Burlington Northern Santa Fe Corp. .................. 8,475
RETAIL (DEPARTMENT STORES) - 2.1%
190,000 May Department Stores Co. .......................... 11,471
RETAIL (FOOD CHAINS) - 2.2%
145,000 Albertson's, Inc. ................................... 9,235
75,000 American Stores Co. ................................. 2,770
RETAIL (GENERAL MERCHANDISE) - 1.7%
116,000 Wal-Mart Stores, Inc. ............................... 9,447
SAVINGS & LOANS - 2.6%
380,000 Washington Mutual, Inc. ............................ 14,511
SERVICES (DATA PROCESSING) - 1.1%
79,000 Automatic Data Processing, Inc. ..................... 6,335
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELECOMMUNICATIONS (LONG DISTANCE) - 2.4%
175,000 AT&T Corp. ....................................... $ 13,169
TELEPHONE - 2.2%
218,000 Bell Atlantic Corp. ................................ 12,385
TOBACCO - 2.3%
240,000 Philip Morris Cos., Inc. ........................... 12,840
------
TOTAL COMMON STOCKS ................................................. 534,751
------
TEMPORARY INVESTMENTS - 4.4%
INVESTMENT COMPANIES:
$24,565,033 SSgA Prime Money Market Portfolio ................... 24,565
------
TOTAL TEMPORARY INVESTMENTS .......................................... 24,565
------
TOTAL INVESTMENTS - 100.4% .......................................... 559,316
Liabilities, less Other Assets ...................................... (2,002)
------
NET ASSETS ......................................................... $557,314
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non income-producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Equity Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $392,859) $ 559,316
Dividends and interest receivable 659
----------
Total assets 559,975
LIABILITIES:
Payables:
Investment advisory fees 376
Investment securities purchased 2,269
Other 16
----------
Total liabilities 2,661
----------
NET ASSETS $ 557,314
----------
----------
Net Assets consist of:
Undistributed net investment income $ 53
Net unrealized appreciation 166,456
Paid in capital (par value $.001, unlimited shares
authorized) 390,805
----------
NET ASSETS $ 557,314
----------
----------
PORTFOLIO SHARES OUTSTANDING 18,596
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 29.97
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Equity Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 7,285
Interest 865
---------
Total investment income 8,150
EXPENSES:
Investment advisory 3,502
Legal and auditing 19
Custodian 26
Reports to shareholders 91
Trustee 7
Other 19
---------
Total expenses 3,664
---------
NET INVESTMENT INCOME 4,486
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 21,747
Net change in unrealized appreciation 76,782
---------
NET GAIN ON INVESTMENTS 98,529
---------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 103,015
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Equity Portfolio
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 4,486 $ 3,921
Net realized gain on investments 21,747 24,360
Net change in unrealized appreciation 76,782 41,547
------------- -------------
Net change in net assets resulting from operations 103,015 69,828
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,431) (3,926)
Net realized gain on investments (21,763) (24,356)
------------- -------------
Total distributions (26,194) (28,282)
NET PORTFOLIO SHARE TRANSACTIONS 91,237 84,643
------------- -------------
TOTAL CHANGE IN NET ASSETS 168,058 126,189
NET ASSETS AT BEGINNING OF PERIOD 389,256 263,067
------------- -------------
NET ASSETS AT END OF PERIOD $ 557,314 $ 389,256
------------- -------------
------------- -------------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 6,552 5,150
Reinvestments 874 1,123
Redemptions (4,291) (2,908)
------------- -------------
Net change 3,135 3,365
------------- -------------
------------- -------------
AMOUNTS:
Sales $ 184,473 $ 128,764
Reinvestments 26,194 28,283
Redemptions (119,430) (72,404)
------------- -------------
Net change $ 91,237 $ 84,643
------------- -------------
------------- -------------
</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 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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
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. Temporary 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
- 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
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 rates comparable
to commercial bank interest 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned over 90 percent of
the outstanding shares of the Portfolio.
Prior to May, 1994, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the Portfolio except for investment advisory fees. Beginning in May,
1994, the Portfolio is charged for all operating expenses in addition to
investment advisory fees.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1998 $ 203,823
-------------
-------------
Sales for the year ended December 31, 1998 $ 142,864
-------------
-------------
- -----------------------------------------------------------------
</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, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 178,391
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (11,935)
-------------
Net unrealized appreciation $ 166,456
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 25.18 $ 21.75 $ 19.24 $ 16.83 $ 17.02
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.25 0.27 0.34 0.39 0.31
Net realized and unrealized gain on
investments 6.02 5.13 4.43 4.43 1.21
------- --------- --------- --------- ---------
Total from investment operations 6.27 5.40 4.77 4.82 1.52
LESS DISTRIBUTIONS:
Dividends from net investment income (0.25) (0.27) (0.34) (0.39) (0.31)
Distributions from realized gains (1.23) (1.70) (1.92) (2.02) (1.40)
------- --------- --------- --------- ---------
Total distributions (1.48) (1.97) (2.26) (2.41) (1.71)
------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 29.97 $ 25.18 $ 21.75 $ 19.24 $ 16.83
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
TOTAL RETURN 24.89% 24.85% 24.79% 28.63% 8.94%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 557,314 $ 389,256 $ 263,067 $ 169,479 $ 102,321
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78% 0.75% 0.72% 0.75% 0.77%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A N/A 0.78%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.96% 1.19% 1.72% 2.26% 1.98%
PORTFOLIO TURNOVER RATE 31.57% 41.75% 56.99% 69.18% 28.71%
</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 period 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 Directors 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,
1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 as of December 31,
1998, 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
February 5, 1999
- 13 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
RECYCLE LOGO Printed on Recycled Paper.
THIS REPORT MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
-REGISTERED TRADEMARK- A REGISTERED TRADEMARK OF SAFECO
CORPORATION.
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
GROWTH PORTFOLIO
----------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST GROWTH PORTFOLIO
Whether SAFECO RST Growth Portfolio led or lagged in the latest year depends
on how you look at it. The Portfolio, which is about 84% small stocks,
underperformed the average growth portfolio, but outperformed the small stock
group.
The Portfolio returned 1.83% for the year. The average small-cap fund
returned 1.48% for the year, according to Lipper, Inc. The average growth fund,
which favors larger, more expensive issues than we do, returned 22.86% for the
year.
[PHOTO OF THOMAS M. MAGUIRE]
A comparison of the S&P 500 (a proxy for larger stocks) and the Russell 2000
(a small cap index) shows how differently the large
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year 1.83%
5 Year 25.13%
Since Inception* 27.10%
</TABLE>
INVESTMENT VALUE
SAFECO RST GROWTH PORTFOLIO: $41,329
S&P 500 INDEX: $32,077
<TABLE>
<CAPTION>
SAFECO RST GROWTH FUND S&P 500 INDEX
<S> <C> <C>
1/31/93 $10,000 $10,000
2/28/93 9,475 10,136
3/31/93 10,059 10,350
4/30/93 9,683 10,100
5/31/93 10,535 10,369
6/30/93 10,891 10,400
7/31/93 11,297 10,358
8/31/93 12,198 10,750
9/30/93 12,822 10,667
10/31/93 13,386 10,888
11/30/93 12,792 10,785
12/31/93 13,473 10,915
1/31/94 14,381 11,286
2/28/94 13,861 10,980
3/31/94 13,352 10,503
4/30/94 13,750 10,637
5/31/94 14,093 10,811
6/30/94 13,662 10,546
7/31/94 14,215 10,892
8/31/94 14,715 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 15,078 11,058
1/31/95 15,148 11,344
2/28/95 15,695 11,786
3/31/95 15,672 12,133
4/30/95 15,973 12,490
5/31/95 16,670 12,997
6/30/95 17,728 13,299
7/31/95 18,506 13,739
8/31/95 18,587 13,773
9/30/95 19,645 14,354
10/31/95 19,819 14,303
11/30/95 20,666 14,929
12/31/95 21,261 15,217
1/31/96 21,475 15,735
2/29/96 22,051 15,881
3/31/96 22,654 16,033
4/30/96 24,059 16,269
5/31/96 25,519 16,688
6/30/96 24,608 16,752
7/31/96 22,440 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 28,078 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 34,987 24,356
8/31/97 36,430 22,992
9/30/97 39,419 24,252
10/31/97 38,340 23,443
11/30/97 40,178 24,527
12/31/97 40,587 24,948
1/31/98 40,796 25,223
2/28/98 45,019 27,042
3/31/98 48,391 28,425
4/30/98 50,147 28,711
5/31/98 47,592 28,218
6/30/98 47,731 29,364
7/31/98 44,950 29,052
8/31/98 34,364 24,856
9/30/98 35,425 26,449
10/31/98 37,928 28,598
11/30/98 39,510 30,331
12/31/98 41,329 32,077
</TABLE>
* The Portfolio's inception was January 7, 1993. Performance information
begins on January 31, 1993.
Performance represents the performance of the Growth Portfolio but does not
include administration charges, contingent deferred sales charges, or
mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Standard & Poor's 500 Index is an unmanaged index of
500 stocks weighted by market capitalization with dividends reinvested.
Investment management fees have been applied to the calculation of Portfolio
performance, but not to the index. If Portfolio investment management fees
had been applied to the index, the index values would have been lower.
Investment returns are historical and not predictive of future performance.
Portfolio share prices and investment returns will fluctuate.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
and small cap categories performed. For 1998, the small cap indicator was down
- -2.24% while, the S&P 500 gained 28.58%. Growth Portfolio's performance diverges
from both indicators because its holdings are not selected to match either
index, but for value and appreciation potential.
Broadcasting remains our largest sector. I bought more Chancellor when it
declined on fears that recession would lower advertising revenue. In reality,
radio is benefiting by a strong U.S. economy and gaining market share from other
media.
When Conseco (Insurance) fell during the third quarter, insiders recognized
the value and snatched up shares. I think the market soon will too. Conseco is
positioned to increase profitability and pick up market share.
NCO Group climbed into our top ten. It's the second largest, and only public,
bad-debt collector in the nation. This is partly a rough-times play. Our economy
is increasingly fueled by debt, and that makes bill collection a growth
industry.
All told, health care counts for 18.6% net assets. I like the defensive
nature and demographic positives of health care. Beckman
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Chancellor Media Corp. ............................................ 9.5%
(Broadcasting--Television, Radio & Cable)
Conseco, Inc. ...................................................... 6.0
(Insurance--Life-Health)
Family Golf Centers, Inc. .......................................... 4.2
(Leisure Time--Products)
United Stationers, Inc. ............................................ 3.9
(Office Equipment & Supplies)
Emmis Broadcasting Corp. (Class A) .................................. 3.6
(Broadcasting--Television, Radio & Cable)
NCO Group, Inc. .................................................... 3.2
(Services--Commercial & Consumer)
Nu Skin Enterprises (Class A) ....................................... 3.1
(Distributors--Food & Health)
MICROS Systems, Inc. ............................................... 3.1
(Computer--Hardware)
Suburban Lodges of America, Inc. ................................... 2.3
(Lodging--Hotels)
Beckman Coulter, Inc. .............................................. 2.0
(Health Care--Medical Products & Supplies)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<TABLE>
<S> <C>
Large-Cap: (over $4 billion) 17%
Mid-Cap: ($1 billion-$4 billion) 9%
Small-Cap: (under $1 billion) 74%
Cash & Other: 0%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
Coulter, new to our top ten, supplies capital equipment to the medical industry.
With 70% of its sales in Japan, Nu Skin Enterprises was hurt by a weak yen.
This company direct-markets personal products outside of U.S. and has great
potential in emerging economies where multi-level marketing is more accepted.
Family Golf Centers was punished for buying ice rinks. While this will lessen
its seasonality, the company now has to prove they can turn around ice rinks as
well as they have driving ranges. I think they can.
Except for radio, all the stocks we've discussed are selling at a discount in
a market where large growth stocks are selling at tremendous premiums. As
earnings slow, I predict investors will become increasingly price conscious and
less likely to pay top dollar.
Because I look for a share price that is a fraction of a company's growth
rate, most of the stocks we own are already marked down. If they outperform even
a little--especially the small ones--the very investors who abandoned them may
rush back in. And, theoretically, price will follow demand.
