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APRIL 29, 1996 SAFECO LIFE INSURANCE COMPANY
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GROUP FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
ISSUED BY
SAFECO RESOURCE VARIABLE ACCOUNT B
AND
SAFECO LIFE INSURANCE COMPANY
Home Office: Retirement Services Department Annuity Service Office: Retirement
Services Dept.
15411 N.E. 51st Street, Redmond, Washington 98052 P.O. Box 3882, Seattle, WA
98124-3882
1-800-426-7649
The Group Flexible Purchase Payment Deferred Variable Annuity Contracts (the
Contracts) described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments on a variable basis. The
Contracts are designed for use in conjunction with retirement plans which
receive favorable tax treatment under Sections 401(k), 403(b) or 457 of the
Internal Revenue Code of 1986, as amended (Code) (see "Definitions").
Purchase Payments for the Contracts will be allocated to a segregated investment
account of SAFECO Life Insurance Company (SAFECO) which has been designated
SAFECO Resource Variable Account B (the Separate Account). The Separate Account
invests in shares of SAFECO Resource Series Trust (see SAFECO Resource Series
Trust). SAFECO Resource Series Trust currently consists of the SAFECO Resource
Equity, Bond and Money Market Portfolios.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information which is available at no
charge. Some of the discussions contained in this Prospectus will refer to the
more detailed description contained in the Statement of Additional Information
which is incorporated by reference in this Prospectus. For the Statement of
Additional Information, call l-800-426-7649 or write to the Annuity Service
Office address above.
THE CONTRACTS PROVIDE THAT A CONTINGENT DEFERRED SALES CHARGE WILL BE ASSESSED
AGAINST A WITHDRAWAL IF A PARTICIPANT WITHDRAWS ALL OR A PORTION OF THE
PARTICIPANT'S ACCUMULATION ACCOUNT VALUE WITHIN THE FIRST EIGHT CERTIFICATE
YEARS. WHILE THE CONTINGENT DEFERRED SALES CHARGE ASSESSES A PERCENTAGE OF THE
CURRENT VALUE OF A PARTICIPANT'S ACCUMULATION ACCOUNT ACCORDING TO THE STATED
SCHEDULE, THE TOTAL CONTINGENT DEFERRED SALES CHARGE COLLECTED BY SAFECO WILL
NOT EXCEED 8.5% OF THE PURCHASE PAYMENTS MADE BY A PARTICIPANT. SEE "CHARGES AND
DEDUCTIONS" FOR MORE INFORMATION.
A 10% PENALTY TAX MAY BE IMPOSED BY THE INTERNAL REVENUE SERVICE FOR PREMATURE
DISTRIBUTIONS. SEE "WITHDRAWAL" FOR MORE INFORMATION.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
This Prospectus and the Statement of Additional Information are dated April 29,
1996.
INQUIRIES: Any inquiries should be made by telephone to the Annuity Service
Office, 1-800-426-7649
or to the representative from whom this Prospectus was obtained.
TABLE OF CONTENTS
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DEFINITIONS........................................................................... 4
AN INTRODUCTION TO THE CONTRACTS...................................................... 6
EXPENSE TABLE......................................................................... 7
SCHEDULE OF ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS OUTSTANDING............... 9
FINANCIAL STATEMENTS.................................................................. 10
PERFORMANCE INFORMATION............................................................... 10
All Sub-Accounts (Other than SAFECO Resource Money Market Sub-Account)........... 10
SAFECO Resource Money Market Sub-Account......................................... 10
Rankings......................................................................... 11
SAFECO................................................................................ 11
THE SEPARATE ACCOUNT.................................................................. 11
SAFECO Resource Equity Sub-Account............................................... 11
SAFECO Resource Bond Sub-Account................................................. 12
SAFECO Resource Money Market Sub-Account......................................... 12
SAFECO RESOURCE SERIES TRUST.......................................................... 12
VOTING RIGHTS......................................................................... 12
SUBSTITUTION OF SECURITIES............................................................ 13
PURCHASING A CONTRACT................................................................. 13
Application...................................................................... 13
Minimum Purchase Payments........................................................ 13
Transfers........................................................................ 13
Employee Terminated.............................................................. 13
Allocation of Net Purchase Payments.............................................. 14
Principal Underwriter............................................................ 14
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CHARGES AND DEDUCTIONS................................................................ 14
Deduction for Premium and Other Taxes............................................ 14
Deduction for Mortality and Expense Risk Premium................................. 14
Deduction for Contingent Deferred Sales Charge................................... 15
Examples......................................................................... 16
Reduction or Elimination of the Contingent Deferred Sales Charge................. 16
Other Expenses................................................................... 16
Deduction for Administration Charge.............................................. 17
Deduction for Transfer Charge.................................................... 17
RIGHTS UNDER THE CONTRACT............................................................. 17
CONTRACT VALUE........................................................................ 18
ANNUITY PROVISIONS.................................................................... 18
Selection of Settlement Options.................................................. 18
Commencement of Annuity Payments................................................. 18
Settlement Options............................................................... 18
Frequency and Amount of Annuity Payments......................................... 19
Failure to Select Settlement Option.............................................. 19
DISTRIBUTION REQUIREMENTS............................................................. 20
Death Benefit Guarantee.......................................................... 20
TAXES................................................................................. 21
Note............................................................................. 21
General.......................................................................... 21
Qualified Plans.................................................................. 21
Multiple Contracts............................................................... 22
Income Tax Withholding........................................................... 22
WITHDRAWALS........................................................................... 23
Tax Treatment of Withdrawals..................................................... 23
Tax Sheltered Annuity Withdrawal Limitations..................................... 23
Withdrawal Amount................................................................ 24
LEGAL PROCEEDINGS..................................................................... 24
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION.......................... 24
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DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate Contract
Values prior to the Annuity Date.
ADMINISTRATION CHARGE - The amount paid to compensate SAFECO for its expense in
administering the Contract.
ANNUITY DATE - The date on which annuity payments are to commence for the
Participant as specified in the Participant's Certificate.
ANNUITY PURCHASE AGREEMENT - An agreement between a Participant and Employer
under the terms of which Employer is authorized and agrees to make certain
Purchase Payments on a Participant's behalf to be applied toward the
purchase of an annuity contract for such Participant. Such agreement shall
provide for the purchase of annuity contracts which qualify for tax
deferral under Sections 401(k), 403(b) or 457 of the Internal Revenue Code.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
APPLICATION FOR PARTICIPATION - The document by which an Employee applies to
participate under the Contract.
BENEFICIARY - The person(s) entitled to receive benefits under the Contract upon
the death of a Participant.
CERTIFICATE - The Allocated Group Variable Annuity Certificate issued to each
Participant which includes all provisions of the Contract and which
evidences a Participant's interest in the Contract.
CERTIFICATE ANNIVERSARY - The same day and month of the Effective Date of each
Certificate in subsequent years.
CERTIFICATE EFFECTIVE DATE - The earlier of the date the initial Purchase
Payment is invested for a specific Participant, or the Participant's
Certificate Year under SAFECO's Qualified Pension Annuity Series III, III
Plus or IV. The earlier date may only be used with the first purchase of a
Certificate. For all subsequent purchases of a Certificate by the
Participant, the Certificate Effective Date shall be the same as the
Certificate Issue Date for that Certificate.
CERTIFICATE ISSUE DATE - The date on which the initial Purchase Payment is
invested for a specific Participant and the Certificate is issued to the
Participant pursuant to the Contract.
CERTIFICATE YEAR - The twelve-month period which commences on the Effective Date
of each Certificate and, thereafter, from each Certificate Anniversary.
CONTRACT ISSUE DATE - The date the Contract is issued and stated as such on the
Contract Data page.
CONTRACT VALUE - The sum of the values of all Accumulation Units attributable to
the Contract.
EMPLOYEE - Any person presently or in the future employed by Employer.
NET INVESTMENT FACTOR - A factor used in the calculation of the Accumulation
Unit Value and the Annuity Unit Value.
NET PURCHASE PAYMENTS - Purchase Payments less premium taxes and applicable
Administration Charges.
PARTICIPANT - Any Employee of Employer who has executed an Application for
Participation which has been accepted by SAFECO.
PARTICIPANT'S ACCUMULATION ACCOUNT - The account established on behalf of each
Participant which reflects the Participant's interest in the Contract.
PORTFOLIO - A segment of the SAFECO Resource Series Trust which constitutes a
separate and distinct class of shares.
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PURCHASE PAYMENTS - Payments made to purchase Accumulation Units for a
Participant's Accumulation Account.
QUALIFIED PLAN - For purposes herein, a retirement plan which receives favorable
tax treatment under Sections 401(k), 403(b) or 457 of the Internal Revenue
Code.
SAFECO - SAFECO Life Insurance Company.
SAFECO RESOURCE SERIES TRUST - The funding vehicle for the Separate Account.
SEPARATE ACCOUNT - The separate investment account of SAFECO designated as
SAFECO Resource Variable Account B.
VALUATION DATE - Each day that the New York Stock Exchange is open for business,
which is Monday through Friday, except for New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
VALUATION PERIOD - The period commencing at 4:00 P.M. New York time, 1:00 P.M.
West Coast time, on each Valuation Date and ending at 4:00 P.M. New York
time on the next succeeding Valuation Date.
WITHDRAWAL - Any deduction of Accumulation Units from a Participant's
Accumulation Account.
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AN INTRODUCTION TO THE CONTRACTS
The Contracts described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments on a variable basis. The
Contracts are designed for use with retirement plans which receive favorable tax
treatment under Sections 401(k), 403(b) or 457 of the Code.
Purchase Payments for the Contracts are allocated to a segregated investment
account of SAFECO Life Insurance Company (the Separate Account). The assets of
the Separate Account are the property of SAFECO and obligations arising under
the Contracts are SAFECO's general corporate obligations.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one Portfolio of the SAFECO Resource Series Trust (the
Trust). The Trust is an open-end, diversified, management investment company.
There are currently three Portfolios available to the Separate Account under the
Trust: the SAFECO Resource Equity, Bond and Money Market Portfolios. The
availability of a Portfolio as an investment to a Participant is dependent on
the terms of the Qualified Plan in which he or she participates. Each Portfolio
of the Trust has a different investment objective. For more information on the
Trust and its respective Portfolios, please see "SAFECO Resource Series Trust"
and the Prospectus for the Trust which accompanies and should be read with this
Prospectus.
To acquire a Contract, an Employer enters into an Annuity Purchase Agreement.
Under the Agreement, the Employer agrees to make certain Purchase Payments on a
Participant's behalf. The minimum Purchase Payment is $30 per Participant per
any Sub-Account. An Employee can become a Participant under the Contract by
completing an Application for Participation. SAFECO will issue a Certificate to
each Participant eligible under the Contract and for each Participant's
Accumulation Account established under the Contract. The Accumulation Account
reflects each Participant's interest in the Contract Value. For more
information, see "Purchasing a Contract."
The Contract Value is the sum of the value of all Accumulation Units
attributable to the Contract. The value of an Accumulation Unit will vary from
Valuation Period to Valuation Period which begins at 1:00 P.M. West Coast time
(4:00 P.M. New York time) on each day the New York Stock Exchange is open for
trading. See "Contract Value" for more information.
Various charges and deductions are made from Purchase Payments, Participant's
Accumulation Accounts and the Separate Account. These include premium or other
taxes, a Mortality and Expense Risk Premium, an Administration Charge and
Transfer Charges. Upon full or partial withdrawal of a Participant's
Accumulation Account, a Contingent Deferred Sales Charge for those Purchase
Payments received in the first 8 Certificate Years, which exceed 10% of the
value of the Accumulation Units in a Participant's Account, may also be assessed
as a percentage of withdrawal. See "Charges and Deductions" for more
information. In addition, there are deductions from and expenses paid out of the
assets of the Trust. See the accompanying Trust Prospectus.
Annuity Payments begin on a specified Annuity Date according to a selected
Settlement Option. Minimum distributions are required once a Participant attains
a certain age. For a discussion of Annuity Dates, Settlement Options and
Distributions, see "Annuity Provisions" and "Distribution Requirements."
Withdrawals are subject to the Qualified Plan under which the Contract is issued
and the Code. The Code imposes a 10% penalty tax on the taxable portion of any
distribution from Qualified Plans, including both 401(a) and 403(b) plans, with
certain exceptions. See "Withdrawal" for more comprehensive information.
Effective January 1, 1989, the Tax Reform Act of 1986 limits the withdrawal of
amounts attributable to contributions made pursuant to a salary reduction
agreement (as defined in Section 403(b)(11) of the Code) to circumstances where
the Participant attains age 59 1/2, separates from service, dies, becomes
disabled (within the meaning of Section 72(m)(7) of the Code), or in the case of
hardship. However, withdrawals for hardship are restricted to the portion of the
Participant's Accumulation Account Value which represents contributions made by
the Participant and does not include any income attributable to those
contributions. See "Tax Sheltered Annuity Withdrawal Limitations" in this
Prospectus for more information.
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Generally, Participants are not taxed on increases in the value of the
Participant's Accumulation Account until distribution occurs. However, taxation
of Participants will vary with the type of and terms and conditions of each
Qualified Plan under which the Contracts are offered. For a discussion of the
tax treatment of annuities, see "Taxes."
EXPENSE TABLE
SAFECO RESOURCE VARIABLE ACCOUNT B
PARTICIPANT'S TRANSACTION EXPENSES:
Contingent Deferred Sales Charge (as a percentage of withdrawal)*: This charge
applies to Withdrawals in any Certificate Year which exceed 10% of the value of
the Accumulation Units in a Participant's Account:
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Certificate Year 1 9% of withdrawal
Certificate Year 2 9% of withdrawal
Certificate Year 3 8% of withdrawal
Certificate Year 4 7% of withdrawal
Certificate Year 5 6% of withdrawal
Certificate Year 6 5% of withdrawal
Certificate Year 7 4% of withdrawal
Certificate Year 8 2% of withdrawal
Certificate Year 9 and after 0%
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*While the Contingent Deferred Sales Charge assesses a percentage of the current
value of a Participant's Accumulation Account according to the stated schedule,
total Contingent Deferred Sales Charges collected by SAFECO will not exceed 8.5%
of the Purchase Payments made by a Participant.
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TRANSFER (EXCHANGE) CHARGE: $10 per transfer
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(first four transfers per calendar year and pre-established monthly
automatic transfers from one Sub-Account to another are free)
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ANNUAL ADMINISTRATION CHARGE $30 per Participant*
SEPARATE ACCOUNT ANNUAL EXPENSES:
(as a percentage of average account value)
Mortality and Expense Risk Premium 1.25%
-----
Total Separate Account Annual Expenses 1.25%
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SAFECO RESOURCE SERIES TRUST ANNUAL EXPENSES:
(as a percentage of average net assets)
Management Fees
SAFECO Resource Equity Portfolio .72%
SAFECO Resource Bond Portfolio .72%
SAFECO Resource Money Market Portfolio .62%
Other Expenses
SAFECO Resource Equity Portfolio .03%
SAFECO Resource Bond Portfolio** .00%
SAFECO Resource Money Market Portfolio** .00%
Total Trust Annual Expenses (After Reimbursement)
SAFECO Resource Equity Portfolio .75%
SAFECO Resource Bond Portfolio .72%
SAFECO Resource Money Market Portfolio .62%
</TABLE>
* For purposes of the Examples, the annual Administration Charge is calculated
as a ratio of total Administration Charges collected during the year to the
total average net assets of all Sub-Accounts. The
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annual Administration Charge percentage will change each year because of
changes in total Administration Charges collected during the year and the
total average net assets of all Sub-Accounts. This will result in variations
in the Expense Table each year.
** SAFECO pays all Other Expenses of each Portfolio until a Portfolio's assets
reach $20 million. Once a Portfolio's assets exceed $20 million, the Other
Expenses of the Portfolio will be paid by such Portfolio.
