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REGISTRATION NOS. 33-06547/811-4717
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. /_/
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Post-Effective Amendment No. 23 /X/
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 24 /X/
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(Check appropriate box or boxes.)
SAFECO RESOURCE SERIES TRUST
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(Exact Name of Registrant as Specified in Charter)
10865 WILLOWS ROAD NE, REDMOND, WA 98052
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(Address of Principal Executive Offices) ZIP Code
Registrant's Telephone Number, including Area Code (425) 376 - 8212
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Name and Address of Agent
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for Service
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DAVID F. HILL
10865 Willows Road NE
Redmond, WA 98052
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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X on April 28, 2000 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on _________________ pursuant to paragraph (a)(2) of Rule 485
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If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
Registrant is registering an indefinite number of its shares under the
Securities Act of 1933 by declaration made pursuant to Section 24(f) of the
Investment Company Act of 1940 (Act). Pursuant to Rule 24f-2 under the Act,
Registrant filed a Rule 24f-2 Notice on or about February 29, 2000.
================================================================================
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SAFECO RESOURCE SERIES TRUST
Contents of Registration Statement
This registration statement consists of the following papers and documents:
Cover Sheet
Cross Reference Sheet
Growth Opportunities Portfolio - Part A - Prospectus
Equity Portfolio - Part A - Prospectus
Northwest Portfolio - Part A - Prospectus
Small Company Value Portfolio - Part A - Prospectus
Bond Portfolio - Part A - Prospectus
Money Market Portfolio - Part A - Prospectus
Growth Opportunities Portfolio
Equity Portfolio
Northwest Portfolio
Small Company Value Portfolio
Bond Portfolio
Money Market Portfolio
Part B -- Statement of Additional Information
Part C -- Other Information
Signature Page
Exhibits
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SAFECO RESOURCE SERIES TRUST
Registration Statement on Form N-1A
Cross Reference Sheet
PART A
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<TABLE>
<CAPTION>
<S><C> <C>
ITEM NO. LOCATION IN PROSPECTUS
- -------- ----------------------
1. Front and Back Cover Pages Front and Back Cover pages
2. Risk/Return Summary: Objective; Principal Investment
Investments, Risks and Performance Strategies; Principal Risks;
Performance
3. Risk/Return Summary: Fee Table Fees and Expenses of the Portfolio
4. Investment Objectives, Principal Additional Facts About Investment
Strategies, and Related Risks Objectives, Strategies and Risks
5. Management's Discussion of Fund Herein incorporated by reference to
Performance Registrant's Annual Report dated
December 31, 1999 filed with the
Securities and Exchange Commission's
EDGAR system on or about February 29, 2000
6. Management, Organization, and Capital Management
Structure
7. Shareholder Information Distributions and Tax Information;
Purchasing and Redeeming Shares;
Calculation of Share Price
8. Distribution Arrangements Not Applicable
9. Financial Highlights Information Financial Highlights
PART B
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<CAPTION>
<S> <C> <C>
ITEM NO. LOCATION IN STATEMENT
- -------- OF ADDITIONAL INFORMATION
-------------------------
10. Cover page and Table of Contents Cover page and Table of Contents
11. Fund History Description of the Trust
12. Description of the Fund and Its Description of the Trust; Fundamental
Investments and Risks Investment Policies; Non-Fundamental
Investment Policies; Additional
Investment Information
13. Management of the Fund Trustees and Officers
14. Control Persons and Principal Holders Principal Shareholders of
Securities the Portfolios
15. Investment Advisory and Other Services Investment Advisory and Other
Services
3
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<CAPTION>
<S><C> <C>
16. Brokerage Allocation and Other Practices Brokerage Practices
17. Capital Stock and Other Securities Characteristics of the Trust's Shares
18. Purchase, Redemption and Pricing of Calculation of Share Price
Shares
19. Taxation of the Fund Distributions and Tax Information
20. Underwriters Investment Advisory and Other Services
21. Calculation of Performance Data Additional Performance Information
22. Financial Statements Financial Statements
</TABLE>
PART C
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Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C to this Registration Statement.
4
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SAFECO RESOURCE SERIES TRUST
Growth Opportunities Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
A WORD ABOUT THE GROWTH OPPORTUNITIES PORTFOLIO................................
OBJECTIVE......................................................................
PRINCIPAL INVESTMENT STRATEGIES................................................
PRINCIPAL RISKS................................................................
PERFORMANCE....................................................................
FEES AND EXPENSES OF THE PORTFOLIO.............................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS..............
INFORMATION ABOUT THE TRUST....................................................
MANAGEMENT.....................................................................
FINANCIAL HIGHLIGHTS...........................................................
DISTRIBUTIONS AND TAX INFORMATION..............................................
CALCULATION OF SHARE PRICE.....................................................
PURCHASING AND REDEEMING SHARES................................................
ii
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A WORD ABOUT THE GROWTH OPPORTUNITIES PORTFOLIO
The Growth Opportunities Portfolio, formerly known as the Growth Portfolio, is a
mutual fund used solely as an investment option for variable annuity contracts
or variable life insurance policies offered by insurance companies ("variable
insurance product") or for qualified pension and retirement plans ("qualified
plan"). You should not confuse the Growth Opportunities Portfolio with any other
SAFECO mutual fund, even though one or more of such funds may have the same or
similar name, investment objective, adviser or portfolio manager as this one.
The Growth Opportunities Portfolio is entirely separate from such other funds.
In particular, you should not view the investment performance of such other
funds as an indication of the performance of the Growth Opportunities Portfolio
or rely upon information about any other fund in making investment decisions
about the Growth Opportunities Portfolio.
OBJECTIVE
The Growth Opportunities Portfolio seeks growth of capital and the increased
income that ordinarily follows from such growth.
PRINCIPAL INVESTMENT STRATEGIES
The Growth Opportunities Portfolio invests most of its assets in COMMON STOCKS
selected primarily for potential growth in value at a reasonable price. When
evaluating a stock for purchase, the adviser considers the following factors:
- - the strength of the company's balance sheet;
- - the quality of the management team; and
- - the rate at which the company's earnings are projected to grow in the
future.
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COMMON STOCKS represent equity interests in a corporation. Stockholders
participate in earnings if dividends are declared and have a claim to assets of
a corporation at dissolution, behind creditors and preferred stock owners.
- -------------------------------------------------------------------------------
The adviser seeks undervalued stocks with above-average growth potential.
Although the Portfolio may include companies of all sizes, companies meeting the
adviser's criteria for earnings growth are typically small in size and therefore
quite volatile.
In selecting securities to buy, the adviser focuses on stocks that are
attractively priced on a valuation basis. Most of the stocks in which the fund
invests have earnings growth potential, but may be trading at discounts relative
to their industry peers and the overall market.
The adviser may decide to sell stocks if it believes that the company's growth
prospects are no longer good or if the company fails to realize its growth
potential. However, the Portfolio will keep holdings through periodic downturns
if the adviser believes that the long-term growth
1
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prospects for the company are good. The Portfolio may sell some or all of its
holdings in stocks that the adviser considers to be overvalued. Stocks may
become overvalued as a result of overly optimistic earnings forecasts or because
the market places unrealistic multiples on projected earnings. The Portfolio may
also sell stocks if the adviser believes there are more attractive opportunities
elsewhere or to raise cash to meet shareholder redemptions.
PRINCIPAL RISKS
Loss of money is a risk of investing in the Growth Opportunities Portfolio. The
value of your allocation to the Growth Opportunities Portfolio will go up or
down with the prices of the securities in which the Portfolio invests. The price
of common stocks rises and falls in response to many factors, including the
historical and prospective earnings of the issuers of the stock, the value of
their assets, general economic conditions, interest rates, investor perceptions
and market liquidity. The value of the Portfolio may fall if any of the
following occurs:
- the earnings of the issuers of the stocks do not meet analysts'
expectations or are otherwise disappointing;
- the adviser's judgment about the growth potential of the issuers or
the value of the stocks is incorrect;
- the stock market declines;
- the market does not favor small capitalization stocks; or
- an event occurs that causes the price of one of the larger positions
to decline materially.
Many of the stocks in this Portfolio are more volatile than the general market.
Growth stocks may be more volatile due to their higher price-to-earnings ratio.
Because the Portfolio invests in stocks issued by small companies it may be
subject to more frequent and more significant price movements. You should be
prepared to see fluctuations in share price and variable investment returns. Due
to the aggressive nature of this Portfolio, you should allocate money to this
Portfolio only if you are prepared to withstand market fluctuations over a
period of several years.
An investment in the Growth Opportunities Portfolio is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Growth Opportunities Portfolio by showing you how performance
has changed from year to year and also how it has measured against the Standard
& Poor's Composite Stock Price Index (S&P 500), a widely recognized unmanaged
index of stock performance. The bar chart shows how the Growth Opportunities
Portfolio has performed in each of the full calendar years since commencement of
operations on January 7, 1993, assuming reinvestment of all distributions. The
table shows the average annual total return for the Growth Opportunities
Portfolio relative to the S&P 500. The Portfolio's returns are net of its
expenses, but do not reflect any additional charges and expenses that may be
deducted by the variable insurance product or qualified plan through which you
invest. Total return is a measure of investment performance over a period of
time. It includes dividends and capital gain distributions, as well as share
price gain or loss. As total return and principal value will fluctuate, shares
when sold may be worth more, or less, than their original cost. Past performance
cannot tell you how the Growth Opportunities Portfolio will perform in the
future.
2
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[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
GROWTH OPPORTUNITIES PORTFOLIO PERFORMANCE
<TABLE>
'94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C>
Return Percentage 11.92% 41.00% 32.06% 44.55% 1.83% 5.63%
</TABLE>
The highest quarterly return was 20.34% for the quarter ended September 30,
1997; and the lowest return was -25.78% for the quarter ended September 30,
1998.
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
Commencement
of Operations (1/7/93)
1 year 5 years to December 31, 1999
------ ------- --------------------
<S> <C> <C> <C>
Growth Opportunities Portfolio 5.63% 23.69% 23.68%
S&P 500 Index* 21.04% 28.54% 21.78%
</TABLE>
* The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded
as generally representative of the U.S. stock market. The index
reflects the reinvestment of income dividends, if any, and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. This index is used for
comparison purposes only and the Portfolio's holdings do not
necessarily mirror the index. Performance is based on historical
earnings and does not indicate the Portfolio's future performance.
3
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FEES AND EXPENSES OF THE PORTFOLIO
Deductions may be made from investments in the Portfolio and expenses paid out
of the assets of the Portfolio.
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Growth Opportunities Portfolio has no initial sales charge (load) or
deferred sales charge. There are no exchange or redemption fees.
You may incur charges and expenses associated with the variable annuity contract
or variable life insurance policy or the qualified pension or retirement plan in
which you invest. Please refer to the variable insurance product prospectus or
qualified plan document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Growth Opportunities Portfolio pays before distributing net
investment income to shareholders are shown below. These expenses are stated as
a percentage of average daily net assets and are based on the actual expenses of
the Growth Opportunities Portfolio for the year ended December 31, 1999. The
Portfolio's expenses for other years may vary.
<TABLE>
<S> <C>
MANAGEMENT FEES .74 %
Distribution (12b-1) Fees 0%
OTHER EXPENSES .04 %
Total Annual Portfolio Operating Expenses .78%
</TABLE>
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MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
OTHER EXPENSES include custody, accounting, and administrative expenses,
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
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4
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Growth
Opportunities Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Growth Opportunities Portfolio
for the time periods indicated and that Portfolio shares are redeemed at the end
of those periods. The Example also assumes a hypothetical 5% return each year
and that the Portfolio's operating expenses remain the same. The Example does
not reflect charges and expenses of your variable insurance product or the
qualified plan through which you invest. Although the Portfolio's actual costs
and performance may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<C> <C> <C> <C>
$79.65 $249.16 $433.29 $966.05
</TABLE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Growth Opportunities Portfolio, with the approval of
its board of trustees, may change its investment objective. The Portfolio may
change its investment objective without shareholder approval. If this happens,
the Growth Opportunities Portfolio may no longer be appropriate for you. Should
the board of trustees vote to change the Portfolio's objective, you will be
notified in writing at least 30 days prior to the change.
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Growth Opportunities Portfolio may take temporary
defensive positions that are inconsistent with its principal investment policies
in an attempt to respond to adverse market, economic, political or other
conditions. If it does so, the Portfolio may not achieve its investment
objective in the short run.
APPLICATION OF INVESTMENT POLICIES
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Growth Opportunities Portfolio, including any
restrictions or requirements regarding the percentage of assets that may or must
be invested in a particular type of security. These limits or requirements apply
to the initial investment by the Growth Opportunities Portfolio. Subsequent
market movements that cause asset values to change will not affect the
Portfolio's compliance with such limits or requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than it was when you bought it.
5
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PORTFOLIO TURNOVER
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution of
higher capital gains. While the shareholders are generally exempt from tax, this
could affect the investment returns for variable insurance product owners and
qualified plan participants. Frequent trading also increases the transaction
costs of the Portfolio, which could detract from performance. The turnover rate
of the Portfolio for each of the past five years can be found in the Financial
Highlights section of this prospectus.
INFORMATION ABOUT THE TRUST
The Growth Opportunities Portfolio is a series of the SAFECO Resource Series
Trust. Shares of the Trust are offered to life insurance companies, which may or
may not be affiliated with each other, for allocation to certain of their
separate accounts established to fund variable life insurance policies and
variable annuity contracts. Shares of the Trust may also be offered directly to
qualified pension and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell Portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust Portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust Portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust Portfolio.
6
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MANAGEMENT
The investment adviser for the Growth Opportunities Portfolio is SAFECO Asset
Management Company (SAM), a wholly owned subsidiary of SAFECO Corporation,
located at SAFECO Plaza, Seattle, Washington 98185. SAM is located at Two Union
Square, 25th Floor, Seattle, WA 98101. SAM has been an adviser to mutual funds
and other investment portfolios since 1973 and its predecessors have been such
advisers since 1932. SAM provides investment research, advice and supervision in
the ongoing management of the portfolio. Based on the Portfolio's investment
objective and policies, SAM determines what securities the Portfolio will
purchase, retain or sell and implements those decisions.
The Growth Opportunities Portfolio pays SAM an annual management fee based on a
percentage of the Portfolio's net assets, ascertained each business day and paid
monthly. The Portfolio paid SAM a fee of .74% of the Portfolio's net assets for
the year ended December 31, 1999.
The Growth Opportunities Portfolio is managed by Thomas M. Maguire, Vice
President of SAM. Mr. Maguire has served as portfolio manager for the Portfolio
since it began operations in 1993 and has served as portfolio manager for the
SAFECO Growth Opportunities Fund, formerly known as SAFECO Growth Fund, since
1989.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned on an investment
in the Portfolio (assuming reinvestment of all dividends and distributions).
This information was audited by Ernst & Young LLP, independent auditors, whose
report, along with the Portfolio's financial statements, are included in the
Trust's annual report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - GROWTH OPPORTUNITIES PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF $ 21.30 $ 23.35 $ 19.26 $ 15.88 $ 12.98
PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (0.09) (0.10) (0.04) (0.03) 0.06
(loss)
Net realized and 1.29 0.53 8.62 5.12 5.26
unrealized gain on
investments
------------- ------------- ------------- ------------- -------------
Total from investment 1.20 0.43 8.58 5.09 5.32
Operations
LESS DISTRIBUTIONS:
7
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<CAPTION>
<S> <C> <C> <C> <C> <C>
Dividends from net --- -- -- -- (0.06)
Investment income
Distributions from --- (2.38) (4.49) (1.71) (2.36)
Realized gains
Distributions from paid in --- (0.10) -- -- --
Capital
------------- ------------- ------------- ------------- -------------
Total distributions --- (2.48) (4.49) (1.71) (2.42)
------------- ------------- ------------- ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 22.50 $ 21.30 $ 23.35 $ 19.26 $ 15.88
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
TOTAL RETURN 5.63% 1.83% 44.55% 32.06% 41.00% (A)
NET ASSETS AT END OF PERIOD $345,725 $356,407 $240,400 $ 109,491 $44,458
(000'S OMITTED)
RATIO OF EXPENSES TO 0.78% 0.80% 0.77% 0.79% 0.79%
AVERAGE NET ASSETS
RATIO OF EXPENSES TO
AVERAGE NET ASSETS
BEFORE EXPENSE N/A N/A N/A N/A 0.84%
REIMBURSEMENTS ++
RATIO OF NET INVESTMENT INCOME (0.45%) (0.48%) (0.25%) (0.28%) 0.55%
(LOSS) TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 52.96% 46.13% 88.99% 75.58% 111.70%
</TABLE>
++ Prior to 1995, SAFECO Life Insurance Company paid all the expenses of the
Portfolio except for investment advisory fees. When net assets exceeded
$20 million, the Portfolio was charged for all operating expenses in
addition to investment advisory fees.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
N/A Not applicable as no Portfolio expenses were reimbursed.
DISTRIBUTIONS AND TAX INFORMATION
The Growth Opportunities Portfolio distributes substantially all of its net
investment income and net capital gains to its shareholders (the separate
accounts of participating insurance companies and qualified plans). All
dividends will be automatically reinvested in shares of the Growth Opportunities
Portfolio. If you own a variable insurance product, the tax consequences of
investment in the Portfolio depend upon the provisions of the variable annuity
contract or variable life insurance policy through which you invest. You should
refer to the prospectus relating to your variable insurance product for
information about taxes. Dividends and distributions made by the Portfolio to
qualified plans are not taxable to the qualified plans or to the participants of
those plans.
CALCULATION OF SHARE PRICE
The price of the Growth Opportunities Portfolio's shares is based on the
Portfolio's net asset value per share (NAV). The NAV is calculated by adding up
the value of all the Growth Opportunities Portfolio's assets, subtracting
liabilities and dividing this sum by the total number
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of shares owned by the Portfolio's shareholders. The Portfolio's NAV is
generally calculated as of the close of regular trading on the New York Stock
Exchange (NYSE) (usually 4:00 Eastern time, 1:00 Pacific time) every day the
NYSE is open. A purchase or redemption order will be priced at the next NAV
calculated after the Portfolio accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
We obtain valuations for the Portfolio's investments from pricing services.
Prices for Exchange-traded securities are based on the last reported sale price
on the national exchange on which the securities are primarily traded, unless
there are no transactions, in which case the value is based on the last reported
bid price. Prices for non-Exchange traded securities are based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the board of trustees
believes reflects fair value.
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating insurance companies to meet obligations under
their variable annuity contracts and variable life insurance policies and by
qualified plans. Owners of variable insurance products and qualified plan
participants do not deal directly with the Trust with respect to purchases or
redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- - the NYSE is closed;
- - NYSE trading is restricted; or
- - the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
9
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FOR MORE INFORMATION
If you would like more information about the Growth Opportunities Portfolio, the
following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Growth Opportunities Portfolio's investments is
available in the Trust's annual and semi-annual reports to shareholders. In the
Trust's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Growth Opportunities Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. To find out more about this
service, call the SEC at 1-800-SEC-0330. Reports and other information about the
Trust and the Portfolio are also available on the SEC's website at
http://www.sec.gov. You can also get copies, for a fee, by writing or calling
the Public Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Investment Company Act File No. 811-4717
10
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SAFECO RESOURCE SERIES TRUST
Equity Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
A WORD ABOUT THE EQUITY PORTFOLIO...............................................
OBJECTIVE.......................................................................
PRINCIPAL INVESTMENT STRATEGIES.................................................
PRINCIPAL RISKS.................................................................
PERFORMANCE.....................................................................
FEES AND EXPENSES OF THE PORTFOLIO..............................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS...............
INFORMATION ABOUT THE TRUST.....................................................
MANAGEMENT......................................................................
FINANCIAL HIGHLIGHTS............................................................
DISTRIBUTIONS AND TAX INFORMATION...............................................
CALCULATION OF SHARE PRICE......................................................
PURCHASING AND REDEEMING SHARES.................................................
2
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A WORD ABOUT THE EQUITY PORTFOLIO
The Equity Portfolio is a mutual fund used solely as an investment option for
variable annuity contracts or variable life insurance policies ("variable
insurance product") offered by insurance companies or for qualified pension and
retirement plans ("qualified plan"). You should not confuse the Equity Portfolio
with any other SAFECO mutual fund, even though one or more of such funds may
have the same or similar name, investment objective, adviser or portfolio
manager as this one. The Equity Portfolio is entirely separate from such other
funds. In particular, you should not view the investment performance of such
other funds as an indication of the performance of the Equity Portfolio or rely
upon information about any other fund in making investment decisions about the
Equity Portfolio.
OBJECTIVE
The Equity Portfolio seeks long-term growth of capital and reasonable current
income.
PRINCIPAL INVESTMENT STRATEGIES
During normal market conditions, the Equity Portfolio will invest primarily in
equity securities (which include COMMON STOCKS and PREFERRED STOCKS), and may
invest in securities convertible into common stock (including convertible
corporate bonds and convertible preferred stock). The Portfolio typically
invests in common stocks of large, established companies that are proven
performers. When selecting stocks for the Portfolio, the adviser looks for
companies having:
- - consistent earnings growth;
- - attractive dividend income; and
- - good value relative to the overall market.
The Portfolio buys stocks for which the adviser believes the three- to five-year
earnings per share outlook is good. The adviser may sell these stocks if prices
become expensive relative to the three-year outlook for earnings or if earnings
prospects deteriorate. The Portfolio also buys stocks for which the adviser
foresees a specific short-term earnings catalyst, such as a cost cutting program
or company restructure. The adviser may decide to sell these stocks if the
earnings catalyst is not successful or if the stock price reaches a specific
target. The adviser may also sell a portion of the Portfolio's holdings in a
company if the market value of that security holding becomes too large and
exceeds the proportion of the overall portfolio the adviser wants to invest in
the stock or to raise cash to meet shareholder redemptions.
- --------------------------------------------------------------------------------
COMMON STOCKS represent equity interests in a corporation. Stockholders
participate in earnings if dividends are declared and have a claim to the assets
of a corporation at dissolution, behind creditors and preferred stock owners.
<PAGE>
PREFERRED STOCKS are equity securities whose owners have a claim on a company's
earnings and assets before holders of common stock, but after creditors.
Preferred stocks generally pay more income and are less volatile than common
stocks.
- --------------------------------------------------------------------------------
PRINCIPAL RISKS
Loss of money is a risk of investing in the Equity Portfolio. The value of your
allocation to the Portfolio will go up and down with the prices of the
securities in which the Portfolio invests. The price of common stocks rises and
falls in response to many factors, including the historical and prospective
earnings of the issuers of the stock, the value of their assets, general
economic conditions, interest rates, investor perceptions and market liquidity.
The value of the Portfolio may also fall if any of the following occurs:
- - the earnings of the issuers of the stocks do not meet analysts' expectations
or are otherwise disappointing;
- - the adviser's judgment about the growth potential of the issuers or the
value of the stocks is incorrect;
- - the stock market declines; or
- - the market does not favor large capitalization stocks.
The Equity Portfolio may be suitable for you if you seek an attractive total
return on your allocation but are uncomfortable with a more aggressive growth
fund.
An investment in the Equity Portfolio is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Equity Portfolio by showing you how performance has changed
from year to year and also how it has measured against the Standard & Poor's
Composite Stock Price Index (S&P 500), a widely recognized unmanaged index of
stock performance. The bar chart shows how the Equity Portfolio has performed in
each of the last ten years, assuming reinvestment of all distributions. The
table shows the average annual total return for the portfolio relative to the
S&P 500. The Equity Portfolio's returns are net of its expenses, but do not
reflect any additional charges and expenses that may be deducted by the variable
insurance product or the qualified plan through which you invest. Total return
is a measure of investment performance over a period of time. It includes
dividends and capital gain distributions, as well as share price gain or loss.
As total return and principal value will fluctuate, shares when sold may be
worth more, or less, than their original cost. Past performance cannot tell you
how the Equity Portfolio will perform in the future.
2
<PAGE>
EQUITY PORTFOLIO PERFORMANCE
[GRAPH]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-5.21 26.85 8.06 27.92 8.94 28.63 24.79 24.85 24.89 9.31
</TABLE>
The highest quarterly return was 18.76% for the quarter ended December 31, 1998;
and the lowest return was -12.69% for the quarter ended September 30, 1990.
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Equity Portfolio 9.31% 22.30% 17.35%
S&P 500 Index* 21.04% 28.54% 18.19%
</TABLE>
* The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded
as generally representative of the U.S. stock market. The index
reflects the reinvestment of dividends, if any and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. This index is used for
comparison purposes only and the Portfolio's holdings do not
necessarily mirror the index. Performance is based on historical
earnings and does not indicate the Portfolio's future performance.
3
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIO
Deductions may be made from investments in the Portfolio and expenses paid out
of the assets of the Portfolio.
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Equity Portfolio has no initial sales charge (load) or deferred sales
charge. There are no exchange or redemption fees.
You may incur charges and expenses associated with the variable annuity contract
or variable life insurance policy or the qualified plan in which you invest.
Please refer to the variable insurance product prospectus or qualified plan
document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Equity Portfolio pays before distributing net investment income
to shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Equity
Portfolio for the year ended December 31, 1999. The Portfolio's expenses for
other years may vary.
<TABLE>
<S> <C>
MANAGEMENT FEES .74%
Distribution (12b-1) Fees 0%
OTHER EXPENSES .02%
Total Annual Portfolio Operating Expenses .76%
</TABLE>
- --------------------------------------------------------------------------------
MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
OTHER EXPENSES include custody, accounting, and administrative expenses,
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
- --------------------------------------------------------------------------------
4
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Equity
Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Equity Portfolio for the time
periods indicated and that Portfolio shares are redeemed at the end of those
periods. The Example also assumes a hypothetical 5% return each year and that
the Portfolio's operating expenses remain the same. The Example does not reflect
charges and expenses of your variable insurance product or the qualified plan
through which you invest. Although the Portfolio's actual costs and performance
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<C> <C> <C> <C>
$77.61 $242.85 $422.39 $942.25
</TABLE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Equity Portfolio may, with the approval of its board
of trustees, change its investment objective. The Portfolio may change its
investment objective without shareholder approval. If this happens, the
Portfolio may no longer be appropriate for you. Should the board of trustees
vote to change the Portfolio's objective, you will be notified in writing at
least 30 days prior to the change.
5
<PAGE>
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Equity Portfolio may take temporary defensive positions
that are inconsistent with its principal investment policies in an attempt to
respond to adverse market, economic, political or other conditions. If it does
so, the Portfolio may not achieve its investment objective in the short run.
APPLICATION OF INVESTMENT POLICY LIMITATIONS
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Equity Portfolio, including any restrictions or
requirements regarding the percentage of assets that may or must be invested in
a particular type of security. These limits or requirements apply to the initial
investment by the Equity Portfolio. Subsequent market movements that cause asset
values to change will not affect the Portfolio's compliance with such limits or
requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than it was when you bought it.
PORTFOLIO TURNOVER
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution of
higher capital gains. While the shareholders are generally exempt from tax, this
could affect the investment returns for variable insurance product owners and
qualified plan participants. Frequent trading also increases the transaction
costs of the Portfolio, which could detract from performance. The turnover rate
of
6
<PAGE>
the Portfolio for each of the past five years can be found in the Financial
Highlights section of this prospectus.
INFORMATION ABOUT THE TRUST
The Equity Portfolio is a series of the SAFECO Resource Series Trust. Shares of
the Trust are offered to life insurance companies, which may or may not be
affiliated with each other, for allocation to certain of their separate accounts
established to fund variable life insurance policies and variable annuity
contracts. Shares of the Trust may also be offered directly to qualified pension
and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell Portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust Portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust Portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust Portfolio.
MANAGEMENT
The investment adviser for the Portfolio is SAFECO Asset Management Company
(SAM), a wholly owned subsidiary of SAFECO Corporation, located at SAFECO Plaza,
Seattle, Washington 98185. SAM is located at Two Union Square, 25th Floor,
Seattle, Washington 98101. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been such advisers
since 1932. SAM provides investment research, advice and supervision in the
ongoing management of the Portfolio. Based on the Portfolio's investment
objective and policies, SAM determines what securities the Portfolio will
purchase, retain or sell and implements those decisions.
The Portfolio pays SAM an annual management fee based on a percentage of the
Portfolio's net assets, ascertained each business day and paid monthly. The
Portfolio paid SAM a fee of .74%. of the Portfolio's net assets for the year
ended December 31, 1999.
The Equity Portfolio is managed by Richard D. Meagley, Vice President of SAM.
Mr. Meagley has served as portfolio manager for the Portfolio and for SAFECO
Equity Fund since 1995. Prior to these positions he served as portfolio manager
and analyst from 1992 to 1994 for Kennedy Associates, Inc., an investment
advisory firm located in Seattle, Washington. From 1991 to 1992, he was an
Assistant Vice President of SAM and the portfolio manager of the SAFECO
Northwest Fund.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Equity Portfolio's financial performance for the past 5 years. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Equity Portfolio (assuming reinvestment of all dividends and
7
<PAGE>
distributions). This information was audited by Ernst & Young LLP, independent
auditors, whose report, along with the Portfolio's financial statements, are
included in the Trust's annual report to shareholders, which is available upon
request.
8
<PAGE>
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - EQUITY PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF $ 29.97 $ 25.18 $ 21.75 $ 19.24 $ 16.83
PERIOD
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.26 0.25 0.27 0.34 0.39
Net realized and unrealized 2.53 6.02 5.13 4.43 4.43
gain on investments
----------- ----------- ------------ ------------- -------------
Total from investment 2.79 6.27 5.40 4.77 4.82
operations
LESS DISTRIBUTIONS:
Dividends from net investment (0.26) (0.25) (0.27) (0.34) (0.39)
income
Distributions from realized (1.48) (1.23) (1.70) (1.92) (2.02)
gains
----------- ----------- ------------ ------------- -------------
Total distributions (1.74) (1.48) (1.97) (2.26) (2.41)
----------- ----------- ------------ ------------- -------------
NET ASSET VALUE AT END OF PERIOD $ 31.02 $ 29.97 $ 25.18 $ 21.75 $ 19.24
------------- ------------- ------------ ------------- -------------
------------- ------------- ------------ ------------- -------------
TOTAL RETURN 9.31% 24.89% 24.85% 24.79% 28.63%
NET ASSETS AT END OF PERIOD (000'S $ 647,078 557,314 $389,256 $263,067 $169,479
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET 0.76% 0.78% 0.75% 0.72% 0.75%
ASSETS
RATIO OF NET INVESTMENT 0.80% 0.96% 1.19% 1.72% 2.26%
INCOME TO AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 32.47% 31.57% 41.75% 56.99% 69.18%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
.DISTRIBUTIONS AND TAX INFORMATION
The Equity Portfolio distributes substantially all of its net investment income
and net capital gains to its shareholders (the separate accounts of
participating insurance companies and qualified plans). All dividends will be
automatically reinvested in shares of the Equity Portfolio. If you own a
variable insurance product, the tax consequences of investment in the Portfolio
depends upon the provisions of the variable annuity contract or variable life
insurance policy through which you invest. You should refer to the prospectus
relating to your variable insurance
9
<PAGE>
product for information about taxes. Dividends and distributions made by the
Portfolio to qualified plans are not taxable to the qualified plans or to the
participants of those plans.
CALCULATION OF SHARE PRICE
The price of the Equity Portfolio's shares is based on the Portfolio's net asset
value per share (NAV). The NAV is calculated by adding up the value of all the
Equity Portfolio's assets, subtracting liabilities and dividing this sum by the
total number of shares owned by the Portfolio's shareholders. The Portfolio's
NAV is generally calculated as of the close of regular trading on the New York
Stock Exchange (NYSE) (usually 4:00 Eastern time, 1:00 Pacific time) every day
the NYSE is open. A purchase or redemption order will be priced at the next NAV
calculated after the Portfolio accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
We obtain valuations for the Portfolio's investments from pricing services.
Prices for Exchange-traded securities are based on the last reported sale price
on the national exchange on which the securities are primarily traded, unless
there are no transactions, in which case the value is based on the last reported
bid price. Prices for non-Exchange traded securities are based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the board of trustees
believes reflects fair value.
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating insurance companies to meet obligations under
their variable annuity contracts and variable life insurance policies and by
qualified plans. Owners of variable insurance products and qualified plan
participants do not deal directly with the Trust with respect to purchases or
redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- - the NYSE is closed;
- - NYSE trading is restricted; or
- - the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
10
<PAGE>
FOR MORE INFORMATION
If you would like more information about the Equity Portfolio, the following
documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Equity Portfolio's investments is available in
the Trust's annual and semi-annual reports to shareholders. In the Trust's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Equity Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. To find out more about this
service, call the SEC at 1-800-SEC-0330. Reports and other information about the
Trust and the Portfolio are also available on the SEC's website at
http://www.sec.gov. You can also get copies, for a fee, by writing or calling
the Public Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Investment Company Act File No. 811-4717
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
Northwest Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
A WORD ABOUT THE NORTHWEST PORTFOLIO............................................
OBJECTIVE.......................................................................
PRINCIPAL INVESTMENT STRATEGIES.................................................
PRINCIPAL RISKS.................................................................
PERFORMANCE.....................................................................
FEES AND EXPENSES OF THE PORTFOLIO..............................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS...............
INFORMATION ABOUT THE TRUST.....................................................
MANAGEMENT......................................................................
FINANCIAL HIGHLIGHTS............................................................
DISTRIBUTIONS AND TAX INFORMATION...............................................
CALCULATION OF SHARE PRICE......................................................
PURCHASING AND REDEEMING SHARES.................................................
2
<PAGE>
A WORD ABOUT THE NORTHWEST PORTFOLIO
The Northwest Portfolio is a mutual fund used solely as an investment option for
variable annuity contracts or variable life insurance policies ("variable
insurance product") offered by insurance companies or for qualified pension and
retirement plans ("qualified plan"). You should not confuse the Northwest
Portfolio with any other SAFECO mutual fund, even though one or more of such
funds may have the same or similar name, investment objective, adviser or
portfolio manager as this one. The Northwest Portfolio is entirely separate from
such other funds. In particular, you should not view the investment performance
of such other funds as an indication of the performance of the Northwest
Portfolio or rely upon information about any other fund in making investment
decisions about the Northwest Portfolio.
OBJECTIVE
The Northwest Portfolio seeks long-term growth of capital through investing
primarily in Northwest companies.
PRINCIPAL INVESTMENT STRATEGIES
The Northwest Portfolio will ordinarily invest its assets in shares of COMMON
STOCKS and PREFERRED STOCKS of companies located in the Northwest, selected
primarily for potential long-term appreciation.
When selecting stocks, the adviser looks for companies with:
- - principal executive offices in Alaska, Idaho, Montana, Oregon or Washington;
- - faster earnings growth than their competitors in the U.S.; and
- - a share price that represents good value.
The Portfolio may concentrate its investments in technology companies to a
greater extent than other regional funds or more general multi-cap funds,
because technology is a clear driver of the Washington State economy. The
Portfolio's technology holdings may include telecommunications, medical
technology and computer-related companies. The Portfolio's investment in start
up companies and its participation in initial public offerings ("IPOs") made a
significant contribution to the Portfolio's performance in 1999.
In an attempt to reduce the risk of a decline in the value of securities it
holds, or to reduce the risk of a rise in the value of the securities it intends
to acquire, the Portfolio may invest in FUTURES CONTRACTS and INDEX FUTURES.
- --------------------------------------------------------------------------------
COMMON STOCKS represent equity interests in a corporation. Stockholders
participate in earnings if dividends are declared and have a claim to assets of
a corporation at dissolution, behind creditors and preferred stock owners
1
<PAGE>
PREFERRED STOCKS are equity securities whose owners have a claim on a company's
earnings and assets before holders of common stock, but after creditors.
Preferred stocks generally pay more income and are less volatile than common
stocks.
FUTURES CONTRACTS are agreements to buy or sell a specific amount of a commodity
or financial investment at a particular price on a stated future date.
INDEX FUTURES give the Portfolio the right to receive, upon exercise of the
option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than (in the case of a call) or less than (in the
case of a put) the strike price of the option at a predetermined exercise price
for a given period of time.
- --------------------------------------------------------------------------------
In deciding whether to buy a company's stock, the adviser focuses on stocks that
are attractively priced on a valuation basis--preferring companies that have low
price-to-earnings ratios when compared to other companies in the same industry.
The Portfolio may sell stocks that have reached a specific price target or that
the adviser considers to be overvalued compared with other stocks in the
industry. Stocks may become overvalued when earnings forecasts are too
optimistic or the market places unrealistic multiples on projected earnings. The
adviser may also sell a company's stock when the adviser believes that the
growth prospects for the company are no longer good, if the company fails to
realize its growth potential, if the adviser believes there are more attractive
opportunities elsewhere, or to raise cash to meet shareholder redemptions.
PRINCIPAL RISKS
Loss of money is a risk of investing in the Northwest Portfolio. The value of
your allocation to the Northwest Portfolio will go up and down with the prices
of the securities in which the Portfolio invests. The price of common stocks
rises and falls in response to many factors, including the historical and
prospective earnings of the issuers of the stock, the value of their assets,
general economic conditions, interest rates, investor perceptions and market
liquidity. The value of the Portfolio may fall if any of the following occurs:
- - the regional economy of the Northwest suffers;
- - the earnings of the issuers of the stocks do not meet analysts' expectations
or are otherwise disappointing;
- - the adviser's judgment about the growth potential of the issuers or the
value of the stocks is incorrect; or
- - the stock market declines.
The Northwest Portfolio carries special risks due to its geographic
concentration. These include a smaller universe of securities to choose from and
fluctuations in the regional economy. Many of the companies whose securities are
purchased for the Northwest Portfolio are small in size and may therefore be
more volatile. The Northwest Portfolio may be suitable for you if you seek
long-term growth and are prepared to withstand the risks associated with
geographic concentration.
2
<PAGE>
The value of the Portfolio's shares may be particularly vulnerable to factors
affecting the telecommunications industries, such as substantial government
regulation and the need for governmental approvals, dependency on consumer and
business acceptance as new technologies evolve, and large and rapid price
movements resulting, from among other things, fierce competition in these
industries. Additional factors affecting the technology industry and the value
of the Portfolio shares include rapid obsolescence of products and services,
short product cycles and aggressive pricing. Many technology companies are small
and are at an early stage of development and, therefore, may be subject to risks
such as those arising out of limited product lines, markets, and financial and
managerial resources.
Investment in futures contracts and indices is subject to the risk that the
adviser may take a position opposite to the direction in which the market or
index actually moves. Also, the price of the futures contract may not move in
the same direction as the price of the underlying security. There may not be a
liquid secondary market in which to resell futures contracts.
An investment in the Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Northwest Portfolio by showing you how performance has changed
from year to year and also how it has measured against the Standard & Poor's
Composite Stock Price Index (S&P 500), a widely recognized unmanaged index of
stock performance. The bar chart shows how the Northwest Portfolio has performed
in each of the full calendar years since commencement of operations on
January 7, 1993, assuming reinvestment of all distributions. The table shows the
average annual total return for the Northwest Portfolio relative to the S&P 500.
The Portfolio's returns are net of its expenses, but do not reflect any
additional charges and expenses that may be deducted by the variable insurance
product or the qualified plan through which you invest. Total return is a
measure of investment performance over a period of time. It includes dividends
and capital gain distributions, as well as share price gain or loss. As total
return and principal value will fluctuate, shares when sold may be worth more,
or less, than their original cost. Past performance cannot tell you how the
Northwest Portfolio will perform in the future.
3
<PAGE>
NORTHWEST PORTFOLIO PERFORMANCE
<TABLE>
<CAPTION>
'94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C>
3.65% 7.42% 12.44% 31.02% 2.89% 54.62%
</TABLE>
The highest quarterly return was 34.35% for the quarter ended December 31, 1999;
and the lowest return was -20.33% for the quarter ended September 30, 1998.
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
Commencement
of Operations (1/7/93)
1 year 5 years to December 31, 1999
------ ------- --------------------
<S> <C> <C> <C>
Northwest Portfolio 54.62% 20.28% 14.77%
S&P 500 Index* 21.04% 28.54% 21.78%
</TABLE>
* The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded
as generally representative of the U.S. stock market. The index
reflects the reinvestment of dividends, if any, and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. This index is used for
comparison purposes only and the Portfolio's holdings do not
necessarily mirror the index. Performance is based on historical
earnings and does not indicate the Portfolio's future performance.
4
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIO
Deductions may be made from investments in the Portfolio and expenses paid out
of the assets of the Portfolio.
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Northwest Portfolio has no initial sales charge (load) or deferred sales
charge. There are no exchange or redemption fees.
You may incur charges and expenses associated with the variable annuity contract
or variable life insurance policy or the qualified plan in which you invest.
Please refer to the variable insurance product prospectus or qualified plan
document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Northwest Portfolio pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses of
the Northwest Portfolio for the year ended December 31, 1999. The Portfolio's
expenses for other years may vary.
<TABLE>
<S> <C>
MANAGEMENT FEES .74 %
Distribution (12b-1) Fees 0%
OTHER EXPENSES* .10%
Total Annual Portfolio Operating Expenses .84%
</TABLE>
- --------------------------------------------------------------------------------
MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
OTHER EXPENSES include custody, accounting, and administrative expenses,
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
- --------------------------------------------------------------------------------
5
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Northwest Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Northwest Portfolio for the time
periods indicated and that Portfolio shares are redeemed at the end of those
periods. The Example also assumes a hypothetical 5% return each year and that
the Portfolio's operating expenses remain the same. The Example does not reflect
charges and expenses of your variable insurance product or the qualified pension
or retirement plan through which you invest. Although the Portfolio's actual
costs and performance may be higher or lower, based on these assumptions your
costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<C> <C> <C> <C>
$85.75 $268.09 $465.92 $1,037.16
</TABLE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Northwest Portfolio may, with the approval of its
board of trustees, change its investment objective. The Portfolio may change its
investment objective without shareholder approval. If this happens, the
Northwest Portfolio may no longer be appropriate for you. Should the board of
trustees vote to change the Portfolio's objective, you will be notified in
writing at least 30 days prior to the change.
6
<PAGE>
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Northwest Portfolio may take temporary defensive
positions that are inconsistent with its principal investment policies in an
attempt to respond to adverse market, economic, political or other conditions.
If it does so, the Portfolio may not achieve its investment objective in the
short run.
APPLICATION OF INVESTMENT POLICIES
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Northwest Portfolio, including any restrictions
or requirements regarding the percentage of assets that may or must be invested
in a particular type of security. These limits or requirements apply to the
initial investment by the Northwest Portfolio. Subsequent market movements that
cause asset values to change will not affect the Portfolio's compliance with
such limits or requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than it was when you bought it.
PORTFOLIO TURNOVER
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution of
higher capital gains. While the shareholders are generally exempt from tax, this
could affect the investment returns for variable insurance product owners and
qualified plan participants. Frequent trading also increases the transaction
costs of the Portfolio, which could detract from performance. The turnover rate
of
7
<PAGE>
the Portfolio for each of the past five years can be found in the Financial
Highlights section of this prospectus.
INFORMATION ABOUT THE TRUST
The Northwest Portfolio is a series of the SAFECO Resource Series Trust. Shares
of the Trust are offered to life insurance companies, which may or may not be
affiliated with each other, for allocation to certain of their separate accounts
established to fund variable life insurance policies and variable annuity
contracts. Shares of the Trust may also be offered directly to qualified pension
and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell Portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust Portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust Portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust Portfolio.
MANAGEMENT
The investment adviser for the Portfolio is SAFECO Asset Management Company
(SAM), a wholly owned subsidiary of SAFECO Corporation, located at SAFECO Plaza,
Seattle, Washington 98185. SAM is located at Two Union Square, 25th Floor,
Seattle, Washington 98101. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been such advisers
since 1932. SAM provides investment research, advice and supervision in the
ongoing management of the Portfolio. Based on the Portfolio's investment
objective and policies, SAM determines what securities the Portfolio will
purchase, retain or sell and implements those decisions.
The Portfolio pays SAM an annual management fee based on a percentage of the
Portfolio's net assets, ascertained each business day and paid monthly. The
Portfolio paid SAM a fee of .74% of the Portfolio's net assets for the year
ended December 31, 1999.
The Northwest Portfolio is managed by Bill Whitlow, Vice President of SAM. Mr.
Whitlow has served as portfolio manager for the Portfolio and for the SAFECO
Northwest Fund since 1997. From 1990 to 1997, he was a principal and director of
research for the brokerage firm of Pacific Crest Securities in Seattle,
Washington.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Northwest Portfolio's financial performance for the past 5 years. Certain
information reflects financial results for a single Portfolio share. The total
returns in the table represent the rate that an investor would have earned on an
investment in the Northwest Portfolio (assuming reinvestment of all dividends
and distributions). This information was audited by Ernst & Young LLP,
independent auditors, whose report, along with the Portfolio's financial
statements, are included
8
<PAGE>
in the Trust's annual report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.64 $ 15.20 $ 12.12 $ 10.85 $ 10.24
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.02) (0.05) 0.03 0.08 0.08
Net realized and unrealized gain (loss) 8.56 0.49 3.73 1.27 0.68
on investments
------------- ---------- ---------- --------- ----------
Total from investment operations 8.54 0.44 3.76 1.35 0.76
LESS DISTRIBUTIONS:
Dividends from net investment -- -- (0.03) (0.08) (0.08)
income
Distributions from realized gains (1.50) -- (0.65) -- (0.07)
------------- ---------- ---------- --------- ----------
Total distributions (1.50) -- (0.68) (0.08) (0.15)
------------- ---------- ---------- --------- ----------
NET ASSET VALUE AT END OF PERIOD $ 22.68 $ 15.64 $ 15.20 $ 12.12 $ 10.85
------------- ---------- ---------- --------- ----------
------------- ---------- ---------- --------- ----------
TOTAL RETURN 54.62% 2.89% (A) 31.02% (A) 12.44% (A) 7.42% (A)
NET ASSETS AT END OF PERIOD (000'S $47,924 $24,587 $19,795 $9,541 $6,312
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET 0.84% 0.96% 0.73% 0.70% 0.71%
ASSETS
RATIO OF EXPENSES TO AVERAGE NET
ASSETS BEFORE N/A 0.99% 0.94% 1.11% 1.18%
EXPENSE
REIMBURSEMENTS ++
RATIO OF NET INVESTMENT INCOME (LOSS) TO (0.24%) (0.32%) 0.27% 0.78% 0.81%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 37.32% 46.99% 47.85% 52.20% 21.30%
</TABLE>
++ Prior to 1998, SAFECO Life Insurance Company paid all the expenses of
the Portfolio except for investment advisory fees. When net assets
exceeded $20 million, the Portfolio was charged for all operating
expenses in addition to investment advisory fees.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
N/A Not applicable as no Portfolio expenses were reimbursed.
DISTRIBUTIONS AND TAX INFORMATION
The Northwest Portfolio distributes substantially all of its net investment
income and net capital gains to its shareholders (the separate accounts of
participating insurance companies and qualified plans). All dividends will be
automatically reinvested in shares of the Northwest Portfolio. If you own a
variable insurance product, the tax consequences of investment in the Portfolio
depends upon the provisions of the variable annuity contract or variable life
insurance policy through which you invest. You should refer to the prospectus
relating to your variable insurance product for information about taxes.
Dividends and distributions made by the
9
<PAGE>
Portfolio to qualified plans are not taxable to the qualified plans or to the
participants of those plans.
CALCULATION OF SHARE PRICE
The price of the Northwest Portfolio's shares is based on the Portfolio's net
asset value per share (NAV). The NAV is calculated by adding up the value of all
the Northwest Portfolio's assets, subtracting liabilities and dividing this sum
by the total number of shares owned by the Portfolio's shareholders. The
Portfolio's NAV is generally calculated as of the close of regular trading on
the New York Stock Exchange (NYSE) (usually 4:00 Eastern time, 1:00 Pacific
time) every day the NYSE is open. A purchase or redemption order will be priced
at the next NAV calculated after the Portfolio accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
We obtain valuations for the Portfolio's investments from pricing services.
Prices for Exchange-traded securities are based on the last reported sale price
on the national exchange on which the securities are primarily traded, unless
there are no transactions, in which case the value is based on the last reported
bid price. Prices for non-Exchange traded securities are based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the board of trustees
believes reflects fair value.
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating insurance companies to meet obligations under
their variable annuity contracts and variable life insurance policies and by
qualified plans. Owners of variable insurance products and qualified plan
participants do not deal directly with the Trust with respect to purchases or
redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- - the NYSE is closed;
- - NYSE trading is restricted; or
- - the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
10
<PAGE>
FOR MORE INFORMATION
If you would like more information about the Northwest Portfolio, the following
documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Northwest Portfolio's investments is available
in the Trust's annual and semi-annual reports to shareholders. In the Trust's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Northwest Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. To find out more about this
service, call the SEC at 1-800-SEC-0330. Reports and other information about the
Trust and the Portfolio are also available on the SEC's website at
http://www.sec.gov. You can also get copies, for a fee, by writing or calling
the Public Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Investment Company Act File No. 811-4717
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
Small Company Value Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
TABLE OF CONTENTS
A WORD ABOUT THE SMALL COMPANY VALUE PORTFOLIO..................................
OBJECTIVE.......................................................................
PRINCIPAL INVESTMENT STRATEGIES.................................................
PRINCIPAL RISKS.................................................................
PERFORMANCE.....................................................................
FEES AND EXPENSES OF THE PORTFOLIO..............................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS...............
INFORMATION ABOUT THE TRUST.....................................................
MANAGEMENT......................................................................
FINANCIAL HIGHLIGHTS............................................................
DISTRIBUTIONS AND TAX INFORMATION...............................................
CALCULATION OF SHARE PRICE......................................................
PURCHASING AND REDEEMING SHARES.................................................