The primary reason the RST Growth Portfolio has historically held smaller
company stocks is that they offer better growth prospects at better valuations
than bigger company stocks. I believe money moves to growth.
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, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS -- 100.1%
AIR FREIGHT - 0.1%
74,000 *Dynamex, Inc. ..................................... $ 291
AUTO PARTS & EQUIPMENT - 0.4%
608,500 *+Precision Auto Care, Inc. ......................... 1,369
BANK (MAJOR REGIONAL) - 0.3%
39,900 Provident Bankshares Corp. ............................ 993
BIOTECHNOLOGY - 0.2%
65,000 *CryoLife, Inc. ....................................... 772
BROADCASTING (TELEVISION, RADIO, & CABLE) - 14.4%
54,100 *American Tower Corp. (Class A) ...................... 1,599
709,364 *Chancellor Media Corp. ............................ 33,961
293,100 *Emmis Broadcasting Corp. (Class A) ................. 12,713
50,000 *Jacor Communications, Inc. ......................... 3,219
BUILDING MATERIALS - 0.1%
76,000 *Hospitality Worldwide Services ........................ 380
CHEMICALS (SPECIALTY) - 0.4%
145,500 *Tetra Technologies, Inc. ........................... 1,591
COMMUNICATIONS EQUIPMENT - 1.5%
81,000 Scientific-Atlanta, Inc. ............................ 1,848
165,044 *World Access, Inc. ................................. 3,528
COMPUTERS (HARDWARE) - 4.0%
40,300 *Equitrac Corp. ....................................... 766
20,000 *Jabil Circuit, Inc. ................................ 1,492
330,900 *MICROS Systems, Inc. .............................. 10,878
72,000 *Optimal Robotics Corp. ............................. 1,008
COMPUTERS (PERIPHERALS) - 1.0%
160,400 *Quantum Corporation ................................. 3,408
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMPUTERS (SOFTWARE AND SERVICES) - 3.7%
39,300 *Aspen Technology, Inc. ............................. $ 570
151,900 *Cambridge Technology Partners, Inc. ................ 3,361
296,100 *Discreet Logic, Inc. ............................... 5,589
255,000 *Phoenix International Ltd., Inc. ................... 3,761
CONSUMER FINANCE - 2.1%
72,600 *Creditrust Corp. ................................... 1,851
194,300 Doral Financial Corp. ............................... 4,299
136,000 *Towne Services, Inc. ................................. 952
25,000 *Waterside Capital Corp. .............................. 212
DISTRIBUTORS (FOOD & HEALTH) - 3.8%
461,800 *Nu Skin Enterprises, Inc. (Class A) ................ 10,910
395,000 Weider Nutrition International, Inc. ................ 2,518
DRUG & HOSPITAL SUPPLY - 0.2%
45,100 *Zonagen, Inc. ........................................ 863
ELECTRICAL EQUIPMENT - 0.8%
96,700 *PCD, Inc. .......................................... 1,257
12,200 *SCI Systems,Inc. ..................................... 705
126,100 *Ultrak, Inc. ......................................... 930
ENGINEERING & CONSTRUCTION - 1.0%
149,700 *American Buildings Co. ............................. 3,668
ENTERTAINMENT - 1.4%
70,600 *Championship Auto Racing Teams, Inc. ............... 2,092
54,094 *SFX Entertainment, Inc. (Class A) ................... 2,968
FINANCIAL (DIVERSIFIED) - 2.7%
125,600 *BNC Mortgage, Inc. ................................... 659
156,600 *Credit Acceptance Corp. ............................ 1,145
1,427,200 Sirrom Capital Corp. ................................ 7,047
10,500 *TeleBanc Financial Corp. ............................. 357
96,900 *United Panam Financial Corp. ......................... 406
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DIVERSIFIED) - 1.1%
86,900 *Anesta Corp. ...................................... $2,314
33,000 *OrthAlliance, Inc. (Class A) .......................... 363
80,000 *Synaptic Pharmaceutical Corp. ...................... 1,200
HEALTH CARE (DRUGS-GENERAL) - 2.1%
382,000 *Dura Pharmaceuticals, Inc. .......................... 5,802
466,000 *+Nastech Pharmaceutical Co., Inc. .................. 1,806
HEALTH CARE (DRUGS-MAJOR PHARMACEUTICALS) - 3.3%
63,300 Alpharma, Inc. ...................................... 2,235
64,200 *Andrx Corp. ........................................ 3,290
39,300 *PharmaPrint, Inc. .................................... 516
100,000 *Serologicals Corp. ................................. 3,000
45,000 *SuperGen, Inc. ....................................... 416
57,881 Teva Pharmaceutical, Industries, Ltd. (ADR) .......... 2,355
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.2%
103,917 *AmSurg Corp. (Class B) ................................ 701
HEALTH CARE (LONG-TERM CARE) - 1.0%
228,400 *HEALTHSOUTH Corp. .................................. 3,526
HEALTH CARE (MANAGED CARE) - 0.8%
202,000 +First Commonwealth, Inc. ........................... 2,676
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 7.3%
57,100 *Anika Therapeutics, Inc. ............................. 307
132,100 Beckman Coulter, Inc. ............................... 7,166
167,600 *Datascope Corp. .................................... 3,855
65,300 *EDAP TMS S.A. (ADR) .................................... 86
79,500 *Haemonetics Corp. .................................. 1,809
231,000 *Lifeline Systems, Inc. ............................. 5,775
543,900 *PolyMedica Industries, Inc. ......................... 5,031
597,900 *Quidel Corp. ....................................... 1,457
236,200 *Senetek, plc (ADR) .................................... 384
99,800 *UroQuest Medical Corp. ............................... 100
HEALTH CARE (SPECIALIZED SERVICES) - 1.0%
177,700 *American Healthcorp, Inc. ........................... 1,744
262,450 *Prime Medical Services, Inc. ....................... 1,919
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HOMEBUILDING - 0.4%
106,875 *American Homestar Corp. .......................... $ 1,603
HOUSEHOLD FURNITURE & APPLIANCES - 0.2%
95,700 *International Comfort Products Corp. ................. 766
HOUSEHOLD PRODUCTS (NON-DURABLES) - 0.2%
118,500 *U.S. Home & Garden, Inc. ............................. 592
HOUSEWARES - 0.9%
83,300 First Years, Inc. ................................... 1,317
196,000 *Home Products International, Inc. .................. 1,948
INSURANCE (LIFE-HEALTH) - 6.0%
704,537 Conseco, Inc. ...................................... 21,532
LEISURE TIME (PRODUCTS) - 4.6%
165,300 *American Coin Merchandising, Inc. .................... 971
762,125 *Family Golf Centers, Inc. ......................... 15,052
43,300 *Toymax International, Inc. ........................... 219
LODGING (HOTELS) - 2.7%
97,200 *ResortQuest International, Inc. .................... 1,422
1,022,800 *+Suburban Lodges of America, Inc. .................. 8,374
MACHINERY (DIVERSIFIED) - 0.5%
188,550 Chart Industries, Inc. .............................. 1,438
201,100 *ITEQ, Inc. ........................................... 427
MANUFACTURING (DIVERSIFIED) - 1.2%
90,900 *Nortek, Inc. ....................................... 2,511
104,900 *Recovery Engineering, Inc. ........................... 695
59,000 *SurModics, Inc. ...................................... 914
MANUFACTURING (SPECIALIZED) - 0.4%
252,500 *Teardrop Golf Co. .................................. 1,262
NATURAL GAS - 0.1%
72,000 Virginia Gas Co. ...................................... 243
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
OFFICE EQUIPMENT & SUPPLIES - 5.0%
15,000 *Imtec, Inc. ....................................... $ 105
87,400 *Open Plan Systems, Inc. .............................. 197
491,950 *+TRM Copy Centers Corp. ............................ 3,720
528,400 *United Stationers, Inc. ........................... 13,738
PERSONAL CARE - 0.4%
211,700 *French Fragrances, Inc. ............................ 1,535
PRINTING (SPECIALIZED) - 1.3%
392,800 *Mail-Well, Inc. .................................... 4,493
REAL ESTATE (DEVELOPMENT) - 1.5%
170,000 Central Parking Corp. ............................... 5,514
REAL ESTATE INVESTMENT TRUST - 1.1%
30,300 CCA Prison Realty Trust ................................ 621
186,000 *Corrections Corp. of America ........................ 3,278
RESTAURANTS - 1.7%
148,200 Avado Brands, Inc. .................................. 1,232
89,050 *Rainforest Cafe, Inc. ................................ 540
240,000 *Rare Hospitality International, Inc. ............... 3,360
100,500 *Schlotzsky's, Inc. ................................... 992
RETAIL (BUILDING SUPPLIES) - 0.5%
59,500 *Eagle Hardware & Garden, Inc. ...................... 1,934
RETAIL (DEPARTMENT STORES) - 0.6%
69,200 *Marks Brothers Jewelers, Inc. ...................... 1,246
51,700 *Rainbow Rentals, Inc. ................................ 511
27,000 *Value City Department Stores, Inc. ................... 376
RETAIL (DISCOUNTERS) - 0.0%
41,000 *Filene's Basement Corp. ............................... 97
RETAIL (FOOD CHAINS) - 1.0%
291,800 *NPC International, Inc. ............................ 3,520
RETAIL (GENERAL MERCHANDISE) - 0.1%
26,125 Phillips-Van Heusen Corp. ............................. 188
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
RETAIL (HOME SHOPPING) - 1.0%
417,200 *+Damark International, Inc. ...................... $ 3,390
RETAIL (SPECIALTY) - 1.7%
45,700 *1-800 Contacts, Inc. ................................. 823
165,100 *Funco, Inc. ........................................ 2,889
105,300 *Garden Ridge Corp. ................................... 954
61,000 *Travis Boats & Motor, Inc. . 1,250
RETAIL (SPECIALTY-APPAREL) - 2.6%
435,200 *+Concepts Direct, Inc. ............................. 3,645
219,071 *Harold's Stores, Inc. .............................. 1,616
365,162 *Stage Stores, Inc. ................................. 3,423
8,100 *The Wet Seal, Inc. (Class A) .......................... 245
SERVICES (ADVERTISING/MARKETING) - 0.4%
238,000 *APAC Teleservices, Inc. .............................. 900
38,860 LCS Industries, Inc. .................................. 668
SERVICES (COMMERCIAL & CONSUMER) - 6.6%
64,600 *Bluegreen Corp. ...................................... 489
175,000 *Compass International Services Corp. ............... 1,859
80,000 *FirstService Corp. ................................... 955
454,900 *+IntelliQuest Information Group, Inc. .............. 3,071
253,750 *NCO Group, Inc. ................................... 11,419
19,500 *Rent-Way, Inc. ....................................... 474
104,000 *Renters Choice, Inc. ............................... 3,302
67,500 *Right Management Consultants, Inc. ................... 996
47,500 SunSource, Inc. ....................................... 894
SERVICES (EMPLOYMENT) - 0.9%
42,600 *Alternative Resources Corp. .......................... 453
377,800 *Hall, Kinion & Associates, Inc. .................... 2,645
SERVICES (SECURITY) - 0.2%
20,389 *Kroll-O'Gara Company .................................. 804
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.5%
286,600 *CellStar Corp. ..................................... 1,952
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES/PRINCIPAL
AMOUNT VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TELEPHONE - 0.7%
132,100 *Innotrac Corp. .................................. $ 2,394
TRUCKS & PARTS - 0.2%
10,000 *SPX Corp. ............................................ 670
------
TOTAL COMMON STOCKS ................................................. 356,432
------
TEMPORARY INVESTMENTS - 0.3%
INVESTMENT COMPANIES:
$1,246,553 SSgA Prime Money Market Portfolio .................... 1,247
------
TOTAL TEMPORARY INVESTMENTS ........................................... 1,247
------
TOTAL INVESTMENTS - 100.4% .......................................... 357,679
Liabilities, less Other Assets ...................................... (1,272)
------
NET ASSETS ......................................................... $356,407
------
------
- -----------------------------------------------------------------------------
</TABLE>
* Non income-producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the
Portfolio controls 5% or more of the outstanding voting shares of the
Company).
