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SPINNAKER PLUS File Nos. 33-69600/811-4716
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
------
Post-Effective Amendment No. 8 [X]
---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 29 [X]
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(Check appropriate box or boxes.)
SAFECO RESOURCE VARIABLE ACCOUNT B
----------------------------------
(Exact Name of Registrant)
SAFECO LIFE INSURANCE COMPANY
-----------------------------
(Name of Depositor)
5069 154TH PLACE N.E., REDMOND, WASHINGTON 98052
------------------------------------------- -----
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (425) 376-8000
--------------
NAME AND ADDRESS OF AGENT FOR SERVICE
WILLIAM E. CRAWFORD
5069 154th Place N.E.
Redmond, Washington 98052
(425) 376-5328
Approximate date of Proposed Public Offering...........As Soon as
Practicable after Effective Date
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on April 28, 2000 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
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on (date) pursuant to paragraph (a)(1) of Rule 485
---
If appropriate, check the following:
this post-effective amendment designates a new effective date for a
---
previously filed post-effective amendment.
Registrant has declared that it has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed a Rule 24f-2 Notice for the
fiscal year ending December 31, 1999 on or about March 7, 2000.
<PAGE>
SAFECO RESOURCE VARIABLE ACCOUNT B
REGISTRATION STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
PART A
<S> <C>
Item 1. Cover Page............................................................ Cover Page
Item 2. Definitions........................................................... Index of Special Terms
Item 3. Synopsis or Highlights................................................ Fee Table; Summary
Item 4. Condensed Financial Information....................................... Appendix - Accumulation
Unit Value History
Item 5. General Description of Registrant, Depositor, and Portfolio
Companies............................................................. Other Information
Item 6. Deductions and Expenses............................................... Expenses; Fee Table
Item 7. General Description of Variable Annuity Contracts..................... The Annuity Contract
Item 8. Annuity Period........................................................ Annuity Payments (Income
Phase)
Item 9. Distribution Requirements............................................. Annuity Payments (Income
Phase) and Death Benefit
Item 10. Purchases and Contract Value.......................................... Purchase
Item 11. Redemptions........................................................... Access to Your Money
Item 12. Taxes................................................................. Taxes
Item 13. Legal Proceedings..................................................... Other Information
Item 14. Table of Contents of the Statement of Additional Information.......... Other Information
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
PART B
<S> <C>
Item 15. Cover Page............................................................ Cover Page
Item 16. Table of Contents..................................................... Cover Page
Item 17. General Information and History....................................... The Separate Account;
Experts
Item 18. Services.............................................................. Not Applicable
Item 19. Purchase of Securities Being Offered.................................. Not Applicable
Item 20. Underwriters.......................................................... Distribution
Item 21. Calculation of Performance Data....................................... Performance Information
Item 22. Annuity Payments...................................................... Annuity Provisions
Item 23. Financial Statements.................................................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
PROSPECTUS
<PAGE>
SPINNAKER-REGISTERED TRADEMARK- PLUS
Variable Annuity
ISSUED BY
SAFECO RESOURCE
VARIABLE ACCOUNT B
AND
SAFECO LIFE
INSURANCE COMPANY
This prospectus describes the Spinnaker Plus Variable Annuity Contract and
contains important information. Please read it before investing and keep it on
file for future reference. This prospectus is not valid unless given with
current prospectuses for the PORTFOLIOS available under the contract. This
prospectus does not constitute an offering in any jurisdiction in which the
contract may not lawfully be sold.
To learn more about the Spinnaker Plus Variable Annuity Contract, you can obtain
a copy of the Statement of Additional Information (SAI) dated May 1, 2000. The
SAI has been filed with the Securities and Exchange Commission (SEC) and is
legally part of the prospectus. The SEC maintains a website at
http://www.sec.gov. You may
request a free copy of the SAI, or
a paper copy of this prospectus if
you have received it in an
electronic format, by calling us at
1-877-472-3326 or writing us at:
PO Box 34690, Seattle, WA
98124-1690.
Dated: May 1, 2000
SAFECO RESOURCE SERIES TRUST
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
AIM VARIABLE INSURANCE FUNDS, INC.
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
DREYFUS INVESTMENT PORTFOLIOS ("DREYFUS IP")
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
MANAGED BY THE DREYFUS CORPORATION
- The Dreyfus Socially Responsible Growth Fund, Inc.
DREYFUS VARIABLE INVESTMENT FUND ("DREYFUS VIF")
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II
VARIABLE INSURANCE PRODUCTS FUND ("VIP")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP II Contrafund-Registered Trademark- Portfolio
VARIABLE INSURANCE PRODUCTS FUND III ("VIP III")
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
SPINNAKER PLUS PROSPECTUS
<PAGE>
INVESTMENT IN A VARIABLE ANNUITY CONTRACT IS SUBJECT TO RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION AND ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
NEITHER THE SEC OR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
INVESCO VARIABLE INVESTMENT FUNDS, INC.
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
J.P. MORGAN SERIES TRUST II
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
LEXINGTON EMERGING MARKETS FUND, INC.
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc.
LEXINGTON NATURAL RESOURCES TRUST
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Natural Resources Trust
SCUDDER VARIABLE LIFE INVESTMENT FUND ("VLIF")
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
SPINNAKER PLUS PROSPECTUS
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------
TABLE OF CONTENTS PAGE
- -------------------------------------------------------
<S> <C> <C>
SUMMARY...................................... 1
FEE TABLE.................................... 4
EXAMPLES..................................... 6
1. THE ANNUITY CONTRACT.................... 8
8
Owner...................................
8
Annuitant...............................
8
Assignment..............................
2. ANNUITY PAYMENTS (INCOME PHASE)......... 8
9
Changing Portfolios During the Income
Phase.................................
3. PURCHASE................................ 10
10
Purchase Payments.......................
10
Allocation of Purchase Payments.........
10
Accumulation Units......................
10
Right to Examine........................
4. INVESTMENT OPTIONS...................... 10
10
Variable Investment Options.............
11
Fixed Account...........................
11
Transfers...............................
12
Scheduled Transfers.....................
12
Dollar Cost Averaging.................
12
Appreciation or Interest Sweep........
12
Portfolio Rebalancing.................
5. EXPENSES................................ 12
12
Insurance Charge........................
12
Contingent Deferred Sales Charge........
13
Withdrawal Charge.......................
13
Transfer Charge.........................
13
Premium Taxes...........................
13
Income or Other Taxes...................
13
Portfolio Expenses......................
6. TAXES................................... 13
13
Annuity Contracts in General............
13
Qualified Contracts.....................
13
Non-qualified Contracts.................
14
Diversification.........................
14
Tax Withholding.........................
7. ACCESS TO YOUR MONEY.................... 14
14
Free Withdrawal Amount..................
14
Healthcare Confinement..................
14
Repetitive Withdrawals..................
14
Withdrawal Restrictions on TSA or
403(b)................................
15
Withdrawal Restrictions on Texas
Optional Retirement Program ("Texas
ORP").................................
15
Minimum Value...........................
8. PERFORMANCE............................. 15
9. DEATH BENEFIT........................... 15
15
Death of Owner During the Accumulation
Phase.................................
16
Death of Annuitant During the Income
Phase.................................
16
Beneficiary.............................
10. OTHER INFORMATION....................... 16
16
SAFECO Life.............................
16
Separate Account........................
16
General Account.........................
17
Distribution (Principal Underwriter)....
17
Legal Proceedings.......................
17
Right to Suspend Annuity Payments,
Transfers, or Withdrawals.............
17
Voting Rights...........................
17
Reduction of Charges or Additional
Amounts Credited......................
17
Internet Information....................
17
Financial Statements....................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL
INFORMATION.................................. 17
APPENDIX
Accumulation Unit Value History.............. A-1
INDEX OF SPECIAL TERMS
We have used simple, clear language as much as possible
in this prospectus. However, by the very nature of the
contract certain technical words or terms are
unavoidable. We have identified the following as some
of these words or terms. They are identified in the
text in italic and the page that is indicated here is
where we believe you will find the best explanation for
the word or term.
PAGE
Accumulation Phase........................... 8
Accumulation Unit............................ 10
Annuitant.................................... 8
Annuity Date................................. 8
Annuity Payments............................. 8
Annuity Unit................................. 10
Beneficiary.................................. 16
Fixed Account................................ 11
Income Phase................................. 8
Joint Owner.................................. 8
Non-qualified................................ 13
Owner........................................ 8
Portfolios................................... 11
Purchase Payment............................. 10
Qualified.................................... 13
Tax Deferral................................. 8
</TABLE>
SPINNAKER PLUS PROSPECTUS
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(This page has been left blank intentionally.)
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SUMMARY
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TOPICS IN THIS SUMMARY CORRESPOND TO SECTIONS IN THE PROSPECTUS WHICH DISCUSS
THEM IN MORE DETAIL.
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THE ANNUITY CONTRACT
- ----------------------------------------------
The annuity contract is an agreement between you, the OWNER, and SAFECO Life
Insurance Company ("SAFECO Life", "we", and "us"). It is designed to help you
invest on a tax-deferred basis and meet long-term financial goals, such as
retirement funding. The contract provides for a guaranteed income or a death
benefit. You should not buy the contract if you are looking for a short-term
investment or if you cannot accept the risk of getting back less money than you
put in.
You may divide your money among the available variable investment PORTFOLIOS and
a FIXED ACCOUNT. The value of the PORTFOLIOS can fluctuate up or down, based on
the performance of the underlying investments. Your investment in the PORTFOLIOS
is not guaranteed and you may lose money. The FIXED ACCOUNT offers an interest
rate guaranteed by SAFECO Life. Your choices for the various investment options
are found in Section 4.
Like most annuities, this contract has an ACCUMULATION PHASE and an INCOME
PHASE. During the ACCUMULATION PHASE, you invest money in your contract.
Earnings accumulate on a tax-deferred basis and are treated as income when you
make a withdrawal. Your earnings are based on the investment performance of the
PORTFOLIOS you selected and/or the interest rate earned on the FIXED ACCOUNT.
During the INCOME PHASE, the payee (you or someone you choose) will receive
payments from your annuity.
The amount of money you are able to accumulate in your contract during the
ACCUMULATION PHASE will determine the amount of payments during the INCOME
PHASE.
- ---------------------------------------------------
ANNUITY PAYMENTS (INCOME PHASE)
- ----------------------------------------------
You can select from one of four payment options. This selection cannot be
changed once you switch to the INCOME PHASE. However, switching to the INCOME
PHASE does not affect the available investment options. You can choose to have
payments come from the FIXED ACCOUNT, the PORTFOLIOS, or both. If you choose to
have any part of your payments come from the PORTFOLIOS, the dollar amount of
your payments may go up or down.
- ---------------------------------------------------
PURCHASE
- ----------------------------------------------
You can buy this contract with $50,000 or more. You can make additional PURCHASE
PAYMENTS of $250 or more only within six months of your initial PURCHASE
PAYMENT. These additional PURCHASE PAYMENTS are not permitted in New Jersey.
- ---------------------------------------------------
INVESTMENT OPTIONS
- ----------------------------------------------
Not all PORTFOLIOS listed below may be available for all contracts. Each
PORTFOLIO is fully described in its accompanying prospectus.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
- The Dreyfus Socially Responsible Growth Fund, Inc.
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
- VIP II Contrafund Portfolio
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc.
- Lexington Natural Resources Trust
SPINNAKER PLUS PROSPECTUS
1
<PAGE>
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
Depending upon market conditions, you can make or lose money in any of these
PORTFOLIOS. You may also allocate money to the FIXED ACCOUNT which credits
guaranteed interest.
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EXPENSES
- ----------------------------------------------
The contract has insurance features and investment features, and there are costs
related to each.
We deduct an insurance charge ("mortality and expense risk charge") which equals
1.25% annually of the average daily value of your contract allocated to the
PORTFOLIOS. This is not charged on money allocated to the FIXED ACCOUNT.
If you take more than 10% of your contract value out in a contract year, you may
be assessed a contingent deferred sales charge. The amount of this charge
depends upon the age of your contract and is based upon the amount withdrawn. It
starts at 8% in the first contract year and decreases one percent each contract
year until the ninth and later contract years when there is no charge.
If more than one withdrawal is made during a contract year, a separate
withdrawal charge equal to the lesser of $25 or 2% of the amount withdrawn may
apply.
You can transfer between investment options up to 12 times per contract year
free of charge. A transfer charge equal to the lesser of $10 or 2% of the amount
being transferred may apply to each additional transfer.
In a limited number of states there is a premium tax of up to 3.5%, depending
upon the state. In this case, a premium tax charge for the payment of these
taxes may be deducted.
There are also annual PORTFOLIO expenses which vary depending upon the
PORTFOLIOS you select. In 1999, these expenses ranged from 0.55% to 1.97%.
The Fee Table and Examples following this Summary show the various expenses you
will incur directly and indirectly by investing in the contract. There are
situations where all or some of the OWNER transaction expenses do not apply. See
Section 5 - Expenses for a complete discussion.
- ---------------------------------------------------
TAXES
- ----------------------------------------------
Generally, earnings and amounts equal to PURCHASE PAYMENTS made with pre-tax
dollars are not taxed until you take them out. During the ACCUMULATION PHASE,
taxable amounts generally come out first and are taxed as ordinary income.
Exceptions may apply to contracts issued in connection with certain retirement
plans. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% penalty on the taxable amount. During the INCOME PHASE, ANNUITY
PAYMENTS are considered partly a return of your original investment and partly
earnings, and are taxed in the year received.
- ---------------------------------------------------
ACCESS TO YOUR MONEY
- ----------------------------------------------
You may take money out at any time during the ACCUMULATION PHASE unless you are
restricted by requirements of a retirement plan. Each contract year, you can
take up to 10% of the contract value without paying a contingent deferred sales
charge. Amounts in excess of 10% may be subject to a contingent deferred sales
charge. This charge varies based on the age of your contract, not on the age of
particular PURCHASE PAYMENTS. You may have to pay income taxes and tax penalties
on any money you take out.
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PERFORMANCE
- ----------------------------------------------
The value of your contract will vary up or down depending upon the investment
performance of the PORTFOLIOS you choose. Past performance is not a guarantee of
future results.
- ---------------------------------------------------
DEATH BENEFIT
- ----------------------------------------------
If you die before moving to the INCOME PHASE, your BENEFICIARY will receive a
death benefit.
- ---------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------
RIGHT TO EXAMINE. If you cancel the contract within 10 days after receiving it
(or whatever period is required in your state), we will send your money back
without assessing a contingent deferred sales charge. You will receive whatever
your contract is worth on the day we receive your request. This may be more or
less than your original PURCHASE PAYMENT. If required by law, we will return
your original PURCHASE PAYMENT.
TRANSACTIONS. You can initiate transfers or withdrawals as needed or schedule
them in advance under the following strategies:
- Dollar Cost Averaging: You may elect to automatically transfer a set amount
from any PORTFOLIO or the FIXED ACCOUNT to any of the other
SPINNAKER PLUS PROSPECTUS
2
<PAGE>
PORTFOLIOS monthly or quarterly. This feature attempts to achieve a lower
average cost per unit over time.
- Appreciation or Interest Sweep: As long as your contract value exceeds
$10,000, you may elect to have interest from the FIXED ACCOUNT or earnings
from the RST Money Market Portfolio automatically swept monthly, quarterly,
or annually into any PORTFOLIO of your choice.
- Portfolio Rebalancing: As long as your contract value exceeds $10,000, you
may elect to have each PORTFOLIO rebalanced quarterly, semiannually, or
annually to maintain your specified allocation percentages.
- Repetitive Withdrawals: You may elect to receive monthly, quarterly, or
annual checks during the ACCUMULATION PHASE. Any money you receive may
result in contract charges, income taxes, and tax penalties.
- ---------------------------------------------------
INQUIRIES
- ----------------------------------------------
If you need more information, please contact us at:
SAFECO LIFE INSURANCE COMPANY
5069 154TH PLACE N.E.
REDMOND, WA 98052
1-877-472-3326
HTTP://WWW.SAFECO.COM
SPINNAKER PLUS PROSPECTUS
3
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SAFECO RESOURCE VARIABLE ACCOUNT B FEE TABLE
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OWNER TRANSACTION EXPENSES (See Note 2)
Contingent Deferred Sales Charge (as a percentage of the amount withdrawn)
No charge for first 10% of contract value withdrawn in a contract year.
Thereafter, the charge is:
<TABLE>
<S> <C> <C>
year 1 ............ 8% year 4 ............ 5% year 7 ............ 2%
year 2 ............ 7% year 5 ............ 4% year 8 ............ 1%
year 3 ............ 6% year 6 ............ 3% year 9+ ........... 0%
</TABLE>
Withdrawal Charge
No charge for first withdrawal in a contract year; thereafter, the charge is
$25 per withdrawal or, if less, 2% of the amount of the withdrawal.
Transfer Charge
No charge for first 12 transfers in a contract year; thereafter, the charge
is $10 per transfer or, if less, 2% of the amount transferred.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE
None.
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<S> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES Mortality and Expense Risk Charge............ 1.25%
(as a percentage of average account value) Asset Related Administration Charge.......... None
Total Separate Account Annual Expenses....... 1.25%
=====
</TABLE>
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<TABLE>
<CAPTION>
PORTFOLIO EXPENSES Management Distribution and Other Total Annual
(as a percentage of average net assets) Fees Service (12b-1) Fees Expenses Expenses
(after reimbursement and waiver for certain Portfolios)
<S> <C> <C> <C> <C>
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MANAGED BY SAFECO ASSET MANAGEMENT
COMPANY (a)
RST Equity Portfolio....... 0.74% None 0.02% 0.76%
RST Growth Opportunities Portfolio... 0.74% None 0.04% 0.78%
RST Northwest Portfolio.... 0.74% None 0.10% 0.84%
RST Bond Portfolio......... 0.74% None 0.17% 0.91%
RST Money Market Portfolio... 0.65% None 0.13% 0.78%
RST Small Company Value Portfolio... 0.85% None 0.10% 0.95%
MANAGED BY AIM MANAGEMENT GROUP (a)
AIM V.I. Aggressive Growth Fund... 0.80% None 0.36% 1.16%
AIM V.I. Growth Fund....... 0.64% None 0.08% 0.72%
MANAGED BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC. (a)
VP Balanced................ 0.90% None 0.00% 0.90%
VP International........... 1.34% None 0.00% 1.34%
MANAGED BY THE DREYFUS CORPORATION (a)
Dreyfus IP MidCap Stock Portfolio... 0.75% None 0.22% 0.97%
Dreyfus IP Technology Growth
Portfolio................ 0.75% None 0.32% 1.07%
The Dreyfus Socially Responsible
Growth Fund, Inc......... 0.75% None 0.04% 0.79%
Dreyfus VIF Appreciation Portfolio... 0.75% None 0.03% 0.78%
Dreyfus VIF Quality Bond Portfolio... 0.65% None 0.09% 0.74%
MANAGED BY FEDERATED INVESTMENT
MANAGEMENT COMPANY (a)
Federated High Income Bond Fund II... 0.60% None 0.19% 0.79%
Federated Utility Fund II... 0.75% None 0.19% 0.94%
MANAGED BY FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP. (a)
Federated International Equity Fund
II....................... 0.54% None 0.71% 1.25%
MANAGED BY FIDELITY MANAGEMENT &
RESEARCH COMPANY (a)
(Initial Class shares only)
VIP Growth Portfolio (b)... 0.58% None 0.07% 0.65%
VIP II Contrafund Portfolio (b)... 0.58% None 0.07% 0.65%
VIP III Growth Opportunities
Portfolio (b)............ 0.58% None 0.10% 0.68%
VIP III Growth & Income Portfolio
(b)...................... 0.48% None 0.11% 0.59%
MANAGED BY FRANKLIN ADVISERS, INC. (a)
Franklin Small Cap Fund - Class 2.... 0.55% 0.25% 0.27% 1.07%
Franklin U.S. Government Fund -
Class 2................. 0.49% 0.25% 0.02% 0.76%
</TABLE>
SPINNAKER PLUS PROSPECTUS
4
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<TABLE>
<S> <C> <C> <C> <C>
MANAGED BY INVESCO FUNDS GROUP, INC.