During the year ended December 31, 1995, SAFECO paid for all of the Other
Expenses of the Bond and Money Market Portfolios. Expenses before such
reimbursement as a percentage of net assets were as follows:
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SAFECO Resource Bond Portfolio .94%
SAFECO Resource Money Market Portfolio .87%
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EXAMPLES FOR SAFECO RESOURCE EQUITY SUB-ACCOUNT Year 1 Year 3 Year 5 Year 10
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Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period................... 107 150 186 266
Assuming annuitization at end of period................ 24 73 124 266
Assuming no withdrawal................................. 24 73 124 266
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EXAMPLES FOR SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT Year 1 Year 3 Year 5 Year 10
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Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period................... 106 147 180 253
Assuming annuitization at end of period................ 22 69 118 253
Assuming no withdrawal................................. 22 69 118 253
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EXAMPLES FOR SAFECO RESOURCE BOND SUB-ACCOUNT Year 1 Year 3 Year 5 Year 10
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Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period................... 106 150 184 263
Assuming annuitization at end of period................ 23 72 123 263
Assuming no withdrawal................................. 23 72 123 263
</TABLE>
The information in the "Examples" is provided to assist the Participant in
understanding the various costs and expenses charged to a Participant's
Accumulation Account either directly or indirectly and reflects expenses of
SAFECO Resource Variable Account B and SAFECO Resource Series Trust. The
Examples do not reflect premium taxes which may be applicable. Contingent
Deferred Sales Charges may be waived in certain circumstances. For additional
information, see "Charges and Deductions" in this Prospectus for SAFECO Resource
Variable Account B, "Management of the Trust" in the Prospectus for SAFECO
Resource Series Trust.
THE INFORMATION ABOVE IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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SCHEDULE OF ACCUMULATION UNIT VALUES AND ACCUMULATION UNITS OUTSTANDING
SAFECO RESOURCE VARIABLE ACCOUNT B
The following selected financial data are derived from the financial statements
of SAFECO Resource Variable Account B, which have been audited by Ernst & Young
LLP, independent auditors. The data should be read in conjunction with the
financial statements, related notes, and other financial information
incorporated by reference herein.
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1995 1994 1993 1992 1991 1990 1989 1988 1987
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SAFECO RESOURCE EQUITY SUB-ACCOUNT
July 21 value
(initial public
offering) $12.101
December 31 value $ 32.321 $ 25.424 $ 23.630 $18.704 $17.520 $13.987 $14.937 $11.901 $ 9.588
December 31 units 2,773,699 2,125,903 1,402,021 920,315 611,236 362,309 266,682 223,680 205,352
SAFECO RESOURCE BOND SUB-ACCOUNT
July 21 value
(initial public
offering) $10.126
December 31 value $ 18.117 $ 15.559 $ 16.253 $14.882 $14.107 $12.532 $11.909 $10.835 $10.250
December 31 units 481,273 479,731 446,935 310,293 255,098 219,928 211,685 200,405 200,017
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
July 21 value
(initial public
offering) $10.083
December 31 value $ 14.417 $ 13.837 $ 13.516 $13.335 $13.074 $12.527 $11.754 $10.923 $10.318
December 31 units 308,155 341,722 273,511 307,262 231,643 224,216 210,094 209,593 203,233
</TABLE>
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FINANCIAL STATEMENTS
The financial statements for the Separate Account and SAFECO Life Insurance
Company are contained in the Statement of Additional Information which is
available at no charge by calling 1-800-426-7649 or writing to the Annuity
Service Office address on the cover.
PERFORMANCE INFORMATION
In advertisements, the "yield," "effective yield," "total return" and "average
annual total return" of the Sub-Accounts may be quoted.
ALL SUB-ACCOUNTS (OTHER THAN SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT)
"Yield" is the annualization on a 360-day basis of net income per unit over a
30-day period divided by the accumulation unit value on the last day of the
period. Yield figures are calculated by determining the income generated by an
investment in the Sub-Account over a 30-day period. The income is then
annualized by assuming that the income generated during the 30-day period
continues to be generated each month for a 12-month period and is shown as a
percentage of the investment. Yield figures will reflect deduction of the
Administration Charge which is assessed on every Participant's Accumulation
Account on an annual basis, but will not include any applicable Contingent
Deferred Sales Charge.
"Total return" is the total percentage change in the unit value of an investment
over a stated period of time. "Average annual total return" is the annual
percentage change in the unit value of an investment over a stated period of
time. Both total return and average annual total return assume the reinvestment
of dividend and capital gains distributions.
Standardized total return figures which appear in advertisements or sales
literature will be calculated for required time periods based on a set initial
investment amount and include the annual Administration Charge and the
Contingent Deferred Sales Charge. From time to time, non-standardized total
return figures may accompany the standardized figures. Nonstandardized total
return figures may be calculated in a variety of ways including but not
necessarily limited to different time periods, different initial investment
amounts, additions of periodic payments, use of time weighted average annual
returns which take into consideration the length of time each investment has
been on deposit, and without the Administration Charge and/or with or without
the Contingent Deferred Sales Charge. Non-standardized figures may cause the
performance of the Sub-Accounts to appear higher than performance calculated
using standard parameters.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
"Yield" is the annualization on a 365-day basis of the SAFECO Resource Money
Market Sub-Account's net income over a 7-day period. Yield figures are
calculated by determining the income generated by an investment in the
Sub-Account over a 7-day period. The income is then annualized by assuming that
the income generated during the 7-day period continues to be generated each week
for a 52-week period and is shown as a percentage of the investment.
"Effective yield" is the annualization, on a 365-day basis, of the Sub-Account's
net income over a 7-day period with dividends reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
As explained above, yield figures will reflect deduction of the annual
Administration Charge which is assessed to all Participants' Accumulation
Accounts, but will not include any applicable Contingent Deferred Sales Charge.
For the SAFECO Resource Money Market Portfolio, total return and average annual
total return are non-standardized performance figures which may accompany the
standardized yield and effective yield. "Total return" is the total percentage
change in the unit value of an investment over a stated period of time and
"average annual total return" is the annual percentage change in the unit value
of an investment over a stated
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period of time. Non-standardized total return and average annual total return
figures for the SAFECO Resource Money Market Portfolio may be calculated in a
variety of ways, as described above.
RANKINGS
In addition to these performance figures, the Sub-Accounts may advertise
rankings as provided by the Lipper Variable Insurance Products Performance
Analysis Service published by Lipper Analytical Services, Inc. which monitors
separate account performance for variable annuity products such as the
Contracts, the VARDS Report which is a monthly variable annuity industry
analysis compiled by Variable Annuity Research & Data Service of Roswell,
Georgia and published by Financial Planning Resources, Inc. or the Variable
Annuity Performance Report published by Morningstar, Inc. which is also a
monthly analysis of variable annuity performance. Rankings provided by these
sources may or may not include all applicable charges.
Performance figures and quoted rankings are indicative only of past performance
and are not intended to represent future investment results.
For additional information concerning the calculation of "yield," "effective
yield," "total return" and "average annual total return," see the "Additional
Performance Information" section of the Statement of Additional Information.
SAFECO
SAFECO Life Insurance Company (SAFECO) is a stock life insurance company which
was organized under the laws of the state of Washington on January 23, 1957.
SAFECO writes individual and group life, accident and health insurance and
annuities. SAFECO is licensed to do business in the District of Columbia and all
states except New York. SAFECO is a wholly-owned subsidiary of SAFECO
Corporation which is a holding company whose subsidiaries are engaged primarily
in insurance and financial service businesses. The home office of SAFECO is
located at 15411 N.E. 51st Street, Redmond, Washington 98052.
THE SEPARATE ACCOUNT
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on February 6, 1986. This
segregated asset account has been designated SAFECO Resource Variable Account B
(Separate Account). SAFECO has caused the Separate Account to be registered with
the Securities and Exchange Commission as a unit investment trust pursuant to
the provisions of the Investment Company Act of 1940. The Separate Account meets
the definition of a "separate account" under the federal securities laws.
The assets of the Separate Account are the property of SAFECO. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business SAFECO may conduct. Income, gains
and losses, whether or not realized, are in accordance with the Contracts
credited to or charged against the Separate Account without regard to other
income, gains or losses of SAFECO. SAFECO's obligations arising under the
Contracts are general corporate obligations.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one or more Portfolio(s) of SAFECO Resource Series
Trust. Currently there are three Portfolios available under the Trust: the
SAFECO Resource Equity Portfolio, SAFECO Resource Bond Portfolio and SAFECO
Resource Money Market Portfolio. The availability of a Portfolio as an
investment to a Participant is dependent on the terms of the Qualified Plan in
which he or she participates.
SAFECO RESOURCE EQUITY SUB-ACCOUNT
The investment objective of the SAFECO Resource Equity Sub-Account is to seek
long-term growth of capital and reasonable current income.
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The SAFECO Resource Equity Sub-Account invests in the Trust's Equity Portfolio.
To pursue its investment objective, the SAFECO Resource Equity Portfolio
ordinarily invests principally in common stocks or securities convertible into
common stocks. Fixed-Income securities may be purchased in accordance with
business and financial conditions.
SAFECO RESOURCE BOND SUB-ACCOUNT
The investment objective of the SAFECO Resource Bond Sub-Account is to seek as
high a level of current income as is consistent with the relative stability of
capital.
The SAFECO Resource Bond Sub-Account invests in the Trust's Bond Portfolio. To
pursue its investment objective, the SAFECO Resource Bond Portfolio invests
primarily in medium-term debt securities. Although the SAFECO Resource Bond
Portfolio does not intend to purchase below investment grade bonds during the
coming year, it may hold up to 20% of total assets in bonds which are downgraded
after purchase to below investment grade quality by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Below investment grade bonds are
commonly referred to as high-yield or "junk" bonds and have special risks
associated with them. See the Trust's Prospectus and Statement of Additional
Information for more information.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
The investment objective of the SAFECO Resource Money Market Sub-Account is to
seek as high a level of current income as is consistent with the preservation of
capital and liquidity through investments in high-quality money market
investments maturing in thirteen months or less.
The SAFECO Resource Money Market Sub-Account invests in the Trust's Money Market
Portfolio which seeks to maintain a net asset value per share of $1.00. SHARES
OF THE SAFECO RESOURCE MONEY MARKET PORTFOLIO ARE NEITHER INSURED, NOR
GUARANTEED, BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE SAFECO
RESOURCE MONEY MARKET PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
SAFECO RESOURCE SERIES TRUST
SAFECO Resource Series Trust (Trust) has been established to act as a funding
vehicle for the Contracts offered. The investment adviser to the Trust is SAFECO
Asset Management Company (SAM), SAFECO Plaza, Seattle, Washington. The Trust is
an open-end, diversified, management investment company. While a brief summary
of the investment objectives of each Trust Portfolio is set forth above, more
comprehensive information is found in the current Prospectus for the Trust.
THE TRUST PROSPECTUS IS ATTACHED AND ACCOMPANIES THIS PROSPECTUS. BOTH DOCUMENTS
SHOULD BE READ TOGETHER AND CAREFULLY BEFORE INVESTING. AN ADDITIONAL PROSPECTUS
AND THE STATEMENT OF ADDITIONAL INFORMATION FOR THE TRUST CAN BE OBTAINED BY
CALLING THE NUMBER ON THE COVER PAGE OF THIS PROSPECTUS OR WRITING TO THE
ADDRESS OF THE ANNUITY SERVICE OFFICE LISTED THERE. ADDITIONAL PORTFOLIOS MAY BE
ESTABLISHED BY THE TRUST FROM TIME TO TIME AND MAY BE MADE AVAILABLE TO
PARTICIPANTS.
VOTING RIGHTS
In accordance with its view of present applicable law, SAFECO will vote the
shares of the Trust held in the Separate Account at special meetings of the
shareholders in accordance with instructions received from persons having the
voting interest in the Separate Account. SAFECO will vote shares it owns for
which it has not received instructions, as well as shares attributable to it, in
the same proportion as it votes shares for which it has received instructions.
The Trust does not hold regular meetings of shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by SAFECO not more than sixty (60) days prior to the meeting
of the Trust. Voting instructions will be solicited by written communication at
least fourteen (14) days prior to such meeting with respect to the Trust.
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<PAGE> 13
SUBSTITUTION OF SECURITIES
If the shares of the Trust (or any Portfolio within the Trust) should no longer
be available for investment by the Separate Account or, if in the judgment of
SAFECO, further investment in such shares should become inappropriate in view of
the purpose of the Contracts, SAFECO may substitute shares of another mutual
fund (or Portfolio within the Trust) for fund shares already purchased or to be
purchased in the future by Purchase Payments under the Contracts. No
substitution of securities may take place without prior approval of the
Securities and Exchange Commission and under such requirements as it may impose.
PURCHASING A CONTRACT
APPLICATION
In order to acquire a Contract, an Employer enters into an Annuity Purchase
Agreement. Pursuant to that agreement, the Employer is authorized and agrees to
make certain Purchase Payments on a Participant's behalf to be applied toward
the purchase of an annuity for such Participant. In order to become a
Participant under the Contract, an employee must complete an Application for
Participation. Each eligible Participant will receive a Certificate, along with
a copy of the Contract, which will evidence a Participant's interest in the
Contract.
MINIMUM PURCHASE PAYMENTS
The minimum Purchase Payment is $30 per Participant per any Sub-Account.
TRANSFERS
A Participant may transfer Accumulation Units between Sub-Accounts or into
SAFECO's Qualified Pension Annuity Series III. See "Deduction for Transfer
Charge" in this Prospectus.
Accumulation Units which are being transferred will be redeemed at the price
next computed after the Participant's transfer request is received. The purchase
of Accumulation Units in the Sub-Account the Participant is transferring into or
the deposit into SAFECO's Qualified Pension Annuity Series III will normally be
executed the same day. However, the Sub-Accounts reserve the right to delay the
payment of proceeds and, therefore, the purchase in a transfer for up to seven
days if making immediate payment could adversely affect the Sub-Account
redeemed.
The first four transfers per calendar year and pre-established monthly automatic
transfers from one Sub-Account to another are free. A $10 fee per transfer is
charged after these limits are reached.
1. Transfer Limitations:
The transfer privilege is not intended to provide a means for frequent
trading in response to short-term fluctuations in the market (i.e., market
timing). Excessive transfer transactions can be disadvantageous to other
Participants and to Resource Variable Account B.
2. Transfers By Written Request:
Accumulation Units may be transferred by writing SAFECO at the address on the
Prospectus cover and specifying the transfer desired and your Certificate
Number. The request must be signed by the Participant or a third party to
whom the Participant has given appropriate authority. SAFECO must be given a
copy of the document granting such authority.
EMPLOYEE TERMINATED
If an Employee's employment with Employer is terminated, the Employee may
continue to participate under the Contract to the extent of Purchase Payments
previously made on behalf of such Employee by Employer prior to termination of
employment. No further contributions will be accepted under the Contract on
behalf of any Participant who has ceased to be an Employee.
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<PAGE> 14
ALLOCATION OF NET PURCHASE PAYMENTS
A Net Purchase Payment is equal to the Purchase Payment less any applicable
premium taxes and applicable Administration Charges. Net Purchase Payments are
allocated to the Separate Account and are converted into Accumulation Units. The
Net Purchase Payments are divided by the value of an Accumulation Unit for the
Sub-Account Valuation Period during which such allocation occurs to determine
the number of Accumulation Units attributable to the Net Purchase Payment. For
initial Net Purchase Payments on behalf of any Participant, if the Application
for Participation is in good order, SAFECO will apply the Net Purchase Payment
to the Separate Account and credit the Participant's Accumulation Account with
Accumulation Units within two business days of receipt. If the Application is
not in good order, SAFECO will attempt to achieve good order or will return the
Application and the Purchase Payment within five business days. For subsequent
Purchase Payments in good order, SAFECO will apply the Net Purchase Payment to
the Separate Account and credit the Participant's Accumulation Account with
Accumulation Units during the next Valuation Period after the Purchase Payment
was received.