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Growth Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments, at value (cost $355,269):
Unaffiliated Issuers $ 324,597
Affiliated Issuers 33,082
Dividends and interest receivable 109
-----------
Total assets 357,788
LIABILITIES:
Payables:
Investment securities purchased 1,135
Investment advisory fees 232
Other 14
-----------
Total liabilities 1,381
-----------
NET ASSETS $ 356,407
-----------
-----------
Net Assets consist of:
Net unrealized appreciation $ 2,410
Paid in capital (par value $.001, unlimited shares
authorized) 353,997
-----------
NET ASSETS $ 356,407
-----------
-----------
PORTFOLIO SHARES OUTSTANDING 16,735
-----------
-----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 21.30
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Growth Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 873
Interest 141
-----------
Total investment income 1,014
EXPENSES:
Investment advisory 2,363
Legal and auditing 17
Custodian 28
Loan interest 16
Reports to shareholders 74
Trustees 6
Other 17
-----------
Total expenses 2,521
-----------
NET INVESTMENT INCOME (LOSS) (1,507)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments:
Unaffiliated issuers 37,136
Affiliated issuers 7
Net change in unrealized appreciation (39,098)
-----------
NET LOSS ON INVESTMENTS (1,955)
-----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,462)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 10 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Growth Portfolio
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
(In Thousands) 1998 1997
<S> <C> <C>
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,507) $ (412)
Net realized gain on investments 37,143 39,099
Net change in unrealized appreciation (39,098) 24,467
----------- -----------
Net change in net assets resulting from operations (3,462) 63,154
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments (35,629) (38,691)
Paid in capital (1,507) --
----------- -----------
Total Distribution (37,136) (38,691)
NET PORTFOLIO SHARE TRANSACTIONS 156,605 106,446
----------- -----------
TOTAL CHANGE IN NET ASSETS 116,007 130,909
NET ASSETS AT BEGINNING OF PERIOD 240,400 109,491
----------- -----------
NET ASSETS AT END OF PERIOD $ 356,407 $ 240,400
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 10,113 5,106
Reinvestments 1,743 1,657
Redemptions (5,418) (2,151)
----------- -----------
Net change 6,438 4,612
----------- -----------
----------- -----------
AMOUNTS:
Sales $ 250,827 $ 118,824
Reinvestments 37,135 38,691
Redemptions (131,357) (51,069)
----------- -----------
Net change $ 156,605 $ 106,446
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 11 -
<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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
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. Temporary 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.
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income and distributions of realized gains are recorded on the last business day
of December each year.
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at rates comparable
to commercial bank interest 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned over 82 percent of
the outstanding shares of the Growth Portfolio.
Prior to May, 1995, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the Portfolio except for investment advisory fees. Beginning in May,
1995, when net assets exceeded $20 million, the Portfolio is charged for all
operating expenses in addition to investment advisory fees.
- 13 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1998 $ 265,112
-------------
-------------
Sales for the year ended December 31, 1998 $ 144,548
-------------
-------------
- -----------------------------------------------------------------
</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, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 75,982
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (73,572)
-------------
Net unrealized appreciation $ 2,410
-------------
-------------
- -----------------------------------------------------------------
</TABLE>
5. INVESTMENTS IN AFFILIATES
Each of the companies is listed below because the Portfolio owned at least 5%
of the company's voting securities during the year ended December 31, 1998.
<TABLE>
<CAPTION>
SHARES AT SHARES AT MARKET VALUE
BEGINNING PURCHASES SALES END OF DECEMBER 31
(In Thousands) OF YEAR ADDITIONS REDUCTIONS YEAR DIVIDENDS 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Concepts Direct, Inc. 198 241 4 435 None $ 3,645
Damark International,
Inc. 255 162 -- 417 None 3,390
First Commonwealth, Inc. 107 98 3 202 None 2,676
Intelliquest Information
Group, Inc. 21 434 -- 455 None 3,071
Nastech Pharmaceutical
Co., Inc. 155 311 -- 466 None 1,806
PolyMedica Industries,
Inc. 77 467 -- 544 None 5,031
Precision Auto Care, Inc. -- 609 -- 609 None 1,369
Suburban Lodges of
America, Inc. 194 829 -- 1,023 None 8,374
TRM Copy Centers Corp. 58 434 -- 492 None 3,720
------
$ 33,082
------
------
- --------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 23.35 $ 19.26 $ 15.88 $ 12.98 $ 12.16
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.10) (0.04) (0.03) 0.06 --
Net realized and unrealized gain on
investments 0.53 8.62 5.12 5.26 1.45
------- --------- --------- --------- ---------
Total from investment operations 0.43 8.58 5.09 5.32 1.45
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- (0.06) --
Distributions from realized gains (2.38) (4.49) (1.71) (2.36) (0.63)
Distributions from paid in capital (0.10) -- -- -- --
------- --------- --------- --------- ---------
Total distributions (2.48) (4.49) (1.71) (2.42) (0.63)
------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 21.30 $ 23.35 $ 19.26 $ 15.88 $ 12.98
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
TOTAL RETURN 1.83% 44.55% 32.06% 41.00%(A) 11.92%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 356,407 $ 240,400 $ 109,491 $ 44,458 $ 16,156
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.80% 0.77% 0.79% 0.79% 0.71%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A 0.84% 0.96%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.48%) (0.25%) (0.28%) 0.55% (0.05%)
PORTFOLIO TURNOVER RATE 46.13% 88.99% 75.58% 111.70% 41.24%
</TABLE>
- --------------------------------------------------------------------------------
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors 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,
1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 as of December 31,
1998, 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
February 5, 1999
- 16 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
RECYCLE LOGO Printed on Recycled Paper.
THIS REPORT MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
-REGISTERED TRADEMARK- A REGISTERED TRADEMARK OF SAFECO
CORPORATION.
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
NORTHWEST PORTFOLIO
----------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST NORTHWEST PORTFOLIO
We ended a lousy year with a good fourth quarter. In it, SAFECO RST Northwest
Portfolio began recovering from the four blows dealt us earlier in the year:
Boeing, Asia, small caps and value investing.
[PHOTO OF WILLIAM B. WHITLOW]
For the quarter, the Portfolio returned 21.33%. For the year, we eked out
2.89% compared to 24.94%, the Lipper, Inc. average for growth funds. We also
underperformed the WM Group Northwest 50 Index, which returned 32.87% for the
year. The Portfolio was invested less in technology than the index and that
caused the Portfolio to underperform as technology carried the region.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year 2.89%
5 Year 11.04%
Since Inception* 9.15%
</TABLE>
INVESTMENT VALUE
SAFECO RST NORTHWEST PORTFOLIO: $16,786
S&P 500 INDEX: $32,077
WM GROUP NORTHWEST 50 INDEX: $29,952
<TABLE>
<CAPTION>
SAFECO RST S&P 500 WM GROUP
NORTHWEST PORTFOLIO INDEX NORTHWEST 50 INDEX
<S> <C> <C> <C>
1/31/93 $10,000 $10,000 $10,000
2/28/93 9,385 10,136 9,687
3/31/93 9,633 10,350 10,086
4/30/93 9,325 10,100 9,859
5/31/93 9,563 10,369 10,103
6/30/93 9,474 10,400 9,885
7/31/93 9,425 10,358 9,531
8/31/93 9,623 10,750 9,921
9/30/93 9,722 10,667 9,698
10/31/93 9,841 10,888 10,046
11/30/93 9,901 10,785 10,262
12/31/93 9,945 10,915 10,400
1/31/94 10,146 11,286 10,714
2/28/94 10,496 10,980 10,873
3/31/94 10,216 10,503 10,490
4/30/94 10,165 10,637 10,458
5/31/94 10,055 10,811 10,616
6/30/94 9,915 10,546 10,293
7/31/94 10,086 10,892 10,374
8/31/94 10,526 11,337 10,972
9/30/94 10,535 11,060 10,553
10/31/94 10,646 11,308 10,490
11/30/94 10,396 10,897 10,302
12/31/94 10,309 11,058 10,359
1/31/95 10,097 11,344 10,314
2/28/95 10,258 11,786 10,661
3/31/95 10,661 12,133 10,999
4/30/95 10,681 12,490 11,330
5/31/95 10,812 12,997 11,331
6/30/95 11,355 13,299 12,019
7/31/95 12,040 13,739 12,474
8/31/95 12,292 13,773 12,712
9/30/95 12,071 14,354 13,179
10/31/95 11,778 14,303 12,874
11/30/95 11,516 14,929 13,066
12/31/95 11,073 15,217 13,226
1/31/96 11,043 15,735 13,663
2/29/96 11,349 15,881 13,978
3/31/96 11,972 16,033 13,904
4/30/96 12,268 16,269 14,739
5/31/96 12,452 16,688 14,978
6/30/96 12,196 16,752 14,915
7/31/96 11,707 16,012 14,186
8/31/96 12,023 16,350 14,888
9/30/96 12,207 17,270 15,274
10/31/96 11,900 17,746 15,167
11/30/96 12,391 19,086 16,263
12/31/96 12,452 18,708 16,650
1/31/97 13,315 19,875 17,395
2/28/97 13,294 20,032 17,720
3/31/97 12,749 19,211 17,234
4/30/97 13,130 20,356 18,005
5/31/97 13,962 21,594 19,479
6/30/97 14,753 22,561 20,401
7/31/97 16,057 24,356 22,261
8/31/97 15,636 22,992 21,542
9/30/97 16,417 24,252 23,050
10/31/97 15,647 23,443 21,529
11/30/97 16,438 24,527 22,838
12/31/97 16,315 24,948 22,324
1/31/98 16,121 25,223 22,237
2/28/98 17,763 27,042 24,507
3/31/98 17,892 28,425 25,676
4/30/98 18,364 28,711 25,579
5/31/98 17,001 28,218 24,343
6/30/98 17,366 29,364 25,865
7/31/98 16,336 29,052 24,279
8/31/98 13,083 24,856 20,615
9/30/98 13,835 26,449 21,586
10/31/98 14,715 28,598 23,993
11/30/98 16,003 30,331 26,736
12/31/98 16,786 32,077 29,952
</TABLE>
*The Portfolio's inception was January 7, 1993. Performance information
begins on January 31, 1993.
Performance represents the performance of the Northwest Portfolio, but does
not include deductions for administration charges, contingent deferred sales
charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Standard & Poor's 500 Index is an unmanaged index of
500 stocks weighted by market capitalization with dividends reinvested. The
WM Group's Northwest 50 Index is an index of 50 Northwest companies weighted
by their regional impact. Investment management fees have been applied to the
calculation of Portfolio performance, but not to the indexes. If Portfolio
investment management fees had been applied to the indexes, the index values
would have been lower. Investment returns are historical and not predictive
of future performance. Portfolio share prices and investment returns will
fluctuate.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
While our region benefited by technology, it suffered from the Asian debacle
more than any other did. And therein lies the explanation for 75% of the
Portfolio's poor annual performance when compared to national growth funds.
The other part of the explanation is that 46% of our holdings are small caps,
which as a sector more than disappointed investors. A perceived crisis in
liquidity, a subsequent flight to "quality" and tax-loss selling sent small
caps, as measured by the Russell 2000 Index, tumbling 20.50% in the third
quarter. In the Fourth quarter, small caps rallied, contributing to the
Portfolio's good quarter.
We would have had an even better fourth quarter if we'd owned more of the ten
stocks that accounted for so much of the S&P 500's 1998 gain. As it is, we own
two of them: Microsoft and Intel.
As with Intel, I am willing to go outside the Northwest to increase
weightings in areas where growth funds tend to concentrate--technology, consumer
staples, and healthcare--and where the Northwest seems to be underrepresented.