(a)
VIF-Real Estate Opportunity Fund... 0.90% None 1.07% 1.97%
MANAGED BY J.P. MORGAN INVESTMENT
MANAGEMENT INC. (a)
J.P. Morgan U.S. Disciplined Equity
Portfolio................ 0.35% None 0.50% 0.85%
MANAGED BY LEXINGTON MANAGEMENT
CORPORATION (a)
Lexington Emerging Markets Fund,
Inc...................... 0.85% None 0.85% 1.70%
Lexington Natural Resources Trust... 1.00% None 0.33% 1.33%
MANAGED BY SCUDDER KEMPER INVESTMENTS,
INC. (a)
Scudder VLIF Balanced Portfolio... 0.475% None 0.08% 0.55%
Scudder VLIF International
Portfolio................ 0.853% None 0.18% 1.03%
MANAGED BY TEMPLETON ASSET MANAGEMENT,
LTD. (a)
Templeton Developing Markets
Securities Fund - Class 2... 1.25% 0.25% 0.31% 1.81%
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</TABLE>
(a) In some cases the fund advisers or other parties agree to waive or reimburse
all or a portion of the PORTFOLIO expenses. For those PORTFOLIOS where such
an agreement exists, the expenses absent waiver or reimbursement would have
been 1.22% for the RST Small Company Value Portfolio, 4.62% for the AIM V.I.
Aggressive Growth Fund, 1.46% for the Dreyfus IP MidCap Stock Portfolio,
1.34% for the Dreyfus IP Technology Growth Portfolio, 1.71% for the
Federated International Equity Fund II, 9.77% for the VIF-Real Estate
Opportunity Fund, and 0.87% for the J.P. Morgan U.S. Disciplined Equity
Portfolio. See the PORTFOLIO prospectuses for more detailed information. In
addition, we have Fund Participation Agreements with each of the non-SAFECO
fund managers that describe the administrative practices and
responsibilities of the parties. To the extent it performs services for the
fund, SAFECO Life may receive an asset based administrative fee from the
fund's adviser or distributor.
(b) A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, through arrangements with certain
funds', or FMR on behalf of certain funds', custodian, credits realized as a
result of uninvested cash balances were used to reduce a portion of each
applicable fund's expenses. Without these reductions, the total operating
expenses presented in the table would have been 0.66% for the VIP Growth
Portfolio, 0.67% for the VIP II Contrafund Portfolio, 0.69% for the VIP III
Growth Opportunities Portfolio, and 0.60% for the VIP III Growth & Income
Portfolio.
The above PORTFOLIO expenses were provided by the PORTFOLIOS. We have not
independently verified the accuracy of the information.
SPINNAKER PLUS PROSPECTUS
5
<PAGE>
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXAMPLES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
(a) upon surrender at the end of each time period;
(b) if the contract is not surrendered or is annuitized.
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
RST Equity Portfolio (a) $ 95 (a) $122 (a) $150 (a) $234
(b) $ 20 (b) $ 63 (b) $108 (b) $234
RST Growth Opportunities Portfolio (a) $ 95 (a) $123 (a) $151 (a) $236
(b) $ 21 (b) $ 64 (b) $109 (b) $236
RST Northwest Portfolio (a) $ 95 (a) $124 (a) $154 (a) $242
(b) $ 21 (b) $ 65 (b) $112 (b) $242
RST Bond Portfolio (a) $ 96 (a) $126 (a) $157 (a) $249
(b) $ 22 (b) $ 68 (b) $116 (b) $249
RST Money Market Portfolio (a) $ 95 (a) $123 (a) $151 (a) $236
(b) $ 21 (b) $ 64 (b) $109 (b) $236
RST Small Company Value Portfolio (a) $ 96 (a) $127 (a) $159 (a) $253
(b) $ 22 (b) $ 69 (b) $118 (b) $253
MANAGED BY AIM MANAGEMENT GROUP
AIM V.I. Aggressive Growth Fund (a) $ 98 (a) $133 (a) $169 (a) $275
(b) $ 24 (b) $ 75 (b) $129 (b) $275
AIM V.I. Growth Fund (a) $ 94 (a) $121 (a) $148 (a) $230
(b) $ 20 (b) $ 62 (b) $106 (b) $230
MANAGED BY AMERICAN CENTURY INVESTMENT
MANAGEMENT, INC.
VP Balanced (a) $ 96 (a) $126 (a) $157 (a) $248
(b) $ 22 (b) $ 67 (b) $115 (b) $248
VP International (a) $100 (a) $139 (a) $178 (a) $292
(b) $ 26 (b) $ 81 (b) $138 (b) $292
MANAGED BY THE DREYFUS CORPORATION
Dreyfus IP MidCap Stock Portfolio (a) $ 97 (a) $128 (a) $160 (a) $255
(b) $ 23 (b) $ 69 (b) $119 (b) $255
Dreyfus IP Technology Growth
Portfolio (a) $ 97 (a) $131 (a) $165 (a) $266
(b) $ 24 (b) $ 72 (b) $124 (b) $266
The Dreyfus Socially Responsible
Growth Fund, Inc. (a) $ 95 (a) $123 (a) $151 (a) $237
(b) $ 21 (b) $ 64 (b) $110 (b) $237
Dreyfus VIF Appreciation Portfolio (a) $ 95 (a) $123 (a) $151 (a) $236
(b) $ 21 (b) $ 64 (b) $109 (b) $236
Dreyfus VIF Quality Bond Portfolio (a) $ 94 (a) $121 (a) $149 (a) $232
(b) $ 20 (b) $ 62 (b) $107 (b) $232
MANAGED BY FEDERATED INVESTMENT MANAGEMENT
COMPANY
Federated High Income Bond Fund II (a) $ 95 (a) $123 (a) $151 (a) $237
(b) $ 21 (b) $ 64 (b) $110 (b) $237
Federated Utility Fund II (a) $ 96 (a) $127 (a) $159 (a) $252
(b) $ 22 (b) $ 69 (b) $117 (b) $252
MANAGED BY FEDERATED GLOBAL INVESTMENT
MANAGEMENT CORP.
Federated International Equity Fund
II (a) $ 99 (a) $136 (a) $174 (a) $284
(b) $ 25 (b) $ 78 (b) $133 (b) $284
MANAGED BY FIDELITY MANAGEMENT & RESEARCH
COMPANY
VIP Growth Portfolio (a) $ 94 (a) $119 (a) $145 (a) $222
(b) $ 19 (b) $ 60 (b) $103 (b) $222
VIP II Contrafund Portfolio (a) $ 94 (a) $119 (a) $145 (a) $222
(b) $ 19 (b) $ 60 (b) $103 (b) $222
VIP III Growth Opportunities
Portfolio (a) $ 94 (a) $120 (a) $146 (a) $225
(b) $ 20 (b) $ 61 (b) $104 (b) $225
VIP III Growth & Income Portfolio (a) $ 93 (a) $117 (a) $142 (a) $216
(b) $ 19 (b) $ 58 (b) $100 (b) $216
MANAGED BY FRANKLIN ADVISERS, INC.
Franklin Small Cap Fund - Class 2 (a) $ 97 (a) $131 (a) $165 (a) $266
(b) $ 24 (b) $ 72 (b) $124 (b) $266
Franklin U.S. Government Fund - Class
2 (a) $ 95 (a) $122 (a) $150 (a) $234
(b) $ 20 (b) $ 63 (b) $108 (b) $234
MANAGED BY INVESCO FUNDS GROUP, INC.
VIF-Real Estate Opportunity Fund (a) $106 (a) $156 (a) $208 (a) $352
(b) $ 32 (b) $ 99 (b) $168 (b) $352
</TABLE>
SPINNAKER PLUS PROSPECTUS
6
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT
INC.
J.P. Morgan U.S. Disciplined Equity
Portfolio (a) $ 95 (a) $125 (a) $154 (a) $243
(b) $ 21 (b) $ 66 (b) $113 (b) $243
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
Lexington Emerging Markets Fund, Inc. (a) $103 (a) $149 (a) $195 (a) $327
(b) $ 30 (b) $ 91 (b) $155 (b) $327
Lexington Natural Resources Trust (a) $100 (a) $138 (a) $178 (a) $291
(b) $ 26 (b) $ 80 (b) $137 (b) $291
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
Scudder VLIF Balanced Portfolio (a) $ 93 (a) $116 (a) $140 (a) $212
(b) $ 18 (b) $ 57 (b) $ 98 (b) $212
Scudder VLIF International Portfolio (a) $ 97 (a) $130 (a) $163 (a) $262
(b) $ 23 (b) $ 71 (b) $122 (b) $262
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
Templeton Developing Markets
Securities Fund - Class 2 (a) $104 (a) $152 (a) $200 (a) $337
(b) $ 31 (b) $ 95 (b) $161 (b) $337
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the Fee Table is to show the various expenses you will incur
directly and indirectly by investing in the contract. The Fee Table reflects
expenses of the Separate Account as well as the PORTFOLIOS.
2. There are situations where all or some of the OWNER transaction expenses do
not apply. See Section 5 - Expenses for a complete discussion.
3. The examples do not reflect premium taxes that may apply depending on the
state where you live.
4. The examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.
THE APPENDIX CONTAINS ACCUMULATION UNIT VALUE HISTORY.
SPINNAKER PLUS PROSPECTUS
7
<PAGE>
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1. THE ANNUITY CONTRACT
- ----------------------------------------------
This prospectus describes a variable annuity contract offered by SAFECO Life.
The annuity contract is an agreement between SAFECO Life and you, the OWNER,
where we promise to pay the payee (you or someone you choose) an income in the
form of ANNUITY PAYMENTS, beginning on a date you select, or a death benefit to
your BENEFICIARY(IES). When you are investing money, your contract is in the
ACCUMULATION PHASE. Once your contract value is applied to purchase ANNUITY
PAYMENTS, your contract switches to the INCOME PHASE.
Contracts owned by or for individuals generally benefit from TAX DEFERRAL under
the Internal Revenue Code of 1986, as amended ("Code"). You can change your
investment allocation or transfer between investment options without paying tax
on contract earnings until you take money out.
The contract is called a variable annuity because you can choose among the
available variable investment PORTFOLIOS in which you can make or lose money
depending upon market conditions. The investment performance of the PORTFOLIO(S)
you select affects the value of your contract and the amount of any variable
ANNUITY PAYMENTS.
The contract also has a FIXED ACCOUNT. Your money earns interest at a rate we
set. The annual effective interest rate credited to a PURCHASE PAYMENT will
never be less than 3% and is guaranteed for at least 12 months. The total
interest credited to you in the FIXED ACCOUNT affects the value of your
contract. Unlike variable ANNUITY PAYMENTS, fixed ANNUITY PAYMENTS are not
affected by the investment performance of the PORTFOLIOS.
OWNER
The OWNER is as shown on the contract application, unless changed. You, as the
OWNER, may exercise all ownership rights under the contract.
The contract can be owned by JOINT OWNERS. Each JOINT OWNER has equal ownership
rights and must exercise those rights jointly.
ANNUITANT
The ANNUITANT is the person on whose life ANNUITY PAYMENTS are based. You are
the ANNUITANT unless you designate someone else before switching to the INCOME
PHASE.
OWNERS who are not treated as individuals under Section 72 of the Code (e.g.,
corporations or certain trusts) may not change the ANNUITANT.
ASSIGNMENT
You can assign the contract. This may result in current taxation and, if you are
under age 59 1/2, a 10% tax penalty. Assignments are effective when we receive
and acknowledge them. We are not liable for payments made prior to receipt of an
effective assignment. We are not responsible for the validity of any
assignments, tax consequences, or actions we may take based on an assignment
later determined to be invalid.
If your contract is an Individual Retirement Annuity ("IRA") or otherwise
tax-qualified, your ability to assign the contract may be limited.
- ---------------------------------------------------
2. ANNUITY PAYMENTS (INCOME PHASE)
- ----------------------------------------------
You can switch to the INCOME PHASE at any time unless you are restricted by the
requirements of a retirement plan. During the INCOME PHASE, the payee (you or
someone you choose) will receive ANNUITY PAYMENTS beginning on the ANNUITY DATE.
You may select or change an annuity option at any time prior to switching to the
INCOME PHASE. Some retirement plans and/or contract versions require that the
ANNUITANT be the OWNER and payee once ANNUITY PAYMENTS begin.
Switching to the INCOME PHASE is irrevocable. Once your contract value has been
applied to purchase ANNUITY PAYMENTS, you cannot switch back to the ACCUMULATION
PHASE. During the INCOME PHASE, you cannot add PURCHASE PAYMENTS, change or add
an ANNUITANT, change the annuity option, or change between fixed and variable
ANNUITY PAYMENTS. If you transfer the right to receive ANNUITY PAYMENTS to
someone else, there may be gift and income tax consequences.
ANNUITY PAYMENTS are required to begin on the earlier of:
- the first available payment date after you elect to begin ANNUITY PAYMENTS;
- the latest ANNUITY DATE specified in your contract; or
- a different ANNUITY DATE if required by law.
You can choose whether ANNUITY PAYMENTS will be made on a fixed basis, variable
basis, or both. If the amount applied to an annuity option is less than $5,000,
we may pay you in a lump sum where permitted by state law. You can choose one of
the options listed below or any other option you want and that we agree to
provide. Life annuity options (the first three options) convert ACCUMULATION
UNITS to ANNUITY UNITS on the date you switch to the INCOME PHASE. Once ANNUITY
PAYMENTS under a life annuity option are started, they cannot be exchanged for a
lump sum. See the SAI for additional information.
The amount of each ANNUITY PAYMENT depends on many factors including the
guarantees under the annuity option you choose, the frequency of ANNUITY
PAYMENTS, the performance if you choose variable ANNUITY PAYMENTS, the
ANNUITANT'S age at the time you switch to the INCOME PHASE and under some
contracts, the ANNUITANT'S sex. If you choose a life annuity option, the number
of ANNUITY
SPINNAKER PLUS PROSPECTUS
8
<PAGE>
PAYMENTS the payee receives depends on how long the ANNUITANT lives, not the
ANNUITANT'S life expectancy.
LIFE ANNUITY. The payee receives monthly ANNUITY PAYMENTS as long as the
ANNUITANT is living. ANNUITY PAYMENTS stop when the ANNUITANT dies. If the
ANNUITANT has a shortened life expectancy, there is a risk that fewer
ANNUITY PAYMENTS will be made.
LIFE ANNUITY WITH GUARANTEED PERIOD. The payee receives monthly ANNUITY
PAYMENTS for the longer of the ANNUITANT'S life or a guaranteed period of
five or more years, as selected by you and agreed to by us. If the ANNUITANT
dies before all guaranteed payments have been made, the rest will be made to
the BENEFICIARY. ANNUITY PAYMENTS stop the later of the date the ANNUITANT
dies or the date the last guaranteed payment is made. The amount of the
ANNUITY PAYMENTS may be affected by the length of the guaranteed period you
select. A shorter guaranteed period may result in higher ANNUITY PAYMENTS
during the ANNUITANT'S life and fewer or no remaining guaranteed payments to
the BENEFICIARY.
JOINT AND SURVIVOR LIFE ANNUITY. The payee receives monthly ANNUITY
PAYMENTS as long as the ANNUITANT is living. After the ANNUITANT dies, the
payee receives a specified percentage of each ANNUITY PAYMENT as long as the
second ANNUITANT is living. You name the second ANNUITANT and payment
percentage at the time you elect this option. Choosing a lower percentage
amount paid after the death of the ANNUITANT and while the second ANNUITANT
is living results in higher payments while both ANNUITANTS are alive.
ANNUITY PAYMENTS stop on the later of the date the ANNUITANT dies or the
date the second ANNUITANT dies.
PAYMENTS BASED ON A NUMBER OF YEARS. The payee receives substantially equal
ANNUITY PAYMENTS based on a number of years as selected by you and agreed to
by us. You may select monthly, quarterly, or annual ANNUITY PAYMENTS. Each
ANNUITY PAYMENT reduces the number of ACCUMULATION UNITS and/or value of the
FIXED ACCOUNT in the contract. ANNUITY PAYMENTS continue until the entire
value in the PORTFOLIOS and/or FIXED ACCOUNT has been paid out. You can stop
these ANNUITY PAYMENTS and receive a lump sum equal to the remaining
contract value less any contingent deferred sales charge. There may be tax
consequences and penalties for stopping these ANNUITY PAYMENTS. However,
this feature may be important to you if you do not have other sources of
funds for emergencies or other financial needs that may arise. This option
does not promise to make payments for the ANNUITANT'S life. If the ANNUITANT
dies before all ANNUITY PAYMENTS have been made, there will be a death
benefit payable to the BENEFICIARY. See Section 9 - Death Benefit for more
information.
If you do not choose an annuity option at least 30 days before the latest
ANNUITY DATE specified in your contract, we will make ANNUITY PAYMENTS under the
Payments Based on a Number of Years annuity option unless your contract states
otherwise. The number of years will be equal to the ANNUITANT'S life expectancy.
We reserve the right to change the payment frequency if payment amounts would be
less than $250. You may elect to have payments delivered by mail or
electronically transferred to a bank account.
We may require proof of age or sex before beginning ANNUITY PAYMENTS that are
based on life or life expectancy. If the age or sex of any ANNUITANT has been
misstated, ANNUITY PAYMENTS will be based on the corrected information.
Underpayments will be made up in a lump sum with the next scheduled payment.
Overpayments will be deducted from future payments until the total is repaid. We
may require evidence satisfactory to us that an ANNUITANT is living before we
make any payment.
Any portion of ANNUITY PAYMENTS based on investment in the PORTFOLIOS will vary
in amount depending on investment performance. If you don't tell us otherwise,
ANNUITY PAYMENTS will be based on the investment allocations in place on the
date you switch to the INCOME PHASE.
If you choose to have any portion of ANNUITY PAYMENTS based on investment in the
PORTFOLIOS, the dollar amount of each payment will depend on:
- the value of your contract in the PORTFOLIOS as of the first close of the
New York Stock Exchange ("NYSE") on or after the 15th day of the month
preceding the ANNUITY DATE;
- an assumed investment return; and
- the investment performance of the PORTFOLIOS you selected.
If actual performance of the PORTFOLIOS exceeds the assumed investment return,
the value of ANNUITY UNITS increases and subsequent ANNUITY PAYMENTS will be
larger. Similarly, if the actual performance is less than the assumed investment
return, the value of your ANNUITY UNITS decreases and subsequent ANNUITY
PAYMENTS will be smaller. Under the Payments Based on a Number of Years annuity
option, actual performance of the PORTFOLIOS and any withdrawals may affect the
amount or duration of ANNUITY PAYMENTS.
CHANGING PORTFOLIOS DURING
THE INCOME PHASE
After you switch to the INCOME PHASE, you may request to change PORTFOLIO
elections once a month. Transfers are not allowed to or from the FIXED ACCOUNT.
Changes will affect the number of units used to calculate ANNUITY PAYMENTS. See
the SAI for more information.
SPINNAKER PLUS PROSPECTUS
9
<PAGE>
- ---------------------------------------------------
3. PURCHASE
- ----------------------------------------------
PURCHASE PAYMENTS
A PURCHASE PAYMENT is the money you give us to buy the contract, plus any
additional money you invest in the contract after you own it. You can purchase a
contract with a minimum initial investment of $50,000. Additional PURCHASE
PAYMENTS of $250 or more may only be made within six months of your initial
PURCHASE PAYMENT. These additional PURCHASE PAYMENTS are not permitted in New
Jersey.
Any PURCHASE PAYMENT in excess of $1 million requires our prior approval.
Your initial PURCHASE PAYMENT is normally credited to you within two days of our
receipt. If your initial PURCHASE PAYMENT is not accompanied by all the
information we need to issue your contract, we will contact you to get it. If we
cannot get all the required information within five days, we will either return
your PURCHASE PAYMENT or get your permission to keep it until we have received
the necessary information. Your contract date is the date your initial PURCHASE
PAYMENT and all required information are received at SAFECO Life.
We reserve the right to refuse any application or PURCHASE PAYMENT.