2
<PAGE>
A WORD ABOUT THE SMALL COMPANY VALUE PORTFOLIO
The Small Company Value Portfolio ("Small Company Portfolio"), formerly known as
the Small Company Stock Portfolio, is a mutual fund used solely as an investment
option for variable annuity contracts or variable life insurance policies
("variable insurance product") offered by insurance companies or for qualified
pension and retirement plans ("qualified plan"). You should not confuse the
Small Company Value Portfolio with any other SAFECO mutual fund, even though one
or more of such funds may have the same or similar name, investment objective,
adviser or portfolio manager as this one. The Small Company Value Portfolio is
entirely separate from such other funds. In particular, you should not view the
investment performance of such other funds as an indication of the performance
of the Small Company Value Portfolio or rely upon information about any other
fund in making investment decisions about the Small Company Value Portfolio.
OBJECTIVE
The Small Company Value Portfolio seeks long-term growth of capital through
investing primarily in small-sized companies.
PRINCIPAL INVESTMENT STRATEGIES
The Small Company Value Portfolio invests at least 65% of its total assets in
common stocks and preferred stocks of small-sized companies with total MARKET
CAPITALIZATION at the time of investment of less than $1.5 billion.
- --------------------------------------------------------------------------------
Market capitalization is the value of a corporation as determined by the market
price of its issued and outstanding common stock. It is calculated by
multiplying the number of outstanding shares by the current market price of a
share.
- --------------------------------------------------------------------------------
When selecting stocks for the Small Company Value Portfolio, the adviser looks
for companies having:
- - long-term appreciation potential based on above-average or improving
earnings growth rates;
- - attractive relative values; and
- - a policy of reinvesting earnings back into the company rather than paying
dividends to shareholders
Less than 35% of the Small Company's Value Portfolio's net assets will be
invested in convertible corporate bonds that are rated below investment grade or
comparable unrated bonds (commonly referred to as "junk" or high-yield bonds).
1
<PAGE>
Typically, the portfolio will be broadly diversified among companies and
industries. However certain industry sectors may be more highly represented at
times than other sectors as a result of individual stock selection. This may
happen if companies within certain sectors exhibit more of the characteristics
sought by the adviser than companies in other sectors.
In determining whether to sell stocks, the adviser will consider whether the
companies have realized their growth potential, or whether their stock prices
have reached specific targets. In addition, the Portfolio may sell or reduce its
holdings in companies when the adviser believes their stock prices are too high
in relation to their prospects for growth, if a more attractive opportunity is
available, or to raise cash to meet shareholder redemptions.
PRINCIPAL RISKS
Loss of money is a risk of investing in the Small Company Value Portfolio. The
value of your investment in the Small Company Value Portfolio will go up or down
with the prices of the securities in which the Portfolio invests. The price of
common stocks rises and falls in response to many factors, including the
historical and prospective earnings of the issuers of the stock, the value of
their assets, general economic conditions, interest rates, investor perceptions
and market liquidity. In particular the value of small company stocks may be
more susceptible than are larger or well-established companies to the following
events:
- - earnings fail to meet analysts' expectations or are otherwise disappointing;
- - the adviser's judgment about the growth potential of the issuers or the
relative value of the stocks is incorrect,
- - the stock market declines;
- - small capitalization stocks or value stocks fall out of favor with the
stock market; or
- - an event occurs that causes the price of one of the Portfolio's larger
positions to decline materially.
Initial public offerings ("IPOs") made a significant contribution to the
Portfolio's performance in 1999. Future results may be different if the
Portfolio is not able to participate in "hot" IPOs (stocks which trade at high
premiums immediately after the public offering compared to the initial public
offering price.)
Many of the stocks in this Portfolio are more volatile than the general market.
Investments in small or newly formed companies involve greater risks than
investments in larger, more established issuers, and their securities can be
subject to more abrupt and erratic movements in price. You should be prepared to
see fluctuations in share price and variable investment returns. Because
small-company stocks can be quite volatile, you should allocate money to the
Small Company Value Portfolio only if you can withstand wide fluctuations in
share price.
An investment in the Small Company Value Portfolio is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
2
<PAGE>
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Small Company Value Portfolio by showing you how it has
measured against the Russell 2000 Index, a widely recognized unmanaged index of
small company stock performance. The bar chart shows how the Small Company Value
Portfolio has performed in 1998 and1999, assuming reinvestment of all
distributions. The table shows the average annual total return for the Small
Company Value Portfolio relative to the Russell 2000 Index. The Portfolio's
returns are net of its expenses, but do not reflect any additional charges and
expenses that may be deducted by the variable insurance products or the
qualified plan through which you invest. Total return is a measure of investment
performance over a period of time. It includes dividends and capital gain
distributions, as well as share price gain or loss. As total return and
principal value will fluctuate, shares when sold may be worth more, or less,
than their original cost. Past performance cannot tell you how the Portfolio
will perform in the future.
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
SMALL COMPANY VALUE PORTFOLIO PERFORMANCE
<TABLE>
'98 '99
<S> <C> <C>
Return Percentage -19.95% 15.40%
</TABLE>
The highest quarterly return was 26.56% for the quarter ended December 31, 1999;
and the lowest return was -33.79% for the quarter ended September 30, 1998.
3
<PAGE>
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
Commencement
of Operations
1 year (4/30/97) to December 1999
------ --------------------------
<S> <C> <C>
Small Company Value Portfolio 15.40% 6.60%
Russell 2000 Index* 21.13% 17.13%
</TABLE>
* The Russell 2000 Index is an unmanaged index containing 2,000 smallest
companies in the Russell 3000 Index. The Russell 3000 Index consists of
the 3000 largest U.S. stocks in terms of market capitalization. The
index reflects the reinvestment of dividends, if any, and capital gain
distributions, if any, but does not reflect fees, brokerage
commissions, or other expenses of investing. The index is used for
comparison purposes only and the Portfolio's holdings do not
necessarily mirror the index. Performance is based on historical
earnings and does not indicate the Portfolio's future performance.
FEES AND EXPENSES OF THE PORTFOLIO
Deductions may be made from investments in the Portfolio and expenses paid out
of the assets of the Portfolio.
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Small Company Value Portfolio has no initial sales charge (load) or deferred
sales charge. There are no exchange or redemption fees.
You may incur expenses and charges associated with the variable annuity contract
or variable life insurance policy or the qualified pension or retirement plan in
which you invest. Please refer to the variable insurance product prospectus or
qualified plan document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Small Company Value Portfolio pays before distributing net
investment income to shareholders are shown below. These expenses are stated as
a percentage of average daily net assets and are based on the actual expenses of
the Small Company Value Portfolio for the year ended December 31, 1999. The
Portfolio's expenses for other years may vary.
4
<PAGE>
<TABLE>
<S> <C>
MANAGEMENT FEES .85 %
Distribution (12b-1) Fees 0%
OTHER EXPENSES* .37%
Total Annual Portfolio Operating Expenses 1.22%
</TABLE>
* The amounts shown are based on the maximum management fee and other expenses
for the year. During the fiscal year ended December 31, 1999, SAFECO Asset
Management Company ("SAM") paid or reimbursed the Small Company Value
Portfolio's "Other Expenses" which exceeded .10% of the Portfolio's average
annual net assets. Therefore, the Portfolio's actual "Total Annual Portfolio
Operating Expenses" for the year ended December 31, 1999 were .95%. SAM has
agreed to make such payments or reimbursements until the Portfolio's net assets
exceed $20 million, at which time SAM will stop making those payments.
- --------------------------------------------------------------------------------
MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
OTHER EXPENSES include custody, accounting, and administrative expenses;
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Small
Company Value Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Small Company Value Portfolio
for the time periods indicated and that Portfolio shares are redeemed at the end
of those periods. The Example also assumes a hypothetical 5% return each year
and that the Portfolio's operating expenses remain the same. The Example does
not reflect charges and expenses of your variable insurance product or the
qualified plan through which you invest. Although the Portfolio's actual costs
or performance may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$124.31 $387.19 $670.33 $1,477.29
</TABLE>
5
<PAGE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Small Company Value Portfolio may, with the approval
of its board of trustees, change its investment objective. The Portfolio may
change its investment objective without shareholder approval. If this happens,
the Small Company Value Portfolio may no longer be appropriate for you. Should
the board of trustees vote to change the Portfolio's objective, you will be
notified in writing at least 30 days prior to the change.
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Small Company Value Portfolio may take temporary
defensive positions that are inconsistent with its principal investment policies
in an attempt to respond to adverse market, economic, political or other
conditions. If it does so, the Portfolio may not achieve its investment
objective in the short run.
APPLICATION OF INVESTMENT POLICY LIMITATIONS
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Small Company Value Portfolio, including any
restrictions or requirements regarding the percentage of assets that may or must
be invested in a particular type of security. These limits or requirements apply
to the initial investment by the Small Company Value Portfolio. Subsequent
market movements that cause asset values to change will not affect the
Portfolio's compliance with such limits or requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than it was when you bought it.
6
<PAGE>
PORTFOLIO TURNOVER
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution of
higher capital gains. While the shareholders are generally exempt from tax, this
could affect the investment returns for variable insurance product owners and
qualified plan participants. Frequent trading also increases the transaction
costs of the Portfolio, which could detract from performance. The turnover rate
of the Portfolio since inception can be found in the Financial Highlights
section of this prospectus.
INFORMATION ABOUT THE TRUST
The Small Company Value Portfolio is a series of the SAFECO Resource Series
Trust. Shares of the Trust are offered to life insurance companies, which may or
may not be affiliated with each other, for allocation to certain of their
separate accounts established to fund variable life insurance policies and
variable annuity contracts. Shares of the Trust may also be offered directly to
qualified pension and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell Portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust Portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust Portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust Portfolio.
MANAGEMENT
The investment adviser for the Small Company Value Portfolio is SAFECO Asset
Management Company (SAM), a wholly owned subsidiary of SAFECO Corporation,
located at SAFECO Plaza, Seattle, Washington 98185. SAM is located at Two Union
Square, 25th Floor, Seattle, Washington 98101. SAM has been an adviser to mutual
funds and other investment portfolios since 1973 and its predecessors have been
such advisers since 1932. SAM provides investment research, advice and
supervision in the ongoing management of the Portfolio. Based on the Portfolio's
investment objective and policies, SAM determines what securities the Portfolio
will purchase, retain or sell and implements those decisions.
The Small Company Value Portfolio pays SAM an annual management fee based on a
percentage of the Portfolio's net assets, ascertained each business day and paid
monthly. The Portfolio paid SAM a fee of .85% of the Portfolio's net assets for
the year ended December 31, 1999.
The Small Company Value Portfolio is managed by Greg Eisen, Assistant Vice
President of SAM. Mr. Eisen has served as portfolio manager for the Portfolio
and for SAFECO Small
7
<PAGE>
Company Value Fund, formerly known as the SAFECO Small Company Stock Fund, since
1996. From 1992 to 1996, he served as investment analyst for SAM. From 1986 to
1992, he was a financial analyst for SAFECO Insurance Companies.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Portfolio's financial performance since inception. Certain information reflects
financial results for a single Portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Portfolio (assuming reinvestment of all dividends and distributions). This
information was audited by Ernst & Young LLP, independent auditors, whose
report, along with the Portfolio's financial statements, are included in the
Trust's annual report to shareholders, which is available upon request.
8
<PAGE>
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - SMALL COMPANY VALUE PORTFOLIO
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT
YEAR ENDED OF OPERATIONS TO
DECEMBER 31 DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF $9.87 $12.33 $10.00
PERIOD
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.01) (0.03) 0.01
Net realized and unrealized gain 1.53 (2.43) 2.83
(loss) on investments
--------------- -------------------------
Total from investment operations 1.52 (2.46) 2.84
LESS DISTRIBUTIONS:
Dividends from net investment --- --- (0.01)
income
Distributions from realized gains --- --- (0.50)
--------------- -------------------------
Total distributions --- --- (0.51)
NET ASSET VALUE AT END OF PERIOD $11.39 $9.87 $12.33
--------------- -------------------------
TOTAL RETURN (A) 15.40% (19.95%) 28.40% **
NET ASSETS AT END OF PERIOD (000'S $14,054 $11,780 $10,250
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95% 0.95% 0.95% *
RATIO OF EXPENSES TO AVERAGE NET ASSETS BEFORE 1.22% 1.15% 1.24% *
EXPENSE
REIMBURSEMENTS ++
RATIO OF NET INVESTMENT INCOME TO (0.14%) (0.32%) 0.19% *
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 127.80% 92.14% 47.91% *
- ------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Not annualized.
++ Currently, SAM pays all the expenses of the Portfolio in excess of .10%
of the Portfolio's average annual net assets except for investment
advisory fees. When net assets exceed $20 million, the Portfolio will be
charged for all operating expenses in addition to investment advisory
fees.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
9
<PAGE>
DISTRIBUTIONS AND TAX INFORMATION
The Small Company Value Portfolio distributes substantially all of its net
investment income and net capital gains to its shareholders (the separate
accounts of participating insurance companies and qualified plans). All
dividends will be automatically reinvested in shares of the Small Company Value
Portfolio. If you own a variable insurance product, the tax consequences of
investment in the Portfolio depends upon the provisions of the variable annuity
contract or variable life insurance policy through which you invest. You should
refer to the prospectus relating to your variable insurance product for
information about taxes. Dividends and distributions made by the Portfolio to
qualified plans are not taxable to the qualified plans or to the participants of
those plans.
CALCULATION OF SHARE PRICE
The price of the Small Company Value Portfolio's shares is based on the
Portfolio's net asset value per share (NAV). The NAV is calculated by adding up
the value of all the Small Company Value Portfolio's assets, subtracting
liabilities and dividing this sum by the total number of shares owned by the
Portfolio's shareholders. The Portfolio's NAV is generally calculated as of the
close of regular trading on the New York Stock Exchange (NYSE) (usually 4:00
Eastern time, 1:00 Pacific time) every day the NYSE is open. A purchase or
redemption order will be priced at the next NAV calculated after the Portfolio
accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
We obtain valuations for the Portfolio's investments from pricing services.
Prices for Exchange-traded securities are based on the last reported sale price
on the national exchange on which the securities are primarily traded, unless
there are no transactions, in which case the value is based on the last reported
bid price. Prices for non-Exchange traded securities are based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the board of trustees
believes reflects fair value.
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating insurance companies to meet obligations under
their variable annuity contracts and variable life insurance policies and by
qualified plans. Owners of variable insurance products and qualified plan
participants do not deal directly with the Trust with respect to purchases or
redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- - the NYSE is closed;
- - NYSE trading is restricted; or
- - the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
10
<PAGE>
FOR MORE INFORMATION
If you would like more information about the Small Company Value Portfolio, the
following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Small Company Value Portfolio's investments is
available in the Trust's annual and semi-annual reports to shareholders. In the
Trust's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. To find out more about this
service, call the SEC at 1-800-SEC-0330. Reports and other information about the
Trust and the Portfolio are also available on the SEC's website at
http://www.sec.gov. You can also get copies, for a fee, by writing or calling
the Public Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Investment Company Act File No. 811-4717
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
Bond Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
1
<PAGE>
TABLE OF CONTENTS
A WORD ABOUT THE BOND PORTFOLIO.................................................
OBJECTIVE.......................................................................
PRINCIPAL INVESTMENT STRATEGIES.................................................
PRINCIPAL RISKS.................................................................
PERFORMANCE.....................................................................
FEES AND EXPENSES OF THE PORTFOLIO..............................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS...............
INFORMATION ABOUT THE TRUST.....................................................
MANAGEMENT......................................................................
FINANCIAL HIGHLIGHTS............................................................
DISTRIBUTIONS AND TAX INFORMATION...............................................
CALCULATION OF SHARE PRICE......................................................
PURCHASING AND REDEEMING SHARES.................................................
2
<PAGE>
A WORD ABOUT THE BOND PORTFOLIO
The Bond Portfolio is a mutual fund used solely as an investment option for
variable annuity contracts or variable life insurance policies ("variable
insurance product") offered by insurance companies or for qualified pension and
retirement plans ("qualified plan"). You should not confuse the Bond Portfolio
with any other SAFECO mutual fund, even though one or more of such funds may
have the same or similar name, investment objective, adviser or portfolio
manager as this one. The Bond Portfolio is entirely separate from such other
funds. In particular, you should not view the investment performance of such
other funds as an indication of the performance of the Bond Portfolio or rely
upon information about any other fund in making investment decisions about the
Bond Portfolio.
OBJECTIVE
The Bond Portfolio seeks to provide as high a level of current income as is
consistent with the relative stability of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Bond Portfolio will invest primarily in medium-term debt securities. The
Bond Portfolio may invest up to half of its assets in mortgage related
securities, including GNMA securities, mortgage pass-through securities issued
by governmental and non-governmental issuers and collateralized mortgage
obligations (CMOs), that are rated in the top three investment grades by either
Moody's Investors Service, Inc. ("Moody's), Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc. ("S&P"), or Fitch IBCA, Inc.
("Fitch"). Bond ratings indicate an issuer's financial strength and ability to
meet its debt obligations. Investment grade securities are rated by the three
main services as follows:
<TABLE>
<CAPTION>
MOODY'S S&P FITCH
----------------------------------------
<S> <C> <C>
Aaa AAA AAA
Aa AA AA
A A A
Baa BBB BBB
</TABLE>
The Bond Portfolio may also invest significantly in debt securities of the
following sectors: domestic industrials, domestic utilities, supranationals,
Yankee and foreign. The Portfolio may also invest in below investment grade
corporate debt securities.
The adviser analyzes each security it considers for purchase in two ways. First,
the adviser looks at the security on a stand-alone basis:
- - Is it priced attractively given its rating and market sector?
- - Does the price and interest rate adequately compensate for any structural
characteristics of the security, such as the right of an investor to require
the issuer buy the security back at a stated price or the right of an issuer
to buy the security back at a stated price?
1
<PAGE>
Next, the adviser looks at how the security fits in with the other assets in the
Portfolio:
- - What effects would a purchase of this security have on overall yield,
DURATION and CONVEXITY of the Portfolio?
- - How would an investment in this security affect the Portfolio's yield
curve, curve exposure, sector weightings and diversification?
- --------------------------------------------------------------------------------
DURATION means the sensitivity of debt securities held by a Portfolio to a
change in interest rates. (Debt securities are interest-paying instruments
issued by corporations or other issuers.) The value of a security with a longer
duration will normally fluctuate to a greater degree than the value of a
security with a shorter duration should interest rates change. For example, if
interest rates were to move 1%, a bond with a three-year duration would
experience approximately a 3% change in its principal value. An identical bond
with a five-year duration would experience approximately a 5% change in its
principal value. Generally, the stated maturity of a debt security is longer
than its projected duration.
CONVEXITY measures the sensitivity of a bond's price to changes in interest rate
levels.
- --------------------------------------------------------------------------------
The Portfolio may sell a security if the adviser is concerned about an issuer's
credit risk, if the security becomes fully valued, if a more attractive
alternative is available, or to raise cash to meet shareholder redemptions.
PRINCIPAL RISKS
Loss of money is a risk of investing in the Bond Portfolio. The Bond Portfolio
is subject to interest rate risk. Generally, when market interest rates rise the
price of the Bond Portfolio's debt securities will fall, and when market
interest rates fall the price of the Bond Portfolio's debt securities will rise.
Such changes in price generally will be greater the longer the maturity of the
debt security. In addition, the Bond Portfolio carries risks associated with the
following types of securities:
- - GNMA and other mortgage-backed securities. Because the Portfolio must
reinvest principal payments it receives from its mortgage-related securities
at prevailing interest rates, which may be higher or lower than the current
yield of the Portfolio, mortgage-related securities may not be an effective
means to lock in long-term interest rates. In addition, during periods of
changing interest rates, mortgage holders may be more likely to pay off
their loans early. These prepayment fluctuations may decrease overall
investment returns of the Portfolio.
- - Bonds of foreign issuers, including Yankee sector bonds and Eurodollar
bonds. In addition to credit risk, market risk and liquidity risk, the
risks of foreign bonds include lack of information about foreign issuers,
questionable accounting and auditing practices in other countries,
difficulty enforcing claims against foreign issuers in the event of default,
and the possibility that political, social or other events will disrupt the
economy of the foreign country and cause investments in that country to lose
money. Yankee sector bonds also carry the risk of nationalization of the
issuer, confiscatory taxation by the foreign government and establishment of
controls by the foreign government that would inhibit the remittance due to
the Bond Portfolio. Eurodollar bonds are subject to the risk that a foreign
government might
2
<PAGE>
prevent dollar-denominated funds from flowing across its borders. To the
extent that the Portfolio owns bonds denominated in foreign currencies, it
could lose money as a result of unfavorable currency exchange rates.
- - Below investment grade securities. Risks associated with below investment
grade securities (commonly referred to as "junk" bonds) include greater
volatility, reduced liquidity and a higher risk of default.
- - Asset-backed securities. The underlying borrower(s) may default on the loan
and the recovered collateral may not be sufficient to cover the interest
and principal payments.
This Portfolio may be suitable for you if you want higher current income than a
stable-priced money market fund, but greater price stability than a longer-term
bond fund.
An investment in the Bond Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
<PAGE>
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Bond Portfolio by showing you how performance has changed from
year to year and also how it has measured against the Lehman Brothers
Govt./Corp. Index, a widely recognized index. The bar chart shows how the Bond
Portfolio has performed in each of the last ten years, assuming reinvestment of
all distributions. The table shows the average annual total return for the Bond
Portfolio relative to the Lehman Brothers Govt./Corp. Index. The Portfolio's
returns are net of its expenses, but do not reflect any additional charges and
expenses that may be deducted by the variable insurance product or the qualified
plan through which you invest. Total return is a measure of investment
performance over a period of time. It includes dividends and capital gain
distributions, as well as share price gain or loss. As total return and
principal value will fluctuate, shares when sold may be worth more, or less,
than their original cost. Past performance cannot tell you how the Bond
Portfolio will perform in the future.
BOND PORTFOLIO PERFORMANCE
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.57 13.98 6.82 10.55 -2.93 17.87 0.54 8.41 8.90 -3.99
</TABLE>
The highest quarterly return was 5.96% for the quarter ended June 30, 1995; and
the lowest return was -3.15% for the quarter ended March 31, 1994.
4
<PAGE>
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
1 year 5 years 10 years
------ ------- --------
<S> <C> <C> <C>
Bond Portfolio -3.99% 6.08% 6.46%
Lehman Brothers
Govt./Corp. Index* -2.15% 7.61% 7.65%
</TABLE>
* The Lehman Brothers Govt./Corp. Index is an unmanaged index comprised
of every major U.S. government and investment-grade corporate bond with
more than one year remaining until maturity. The index does not reflect
fees, brokerage commissions or other costs of investing. This index is
used for comparison purposes only and the Portfolio's holdings do not
necessarily mirror the index Performance is based on historical
earnings and does not indicate the Portfolio's future performance.
FEES AND EXPENSES OF THE PORTFOLIO
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Portfolio has no initial sales charge (load) or deferred sales charge. There
are no exchange or redemption fees.
You may incur charges and expenses associated with the variable annuity contract
or variable life insurance policy or the qualified plan in which you invest.
Please refer to the variable insurance product prospectus or qualified plan
document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Bond Portfolio pays before distributing net investment income
to shareholders are shown below. These expenses are stated as a percentage of
average daily net assets and are based on the actual expenses of the Portfolio
for the year ended December 31, 1999. The Portfolio's expenses for other years
may vary.
<TABLE>
<S> <C>
MANAGEMENT FEES .74%
Distribution (12b-1) Fees 0%
OTHER EXPENSES* .17%
Total Annual Portfolio Operating Expenses. .91%
</TABLE>
- --------------------------------------------------------------------------------
MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
5
<PAGE>
OTHER EXPENSES include custody, accounting, and administrative expenses,
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
- --------------------------------------------------------------------------------
EXAMPLE
This Example is intended to help you compare the cost of investing in the Bond
Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Bond Portfolio for the time
periods indicated and that Portfolio shares are redeemed at the end of those
periods. The Example also assumes a hypothetical 5% return each year and that
the Portfolio's operating expenses remain the same. The Example does not reflect
charges and expenses of the variable insurance product or qualified plan through
which you invest. Although the Portfolio's actual costs and performance may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$92.86 $290.13 $503.87 $1,119.56
</TABLE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Bond Portfolio may, with the approval of its board of
trustees, change its investment objective. The Portfolio may change its
investment objective without shareholder approval. If this happens, the Bond
Portfolio may no longer be appropriate for you. Should the board of trustees
vote to change the Portfolio's objective, you will be notified in writing at
least 30 days prior to the change.
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Bond Portfolio may take temporary defensive positions
that are inconsistent with its principal investment policies in an attempt to
respond to adverse market, economic, political or other conditions. If it does
so, the Portfolio may not achieve its investment objective in the short run.
APPLICATION OF INVESTMENT POLICY LIMITATIONS
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Portfolio, including any restrictions or
requirements regarding the percentage of assets that may or must be invested in
a particular type of security. These limits or requirements apply to the initial
investment by the Portfolio. Subsequent market movements that cause asset values
to change will not affect the Portfolio's compliance with such limits or
requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than
6
<PAGE>
it was when you bought it.
PORTFOLIO TURNOVER
The Portfolio may engage in active and frequent trading to achieve its principal
investment strategies. This may lead to the realization and distribution of
higher capital gains. While the shareholders are generally exempt from tax, this
could affect the investment returns for variable insurance product owners and
qualified plan participants. Frequent trading also increases the transaction
costs of the Portfolio, which could detract from performance. The turnover rate
of the Portfolio for each of the past five years can be found in the Financial
Highlights section of this prospectus.
INFORMATION ABOUT THE TRUST
The Bond Portfolio is a series of the SAFECO Resource Series Trust. Shares of
the Trust are offered to life insurance companies, which may or may not be
affiliated with each other, for allocation to certain of their separate accounts
established to fund variable life insurance policies and variable annuity
contracts. Shares of the Trust may also be offered directly to qualified pension
and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust portfolio.
7
<PAGE>
MANAGEMENT
The investment adviser for the Bond Portfolio is SAFECO Asset Management Company
("SAM"), a wholly owned subsidiary of SAFECO Corporation, located at SAFECO
Plaza, Seattle, Washington 98185. SAM is located at Two Union Square, 25th
Floor, Seattle, Washington 98101. SAM has been an adviser to mutual funds and
other investment portfolios since 1973 and its predecessors have been such
advisers since 1932. SAM provides investment research, advice and supervision in
the ongoing management of the Portfolio. Based on the Portfolio's investment
objective and policies, SAM determines what securities the Portfolio will
purchase, retain or sell and implements those decisions.
The Portfolio pays SAM an annual management fee based on a percentage of the
Portfolio's net assets, ascertained each business day and paid monthly. The
Portfolio paid SAM a fee of .74% of the Portfolio's net assets for the year
ended December 31, 1999.
The Bond Portfolio is managed by Michael Hughes, Assistant Vice President of
SAM. Mr. Hughes has served as portfolio manager for the Portfolio and for SAFECO
Managed Bond Fund since 1997. From 1995 to 1996, he was Vice President and a
portfolio manager for First Interstate Capital Management Company, and from 1988
to 1995 he was Vice President and portfolio manager for First Interstate Bank of
California.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned on an investment
in the Portfolio (assuming reinvestment of all dividends and distributions).
This information was audited by Ernst & Young LLP, independent auditors, whose
report, along with the Portfolio's financial statements, are included in the
Trust's annual report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - BOND PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.41 $ 11.04 $ 10.75 $ 11.31 $ 10.20
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.62 0.50 0.61 0.62 0.71
Net realized and unrealized gain (1.07) 0.49 0.29 (0.56) 1.11
(loss) on investments
--------- ------------ ------------ ----------- ------------
Total from investment operations (0.45) 0.99 0.90 0.06 1.82
LESS DISTRIBUTIONS:
Dividends from net investment (0.62) (0.50) (0.61) (0.62) (0.71)
Income
Distributions from realized gains (0.01) (0.12) -- -- --
--------- ------------ ------------ ----------- ------------
Total distributions (0.63) (0.62) (0.61) (0.62) (0.71)
--------- ------------ ------------ ----------- ------------
NET ASSET VALUE AT END OF PERIOD $ 10.33 $ 11.41 $ 11.04 $ 10.75 $ 11.31
----------- ------------ ------------ ----------- ------------
----------- ------------ ------------ ----------- ------------
8
<PAGE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TOTAL RETURN (3.99%) 8.90% (A) 8.41% (A) 0.54% (A) 17.87% (A)
NET ASSETS AT END OF PERIOD (000'S $28,131 $30,117 $17,881 $15,991 $14,257
OMITTED)
RATIO OF EXPENSES TO AVERAGE NET 0.91% 0.83% 0.74% 0.73% 0.72%
ASSETS
RATIO OF EXPENSES TO AVERAGE NET
ASSETS BEFORE EXPENSE
REIMBURSEMENTS ++ N/A 0.98% 0.90% 0.87% 0.94%
RATIO OF NET INVESTMENT INCOME TO 5.33% 5.50% 5.75% 5.64% 6.50%
AVERAGE NET ASSETS
PORTFOLIO TURNOVER RATE 147.40% 164.82% 151.43% 140.90% 77.93%
</TABLE>
++Prior to 1998, SAFECO Life Insurance Company paid all the expenses of the
Portfolio except for investment advisory fees. When net assets exceeded $20
million, the Portfolio was charged for all operating expenses in addition
to investment advisory fees.
(A) Total return would have been lower had certain expenses not been reduced
during the periods shown.
N/A Not applicable as no Portfolio expenses were reimbursed.
DISTRIBUTIONS AND TAX INFORMATION
The Bond Portfolio distributes substantially all of its net investment income
and net capital gains to its shareholders (the separate accounts of
participating insurance companies and qualified plans). The Portfolio declares
dividends each business day and capital gains on the last business day of each
year. All dividends will be automatically reinvested in shares of the Bond
Portfolio. If you own a variable insurance product, the tax consequences of
investment in the Portfolio depends upon the provisions of the variable annuity
contract or variable life insurance policy through which you invest. You should
refer to the prospectus relating to your variable insurance product for
information about taxes. Dividends and distributions made by the Portfolio to
qualified plans are not taxable to the qualified plans or to the participants of
those plans.
CALCULATION OF SHARE PRICE
The price of the Bond Portfolio's shares is based on the Portfolio's net asset
value per share (NAV). The NAV is calculated by adding up the value of all the
Bond Portfolio's assets, subtracting liabilities and dividing this sum by the
total number of shares owned by the Portfolio's shareholders. The Portfolio's
NAV is generally calculated as of the close of regular trading on the New York
Stock Exchange (NYSE) (usually 4:00 Eastern time, 1:00 Pacific time) every day
the NYSE is open. A purchase or redemption order will be priced at the next NAV
calculated after the Portfolio accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
We obtain valuations for the Portfolio's investments from pricing services.
Prices for Exchange-traded securities are based on the last reported sale price
on the national exchange on which the securities are primarily traded, unless
there are no transactions, in which case the value is based on the last reported
bid price. Prices for non-Exchange traded securities are based on similar
securities and quotations from dealers. Investments for which a representative
value cannot be established are priced using a method the board of trustees
believes reflects fair value.
9
<PAGE>
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating insurance companies to meet obligations under
their variable annuity contract and variable life insurance policies and by
qualified plans. Owners of variable insurance products and qualified plan
participants do not deal directly with the Trust with respect to purchases or
redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- - the NYSE is closed;
- - NYSE trading is restricted; or
- - the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
10
<PAGE>
FOR MORE INFORMATION
If you would like more information about the Bond Portfolio, the following
documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Portfolio's investments is available in the
Trust's annual and semi-annual reports to shareholders. In the Trust's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Portfolio's performance during its
last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAI at the Public Reference Room
of the Securities and Exchange Commission. To find out more about this service,
call the SEC at 1-800-SEC-0330. Reports and other information about the Trust
and the Portfolio are also available on the SEC's website at http://www.sec.gov.
You can also get copies, for a fee, by writing or calling the Public Reference
Section, Securities and Exchange Commission, Washington, DC 20549-6009.
Investment Company Act File No. 811-4717
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
Money Market Portfolio
PROSPECTUS
May 1, 2000
AS WITH ALL MUTUAL FUND SHARES, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE PORTFOLIO SHARES OFFERED IN THIS PROSPECTUS AS AN
INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANYONE
WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S><C>
A WORD ABOUT THE MONEY MARKET PORTFOLIO......................................
OBJECTIVE....................................................................
PRINCIPAL INVESTMENT STRATEGIES..............................................
PRINCIPAL RISKS..............................................................
PERFORMANCE..................................................................
FEES AND EXPENSES OF THE PORTFOLIO...........................................
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS............
INFORMATION ABOUT THE TRUST..................................................
MANAGEMENT...................................................................
FINANCIAL HIGHLIGHTS.........................................................
DISTRIBUTIONS AND TAX INFORMATION............................................
CALCULATION OF SHARE PRICE...................................................
PURCHASING AND REDEEMING SHARES..............................................
</TABLE>
2
<PAGE>
A WORD ABOUT THE MONEY MARKET PORTFOLIO
The Money Market Portfolio is a mutual fund used solely as an investment option
for variable annuity contracts or variable life insurance policies ("variable
insurance product") offered by insurance companies or for qualified pension and
retirement plans ("qualified plan"). You should not confuse the Money Market
Portfolio with any other SAFECO mutual fund, even though one or more of such
funds may have the same or similar name, investment objective, adviser or
portfolio manager as this one. The Money Market Portfolio is entirely separate
from such other funds. In particular, you should not view the investment
performance of such other funds as an indication of the performance of the Money
Market Portfolio or rely upon information about any other fund in making
investment decisions about the Money Market Portfolio.
OBJECTIVE
The Money Market Portfolio seeks as high a level of current income as is
consistent with the preservation of capital and liquidity through investment in
high-quality money market instruments maturing in 13 months or less.
PRINCIPAL INVESTMENT STRATEGIES
The Money Market Portfolio will purchase only high-quality securities having
minimal credit risk. The Portfolio will purchase only securities with remaining
maturities of 397 days or less and will maintain a dollar-weighted average
portfolio maturity of no more than 90 days.
The Money Market Portfolio may invest in:
- COMMERCIAL PAPER of both domestic and foreign issuers;
- negotiable and non-negotiable CERTIFICATES OF DEPOSIT, bankers'
acceptances and other short-term obligations of U.S. and foreign
banks;
- REPURCHASE AGREEMENTS;
- VARIABLE AND FLOATING RATE INSTRUMENTS;
- U.S. GOVERNMENT SECURITIES;
- Restricted securities eligible for resale under RULE 144A or SECTION
4(2), provided that the adviser has determined that such securities
are liquid under guidelines adopted by the Portfolio's board of
trustees.
- CORPORATE OBLIGATIONS such as publicly traded bonds and notes;
1
<PAGE>
- mortgaged-backed and other ASSET-BACKED SECURITIES; and
- WHEN-ISSUED SECURITIES and delayed delivery securities.
- ------------------------------------------------------------------------------
COMMERCIAL PAPER is a short-term unsecured promissory note issued by a financial
institution or large corporation, and may include funding agreements by
insurance companies.
CERTIFICATES OF DEPOSIT are receipts for deposits of funds in a financial
institution. They permit the holder to receive interest plus the deposit at
maturity.
REPURCHASE AGREEMENTS are arrangements in which the portfolio buys securities at
one price and simultaneously agrees to sell them back at a higher price.
VARIABLE AND FLOATING RATE INSTRUMENTS have interest rates that change
periodically in order to keep their market value at par.
U.S. GOVERNMENT SECURITIES are securities issued by the U.S. government or its
agencies and instrumentalities, such as the Federal Home Loan Bank or the
Federal Land Bank.
RULE 144A SECURITIES are securities that are exempt from registration
requirements. After a minimum two-year waiting period, they can be sold to
qualified institutional investors, such as mutual funds.
SECTION 4(2) SECURITIES are exempt from registration requirements and sold in
private placements to qualified institutional investors, such as mutual funds.
CORPORATE OBLIGATIONS are debt instruments issued by a private corporation, as
distinct from ones issued by a government agency or municipality.
ASSET-BACKED SECURITIES represent interests in pools of consumer loans,
automobile loans, credit card loans and installment loan contracts.
WHEN ISSUED SECURITIES are securities whose terms and conditions, including
price, are fixed by the issuer, but are to be issued or delivered against
payment in the future - typically 30 to 45 days after the date of commitment.
- ------------------------------------------------------------------------------
When evaluating a security for purchase, the adviser takes into consideration,
among other things, yield, maturity, issuer credit quality and relative value
compared with other alternatives. The adviser may sell a security if the adviser
becomes concerned about an issuer's credit risk, if a more attractive
alternative is available, or to raise cash to meet shareholder redemptions.
2
<PAGE>
PRINCIPAL RISKS
Although the Money Market Portfolio seeks to preserve the value of your
allocation at $1.00 per share, it is possible to lose money by investing in the
Portfolio. The Money Market Portfolio's yield will fluctuate with short-term
interest rates. The performance of the Portfolio may suffer if any of the
following occurs:
- the issuer or guarantor of a security owned by the Portfolio defaults,
becomes insolvent, has its credit rating downgraded by a rating
agency, or experiences a credit deterioration;
- interest rates increase suddenly or sharply;
- the value of foreign securities held by the Portfolio declines because
of political instability, government actions, or the lack of available
information about the issuers;
- the adviser's judgment about the relative values of the securities
selected for the Portfolio is incorrect.
The Portfolio may be suitable for you if you seek maximum safety and stability
of principal.
The Money Market Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
PERFORMANCE
The following bar chart and table should help give you a sense of the risks of
investing in the Money Market Portfolio by showing you how performance has
changed from year to year and by showing you how the Money Market Portfolio's
performance compares over time. The bar chart shows how the Money Market
Portfolio has performed in each of the last ten years, assuming reinvestment of
all distributions. The table shows the average annual total return for the
Portfolio. The Portfolio's returns are net of its expenses, but do not reflect
any additional charges and expenses that may be deducted by the variable
insurance product or the qualified plan through which you invest. Total return
is a measure of investment performance over a period of time. It includes
dividends as well as share price gain or loss. Past performance cannot tell you
how the Portfolio will perform in the future.
3
<PAGE>
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
MONEY MARKET PORTFOLIO PERFROMANCE
<TABLE>
<CAPTION>
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.86% 5.67% 3.26% 2.61% 3.65% 5.56% 4.94% 5.08% 4.95% 4.63%
</TABLE>
The highest quarterly return was 1.9% for the quarter ended December 31, 1990;
and the lowest return was .64% for the quarter ended June 30, 1993.
Average Annual Total Returns
As of 12/31/99
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Money Market Portfolio 4.63% 5.03% 4.81%
7-day yield
(period ended
December 31,
1999)
-------------
Money Market Portfolio 5.21%
</TABLE>
You may obtain the most current 7-day yield information for the Portfolio by
calling 1-800-426-8061.
4
<PAGE>
FEES AND EXPENSES OF THE PORTFOLIO
Deductions may be made from investment in the Portfolio and expenses paid out of
the assets of the Portfolio.
SHAREHOLDER FEES (fees paid directly from investment in the Portfolio)
The Money Market Portfolio has no initial sales charge (load) or deferred sales
charge. There are no exchange or redemption fees.
You may incur charges and expenses associated with the variable annuity
contract, variable life insurance policy, or the qualified plan in which you
invest. Please refer to the variable insurance product prospectus or qualified
plan document for details.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio
assets)
The expenses the Money Market Portfolio pays before distributing net investment
income to shareholders are shown below. These expenses are stated as a
percentage of average daily net assets and are based on the actual expenses of
the Money Market Portfolio for the year ended December 31, 1999. The Portfolio's
expenses for other years may vary.
<TABLE>
<S> <C>
MANAGEMENT FEES .65%
Distribution (12b-1) Fees 0%
OTHER EXPENSES* .13%
Total Annual Portfolio Operating Expenses .78%
</TABLE>
- --------------------------------------------------------------------------------
MANAGEMENT FEES are for investment advisory services including the provision of
research, supervision and assistance in the management of the Portfolio.
OTHER EXPENSES include custody, accounting, and administrative expenses,
shareholder servicing expenses; expenses related to preparing, printing and
delivering prospectuses and shareholders reports; the expenses of holding
shareholder meetings; legal and audit fees, trustees' compensation; federal and
state registration fees; and extraordinary expenses.
- ------------------------------------------------------------------------------
5
<PAGE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Money
Market Portfolio with the cost of investing in other mutual funds.
The Example assumes a $10,000 allocation to the Money Market Portfolio for the
time periods indicated and that Portfolio shares are redeemed at the end of
those periods. The Example also assumes a hypothetical 5% return each year and
that the Portfolio's operating expenses remain the same. The Example does not
reflect charges and expenses of the variable insurance product or qualified plan
through which you invest. Although the Portfolio's actual costs and performance
may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$79.65 $249.16 $433.29 $966.05
</TABLE>
ADDITIONAL FACTS ABOUT INVESTMENT OBJECTIVE, STRATEGIES AND RISKS
INVESTMENT OBJECTIVE CHANGES
In rare circumstances, the Money Market Portfolio may, with the approval of its
board of trustees, change its investment objective. The Portfolio may change its
investment objective without shareholder approval. If this happens, the Money
Market Portfolio may no longer be appropriate for you. Should the board of
trustees vote to change the Portfolio's objective, you will be notified in
writing at least 30 days prior to the change.
TEMPORARY DEFENSIVE STRATEGIES
From time to time, the Money Market Portfolio may take temporary defensive
positions that are inconsistent with its principal investment policies in an
attempt to respond to adverse market, economic, political or other conditions.
If it does so, the Portfolio may not achieve its investment objective in the
short run.
APPLICATION OF INVESTMENT POLICY LIMITATIONS
This prospectus and the Statement of Additional Information describe some of the
investment policies used by the Money Market Portfolio, including any
restrictions or requirements regarding the percentage of assets that may or must
be invested in a particular type of security. These limits or requirements apply
to the initial investment by the Money Market Portfolio. Subsequent market
movements that cause asset values to change will not affect the Portfolio's
compliance with such limits or requirements.
MARKET RISK
All securities transactions involve market risk. The major risk associated with
portfolios is that the securities in the portfolio may decline in value, causing
your investment to be worth less than it was when you bought it.
6
<PAGE>
INFORMATION ABOUT THE TRUST
The Money Market Portfolio is a series of the SAFECO Resource Series Trust.
Shares of the Trust are offered to life insurance companies, which may or may
not be affiliated with each other, for allocation to certain of their separate
accounts established to fund variable life insurance policies and variable
annuity contracts. Shares of the Trust may also be offered directly to qualified
pension and retirement plans.
Although not currently anticipated by the Trust, there may be times in the
future when the interests of variable insurance product owners and qualified
plan participants will conflict because of future differences in tax treatment,
or for other reasons. The Trust's board of trustees will monitor events in order
to identify any such conflicts and determine what action, if any, should be
taken. If one or more insurance company separate accounts or qualified plans
were to withdraw their investments in the Trust as a result of any such
conflict, the Trust might be forced to sell portfolio securities at
disadvantageous prices. In addition, the Trust may refuse to sell shares of any
of the Trust portfolios to any separate account or qualified plan or terminate
the offering of shares of any of the Trust portfolios if such action is required
by law or a regulatory authority or if its board of trustees determines that it
is in the best interests of the shareholders of any Trust portfolio.
MANAGEMENT
The investment adviser for the Money Market Portfolio is SAFECO Asset
Management Company (SAM), a wholly owned subsidiary of SAFECO Corporation,
located at SAFECO Plaza, Seattle, Washington 98185. SAM is located at Two
Union Square, 25th Floor, Seattle,
7
<PAGE>
Washington 98101. SAM has been an adviser to mutual funds and other
investment portfolios since 1973 and its predecessors have been such advisers
since 1932. SAM provides investment research, advice and supervision in the
ongoing management of the Portfolio. Based on the Portfolio's investment
objective and policies, SAM determines what securities the Portfolio will
purchase, retain or sell and implements those decisions.
The Money Market Portfolio pays SAM an annual management fee based on a
percentage of the Portfolio's net assets, ascertained each business day and paid
monthly. The Portfolio paid SAM a fee of .65% of the Portfolio's net assets for
the year ended December 31, 1999.
The Money Market Portfolio is managed by Naomi Urata, Assistant Vice President
of SAM. Ms. Urata has served as portfolio manager for the Portfolio and for
SAFECO Money Market Fund since 1994. She has been an investment analyst for SAM
since 1993. From 1990 to 1992 she was Cash Manager for The Seattle Times.
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand the
Portfolio's financial performance for the past 5 years. Certain information
reflects financial results for a single Portfolio share. The total returns in
the table represent the rate that an investor would have earned on an investment
in the Portfolio (assuming reinvestment of all dividends and distributions).
This information was audited by Ernst & Young LLP, independent auditors, whose
report, along with the Portfolio's financial statements, are included in the
Trust's annual report to shareholders, which is available upon request.
FINANCIAL HIGHLIGHTS
SAFECO RESOURCE SERIES TRUST - MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<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 0.04 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.04) (0.05) (0.05) (0.05)
--------- ------------ ----------- ------------ -----------
NET ASSET VALUE AT END OF PERIOD 1.00 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ------------ ----------- ------------ -----------
--------- ------------ ----------- ------------ -----------
TOTAL RETURN 4.63% 4.95% (A) 5.08% (A) 4.94% (A) 5.56% (A)
NET ASSETS AT END OF PERIOD (000'S OMITTED) $29,135 $27,623 $17,757 $12,493 $8,719
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78% 0.81% 0.64% 0.62% 0.62%
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS ++ N/A 0.89% 0.81% 0.90% 0.87%
RATIO OF NET INVESTMENT INCOME TO AVERAGE 4.52% 4.87% 4.97% 4.86% 5.32%
NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ Prior to 1998, SAFECO Life Insurance Company paid all the expenses of the
Portfolio except for investment advisory fees. When net assets exceeded $20
million, the Portfolio was charged for all operating expenses in addition
to investment advisory fees.
(A) The total return would have been lower had certain expenses not been
reduced during the periods shown.
N/A Not applicable as no Portfolio expenses were reimbursed.
DISTRIBUTIONS AND TAX INFORMATION
The Money Market Portfolio distributes substantially all of its net investment
income and net capital gains to its shareholders (the separate accounts of
participating insurance companies and qualified plans). The Portfolio declares
dividends each business day. All dividends will be automatically reinvested in
shares of the Money Market Portfolio. If you own a variable insurance product,
the tax consequences of investment in the Portfolio depend upon the provisions
of the variable annuity contract or variable life insurance policy through which
you invest. You should refer to the prospectus relating to your variable
insurance product for information about taxes. Dividends made by the Portfolio
to qualified plans are not taxable to the qualified plans or to the participants
of those plans.
CALCULATION OF SHARE PRICE
The price of the Money Market Portfolio's shares is based on the Portfolio's net
asset value per share (NAV). The NAV is calculated by adding up the value of all
the Money Market Portfolio's assets, subtracting liabilities and dividing this
sum by the total number of shares owned by the Portfolio's shareholders. The
Portfolio's NAV is generally calculated as of the close of regular trading on
the New York Stock Exchange (NYSE) (usually 4:00 Eastern time, 1:00 Pacific
time) every day the NYSE is open. A purchase or redemption order will be priced
at the next NAV calculated after the Portfolio accepts the order.
To the extent that the Portfolio owns securities that trade in other markets on
days when the NYSE is closed, the value of the Portfolio's assets may change on
days when shareholders cannot purchase or redeem shares. In addition, trading in
some of the Portfolio's assets may not occur on days when the Portfolio is open
for business.
9
<PAGE>
Like most money market funds, the Portfolio values securities on the basis of
amortized cost. Amortized cost valuation involves valuing a security at its cost
and adding or subtracting any discount or premium (reflective of maturity),
regardless of the impact of fluctuating interest rates on the market value of
the security. This method minimizes the effect of changes in a security's market
value and helps the Portfolio maintain a stable $1.00 share price.
PURCHASING AND REDEEMING SHARES
Shares of the Portfolio are purchased and redeemed at net asset value by the
separate accounts of participating companies to meet obligations under their
variable annuity contracts and variable life insurance policies and by qualified
plans. Variable insurance product owners and qualified plan participants do not
deal directly with the Trust with respect to purchases or redemptions of shares.
In unusual situations we may suspend or delay payment for redemptions. This may
happen if:
- the NYSE is closed;
- NYSE trading is restricted; or
- the Securities and Exchange Commission declares an emergency.
Also, if immediate payment could adversely affect the Portfolio, we may need to
delay payment for up to seven days.
10
<PAGE>
FOR MORE INFORMATION
If you would like more information about the Money Market Portfolio, the
following documents are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Money Market Portfolio's investments is
available in the Trust's annual and semi-annual reports to shareholders. In the
Trust's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Portfolio's performance
during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more detailed information about the Portfolio. A current SAI is
on file with the Securities and Exchange Commission, is incorporated into this
Prospectus by reference and is legally considered part of this Prospectus.
You can get free copies of these documents or discuss your questions about the
Money Market Portfolio by contacting the Portfolio at:
SAFECO Securities, Inc.
10865 Willows Road NE
Redmond, WA 98052
Telephone: 1-800-624-5711
Deaf and Hard of Hearing TTY/TDD Service 1-800-438-8718
You can review and copy the Trust's reports and SAIs at the Public Reference
Room of the Securities and Exchange Commission. To find out more about this
service, call the SEC at 1-800-SEC-0330. Reports and other information about the
Trust and the Portfolio are also available on the SEC's website at
http://www.sec.gov. You can also get copies, for a fee, by writing or calling
the Public Reference Section, Securities and Exchange Commission, Washington, DC
20549-6009.
Investment Company Act File No. 811-4717
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
Growth Opportunities Portfolio
Equity Portfolio
Northwest Portfolio
Small Company Value Portfolio
Bond Portfolio
Money Market Portfolio
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
--------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the current Prospectuses, each dated May 1, 2000, of the
Portfolios listed above (collectively, the "Portfolios"). Certain financial
statements for the Portfolios and the reports thereon of Ernst & Young LLP,
independent auditors, are incorporated into this Statement by reference to each
Portfolio's Annual Report for the year ended December 31, 1999. A copy of each
Portfolio's Annual Report accompanies this Statement. Copies of the Portfolios'
Prospectuses and additional copies of the Portfolios' Annual Reports may be
obtained by calling 1-800-624-5711 or by writing SAFECO Securities, Inc., 10865
Willows Road NE, Redmond, WA 98052.