For example, I took a position in American
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Microsoft Corp. ................................................... 7.7%
(Computer - Software & Services)
Starbucks Corp. .................................................... 5.7
(Restaurants)
Costco Companies, Inc. ............................................. 4.7
(Retail - General Merchandise)
Fred Meyer, Inc. ................................................... 4.7
(Retail - Department Stores)
Eagle Hardware & Garden, Inc. ...................................... 4.5
(Retail - Building Supplies)
Hewlett-Packard Co. ................................................ 4.3
(Computer - Hardware)
Washington Mutual, Inc. ............................................ 3.7
(Savings & Loans)
TJ International, Inc. ............................................. 3.4
(Building Materials)
Intel Corp. ........................................................ 3.4
(Electronics - Semiconductors)
Expeditors International of WA, Inc. ............................... 3.3
(Air Freight)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MARKET CAPITALIZATION AS A PERCENTAGE OF NET ASSETS
<TABLE>
<S> <C>
Large-Cap: (over $4 billion) 49%
Mid-Cap: ($1-$4 billion) 4%
Small-Cap: (under $1 billion) 46%
Cash & Other: 1%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
Home Products, which has controlling interest in Immunex, a Seattle
biotechnology company. At year-end the Portfolio was 13.8% invested outside the
Northwest. We are allowed to invest up to 35% of assets outside the region.
Costco and Starbucks were big winners for both the quarter and year. I see
these two, and Microsoft, as core holdings for us, as they are non-cyclical
stocks with the capacity to keep growing. Rather than keep cyclicals, such as
Alaska Airlines and Weyerhaeuser as core holdings, I try to capture their upward
cycle.
Boeing had no upside in 1998. I had cut it back to just over 2% by year-end.
(At this writing it has been sold out of the portfolio.) Boeing's pending
layoffs are already reflected in the stocks we own that will be most affected
(regional banks). Ninety percent of our companies are not primarily tied to the
Northwest's economy but to the national and international economies, including
Asia.
I have a sense that the Asian situation is starting to stabilize. Northwest
stocks with exposure to Asia declined early in the crisis and could come back
early in the recovery. For example, Expeditors International, the freight
forwarder, fell 37% in the third quarter, despite the fact it historically
outperforms when imports do well. Schnitzer Steel also fell 37% as one-third of
its business is scrap export to the Pacific Rim.
While published outlooks for the Northwest economy are darker than they have
been, don't let the headlines scare you. The Portfolio has already absorbed the
aftermath of Asia, and most of Boeing's impact. And even though the region is
slowing down, we don't expect it to underperform the national economy. Beyond
2000, I believe it will outperform again.
William B. Whitlow
- -------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
re-joining SAFECO in April 1997 as Northwest Portfolio Manager, he was Director
of Research at Pacific Crest Securities. He holds a BA in chemistry from the U.
of Colorado and an MBA from the U. of Calif. at Berkeley. He is a CFA and a
member of the Washington State Governor's Council of Economic Advisors.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Northwest Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 98.9%
AEROSPACE/DEFENSE - 2.3%
17,500 Boeing Co. .......................................... $ 571
AIR FREIGHT - 3.3%
19,000 Expeditors International of Washington, Inc. .......... 798
BANKS (DOMESTIC) - 1.1%
28,300 Heritage Financial Corp. .............................. 276
BANKS (MAJOR REGIONAL) - 5.2%
20,892 U.S. Bancorp ........................................... 742
25,960 West Coast Bancorp, Inc. .............................. 545
BANKS (REGIONAL) - 1.0%
29,000 Washington Banking Co. ................................ 246
BIOTECHNOLOGY - 2.6%
68,000 *Corixa Corp. ......................................... 629
BUILDING MATERIALS - 3.4%
32,500 TJ International, Inc. ................................ 835
CHEMICALS (DIVERSIFIED) - 3.0%
46,000 Penford Corporation .................................... 736
COMPUTERS (HARDWARE) - 4.3%
15,500 Hewlett-Packard Co. ................................. 1,059
COMPUTERS (SOFTWARE & SERVICES) - 8.3%
13,600 *Microsoft Corp. .................................... 1,886
4,000 *Visio Corp. .......................................... 146
ELECTRONICS (SEMICONDUCTORS) - 3.4%
7,000 Intel Corp. ........................................... 830
ENGINEERING & CONSTRUCTION - 2.1%
54,000 *Morrison Knudsen Corp. ............................... 527
HEALTH CARE (DIVERSIFIED) - 3.0%
13,000 American Home Products Corp. .......................... 732
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
HEALTH CARE (DRUGS-GENERAL) - 2.2%
9,500 *Pathogenesis Corp. ................................. $ 551
HEALTH CARE (LONG TERM CARE) - 2.5%
58,000 *Emeritus Corp. ....................................... 613
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.5%
86,500 *Protocol Systems, Inc. ............................... 616
IRON & STEEL - 2.3%
40,000 Schnitzer Steel Industries, Inc. ...................... 575
LEISURE TIME (PRODUCTS) - 2.7%
44,900 *Ambassadors International, Inc. ...................... 662
LODGING (HOTELS) - 2.1%
47,800 *Cavanaughs Hospitality Corp. .......................... 514
MANUFACTURING (SPECIALIZED) - 1.1%
25,000 *SeaMED Corp. ......................................... 281
PAPER & FOREST PRODUCTS - 3.2%
15,500 Weyerhaeuser Co. ...................................... 788
PHARMACEUTICALS - 1.6%
63,000 *Penwest Pharmaceuticals Co. .......................... 394
RESTAURANTS - 5.7%
25,000 *Starbucks Corp. .................................... 1,403
RETAIL (BUILDING SUPPLIES) - 4.5%
34,000 *Eagle Hardware & Garden, Inc. ...................... 1,105
RETAIL (DEPARTMENT STORES) - 4.7%
19,000 *Fred Meyer, Inc. ................................... 1,145
RETAIL (FOOD CHAINS) - 3.1%
12,000 Albertson's, Inc. ..................................... 764
RETAIL (GENERAL MERCHANDISE) - 4.7%
16,000 *Costco Companies, Inc. ............................. 1,155
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Northwest Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SAVINGS & LOANS - 8.3%
14,700 InterWest Bancorp, Inc. ............................ $ 325
23,000 Riverview Bancorp, Inc. ............................... 282
29,600 *Sterling Financial Corp. ............................. 503
24,000 Washington Mutual, Inc. ............................... 917
SERVICES (DATA PROCESSING) - 3.1%
64,000 *ARIS Corp. ........................................... 764
TELEPHONE - 1.6%
14,000 *NEXTLINK Communications, Inc. (Class A) ............... 397
------
TOTAL COMMON STOCKS .................................................. 24,312
------
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 0.0%
INVESTMENT COMPANIES:
6,045 SSgA Prime Money Market Portfolio .................... $ 6
------
TOTAL TEMPORARY INVESTMENTS ............................................... 6
------
TOTAL INVESTMENTS - 98.9% ............................................ 24,318
Other Assets, less Liabilities .......................................... 269
------
NET ASSETS .......................................................... $24,587
------
------
- -----------------------------------------------------------------------------
</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, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $19,374) $ 24,318
Receivables:
Dividends and interest 12
Investment securities sold 280
Other 6
----------
Total assets 24,616
LIABILITIES:
Payables:
Investment advisory fees 17
Other 12
----------
Total liabilities 29
----------
NET ASSETS $ 24,587
----------
----------
Net Assets consist of:
Accumulated net realized loss on investment transactions $ (809)
Net unrealized appreciation 4,943
Paid in capital (par value $.001, unlimited shares
authorized) 20,453
----------
NET ASSETS $ 24,587
----------
----------
PORTFOLIO SHARES OUTSTANDING 1,572
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 15.64
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Northwest Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -----------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 121
Interest 29
---------
Total investment income 150
EXPENSES:
Investment advisory 173
Legal and auditing 17
Trustees 5
Custodian 5
Reports to shareholders 26
Other 3
---------
Total expenses before reimbursement 229
Expense reimbursement (6)
---------
Total expenses after reimbursement 223
---------
NET INVESTMENT INCOME (LOSS) (73)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (809)
Net change in unrealized appreciation 1,145
---------
NET GAIN ON INVESTMENTS 336
---------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 263
---------
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Northwest Portfolio
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (73) $ 38
Net realized gain (loss) on investments (809) 944
Net change in unrealized appreciation 1,145 2,490
------------- -------------
Net change in net assets resulting from operations 263 3,472
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (38)
Net realized gain on investments -- (806)
------------- -------------
Total distributions -- (844)
NET PORTFOLIO SHARE TRANSACTIONS 4,529 7,626
------------- -------------
TOTAL CHANGE IN NET ASSETS 4,792 10,254
NET ASSETS AT BEGINNING OF PERIOD 19,795 9,541
------------- -------------
NET ASSETS AT END OF PERIOD $ 24,587 $ 19,795
------------- -------------
------------- -------------
- -------------------------------------------------------------------------------------------
Other Information
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 690 675
Reinvestments -- 56
Redemptions (420) (215)
------------- -------------
Net change 270 516
------------- -------------
------------- -------------
AMOUNTS:
Sales $ 10,765 $ 9,917
Reinvestments -- 844
Redemptions (6,236) (3,135)
------------- -------------
Net change $ 4,529 $ 7,626
------------- -------------
------------- -------------
</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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of income and expenses during the reporting
period. Actual results could differ from those estimates.
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. Temporary 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
- 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
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 rates comparable
to commercial bank 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Historically, SAFECO Life Insurance Company (SAFECO) paid all the expenses of
the Portfolio except for investment advisory fees because net assets were less
than $20 million. In January, 1998, net assets surpassed $20 million. Thus, the
Portfolio is now charged for all operating expenses in addition to investment
advisory fees.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1998 $ 15,274
------
------
Sales for the year ended December 31, 1998 $ 10,630
------
------
- -----------------------------------------------------------------
</TABLE>
Purchases and sales amounts exclude short-term investments which, at the
time of purchase, had a maturity of one year or less.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
Unrealized appreciation (depreciation) at December 31, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 7,301
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (2,358)
-----
Net unrealized appreciation $ 4,943
-----
-----
- -----------------------------------------------------------------
</TABLE>
5. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The portfolio had $809 thousand of accumulated undistributed net realized
loss on investment transactions at December 31, 1998. For federal income tax
purposes, this represents a capital loss carryforward which will expire in 2006.
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.20 $ 12.12 $ 10.85 $ 10.24 $ 9.94
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.05) 0.03 0.08 0.08 0.06
Net realized and unrealized gain on
investments 0.49 3.73 1.27 0.68 0.30
------ --------- --------- --------- ---------
Total from investment operations 0.44 3.76 1.35 0.76 0.36
LESS DISTRIBUTIONS:
Dividends from net investment income -- (0.03) (0.08) (0.08) (0.06)
Distributions from realized gains -- (0.65) -- (0.07) --
------ --------- --------- --------- ---------
Total distributions -- (0.68) (0.08) (0.15) (0.06)
------ --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 15.64 $ 15.20 $ 12.12 $ 10.85 $ 10.24
------ --------- --------- --------- ---------
------ --------- --------- --------- ---------
TOTAL RETURN (A) 2.89% 31.02% 12.44% 7.42% 3.65%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 24,587 $ 19,795 $ 9,541 $ 6,312 $ 4,564
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.96% 0.73% 0.70% 0.71% 0.71%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 0.99% 0.94% 1.11% 1.18% 1.23%
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.32%) 0.27% 0.78% 0.81% 0.72%
PORTFOLIO TURNOVER RATE 46.99% 47.85% 52.20% 21.30% 7.29%
</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 Directors 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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 as of December
31, 1998, the results of its operations, the changes in its net assets, the
financial highlights for each of the periods referred to above, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
February 5, 1999
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark- A registered trademark of
SAFECO Corporation.
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
SMALL COMPANY STOCK PORTFOLIO
------------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST Small Company Stock Portfolio
SAFECO RST Small Company Portfolio had a disappointing fourth quarter and
year, which I attribute, not to stock selection, but to "attributes"--our
smaller market
capitalization and the value orientation of the Portfolio.
For the year, the Portfolio was down -19.95%, versus the peer group average
of 1.48% as measured by Lipper, Inc. The Russell 2000 Index returned -2.24% for
the year.
Our underperformance for the year and our lag during the fourth quarter
recovery were not due to problems with any particular stock. They were due to
the type of stocks I favored--smaller and cheaper than those held by my peers.