ALLOCATION OF PURCHASE PAYMENTS
You tell us how to apply your initial PURCHASE PAYMENT by specifying your
desired allocation on the contract application. Unless you tell us otherwise,
subsequent PURCHASE PAYMENTS will be allocated in the same proportion as your
most recent PURCHASE PAYMENT (unless that was a PURCHASE PAYMENT you directed us
to allocate on a one-time-only basis). You may change the way subsequent
PURCHASE PAYMENTS are allocated by providing us with written instructions or by
telephoning us, if we have your written authorization to accept telephone
instructions. See "Transfers" as discussed in Section 4.
Once a PURCHASE PAYMENT is received, the portion to be allocated to the FIXED
ACCOUNT is credited as of the day it is received. The portion to be allocated to
the PORTFOLIOS is effective and valued as of the next close of the NYSE. This is
usually 4:00 p.m. eastern time. If for any reason the NYSE is closed when we
receive your PURCHASE PAYMENT it will be valued as of the close of the NYSE on
its next regular business day.
ACCUMULATION UNITS
The value of the variable portion of your contract will go up or down depending
upon the investment performance of the PORTFOLIO(S) you choose. In order to keep
track of this we use a unit of measure called an ACCUMULATION UNIT, which works
like a share of a mutual fund. During the INCOME PHASE, we call them ANNUITY
UNITS.
We calculate the value of an ACCUMULATION UNIT for each PORTFOLIO after the NYSE
closes each day by:
1. determining the total value of the particular PORTFOLIO;
2. subtracting from that amount insurance and other charges; and
3. dividing this amount by the number of outstanding ACCUMULATION UNITS of
the particular PORTFOLIO.
The value of an ACCUMULATION UNIT may go up or down from day to day.
When you make PURCHASE PAYMENTS or transfers into a PORTFOLIO, we credit your
contract with ACCUMULATION UNITS. Conversely, when you request a withdrawal or a
transfer of money from a PORTFOLIO, ACCUMULATION UNITS are liquidated. In either
case, the increase or decrease in the number of your ACCUMULATION UNITS is
determined by taking the amount of the PURCHASE PAYMENT, transfer, or withdrawal
and dividing it by the value of an ACCUMULATION UNIT on the date the transaction
occurs.
EXAMPLE: On Monday we receive a $1,000 PURCHASE PAYMENT from you before the
NYSE closes. You have told us you want this to go to the RST Growth
Opportunities Portfolio. When the NYSE closes on that Monday, we determine
that the value of an ACCUMULATION UNIT for the RST Growth Opportunities
Portfolio is $34.12. We then divide $1,000 by $34.12 and credit your
contract on Monday night with 29.31 ACCUMULATION UNITS for the RST Growth
Opportunities Portfolio.
RIGHT TO EXAMINE
You may cancel the contract without charge by returning it to us or to your
SAFECO Life registered representative within the period stated on the front of
your contract. This period will be at least 10 days (longer in some states). You
will receive your contract value, a return of PURCHASE PAYMENTS, or the greater
of the two depending on state requirements or if your contract is an IRA.
Contract value may be more or less than PURCHASE PAYMENTS. When we are required
to guarantee a return of PURCHASE PAYMENTS, we reserve the right to initially
apply amounts designated for the PORTFOLIOS to the RST Money Market Portfolio
until the contract is 15 days old. These amounts will then be allocated in the
manner you selected unless you have canceled the contract.
- ---------------------------------------------------
4. INVESTMENT OPTIONS
- ----------------------------------------------
VARIABLE INVESTMENT OPTIONS
The PORTFOLIOS are not offered directly to the public but are available to life
insurance companies as investment options for variable annuity and variable life
insurance contracts. The performance for the PORTFOLIOS may differ substantially
from publicly traded mutual funds with similar names and objectives.
SPINNAKER PLUS PROSPECTUS
10
<PAGE>
Each PORTFOLIO has its own investment objective. You should read the
prospectuses for these PORTFOLIOS carefully before investing. Copies of these
prospectuses accompany this prospectus and may include information on other
PORTFOLIOS not available under this contract. Not all PORTFOLIOS listed below
may be available for all contracts.
MANAGED BY SAFECO ASSET MANAGEMENT COMPANY
- RST Equity Portfolio
- RST Growth Opportunities Portfolio
- RST Northwest Portfolio
- RST Bond Portfolio
- RST Money Market Portfolio
- RST Small Company Value Portfolio
MANAGED BY AIM MANAGEMENT GROUP
- AIM V.I. Aggressive Growth Fund
- AIM V.I. Growth Fund
MANAGED BY AMERICAN CENTURY INVESTMENT MANAGEMENT, INC.
- VP Balanced
- VP International
MANAGED BY THE DREYFUS CORPORATION
- Dreyfus IP MidCap Stock Portfolio
- Dreyfus IP Technology Growth Portfolio
- The Dreyfus Socially Responsible Growth Fund, Inc.
- Dreyfus VIF Appreciation Portfolio
- Dreyfus VIF Quality Bond Portfolio
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
- Federated High Income Bond Fund II
- Federated Utility Fund II
MANAGED BY FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
- Federated International Equity Fund II*
MANAGED BY FIDELITY MANAGEMENT & RESEARCH COMPANY
- VIP Growth Portfolio
- VIP II Contrafund Portfolio*
- VIP III Growth Opportunities Portfolio
- VIP III Growth & Income Portfolio
MANAGED BY FRANKLIN ADVISERS, INC.
- Franklin Small Cap Fund - Class 2
- Franklin U.S. Government Fund - Class 2
MANAGED BY INVESCO FUNDS GROUP, INC.
- VIF-Real Estate Opportunity Fund
MANAGED BY J.P. MORGAN INVESTMENT MANAGEMENT INC.
- J.P. Morgan U.S. Disciplined Equity Portfolio
MANAGED BY LEXINGTON MANAGEMENT CORPORATION
- Lexington Emerging Markets Fund, Inc*
- Lexington Natural Resources Trust*
MANAGED BY SCUDDER KEMPER INVESTMENTS, INC.
- Scudder VLIF Balanced Portfolio
- Scudder VLIF International Portfolio
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
- Templeton Developing Markets Securities Fund - Class 2
* THESE PORTFOLIOS ARE AVAILABLE ONLY IF YOU HAVE BEEN CONTINUOUSLY INVESTED IN
THEM SINCE APRIL 30, 2000.
We reserve the right to add, combine, restrict, or remove any PORTFOLIO as an
investment option under your contract. If any shares of the PORTFOLIOS are no
longer available, or if in our view no longer meet the purpose of the contract,
it may be necessary to substitute shares of another PORTFOLIO. We will seek
prior approval of the SEC and give you notice before doing this.
FIXED ACCOUNT
The contract also offers a FIXED ACCOUNT with interest rates that are guaranteed
by SAFECO Life.
Each PURCHASE PAYMENT will be credited with the interest rate established for
the date that we receive the PURCHASE PAYMENT. This rate will apply to the
PURCHASE PAYMENT for at least 12 months from the date we receive it.
Thereafter we can adjust the interest rate. Adjusted rates will apply to
PURCHASE PAYMENTS and their credited interest for at least 12 months, when the
rate can be adjusted again.
Different interest rates may apply to each of your PURCHASE PAYMENTS depending
on the interest rate established for the date we receive the PURCHASE PAYMENT
and any subsequent rate adjustments. Annual effective interest rates will never
be less than 3%.
TRANSFERS
During the ACCUMULATION PHASE you can transfer money among the PORTFOLIOS and
the FIXED ACCOUNT 12 times per contract year free of charge. We measure a
contract year from the anniversary of your contract date. Each additional
transfer in a contract year may have a charge of $10 or 2% of the amount
transferred whichever is less.
The minimum amount you can transfer out of any investment option at one time is
$500, or the entire value of the investment option if less. In addition to this
$500 minimum, transfers out of the FIXED ACCOUNT are limited to a maximum of 10%
of the FIXED ACCOUNT value per contract year. You must transfer the entire
amount out of the investment option if, after a transfer, the remaining balance
would be less than $500. The minimum you can transfer into any investment option
is $50.
SPINNAKER PLUS PROSPECTUS
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We will accept transfers by written request or by telephone. Each transfer must
identify:
- your contract;
- the amount of the transfer; and
- which investment options are affected.
Transfers by telephone will be accepted if we have properly signed authorization
on record. You may authorize someone else to make transfers by telephone on your
behalf. We will use reasonable procedures to confirm that instructions given to
us by telephone are genuine. If we do not use such procedures, we may be liable
for any losses due to unauthorized or fraudulent instructions. We tape record
all telephone instructions.
We reserve the right to modify, suspend, or terminate transfer privileges at any
time.
SCHEDULED TRANSFERS
You can choose among several investment strategies which are available for any
investment option that has not had a previous transfer or withdrawal taken
during that contract year. For each investment option, scheduled transfers can
be initiated once during each contract year. Once started, these scheduled
transfers will stop if an unscheduled transfer or withdrawal is made from the
"source" investment option. Scheduled transfers will otherwise continue until
you instruct us to stop or all money has been transferred out of the "source"
investment option. These scheduled transfers will not count against your 12 free
transfers as long as you continue them for at least six months.
DOLLAR COST AVERAGING. This strategy is designed to achieve a lower average
cost per unit over time. It does not assure a profit nor protect against a
loss. Investing should continue at a consistent level in both market ups and
downs. You can systematically transfer set amounts of at least $50 each
month or quarter from any PORTFOLIO or the FIXED ACCOUNT to any of the other
PORTFOLIOS.
Dollar Cost Averaging transfers from the FIXED ACCOUNT are limited to 4% per
quarter (1.33% monthly) of your value in the FIXED ACCOUNT as of the date of
the initial transfer. By choosing to have the transfer limit recalculated
annually, the limit is raised to 4.5% per quarter (1.5% monthly). There are
no percentage limits on transfers out of the PORTFOLIOS.
APPRECIATION OR INTEREST SWEEP. If your contract value is at least $10,000,
you can instruct us to automatically transfer earnings up to 10% from the
RST Money Market Portfolio or earned interest up to 10% from the FIXED
ACCOUNT to the other PORTFOLIOS monthly, quarterly, or annually.
PORTFOLIO REBALANCING. After your money has been invested, the performance
of the PORTFOLIOS may cause the percentage in each PORTFOLIO to change from
your original allocations. If your contract value is at least $10,000, you
can instruct us to adjust your investment in the PORTFOLIOS to maintain a
predetermined mix quarterly, semiannually, or annually. Portfolio
Rebalancing can be used with Dollar Cost Averaging and Appreciation or
Interest Sweep; however, it is not available for the FIXED ACCOUNT.
- ---------------------------------------------------
5. EXPENSES
- ----------------------------------------------
There are charges and other expenses associated with the contract that reduce
the return on your investment in the contract. These charges and expenses are:
INSURANCE CHARGE
Each day we make a deduction for the mortality and expense risk charge. We do
this as part of our calculation of the value of ACCUMULATION and ANNUITY UNITS.
This charge is equal, on an annual basis, to 1.25% of the average daily net
asset value of each PORTFOLIO. This charge is for all the insurance benefits
(e.g., guaranteed annuity rates and death benefits) and for the risk (expense
risk) that the current charges will not be sufficient in the future to cover the
cost of administering the contract. If the charges under the contract are not
sufficient, then we will bear the loss. If the charges are more than sufficient,
we will retain the excess. The rate of the mortality and expense risk charge
will not be increased.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be assessed on withdrawals in excess of
your free withdrawal amount that is described under Section 7 - Access to Your
Money. This charge is for expenses incurred in connection with the promotion,
sale, and distribution of the contracts. If the contingent deferred sales charge
is insufficient, excess amounts resulting from the mortality and expense risk
charge may be used to recover these expenses.
This contract bases the contingent deferred sales charge on the age of your
contract, not on the length of time each PURCHASE PAYMENT is in your contract.
The contingent deferred sales charge ("CDSC" in the table below) is stated as a
percentage of the amount you withdraw. It starts at 8% in the first contract
year and declines one percent each contract year as follows:
<TABLE>
<CAPTION>
Contract Year 1 2 3 4 5 6 7 8 9+
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CDSC 8% 7% 6% 5% 4% 3% 2% 1% 0%
</TABLE>
When the withdrawal is for only part of the value of your contract, the
contingent deferred sales charge is deducted from the remaining value in your
contract.
We will not assess the contingent deferred sales charge for:
- ANNUITY PAYMENTS;
- Repetitive Withdrawals taken over life expectancy;
SPINNAKER PLUS PROSPECTUS
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- eligible healthcare confinement withdrawals; and
- death benefits.
We may reduce or eliminate the amount of the contingent deferred sales charge
when the contract is sold under circumstances which reduce our sales expense.
See Section 10 - Other Information.
WITHDRAWAL CHARGE
We may deduct a separate withdrawal charge equal to $25 or 2% of the amount
withdrawn whichever is less, for each withdrawal after the first withdrawal in a
contract year. This charge is deducted from the remaining value in your
contract.
We will not deduct this charge for ANNUITY PAYMENTS or Repetitive Withdrawals.
TRANSFER CHARGE
You can make 12 free transfers every contract year. If you make more than 12
transfers in a contract year, we may deduct a transfer charge equal to $10 or 2%
of the amount that is transferred whichever is less.
If the transfer is part of Dollar Cost Averaging, Appreciation or Interest
Sweep, or Portfolio Rebalancing it will not be counted as part of your 12 free
transfers, provided those transfers continue for at least six months.
PREMIUM TAXES
States and other governmental entities (e.g., municipalities) may charge premium
taxes. These taxes generally range from 0% to 3.5%, depending on the state, and
are subject to change. Some states charge for these taxes at the time a PURCHASE
PAYMENT is made. In this case, PURCHASE PAYMENTS as discussed in this prospectus
may reflect a deduction for the premium tax. Other states charge for these taxes
when ANNUITY PAYMENTS begin. We may make a deduction from your contract for the
payment of these taxes.
INCOME OR OTHER TAXES
Currently we do not pay income or other taxes on earnings attributable to your
contract. However, if we ever incur such taxes, we reserve the right to deduct
them from your contract.
PORTFOLIO EXPENSES
There are deductions from and expenses paid out of the assets of the various
PORTFOLIOS. These expenses are summarized in the Fee Table of this prospectus.
For more detailed information, you should refer to the PORTFOLIO prospectuses
that accompany this prospectus.
- ---------------------------------------------------
6. TAXES
- ----------------------------------------------
This section and additional information in the SAI discuss how federal income
tax applies to annuities in general. This information is not complete and is not
intended as tax advice. Tax laws and their interpretations are complex and
subject to change. No attempt is made to discuss state or other tax laws. SAFECO
Life does not guarantee the tax treatment of any contract or any transaction
involving a contract. You should consult a competent tax adviser about your
individual circumstances.
ANNUITY CONTRACTS IN GENERAL
Under the Code, you generally do not pay tax on contract earnings until
received. Different tax rules apply to PURCHASE PAYMENTS and distributions
depending on how you take money out and whether your contract is QUALIFIED or
NON-QUALIFIED.
Earnings for corporate owned contracts and other contracts not owned for the
benefit of natural persons are generally taxed as ordinary income in the current
year. Exceptions may apply.
QUALIFIED CONTRACTS
Contracts purchased as an Individual Retirement Annuity ("IRA"), Roth IRA, Tax
Sheltered Annuity ("TSA"), Deferred Compensation Plan ("457"), or specially
sponsored retirement plan, are referred to as QUALIFIED contracts. To the extent
PURCHASE PAYMENTS have a zero cost basis (were made with pre-tax dollars),
distributions will be taxed as ordinary income.
QUALIFIED contracts are subject to special rules and limits on PURCHASE PAYMENTS
and distributions that vary according to the type of retirement plan. Ineligible
or excess contributions to certain retirement plans can result in substantial
penalties and possible loss of the contract's or retirement plan's QUALIFIED
status. Tax penalties of 10% or more, may apply to certain distributions; for
example if you are under age 59 1/2 and not disabled as defined by the Code.
There may be substantial penalties if you fail to take required minimum
distributions, usually beginning by age 70 1/2.
In some cases, you must satisfy retirement plan or Code requirements before you
take money out. For example, the Code restricts certain withdrawals from TSAs.
NON-QUALIFIED CONTRACTS
Contracts purchased with after-tax money and not part of an IRA, Roth IRA, TSA,
457, or specially sponsored retirement plan, are referred to as NON-QUALIFIED
contracts and receive different tax treatment than QUALIFIED contracts. Your
cost basis equals the total amount of the after-tax PURCHASE PAYMENTS remaining
in the contract.
The Code generally treats distributions as coming first from earnings and then
from PURCHASE PAYMENTS. Contracts issued by the same insurer to the same OWNER
in the same year are treated as one contract for tax purposes. Distributions
from NON-QUALIFIED contracts are taxed as ordinary income to the extent they are
attributable to earnings. Since you have already been taxed on the cost basis,
distributions attributable to PURCHASE PAYMENTS are generally not taxed.
SPINNAKER PLUS PROSPECTUS
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There may be a 10% tax penalty on earnings withdrawn before you reach age
59 1/2. Certain exceptions apply, such as death or disability as defined by the
Code.
DIVERSIFICATION
Variable annuity contracts receive TAX DEFERRAL as long as investment in the
PORTFOLIOS meet diversification standards set by Treasury Regulations. This
favorable tax treatment allows you to select and make transfers among PORTFOLIOS
without paying income tax until you take money out.
We believe the PORTFOLIOS offered under this contract are being managed to
comply with existing standards. To date, neither Treasury Regulations nor the
Code give specific guidance as to the circumstances under which your contract
might lose its tax favored status as an annuity because of the number and type
of PORTFOLIOS you can select from, and the extent to which you can make
transfers. If issued, such guidance could be applied either prospectively or
retroactively. Due to the uncertainty in this area, we reserve the right to
modify the contract in an attempt to maintain favorable tax treatment.
TAX WITHHOLDING
Generally, federal income tax is withheld from the taxable portion of
withdrawals at a rate of 10%. Withholding on periodic payments as defined by the
Code is at the same rate as wages. Typically, you may elect not to have income
taxes withheld or to have withholding done at a different rate. Certain
distributions from 403(b) plans, which are not directly rolled over to another
eligible retirement plan or IRA, are subject to a mandatory 20% withholding.
- ---------------------------------------------------
7. ACCESS TO YOUR MONEY
- ----------------------------------------------
Under your contract, money may be accessed:
- by withdrawing all or some of your money during the ACCUMULATION PHASE;
- by receiving payments during the INCOME PHASE (see Section 2 - Annuity
Payments); or
- when a death benefit is paid to your BENEFICIARY (see Section 9 - Death
Benefit).
During the ACCUMULATION PHASE, you can take money out by writing to us.
Withdrawals must be at least $250. Unless you tell us differently, partial
withdrawals will be made pro rata from each investment option. Once we receive
your request, withdrawals from the PORTFOLIOS will be effective as of the next
close of the NYSE.
A withdrawal may have a contingent deferred sales charge and a withdrawal
charge. There are situations where all or some of these charges don't apply. See
Section 5 - Expenses for a discussion of the charges.
FREE WITHDRAWAL AMOUNT
Your contract has a free withdrawal amount. There is no contingent deferred
sales charge on the first 10% of your contract value withdrawn in a contract
year. In addition, there is no withdrawal charge on the first withdrawal you
make in a contract year.
HEALTHCARE CONFINEMENT
If approved in your state, there is no contingent deferred sales charge on
withdrawals you make while you are confined in an eligible healthcare facility
(or within 60 days after confinement ends) if:
- the confinement began after your contract date; and
- we receive confirmation that your confinement has continued for 60 or more
consecutive days.
REPETITIVE WITHDRAWALS
You may request Repetitive Withdrawals at a predetermined frequency and amount.
Repetitive Withdrawals may be used to avoid tax penalties for premature
withdrawals or to satisfy distribution requirements of certain retirement plans.
To do this they must be a part of substantially equal withdrawals made at least
annually and based on:
- your life expectancy; or
- the joint life expectancy of you and a BENEFICIARY.
You may begin Repetitive Withdrawals based on life expectancy by providing us
with the correct information we need to calculate the monthly, quarterly, or
annual withdrawal amount. If you take additional withdrawals or otherwise modify
or stop these Repetitive Withdrawals, charges may apply and there may be tax
consequences and penalties.