Shares of the Trust are offered to life insurance companies, which may or may
not be affiliated with one another ("Participating Insurance Companies"), for
allocation to certain of their separate accounts established for the purpose of
funding variable life insurance policies and variable annuity contracts, and may
also be offered directly to qualified pension and retirement plans ("Qualified
Plans"). The Participating Insurance Companies and the Qualified Plans may or
may not make all Portfolios described in this Statement available for
investment.
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S><C>
DESCRIPTION OF THE TRUST....................................
CHARACTERISTICS OF THE TRUST'S SHARES.......................
FUNDAMENTAL INVESTMENT POLICIES.............................
NON-FUNDAMENTAL INVESTMENT POLICIES.........................
ADDITIONAL INVESTMENT INFORMATION...........................
PRINCIPAL SHAREHOLDERS OF THE PORTFOLIOS....................
CALCULATION OF SHARE PRICE..................................
ADDITIONAL PERFORMANCE INFORMATION..........................
TRUSTEES AND OFFICERS.......................................
INVESTMENT ADVISORY AND OTHER SERVICES......................
BROKERAGE PRACTICES.........................................
DISTRIBUTIONS AND TAX INFORMATION...........................
FINANCIAL STATEMENTS........................................
</TABLE>
2
<PAGE>
DESCRIPTION OF THE TRUST
Each Portfolio is a series of SAFECO Resource Series Trust (the "Trust"), an
open-end management investment company, and is a diversified series of the
Trust. The Trust was formed as a Massachusetts business trust, by Trust
Instrument filed July 1, 1986, and was reorganized as a Delaware business trust
on September 30, 1993, under a Trust Instrument dated May 13, 1993.
The Trust offers its shares through six diversified portfolios: the Growth
Opportunities Portfolio, formerly known as "Growth Portfolio", Equity Portfolio,
Northwest Portfolio, Small Company Value Portfolio, ("Small Company Portfolio"),
formerly known as Small Company Stock Portfolio, Bond Portfolio and Money Market
Portfolio. The Trust may issue an unlimited number of shares of beneficial
interest. The board of trustees may establish additional series of shares of the
Trust without the approval of shareholders. The Portfolios offer only a single,
no-load, class of shares.
CHARACTERISTICS OF THE TRUST'S SHARES
RESTRICTIONS ON RETAINING OR DISPOSING OF SHARES
There are no restrictions on the right of shareholders to retain or dispose of
the Trust's shares, except in the event that the Trust or any of its Portfolios
is terminated in the future as a result of reorganization or liquidation and
distribution of assets.
SHAREHOLDER OBLIGATIONS AND LIABILITIES
Under Delaware law, the shareholders of the Trust will not be personally liable
for the obligations of the Trust or any Portfolio of the Trust. A shareholder is
entitled to the same limitation of personal liability extended to shareholders
of corporations. To guard against the risk that Delaware law might not be
applied in other states, the Trust Instrument requires that every written
obligation of the Trust or a Portfolio of the Trust contain a statement that
such obligation may only be enforced against the assets of the Trust or the
Portfolio of the Trust and generally provides for indemnification out of the
Trust's or the Portfolio's property of any shareholder nevertheless held
personally liable for the Trust's or a Portfolio's obligations, respectively.
DIVIDEND RIGHTS
Shareholders of a Portfolio are entitled to receive any dividends or other
distributions declared for that Portfolio. With respect to distributions, no
shares have priority or preference over any other shares of the same Portfolio.
Distributions will be made from the assets of a Portfolio, and will be paid
ratably to all shareholders of the Portfolio according to the number of shares
of such Portfolio held by shareholders on the record date.
VOTING RIGHTS
Shareholders are entitled to vote on any matter that (i) concerns an amendment
to the Trust Instrument that would affect the voting rights of shareholders,
(ii) requires a shareholder vote under the Investment Company Act of 1940 (the
"1940 Act") or any other applicable law, (iii) is submitted to them by the
Trustees in their discretion. The 1940 Act requires a shareholder vote in
certain circumstances, including to elect Trustees if the number of Trustees
that have been elected by shareholders falls below a majority, to make a
material change to the Trust's investment advisory agreement, and to change any
fundamental policy of the Trust. On any matter submitted to a vote of
shareholders, all shares of the Portfolios of the Trust then issued and
outstanding and entitled to vote shall be voted in the aggregate and not by
Portfolio except for matters concerning only a Portfolio. The holders of each
share of a Portfolio of the Trust shall be entitled to one vote for each full
share and a fractional vote for each fractional share. Shares of one Portfolio
of the Trust may not bear the same economic relationship to the Trust as shares
of another Portfolio of the Trust. Voting rights are non-cumulative and cannot
be modified without a majority vote of shareholders.
3
<PAGE>
Variable contract owners will be able to vote on matters presented to a vote of
shareholders of the Trust through the pass through of voting rights held by the
participating insurance companies, which will solicit voting instructions from
variable contract owners when a matter is presented to a vote of shareholders.
See the separate account prospectus for the variable insurance product for more
information regarding the pass-through of these voting rights.
The participants in qualified plans have no pass-through voting rights. The
trustees of such plans, or, in certain cases, a named fiduciary or an investment
manager, will vote the shares held by the qualified plans.
LIQUIDATION RIGHTS
In the event of liquidation, shareholders will be entitled to receive a pro rata
share of the net assets of the applicable Portfolio of the Trust.
PREEMPTIVE RIGHTS
Shareholders have no preemptive rights.
CONVERSION RIGHTS
Shareholders have no conversion rights.
REDEMPTION PROVISIONS
The provisions for redemption of Trust shares are set forth in the current
prospectus relating to the applicable variable annuity contract or variable
life insurance policy, or in the plan document relating to the applicable
plan and elsewhere in this Statement.
SINKING FUND PROVISIONS
The Trust has no sinking fund provisions.
CALLS OR ASSESSMENTS
The shares are fully paid and non-assessable.
FUNDAMENTAL INVESTMENT POLICIES
The investment policies of the Portfolios are summarized in each Portfolio's
Prospectus and described in this Statement of Additional Information. If a
policy's percentage limitation is adhered to immediately after and as a result
of an investment, a later increase or decrease in values, net assets or other
circumstances will not be considered in determining whether a Portfolio complies
with the applicable limitation (except to the extent the change may impact a
Portfolio's borrowing limit).
Each Portfolio's fundamental policies may not be changed without the approval of
a majority of its outstanding voting securities as defined in the 1940 Act. For
purposes of such approval, the vote of a majority of the outstanding voting
securities of a Portfolio means the vote, at a meeting of the shareholders of
such Portfolio duly called, (i) of 67% or more of the voting securities present
at such meeting if the holders of more than 50% of the outstanding voting
securities are present or represented by proxy, or (ii) of more than 50% of the
outstanding voting securities, whichever is less.
1. The Portfolio will not make investments that will result in the
concentration (as that term may be defined in the 1940 Act, any rule
or order thereunder, or SEC staff interpretation
4
<PAGE>
thereof) of its investments in the securities of issuers primarily
engaged in the same industry, provided that this restriction does not
limit the Portfolio from investing in obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities, or with
respect to the Money Market Portfolio only, certain bank instruments
issued by domestic banks.
2. The Portfolio may not borrow money or issue senior securities, except
as the 1940 Act, any rule or order thereunder, or SEC staff
interpretation thereof, may permit.
3. The Portfolio may not underwrite the securities of other issuers,
except that the Portfolio may engage in transactions involving the
acquisition, disposition or resale of its portfolio securities, under
circumstances where it may be considered to be an underwriter under
the Securities Act of 1933.
4. The Portfolio may not purchase or sell real estate unless acquired as
a result of ownership of securities or other instruments and provided
that this restriction does not prevent the Portfolio from investing in
issuers which invest, deal, or otherwise engage in transactions in
real estate or interests therein, or investing in securities that are
secured by real estate or interests therein, or exercising rights
under agreements relating to such securities including the right to
enforce security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated in an
orderly manner.
5. The Portfolio may not purchase or sell physical commodities, unless
acquired as a result of ownership of securities or other instruments
and provided that this restriction does not prevent the Portfolio from
engaging in transactions involving futures contracts and options,
forward currency contracts, swap transactions and other financial
contracts or investing in securities that are secured by physical
commodities.
6. The Portfolio may not make loans, provided that this restriction does
not prevent the Portfolio from purchasing debt obligations, entering
into repurchase agreements, loaning its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests.
7. The Portfolio will not purchase securities of any one issuer if, as a
result, more than 5% of the Portfolio's total assets would be invested
in securities of that issuer or the Portfolio would own or hold more
than 10% of the outstanding voting securities of that issuer, except
that up to 25% of the Portfolio's total assets may be invested without
regard to these limitations, and except that these limitations do not
apply to securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or to securities issued by other
open-end investment companies.
NON-FUNDAMENTAL INVESTMENT POLICIES
In addition to the principal investment strategies described in the Prospectus,
each Portfolio has adopted the non-fundamental policies described below that may
be changed by the Trust's board of trustees without shareholder approval.
NON-FUNDAMENTAL INVESTMENT POLICIES OF THE GROWTH OPPORTUNITIES, EQUITY,
NORTHWEST, BOND AND MONEY MARKET PORTFOLIOS
1. A Portfolio may not participate on a joint or joint and several basis in
any trading account in securities, except that a Portfolio may join with
other transactions executed by the investment adviser
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or the investment adviser's parent company and any subsidiary thereof, for
the purpose of seeking better net results on portfolio transactions or
lower brokerage commission rates.
2. A Portfolio may not purchase securities with unlimited liability, i.e.,
securities for which the holder may be assessed for amounts in addition to
the subscription or other price paid for the security.
3. The Equity, Bond and Money Market Portfolios may not purchase or sell put
or call options or combinations thereof.
4. The Growth Opportunities and Northwest Portfolios may not purchase puts,
calls, straddles, spreads or any combination thereof if by reason thereof
the value of the Portfolio's aggregate investment in such classes of
securities would exceed 5% of its total assets.
5. A Portfolio may not invest in oil, gas or other mineral exploration or
development programs or in arbitrage transactions.
6. A Portfolio may not trade in foreign exchange, except as may be necessary
to convert the proceeds of the sale of foreign portfolio securities into
U.S. dollars.
7. A Portfolio may not enter into a repurchase agreement for longer than seven
days, except that the Money Market Portfolio may invest up to 10% of its
net assets in repurchase agreements that mature in more than 7 days.
8. A Portfolio may not purchase the securities of any other investment company
or investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase other
than the customary broker's commissions, or except as part of a merger,
consolidation or acquisition. A Portfolio will not invest more than ten
percent (10%) of its total assets in shares of other investment companies,
invest more than five percent (5%) of its total assets in a single
investment company nor purchase more than three percent (3%) of the
outstanding voting securities of a single investment company. The Trust's
investment adviser will waive its advisory fees for assets invested in
other investment companies.
9. The Trust's Growth Opportunities, Equity, Northwest and Bond Portfolios may
purchase as temporary investments for their cash commercial paper,
certificates of deposit, no-load, open-end money market funds (subject to
the limitations in subparagraph 8 above), repurchase agreements (subject to
the limitations in subparagraph 7 above) or any other short-term instrument
that the Trust's investment adviser deems appropriate.
Commercial paper must be rated A-1 or A-2 by Standard & Poor's Ratings
Group ("S&P") or Prime-1 or Prime-2 by Moody's Investors Service, Inc.
("Moody's") or issued by companies with an unsecured debt issue currently
outstanding rated AA by S&P or Aa or higher by Moody's.
10. While the Trust will not engage primarily in trading in the Growth
Opportunities, Equity, Northwest and Bond Portfolios for the purpose of
short-term profits, it may at times make investments for short-term
purposes when such action is believed to be desirable and consistent with
sound investment procedures. The Trust will dispose of securities whenever
it is deemed advisable without regard to the length of time the securities
have been held.
11. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which at the time of purchase are rated in the highest rating
category by at least two nationally recognized rating organizations or, if
rated by only one organization, are rated in the highest category by that
organization, and which in the opinion of the Money Market Portfolio's
investment adviser present minimal credit risks.
12. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which at the time of purchase are split-
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rated (i.e. rated in the highest category by one nationally recognized
rating organization and the second highest category by at least one other
such organization), are rated in the second highest rating category by at
least two nationally recognized rating organizations or, if rated by only
one organization are rated in the second highest category by that
organization and which in the opinion of the Money Market Portfolio's
investment adviser present minimal credit risks. However, the Money Market
Portfolio may invest no more than five percent (5%) of total assets in
these securities and may invest only the greater of $1 million or one
percent (1%) of total assets in such securities from the same issuer.
13. The Trust's Money Market Portfolio may invest in short-term instruments, or
long-term instruments with characteristics qualifying them as short-term
instruments, which are unrated if such securities are determined to be
comparable in quality to securities rated as described in paragraphs 11 and
12 and which in the opinion of the Money Market Portfolio's investment
adviser present minimal credit risks. The Money Market Portfolio will invest
no more than twenty percent (20%) of total assets in unrated securities
which in the opinion of SAFECO Asset Management Company ("SAM") are
comparable to securities in the highest rating category. Purchases of
unrated securities which in SAM's opinion are comparable to split-rated
securities are subject to the five percent (5%) and one percent (1%)
limitations described in paragraph 12.
14. Subject to the maturity requirements stated in the Money Market Portfolio's
investment objective and the quality and credit risk requirements set forth
in paragraphs 11-13, the Money Market Portfolio may purchase the following
types of securities:
a. Commercial paper obligations.
b. Negotiable and non-negotiable time deposits and certificates of
deposit, bankers' acceptances and other short-term debt obligations of
banks. The Money Market Portfolio will not invest in any security
issued by a commercial bank unless (a) the bank has total assets of at
least $1 billion or the equivalent in other currencies or, in the case
of United States banks which do not have total assets of at least $1
billion, the aggregate investment made in any one such bank is limited
to $100,000 and the principal sum of such investment is insured in
full by the Federal Deposit Insurance Corporation (FDIC), (b) in the
case of a United States bank, it is a member of the FDIC, and (c) in
the case of a foreign bank, the security is in the opinion of
management of an investment quality comparable with other debt
securities which may be purchased by the Money Market Portfolio. These
limitations do not prohibit investment in securities issued by foreign
branches of U.S. banks, provided the U. S. banks meet the foregoing
requirements.
c. Corporate obligations such as publicly-traded bonds, debentures and
notes.
15. The Trust may not invest more than five percent (5%) of the net assets of
the Growth Opportunities, Equity and Northwest Portfolios in warrants valued
at the lower of cost or market. Warrants acquired as a result of unit
offerings or attached to securities may be deemed without value for purposes
of the five percent (5%) limitation.
16. A Portfolio will not issue long-term debt securities.
17. A Portfolio will not invest in any security for the purpose of acquiring or
exercising control or management of the issuer.
18. The Growth Opportunities Portfolio will normally invest a preponderance of
assets in common stocks selected primarily for potential appreciation. The
Northwest Portfolio will invest primarily in shares of common stock selected
primarily for potential appreciation that have been issued by Northwest
companies. In determining these common stocks which have the potential for
long-term growth, the Trust's investment adviser will evaluate the issuer's
financial strength, quality of management and earnings power.
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19. The Northwest Portfolio may occasionally invest in securities convertible
into common stock when, in the opinion of SAM, the expected total return of
a convertible security exceeds the expected total return of common stock
eligible for purchase by the Portfolio.
20. The Equity Portfolio may invest up to ten percent (10%) of its total assets
in shares of real estate investment trusts ("REITs"). The Growth
Opportunities and Northwest Portfolios may invest up to five percent (5%) of
their total assets in shares of real estate investment trusts ("REITs").
21. The Equity Portfolio may invest up to 5% of total assets in closed-end
investment companies and investment trusts (other than REITS).
22. The Equity Portfolio may purchase fixed-income securities in accordance with
business and financial conditions.
23. The Bond and Money Market Portfolios may invest up to 10% of total assets in
restricted securities eligible for resale under Rule 144A ("Rule 144A
securities"), provided that SAM has determined that such securities are
liquid under guidelines adopted by the board of trustees.
24. The Growth Opportunities, Equity and Northwest Portfolios may invest in Rule
144A securities, provided that SAM has determined that such securities are
liquid under guidelines adopted by the board of trustees, except that the
Growth Opportunities, Equity and Northwest Portfolios may each invest up to
10% of their respective total assets in 144A securities that are illiquid.
25. The Growth Opportunities, Equity, Northwest and Money Market Portfolios of
the Trust may not purchase foreign securities, unless at the time thereof,
such purchase would not cause more than five percent (5%) of the total
assets of a Portfolio (taken at market value) to be invested in foreign
securities. This restriction does not apply to the Bond Portfolio.
WHILE THE TRUST CAN INVEST IN THE TYPES OF SECURITIES OR ENGAGE IN THE PRACTICES
WHICH FOLLOW IF THE APPLICABLE LIMITATIONS ARE MET, IT HAS NO PRESENT INTENTION
TO DO SO IN THE COMING YEAR.
26. A Portfolio may not pledge, mortgage or hypothecate portfolio securities,
except that to secure borrowings permitted by the fundamental policy on
borrowing, a Portfolio may pledge securities having a market value at the
time of the pledge not exceeding ten percent (10%) of the Portfolio's net
assets.
27. In applying the Portfolio's fundamental restriction on concentrating its
investments in the securities of "issuers primarily engaged in the same
industry": (i) utility companies will be divided according to their
services, for example, gas, gas transmission, electric and telephone will
each be considered a separate industry; (ii) financial service companies
will be classified according to the end users of their services, for
example, automobile finance, bank finance and diversified finance will each
be considered a separate industry; and (iii) asset backed securities will
be classified according to the underlying assets securing such securities.
28.Growth Opportunities Portfolio, Equity Portfolio, Northwest Portfolio and
Bond Portfolio only. The Portfolio will not purchase securities on margin,
provided that the Portfolio may obtain short-term credits as may be necessary
for the clearance of purchases and sales of securities, and further provided
that the Portfolio may make margin deposits in connection with its use of
financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments
NON-FUNDAMENTAL INVESTMENT POLICIES OF THE SMALL COMPANY PORTFOLIO
1. The Small Company Portfolio will not make short sales (sales of securities
not presently owned), except where the Portfolio has at the time of sale, by
virtue of its ownership in other securities, the right to obtain at no
additional cost securities equivalent in kind and amount to the securities
to be sold;
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2. The Small Company Portfolio will not purchase securities issued by any other
investment company, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase, other
than the customary broker's commissions, or except when such purchase,
although not made in the open market, is part of a merger, consolidation or
acquisition. Nothing in this policy shall prevent any purchase for the
purpose of effecting a merger, consolidation or acquisition of assets
expressly approved by the shareholders after full disclosure of any
commission or profit to the principal underwriter;
3. The Small Company Portfolio will not invest in oil, gas or other mineral
exploration, development programs or leases;
4. The Small Company Portfolio will not invest more than 5% of its net assets
in warrants. Warrants acquired by the Portfolio in units or attached to
securities are not subject to the 5% limit;
5. The Small Company Portfolio will not invest more than 10% of its total
assets in real estate investment trusts, nor will the Portfolio invest in
interests in real estate investment trusts that are not readily marketable
or interests in real estate limited partnerships not listed or traded on the
Nasdaq Stock Market if, as a result, the sum of such interests considered
illiquid and other illiquid securities would exceed 15% of the Portfolio's
net assets;
6. The Small Company Portfolio will not purchase securities on margin, except
that the Portfolio may obtain such short-term credits as are necessary for
the clearance of transactions, and provided that margin payments made in
connection with futures contracts and options on futures shall not
constitute purchasing securities on margin;
7. The Small Company Portfolio may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse repurchase
agreements with any party. The Portfolio will not purchase any securities
while borrowings equal to or greater than 5% of its total assets are
outstanding;
8. The Small Company Portfolio will not purchase any security, if as a result,
more than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued;
9. The Small Company Portfolio will not make loans to any person, firm or
corporation, but the purchase by the Portfolio of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by persons
other than the Portfolio, whether or not the purchase was made upon the
original issue of securities, shall not be considered a loan within the
prohibition of this section;
10. The Small Company Portfolio will not purchase or retain the securities of
any issuer if, to the knowledge of the Portfolio's management, the officers
and Trustees of the Trust and the officers and directors of the investment
adviser to the Portfolio (each owning beneficially more than 0.5% of the
outstanding securities of an issuer) own in the aggregate 5% or more of the
securities of the issuer;
11. The Small Company Portfolio may invest in restricted securities eligible for
resale under Rule 144A, provided that SAM has determined that such
securities are liquid under guidelines adopted by the board of trustees,
except that the Portfolio may invest up to 10% of its total assets in 144A
securities that are illiquid.
12. The Small Company Portfolio shall not engage primarily in trading for
short-term profits, but it may from time to time make investments for
short-term purposes when such action is believed to be desirable and
consistent with sound investment policy. The Portfolio may dispose of
securities whenever its adviser deems advisable without regard to the length
of time they have been held;
13. The Small Company Portfolio will not purchase securities of companies which
together with any
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predecessors have a record of less than 3 years of continuous operation, if
such purchase at the time thereof would cause more than 5% of the
Portfolio's total assets to be invested in the securities of such
companies;
14. The Small Company Portfolio will not purchase puts, calls, straddles,
spreads or any combination thereof, if by reason thereof the value of its
aggregate investment in such classes of securities would exceed 5% of its
total assets; provided, however, that nothing herein shall prevent the
purchase, ownership, holding or sale of warrants where the grantor of the
warrants is the issuer of the underlying securities; and
15. The Small Company Portfolio will not purchase or sell commodities or
commodity contracts.
ADDITIONAL INVESTMENT INFORMATION
The Portfolios may make some or all of the following investments, among others,
although they may not buy all of the types of securities that are described.
1. CLOSED-END INVESTMENT COMPANIES AND INVESTMENT TRUSTS (GROWTH OPPORTUNITIES
AND EQUITY PORTFOLIOS)
The Growth Opportunities and Equity Portfolios may invest in closed-end
investment companies and investment trusts.
2. RESTRICTED SECURITIES AND RULE 144A SECURITIES (GROWTH OPPORTUNITIES, EQUITY,
NORTHWEST AND SMALL COMPANY PORTFOLIOS (COLLECTIVELY, THE "STOCK PORTFOLIOS"))
The Stock Portfolios may each invest in restricted securities eligible for
resale under Rule 144A ("Rule 144A securities"), provided that SAM has
determined that such securities are liquid under guidelines adopted by the board
of trustees. Restricted securities may be sold only in offerings registered
under the Securities Act of 1933, as amended ("1933 Act"), or in transactions
exempt from the registration requirements under the 1933 Act. Rule 144A under
the 1933 Act provides an exemption for the resale of certain restricted
securities to qualified institutional buyers. Investing in restricted securities
may increase the Portfolio's illiquidity to the extent that qualified
institutional buyers or other buyers become unwilling, for a time, to purchase
the securities. As a result, the Portfolio may not be able to sell these
securities when its investment adviser deems it advisable to sell, or may have
to sell them at less than fair value. In addition, market quotations are
sometimes less readily available for restricted securities. Therefore, judgment
may at times play a greater role in valuing these securities than in the case of
unrestricted securities.
Where registration is required, a Portfolio may be obligated to pay all or part
of the registration expenses, and a considerable period may elapse between the
decision to sell and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If during such a period adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to sell. To the extent privately placed
securities are illiquid, purchases thereof will be subject to any limitations on
investments in illiquid securities. Restricted securities for which no market
exists are priced at fair value as determined in accordance with procedures
approved and periodically reviewed by the Trust's board of trustees.
3. REPURCHASE AGREEMENTS (ALL PORTFOLIOS)
Repurchase agreements are transactions in which a Portfolio purchases securities
from a bank or recognized securities dealer and simultaneously commits to resell
the securities to the bank or dealer at an agreed-upon date and price reflecting
a market rate of interest unrelated to the coupon rate or maturity of the
purchased securities. A Portfolio maintains custody of the underlying securities
prior to their repurchase; thus, the obligation of the bank or dealer to pay the
repurchase price on the date agreed to is, in effect, secured by such
securities. If the value of these securities is less than the repurchase price,
plus
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any agreed-upon additional amount, the other party to the agreement must
provide additional collateral so that at all times the collateral is at least
equal to the repurchase price, plus any agreed-upon additional amount.
Repurchase agreements carry certain risks not associated with direct investments
in securities, including possible declines in the market value of the underlying
securities and delays and costs to a Portfolio if the other party to a
repurchase agreement becomes bankrupt. Each Portfolio intends to enter into
repurchase agreements only with banks and dealers in transactions believed by
SAM to present minimum credit risks in accordance with guidelines established by
the Trust's board of trustees. SAM will review and monitor the creditworthiness
of those institutions under the general supervision of the board of trustees.
The Portfolios may invest in qualified repurchase agreements, but (other than
the Money Market Portfolio) and will not purchase repurchase agreements that
mature in more than seven days. The Money Market Portfolio will invest no more
than 10% of net assets in repurchase agreements that mature in more than seven
days.
4. ILLIQUID SECURITIES (ALL PORTFOLIOS)
Illiquid securities are securities that cannot be sold within seven days in the
ordinary course of business for approximately the amount at which they are
valued. The Portfolios do not intend to purchase illiquid securities but the
market for some securities may become illiquid following purchase by a
Portfolio. Due to the absence of an active trading market, a Portfolio may
experience difficulty in valuing or disposing of illiquid securities. SAM
determines the liquidity of the securities pursuant to guidelines adopted by the
Trust's board of trustees.
5. WARRANTS (STOCK PORTFOLIOS ONLY)
A warrant is an option issued by a corporation that gives the holder the right
to buy a stated number of shares of common stock of the corporation at a
specified price within a designated time period. Warrants may be purchased and
sold separately or attached to stocks or bonds as part of a unit offering. The
term of a warrant may run from two to five years and in some cases the term may
be longer. The exercise price carried by the warrant is usually well above the
prevailing market price of the underlying common stock at the time the warrant
is issued. The holder of a warrant has no voting rights and receives no
dividends. Warrants are freely transferable and may trade on the major national
exchanges.
Warrants may be speculative. Generally, the value of a warrant will fluctuate by
greater percentages than the value of the underlying common stock. The primary
risk associated with a warrant is that the term of the warrant may expire before
the exercise price of the common stock has been reached. Under these
circumstances, a Portfolio could lose all of its principal investment in the
warrant.
A Portfolio will invest in a warrant only if the Portfolio has the authority to
hold the underlying common stock. Additionally, if a warrant is part of a unit
offering, a Portfolio will purchase the warrant only if it is attached to a
security in which the Portfolio has authority to invest. In all cases, a
Portfolio will purchase warrants only after SAM determines that, in its opinion,
the exercise price for the underlying common stock is likely to be achieved
within the required time-frame and that an actively traded market exists. SAM
will make this determination by analyzing the issuer's financial health, quality
of management and any other factors deemed to be relevant.
The Stock Portfolios may each invest up to 5% of net assets in warrants.
6. REAL ESTATE INVESTMENT TRUSTS (EQUITY AND SMALL PORTFOLIOS)
Real estate investment trusts ("REITs") purchase real property, which is then
leased, and make mortgage investments. For federal income tax purposes REITs
attempt to qualify for beneficial tax treatment by distributing at least 95% of
their taxable income. If a REIT were unable to qualify for such beneficial tax
treatment, it would be taxed as a corporation and distributions to its
shareholders would not be deductible
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by it in computing its taxable income.
REITs are dependent upon the successful operation of the properties owned and
the financial condition of lessees and mortgagors. The value of REIT units will
fluctuate depending on the underlying value of the real property and mortgages
owned and the amount of cashflow (net income plus depreciation) generated and
paid out. In addition, REITs typically borrow to increase funds available for
investment. Generally there is a greater risk associated with REITs which are
highly leveraged.
The Equity and Small Company Value Portfolios may each invest up to 10% of total
assets in REITS.
7. CONVERTIBLE SECURITIES (STOCK PORTFOLIOS)
Convertible bonds and convertible preferred stock may be exchanged for a stated
number of shares of the issuer's common stock at a certain price known as the
conversion price. The conversion price is usually greater than the price of the
common stock at the time the convertible security is purchased. Generally, the
interest rate of convertible bonds and the yield of convertible preferred stock
will be lower than the issuer's non-convertible securities. Also, the value of
convertible securities will normally vary with the value of the underlying
common stock and fluctuate inversely with interest rates. However, convertible
securities may show less volatility in value than the issuer's non-convertible
securities. A risk associated with convertible bonds and convertible preferred
stock is that the conversion price of the common stock will not be attained.
The Stock Portfolios may invest (in the case of the Equity Portfolio, up to 35%
of its total assets) in convertible securities. The Equity Portfolio may invest
in convertible securities if such securities offer a higher yield than an
issuer's common stock and provide reasonable potential for capital appreciation.
The Northwest and Small Company Value Portfolios may invest in convertible
securities when, in the opinion of SAM, the expected total return of a
convertible security exceeds the expected total return of common stock eligible
for purchase by the Northwest Portfolio. The Equity and Northwest Portfolios may
purchase convertible securities which are investment grade, i.e., rated in the
top four categories by either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"), or Fitch, IBCA, Inc. ("Fitch"). Moody's
deems securities rated in the fourth category (Baa) to have speculative
characteristics. The Equity and Northwest Portfolios may retain a convertible
security that is down-graded to below investment grade after purchase. The
Equity Portfolio will not hold more than 3% of its total assets in bonds that go
into default on the payment of principal and interest after purchase. The Small
Company Value Portfolio may invest in convertible corporate bonds that are rated
below investment grade ("high-yield" or "junk" bonds) or in comparable, unrated
bonds, but less than 35% of the Portfolio's net assets will be invested in such
securities. Below investment grade bonds are speculative and involve greater
investment risks than investment grade bonds due to the issuer's reduced
creditworthiness and increased likelihood of default and bankruptcy. During
periods of economic uncertainty or change, the market prices of below investment
grade bonds may experience increased volatility. Below investment grade bonds
tend to reflect short-term economic and corporate developments to a greater
extent than higher quality bonds.
8. YANKEE DEBT SECURITIES AND EURODOLLAR BONDS (GROWTH OPPORTUNITIES, EQUITY,
NORTHWEST, BOND AND MONEY MARKET PORTFOLIOS ONLY)
The Yankee Sector is made up of securities issued in the U.S. by foreign
issuers. These bonds are subject to the same risks that pertain to domestic
issues, notably credit risk, market risk and liquidity risk. These bonds also
are subject to risks that may include nationalization of the issuer,
confiscatory taxation by the foreign government, establishment of controls by
the foreign government that would inhibit the remittance of amounts due a
Portfolio, lack of comparable publicly-available information concerning foreign
issuers, lack of comparable accounting and auditing practices in foreign
countries and finally, difficulty in enforcing claims against foreign issuers in
the event of default.
SAM will make every effort to analyze potential investments in foreign issuers
on the same basis as the rating services analyze domestic issuers. Because
public information is not always comparable to that
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available on domestic issuers, this may not be possible. Therefore, while SAM
will make every effort to select investments in foreign securities on the same
basis relative to quality and risk as its investments in domestic securities, it
may not always be able to do so.
Eurodollar Bonds are bonds issued by either U.S. or foreign issuers that are
traded in the European bond markets and are denominated in U.S. dollars.
Eurodollar bonds are subject to the same risks that pertain to domestic issues,
notably credit risk, market risk and liquidity risk. Additionally, Eurodollar
bonds are subject to certain sovereign risks. One such risk is the possibility
that a foreign government might prevent dollar-denominated funds from flowing
across its borders. Eurodollar Bonds issued by foreign issuers are also subject
to the same risks as Yankee Sector bonds.
9. MORTGAGE-BACKED SECURITIES (BOND AND MONEY MARKET PORTFOLIOS ONLY)
Unlike conventional bonds, the principal with respect to mortgage-backed
securities is paid back over the life of the loan rather than at maturity.
Consequently, the Portfolio will receive monthly scheduled payments of both
principal and interest. In addition, the Portfolio may receive unscheduled
prepayments on the underlying mortgages. Since the Portfolio must reinvest
scheduled and unscheduled principal payments at prevailing interest rates and
such interest rates may be higher or lower than the current yield of the
Portfolio's portfolio, mortgage-backed securities may not be an effective means
to lock in long-term interest rates. In addition, while prices of
mortgage-backed securities, like conventional bonds, are inversely affected by
changes in interest rate levels, because of the likelihood of increased
prepayments of mortgages in times of declining interest rates, they have less
potential for capital appreciation than comparable fixed-income securities and
may in fact decrease in value when interest rates fall.
The rate of interest payable on collateralized mortgage obligation ("CMO")
classes may be set at levels that are either above or below market rates at the
time of issuance, so that the securities will be sold at a substantial premium
to, or at a discount from, par value. There is the risk that the Portfolio may
fail to recover any premium it pays due to market conditions and/or mortgage
prepayments. A Portfolio will not invest in interest-only or principal-only
classes -- such investments are extremely sensitive to changes in interest
rates.
Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so as to pay at a rate that will be attractive
in certain interest rate environments but not in others. For example, a CMO
may be structured so that its yield moves in the same direction as market
interest rates - i.e., the yield may increase as rates increase and decrease
as rates decrease - but may do so more rapidly or to a greater degree. Other
CMO classes may be structured to pay floating interest rates that either move
in the same direction or the opposite of short-term interest rates. The
market value of such securities may be more volatile than that of a fixed
rate obligation. Such interest rate formulas may be combined with other CMO
characteristics.
10. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES (MONEY MARKET AND SMALL COMPANY
PORTFOLIOS ONLY)
Under this procedure, a Portfolio agrees to acquire securities (whose terms and
conditions, including price, have been fixed by the issuer) that are to be
issued and delivered against payment in the future. Delivery of securities so
sold normally takes place 30 to 45 days (settlement date) after the date of the
commitment. No interest is earned by a Portfolio prior to the settlement date.
The value of securities sold on a "when-issued" or "delayed-delivery" basis may
fluctuate before the settlement date and the Portfolio bears the risk of such
fluctuation from the date of purchase. A Portfolio may dispose of its interest
in those securities before delivery.
11. SHORT-TERM INVESTMENTS (STOCK PORTFOLIOS AND BOND PORTFOLIO)
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The Stock Portfolios and the Bond Portfolio may hold cash or invest temporarily
in high-quality commercial paper, certificates of deposit, shares of no-load,
open-end money market funds or repurchase agreements under those circumstances
where they have cash to manage for a short-term time period, for example, after
receiving proceeds from dividend distributions or the sale of portfolio
securities, or as a defensive measure when, in the investment adviser's opinion,
business or economic conditions warrant. Certificates of deposit must be issued
by banks or savings and loan associations which have total assets of at least $1
billion or, in the case of a bank or savings and loan association not having
total assets of at least $1 billion, the bank or savings and loan association is
insured by the Federal Deposit Insurance Corporation in which case the Portfolio
will limit its investment to the statutory insurance coverage.
12. FOREIGN SECURITIES (ALL PORTFOLIOS)
Foreign securities are securities issued in and traded in foreign markets and
contain greater risks (including currency risk) than securities issued in and
traded in U.S. markets. The Growth Opportunities, Equity, Northwest and Money
Market Portfolios may not purchase foreign securities, unless at the time
thereof, such purchase would not cause more than five percent (5%) of the total
assets of a Portfolio (taken at market value) to be invested in foreign
securities. The Money Market Portfolio may purchase dollar-denominated
commercial paper issued in the U.S. by foreign entities. The Small Company
Portfolio may invest up to 10% of its total assets (taken at market value) in
foreign securities. The Bond Portfolio may invest up to 30% of its total assets
(taken at market value) in foreign securities.
Investing in foreign companies and markets involves certain considerations,
including those set forth below, that are not typically associated with
investing in U.S. securities denominated in U.S. dollars and traded in U.S.
markets. Foreign securities may not be registered under, nor may the issuers
thereof be subject to the reporting requirements of, U.S. securities laws.
Accordingly, there may be less publicly available information about a foreign
company than about a domestic company. Foreign companies are not generally
subject to uniform accounting and auditing and financial reporting standards,
practices and requirements comparable to those applicable to U.S. companies.
Securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. It is contemplated that most
foreign securities will be purchased in over-the-counter markets or stock
exchanges located in the countries in which the respective principal offices of
the issuers of the various securities are located. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. There is generally less governmental supervision and regulation of
foreign stock exchanges, broker-dealers and issuers than in the United States.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of a Portfolio, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
13. HEDGING TRANSACTIONS (ALL PORTFOLIOS)
Hedging transactions cannot eliminate all risks of loss to the Portfolios and
may prevent a Portfolio from realizing some potential gains. The projection of
foreign market movements is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain. Among the risks of hedging
transactions are: incorrect prediction of the movement of currency exchange
rates and market movements; imperfect correlation of currency movements in
cross-hedges and indirect hedges; imperfect correlation in the price movements
of options, futures contracts and options on future contracts with the assets on
which they are based; lack of liquid secondary markets and inability to effect
closing transactions; costs associated with effecting such transactions;
inadequate disclosure and/or regulatory controls in certain
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markets; counterparty default with respect to transactions not executed on an
exchange; trading restrictions imposed by governments, or securities and
commodities exchanges; and governmental actions affecting the value or liquidity
of currencies. Hedging transactions may be effected in foreign markets or on
foreign exchanges and are subject to the same types of risks that affect foreign
securities. See "ADDITIONAL INVESTMENT INFORMATION--Foreign Securities."
Indirect hedges and cross-hedges are more speculative than other hedges because
they are not directly related to the position or transaction being hedged. With
respect to indirect hedges, movements in the proxy currency may not precisely
mirror movements in the currency in which portfolio securities are denominated.
Accordingly, the potential gain or loss on an indirect hedge may be more or less
than if the Portfolio had directly hedged a currency risk. Similar risks are
associated with cross-hedge transactions. In a cross-hedge, the foreign currency
in which a portfolio security is denominated is hedged against another foreign
currency, rather than the U.S. dollar. Cross-hedges may also create a greater
risk of loss than other hedging transactions because they may involve hedging a
currency risk through the U.S. dollar rather than directly to the U.S. dollar or
another currency.
To help reduce certain risks associated with hedging transactions, the Trust's
board of trustees has adopted the requirement that forward contracts, options,
futures contracts and options on futures contracts be used on behalf of the
Portfolios to hedge investment risk and not for speculation. In addition, the
board of trustees has adopted the following percentage restrictions on the use
of options, futures contracts and options on futures contracts:
(i) The Portfolio will not write a put or call option if, as a result
thereof, the aggregate value of the assets underlying all such options
(determined as of the date such options are written) would exceed 25%
of the Portfolio's net assets.
(ii) The Portfolio will not purchase a put or call option or option on a
futures contract if, as a result thereof, the aggregate premiums paid
on all options or options on futures contracts held by the Portfolio
would exceed 20% of the Portfolio's net assets.
(iii) The Portfolio will not enter into any futures contract or option on a
futures contract if, as a result thereof, the aggregate margin
deposits and premiums required on all such instruments would exceed 5%
of the Portfolio's net assets.
14. ASSET-BACKED SECURITIES (GROWTH OPPORTUNITIES, EQUITY, NORTHWEST, BOND AND
MONEY MARKET PORTFOLIOS ONLY)
Asset-backed securities represent interests in, or are secured by and payable
from, pools of assets such as (but not limited to) consumer loans, automobile
receivable securities, credit card receivable securities, and installment loan
contracts. The assets underlying the securities are securitized through the use
of trusts and special purpose corporations. These securities may be supported by
credit enhancements such as letters of credit. Payment of interest and principal
ultimately depends upon borrowers paying the underlying loans. Repossessed
collateral may be unavailable or inadequate to support payments on defaulted
asset-backed securities. In addition, asset-backed securities are subject to
prepayment risks which may reduce the overall return of the investment.
Automobile receivable securities represent undivided fractional interests in a
trust whose assets consist of a pool of automobile retail installment sales
contracts and security interests in vehicles securing the contracts. Payments of
principal and interest on the certificates issued by the automobile receivable
trust are passed through periodically to certificate holders and are generally
guaranteed up to specified amounts by a letter of credit issued by a financial
institution. Certificate holders may experience delays in payments or losses if
the full amounts due on the underlying installment sales contracts are not
realized by the trust because of factors such as unanticipated legal or
administrative costs of enforcing the
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contracts, or depreciation, damage or loss of the vehicles securing the
contracts.
Credit card receivable securities are backed by receivables from revolving
credit card accounts. Certificates issued by credit card receivable trusts
generally are pass-through securities. Competitive and general economic factors
and an accelerated cardholder payment rate can adversely affect the rate at
which new receivables are credited to an account, potentially shortening the
expected weighted average life of the credit card receivable security and
reducing its yield. Credit card accounts are unsecured obligations of the
cardholder.
15. COVERED CALL OPTIONS AND PUT AND CALL OPTIONS ON STOCK INDICES. (STOCK
PORTFOLIOS EXCEPT FOR THE EQUITY PORTFOLIO)
The Portfolios may employ certain strategies and techniques utilizing these
types of options to mitigate their exposure to factors that affect security
values. There is no guarantee that these strategies and techniques will work. An
option gives an owner the right to buy or sell securities at a predetermined
exercise price for a given period of time. The writer of a call option is
obligated to sell the underlying securities if the option is exercised during
the specified period of time. A Portfolio that writes a call option and wishes
to terminate the obligation may effect a "closing purchase transaction" by
buying an option of the same series as the option previously written. Options on
stock indices are similar to options on stock except that, rather than obtaining
the right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive, upon exercise of the option,
an amount of cash if the closing level of the stock index upon which the option
is based is greater than (in the case of a call) or less than (in the case of a
put) the strike price of the option. A Portfolio will write call options on
stocks only if they are covered, and such options must remain covered so long as
the Portfolio is obligated as a writer. A Portfolio, under normal conditions,
will not write a call option if, as a result thereof, the aggregate value of the
assets underlying all such options (determined as of the date such options are
written) would exceed 25% of the Portfolio's net assets. See also "Options on
equity securities" and "Options on stock indices" below.
16. OPTIONS ON EQUITY SECURITIES. (STOCK PORTFOLIOS EXCEPT FOR THE EQUITY
PORTFOLIO)
The Portfolios may purchase and write (i.e., sell) put and call options on
equity securities may purchase and write (i.e., sell) covered call options. A
call option is a short-term contract pursuant to which the purchaser or holder,
in return for a premium paid, has the right to buy the equity security
underlying the option at a specified exercise price (the strike price) at any
time during the term of the option (for "American-style" options) or on the
option expiration date (for "European-style" options). The writer of the call
option, who received the premium, has the obligation, upon exercise of the
option, to deliver the underlying equity security against payment of the strike
price. A put option is a similar contract that gives the purchaser or holder, in
return for a premium, the right to sell the underlying equity security at a
specified exercise price (the strike price) during the term of the option. The
writer of the put, who receives the premium, has the obligation to buy the
underlying equity security at the strike price upon exercise by the holder of
the put.
The Portfolios will write call options on stocks only if they are covered, and
such options must remain covered so long as a Portfolio is obligated as a
writer. For purposes of writing covered call options, a call option is "covered"
only if at the time the Portfolio writes the call, the Portfolio holds in its
portfolio on a share-for-share basis the same security as the call written. A
Portfolio must maintain such security in its portfolio from the time the
Portfolio writes the call option until the option is exercised, terminated or
expires. The Portfolios' use of options on equity securities is subject to
certain special risks including the risk that the market value of the security
will move adversely to the Portfolio's option position. Additional risks
relating to the Portfolios' use of options on equity securities are described
below.
The Portfolios may effect "closing purchase transactions." If a Portfolio, as a
writer of an option, wishes to terminate the obligation, it may effect a closing
purchase transaction by buying an option of the same series as the option
previously written. A Portfolio will realize a profit from a closing transaction
if the
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price of the transaction is less than the premium received from writing the
option. Because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from a closing purchase transaction with respect to a call option is
likely to be offset in whole or in part by appreciation of the underlying equity
security owned by the Portfolio. There is no guaranty that closing purchase or
closing sale transactions can be effected.
The Portfolios' use of options on equity securities is subject to certain
special risks, in addition to the risk that the market value of the security
will move adversely to the Portfolio's option position. An option position may
be closed out only on an exchange, board of trade or other trading facility that
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option, or at any particular time, and for some options no secondary
market on an exchange or otherwise may exist. In such event it might not be
possible to effect closing transactions in particular options. If a Portfolio as
a covered call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell the underlying security until
the option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange can include
any of the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures that may interfere with the timely execution
of customers' orders.
The Portfolios, under normal conditions, will not write a call option if, as a
result thereof, the aggregate value of the assets underlying all such options
(determined as of the date such options are written) would exceed 25% of the
Portfolio's net assets. The Portfolios will not purchase an option if, as a
result thereof, its aggregate investment in options would exceed 5% of its total
assets.
17. PUT OPTIONS (STOCK PORTFOLIOS EXCEPT FOR THE EQUITY PORTFOLIO)
The Portfolios will write put options on stocks only if they are covered, and
such options must remain covered so long as the Portfolio is obligated as a
writer. A put option is "covered" if: (i) the Portfolio holds in a segregated
account cash, Treasury bills, or other liquid high-grade short-term debt
obligations of a value equal to the strike price, or (ii) the Portfolio holds on
a share-for-share basis a put on the same security as the put written, where the
strike price of the put held is equal to or greater than the strike price of the
put written, or less than the strike price of the put written if the difference
is maintained by the Portfolio in cash, Treasury bills, or other liquid
high-grade short-term obligations in a segregated account with its custodian.
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The Portfolios may purchase "protective puts," i.e., put options acquired for
the purpose of protecting a portfolio security from a decline in market value.
In exchange for the premium paid for the put option, the Portfolio acquires the
right to sell the underlying security at the strike price of the put regardless
of the extent to which the underlying security declines in value. The loss to
the Portfolio is limited to the premium paid for, and transaction costs in
connection with, the put plus the initial excess, if any, of the market price of
the underlying security over the strike price. However, if the market price of
the security underlying the put rises, the profit the Portfolio realizes on the
sale of the security will be reduced by the premium paid for the put option less
any amount (net of transaction costs) for which the put may be sold.
The Portfolios do not intend to invest more than 5% of their net assets at any
one time in the purchase of call options on stocks.
The Portfolios' use of options on equity securities is subject to certain
special risks, in addition to the risk that the market value of the security
will move adversely to the Portfolio's option position. An option position may
be closed out only on an exchange, board of trade or other trading facility that
provides a secondary market for an option of the same series. Although the
Portfolios will generally only purchase or write those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange will exist for any particular option, or at any
particular time, and for some options no secondary market on an exchange or
otherwise may exist. In such event it might not be possible to effect closing
transactions in particular options. In such a case, the Portfolio would have to
exercise its options in order to realize any profit and would incur brokerage
commissions upon the exercise of such options and upon the subsequent
disposition of the underlying securities acquired through the exercise of call
options or upon the purchase of underlying securities or the exercise of put
options. If a Portfolio as a covered call option writer is unable to effect a
closing purchase transaction in a secondary market, it will not be able to sell
the underlying security until the option expires or it delivers the underlying
security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange can include
any of the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
a clearing corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures that may interfere with the timely execution
of customers' orders.
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18. OPTIONS ON STOCK INDICES (STOCK PORTFOLIOS EXCEPT FOR THE EQUITY PORTFOLIO)
The Portfolios may purchase and sell (i.e., write) put and call options on stock
indices. Options on stock indices are similar to options on stock except that,
rather than obtaining the right to take or make delivery of stock at a specified
price, an option on a stock index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the stock
index upon which the option is based is greater than (in the case of a call) or
less than (in the case of a put) the strike price of the option. The amount of
cash is equal to such difference between the closing price of the index and the
strike price of the option times a specified multiple (the "multiplier"). If the
option is exercised, the writer is obligated, in return for the premium
received, to make delivery of this amount. Unlike stock options, all settlements
are in cash, and gain or loss depends on price movements in the stock market
generally (or in a particular industry or segment of the market) rather than
price movements in individual stocks.
The Portfolios will write call options on stock indices only if they are
covered, and such options remain covered as long as the Portfolio is obligated
as a writer. When a Portfolio writes a call option on a broadly based stock
market index, the Portfolio will segregate or put into escrow with its custodian
or pledge to a broker as collateral for the option, cash, Treasury bills or
other liquid high-grade short-term debt obligations, or "qualified securities"
(defined below) with a market value at the time the option is written of not
less than 100% of the current index value times the multiplier times the number
of contracts. A "qualified security" is an equity security that is listed on a
national securities exchange or listed on Nasdaq against which the Portfolio has
not written a stock call option and that has not been hedged by the Portfolio by
the sale of stock index futures.
When a Portfolio writes a call option on an industry or market segment index,
the Portfolio will segregate or put into escrow with its custodian or pledge to
a broker as collateral for the option, cash, Treasury bills or other liquid
high-grade short-term debt obligations, or at least five qualified securities,
all of which are stocks of issuers in such industry or market segment, with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. Such
stocks will include stocks that represent at least 50% of the weighting of the
industry or market segment index and will represent at least 50% of the
portfolio's holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or escrowed in
the case of broadly based stock market stock options or 25% of such amount in
the case of industry or market segment index options.
If at the close of business on any day the market value of such qualified
securities so segregated, escrowed, or pledged falls below 100% of the current
index value times the multiplier times the number of contracts, the Portfolio
will so segregate, escrow, or pledge an amount in cash, Treasury bills, or other
liquid high-grade short-term obligations equal in value to the difference. In
addition, when a Portfolio writes a call on an index that is in-the-money at the
time the call is written, the Portfolio will segregate with its custodian or
pledge to the broker as collateral, cash or U.S. Government or other liquid
high-grade short-term debt obligations equal in value to the amount by which the
call is in-the-money times the multiplier times the number of contracts. Any
amount segregated pursuant to the foregoing sentence may
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be applied to the Portfolio's obligation to segregate additional amounts in the
event that the market value of the qualified securities falls below 100% of the
current index value times the multiplier times the number of contracts. A call
option is also covered, and the Portfolio need not follow the segregation
requirements set forth in this paragraph if the Portfolio holds a call on the
same index as the call written, where the strike price of the call held is equal
to or less than the strike price of the call written, or greater than the strike
price of the call written if the difference is maintained by the Portfolio in
cash, Treasury bills or other liquid high-grade short-term obligations in a
segregated account with its custodian.