[PHOTO OF GREG EISEN]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year (19.95)%
*Since Inception 1.66%
</TABLE>
INVESTMENT VALUE
SAFECO RST SMALL COMPANY PORTFOLIO: $10,278
RUSSELL 2000 INDEX: $12,571
<TABLE>
<CAPTION>
SAFECO RST
SMALL RUSSELL
COMPANY 2000
PORTFOLIO INDEX
<S> <C> <C>
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 12,840 12,858
01/31/98 12,757 12,662
02/28/98 14,006 13,612
03/31/98 15,495 14,184
04/30/98 16,162 14,262
05/31/98 15,443 13,497
06/30/98 15,100 13,535
07/31/98 13,507 12,430
08/31/98 9,549 10,020
09/30/98 9,998 10,796
10/31/98 9,726 11,238
11/30/98 9,892 11,832
12/31/98 10,278 12,571
</TABLE>
*The Portfolio's inception was April 30, 1997. Performance information begins
on April 30, 1997.
Performance represents the performance of the Small Company Portfolio, but
does not include deductions for administration charges, contingent deferred
sales charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Russell 2000 Index is an unmanaged index that is
representative of the small cap market. Investment management fees have been
applied to the calculation of Portfolio performance, but not to the indexes.
If Portfolio investment management fees had been applied to the indexes, the
index values would have been lower. Investment returns are historical and not
predictive of future performance. Portfolio share prices and investment
returns will fluctuate.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
While the Portfolio held strong companies during the quarter, their stocks
were largely ignored and or beaten without justification. Tiny, cheap Styling
Technology was one such company. It declined 50% in the fourth quarter in a
rapidly recovering market. Styling's business is healthy and it remains the only
consolidator in the salon products industry. At quarter end, the stock was
trading at a price to earnings ratio of only 5.7 times its 1999 consensus
earnings estimate.
Regarding market capitalization, a study of the Russell 2000 Index released
by the Frank Russell Company examined price performance by market cap decile.
Returns consistently worsened as stocks got smaller, from the largest 10% to the
smallest 10% of the Index. The Portfolio's average market cap is well below the
average market cap of the Russell 2000 Index, and thus the Portfolio's holdings
suffered for their size.
The smallest companies are out of favor because of their perceived
illiquidity. Investors are currently paying a premium for size and trading ease
as is evidenced by the outperformance of larger stocks, not just within the
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
Litchfield Financial ............................................... 5.7%
(Financial - Diversified)
Emmis Broadcasting Corp. CL A ....................................... 4.9
(Broadcasting - Television, Radio & Cable)
Hooper Holmes, Inc. ................................................ 4.8
(Health Care - Medical Products & Supplies)
Equitrac Corp. ..................................................... 4.4
(Computers - Hardware)
International Aircraft Investors, Inc. ............................. 4.0
(Aerospace/Defense)
Vallen Corp. ....................................................... 3.9
(Health Care - Medical Products & Supplies)
Landauer, Inc. ..................................................... 3.9
(Waste Management)
Ingles Markets, Inc. ............................................... 3.9
(Retail - Food Chains)
MICROS Systems, Inc. ............................................... 3.7
(Computers - Hardware)
Timberline Software Corp. .......................................... 3.5
(Computers - Software & Services)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<TABLE>
<S> <C>
Large-Cap: (over $4 billion) 0%
Mid-Cap: ($1-$4 billion) 0%
Small-Cap:
Large (over $750 million) 0%
Medium ($250-$750 million) 17%
Small (under $250 million) 82%
Cash & Other: 1%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
Russell 2000, but between the Russell 2000 and the S&P 500. (The Russell 2000
returned -2.24% for the year. The S&P 500 gained 28.58%.) Unfortunately, the
smallest companies are still suffering on lingering liquidity fears and the
perception that they are more vulnerable in slow growth environments.
Adding insult to the injury of being smaller, the average valuation of the
stocks we held was lower than the index and 1998 was a year in which value
stocks sadly underperformed. (The Russell 2000 Growth Index returned 1.23%,
while the Russell 2000 Value index fell -6.45%.)
At year end, the Portfolio's price earnings ratio on forward earnings
estimates was 11 times, as compared to the S&P Small Cap 600 index at 17.6 times
and the S&P 500 at 25 times.
The Portfolio's PEG ratio (price/earnings to the companies' forward growth
rate) is 0.50 times. This compares to 0.90 times for the S&P Small Cap 600 and
over 5.00 times for the S&P 500.
Given the difficult environment for small cap value, I eliminated positions
in stocks I had less confidence in. This trimmed the number of names owned to 32
and increased the weightings of those positions, although none are egregiously
large.
I held onto companies I believe in and think are bargain values. I remain
confident the value I see will ultimately be perceived by other investors and
reflected in a higher net asset value for the Portfolio. I will continually
evaluate our holdings and won't sell our small cap value stocks unless I believe
the reasons to own them are no longer valid. What I will do is gradually
increase the market capitalization of the Portfolio by adding names at the
larger end of our range.
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, 1998
<TABLE>
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
COMMON STOCKS - 89.6%
AEROSPACE/DEFENSE - 3.9%
75,950 *International Aircraft Investors ..................... $465
BANKS (REGIONAL) - 2.6%
11,500 Cowlitz Bancorp ......................................... 91
16,350 *Hanmi Bank (Los Angeles, CA) .......................... 217
BROADCASTING (TELEVISION, RADIO & CABLE) - 4.9%
13,400 *Emmis Communications Corp. (Class A) .................. 581
COMMUNICATIONS EQUIPMENT - 3.4%
19,050 *World Access, Inc. ................................... 407
COMPUTERS (HARDWARE) - 9.9%
27,400 *Equitrac Corp. ....................................... 521
13,200 *MICROS Systems, Inc. ................................. 434
15,000 *Optimal Robotics Corp. ............................... 210
COMPUTERS (SOFTWARE & SERVICES) - 5.9%
22,050 *Platinum Software Corp. .............................. 282
30,300 Timberline Software Corp. ............................. 417
FINANCIAL (DIVERSIFIED) - 11.1%
17,300 *Hawthorne Financial Corp. ............................ 277
35,100 *Litchfield Financial Corp. ........................... 667
30,700 *Ragen Mackenzie Group, Inc. .......................... 366
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 10.7%
19,500 Hooper Holmes, Inc. ................................... 565
170,000 *InnerDyne, Inc. ...................................... 234
23,100 *Vallen Corp. ......................................... 462
HEALTH CARE (SPECIALIZED SERVICES) - 1.8%
83,300 *Pentegra Dental Group, Inc. ........................... 208
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
INSURANCE (PROPERTY-CASUALTY) - 2.5%
30,400 *American Safety Insurance Group, Ltd. ............... $293
MANUFACTURING (DIVERSIFIED) - 9.9%
37,000 *Lancer Corp. ......................................... 407
35,000 *Motorcar Parts & Accessories, Inc. ................... 400
49,600 *Zindart Limited (ADR) ................................. 356
PERSONAL CARE - 4.8%
27,200 *French Fragrances, Inc. .............................. 197
40,100 *Styling Technology Corp. ............................. 371
RETAIL (FOOD CHAINS) - 3.9%
41,600 Ingles Markets, Inc. .................................. 455
RETAIL (SPECIALTY) - 1.5%
10,100 *Cole National Corp. (Class A) ......................... 173
RETAIL (SPECIALTY-APPAREL) - 3.1%
11,200 *Stage Stores, Inc. ................................... 105
8,500 *Wet Seal, Inc. (Class A) .............................. 257
SERVICES (COMMERCIAL & CONSUMER) - 4.6%
33,322 *Monro Muffler Brake, Inc. ............................ 242
13,200 *StaffMark, Inc. ...................................... 295
TEXTILES (HOME FURNISHING) - 1.2%
83,000 *Krause's Furniture .................................... 140
WASTE MANAGEMENT - 3.9%
14,200 Landauer, Inc. ........................................ 460
------
TOTAL COMMON STOCKS .................................................. 10,555
------
PREFERRED STOCK - 3.7%
ENTERTAINMENT - 3.7%
55,200 *Craig Corp. (Class A) ................................. 435
------
TOTAL PREFERRED STOCK ................................................... 435
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
SHARES/PAR
VALUE VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 9.9%
COMMERCIAL PAPER:
$580,000 Associate First Capital Corp.
5.15%, due 1/04/99 .................................... $580
INVESTMENT COMPANIES:
582,998 SSgA Prime Money Market Portfolio ...................... 583
6,866 SSgA U.S. Treasury Money Market Portfolio ................ 7
------
TOTAL TEMPORARY INVESTMENTS ........................................... 1,170
------
<CAPTION>
SHARES VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TOTAL INVESTMENTS - 103.2% .......................................... $12,160
Liabilities, less Other Assets ........................................ (380)
------
NET ASSETS .......................................................... $11,780
------
------
- -----------------------------------------------------------------------------
</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, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- -------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $13,476) $ 12,160
Receivables:
Dividends and interest 8
Investment securities sold 27
Due from affiliate 51
-----------
Total assets 12,246
LIABILITIES:
Payables:
Investment securities purchased 457
Investment advisory fees 9
-----------
Total liabilities 466
-----------
NET ASSETS $ 11,780
-----------
-----------
Net Assets consist of:
Accumulated net realized loss on investment transactions $ (1,008)
Net unrealized depreciation (1,317)
Paid in capital (par value $.001, unlimited shares
authorized) 14,105
-----------
NET ASSETS $ 11,780
-----------
-----------
PORTFOLIO SHARES OUTSTANDING 1,193
-----------
-----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 9.87
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 44
Interest 38
-----------
Total investment income 82
EXPENSES:
Investment advisory 109
Reports to shareholders 15
Legal and auditing 10
Custodian 5
Trustees 5
Other 3
-----------
Total expenses before reimbursement 147
Expense reimbursement (25)
-----------
Total expenses after reimbursement 122
-----------
NET INVESTMENT INCOME (LOSS) (40)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (1,008)
Net change in unrealized appreciation (depreciation) (2,360)
-----------
NET LOSS ON INVESTMENTS (3,368)
-----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ (3,408)
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Small Company Stock Portfolio
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31 DECEMBER 31
(In Thousands) 1998 1997
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) ($ 40) $ 9
Net realized gain (loss) on investments (1,008) 397
Net change in unrealized appreciation (2,360) 1,043
----------- ------
Net change in net assets resulting from operations (3,408) 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 4,938 9,207
----------- ------
TOTAL CHANGE IN NET ASSETS 1,530 $ 10,250
NET ASSETS AT BEGINNING OF PERIOD 10,250 --
----------- ------
NET ASSETS AT END OF PERIOD $ 11,780 $ 10,250
----------- ------
----------- ------
- ----------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 680 819
Reinvestments -- 33
Redemptions (318) (21)
----------- ------
Net change 362 831
----------- ------
----------- ------
AMOUNTS:
Sales $ 8,662 $ 9,065
Reinvestments -- 406
Redemptions (3,724) (264)
----------- ------
Net change $ 4,938 $ 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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
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. Temporary investments in other mutual funds are valued at net asset
value. All other temporary investments are valued at amortized cost, which
approximates market 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
- 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
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 rates comparable
to commercial bank interest 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
DUE FROM AFFILIATE. 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 year ended December 31, 1998 $ 15,531
------
------
Sales for the year ended December 31, 1998 $ 11,031
------
------
- -----------------------------------------------------------------
</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, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 1,118
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (2,435)
------
Net unrealized depreciation $ (1,317)
------
------
- -----------------------------------------------------------------
</TABLE>
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. ACCUMULATED UNDISTRIBUTED CAPITAL LOSS
The Portfolio had $1,008 thousand of accumulated undistributed net realized
loss on investment transactions at December 31, 1998. For federal income tax
purposes, this represents a capital loss carryforward which will expire in 2006.