PRINCIPAL UNDERWRITER
Currently SAFECO Securities, Inc. (SSI) acts as the principal underwriter of the
contracts. SSI has its business address at SAFECO Plaza, Seattle, Washington
98185. Prior to April 29, 1994, PNMR Securities, Inc. (PNMR), SAFECO Plaza,
Seattle, Washington 98185, acted as the principal underwriter of the Contracts.
SSI and PNMR are wholly-owned subsidiaries of SAFECO Corporation and therefore
are affiliates of SAFECO.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Purchase Payments, Participants'
Accumulation Accounts and the Separate Account. These charges and deductions
are:
DEDUCTION FOR PREMIUM AND OTHER TAXES
Any premium taxes or other taxes levied by any governmental entity which SAFECO,
in its sole discretion, determines have resulted from the establishment or
maintenance of the Separate Account, or from the investment experience of the
Separate Account, or from the receipt by SAFECO of Purchase Payments or from the
issuance of the Contract or from the commencement of annuity payments will be
charged against Purchase Payments, a Participant's Accumulation Account or
withdrawal value. Premium taxes currently imposed by certain states on the type
of Contracts offered hereby range from 0% to 2.5%. Some states assess their
premium taxes at the time Purchase Payments are made; others assess their
premium taxes at the time annuity payments commence. Premium taxes are subject
to change or amendment by state legislatures, administrative interpretations or
judicial acts. Such premium taxes will depend on, among other things, the
location of the Employer, the classification of the Contract by the states, the
status of SAFECO within such state and the insurance tax laws of such state.
DEDUCTION FOR MORTALITY AND EXPENSE RISK PREMIUM
SAFECO deducts on each Valuation Date a Mortality and Expense Risk Premium which
is equal on an annual basis to 1.25% of the daily net asset value of the
Separate Account. The mortality risks assumed by SAFECO arise from its
contractual obligation to make annuity payments after the Annuity Date for the
life of the Participant, to waive Contingent Deferred Sales Charges in the event
of the death of a Participant and to guarantee return of principal upon the
Participant's death. The expense risk assumed by SAFECO is that the costs of
administering the Contracts and the Separate Account will exceed the amount
received from the Administration Charge.
If the Mortality and Expense Risk Premium is insufficient to cover the actual
costs, the loss will be borne by SAFECO. Conversely, if the amount deducted
proves more than sufficient, the excess will be profit to SAFECO. SAFECO expects
a profit from this charge.
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<PAGE> 15
The Mortality and Expense Risk Premium is guaranteed by SAFECO and cannot be
increased.
DEDUCTION FOR CONTINGENT DEFERRED SALES CHARGE
In certain situations that a Participant withdraws all or a portion of the
Participant's Accumulation Account, a Contingent Deferred Sales Charge is
deducted from the Withdrawal. This charge reimburses SAFECO for expenses
incurred in connection with the promotion, sale and distribution of the
Contracts. The Contingent Deferred Sales Charge is applied only to those
Purchase Payments received in the first eight (8) Certificate Years. The
Contract or Certificate describes the situations where the Contingent Deferred
Sales Charge does not apply. Some of these situations are:
(i) under a Settlement Option;
(ii) on distributions made pursuant to the death of a Participant;
(iii) on a transfer of the market value of some or all of a Participant's
Accumulation Account into SAFECO's Qualified Pension Annuity Series III;
(iv) on a transfer of the market value of Accumulation Units between
Sub-Accounts;
(v) effective April 1, 1989, with respect to the sum of withdrawals taken in
any Certificate Year which do not exceed 10% of the value of the
Accumulation Units in a Participant's Accumulation Account from which the
withdrawal is taken; or
(vi) effective April 29, 1994 and subject to cancellation by written notice by
SAFECO, for transfers by a 401(k) Participant into SAFECO's Qualified
Pension Annuity Series V or VI, or Spinnaker Q due to death, disability,
retirement, termination of employment, or plan termination under the
following conditions:
a. the amount withdrawn is $2,000 or more, or the entire Participant's
Accumulation Account, when it is being transferred to Qualified
Pension Annuity Series V;
b. the amount withdrawn is $5,000 or more when it is being transferred to
Qualified Pension Annuity Series VI; or
c. the amount withdrawn is $2,000 or more when it is being transferred to
Spinnaker Q.
The amount of the Contingent Deferred Sales Charge will be based on the
following:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Certificate Year as a Percentage of Withdrawal
---------------- ---------------------------------
<S> <C>
1 9% of withdrawal
2 9% of withdrawal
3 8% of withdrawal
4 7% of withdrawal
5 6% of withdrawal
6 5% of withdrawal
7 4% of withdrawal
8 2% of withdrawal
9 and after 0%
</TABLE>
The Contingent Deferred Sales Charge assesses a percentage of the current value
of a Participant's Accumulation Account according to the stated schedule.
However, total Contingent Deferred Sales Charges collected by SAFECO will not
exceed 8.5% of the Purchase Payments made by a Participant.
The commissions paid to registered representatives on the sale of Contracts are
not more than 7% of the Purchase Payments. In addition, commissions, overrides
and bonuses may be paid to SSI's registered representatives and/or other
distributors of the Contracts. A bonus dependent upon persistency of funds on
deposit in Resource B Contracts is one type of bonus that may be paid. Noncash
compensation may include
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<PAGE> 16
accrual of conference travel credits and prizes. To the extent that the
Contingent Deferred Sales Charge is insufficient to cover the actual cost of
distribution, SAFECO may use any of its corporate assets, including potential
profit which may arise from the Mortality and Expense Risk Premium, to make up
any difference.
EXAMPLES
The following examples may be helpful in understanding how the Contingent
Deferred Sales Charge works:
Example 1:
The Participant contributes $10,000 in the first Certificate Year and nothing
additional in the next five years for a total of $10,000 in deposits. In the
sixth Certificate Year, the Participant withdraws the entire Accumulation
Account which now has a value of $16,000. The penalty-free amount is 10% of
$16,000, or $1,600. The Contingent Deferred Sales Charge would be calculated as
follows: the appropriate percentage is 5%. The Contingent Deferred Sales charge
is 5% multiplied by $14,400 ($16,000-$1,600), which is $720. Therefore, the net
amount paid at surrender is $16,000 minus $720 or $15,280.
Example 2:
The Participant contributes $1,000 per year for ten years for a total of $10,000
in deposits. In the twelfth Certificate Year, the Participant elects to withdraw
a gross amount of $5,000 from the Participant's Accumulation Account which has a
current value of $15,000. Since at least eight Certificate Years have passed,
there is no Contingent Deferred Sales Charge applicable.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to a group in a
manner that results in savings of sales expenses. The entitlement to reduction
of the Contingent Deferred Sales Charge will be determined by SAFECO after
examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made. Generally, the
sales expenses for a larger group are less than for a smaller group because
of the ability to implement large numbers of Contracts with fewer sales
contacts.
2. The total amount of Purchase Payments to be received. Per Contract sales
expenses are likely to be less on larger Purchase Payments than on smaller
ones.
3. Any prior or existing relationship with SAFECO. Per Contract sales expenses
are likely to be less when there is a prior existing relationship because of
the likelihood of implementing the Contract with fewer sales contacts.
4. There may be other circumstances, of which SAFECO is not presently aware,
which could result in reduced sales expenses.
If, after consideration of the foregoing factors, SAFECO determines that there
will be a reduction in sales expenses, SAFECO may provide for a reduction or
elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of SAFECO or any of its affiliates.
In no event will reductions or elimination of the Contingent Deferred Sales
Charge be permitted where reductions or elimination will be unfairly
discriminatory to any person.
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of SAFECO
Resource Series Trust which are described in the accompanying Trust Prospectus.
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<PAGE> 17
DEDUCTION FOR ADMINISTRATION CHARGE
SAFECO deducts an annual fee of $30 per Participant per calendar year, or any
portion thereof, from the Participant's Accumulation Account for administrative
expenses associated with the administration of the Participant's Accumulation
Account and of the Separate Account. The $30 fee will be deducted on the date
the initial Purchase Payment is invested and on each Certificate Anniversary.
The Administration Charge is also assessed in the event of a total withdrawal.
In the event the Certificate Anniversary and the deduction from initial Purchase
Payments or complete withdrawal fall within one calendar year, SAFECO shall
deduct no more than $30 for that particular year. Prior to the Annuity Date for
the Participant, the Administration Charge is not guaranteed and may be changed
for future years. However, the Administration Charge may never exceed $35 per
Participant per calendar year. SAFECO does not make a profit from the
Administration Charge.
The fee is deducted first from the SAFECO Resource Money Market Sub-Account. In
the event there are no Accumulation Units in the SAFECO Resource Money Market
Sub-Account or not enough in value to meet the Administration Charge, the
balance of deductions necessary is then taken from the SAFECO Resource Bond
Sub-Account and finally from the SAFECO Resource Equity Sub-Account.
DEDUCTION FOR TRANSFER CHARGE
A Participant may elect one of the following methods of transfer:
1. The first four transfers per Participant per Calendar Year of any of a
Participant's Accumulation Account into SAFECO's Qualified Pension Annuity
Series III or between Sub-Accounts will have no transfer charge assessed
against them. Any additional transfers will be subject to a $10 transfer
charge, which will be deducted from the value of Accumulation Units
transferred. Each transfer is subject to a $1,000 minimum or the entire
Sub-Account if less. A $500 minimum must be maintained in a Sub-Account to
keep it open for all Certificates issued after April 28, 1989. A $250 minimum
may be maintained in a Sub-Account for all Certificates issued prior to and
including April 28, 1989; or
2. Pre-established monthly automatic transfers of a single dollar amount of at
least $250 into SAFECO's Qualified Pension Annuity Series III or between
Sub-Accounts will have no transfer charge assessed against them. Any
additional transfers will be subject to a $10 transfer charge which will be
deducted from the value of Accumulation Units being transferred. The monthly
transfers will continue to be made until the Participant requests
discontinuance or there are no funds left in the Sub-Account to transfer. If
monthly transfers are discontinued prior to six months after establishing the
transfers, all transfers will be considered to have been made under paragraph
1 above.
RIGHTS UNDER THE CONTRACT
Prior to the Annuity Date, the Employer has the voting rights under the
Contract. After the Annuity Date, the Participant has the voting rights with
respect to the Participant's Accumulation Account, and the Participant's
Beneficiary will have such rights upon the Participant's death. The Participant
has the right to select settlement options and designate beneficiaries, subject
to any limitations contained in the Qualified Plan pursuant to which the
Contract was acquired. The Beneficiary has any rights passed on as a result of
the death of the Participant.
SAFECO will issue a Certificate to each Participant eligible according to the
Contract and for each Participant's Accumulation Account established under the
Contract. A Certificate shall not be issued and an Accumulation Account shall
not be established on behalf of a Participant who is over 75 years of age on the
Certificate Issue Date under Contracts issued after April 28, 1989. Each
Certificate will state in substance the provisions of the Contract and the
benefits to which such Participant is entitled. No Participant shall have any
rights under the Contract until, and only to the extent that, Purchase Payments
on the Participant's behalf are received by SAFECO.
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<PAGE> 18
To the extent permitted by law, the benefits or payments under the Contract
shall not be assignable or otherwise transferable, nor subject to commutation,
encumbrance or alienation and shall not be subject to any claim of any creditor
or to any legal process by any creditor.
All withdrawals are subject to the Plan under which the Contract is issued and
the Internal Revenue Code of 1986, as amended. However, withdrawals from a
Participant's Accumulation Account taken solely for purposes of an exchange or a
transfer to another contract are not limited by these restrictions.
The Contract may not be modified by SAFECO without the consent of the Employer,
except as may be required by applicable law.
CONTRACT VALUE
The Contract Value is the sum of the value of all Accumulation Units
attributable to the Contract. A Participant's Accumulation Account reflects the
Participant's share of the Contract Value.
The value of an Accumulation Unit will vary from Valuation Period to Valuation
Period. The value of an Accumulation Unit is determined at the end of the
Valuation Period and reflects the investment earnings or loss and the deductions
for the Valuation Period.
ANNUITY PROVISIONS
SELECTION OF SETTLEMENT OPTIONS
At the time a Participant completes the Application for Participation, a
Settlement Option must be selected. A Participant may, upon at least thirty (30)
days' prior written notice to SAFECO, at any time prior to the Annuity Date,
elect a different Settlement Option or any other annuity form satisfactory to
SAFECO and the Participant.
COMMENCEMENT OF ANNUITY PAYMENTS
Annuity payments to a Participant will begin on the Participant's Annuity Date.
An Annuity Date is selected at the time the Participant completes the
Application for Participation. The selection of an Annuity Date is limited by
the terms of the Qualified Plan pursuant to which the Contract was acquired. A
Participant may, upon at least thirty (30) days' prior written notice to SAFECO,
change the Annuity Date to a date which must be the first day of a calendar
month. The Annuity Date may not be deferred, however, beyond any date specified
under the Qualified Plan or as limited under the Internal Revenue Code of 1986,
as amended.
SETTLEMENT OPTIONS
The net proceeds payable upon settlement of a Participant's interest in the
Contract, may be paid under one of the following options.
Option 1 - Variable Life Annuity. A variable annuity payable monthly during the
lifetime of the Participant.
Option 2 - Variable Life Annuity with 120 or 240 Monthly Payments Guaranteed. A
variable annuity payable monthly during the lifetime of the Participant with the
guarantee that, if at the death of the Participant, the guaranteed number of
payments has not been received by the Participant, payments will be made to the
Beneficiary for the remainder of the guarantee period. If the Beneficiary does
not desire payments to continue for the remainder of the guarantee period, the
Beneficiary may elect to have the present value of the guaranteed annuity
payments remaining, as of the date notice of death is received by SAFECO,
commuted at the assumed investment rate of 4% and paid in a single sum.
Option 3 - Joint and Survivor Annuity. An annuity payable monthly first to the
Participant while the Participant is living. After the death of the Participant,
payments will be continued to the Participant's spouse for as long as he or she
lives. The annuity payable for the life of the spouse shall not be less than
one-half of, or greater than, the amount of the annuity payable during the joint
lives of the Participant and spouse.
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<PAGE> 19
Option 4 - Systematic Withdrawal Income Plan(TM). Each month a specified number
of whole or partial Accumulation Units is liquidated for payment to the
Participant. The number to be liquidated during a given year shall be a
sufficient number so as to be expected to deplete the account over the life
expectancy of the Participant or the joint lives of the Participant and such
person's Beneficiary, with at least 50% of the payments expected to be paid
during the Participant's life expectancy. This calculation may be made annually
based on the attained age of the Participant or joint lives of the Participant
and such person's Beneficiary. Systematic Withdrawal Income Plan is a trademark
of SAFECO Life Insurance Company.
The Participant and a designated Beneficiary who is the spouse of a deceased
Participant must elect whether or not to recalculate life expectancy. The
election must be made by written notice and is irrevocable. Participants in a
Cash or Deferred Savings Plan give such notice to the Plan administrator as
required by the terms of the Plan. The Contractholder must notify SAFECO as to
the results of such election. Participants in a Tax Sheltered Annuity or a
Deferred Compensation Plan must give written notice of their election regarding
recalculation to SAFECO prior to March lst following the year in which the
Participant attains age 70 1/2. For these Participants, notice must also specify
whether minimum distributions made under Settlement Option 4 shall be based on
the value of Participant's entire Accumulation Account balance, or whether the
value of benefits accrued prior to 1987 should be excluded from the calculation.
If SAFECO has not received such written notice prior to March lst following the
year in which the Participant attains age 70 1/2, SAFECO will recalculate life
expectancy and distributions will be based on the value of the Participant's
entire Accumulation Account balance as of the end of the preceding calendar
year.
Option 5 - Installment Payments. A Participant who has been issued a Certificate
prior to April 29, 1989, may elect an immediate or deferred installment payment
program under which withdrawals are taken from the Participant's Accumulation
Account in a predetermined amount on a predetermined frequency. Installment
payments are not available as a Settlement Option to a Participant who is issued
a Certificate after April 28, 1989. Under the Installment Payment Settlement
Option the value of the Participant's Accumulation Account must be exhausted
over 3 or more years for a Participant's Accumulation Account of at least 5
years duration where the Participant has attained at least age 59 1/2.