The Portfolios will write put options on stock indices only if they are covered,
and such options must remain covered so long as the Portfolio is obligated as a
writer. A put option is covered if: (i) the Portfolio holds in a segregated
account cash, Treasury bills, or other liquid high-grade short-term debt
obligations of a value equal to the strike price times the multiplier times the
number of contracts, or (ii) the Portfolio holds a put on the same index as the
put written where the strike price of the put held is equal to or greater than
the strike price of the put written, or less than the strike price of the put
written if the difference is maintained by the Portfolio in cash, Treasury
bills, or other liquid high-grade short-term debt obligations in a segregated
account with its custodian.
The Portfolios do not intend to invest more than 5% of their net assets at any
one time in the purchase of puts and calls on stock indices. The Portfolios may
effect closing sale as described above in connection with options on equity
securities.
The purchase and sale of options on stock indices will be subject to the same
risks as options on equity securities, described above. In addition, the
distinctive characteristics of options on indices create certain risks that are
not present with stock options. Index prices may be distorted if trading of
certain stocks included in the index is interrupted. Trading in index options
also may be interrupted in certain circumstances, such as if trading were halted
in a substantial number of stocks included in the index. If this occurred, the
Portfolios would not be able to close out options that they had purchased and if
restrictions on exercise were imposed, a Portfolio might be unable to exercise
an option it holds, which could result in substantial losses to the Portfolio.
The Portfolios generally will select stock indices that include a number of
stocks sufficient to minimize the likelihood of a trading halt in options on the
index.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are still relatively illiquid. The ability
of the Portfolios to establish and close out positions on such options will be
subject to the development and maintenance of a liquid secondary market. It is
not certain that this market will develop in all index options contracts. The
Portfolios will not purchase or sell any index option contract unless and until
the Portfolios investment adviser believes the market for such options has
developed sufficiently that the risk in connection with such transactions is no
greater than the risk in connection with options on stocks.
Price movements in the Portfolios' equity security portfolios probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index a Portfolio bears the risk that the price of the
securities it holds in its portfolio may not increase as much as the index. In
such event, the Portfolio would bear a loss on the call that is not completely
offset by movement in the price of the Portfolio's equity securities. It is also
possible that the index may rise when the Portfolio's securities do not rise in
value. If this occurred, the Portfolio would experience a loss on the call that
is not offset by an increase in the value of its securities portfolio and might
also experience a loss in its securities portfolio. However, because the value
of a diversified securities portfolio will, over time, tend to move in the same
direction as the market, movements in the value of the Portfolios' securities in
the opposite direction as the market would be likely to occur for only a short
period or to a small degree.
When a Portfolio has written a call, there is also a risk that the market may
decline between the time the Portfolio has a call exercised against it, at a
price which is fixed as of the closing level of the index on the date of
exercise, and the time the Portfolio is able to sell stocks in its portfolio. As
with stock options, the
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Portfolio will not learn that an index option has been exercised until the day
following the exercise date but, unlike a call on stock where the Portfolio
would be able to deliver the underlying securities in settlement, the Portfolio
may have to sell part of its stock portfolio in order to make settlement in
cash, and the price of such stocks might decline before they can be sold. This
timing risk makes certain strategies involving more than one option
substantially more risky with options in stock indices than with stock options.
There are also certain special risks involved in purchasing put and call options
on stock indices. If a Portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the Portfolio will
be required to pay the difference between the closing index value and the strike
price of the option (times the applicable multiplier) to the assigned writer.
Although the Portfolio may be able to minimize the risk by withholding exercise
instructions until just before the daily cutoff time or by selling rather than
exercising an option when the index level is close to the exercise price, it may
not be possible to eliminate this risk entirely because the cutoff times for
index options may be earlier than those fixed for other types of options and may
occur before definitive closing index values are announced.
19. STOCK INDEX FUTURES CONTRACTS (STOCK PORTFOLIOS ONLY)
The Portfolios may buy and sell for hedging purposes stock index futures
contracts traded on a commodities exchange or board of trade. A stock index
futures contract is an agreement in which the seller of the contract agrees to
deliver to the buyer an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. When the
futures contract is entered into, each party deposits with a broker or in a
segregated custodial account approximately 5% of the contract amount, called the
"initial margin." Subsequent payments to and from the broker, called "variation
margin," will be made on a daily basis as the price of the underlying stock
index fluctuates, making the long and short positions in the futures contracts
more or less valuable, a process known as "marking to the market."
A Portfolio may sell stock index futures to hedge against a decline in the value
of equity securities it holds. A Portfolio may also buy stock index futures to
hedge against a rise in the value of equity securities it intends to acquire. To
the extent permitted by federal regulations, the Portfolios may also engage in
other types of hedging transactions in stock index futures that are economically
appropriate for the reduction of risks inherent in the ongoing management of the
Portfolios' equity securities.
A Portfolio's successful use of stock index futures contracts depends upon the
adviser's ability to predict the direction of the market, and is subject to
various additional risks. The correlation between movement in the price of the
stock index future and the price of the securities being hedged is imperfect and
the risk from imperfect correlation increases as the composition of the
Portfolio's securities portfolio diverges from the composition of the relevant
index. In addition, the ability of the Portfolio to close out a futures position
depends on a liquid secondary market. There is no assurance that liquid
secondary markets will exist for any particular stock index futures contract at
any particular time.
Under regulations of the Commodity Futures Trading Commission ("CFTC"),
investment companies registered under the 1940 Act are excluded from regulation
as commodity pools or commodity pool operators if their use of futures is
limited in certain specified ways. The Portfolios will use futures in a manner
consistent with the terms of this exclusion. Among other requirements, no more
than 5% of the Portfolio's assets may be committed as initial margin on futures
contracts.
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20. OPTIONS ON FUTURES CONTRACTS (STOCK PORTFOLIOS EXCEPT FOR THE EQUITY
PORTFOLIO)
The Portfolios may, to the extent permitted by applicable regulations, enter
into certain transactions involving options on futures contracts. An option on a
futures contract gives the purchaser or holder the right, but not the
obligation, to assume a position in a futures contract (a long position if the
option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and a long position if the option is a put).
Upon exercise of the option, the assumption of offsetting futures positions by
the writer and holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account that represents the
amount by which the market price of the futures contract, on exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or purchasing an
option of the same series. There is no guarantee that such closing transactions
can be effected. The Portfolios intend to utilize options on futures contracts
for the same purposes that they intend to use the underlying futures contracts.
Options on futures contracts are subject to risks similar to those described
above with respect to options and futures contracts. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, a Portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If the Portfolio were unable
to close out an option it had written on a futures contract, it would continue
to be required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was exercised
against the Portfolio.
The Portfolios will not purchase a put or call option or option on a futures
contract if, as a result, the aggregate premiums paid on all options or options
on futures contracts held by the Portfolio would exceed 20% of its net assets.
In addition, a Portfolio will not enter into any futures contract or option on a
futures contract if, as a result, the aggregate margin deposits and premiums
required on all such instruments would exceed 5% of the Portfolio's net assets.
21. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSIT (SMALL COMPANY PORTFOLIO ONLY)
In making temporary investments in commercial paper and certificates of deposit,
the Portfolio will adhere to the following guidelines:
a) Commercial paper must be rated A-1 or A-2 by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc.
("S&P") or Prime-1 or Prime-2 by Moody's Investors Services, Inc.
("Moody's") or issued by companies with an unsecured debt issue
currently outstanding rated AA by S&P or Aa by Moody's or higher.
b) Certificates of deposit ("CDs") must be issued by banks or
savings and loan associations that have total assets of at least
$1 billion or, in the case of a bank or savings and loan
association not having total assets of at least $1 billion, the
bank or savings and loan association is insured by the Federal
Deposit Insurance Corporation ("FDIC").
22. CONTINGENT VALUE RIGHTS (SMALL COMPANY PORTFOLIO ONLY)
A contingent value right ("CVR") is a right issued by a corporation that takes
on a pre-established value if the underlying common stock does not attain a
target price by a specified date. Generally, a CVR's value will be the
difference between the target price and the current market price of the common
stock on the
22
<PAGE>
target date. If the common stock does attain the target price by the date, the
CVR expires without value. CVRs may be purchased and sold as part of the
underlying common stock or separately from the stock. CVRs may also be issued to
owners of the underlying common stock as the result of a corporation's
restructuring.
23. SOVEREIGN DEBT OBLIGATIONS (SMALL COMPANY PORTFOLIO ONLY)
Sovereign debt instruments are issued or guaranteed by foreign governments or
their agencies. Sovereign debt may be in the form of conventional securities or
other types of debt instruments such as loans or loan participations.
Governments or governmental entities responsible for repayment of the debt may
be unable or unwilling to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. Repayment of principal and
interest may depend also upon political and economic factors.
24. INDEXED SECURITIES (STOCK PORTFOLIOS)
The Portfolios may invest in securities whose performance and principal amount
at maturity are linked to a specified equity security or securities index. The
value of an indexed security is determined by reference to a specific equity
instrument or statistic. The performance of indexed securities depends largely
on the performance of the securities or indices to which they are indexed, but
such securities are subject to credit risks associated with the issuer of the
security. Their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may also be more volatile than
their underlying instruments.
25. SHORT SALES AGAINST THE BOX (SMALL COMPANY PORTFOLIO ONLY)
The Portfolio may make short sales of securities or maintain a short position,
provided that at all times when a short position is open the Portfolio owns an
equal amount of such securities or an equal amount of the securities of the same
issuer as the securities sold short (a "short sale against the box"). If the
Portfolio engages in short sales against the box, it will incur transaction
costs.
23
<PAGE>
26. BELOW INVESTMENT GRADE BONDS (BOND PORTFOLIO)
The Bond Portfolio may invest up to 20% of its assets in below investment grade
bonds (commonly referred to as "high-yield" or "junk" bonds). Certain additional
risks are associated with these bonds. Yields on below investment grade bonds
will fluctuate over time. These bonds tend to reflect short-term economic and
corporate developments to a greater extent than higher quality bonds which
primarily react to fluctuations in interest rates. During an economic downturn
or period of rising interest rates, issuers of below investment grade bonds may
experience financial difficulties which adversely affect their ability to make
principal and interest payments, meet projected business goals and obtain
additional financing. In addition, issuers often rely on cash flow to service
debt. Failure to realize projected cash flows may seriously impair the issuer's
ability to service its debt load which in turn might cause a Portfolio to lose
all or part of its investment in that security. SAM will seek to minimize these
additional risks through diversification, careful assessment of the issuer's
financial structure, business plan and management team and monitoring of the
issuer's progress toward its financial goals.
The liquidity and price of below investment grade bonds can be affected by a
number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-traded
market with few participants and may adversely impact the Portfolio's ability to
dispose of the bonds as well as make valuation of the bonds more difficult.
Because there tend to be fewer investors in below investment grade bonds, it may
be difficult for the Portfolio to sell these securities at an optimum time.
Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.
Credit ratings evaluate the likelihood that an issuer will make principal and
interest payments, but may not reflect market value risks associated with
lower-rated bonds. Credit rating agencies may not timely revise ratings to
reflect subsequent events affecting an issuer's ability to pay principal and
interest.
27. FIXED-INCOME SECURITIES (EQUITY PORTFOLIO)
The Equity Portfolio may purchase fixed-income securities in accordance with
business and financial conditions.
28. BONDS AND OTHER DEBT SECURITIES (SMALL COMPANY PORTFOLIO)
The Small Company Value Portfolio may invest in bonds and other debt securities
that are rated investment grade by Moody's, S&P, or Fitch, or unrated bonds
determined by SAM to be of comparable quality to such rated bonds. Bonds rated
in the lowest category of investment grade (Baa by Moody's, BBB by S&P, and BBB
by Fitch and comparable unrated bonds have speculative characteristics and are
more likely to have a weakened capacity to make principal and interest payments
under changing economic conditions or upon deterioration in the financial
condition of the issuer. After purchase by the Portfolio, a corporate bond may
be downgraded or, if unrated, may cease to be comparable to a rated security.
Neither event will require the Portfolio to dispose of that security, but SAM
will take a downgrade or loss of comparability into account in determining
whether the Portfolio should continue to hold the security in its portfolio. In
the event that 35% or more of the Portfolio's net assets is held in securities
rated below investment grade due to a downgrade of one or more corporate bonds,
SAM will engage in an orderly disposition of such securities to the extent
necessary to ensure that the Portfolio's holdings of such securities remain
below 35% of the Portfolio's net assets.
29. SECURITIES OF UNSEASONED ISSUERS (SMALL COMPANY PORTFOLIO)
The Small Company Value Portfolio may invest up to 5% of its total assets in
securities of unseasoned issuers. Unseasoned issuers are those companies which,
together with any predecessors, have been in operation for less than three
years.
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<PAGE>
30. AMERICAN DEPOSITARY RECEIPTS (ADRS) (STOCK PORTFOLIOS)
The Stock Portfolios may each invest in American Depositary Receipts (ADRs),
which represent securities issued by a foreign issuer. ADRs are registered
receipts evidencing ownership of an underlying foreign security. They are
typically issued in the United States by a bank or trust company. ADRs involve
risks in addition to risks normally associated with securities issued by
domestic issuers, including the possibility of adverse political or economic
developments in foreign countries. Foreign companies may not be subject to
accounting standards or governmental supervision comparable to U.S. companies
and there may be less public or less current information about their operations.
In addition to the risks of foreign investment applicable to the underlying
securities, ADRs may also be subject to the risks that the foreign issuer may
not be obligated to cooperate with the U.S. bank or trust company, or that such
information in the U.S. market may not be current. ADRs which are structured
without sponsorship of the issuer of the underlying foreign security may also be
subject to the risk that the foreign issuer may not provide financial and other
material information to the U.S. bank or trust company issuer.
PRINCIPAL SHAREHOLDERS OF THE PORTFOLIOS
At December 31, 1999 SAFECO Life Insurance Company ("SAFECO Life") controlled
each of the Portfolios. At such date it owned of record the following
percentages of the outstanding shares of the Portfolios listed:
<TABLE>
<S> <C>
Equity 89%
Growth Opportunities 76%
Northwest 89.9%
Bond 100%
Money Market 88.2%
Small Company 100%
</TABLE>
At December 31, 1999, SAM owned 10.10% of the Northwest Portfolio's outstanding.
At December 31, 1999, SAFECO Corporation owned 11.80% of the Money Market
Portfolio's outstanding shares.
SAFECO Life and SAM are Washington corporations and wholly owned subsidiaries of
SAFECO Corporation. SAFECO Corporation is also a Washington corporation and has
its principal place of business at SAFECO Plaza, Seattle, WA 98185. SAFECO Life
has its principal place of business at 5069 154th Place NE, Redmond, WA 98052.
Control persons of a Portfolio may control the outcome of a shareholder vote.
SAFECO Life, like other participating insurance companies who own shares of a
Portfolio, will solicit voting instructions from variable contract owners with
respect to any matters that are presented to a vote of shareholders. See
"CHARACTERISTICS OF THE TRUST'S SHARES - Voting Rights."
At December 31, 1999, AUL Group Retirement Annuity Separate Account II, whose
address of record is P.O. Box 1995, Indianapolis, IN 46206, owned of record
9.93% of the Growth Opportunities Portfolio's outstanding shares, and IL
Annuity, whose address of record is 2960 N. Meridian Street, Indianapolis, IN
46208, owned of record 5.31% of the Growth Opportunities Portfolio's outstanding
shares. AUL Group Retirement Annuity Separate Account II is controlled by
American United Life, and IL Annuity is controlled by Indianapolis Life Annuity
and Insurance Company.
CALCULATION OF SHARE PRICE
The net asset value per share of each of the Portfolios (other than the Money
Market Portfolio) is determined by subtracting the liabilities of the Portfolio
from its assets, and dividing the result by the number of outstanding shares.
Net asset value per share is computed as of the close of regular trading of
26
<PAGE>
the New York Stock Exchange (normally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading.
The Stock Portfolios generally value their portfolio securities at the
last-reported sale price on the national exchange on which the securities are
primarily traded, unless there are no transactions, in which case they shall be
valued at the last reported bid price. Securities traded over-the-counter are
valued at the last sale price, unless there is no reported sale price, in which
case the last reported bid price will be used. Portfolio securities that trade
on a stock exchange and over-the-counter are valued according to the broadest
and most representative market. Securities not traded on a national exchange are
valued based on consideration of information with respect to transactions in
similar securities, quotations from dealers and various relationships between
securities. Valuations of portfolio securities calculated in a like manner may
be obtained from a pricing service. Investments for which a representative value
cannot be established are valued at their fair value as determined in good faith
by or under the direction of the Trust's board of trustees.
Some of the Portfolios may invest from time to time in foreign securities.
Trading in foreign securities will generally be substantially completed each day
at various times prior to the close of the NYSE. The values of any such
securities are determined as of such times for purposes of computing the
Portfolios' net asset value. Foreign currency exchange rates are also generally
determined prior to the close of the NYSE. Foreign portfolio securities are
valued on the basis of quotations from the primary market in which they trade.
The value of foreign securities are translated from the local currency into U.S.
dollars using current exchange rates. If quotations are not readily available,
or if values have been materially affected by events occurring after the close
of a foreign market, the security will be valued at fair value as determined in
good faith by the investment adviser under procedures established by and under
general supervision of the Trust's board of trustees.
Options that are traded on national securities exchanges are valued at their
last sale price as of the close of option trading on such exchange. Futures
contracts will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
For the Bond Portfolio, securities are valued based on consideration of
information with respect to transactions in similar securities, quotations from
dealers, and various relationships between securities. Valuations of the Bond
Portfolio's portfolio securities calculated in a like manner may be obtained
from a pricing service. Investments for which a representative value cannot be
established are valued at their fair value as determined in good faith by or
under the direction of the Trust's board of trustees.
The portfolio instruments of the Money Market Portfolio are valued on the basis
of amortized cost. The valuation of the Money Market Portfolio securities based
upon its amortized cost and the maintenance of its net asset value per share at
$1.00 is permitted pursuant to Rule 2a-7 under the 1940 Act. Pursuant to that
rule, the Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, purchase only securities having remaining
maturities of 397 days or less and invest only in securities determined by SAM
under guidelines adopted by the board of trustees to be of high quality with
minimal credit risks. The board of trustees has established procedures designed
to stabilize, to the extent reasonably possible, the Portfolio's price-per-share
as computed for the purpose of sales and redemptions at $1.00. These procedures
include a review of the Portfolio's holdings by the board of trustees, at such
intervals as it may deem appropriate, to determine whether the Portfolio's net
asset value per share, calculated by using available market quotations, deviates
from $1.00 per share and, if so, whether such deviation may result in material
dilution or is otherwise unfair to existing contract owners. In the event the
board of trustees determines that such a deviation exists, it will take such
corrective action as it regards as necessary and appropriate, including, but not
limited to: selling portfolio investments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; or establishing the net asset value per share by using
available market quotations.
27
<PAGE>
The principal risk associated with the Money Market Portfolio is that it may
experience a delay or failure in principal or interest payments at maturity of
one or more of the portfolio securities. The Money Market
Portfolio's yield will fluctuate with general money market interests rates.
Short-term debt securities held by each Portfolio having a remaining maturity of
less than 60 days when purchased, and securities originally purchased with
maturities in excess of 60 days but which currently have maturities of 60 days
or less, may be valued at cost adjusted for amortization of premiums or accrual
of discounts, or under such other methods as the board of trustees may from time
to time deem to be appropriate. The cost of those securities that had original
maturities in excess of 60 days shall be determined by their fair market value
up until the 61st day prior to maturity. All other securities and assets held by
the Portfolios will be appraised in accordance with those procedures established
by the board of trustees in good faith in computing the fair market value of
those assets.
ADDITIONAL PERFORMANCE INFORMATION
GROWTH OPPORTUNITIES, EQUITY, NORTHWEST, BOND AND SMALL COMPANY PORTFOLIOS
The yield for the 30-day period ended December 31, 1999 for the Bond Portfolio
was 5.67%
Yield is computed using the following formula:
a-b
Yield = 2 [(--- +1) TO THE POWER OF 6 - 1]
cd
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding
during the period that were entitled to receive dividends
d = the maximum offering price per share on the last
day of the period
The total returns, expressed as a percentage, for the one-year, five-year, and
ten-year periods ended December 31, 1999 for the Equity and Bond Portfolios were
as follows:
<TABLE>
<CAPTION>
Portfolio 1 Year 5 Year 10 Year
<S> <C> <C> <C>
Equity 9.31% 173.58% 395.27%
Bond (3.99)% 34.33% 87.05%
</TABLE>
The total returns, expressed as a percentage, for the one-year, five-year (if
applicable) and since effective date periods ended December 31, 1999 for the
Growth Opportunities, Northwest and Small Company Portfolios were as follows:
<TABLE>
<CAPTION>
Portfolio 1 Year 5 Year Since Effective # of Months Effective Date
Date
<S> <C> <C> <C> <C> <C>
Growth Opportunities 5.63% 189.53% 340.94% 83 January 7, 1993
Northwest 54.62% 151.79% 161.64% 83 January 7, 1993
Small Company 15.40% N/A 18.61% 32 April 30, 1997
</TABLE>
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<PAGE>
The average annual total returns, expressed as a percentage, for the one-, five-
and ten-year periods ended December 31, 1999 for the Equity and Bond Portfolios
were as follows:
<TABLE>
<CAPTION>
Portfolio 1 Year 5 Year 10 Year
<S> <C> <C> <C>
Equity 9.31% 22.30% 17.35%
Bond (3.99)% 6.08% 6.46%
</TABLE>
The average annual total returns, expressed as a percentage, for the one-year,
five-year (if applicable) and since effective date periods ended December 31,
1999 for the Growth Opportunities, Northwest and Small Company Portfolios were
as follows:
<TABLE>
<CAPTION>
Portfolio 1 Year 5 Year Since Effective # of Months Effective Date
Date
<S> <C> <C> <C> <C> <C>
Growth Opportunities 5.63% 23.69% 23.68% 83 January 7, 1993
Northwest 54.62% 20.28% 14.77% 83 January 7, 1993
Small Company 15.40% N/A 6.60% 32 April 30, 1997
</TABLE>
The total return is computed using the following formula:
ERV-P
T = ------- X 100
P
The average annual total return is computed using the following formula:
-------
A =( n\/ ERV/P - 1) x 100
Where: T = total return
A = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
$1,000 investment at the end of a specified
period of time
P = a hypothetical initial investment of $1,000
In making the above calculations, all dividends and capital-gain distributions
are assumed to be reinvested at the respective Portfolio's NAV on the
reinvestment date.
MONEY MARKET PORTFOLIO:
The yield and effective yield for the Money Market Portfolio of the Trust for
the 7-day period ended December 31, 1999, were 5.21% and 5.35%, respectively.
29
<PAGE>
Yield is computed using the following formula:
(x-y) -z 365
Yield = [------ ] = Base Period Return X -----
y 7
Where: x = value of one share at the end of a 7-day period
y = value of one share at the beginning of a 7-day
period ($1.00)
z = capital changes during the 7-day period, if any
Effective yield is computed using the following formula:
Effective yield = [(Base Period Return + 1) 365/7 ] -1
During periods of declining interest rates, the Money Market Portfolio's yield
based on amortized cost may be higher than the yield based on market valuations.
Under these circumstances, a shareholder in the Money Market Portfolio would be
able to obtain a somewhat higher yield than would result if the Portfolio
utilized market valuations to determine its NAV. The converse would apply in a
period of rising interest rates.
In addition to performance figures, the Portfolios may advertise their rankings
as calculated by independent rating services that monitor mutual funds'
performance (e.g., CDA Investment Technologies, Lipper Analytical Services,
Inc., Morningstar, Inc., and Wiesenberger Investment Companies Service). These
rankings may be among mutual funds with similar objectives and/or size or with
mutual funds in general. In addition, the Portfolios may advertise rankings
which are in part based upon subjective criteria developed by independent rating
services to measure relative performance. Such criteria may include methods to
account for levels of risk and potential tax liability, sales commissions and
expense and turnover ratios. These rating services may also base the measure of
relative performance on time periods deemed by them to be representative of up
and down markets. The Portfolios may also describe in their advertisements the
methodology used by rating services to arrive at Portfolio ratings. In addition,
the Portfolios may also advertise individual measurements of Portfolio
performance published by the rating services, including but not limited to a
Portfolio's beta, standard deviation, and price earnings ratio.
The Portfolios may occasionally reproduce articles or portions of articles about
the Portfolios written by independent third parties such as financial writers,
financial planners and financial analysts, which have appeared in financial
publications of general circulation or financial newsletters (including but not
limited to BARRONS, BUSINESS WEEK, FABIANS, FORBES, FORTUNE, INVESTOR'S BUSINESS
DAILY, KIPLINGER'S, MONEY Magazine, MORNINGSTAR MUTUAL FUNDS, MUTUAL FUNDS
FORECASTER, MUTUAL FUNDS Magazine, NEWSWEEK, PENSIONS & INVESTMENTS, RUCKEYSER'S
MUTUAL FUNDS, TELESWITCH, TIME Magazine, U.S. NEWS AND WORLD REPORT, YOUR MONEY
and the WALL STREET JOURNAL).
Each Portfolio may present in its advertisements and sales literature (i) a
biography or the credentials of its portfolio manager (including but not limited
to educational degrees, professional designations, work experience, work
responsibilities and outside interests), (ii) current facts (including but not
limited to number of employees, number of shareholders, business
characteristics) about its investment adviser (SAM), the investment adviser's
parent company (SAFECO Corporation) or the SAFECO Family of Funds (iii)
descriptions, including quotations attributable to the portfolio manager, of the
investment style used to manage a Portfolio, the research methodologies
underlying securities selection and a Portfolio's investment objective and (iv)
information about particular securities held by a Portfolio.
From time to time, each Portfolio may discuss its performance in relation to the
performance of relevant indices and/or representative peer groups. Such
discussions may include how a Portfolio's investment style (including, but not
limited to portfolio holdings, asset types, industry/sector weightings and the
purchase and sale of specific securities) contributed to such performance.
30
<PAGE>
In addition, each Portfolio may comment on the market and economic outlook in
general, on specific economic events, on how these conditions have impacted its
performance and how the portfolio manager will or has addressed such conditions.
Each Portfolio also may provide information on how much certain investments
would return over time.
Each Stock Portfolio may compare its performance against the following unmanaged
indices that (unless otherwise noted in the advertisement) assume reinvestment
of dividends:
AMEX (AMERICAN STOCK EXCHANGE) MAJOR MARKET INDEX - Price weighted
(high-priced issues have more influence than low-priced issues)
average of 20 Blue Chip stocks.
DOW JONES INDUSTRIAL AVERAGE - Price weighted average of 30 actively
traded Blue Chip stocks.
NASDAQ PRICE INDEX - Market value weighted (impact of a component's
price change is proportionate to the overall market value of the
issue) index of approximately 3500 over-the-counter stocks traded on
the Nasdaq.
S & P 500 COMPOSITE STOCK PRICE INDEX - Market value weighted index of
500 stock's most of which are listed on the New York Stock Exchange
with some listed on the American Stock Exchange and Nasdaq.
WILSHIRE 5000 EQUITY INDEX - Market value weighted index of
approximately 5000 stocks including all stocks on the New York and
American Stock Exchanges.
MORGAN STANLEY CAPITAL INTERNATIONAL EAFE INDEX - Market value
weighted index of approximately 1200 companies located throughout the
world.
RUSSELL 2000 INDEX - The 2000 smallest firms in the Russell 3000 Index
which is composed of the 3000 largest companies in the United States
as measured by capitalization.
DESCRIPTION OF RATINGS
Ratings by Moody's, S&P and Fitch represent opinions of those organizations as
to the investment quality of the rated obligations. Investors should realize
these ratings do not constitute a guarantee that the principal and interest
payable under these obligations will be paid when due.
COMMERCIAL PAPER AND PREFERRED STOCK RATINGS
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations with an original maturity not exceeding one
year.
Prime-1 -- Issuers (or supporting institutions) rated Prime-1 ("P-1") have a
superior ability for repayment of senior short-term debt obligations. P-1
repayment ability will often be evidenced by many of the following
characteristics:
- - Leading market positions in well-established industries.
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<PAGE>
- - High rates of return on funds employed.
- - Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
- - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- - Well-established access to a range
of financial markets and assured sources of alternate liquidity.
Prime-2 -- Issuers (or supporting institutions) rated Prime-2 ("P-2") have a
strong ability for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
S&P
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1 -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated "A-1."
PREFERRED STOCK RATINGS
Generally, a preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends. A preferred stock
rating differs from a bond rating since it is assigned to an equity issue which
is different from, and subordinate to, a debt issue.
MOODY'S
aaa -- An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
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<PAGE>
baa -- An issue which is rated "baa" is considered to be an upper-medium grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
ba -- An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future status
of payments.
ca -- An issue which is rated "ca" is speculative in a high degree and is likely
to be in arrears on dividends with little likelihood of eventual payments.
c -- This is the lowest rated class of preferred or preference stock. Issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
S&P
AAA -- This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
AA -- A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated "AAA."
A -- An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
BBB - An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
BB, B, CCC -- Preferred stock rated "BB," "B" and "CCC" are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "CCC" the highest. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
CC -- The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
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<PAGE>
C -- A preferred stock rated "C" is a nonpaying issue.
D -- A preferred stock rated "D" is a nonpaying issue with the issuer in default
on debt instruments.
N.R. -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-) To provide more detailed indications of preferred stock
quality, ratings from "AA" to "CCC" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
BOND RATINGS
MOODY'S
Investment Grade :
Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
A -- Bonds which are rated "A" possess many favorable investment attributes and
are to be considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated "Baa" are considered medium-grade obligations
(I.E., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Below Investment Grade:
Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very
34
<PAGE>
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds of this class.
B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated "C" are the lowest-rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
S&P
Investment Grade:
AAA -- Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA -- Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A -- Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB -- Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Below Investment Grade :
BB, B, CCC, CC, C -- Debt rated "BB," "B," "CCC," "CC," and "C" is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. "BB" indicates the least degree of speculation and
"C" the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
C1 -- The rating "C1" is reserved for income bonds on which no interest is being
paid.
D -- Debt rated "D" is in payment default. The "D" rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
35
<PAGE>
PLUS (+) OR MINUS (-): The ratings may be modified from "AA" to "CCC" by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
FITCH
Investment Grade:
AAA - AAA ratings denote the lowest expectation of credit risk. They are
assigned only in case of exceptionally strong capacity for timely payment of
financial commitments.
AA - AA ratings denote a very low expectation of credit risk. They indicate very
strong capacity for timely payment of financial commitments.
A - A ratings denote a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered strong. This capacity may,
however, be more vulnerable to changes in circumstances or in economic
conditions than is the case for higher ratings.
BBB - BBB ratings indicate that there is currently a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment-grade
category.
Below Investment Grade:
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
speculative characteristics and a possibility of credit risk, ranging from a
possibility of credit risk at BB, to a significant credit risk at B, to a high
default risk at CCC, CC and C.
MUNICIPAL NOTES AND OTHER SHORT-TERM OBLIGATION RATINGS
MOODY'S
Moody's rates municipal notes and other short-term obligations using Moody's
Investment Grade ("MIG").
MIG-1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2-- This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG-3-- This designation denotes favorable quality. All security elements are
accounted for but there is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
36
<PAGE>
S&P
Ratings for municipal notes and other short-term obligations are designated by
S&P's note rating. S&P's note rating reflects the liquidity concerns and
market-access risk unique to notes. Notes due in three years or less will likely
receive a note rating.
SP-1 -- Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
FITCH
F1 - Indicates the best capacity for timely payment of financial commitments.
F2 - A satisfactory capacity for timely payment of financial commitments, but
the margin of safety is not as great as in the case of the higher ratings.
F3 - The capacity for timely payment of financial commitments is adequate;
however, near-term adverse changes could result in a reduction to non-investment
grade.
B - Minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
PERFORMANCE INFORMATION AND QUOTED RATINGS ARE INDICATIVE ONLY OF PAST
PERFORMANCE AND ARE NOT INTENDED TO REPRESENT FUTURE INVESTMENT RESULTS.
TRUSTEES AND OFFICERS
The Trust's board of trustees oversees the management of the Trust, chooses the
officers of the Trust, monitors the performance of the officers, and sets the
strategic direction and policies of the Trust.
<TABLE>
<CAPTION>
Position(s) Held
Name, Address and Age With the Trust Principal Occupations(s)
- --------------------- ----------------- During Past 5 Years
-------------------
<S> <C> <C>
Boh A. Dickey* Chairman and President, Chief Operating Officer,
SAFECO Plaza Trustee and Director of SAFECO Corporation.
Seattle, WA 98185 Previously, Executive Vice
(55) President and Chief Financial
Officer. He has been an executive
officer of SAFECO Corporation
subsidiaries since 1982. See table
under "Investment Advisory and
Other Services."
Barbara J. Dingfield Trustee Consultant. From 1994 to 1999 she
3246 Cascadia Avenue S. was the Director of Community
Seattle, Washington 98144 Affairs for Microsoft Corporation,
(54) Redmond, Washington, a computer
software company. Director of First
SAFECO
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
National Life Insurance Company of
New York; Board Chair of United Way
of King County; member of the Board
of Managers of Swarthmore College.
David F. Hill* President Trustee President of SAFECO Mutual Funds,
10865 Willows Road NE SAFECO Securities, Inc. and SAFECO
Redmond, WA 98052 Services Corporation; Senior Vice
(51) President of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."
Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Treasurer of the Trust and other
Ct.Seattle, WA 98177 SAFECO Trusts; retired Senior Vice
(71) President and Treasurer of SAFECO
Corporation; former President of
SAFECO Asset Management Company;
Director of First SAFECO National
Life Insurance Company of New York
member of Diocese of Olympia
Investment Committee.
Richard E. Lundgren Trustee Director of Marketing and Customer
764 S. 293rd Street Relations, Building Materials
Federal Way, WA 98032 Distribution, Weyerhaeuser Company
(62) Tacoma, Washington; Director of
First SAFECO National Life
Insurance Company of New York.
Larry L. Pinnt Trustee Retired Vice President and Chief
1600 Bell Plaza, Financial Officer, U.S. WEST
Room 1802 Communications, Seattle,
Seattle, WA 98191 Washington; Chairman of the
(65) University of Washington Medical
Center Board, Seattle, Washington;
Director of Cascade Natural Gas
Corporation, Seattle, Washington;
Director of First SAFECO National
Life Insurance Company of New York
and Treasurer of Cancer Care
Alliance, Seattle, Washington.
John W. Schneider Trustee President and sole owner of
1808 N. 41st Wallingford Group, Inc., Seattle,
St.Seattle, WA 98103 Washington, a company consulting o
(58) the acquisition/disposition and
development of real estate; former
President of Emerald Development
Group, Inc., Seattle, Washington;
Director of First SAFECO National
Life Insurance Company of New York
Neal Fuller Vice President Vice President, Controller,
10865 Willows Road Controller Assistant Secretary and Treasurer
NERedmond, WA 98052 Assistant of SAFECO Securities, Inc. and
Secretary SAFECO Services
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
Corporation; Vice President,
Controller, Secretary and Treasurer
of SAFECO Asset Management Company.
See table under "Investment
(37) Advisory and Other Services."
Ronald L. Spaulding Vice President Chairman of SAFECO Asset Management
Two Union Square Treasurer Company; Treasurer and Chief
Sixth Avenue and Investment Officer of SAFECO
Union Street Corporation; Vice President of
Seattle, WA 98101 SAFECO insurance companies;
(56) Director, Vice President and
Treasurer of First SAFECO National
Life Insurance Company of New York;
former Senior Portfolio Manager of
SAFECO insurance companies and
Portfolio Manager for SAFECO mutual
funds. See table under "Investment
Advisory and Other Services."
David H. Longhurst Assistant Assistant Controller of SAFECO
10865 Willows Controller Securities, Asset Inc., SAFECO
Road NERedmond, Services Corporation and SAFECO
WA 98052 Management Company; former Senior
(42) Manager of SAFECO Asset Management
Company; former Senior Manager with
Ernst & Young LLP, an independent
accounting firm.
Stephen D. Collier Assistant Director of Taxation and Assistant
SAFECO Plaza Secretary Vice President of SAFECO
Seattle, WA 98185 Corporation; Assistant Secretary of
(47) SAFECO Asset Management Company,
SAFECO Securities, Inc. and SAFECO
Services Corporation. He has been
an executive officer of SAFECO
Corporation and subsidiaries since
1991.
</TABLE>
*Trustees who are interested persons as defined by the 1940 Act.
At December 31, 1999, none of the Trustees or officers of the Trust owned shares
of any series of the Trust.
Each trustee and officer of the Trust holds the same position(s) with five other
registered open-end, management investment companies that have, in the
aggregate, nineteen series companies managed by SAM.
39
<PAGE>
COMPENSATION TABLE
FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Aggregate
Trustee Compensation Pension or Estimated Annual Total Compensation
- ------- From Registrant Retirement Benefits Benefits Upon From Registrant and
--------------- Accrued As Part of Retirement Portfolio Complex
Portfolio Expenses ---------- Paid to
----------------- Trustees
---------
<S> <C> <C> <C> <C>
Boh A. Dickey N/A N/A N/A N/A
Barbara J.
Dingfield $8,363 N/A N/A $35,500
David F. Hill N/A N/A N/A N/A
Richard W.
Hubbard* $7,774.34 N/A N/A $33,000
Richard E. $8,363 N/A N/A $35,500
Lundgren
Larry L. Pinnt $8,363 N/A N/A N/A
John W. Schneider $8,363 N/A N/A $35,500
</TABLE>
Mr. Dickey and Mr. Hill are officers of various SAFECO companies and are not
compensated by the Trust. Similarly, the officers of the Trust receive no
compensation for their services as officers.
Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of the Trust are compensated by the
Trust.
INVESTMENT ADVISORY AND OTHER SERVICES
SAFECO Asset Management Company ("SAM"), SAFECO Securities, Inc. ("SAFECO
Securities") and SAFECO Services Corporation ("SAFECO Services") are
wholly-owned subsidiaries of SAFECO Corporation, which owns operating
subsidiaries in various segments of insurance and other financially related
businesses. SAM is the investment adviser, SAFECO Securities is the principal
underwriter, and SAFECO Services is the transfer, dividend and distribution
disbursement and shareholder servicing agent for each Portfolio under agreements
with the Trust.
CODE OF ETHICS. Section 17(j) of the Investment Company Act of 1940 (the "Act")
generally prohibits the principal underwriter of a mutual fund, and any person
affiliated with a mutual fund company, its investment adviser or principal
underwriter, from engaging in any fraudulent conduct in connection with the
person's purchase or sale of securities held or to be acquired by the Portfolio.
The Trust and its investment adviser and principal underwriter have adopted a
joint Code of Ethics under Rule 17j-1 of the Act, relating to the personal
investment activities of SAFECO Mutual Funds personnel. A copy of the
40
<PAGE>
Trust's Code of Ethics is publicly filed with the Securities Exchange Commission
("SEC") as an exhibit to the Trust's registration statement, and is available
from the SEC.
The Code of Ethics generally permits fund personnel to invest in securities for
their own accounts, but regulates such investments by (i) individuals whose job
functions involve either making or participating in securities transactions, or
making or participating in recommendations concerning securities purchases or
sales, and (ii) those employees who in the course of their job functions are
able to obtain information regarding a Portfolio's purchases or sales of
securities ("access persons"). The Code of Ethics (1) requires access persons to
preclear all securities trades, other than transactions involving open-end
mutual fund shares and the securities of certain government issuer, (2)
prohibits access persons from purchasing or selling any security they know is
being purchased or sold, or considered for purchase or sale, by any series
Portfolio of the Trusts, and (3) requires access persons to comply with certain
annual and quarterly reporting requirements relating to their securities
holdings and transactions during the period.
In addition, the Code of Ethics broadly bars all fund personnel from (1)
engaging in personal trading when in possession of information concerning
Portfolio trading decisions, (2) participating in any transaction involving a
conflict of interest giving rise to a pecuniary interest in a transaction to
which any investment client is a party, or in transactions which would create
any personal benefit, (3) accepting gifts or favors from any person who seeks to
do business with the Trusts or any of their series Portfolios, or with SAM or
SAFECO Securities. These prohibitions are not restricted to the group of
Portfolio "access persons".
The following individuals have the following positions and offices with the
Trust, SAM, SAFECO Securities and SAFECO Services:
<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust Sam Securities Services
- ---- ----- --- ---------- ---------
<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director
Trustee
D. F. Hill President Senior President Director President Director
Trustee Vice President Secretary Secretary
Director
N. A. Fuller Vice President Vice President Vice President Vice President
Controller Controller Controller Controller
Assistant Secretary Assistant Assistant
Secretary Treasurer Secretary Secretary
Treasurer Treasurer
R. L. Spaulding Vice Chairman Director Director
President Director
Treasurer
S. C. Bauer President
Director
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
D. H. Longhurst Assistant Assistant Assistant Assistant
Controller Controller Controller Controller
S.D. Collier Assistant Assistant Assistant Assistant
Secretary Secretary Secretary Secretary
</TABLE>
Mr. Dickey is President, Chief Operating Officer and a Director of SAFECO
Corporation, and Mr. Spaulding is Treasurer and Chief Investment Officer of
SAFECO Corporation. Messrs. Dickey and Spaulding are also directors
and officers of other SAFECO Corporation subsidiaries.
In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed for or
on behalf of the Trust and each Portfolio that include furnishing office
facilities, books, records and personnel to manage the Trust's and each
Portfolio's affairs and paying certain expenses.
The Trust Instrument of the Trust provides that the Trust will indemnify its
Trustees and its officers against liabilities and expenses reasonably incurred
in connection with litigation in which they may be involved because of their
offices with the Trust, unless it is adjudicated that they engaged in bad faith,
willful misfeasance, gross negligence, or reckless disregard of the duties
involved in the conduct of their offices. In the case of settlement, such
indemnification will not be provided unless it has been determined -- by a court
or other body approving the settlement, by a majority of a quorum of Trustees
who are neither interested persons of the Trust nor are parties to the
proceeding, based upon a review of readily available facts (rather than a
trial-type inquiry), or in a written opinion of independent counsel -- that such
officers or Trustees have not engaged in willful misfeasance, bad faith, gross
negligence, or reckless disregard of their duties.
SAM also serves as the investment adviser for other investment companies in
addition to the Portfolios. Several of these investment companies have
investment objectives similar to those of certain Portfolios. It is therefore
possible that the same securities will be purchased for both a Portfolio and
another investment company advised by SAM. When two or more funds advised by SAM
are simultaneously engaged in the purchase or sale of the same security, the
prices and amounts will be allocated in a manner considered by the officers of
the funds involved to be equitable to each fund. It is expected that the
opportunity to participate in volume transactions will produce better executions
and prices for a Portfolio, generally. In some cases, the price of a security
allocated to one Portfolio may be higher or lower than the price of a security
allocated to another fund.
For the services and facilities furnished by SAM, the Trust has agreed to pay an
annual fee of .74% for the Growth Opportunities, Equity, Northwest and Bond
Portfolios, .85% for the Small Company Portfolio and .65% for the Money Market
Portfolio computed on the basis of the average market value of the net assets of
each Portfolio ascertained each business day and paid monthly. During its last
three fiscal years, the Trust paid SAM the following investment advisory fees
for each Portfolio:
42
<PAGE>
Investment Advisory Fees Paid to SAM
<TABLE>
<CAPTION>
Years Ended
-----------
December 31 December 31, December 31,
Portfolio 1999 1998 1997
- --------- ------------ ------------- -------------
<S> <C> <C> <C>
Equity $ 4,638,000 $3,502,000 $2,429,000
Bond $ 220,000 $ 169,000 $ 120,000
Northwest $ 219,000 $ 173,000 $ 104,000
Growth Opportunities $ 2,368,000 $2,363,000 $1,227,000
Money Market $ 180,000 $ 154,000 $ 108,000
</TABLE>
The Trust paid investment advisory fees for the Small Company Portfolio of
$97,000 for the year ended December 31, 1999, $109,000 for the year ended
December 31, 1998 and $40,000 for the period April 30, 1997 (effective date) to
December 31, 1997
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA 02170
is the custodian of the securities and cash of each Portfolio under an agreement
with the Trust. Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle,
Washington 98104 is the independent auditor which audits the financial
statements of the Trust.
SAFECO Services, 10865 Willows Road NE, Redmond, WA 98052, is the transfer,
dividend, and distribution disbursement and shareholder servicing agent for each
Portfolio under an agreement with the Trust. SAFECO Services is responsible for
all required transfer agent activity, including maintenance of records for each
Portfolio's shareholders, records of transactions involving each Portfolio's
shares and the compilation, distribution, or reinvestment of income dividends or
capital gains distributions. SAFECO Services is not compensated by the Trust or
the Portfolios for these services.
SAFECO Securities, 10865 Willows Road NE, Redmond, WA 98052, is the principal
underwriter for each Portfolio. SAFECO Securities is a broker-dealer registered
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers, Inc. The Trust has entered into a
distribution agreement with SAFECO Securities under which SAFECO Securities
shall distribute each Portfolio's shares on a continuous best efforts basis.
SAFECO Securities is not compensated by the Trust or the Portfolios for
underwriting, distribution or other activities.
BROKERAGE PRACTICES
Brokers typically charge commissions or mark-ups/mark-downs to effect securities
transactions. The Portfolios may also purchase securities from underwriters, the
price of which will include a commission or concession paid by the issuer to the
underwriter. The purchase price of securities purchased from dealers serving as
market makers will include the spread between the bid and asked prices.
Brokerage transactions involving securities of companies domiciled in countries
other than the United States will normally be conducted on the principal stock
exchanges of those countries. In most international markets, commission rates
are not negotiable and may be higher than the negotiated commission rates
available in the United States. There is generally less government supervision
and regulation of foreign stock exchanges and broker-dealers than in the United
States.
SAM determines the broker/dealers through whom securities transactions for the
Portfolios are executed. SAM may select a broker/dealer who may receive a
commission for portfolio transactions exceeding the amount another broker/dealer
would have charged for the same transaction if SAM determines that such amount
of commission is reasonable in relation to the value of the brokerage and
research services performed or provided by the broker/dealer, viewed in terms of
either that particular transaction or SAM's
43
<PAGE>
overall responsibilities to the client for whose account such portfolio
transaction is executed and other accounts advised by SAM. Research services
include market information, analysis of specific issues, presentation of special
situations and trading opportunities on a timely basis, advice concerning
industries, economic factors and trends, portfolio strategy and performance of
accounts. Research services come in the form of written reports, telephone
conversations between brokerage security analysts and members of SAM's staff,
and personal visits by such analysts and brokerage strategists and economists to
SAM's office.
Research services are used in advising all accounts, including accounts advised
by related persons of SAM, and not all such services are necessarily used by SAM
in connection with the specific account that paid commissions to the
broker/dealer providing such services. SAM does not acquire research services
through the generation of credits with respect to principal transactions or
transactions in financial futures.
The overall reasonableness of broker commissions paid is evaluated periodically.
Such evaluation includes review of what competing broker/dealers are willing to
charge for similar types of services and what discounts are being granted by
brokerage firms. The evaluation also considers the timeliness and accuracy of
the research received.
The following table states the total amount of brokerage expenses for the
Portfolios listed for the fiscal years ending December 31, 1999, 1998, and 1997
respectively:
<TABLE>
<CAPTION>
Years Ended
December 31 December 31 December 31
PORTFOLIO 1999 1998 1997
- --------- ------------------- ------------------ -----------------
<S> <C> <C> <C>
Equity $ 427,000 $327,000 $302,000
Northwest $ 21,000 $ 18,000 $ 17,000
Growth Opportunities $ 428,000 $462,000 $313,000
</TABLE>
The brokerage expenses for the Small Company Portfolio were $45,000 for the year
ended December 31, 1999, $32,000 for the year ended December 31, 1998 and
$11,000 for the period from April 30, 1997 (effective date) to December 31,
1997.
Because the portfolio securities purchased and sold by the Bond and Money Market
Portfolios are traded on a principal basis, no commission is charged.
DISTRIBUTIONS AND TAX INFORMATION
DISTRIBUTIONS
The Portfolios will receive income in the form of dividends and interest earned
on their investments in securities. This income, less the expenses incurred in
their operations, is the Portfolios' net investment income, substantially all of
which will be declared as dividends to the Portfolios' shareholders (the
separate accounts of Participating Insurance Companies and Qualified Plans).
Any per-share dividend or distribution paid by a Portfolio reduces the
Portfolio's net asset value per share on the date paid by the amount of the
dividend or distribution per share. Dividends and other distributions will
generally be made in the form of additional shares of the Portfolios.
INFORMATION ON DIVIDENDS FOR THE MONEY MARKET PORTFOLIO
Because the Money Market Portfolio intends to hold its portfolio securities to
maturity and expects that most of its portfolio securities will be valued at
their amortized cost, realized gains or losses should not be a significant
factor in the computation of net income. If, however, in an unusual
circumstance, the Money Market Portfolio experiences a realized gain or loss,
shareholders of that Portfolio could receive an
44
<PAGE>
increased, reduced, or no dividend for a period of time. In such an event,
the board of trustees would consider whether to adhere to its present
dividend policy or to revise it in light of the then-prevailing circumstances.
TAX INFORMATION
Each Portfolio is treated as a separate corporation for federal income tax
purposes. Each Portfolio intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). In order to qualify for treatment as a regulated investment
company under the Code, a Portfolio must distribute to its shareholders for each
taxable year at least 90% of its investment company taxable income (consisting
generally of taxable net investment income and net short-term capital gain)
("Distribution Requirement") and must derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"). Each Portfolio intends to make
sufficient distributions to shareholders to relieve it from liability for
federal excise and income taxes.