If you make Repetitive Withdrawals that are not based on life expectancy, the
same restrictions, income taxes, and tax penalties that apply to random
withdrawals also apply to Repetitive Withdrawals.
WITHDRAWAL RESTRICTIONS ON TSA OR 403(B)
Withdrawals attributable to salary reduction contributions to TSAs for years
after 1988 and any earnings accrued after 1988, cannot be taken out unless:
- you attain age 59 1/2;
- you leave your job;
- you die or become disabled as defined by the Code;
- you experience a qualifying hardship (applies to contributions only); or
- you divorce and a distribution to your former spouse is permitted under a
Qualified Domestic Relations Order.
Tax penalties may apply to withdrawals. Restrictions on withdrawals from TSAs do
not affect rollovers or transfers between certain retirement plans.
SPINNAKER PLUS PROSPECTUS
14
<PAGE>
WITHDRAWAL RESTRICTIONS ON
TEXAS OPTIONAL RETIREMENT PROGRAM
("TEXAS ORP")
Withdrawals from contracts issued in connection with Texas ORP cannot be taken
unless you:
- terminate employment in all eligible Texas institutions of higher education;
- retire;
- attain age 70 1/2; or
- die.
You must obtain a certificate of termination from your employer before you
request a withdrawal from the Texas ORP.
MINIMUM VALUE
If, after a withdrawal, the value in any PORTFOLIO or the FIXED ACCOUNT is less
than $500, the remaining amount will also be withdrawn. If, after a withdrawal,
the remaining contract value is less than $500 ($1,000 in Maine and South
Carolina), the entire contract value will be withdrawn and your contract will
terminate.
Withdrawals, including any charges, reduce the number of ACCUMULATION UNITS in
the PORTFOLIOS and/or the value of the FIXED ACCOUNT as well as the death
benefit. Income taxes, tax penalties and certain restrictions may also apply.
See Section 6 - Taxes.
- ---------------------------------------------------
8. PERFORMANCE
- ----------------------------------------------
From time to time, we may advertise "yield", "effective yield", "total return",
and "average annual total return" for some or all of the PORTFOLIOS. Some of the
PORTFOLIOS have been in existence prior to being offered in the contract. We
calculate performance data of any period prior to the PORTFOLIO being offered in
the contract as if the PORTFOLIO had been offered during those periods, using
current charges and expenses.
Performance data and rankings are based on historical results and do not promise
or project future performance.
Standardized performance makes it easier for you to compare performance of
variable contracts issued by different companies. It uses set time periods and
PURCHASE PAYMENT amounts and reflects the contingent deferred sales charge.
Non-standardized performance helps you compare performance of PORTFOLIOS within
a contract. From time to time, non-standardized performance may accompany
standardized figures. Non-standardized performance uses different time periods
and PURCHASE PAYMENT amounts and may not reflect all of the charges included in
standardized figures. For this reason, non-standardized PORTFOLIO performance
may appear higher. Non-standardized figures may also include performance of a
PORTFOLIO prior to the PORTFOLIO'S availability in any variable annuity contract
we offer.
Each PORTFOLIO may, from time to time, advertise performance relative to certain
performance rankings and indices compiled on an industry-wide basis, for
example:
- "Lipper Variable Insurance Products Performance Analysis Service" monitors
performance for variable annuity PORTFOLIOS and is published by Lipper
Analytical Services, Inc.
- "VARDS Report" is a monthly, variable annuity industry analysis published by
Financial Planning Resources, Inc.
- "Variable Annuity Performance Report" is a monthly analysis of variable
annuity performance published by Morningstar, Inc.
Rankings provided by these and other sources may not include all applicable
charges. More information on the method used to calculate performance for the
PORTFOLIOS and information about independent services that monitor and rank the
performance of variable annuities is in the SAI.
- ---------------------------------------------------
9. DEATH BENEFIT
- ----------------------------------------------
DEATH OF OWNER DURING THE ACCUMULATION PHASE
During the ACCUMULATION PHASE, a death benefit is payable to the BENEFICIARY
upon the death of the first OWNER to die or, if the OWNER is a non-natural
person (e.g., a corporation or trust), on the death of the first ANNUITANT to
die.
To pay the death benefit we need proof of death, such as a certified copy of a
death certificate, plus written direction from your BENEFICIARY regarding how he
or she wants to receive the money.
The death benefit is the higher of:
1) your current contract value; or
2) if you are a sole OWNER or the oldest JOINT OWNER, the Minimum Guaranteed
Death Benefit.
When determining the higher of (1) or (2) above, the calculations are based on
the earlier of:
- the date we receive proof of death and the BENEFICIARY'S election of how to
receive payment; or
- six months from the date of death.
The initial Minimum Guaranteed Death Benefit is equal to your first PURCHASE
PAYMENT. It is reset on each 8-year contract anniversary until the oldest OWNER
attains age 72. The reset benefit is equal to the immediately preceding Minimum
Guaranteed Death Benefit or is "stepped up" to your contract value on that date,
if higher.
The Minimum Guaranteed Death Benefit is immediately increased by additional
PURCHASE PAYMENTS and adjusted for withdrawals and ANNUITY PAYMENTS made under
the Payments Based on a Number of Years annuity option.
SPINNAKER PLUS PROSPECTUS
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<PAGE>
If we add money to your contract in order to satisfy the Minimum Guaranteed
Death Benefit, it will be allocated to the investment options in the same manner
as PURCHASE PAYMENTS once we receive proof of death and the BENEFICIARY'S
election of how to receive payment.
The death benefit is subject to investment performance and applicable contract
charges until the date payment is made. This value may go up or down. Thus,
BENEFICIARIES should notify us of a death as promptly as possible to limit their
risk of a decline in benefit value.
A BENEFICIARY under a NON-QUALIFIED contract may elect to receive the death
benefit as:
1) a lump sum payment or series of withdrawals that are completed within five
years from the date of death; or
2) ANNUITY PAYMENTS made over the BENEFICIARY's life or life expectancy. To
receive ANNUITY PAYMENTS, the BENEFICIARY must make this election within 60
days from our receipt of proof of death. ANNUITY PAYMENTS must begin within
one year from the date of death. Once ANNUITY PAYMENTS begin they cannot be
changed.
A BENEFICIARY under a QUALIFIED contract may have different death benefit
elections depending upon the retirement plan.
In some cases, a spouse who is entitled to receive a death benefit may have the
option to continue the contract instead. If this spouse is also the oldest JOINT
OWNER, the Minimum Guaranteed Death Benefit will apply on the death of this
spouse. Otherwise, the benefit on the death of your spouse will be the contract
value.
DEATH OF ANNUITANT DURING THE INCOME PHASE
During the INCOME PHASE, there is no longer a death benefit under the contract
unless you choose the Payments Based on a Number of Years annuity option. Under
this option, if the ANNUITANT dies before the entire contact value has been paid
out, a death benefit in the same amount as a death benefit determined during the
ACCUMULATION PHASE, is payable to the BENEFICIARY. Other annuity options may
have remaining guaranteed ANNUITY PAYMENTS after the death of the ANNUITANT. In
this situation, remaining guaranteed ANNUITY PAYMENTS will be made to the
BENEFICIARY. The death benefit or remaining guaranteed ANNUITY PAYMENTS will be
distributed to the BENEFICIARY at least as rapidly as under the method of
distribution used as of the date of the ANNUITANT'S death. See Section 2 -
Annuity Payments for more information.
BENEFICIARY
The BENEFICIARY under the contract is determined as follows:
- surviving OWNER or JOINT OWNER; or if none, then
- surviving primary BENEFICIARIES; or if none, then
- surviving contingent BENEFICIARIES; or if none, then
- estate of the last OWNER to die.
You designate BENEFICIARIES on your contract application. You may change the
BENEFICIARY at any time by sending us a signed and dated request. An irrevocable
BENEFICIARY must consent in writing to any change. A new BENEFICIARY designation
revokes any prior designation and is not effective until we record the change.
We are not responsible for the validity of any BENEFICIARY designation nor for
any actions we may take prior to receiving and recording a BENEFICIARY change.
- ---------------------------------------------------
10. OTHER INFORMATION
- ----------------------------------------------
SAFECO LIFE
SAFECO Life was incorporated as a stock life insurance company under Washington
law on January 23, 1957. We provide individual and group life, accident and
health insurance, and annuity products and are licensed to do business in the
District of Columbia and all states except New York. We are a wholly owned
subsidiary of SAFECO Corporation which is a holding company whose subsidiaries
are primarily engaged in insurance and financial service businesses.
SEPARATE ACCOUNT
We originally adopted a Board Resolution to establish SAFECO Resource Variable
Account B ("Separate Account") under Washington law on February 6, 1986. The
Separate Account holds the assets that underlie contract values invested in the
PORTFOLIOS. The Separate Account is registered with the SEC as a unit investment
trust under the Investment Company Act of 1940, as amended.
Under Washington law, the assets in the Separate Account are the property of
SAFECO Life. However, assets in the Separate Account that are attributable to
contracts are not chargeable with liabilities arising out of any other business
we may conduct. Income, gains and losses (realized and unrealized), resulting
from assets in the Separate Account are credited to or charged against the
Separate Account without regard to other income, gains or losses of SAFECO Life.
Promises we make in the contract are general corporate obligations of SAFECO
Life and are not dependent on assets in the Separate Account.
We reserve the right to combine the Separate Account with one or more of our
other separate accounts or to deregister the Separate Account under the 1940 Act
if such registration is no longer required.
GENERAL ACCOUNT
If you put your money into the FIXED ACCOUNT, it goes into SAFECO Life's general
account. The general account is made up of all of SAFECO Life's assets other
than those attributable to separate accounts. All of the assets of the general
account are chargeable with the claims of any of
SPINNAKER PLUS PROSPECTUS
16
<PAGE>
our contract OWNERS as well as our creditors. The general account invests its
assets in accordance with state insurance law.
We are not required to register the FIXED ACCOUNT or any interests therein, with
the SEC. For this reason, SEC staff has not reviewed disclosure relating to the
FIXED ACCOUNT. However, such disclosure may be subject to general provisions in
federal securities laws that relate to accuracy and completeness of statements
made in the prospectus.
DISTRIBUTION (PRINCIPAL UNDERWRITER)
The contracts are underwritten by SAFECO Securities, Inc. ("SSI"). They are sold
by individuals who, in addition to being licensed to sell variable annuity
contracts for SAFECO Life, are also registered representatives of broker-dealers
who have a current sales agreement with SSI. SSI is an affiliate of SAFECO Life
and is located at 10865 Willows Road NE, Redmond, Washington 98052. It is
registered as a broker-dealer with the SEC under the Securities Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. No amounts
are retained by SSI for acting as principal underwriter for SAFECO Life
contracts.
The commissions paid to registered representatives on the sale of contracts are
not more than 4.8% of PURCHASE PAYMENTS. In addition, commissions, allowances,
and bonuses may be paid to registered representatives and/or other distributors
of the contracts. A bonus dependent upon persistency is one type of bonus that
may be paid.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or SSI is a party.
SAFECO Life is engaged in various kinds of litigation which, in the opinion of
SAFECO Life, are not of material importance in relation to the total capital and
surplus of SAFECO Life.
RIGHT TO SUSPEND ANNUITY PAYMENTS,
TRANSFERS, OR WITHDRAWALS
We may be required to suspend or postpone payment of ANNUITY PAYMENTS,
transfers, or withdrawals from the PORTFOLIOS for any period of time when:
- the NYSE is closed (other than customary weekend or holiday closings);
- trading on the NYSE is restricted;
- an emergency exists such that disposal of or determination of the value of
the PORTFOLIO shares is not reasonably practicable; or
- the SEC, by order, so permits for your protection.
Additionally, we reserve the right to defer payment of transfers or withdrawals
from the FIXED ACCOUNT for the period permitted by law, but not for more than
six months.
VOTING RIGHTS
SAFECO Life is the legal owner of the PORTFOLIOS' shares. However, when a
PORTFOLIO solicits proxies in connection with a shareholder vote, we are
required to ask you for instructions as to how to vote those shares. All shares
are voted in the same proportion as the instructions we received. Should we
determine that we are no longer required to comply with the above, we will vote
the shares in our own right. You have no voting rights with respect to values in
the FIXED ACCOUNT.
REDUCTION OF CHARGES OR ADDITIONAL AMOUNTS CREDITED
Under some circumstances we may expect to experience lower costs or higher
revenues associated with issuing and administering certain contracts. For
example, sales expenses are expected to be less when contracts are sold to a
large group of individuals. Under such circumstances we may pass a portion of
these anticipated savings on to you by reducing OWNER transaction charges
(including the contingent deferred sales charge) or crediting additional FIXED
ACCOUNT interest.
We may also take such action in connection with contracts sold to our officers,
directors, and employees and their family members, employees of our affiliates
and their family members, and registered representatives and employees of
broker-dealers that have a current selling agreement with us. In each
circumstance such actions will be reasonably related to the savings or revenues
anticipated and will be applied in a non-discriminatory manner. These actions
may be withdrawn or modified by us at any time.
INTERNET INFORMATION
You can find more information about the Spinnaker Plus Variable Annuity Contract
as well as other products and financial services offered by SAFECO companies on
the Internet at http://www.SAFECO.com. This website is frequently updated with
new information and can help you locate a representative near you.
The SEC also maintains a website at http://www.sec.gov, which contains a copy of
the Separate Account's most recent registration statement and general consumer
information.
FINANCIAL STATEMENTS
The financial statements of SAFECO Life and SAFECO Resource Variable Account B
have been included in the Statement of Additional Information.
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Separate Account
Experts
Distribution
Performance Information
Federal Tax Status
Annuity Provisions
Financial Statements
SPINNAKER PLUS PROSPECTUS
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCUMULATION UNIT VALUE HISTORY
The following schedule includes ACCUMULATION UNIT values for the periods
indicated. This data has been extracted from the Separate Account's Financial
Statements. This information should be read in conjunction with the Separate
Account's Financial Statements and related notes which are included in the
Statement of Additional Information.
Such information is not included for AIM V.I. Aggressive Growth Fund, AIM V.I.
Growth Fund, Dreyfus IP MidCap Stock Portfolio, Dreyfus IP Technology Growth
Portfolio, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus VIF
Appreciation Portfolio, Dreyfus VIF Quality Bond Portfolio, VIP Growth
Portfolio, VIP III Growth & Income Portfolio, Franklin Small Cap Fund - Class 2,
Franklin U.S. Government Fund - Class 2, J.P. Morgan U.S. Disciplined Equity
Portfolio, and Templeton Developing Markets Securities Fund - Class 2, as they
are new.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RST EQUITY SUB-ACCOUNT
(July 21, 1987 value, initial public offering $12.101)
December 31 value $65.422 $60.601 $49.122 $39.829 $32.321 $25.424 $23.630 $18.704 $17.520 $13.987
December 31 units 3,347,122 3,559,405 3,475,377 3,328,130 2,773,699 2,125,903 1,402,021 920,315 611,236 362,309
RST GROWTH OPPORTUNITIES SUB-ACCOUNT
(January 7 value, initial public offering) $10.000
December 31 value $40.572 $38.894 $38.686 $27.082 $20.756 $14.897 $13.480
December 31 units 1,973,993 2,512,560 2,152,824 1,665,534 918,525 421,837 56,074
RST NORTHWEST SUB-ACCOUNT
(January 7 value, initial public offering) $10.000
December 31 value $24.044 $15.741 $15.493 $11.968 $10.777 $10.156 $9.923
December 31 units 449,842 356,071 298,250 221,295 174,958 108,875 37,710
RST BOND SUB-ACCOUNT
(July 21, 1987 value, initial public offering $10.126)
December 31 value $19.648 $20.712 $19.265 $17.991 $18.117 $15.559 $16.253 $14.882 $14.107 $12.532
December 31 units 561,842 618,282 501,020 503,739 481,273 479,731 446,935 310,293 255,098 219,928
RST MONEY MARKET SUB-ACCOUNT
(July 21, 1987 value, initial public offering $10.083)
December 31 value $16.610 $16.074 $15.509 $14.944 $14.417 $13.837 $13.516 $13.335 $13.074 $12.527
December 31 units 364,867 315,741 174,158 341,159 308,155 341,722 273,511 307,262 231,643 224,216
RST SMALL COMPANY VALUE SUB-ACCOUNT
(May 1 value, initial public offering) $10.000
December 31 value $11.488 $10.080 $12.759
December 31 units 63,234 52,464 13,800
SCUDDER VLIF INTERNATIONAL SUB-ACCOUNT
(August 3 value, initial public offering) $9.335
December 31 value $25.174 $16.492 $14.094 $13.083 $11.540 $10.519 $10.743
December 31 units 1,160,566 1,164,046 1,183,847 1,061,505 720,181 466,212 68,405
SCUDDER VLIF BALANCED SUB-ACCOUNT
(August 3 value, initial public offering) $9.886
December 31 value $23.672 $20.784 $17.080 $13.919 $12.596 $10.066 $10.346
December 31 units 1,124,805 978,872 693,428 523,019 260,651 122,456 10,168
LEXINGTON NATURAL RESOURCES TRUST SUB-ACCOUNT
(February 15 value, initial public
offering) $11.920
December 31 value $13.406 $11.897 $14.996 $14.169
December 31 units 32,954 45,892 45,155 27,116
</TABLE>
SPINNAKER PLUS PROSPECTUS
A-1
<PAGE>
ACCUMULATION UNIT VALUE HISTORY (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LEXINGTON EMERGING MARKETS FUND, INC. SUB-ACCOUNT
(February 15 value, initial public
offering) $10.540
December 31 value $13.883 $6.163 $8.703 $9.968
December 31 units 51,148 18,218 27,307 20,092
FEDERATED UTILITY FUND II SUB-ACCOUNT
(February 15 value, initial public
offering) $11.410
December 31 value $17.118 $17.045 $15.144 $12.106
December 31 units 96,780 72,072 49,930 23,141
FEDERATED HIGH INCOME BOND FUND II SUB-ACCOUNT
(February 15 value, initial public
offering) $10.050
December 31 value $12.594 $12.465 $12.290 $10.933
December 31 units 115,758 115,039 61,817 10,503
FEDERATED INTERNATIONAL EQUITY FUND II SUB-ACCOUNT
(February 15 value, initial public
offering) $10.480
December 31 value $27.225 $14.905 $12.017 $11.052
December 31 units 75,282 38,872 25,822 3,911
VP BALANCED SUB-ACCOUNT
(May 1 value, initial public offering) $7.160
December 31 value $10.174 $9.360 $8.185
December 31 units 206,795 160,296 42,551
VP INTERNATIONAL SUB-ACCOUNT
(May 1 value, initial public offering) $6.200
December 31 value $12.914 $7.968 $6.793
December 31 units 200,918 167,553 66,237
VIP II CONTRAFUND SUB-ACCOUNT
(May 1 value, initial public
offering) $10.000
December 31 value $13.918 $11.340
December 31 units 301,509 22,734
VIP III GROWTH OPPORTUNITIES SUB-ACCOUNT
(May 1 value, initial public
offering) $10.000
December 31 value $11.564 $11.229
December 31 units 109,124 53,918
VIF-REAL ESTATE OPPORTUNITY SUB-ACCOUNT
(May 1 value, initial public
offering) $10.000
December 31 value $8.525 $8.601
December 31 units 8,046 9,666
</TABLE>
SPINNAKER PLUS PROSPECTUS
A-2
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SPINNAKER-REGISTERED TRADEMARK- PLUS VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
SAFECO RESOURCE VARIABLE ACCOUNT B
AND
SAFECO LIFE INSURANCE COMPANY
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus for the Individual Single Purchase Payment
Deferred Variable Annuity Contract.
The prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the prospectus, call 1-877-472-3326
or write to SAFECO Life Insurance Company, Annuity Service Office, Retirement
Services Department, P.O. Box 34690, Seattle, Washington 98124-1690.