Withdrawals under this program are not subject to Contingent Deferred Sales
Charges. If the Beneficiary does not desire payments to continue for the
remainder of the guarantee period, the Beneficiary may elect to have the present
value of the guaranteed annuity payments remaining, as of the date the notice of
death is received by SAFECO, commuted at the assumed investment rate of 4% and
paid in a single payment.
Option 6 - Other. Any other fixed or variable form of annuity satisfactory to
both SAFECO and the Participant.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Except as described below, annuity payments will be paid monthly. If the net
amount available to apply under any Settlement Option is less than $5,000,
SAFECO shall have the right to pay such amount in one lump sum in lieu of the
payment otherwise provided. In addition, for Certificates issued after April 28,
1989, if annuity payments would be or become less than $250, SAFECO shall have
the right to change the frequency of payments to such intervals as will result
in payments of at least $250. For Certificates issued prior to April 28, 1989,
if annuity payments would be or become less than $100, SAFECO shall have the
right to change the frequency of payments to such intervals as will result in
payments of at least $100.
FAILURE TO SELECT SETTLEMENT OPTION
For all Participants in a Tax Sheltered Annuity Plan established under Section
403(b) of the Internal Revenue Code, or an Eligible State Deferred Compensation
Plan established under Section 457 of the Internal Revenue Code, minimum
distributions shall commence no later than April 1st following the year in which
the Participant attains age 70 1/2, unless the Participant sends written notice
to SAFECO requesting that distributions not commence or notifying SAFECO that
the Participant meets one of the criteria for a later required beginning date.
See "Distribution Requirements" in this Prospectus. If SAFECO has not received
written notice prior to March 1st following the year in which the Participant
attains age 70 1/2 and if designated
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<PAGE> 20
beneficiary information has been provided to SAFECO, SAFECO will make the
required distributions based on joint life expectancy with recalculation of life
expectancy under Option 4, the Systematic Withdrawal Income Plan and in
accordance with the minimum distribution rules in Section 401(a)(9) of the
Internal Revenue Code. See "Settlement Options" in this Prospectus. If
designated beneficiary information has not been provided to SAFECO, SAFECO will
make the required distributions based on single life expectancy with
recalculation of life expectancy under Option 4, and in accordance with the
minimum distribution rules in Section 401(a)(9) of the Internal Revenue Code.
The calculation of the required distributions shall be based on the entire
Participant's account balance as of the end of the calendar year preceding the
distribution year.
For all Participants in a Cash or Deferred Compensation Plan under Section
401(k) of the Internal Revenue Code, distributions will be made in accordance
with the provisions of the Plan at the Contractholder's written direction.
SAFECO shall not be obligated to issue an annuity or to make a cash distribution
until it receives written direction containing the terms and conditions, manner
and amounts of such annuity or cash distribution.
DISTRIBUTION REQUIREMENTS
All Settlement Options under the Contract shall distribute the Participant's
Accumulation Account pursuant to the Plan and the minimum distribution rules in
Section 401(a)(9) of the Code.
Minimum distributions must begin by the Participant's required beginning date
defined as April 1st following the year the Participant reaches age 70 1/2. For
a Participant who is not a more than 5% owner and was born prior to July 1,
1917, the required beginning date is April 1st following the calendar year in
which the Participant retires. For a Participant in a governmental or church
Plan, the required beginning date is April 1st of the calendar year following
the later of age 70 1/2 or retirement.
Participants in a Cash or Deferred Savings Plan should consult the Plan
Administrator regarding the application of the minimum distribution rules to
their Plan benefits. SAFECO will commence required minimum distributions on
April 1st following the year a Participant in a Tax-Sheltered Annuity or
Deferred Compensation Plan reaches age 70 1/2. Participants in Tax Sheltered
Annuities and Deferred Compensation Plans who do not want SAFECO to commence
required minimum distributions, or Participants in a governmental or church Plan
who are still employed and wish to defer commencement of distributions until
retirement, must send SAFECO written notice of such election prior to March 1st
following the year the Participant reaches age 70 1/2. Participants in
governmental or church Plans who are still employed and elect to defer
commencement of distributions must also give SAFECO notice of retirement.
If the Participant dies before required distributions commence, the Accumulation
Account must be distributed by December 31st of the year which contains the
fifth anniversary of the Participant's death, or over a designated Beneficiary's
life expectancy. Where the Accumulation Account is distributed over the
designated Beneficiary's life expectancy, a non-spouse must begin distributions
by December 31st of the year following the year of the Participant's death. A
surviving spouse may wait to begin payments until the year the Participant would
have reached age 70 1/2 if that date is later than the year following the date
of death.
If the Participant dies on or after the date required distributions have
commenced, payment to the designated Beneficiary must continue at least as
rapidly as the method in effect prior to the Participant's death.
DEATH BENEFIT GUARANTEE
If the Participant dies before distributions commence, or on or after the date
distributions have already commenced to the Participant pursuant to Option 4, or
Option 5, the amount of the payment made after the Participant's death will be
the greater of Net Purchase Payments less any prior withdrawals or the value of
the Participant's Accumulation Account determined as of the next Valuation
Period following the date both proof of death and an election for a single sum
payment or Settlement Option is received by SAFECO. If a single sum settlement
is elected, payment will be made within seven business days of receipt of such
election and proof of death. Election must be made by the Beneficiary during the
sixty (60) day period commencing with
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<PAGE> 21
date of receipt by SAFECO of notification of death. If no election is made
within such sixty (60) day period, then a single sum settlement will be paid to
the Beneficiary. The death benefit guarantee does not apply if the Participant
dies after distributions have commenced pursuant to Options 1, 2, 3, or 6.
TAXES
NOTE: The following description is based upon SAFECO's understanding of current
federal income tax law applicable to annuities in general. SAFECO cannot predict
the probability that any changes in such laws will be made. Purchasers are
cautioned to seek competent tax advice regarding the possibility of such
changes. SAFECO does not guarantee the tax status of the Contracts and
Certificates. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable state
or other tax laws.
GENERAL
Section 72 of the Code governs taxation of annuities in general. A Participant
is not taxed on increases in the value of an Accumulation Account until
distribution occurs, either in the form of a lump sum payment, a withdrawal or
as annuity payments under the Settlement Option elected. For a lump sum payment
received as a total surrender (total redemption), the recipient is taxed on the
portion of the payment that exceeds the cost basis of the Contract. Since the
Contract is designed exclusively for use with Qualified Plans, there may be no
cost basis and all such distributions will be treated as income to the
recipient. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
Any premium taxes or other taxes levied by any government entity which SAFECO,
in its sole discretion, determines have resulted from the establishment or
maintenance of the Separate Account, or from the investment experience of the
Separate Account, or from the receipt by SAFECO of Purchase Payments, or from
the issuance of the Contract or from the commencement of annuity payments under
the Contract will be charged against Purchase Payments, the Participant's
Accumulation Account or withdrawal values.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includible in taxable income. The exclusion amount for payments based on a
fixed annuity option is determined by multiplying the payment by the ratio that
the cost basis of the Contract (adjusted for any period or refund feature) bears
to the expected return under the Contract. The exclusion amount for payments
based on a variable annuity option is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund guarantee) by the number
of years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e. when the total of the
excludable amount equal the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the contract within the meaning of
Section 72 of the Code. Participants under the Contracts should seek competent
financial advice about the tax consequences of distributions under the Qualified
Plan under which the Contracts are purchased.
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of Participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Participants, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified Plan may be subject to the terms and conditions of
the plan regardless of the terms and conditions of the Contracts issued pursuant
to the plan. Following are general descriptions of the types of Qualified Plans
with which the Contracts may be used. Such descriptions are not exhaustive and
are for general informational purposes only. The tax rules regarding Qualified
Plans are very complex and will have differing applications depending on
individual facts and circumstances. Each Participant should obtain competent tax
advice prior to purchasing a Contract issued under a Qualified Plan.
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<PAGE> 22
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts.
1. Cash or Deferred Savings Plans
Under Section 401(k) of the Code, a Cash or Deferred Savings Plan is a plan
offered by an Employer which allows Employees to elect to reduce their
compensation with the reduced amounts set aside for the Employees in a
tax-deferred retirement program. The Code places limitations on these plans
including on such items as amount of allowable contributions, form, manner
and timing of distributions, transferability of benefits, vesting and
nonforfeitability of interests, nondiscrimination in eligibility and
participation and the tax treatment of distributions, withdrawals and
surrenders.
2. Tax-Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
Employers may make contributions to the Contracts for the benefit of their
Employees. Such contributions are not includible in the gross income of the
Employee until the Employee receives distributions from the Contract. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. When the Contract is issued pursuant to a
plan qualified under Section 403(b) of the Code, the Participant's entire
interest in the Contract is nonforfeitable.
3. Deferred Compensation Plans
Under Section 457 of the Code, governmental and certain other tax exempt
Employers may establish deferred compensation plans for the benefit of their
Employees which may invest in annuity contracts. The Code, as in the case of
Qualified Plans, establishes limitations and restrictions on eligibility,
contributions and distributions. Under these plans, contributions made for
the benefit of the Employees will not be includible in the Employees' gross
income until distributed from the plan. However, under a Section 457 plan all
the plan assets shall remain solely the property of the Employer subject only
to the claims of the Employer's general creditors until such time as made
available to the Participant or Beneficiary.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences, including the more rapid taxation of the distributed amounts from
such combination of contracts. These aggregation rules do not apply to contracts
issued through Cash or Deferred Savings Plans under Section 401(k) or
Tax-Sheltered Annuity Plans under Section 403(b). However, they do apply to
contracts issued through Deferred Compensation Plans under Section 457.
Participants in a Deferred Compensation Plan under Section 457 of the Code
should consult a tax advisor prior to purchasing more than one non-qualified
annuity contract in any calendar year.
INCOME TAX WITHHOLDING
All distributions or any portion(s) thereof which are includible in the gross
income of the taxpayer are subject to Federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the taxpayer, in most cases,
may elect not to have taxes withheld or to have withholding done at a different
rate.
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<PAGE> 23
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or Individual Retirement Account or
Individual Retirement Annuity, are subject to a mandatory 20% withholding for
Federal income tax. The 20% withholding requirement does not apply to: (a)
distributions for the life or life expectancy of the Participant or joint and
last survivor expectancy of the Participant and a designated Beneficiary; (b)
distributions for a specified period of 10 years or more; or (c) distributions
which are required minimum distributions. Participants should consult their own
tax counsel or other tax advisor regarding withholding.
WITHDRAWALS
TAX TREATMENT OF WITHDRAWALS
The Code imposes a 10% penalty tax on the taxable portion of any distribution
from Qualified Plans, including both 401(k) and 403(b) plans. To the extent
amounts are not includible in gross income because they have been rolled over to
an IRA or to another Qualified Plan, no tax penalty will be imposed. The tax
penalty will not apply to the following distributions: (a) if distribution is
made on or after the date on which the Participant reaches age 59 1/2; (b)
distributions following the death or disability of the Participant (for this
purpose disability is as defined in Section 72(m)(7) of the Code); (c)
distributions after separation from service that are part of substantially equal
periodic payments, not less frequently than annually, made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of such Participant and a designated Beneficiary; (d) distributions to a
Participant who has separated from service after attaining age 55; (e)
distributions made to the Participant to the extent such distributions do not
exceed the amount allowable as a deduction under Code Section 213 to the
Participant for amounts paid during the taxable year for medical care; and (f)
distributions made to an alternate payee pursuant to a qualified domestic
relations order.
Generally, distributions from a qualified plan must commence no later than April
1 of the calendar year following the year in which the employee attains age
70 1/2. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year in the
case of periodic distributions and in excess of $750,000 in the case of lump sum
distributions may be subject to an additional 15% excise tax unless an exemption
applies.
TAX SHELTERED ANNUITY WITHDRAWAL LIMITATIONS
Effective January 1, 1989, the Code limits the withdrawal of amounts
attributable to contributions made pursuant to a salary reduction agreement (as
defined in Section 403(b)(11) of the Code) to circumstances where the
Participant attains age 59 1/2, separates from service, dies, becomes disabled
(within the meaning of Section 72(m)(7) of the Code), or in the case of
hardship. However, withdrawals for hardship are restricted to the portion of the
Participant's Accumulation Account value which represents contributions made by
the Participant and does not include any income attributable to those
contributions.
These limitations on withdrawals apply only to salary reduction contributions
made after December 31, 1988, income attributable to such contributions, and to
income attributable to amounts held as of December 31, 1988. However, these
limitations will apply to all amounts (regardless of when or how the
contributions were originally made) which are transferred or rolled over from a
custodial account (as defined in Section 403(b)(7)) into the Participant's
Accumulation Account.
The limitations on withdrawals do not affect rollovers or transfers between
certain Qualified Plans. Participants should consult their own tax counsel or
other tax advisor regarding any distributions. The discussion contained in this
Prospectus regarding taxes should be considered in light of the above.
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<PAGE> 24
WITHDRAWAL AMOUNT
Subject to the withdrawal restrictions noted above, SAFECO will pay the amount
of any withdrawal within seven (7) business days of receipt of such request in
good order.
Upon a withdrawal by a Participant, the number of Accumulation Units in a
particular Sub-Account will be reduced by a number equal to the amount of any
(a) Withdrawal, including the Contingent Deferred Sales Charge, and (b) taxes,
including premium taxes and, if applicable, income taxes, for which no other
provision was made, and (c) Transfer Charges. Administration Charges will also
be applied to the Accumulation Account. See "Deduction for Administration
Charge" in this Prospectus. A Participant's Accumulation Account will not be
reduced by the number of units equal to the amount of any early withdrawal
penalty tax referred to above. The early withdrawal penalty tax must be paid
directly by the Participant.
Because of the potential tax consequences of a withdrawal, and because the
Qualified Plan may impose additional conditions, Participants should consult the
plan administrator and competent tax advisors before making a withdrawal.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account, SSI or PNMR is a
party. SAFECO is engaged in various kinds of routine litigation work which, in
the opinion of SAFECO, is not of material importance in relation to the total
capital and surplus of SAFECO.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
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<S> <C>
ANNUITY PROVISIONS.................................................................... 3
General.......................................................................... 3
Annuity Unit..................................................................... 3
Net Investment Factor............................................................ 3
Assumed Investment Factor........................................................ 3
Amount of Annuity Payments....................................................... 3
Additional Provisions............................................................ 4
ADDITIONAL PERFORMANCE INFORMATION.................................................... 4
Performance Comparisons.......................................................... 4
Performance Information.......................................................... 4
Yields......................................................................... 4
Total Returns.................................................................. 5
EXPERTS............................................................................... 5
FINANCIAL STATEMENTS.................................................................. 5
SAFECO Resource Variable Account B............................................... 6
SAFECO Life Insurance Company and Subsidiaries................................... 13
</TABLE>
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<PAGE> 25
STATEMENT OF ADDITIONAL INFORMATION
SAFECO LIFE INSURANCE COMPANY
GENERAL INFORMATION
SAFECO
SAFECO Life Insurance Company (SAFECO) is a wholly-owned subsidiary of SAFECO
Corporation which is a holding company whose subsidiaries are engaged primarily
in insurance and financial services businesses.
During the establishment of the Separate Account, SAFECO contributed capital to
the Separate Account which was immediately invested in the SAFECO Resource
Series Trust (Trust). At December 31, 1995, SAFECO's contribution represented
41.0% and 64.9% of the value of the SAFECO Resource Bond and SAFECO Resource
Money Market Sub-Accounts, respectively. SAFECO has no present intention of
withdrawing these amounts from the respective Sub-Accounts.
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
SAFECO holds the assets of the Separate Account. The assets are kept segregated
and held separate and apart from the general account assets of SAFECO. SAFECO
maintains records of all Separate Account purchases and redemptions of the
shares of each Portfolio of SAFECO Resource Series Trust.
INDEPENDENT AUDITORS
Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, Washington 98104, is
the independent auditor of the financial statements of SAFECO and the Separate
Account.