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
DECEMBER 31 1998 DECEMBER 31, 1997
<S> <C> <C>
- ------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 12.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.03) 0.01
Net realized and unrealized gain
(loss) on investments (2.43) 2.83
------ ------
Total from investment operations (2.46) 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 $ 9.87 $ 12.33
------ ------
------ ------
TOTAL RETURN (A) (19.95%) 28.40%**
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 11,780 $ 10,250
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95% 0.95%*
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.15% 1.24%*
RATIO OF NET INVESTMENT INCOME (LOSS) TO
AVERAGE NET ASSETS (0.32%) 0.19%*
PORTFOLIO TURNOVER RATE 92.14% 47.91%*
</TABLE>
- --------------------------------------------------------------------------------
* Annualized.
** Not annualized.
++ See Note 3 of Notes to Financial Statements.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
- 12 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of the
SAFECO Resource Series Trust
We have audited the accompanying statements of assets and liabilities,
including the portfolios of investments, of the SAFECO Small Company Stock
Portfolio (one of the portfolios constituting the SAFECO Resource Series Trust)
as of December 31, 1998, and the related statements of operations for the year
then ended, the statement of changes in net assets for the year ended December
31, 1998 and for the period from April 30, 1997 (commencement of operations) to
December 31, 1997, and the financial highlights for each of the two periods 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 Small Company Stock Portfolio of the SAFECO Resource Series Trust as of
December 31, 1998, the results of its operations, the changes in its net assets,
the financial highlights for each of the periods referred to above, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
February 5, 1999
- 13 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark- A registered trademark of SAFECO
Corporation.
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
BOND PORTFOLIO
----------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST BOND
PORTFOLIO
Returning 8.90% for the year, the SAFECO RST Bond Portfolio significantly
exceeded the average General Bond fund, which returned 4.82% according to
Lipper, Inc.
The Lehman Brothers Government/Corporate Bond Index-- which incurs no fees or
expenses--returned 9.47% for the year. (Before fees and expenses, the RST Bond
Portfolio outperformed its benchmark index for the year.)
Our outperformance for the year can be attributed to two things. Being longer
allowed the Portfolio to make greater gains as rates declined overall, by
roughly 1%, for the year. [PHOTO OF MICHAEL HUGHES]
Second, the Portfolio held relatively more of its assets in treasuries, which
were top bond performers in 1998. This
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year 8.90%
5 Year 6.31%
10 Year 8.05%
</TABLE>
RST Bond Portfolio
Illustration of a $10,000 investment:
<TABLE>
<CAPTION>
DATE SAFECO RST BOND PORTFOLIO SHEARSON
<S> <C> <C>
12/31/88 10,000 10,000
01/31/89 10,081 10,133
02/28/89 10,041 10,056
03/31/89 10,061 10,109
04/30/89 10,254 10,324
05/31/89 10,478 10,578
06/30/89 10,692 10,922
07/31/89 10,916 11,150
08/31/89 10,793 10,977
09/30/89 10,824 11,025
10/31/89 11,017 11,304
11/30/89 11,099 11,406
12/31/89 11,129 11,423
01/31/90 11,053 11,266
02/28/90 11,097 11,291
03/31/90 11,129 11,292
04/30/90 11,075 11,188
05/31/90 11,304 11,513
06/30/90 11,436 11,699
07/31/90 11,578 11,844
08/31/90 11,534 11,673
09/30/90 11,556 11,770
10/31/90 11,654 11,926
11/30/90 11,797 12,186
12/31/90 11,861 12,370
01/31/91 11,944 12,509
02/28/91 12,049 12,616
03/31/91 12,132 12,703
04/30/91 12,272 12,849
05/31/91 12,367 12,910
06/30/91 12,331 12,896
07/31/91 12,484 13,058
08/31/91 12,719 13,358
09/30/91 12,907 13,638
10/31/91 13,060 13,759
11/30/91 13,178 13,897
12/31/91 13,519 14,365
01/31/92 13,432 14,152
02/29/92 13,432 14,227
03/31/92 13,345 14,149
04/30/92 13,444 14,234
05/31/92 13,670 14,510
06/30/92 13,870 14,723
07/31/92 14,195 15,100
08/31/92 14,296 15,235
09/30/92 14,584 15,442
10/31/92 14,296 15,206
11/30/92 14,208 15,192
12/31/92 14,442 15,453
01/31/93 14,763 15,790
02/28/93 15,083 16,118
03/31/93 15,162 16,173
04/30/93 15,283 16,298
05/31/93 15,256 16,290
06/30/93 15,537 16,659
07/31/93 15,603 16,766
08/31/93 15,963 17,152
09/30/93 16,057 17,212
10/31/93 16,137 17,282
11/30/93 15,884 17,087
12/31/93 15,965 17,162
01/31/94 16,194 17,420
02/28/94 15,793 17,040
03/31/94 15,463 16,622
04/30/94 15,362 16,484
05/31/94 15,362 16,455
06/30/94 15,348 16,417
07/31/94 15,534 16,745
08/31/94 15,592 16,752
09/30/94 15,448 16,499
10/31/94 15,448 16,481
11/30/94 15,434 16,451
12/31/94 15,497 16,560
01/31/95 15,709 16,878
02/28/95 15,968 17,269
03/31/95 16,060 17,385
04/30/95 16,271 17,627
05/31/95 16,879 18,365
06/30/95 17,017 18,512
07/31/95 16,895 18,440
08/31/95 17,123 18,676
09/30/95 17,305 18,866
10/31/95 17,593 19,144
11/30/95 17,944 19,460
12/31/95 18,266 19,746
01/31/96 18,316 19,868
02/29/96 17,879 19,447
03/31/96 17,702 19,283
04/30/96 17,685 19,150
05/31/96 17,718 19,118
06/30/96 17,847 19,374
07/31/96 17,895 19,418
08/31/96 17,928 19,372
09/30/96 18,105 19,717
10/31/96 18,316 20,176
11/30/96 18,541 20,547
12/31/96 18,365 20,319
01/31/97 18,416 20,344
02/28/97 18,365 20,386
03/31/97 18,143 20,144
04/30/97 18,365 20,438
05/31/97 18,502 20,628
06/30/97 18,724 20,875
07/31/97 19,254 21,514
08/31/97 19,032 21,273
09/30/97 19,339 21,607
10/31/97 19,647 21,953
11/30/97 19,664 22,069
12/31/97 19,910 22,301
01/31/98 20,252 22,616
02/28/98 20,180 22,570
03/31/98 20,234 22,640
04/28/98 20,306 22,753
05/31/98 20,559 22,997
06/30/98 20,775 23,231
07/31/98 20,758 23,250
08/31/98 21,244 23,703
09/30/98 21,803 24,381
10/31/98 21,569 24,208
11/30/98 21,605 24,354
12/31/98 21,683 24,412
</TABLE>
Performance represents the performance of the Bond Portfolio, but does not
include deductions for administration charges, contingent deferred sales
charges, or mortality and expense risk premiums.
The performance of the Portfolio assumes the reinvestment of all dividends
and capital gains. The Lehman Gov't/Corp. Index is a representative total
return benchmark for the Portfolio. Investment management fees have been
applied to the calculation of Portfolio performance, but not to the index.
If Portfolio investment management fees had been applied to the index, the
index values would have been lower. Investment returns are historical and not
predictive of future performance. Portfolio share prices and investment
returns will fluctuate.
- 2 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
conservative posture worked very well through the middle of October until
Treasuries came down off their flight-to-quality highs, and credit sensitive
instruments-- particularly high quality domestic corporate bonds--outperformed.
1998 will go down as one of the most volatile bond trading years in history.
At the beginning of the year, the markets were less concerned about the possible
effects of the Asian debacle, and more focused on the possibility of the Fed
raising interest rates. It was smooth sailing until August when Russia defaulted
on its debt and triggered a surge of flight-to-quality buying into Treasuries.
Volatility soared, and spread product (i.e., non-Treasury bonds) collapsed. In
an effort to support nervous markets, the Fed reduced rates three times by a
total of 75 basis points over a seven-week period, thereby boosting investor
confidence.
Around October, as market sentiment shifted away from the global Armageddon
scenario, investors began bottom-fishing quality credits. The spread product
tightened sharply, staging one of the most impressive rallies on record, while
U.S. Treasuries lagged.
Although I am concerned at the pace of spread tightening, I am encouraged by
the return of liquidity to the U.S. credit markets. I expect continued
improvement in spread product relative to U.S. Treasuries. However, as the year
progresses, one, or more, of the many potential problems in the global economy
may spur another flight to U.S. Treasuries. Given that very real possibility, I
took defensive precautions during the fourth quarter. I replaced corporate
bonds, international issues,
HIGHLIGHTS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- -------------------------------------------------------------------------
<S> <C>
U.S. Treasury Note, 5.625%, due 5/15/08 ........................... 15.3%
U.S. Treasury Note, 7.50%, due 11/15/16 ............................ 12.5
U.S. Treasury Note, 6.50%, due 10/15/06 ............................ 12.5
FNMA Note, 4.75%, due 11/14/03 ...................................... 9.2
U.S. Treasury Note, 4.75%, due 11/15/08 ............................. 6.3
FNMA REMIC 1993-23, 6.70%, due 7/25/19 .............................. 2.5
CIT Group, Inc., 5.57%, due 12/08/03 ................................ 2.4
FNMA #313626, 9.50%, due 2/01/21 .................................... 2.3
Hertz Corp. Note, 7.00%, due 7/01/04 ................................ 2.3
Tandy Corp., 6.95%, due 9/01/07 ..................................... 1.9
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PORTFOLIO CREDIT QUALITY
<TABLE>
<S> <C>
AAA/U.S. Gov't/Agency: 77%
AA: 3%
A: 11%
BBB: 4%
BB: 0%
B: 0%
NR: 2%
Cash and Other Assets: 3%
</TABLE>
- 3 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
and triple-B rated securities with U.S. Treasury obligations and extremely large
high-quality domestic corporate bond offerings to improve our overall portfolio
quality and liquidity.
At year end, the Portfolio held 47% of its assets in U.S. Treasury
obligations, 18% in asset-backed securities, 31% in high-grade corporate bonds,
and 4% in cash. The Portfolio's effective duration was 5.9 years at year end.
The Portfolio is maintaining an average credit quality rating of triple-A.
Going forward, I will continue to use a combination of active duration
management, sector rotation, yield curve positioning, and credit selection to
keep us well positioned for whatever 1999 may bring.
Michael Hughes
- -------------------------------
Michael Hughes joined SAFECO as portfolio manager in January 1997. He began his
investment career in 1983. He graduated magna cum laude with a B.S. in finance
from University of Colorado in Boulder and holds an MBA from the University of
Southern California in Los Angeles. He is a chartered financial analyst.