If a Portfolio fails to meet the requirements for qualification as a regulated
investment company in any taxable year, it will be subject to tax on its taxable
income at corporate rates, and all distributions from earnings and profits,
including any distributions of net tax-exempt income and net long-term capital
gains, will be taxable to shareholders as ordinary income. In addition, the
Portfolio could be required to recognize unrealized gains, pay substantial taxes
and interest, and make substantial distributions before regaining its tax status
as a regulated investment company.
Each Portfolio will be subject to a nondeductible 4% excise tax to the extent it
fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on December 31 (by election) of that year, plus certain other
amounts.
The excess of net long-term capital gains over net short-term capital loss
realized by a Portfolio on portfolio transactions, when distributed by the
Portfolio, is subject to long-term capital gains treatment under the Code,
regardless of how long the Participating Insurance Company or Qualified Plan has
held the shares of the Portfolio. Distributions of net short-term capital gains
realized from portfolio transactions are treated as ordinary income for federal
income tax purposes. The tax consequences described above apply whether
distributions are taken in cash or in additional shares.
The Trust and the Portfolios intend to comply with the requirements of Section
817(h) of the Internal Revenue Code and related regulations, including certain
diversification requirements that are in addition to the diversification
requirements of Subchapter M and the Investment Company Act. Failure to comply
with the requirements of Section 817(h) could result in taxation of the
insurance company and immediate taxation of the owners of variable contracts to
the full extent of appreciation under the contracts.
Shares of a Portfolio underlying variable contracts that comply with the
requirements of Section 817(h) and related regulations will generally be treated
as owned by the insurance company and not by the owners of variable contracts.
In that case, income derived from the appreciation in shares of the Portfolio
would not be currently taxable to the owners of variable contracts. Owners of
variable contracts that do not comply with the requirements of Section 817(h)
would generally be subject to immediate taxation of the appreciation under the
contracts.
Section 817(h) requires that the investment portfolios underlying variable life
insurance and variable annuity contracts be "adequately diversified." Section
817(h) contains a safe harbor provision which provides that a variable life
insurance or variable annuity contract will meet the diversification
requirements if, as of the close of each calendar quarter, (i) the assets
underlying the contract meet the diversification standards for a regulated
investment company under Subchapter M of the Internal Revenue
45
<PAGE>
Code, and (ii) no more than 55% of the total assets of the account consist of
cash, cash items, U.S. Government securities and securities of regulated
investment companies.
Treasury Department regulations provide an alternative test to the safe harbor
provision to meet the diversification requirements. Under these regulations, an
investment portfolio will be adequately diversified if (i) not more than 55% of
the value of its total assets is represented by any one investment; (ii) not
more than 70% of the value of its total assets is represented by any two
investments; (iii) not more than 80% of the value of its total assets is
represented by any three investments; and (iv) not more than 90% of the value of
its total assets is represented by any four investments. These limitations are
increased for investment portfolios which are invested in whole or in part of
U.S. Treasury securities.
Stock of a regulated investment company, such as a Portfolio, held in an
insurance company's separate accounts underlying variable life insurance or
variable annuity contracts may be treated as a single investment for purposes of
the diversification rules of Section 817(h). A special rule in Section 817(h),
however, allows a shareholder of a regulated investment company to
"look-through" the company and treat a pro rata share of the company's assets as
owned directly by the shareholder. This special "look-through" rule may make it
easier to comply with the diversification requirements of Section 817(h). To
qualify for "look-through" treatment, public access to the regulated investment
company must generally be limited to (i) the purchase of a variable contract,
(ii) life insurance companies' general accounts, and (iii) qualified pension or
retirement plans. Interests in the Portfolios are sold only to insurance company
separate accounts to fund the benefits of variable contracts, and may be sold to
qualified pension and retirement plans.
Even if the diversification requirements of Section 817(h) are met, the owner of
a variable contract might be subject to current federal income taxation if the
owner has excessive control over the investments underlying the contract. The
Treasury Department has indicated that guidelines might be forthcoming that
address this issue. At this time, it is impossible to predict when they may be
issued, what the guidelines will include and the extent, if any, to which they
may be retroactive.
In order to maintain the variable contracts' status as annuities or insurance
policies, the Trust may in the future find it necessary, and reserves the right,
to take certain actions, including, without limitation, amending a Portfolio's
investment objective (upon SEC or shareholder approval) or substituting shares
of one Portfolio for another.
SPECIAL TAX CONSIDERATIONS - - INVESTMENT IN DERIVATIVES
Purchasing and writing (selling) options involve complex rules that will
determine for income tax purposes the amount, character, and timing of
recognition of the gains and losses a Portfolio realizes in connection
therewith. Gains from options derived by a Portfolio with respect to its
business of investing in securities will be treated as qualifying income under
the Income Requirement.
When a covered call option written (sold) by a Portfolio expires, the Portfolio
realizes a short-term capital gain equal to the amount of the premium it
received for writing the option. When a Portfolio terminates its obligations
under such an option by entering into a closing transaction, it realizes a
short-term capital gain (or loss), depending on whether the cost of the closing
transaction is less (or more) than the premium it received when it wrote the
option. When a covered call option written by a Portfolio is exercised, the
Portfolio is treated as having sold the underlying security, producing long-term
or short-term capital gain or loss, depending on the holding period of the
underlying security and whether the sum of the option price received on the
exercise plus the premium received when it wrote the option is more or less than
the basis of the underlying security.
If a Portfolio has an "appreciated financial position" - generally, an interest
(including an interest through an option or short sale with respect to any
stock, debt instrument (other than "straight debt"), or partnership interest the
fair market value of which exceeds its adjusted basis -- and enters into a
"constructive sale" of the same or substantially similar property, the Portfolio
will be treated as having
46
<PAGE>
made an actual sale thereof, with the result that it will recognize gain at that
time. A constructive sale generally consists of a short sale, an offsetting
notional principal contract, or a futures or forward contract entered into by a
Portfolio or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale. The foregoing will not
apply, however, to any transaction during any taxable year that otherwise would
be treated as a constructive sale if the transaction is closed within 30 days
after the end of that year and the Portfolio holds the appreciated financial
position unhedged for 60 days after that closing (i.e., at no time during that
60-day period is the Portfolio's risk of loss regarding that position reduced by
reason of certain specified transactions with respect to substantially similar
or related property, such as having an option to sell, being contractually
obligated to sell, making a short sale, or granting an option to buy
substantially identical stock or securities).
SPECIAL TAX CONSIDERATIONS - - HEDGING
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward currency contracts involves
complex rules that will determine for income tax purposes the amount, character,
and timing of recognition of the gains and losses the Portfolios realize in
connection therewith. Gain from the disposition of foreign currencies (except
certain gains that may be excluded by future regulations), and gains from
options, futures, and forward currency contracts derived by the Portfolios with
respect to its business of investing in securities or foreign currencies, will
be treated as qualifying income under the Income Requirement.
SPECIAL TAX CONSIDERATIONS - - INVESTMENT IN FOREIGN SECURITIES
Any Portfolio that invests in foreign securities may be required to pay income,
withholding, or other taxes to a foreign government. If so, the taxes will
reduce the Portfolio's distributions. Foreign tax withholding from dividends and
interest (if any) is typically set at 10% or 15% if there is a treaty with the
foreign government that addresses this issue. If no such treaty exists, the
foreign tax withholding generally will be 30%. Amounts withheld for foreign
taxes will reduce the amount of dividend distributions to shareholders.
Gains or losses resulting from exchange rate fluctuations between the time a
Portfolio accrues interest or other receivables, or accrues expenses or other
liabilities, denominated in a foreign currency and the time the Portfolio
actually collects the receivables or pays the liabilities are treated as
ordinary income or loss. Similarly, gains or losses on forward currency
contracts or dispositions of debt securities denominated in a foreign currency
attributable to fluctuations in the value of the foreign currency between the
dates of acquisition and disposition of the security also are treated as
ordinary gain or loss. If a Portfolio's distributions exceed its taxable income
in any year because of currency-related losses or otherwise, all or a portion of
its dividends may be treated as a return of capital to its shareholders for tax
purposes. To minimize the risk of a return of capital, a Portfolio may adjust
its dividends to take currency fluctuations into account, causing the dividends
to vary.
47
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Growth Opportunities, Equity, Bond, Northwest,
Small Company Value and Money Market Portfolios and the report thereon of Ernst
& Young LLP, independent auditors, are incorporated herein by reference to each
Portfolio's Annual Report for the year ended December 31, 1999.
Portfolio of Investments as of December 31, 1999
Statement of Assets and Liabilities as of December 31, 1999
Statement of Operations for the Year Ended December 31, 1999
Statements of Changes in Net Assets for the Years Ended December 31, 1999 and
December 31, 1998 Notes to Financial Statements
A copy of each Portfolio's Annual Report accompanies this Statement of
Additional Information. Additional copies may be obtained by calling
1-800-624-5711 or by writing to the address on the first page of this Statement
of Additional Information.
48
<PAGE>
SAFECO RESOURCE SERIES TRUST
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
(1) Trust Instrument/Certificate of Trust (Filed herewith)
(2) Bylaws (Filed herewith)
(3) Instruments Defining Rights of Security ***
Holders
(4) Investment Advisory and Management +
Contract
(5) Form of Distribution Agreement +
(6) Inapplicable
(7) Custody Agreement with State Street *
Bank and Trust Company
Amendment to Custody Agreement with
State Street Bank and Trust Company **
(8a) Transfer Agent Agreement +
(8b) Fund Participation Agreement +
(9) Opinion and Consent of Counsel *
(10) Consent of Independent Auditors (Filed Herewith)
(11) Registrant's Annual Report for Year Ended ++
December 31, 1999 Including Financial
Statements
(12) Agreement Governing Contribution to +
SAFECO Resource Series Trust by
SAFECO Life Insurance Company dated
June 23, 1986.
<PAGE>
(13) Inapplicable
(14) Inapplicable
(15) Inapplicable
</TABLE>
+ Filed as an exhibit to Post Effective Amendment No. 16 filed with the
SEC on April 26, 1996.
++ Registrant's Annual Report was filed with the SEC on [date to come].
The Report contains the financial statement incorporated by reference in the
Registrant's Statement of Additional Information.
* Filed as an exhibit to Post-Effective Amendment No. 18 filed with the
SEC on April 22, 1997.
** Filed as an exhibit to Post-Effective Amendment No. 20 filed with the
SEC on February 26, 1998.
*** Incorporating by reference the relevant disclosure from Exhibits (1)
and (2).
Item 24. Persons Controlled By or Under Common Control With the Fund
SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services) and
SAFECO Securities, Inc. (SAFECO Securities), each a Washington corporation.
SAM is the investment advisor, SAFECO Services is the transfer agent and
SAFECO Securities is the principal underwriter for each of the SAFECO Mutual
Funds. The SAFECO Mutual Funds consist of six Delaware business Trusts:
SAFECO Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond
Trust, SAFECO Money Market Trust, SAFECO Managed Bond Trust (formerly SAFECO
Institutional Series Trust) and SAFECO Resource Series Trust. The SAFECO
Common Stock Trust consists of eight mutual funds: SAFECO Growth
Opportunities Fund (formerly SAFECO Growth Fund), SAFECO Equity Fund, SAFECO
Dividend Income Fund (formerly SAFECO Income Fund), SAFECO Northwest Fund,
SAFECO International Stock Fund, SAFECO Balanced Fund, SAFECO Small Company
Value Fund (formerly SAFECO Small Company Stock Fund) and SAFECO U.S. Value
Fund. The SAFECO Taxable Bond Trust consists of three mutual funds: SAFECO
Intermediate-Term U.S. Treasury Fund, SAFECO GNMA Fund and SAFECO High-Yield
Bond Fund. The SAFECO Tax-Exempt Bond Trust consists of four mutual funds:
SAFECO Intermediate-Term Municipal Bond Fund, SAFECO Insured Municipal Bond
Fund, SAFECO Municipal Bond Fund, and SAFECO California Tax-Free Income Fund.
The SAFECO Money Market Trust consists of two mutual funds: SAFECO Money
Market Fund and SAFECO Tax-Free Money Market Fund. The SAFECO Managed Bond
Trust consists of one mutual fund: Managed Bond Fund (formerly Fixed Income
Portfolio). The SAFECO Resource Series Trust consists of six mutual funds:
Equity Portfolio, Growth Opportunities Portfolio (formerly Growth Portfolio),
Northwest Portfolio, Small Company Value Portfolio (formerly Small Company
Stock Portfolio), Bond Portfolio and Money Market Portfolio.
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, SAFECO Insurance Company of Illinois, an Illinois corporation,
SAFECO U.K. Limited, a corporation organized under the laws of the United
Kingdom, and American States Insurance Company, American Economy Insurance
Company, and American States Preferred Insurance Company, each an Indiana
corporation. General Insurance Company of America owns 100% of SAFECO Insurance
Company of Pennsylvania, a Pennsylvania corporation. SAFECO Insurance Company of
America owns 100% of SAFECO Surplus Lines Insurance Company, a Washington
corporation, and SAFECO
2
<PAGE>
Management Company, a New York corporation. SAFECO Life Insurance Company owns
100% of SAFECO National Life Insurance Company, a Washington corporation, First
SAFECO National Life Insurance Company of New York, a New York corporation,
American States Life Insurance Company, an Indiana corporation, and D.W. Van
Dyke & Co., Inc., a Delaware corporation. SAFECO Life Insurance Company owns 15%
of Medical Risk Managers, Inc., a Delaware corporation. SAFECO Insurance Company
of Illinois owns 100% of Insurance Company of Illinois, an Illinois corporation.
American Economy Insurance Company owns 100% of American States Insurance
Company of Texas, a Texas corporation. SAFECO Administrative Services, Inc. owns
100% of Employee Benefit Claims of Wisconsin, Inc. and Wisconsin Pension and
Group Services, Inc., each a Wisconsin corporation. General America Corporation
owns 100% of SAFECO Investment Services, Inc., F.B. Beattie & Co., Inc., and
Talbot Financial Corporation, each a Washington corporation, General America
Corp. of Texas, a Texas corporation, SAFECO Select Insurance Services, Inc., a
California corporation, and R.F. Bailey Holdings Limited, a U.K. corporation.
F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance Services, Inc., a
California corporation. General America Corp. of Texas is Attorney-in-fact for
SAFECO Lloyds Insurance Company and American States Lloyds Insurance Company,
both Texas corporations. R.F. Bailey Holdings Limited owns 100% of R.F. Bailey
(Underwriting Agencies) Limited, a U.K. corporation. Talbot Financial
Corporation owns 100% of Talbot Agency, Inc., a New Mexico corporation. SAFECO
Properties Inc. owns 100% of the following, corporations: SAFECARE Company, Inc.
and Winmar Company, Inc. SAFECARE Company, Inc. owns 100% of the following, each
a Washington corporation: S.C. Bellevue, Inc., S.C. Marysville, Inc. Winmar
Company, Inc. owns 100% of the following: Winmar Metro, Inc., , Winmar Redmond,
Inc. and Winmar of Kitsap, Inc., each a Washington corporation, and Capitol
Court Corp., a Wisconsin corporation, SCIT, Inc., a Massachusetts corporation,
Winmar Oregon, Inc., an Oregon corporation, Winmar of Texas, Inc., a Texas
corporation, and Winmar of the Desert, Inc., a California corporation. Winmar
Oregon, Inc. owns 100% of the following, each an Oregon corporation: North Coast
Management, Inc., Pacific Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P
Development, Inc.
No person is directly or indirectly controlled by Registrant.
All subsidiaries are included in consolidated financial statements. In addition
SAFECO Life Insurance Company files a separate financial statement in connection
with its issuance of products associated with its registration statement.
ITEM 25. INDEMNIFICATION
Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain liabilities,
subject to specified conditions and limitations.
Under the indemnification provisions in the Registrant's Trust Instrument and
subject to
3
<PAGE>
the limitations described in the paragraph below, every person who is, or has
been, a trustee, officer, employee or agent of the Registrant shall be
indemnified by the Registrant or the appropriate Series of the Registrant to the
fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being, or having been, a trustee, officer, employee or
agent and against amounts paid or incurred by him or her in the settlement
thereof. As used in this paragraph, "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened, and the words "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other liabilities.
No indemnification will be provided to a trustee, officer, employee or agent:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (a) to be liable to the Registrant or its shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, or (b) not to have
acted in good faith in the reasonable belief that his or her action was in the
best interest of the Registrant; or (ii) in the event of settlement, unless
there has been a determination that such trustee, officer, employee or agent did
not engage in willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office; (a) by the
court or other body approving the settlement, (b) by the vote of at least a
majority of a quorum of those trustees who are neither interested persons, as
that term is defined by the Investment Company Act of 1940, of the Registrant
nor are the parties to the proceeding based upon a review of readily available
facts (as opposed to a full trial type inquiry); or (c) by written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial type inquiry).
To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described above may be paid by the
Registrant or applicable Series from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such trustee, officer,
employee or agent that such amount will be paid over by him or her to the
Registrant or the applicable Series if it is ultimately determined that he or
she is not entitled to indemnification under the Trust Instrument; provided,
however, that either (i) such trustee, officer, employee or agent shall have
provided appropriate security for such undertaking, (ii) the Registrant is
insured against such losses arising out of such advance payments or (iii) either
a majority of the trustees who are neither interested persons, as that term is
defined by the Investment Company Act of 1940, of the Registrant nor parties to
the proceeding, or independent legal counsel in a written opinion, shall have
determined, based on a review of readily available facts (as opposed to a full
trial type inquiry), that there is reason to believe that such trustee, officer,
employee or agent, will not be disqualified from indemnification under
Registrant's Trust Instrument.
4
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers, employees and agents of the
Registrant pursuant to such provisions of the Trust Instrument or statutes or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in said Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer, employee or
agent of the Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such a trustee, officer, employee or agent in
connection with the shares of any series of the Registrant, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
Under an agreement with its distributor ("Distribution Agreement"), Registrant
has agreed to indemnify, defend and hold the distributor, the distributor's
several directors, officers and employees, and any person who controls the
distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
distributor, its directors, officers or employees, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary to make the
Registration Statement not misleading.
In no event shall anything contained in the Distribution Agreement be construed
so as to protect the distributor against any liability to the Registrant or its
shareholders to which the distributor would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and duties
under the Distribution Agreement, and further provided that the Registrant shall
not indemnify the distributor for conduct set forth in this paragraph.
Under an agreement with its transfer agent ("Transfer Agent Agreement"),
Registrant has agreed to indemnify and hold the transfer agent harmless against
any losses, claims, damages, liabilities or expenses (including reasonable
attorneys' fees and expenses) resulting from: (1) any claim, demand, action or
suit brought by any person other than the Registrant, including by a
shareholder, which names the transfer agent and/or the Registrant as a party,
and is not based on and does not result from the transfer agent's willful
misfeasance, bad faith or negligence or reckless disregard of duties, and arises
out of or in connection with the transfer agent's performance under the Transfer
Agent Agreement; or (2) any claim, demand, action or suit (except to the extent
contributed to by the transfer agent's willful misfeasance, bad faith or
negligence or reckless disregard
5
<PAGE>
of duties) which results from the negligence of the Registrant, or from the
transfer agent acting upon any instruction(s) reasonably believed by it to have
been executed or communicated by any person duly authorized by the Registrant,
or as a result of the transfer agent acting in reliance upon advice reasonably
believed by the transfer agent to have been given by counsel for the Registrant,
or as a result of the transfer agent acting in reliance upon any instrument or
stock certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-
INVESTMENT ADVISER
The investment adviser to the Registrant, SAM, serves as an adviser to: (a)
twenty-five series (portfolios) of six registered investment companies,
including six series of Registrant and (b) a number of pension funds not
affiliated with SAFECO Corporation or its affiliates. The directors and
officers of SAM serve in similar capacities with SAFECO Corporation or its
affiliates. The information set forth under "Investment Advisory and Other
Services" in the Registrant's Statement of Additional Information is
incorporated by reference.
ITEM 27. PRINCIPAL UNDERWRITER
(a) SAFECO Securities, Inc., the principal underwriter for each class of each
series of Registrant, acts also as the principal underwriter for each class
of each series of SAFECO Common Stock Trust, SAFECO Tax-Exempt Bond Trust,
SAFECO Taxable Bond Trust, SAFECO Money Market Trust, and SAFECO Managed Bond
Trust. In addition, SAFECO Securities, Inc. is the principal underwriter for
the sale of variable annuity contracts (SAFECO Resource Variable Account B,
SAFECO Separate Account C and SAFECO Life Deferred Variable Annuity Account)
and variable universal life insurance policies (SAFECO Separate Account SL)
issued by SAFECO Life Insurance Company, and variable annuity contracts
(SAFECO Separate Account S) issued by First SAFECO National Life Insurance
Company of New York.
(b) The information set forth under "Investment Advisory and Other Services"
in the Statement of Additional Information is incorporated by reference.
(c) Inapplicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA
maintains physical possession of the accounts, books and documents of
Registrant relating to its activities as custodian of the Registrant. SAFECO
Asset Management Company, Two Union Square, 25th Floor, Seattle, Washington
98101, maintains physical possession of all other accounts, books or
documents of the Registrant required to be
6
<PAGE>
maintained by Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder.
ITEM 29. MANAGEMENT SERVICES
Inapplicable.
ITEM 30. UNDERTAKINGS
Inapplicable.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule 485(a)
under the Securities Act of 1933 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, duly authorized, in the city of
Seattle, and state of Washington the 29th day of February, 2000.
SAFECO RESOURCE SERIES TRUST
By: /s/ David F. Hill
-------------------------
David F. Hill
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ DAVID F. HILL President and Trustee February 29, 2000
- ------------------------------ Principal Executive Officer
David F. Hill++
/s/ RONALD L. SPAULDING Vice President February 29, 2000
- ------------------------------ Treasurer
Ronald L. Spaulding*
/s/ NEAL A. FULLER* Vice President Controller February 29, 2000
- ------------------------------ Assistant Secretary
Neal A. Fuller
/s/ BOH A. DICKEY Chairman and Trustee February 29, 2000
- ------------------------------
Boh A. Dickey ++
/s/ BARBARA J. DINGFIELD* Trustee February 29, 2000
- ------------------------------
Barbara J. Dingfield
/s/ RICHARD W. HUBBARD* Trustee February 29, 2000
- ------------------------------
Richard W. Hubbard++
/s/ RICHARD E. LUNDGREN* Trustee February 29, 2000
- ------------------------------
Richard E. Lundgren
/s/ LARRY L. PINNT* Trustee February 29, 2000
- ------------------------------
Larry L. Pinnt
8
<PAGE>
/s/ JOHN W. SCHNEIDER* Trustee February 29, 2000
- ------------------------------
John W. Schneider
</TABLE>
++ Trustees who are interested persons as defined by the 1940 Act
*By: /s/ DAVID F. HILL
--------------------------
Attorney-in-fact
9
<PAGE>
POWER OF ATTORNEY
SAFECO RESOURCE SERIES TRUST, a Delaware business trust (the "Trust") and
each of its undersigned officers and trustees, hereby nominates, constitutes
and appoints Boh A. Dickey and David F. Hill (with full power to each of them
to act alone) its/his/her true and lawful attorney-in-fact and agent, for
it/him/her and on its/his/her behalf and in its/his/her name, place and stead
in any and all capacities, to make, execute and sign any and all amendments
to the Trust's registration statement on Form N-1A under the Securities Act
of 1933, as amended, and the Investment Company Act of 1940, as amended, as
well as any and all registration statements on Form N-14, and to file with
the Securities and Exchange Commission and any other regulatory authority
having jurisdiction over the offer and sale of shares of beneficial interest
of the Trust, any such amendment or registration statement and any and all
supplements thereto or to any prospectus or statement of additional
information forming a part of the registration statement, as well as any and
all exhibits and other documents necessary or desirable to the amendment or
supplement process, granting to such attorneys and each of them, full power
and authority to do and perform each and every act requisite and necessary
and/or appropriate as fully and with all intents and purposes as the Trust
itself and the undersigned officers and trustees themselves might or could do.
IN WITNESS WHEREOF, SAFECO RESOURCE SERIES TRUST has caused this power of
attorney to be executed in its name by its President and attested by its
Assistant Secretary, and the undersigned officers and trustees have each
executed such power of attorney, on the 6th day August, 1998.
SAFECO RESOURCE SERIES TRUST
By: /s/ DAVID F. HILL
----------------------
David F. Hill
President
ATTEST:
/s/ NEAL A. FULLER
- ------------------
Neal A. Fuller
Assistant Secretary
(Signatures Continue on Next Page)
10
<PAGE>
Name Title
---- -----
/s/ DAVID F. HILL President and Trustee
----------------- (Principal Executive Officer)
David F. Hill
/s/ RONALD L. SPAULDING Vice President
- ----------------------- and Treasurer
Ronald L. Spaulding
/s/ NEAL A. FULLER Vice President
------------------ Controller
Neal A. Fuller Assistant Secretary
(Principal Financial Officer)
/s/ BOH A. DICKEY Chairman and Trustee
-----------------
Boh A. Dickey
/s/ BARBARA J. DINGFIELD Trustee
- ------------------------
Barbara J. Dingfield
/s/ RICHARD W. HUBBARD Trustee
----------------------
Richard W. Hubbard
/s/ RICHARD E. LUNDGREN Trustee
- -----------------------
Richard E. Lundgren
/s/ LARRY L. PINNT Trustee
------------------
Larry L. Pinnt
/s/ JOHN W. SCHNEIDER Trustee
---------------------
John W. Schneider
11
<PAGE>
SAFECO RESOURCE SERIES TRUST
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 23
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----
<S> <C> <C>
(1) Trust Instrument/Certificate of Trust
(2) Bylaws
(23P) Code of Ethics
(99.10) Consent of Independent Auditors
(99.11) Registrant's Annual Report for the Year +
Ended December 31, 1999, including
Financial Statements
</TABLE>
+ An Annual Report for the Registrant's series portfolios was filed with the SEC
on February 29, 2000.
12
<PAGE>
SAFECO RESOURCE SERIES TRUST
TRUST INSTRUMENT
(As Amended and Restated January 18, 2000)
This TRUST INSTRUMENT is made on May 13, 1993, and amended and restated on
January 18, 2000, by the Trustees, to establish a business trust for the
investment and reinvestment of funds contributed to the Trust by investors. The
Trustees declare that all money and property contributed to the Trust shall be
held and managed in trust pursuant to this Trust Instrument. The name of the
Trust created by this Trust Instrument is SAFECO Resource Series Trust.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "Bylaws" means the Bylaws of the Trust adopted by the Trustees, as
amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant to
Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter" have the
meanings provided in the 1940 Act, provided however, that any officer or
director, or former officer or director, of SAFECO Corporation or any of its
subsidiaries shall be considered an "Interested Person" with respect to the
Trust;
(d) "Covered Person" means a person so defined in Article IX, Section 2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(h) "Outstanding Shares" means Shares shown on the books of the Trust or
its transfer agent as then issued and outstanding, but does not include Shares
which have been repurchased by the Trust;
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(i) "Series" means a series of Shares established pursuant to Article IV;
(j) "Shareholder" means a record owner of Outstanding Shares;
(k) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series or Class is divided from time
to time (including whole Shares and fractions of Shares);
(l) "Trust" means SAFECO Resource Series Trust established hereby, and
reference to the Trust, when applicable to one or more Series, refers to that
Series;
(m) "Trustees" means the persons who have signed this Trust Instrument, so
long as they shall continue in office in accordance with the terms hereof, and
all other persons who may from time to time be duly qualified and serving as
Trustees in accordance with Article II, in all cases in their capacities as
Trustees hereunder;
(n) "Trust Property" means any and all property, real or personal, tangible
or intangible, which is owned or held by or for the Trust or any Series or the
Trustees on behalf of the Trust or any Series;
(o) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
TRUSTEES
Section 1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust
shall be managed by or under the direction of the Trustees, and they shall have
all powers necessary or desirable to carry out that responsibility. The Trustees
may execute all instruments and take all action they deem necessary or desirable
to promote the interests of the Trust. Any determination made by the Trustees in
good faith as to what is in the interests of the Trust shall be conclusive. The
Trustees, in their capacity as such, shall not be expected to devote their
entire time to the business and affairs of the Trust.
Section 2. INITIAL TRUSTEES; NUMBER, ELECTION AND QUALIFICATION OF
TRUSTEES. The initial Trustees shall be the persons initially signing this Trust
Instrument. The number of Trustees (other than the initial Trustees) shall be
fixed from time to time by a majority of the Trustees; provided, that there
shall be at least two (2) Trustees. The Shareholders shall elect the Trustees
(other than the initial Trustees) on such dates as the Trustees may fix from
time to time.
Section 3. TERM OF OFFICE. Each Trustee shall hold office for life, or
until he or she reaches seventy-two (72) years of age, or until his or her
successor is elected, or the Trust terminates;
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except that (a) any Trustee may resign by delivering to the Board of Trustees or
to any Trust officer a written resignation effective upon such delivery or a
later date specified therein; (b) any Trustee may be removed with or without
cause at any time by a written instrument signed by at least two-thirds of the
other Trustees, specifying the effective date of removal; (c) any Trustee who
has become physically or mentally incapacitated or is otherwise unable to serve,
may be retired by a written instrument signed by a majority of the other
Trustees, specifying the effective date of retirement; and (d) any Trustee may
be removed at any meeting of the Shareholders by a vote of at least two-thirds
of the Outstanding Shares.
Section 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy shall
exist in the Board of Trustees, regardless of the reason for such vacancy,
the remaining Trustees shall appoint any person as they determine in their
sole discretion to fill that vacancy, subject to Sections 10 and 16(a) of the
1940 Act. Such appointment shall be made by a written instrument signed by a
majority of the Trustees or by a resolution of the Trustees, duly adopted and
recorded in the records of the Trust, specifying the effective date of the
appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation, or removal of a Trustee, or an increase in number of Trustees,
provided that such appointment shall become effective only at or after the
expected vacancy occurs. As soon as any such Trustee has accepted his
appointment in writing, the trust estate shall vest in the new Trustee,
together with the continuing Trustees, without any further act or conveyance,
and he shall be deemed a Trustee hereunder.
Section 5. CHAIRMAN. The Trustees shall appoint one of their number to be
Chairman of the Board of Trustees. The Chairman shall preside at all meetings of
the Trustees and the Shareholders and shall perform such other powers and duties
as may from time to time be assigned by the Board of Trustees or prescribed by
the Bylaws.
Section 6. ACTION BY THE TRUSTEES. The Trustees shall act by majority vote
at a meeting duly called (including at a telephonic meeting, unless the 1940 Act
requires that a particular action be taken only at a meeting of Trustees in
person) at which a quorum is present or by written consent of a majority of
Trustees (or such greater number as may be required by applicable law) without a
meeting. A majority of the Trustees shall constitute a quorum at any meeting.
Meetings of the Trustees may be called orally or in writing by the President of
the Trust, the Secretary of the Trust, the Chairman of the Board of Trustees, or
by any two other Trustees. Notice of the time, date and place of all Trustees
meetings shall be given to each Trustee in person or by telephone, telegram,
facsimile or other electronic mechanism sent to his or her home or business
address at least twenty-four hours in advance of the meeting or by written
notice mailed to his or her home or business address at least seventy-two hours
in advance of the meeting. Oral notice is deemed to be given upon communication.
Written notice is deemed to be given, if mailed, when deposited in the United
States mail, postage pre-paid, or if sent by telegram, facsimile or other
electronic transmission, when dispatched, to the address, telephone number or
other number of the Trustee as it appears on the records of the Trust. Notice
need not be given to any Trustee who attends the meeting without objecting to
the lack of notice or who signs a waiver of notice either before or after the
meeting. Subject to the requirements of the 1940 Act, the Trustees by majority
vote may
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delegate to any Trustee or Trustees authority to approve particular
matters or take particular actions on behalf of the Trust. Any written consent
or waiver may be provided and delivered to the Trust by facsimile or other
similar electronic mechanism.
Section 7. OWNERSHIP OF TRUST PROPERTY. The Trust Property of the Trust and
of each Series shall be held separate and apart from any assets now or hereafter
held in any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. All of the Trust Property and legal title thereto shall at
all times be considered as vested in the Trustees on behalf of the Trust, except
that the Trustees may cause legal title to any Trust Property to be held by or
in the name of the Trust, or in the name of any person as nominee. No
Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or possession
thereof, but each Shareholder shall have, as provided in Article IV, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares.
Section 8. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity, or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Trust Instrument.
Section 9. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any restrictions in
the Bylaws, any Trustee, officer, agent or independent contractor of the Trust
may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
Section 1. POWERS. The Trustees in all instances shall act as principals,
free of the control of the Shareholders. The Trustees shall have full power and
authority to take or refrain from taking any action and to execute any contracts
and instruments that they may consider necessary or desirable in the management
of the Trust. The Trustees shall not in any way be bound or limited by current
or future laws or customs applicable to trust investments, but shall have full
power and authority to make any investments which they, in their discretion,
deem proper to accomplish the purposes of the Trust. The Trustees may exercise
all of their powers without recourse to any court or other authority. Subject to
any applicable limitation herein or in the Bylaws or resolutions of the Trust,
the Trustees shall have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations and securities of any kind,
and without regard to whether they may mature before the possible termination of
the Trust; and without limitation
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to invest all or any part of its cash and other property in securities issued by
a registered investment company or series thereof, subject to the provisions of
the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt Bylaws not inconsistent with this Trust Instrument providing
for the conduct of the business of the Trust and to amend and repeal them to the
extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such agents
as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the Bylaws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder servicing agents,
or both;
(g) To provide for the distribution of Shares either through a Principal
Underwriter as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the Bylaws;
(i) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, manager, investment
adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject to
Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which in any
manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form, or
(ii) either in the Trust's or Trustees' own name or in the name of a custodian
or a nominee or nominees, subject to safeguards according to the usual practice
of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
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(o) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
(q) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income and of capital gains to Shareholders in
the manner hereinafter provided for;
(s) To borrow money;
(t) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish committees for such purposes, with such membership, and
with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued; and
(w) To carry on any other business in connection with or incidental to any
of the foregoing powers, to do everything necessary or desirable to accomplish
any purpose or to further any of the foregoing powers, and to take every other
action incidental to the foregoing business or purposes, objects or powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
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applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Trust Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
Section 2. CERTAIN TRANSACTIONS. Except as prohibited by applicable law,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust to, any Trustee or officer of the
Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such person
is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
ARTICLE IV
SERIES; CLASSES; SHARES
Section 1. ESTABLISHMENT OF SERIES OR CLASS. The Trust shall consist of one
or more Series. The Trustees hereby establish the Series listed in Exhibit A
attached hereto and made a part hereof. Each additional Series shall be
established by the adoption of a resolution of the Trustees. The Trustees may
designate the relative rights and preferences of the Shares of each Series. The
Trustees may divide the Shares of any Series into Classes. In such case each
Class of a Series shall represent interests in the assets of that Series and
have identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that expenses allocated to a Class may be borne solely by
such Class as determined by the Trustees and a Class may have exclusive voting
rights with respect to matters affecting only that Class. The Trust shall
maintain separate and distinct records for each Series and hold and account for
the assets thereof separately from the other assets of the Trust or of any other
Series. A Series may issue any number of Shares and need not issue Shares. Each
Share of a Series shall represent an equal beneficial interest in the net assets
of such Series. Each holder of Shares of a Series shall be entitled to receive
his or her pro rata share of all distributions made with respect to such Series.
Upon redemption of his or her Shares, such Shareholder shall be paid solely out
of the funds and property of such Series. The Trustees may change the name of
any Series or Class without Shareholder approval.
Section 2. SHARES. The beneficial interest in the Trust shall be divided
into Shares of one or more separate and distinct Series or Classes established
by the Trustees. The number of Shares of each Series and Class is unlimited and
each Share shall have a par value of $0.001 per Share. All Shares issued
hereunder shall be fully paid and nonassessable. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust. The Trustees shall have full power and
authority, in their sole discretion and without obtaining Shareholder approval:
to issue original or additional Shares or fractional Shares at such times and on
such terms and conditions as they deem appropriate; to issue Shares which have
been repurchased by the Trust; to establish and to
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change in any manner Shares of any Series or Classes with such preferences,
terms of conversion, voting powers, rights and privileges as the Trustees may
determine (but the Trustees may not change Outstanding Shares in a manner
materially adverse to the Shareholders of such Shares); to divide or combine the
Shares of any Series or Classes into a greater or lesser number; to classify or
reclassify any unissued Shares of any Series or Classes into one or more Series
or Classes of Shares; to abolish any one or more Series or Classes of Shares; to
issue Shares to acquire other assets (including assets subject to, and in
connection with, the assumption of liabilities) and businesses; and to take such
other action with respect to the Shares as the Trustees may deem desirable.
Shares which have been repurchased by the Trust and have not been reissued shall
not confer any voting rights on the Trustees and shall not be entitled to any
dividends or other distributions declared with respect to the Shares.
Section 3. INVESTMENT IN THE TRUST. The Trustees shall accept investments
in any Series from such persons and on such terms as they may from time to time
authorize. At the Trustees' discretion, such investments, subject to applicable
law, may be in the form of cash or securities in which that Series is authorized
to invest, valued as provided in Article V, Section 3. Investments in a Series
shall be credited to each Shareholder's account in the form of full or
fractional Shares at the Net Asset Value per Share next determined after the
investment is received or accepted in good form as may be determined by the
Trustees; provided, however, that the Trustees may, in their sole discretion (a)
impose a sales charge upon investments in any Series or Class or (b) determine
the Net Asset Value per Share of the initial capital contribution. The Trustees
shall have the right to refuse to accept investments in any Series at any time
without any cause or reason therefor whatsoever.
Section 4. ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof (including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be), shall
be held and accounted for separately from the other assets of the Trust and
every other Series and are referred to as "assets belonging to" that Series. The
assets belonging to a Series shall belong only to that Series for all purposes,
and to no other Series, subject only to the rights of creditors of that Series.
Any assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more Series as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds thereof shall be
referred to as assets belonging to that Series. The assets belonging to a Series
shall be so recorded upon the books of the Trust, and shall be held by the
Trustees in trust for the benefit of the Shareholders of that Series. The assets
belonging to a Series shall be charged with the liabilities of that Series and
all expenses, costs, charges and reserves attributable to that Series, except
that liabilities and expenses allocated solely to a particular Class shall be
borne by that Class. Any general liabilities, expenses, costs, charges or
reserves of the Trust which are not readily identifiable as belonging to any
particular Series or Class shall be allocated and charged by the Trustees
between or among any one or more of the Series or Classes in such manner as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes.
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Without limiting the foregoing, but subject to the right of the Trustees to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of the Trust generally or of any other Series. Notice of this contractual
limitation on liabilities among Series may, in the Trustees' discretion, be set
forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, with respect to that Series. No Shareholder or former Shareholder of any
Series shall have a claim on or any right to any assets allocated or belonging
to any other Series.
Section 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust shall maintain a
register containing the names and addresses of the Shareholders of each Series
and Class thereof, the number of Shares of each Series and Class held by such
Shareholders, and a record of all Share transfers. The register shall be
conclusive as to the identity of Shareholders of record and the number of Shares
held by them from time to time. The Trustees, in their sole discretion, may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
Section 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY. Shares
shall be deemed to be personal property giving Shareholders only the rights
provided in this Trust Instrument. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Trust Instrument and to have become a party hereto.
No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series shall contain a
statement to the effect that such obligation may only be enforced against the
assets of the Trust or such Series; however, the omission of such statement
shall not operate to bind or create personal liability for any Shareholder or
Trustee.
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ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
Section 1. DISTRIBUTIONS. The Trustees may declare and pay dividends and
other distributions, including dividends on Shares of a particular Series and
other distributions from the assets belonging to that Series. The amount and
payment of dividends or distributions and their form, whether they are in cash,
Shares or other Trust Property, shall be determined by the Trustees. Dividends
and other distributions may be paid pursuant to a standing resolution adopted
once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
Section 2. REDEMPTIONS. Each Shareholder of a Series or Class shall have
the right at such times as may be permitted by the Trustees to require the
Series to redeem all or any part of his or her Shares at a redemption price per
Share equal to the Net Asset Value per Share at such time as the Trustees shall
have prescribed by resolution. In the absence of such resolution, the redemption
price per Share shall be the Net Asset Value next determined after receipt by
the Series of a request for redemption in proper form less such charges as are
determined by the Trustees and described in the Trust's Registration Statement
for that Series or Class under the Securities Act of 1933. The Trustees may
specify conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment of
the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of Net Asset
Value, or may be in cash. Upon redemption, Shares may be reissued from time to
time. The Trustees may require Shareholders to redeem Shares for any reason
under terms set by the Trustees, including the failure of a Shareholder to
supply a personal identification number if required to do so, or to have the
minimum investment required, or to pay when due for the purchase of Shares
issued to him. To the extent permitted by law, the Trustees may retain the
proceeds of any redemption of Shares required by them for payment of amounts due
and owing by a Shareholder to the Trust or any Series or Class. Notwithstanding
the foregoing, the Trustees may postpone payment of the redemption price and may
suspend the right of the Shareholders to require any Series or Class to redeem
Shares during any period of time when and to the extent permissible under the
1940 Act.
Section 3. DETERMINATION OF NET ASSET VALUE. The Trustees shall cause the
Net Asset Value of Shares of each Series or Class to be determined from time to
time in a manner consistent with applicable laws and regulations. The Trustees
may delegate the power and duty to determine Net Asset Value per Share to one or
more Trustees or officers of the Trust or to an investment adviser, custodian,
depository or other agent appointed for such purpose. The Net Asset Value of
Shares shall be determined separately for each Series or Class at such times as
may be prescribed by the Trustees or, in the absence
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of action by the Trustees, as of the close of trading on the New York Stock
Exchange on each day for all or part of which such Exchange is open for
unrestricted trading.
Section 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in Section
2 of this Article, the Trustees postpone payment of the redemption price and
suspend the right of Shareholders to redeem their Shares, such suspension shall
take effect at the time the Trustees shall specify, but not later than the close
of business on the business day next following the declaration of suspension.
Thereafter Shareholders shall have no right of redemption or payment until the
Trustees declare the end of the suspension. If the right of redemption is
suspended, a Shareholder may either withdraw his or her request for redemption
or receive payment based on the Net Asset Value per Share next determined after
the suspension terminates.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. VOTING POWERS. The Shareholders shall have power to vote only
with respect to (a) the election of Trustees as provided in Section 2 of this
Article; (b) the removal of Trustees as provided in Article II, Section 3(d);
(c) any investment advisory or management contract as provided in Article VII,
Section 1; (d) any termination of the Trust as provided in Article X, Section 4;
(e) the amendment of this Trust Instrument to the extent and as provided in
Article X, Section 8; and (f) such additional matters relating to the Trust as
may be required or authorized by law, this Trust Instrument, or the Bylaws or
any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted by individual Series or Class, except (a) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series or Class,
and (b) when the Trustees have determined that the matter affects the interests
of more than one Series or Class, then the Shareholders of all such Series or
Classes shall be entitled to vote thereon. Each whole Share shall be entitled to
one vote as to any matter on which it is entitled to vote, and each fractional
Share shall be entitled to a proportionate fractional vote. There shall be no
cumulative voting in the election of Trustees. Shares may be voted in person or
by proxy or in any manner provided for in the Bylaws. The Bylaws may provide
that proxies may be given by any electronic or telecommunications device or in
any other manner, but if a proposal by anyone other than the officers or
Trustees is submitted to a vote of the Shareholders of any Series or Class, or
if there is a proxy contest or proxy solicitation or proposal in opposition to
any proposal by the officers or Trustees, Shares may be voted only in person or
by written proxy. Until Shares of a Series are issued, as to that Series the
Trustees may exercise all rights of Shareholders and may take any action
required or permitted to be taken by Shareholders by law, this Trust Instrument
or the Bylaws.
Section 2. MEETINGS OF SHAREHOLDERS. The first Shareholders' meeting shall
be held to elect Trustees at such time and place as the Trustees designate.
There shall be no annual Shareholders' meetings except as required by law or set
forth in the Bylaws. Special meetings of the Shareholders of any Series or Class
may be called by the Trustees and shall be called by the Trustees upon the
written
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request of Shareholders owning at least ten percent of the Outstanding Shares of
such Series or Class entitled to vote. Special meetings of Shareholders shall be
held, notice of such meetings shall be delivered and waiver of notice shall
occur according to the provisions of the Trust's Bylaws. Any action that may be
taken at a meeting of Shareholders may be taken without a meeting according to
the procedures set forth in the Trust's Bylaws.
Section 3. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares of
each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
larger vote is required by law, this Trust Instrument or the Bylaws, a majority
of the Outstanding Shares voted in person or by proxy shall decide any matters
to be voted upon with respect to the entire Trust and a plurality of such
Outstanding Shares shall elect a Trustee; provided, that if this Trust
Instrument or applicable law permits or requires that Shares be voted on any
matter by individual Series or Classes, then a majority of the Outstanding
Shares of that Series or Class (or, if required by law, a Majority Shareholder
Vote of that Series or Class) voted in person or by proxy voted on the matter
shall decide that matter insofar as that Series or Class is concerned.
Shareholders may act as to the Trust or any Series or Class by the written
consent of a majority (or such greater amount as may be required by applicable
law) of the Outstanding Shares of the Trust or of such Series or Class, as the
case may be.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
Section 1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote, the
Trustees may enter into one or more investment advisory contracts on behalf of
the Trust or any Series, providing for investment advisory services, statistical
and research facilities and services, and other facilities and services to be
furnished to the Trust or Series on terms and conditions acceptable to the
Trustees. Any such contract may provide for the investment adviser to effect
purchases, sales or exchanges of portfolio securities or other Trust Property on
behalf of the Trustees or may authorize any officer or agent of the Trust to
effect such purchases, sales or exchanges pursuant to recommendations of the
investment adviser. The Trustees may authorize the investment adviser to employ
one or more sub-advisers.
Section 2. PRINCIPAL UNDERWRITER. The Trustees may enter into contracts on
behalf of the Trust or any Series or Class, providing for the distribution and
sale of Shares by the other party, either directly or as sales agent, on terms
and conditions acceptable to the Trustees. The Trustees may adopt a plan or
plans of distribution with respect to Shares of any Series or Class and enter
into any related agreements, whereby the Series or Class finances directly or
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable rules and regulations.
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Section 3. TRANSFER AGENCY, SHAREHOLDER SERVICES, AND ADMINISTRATION
AGREEMENTS. The Trustees, on behalf of the Trust or any Series or Class, may
enter into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
Section 4. CUSTODIAN. The Trustees shall at all times place and maintain
the cash, securities and other assets of the Trust and of each Series with a
custodian meeting the requirements of Section 17(f) of the 1940 Act and the
rules thereunder or such other entities permitted by Commission order. The
Trustees, on behalf of the Trust or any Series, may enter into an agreement with
a custodian on terms and conditions acceptable to the Trustees, providing for
the custodian, among other things, to (a) hold the securities owned by the Trust
or any Series and deliver the same upon written order or oral order confirmed in
writing, (b) to receive and receipt for any moneys due to the Trust or any
Series and deposit the same in its own banking department or elsewhere, (c) to
disburse such funds upon orders or vouchers, and (d) to employ one or more
sub-custodians.
Section 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The Trustees may
enter into any contract referred to in this Article with any entity, although
one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, partner, shareholder, or member of such entity, and no such
contract shall be invalidated or rendered void or voidable because of such
relationship. No person having such a relationship shall be disqualified from
voting on or executing a contract in his or her capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
profit realized directly or indirectly therefrom; provided, that the contract
was reasonable and fair and not inconsistent with this Trust Instrument or the
Bylaws.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of this
Article shall be effective unless assented to in a manner consistent with the
requirements of Section 15 of the 1940 Act, and the rules and orders thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series shall
pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for the expenses and disbursements of its
organization, operations and business (unless a third party has agreed to bear
such expenses and disbursements). Such expenses and disbursements may include,
but are not limited to, the following: fees, expenses and charges of certain
third parties which may include the Trust's investment advisers, distributors,
transfer agents, custodian, independent auditors, legal counsel and
administrators; expenses of the organization of the Trust or a particular
Series; expenses
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of the issue, redemption and transfer of Shares; brokers' commissions and other
charges; expenses of custody and accounting services; expenses of maintaining
and servicing Shareholder accounts; expenses of bonding and insurance; all taxes
or governmental fees; costs of membership in trade associations; all charges and
expenses for equipment or services used for communication between the Trust or
any Series and any third party providing services to the Trust or any Series;
fees and expenses of Trustees' meetings, including the compensation of Trustees
who are not Interested Persons of the Trust; Commission registration fees and
related expenses; state or foreign securities laws registration fees and related
expenses; expenses of Shareholder meetings, including the printing and
distribution of proxy materials and any other costs associated with a proxy
solicitation; costs of preparing, printing and distributing Shareholder
communications such as prospectuses, statements of additional information, and
financial reports; and non-recurring expenses which may arise, including the
costs of actions, suit or proceedings to which the Trust or a Series (or a
Trustee or officer of the Trust acting as such) is a party, and the expenses the
Trust or Series may incur as a result of its obligation to provide
indemnification to its Trustees, Officers, employees or agents. The Trustees
shall have a lien on the assets belonging to the appropriate Series, or in the
case of an expense allocable to more than one Series, on the assets of each such
Series, prior to any rights or interests of the Shareholders thereto, for the
reimbursement to them of such expenses, disbursements, losses and liabilities.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. LIMITATION OF LIABILITY. All persons contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of the Trust or such Series for payment under such contract or claim; and
neither the Trustees nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor. Every
written instrument or obligation on behalf of the Trust or any Series shall
contain a statement to the foregoing effect, but the absence of such statement
shall not operate to make any Trustee or officer of the Trust liable thereunder.
Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees
and officers of the Trust shall not be responsible or liable for any act or
omission or for neglect or wrongdoing of them or any officer, agent, employee,
investment adviser or independent contractor of the Trust, but nothing contained
in this Trust Instrument or in the Delaware Act shall protect any Trustee or
officer of the Trust against liability to the Trust or to Shareholders to which
he would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Section 2. INDEMNIFICATION. (a) Subject to the exceptions and limitations
contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an officer,
employee or agent of the Trust ("Covered Person") shall be
indemnified by the Trust or the appropriate Series
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to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him or her in
connection with any claim, action, suit or proceeding in which he
or she becomes involved as a party or otherwise by virtue of his
or her being or having been a Covered Person and against amounts
paid or incurred by him or her in the settlement thereof;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual
or threatened, and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments,
amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or
its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, or (B) not to have acted in
good faith in the reasonable belief that his or her action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his or her office; (A) by
the court or other body approving the settlement; (B) by the vote
of at least a majority of a quorum of those Trustees who are
neither Interested Persons of the Trust nor are parties to the
proceeding based upon a review of readily available facts (as
opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily
available facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him or her to the Trust or
applicable Series if it is ultimately determined that he or she is not entitled
to indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding, or independent legal counsel
in a written opinion, shall have determined, based upon a
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review of readily available facts (as opposed to a full trial-type inquiry) that
there is reason to believe that such Covered Person will not be disqualified
from indemnification under this Section.
(e) Any repeal or modification of this Article IX by the Shareholders of
the Trust, or adoption or modification of any other provision of the Trust
Instrument or Bylaws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
Section 3. INDEMNIFICATION OF SHAREHOLDERS. If any Shareholder or former
Shareholder of any Series shall be held personally liable solely by reason of
his or her being or having been a Shareholder and not because of his or her acts
or omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of any entity, its general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by such Shareholder,
assume the defense of any claim made against such Shareholder for any act or
obligation of the Series and satisfy any judgment thereon from the assets of the
Series.
ARTICLE X
MISCELLANEOUS
Section 1. TRUST NOT A PARTNERSHIP. This Trust Instrument creates a trust
and not a partnership. No Trustee shall have any power to bind personally either
the Trust's officers or any Shareholder.
Section 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY. The exercise
by the Trustees of their powers and discretion hereunder in good faith and with
reasonable care under the circumstances then prevailing shall be binding upon
everyone interested. Subject to the provisions of Article IX, the Trustees shall
not be liable for errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts with respect to the meaning and
operation of this Trust Instrument, and subject to the provisions of Article IX,
shall not be liable for any act or omission in accordance with such advice or
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is obtained.
Section 3. RECORD DATES. The Trustees may fix in advance a date up to
seventy (70) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
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any such change, conversion or exchange of Shares. Record dates for adjourned
Shareholders' meetings shall be set according to the Trust's Bylaws.
Section 4. TERMINATION OF THE TRUST. (a) This Trust shall have perpetual
existence. Subject to a Majority Shareholder Vote of the Trust or of each Series
to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another Series or to another
entity which is an open-end investment company as defined in the
1940 Act, or is a series thereof, for adequate consideration,
which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust
or any affected Series, and which may include shares of or
interests in such Series, entity, or series thereof; or
(ii) at any time sell and convert into money all or substantially
all of the assets of the Trust or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series; however, the payment to any particular Class of such Series may be
reduced by any fees, expenses or charges allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or
any Series if a majority of the Trustees determines that the continuation of the
Trust or Series is not in the best interests of the Trust, such Series, or their
respective Shareholders as a result of factors or events adversely affecting the
ability of the Trust or such Series to conduct its business and operations in an
economically viable manner. Such factors and events may include the inability of
the Trust or a Series to maintain its assets at an appropriate size, changes in
laws or regulations governing the Trust or the Series or affecting assets of the
type in which the Trust or Series invests, or economic developments or trends
having a significant adverse impact on the business or operations of the Trust
or such Series.
(c) Upon completion of the distribution of the remaining proceeds or assets
pursuant to subsection (a), the Trust or affected Series shall terminate and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties hereunder with respect thereto and the right, title and interest of
all parties therein shall be canceled and discharged. Upon termination of the
Trust, following completion of winding up of its business, the Trustees shall
cause a certificate of cancellation of the Trust's certificate of trust to be
filed in accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee.
Section 5. REORGANIZATION. Notwithstanding anything else herein, to change
the Trust's form of organization the Trustees may, without Shareholder approval,
(a) cause the Trust to merge or consolidate with or into one or more entities,
if the surviving or resulting entity is the Trust or another open-end management
investment company under the 1940 Act, or a series thereof, that will
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succeed to or assume the Trust's registration under the 1940 Act, or (b) cause
the Trust to incorporate under the laws of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, an agreement of merger or consolidation approved by the Trustees
in accordance with this Section 5 may effect any amendment to the Trust
Instrument or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
Section 6. TRUST INSTRUMENT. The original or a copy of this Trust
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by a Trustee or an
officer of the Trust as to the authenticity of the Trust Instrument or any such
amendments or supplements and as to any matters in connection with the Trust.
The masculine gender herein shall include the feminine and neuter genders.
Headings herein are for convenience only and shall not affect the construction
of this Trust Instrument. This Trust Instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
Section 7. APPLICABLE LAW. This Trust Instrument and the Trust created
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative requirements
to post bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a Delaware business
trust, and, without limiting the provisions hereof, the Trust may exercise all
powers which are ordinarily exercised by such a trust under Delaware law. The
Trust specifically reserves the right to exercise any of the powers or
privileges afforded to trusts or actions that may be engaged in by trusts under
the Delaware Act, and the absence of a specific reference herein to any such
power, privilege or action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
Section 8. AMENDMENTS. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Trust Instrument by making an amendment, a
Trust Instrument
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supplemental hereto or an amended and restated trust instrument; provided, that
Shareholders shall have the right to vote on any amendment (a) which would
affect the voting rights of Shareholders granted in Article VI, Section 1, (b)
to this Section 8, (c) required to be approved by Shareholders by law or by the
Trust's registration statement(s) filed with the Commission, and (d) submitted
to them by the Trustees in their discretion. Any amendment submitted to
Shareholders which the Trustees determine would affect the Shareholders of any
Series shall be authorized by vote of the Shareholders of such Series and no
vote shall be required of Shareholders of a Series not affected. Notwithstanding
anything else herein, any amendment to Article IX which would have the effect of
reducing the indemnification and other rights provided thereby to Trustees,
officers, employees, and agents of the Trust or to Shareholders or former
Shareholders, and any repeal or amendment of this sentence shall each require
the affirmative vote of the holders of two-thirds of the Outstanding Shares of
the Trust entitled to vote thereon.
Section 9. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
Section 10. SEVERABILITY. The provisions of this Trust Instrument are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Trust Instrument; provided, however, that such determination
shall not affect any of the remaining provisions of this Trust Instrument or
render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable in
any jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
this Trust Instrument.
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IN WITNESS WHEREOF, the undersigned, being the initial
Trustees, have executed this Trust Instrument as of the date first above
written.
/s/ Boh A. Dickey
-----------------
Boh A. Dickey, as
Trustee and not individually
/s/ David F. Hill
-----------------
David F. Hill, as
Trustee and not individually
Address: SAFECO Plaza
Seattle, Washington 98185
STATE OF WASHINGTON ss
COUNTY OF KING
Before me this 18TH day of JANUARY, 2000, personally appeared the
above-named BOH A. DICKEY, and DAVID F. HILL, known to me to be the persons who
executed the foregoing instrument and who acknowledged that they executed the
same.
/s/ Karri J. Harrington
------------------------
Notary Public
My Commission expires JUNE 27, 2001.
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EXHIBIT A
SAFECO RESOURCE SERIES TRUST
The SAFECO Resource Series Trust consists of the following Portfolios:
Growth Opportunities Portfolio
Equity Portfolio
Northwest Portfolio
Small Company Value Portfolio
Bond Portfolio
Money Market Portfolio
Effective May 1, 2000
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BYLAWS
(As amended October 13, 1999)
SAFECO RESOURCE SERIES TRUST
(A DELAWARE BUSINESS TRUST)
These Bylaws of SAFECO RESOURCE SERIES TRUST (the "Trust"), a Delaware
business trust, are subject to the Trust Instrument of the Trust dated May 13,
1993, as from time to time amended, supplemented or restated (the "Trust
Instrument"). Capitalized terms used herein have the same meanings as in the
Trust Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
SECTION 1. PRINCIPAL OFFICE. The principal office of the Trust shall be located
in Seattle, Washington, or such other location as the Board of Trustees may from
time to time determine. The Trust may establish and maintain other offices and
places of business as the Board of Trustees may from time to time determine.
SECTION 2. SEAL. The seal of the Trust shall consist of a flat-faced circular
die with the words "SAFECO Resource Series Trust", and with the words "Trust
Seal, 1993" in the center, and with the word "Delaware" also being shown on the
face of the seal. Any Trustee or officer of the Trust shall have authority to
affix the seal to any document requiring the same.
ARTICLE II
MEETINGS OF BOARD OF TRUSTEES
SECTION 1. MEETINGS. Meetings of the Board of Trustees may be held at such
places and such times as the Trustees may from time to time determine as
provided in Article II, Section 7, of the Trust Instrument.
SECTION 2. ACTION WITHOUT A MEETING. Actions may be taken by the Board of
Trustees without a meeting or by a telephone meeting, as provided in Article II,
Section 7, of the Trust Instrument.
SECTION 3. COMPENSATION OF TRUSTEES. No compensation for services as a Trustee
shall be paid to any Trustee who is at the time an employee of an investment
adviser of the Trust or any Series or Class thereof or of any entity affiliated
with the investment adviser. A Trustee who is not an employee of such investment
adviser or any of its affiliates may receive such compensation from the Trust
for his or her services and reimbursement for his or her expenses as may be
fixed from time to time by the Board of Trustees.
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ARTICLE III
BOARD COMMITTEES
SECTION 1. ESTABLISHMENT. The Board of Trustees may designate one or more
committees and shall determine the number of members of each such committee and
its powers. Each committee member shall hold office at the pleasure of the Board
of Trustees. The Board of Trustees may abolish any such committee at any time in
its sole discretion. Any committee to which the Board of Trustees delegates any
of its powers shall maintain records of its meetings and shall report its
actions to the Board of Trustees. The Board of Trustees shall have the power to
rescind any action of any committee, but no such recision shall have retroactive
effect. The Board of Trustees shall have the power at any time to fill vacancies
in the committees. The Board of Trustees may delegate to any committee any of
its powers, except the power to declare a dividend or distribution on Shares,
authorize the issuance of Shares, recommend to Shareholders any action requiring
Shareholders' approval, amend these Bylaws, approve any merger or Share
exchange, approve or terminate any contract with an investment adviser or
Principal Underwriter, or to take any other action required by applicable law to
be taken by the Board.
SECTION 2. NOTICE, WAIVER, CONSENT, QUORUM AND PROCEEDINGS. In the absence of a
provision in these Bylaws or an appropriate resolution of the Trustees, each
committee may adopt such rules and regulations governing notice of its meetings
and waiver and consent to thereof, quorum and manner of acting as it shall deem
proper and desirable. In the event any member of any committee is absent from
any meeting, the members present at the meeting, whether or not they constitute
a quorum, may appoint another Trustee to act in the place of such absent member.
SECTION 3. AUDIT COMMITTEE.
(a) ORGANIZATION. There shall be a committee of the Board of Trustees
to be known as the Audit Committee. The Audit Committee shall be composed
entirely of Trustees who are independent of the management of the Trust, the
investment advisor to the Trust, its affiliates or parent company (the "Fund
Companies") and are free of any relationship to the Fund Companies that, in the
opinion of the Board of Trustees, would interfere with the Trustees' exercise of
independent judgment as committee members. No former officer or director of
SAFECO Corporation or its affiliates shall be considered an "independent"
trustee. The Audit Committee shall consist of not less than three members
appointed by the Board of Trustees. All Audit Committee members will be
financially literate.
(b) Purpose. The Audit Committee shall provide assistance to the Board
of Trustees in fulfilling its responsibility to the shareholders relating to
Trust accounting, reporting practices of the Trust, and the quality and
integrity of the financial reports of the Trust. In so doing, it is the
responsibility of the audit committee to maintain free and open means of
communication between the Trustees, the independent auditors, the internal
auditors and the management of the Fund Companies.
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(c) RESPONSIBILITIES. The Audit Committee will:
(1) Provide an open avenue of communication between the
Trustees, the independent auditors and the management of the Fund
Companies.
(2) Meet three time per year or more frequently as
circumstances require. Prepare minutes for each meeting. The Committee
may ask members of management or others to attend meetings and provide
pertinent information as necessary. Committee members may rely upon the
information provided to them by experts and management, as appropriate.
(3) Review annually and update as appropriate the Committee's
charter annually. The extent to which the Committee satisfied its
responsibilities during the prior year in compliance with the charter
will be disclosed in the proxy statement or annual report, prospectus,
or the statement of additional information if required by law or
regulation.
(4) Review and recommend to the Trustees the independent
auditors to be selected to audit the financial statements of the Trust.
The independent auditors are ultimately accountable to the
Board of Trustees and the audit committee as representatives of
shareholders, and the board and the Audit Committee have ultimate
authority and responsibility to select, evaluate and, where
appropriate, replace the independent auditors.
Further, review and recommend to the Trustees the compensation
for the services provided to the Trust by the independent auditors.
(5) Meet with the independent auditors and management of the
Trust to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit.
(6) Discuss management letters received from the independent
auditors in connection with audits.
(7) Review with the independent auditors, the Fund Companies'
internal auditor, and financial and accounting personnel, the adequacy
and effectiveness of the accounting and financial controls of the
Trust, and elicit any recommendations for the improvement of such
internal control procedures for particular areas where new or more
detailed controls or procedures are desirable.
(8) Review the internal audit function of the Fund Companies
including the independence and authority of their reporting
obligations, the proposed audit plans for the coming year and the
coordination of such plans with the independent auditors.
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(9) Receive prior to each meeting at which they will be
discussed, a summary of findings from completed internal audits and
progress report on the proposed internal audit plan, with explanations
for any deviations from the original plan.
(10) Review the financial statements contained in the annual
report to shareholders with management and the independent auditors to
determine that the independent auditors are satisfied with the
disclosure and content of the financial statements to be presented to
the shareholders. Any changes in accounting principles should be
reviewed.
(11) Meet with the internal and independent auditors without
members of management present. Among the items to be discussed in these
meetings are the independent auditors' evaluation of the Fund
Companies' financial, accounting, and auditing personnel, and the
cooperation that the independent auditors received during the course of
the audit. Meet in separate executive sessions with management.
(12) Review the scope of and fees for consulting services
provided by the independent auditors.
(13) Obtain from the independent auditors a formal written
statement-delineating relationships between the auditors and the Fund
Companies. Actively engage in a dialogue with the independent auditors
regarding matters that might reasonably be expected to affect their
independence and effectiveness.
(14) If required by law or regulation, cause a letter from the
Committee to be included in the Trust's annual shareholder report that
discloses whether or not the Committee has reviewed the audited
financial statements with management and the independent auditors,
whether it has met privately to discuss information obtained from
management and the independent auditor and whether or not it believes
the Trust's financial statements are fairly presented in accordance
with Generally Accepted Accounting Principles.
(15) Review periodically with counsel to the Fund Companies
legal and regulatory matters that may have a material impact on the
Fund Companies' financial statements, compliance policies and programs.
(16) Review any interested party conflict-of-interest
situation brought to its attention by management, internal auditors or
the independent auditors.
(17) Report on each meeting of the Audit Committee to the
Board of Trustees.
(d) RULES OF PROCEDURE. The Audit Committee shall adopt its own rules
and keep minutes of all of its meetings.
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(e) QUORUM. A quorum of the Audit Committee shall consist of at least
two members of the Committee.
(f) ACTION WITHOUT MEETING. Subject to the requirements of the 1940
Act, any action that may be or is required to be taken at a meeting of the Audit
Committee may be conducted by telephone or taken without a meeting if a consent
in writing setting forth the action so taken shall be signed by all members of
the Audit Committee. Such consent shall have the same effect as a unanimous
vote.
SECTION 4. PRICING COMMITTEE.
(a) MEMBERSHIP. The Board of Trustees may annually appoint a Pricing
Committee comprised of two or more trustees or officers of SAFECO Asset
Management Company.
(b) RESPONSIBILITIES AND DUTIES. The purpose of the Pricing Committee
shall be to value, on behalf of the Board of Trustees between regularly
scheduled trustees' meetings, any security held by or to be purchased for the
Trust or any Series which cannot be otherwise valued under the Trust's
guidelines for valuation of portfolio securities, e.g., an unrestricted security
for which market quotes are not readily available or a restricted security
("Security").
(c) RULES OF PROCEDURE. In determining the fair value of a Security,
the Pricing Committee shall consider such factors and follow such procedures as
may be established under guidelines approved by the Trust's Board of Trustees.
The guidelines shall be periodically reviewed and approved by the Board as
frequently as the Board shall deem appropriate, but in no event less than
annually. Minutes shall be kept of each meeting of the Pricing Committee. At the
next regularly scheduled Board of Trustees' meeting following the Pricing
Committee's determination of a fair value for a Security, the Board of Trustees
shall ratify the Pricing Committee's action.
(d) VOTE REQUIRED. The members of the Pricing Committee must
unanimously approve a fair value for the Security.
(e) ACTION WITHOUT MEETING. Any action that may be or is required to be
taken at a meeting of the Pricing Committee may be conducted by telephone or may
be taken without a meeting, if a consent in writing setting forth the action so
taken shall be signed by all members of the Pricing Committee. Such consent
shall have the same effect as a unanimous vote.
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SECTION 5. NOMINATING AND COMPENSATION COMMITTEE
(a) MEMBERSHIP. The Nominating and Compensation Committee will be
composed entirely of trustees who are not "interested persons," as that term is
defined under the Investment Company Act of 1940 (the "1940 Act"), with respect
to the Trust ("independent trustees"). The Board will appoint a member of the
Committee to serve as the Chair.
(b) RESPONSIBILITIES AND DUTIES. The Nominating and Compensation
Committee shall be responsible to evaluate and nominate candidates for selection
as independent trustees of the Trust, and to review and make recommendations
concerning trustee compensation. In carrying out these responsibilities, the
Nominating and Compensation Committee will:
(i) With the advice of the Board of Trustees, the Committee
will determine when it may be appropriate to nominate candidates for
election as independent trustees. In addition, the Committee will
periodically review the make-up and background of Board members, to
determine whether it may be appropriate to add individuals with
different backgrounds or skill sets from those already on the Board.
(ii) In evaluating candidates, the Committee will consider
both the letter and the spirit of the 1940 Act. The Committee will
consider candidates' qualifications for Board membership and their
independence from the Trust's manager and other principal service
providers, including the effect of any relationships beyond those
delineated in the 1940 Act that might impair trustee independence, such
as social relationships with the manager or the Trust's other principal
service providers, or any conflict that may result from service as a
director in a competing fund complex or competing industry.
(iii) The Committee may establish such procedures as the
Committee members deem appropriate to assist them in their evaluation
of the candidates.
(iv) The Committee will periodically review trustee
compensation, and will recommend any appropriate changes to the full
Board of Trustees.
(c) RULES OF PROCEDURE. The Nominating and Compensation Committee shall
adopt its own rules and keep minutes of all of its meetings.
(d) QUORUM. A quorum of the Nominating and Compensation Committee shall
consist of at least two members of the Committee.
(e) ACTION WITHOUT MEETING. Subject to the requirements of the 1940
Act, any action that may be or is required to be taken at a meeting of the
Nominating and Compensation Committee may be conducted by telephone or taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all members of the Nominating and Compensation Committee.
Such consent shall have the same effect as a unanimous vote.
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SECTION 6. COMPENSATION OF COMMITTEE MEMBERS. Each committee member who is not
an Interested Person of the Trust may receive such compensation from the Trust
for his or her services and reimbursement for his or her expenses as may be
fixed from time to time by the Trustees.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Trust shall be a President, a Treasurer,
a Secretary, and may include one or more Vice Presidents, Assistant Treasurers
or Assistant Secretaries, and such other officers as the Board of Trustees may
from time to time elect. The Board of Trustees may appoint any other officers or
agents and prescribe their respective rights, terms of office, authorities and
duties.
SECTION 2. ELECTION, TENURE AND QUALIFICATIONS OF OFFICERS. The officers of the
Trust shall be elected annually by the Trustees. Each officer elected by the
Board of Trustees shall hold office until his or her successor shall have been
elected and qualified or his or her earlier resignation. Any person may hold one
or more offices of the Trust, except no one person may serve concurrently as
President and Secretary. A person who holds more than one office in the Trust
may not act in more than one capacity to execute, acknowledge, or verify an
instrument required by law to be executed, acknowledged, or verified by more
than one officer. No officer need be a Trustee or a Shareholder of the Trust.
SECTION 3. VACANCIES AND NEWLY CREATED OFFICES. Whenever a vacancy shall occur
in any office, regardless of the reason for such vacancy, or if any new office
shall be created, such vacancies or newly created offices may be filled by the
Trustees at any meeting.
SECTION 4. REMOVAL AND RESIGNATION. The Board of Trustees may remove any officer
or agent from office, with or without cause, by the vote of a majority of the
Trustees. Any officer may resign from office at any time by delivering a written
resignation to the Trustees, the President, the Secretary, or any Assistant
Secretary. Unless otherwise specified therein, such resignation shall take
effect upon delivery.
SECTION 5. CHAIRMAN. The Chairman shall have the powers and responsibilities set
forth in Article II, section 6 of the Trust Instrument and shall exercise and
perform such other powers and duties as may from time to time be assigned by the
Board of Trustees or prescribed by these Bylaws.
SECTION 6. PRESIDENT. The President shall be the chief executive officer of the
Trust. Subject to the direction of the Trustees, the President shall have
general charge, supervision and control over the business affairs of the Trust
and shall be responsible for the management thereof. In the absence of the
Chairman, or if no Chairman of the Board of Trustees has been elected, the
President shall preside at all Shareholders' and Board of Trustees' meetings and
shall in general exercise the powers and perform the duties of the Chairman.
Except as the Board of Trustees may otherwise order, the President shall have
the power to grant, issue, execute or sign such powers of attorney, proxies,
agreements or other documents as may be deemed advisable or necessary. The
President also shall
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have the power to employ attorneys, accountants and other advisers and agents
for the Trust. The President shall exercise such other powers and perform such
other duties as the Board of Trustees may from time to time assign to the
President.
SECTION 7. VICE PRESIDENT. If the Board of Trustees elects one or more Vice
President(s), the Vice-President(s) shall have such powers and perform such
duties as may from time to time be assigned to them by the Board of Trustees or
the President. At the request or in the absence or disability of the President,
the Vice President (or, if there are two or more Vice Presidents, then the
senior of the Vice Presidents present and able to act) may perform all the
duties of the President and, when so acting, shall have all the powers of the
President. The Board of Trustees may designate one (1) or more of the Vice
Presidents as an Executive Vice President or with such other designation or
title as the Board of Trustees deem appropriate for his or her position or
duties.
SECTION 8. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall be the
principal financial officer of the Trust and shall have general charge of the
finances and books of the Trust. The Treasurer shall be responsible for
delivering all funds and securities of the Trust to its custodian. The Treasurer
shall make annual reports to the Board of Trustees regarding the business and
financial condition of the Trust as soon as possible after the close of the
Trust's fiscal year. The Treasurer also shall furnish such other reports
concerning the business and financial condition of the Trust as the Board of
Trustees may from time to time require. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the supervision of the Board
of Trustees, and shall perform such additional duties as the Board may from time
to time designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Board of Trustees or the Treasurer may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
SECTION 9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all
votes and proceedings of the meetings of Trustees and Shareholders in books to
be kept for that purpose. The Secretary shall be responsible for the giving and
serving of all notices of the Trust. The Secretary shall have custody of any
seal of the Trust. The Secretary shall be responsible for the records of the
Trust, including the Share register and such other books and papers as the
Trustees may direct and such books, reports, certificates and other documents
required by law. All of such records and documents shall at all reasonable times
be kept open by the Secretary for inspection by any Trustee. The Secretary shall
perform all acts incidental to the office of Secretary, subject to the
supervision of the Trustees, and shall perform such additional duties as the
Trustees may from time to time designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
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ARTICLE V
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETINGS. There shall be no annual Shareholders' meetings.
SECTION 2. SPECIAL MEETINGS. Special meetings of Shareholders of the Trust or of
any Series or Class shall be called by the Chairman, President or Secretary
whenever ordered by the Trustees, and shall be held at such time and place as
may be stated in the notice of the meeting.
Special meetings of the Shareholders of the Trust or of any Series or
Class shall also be called by the Chairman, President or Secretary upon the
written request of Shareholders owning at least ten percent of the Outstanding
Shares of the Trust or such Series or Class entitled to vote at such meeting,
provided that (1) such request shall state the purposes of such meeting and the
matters proposed to be acted on, and (2) the Shareholders requesting such
meeting shall have paid to the Trust the reasonably estimated cost of preparing
and mailing the notice thereof, which the Secretary shall determine and specify
to such Shareholders. No special meeting shall be called upon the request of
Shareholders of the Trust or of any Series or Class to consider any matter which
is substantially the same as a matter voted upon at any special meeting of the
Shareholders held during the preceding twelve months, unless requested by the
holders of a majority of all Outstanding Shares of the Trust or the Series or
Class entitled to be voted at such meeting.
If the Chairman, President or Secretary fails for more than thirty days
to call a special meeting when required to do so, the Trustees or the
Shareholders requesting such a meeting may, in the name of the Chairman,
President or Secretary, call the meeting by giving the required notice. If the
meeting is a meeting of Shareholders of any Series or Class, but not a meeting
of all Shareholders of the Trust, then only a special meeting of Shareholders of
such Series or Class shall be called and only Shareholders of such Series or
Class shall be entitled to notice of and to vote at such meeting.
SECTION 3. NOTICE OF MEETINGS; WAIVER. The Chairman, President or Secretary
shall cause written notice of the place, date and time, and the purpose or
purposes for which the meeting is called. Notice shall be given at least ten
days before the date of the meeting. The written notice of any meeting may be
delivered or mailed, postage prepaid, to each Shareholder entitled to vote at
such meeting. If mailed, notice shall be deemed to be given when deposited in
the United States mail directed to the Shareholder at his or her address as it
appears on the records of the Trust. Notice of any Shareholders' meeting need
not be given to any Shareholder who is present at such meeting in person or by
proxy if a written waiver of notice, executed before or after such meeting, is
filed with the record of such meeting. Any irregularities in the notice of any
meeting or the nonreceipt of any such notice by any of the Shareholders shall
not invalidate any action otherwise properly taken at any such meeting.
SECTION 4. ADJOURNED MEETINGS. One or more adjournments of any Shareholders'
meetings may be taken by reason of failure of a quorum to attend a meeting or
for any other reason. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting at which the adjournment is taken, or reasonable notice is given
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to persons present at the meeting, and the adjourned meeting is held within a
reasonable time after the date set for the original meeting. At the adjourned
meeting the Trust may transact any business which might have been transacted at
the original meeting. If after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
Shareholders of record entitled to vote at such meeting.
SECTION 5. VALIDITY OF PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (1) a written instrument authorizing such proxy to act has
been signed and dated by the Shareholder or by his or her duly authorized
attorney, or (2) the Trustees adopt by resolution an electronic, telephonic,
computerized or other alternative to execution of a written instrument
authorizing the proxy to act, but if a proposal by anyone other than the
officers or Trustees is submitted to a vote of the Shareholders of the Trust or
of any Series or Class, or if there is a proxy contest or proxy solicitation or
proposal in opposition to any proposal by the officers or Trustees, Shares may
be voted only in person or by written proxy. Unless the proxy provides
otherwise, it shall not be valid for more than eleven months before the date of
the meeting. All proxies shall be delivered to the Secretary or other person
responsible for recording the proceedings before being voted. A proxy with
respect to Shares held in the name of two or more persons shall be valid if
executed by one of them unless at or prior to exercise of such proxy the Trust
receives a specific written notice to the contrary from any one of them. Unless
otherwise specifically limited by their terms, proxies shall entitle the
Shareholder to vote at any adjournment of a Shareholders' meeting. A proxy
purporting to be executed by or on behalf of a Shareholder shall be deemed valid
unless challenged at or prior to its exercise, and the burden of proving
invalidity shall rest on the challenger. At every meeting of Shareholders,
unless the voting is conducted by inspectors, all questions concerning the
qualifications of voters, the validity of proxies, and the acceptance or
rejection of votes, shall be decided by the chairman of the meeting. Subject to
the provisions of the Delaware Business Trust Act, the Trust Instrument or these
Bylaws, all matters concerning the giving, voting or validity of proxies shall
be governed by the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Shareholders were shareholders of a Delaware
corporation.
SECTION 6. QUORUM; REQUIRED VOTE. The quorum and required vote for any
Shareholders' meeting shall be as specified in Article VI, section 3 of the
Trust Instrument.
SECTION 7. RECORD DATE. The Board of Trustees may fix in advance a date up to
seventy (70) days before the date of any Shareholders' meeting as a record date
for the determination of the Shareholders entitled to notice of, and to vote at,
any such meeting. The Shareholders of record entitled to vote at a Shareholders'
meeting shall be deemed the Shareholders of record at any meeting reconvened
after one or more adjournments, unless the Board of Trustees has fixed a new
record date. If the Shareholders' meeting is adjourned for more than one hundred
twenty (120) days after the original date, the Board of Trustees shall establish
a new record date.
SECTION 8. PLACE OF MEETING. All special meetings of Shareholders shall be held
at the principal place of business of the Trust or at such other place as the
Board of Trustees may from time to time designate.
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SECTION 9. ACTION WITHOUT A MEETING. Any action to be taken by Shareholders may
be taken without a meeting if a majority (or such other amount as may be
required by law) of the Outstanding Shares entitled to vote on the matter
consent to the action in writing and such written consents are filed with the
records of the Shareholders' meetings. Such written consent shall be treated for
all purposes as a vote at a meeting of the Shareholders held at the principal
place of business of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 1. SHARE CERTIFICATES. In lieu of issuing certificates representing
Shares, the Board of Trustees or the transfer agent or Shareholder servicing
agent may keep accounts upon the books of the Trust for record holders of such
Shares. The record holders shall be deemed, for all purposes, to be holders of
certificates for such Shares as if they accepted such certificates and shall be
held to have expressly consented to the terms thereof.
If the Board of Trustees authorizes the issuance of certificates
pursuant to Article V, Section 5 of the Trust Instrument, then such certificates
shall be in the form prescribed from time to time by the Board and shall be
signed by the President or a Vice President and by the Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary of the Trust. Such signatures may be
facsimile if the certificate is signed by a transfer agent or Shareholder
servicing agent or by a registrar, other than a Trustee, officer or employee of
the Trust. If any officer who has signed any such certificate or whose facsimile
signature has been placed thereon shall have ceased to be such an officer before
the certificate is issued, then such certificate may be issued by the Trust with
the same effect as if he or she were such an officer at the date of issue. The
issuance of a certificate to one or more Shareholders shall not require the
issuance of certificates to all Shareholders. The Board of Trustees may at any
time discontinue the issuance of certificates and may, by written notice to each
Shareholder, require the surrender of certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
Shares in the Trust.
SECTION 2. TRANSFER OF SHARES. The Shares of the Trust shall be transferable
only by a transfer recorded on the books of the Trust by the Shareholder of
record in person or by his or her duly authorized attorney or legal
representative. The Shares of the Trust may be freely transferred, and the Board
of Trustees may, from time to time, adopt rules and regulations regarding the
method of transfer of such Shares. Shares shall not be transferred on the books
of the Trust until all requirements of the Board, including the proper tender of
any outstanding certificates, if any, have been satisfied. The Trust shall be
entitled to treat the holder of record of any Share or Shares as the absolute
owner for all purposes, and shall not be bound to recognize any legal, equitable
or other claim or interest in such Share or Shares on the part of any other
person except as otherwise expressly provided by law.
SECTION 3. LOST, STOLEN OR DESTROYED CERTIFICATES. If any Share certificate
should become lost, stolen or destroyed, a duplicate Share certificate may be
issued in place thereof, upon such terms and conditions as the Board of Trustees
may prescribe, including, but not limited to, requiring the
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owner of the lost, stolen or destroyed certificate to give the Trust a bond or
other indemnity, in such form and in such amount as the Board of Trustees may
direct and with such surety or sureties as may be satisfactory to the Board
sufficient to indemnify the Trust against any claim that may be made against it
on account of the alleged loss, theft or destruction of any such certificate or
the issuance of such new certificate.
ARTICLE VII
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall at all times place and
maintain all cash, securities and other assets of the Trust and of each Series
in the custody of a custodian meeting the requirements set forth in Article VII,
section 4 of the Trust Instrument ("Custodian"). The Custodian shall be
appointed from time to time by the Board of Trustees, who shall determine its
remuneration.
SECTION 2. TERMINATION OF CUSTODIAN AGREEMENT. Upon termination of any Custodian
Agreement or the inability of the Custodian to continue to serve as custodian,
in either case with respect to the Trust or any Series, the Board of Trustees
shall (a) use its best efforts to obtain a successor Custodian; and (b) require
that the cash, securities and other assets owned by the Trust or any Series be
delivered directly to the successor Custodian.
SECTION 3. OTHER ARRANGEMENTS. The Trust may make such other arrangements for
the custody of its assets (including deposit arrangements) as may be required by
any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
SECTION 1. FISCAL YEAR. The fiscal year of the Trust shall, unless otherwise
ordered by the Board of Trustees, be twelve calendar months ending on the 31st
day of December.
SECTION 2. ACCOUNTANT. The Trust shall employ independent certified public
accountants as its Accountant to examine the accounts of the Trust and to sign
and certify financial statements filed by the Trust. The Accountant shall be
appointed in accordance with the requirements of Section 32(a) of the 1940 Act
and the rules thereunder. The Accountant's certificates and reports shall be
addressed both to the Board of Trustees and to the Shareholders.
ARTICLE IX
AMENDMENTS
SECTION 1. GENERAL. Except as provided in Section 2 of this Article, all Bylaws
of the Trust shall be subject to amendment, alteration or repeal, and new Bylaws
may be made by the affirmative vote of
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a majority of either: (1) the Outstanding Shares of the Trust entitled to vote
at any meeting; or (2) the Trustees.
SECTION 2. BY SHAREHOLDERS ONLY. After the issue of any Shares of the Trust, no
amendment, alteration or repeal of this Article shall be made except by the
affirmative vote of the holders of either: (a) more than two-thirds of the
Trust's Outstanding Shares present at a meeting at which the holders of more
than fifty percent of the Outstanding Shares are present in person or by proxy,
or (b) more than fifty percent of the Trust's Outstanding Shares.
ARTICLE X
NET ASSET VALUE
SECTION 1. DETERMINATION OF NET ASSET VALUE. The term "Net Asset Value" of any
Series or Class shall mean that amount by which the assets belonging to that
Series or Class exceed its liabilities, all as determined by or under the
direction of the Board of Trustees. Such value per Share shall be determined
separately for each Series or Class and shall be determined on such days and at
such times as the Board of Trustees may determine. Such determination shall be
made with respect to securities for which market quotations are readily
available, at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Board of Trustees, provided, however, that the Board, without Shareholder
approval, may alter the method of appraising portfolio securities insofar as
permitted under the 1940 Act and the rules, regulations and interpretations
thereof promulgated or issued by the Commission or insofar as permitted by any
order of the Commission applicable to a Series or Class. The Board of Trustees
may delegate any of its powers and duties under this Section 1 with respect to
appraisal of assets and liabilities. At any time the Board of Trustees may cause
the Net Asset Value per Share last determined to be determined again in a
similar manner and may fix the time when such redetermined values shall become
effective.
ARTICLE XI
INVESTMENTS
SECTION 1. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Trust and/or
each Series shall adhere to the fundamental and non-fundamental investment
objectives, policies and restrictions applicable to the Trust and/or each Series
included in the Trust's current effective registration statement as filed with
the Commission. If a percentage limitation is adhered to at the time of an
investment, a later increase or decrease in the percentage resulting from a
change in the value of the assets of a Series shall not be a violation of such
investment restrictions.
SECTION 2. AMENDMENT OF INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. Any
investment objectives, policies and restrictions of the Trust or any Series
which are deemed to be fundamental may not be changed without the approval of
the holders of a majority of the Outstanding Shares of the Trust or of the
Series affected which shall mean the lesser of (i) 67% of the Shares represented
at a meeting at which more than 50% of the Outstanding Shares are present or
represented by proxy
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or (ii) more than 50% of the Outstanding Shares. Any investment objectives,
policies or restrictions deemed non-fundamental may be changed by vote of the
Board of Trustees.
ARTICLE XII
MISCELLANEOUS
SECTION 1. INSPECTION OF BOOKS. The Board of Trustees shall from time to time
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series or Class shall
be open to the inspection of Shareholders. No Shareholder shall have any right
to inspect any account or book or document of the Trust except as conferred by
law or otherwise by the Board of Trustees or by resolution of Shareholders.
SECTION 2. SEVERABILITY. The provisions of these Bylaws are severable. If the
Board of Trustees determine, with the advice of counsel, that any provision
hereof conflicts with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of these
Bylaws; provided, however, that such determination shall not affect any of the
remaining provisions of these Bylaws or render invalid or improper any action
taken or omitted prior to such determination. If any provision hereof shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of these Bylaws.
SECTION 3. HEADINGS. Headings are placed in these Bylaws for convenience of
reference only and in case of any conflict, the text of these Bylaws rather than
the headings shall control.
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CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectuses and "Investment Advisory and Other Services",
and "Financial Statements" in the Statement of Additional Information and to
the use of our report dated February 4, 2000, which is incorporated by
reference, in this Post-Effective Amendment Number 23 to the Registration
Statement (Form N-1A No. 33-06547) of SAFECO Resource Series Trust.
Seattle, Washington
February 29, 2000
<PAGE>
ANNUAL REPORT
DECEMBER 31, 1999
SAFECO RESOURCE SERIES TRUST
----------
<TABLE>
<S> <C>
Equity Portfolio .................. 2
Growth Portfolio .................. 6
Northwest Portfolio .............. 11
Small Company Stock Portfolio .... 15
Bond Portfolio ................... 19
Money Market Portfolio ........... 23
</TABLE>
[SAFECO MUTUAL FUNDS LOGO]
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST EQUITY PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO RST Equity Portfolio ended the year below the Lipper, Inc. average
for variable annuity growth and income portfolios and the S&P 500. The
Portfolio's returns fell short because it is underweighted in technology, which
was the market's best performing sector, and overweighted in financials.
As interest rates climbed, mortgage-related stocks such as Washington Mutual,
Fannie Mae and Freddie Mac fell beyond reason. Even as analysts raised earning
estimates for Fannie Mae, investors sent the stock down.
I started to broaden our technology holdings--adding telecommunication
equipment manufacturer Lucent Technologies and beginning a position in
CenturyTel which, I think, is growing by smart acquisitions. And I look forward
to adding to technology--at reasonable prices.
I remain very cautious about valuations, which explains our weightings in
both technology and finance. In the fourth quarter, I made major additions to
Washington Mutual (WaMu) and Albertson's (another company whose stock declined
beyond its bad news). I funded the WaMu additions (and held down our financial
weighting) by eliminating U.S. Bancorp.
I tend to populate the Portfolio with long-term core positions, which I will
continue to buy and hold when they are down as long as I believe they are good
companies with fixable, short-term problems. If not, I eliminate them, as was
the case with Lockheed Martin and 3Com. Procter & Gamble, a long-term core
position, is a different story. I sold it down from our largest holding when it
was trading at 32 times year 2000 estimated earnings in a broad market selling
at 25 times. [PHOTO OF RICH MEAGLEY]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
SAFECO RST Equity Portfolio 9.31% 22.30% 17.35%
S&P 500 Index 21.04% 28.54% 18.19%
Lipper, Inc. Variable Annuity Growth & Income Portfolios 14.51% 21.78% 15.13%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE SAFECO RST EQUITY PORTFOLIO S&P 500 INDEX
<S> <C> <C>
12/89 $10,000 $10,000
1/90 $9,198 $9,329
2/90 $9,239 $9,450
3/90 $9,587 $9,700
4/90 $9,239 $9,459
5/90 $10,049 $10,379
6/90 $10,081 $10,309
7/90 $10,105 $10,276
8/90 $9,215 $9,348
9/90 $8,802 $8,894
10/90 $8,704 $8,856
11/90 $9,198 $9,428
12/90 $9,479 $9,690
1/91 $9,887 $10,111
2/91 $10,503 $10,833
3/91 $10,761 $11,095
4/91 $11,094 $11,122
5/91 $11,528 $11,600
6/91 $10,895 $11,069
7/91 $11,611 $11,584
8/91 $11,752 $11,858
9/91 $11,503 $11,660
10/91 $11,603 $11,816
11/91 $10,961 $11,341
12/91 $12,023 $12,636
1/92 $12,630 $12,401
2/92 $12,942 $12,561
3/92 $12,237 $12,317
4/92 $12,344 $12,679
5/92 $12,219 $12,741
6/92 $11,461 $12,551
7/92 $11,889 $13,064
8/92 $11,497 $12,797
9/92 $11,542 $12,947
10/92 $11,952 $12,991
11/92 $12,683 $13,433
12/92 $12,992 $13,597
1/93 $13,312 $13,711
2/93 $13,294 $13,898
3/93 $13,861 $14,191
4/93 $13,577 $13,848
5/93 $14,648 $14,217
6/93 $14,694 $14,259
7/93 $14,529 $14,201
8/93 $15,316 $14,739
9/93 $15,773 $14,623
10/93 $16,185 $14,925
11/93 $16,295 $14,783
12/93 $16,619 $14,962
1/94 $17,673 $15,470
2/94 $17,224 $15,051
3/94 $16,531 $14,396
4/94 $16,999 $14,580
5/94 $17,419 $14,819
6/94 $16,794 $14,456
7/94 $17,185 $14,931
8/94 $18,308 $15,542
9/94 $18,122 $15,162
10/94 $18,523 $15,502
11/94 $18,152 $14,938
12/94 $18,104 $15,159
1/95 $18,254 $15,552
2/95 $18,728 $16,157
3/95 $18,996 $16,633
4/95 $19,491 $17,123
5/95 $19,986 $17,806
6/95 $20,621 $18,219
7/95 $20,933 $18,823
8/95 $21,546 $18,870
9/95 $22,385 $19,666
10/95 $22,363 $19,596
11/95 $23,020 $20,455
12/95 $23,287 $20,849
1/96 $23,941 $21,558
2/96 $24,074 $21,758
3/96 $24,377 $21,968
4/96 $24,885 $22,292
5/96 $25,466 $22,866
6/96 $25,926 $22,953
7/96 $24,921 $21,939
8/96 $25,151 $22,403
9/96 $26,676 $23,662
10/96 $27,524 $24,315
11/96 $29,642 $26,151
12/96 $29,060 $25,633
1/97 $30,770 $27,234
2/97 $30,930 $27,447
3/97 $29,621 $26,322
4/97 $30,569 $27,892
5/97 $32,627 $29,589
6/97 $33,990 $30,914
7/97 $36,328 $33,373
8/97 $34,431 $31,504
9/97 $35,687 $33,229
10/97 $34,551 $32,120
11/97 $35,660 $33,606
12/97 $36,280 $34,183
1/98 $36,842 $34,560
2/98 $39,767 $37,052
3/98 $41,092 $38,948
4/98 $41,179 $39,339
5/98 $40,415 $38,664
6/98 $41,452 $40,233
7/98 $40,948 $39,806
8/98 $35,660 $34,057
9/98 $38,153 $36,239
10/98 $41,539 $39,184
11/98 $44,219 $41,558
12/98 $45,311 $43,951
1/99 $46,052 $45,789
2/99 $45,099 $44,366
3/99 $46,520 $46,141
4/99 $49,438 $47,928
5/99 $48,425 $46,796
6/99 $49,907 $49,393
7/99 $48,909 $47,851
8/99 $48,425 $47,613
9/99 $46,611 $46,308
10/99 $49,937 $49,238
11/99 $49,106 $50,242
12/99 $49,527 $53,200
</TABLE>
Performance represents the performance of the Equity
Portfolio, but does not include deductions for administration
charges, contingent deferred sales charges, or mortality
and expense risk premiums.
The performance of the Portfolio assumes the
reinvestment of all dividends and capital gains. The Standard
& Poor's 500 Index is an unmanaged index of 500 stocks
weighted by market capitalization with dividends reinvested.
Management fees and other portfolio expenses have
been applied to the calculation of Portfolio performance,
but not to the index. If portfolio expenses had been applied
to the index, the index values would have been lower.
Investment returns are historical and not predictive of future
performance. Portfolio share prices and investment returns
will fluctuate.
- 2 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I believe the Portfolio is made up of high-quality companies with predictable
earnings growth and positioned to do well in a moderating economy.
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.
HIGHLIGHTS
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Microsoft Corp. .................................................. 4.4%
(Computers--Software & Services)
General Electric Co. .............................................. 4.1
(Electrical Equipment)
Federal National Mortgage Association .............................. 3.3
(Financial--Diversified)
Johnson & Johnson .................................................. 3.3
(Health Care--Diversified)
Exxon Mobil Corp. ................................................. 3.2
(Oil--International Integrated)
Washington Mutual, Inc. ........................................... 3.1
(Savings & Loans)
Gannett Co., Inc. ................................................. 3.0
(Publishing--Newspapers)
Albertson's, Inc. ................................................. 3.0
(Retail--Food Chains)
Intel Corp. ....................................................... 2.9
(Electronics--Semiconductors)
Procter & Gamble Co. .............................................. 2.9
(Household Products--Nondurables)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Large-Cap: (over $4 billion) 97%
Mid-Cap: ($1 billion-$4 billion) 0%
Small-Cap: (under $1 billion) 0%
Cash & Other: 3%
</TABLE>
- 3 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 97.1%
BANKS (MAJOR REGIONAL) - 4.2%
198,000 Bank of America Corp. $9,937
315,000 Citigroup, Inc. 17,502
BANKS (MONEY CENTER) - 2.0%
170,000 Chase Manhattan Corp. 13,207
BEVERAGES (ALCOHOLIC) - 1.6%
143,000 Anheuser-Busch Co., Inc. 10,135
BEVERAGES (NON-ALCOHOLIC) - 2.3%
427,000 PepsiCo, Inc. 15,052
CHEMICALS - 3.6%
140,000 Du Pont (E.I.) de Nemours &
Co. 9,222
280,000 Praxair, Inc. 14,088
COMPUTERS (HARDWARE) - 3.8%
112,000 Hewlett-Packard Co. 12,761
112,000 International Business
Machines Corp. 12,096
COMPUTERS (SOFTWARE & SERVICES) - 4.4%
242,000 *Microsoft Corp. 28,254
ELECTRICAL EQUIPMENT - 5.9%
205,400 Emerson Electric Co. 11,785
170,000 General Electric Co. 26,307
ELECTRONICS (SEMICONDUCTORS) - 2.9%
228,000 Intel Corp. 18,767
ENTERTAINMENT - 3.3%
285,000 The Walt Disney Co. 8,336
179,000 Time Warner, Inc. 12,966
FINANCIAL (DIVERSIFIED) - 4.9%
226,000 Federal Home Loan Mortgage
Corp. 10,636
342,000 Federal National Mortgage
Association 21,354
FOODS - 2.1%
255,000 Bestfoods 13,403
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
HEALTH CARE (DIVERSIFIED) - 9.0%
500,000 Abbott Laboratories $18,156
175,000 American Home Products Corp. 6,902
185,000 Bristol-Myers Squibb Co. 11,875
229,000 Johnson & Johnson 21,326
HEALTH CARE (MAJOR PHARMACEUTICALS) - 2.4%
227,000 Merck & Co., Inc. 15,223
HOUSEHOLD PRODUCTS (NON-DURABLES) - 5.4%
255,000 Kimberly-Clark Corp. 16,639
170,000 Procter & Gamble Co. 18,626
INSURANCE (MULTI-LINE) - 3.5%
140,000 American International
Group, Inc. 15,137
162,000 Hartford Financial Services
Group, Inc. 7,675
MANUFACTURING (DIVERSIFIED) - 3.5%
208,000 Dover Corp. 9,438
200,000 Honeywell
International, Inc. 11,538
28,600 Illinois Tool Works, Inc. 1,932
OFFICE EQUIPMENT & SUPPLIES - 1.1%
315,000 Xerox Corp. 7,147
OIL (INTERNATIONAL INTEGRATED) - 5.1%
255,862 Exxon Mobil Corp. 20,613
205,000 Royal Dutch Petroleum Co.
(ADR) 12,390
PUBLISHING (NEWSPAPERS) - 3.0%
240,000 Gannett Co., Inc. 19,575
RETAIL (DEPARTMENT STORES) - 1.7%
335,000 May Department Stores Co. 10,804
RETAIL (DRUG STORES) - 2.0%
330,000 CVS Corp. 13,179
RETAIL (FOOD CHAINS) - 3.0%
600,000 Albertson's, Inc. 19,350
RETAIL (GENERAL MERCHANDISE) - 1.4%
130,000 Wal-Mart Stores, Inc. 8,986
SAVINGS & LOANS - 3.1%
780,000 Washington Mutual, Inc. 20,280
SERVICES (DATA PROCESSING) - 1.4%
173,000 Automatic Data
Processing, Inc. 9,320
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
TELECOMMUNICATIONS (EQUIPMENT) - 1.7%
150,000 Lucent Technologies, Inc. $11,222
TELECOMMUNICATIONS (LONG DISTANCE) - 2.4%
305,000 AT&T Corp. 15,479
TELEPHONE - 6.4%
257,000 Bell Atlantic Corp. 15,822
235,000 CenturyTel, Inc. 11,133
268,500 *MCI WorldCom, Inc. 14,247
-----------
TOTAL COMMON STOCKS 629,822
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
CASH EQUIVALENTS - 2.7%
INVESTMENT COMPANIES
17,369,385 J.P. Morgan Institutional
Prime Money Market $17,369
-----------
TOTAL CASH EQUIVALENTS 17,369
-----------
TOTAL INVESTMENTS - 99.8% 647,191
Other Assets, less Liabilities (113)
-----------
NET ASSETS $ 647,078
-----------
-----------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST GROWTH PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
While the SAFECO RST Growth Portfolio's 1999 performance was disappointing,
it ended on an encouraging note. In the fourth quarter, the Portfolio
outperformed the S&P 500, returning 18.92% versus 14.88%.