DISTRIBUTOR
Currently, SAFECO Securities, Inc.(SSI), acts as the principal underwriter for
the Contracts. The offering is on a continuous basis. Prior to April 29, 1994,
PNMR Securities, Inc. (PNMR) acted as the principal underwriter for the
Contracts. SSI and PNMR are both wholly-owned subsidiaries and affiliates of
SAFECO. For the years ended 1993, 1994 and 1995, PNMR, through SSI, received
$568,136, $1,640,855 and $2,318,815 in commissions for the distribution of the
Contracts of which no payments were retained.
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus for the Group Flexible Purchase Payment
Deferred Variable Annuity Contracts.
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus, call 1-800-426-7649
or write to SAFECO Life Insurance Company, Annuity Service Office: Retirement
Services Department, P.O. Box 3882, Seattle, Washington 98124-3882.
This Statement of Additional Information and the Prospectus are both dated April
29, 1996.
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<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ANNUITY PROVISIONS.................................................................. 3
General........................................................................... 3
Annuity Unit...................................................................... 3
Net Investment Factor............................................................. 3
Assumed Investment Factor......................................................... 3
Amount of Annuity Payments........................................................ 3
Additional Provisions............................................................. 4
ADDITIONAL PERFORMANCE INFORMATION.................................................. 4
Performance Comparisons........................................................... 4
Performance Information........................................................... 4
Yields......................................................................... 4
Total Returns.................................................................. 5
EXPERTS............................................................................. 5
FINANCIAL STATEMENTS................................................................ 5
SAFECO Resource Variable Account B............................................. 6
SAFECO Life Insurance Company and Subsidiaries................................. 13
</TABLE>
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ANNUITY PROVISIONS
GENERAL
The Settlement Options and related provisions are described in the Prospectus.
ANNUITY UNIT
The value of the Annuity Unit is determined by multiplying the value of the
Annuity Unit for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the value is being
calculated, and dividing the result by the Assumed Investment Factor for such
Valuation Period, where these two factors are defined as follows:
NET INVESTMENT FACTOR
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where:
(a) is the net result of:
(1) the net asset value per share of the Trust determined as of the current
Valuation Period; plus
(2) the per share amount of any dividend or capital-gain distribution made
by the Trust if the "ex-dividend" date occurs during the current
Valuation Period; plus or minus
(3) a per share credit or charge, respectively, which is determined by
SAFECO, for changes in tax reserves resulting from investment
operations of the Sub-Account.
(b) is the net result of:
(1) the net asset value per share of the Trust determined as of the
immediately preceding Valuation Period; plus or minus
(2) the per share credit or charge, respectively, for any changes in tax
reserves for the immediately preceding Valuation Period.
(c) is the percentage factor equal to the Mortality and Expense Risk Premium.
Such factor is equal on an annual basis to 1.25% of the daily net asset
value of the Sub-Account.
The Net Investment Factor may be greater or less than one; therefore, the
Annuity Unit value may increase or decrease.
ASSUMED INVESTMENT FACTOR
The Assumed Investment Factor for a one day Valuation Period is 1.00010746. This
factor neutralizes the assumed investment return of 4% in the Annuity Tables
found in the Contract's Appendix A.
AMOUNT OF ANNUITY PAYMENTS
A Variable Annuity is an annuity with payments which are not predetermined as to
dollar amount and will vary in accordance with the net investment results of the
Separate Account. The dollar amount of the first monthly Variable Annuity
payment will be determined by applying the Participant's Accumulation Account,
as of the 15th day of the preceding month, to the Annuity Tables contained in
the Contract's Appendix A. The number of Annuity Units to be credited to the
Annuitant will be determined by dividing such first monthly payment by the
Annuity Unit Value calculated as of the 15th day of the preceding month. This
number of Annuity Units remains fixed during the annuity payment period. The
dollar amount of each Variable Annuity payment after the first shall be
determined by multiplying (a) the number of Annuity Units credited to the
Annuitant by (b) the Annuity Unit value as of the 15th day of the preceding
month.
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<PAGE> 28
The Annuity Table is based on the 1983 Group Annuity Mortality Table, Projected,
with an age setback of 1 year if the annuity payment begins in the years
2000-2009, 2 years if the annuity payment begins in the years 2010-2019 and an
additional 1 year setback for each additional ten years following. The interest
rate assumed in the Table is 4% per annum.
ADDITIONAL PROVISIONS
SAFECO may require proof of age of the Participant before making any life
annuity payment provided for by the Contract. If the age of the Participant has
been misstated, the amount payable will be the amount that the Accumulation
Units would have provided at the correct age. Once monthly life income payments
have begun, any underpayments will be made up in one sum with the next annuity
payment. Overpayments will be deducted from the future annuity payments until
the total is repaid.
Prior to any settlement of a death claim, due proof of Participant's death must
be submitted to SAFECO.
Where any benefits under the Contract are contingent upon the recipient being
alive on a given date, SAFECO may require proof satisfactory to it that such
condition has been met.
ADDITIONAL PERFORMANCE INFORMATION
STANDARDIZED COMPUTATION OF PERFORMANCE
PERFORMANCE COMPARISONS. Performance Information for a Sub-Account may be
compared, in reports and advertising, to: (i) Standard & Poor's Stock Index, Dow
Jones Industrial Averages, Donahue Money Market Institutional Averages, or other
unmanaged indices generally regarded as representative of the securities
markets; (ii) other Variable Annuity separate accounts or other investment
products traced by Lipper Analytical Services, Inc., the Variable Annuity
Research and Data Service, or Morningstar, Inc., which are widely used
independent research firms that rank mutual funds and other investment companies
by overall performance, investment objectives and assets; and (iii) the Consumer
Price Index (a measure of inflation) to assess the real rate of return from an
investment in a Contract. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for annuity charges,
investment management costs, brokerage costs and other transaction costs that
are normally paid when directly investing in securities.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising also may contain other information, including the ranking of any
Sub-Account derived from rankings of Variable Annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or by rating
services, companies, publications, or other persons which rank separate accounts
or other investment products on overall performance or other criteria.
PERFORMANCE INFORMATION
YIELDS. Some Sub-Accounts may advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the Sub-Account over
a stated period of time, not taking in to account capital gains or losses or the
imposition of any Contingent Deferred Sales Charge. Yields are annualized and
stated as a percentage.
Current yield and effective yield are calculated for the SAFECO Resource Money
Market Sub-Account. Current Yield is based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular seven
(7) day period, less a hypothetical charge reflecting deductions from values
during the period (the base period), and stated as a percentage of the
investment at the start of the base period (the base period return). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent. Effective
yield assumes that all dividends received during an annual period have been
reinvested. This compounding effect causes effective yield to be higher than
current yield. Calculation of effective yield begins with the same base period
return used in the
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<PAGE> 29
calculation of current yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
Yield for the SAFECO Resource Bond Sub-Account is based on all investment income
(including dividends and interest) per accumulation unit earned during a
particular thirty (30) day period, less expenses accrued during the period (net
investment income). Yield is computed by dividing net investment income by the
value of an accumulation unit on the last day of the period, according to the
following formula:
Yield = 2[((a - b)/cd + 1)6 - 1]
where a = net investment income earned during the period by the corresponding
Available Fund portfolio, b = expenses accrued for the period (net of any
reimbursements), c = the average daily number of accumulation units outstanding
during the period, and d = the value (maximum offering price) per accumulation
unit on the last day of the period.
TOTAL RETURNS. Total return reflects all aspects of a Sub-Account's return,
including the automatic reinvestment by the Sub-Account of all distributions and
the deduction of all applicable charges to the Sub-Account on an annual basis,
including mortality and expense risk charges, the Annual Administration
Maintenance Charge, and any other charges against Contract Value. Quotations
also will assume a termination (surrender) at the end of the particular period
and reflect the deduction of the Contingent Deferred Sales Charge, if
applicable. Additional quotations may be given that do not assume a termination
(surrender) and do not take into account deduction of the Contingent Deferred
Sales Charge, since the Contracts are intended as long-term products.
From time to time, non-standardized total return figures may accompany the
standardized figures. Non-standardized total return figures may be calculated in
a variety of ways including but not necessarily limited to different time
periods, different initial investment amounts, additions of periodic payments,
use of time weighted average annual returns which take into consideration the
length of time each investment has been on deposit, and without the
Administration Charge and/or with or without the Contingent Deferred Sales
Charge. Non-standardized figures may cause the performance of the Sub-Accounts
to appear higher than performance calculated using standard parameters.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical investment in the Sub-Account over certain periods,
including 1, 5, and 10 years (up to the life of the Sub-Account), and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Investors should realize that the Sub-Account's experience is not
constant over time, but changes from year to year, and that the average annual
returns represent averaged figures as opposed to the year-to-year performance of
a Sub-Account. Average annual returns are calculated pursuant to the following
formula: P(1 + T)n = ERV, where P is a hypothetical initial payment of $1,000, T
is the average annual total return, n is the number of years, and ERV is the
withdrawal value at the end of the period.
Cumulative total returns are unaveraged and reflect the simple change in value
of a hypothetical investment in the Sub-Account over a state period of time.
EXPERTS
The financial statements of SAFECO Resource Variable Account B and SAFECO Life
Insurance Company and Subsidiaries appearing in the Statement of Additional
Information have been audited by Ernst & Young LLP, independent auditors, as set
forth to the extent indicated in their reports thereon also appearing in the
Statement of Additional Information. Such financial statements have been
included therein in reliance on their reports given on their authority as
experts in accounting and auditing.
FINANCIAL STATEMENTS
The consolidated financial statements of SAFECO Life Insurance Company and
Subsidiaries and SAFECO Resource Variable Account B included herein should be
considered only as bearing upon the ability of SAFECO to meet its obligations
under the Contracts.
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FINANCIAL STATEMENTS
SAFECO RESOURCE VARIABLE ACCOUNT B
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 7
Statement of Assets and Liabilities as of December 31, 1995........................... 8
Statement of Operations for the year ended December 31, 1995.......................... 9
Statements of Changes in Net Assets for the years ended December 31, 1995 and 1994.... 10
Notes to Financial Statements (including accumulation unit data)...................... 11
</TABLE>
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and
Participants of SAFECO Resource Variable Account B
We have audited the accompanying statement of assets and liabilities of certain
Sub-Accounts of SAFECO Resource Variable Account B (comprising, respectively,
the Equity, Bond, and Money Market Sub-Accounts), as of December 31, 1995, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the accumulation unit data for each of the five years in the period then ended.
These financial statements and accumulation unit data are the responsibility of
the SAFECO Resource Variable Account B's management. Our responsibility is to
express an opinion on these financial statements and accumulation unit data
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and accumulation
unit data are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with SAFECO Resource Series Trust. 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 accumulation unit data referred to
above present fairly, in all material respects, the financial position of the
Equity, Bond, and Money Market Sub-Accounts of SAFECO Resource Variable Account
B at December 31, 1995, the results of their operations, the changes in their
net assets, and the accumulation unit data for the periods referred to above, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
January 26, 1996
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<PAGE> 32
December 31, 1995
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------
AS OF DECEMBER 31, 1995 EQUITY BOND MMKT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-- (In Thousands, Except Per-Unit Amounts) --
ASSETS:
Investments, at value:
SAFECO Resource Series
Trust - Equity Portfolio
4,662,976 shares at net asset value
of $19.24 per share
(identified cost $83,442) $ 89,735
SAFECO Resource Series
Trust - Bond Portfolio
771,833 shares at net asset value
of $11.31 per share
(identified cost $8,673) $ 8,728
SAFECO Resource Series
Trust - Money Market Portfolio
4,447,189 shares at net asset value
of $1.00 per share
(identified cost $4,447) $ 4,447
Cash 26 2 -
-------- -------- --------
Total assets 89,761 8,730 4,447
-------- -------- --------
LIABILITIES:
Mortality and expense risk charge payable 88 9 5
Fees payable 26 2 -
-------- -------- --------
Total liabilities 114 11 5
-------- -------- --------
NET ASSETS $ 89,647 $ 8,719 $ 4,442
======== ======== ========
ACCUMULATION UNITS OUTSTANDING 2,774 481 308
======== ======== ========
ACCUMULATION UNIT VALUE AND REDEMPTION
PRICE PER UNIT
(Net assets divided by accumulation units outstanding) $ 32.321 $ 18.117 $ 14.417
======== ======== ========
</TABLE>
See Notes to Financial Statements
-8-
<PAGE> 33
SAFECO RESOURCE VARIABLE ACCOUNT B
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------
YEAR ENDED DECEMBER 31, 1995
EQUITY BOND MMKT
----------------------------------
<S> <C> <C> <C>
-- ($ in Thousands) --
INVESTMENT INCOME:
Income dividends and capital gain
distributions $ 9,976 $ 518 $ 244
EXPENSES:
Mortality and expense risk charge 887 96 57
------- -------- --------
NET INVESTMENT INCOME 9,089 422 187
------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments 2,869 (29) -
Net change in unrealized appreciation 5,057 773 -
------- -------- --------
NET GAIN (LOSS) ON INVESTMENTS 7,926 744 -
------- -------- --------
NET CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $17,015 $ 1,166 $ 187
======= ======== ========
</TABLE>
See Notes to Financial Statements
-9-
<PAGE> 34
December 31, 1995
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------------------------------------
EQUITY BOND MMKT
------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31
1995 1994 1995 1994 1995 1994
------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 9,089 $ 4,443 $ 422 $ 312 $ 187 $ 95
Net realized gain (loss) on
investments 2,869 1,691 (29) 67 - -
Net change in unrealized
appreciation/depreciation 5,057 (3,071) 773 (699) - -
-------- -------- -------- -------- -------- --------
Net change in net assets
resulting from operations 17,015 3,063 1,166 (320) 187 95
NET ACCUMULATION UNIT
TRANSACTIONS 18,584 17,856 89 520 (473) 936
-------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 35,599 20,919 1,255 200 (286) 1,031
NET ASSETS AT BEGINNING OF PERIOD 54,048 33,129 7,464 7,264 4,728 3,697
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 89,647 $ 54,048 $ 8,719 $ 7,464 $ 4,442 $ 4,728
======== ======== ======== ======== ======== ========
OTHER INFORMATION
Increase (Decrease) in Units
and Amounts
UNITS:
Sales 905 920 87 106 587 523
Redemptions (257) (196) (86) (73) (621) (455)
-------- -------- -------- -------- -------- --------
Net change 648 724 1 33 (34) 68
======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $ 25,905 $ 22,661 $ 1,469 $ 1,672 $ 8,274 $ 7,141
Redemptions (7,321) (4,805) (1,380) (1,152) (8,747) (6,205)
-------- -------- -------- -------- -------- --------
Net change $ 18,584 $ 17,856 $ 89 $ 520 $ (473) 936
======== ======== ======== ======== ======== ========
DECEMBER 31, 1995:
Paid in capital $ 60,434 $ 6,276 $ 3,379
Par value per unit None None None
Accumulation units authorized Unlimited Unlimited Unlimited
Accumulation units owned by
SAFECO 200 200 200
</TABLE>
See Notes to Financial Statements
-10-
<PAGE> 35
SAFECO RESOURCE VARIABLE ACCOUNT B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Resource Variable Account B (Variable Account B) is registered under
the Investment Company Act of 1940, as amended, as a segregated unit
investment account of SAFECO Life Insurance Company (SAFECO), a wholly-owned
subsidiary of SAFECO Corporation. Purchasers of variable annuity products
direct their investment to one or more of the seven sub-accounts of Variable
Account B, and three sub-accounts are offered herein -- Equity, Bond, and
Money Market (MMKT). Each of the three sub-accounts invest in shares of a
designated portfolio of SAFECO Resource Series Trust.
The assets of Variable Account B are the property of SAFECO and are not
commingled with liabilities arising out of any other business of SAFECO.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Investments in mutual fund securities are carried in
the statement of assets and liabilities at net asset value as reported by
the portfolio. Realized gains or losses on securities transactions are
determined using the First-In First-Out (FIFO) cost method. Security
transactions are recorded on the trade date.