This Statement of Additional Information and the prospectus are both dated
May 1, 2000.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SEPARATE ACCOUNT............................................ 2
Mortality and Expense Guarantee........................... 2
EXPERTS..................................................... 3
DISTRIBUTION................................................ 3
Reduction or Elimination of Contingent Deferred Sales
Charge.................................................. 3
PERFORMANCE INFORMATION..................................... 3
Total Return.............................................. 3
Yield..................................................... 4
Performance Comparison.................................... 5
Tax Comparison............................................ 5
FEDERAL TAX STATUS.......................................... 6
Note...................................................... 6
General................................................... 6
Diversification........................................... 6
Multiple Contracts........................................ 7
Contracts Owned by Other than Natural Persons............. 7
Income Tax Withholding.................................... 8
Tax Treatment of Withdrawals - Non-Qualified Contracts.... 8
Retirement Plans.......................................... 8
Tax Treatment of Withdrawals - Qualified Contracts........ 10
Tax Sheltered Annuities - Withdrawal Limitations.......... 11
ANNUITY PROVISIONS.......................................... 11
Annuity Unit Value........................................ 11
Variable Annuity Payments................................. 11
FINANCIAL STATEMENTS........................................ 12
</TABLE>
1
<PAGE>
SEPARATE ACCOUNT
SAFECO Life Insurance Company ("the Company", "we", and "us"), is a wholly owned
subsidiary of SAFECO Corporation which is a holding company whose subsidiaries
are engaged primarily in insurance and financial services businesses.
We established SAFECO Resource Variable Account B ("the Separate Account") on
February 6, 1986, to hold assets that underlie contract values invested in the
portfolios. During the establishment of the Separate Account, we contributed
capital to the Separate Account which was immediately invested in the SAFECO
Resource Series Trust. At March 31, 2000, the Company's contribution represented
15.4% of the value of the RST Bond Portfolio. We may remove all or a portion of
these amounts at anytime. However, we will attempt to minimize any potential
material adverse effect such withdrawals may have on contract values.
The Separate Account meets the definition of "separate account" under Washington
State law and under the federal securities laws. It is registered with the
Securities and Exchange Commission ("SEC") as a unit investment trust under the
Investment Company Act of 1940, as amended. This registration does not involve
supervision of the management of the Separate Account or the Company by the SEC.
The assets of the Separate Account are the property of the Company. The Separate
Account invests in the underlying portfolios that are offered under the
contract. Each portfolio is a part of a series of portfolios designed for use in
variable annuity and variable life insurance products, not all of which may be
available under the contracts described herein. We maintain records of all
Separate Account purchases and redemptions of the shares of the portfolios. We
do not guarantee the investment performance of the Separate Account, its assets,
or the portfolios. Contract values allocated to the Separate Account and the
amount of variable annuity payments will vary with the value of the shares of
the underlying portfolios, and are also reduced by expenses and transaction
charges assessed under the contracts.
Accumulation units and variable annuity payments will reflect the investment
performance of the Separate Account with respect to amounts allocated to it.
Since the Separate Account is always fully invested in the shares of the
portfolios, its investment performance reflects the investment performance of
those entities. The investments of the Separate Account will be valued at their
fair market value in accordance with the procedures approved by the Board of
Directors of SAFECO Life Insurance Company and the Separate Account committee.
The values of such shares held by the Separate Account fluctuate and are subject
to the risks of changing economic conditions. The contract owner bears the
entire investment risk. There can be no assurance that the aggregate value in
the contract and amount of variable annuity payments will equal or exceed the
purchase payments made under a contract for the reasons described above, or
because of the premature death of the annuitant after the date that the contract
value is applied to purchase annuity payments.
MORTALITY AND EXPENSE GUARANTEE
We guarantee that the dollar amount of each variable annuity payment made after
the first payment will not be adversely affected by variations in actual
mortality experience or actual expenses incurred in excess of the expense
deductions provided for in the contract (although the Company does not guarantee
the amounts of the variable annuity payments).
To the extent that the contingent deferred sales charge is insufficient to cover
all the distribution costs and related expenses, some portion of the proceeds
from the mortality and expense risk charge may be utilized to meet such excess
distribution expenses. We have represented in documents filed with the SEC that
the mortality and expense risk charge is consistent with the mortality and
expense risks we assume and is within the range of industry practice, based on
our review of our requirements and
2
<PAGE>
industry practice. Moreover, we have represented that use of any proceeds from
such charge to defray distribution expenses has a reasonable likelihood of
benefiting the Separate Account and owners.
EXPERTS
The financial statements of SAFECO Resource Variable Account B and SAFECO Life
Insurance Company and Subsidiaries, appearing in this Statement of Additional
Information, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon, appearing elsewhere herein, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
DISTRIBUTION
SAFECO Securities, Inc. (SSI), an affiliate of the Company, acts as the
principal underwriter for the contracts. The contracts issued by the Separate
Account are offered on a continuous basis.
REDUCTION OR ELIMINATION OF 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 individuals or to
a group of individuals in a manner that results in savings of sales expenses.
Any reduction of the contingent deferred sales charge will be determined by us
after examination of all the relevant factors such as:
1. The size and type of group to which sales are to be made will be considered.
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 will be considered. Per
contract sales expenses are likely to be less on larger purchase payments
than on smaller ones.
3. Any prior or existing relationship with us. Per contract sales expenses are
likely to be less when there is a prior or existing relationship because of
the likelihood of implementing the contracts with fewer sales contacts.
4. There may be other circumstances, of which we are not presently aware, which
could result in reduced sales expenses.
If, after consideration of the foregoing factors, we determine that there will
be a reduction in sales expenses, the Company 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 the Company 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.
PERFORMANCE INFORMATION
TOTAL RETURN
"Total return" is the total percentage change in the unit value of an investment
over a stated period of time. It reflects all aspects of a portfolio's return,
including the automatic reinvestment by the portfolio of all distributions and
the deduction of all applicable charges to the portfolio on an annual basis,
including the mortality and expense risk 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
3
<PAGE>
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.
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 will reflect the contingent deferred sales charge. 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 invested, and with or without the
contingent deferred sales charge. Non-standardized figures may cause the
performance of the portfolios to appear higher than performance calculated using
standard parameters.
"Average annual total return" is the annual percentage change in the unit value
of an investment over a stated period of time. It is calculated by determining
the growth or decline in value of a hypothetical investment in the portfolio
over certain periods, including 1, 5, and 10 years (up to the portfolio's
availability through the Separate 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 portfolio'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 portfolio.
Average annual returns are calculated pursuant to the following formula:
P(1 + T) to the power of n = ERV
where:
<TABLE>
<S> <C> <C>
P = a hypothetical initial payment of $1,000;
T = the average annual total return;
n = the number of years; and
ERV = the withdrawal value at the end of the time period used.
</TABLE>
"Cumulative total returns" are not averaged and reflect the simple change in
value of a hypothetical investment in the portfolio over a stated period of
time.
Total return, average total return, and cumulative total return assume
reinvestment of dividend and capital gains distributions.
From time to time, additional quotations of total return based on the historical
performance of the portfolios may also be presented.
YIELD
Some portfolios may advertise yields. Yields quoted in advertising reflect the
change in value of a hypothetical investment in the portfolio over a stated
period of time, not taking into account capital gains or losses. Yield figures
will not reflect any applicable contingent deferred sales charge. Yields are
annualized and stated as a percentage.
Current yield and effective yield are calculated for the RST Money Market
Portfolio. 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 assuming that the income generated during the seven day
period continues to be generated each week for a 52 week period. It is
multiplied by 365/7, with the resulting yield figure carried to at least the
nearest hundredth of one
4
<PAGE>
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 calculation of current yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1) to the power of (365/7)] - 1
For the RST Money Market Portfolio, total return and average annual total return
are non-standardized performance figures which may accompany the standardized
yield and effective yield.
Yield for portfolios other than RST Money Market Portfolio 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) to the power of 6 - 1]
where:
<TABLE>
<S> <C> <C>
a = net investment income earned during the period by the
corresponding 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.
</TABLE>
The income is then annualized on a 360 day basis 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. Again, yield
figures will not reflect any applicable contingent deferred sales charge.
PERFORMANCE COMPARISON
The Company may also show historical accumulation unit values in certain
advertisements containing illustrations. These illustrations will be based on
actual accumulation unit values. Performance information for a portfolio 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 tracked 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
portfolio derived from rankings of variable annuity separate accounts or other
investment products tracked 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.
TAX COMPARISON
Reports and advertising also may show the effect of tax deferred compounding on
investment returns, or returns in general, illustrated by graphs, charts, or
otherwise, which may include a comparison, at various points in time, of the
return from an investment in a contract (giving effect to all fees and charges),
or returns in general, on a tax-deferred basis (assuming one or more tax rates)
with the
5
<PAGE>
return on a taxable basis, and which will disclose the tax characteristics of
the investments shown, including the impact of withdrawals and surrenders.
FEDERAL TAX STATUS
NOTE
The following description is based upon the Company's understanding of current
federal income tax law applicable to annuities in general. Tax laws are complex
and subject to change. We cannot predict the probability that any changes in the
interpretation of or the laws themselves, will occur. Purchasers are cautioned
to seek competent tax advice regarding the possibility of such changes. We do
not guarantee the tax status of the contracts. 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 SAI or the
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 Internal Revenue Code of 1986, as amended, ("the Code")
governs taxation of annuities in general. An owner is generally not taxed on
increases in the value of a contract until distribution occurs, either in the
form of a lump sum payment, a withdrawal, or as annuity payments under the
option elected. For a lump sum payment received as a total surrender (total
redemption), the recipient is generally taxed on the portion of the payment that
exceeds the cost basis in the contract. For non-qualified contracts, this cost
basis is generally the purchase payments, while for qualified contracts there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity is determined by multiplying the payment by the ratio that the
cost basis of the contract (adjusted for any period certain or refund feature)
bears to the expected return under the contract. The exclusion amount for
payments based on a variable annuity 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 amounts equals the investment in the contract) are generally fully
taxable. The taxable portion is taxed at ordinary income tax rates. For certain
types of retirement plans there may be no cost basis in the contract within the
meaning of Section 72 of the Code resulting in the annuity payments being fully
includable in taxable income. Owners, payees and beneficiaries under the
contracts should seek competent financial advice about the tax consequences of
any distributions.
The Company is taxed as a life insurance company under the Code. For federal
income tax purposes, the Separate Account is not a separate entity from the
Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
contract as an annuity contract would result in imposition of federal income tax
to the owner with respect to earnings allocable to the contract prior to the
receipt of payments under the contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the contracts meet the
diversification requirements if, as of the end of
6
<PAGE>
each quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than fifty-five percent (55%) of the
total assets consist of cash, cash items, U.S. Government securities and
securities of other regulated investment companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the portfolios
underlying variable contracts such as those described in the prospectus. The
Regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the Regulations, an investment portfolio will be deemed
adequately diversified if: (1) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (2) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
The Company intends that all portfolios underlying the contracts will be managed
in such a manner as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which owner control of the
investments of the Separate Account will cause the contract owner to be treated
as the owner of the assets of the Separate Account, thereby resulting in the
loss of favorable tax treatment for the contract. At this time it cannot be
determined whether additional guidance will be provided and what standards may
be contained in such guidance.
The amount of owner control which may be exercised under the contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the contract
owner was not the owner of the assets of the separate account. It is unknown
whether these differences, such as your ability to transfer among portfolios or
the number and type of portfolios available, would cause you to be considered
the owner of the assets of the separate account resulting in the imposition of
federal income tax with respect to earnings allocable to the contract prior to
receipt of payments under the contract.
In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the contract owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the contract in an attempt to maintain favorable tax treatment.
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 more rapid taxation of the distributed amounts from such
multiple contracts. These aggregation rules may also apply in connection with
certain 457 plans. You should consult a tax adviser prior to purchasing more
than one annuity in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the earnings on purchase payments for the
contracts will be taxed currently to the owner if the owner is not a natural
person, e.g. a corporation or certain other entities,
7
<PAGE>
unless the contract is held by certain trusts or other entities as an agent for
a natural person or to hold retirement plan assets. Purchasers who are not
natural persons should consult their own tax counsel or other tax adviser before
purchasing a contract.
INCOME TAX WITHHOLDING
All distributions or any portion(s) thereof which are includable in the gross
income of the owner 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 owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate. Special withholding rules apply to United States citizens residing outside
the United States and to non-resident aliens.
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 generally does not apply to:
a) a series of substantially equal payments made at least annually for the life
or life expectancy of the participant or joint and last survivor expectancy of
the participant and a designated beneficiary; or b) distributions for a
specified period of 10 years or more; or c) distributions which are required
minimum distributions; or d) the portion of distributions not includable in
gross income (i.e. returns of after-tax contributions). You should consult your
own tax counsel or other tax adviser regarding income tax withholding.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the contract value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The above information does not apply to qualified contracts. However, separate
tax withdrawal penalties and restrictions may apply to such qualified contracts.
(See "Tax Treatment of Withdrawals - Qualified Contracts" below.)
RETIREMENT PLANS
The contracts offered herein are designed to be suitable for use under various
types of retirement plans. Taxation of participants in each retirement plan
varies with the type of plan and terms and conditions of each specific plan.
Owners, annuitants and beneficiaries are cautioned that benefits under a
retirement 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. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Contract
owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the contract
comply with applicable law. Following are general descriptions of some types of
retirement plans with which the contracts are most often used. Such descriptions
are not exhaustive and are for general informational purposes only. The tax
rules
8
<PAGE>
regarding retirement plans are very complex and will have differing applications
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a contract issued in connection with a
retirement plan.
Contracts issued in connection with retirement plans include special provisions
that may restrict or modify contract provisions and administrative services
described in the prospectus. Generally, contracts issued pursuant to retirement
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 these contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts", below.)
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE V.
NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The contracts sold by the Company in connection with
retirement plans will utilize annuity purchase rate tables which do not
differentiate on the basis of sex. Such annuity purchase rate tables will also
be available for use in connection with certain non-qualified deferred
compensation plans.
a. Tax Sheltered Annuities
Section 403(b) of the Code permits the purchase of "Tax Sheltered Annuities"
("TSA") 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 includable in the gross income of the
employees until the employees receive distributions from the contracts. 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. (See "Tax Treatment of Withdrawals -
Qualified Contracts" below.) Any employee should obtain competent tax advice
as to the tax treatment and suitability of such an investment.
b. Individual Retirement Annuities
Section 408 of the Code permits eligible individuals to contribute to an
individual retirement program known as a traditional "Individual Retirement
Annuity" ("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the individual's gross
income. These IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. (See "Tax Treatment of Withdrawals -
Qualified Contracts" below.) Traditional IRAs include the SEP IRA and SIMPLE
IRA. An employer can establish a SEP IRA or SIMPLE IRA for its employees.
Under an employer's SEP IRA or SIMPLE IRA, contributions for each eligible
employee can be made under a contract issued as an IRA. Under certain
conditions, distributions from other IRAs and other retirement plans may be
rolled over or transferred on a tax-deferred basis into an IRA. Sales of
contracts for use with IRAs are subject to special requirements imposed by
the Code, including the requirement that certain informational disclosure be
given to persons desiring to establish an IRA. Purchasers of contracts to be
qualified as Individual Retirement Annuities should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
c. Roth Individual Retirement Annuities
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement program known as a Roth Individual
Retirement Annuity. Section 408A includes limits on how much you may
contribute to a Roth Individual Retirement Annuity and when distributions
may commence. Qualified distributions from Roth Individual Retirement
Annuities are excluded from taxable gross income. "Qualified distributions"
are distributions which
9
<PAGE>
(a) are made more than five years after the taxable year of the first
contribution to the Roth Individual Retirement Annuity, and (b) meet any of
the following conditions; (1) the annuity owner has reached age 59 1/2;
(2) the distribution is paid to a beneficiary after the owner's death;
(3) the annuity owner is disabled; or (4) the distribution will be used for
a first time home purchase. (Qualified distributions for first time home
purchases may not exceed $10,000.) Non-qualified distributions are
includable in taxable gross income only to the extent that they exceed the
contributions made to the Roth Individual Retirement Annuity. The taxable
portion of a non-qualified distribution may be subject to the 10% penalty
tax.
Subject to certain limitations, you may convert a regular Individual
Retirement Account or Annuity to a Roth Individual Retirement Annuity. You
will be required to include the taxable portion of the conversion in your
taxable gross income, but you will not be required to pay the 10% penalty
tax.
d. Deferred Compensation Plans
Section 457 of the Code permits governmental and certain other tax exempt
employers to establish deferred compensation plans for the benefit of their
employees. The Code establishes limitations and restrictions on eligibility,
contributions and distributions. Under these plans, contributions made for
the benefit of the employees will not be includable in the employees' gross
income until distributed from the plan. Special rules apply to deferred
compensation plans. Owners should consult their own tax counsel or other tax
adviser regarding any distributions.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from certain retirement plans, including contracts issued and
qualified under Code Sections 403(b) (Tax Sheltered Annuities) and 408
(Individual Retirement Annuities). To the extent amounts are not includable in
gross income because they have been rolled over to an IRA or to another eligible
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 owner or annuitant (as applicable) reaches age 59 1/2;
(b) distributions following the death or disability of the owner or annuitant
(as applicable) (for this purpose disability is as defined in Section 72(m)(7)
of the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the owner or annuitant (as applicable) or the
joint lives (or joint life expectancies) of such owner or annuitant (as
applicable) and his or her designated beneficiary; (d) distributions to an owner
or annuitant (as applicable) who has separated from service after he has
attained age 55; (e) distributions made to the owner or annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the owner or annuitant (as applicable)
for amounts paid during the taxable year for medical care; (f) distributions
made to an alternate payee pursuant to a Qualified Domestic Relations Order;
(g) distributions made to pay health insurance premiums for an unemployed owner
or annuitant; (h) distributions made to an owner or annuitant to pay qualified
higher education expenses; and (i) distributions made to an owner or annuitant
for first home purchases. The exceptions stated in (d), (e) and (f) above do not
apply in the case of an Individual Retirement Annuity. The exception stated in
(c) above applies to an Individual Retirement Annuity without the requirement
that there be a separation from service.
Generally, distributions from a retirement plan must commence no later than
April 1st of the calendar year, following the year in which the employee attains
age 70 1/2. Distributions from a TSA or Deferred Compensation Plan may, however,
be deferred until actual retirement, if later. 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.
10
<PAGE>
Roth IRAs are not subject to the required minimum distribution rule.
Distributions from a Roth IRA may be deferred until the death of the owner or
annuitant.
TAX SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
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 only when the owner: (1) attains age 59 1/2;
(2) separates from service; (3) dies or becomes disabled (within the meaning of
Section 72(m)(7) of the Code); (4) in the case of hardship, or (5) is divorced
and the distribution is permitted under a Qualified Domestic Relations Order.
Withdrawals for hardship are restricted to the portion of the owner's contract
value which represents contributions made by the owner and does not include any
investment results. The limitations on withdrawals became effective on
January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or transfers between certain retirement
plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
ANNUITY PROVISIONS
ANNUITY UNIT VALUE
The value of an annuity unit for each portfolio on any date varies to reflect
the investment experience of the portfolio, the assumed investment rate of 4% on
which the applicable Variable Annuity Purchase Rate Table is based, and the
deduction for charges assessed and imposed by the Company, including a mortality
and expense risk charge and, if applicable, a charge for premium taxes.
For any valuation period the value of an annuity unit is determined by
multiplying the value of an annuity unit for each portfolio, as of 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 to adjust for the assumed investment
return of 4% used in calculating the applicable Variable Annuity Purchase Rate
Table.
The Net Investment Factor is a number that represents the change in the net
asset value of a portfolio on successive periods when the NYSE is open. The Net
Investment Factor for any portfolio for any valuation period is determined by
taking the net asset value per share of the portfolio, (adjusted for earnings,
realized or unrealized capital gains or losses, and deductions for tax, if any),
as of the current valuation period, and dividing it by the adjusted net asset
value per share of the portfolio for the preceding period, and then subtracting
the percentage factor for the mortality and expense risk charge. The Net
Investment Factor may be greater than or equal to one, therefore the annuity
unit value may increase or decrease.
The Assumed Investment Factor for a one day valuation period is 1.00010746. This
factor neutralizes the assumed investment return of 4% in the Variable Annuity
Purchase Rate Table in the contract.