Keeping true to my style--trying to buy growth at a reasonable price--caused
us to underperform as hyper-growth and technology stocks have driven the market.
The Portfolio has never owned much tech (because valuations appear excessive,
competition is intense, and I'm not comfortable with it). Until recently, we've
been able to hold our own, or outperform, without it.
The second reason for our bad (and good) performance is that I take big
positions. In 1999, a number of them disappointed. Family Golf overextended
itself by trying to grow too fast and Prison Realty Trust practiced questionable
disclosure. I've eliminated them both. Conseco--despite a number of positive
moves to enhance shareholder value, including more conservative accounting and
significant insider stock purchasing--has continued to decline. I still like it
and will wait with a reduced position, 4.5% of net assets.
Nu Skin disappointed due to problems in their largest market, Japan. I
neither bought nor sold it, as the stock could work out in a few quarters.
Despite having good operating results and good outlooks, Rent-Way and Rent-A-
Center declined on a sell recommendation that proved unfounded. I used the
weakness to buy more. Both companies operate cash businesses in a growing
market. I cut back AMFM and Emmis Communications at high valuations and invested
the proceeds in lower valued names.
[PHOTO OF THOMAS M. MAGUIRE]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEAR SINCE INCEPTION
<S> <C> <C> <C>
SAFECO RST Growth Portfolio 5.63% 23.69% 23.68%
S&P 500 Index 21.04% 28.54% 21.78%
Lipper, Inc. Variable Annuity Growth Portfolios 31.48% 26.45% N/A
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE SAFECO RST GROWTH PORTFOLIO S&P 500 INDEX
<S> <C> <C>
1/93 $10,000 $10,000
1/93 $10,100 $10,200
2/93 $9,570 $10,339
3/93 $10,160 $10,557
4/93 $9,780 $10,302
5/93 $10,640 $10,577
6/93 $11,000 $10,608
7/93 $11,410 $10,565
8/93 $12,320 $10,965
9/93 $12,950 $10,879
10/93 $13,520 $11,103
11/93 $12,920 $10,998
12/93 $13,608 $11,131
1/94 $14,526 $11,509
2/94 $14,000 $11,197
3/94 $13,485 $10,710
4/94 $13,888 $10,847
5/94 $14,235 $11,024
6/94 $13,798 $10,755
7/94 $14,358 $11,107
8/94 $14,861 $11,562
9/94 $14,772 $11,280
10/94 $15,320 $11,532
11/94 $15,085 $11,113
12/94 $15,230 $11,277
1/95 $15,300 $11,570
2/95 $15,851 $12,020
3/95 $15,828 $12,374
4/95 $16,133 $12,738
5/95 $16,837 $13,247
6/95 $17,905 $13,554
7/95 $18,691 $14,003
8/95 $18,773 $14,038
9/95 $19,841 $14,630
10/95 $20,017 $14,578
11/95 $20,873 $15,217
12/95 $21,474 $15,511
1/96 $21,690 $16,038
2/96 $22,272 $16,187
3/96 $22,880 $16,343
4/96 $24,300 $16,584
5/96 $25,774 $17,011
6/96 $24,855 $17,075
7/96 $22,664 $16,321
8/96 $24,625 $16,666
9/96 $26,085 $17,603
10/96 $26,585 $18,089
11/96 $27,167 $19,455
12/96 $28,358 $19,069
1/97 $30,066 $20,260
2/97 $28,815 $20,419
3/97 $27,755 $19,582
4/97 $26,518 $20,750
5/97 $30,699 $22,012
6/97 $33,085 $22,998
7/97 $35,337 $24,827
8/97 $36,795 $23,437
9/97 $39,813 $24,720
10/97 $38,724 $23,896
11/97 $40,579 $25,001
12/97 $40,993 $25,430
1/98 $41,204 $25,711
2/98 $45,470 $27,564
3/98 $48,875 $28,975
4/98 $50,649 $29,266
5/98 $48,068 $28,764
6/98 $48,208 $29,931
7/98 $45,399 $29,613
8/98 $34,708 $25,336
9/98 $35,779 $26,959
10/98 $38,307 $29,150
11/98 $39,904 $30,916
12/98 $41,742 $32,697
1/99 $42,820 $34,064
2/99 $37,647 $33,006
3/99 $37,333 $34,326
4/99 $38,117 $35,655
5/99 $38,215 $34,814
6/99 $39,665 $36,746
7/99 $38,822 $35,598
8/99 $37,313 $35,421
9/99 $37,078 $34,450
10/99 $38,137 $36,630
11/99 $39,508 $37,377
12/99 $44,094 $39,578
</TABLE>
* The Portfolio's inception was January 7, 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.
- 6 -
<PAGE>
My hope for 2000 is that our performance will continue to trend above the
market as investors come to appreciate the combination of growing earnings and
good value. In the meantime, thank you for your patience. The Portfolio's
long-term record shows that hanging in there may be the best remedy for the
suffering.
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.
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
MICROS Systems, Inc. ............................................ 6.4%
(Computer--Hardware)
Rent-a-Center, Inc. .............................................. 4.9
(Services--Commercial & Consumer)
United Stationers, Inc. .......................................... 4.9
(Office Equipment & Supplies)
NCO Group, Inc. .................................................. 4.8
(Services--Commercial & Consumer)
Intranet Solutions ................................................ 4.5
(Computer--Peripherals)
Conseco, Inc. .................................................... 4.5
(Insurance--Life-Health)
PolyMedica Corp. ................................................. 4.3
(Health Care--Medical Products & Supplies)
AMFM, Inc. ....................................................... 4.0
(Broadcasting--Television, Radio & Cable)
Emisphere Technology, Inc. ....................................... 3.7
(Health Care--Diversified)
Rent-Way, Inc. ................................................... 3.1
(Services--Commercial & Consumer)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Large-Cap: (over $4 billion) 12%
Mid-Cap: ($1 billion-$4 billion) 17%
Small-Cap: (under $1 billion) 69%
Cash & Other: 2%
</TABLE>
- 7 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.6%
AIR FREIGHT - 0.0%
74,000 *Dynamex, Inc. (Illiquid##) $ 111
AUTO PARTS & EQUIPMENT - 0.2%
608,500 +Precision Auto Care, Inc. 685
BANKS (MAJOR REGIONAL) - 0.2%
32,595 Provident Bankshares Corp. 564
BROADCASTING (TV, RADIO & CABLE) - 5.4%
177,554 *AMFM, Inc. 13,894
21,000 *Emmis Communications Corp.
(Class A) 2,617
100,200 *Salem Communications Corp.
(Class A) 2,267
CHEMICALS (SPECIALTY) - 0.2%
72,200 *TETRA Technologies, Inc. 523
COMMUNICATION EQUIPMENT - 1.4%
107,500 *Research In Motion, Ltd. 4,965
COMPUTERS (HARDWARE) - 7.1%
299,400 *MICROS Systems, Inc. 22,156
65,000 *Optimal Robotics Corp. 2,421
COMPUTERS (PERIPHERALS) - 5.1%
425,000 *IntraNet Solutions, Inc. 15,725
124,500 *Quantum Corp. - DLT
& Storage Systems 1,883
COMPUTERS (SOFTWARE & SERVICES) - 4.6%
34,300 *Aspen Technology, Inc. 907
83,527 Autodesk, Inc. 2,819
207,000 *Cadence Design
Systems, Inc. 4,968
200,200 *Ciber, Inc. 5,505
340,000 *Phoenix International
Ltd., Inc. 1,317
50,000 *ShowCase Corp. 288
CONSUMER (JEWELRY, NOVELTIES & GIFTS) - 0.1%
31,300 *Action Performance
Cos., Inc. 360
CONSUMER FINANCE - 1.4%
201,775 *Creditrust Corp. 1,551
171,000 Doral Financial Corp. 2,105
287,800 *Towne Services, Inc. 1,151
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
DISTRIBUTORS (FOOD & HEALTH) - 2.3%
737,200 *Nu Skin Enterprises, Inc.
(Class A) $ 6,681
367,160 *Weider Nutrition
International, Inc. 1,354
ENTERTAINMENT - 1.7%
160,000 *SFX Entertainment, Inc.
(Class A) 5,790
FINANCIAL (DIVERSIFIED) - 1.3%
122,800 *BNC Mortgage, Inc. 798
100,000 Finova Group, Inc. 3,550
96,900 *United Panam Financial
Corp. 188
HEALTH CARE (DIVERSIFIED) - 4.8%
198,000 *Anesta Corp. 3,403
430,400 *Emisphere
Technologies, Inc. 12,939
21,000 *Synaptic Pharmaceutical
Corp. 142
HEALTH CARE (DRUGS - GENERIC & OTHER) - 2.1%
362,000 *Dura Pharmaceuticals, Inc. 5,045
464,000 +Nastech Pharmaceutical
Co., Inc. 1,566
37,300 *PathoGenesis Corp. 800
HEALTH CARE (HOSPITAL MANAGEMENT) - 0.2%
103,917 *AmSurg Corp. (Class B) 675
HEALTH CARE (LONG-TERM CARE) - 0.9%
239,900 *Res-Care, Inc. 3,059
HEALTH CARE (MAJOR PHARMACEUTICALS) - 4.4%
63,300 Alpharma, Inc. 1,946
148,600 Mylan Laboratories, Inc. 3,743
868,500 *Serologicals Corp. 5,211
58,281 Teva Pharmaceutical
Industries,
Ltd. (ADR) 4,178
HEALTH CARE (MANAGED CARE) - 0.1%
65,000 *Matria Healthcare, Inc. 268
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 8.0%
140,400 Datascope Corp. 5,616
247,100 *Lifeline Systems, Inc. 3,706
649,400 +PolyMedica
Industries, Inc. 15,017
477,900 *Quidel Corp. 3,286
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
HEALTH CARE (SPECIALIZED SERVICES) - 1.1%
214,000 *American Healthcorp, Inc. $ 976
318,850 *Prime Medical
Services, Inc. 2,910
HOUSEWARES - 0.9%
117,800 First Years, Inc. 979
200,600 *Home Products
International,
Inc. 2,081
INSURANCE (LIFE & HEALTH) - 4.5%
870,637 Conseco, Inc. 15,563
LEISURE TIME (PRODUCTS) - 0.1%
161,300 *American Coin
Merchandising,
Inc. 444
LODGING (HOTELS) - 1.3%
172,200 *ResortQuest
International, Inc. 721
734,900 *Suburban Lodges of America,
Inc. 3,812
MACHINERY (DIVERSIFIED) - 0.2%
143,150 Chart Industries, Inc. 573
MANUFACTURING (DIVERSIFIED) - 0.7%
86,900 *Nortek, Inc. 2,433
OFFICE EQUIPMENT & SUPPLIES - 6.1%
331,900 +Open Plan Systems, Inc. 664
570,850 +TRM Copy Centers Corp. 3,496
595,100 *United Stationers, Inc. 16,998
PERSONAL CARE - 0.4%
211,700 *French Fragrances, Inc. 1,363
RESTAURANTS - 0.2%
96,400 *Schlotzsky's, Inc. 639
RETAIL (DEPARTMENT STORES) - 0.7%
51,700 *Rainbow Rentals, Inc, 372
27,000 *Value City Department
Stores, Inc. 408
43,100 *Whitehall Jewellers, Inc. 1,589
RETAIL (DRUG STORES) - 1.1%
93,000 CVS Corp. 3,714
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
RETAIL (FOOD CHAINS) - 0.6%
266,800 *NPC International, Inc. $ 2,101
RETAIL (HOME SHOPPING) - 1.9%
412,200 +Damark International, Inc. 6,492
RETAIL (SPECIALTY) - 1.4%
172,600 *Blue Rhino Corp. 1,683
165,100 *Funco, Inc. 1,847
115,500 *Travis Boats &
Motors, Inc. 1,386
RETAIL (SPECIALTY - APPAREL) - 1.6%
435,200 +Concepts Direct, Inc. 4,733
219,071 *Harold's Stores, Inc. 822
SERVICES (COMMERCIAL & CONSUMER) - 17.8%
64,600 *Bluegreen Corp. 323
177,600 Central Parking Corp. 3,397
278,500 *FirstService Corp. 3,812
148,400 *Iron Mountain, Inc. 5,834
39,000 *Modis Professional
Services,
Inc. 556
546,392 *NCO Group, Inc. 16,460
52,200 *Pierce Leahy Corp. 2,258
859,850 *Rent-A-Center, Inc. 17,036
579,000 *Rent-Way, Inc. 10,820
66,700 *Right Management
Consultants, Inc. 767
103,400 SunSource, Inc. 439
SERVICES (COMPUTER SYSTEMS) - 0.8%
165,000 *Computer Horizons Corp. 2,671
SERVICES (EMPLOYMENT) - 2.1%
340,600 *Hall, Kinion &
Associates, Inc. 7,323
SPECIALTY PRINTING - 2.0%
509,800 *Mail-Well, Inc. 6,882
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 0.7%
243,900 *CellStar Corp. 2,409
TELEPHONE - 0.9%
234,700 *Innotrac Corp. 3,227
-----------
TOTAL COMMON STOCKS 340,756
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 9 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
CASH EQUIVALENTS - 2.0%
INVESTMENT COMPANIES
7,057,311 J.P. Morgan Institutional
Prime Money Market $ 7,057
-----------
TOTAL CASH EQUIVALENTS 7,057
-----------
TOTAL INVESTMENTS - 100.6% 347,813
Other Assets, less Liabilities (2,088)
-----------
NET ASSETS $ 345,725
-----------
-----------
</TABLE>
* Non-income producing security.
+ Affiliated issuer as defined by the Investment Company Act of 1940 (the Fund
controls 5% or more of the outstanding voting shares of the company).
## Security is valued at fair value as determined by, and under the supervision
of, the Board of Trustees.
SEE NOTES TO FINANCIAL STATEMENTS
- 10 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST NORTHWEST PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ending December 31, 1999, the SAFECO RST Northwest Portfolio
handily outperformed the Lipper Inc. average for variable annuity growth
portfolios and the S&P 500. The Portfolio's outperformance is due to its heavy
concentration in technology, initial public offerings (IPOs), and its investing
universe.
Technology has surpassed aerospace as the driver of Washington's economy and
is the clear driver of the region's economy, and I've positioned the Portfolio
to take advantage of that. At December 31, 54% of net assets were in
telecommunications, medical technology and computer-related companies. Gaining
over 200% were F5 Networks, Western Wireless, NEXTLINK, VoiceStream and
SonoSite. They are respectively an Internet software company, three telecoms and
a medical technology company.
We've been very successful taking small positions in numerous start-ups. At
December 31, about 19% of net assets were invested in 11 1999 IPO companies,
including F5 Networks, WebTrends, Internap Network Services, WatchGuard and
Primus Knowledge Solutions. In general, I give preference to companies that
enable, rather than use, the Internet.
I've been buying Visio (diagramming software) since its acquisition was
announced, as Visio's value will benefit upon conversion to Microsoft stock. TJ
International (manufactured wood products) climbed on news of its takeover by
Weyerhaeuser.
To balance our tech concentration, I'm holding substantial positions in
Kroger (Fred Meyer and QFC), Costco, Albertson's, Starbucks and Washington
Mutual. I like their defensive qualities and their prices. Even though I am
managing in a growth style, I remain sensitive to value and risk.
[PHOTO OF BILL WHITLOW]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEAR SINCE INCEPTION
<S> <C> <C> <C>
SAFECO RST Norwest Portfolio 54.62% 20.28% 14.77%
S&P 500 Index 21.04% 28.54% 21.78%
WM Group NW 50 Index 27.80% 28.51% N/A
Lipper, Inc. Variable Annuity Growth Portfolios 31.48% 26.45% N/A
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE
<S> <C> <C> <C>
SAFECO RST NORTHWEST PORTFOLIO S&P 500 INDEX NW 50
1/93 $10,000 $10,000 $10,000
1/93 $10,080 $10,200 $10,142
2/93 $9,460 $10,339 $9,812
3/93 $9,710 $10,557 $10,204
4/93 $9,400 $10,302 $9,962
5/93 $9,640 $10,577 $10,195
6/93 $9,550 $10,608 $9,962
7/93 $9,500 $10,565 $9,592
8/93 $9,700 $10,965 $9,972
9/93 $9,800 $10,879 $9,734
10/93 $9,920 $11,103 $10,069
11/93 $9,980 $10,998 $10,272
12/93 $10,025 $11,131 $10,395
1/94 $10,227 $11,509 $10,697
2/94 $10,580 $11,197 $10,845
3/94 $10,297 $10,710 $10,449
4/94 $10,247 $10,847 $10,405
5/94 $10,136 $11,024 $10,548
6/94 $9,995 $10,755 $10,214
7/94 $10,166 $11,107 $10,278
8/94 $10,610 $11,562 $10,857
9/94 $10,620 $11,280 $10,427
10/94 $10,731 $11,532 $10,350
11/94 $10,479 $11,113 $10,150
12/94 $10,391 $11,277 $10,192
1/95 $10,178 $11,570 $10,148
2/95 $10,340 $12,020 $10,509
3/95 $10,746 $12,374 $10,842
4/95 $10,767 $12,738 $11,155
5/95 $10,898 $13,247 $11,143
6/95 $11,446 $13,554 $11,807
7/95 $12,136 $14,003 $12,241
8/95 $12,390 $14,038 $12,461
9/95 $12,167 $14,630 $12,903
10/95 $11,873 $14,578 $12,589
11/95 $11,609 $15,217 $12,760
12/95 $11,162 $15,511 $12,899
1/96 $11,131 $16,038 $12,816
2/96 $11,440 $16,187 $13,097
3/96 $12,068 $16,343 $13,517
4/96 $12,366 $16,584 $14,314
5/96 $12,551 $17,011 $14,531
6/96 $12,294 $17,075 $14,453
7/96 $11,800 $16,321 $13,728
8/96 $12,119 $16,666 $14,393
9/96 $12,304 $17,603 $14,750
10/96 $11,996 $18,089 $14,632
11/96 $12,489 $19,455 $15,675
12/96 $12,551 $19,069 $16,026
1/97 $13,421 $20,260 $16,725
2/97 $13,400 $20,419 $17,020
3/97 $12,851 $19,582 $16,533
4/97 $13,235 $20,750 $17,255
5/97 $14,073 $22,012 $18,652
6/97 $14,871 $22,998 $19,516
7/97 $16,186 $24,827 $21,279
8/97 $15,761 $23,437 $20,572
9/97 $16,549 $24,720 $21,993
10/97 $15,772 $23,896 $20,521
11/97 $16,569 $25,001 $21,748
12/97 $16,445 $25,430 $21,238
1/98 $16,250 $25,711 $21,138
2/98 $17,906 $27,564 $23,280
3/98 $18,035 $28,975 $24,370
4/98 $18,511 $29,266 $24,554
5/98 $17,137 $28,764 $23,072
6/98 $17,505 $29,931 $24,498
7/98 $16,467 $29,613 $22,979
8/98 $13,188 $25,336 $19,295
9/98 $13,946 $26,959 $20,185
10/98 $14,833 $29,150 $22,420
11/98 $16,131 $30,916 $24,964
12/98 $16,921 $32,697 $27,946
1/99 $17,970 $34,064 $29,343
2/99 $17,278 $33,006 $28,906
3/99 $17,505 $34,326 $30,930
4/99 $17,895 $35,655 $32,158
5/99 $18,695 $34,814 $32,199
6/99 $20,134 $36,746 $33,689
7/99 $19,691 $35,598 $31,106
8/99 $19,723 $35,421 $31,009
9/99 $19,474 $34,450 $30,378
10/99 $21,497 $36,630 $31,958
11/99 $23,272 $37,377 $32,478
12/99 $26,164 $39,578 $35,716
</TABLE>
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.
* The Portfolio's inception was January 7, 1993.
- 11 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I believe the Northwest economy will outpace the nation's beyond 2000. Some
of America's fastest-growing companies are headquartered here, and I have tried
to position the SAFECO Northwest Portfolio to take advantage of them.
Bill Whitlow
- -------------------------------------------
William B. Whitlow began his career at SAFECO in 1976 and left in 1980. Before
re-joining SAFECO in April 1997 as Northwest Fund Manager, he was Director of
Research at Pacific Crest Securities. He holds a B.A. in chemistry from the U.
of Colorado and an M.B.A. from the U. of Calif. at Berkeley. He is a CFA and a
member of the Washington State Governor's Council of Economic Advisors.
HIGHLIGHTS
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
Microsoft Corp. .................................................. 5.4%
(Computer--Software & Services)
Visio Corp. ....................................................... 4.8
(Computer--Software & Services)
VoiceStream Wireless Corp. ........................................ 4.6
(Telecommunications--Cellular/Wireless)
TJ International, Inc. ............................................ 3.5
(Building Materials)
NEXTLINK Communications, Inc
(Class A) ........................................................ 3.5
(Telephone)
Hewlett-Packard Co. ............................................... 3.4
(Computer--Hardware)
Expeditors International of
Washington, Inc. ................................................ 3.3
(Air Freight)
Internap Network Services Corp. ................................... 3.2
(Computer--Software & Services)
Costco Companies, Inc. ............................................ 3.1
(Retail--General Merchandise)
Intel Corp. ....................................................... 3.0
(Electronics--Semiconductors)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Large-Cap: (over $4 billion) 40%
Mid-Cap: ($1 billion-$4 billion) 17%
Small-Cap: (under $1 billion) 41%
Cash & Other: 2%
</TABLE>
- 12 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 98.3%
AIR FREIGHT - 3.3%
36,000 Expeditors International of
Washington, Inc. $ 1,577
AIRLINES - 1.4%
30,000 *Northwest Airlines Corp. 667
BANKS (MAJOR REGIONAL) - 2.5%
33,092 U.S. Bancorp 788
30,250 West Coast Bancorp, Inc. 408
BANKS (REGIONAL) - 1.2%
32,500 Heritage Financial Corp. 280
33,000 Washington Banking Co. 272
BIOTECHNOLOGY - 1.6%
46,500 *Corixa Corp. 791
BUILDING MATERIALS - 3.5%
40,000 TJ International, Inc. 1,680
CHEMICALS (DIVERSIFIED) - 2.2%
62,000 Penford Corp. 1,069
COMMUNICATION EQUIPMENT - 1.2%
61,300 *GST Telecommunications,
Inc. 556
COMPUTERS (HARDWARE) - 5.1%
23,900 *Apex, Inc. 771
14,500 Hewlett-Packard Co. 1,652
COMPUTERS (PERIPHERALS) - 5.4%
26,000 *ImageX.com, Inc. 1,089
16,500 *Primus Knowledge
Solutions, Inc. 748
24,100 *WatchGuard
Technologies, Inc. 729
COMPUTERS (SOFTWARE & SERVICES) - 18.9%
4,600 *Digimarc Corp. 230
5,000 *F5 Networks, Inc. 570
8,800 *Internap Network
Services Corp. 1,522
22,200 *Microsoft Corp. 2,592
28,000 *ONYX Software Corp. 1,036
48,000 *Visio Corp. 2,280
10,000 *WebTrends Corp. 810
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
ELECTRONICS (SEMICONDUCTORS) - 3.0%
17,500 Intel Corp. $ 1,440
ENGINEERING & CONSTRUCTION - 1.0%
61,000 *Morrison Knudsen Corp. 477
HARDWARE & TOOLS - 1.0%
64,000 *Jore Corporation 500
HEALTH CARE (DIVERSIFIED) - 1.5%
18,000 American Home Products Corp. 710
HEALTH CARE (DRUGS - GENERIC & OTHER) - 1.2%
26,000 *PathoGenesis Corp. 557
HEALTH CARE (LONG-TERM CARE) - 1.3%
104,000 *Assisted Living
Concepts, Inc. 215
62,000 *Emeritus Corp. 403
HEALTH CARE (MAJOR PHARMACEUTICALS) - 4.7%
50,000 Mylan Laboratories, Inc. 1,259
65,000 *Penwest Pharmaceuticals Co. 991
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES - 3.8%
99,000 *Protocol Systems, Inc. 891
29,000 *SonoSite, Inc. 917
INSURANCE (LIFE & HEALTH) - 2.1%
40,000 StanCorp Financial
Group, Inc. 1,008
IRON & STEEL - 1.9%
48,000 Schnitzer Steel
Industries, Inc. 912
LEISURE TIME (PRODUCTS) - 1.0%
46,000 *Ambassadors
International, Inc. 503
LODGING (HOTELS) - 1.2%
69,000 *Cavanaughs Hospitality
Corp. 569
RESTAURANTS - 2.8%
56,000 *Starbucks Corp. 1,358
RETAIL (FOOD CHAINS) - 5.6%
43,500 Albertson's, Inc. 1,403
67,000 *Kroger Co. 1,265
RETAIL (GENERAL MERCHANDISE) - 3.1%
16,500 *Costco Companies, Inc. 1,506
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 13 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
SAVINGS & LOANS - 2.8%
27,000 Riverview Bancorp, Inc. $ 262
41,500 Washington Mutual, Inc. 1,079
SERVICES (COMMERCIAL & CONSUMER) - 1.7%
35,500 *N2H2, Inc. 834
SERVICES (DATA PROCESSING) - 2.5%
100,000 *ARIS Corp. 1,175
TELECOMMUNICATIONS (CELLULAR/WIRELESS) - 6.2%
15,500 *VoiceStream Wireless Corp. 2,206
11,500 *Western Wireless Corp.
(Class A) 768
TELEPHONE - 3.5%
20,000 *NEXTLINK
Communications, Inc.
(Class A) 1,661
-----------
TOTAL COMMON STOCKS 46,986
-----------
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
CASH EQUIVALENTS - 2.9%
INVESTMENT COMPANIES
1,403,127 J.P. Morgan Institutional
Prime Money Market $ 1,403
-----------
TOTAL CASH EQUIVALENTS 1,403
-----------
TOTAL INVESTMENTS - 101.2% 48,389
Other Assets, less Liabilities (465)
-----------
NET ASSETS $ 47,924
-----------
-----------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 14 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST SMALL COMPANY STOCK PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year 1999, the SAFECO RST Small Company Stock Portfolio lagged the
Lipper, Inc. average for small-cap variable annuity portfolios and the Russell
2000.
In the first half of the year, a few of our stocks were punished for earnings
disappointments and a number of our holdings simply went unnoticed. Our
value-oriented portfolio languished, as this year's market favored growth
stocks. In the last half of the year we increased our average market
capitalization and reconfigured our portfolio. We took advantage of a very hot
initial public offering (IPO) market, several of our long-held positions started
to work and so did new ones I'd taken to increase the Portfolio's price/earnings
ratio. In addition, Vallen, a stock I held through the Portfolio's
reconfiguration, was bought out for significant gain. Although we did stage a
comeback and finish 1999 with gains, we were not able to match the returns of
our peer group for the year.
We benefited as the stock market rewarded hot new tech issues with
unreasonably high first-day gains. Except for a few, we quickly sold the IPOs we
participated in.
Long-time holdings MICROS Systems and Optimal Robotics turned from value to
growth stocks. MICROS was up 83% during the fourth quarter on anticipation
surrounding the spin-off of its Internet reservation system. Optimal Robotics'
self-service checkout systems became profitable, and the stock climbed 166%
during the year.
Anything associated with the Internet did well. I let N2H2, an Internet
filtering service used by schools, run from 10 to 28, and then cut our position
back to around 1.2%. I bought BEA Systems (e-commerce software) at a reasonable
price and by year-end it was a momentum stock. Emmis Communications, our best
non-tech performer, gained on e-commerce advertising revenue.
[PHOTO OF GREG EISEN]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED DECEMBER 31, 1999 1 YEAR SINCE INCEPTION
<S> <C> <C>
SAFECO RST Small Company Stock Portfolio 15.40% 6.60%
Russell 2000 Index 21.13% 17.13%
Lipper, Inc. Variable Annuity Small-Cap Portfolios 38.28% N/A
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE SAFECO RST SMALL COMPANY PORTFOLIO: RUSSELL 2000 INDEX
<S> <C> <C>
04/97 $10,000 $10,000
05/97 $10,680 $11,115
06/97 $11,230 $11,587
07/97 $12,010 $12,128
08/97 $12,240 $12,402
09/97 $13,450 $13,307
10/97 $12,920 $12,716
11/97 $12,840 $12,629
12/97 $12,840 $12,856
01/98 $12,757 $12,660
02/98 $14,006 $13,609
03/98 $15,495 $14,181
04/98 $16,162 $14,259
05/98 $15,443 $13,494
06/98 $15,100 $13,533
07/98 $13,506 $12,428
08/98 $9,549 $10,018
09/98 $9,997 $10,794
10/98 $9,726 $11,236
11/98 $9,893 $11,830
12/98 $10,278 $12,568
01/99 $10,611 $12,734
02/99 $9,955 $11,708
03/99 $9,414 $11,888
04/99 $9,331 $12,952
05/99 $9,404 $13,144
06/99 $9,622 $13,734
07/99 $9,789 $13,355
08/99 $9,341 $12,864
09/99 $9,372 $12,864
10/99 $9,424 $12,921
11/99 $10,664 $13,705
12/99 $11,861 $15,257
</TABLE>
* The Portfolio's inception was May 1, 1997.
Performance information begins on May 1, 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 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.
- 15 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The IPO market was unusually active and can't be counted on for future gains.
However, I will try to participate as long as it remains lucrative, while
remaining wary of valuations which, I believe, will eventually take precedence.
At year-end, the Portfolio's P/E had climbed from 13 times at mid-year to nearly
22 times 1999 earnings, and its weighted market capitalization grew from $330
million at mid-year to $835 million. We remain in the small-cap value camp.
Greg Eisen
- -------------------------------------------
Greg Eisen joined SAFECO in 1986. He holds a B.A. from Rutgers University and is
a Certified Public Accountant and a Chartered Financial Analyst.
HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- ------------------------------------------------------------------------
<S> <C>
MICROS Systems, Inc. ............................................. 4.9%
(Computers--Hardware)
Optimal Robotics, Corp. ........................................... 4.3
(Computers--Hardware)
Imax Corp. ........................................................ 3.7
(Manufacturing Specialized)
Bea Systems, Inc. ................................................. 3.5
(Computer--Software & Services)
International Aircraft Investors, Inc. ............................ 3.3
(Aerospace/Defense)
Emmis Communications Corp. ........................................ 3.3
(Broadcasting--Television, Radio & Cable)
US Foodservice, Inc. .............................................. 2.9
(Distributors--Food & Health)
Regis Corp. ....................................................... 2.8
(Retail--Specialty)
Timberline Software Corp. ......................................... 2.7
(Computers--Software & Services)
ACT Manufacturing .................................................. 2.6
(Electronics--Component Distributors)
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MARKET CAPITALIZATION
AS A PERCENTAGE OF NET ASSETS
<S> <C>
Small-Cap:
Large (over $750 million) 4%
Medium ($250-$750 million) 44%
Small (under $250 million) 21%
Mid-Cap: ($1 billion-$4 billion) 26%
Large-Cap: (over $4 billion) 0%
Cash & Other: 5%
</TABLE>
- 16 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SMALL COMPANY STOCK PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 95.2%
AEROSPACE/DEFENSE - 3.3%
73,950 *International Aircraft
Investors, Inc. $ 462
AIR FREIGHT - 1.8%
7,800 Air Express International
Corp. 252
AIRLINES - 2.1%
10,600 SkyWest, Inc. 297
BANKS (REGIONAL) - 1.7%
16,148 *Hanmi Bank (Los Angeles,
CA) 242
BROADCASTING (TV, RADIO & CABLE) - 5.2%
3,700 *Emmis Communications Corp.
(Class A) 461
11,700 *Salem Communications Corp.
(Class A) 265
COMPUTERS (HARDWARE) - 9.5%
1,000 *Apex, Inc. 32
9,300 *MICROS Systems, Inc. 688
16,400 *Optimal Robotics Corp. 611
COMPUTERS (PERIPHERALS) - 3.8%
4,400 *Circle.com 54
400 *Egreetings Network, Inc. 4
8,400 *GRIC Communications, Inc. 213
5,500 *Integrated Measurement
Systems,
Inc. 78
4,200 *Primus Knowledge
Solutions, Inc. 190
COMPUTERS (SOFTWARE & SERVICES) - 11.3%
7,000 *BEA Systems, Inc. 490
500 *BSQUARE Corp. 21
13,000 *Ciber, Inc. 357
1,400 *Digimarc Corp. 70
17,700 *ITT Educational
Services, Inc. 273
28,600 Timberline Software Corp. 384
DISTRIBUTORS (FOOD & HEALTH) - 2.9%
24,000 *U.S. Foodservice 402
ELECTRONICS (COMPONENT DISTRIBUTORS) - 2.6%
9,800 *ACT Manufacturing, Inc. 367
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
ENGINEERING & CONSTRUCTION - 2.1%
15,600 *Astec Industries, Inc. $ 293
FINANCIAL (DIVERSIFIED) - 1.5%
17,300 *Hawthorne Financial Corp. 216
HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) - 2.1%
9,300 *SonoSite, Inc. 294
INSURANCE (PROPERTY-CASUALTY) - 1.8%
38,400 *American Safety Insurance
Group, Ltd. 252
MANUFACTURING (SPECIALIZED) - 3.7%
18,800 *Imax Corp. 515
OIL & GAS (DRILLING & EQUIPMENT) - 4.7%
11,500 *Marine Drilling Co., Inc 258
7,600 *Rowan Companies, Inc. 165
10,000 *UTI Energy Corp. 231
OIL & GAS (EXPLORATION & PRODUCTION) - 0.5%
4,000 *Chieftain
International, Inc. 69
REAL ESTATE INVESTMENT TRUST - 0.9%
3,900 Alexandria Real Estate
Equities, Inc. 124
RESTAURANTS - 2.3%
40,100 *Taco Cabana, Inc.
(Class A) 326
RETAIL (DEPARTMENT STORES) - 1.5%
24,500 *Musicland Stores Corp. 207
RETAIL (DISCOUNTERS) - 1.1%
28,700 *OfficeMax, Inc. 158
RETAIL (DRUG STORES) - 1.8%
56,000 *Drug Emporium, Inc. 248
RETAIL (FOOD CHAINS) - 1.5%
18,300 Ingles Markets, Inc. 204
RETAIL (SPECIALTY) - 2.8%
20,600 Regis Corp. 389
SERVICES (ADVERTISING/MARKETING) - 2.8%
17,600 *Snyder
Communications, Inc. 339
5,866 *Ventiv Health, Inc. 54
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 17 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
SMALL COMPANY STOCK PORTFOLIO
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
SERVICES (COMMERCIAL & CONSUMER) - 10.4%
16,850 Central Parking Corp. $ 322
12,900 *Dollar Thrifty Automotive
Group, Inc. 309
7,200 *N2H2, Inc. 169
14,950 *Rent-A-Center, Inc. 296
19,300 *Rent-Way, Inc. 361
TEXTILES (APPAREL) - 1.5%
14,100 *Cutter & Buck, Inc. 213
TRUCKING - 6.0%
7,000 *Landstar System, Inc. 300
24,600 Rollins Truck Leasing Corp. 294
14,000 *Swift Transportation
Co., Inc. 247
WASTE MANAGEMENT - 2.0%
12,700 Landauer, Inc. 278
-----------
TOTAL COMMON STOCKS 13,344
-----------
PREFERRED STOCKS - 1.7%
ELECTRIC COMPANIES - 0.9%
1,700 Massachusetts Electric Co. 122
</TABLE>
<TABLE>
<CAPTION>
VALUE
SHARES (000'S)
- ---------------------------------------------------------
<C> <S> <C>
ENTERTAINMENT - 0.8%
18,100 *Craig Corp. (Class A) $ 113
-----------
TOTAL PREFERRED STOCKS 235
-----------
CASH EQUIVALENTS - 9.8%
FINANCIAL (DIVERSIFIED)
680,000 PHH Corporation 7.00%,
due 1/10/00 679
INVESTMENT COMPANIES
704,589 J.P. Morgan Institutional
Prime Money Market 705
-----------
TOTAL CASH EQUIVALENTS 1,384
-----------
TOTAL INVESTMENTS - 106.7% 14,963
Other Assets, less Liabilities (909)
-----------
NET ASSETS $ 14,054
-----------
-----------
</TABLE>
* Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS
- 18 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST BOND PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The performance of the RST Bond Portfolio continued to lag Lehman Brothers
Government/ Corporate Index for the fourth quarter with returns of -0.68% versus
- -0.41%. However, 1999 was the worst year for the bond market since 1994, and the
only other year to post a negative annual return since 1973.
Most of the Portfolio's underperformance in the year occurred during the
first half of 1999--when I was optimistic. I thought economic growth would slow,
inflation would remain low and bonds would be stable, and had positioned the
portfolio accordingly. Consequently, the duration (sensitivity to changes in
interest rates) of the portfolio was too high.
The strength of the global economic recovery fueled domestic demand and added
to our own economic growth. A reversal of the late 1998 flight to quality
(demand for the safety of U.S. Treasuries) caused a sharp increase in yields and
volatility in the market. Finally, even though actual inflation fell, fears of
inflation caused the market to act as though inflation were rising.
About halfway through the year, in order to soften the blow of increasing
economic growth and higher interest rates, I reduced the portfolio's duration
and increased its yield. As a result, our relative and absolute performance
improved.
I intend to maintain the Portfolio's defensive posture until we have concrete
signs that higher interest rates are finally slowing the economy. In the
meantime, I see robust growth prompting the Federal Reserve to "tap on the
brakes" with a couple of rate increases. This
[PHOTO OF MICHAEL HUGHES]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
SAFECO RST Bond Portfolio -3.99% 6.08% 6.46%
Lehman Government/Corporate Index -2.15% 7.61% 7.65%
Lipper, Inc. Variable Annuity General Bond Portfolios 0.79% 7.84% 7.42%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE SAFCO RST BOND PORTFOLIO LEHMAN G/C INDEX
<S> <C> <C>
12/31/89 $10,000 $10,000
1/31/90 9,931 9,863
2/28/90 9,971 9,885
3/31/90 10,000 9,886
4/30/90 9,951 9,794
5/31/90 10,157 10,079
6/30/90 10,275 10,242
7/31/90 10,403 10,369
8/31/90 10,363 10,219
9/30/90 10,383 10,304
10/31/90 10,472 10,440
11/30/90 10,599 10,667
12/31/90 10,657 10,828
1/31/91 10,731 10,950
2/28/91 10,826 11,044
3/31/91 10,900 11,120
4/30/91 11,027 11,248
5/31/91 11,111 11,301
6/30/91 11,079 11,288
7/31/91 11,217 11,430
8/31/91 11,428 11,693
9/30/91 11,597 11,938
10/31/91 11,734 12,044
11/30/91 11,840 12,164
12/31/91 12,147 12,575
1/31/92 12,069 12,388
2/29/92 12,069 12,454
3/31/92 11,990 12,386
4/30/92 12,080 12,460
5/31/92 12,282 12,701
6/30/92 12,462 12,888
7/31/92 12,755 13,217
8/31/92 12,845 13,335
9/30/92 13,103 13,517
10/31/92 12,845 13,311
11/30/92 12,766 13,299
12/31/92 12,976 13,528
1/31/93 13,264 13,822
2/28/93 13,552 14,109
3/31/93 13,624 14,157
4/30/93 13,732 14,266
5/31/93 13,708 14,258
6/30/93 13,960 14,582
7/31/93 14,020 14,675
8/31/93 14,343 15,012
9/30/93 14,427 15,064
10/31/93 14,499 15,126
11/30/93 14,271 14,955
12/31/93 14,345 15,020
1/31/94 14,551 15,246
2/28/94 14,190 14,915
3/31/94 13,893 14,550
4/30/94 13,803 14,429
5/31/94 13,803 14,403
6/30/94 13,790 14,369
7/31/94 13,958 14,656
8/31/94 14,009 14,662
9/30/94 13,880 14,440
10/31/94 13,880 14,424
11/30/94 13,867 14,398
12/31/94 13,924 14,493
1/31/95 14,115 14,772
2/28/95 14,347 15,114
3/31/95 14,429 15,215
4/30/95 14,620 15,428
5/31/95 15,166 16,074
6/30/95 15,289 16,203
7/31/95 15,180 16,140
8/31/95 15,385 16,347
9/30/95 15,549 16,513
10/31/95 15,808 16,755
11/30/95 16,122 17,031
12/31/95 16,413 17,282
1/31/96 16,456 17,390
2/29/96 16,064 17,021
3/31/96 15,905 16,878
4/30/96 15,890 16,762
5/31/96 15,919 16,734
6/30/96 16,035 16,957
7/31/96 16,079 16,997
8/31/96 16,108 16,955
9/30/96 16,268 17,256
10/31/96 16,456 17,659
11/30/96 16,659 17,984
12/31/96 16,501 17,784
1/31/97 16,547 17,805
2/28/97 16,501 17,842
3/31/97 16,302 17,630
4/30/97 16,501 17,888
5/31/97 16,624 18,055
6/30/97 16,823 18,272
7/31/97 17,299 18,831
8/31/97 17,100 18,619
9/30/97 17,376 18,912
10/31/97 17,652 19,215
11/30/97 17,668 19,316
12/31/97 17,889 19,519
1/31/98 18,197 19,794
2/28/98 18,132 19,754
3/31/98 18,180 19,815
4/30/98 18,245 19,914
5/31/98 18,472 20,128
6/30/98 18,667 20,333
7/31/98 18,650 20,349
8/31/98 19,088 20,747
9/30/98 19,590 21,340
10/31/98 19,380 21,190
11/30/98 19,412 21,316
12/31/98 19,482 21,368
1/31/99 19,584 21,520
2/28/99 19,055 21,008
3/31/99 19,123 21,113
4/30/99 19,157 21,165
5/31/99 18,884 20,947
6/30/99 18,747 20,881
7/31/99 18,679 20,824
8/31/99 18,645 20,807
9/30/99 18,833 20,994
10/31/99 18,850 21,049
11/30/99 18,833 21,037
12/31/99 18,705 20,909
</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.
- 19 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
should result in slightly higher interest rates, a flatter or possibly inverted
yield curve and, finally, a slower economy.
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 M.B.A. from the University
of Southern California in Los Angeles. He is a Chartered Financial Analyst.
HIGHLIGHTS
- -------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
TEN LARGEST HOLDINGS NET ASSETS
- ----------------------------------------------
<S> <C>
U.S. Treasury Note, 7.50%, due
11/15/16 ............................. 18.9%
U.S. Treasury Note, 5.375%, due
6/30/00 ................................ 7.2
US Treasury Note, 5.875%, due 9/30/02 .... 4.1
Ford Motor Credit Co., 7.375,
due 10/28/09 ........................... 3.1
GNMA (Pool 467760), 7.00%, due 4/15/28 ... 3.1
Citicorp Mortgage Security, 6.50%,
due 6/25/29 ........................... 2.8
National Fuel Gas Co., 6.00%, due
3/01/09 ................................ 2.8
FNMA (Pool 313386), 7.00%, due 3/01/12 ... 2.8
Hertz Corp., 7.00%, due 7/01/04 .......... 2.7
US Treasury Note, 4.25%, due 11/15/03 .... 2.6
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PORTFOLIO CREDIT QUALITY
AS A PERCENTAGE OF NET ASSETS
<S> <C>
AAA/U.S. Gov't/Agency 68%
AA 7%
A 23%
Cash and Other Assets 2%
</TABLE>
- 20 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
BOND PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
ASSET BACKED SECURITIES - 9.8%
ELECTRIC COMPANIES - 1.6%
$485 ComEd Transitional Funding
Trust 5.63%, due 6/25/09 $ 449
FINANCIAL (DIVERSIFIED) - 6.9%
29 Chevy Chase Auto Receivables
Trust (Class A)
6.60%, due 12/15/02 29
888 Citicorp Mortgage
Securities,
Inc.
6.50%, due 6/25/29 796
570 First USA Credit Card Master
Trust 5.28%, due 9/18/06 537
575 Fleet Credit Card Master
6.90%, due 4/16/07 573
TRUCKING - 1.3%
360 Ryder Vehicle Lease
6.89%, due 4/15/05 357
-----------
TOTAL ASSET BACKED SECURITIES 2,741
-----------
CORPORATE BONDS - 29.6%
AIR FREIGHT - 2.6%
775 Federal Express Corp.
6.845%, due 1/15/19 721
BANKS (MAJOR REGIONAL) - 1.6%
460 Bank of America Corp.
6.625%, due 6/15/04 449
CANADIAN PROVINCES - 0.9%
250 Manitoba (Province)
7.75%, due 2/01/02 249
ELECTRIC COMPANIES - 2.0%
545 Central Power & Light Co.
7.50%, due 12/01/02 550
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
FINANCIAL (DIVERSIFIED) - 10.9%
$725 CIT Group, Inc.
5.57%, due 12/08/03 $ 683
895 Ford Motor Credit Co.
7.375%, due 10/28/09 884
300 General Motors Acceptance
Corp.
5.95%, due 3/14/03 289
755 Hertz Corp.
7.00%, due 7/01/04 746
535 Sears Roebuck Acceptance
Corp.
6.25%, due 5/01/09 471
MANUFACTURING (DIVERSIFIED) - 2.3%
675 Tyco International Group SA
6.375%, due 6/15/05 633
NATURAL GAS - 2.8%
905 National Fuel Gas Co.
6.00%, due 3/01/09 795
PUBLISHING (NEWSPAPERS) - 2.4%
680 Times-Mirror Co.
6.65%, due 10/15/01 676
RETAIL (GENERAL MERCHANDISE) - 3.3%
250 Dayton Hudson Corp.
9.40%, due 2/15/01 256
680 Wal-Mart Stores, Inc.
6.15%, due 8/10/01 675
TELEPHONE - 0.8%
115 AT&T Corp.
5.625%, due 3/15/04 109
145 AT&T Corp.
6.50%, due 3/15/29 124
-----------
TOTAL CORPORATE BONDS 8,310
-----------
MORTGAGE BACKED SECURITIES - 15.7%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC) - 2.2%
614 7.50%, due 10/01/29 608
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 21 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
BOND PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) - 8.8%
$235 6.00%, due 1/01/29 $ 215
800 7.00%, due 3/01/12 793
717 8.00%, due 2/15/29 722
283 8.00%, due 4/01/08 287
423 9.50%, due 2/01/21 449
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) - 4.7%
910 7.00%, due 4/15/28 880
435 7.75%, due 10/15/29 436
-----------
TOTAL MORTGAGE BACKED SECURITIES 4,390
-----------
U.S. GOVERNMENT OBLIGATIONS - 42.5%
U.S. FEDERAL AGENCY NOTES - 7.0%
525 5.125%, due 2/13/04 493
595 6.00%, due 8/15/02 586
440 6.375%, due 6/15/09 419
500 6.875%, due 11/22/06 484
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
U.S. TREASURY NOTES - 35.5%
$ 795 4.25%, due 11/15/03 $ 738
2,015 5.375%, due 6/30/00 2,011
1,165 5.875%, due 9/30/02 1,152
95 6.375%, due 8/15/02 95
385 6.50%, due 10/15/06 384
285 6.50%, due 8/15/05 285
4,970 7.50%, due 11/15/16 5,316
-----------
TOTAL U.S. GOVERNMENT OBLIGATIONS 11,963
-----------
CASH EQUIVALENTS - 1.5%
INVESTMENT COMPANIES
432 J.P. Morgan Institutional
Prime Money Market 432
-----------
TOTAL CASH EQUIVALENTS 432
-----------
TOTAL INVESTMENTS - 99.1% 27,836
Other Assets, less Liabilities 295
-----------
NET ASSETS $ 28,131
-----------
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 22 -
<PAGE>
REPORT FROM THE FUND MANAGER
SAFECO RST MONEY MARKET PORTFOLIO
December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The SAFECO RST Money Market Portfolio 12-month return of 4.63% was slightly
lower than the average variable money market portfolio, according to Lipper,
Inc., but was significantly higher than the 2.7% yearly increase in the Consumer
Price Index.
Our performance is mostly attributable to shortening the average maturity of
the Portfolio and holding "floaters." (See discussion below.)
Facing the risk that the Fed might raise short-term interest rates, I
significantly shortened the average maturity of the Portfolio from a high of 87
days in May to 41 days at year-end. Indeed, the Fed raised rates three times
during the year from 4.75% to 5.50%. The most recent raise was in November.
Being shorter than the 53-day maturity of the average money fund reported by IBC
Financial Data has enabled me to capture higher rates a bit sooner than my
peers. For example, three-month commercial paper rates rose from a low of 4.73%
in April to 5.75% at year-end. Very close to Y2K, I was able to reinvest in
commercial paper at yields in the 6% range.
[PHOTO OF NAOMI URATA]
I bought several corporate floaters that change yields as rates rise. The
Portfolio also owns a taxable municipal seven-day floater that is even more
sensitive to rate changes, and yield 10 to 25 basis points higher than similarly
rated 30-day commercial paper. At year-end, rates on our taxable municipals
spiked as high as 7.85%, albeit only for a week. These investments are
particularly favorable in a Fed-tightening environment, as they capture any rate
increases within seven days.