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
ASSET BACKED SECURITIES - 18.8%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) - 2.3%
$646 FNMA #313626
9.50%, due 2/01/21 ................................... $ 693
COLLATERALIZED MORTGAGE OBLIGATION (CMO) - 15.3%
100 FHLMC REMIC 1579
6.55%, due 6/15/22 ..................................... 101
500 FHLMC REMIC 1587
6.50%, due 10/15/08 .................................... 509
323 FHLMC REMIC 1534
6.00%, due 5/15/22 ..................................... 319
200 FHLMC REMIC 1688
6.00%, due 10/15/07 .................................... 202
360 FNMA #2494
8.00%, due 4/01/08 ..................................... 376
530 FNMA G93-33 J
6.75%, due 6/25/22 ..................................... 543
500 FNMA 1997-M5 C
6.74%, due 8/25/07 ..................................... 528
280 FNMA REMIC 1992-108
7.00%, due 7/25/07 ..................................... 289
500 FNMA REMIC 1993-11 N
7.35%, due 6/25/07 ..................................... 515
750 FNMA REMIC 1993-23
6.70%, due 7/25/19 ..................................... 755
475 FNMA REMIC 1993-44PH
6.75%, due 5/25/19 ..................................... 481
FINANCIAL (DIVERSIFIED) - 1.2%
68 Chevy Chase Auto ABS Series 1996-1 (Class A)
6.60%, due 12/15/02 ..................................... 69
300 Donaldson, Lufkin & Jenrette, Inc. 1998-CF2
6.24%, due 11/12/31 .................................... 307
-----
TOTAL ASSET BACKED SECURITIES ......................................... 5,687
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
CORPORATE BONDS - 30.1%
AUTOMOBILES - 2.3%
$650 Hertz Corp. Note
7.00%, due 7/01/04 .................................... $684
BANKING & FINANCE - 0.7%
200 Grand Metropolitan Investment Corp.
8.625%, due 8/15/01 .................................... 215
BANKS (MAJOR REGIONAL) - 1.4%
365 U.S. Bancorp
6.75%, due 10/15/05 .................................... 385
BANKS (MONEY CENTER) - 0.5%
135 BankAmerica Corp.
9.50%, due 4/01/01 ..................................... 146
CANADIAN PROVINCES - 0.9%
250 Manitoba (Province)
7.75%, due 2/01/02 ..................................... 267
ELECTRIC COMPANIES - 1.3%
380 Israel Electric Corp. Ltd.
7.125%, due 7/15/05 .................................... 389
ENGINEERING & CONSTRUCTION - 1.0%
280 Halliburton Co.
6.75%, due 2/01/27 ..................................... 316
FINANCE (CONSUMER) - 1.3%
360 Household Finance Corp.
7.25%, due 7/15/03 ..................................... 382
FINANCIAL (DIVERSIFIED & BUSINESS) - 4.6%
190 American General Finance Corp.
5.75%, due 11/01/03 .................................... 190
725 CIT Group, Inc.
5.57%, due 12/08/03 .................................... 720
485 ComEd Transitional Funding Trust
5.674%, due 12/16/08 ................................... 488
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCE (HOUSING) - 9.2%
$2,800 FNMA Note
4.75%, due 11/14/03 ................................. $2,769
INVESTMENT BANK/BROKERAGE - 2.4%
370 Donaldson, Lufkin & Jenrette, Inc.
6.90%, due 10/01/07 .................................... 380
335 Merrill Lynch & Co., Inc.
6.00%, due 11/15/04 .................................... 340
RETAIL (GENERAL MERCHANDISE) - 0.9%
250 Dayton Hudson Corp.
9.40%, due 2/15/01 ..................................... 270
RETAIL (COMPUTERS & ELECTRONICS) - 1.9%
545 Tandy Corp.
6.95%, due 9/01/07 ..................................... 576
RETAIL (SPECIALTY) - 1.7%
500 Bausch & Lomb, Inc.
6.56%, due 8/12/26 ..................................... 505
-----
TOTAL CORPORATE BONDS ................................................. 9,022
-----
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
U.S. GOVERNMENT AND AGENCY SECURITIES - 49.2%
U.S. FEDERAL AGENCY NOTES - 2.7%
$ 500 Federal Home Loan Mortgage Corp.
6.875%, due 11/22/06 ................................. $ 519
255 Federal Home Loan Mortgage Corp.
6.943%, due 3/21/07 .................................... 283
U.S. TREASURY NOTES - 46.5%
3,030 7.50%, due 11/15/16 .................................. 3,768
3,380 6.50%, due 10/15/06 .................................. 3,752
4,305 5.625%, due 5/15/08 .................................. 4,593
1,880 4.75%, due 11/15/08 .................................. 1,895
-----
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES .......................... 14,810
-----
TEMPORARY INVESTMENTS - 4.2%
INVESTMENT COMPANIES:
1,278 SSgA Prime Money Market Portfolio .................... 1,278
-----
TOTAL TEMPORARY INVESTMENTS ............................................ 1278
-----
TOTAL INVESTMENTS - 102.3% ........................................... 30,797
Liabilities, less Other Assets ........................................ (680)
-----
NET ASSETS .......................................................... $30,117
-----
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Bond Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $30,510) $ 30,797
Receivables:
Dividends and interest 330
Other 35
----------
Total assets 31,162
LIABILITIES:
Payables:
Investment advisory fees 20
Investment securities purchased 1,013
Other 12
----------
Total liabilities 1,045
----------
NET ASSETS $ 30,117
----------
----------
Net Assets consist of:
Net unrealized appreciation $ 287
Paid in capital (par value $.001, unlimited shares
authorized) 29,830
----------
NET ASSETS $ 30,117
----------
----------
PORTFOLIO SHARES OUTSTANDING 2,640
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 11.41
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Bond Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- ----------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 1,436
EXPENSES:
Investment advisory 169
Legal and auditing 19
Custodian 2
Trustees 5
Reports to shareholders 25
Other 2
--------
Total expenses before reimbursement 222
Expense reimbursement (33)
--------
Total expenses after reimbursement 189
--------
NET INVESTMENT INCOME 1,247
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 836
Net change in unrealized appreciation (207)
--------
NET GAIN ON INVESTMENTS 629
--------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,876
--------
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Bond Portfolio
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,247 $ 942
Net realized gain (loss) on investments 836 (116)
Net change in unrealized appreciation (207) 507
------ ------
Net change in net assets resulting from operations 1,876 1,333
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,248) (942)
Net realized gain on investments (288) --
------ ------
Total distributions (1,536) (942)
NET PORTFOLIO SHARE TRANSACTIONS 11,896 1,499
------ ------
TOTAL CHANGE IN NET ASSETS 12,236 1,890
NET ASSETS AT BEGINNING OF PERIOD 17,881 15,991
------ ------
NET ASSETS AT END OF PERIOD $ 30,117 $ 17,881
------ ------
------ ------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS
SHARES:
Sales 1,518 458
Reinvestments 135 85
Redemptions (632) (411)
------ ------
Net change 1,021 132
------ ------
------ ------
AMOUNTS:
Sales $ 17,725 $ 5,091
Reinvestments 1,536 942
Redemptions (7,365) (4,534)
------ ------
Net change $ 11,896 $ 1,499
------ ------
------ ------
</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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
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. Temporary 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.
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
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.
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .74
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at rates comparable
to commercial bank interest 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Historically, SAFECO Life Insurance Company (SAFECO) paid all the expenses of
the Portfolio except for investment advisory fees because net assets were less
than $20 million. In June, 1998, net assets surpassed $20 million. Thus, the
Portfolio is now charged for all operating expenses in addition to investment
advisory fees.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Purchases for the year ended December 31, 1998
(including $26,457 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 47,666
------
------
Sales for the year ended December 31, 1998
(including $23,319 of U.S. Government and Agency
Securities in the Bond Portfolio) $ 35,556
------
------
- -----------------------------------------------------------------
</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, 1998:
<TABLE>
<CAPTION>
(In Thousands)
- -----------------------------------------------------------------
<S> <C>
Aggregate gross unrealized appreciation for
investment securities in which there is an
excess of value over identified cost $ 355
Aggregate gross unrealized depreciation for
investment securities in which there is an
excess of identified cost over value (68)
------
Net unrealized appreciation $ 287
------
------
- -----------------------------------------------------------------
</TABLE>
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
6. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.04 $ 10.75 $ 11.31 $ 10.20 $ 11.12
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.50 0.61 0.62 0.71 0.59
Net realized and unrealized gain
(loss) on investments 0.49 0.29 (0.56) 1.11 (0.92)
------- --------- --------- --------- ---------
Total from investment operations 0.99 0.90 0.06 1.82 (0.33)
LESS DISTRIBUTIONS:
Dividends from net investment income (0.50) (0.61) (0.62) (0.71) (0.59)
Distributions from realized gains (0.12) -- -- -- --
------- --------- --------- --------- ---------
Total distributions (0.62) (0.61) (0.62) (0.71) (0.59)
------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 11.41 $ 11.04 $ 10.75 $ 11.31 $ 10.20
------- --------- --------- --------- ---------
------- --------- --------- --------- ---------
TOTAL RETURN (A) 8.90% 8.41% 0.54% 17.87% (2.93%)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 30,117 $ 17,881 $ 15,991 $ 14,257 $ 13,361
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.83% 0.74% 0.73% 0.72% 0.72%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 0.98% 0.90% 0.87% 0.94% 0.89%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.50% 5.75% 5.64% 6.50% 5.53%
PORTFOLIO TURNOVER RATE 164.82% 151.43% 140.90% 77.93% 147.22%
</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 Directors 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,
1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 as of December 31,
1998, 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
February 5, 1999
- 14 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
[RECYCLE LOGO] Printed on Recycled Paper.
This report must be preceded or
accompanied by a current prospectus.
-Registered Trademark- A registered trademark of SAFECO
Corporation.
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1998
SAFECO MUTUAL FUNDS
RESOURCE SERIES TRUST
MONEY MARKET PORTFOLIO
----------
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER LETTER
DECEMBER 31, 1998
SAFECO RST MONEY MARKET PORTFOLIO
The SAFECO RST Money Market Portfolio's one-year total return of 4.95%
outperformed the average money fund's total return of 4.86%, according to
Lipper, Inc.
The increase in the Portfolio's yield is attributable to the purchase of
one-year, fixed-rate paper, resulting in an average maturity as long as 87 days
during the half-year compared to an average of 60 days for other funds in its
peer group. The longer maturity paper enabled the Portfolio to maintain yield as
short-term investment rates declined.
[PHOTO OF NAOMI URATA]
The Federal Funds rate fell from 5.25% to 4.75% as the Federal Reserve
lowered the rate twice during the quarter. Short-term rates remain inverted from
one day out to 270 days, so that
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
1 Year 4.95%
5 Year 4.83%
10 Year 5.31%
</TABLE>
INVESTMENT VALUE
SAFECO RST MONEY MARKET PORTFOLIO: $16,774
<TABLE>
<CAPTION>
SAFECO RST
MONEY MARKET PORTFOLIO
<S> <C>
12/31/88 $10,000
01/31/89 $10,068
02/28/89 $10,144
03/31/89 $10,211
04/30/89 $10,289
05/31/89 $10,367
06/30/89 $10,442
07/31/89 $10,530
08/31/89 $10,608
09/30/89 $10,683
10/31/89 $10,830
11/30/89 $10,901
12/31/89 $10,970
01/31/90 $11,048
02/28/90 $11,113
03/31/90 $11,183
04/30/90 $11,256
05/31/90 $11,330
06/30/90 $11,399
07/31/90 $11,473
08/31/90 $11,545
09/30/90 $11,611
10/31/90 $11,687
11/30/90 $11,759
12/31/90 $11,832
01/31/91 $11,902
02/28/91 $11,961
03/31/91 $12,019
04/30/91 $12,082
05/31/91 $12,139
06/30/91 $12,187
07/31/91 $12,246
08/31/91 $12,303
09/30/91 $12,358
10/31/91 $12,409
11/30/91 $12,455
12/31/91 $12,503
01/31/92 $12,544
02/29/92 $12,578
03/31/92 $12,616
04/30/92 $12,651
05/31/92 $12,686
06/30/92 $12,725
07/31/92 $12,763
08/31/92 $12,795
09/30/92 $12,822
10/31/92 $12,849
11/30/92 $12,880
12/31/92 $12,910
01/31/93 $12,940
02/28/93 $12,966
03/31/93 $12,996
04/30/93 $13,023
05/31/93 $13,048
06/30/93 $13,079
07/31/93 $13,107
08/31/93 $13,137
09/30/93 $13,163
10/31/93 $13,189
11/30/93 $13,217
12/31/93 $13,248
01/31/94 $13,278
02/28/94 $13,305
03/31/94 $13,334
04/30/94 $13,366
05/31/94 $13,405
06/30/94 $13,443
07/31/94 $13,485
08/31/94 $13,534
09/30/94 $13,578
10/31/94 $13,627
11/30/94 $13,674
12/31/94 $13,731
01/31/95 $13,798
02/28/95 $13,858
03/31/95 $13,920
04/30/95 $13,984
05/31/95 $14,055
06/30/95 $14,117
07/31/95 $14,184
08/31/95 $14,243
09/30/95 $14,300
10/31/95 $14,373
11/30/95 $14,438
12/31/95 $14,494
01/31/96 $14,562
02/29/96 $14,615
03/31/96 $14,669
04/30/96 $14,727
05/31/96 $14,789
06/30/96 $14,842
07/31/96 $14,906
08/31/96 $14,966
09/30/96 $15,029
10/31/96 $15,086
11/30/96 $15,146
12/31/96 $15,210
01/31/97 $15,274
02/28/97 $15,327
03/31/97 $15,385
04/30/97 $15,451
05/31/97 $15,513
06/30/97 $15,582
07/31/97 $15,647
08/31/97 $15,708
09/30/97 $15,777
10/31/97 $15,847
11/30/97 $15,910
12/31/97 $15,983
01/31/98 $16,047
02/28/98 $16,108
03/31/98 $16,174
04/30/98 $16,237
05/31/98 $16,296
06/30/98 $16,366
7/31/98 $16,434
8/31/98 $16,494
9/30/98 $16,561
10/31/98 $16,634
11/30/98 $16,704
12/31/98 $16,774
</TABLE>
Performance represents the performance of the Money Market Portfolio, but
does not include deductions for administration charges, contingent deferred
sales charges, or mortality and expense risk premiums.