VARIABLE ANNUITY PAYMENTS
The amount of the first annuity payment under a contract is generally determined
on the basis of the annuity option selected, the annuity purchase rate, the age
and sex of the annuitant, and the annuity purchase date. The amount of the first
payment is the sum of the payments from each portfolio determined by applying
the contract value, after deduction for premium taxes, if applicable, as of the
15th day of the preceding month, to the Variable Annuity Purchase Rate Table
contained in the contract (which is guaranteed for the duration of the
contract).
The number of annuity units credited for each portfolio is the amount of the
first annuity payment attributable to that portfolio divided by the value of the
applicable annuity unit for that portfolio as of
11
<PAGE>
the 15th day of the month preceding the annuity date. The number of annuity
units used to calculate the variable annuity payment each month remains constant
unless the owner changes portfolio elections. The value of an annuity unit may
increase or decrease from one month to the next.
The dollar amount of each variable annuity payment after the first is the sum of
the payments from each portfolio, which are determined by multiplying the number
of annuity units credited for that portfolio by the annuity unit value of that
portfolio as of the 15th of the month preceding the annuity payment.
To illustrate the manner in which variable annuity payments are determined
consider this example. Item (4) in the example shows the applicable monthly
payment rate (which varies depending on the Variable Annuity Purchase Rate Table
used in the contract) for an annuitant with an adjusted age 63, where an owner
has elected a variable life annuity with a guarantee period of 10 years with the
assumed investment rate of 4%. (2nd option described in the prospectus).
<TABLE>
<S> <C> <C>
(1) Assumed number of accumulation units in a portfolio on
maturity date............................................... 25,000
(2) Assumed value of an accumulation unit in a portfolio at
maturity.................................................... $12.5000
(3) Cash value of contract at maturity, (1) x (2)............... $312,500
(4) Consideration required to purchase $1 of monthly annuity
from Variable Annuity Purchase Rate Table................... $183.53
(5) Amount of first payment from a portfolio, (3) divided by
(4)......................................................... $1,702.72
(6) Assumed value of annuity unit in a portfolio at maturity.... $13.0000
(7) Number of annuity units credited in a portfolio, (5) divided
by (6)...................................................... 130.9785
</TABLE>
The $312,500 value at maturity provides a first payment from the portfolio of
$1,702.72, and payments thereafter of the varying dollar value of 130.9785
annuity units. The amount of subsequent payments from the portfolio is
determined by multiplying 130.9785 units by the value of an annuity unit in the
portfolio on the applicable valuation date. For example, if that unit value is
$13.25, the monthly payment from the portfolio will be 130.9785 multiplied by
$13.25, or $1,735.47.
However, the value of the annuity unit depends on the investment experience of
the portfolio. Thus in the example above, if the Net Investment Factor for the
following month was less than the assumed investment rate of 4%, the annuity
unit would decline in value. If the annuity unit value declined to $12.75 the
succeeding monthly payment would then be 130.9785 x $12.75, or $1,669.98.
For the sake of simplicity the foregoing example assumes that all of the annuity
units are in one portfolio. If there are annuity units in two or more
portfolios, the annuity payment from each portfolio is calculated separately, in
the manner illustrated, and the total monthly payment is the sum of the payments
from the portfolios.
FINANCIAL STATEMENTS
The consolidated financial statements of the Company and subsidiaries included
herein should be considered only as bearing upon the ability of the Company to
meet its obligations under the contracts.
12
<PAGE>
FINANCIAL STATEMENTS
SAFECO RESOURCE VARIABLE ACCOUNT B
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Statement of Assets and Liabilities as of December 31,
1999...................................................... 1
Statements of Operations and Changes in Net Assets for the
Year or Period Ended December 31, 1999 and 1998........... 5
Notes to Financial Statements............................... 11
Report of Ernst & Young LLP, Independent Auditors........... 14
</TABLE>
13
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------
SAFECO
(In Thousands, Except Per-Share and SAFECO SAFECO SAFECO SAFECO MONEY
Per-Unit Amounts) EQUITY GROWTH NORTHWEST BOND MARKET
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 157,654 $ 76,345 $ 7,377 $ 11,348 $ 6,041
============ ============ ============ ============ ============
SHARES OWNED 6,692 3,563 448 1,009 6,041
NET ASSET VALUE PER SHARE $ 31.02 $ 22.50 $ 22.68 $ 10.33 $ 1.00
------------ ------------ ------------ ------------ ------------
Investments, at value 207,575 80,169 10,163 10,420 6,041
Dividends Receivable 11,633 - 663 631 26
------------ ------------ ------------ ------------ ------------
Total assets 219,208 80,169 10,826 11,051 6,067
LIABILITIES:
Mortality and expense risk charge payable 232 79 10 12 7
------------ ------------ ------------ ------------ ------------
NET ASSETS $ 218,976 $ 80,090 $ 10,816 $ 11,039 $ 6,060
============ ============ ============ ============ ============
ACCUMULATION UNITS OUTSTANDING 3,347 1,974 450 562 365
============ ============ ============ ============ ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
outstanding) $ 65.422 $ 40.572 $ 24.044 $ 19.648 $ 16.610
============ ============ ============ ============ ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
1
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------
SAFECO LEXINGTON LEXINGTON
(In Thousands, Except Per-Share and SMALL SCUDDER SCUDDER NATURAL EMERGING
Per-Unit Amounts) COMPANY INTERNATIONAL BALANCED RESOURCES MARKETS
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 720 $ 19,949 $ 21,987 $ 485 $ 476
============ ============= ============ ============ ============
SHARES OWNED 64 1,438 1,654 35 55
NET ASSET VALUE PER SHARE $ 11.39 $ 20.34 $ 16.11 $ 12.51 $ 12.81
------------ ------------- ------------ ------------ ------------
Investments, at value 727 29,246 26,654 442 711
Dividends Receivable - - - - -
------------ ------------- ------------ ------------ ------------
Total assets 727 29,246 26,654 442 711
LIABILITIES:
Mortality and expense risk charge payable 1 29 28 - 1
------------ ------------- ------------ ------------ ------------
NET ASSETS $ 726 $ 29,217 $ 26,626 $ 442 $ 710
============ ============= ============ ============ ============
ACCUMULATION UNITS OUTSTANDING 63 1,161 1,125 33 51
============ ============= ============ ============ ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
outstanding) $ 11.488 $ 25.174 $ 23.672 $ 13.406 $ 13.883
============ ============= ============ ============ ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
FEDERATED AMERICAN AMERICAN
(In Thousands, Except Per-Share and FEDERATED HIGH FEDERATED CENTURY CENTURY
Per-Unit Amounts) UTILITY INCOME INTERNATIONAL BALANCED INTERNATIONAL
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 1,585 $ 1,524 $ 1,244 $ 2,104 $ 1,659
============ ============ ============= ============ ============
SHARES OWNED 116 143 74 270 208
NET ASSET VALUE PER SHARE $ 14.35 $ 10.24 $ 27.64 $ 7.79 $ 12.50
------------ ------------ ------------- ------------ ------------
Investments, at value 1,659 1,459 2,051 2,106 2,597
Dividends Receivable - - - - -
------------ ------------ ------------- ------------ ------------
Total assets 1,659 1,459 2,051 2,106 2,597
LIABILITIES:
Mortality and expense risk charge payable 2 1 2 2 2
------------ ------------ ------------- ------------ ------------
NET ASSETS $ 1,657 $ 1,458 $ 2,049 $ 2,104 $ 2,595
============ ============ ============= ============ ============
ACCUMULATION UNITS OUTSTANDING 97 116 75 207 201
============ ============ ============= ============ ============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
outstanding) $ 17.118 $ 12.594 $ 27.225 $ 10.174 $ 12.914
============ ============ ============= ============ ============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-------------------------------------------
FIDELITY
(In Thousands, Except Per-Share and FIDELITY GROWTH INVESCO
Per-Unit Amounts) CONTRAFUND OPPORTUNITIES REALTY
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 3,690 $ 1,207 $ 77
============= ============ =============
SHARES OWNED 144 55 9
NET ASSET VALUE PER SHARE $ 29.15 $ 23.15 $ 7.91
------------- ------------ -------------
Investments, at value 4,200 1,263 69
Dividends Receivable - - -
------------- ------------ -------------
Total assets 4,200 1,263 69
LIABILITIES:
Mortality and expense risk charge payable 4 1 -
------------- ------------ -------------
NET ASSETS $ 4,196 $ 1,262 $ 69
============= ============ =============
ACCUMULATION UNITS OUTSTANDING 302 109 8
============= ============ =============
ACCUMULATION UNIT VALUE *
(Net assets divided by accumulation units
outstanding) $ 13.918 $ 11.564 $ 8.525
============= ============ =============
</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
SAFECO SAFECO SAFECO
EQUITY GROWTH NORTHWEST
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 11,633 $ 10,148 $ - $ 10,191 $ 663 $ -
Mortality and expense risk charge (2,794) (2,413) (994) (1,226) (83) (67)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) 8,839 7,735 (994) 8,965 580 (67)
Net realized gain (loss) on investments 12,843 3,440 (3,124) 775 497 72
Net change in unrealized appreciation
(depreciation) (4,592) 28,887 5,409 (11,535) 2,141 22
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 17,090 40,062 1,291 (1,795) 3,218 27
UNIT TRANSACTIONS:
Purchases 44,529 42,556 17,831 41,575 4,518 1,866
Redemptions (58,347) (37,631) (36,755) (25,341) (2,525) (909)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS (13,818) 4,925 (18,924) 16,234 1,993 957
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 3,272 44,987 (17,633) 14,439 5,211 984
NET ASSETS AT BEGINNING OF YEAR 215,704 170,717 97,723 83,284 5,605 4,621
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 218,976 $ 215,704 $ 80,090 $ 97,723 $ 10,816 $ 5,605
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
SAFECO SAFECO SAFECO
BOND MONEY MARKET SMALL COMPANY
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 630 $ 654 $ 292 $ 195 $ - $ -
Mortality and expense risk charge (148) (136) (81) (51) (8) (6)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) 482 518 211 144 (8) (6)
Net realized gain (loss) on investments (47) 88 - - (68) (56)
Net change in unrealized appreciation
(depreciation) (1,091) 161 - - 169 (156)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (656) 767 211 144 93 (218)
UNIT TRANSACTIONS:
Purchases 1,933 5,235 14,951 18,405 322 772
Redemptions (3,050) (2,842) (14,177) (16,175) (218) (201)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS (1,117) 2,393 774 2,230 104 571
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS (1,773) 3,160 985 2,374 197 353
NET ASSETS AT BEGINNING OF YEAR 12,812 9,652 5,075 2,701 529 176
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 11,039 $ 12,812 $ 6,060 $ 5,075 $ 726 $ 529
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
SCUDDER SCUDDER LEXINGTON
INTERNATIONAL BALANCED NATURAL RESOURCES
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 1,960 $ 2,297 $ 1,884 $ 1,024 $ 3 $ 45
Mortality and expense risk charge (268) (231) (293) (195) (6) (8)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) 1,692 2,066 1,591 829 (3) 37
Net realized gain (loss) on investments 678 281 630 135 (24) (4)
Net change in unrealized appreciation
(depreciation) 7,633 465 954 2,154 102 (177)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 10,003 2,812 3,175 3,118 75 (144)
UNIT TRANSACTIONS:
Purchases 5,048 4,944 9,164 8,153 52 169
Redemptions (5,032) (5,243) (6,058) (2,770) (231) (156)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 16 (299) 3,106 5,383 (179) 13
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 10,019 2,513 6,281 8,501 (104) (131)
NET ASSETS AT BEGINNING OF YEAR 19,198 16,685 20,345 11,844 546 677
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 29,217 $ 19,198 $ 26,626 $ 20,345 $ 442 $ 546
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
LEXINGTON FEDERATED FEDERATED
EMERGING MARKETS EQUITY HIGH INCOME
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 1 $ 13 $ 104 $ 54 $ 119 $ 28
Mortality and expense risk charge (3) (2) (19) (12) (18) (15)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) (2) 11 85 42 101 13
Net realized gain (loss) on investments (13) (45) 37 14 (11) -
Net change in unrealized appreciation
(depreciation) 312 (24) (110) 66 (75) (17)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 297 (58) 12 122 15 (4)
UNIT TRANSACTIONS:
Purchases 401 44 1,056 548 440 1,081
Redemptions (100) (112) (639) (198) (431) (403)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 301 (68) 417 350 9 678
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 598 (126) 429 472 24 674
NET ASSETS AT BEGINNING OF YEAR 112 238 1,228 756 1,434 760
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 710 $ 112 $ 1,657 $ 1,228 $ 1,458 $ 1,434
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
FEDERATED AMERICAN CENTURY AMERICAN CENTURY
INTERNATIONAL BALANCED INTERNATIONAL
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 22 $ - $ 263 $ 66 $ - $ 40
Mortality and expense risk charge (12) (6) (22) (11) (19) (12)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) 10 (6) 241 55 (19) 28
Net realized gain (loss) on investments 48 29 (27) (1) 72 9
Net change in unrealized appreciation
(depreciation) 740 53 (55) 55 897 44
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 798 76 159 109 950 81
UNIT TRANSACTIONS:
Purchases 853 271 911 1,169 902 1,096
Redemptions (181) (78) (466) (126) (592) (292)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 672 193 445 1,043 310 804
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 1,470 269 604 1,152 1,260 885
NET ASSETS AT BEGINNING OF YEAR 579 310 1,500 348 1,335 450
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 2,049 $ 579 $ 2,104 $ 1,500 $ 2,595 $ 1,335
========== ========== ========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------------------------------------
FIDELITY FIDELITY INVESCO
CONTRAFUND GROWTH OPPORTUNITIES REALTY
- --------------------------------------------------------------------------------------------------------------------------
---------------------- ---------------------- ----------------------
(In Thousands) 1999 1998# 1999 1998# 1999 1998#
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Dividend income $ 19 - $ 20 - $ 3 $ 2
Mortality and expense risk charge (24) (1) (15) (2) (1) (1)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (loss) (5) (1) 5 (2) 2 1
Net realized gain (loss) on investments 61 12 36 (2) (3) -
Net change in unrealized appreciation
(depreciation) 472 38 (8) 65 - (9)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 528 49 33 61 (1) (8)
UNIT TRANSACTIONS:
Purchases 4,553 489 1,691 586 9 93
Redemptions (1,143) (280) (1,067) (42) (22) (2)
---------- ---------- ---------- ---------- ---------- ----------
NET CHANGE IN NET ASSETS RESULTING FROM UNIT
TRANSACTIONS 3,410 209 624 544 (13) 91
---------- ---------- ---------- ---------- ---------- ----------
TOTAL CHANGE IN NET ASSETS 3,938 258 657 605 (14) 83
NET ASSETS AT BEGINNING OF YEAR 258 - 605 - 83 -
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF YEAR $ 4,196 $ 258 $ 1,262 $ 605 $ 69 $ 83
========== ========== ========== ========== ========== ==========
</TABLE>
# For the period from May 1, 1998 (inception date) to December 31, 1998.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Resource Variable Account B (the Separate Account) is registered
under the Investment Company Act of 1940, as amended, as a segregated unit
investment trust of SAFECO Life Insurance Company (SAFECO Life), a
wholly-owned subsidiary of SAFECO Corporation. Purchasers of various SAFECO
Life variable annuity products direct their investment to one or more of
the sub-accounts of the Separate Account. Each sub-account invests in
shares of a designated portfolio as indicated below. Not all sub-accounts
are available in all SAFECO Life variable annuity products. The performance
of the underlying portfolios may differ substantially from publicly traded
mutual funds with similar names and objectives.
<TABLE>
<CAPTION>
Sub-Accounts Underlying Portfolios
<S> <C>
------------------------------------------------------------------------------------------------------
SAFECO Resource Series Trust
SAFECO Resource Equity (SAFECO Equity) RST Equity Portfolio
SAFECO Resource Growth (SAFECO Growth) RST Growth Portfolio
SAFECO Resource Northwest (SAFECO Northwest) RST Northwest Portfolio
SAFECO Resource Bond (SAFECO Bond) RST Bond Portfolio
SAFECO Resource Money Market (SAFECO Money Market) RST Money Market Portfolio
SAFECO Resource Small Company Stock (SAFECO Small
Company) RST Small Company Stock Portfolio
Scudder Variable Life Investment Fund
Scudder International Scudder International Portfolio
Scudder Balanced Scudder Balanced Portfolio
Lexington Natural Resources Trust
Lexington Natural Resources Lexington Natural Resources Trust
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Lexington Emerging Markets Fund, Inc.
Federated Insurance Series
Federated Utility Federated Utility Fund II
Federated High Income Bond (Federated High Income) Federated High Income Bond Fund II
Federated International Equity (Federated
International) Federated International Equity Fund II
American Century Variable Portfolios, Inc.
American Century Balanced VP Balanced
American Century International VP International
Variable Insurance Products Fund II (VIP II)
Fidelity Contrafund VIP II Contrafund Portfolio
Variable Insurance Products Fund III (VIP III)
Fidelity Growth Opportunities VIP III Growth Opportunities Portfolio
INVESCO Variable Investment Funds, Inc.
INVESCO Realty INVESCO VIF-Realty Portfolio
</TABLE>
11
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Separate Account in the preparation of its financial
statements. The policies are in conformity with generally accepted
accounting principles.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
SECURITY VALUATION -- Investments in portfolio shares are carried in the
statement of assets and liabilities at net asset value as reported by the
underlying portfolio.
SECURITY TRANSACTIONS -- Security transactions are recorded on the trade
date. Effective January 1, 1998, realized gains and losses on security
transactions are determined using the average cost method. Prior to 1998,
the First-In First-Out cost method was used. This change in accounting
method has no net impact on the results of operations or on net assets.
DISTRIBUTIONS -- The net investment income and realized capital gains of
the Separate Account are not distributed, but are retained and reinvested
for the benefit of accumulation unit owners.
FEDERAL INCOME TAX -- Operations of the Separate Account are included in
the federal income tax return of SAFECO Life, 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
the Separate Account.
3. EXPENSES
SAFECO Life assumes mortality and expense risks related to the operations
of the Separate Account. SAFECO Life deducts a daily charge from the assets
of the Separate Account to cover these risks. This charge is, on an annual
basis, equal to a rate of 1.25% of the average daily net assets of the
Separate Account.
There may be fees deducted by SAFECO Life from a contractholder's account
and not directly from the Separate Account. These fees may vary by product.
12
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
Purchase and sales activity in underlying portfolio shares for the year
ended December 31, 1999 was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
SUB-ACCOUNT PURCHASES SALES
<S> <C> <C>
------------------------------------------------------------
SAFECO Equity $38,933 $45,389
SAFECO Growth 20,479 30,225
SAFECO Northwest 4,417 2,503
SAFECO Bond 2,210 2,823
SAFECO Money Market 14,691 13,795
SAFECO Small Company 350 253
Scudder International 6,368 4,651
Scudder Balanced 9,579 4,875
Lexington Natural Resources 54 236
Lexington Emerging Markets 469 169
Federated Utility 1,150 648
Federated High Income 528 418
Federated International 940 256
American Century Balanced 1,140 454
American Century International 882 590
Fidelity Contrafund 4,872 1,463
Fidelity Growth Opportunities 1,942 1,312
INVESCO Realty 12 23
</TABLE>
5. HISTORICAL ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
SUB-ACCOUNT 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
SAFECO Equity $65.422 $60.601 $49.122 $39.829 $32.321
SAFECO Growth 40.572 38.894 38.686 27.082 20.756
SAFECO Northwest 24.044 15.741 15.493 11.968 10.777
SAFECO Bond 19.648 20.712 19.265 17.991 18.117
SAFECO Money Market 16.610 16.074 15.509 14.944 14.417
SAFECO Small Company
* 11.488 10.080 12.759 - -
Scudder International 25.174 16.492 14.094 13.083 11.540
Scudder Balanced 23.672 20.784 17.080 13.919 12.596
Lexington Natural
Resources ** 13.406 11.897 14.996 14.169 -
Lexington Emerging
Markets ** 13.883 6.163 8.703 9.968 -
Federated Utility ** 17.118 17.045 15.144 12.106 -
Federated High Income
** 12.594 12.465 12.290 10.933 -
Federated
International ** 27.225 14.905 12.017 11.052 -
American Century
Balanced * 10.174 9.360 8.185 - -
American Century
International * 12.914 7.968 6.793 - -
Fidelity Contrafund # 13.918 11.340 - - -
Fidelity Growth
Opportunities # 11.564 11.229 - - -
INVESCO Realty # 8.525 8.601 - - -
</TABLE>
* Unit values on the inception date (May 1, 1997) were $10.000, $7.160,
and $6.200, for the SAFECO RST Small Company, AMC Balanced and AMC
International Sub-accounts, respectively.