DISTRIBUTIONS -- The net investment income and realized capital gains of
Variable Account B are not distributed, but are retained and reinvested for
the benefit of accumulation unit owners.
FEDERAL INCOME TAX -- Operations of Variable Account B are included in the
federal income tax return of SAFECO, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax
law, no income taxes are payable with respect to operations of Variable
Account B.
UNIT VALUE CALCULATION -- For financial reporting purposes, amounts have
been rounded to the nearest thousand dollars, except for per unit amounts,
which may result in minor rounding differences. Per unit amounts are
calculated based on precise amounts.
3. EXPENSES
A mortality and expense risk charge is deducted by SAFECO from Variable
Account B on a daily basis which is equal, on an annual basis, to 1.25% of
the average daily net asset value of Variable Account B. The mortality risks
assumed by SAFECO arise from its contractual obligation to make annuity
payments after the annuity date for the life of the participant and to waive
withdrawal charges in the event of the death of a participant. The expense
risk assumed by SAFECO is that the costs of administering the contracts and
Variable Account B will exceed the amount received from the administration
charge.
The following expenses are deducted from a contractholder's account by
SAFECO and not directly from Variable Account B. As a fee for expenses
associated with the administration of the contract owner's account, an
annual charge of $30 is deducted by SAFECO from the accumulated value of
each contract on the date the initial purchase payment is invested and on
each certificate anniversary. In the event that a participant withdraws all
or a portion of the participant's accumulation account, a contingent
deferred sales charge is imposed on withdrawals of purchase payments in the
first eight
-11-
<PAGE> 36
December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. EXPENSES - CONTINUED
certificate years. Any premium tax levied by a state or government entity
with respect to the Variable Account B contract will be charged against the
contract. Fees and charges may vary by product.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------
EQUITY BOND MMKT
---------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
PURCHASES for the year ended December 31, 1995 $37,774 $ 2,121 $ 9,294
======= ======== ========
SALES for the year ended December 31, 1995 $10,067 $ 1,609 $ 9,580
======= ======== ========
</TABLE>
5. ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------
EQUITY BOND MMKT
--------------------------------------
<S> <C> <C> <C>
December 31, 1991 $17.520 $ 14.107 $ 13.074
December 31, 1992 18.704 14.882 13.335
December 31, 1993 23.630 16.253 13.516
December 31, 1994 25.424 15.559 13.837
December 31, 1995 32.321 18.117 14.417
</TABLE>
-12-
<PAGE> 37
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors ........................................... 1
Consolidated Financial Statements
Consolidated Balance Sheet ................................. 2
Statement of Consolidated Income ........................... 4
Statement of Changes in Stockholder's Equity ............... 5
Statement of Consolidated Cash Flows ....................... 6
Notes to Consolidated Financial Statements ................. 8
</TABLE>
<PAGE> 38
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheet of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
related statements of consolidated income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 referred to above present fairly, in
all material respects, the consolidated financial position of SAFECO Life
Insurance Company and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As described in Note 1 to the Consolidated Financial Statements, SAFECO Life
Insurance Company and subsidiaries adopted certain new accounting standards in
1995, 1994, and 1993 as required by the Financial Accounting Standards Board.
/s/ ERNST & YOUNG LLP
Seattle, Washington
February 9, 1996
1
<PAGE> 39
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1995-$7,195,332; 1994-$6,116,932) ................ $ 7,720,108 $5,915,662
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1995-$2,388,514; 1994-$1,948,309) .................. 2,044,517 2,053,132
Marketable Equity Securities, at Market Value
(Cost: 1995-$14,904; 1994-$15,846) ................................ 25,776 22,747
First Mortgage Loans on Real Estate:
Nonaffiliates (Less allowance for losses: 1995-$9,633; 1994-$9,511) 416,110 418,440
Affiliates ........................................................ 137,823 134,157
Real Estate (At cost, less accumulated depreciation:
1995-$398; 1994-$412) ............................................. 4,972 5,149
Policy Loans ......................................................... 55,925 53,329
Short-Term Investments (At cost which approximates market) ........... 68,614 62,789
Investment in Limited Partnerships ................................... 1,289 1,219
----------- ----------
Total Investments .............................................. 10,475,134 8,666,624
Cash ..................................................................... 34,886 26,710
Accrued Investment Income ................................................ 150,897 141,907
Accounts and Notes Receivable (Less allowance for doubtful accounts:
1995-$72; 1994-$160) ................................................. 27,971 21,189
Reinsurance Recoverables (Note 5) ........................................ 16,656 15,517
Deferred Policy Acquisition Costs (Less valuation allowance:
1995-$42,815; 1994-$0) ............................................... 210,491 247,190
Other Assets ............................................................. 5,739 6,494
Deferred Income Taxes Recoverable (Includes tax on unrealized
depreciation of investment securities: 1994-$68,028) (Note 9) ........ -- 30,229
Assets Held in Separate Accounts ......................................... 276,399 158,266
----------- ----------
Total Assets ................................................... $11,198,173 $9,314,126
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 40
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits ...................................... $ 154,090 $ 155,322
Policy and Contract Claims .................................. 26,407 29,050
Premiums Paid in Advance .................................... 8,209 8,783
Funds Held Under Deposit Contracts .......................... 8,756,384 7,988,456
Other Policyholders' Funds .................................. 323,302 74,308
----------- -----------
Total Policy and Contract Liabilities .................... 9,268,392 8,255,919
Other Liabilities .............................................. 112,008 89,239
Federal Income Taxes (Note 9):
Current ..................................................... 13,047 12,464
Deferred (Includes tax on unrealized appreciation of
investment securities: 1995 - $172,493) .................. 196,492 --
Liabilities Related to Separate Accounts ....................... 276,399 158,266
----------- -----------
Total Liabilities ........................................ 9,866,338 8,515,888
----------- -----------
Stockholder's Equity:
Common Stock, $250 Par Value;
20,000 Shares Authorized, Issued and Outstanding ............ 5,000 5,000
Additional Paid-In Capital ..................................... 85,000 85,000
Retained Earnings (Note 7) ..................................... 921,383 834,467
Unrealized Appreciation (Depreciation) of Investment Securities,
Net of Tax (Note 2) ......................................... 320,452 (126,229)
----------- -----------
Total Stockholder's Equity ............................... 1,331,835 798,238
----------- -----------
Total Liabilities and Stockholder's Equity ......... $11,198,173 $ 9,314,126
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 41
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---------- -------- ----------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums ........................................... $ 237,025 $252,929 $ 279,628
Investment Income:
Interest on Fixed Maturities .................... 716,510 648,296 612,805
Interest on Mortgage Loans ...................... 51,912 51,135 48,207
Interest on Short-Term Investments .............. 4,017 3,351 3,334
Dividends from Marketable Equity Securities ..... 1,387 1,446 1,817
Dividends from Redeemable Preferred Stock ....... 3,065 618 --
Other Investment Income ......................... 4,155 4,375 4,862
---------- -------- ----------
Total ..................................... 781,046 709,221 671,025
Less Investment Expenses ........................... 3,546 3,551 3,303
---------- -------- ----------
Net Investment Income .............................. 777,500 705,670 667,722
---------- -------- ----------
Other Revenue ...................................... 11,608 9,795 11,850
Realized Investment Gain ........................... 5,676 5,639 53,544
---------- -------- ----------
Total ..................................... 1,031,809 974,033 1,012,744
---------- -------- ----------
Benefits and Expenses:
Policy Benefits .................................... 723,466 674,215 675,479
Commissions ........................................ 79,163 84,760 82,262
Personnel Costs .................................... 42,314 42,439 43,244
Taxes Other Than Payroll and Income Taxes .......... 7,913 7,652 8,477
Other Operating Expenses ........................... 42,978 44,519 40,430
Amortization of Deferred Policy Acquisition Costs .. 32,376 29,407 26,350
Deferral of Policy Acquisition Costs ............... (35,347) (43,360) (38,925)
---------- -------- ----------
Total ..................................... 892,863 839,632 837,317
---------- -------- ----------
Income before Federal Income Taxes ..................... 138,946 134,401 175,427
---------- -------- ----------
Provision (Benefit) for Federal Income Taxes (Note 9):
Current ............................................ 61,830 57,365 91,597
Deferred ........................................... (13,800) (10,154) (26,135)
---------- -------- ----------
Total ..................................... 48,030 47,211 65,462
---------- -------- ----------
Income Before Cumulative Effect of Accounting Changes .. 90,916 87,190 109,965
Cumulative Effect of Accounting Changes (Notes 8 and 9):
Postretirement Benefits (Net of tax) ............... -- -- (2,493)
Income Taxes ....................................... -- -- 9,092
---------- -------- ----------
Net Income ............................................. $ 90,916 $ 87,190 $ 116,564
========== ======== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 42
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
----------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Common Stock .......................................... $ 5,000 $ 5,000 $ 5,000
----------- --------- ---------
Additional Paid-In Capital ............................ 85,000 85,000 85,000
----------- --------- ---------
Retained Earnings:
Balance at the Beginning of Year ............... 834,467 751,277 638,713
Net Income ..................................... 90,916 87,190 116,564
Dividends to Parent ............................ (4,000) (4,000) (4,000)
----------- --------- ---------
Balance at the End of Year ..................... 921,383 834,467 751,277
----------- --------- ---------
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax (Note 2):
Balance at the Beginning of Year ............... (126,229) 6,828 5,968
Net Effect of Adoption of FASB Statement 115 ... -- 279,957 --
Change in Unrealized Appreciation (Depreciation) 474,511 (413,014) 860
Change in Deferred Policy Acquisition Costs
Valuation Allowance ......................... (27,830) -- --
----------- --------- ---------
Balance at the End of Year ..................... 320,452 (126,229) 6,828
----------- --------- ---------
Stockholder's Equity ..................... $ 1,331,835 $ 798,238 $ 848,105
=========== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 43
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received ......................... $ 216,269 $ 233,129 $ 264,254
Dividends and Interest Received ..................... 703,053 641,234 589,916
Other Operating Receipts ............................ 10,607 11,419 11,814
Insurance Claims and Policy Benefits Paid ........... (272,206) (242,523) (270,702)
Underwriting, Acquisition and Insurance
Operating Costs Paid ............................. (169,904) (177,188) (168,809)
Income Taxes Paid ................................... (61,247) (60,566) (94,169)
----------- ----------- -----------
Net Cash Provided by Operating Activities .. 426,572 405,505 332,304
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale .............. (1,424,510) (1,110,154) --
Fixed Maturities Held-to-Maturity ................ (291,965) (358,297) (2,106,558)
Marketable Equity Securities ..................... (260) (407) (132)
Other Investments ................................ (14) (24,381) (53)
Policy and Nonaffiliated Mortgage Loans .......... (55,302) (68,710) (62,156)
Affiliated Mortgage Loans ........................ (12,643) (54,000) --
Maturities of Fixed Maturities Available-for-Sale ... 375,291 476,410 --
Maturities of Fixed Maturities Held-to-Maturity ..... 17,878 54,564 644,532
Sales of:
Fixed Maturities Available-for-Sale .............. 327,160 250,227 --
Fixed Maturities Held-to-Maturity ................ -- -- 675,044
Marketable Equity Securities ..................... 2,172 65 6,323
Other Investments ................................ 180 23,992 --
Real Estate ...................................... 876 1,885 115
Policy and Nonaffiliated Mortgage Loans .......... 50,734 42,038 43,107
Affiliated Mortgage Loans ........................ 8,977 6,714 2,324
Net (Increase) Decrease in Short-Term Investments ... (5,811) 11,793 10,343
Other ............................................... (122) 947 (1,190)
----------- ----------- -----------
Net Cash Used in Investing Activities ...... (1,007,359) (747,314) (788,301)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts .............. 1,304,665 1,012,164 1,001,880
Return of Funds Held Under Deposit Contracts ........ (720,845) (659,697) (555,429)
Dividends to Parent ................................. (4,000) (4,000) (4,000)
Net Proceeds from Short-Term Borrowings ............. 9,143 842 15,569
----------- ----------- -----------
Net Cash Provided by Financing Activities .. 588,963 349,309 458,020
----------- ----------- -----------
Net Increase in Cash .................................... 8,176 7,500 2,023
Cash at Beginning of Year ............................... 26,710 19,210 17,187
----------- ----------- -----------
Cash at End of Year ..................................... $ 34,886 $ 26,710 $ 19,210
=========== =========== ===========
</TABLE>
For purposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 44
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Net Income ......................................... $ 90,916 $ 87,190 $ 116,564
--------- --------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain .................... (5,676) (5,639) (53,544)
Amortization of Fixed Maturity Investments .. (26,050) (12,247) (10,476)
Deferred Federal Income Tax Benefit ......... (13,800) (10,154) (26,135)
Interest Expense on Deposit Contracts ....... 432,327 405,536 400,122
Cumulative Effect of Accounting Changes ..... -- -- (6,599)
Other ....................................... 3,140 (440) 205
Changes in:
Future Policy Benefits ................... (1,232) 3,834 1,322
Policy and Contract Claims ............... (2,643) (4,136) (5,577)
Premiums Paid in Advance ................. (574) (1,174) (476)
Deferred Policy Acquisition Costs ........ (6,116) (12,990) (12,575)
Accrued Investment Income ................ (8,990) (13,695) (9,185)
Accrued Interest on Accrual Bonds ........ (36,908) (41,285) (56,712)
Other Receivables ........................ (2,353) 5,064 (3,937)
Current Federal Income Taxes ............. 583 (3,201) (2,572)
Other Assets and Liabilities ............. 449 1,820 7,397
Other Policyholders' Funds ............... 3,499 7,022 (5,518)
--------- --------- ---------
Total Adjustments ..................... 335,656 318,315 215,740
--------- --------- ---------
Net Cash Provided by Operating Activities .......... $ 426,572 $ 405,505 $ 332,304
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 45
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. SAFECO Life Insurance Company (the Company) is a
stock life insurance company organized under the laws of the state of
Washington. The Company offers individual and group insurance products,
pension plans and annuity products, marketed through professional
agents in all states and the District of Columbia. The Company owns two
subsidiaries, SAFECO National Life Insurance Company and First SAFECO
National Life Insurance Company of New York. The Company is a
wholly-owned subsidiary of SAFECO Corporation which is a Washington
corporation whose subsidiaries are engaged primarily in insurance and
financial service businesses.
BASIS OF REPORTING. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
appropriate in the circumstances and include amounts based on the best
estimates and judgments of management. The financial statements include
SAFECO Life Insurance Company and its subsidiaries.
All significant intercompany transactions have been eliminated in the
consolidated financial statements. Certain reclassifications have been
made to prior year financial information to conform to the 1995
classifications.
ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are
reported as income when collected for traditional individual life
policies and when earned for group policies. Funds received under
pension deposit contracts, annuities and universal life policies are
recorded as liabilities rather than premium income when received.
Revenues for universal life products consist of front-end loads,
mortality charges and expense charges assessed against individual
policyholder account balances. These loads and charges are recognized
as income when earned.
INVESTMENTS. The Company adopted Financial Accounting Standards Board
(FASB) Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities," on January 1, 1994, applying the provisions of the
Statement to investments held as of, or acquired after that date. See
discussion of new accounting standards on page 10.
Fixed maturity investments (i.e., bonds and redeemable preferred
stocks) which the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity and carried at amortized
cost in the balance sheet. Fixed maturities classified as
available-for-sale are carried at market value, with changes in
unrealized gains and losses recorded directly to stockholder's equity,
net of applicable income taxes and deferred policy acquisition costs
valuation allowance. The Company has no fixed maturities classified as
trading.
All marketable equity securities are classified as available-for-sale
and carried at market value, with changes in unrealized gains and
losses recorded directly to stockholder's equity, net of applicable
income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest
income is recognized only when payment is received. Investments that
have declined in market value below cost and for which the decline is
judged to be other than temporary are written down to fair value.