Performance of the Portfolio assumes the reinvestment of all dividends and
capital gains.
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>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
one-day rates are at higher levels than 270-day rates. This indicates that the
market believes that future rates will be lower.
The Federal Reserve's easing mode was prompted by a slowing global economy,
the Asian crisis and declining liquidity in the financial markets. The
likelihood of further rate cuts is possible depending on the pace of growth of
the global economy, the financial health of emerging markets, and inflation. The
possibility exists that instead of slowing further, the U.S. economy could
continue growing at a healthy pace leading to higher rates. To hedge against
rising rates, I increased the amount of floating rate paper of corporations
priced off of one month LIBOR, the London Inter-bank Borrowing Rate. LIBOR
floaters trade cheap to boost the yield on the Portfolio compared to one-month
commercial paper with comparable credit ratings.
The most notable occurrence in 1998 was a huge flight to quality. SAFECO RST
Money Market Portfolio served as refuge for investors fleeing markets that are
vulnerable to foreign problems. Cash flow into the Portfolio was significant and
so far, it has stayed. As I've done in the past, I will work to manage the
Portfolio to be a safe haven for your investment dollar in spite of volatile
market conditions. I will do this by buying quality paper subject to careful
credit review. I will lock in some longer-term rates to provide stability and
downside protection in case rates decline, and I will maintain some short
maturities in case rates move up. The shorter maturities will also provide
liquidity for your short-term cash needs.
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, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
SHORT-TERM CORPORATE SECURITIES - 93.5%
ASSET BACKED - 4.7%
$1,300 Ciesco L.P.
5.35%, due 1/19/99 .................................. $1,297
BANKS (FOREIGN) - 3.6%
1,000 Societe Generale, NY
5.67%, due 8/06/99 ................................... 1,000
BANKS (MAJOR REGIONAL) - 14.5%
1,500 BancBoston
5.58%, due 3/01/99 ................................... 1,500
1,000 *Fleet Credit Card
5.89%, due 4/15/99 ................................... 1,004
1,500 *MBNA America Bank
5.75%, due 6/28/99 ................................... 1,500
BANKS (REGIONAL) - 3.3%
900 *American Express Centurion Bank
5.48%, due 1/14/99 ..................................... 900
COOPERATIVE ASSOCIATION OF TRACTOR DEALERS - 4.7%
1,300 Cooper Associates
5.55%, due 1/28/99 ................................... 1,295
FINANCE (AUTO) - 9.8%
1,400 Ford Motor Credit Co.
5.625%, due 1/15/99 .................................. 1,400
1,300 General Motors Acceptance Corp.
5.80%, due 1/07/99 ................................... 1,299
FINANCE (CONSUMER) - 7.0%
715 Associates Corp. of North America
7.250%, due 9/01/99 .................................... 722
1,200 Household Finance Corp.
5.33%, due 1/04/99 ................................... 1,200
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
FINANCE (DIVERSIFIED & BUSINESS) - 13.8%
$1,500 Aristar, Inc.
6.75%, due 5/15/99 ................................. $ 1,506
1,300 General Electric Capital Corp.
5.79%, due 1/18/99 ................................... 1,299
1,000 Heller Financial
6.64%, due 5/13/99 ................................... 1,003
FINANCE (MORTGAGE) - 4.3%
1,200 Countrywide Funding Corp.
5.59%, due 1/06/99 ................................... 1,200
INSURANCE (MULTI-LINE) - 4.7%
1,300 Prudential Funding Corp.
5.20%, due 1/12/99 ................................... 1,298
INVESTMENTS (BANKS/BROKERAGE) - 15.2%
1,000 C.S. First Boston
5.715%, due 7/19/99 .................................. 1,000
1,000 *#Goldman Sachs and Company (144A)
5.66%, due 9/14/99 (acquired 4/08/98) ................ 1,000
900 *Morgan Stanley, Dean Witter, Discover and Co.
5.79%, due 3/13/01 ..................................... 900
1,300 Salomon Smith Barney Holdings, Inc.
5.45%, due 1/21/99 ................................... 1,297
RETAIL (GENERAL MERCHANDISE) - 3.6%
1,000 *+Racetrac Capital, L.L.C.
5.63%, due 4/01/18, put date 1/6/99 .................. 1,000
TOBACCO - 4.3%
1,200 B.A.T. Capital Corp.
5.50%, due 1/26/99 ................................... 1,196
-----
TOTAL SHORT-TERM CORPORATE SECURITES ................................. 25,816
-----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SAFECO Resource Series Trust -- Money Market Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (000'S) VALUE (000'S)
- -----------------------------------------------------------------------------
<C> <S>
TEMPORARY INVESTMENTS - 6.3%
INVESTMENT COMPANIES:
$1,379 SSgA Prime Money Market Portfolio .................. $ 1,379
360 SSgA U.S. Treasury Money Market Portfolio .............. 360
-----
TOTAL TEMPORARY INVESTMENTS ........................................... 1,739
-----
TOTAL INVESTMENTS - 99.8% ............................................ 27,555
Other Assets, less Liabilities ........................................... 68
-----
NET ASSETS .......................................................... $27,623
-----
-----
- -----------------------------------------------------------------------------
</TABLE>
+ The Fund has a right to sell the specified underlying security at an exercise
price equal to the amortized cost of the security plus interest, if any.
# Security is exempt from registration and restricted as to resale only to
dealers, or through a dealer to an "accredited investor" or a "qualified
institutional buyer." The market value of such security is $1,000,000 and
represents 3.6% of net assets.
* Securities have variable rates which change periodically based on specified
market rates or indices. Rates shown are those in effect on December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust -- Money Market Portfolio
As of December 31, 1998
<TABLE>
<CAPTION>
(In Thousands,
Except Per-Share Amounts)
<S> <C>
- ------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $27,555) $ 27,555
Receivables:
Dividends and interest 192
Other 22
----------
Total assets 27,769
LIABILITIES:
Payables:
Investment advisory fees 16
Income distribution 117
Other 13
----------
Total liabilities 146
----------
NET ASSETS $ 27,623
----------
----------
PORTFOLIO SHARES OUTSTANDING
(par value $.001, unlimited shares authorized) 27,623
----------
----------
NET ASSET VALUE PER SHARE
(Net assets divided by Portfolio shares outstanding) $ 1.00
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust -- Money Market Portfolio
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
- --------------------------------------------------------------------
INVESTMENT INCOME:
Interest $1,336
EXPENSES:
Investment advisory 154
Legal and auditing 19
Custodian 6
Trustees 5
Reports to Shareholders 24
------
Total expenses before reimbursement 208
Expense reimbursement (17)
------
Total expenses after reimbursement 191
------
NET INVESTMENT INCOME AND NET CHANGE
IN NET ASSETS RESULTING FROM OPERATIONS $1,145
------
------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust -- Money Market Portfolio
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------
(In Thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,145 $ 838
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,145) (838)
NET PORTFOLIO SHARE TRANSACTIONS 9,866 5,264
------------- -------------
TOTAL CHANGE IN NET ASSETS 9,866 5,264
NET ASSETS AT BEGINNING OF PERIOD 17,757 12,493
------------- -------------
NET ASSETS AT END OF PERIOD $ 27,623 $ 17,757
------------- -------------
------------- -------------
- -------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN PORTFOLIO SHARES AND AMOUNTS*
Sales 102,117 90,491
Reinvestments 1,028 838
Redemptions (93,279) (86,065)
------------- -------------
Net change 9,866 5,264
------------- -------------
------------- -------------
</TABLE>
- -------------------------------------------------------------------------
* Because share value is equal to $1.00, dollar amounts and share amounts are
identical.
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<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.
ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATION. Securities in the Portfolio purchased at par are valued
at cost. All other securities are valued at amortized cost.
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on investment transactions (if any) are determined
using the identified cost method.
INCOME RECOGNITION. Interest is accrued on Portfolio investments daily.
Dividend income on investments in mutual funds is recorded on the ex-dividend
date.
DIVIDENDS TO SHAREHOLDERS. Dividends to shareholders from net investment
income are declared as of the close of each business day and payment is made as
of the last business day of each month.
- 9 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
FEDERAL INCOME TAX. It is the Portfolio's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Therefore, no federal income or excise tax provision is required.
3. TRANSACTIONS WITH AFFILIATES
SAFECO Asset Management Company receives investment advisory fees from the
Portfolio. The fee is based on average daily net assets at an annual rate of .65
percent.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolio may borrow money for
temporary purposes from SAFECO Corporation or its affiliates at rates comparable
to commercial bank interest 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, $150 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1998.
At December 31, 1998, SAFECO Life Insurance Company owned 100 percent of the
outstanding shares of the Portfolio.
Prior to April, 1998, SAFECO Life Insurance Company (SAFECO) paid all the
expenses of the Portfolio except for investment advisory fees because net assets
were less than $20 million. In April, 1998, net assets surpassed $20 million.
Thus, the Portfolio is now charged for all operating expenses in addition to
investment advisory fees.
- 10 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.05) (0.05) (0.05) (0.04)
--------- --------- --------- --------- ---------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL RETURN(A) 4.95% 5.08% 4.94% 5.56% 3.65%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 27,623 $ 17,757 $ 12,493 $ 8,719 $ 9,315
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.81% 0.64% 0.62% 0.62% 0.63%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 0.89% 0.81% 0.90% 0.87% 0.87%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.87% 4.97% 4.86% 5.32% 3.63%
</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).
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors 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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodians
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 as of December
31, 1998, 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
February 5, 1999
- 12 -
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
YEAR 2000 READINESS
Preparing for Year 2000 is a high priority for SAFECO Asset Management and
its parent, SAFECO Corporation. A corporate-wide Year 2000 team has been active
for an extended period of time, and has devoted considerable resources to help
achieve Year 2000 readiness. SAFECO Asset Management Company does not anticipate
that Year 2000-related issues will have a material impact on its ability to
continue to provide the Portfolios with service at current levels. Although
SAFECO Asset Management has taken steps to prepare for Year 2000, it could be
negatively impacted by what its business partners have done or have failed to
do.
Likewise, Year 2000 poses risks to each of the companies in the Portfolios'
investment portfolio. Thus, portfolio managers consider Year 2000 readiness as
one of the many factors in making an investment decision. Year 2000 also poses
potential risks to worldwide markets and economies.
<PAGE>
- ------------------------------------------------------------------
- ------------------------------------------------------------------
NOTES
<PAGE>
SAFECO RESOURCE SERIES TRUST
BOARD OF TRUSTEES:
Boh A. Dickey, Chairman
Barbara J. Dingfield
David F. Hill
Richard W. Hubbard
Richard E. Lundgren
Larry L. Pinnt
John W. Schneider
OFFICERS:
David F. Hill, President
Ronald L. Spaulding
Vice President and Treasurer
Neal A. Fuller
Vice President and Controller
David H. Longhurst
Assistant Controller
INVESTMENT ADVISOR:
SAFECO Asset
Management Company
DISTRIBUTOR:
SAFECO Securities, Inc.
TRANSFER AGENT:
SAFECO Services Corporation
CUSTODIAN:
State Street Bank
GMF 939 2/99
RECYCLE LOGO Printed on Recycled Paper.
THIS REPORT MUST BE PRECEDED OR
ACCOMPANIED BY A CURRENT PROSPECTUS.
-REGISTERED TRADEMARK- A REGISTERED TRADEMARK OF SAFECO
CORPORATION.