** Unit values on the inception date (February 15, 1996) were $11.920,
$10.540, $11.410, $10.050, and $10.480, for the Lexington Natural
Resources, Lexington Emerging Markets, Federated Utility, Federated High
Income and Federated International Sub-accounts, respectively.
# Unit value on the inception date (May 1, 1998) was $10.000 for the
Fidelity Contrafund, Fidelity Growth Opportunities and INVESCO Realty
Sub-accounts.
13
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
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 statements of assets and liabilities of SAFECO
Resource Variable Account B (comprising the SAFECO RST Equity, SAFECO RST
Growth, SAFECO RST Northwest, SAFECO RST Bond, SAFECO RST Money Market, SAFECO
RST Small Company Stock, Scudder International, Scudder Balanced, Lexington
Natural Resources, Lexington Emerging Markets, Federated Utility, Federated High
Income Bond, Federated International Equity, American Century Balanced, American
Century International, Fidelity Contrafund, Fidelity Growth Opportunities, and
Invesco Realty Portfolio Sub-Accounts) as of December 31, 1999, and the related
statements of operations and changes in net assets, and the historical
accumulation unit values for each of the periods indicated therein. These
financial statements and the historical accumulation unit values are the
responsibility of the SAFECO Resource Variable Account B's management. Our
responsibility is to express an opinion on these financial statements and
historical accumulation unit values based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
historical accumulation unit values are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and the historical accumulation unit
values. Our procedures included confirmation of portfolio shares owned as of
December 31, 1999, by correspondence with the manager of the underlying
portfolio of each sub-account. 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 historical accumulation unit values
referred to above present fairly, in all material respects, the financial
position of each of the sub-accounts constituting SAFECO Resource Variable
Account B at December 31, 1999, the results of their operations, the changes in
their net assets, and the historical accumulation unit values for each of the
periods indicated therein, in conformity with accounting principles generally
accepted in the United States.
<TABLE>
<S> <C>
/s/ Ernst & Young LLP
Seattle, Washington
February 22, 2000
</TABLE>
14
<PAGE>
SAFECO Resource Variable Account B
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
YEAR 2000 READINESS (UNAUDITED)
All Year 2000 readiness work was completed prior to December 31, 1999. The
Sub-Accounts have experienced no disruption in their operations or service
levels, and do not expect to incur any future disruptions or expense in
connection with the Year 2000 issue.
15
<PAGE>
Audited Consolidated Financial Statements
SAFECO LIFE INSURANCE COMPANY
AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
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 Sheets................................................ 2
Statements of Consolidated Income.......................................... 4
Consolidated Statements of Changes in Shareholder's Equity................. 5
Statements of Consolidated Comprehensive Income (Loss)..................... 5
Statements of Consolidated Cash Flows...................................... 6
Notes to Consolidated Financial Statements................................. 8
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheets of SAFECO Life
Insurance Company and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related statements of consolidated income, changes in
shareholder's equity, comprehensive income (loss), and cash flows for each of
the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements 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 financial position of SAFECO Life Insurance Company
and subsidiaries at December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Seattle, Washington /s/ Ernst & Young LLP
February 11, 2000
1
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
---------------- -------------
ASSETS
Investments:
<S> <C> <C>
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: $10,634,736; $9,718,627) .............................$ 10,322,572 $ 10,281,711
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: $2,772,099; $3,259,194) ................................ 2,733,290 2,720,883
Marketable Equity Securities, at Market Value
(Cost: $10,572; $14,665) .............................................. 15,205 18,737
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses: $10,781; $11,173) . 746,232 503,734
Affiliates ............................................................ 74,583 160,693
Real Estate ............................................................. 3,829 2,942
Policy Loans ............................................................ 64,478 62,359
Short-Term Investments (At cost which approximates market) .............. 378,656 54,164
Other Invested Assets ................................................... 259 5,211
---------------- -------------
Total Investments .................................................... 14,339,104 13,810,434
Cash ....................................................................... 20,969 8,321
Accrued Investment Income .................................................. 210,207 190,887
Accounts and Notes Receivable (At cost, less allowance for doubtful
accounts: $168; $107) ................................................... 84,923 110,850
Reinsurance Recoverables ................................................... 37,762 32,354
Deferred Policy Acquisition Costs (Net of valuation allowance:
$225; $45,108) .......................................................... 265,830 213,022
Present Value of Future Profits ............................................ 11,741 12,362
Other Assets ............................................................... 70,351 61,510
Current Income Taxes Recoverable ........................................... -- 17,169
Deferred Income Taxes Recoverable (Includes tax benefit on
unrealized depreciation of investment securities: $107,714) ............ 106,453 --
Assets Held in Separate Accounts ........................................... 1,403,248 1,201,135
---------------- -------------
Total Assets ............................................................$ 16,550,588 $ 15,658,044
---------------- -------------
---------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE>
<TABLE>
<CAPTION>
December 31
-----------
1999 1998
---------------- -------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
<S> <C> <C>
Policy and Contract Liabilities:
Future Policy Benefits ................................................$ 164,475 $ 158,949
Policy and Contract Claims ............................................ 34,355 38,391
Premiums Paid in Advance .............................................. 8,054 8,161
Funds Held Under Deposit Contracts .................................... 13,402,480 12,364,937
Other Policyholders' Funds ............................................ 362,565 61,029
---------------- -------------
Total Policy and Contract Liabilities ............................... 13,971,929 12,631,467
Other Liabilities ....................................................... 130,623 149,684
Federal Income Taxes:
Current ............................................................... 11,678 --
Deferred (Includes tax on unrealized appreciation of
investment securities: $182,717) ..................................... -- 199,744
Liabilities Related to Separate Accounts ................................ 1,403,248 1,201,135
---------------- -------------
Total Liabilities .................................................... 15,517,478 14,182,030
---------------- -------------
Commitments and Contingencies
Shareholder's Equity:
Common Stock, $250 Par Value;
20,000 Shares Authorized, Issued and Outstanding ...................... 5,000 5,000
Additional Paid-In Capital .............................................. 85,000 85,000
Retained Earnings ....................................................... 1,143,041 1,046,572
Accumulated Other Comprehensive Income (Loss) ........................... (199,931) 339,442
---------------- -------------
Total Shareholder's Equity ........................................... 1,033,110 1,476,014
---------------- -------------
Total Liabilities and Shareholder's Equity.........................$ 16,550,588 $ 15,658,044
---------------- -------------
---------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
Revenues:
<S> <C> <C> <C>
Premiums ................................................................$ 256,742 $ 254,410 $ 240,595
Investment Income:
Interest on Fixed Maturities .......................................... 994,603 925,827 830,837
Interest on Mortgage Loans ............................................ 62,090 56,313 56,232
Interest on Short-Term Investments .................................... 3,827 4,898 3,419
Dividends from Marketable Equity Securities ........................... 416 693 1,044
Dividends from Redeemable Preferred Stock ............................. 17,990 17,088 16,026
Other Investment Income ............................................... 9,617 4,446 3,843
---------------- ------------- -------------
Total .............................................................. 1,088,543 1,009,265 911,401
Less Investment Expenses .............................................. 4,177 3,804 3,485
---------------- ------------- -------------
Net Investment Income ................................................... 1,084,366 1,005,461 907,916
---------------- ------------- -------------
Other Revenue ........................................................... 36,185 28,069 21,751
Realized Investment Gain (Loss) ......................................... (4,683) 13,612 6,807
---------------- ------------- -------------
Total .............................................................. 1,372,610 1,301,552 1,177,069
---------------- ------------- -------------
Benefits and Expenses:
Policy Benefits ......................................................... 1,025,233 994,081 844,926
Commissions ............................................................. 75,555 95,250 93,681
Personnel Costs ......................................................... 59,781 53,814 48,503
Taxes Other Than Payroll and Income Taxes ............................... 22,797 12,980 11,817
Other Operating Expenses ................................................ 47,074 54,815 46,639
Amortization of Deferred Policy Acquisition Costs ....................... 34,030 39,076 36,946
Write-off of Deferred Policy Acquisition Costs
and Other Write-offs .................................................. 12,993 46,800 --
Deferral of Policy Acquisition Costs .................................... (52,998) (65,944) (53,068)
Amortization of Present Value of Future Profits ......................... 803 3,790 --
---------------- ------------- -------------
Total .............................................................. 1,225,268 1,234,662 1,029,444
---------------- ------------- -------------
Income before Federal Income Taxes ......................................... 147,342 66,890 147,625
---------------- ------------- -------------
Provision (Benefit) for Federal Income Taxes:
Current ................................................................. 66,639 24,725 54,705
Deferred ................................................................ (15,766) (1,359) (4,689)
---------------- ------------- -------------
Total .............................................................. 50,873 23,366 50,016
---------------- ------------- -------------
Net Income .................................................................$ 96,469 $ 43,524 $ 97,609
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<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 ...................................... 1,046,572 1,093,048 1,011,439
Net Income ............................................................ 96,469 43,524 97,609
Dividends to Parent ................................................... -- (90,000) (16,000)
---------------- ------------- -------------
Balance at the End of Year ............................................ 1,143,041 1,046,572 1,093,048
---------------- ------------- -------------
Accumulated Other Comprehensive Income (Loss):
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax:
Balance at the Beginning of Year ..................................... 339,442 305,517 160,045
Change in Unrealized Appreciation (Depreciation),
Net of Deferred Policy Acquisition Costs Valuation
Allowance .......................................................... (539,373) 33,925 145,472
---------------- ------------- -------------
Balance at the End of Year ........................................... (199,931) 339,442 305,517
---------------- ------------- -------------
Shareholder's Equity ..............................................$ 1,033,110 $ 1,476,014 $ 1,488,565
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<S> <C> <C> <C>
Net Income .................................................................$ 96,469 $ 43,524 $ 97,609
---------------- ------------- -------------
Other Comprehensive Income (Loss), Net of Tax:
Unrealized Appreciation (Depreciation) of Investment
Securities Arising During the Year (Net of tax:
$(289,865); $21,842; $81,029) ........................................ (538,321) 40,563 150,482
Less: Reclassification Adjustment for Realized Gains
Included in Net Income (Net of tax: $566; $3,574;
$2,697) .............................................................. (1,052) (6,638) (5,010)
---------------- ------------- -------------
Other Comprehensive Income (Loss) ..................................... (539,373) 33,925 145,472
---------------- ------------- -------------
Comprehensive Income (Loss) ................................................$ (442,904) $ 77,449 $ 243,081
---------------- ------------- -------------
---------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1999 1998 1997
---------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received ........................................... $ 218,429 $ 224,293 $ 216,089
Dividends and Interest Received ....................................... 980,630 919,236 819,433
Other Operating Receipts .............................................. 35,972 27,498 19,299
Insurance Claims and Policy Benefits Paid ............................. (382,039) (402,118) (353,227)
Underwriting, Acquisition and Insurance
Operating Costs Paid ................................................ (194,743) (221,294) (202,077)
Income Taxes Paid ..................................................... (37,791) (61,086) (36,140)
---------------- ------------- -------------
Net Cash Provided by Operating Activities ........................ 620,458 486,529 463,377
---------------- ------------- -------------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale ................................. (2,496,571) (2,117,938) (1,891,778)
Fixed Maturities Held-to-Maturity .................................. (901) (1,691) (199,589)
Purchase of Subsidiary, Net of Cash Acquired ........................ (2,000) -- 116,122
Other Investments ................................................... (493) (7,345) (5,788)
Policy and Nonaffiliated Mortgage Loans ............................. (251,144) (103,602) (96,019)
Affiliated Mortgage Loans ........................................... -- -- (40,000)
Options and Futures ................................................. (159,369) (168,554) (13,977)
Maturities of Fixed Maturities Available-for-Sale ..................... 914,839 732,377 435,788
Maturities of Fixed Maturities Held-to-Maturity ....................... 13,336 7,280 8,907
Sales of:
Fixed Maturities Available-for-Sale ................................. 683,225 643,539 869,091
Fixed Maturities Held-to-Maturity ................................... 6,296 18,235 --
Other Investments ................................................... 6,203 7,522 13,824
Policy and Nonaffiliated Mortgage Loans ............................. 98,366 65,797 61,159
Affiliated Mortgage Loans ........................................... 2,024 14,491 5,560
Options and Futures ................................................. 179,503 141,302 --
Net (Increase) Decrease in Short-Term Investments ..................... (323,152) 2,013 11,519
Other ................................................................. (12,081) (1,163) (36,164)
---------------- ------------- -------------
Net Cash Used in Investing Activities ............................ (1,341,919) (767,737) (761,345)
---------------- ------------- -------------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts ................................ 1,809,340 1,198,147 1,392,517
Return of Funds Held Under Deposit Contracts .......................... (1,050,947) (1,091,965) (861,221)
Dividends to Parent ................................................... -- (94,000) (13,000)
Net Proceeds from (Repayment of) Short-Term Borrowings ................ (24,284) 32,835 5,048
---------------- ------------- -------------
Net Cash Provided by Financing Activities 734,109 45,017 523,344
---------------- ------------- -------------
Net Increase (Decrease) in Cash .......................................... 12,648 (236,191) 225,376
Cash at Beginning of Year ................................................ 8,321 244,512 19,136
---------------- ------------- -------------
Cash at End of Year $ 20,969 $ 8,321 $ 244,512
---------------- ------------- -------------
---------------- ------------- -------------
</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>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Net Income ............................................... $ 96,469 $ 43,524 $ 97,609
---------- --------- ----------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment (Gain) Loss ..................... 4,683 (13,612) (6,807)
Amortization of Fixed Maturity Investments .......... (37,141) (26,774) (24,929)
Deferred Federal Income Tax Benefit ................. (15,766) (1,359) (4,689)
Interest Expense on Deposit Contracts ............... 628,392 633,437 501,230
Mortality and Expense Charges and Administrative Fees (38,825) (29,753) (27,379)
Other ............................................... 265 5,535 (7,877)
Changes in:
Future Policy Benefits ............................. 5,526 7,274 1,855
Policy and Contract Claims ......................... (4,036) 703 2,830
Premiums Paid in Advance ........................... (107) (984) 299
Deferred Policy Acquisition Costs .................. (7,925) 17,062 (15,688)
Accrued Investment Income .......................... (19,320) (9,130) (11,451)
Accrued Interest on Accrual Bonds .................. (45,311) (50,440) (48,354)
Other Receivables .................................. 4,164 (9,979) (5,467)
Current Federal Income Taxes ....................... 28,847 (36,361) 18,565
Other Assets and Liabilities ....................... 25,027 (42,225) (2,350)
Other Policyholders' Funds ......................... (4,484) (389) (4,020)
---------- --------- ----------
Total Adjustments ................................ 523,989 443,005 365,768
---------- --------- ----------
Net Cash Provided by Operating Activities ................ $ 620,458 $ 486,529 $ 463,377
---------- --------- ----------
---------- --------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
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 and its subsidiaries offer individual and group
insurance products, pension plans and annuity products, marketed through
professional agents in all states and the District of Columbia. The Company
is a wholly-owned subsidiary of SAFECO Corporation which is a Washington
corporation whose subsidiaries engage primarily in insurance and financial
service businesses. The Company owns five subsidiaries, SAFECO National
Life Insurance Company, First SAFECO National Life Insurance Company of New
York, Empire Life Insurance Company, D.W. Van Dyke & Co., Inc. and Medical
Risk Managers, Inc.
In December 1999, the Company acquired D.W. Van Dyke & Co., Inc. and
Medical Risk Managers, Inc., both of which are Delaware corporations doing
business as insurance services providers. The Company acquired WM Life
Insurance Company and Empire Life Insurance Company in December 1997. WM
Life Insurance Company was merged into the Company on July 1, 1998.
BASIS OF REPORTING. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
include amounts based on the best estimates and judgments of management.
The financial statements include the 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 1999 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 life and health policies. Funds received under pension
deposit contracts, annuity contracts 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. Fixed maturity investments (i.e., bonds and redeemable
preferred stocks) that the Company has the 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 shareholder's equity (comprehensive income), 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 shareholder's equity (comprehensive income), 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 Statements of Consolidated Income.
8
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
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.
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 Statements of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Life and health 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 pension deposit contracts, deferred annuity 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; such adjustments would be included in current operations. In
1999, a $13 million write-off of deferred acquisition costs was charged to
current operations. This charge was related to the equity-indexed annuity
product. In 1998, a $46.8 million write-off of deferred acquisition costs
was charged to current operations. This charge was primarily tied to two
blocks of annuity business, the equity-indexed product and a declared rate
fixed annuity product, and to the universal life business, all of which had
been adversely affected by market conditions. Approximately $28 million of
the write-off was related to the equity-indexed annuity product. The cost
of the options purchased to fund the obligation under these contracts
increased significantly, adversely affecting the projected recoverability
of deferred acquisition costs. There were no significant adjustments made
in 1997.
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. Acquisition costs for group life and health policies are
amortized over the lives of the policies in proportion to premium received.
PRESENT VALUE OF FUTURE PROFITS. The present value of future profits
represents the actuarially determined present value of anticipated profits
to be realized from annuity and life insurance business purchased. The
present value was determined using a discount rate of 12.5%. For annuity
contracts, amortization of the present value of future profits is in
relation to the present value of the expected gross profits on the
contracts, discounted using the interest rate credited to the underlying
policies. The change in the present value of future profits is comprised of
amortization and an adjustment to amortization for realized gains or losses
on investment securities of $(182) and $626 for the years ended December
31, 1999, and 1998, respectively. The present value of future profits is
reviewed periodically to determine that the unamortized portion does not
exceed expected recoverable amounts. No impairment adjustments were
recorded in 1999 or 1998. Present value of future profits is amortized
using a model approach that results in volatile amortization patterns. Our
best estimate is that, over the next five years, four to seven percent of
the balance will be amortized each year.
9
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
OTHER ASSETS. Call options on the S&P 500 index are purchased by the
Company to hedge the growth in interest credited on equity indexed
annuities sold. Premiums paid to purchase these call options are
capitalized and included in other assets. Call options are recorded at
market value with unrealized gains and losses recorded in income. Realized
gains and losses on these instruments are recognized upon termination.
In December 1997, the Company acquired Washington Mutual, Inc.'s life
insurance subsidiaries, WM Life Insurance Company and Empire Life Insurance
Company, and Washington Mutual, Inc. agreed to distribute the Company's
annuity products through the Washington Mutual, Inc. multistate banking
network. The portion of this transaction relating to the distribution
agreement was valued at $35,000 and is being amortized on a straight-line
basis over 15 years. The unamortized balance of $30,333 is included in
other assets.
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 4.5% 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
8.0% 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 Accounts are not reflected in the Statements 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, except for Empire
Life Insurance Company, are included in a consolidated federal income tax
return filed by 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.
10
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 1 (continued)
NEW ACCOUNTING STANDARD. The Financial Accounting Standards Board (FASB)
issued Statement 133, "Accounting for Derivative Instruments and Hedging
Activities," in June 1998. The FASB also issued Statement 137 in June 1999,
which deferred the effective date of Statement 133 to fiscal years
beginning after June 15, 2000. The Company will adopt Statement 133 no
later than the first quarter of 2001. Statement 133 amends or supersedes
several previous FASB statements and requires recognizing all derivatives
as either assets or liabilities in the statement of financial position and
measuring those instruments at fair value. The impact of Statement 133 is
currently being studied. Because of continuing emerging implementation
guidelines from the FASB, the effect of Statement 133 on the financial
statements has not yet been determined.
2. ACQUISITIONS AND AGREEMENTS
In December 1999, the Company acquired D.W. Van Dyke & Co., Inc. and
Medical Risk Managers, Inc. for $2,000. The acquisition has been treated as
a purchase for accounting purposes. The transaction was financed through
internal sources. As part of the agreement, the Company also agreed to pay
$11,941 and assume $20,309 in net liabilities for the right to reinsure the
policies of Medical Risk Solutions, a division of ING North America
Insurance Corporation, until the policy anniversary date. At the
anniversary date, the Company will offer its policy as a replacement. The
$32,250 total price was capitalized in other assets and will be amortized
beginning January 1, 2000, over 15 years.