Writedowns are made directly on an individual security basis and reduce
realized investment gains in the Statement of Consolidated Income.
The cost of security investments sold is determined by the "identified
cost" method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses.
8
<PAGE> 46
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
REAL ESTATE AND DEPRECIATION. Income-producing real estate is
classified as an investment. The Company provides straight-line
depreciation on its buildings based upon their estimated useful lives.
Investment real estate that has declined in market value below cost and
for which the decline is judged to be other than temporary is written
down to estimated realizable value. Writedowns reduce realized
investment gains in the Statement of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Acquisition costs, consisting of
commissions and certain other underwriting expenses, which vary with
and are primarily related to the production of new business, are
deferred.
Acquisition costs for deferred annuity and pension deposit contracts
and universal life policies are amortized over the lives of the
contracts or policies in proportion to the present value of estimated
future gross profits. To the extent actual experience differs from
assumptions, and to the extent estimates of future gross profits
require revision, the unamortized balance of deferred policy
acquisition costs is adjusted accordingly. There were no significant
revisions made in 1995, 1994 or 1993.
Acquisition costs for traditional individual life insurance policies
are amortized over the premium payment period of the related policies
using assumptions consistent with those used in computing policy
benefit liabilities.
FUTURE POLICY BENEFITS. Liabilities for universal life insurance
policies, deferred annuity and pension deposit contracts are equal to
the accumulated account value of such policies or contracts as of the
valuation date. Liabilities for structured settlement annuities are
based on interest rate assumptions using market rates at issue, graded
downward over 40 years to a range of 5.5% to 8.75%.
Liabilities for future policy benefits under traditional individual
life insurance policies have been computed on the level premium method
using interest, mortality and persistency assumptions based on actual
experience modified to provide for adverse deviation. Interest
assumptions range from 8.5% graded to 3.25%.
POLICY AND CONTRACT CLAIMS. The liability for policy and contract
claims is established on the basis of reported losses ("case basis"
method). Provision is also made for claims incurred but not reported,
based on historical experience. The estimates for claims incurred but
not reported are continually reviewed and any necessary adjustments are
reflected in current operations.
SEPARATE ACCOUNTS. The Company administers segregated asset accounts
for variable annuity and variable universal life clients. The assets of
these Separate Accounts, which consist of common stocks, are the
property of the Company. The liabilities of these Separate Accounts
represent reserves established to meet withdrawal and future benefit
payment provisions of contracts with these clients. The assets of the
Separate Accounts, equal to the reserves and other contract liabilities
of the Separate Accounts, are not chargeable with liabilities arising
out of any other business the Company may conduct. Investment risks
associated with market value changes are borne by the clients.
Deposits, withdrawals, net investment income and realized and
unrealized capital gains and losses on the assets of the Separate
Account are not reflected in the Statement of Consolidated Income.
Management fees and other charges assessed against the contracts are
included in other revenue.
FEDERAL INCOME TAXES. The Company and its subsidiaries file a
consolidated federal income tax return with SAFECO Corporation. Tax
payments (credits) are made to or received from SAFECO Corporation on a
separate tax return filing basis. The Company provides for federal
income taxes based on financial reporting income and deferred federal
income taxes on temporary differences between financial reporting and
taxable income.
9
<PAGE> 47
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
NEW ACCOUNTING STANDARDS. The Company adopted Financial Accounting
Standards Board (FASB) Statements 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and 109, "Accounting for
Income Taxes," in the first quarter of 1993. See the Statement of
Consolidated Income for the effect on income of adoption of Statements
106 and 109. For additional disclosure relating to Statements 106 and
109, see Note 8 and Note 9, respectively.
The Company adopted FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. Adoption had no
effect on net income.
The Company adopted FASB Statement 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," in the
first quarter of 1993. Adoption had no effect on net income. See Note 5
for disclosures relating to reinsurance.
In 1993, the FASB adopted Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired
loans. The FASB also issued Statement 118, "Accounting by Creditors for
Impairment of a Loan Income Recognition and Disclosures," in 1994,
which amends Statement 114. Both statements are effective for 1995 and
were adopted by the Company on January 1, 1995. Adoption did not affect
net income. For additional disclosure relating to these two statements,
see Note 2.
In 1993, the FASB issued Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expands the use of
fair value accounting for debt and equity securities. As of January 1,
1994, the Company adopted the provisions of this Statement for
investments held as of, or acquired after that date. Statement 115
requires that debt and equity securities be classified as trading,
available-for-sale, or held-to-maturity. Fixed maturity securities that
the Company has the positive intent and ability to hold to maturity (as
narrowly defined by Statement 115) are classified as held-to-maturity
and are reported at amortized cost. Fixed maturity securities
classified as available-for-sale are carried at market value, with
changes in unrealized gains and losses recorded directly to
stockholder's equity, net of applicable income taxes and any deferred
policy acquisition costs valuation allowance. All marketable equity
securities are classified as available-for-sale and continue to be
carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income
taxes. Under Statement 115, trading securities are carried at market
value with immediate recognition in income of changes in market value.
Since the Company does not have any securities held for trading, the
adoption of this Statement had no effect on net income. As required by
Statement 115, no restatement of prior period amounts has been made.
See Note 2 for details of the effect on stockholder's equity of the
adoption of Statement 115.
The FASB issued an Implementation Guide on Statement 115 in November of
1995. In addition to providing guidance on Statement 115, the Guide
allows for a one-time-only reclassification of securities among the
three categories defined in Statement 115. Such reclassifications will
not call into question the original classifications. As allowed under
the Guide, the Company reclassified certain held-to-maturity securities
to the available-for-sale category on December 31, 1995. While the
Company's investment philosophy has not changed, this reclassification
will allow flexibility in responding to changes in market conditions.
See Note 2 for disclosures relating to this reclassification.
10
<PAGE> 48
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities
classified as available-for-sale at December 31, 1995 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............... $ 737,429 $ 73,770 $ (1,007) $ 72,763 $ 810,192
States, municipalities and political subdivisions ..... 141,085 20,879 -- 20,879 161,964
Foreign governments ................................... 67,873 7,248 -- 7,248 75,121
Public utilities ...................................... 1,452,490 137,913 (1,395) 136,518 1,589,008
All other corporate bonds ............................. 2,475,343 183,117 (7,690) 175,427 2,650,770
Mortgage-backed securities ............................ 2,321,112 116,938 (4,997) 111,941 2,433,053
---------- -------- -------- --------- ----------
Total fixed maturities classified as
available-for-sale ................................ 7,195,332 539,865 (15,089) 524,776 7,720,108
Marketable equity securities .......................... 14,904 11,172 (300) 10,872 25,776
---------- -------- -------- --------- ----------
Total investment securities classified as
available-for-sale ................................ $7,210,236 $551,037 $(15,389) 535,648 $7,745,884
========== ======== ======== ==========
Deferred policy acquisition costs valuation allowance . (42,815)
Applicable federal income tax ......................... (172,381)
---------
Unrealized appreciation of investment securities,
net of tax, included in stockholder's equity ...... $ 320,452
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at
December 31, 1995 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............ $ 210,894 $ 60,042 $ -- $ 60,042 $ 270,936
States, municipalities and political subdivisions .. 52,438 4,689 -- 4,689 57,127
Foreign governments ................................ 135,467 31,956 -- 31,956 167,423
Public utilities ................................... 456,938 83,571 -- 83,571 540,509
All other corporate bonds .......................... 896,899 140,673 (4,128) 136,545 1,033,444
Mortgage-backed securities ......................... 291,881 27,194 -- 27,194 319,075
---------- -------- ------- -------- ----------
Total fixed maturities classified as
held-to-maturity ............................... $2,044,517 $348,125 $(4,128) $343,997 $2,388,514
========== ======== ======= ======== ==========
</TABLE>
The Company reclassified certain fixed maturity securities from the
held-to-maturity category to the available-for-sale category on
December 31, 1995, as allowed by the FASB's Implementation Guide
discussed in Note 1. The securities reclassified had a net carrying
value (amortized cost) of $331,123,000 and a market value of
$358,630,000 at December 31, 1995. This reclassification had no effect
on net income. While the Company's investment philosophy has not
changed, this reclassification will allow flexibility in responding to
changes in market conditions.
11
<PAGE> 49
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
A summary of fixed maturities and marketable equity securities
classified as available-for-sale at December 31, 1994 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
----------- ---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............ $ 664,805 $ 704 $ (28,980) $ (28,276) $ 636,529
States, municipalities and political subdivisions ... 139,415 4,392 (1,723) 2,669 142,084
Foreign governments ................................. 71,599 1,019 (2,522) (1,503) 70,096
Public utilities .................................... 1,347,080 21,223 (66,446) (45,223) 1,301,857
All other corporate bonds ........................... 2,148,606 26,235 (97,718) (71,483) 2,077,123
Mortgage-backed securities .......................... 1,745,427 30,508 (87,962) (57,454) 1,687,973
----------- ------- --------- --------- ----------
Total fixed maturities classified as
available-for-sale ............................. 6,116,932 84,081 (285,351) (201,270) 5,915,662
Marketable equity securities ........................ 15,846 7,577 (676) 6,901 22,747
----------- ------- --------- --------- ----------
Total investment securities classified as
available-for-sale ............................. $ 6,132,778 $91,658 $(286,027) (194,369) $5,938,409
=========== ======= ========= ==========
Deferred policy acquisition costs valuation allowance --
Applicable federal income tax ....................... 68,140
---------
Unrealized depreciation of investment securities,
net of tax, included in stockholder's equity ... $(126,229)
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at
December 31, 1994 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
---------- ---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ........ $ 124,266 $ 649 $ (10,953) $ (10,304) $ 113,962
States, municipalities and political subdivisions 36,517 2,260 (527) 1,733 38,250
Foreign governments ............................. 139,951 2,651 (2,434) 217 140,168
Public utilities ................................ 436,145 14,090 (19,454) (5,364) 430,781
All other corporate bonds ....................... 794,824 10,401 (56,808) (46,407) 748,417
Mortgage-backed securities ...................... 521,429 8,374 (53,072) (44,698) 476,731
---------- ------- --------- --------- ----------
Total fixed maturities classified as
held-to-maturity ........................... $2,053,132 $38,425 $(143,248) $(104,823) $1,948,309
========== ======= ========= ========= ==========
</TABLE>
As discussed in Note 1, the Company adopted the provisions of FASB
Statement 115 as of January 1, 1994. The net effect on stockholder's
equity of the adoption of Statement 115 was an increase of $279,957,000
as of January 1, 1994. The net increase was comprised of the following
amounts: aggregate market value in excess of amortized cost of fixed
maturities classified as available-for-sale of $458,471,000, less
deferred policy acquisition costs valuation allowance of $27,768,000
and deferred income taxes at 35% of $150,746,000.
12
<PAGE> 50
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The amortized cost and estimated market value of fixed maturities at
December 31, 1995, by contractual maturity, are presented below.
Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 138,616 $ 138,892 $ -- $ --
Due after one year through five years .... 1,245,334 1,309,291 5,000 5,250
Due after five years through ten years ... 1,533,974 1,644,618 25,124 29,513
Due after ten years ...................... 1,956,296 2,194,254 1,722,512 2,034,676
Mortgage-backed securities ............... 2,321,112 2,433,053 291,881 319,075
---------- ---------- ---------- ----------
Total ................................. $7,195,332 $7,720,108 $2,044,517 $2,388,514
========== ========== ========== ==========
</TABLE>
At December 31, 1995 and 1994, the Company held below investment grade
fixed maturities of $239 million and $174 million at amortized cost,
respectively. The respective market values of these investments were
approximately $240 million and $156 million. These holdings amounted to
2.4% and 2.0% of the Company's investments in fixed maturities at
market value at December 31, 1995 and 1994, respectively.
The carrying value of investments in fixed maturities and mortgage
loans that did not produce income during the year ended December 31,
1995 is less than one percent of the total of such investments.
Certain fixed maturity securities with an amortized cost of $4,578,000
and $4,161,000 at December 31, 1995 and 1994, respectively, were on
deposit with various regulatory authorities to meet requirements of
insurance and financial codes.
At December 31, 1995 and 1994, mortgage loans constituted approximately
4.9% and 5.9% of total assets, respectively, and are secured by first
mortgage liens on income-producing commercial real estate, primarily in
the retail, industrial and office building sectors. The majority of the
properties are located in the western United States, with 43% of the
total in California. Individual loans generally do not exceed $5
million. At December 31, 1995, less than 1% of the loans were
non-performing.
13
<PAGE> 51
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ................................... $327,160 $-- $2,172
======== === ======
Gross realized gains on sales ......................... $ 16,366 $-- $1,253
Gross realized losses on sales ........................ (4,336) -- (282)
-------- --- ------
Realized gains on sales ............................ 12,030 -- 971
Other (Including net gain on calls and redemptions) ... 7,833 -- --
Writedowns (Including writedowns on
securities subsequently sold) ..................... (13,628) -- --
-------- --- ------
Total realized gain ................................... $ 6,235 $-- $ 971
======== === ======
</TABLE>
The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ................................... $250,227 $-- $ 65
======== === =====
Gross realized gains on sales ......................... $ 12,994 $-- $ 115
Gross realized losses on sales ........................ (1,533) -- (224)
-------- --- -----
Realized gains (losses) on sales ................... 11,461 -- (109)
Other (Including net gain on calls and redemptions) ... 2,475 -- --
Writedowns (Including writedowns on
securities subsequently sold) ..................... (4,804) -- --
-------- --- -----
Total realized gain (loss) ............................ $ 9,132 $-- $(109)
======== === =====
</TABLE>
14
<PAGE> 52
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The proceeds from sales of investments in fixed maturities and related
gains and losses for 1993 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
1993
----
(In Thousands)
<S> <C>
Proceeds from sales ................................................. $675,044
========
Gross realized gains on sales ....................................... $ 75,895
Gross realized losses on sales ...................................... (20,653)
--------
Realized gains on sales ......................................... 55,242
Other (Including net gain on calls and redemptions) ................. 12,749
Writedowns (Including writedowns on securities subsequently sold) ... (11,665)
--------
Total realized gain ................................................. $ 56,326
========
</TABLE>
The following summarizes the realized gains and losses, the changes in
unrealized gains and losses, and applicable income taxes on all
investments:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities ........................................ $ 6,235 $ 9,132 $56,326
Marketable equity securities ............................ 971 (109) 2,063
First mortgage loans on real estate ..................... (1,600) (3,000) (4,336)
Real estate ............................................. 70 (184) (509)
Short-term investments .................................. -- (200) --
--------- --------- -------
Realized gain before federal income taxes ......... $ 5,676 $ 5,639 $53,544
========= ========= =======
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale ....... $ 726,046 $(201,270) $ --
Marketable equity securities ............................ 3,971 (3,432) 1,291
Deferred policy acquisition costs valuation allowance ... (42,815) -- --
Applicable federal income tax (expense) benefit ......... (240,521) 71,645 (431)
--------- --------- -------
Net change in unrealized appreciation (depreciation) .... $ 446,681 $(133,057) $ 860
========= ========= =======
</TABLE>
15
<PAGE> 53
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The following table summarizes the Company's allowance for credit
losses on non-affiliated mortgage loans:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Allowance at beginning of year ............... $ 9,511 $ 7,000
Provision for credit losses .................. 1,600 3,000
Recoveries ................................... 15 --
Loans charged off as uncollectible ........... (1,493) (489)
------- -------
Allowance at end of year ..................... $ 9,633 $ 9,511
======= =======
</TABLE>
The 1995 allowance includes amounts determined under FAS 114 and FAS
118 (specific reserves), as well as general reserve amounts. The total
investment in impaired loans, as defined under FAS 114 and 118 and
before any reserve for losses, is $5.7 million at December 31, 1995. A
specific loan loss reserve has been established for each impaired loan,
the total of which is $2.1 and is included in the overall allowance of
$9.6 million at December 31, 1995.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a real estate lease with an affiliate,
General America Corporation, which expires in 2010. The minimum annual
rental commitments under this obligation are $2,274,000. At December
31, 1995, unfunded mortgage loan commitments approximated $19,047,000.