As the economy continues at a strong pace with low unemployment and hints of
rising inflation, the Fed is likely to raise rates again. In anticipation, the
market has already priced
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERFORMANCE OVERVIEW
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE
PERIODS ENDED DECEMBER 31, 1999 1 YEAR 5 YEAR 10 YEAR
<S> <C> <C> <C>
SAFECO RST Money Market Portfolio 4.63% 5.03% 4.81%
Lipper, Inc. Variable Annuity Money Market Portfolios 4.78% 5.13% 4.92%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT VALUE
SAFECO RST MONEY MARKET PORTFOLIO
<S> <C>
12/31/89 $10,000
1/31/90 $10,071
2/28/90 $10,130
3/31/90 $10,194
4/30/90 $10,261
5/31/90 $10,328
6/30/90 $10,391
7/31/90 $10,459
8/31/90 $10,525
9/30/90 $10,585
10/31/90 $10,653
11/30/90 $10,719
12/31/90 $10,786
1/31/91 $10,850
2/28/91 $10,904
3/31/91 $10,956
4/30/91 $11,014
5/31/91 $11,066
6/30/91 $11,109
7/31/91 $11,164
8/31/91 $11,215
9/30/91 $11,265
10/31/91 $11,312
11/30/91 $11,353
12/31/91 $11,398
1/31/92 $11,435
2/29/92 $11,466
3/31/92 $11,501
4/30/92 $11,533
5/31/92 $11,564
6/30/92 $11,600
7/31/92 $11,635
8/31/92 $11,664
9/30/92 $11,688
10/31/92 $11,713
11/30/92 $11,741
12/31/92 $11,769
1/31/93 $11,796
2/28/93 $11,820
3/31/93 $11,847
4/30/93 $11,872
5/31/93 $11,894
6/30/93 $11,923
7/31/93 $11,948
8/31/93 $11,975
9/30/93 $11,999
10/31/93 $12,023
11/30/93 $12,049
12/31/93 $12,076
1/31/94 $12,104
2/28/94 $12,128
3/31/94 $12,155
4/30/94 $12,184
5/31/94 $12,219
6/30/94 $12,255
7/31/94 $12,293
8/31/94 $12,337
9/30/94 $12,378
10/31/94 $12,422
11/30/94 $12,465
12/31/94 $12,517
1/31/95 $12,578
2/28/95 $12,632
3/31/95 $12,689
4/30/95 $12,748
5/31/95 $12,813
6/30/95 $12,869
7/31/95 $12,930
8/31/95 $12,984
9/30/95 $13,036
10/31/95 $13,102
11/30/95 $13,161
12/31/95 $13,213
1/31/96 $13,275
2/29/96 $13,322
3/31/96 $13,372
4/30/96 $13,425
5/31/96 $13,482
6/30/96 $13,530
7/31/96 $13,588
8/31/96 $13,643
9/30/96 $13,700
10/31/96 $13,752
11/30/96 $13,807
12/31/96 $13,865
1/31/97 $13,923
2/28/97 $13,972
3/31/97 $14,025
4/30/97 $14,085
5/31/97 $14,142
6/30/97 $14,204
7/31/97 $14,264
8/31/97 $14,319
9/30/97 $14,382
10/31/97 $14,446
11/30/97 $14,503
12/31/97 $14,570
1/31/98 $14,628
2/28/98 $14,684
3/31/98 $14,744
4/30/98 $14,802
5/31/98 $14,855
6/30/98 $14,919
7/31/98 $14,981
8/31/98 $15,035
9/30/98 $15,097
10/31/98 $15,163
11/30/98 $15,227
12/31/98 $15,291
1/31/99 $15,342
2/28/99 $15,398
3/31/99 $15,455
4/30/99 $15,512
5/31/99 $15,564
6/30/99 $15,618
7/31/99 $15,677
8/31/99 $15,737
9/30/99 $15,799
10/31/99 $15,861
11/30/99 $15,924
12/31/99 $16,000
</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.
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.
- 23 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
0.5% of tightening into short-term rates. I will maintain a short average
maturity until I see signs that rates have stabilized, and will continue to seek
yield while working to maintain safety in volatile market conditions.
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.
- 24 -
<PAGE>
SAFECO RESOURCE SERIES TRUST
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTS VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
COMMERCIAL PAPER - 43.8%
CONSUMER FINANCE - 12.7%
$1,300 Aristar, Inc.
5.85%, due 2/04/00 $ 1,293
1,200 Homeside Lending, Inc.
6.50%, due 1/24/00 1,196
1,200 Household Financial
6.45%, due 1/05/00 1,200
FINANCIAL (DIVERSIFIED) - 14.4%
500 General Electric Capital
5.25%, due 1/24/00 498
1,200 Moat Funding LLC
6.55%, due 1/12/00 1,198
1,300 New Center Asset Trust
6.45%, due 1/20/00 1,296
1,200 PHH Corporation
6.38%, due 1/10/00 1,199
INVESTMENT BANKING & BROKERAGE - 4.4%
1,300 Merrill Lynch
5.55%, due 1/28/00 1,295
OIL (INTERNATIONAL INTEGRATED) - 4.1%
1,200 BP Amoco Capital
6.53%, due 1/06/00 1,199
TELECOMMUNICATIONS (LONG DISTANCE) - 4.1%
1,200 MCI Capital Corp.
6.55%, due 1/26/00 1,195
TRUCKS & PARTS - 4.1%
1,200 Cooperative Association
of Tractor Dealers
6.70%, due 1/14/00 1,198
-----------
TOTAL COMMERCIAL PAPER 12,767
-----------
CORPORATE BONDS - 42.7%
BANKS (MAJOR REGIONAL) - 3.4%
1,000 Continental Bank Corp.
6.445%, due 5/18/00 1,001
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTS VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
BANKS (REGIONAL) - 5.1%
$1,500 American Express Centurion
Bank
5.70%, due 4/24/00
Put Date 1/01/00 $ 1,500
CONSUMER FINANCE - 3.5%
1,000 Countrywide Funding Corp.
7.32%, due 8/15/00 1,007
FINANCIAL (DIVERSIFIED) - 10.0%
1,400 Finova Capital Corp.
8.00%, due 2/01/00 1,403
500 Heller Financial, Inc.
5.625%, due 3/15/00 500
1,000 #Textron Financial Corp.
(144A)
5.92%, due 5/12/00
Put Date 1/01/00 1,000
INSURANCE (LIFE & HEALTH) - 4.5%
1,300 First Allamerica Financal
6.235%, due 8/05/04
Put Date 2/03/00 1,300
INVESTMENT BANKING & BROKERAGE - 12.8%
500 #Goldman Sachs Group,
L.P. (144A)
5.15%, due 4/19/00 500
1,000 #Goldman Sachs Group,
L.P. (144A)
6.20125%, due 1/12/01
Put Date 1/15/00 1,000
1,330 Lehman Brothers
Holdings, Inc.
6.15%, due 3/15/00 1,332
900 Morgan Stanley Dean Witter
Co.
5.61125%, due 3/13/01
Put Date 12/12/00 900
TOBACCO - 3.4%
1,000 Philip Morris Cos., Inc.
9.25%, due 2/15/00 1,005
-----------
TOTAL CORPORATE BONDS 12,448
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 25 -
<PAGE>
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNTS VALUE
(000'S) (000'S)
- ---------------------------------------------------------
<C> <S> <C>
MUNICIPAL BONDS - 3.4%
RETAIL (GENERAL MERCHANDISE) - 3.4%
$1,000 Racetrac Capital, LLC
6.49%, due 4/01/18
Put Date 1/05/00 $ 1,000
-----------
TOTAL MUNICIPAL BONDS 1,000
-----------
CASH EQUIVALENTS - 8.1%
INVESTMENT COMPANIES
894 AIM Short-Term Investments
Co. 894
LIQUID ASSETS MONEY MARKET PORTFOLIO
(INSTITUTIONAL SHARES)
1,453 J.P. Morgan Institutional
Prime Money Market 1,453
-----------
TOTAL CASH EQUIVALENTS 2,347
-----------
TOTAL INVESTMENTS - 98.0% 28,562
-----------
Other Assets, less Liabilities 573
-----------
NET ASSETS $ 29,135
-----------
-----------
</TABLE>
If a Put date is indicated, the Portfolio has a right to sell a specified
underlying security at an exercise price equal to the amortized cost of the
underlying security plus interest, if any, as of that date.
Securities with a maturity of more than thirteen months have variable rates
and/or demand features which qualify them as short-term securities. Rates
shown are those in effect on 12/31/99. These rates change periodically based
on specified market rate or indices.
# Securities are 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 total cost of such securities is $2,500,000 and the
total value is 8.6% of net assets.
SEE NOTES TO FINANCIAL STATEMENTS
- 26 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
SAFECO Resource Series Trust
As of December 31, 1999
<TABLE>
<CAPTION>
PORTFOLIOS
(In Thousands, ------------------------------------------------------------------------
Except Per-Share Amounts) EQUITY GROWTH NORTHWEST SMALL CO. BOND MMKT
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost $460,540 $327,603 $ 32,481 $ 13,110 $ 29,091 $ 28,562
======== ======== ========= ======== ======== ========
Investments, at value
Unaffiliated issuers $647,191 $311,348 $ 48,389 $ 14,963 $ 27,836 $ 28,562
Affiliated issuers -- 36,465 -- -- -- --
-------- -------- --------- -------- -------- --------
Total investments at value 647,191 347,813 48,389 14,963 27,836 28,562
Receivables:
Dividends and interest 672 227 17 10 316 241
Capital stock sold 222 43 183 1 1 370
Other -- -- 5 25 -- 1
-------- -------- --------- -------- -------- --------
Total assets 648,085 348,083 48,594 14,999 28,153 29,174
LIABILITIES:
Investment securities purchased -- 1,801 316 935 -- --
Capital stock redeemed 545 332 325 -- 3 16
Investment advisory fees 456 216 29 10 19 15
Dividends payable -- -- -- -- -- 8
Other 6 9 -- -- -- --
-------- -------- --------- -------- -------- --------
Total liabilities 1,007 2,358 670 945 22 39
-------- -------- --------- -------- -------- --------
NET ASSETS $647,078 $345,725 $ 47,924 $ 14,054 $ 28,131 $ 29,135
======== ======== ========= ======== ======== ========
Net assets consist of:
Accumulated net realized (loss)
on investment transactions $ -- $ (1,253) $ -- $ (2,281) $ (1,277) $ --
Net unrealized appreciation
(depreciation) 186,651 20,210 15,908 1,853 (1,255) --
Paid in capital (par value $.001,
unlimited shares authorized) 460,427 326,768 32,016 14,482 30,663 29,135
-------- -------- --------- -------- -------- --------
Net assets $647,078 $345,725 $ 47,924 $ 14,054 $ 28,131 $ 29,135
======== ======== ========= ======== ======== ========
TRUST SHARES OUTSTANDING 20,858 15,366 2,113 1,234 2,722 29,135
======== ======== ========= ======== ======== ========
NET ASSET VALUE PER SHARE
(Net assets divided by Trust
shares outstanding) $ 31.02 $ 22.50 $ 22.68 $ 11.39 $ 10.33 $ 1.00
======== ======== ========= ======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 27 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
SAFECO Resource Series Trust
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
PORTFOLIOS
------------------------------------------------------------------
EQUITY GROWTH NORTHWEST SMALL CO. BOND MMKT
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 8,921 $ 1,005 $ 145 $ 42 $ -- $ --
Interest 921 50 34 50 1,864 1,472
------- -------- --------- -------- ------- ------
Total investment income 9,842 1,055 179 92 1,864 1,472
EXPENSES:
Investment advisory fees 4,638 2,368 219 97 220 180
Legal and auditing fees 25 22 16 18 18 19
Custodian fees 37 29 5 5 6 6
Trustees fees 8 7 6 6 6 6
Other 79 89 5 12 22 7
------- -------- --------- -------- ------- ------
Total expenses before reimbursement 4,787 2,515 251 138 272 218
Expense reimbursement -- -- -- (30) -- --
------- -------- --------- -------- ------- ------
Total expenses after reimbursement 4,787 2,515 251 108 272 218
NET INVESTMENT INCOME (LOSS) 5,055 (1,460) (72) (16) 1,592 1,254
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
NET REALIZED GAIN (LOSS) FROM:
Investments in unaffiliated issuers 29,280 2,571 3,868 (1,273) (1,276) --
Investments in affiliated issuers -- (3,827) -- -- -- --
------- -------- --------- -------- ------- ------
Total net realized gain (loss) 29,280 (1,256) 3,868 (1,273) (1,276) --
Net change in unrealized appreciation
(depreciation) 20,195 17,800 10,965 3,170 (1,542) --
------- -------- --------- -------- ------- ------
NET GAIN (LOSS) ON INVESTMENTS 49,475 16,544 14,833 1,897 (2,818) --
------- -------- --------- -------- ------- ------
Net change in net assets resulting
from operations $54,530 $ 15,084 $ 14,761 $ 1,881 $(1,226) $1,254
======= ======== ========= ======== ======= ======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 28 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This page left blank intentionally.
- 29 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
SAFECO Resource Series Trust
<TABLE>
<CAPTION>
PORTFOLIOS
--------------------------------------------------
EQUITY GROWTH
------------------------ ------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
(IN THOUSANDS) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 5,055 $ 4,486 $ (1,460) $ (1,507)
Net realized gain (loss) on investment
transactions 29,280 21,747 (1,256) 37,143
Net change in unrealized appreciation
(depreciation) 20,195 76,782 17,800 (39,098)
-------- -------- -------- --------
Net change in net assets resulting
from operations 54,530 103,015 15,084 (3,462)
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,098) (4,431) -- (35,629)
Net realized gain on investments (29,266) (21,763) -- --
Paid in capital -- -- -- (1,507)
-------- -------- -------- --------
Total distributions (34,364) (26,194) -- (37,136)
NET TRUST SHARE TRANSACTIONS 69,598 91,237 (25,766) 156,605
-------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 89,764 168,058 (10,682) 116,007
NET ASSETS AT BEGINNING OF PERIOD 557,314 389,256 356,407 240,400
-------- -------- -------- --------
NET ASSETS AT END OF PERIOD $647,078 $557,314 $345,725 $356,407
======== ======== ======== ========
- --------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 6,829 6,552 5,871 10,113
Reinvestments 1,108 874 -- 1,743
Redemptions (5,675) (4,291) (7,240) (5,418)
-------- -------- -------- --------
Net Change 2,262 3,135 (1,369) 6,438
AMOUNTS:
Sales $215,939 $184,473 $116,742 $250,827
Reinvestments 34,364 26,194 -- 37,135
Redemptions (180,705) (119,430) (142,508) (131,357)
-------- -------- -------- --------
Net Change $ 69,598 $ 91,237 $(25,766) $156,605
======== ======== ======== ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 30 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIOS
----------------------------------------------------------------------------
NORTHWEST SMALL CO. BOND
------------------------ ------------------------ ------------------------
YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31 YEAR ENDED DECEMBER 31
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (72) $ (73) $ (16) $ (40) $ 1,592 $ 1,247
Net realized gain (loss) on investment
transactions 3,868 (809) (1,273) (1,008) (1,276) 836
Net change in unrealized appreciation
(depreciation) 10,965 1,145 3,170 (2,360) (1,542) (207)
------- ------- ------- ------- ------- -------
Net change in net assets resulting
from operations 14,761 263 1,881 (3,408) (1,226) 1,876
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- -- (1,591) (1,248)
Net realized gain on investments (2,987) -- -- -- (13) (288)
Paid in capital -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total distributions (2,987) -- -- -- (1,604) (1,536)
NET TRUST SHARE TRANSACTIONS 11,563 4,529 393 4,938 844 11,896
------- ------- ------- ------- ------- -------
TOTAL CHANGE IN NET ASSETS 23,337 4,792 2,274 1,530 (1,986) 12,236
NET ASSETS AT BEGINNING OF PERIOD 24,587 19,795 11,780 10,250 30,117 17,881
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $47,924 $24,587 $14,054 $11,780 $28,131 $30,117
======= ======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND AMOUNTS
SHARES:
Sales 889 690 369 680 946 1,518
Reinvestments 132 -- -- -- 155 135
Redemptions (480) (420) (328) (318) (1,019) (632)
------- ------- ------- ------- ------- -------
Net Change 541 270 41 362 82 1,021
AMOUNTS:
Sales $17,365 $10,765 $ 3,458 $ 8,662 $10,490 $17,725
Reinvestments 2,987 -- -- -- 1,604 1,536
Redemptions (8,789) (6,236) (3,065) (3,724) (11,250) (7,365)
------- ------- ------- ------- ------- -------
Net Change $11,563 $ 4,529 $ 393 $ 4,938 $ 844 $11,896
======= ======= ======= ======= ======= =======
<CAPTION>
PORTFOLIOS
-----------------------
MMKT
-----------------------
YEAR ENDED DECEMBER 31
1999 1998
- ---------------------------------------- -----------------------
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 1,254 $ 1,145
Net realized gain (loss) on investment
transactions -- --
Net change in unrealized appreciation
(depreciation) -- --
------- --------
Net change in net assets resulting
from operations 1,254 1,145
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,254) (1,145)
Net realized gain on investments -- --
Paid in capital -- --
------- --------
Total distributions (1,254) (1,145)
NET TRUST SHARE TRANSACTIONS 1,512 9,866
------- --------
TOTAL CHANGE IN NET ASSETS 1,512 9,866
NET ASSETS AT BEGINNING OF PERIOD 27,623 17,757
------- --------
NET ASSETS AT END OF PERIOD $29,135 $ 27,623
======= ========
- ----------------------------------------
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES AND A
SHARES:
Sales 73,527 102,117
Reinvestments 1,363 1,028
Redemptions (73,378) (93,279)
------- --------
Net Change 1,512 9,866
AMOUNTS:
Sales $73,527 $102,117
Reinvestments 1,363 1,028
Redemptions (73,378) (93,279)
------- --------
Net Change $ 1,512 $ 9,866
======= ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 31 -
<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 is comprised of the Equity, Growth, Northwest,
Small Company Stock (SMALL Co.), Bond and Money Market (MMKT) Portfolios. Each
of the six Portfolios has different investment objectives. Shares of the Trust
Portfolios are available only as funding vehicles for certain variable annuity
and variable life products sold by SAFECO Life Insurance Company and other
insurance companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolios 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 expense during the reporting
period. Actual results could differ from those estimates.
SECURITY VALUATION. Equity securities in the Equity, Growth, Northwest and
Small Company Portfolios traded on a national exchange or over-the-counter are
valued at the last reported sales price, unless there are no transactions in
which case they are valued at the last reported bid price. Fixed income
securities in the Bond Portfolio 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. For the Money Market Portfolio, short-term securities
purchased at par are valued at cost. Other short-term securities are valued at
amortized cost. For all Portfolios, 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, less foreign taxes withheld (if any), is recorded on the
ex-dividend date.
DIVIDENDS TO SHAREHOLDERS. In the Equity, Growth, Northwest, Small Company
Stock and Bond Portfolios, dividends to shareholders from net investment income
and realized gains are recorded on the last business day of December each year.
In the Money Market Portfolio, 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.
Income dividends and capital gain distributions are determined in accordance
with income tax regulation which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for wash
sale deferrals. Accumulated net investment income and realized gain/loss may
include temporary financial reporting and tax basis differences which will
reverse in a subsequent year.
FEDERAL INCOME TAX. It is the Trust's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no federal
income or excise tax provision is required.
- 32 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES. SAFECO Asset Management Company receives investment
advisory fees from the Portfolios. For the Equity, Growth, Northwest and Bond
Portfolios, the fee is based on average daily net assets at annual rate of .74%.
For the Small Company Stock Portfolio, the fee is based on average daily net
assets at an annual rate of .85%. For the Money Market Portfolio, the fee is
based on average daily net assets at an annual rate of .65%.
NOTES PAYABLE AND INTEREST EXPENSE. The Portfolios 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, $200 million is available to meet short-term financing
needs. No balance was outstanding under these arrangements at December 31, 1999.
AFFILIATE OWNERSHIP. At December 31, 1999, SAFECO Life Insurance Company
owned over 89% of the outstanding shares of the Equity Portfolio, 76% of the
outstanding shares of the Growth Portfolio, and 100% of the outstanding shares
in the Northwest, Small Company, Bond and Money Market Portfolios.
EXPENSE REIMBURSEMENT. For the Equity, Growth, Northwest, Bond and Money
Market Portfolios, SAFECO Life Insurance Company (SAFECO) has agreed to pay all
the expenses of the Portfolios except for investment advisory fees if net assets
of the Portfolio are below $20 million. For the Small Company Stock Portfolio,
SAFECO Asset Management Company pays all expenses other than investment advisory
fees in excess of .10% 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>
PORTFOLIOS
-------------------------------------------------------------
EQUITY GROWTH NORTHWEST SMALL CO. BOND
(In Thousands)
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Purchases for the year ended
December 31, 1999 (including $22,166
of U.S. Government and Agency
Securities in the Bond Portfolio) $242,365 $ 171,323 $ 18,945 $ 14,420 $ 43,167
======= ========== ========== ========= =========
Sales for the year ended December 31,
1999 (including $23,081 of U.S.
Government and Agency Securities in
the Bond Portfolio) $196,770 $ 203,508 $ 11,103 $ 13,727 $ 42,463
======= ========== ========== ========= =========
- ------------------------------------------------------------------------------------------------------
Purchases and sales amounts exclude
short-term investments which, at the
time of
purchase had a maturity of one year
or less.
</TABLE>
Unrealized appreciation (depreciation) at December 31, 1999:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized appreciation
for investment securities in which
there is an excess of value over cost $210,915 $97,306 $ 19,754 $ 2,925 $ 2
Aggregate gross unrealized depreciation
for investment securities in which
there is an excess of cost over value (24,264) (77,096) (3,846) (1,072) (1,257)
------- ------- ---------------- ---------------- -----------
Net unrealized appreciation
(depreciation) $186,651 $20,210 $ 15,908 $ 1,853 $ (1,255)
======= ======= ================ ================ ===========
</TABLE>
- 33 -
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENTS IN AFFILIATES
Each of the companies is listed below because the Growth Portfolio owned at
least 5% of the company's voting securities during the year ended December 31,
1999:
<TABLE>
<CAPTION>
MARKET
SHARES AT SHARES AT VALUE
BEGINNING END OF DECEMBER 31
OF YEAR ADDITIONS REDUCTIONS YEAR DIVIDENDS 1999
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Concepts Direct, Inc. 435 -- -- 435 None $ 4,733
Damark International, Inc. 417 -- 5 412 None 6,492
Nastech Pharmaceutical Co. 466 -- 2 464 None 1,566
Open Plan Systems, Inc. 87 245 -- 332 None 664
PolyMedica Industries, Inc. 544 105 -- 649 None 15,017
Precision Auto Care 609 -- -- 609 None 685
Suburban Lodges of America 1,023 -- 288 735 None 3,812
TRM Copy Centers Corp. 492 79 -- 571 None 3,496
-----------
$ 36,465
===========
</TABLE>
6. CAPITAL LOSS CARRYFORWARD
At December 31, 1999, these portfolios had the following amounts of
accumulated net realized losses on investment transactions that represent
capital loss carryforwards for Federal Income Tax purposes, which expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION
(IN THOUSANDS) AMOUNTS DATES
<S> <C> <C>
- -------------------------------------------------------------
Small Company Stock Portfolio $ 2,281 2006-2007
Bond Portfolio 1,198 2007
Growth Portfolio 1,203 2007
</TABLE>
- 34 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
EQUITY PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 29.97 $ 25.18 $ 21.75 $ 19.24 $ 16.83
INCOME FROM INVESTMENT OPERATIONS:
Net investment income: 0.26 0.25 0.27 0.34 0.39
Net realized and unrealized gain on
investments 2.53 6.02 5.13 4.43 4.43
--------------- -------- -------- -------- --------
Total from investment operations 2.79 6.27 5.40 4.77 4.82
LESS DISTRIBUTIONS:
Dividends from net investment income (0.26) (0.25) (0.27) (0.34) (0.39)
Distributions from realized gains (1.48) (1.23) (1.70) (1.92) (2.02)
--------------- -------- -------- -------- --------
Total distributions (1.74) (1.48) (1.97) (2.26) (2.41)
--------------- -------- -------- -------- --------
NET ASSET VALUE AT END OF PERIOD $ 31.02 $ 29.97 $ 25.18 $ 21.75 $ 19.24
=============== ======== ======== ======== ========
TOTAL RETURN 9.31% 24.89% 24.85% 24.79% 28.63%
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 647,078 $557,314 $389,256 $263,067 $169,479
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.76% 0.78% 0.75% 0.72% 0.75%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 0.80% 0.96% 1.19% 1.72% 2.26%
PORTFOLIO TURNOVER RATE 32.47% 31.57% 41.75% 56.99% 69.18%
</TABLE>
- 35 -
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 21.30 $ 23.35 $ 19.26 $ 15.88 $ 12.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.09) (0.10) (0.04) (0.03) 0.06
Net realized and unrealized gain on
investments 1.29 0.53 8.62 5.12 5.26
------- ------- ------- ------- -------
Total from investment operations 1.20 0.43 8.58 5.09 5.32
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- -- (0.06)
Distributions from realized gains -- (2.38) (4.49) (1.71) (2.36)
Distributions from paid in capital -- (0.10) -- -- --
------- ------- ------- ------- -------
Total distributions -- (2.48) (4.49) (1.71) (2.42)
------- ------- ------- ------- -------
NET ASSET VALUE AT END OF PERIOD $ 22.50 $ 21.30 $ 23.35 $ 19.26 $ 15.88
======= ======= ======= ======= =======
TOTAL RETURN 5.63% 1.83% 44.55% 32.06% 41.00%(A)
NET ASSETS AT END OF PERIOD
(000'S OMITTED) $345,725 $356,407 $240,400 $109,491 $44,458
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78% 0.80% 0.77% 0.79% 0.79%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A N/A N/A N/A 0.84%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS (0.45%) (0.48%) (0.25%) (0.28%) 0.55%
PORTFOLIO TURNOVER RATE 52.96% 46.13% 88.99% 75.58% 111.70%
</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 indicated (See Note 3 of Notes to Financial
Statements).
N/A Not applicable as no fund expenses were reimbursed.
- 36 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
NORTHWEST PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 15.64 $ 15.20 $ 12.12 $ 10.85 $ 10.24
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.02) (0.05) 0.03 0.08 0.08
Net realized and unrealized gain on
investments 8.56 0.49 3.73 1.27 0.68
---------- ---------- ---------- ---------- ----------
Total from investment operations 8.54 0.44 3.76 1.35 0.76
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- (0.03) (0.08) (0.08)
Distributions from realized gains (1.50) -- (0.65) -- (0.07)
---------- ---------- ---------- ---------- ----------
Total distributions (1.50) -- (0.68) (0.08) (0.15)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 22.68 $ 15.64 $ 15.20 $ 12.12 $ 10.85
========== ========== ========== ========== ==========
TOTAL RETURN 54.62% 2.89%(A) 31.02%(A) 12.44%(A) 7.42%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 47,924 $ 24,587 $ 19,795 $ 9,541 $ 6,312
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.84% 0.96% 0.73% 0.70% 0.71%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A 0.99% 0.94% 1.11% 1.18%
RATIO OF NET INVESTMENT INCOME (LOSS)
TO AVERAGE NET ASSETS (0.24%) (0.32%) 0.27% 0.78% 0.81%
PORTFOLIO TURNOVER RATE 37.32% 46.99% 47.85% 52.20% 21.30%
</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.
- 37 -
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
SMALL COMPANY STOCK PORTFOLIO
<TABLE>
<CAPTION>
APRIL 30, 1997
(COMMENCEMENT OF
YEAR ENDED DECEMBER 31 OPERATIONS) TO
------------------------ DECEMBER 31
1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 9.87 $ 12.33 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (0.01) (0.03) 0.01
Net realized and unrealized gain
(loss) on investments 1.53 (2.43) 2.83
------- ------- ------------------
Total from investment operations 1.52 (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 $ 11.39 $ 9.87 $ 12.33
======= ======= ==================
TOTAL RETURN (A) 15.40% (19.95%) 28.4%*
NET ASSETS AT END OF PERIOD
(000'S OMITTED) $14,054 $11,780 $ 10,250
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.95% 0.95% 0.95%**
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ 1.22% 1.15% 1.24%**
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS (0.14%) (0.32%) 0.19%**
PORTFOLIO TURNOVER RATE 127.80% 92.14% 47.91%**
</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.
* Not Annualized
** Annualized
- 38 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
BOND PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE AT BEGINNING OF PERIOD $ 11.41 $ 11.04 $ 10.75 $ 11.31 $ 10.20
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.62 0.50 0.61 0.62 0.71
Net realized and unrealized gain
(loss) on investments (1.07) 0.49 0.29 (0.56) 1.11
------------- ---------- ---------- ---------- ----------
Total from investment operations (0.45) 0.99 0.90 0.06 1.82
LESS DISTRIBUTIONS:
Dividends from net investment income (0.62) (0.50) (0.61) (0.62) (0.71)
Distributions from realized gains (0.01) (0.12) -- -- --
------------- ---------- ---------- ---------- ----------
Total distributions (0.63) (0.62) (0.61) (0.62) (0.71)
------------- ---------- ---------- ---------- ----------
NET ASSET VALUE AT END OF PERIOD $ 10.33 $ 11.41 $ 11.04 $ 10.75 $ 11.31
============= ========== ========== ========== ==========
TOTAL RETURN (3.99%) 8.90%(A) 8.41%(A) 0.54%(A) 17.87%(A)
NET ASSETS AT END OF PERIOD
(000'S OMITTED) $ 28,131 $ 30,117 $ 17,881 $ 15,991 $ 14,257
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.91% 0.83% 0.74% 0.73% 0.72%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A 0.98% 0.90% 0.87% 0.94%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 5.33% 5.50% 5.75% 5.64% 6.50%
PORTFOLIO TURNOVER RATE 147.40% 164.82% 151.43% 140.90% 77.93%
</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.
- 39 -
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
7. FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995
<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 0.04 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Dividends from net investment income (0.04) (0.04) (0.05) (0.05) (0.05)
------------ ---------- ---------- ---------- ---------
NET ASSET VALUE AT END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ========== ========== ========== =========
TOTAL RETURN 4.63% 4.95%(A) 5.08%(A) 4.94%(A) 5.56%(A)
NET ASSETS AT END OF PERIOD (000'S
OMITTED) $ 29,135 $ 27,623 $ 17,757 $ 12,493 $ 8,719
RATIO OF EXPENSES TO AVERAGE NET ASSETS 0.78% 0.81% 0.64% 0.62% 0.62%
RATIO OF EXPENSES TO AVERAGE NET ASSETS
BEFORE EXPENSE REIMBURSEMENTS++ N/A 0.89% 0.81% 0.90% 0.87%
RATIO OF NET INVESTMENT INCOME TO
AVERAGE NET ASSETS 4.52% 4.87% 4.97% 4.86% 5.32%
</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.
- 40 -
<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 portfolio of investments, of the SAFECO Resource Series Trust
(comprising, respectively, the Equity Portfolio, Growth Portfolio, Northwest
Portfolio, Small Company Stock Portfolio, Bond Portfolio, and Money Market
Portfolio) as of December 31, 1999, and the related statements of operations,
the statements of changes in net assets and the financial highlights for each of
the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1999, 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 each
of the respective portfolios constituting the SAFECO Resource Series Trust at
December 31, 1999, the results of their operations, the changes in their net
assets and financial highlights for each of the periods referred to above, in
conformity with accounting principles generally accepted in the United States.
[SIGNATURE]
Seattle, Washington
February 4, 2000
- 41 -
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR 2000 READINESS (UNAUDITED)
All Year 2000 readiness work was completed prior to December 31, 1999. The
Portfolios have experienced no disruption in their operations or service levels,
and do not expect to incur any future disruptions or expense in connection with
the Year 2000 issue.
<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
[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>
CODE OF ETHICS
PURPOSE
This document is the Code of Ethics adopted by SAFECO Common Stock Trust,
SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust, SAFECO Money Market
Trust, SAFECO Resource Series Trust and SAFECO Managed Bond Trust
(collectively, the "Trusts"), SAFECO Asset Management Company (the
"Investment Adviser") and SAFECO Securities, Inc. (the "Underwriter"),
pursuant to the provisions of Rule 17j-1 under the Investment Company Act of
1940.
Rule 17j-1 requires that each registered investment company and its
investment adviser and principal underwriter adopt a written code of ethics
designed to prevent access persons (as that term is defined in the Rule) from
engaging in certain types of conduct prohibited under the Rule. The Rule also
requires that investment companies and their investment advisers and
underwriters use reasonable diligence to put procedures into place that are
reasonably designed to prevent and detect violations of the code.
This Code of Ethics states the prohibitions that are applicable to and the
reporting requirements for persons who are associated with the Trusts, the
Investment Adviser and the Underwriter ("Covered Persons"). This Code
expressly prohibits those individuals from engaging in any fraudulent,
deceptive or manipulative activity in connection with the direct or indirect
purchase or sale of a security.
This Code is based on the principle that personnel within the SAFECO
enterprise whose functions relate to the investment management of the Trusts
or the Investment Adviser's operations owe a special fiduciary duty to, among
others, the Investment Adviser's clients, including the shareholders of the
Trusts. This duty includes the obligation to conduct their personal
securities transactions in a manner that does not (1) interfere with
portfolio transactions of any client of the Investment Adviser, including any
series fund of any Trust, or (2) otherwise take unfair advantage of their
relationship to the Investment Adviser's clients. These individuals also have
a duty at all times to place the interests of the Investment Adviser's
clients -- including the Trusts' shareholders - first, and to conduct all
personal securities transactions in a manner consistent with this Code and in
such a manner as to avoid any actual or potential conflict or abuse of a
position of trust and responsibility. Individuals having access to investment
recommendations and trading decisions affecting the Trusts and the Investment
Adviser's clients are held to a higher standard and must adhere to these
general principles as well as comply with the Code's specific provisions.
The personal investment activity of persons associated with the Trusts, the
Investment Adviser or the Underwriter will be monitored in an effort to
identify patterns or instances of possible Code violations. This Code of
Ethics, effective December 1, 1999, supersedes all prior Codes of Ethics
adopted by the above entities and remains in effect until further notice.
B-1
<PAGE>
1. DEFINITIONS
"ACCESS PERSON" means:
(a) Any officer or Trustee of any Trust;
(b) Any director, officer or employee of the Investment Adviser,
including but not limited to any person meeting the definition
of "Portfolio Manager" or "Investment Professional" in this
Code of Ethics;
(c) Any director or officer of the Underwriter;
(d) Any person employed by SAFECO Corporation or any of its
subsidiaries who, in connection with his or her regular
functions or duties, (i) makes or participates in decisions to
purchase or sell Securities by or on behalf of any Client,
(ii) makes or participates in recommendations with respect to
such decisions, or (iii) obtains or has access to non-public
information regarding decisions or recommendations to purchase
or sell Securities by or on behalf of any Client;
(e) Any natural person in a control relationship to any Client or
the Investment Adviser who obtains information concerning (i)
any decision to purchase or sell a Security by or on behalf of
any Client, or (ii) recommendations made to any Client with
regard to such a purchase or sale;
(f) Any spouse or minor child of persons identified in subsections
(a) through (e) above.
"BENEFICIAL OWNERSHIP" has the same meaning as that set forth in
Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder.
A Security is "BEING CONSIDERED" for purchase or sale when a Portfolio
Manager for a Client account intends to engage in a transaction in that
Security on behalf of the Client.
"CHIEF INVESTMENT OFFICER" means the person employed in the Investment
department of SAFECO Corporation holding such title, or any other
person designated by the person holding such title.
"CLIENT" means any investment management client of the Investment
Adviser which is not wholly-owned, directly or indirectly, by SAFECO
Corporation, including but not limited to the Trusts and their series
Funds, and the third-party, trust and institutional accounts managed by
the Investment Adviser.
"CONTROL" has the same meaning as that set forth in Section 2(a)(9) of
the Investment Company Act of 1940.
"COVERED PERSON" means any Access Person, any employee of the SAFECO
Mutual Funds department, and any employee or registered representative
of the Underwriter.
B-2
<PAGE>
"FUND" means any series of shares of beneficial interest of any Trust
registered for sale under the Securities Act of 1933.
"GENERAL COUNSEL" means the person employed by SAFECO Corporation
holding such title, or any other similarly disinterested person so
designated by the person holding such title.
"INDEPENDENT TRUSTEE" means any Trustee who is an Access Person solely
by reason of being a Trustee.
"INVESTMENT ADVISER" means SAFECO Asset Management Company and the
Investment department of SAFECO Corporation.
"INVESTMENT PROFESSIONAL" means any Portfolio Manager and any research
analyst or trader employed by the Investment Adviser who provides
information and advice to a Portfolio Manager, or who helps execute a
Portfolio Manager's securities trading decisions.
"PERSON" means a natural person or a company.
"PORTFOLIO MANAGER" means any person whose assigned duty is to manage
any account managed by the Investment Adviser and who is vested with
the power to make investment decisions on behalf of such account on a
regular basis.
"RELATED SECURITY" means any security convertible into the Security
referred to in the applicable Code or Ethics section, any future or
option on the Security, and any derivative security the value of which
is linked to the Security.
"SECURITY" has the same meaning as that set forth in Section 2(a)(36)
of the Investment Company Act of 1940, except that it does not include
(i) any security issued or guaranteed as to principal or interest by
the U. S. Government or any security issued by an agency, authority or
instrumentality of the U. S. Government, (ii) any money market
instrument including bankers' acceptances, certificates of deposit and
commercial paper, or (iii) any security issued by a registered open-end
investment company.
"TRUST" means any investment company registered under the Investment
Company Act of 1940 for which the Investment Adviser acts as investment
adviser.
"TRUSTEE" means any member of the Board of Trustees of any Trust.
"UNDERWRITER" means SAFECO Securities, Inc.
2. GENERAL RESTRICTIONS ON PERSONAL SECURITIES TRADES
2.1 PERSONAL SECURITIES TRADES. No Covered Person shall purchase
or sell, directly or indirectly, any Security in which he or
she has, or by reason of such transaction acquires, any direct
or indirect beneficial ownership;
B-3
<PAGE>
(a) Which the Covered Person knows or should have known
at the time of such purchase or sale is a Security or
Related Security being considered by the Investment
Adviser for purchase or sale for a Client account;
(b) Which the Covered Person knows or should have known
at the time of such purchase or sale is a Security or
Related Security that the Investment Adviser is
purchasing or selling for a Client account, or that
is subject to a pending buy or sell order;
(c) Which is being offered in an initial public offering;
(d) Whose purchase or sale would constitute a breach of
either the Covered Person's or the Investment
Adviser's fiduciary duty to any Client; or
(e) Whose purchase or sale would be inconsistent with any
applicable law.
2.2 EXEMPTIONS. The prohibitions of 2.1(a) and (b) shall not
apply to:
(a) Purchases or sales effected for any account over
which a Covered Person has no direct or indirect
influence or control;
(b) Purchases or sales that are non-volitional on the
part of the Covered Person, including but not limited
to purchases pursuant to an automatic dividend
reinvestment plan; or
(c) Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
its Securities to the extent such rights were
acquired from such issuer, and sales of rights so
acquired.
For the purposes of this Code, with respect to any Covered
Person who is not an Access Person, and to any Independent
Trustee (or any spouse, minor child or relative of an
Independent Trustee), the "should have known" standard implies
no duty of inquiry, does not presume there should have been
any deduction or extrapolation from discussions or memoranda
dealing with tactics to be employed meeting the Trusts'
investment objectives, or that any knowledge is to be imputed
because of prior knowledge of the Trusts' portfolio holdings,
market considerations, or the Trusts' investment policies,
objectives and restrictions.
In addition, the prohibition of 2.1(c) shall not apply to an
Independent Trustee (or to any spouse, minor child or relative
of an Independent Trustee) except with respect to a Security
which the Trustee (or his/her spouse, minor child or relative)
knows or should have known that the Investment Adviser is
purchasing or considering purchasing for a Fund.
B-4
<PAGE>
2.3 PERSONAL SECURITIES TRADES BY INVESTMENT PROFESSIONALS AND
PORTFOLIO MANAGERS
2.3.1 No Investment Professional may profit from the:
(a) Purchase of a Security followed by the sale
of the same or a Related Security within
60 calendar days of the purchase; or
(b) Sale of a Security followed by the purchase
of the same or a Related Security within 60
calendar days of the sale.
2.3.2 An Investment Professional may acquire a Security in
a private placement only if:
(a) Prior authorization to purchase the Security
being privately placed is obtained from the
Chief Investment Officer and such approval
is based on a determination that the
investment opportunity should not be
reserved for a Client, the opportunity is
not being offered to the Investment
Professional because of his or her position
with the Investment Adviser or any Client,
and any other relevant factors; and
(b) The Investment Professional plays no role
with respect to any Client's subsequent
consideration of any security issued by the
issuer of the private placement, unless
immediately before playing such role, the
Investment Professional discloses to the
Portfolio Manager for that Client's account
and to the Chief Investment Officer that the
Investment Professional is authorized to
purchase, or has purchased, a Security
privately placed by the issuer.
2.3.3 No Portfolio Manager may purchase or sell a Security
for his or her own account within seven calendar days
before and after a trade in the same Security made by
the Investment Adviser for any Client account managed
by the Portfolio Manager.
3. PRECLEARANCE FOR PERSONAL SECURITIES TRADES
3.1 PRECLEARANCE PROCEDURE. No Access Person may purchase or sell
any Security, directly or indirectly, except in transactions
exempt under Section 2.2 of this Code, or in transactions
determined by the Chief Investment Officer or the General
Counsel to be exempt by virtue of the facts and circumstances
surrounding the transaction(s), without:
(a) Obtaining preclearance from the Chief Investment
Officer; and
(b) Providing the following information to the Chief
Investment Officer in advance of the trade:
B-5
<PAGE>
o Name of the Access Person making the preclearance
request
o Date
o Issuer of the Securities, the class and the number
of shares involved.
3.2 EFFECTIVE PERIOD. Preclearance granted pursuant to paragraph
3.1 remains valid for a period of five business days.
3.3 INDEPENDENT TRUSTEES. Independent Trustees, and their spouses,
minor children or relatives, are subject to the preclearance
requirements of this Section 3 ONLY if the Independent Trustee
knew at the time of the transaction, or in the ordinary course
of fulfilling his or her official duties as a Trustee should
have known, that during the 15 day period immediately
preceding or following the date of the transaction such
Security was purchased or sold or was being considered by the
Investment Adviser for purchase or sale for a Client account.
4. PROHIBITED ACTS
4.1 PECUNIARY INTEREST IN TRANSACTION INVOLVING A CLIENT. No
Covered Person shall have any personal pecuniary interest in
any transaction to which any Client is a party without:
(a) Filing a written statement with the Chief Investment
Officer containing full and complete disclosure of
the pecuniary interest; and
(b) Obtaining approval in writing from the Chief
Investment Officer.
Copies of the written statement and approval will be provided
to the Trustees at their next regular quarterly meeting.
4.2 TRANSACTION CREATING PERSONAL BENEFIT. No Covered Person shall
cause or attempt to cause any Client to purchase, sell or hold
any Security in a manner calculated to create any personal
benefit to the Covered Person. A Covered Person who
participates in any research or investment decision concerning
a Security must disclose to the Chief Investment Officer any
personal or beneficial interest the Covered Person has in such
Security or a Related Security, or in the issuer thereof,
where the investment decision could result in a material
benefit to the Covered Person. The Chief Investment Officer
shall determine whether or not to restrict the Covered Person
from pursuing the research or recommendation.
4.3 ACCEPTANCE OF GIFTS AND FAVORS. No Covered Person shall (from
any person who does, has done or has expressed a desire to do
business with the Investment Adviser, the Underwriter, a Trust
or any Fund) accept any:
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(a) Fee, brokerage or loan (other than a loan in
connection with a margin account established in the
ordinary course of business with a broker-dealer), or
their equivalent;
(b) Gift or favor, unless the gift or favor is of de
minimis value and the Covered Person promptly
discloses the receipt of the same to the Covered
Person's immediate supervisor; or
(c) Invitation to a meal or other activity for which
reimbursement by the Covered Person is not expected,
unless the Covered Person promptly discloses such
activity to the Covered Person's immediate
supervisor, and the Covered Person's participation in
the activity furthers a proper business purpose of
the Investment Adviser, the Underwriter, a Trust or
any Fund.
4.4 SERVICE ON BOARD OF DIRECTORS. No Investment Professional may
serve on the board of directors of any publicly-traded company
unless such service has been authorized by the Chairman of the
Board of Trustees based upon a determination that the board
service would be consistent with the interests of the Trusts
and their shareholders.
4.5 PURCHASE OF PRIVATE PLACEMENT IN WHICH ACCESS PERSON HAS
INVESTED. The Investment Adviser may not purchase for a Client
account a Security or Related Security issued by the same
issuer of a Security for which an Investment Professional
obtained authorization to purchase pursuant to paragraph
2.3.2, without independent review and approval of such
investment by the Chief Investment Officer.
5. REPORTING REQUIREMENTS
5.1 SECURITIES TRANSACTIONS AND HOLDINGS. Access Persons shall
report in writing to the Chief Investment Officer:
(a) Any acquisition or disposition of a direct or
indirect beneficial ownership in any Security, not
later than 10 days after the end of the calendar
quarter in which the transaction occurred; and
(b) All Securities holdings, within 10 days of
commencement of employment in any position for which
the person becomes classified as an "Acess Person"
and quarterly thereafter.
The report required by paragraph 5.1 shall include the:
o Name of the Access Person making the report,
o Date of any transaction involving the listed
securities,
o Issuer, title and number of shares held, and number
involved in any transaction,
o Principal amount of each Security held, and number
involved in any transaction,
o Nature of any transaction (E.G., purchase or sale),
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o Price at which the transaction was effected, and
o Name of the broker-dealer or bank with or through
whom the transaction was effected.
5.2 BROKERAGE ACCOUNTS. Every Access Person who opens an account
at a broker-dealer shall provide immediate written notice
thereof to the Chief Investment Officer. The Underwriter will
direct each broker-dealer at which an Access Person maintains
an account to provide the Chief Investment Officer on a timely
basis a duplicate copy of each confirmation and each periodic
account statement issued to such Access Person.
5.3 OTHER REPORTS. Each transaction on behalf of a Fund in a
Security which has been issued by a party, an affiliate of a
party, or a plan sponsor of a party to an investment advisory
or management contract with the Investment Adviser shall be:
(a) Examined by an officer of the Trusts to determine the
fairness of the transaction to the Fund; and
(b) Reported by an officer of the Trusts to the Trustees
at their next regular quarterly meeting.
5.4 INDEPENDENT TRUSTEES NOT SUBJECT TO REPORTING REQUIREMENTS.
Independent Trustees and their spouses, minor children or
relatives are subject to the reporting provisions of this
Section 5 ONLY with respect to any transaction which the
Independent Trustee knew at the time of the transaction, or in
the ordinary course of fulfilling his or her official duties
as a Trustee should have known, that during the 15 day period
immediately preceding or following the date of the transaction
such Security was purchased or sold or was being considered by
the Investment Adviser for purchase or sale for a Client
account.
6. VIOLATIONS OF THE CODE
6.1 SANCTIONS
(a) A Covered Person who violates this Code may be
subject to appropriate sanctions, including a letter
of censure, suspension or termination of employment,
referral to the Securities and Exchange Commission or
other regulatory authorities for civil action, or
referral to the appropriate authorities for criminal
action.
(b) A Portfolio Manager must forfeit any profits realized
on trades prohibited by Section 2.3.3 of this Code.
(c) An Investment Professional must forfeit any profits
realized on trades prohibited by Section 2.3.1 of
this Code.
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6.2 REPORTS TO THE BOARD OF TRUSTEES
(a) The General Counsel shall report to the Trustees at
each regular quarterly meeting any Security
transaction by or on behalf of an Access Person
during any 15-day period before or after a Fund
traded in such Security.
(b) The Trustees shall be informed, on a timely basis, of
significant remedial action taken against any Covered
Person in response to a violation of this Code.
Significant remedial action includes suspension or
termination of employment, demotion, or any other
action that has a material financial impact upon the
Covered Person.
6.3 RECORD-KEEPING
(a) A permanent record of any violation of this Code and
of any action taken as a result of such violation
shall be made and kept in accordance with rules and
regulations established by the Securities and
Exchange Commission.
(b) Information supplied on any report required by
Section 5 of this Code shall be reviewed for
compliance with this Code and other applicable
standards of conduct. All such information shall be
available for inspection by the Chairman, Vice
Chairman and President of the Investment Adviser and
by any party to whom any such officer refers any
investigation, the Covered Person's designated
supervisor, the Securities and Exchange Commission,
and any self-regulatory organization of which the
Investment Adviser or the Underwriter is a member,
for at least six years following the end of the
fiscal year in which each report is made.
6.4 VIOLATION NOT AUTOMATICALLY DEEMED UNLAWFUL. Violation of any
provision of this Code shall not be considered an unlawful act
prohibited by any law. The legality of any such act may be
determined only by the courts or other legislatively
authorized bodies in accordance with applicable law.
7. EDUCATION
7.1 DELIVERY OF CODE AT TIME OF EMPLOYMENT OR TRANSFER. Each newly
hired or designated Covered Person will be given a copy of
this Code at the time of his or her employment, transfer or
promotion to such position and will be required to certify
within 30 days of the time of his or her employment, transfer
or promotion to such position that he or she has read and
understands the Code. The Chief Investment Officer will review
the Code with each newly hired or designated Portfolio Manager
and Investment Professional at the time of his or her
employment, or transfer or promotion to such position.
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7.2 ANNUAL CERTIFICATION. Each Covered Person is required to
certify annually that he or she has read this Code,
understands and recognizes that he or she is subject to the
policies and procedures set forth in this Code, and has
complied with its requirements, including the reporting of all
personal Securities trades required to be disclosed or
reported.
7.3 INDEPENDENT TRUSTEES NOT SUBJECT TO CERTIFICATION
REQUIREMENTS. Independent Trustees and their spouses, minor
children and relatives are not subject to the certification
provisions of paragraphs 7.1 or 7.2 of this Section.
8. BOARD OF TRUSTEES REVIEW
8.1 ANNUAL REVIEW. The Trustees will annually review this Code of
Ethics to determine whether any changes are appropriate in
light of particular violations or changing circumstances
generally.
8.2 ANNUAL REPORT BY INVESTMENT ADVISER. The Investment Adviser
will provide the Trustees with an annual report that:
(a) Summarizes existing procedures concerning personal
investing and changes in the procedures made during
the past year;
(b) Identifies any violations requiring significant
remedial action during the past year; and
(c) Identifies any recommended changes in existing
restrictions or procedures based upon the Trusts'
experience under this Code, evolving industry
practices, or developments in applicable laws and
regulations.
9. AMENDMENTS
This Code may be amended at any time by resolution of the Trustees, and the
boards of directors of the Investment Adviser and the Underwriter.
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