The Company had no other material commitments or contingencies at
December 31, 1995.
4. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUES. Fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates
of fair value. Accordingly, these estimates are not necessarily
indicative of the amount that could be realized in a current market
exchange. The use of different market assumptions and/or estimating
methodologies may have a material effect on the estimated fair value
amounts.
Carrying value is a reasonable estimate of fair value for cash, policy
loans, short-term investments, accounts receivable and other
liabilities.
16
<PAGE> 54
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 (continued)
Fair value amounts for investments in fixed maturities and marketable
equity securities are the same as market value. Market value generally
represents quoted market prices for securities traded in the public
market place or analytically determined values for securities not
publicly traded.
The fair values of mortgage loans have been estimated by discounting
the projected cash flows using the current rate at which loans would be
made to borrowers with similar credit ratings and for the same
maturities.
The fair value of investment contracts with defined maturities is
estimated by discounting projected cash flows using rates that would be
offered for similar contracts with the same remaining maturities. For
investment contracts with no defined maturity, fair value is estimated
to be the present surrender value. These investment contracts are
included in Funds Held Under Deposit Contracts.
Estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale ... $7,720,108 $7,720,108 $5,915,662 $5,915,662
Fixed maturities held-to-maturity ..... 2,044,517 2,388,514 2,053,132 1,948,309
Marketable equity securities .......... 25,776 25,776 22,747 22,747
Mortgage loans ........................ 553,933 584,000 552,597 540,000
Financial liabilities:
Funds held under deposit contracts .... 8,756,384 9,282,000 7,988,456 7,678,000
</TABLE>
Other insurance-related financial instruments are exempt from fair
value disclosure requirements.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company's investments in
mortgage-backed securities of $2.8 billion and $2.2 billion at market
at December 31, 1995 and 1994, respectively, are primarily residential
collateralized mortgage obligations and pass-throughs ("CMOs"). CMOs,
while technically defined as derivative instruments, are exempt from
derivative disclosure requirements. The Company's investment in CMOs
comprised of the riskier, highly-volatile type (e.g., interest only,
inverse floaters, etc.) has been intentionally limited to only a small
amount (i.e., less than 1% of total CMOs at both December 31, 1995 and
1994).
The Company does not enter into financial instruments for trading or
speculative purposes. The Company's involvement in other
investment-type derivatives is also, intentionally, of a very limited
nature. Such derivatives include currency-linked bonds and fixed-rate
loan commitments. Individually, and in the aggregate, these derivatives
are not material and thus no additional disclosures are warranted.
17
<PAGE> 55
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. POLICY AND CONTRACT LIABILITIES
REINSURANCE. The Company protects itself from excessive losses by
ceding reinsurance to other companies, using automatic and facultative
treaties. Reinsurance contracts do not relieve the Company of its
obligations to policyholders. A continuing liability exists in the
event a reinsurance company is unable to meet its obligations to the
Company. The financial condition of its reinsurers is evaluated by the
Company to minimize its exposure to losses from reinsurer insolvencies.
The balance sheet caption "Reinsurance Recoverables" is comprised of
the following amounts:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Unpaid losses and adjustment expense ........... $ 850 $ 646
Paid claims .................................... 658 506
Life policy liabilities ........................ 14,844 14,033
Other reinsurance recoverables ................. 304 332
------- -------
Total reinsurance recoverables .............. $16,656 $15,517
======= =======
</TABLE>
The effects of reinsurance on the premium and policy benefit amounts in
the Statement of Consolidated Income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums ................... $(10,385) $(9,060) $(9,576)
======== ======= =======
Policy benefits ............ $ (6,344) $(5,588) $(7,441)
======== ======= =======
Reinsurance Assumed:
Premiums ................... $ (5,456) $ 327 $ 544
======== ======= =======
Policy benefits ............ $ (2,503) $ 3,421 $ 3,474
======== ======= =======
</TABLE>
In 1995, the Company sold a reinsurance assumed block of group disabled
lives, involving disability income coverage, back to the ceding
reinsurance pool. The ceding pool acquired the Company's $5.7 million
disabled life claim reserve for a return-of-premium payment of $5.7
million. The reinsurance assumed premiums and policy benefits shown
above reflect this transaction.
POLICY AND CONTRACT CLAIMS. Accident and health claim reserves, the
majority of which are incurred and paid in full within a one-year
period, amount to less than 1% of total policy and contract
liabilities. Therefore, no additional disclosures are warranted.
18
<PAGE> 56
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STATUTORY BASIS INFORMATION
The Company and its subsidiaries are required to file annual statements
with state regulatory authorities prepared on an accounting basis as
prescribed or permitted by such authorities (statutory basis).
Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners
(NAIC). Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
Statutory net income differs from income reported in accordance with
generally accepted accounting principles primarily because policy
acquisition costs are expensed when incurred, reserves are based on
different assumptions and income tax expense reflects only taxes paid
or currently payable.
Statutory net income and stockholder's equity, by company, are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company .............................. $101,456 $ 47,280 $ 17,724
SAFECO National Life Insurance Company ..................... 1,187 1,242 1,192
First SAFECO National Life Insurance Company of New York ... 404 108 225
-------- -------- --------
Total ................................................. $103,047 $ 48,630 $ 19,141
======== ======== ========
<CAPTION>
December 31
-----------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Statutory Stockholder's Equity:
SAFECO Life Insurance Company .............................. $479,152 $391,328 $357,081
SAFECO National Life Insurance Company ..................... 15,522 15,849 16,228
First SAFECO National Life Insurance Company of New York ... 10,009 9,644 9,569
-------- -------- --------
Total ................................................. $504,683 $416,821 $382,878
======== ======== ========
</TABLE>
The Company has received written approval from the Washington State
Insurance Department to treat certain loans (all made at market rates)
to related SAFECO Corporation subsidiaries as admitted assets. The
allowance of such loans has not materially enhanced surplus at December
31, 1995.
7. DIVIDEND RESTRICTIONS
Insurance companies are restricted by certain states as to the amount
of dividends they may pay within a given calendar year to their parent
without regulatory consent. That restriction is the greater of
statutory net gain from operations for the previous year or 10% of
policyholder surplus at the close of the previous year, subject to a
maximum limit equal to statutory earned surplus. The amount of retained
earnings available for the payment of dividends to SAFECO Corporation
without prior regulatory approval was $104,480,000 at December 31,
1995.
19
<PAGE> 57
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) administer
defined contribution, defined benefit and profit sharing bonus plans
covering substantially all employees. The defined contribution plans
include profit sharing retirement plans and a savings plan. Benefits
are earned under the defined benefit plan for each year of service
after 1988, based on the employee's compensation level plus a
stipulated rate of return on the benefit balance. It is SAFECO
Corporation's policy to fund the defined benefit plan on a current
basis to the full extent deductible under federal income tax
regulations. The cost of these plans to the Company was $7,599,000,
$6,329,000 and $7,962,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
The Companies also provide certain healthcare and life insurance
benefits ("other postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if
they reach retirement age while working for the Companies. The cost of
these benefits is shared with the retiree.
Effective January 1, 1993, the Company adopted FASB Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." Under Statement 106, the Company accrues for other
postretirement benefits during the years that employees provide
services. Prior to adoption of Statement 106, other postretirement
benefits were accounted for on a pay-as-you-go (cash) basis. The
transition obligation (i.e., the accumulated postretirement benefit
obligation) of $3,777,000 was recorded as a cumulative effect
adjustment in the first quarter of 1993 which, net of tax, resulted in
a reduction of net income of $2,493,000.
Components of the net periodic other postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period .................. $114 $153 $151
Interest cost on accumulated postretirement benefit obligation .... 245 283 318
Actual return on plan assets ...................................... (16) 3 (4)
Net amortization and deferral ..................................... (61) (7) 4
---- ---- ----
Total $282 $432 $469
==== ==== ====
</TABLE>
20
<PAGE> 58
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 (continued)
The following table summarizes the funded status of the plan:
<TABLE>
<CAPTION>
December 31
---------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ......................................................... $1,761 $1,332
Fully eligible active plan participants .......................... 620 496
Other active plan participants ................................... 1,929 1,245
------ ------
Total APBO .................................................... 4,310 3,073
Less: plan assets at fair value .................................... 133 91
------ ------
Funded status ....................................................... 4,177 2,982
Unrecognized gain ................................................... 361 1,424
------ ------
Accrued postretirement benefit cost recorded on the balance sheet ... $4,538 $4,406
====== ======
</TABLE>
Other postretirement benefit cost is determined using actuarial
assumptions at the beginning of the year. The funded status is
determined using assumptions at the end of the year. The discount rate
used was 7.5%, 8.5% and 7.5% at December 31, 1995, 1994 and 1993,
respectively. The accumulated postretirement benefit obligation at
December 31, 1995 was determined using a healthcare cost trend rate of
11% for 1996, declining by 1% per year, starting in 1997, to 6% and
remaining at that level thereafter. The trend rate for the years 1997
to 2001 is 1% higher than the rate used for the prior year's valuation.
A one percentage point increase in the assumed healthcare cost trend
rate for each year would increase the accumulated other postretirement
benefit obligation as of December 31, 1995 by $540,000 and the annual
net periodic other postretirement benefit cost for the year then ended
by $50,000.
21
<PAGE> 59
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
As of January 1, 1993, the Company adopted the liability method of
accounting for income taxes pursuant to FASB Statement 109, "Accounting
for Income Taxes." This accounting change was implemented through a
cumulative effect adjustment which reduced the net deferred tax
liability (and increased net income in the first quarter of 1993) by
$9,092,000. Under the liability method, deferred tax assets and
liabilities are determined based on the differences between their
financial reporting and their tax bases and are measured using the
enacted tax rates.
Differences between income tax computed by applying the U.S. federal
income tax rate of 35% to income before income taxes and the provision
for federal income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense ........................... $48,631 $47,040 $61,399
Dividends received deduction .............................. (44) (64) (52)
Tax exempt interest ....................................... (7) (8) (9)
Provision for settlement of prior years' tax obligation ... 0 0 2,000
Federal tax rate change ................................... 0 0 2,040
Other ..................................................... (550) 243 84
------- ------- -------
Income tax expense ..................................... $48,030 $47,211 $65,462
======= ======= =======
Percent of income tax expense to income before tax ........ 34.6% 35.1% 37.3%
======= ======= =======
</TABLE>
The tax effect of temporary differences which give rise to the deferred
tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves ............................ $ 1,990 $ 1,679
Unearned premium reserves .................................................. 2,011 2,012
Adjustment to life policy liabilities ...................................... 30,209 20,444
Capitalization of policy acquisition costs ................................. 21,860 18,263
Postretirement benefits .................................................... 1,588 1,542
Realized capital gains ..................................................... 9,348 5,422
Guarantee fund assessments ................................................. 3,680 3,250
Unrealized depreciation of investment securities ........................... -- 68,028
Other ...................................................................... 1,414 1,343
-------- ---------
Total deferred tax assets ............................................... 72,100 121,983
-------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs .......................................... 88,657 86,798
Bond discount accrual ...................................................... 5,905 4,133
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1995-$14,985) .................. 172,493 --
Other ...................................................................... 1,537 823
-------- ---------
Total deferred tax liabilities .......................................... 268,592 91,754
-------- ---------
Net deferred tax liability (asset) ...................................... $196,492 $ (30,229)
======== =========
</TABLE>
22
<PAGE> 60
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 (continued)
The deferred federal income tax benefit of $13,800,000 for 1995
represents the increase in the net deferred tax liability of
$226,721,000 excluding the increase of $240,521,000 related to
unrealized appreciation of investment securities which includes
$14,985,000 related to the deferred policy acquisition costs valuation
allowance.
The deferred federal income tax benefit of $10,154,000 for 1994
represents the decrease in the net deferred tax liability of
$81,799,000 excluding a decrease of $71,645,000 related to unrealized
depreciation of investment securities.
The deferred federal income tax benefit of $26,135,000 for 1993
represents a decrease in the net deferred federal income tax liability
of $25,704,000 excluding an increase of $431,000 related to unrealized
appreciation of marketable equity securities. The tax related to the
increase in appreciation of marketable equity securities approximated
$543,000 during 1993. Of that amount, $112,000, which related to the 1%
increase in the federal income tax rate, was charged directly to income
with the remainder charged directly to stockholder's equity.
23
<PAGE> 61
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENT DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,029 of financial
services revenue received from affiliates) ........... $ 45,284 $ 203,349 $ 248,633
Identifiable Investment Income .......................... 450,655 256,570 707,225
Investment Income Allocated ............................. 44,043 26,232 70,275
Identifiable Realized Gain (Loss) from Investments ...... 16,020 (8,586) 7,434
Realized Loss from Investments Allocated ................ (1,112) (646) (1,758)
---------- ---------- -----------
Total Revenue ........................................ $ 554,890 $ 476,919 $ 1,031,809
========== ========== ===========
Income Before Income Taxes ................................. $ 84,956 $ 53,990 $ 138,946
========== ========== ===========
<CAPTION>
December 31, 1995
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 143,228 $ 67,263 $ 210,491
Policy Loans ............................................ 29,109 26,816 55,925
Invested Assets ......................................... 6,086,143 3,261,042 9,347,185
Other ................................................... 155,358 327,863 483,221
Invested Assets Allocated .................................. 671,864 400,160 1,072,024
Other Assets Allocated ..................................... 18,179 11,148 29,327
---------- ---------- -----------
Total Assets ......................................... $7,103,881 $4,094,292 $11,198,173
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 12,222 $ 20,154 $ 32,376
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
24
<PAGE> 62
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $27,955 of financial
services revenue received from affiliates) ........... $ 42,805 $ 219,919 $ 262,724
Identifiable Investment Income .......................... 395,127 245,909 641,036
Investment Income Allocated ............................. 39,909 24,725 64,634
Identifiable Realized Gain from Investments ............. 6,744 1,267 8,011
Realized Loss from Investments Allocated ................ (1,463) (909) (2,372)
---------- ---------- -----------
Total Revenue ........................................ $ 483,122 $ 490,911 $ 974,033
========== ========== ===========
Income Before Income Taxes ................................. $ 70,200 $ 64,201 $ 134,401
========== ========== ===========
<CAPTION>
December 31, 1994
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 151,614 $ 95,576 $ 247,190
Policy Loans ............................................ 28,467 24,862 53,329
Invested Assets ......................................... 4,859,921 2,874,141 7,734,062
Other ................................................... 153,120 248,641 401,761
Invested Assets Allocated .................................. 542,890 336,343 879,233
Other Assets Allocated ..................................... (880) (569) (1,449)
---------- ---------- -----------
Total Assets ......................................... $5,735,132 $3,578,994 $ 9,314,126
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 9,914 $ 19,493 $ 29,407
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
25
<PAGE> 63
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $23,195 of financial
services revenue received from affiliates) ........... $ 40,000 $ 251,478 $ 291,478
Identifiable Investment Income .......................... 352,076 251,740 603,816
Investment Income Allocated ............................. 38,408 25,498 63,906
Identifiable Realized Gain (Loss) from Investments ...... 64,442 (6,567) 57,875
Realized Loss from Investments Allocated ................ (2,956) (1,375) (4,331)
---------- ---------- -----------
Total Revenue ........................................ $ 491,970 $ 520,774 $ 1,012,744
========== ========== ===========
Income Before Income Taxes ................................. $ 117,287 $ 58,140 $ 175,427
========== ========== ===========
<CAPTION>
December 31, 1993
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 137,479 $ 96,721 $ 234,200
Policy Loans ............................................ 26,181 24,307 50,488
Invested Assets ......................................... 4,253,688 2,906,514 7,160,202
Other ................................................... 98,972 159,396 258,368
Invested Assets Allocated .................................. 513,921 342,861 856,782
Other Assets Allocated ..................................... 21,160 13,185 34,345
---------- ---------- -----------
Total Assets ......................................... $5,051,401 $3,542,984 $ 8,594,385
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 7,395 $ 18,955 $ 26,350
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
26