In December 1999, the Company entered into an asset acquisition agreement
with Sound Benefits Administrators of Wisconsin, Inc., a third party
administrator. The agreement allows for the purchase of various assets
including, intellectual property, owned personal property, contract rights,
accounts receivable and the books and records used in the business. The
purchase price is based on the Company's profits from the Select Benefits
product and will be adjusted at various dates based on results. The initial
payment of $3,800, less the amount attributable to the personal property,
will be amortized over 5 years. The value of the personal property is yet
to be determined.
11
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
3. INVESTMENTS
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1999 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .............. $ 555,847 $ 25,921 $ (8,065) $ 17,856 $ 573,703
States, municipalities and political subdivisions ... 132,977 7,336 (3,969) 3,367 136,344
Foreign governments ................................. 90,852 2,826 (591) 2,235 93,087
Public utilities .................................... 1,413,426 10,474 (45,092) (34,618) 1,378,808
All other corporate bonds ........................... 5,528,543 35,946 (293,473) (257,527) 5,271,016
Mortgage-backed securities .......................... 2,913,091 31,406 (74,883) (43,477) 2,869,614
------------- ------------ ------------- ------------ -------------
Total fixed maturities classified as
available-for-sale ............................... 10,634,736 113,909 (426,073) (312,164) 10,322,572
Marketable equity securities ........................ 10,572 4,672 (39) 4,633 15,205
------------- ------------ ------------- ------------ -------------
Total investment securities classified as
available-for-sale ............................... $ 10,645,308 $ 118,581 $ (426,112) (307,531) $ 10,337,777
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
Deferred policy acquisition costs valuation allowance ............................................ (225)
Applicable federal income tax .............................................................. 107,825
------------
Unrealized depreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other comprehensive
income (loss)) ......................................................................... $ (199,931)
------------
------------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1999 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .......... $ 282,465 $ 27,580 $ (743) $ 26,837 $ 309,302
States, municipalities and political subdivisions 140,269 1,684 (6,000) (4,316) 135,953
Foreign governments ............................. 150,268 19,040 -- 19,040 169,308
Public utilities ................................ 415,715 17,957 (13,731) 4,226 419,941
All other corporate bonds ....................... 1,424,007 43,903 (55,647) (11,744) 1,412,263
Mortgage-backed securities ...................... 320,566 10,961 (6,195) 4,766 325,332
------------ ----------- ----------- ----------- ------------
Total fixed maturities classified as
held-to-maturity ............................. $ 2,733,290 $ 121,125 (82,316) $ 38,809 $ 2,772,099
------------ ----------- ----------- ----------- ------------
------------ ----------- ----------- ----------- ------------
</TABLE>
12
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
A summary of fixed maturities and marketable equity securities classified
as available-for-sale at December 31, 1998 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .......... $ 592,137 $ 85,453 $ (6) $ 85,447 $ 677,584
States, municipalities and political subdivisions 126,136 16,784 (3,191) 13,593 139,729
Foreign governments ............................. 101,106 9,730 -- 9,730 110,836
Public utilities ................................ 1,509,636 113,446 (1,957) 111,489 1,621,125
All other corporate bonds ....................... 4,504,120 225,765 (21,633) 204,132 4,708,252
Mortgage-backed securities ...................... 2,885,492 142,633 (3,940) 138,693 3,024,185
----------- ----------- ---------- ---------- ----------
Total fixed maturities classified as
available-for-sale ........................... 9,718,627 593,811 (30,727) 563,084 10,281,711
Marketable equity securities .................... 14,665 4,166 (94) 4,072 18,737
----------- ----------- ---------- ---------- ----------
Total investment securities classified as
available-for-sale ........................... 9,733,292 $ 597,977 (30,821) 567,156 $10,300,448
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Deferred policy acquisition costs valuation allowance ................................ (45,108)
Applicable federal income tax ........................................................ (182,606)
----------
Unrealized appreciation of investment securities,
net of tax, included in shareholder's equity (accumulated other
comprehensive income) ............................................................. $ 339,442
----------
----------
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1998 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities .......... $ 272,104 $ 102,409 $ -- $ 102,409 $ 374,513
States, municipalities and political subdivisions 127,180 26,403 -- 26,403 153,583
Foreign governments ............................. 149,558 48,523 -- 48,523 198,081
Public utilities ................................ 416,495 81,036 (239) 80,797 497,292
All other corporate bonds ....................... 1,447,436 243,657 (4,159) 239,498 1,686,934
Mortgage-backed securities ...................... 308,110 40,682 (1) 40,681 348,791
---------- ---------- ---------- ---------- ----------
Total fixed maturities classified as
held-to-maturity ............................. $2,720,883 $ 542,710 $ (4,399) $ 538,311 $3,259,194
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
13
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The amortized cost and estimated market value of fixed maturities at
December 31, 1999, 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
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Due in one year or less ........................................ $ 341,063 $ 343,174 $ -- $ --
Due after one year through five years .......................... 2,581,703 2,554,963 3 3
Due after five years through ten years ......................... 1,206,699 1,163,379 54,473 57,617
Due after ten years ............................................ 3,592,180 3,391,442 2,358,248 2,389,147
Mortgage-backed securities ..................................... 2,913,091 2,869,614 320,566 325,332
------------- ------------ ------------- ------------
Total .................................................... $ 10,634,736 $ 10,322,572 $ 2,733,290 $ 2,772,099
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
</TABLE>
At December 31, 1999 and 1998, the Company held below investment grade
fixed maturities of $559 million and $438 million at amortized cost,
respectively. The respective market values of these investments were
approximately $515 million and $444 million. These holdings amounted to
3.9% and 3.3% of the Company's investments in fixed maturities at market
value at December 31, 1999 and 1998, respectively.
Certain fixed maturity securities with an amortized cost of $7,644 and
$7,596 at December 31, 1999 and 1998, respectively, were on deposit with
various regulatory authorities to meet requirements of insurance and
financial codes.
At December 31, 1999 and 1998, mortgage loans constituted approximately
5.0% and 4.2% 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 34% of the total
in California. Individual loans generally do not exceed $10 million.
The carrying value of investments in fixed maturities and mortgage loans
that did not produce income during the year ended December 31, 1999 is less
than one percent of the total of such investments.
14
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- -------------------
<S> <C> <C> <C>
Proceeds from sales ....................................... $ 683,225 $ 6,296 $ 5,534
------------ ------------ ------------
------------ ------------ ------------
Gross realized gains on sales ............................. $ 13,358 $ -- $ 947
Gross realized losses on sales ............................ (14,559) (6,266) --
------------ ------------ ------------
Realized gains (losses) on sales .................... (1,201) (6,266) 947
Other (Including net gain or loss on calls and redemptions) 2,472 (52) --
Writedowns (Including writedowns on
securities subsequently sold) ......................... (600) -- --
------------ ------------ ------------
Total realized gain (loss) ................................ $ 671 $ (6,318) $ 947
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
One fixed maturity security, classified as held-to-maturity, was sold
during 1999 due to evidence of a significant deterioration in credit
quality. The amortized cost of this security was $12,562, and the loss
realized on this sale was $6,266.
The proceeds from sales of investment securities and related gains and
losses for 1998 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1998
------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
---------------- ---------------- -----------------
<S> <C> <C> <C>
Proceeds from sales............................................. $ 643,539 $ 18,235 $ 665
-------------- -------------- --------------
-------------- -------------- --------------
Gross realized gains on sales .................................. $ 12,350 $ 3,384 $ 335
Gross realized losses on sales ................................. (480) -- (3)
-------------- -------------- --------------
Realized gains on sales ................................... 11,870 3,384 332
Other (Including net gain or loss on calls and redemptions)..... (1,557) -- --
Writedowns (Including writedowns on
securities subsequently sold) .............................. (433) -- --
-------------- -------------- --------------
Total realized gain ............................................ $ 9,880 $ 3,384 $ 332
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
15
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
One fixed maturity security, classified as held-to-maturity, was sold
during 1998 due to restructuring by the bond issuer and the expected
significant downgrade resulting from it. This transaction meets the
"allowable sale" criteria of FASB Statement 115. The amortized cost of
this security was $14,851, and the gain realized on this sale was $3,384.
The proceeds from sales of investment securities and related gains and
losses for 1997 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
------------------------------------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
----------------- ---------------- ----------------
<S> <C> <C> <C>
Proceeds from sales ............................... $ 869,091 $ -- $ 11,185
-------------- -------------- --------------
-------------- -------------- --------------
Gross realized gains on sales ..................... $ 5,805 $ -- $ 6,832
Gross realized losses on sales .................... (9,410) -- (397)
-------------- -------------- --------------
Realized gains (losses) on sales ............. (3,605) -- 6,435
Other (Including net gain on calls and redemptions) 5,074 -- --
Writedowns (Including writedowns on
securities subsequently sold) ................. (197) -- --
-------------- -------------- --------------
Total realized gain ............................... $ 1,272 $ -- $ 6,435
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The following summarizes the realized gain before federal income taxes and
the net change in unrealized appreciation:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities ......................................... $ (5,647) $ 13,264 $ 1,272
Marketable equity securities ............................. 947 332 6,435
First mortgage loans on real estate ...................... -- -- (900)
Real estate .............................................. 17 16 --
------------- ------------ ------------
Realized gain (loss) before federal income taxes ....... $ (4,683) $ 13,612 $ 6,807
------------- ------------ ------------
------------- ------------ ------------
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation/depreciation of:
Fixed maturities classified as available-for-sale ........ $ (875,248) $ 62,781 $ 244,483
Marketable equity securities ............................. 561 (829) (4,372)
Deferred policy acquisition costs valuation allowance .... 44,883 (9,759) (16,309)
Applicable federal income tax ............................ 290,431 (18,268) (78,330)
------------- ------------ ------------
Net change in unrealized appreciation/depreciation ....... $ (539,373) $ 33,925 $ 145,472
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
16
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 3 (continued)
The following table summarizes the Company's allowance for credit losses on
non-affiliated mortgage loans:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Allowance at beginning of year ........... $ 11,173 $ 11,609 $ 10,943
Provision for credit losses .............. -- -- 900
Loans charged off as uncollectible ....... (392) (436) (234)
------------ ------------ -------------
Allowance at end of year ................. $ 10,781 $ 11,173 $ 11,609
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The allowance includes specific reserves, as well as general reserve
amounts. The total investment in impaired loans before any reserve for
losses is $589 and $2,496 at December 31, 1999 and 1998, respectively. A
specific loan loss reserve has been established for each impaired loan, the
total of which is $59 and $250 and is included in the overall allowance of
$10,781 and $11,173 at December 31, 1999 and 1998, respectively.
4. 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 $2,485 at December 31, 1999.
At December 31, 1999, unfunded mortgage loan commitments approximate
$18,699. The Company has no other material commitments or contingencies at
December 31, 1999.
5. 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.
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.
17
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 5 (continued)
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>
1999 1998
----------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale ...... $ 10,322,572 $ 10,322,572 $ 10,281,711 $ 10,281,711
Fixed maturities held-to-maturity ........ 2,733,290 2,772,099 2,720,883 3,259,194
Marketable equity securities ............. 15,205 15,205 18,737 18,737
Mortgage loans ........................... 820,815 749,000 664,427 692,000
Financial liabilities:
Funds held under deposit contracts ....... 13,402,480 13,136,000 12,364,937 12,874,000
</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 $3.2 billion and $3.4 billion, at market
values, at December 31, 1999 and 1998, respectively, are primarily
residential collateralized mortgage obligations (CMOs), pass-throughs and
commercial loan-backed mortgage obligations (CMBS). CMOs and CMBS, while
technically defined as derivative instruments, are exempt from derivative
disclosure requirements. The Company's investment in CMOs and CMBS
comprised of the riskier, more volatile type (e.g., principal only, inverse
floaters, etc.) has been intentionally limited to only a small amount,
approximately 1% of total mortgage-backed securities at both December 31,
1999 and 1998.
In 1997, the Company introduced an equity-indexed annuity product that
credits the policyholder based on a percentage of the gain in the S&P 500
index. Sales of this product were suspended in the fourth quarter of 1998.
A hedging program with the objective to hedge the exposure to changes in
the S&P 500 market risk has been established. The program consists of
buying and writing S&P 500 options, buying Treasury interest rate futures
and trading S&P 500 futures.
Realized gains and losses on both options and futures are recognized upon
termination of the options and future contracts. The Company records
futures and options at market value with unrealized gains and losses
recorded in policy benefits in current income.
The balance in other assets for call options purchased was $2,023 and
$23,985 at December 31, 1999 and 1998, respectively. The balance of futures
contracts at December 31, 1999 and 1998, respectively, was $8,287 and
$4,961. At December 31, 1999, the Company had a $5,819 liability for
written S&P 500 call options included in other liabilities.
18
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 5 (continued)
The Company does not enter into financial instruments for speculative
purposes. The Company's involvement in other investment-type derivatives is
also, intentionally, of a very limited nature. Such derivatives include
interest rate swaps on bond investments, 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.
6. REINSURANCE
The Company protects itself from excessive losses by ceding reinsurance to
other companies, using automatic and facultative treaties. The availability
and cost of reinsurance are subject to prevailing market conditions, both
in terms of price and available capacity. Although the reinsurer is liable
to the Company to the extent of the reinsurance ceded, the Company remains
primarily liable to the policyholder as the direct insurer on all risks
reinsured. The Company evaluates the financial condition of its reinsurers
to minimize its exposure to losses from reinsurer insolvencies. To the
Company's knowledge, none of its reinsurers is experiencing financial
difficulties.
Reinsurance Recoverables are comprised of the following amounts:
<TABLE>
<CAPTION>
December 31
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
Unpaid losses and adjustment expense ............. $ 767 $ 248
Paid claims ...................................... 1,179 1,347
Life policy liabilities .......................... 35,695 30,677
Other reinsurance recoverables ................... 121 82
------------ -------------
Total reinsurance recoverables $ 37,762 $ 32,354
------------ -------------
------------ -------------
</TABLE>
The effects of reinsurance on the premium and policy benefit amounts in the
Statements of Consolidated Income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums ................................ $ (21,216) $ (16,479) $ (13,305)
------------- -------------- --------------
------------- -------------- --------------
Policy benefits ......................... $ (9,347) $ (7,162) $ (7,853)
------------- -------------- --------------
------------- -------------- --------------
Reinsurance Assumed:
Premiums ................................ $ 697 $ 876 $ 180
------------- -------------- --------------
------------- -------------- --------------
Policy benefits ......................... $ 2,464 $ 3,487 $ 2,902
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
19
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
7. 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. The net income reported in the Statements of
Consolidated Income for the year ended December 31, 1997, does not include
the net income of either WM Life Insurance Company or Empire Life Insurance
Company, as their acquisition was effective December 31, 1997.
Statutory net income and capital and surplus, by company, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company ................................ $ 91,666 $ 64,599 $ 95,012
SAFECO National Life Insurance Company ....................... 1,121 1,012 1,322
First SAFECO National Life Insurance Company of New York ..... 751 576 314
Empire Life Insurance Company ................................ 596 1,799 --
------------ ------------- ------------
Total ................................................... $ 94,134 $ 67,986 $ 96,648
------------ ------------- ------------
------------ ------------- ------------
<CAPTION>
December 31
-----------------------------------------
1999 1998 1997
------------ ------------- ------------
Statutory Capital and Surplus:
<S> <C> <C> <C>
SAFECO Life Insurance Company and Subsidiaries ............... $ 637,522 $ 576,791 $ 672,230
------------ ------------- ------------
------------ ------------- ------------
</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, 1999.
8. 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. Under insurance regulations of the state of Washington,
the 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
$73,428 at December 31, 1999.
20
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
9. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) sponsor defined
contribution, defined benefit and profit sharing bonus plans covering
substantially all employees. The defined contribution plans include profit
sharing retirement plans and a 401(k) savings plan. A cash balance defined
benefit plan covering substantially all employees provides benefits 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 $2,479, $6,070 and $7,531 for the years
ended December 31, 1999, 1998 and 1997, 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. Net periodic other postretirement benefit costs for the
Company were $1,091, $510 and $392 in 1999, 1998 and 1997, respectively.
The accrued postretirement benefit cost recorded in the balance sheet was
$6,634 and $5,544 at December 1999 and 1998, respectively.
10. INCOME TAXES
The Company uses the liability method of accounting for income taxes under
which 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 not material.
21
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 10 (continued)
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
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Discounting of loss and adjustment expense reserves ............................. $ 463 $ 340
Uncollected premium adjustment .................................................. 3,303 2,963
Adjustment to life policy liabilities ........................................... 50,646 37,821
Capitalization of policy acquisition costs ...................................... 61,087 46,046
Postretirement benefits ......................................................... 2,322 1,940
Realized capital losses ......................................................... 3,114 3,461
Guarantee fund assessments ...................................................... 1,681 2,696
Intercompany sale of securities ................................................. 1,009 --
Unrealized depreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: $79) .............................. 107,714 --
Other ........................................................................... 1,610 3,105
------------ ------------
Total deferred tax assets .................................................. 232,949 98,372
------------ ------------
Deferred tax liabilities:
Deferred policy acquisition costs .............................................. 93,119 90,346
Present value of future profits ................................................ 4,109 4,327
Bond discount accrual .......................................................... 17,180 19,587
Right to Reinsure .............................................................. 11,039 --
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: $15,788) ......................... -- 182,717
Other .......................................................................... 1,049 1,139
------------ ------------
Total deferred tax liabilities ............................................. 126,496 298,116
------------ ------------
Net deferred tax (asset) liability ......................................... $ (106,453) $ 199,744
------------ ------------
------------ ------------
</TABLE>
The following table reconciles the deferred tax benefit in the Statements
of Consolidated Income to the change in the deferred tax liability in the
balance sheet for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax benefit ............................................... $ (15,766) $ (1,359) $ (4,689)
Net deferred tax liability acquired in acquisitions ................ -- 3,539 2,008
Deferred tax changes reported in shareholder's equity:
Increase (decrease) in liability related to unrealized
appreciation or depreciation of investment securities .... (306,140) 21,684 84,037
(Increase) decrease in liability related to deferred
policy acquisition costs valuation allowance ............. 15,709 (3,416) (5,708)
------------ ------------ ------------
Increase (decrease) in net deferred tax liability .................. $ (306,197) $ 20,448 $ 75,648
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
22
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
11. SEGMENT DATA
The Company's reportable business segments are strategic business units
that offer distinctive products marketed through independent agents in
various distribution channels.
The Company has five reportable segments: Individual, Retirement Services,
Settlement Annuities, Group and Corporate. Individual issues traditional,
term and universal life insurance policies. Retirement Services issues
fixed and variable deferred annuity products. Settlement Annuities issues
immediate annuities for structured pay out situations. Group issues excess
loss health insurance to companies that have self-insured medical plans.
The Corporate segment is used to retain profits from the four product lines
and pay dividends to the parent company, SAFECO Corporation.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Company management
evaluates performance based on operating profit or loss before income
taxes.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
-------- ----------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ................. $62,409 $ 536 $ -- $ 193,797 $ -- $ 256,742
Net Investment Income .... 113,830 410,908 486,561 1,845 71,222 1,084,366
Other Revenue ............ 3,808 32,348 29 -- -- 36,185
-------- ----------- ----------- ---------- --------- ---------
Total Revenue ......... 180,047 443,792 486,590 195,642 71,222 1,377,293
Expenses
Policy Benefits .......... 134,700 310,495 422,925 157,113 -- 1,025,233
Commissions .............. 10,237 24,255 11,764 29,149 150 75,555
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ........ 5,447 24,979 -- 4,407 -- 34,833
Write-off of Deferred Policy
Acquisition Costs ...... -- 12,993 -- -- -- 12,993
Deferral of Policy Acquisition
Costs ................. (25,698) (18,932) -- (8,368) -- (52,998)
Other Expenses ........... 47,378 37,452 9,640 32,849 2,333 129,652
-------- ----------- ----------- ---------- --------- ---------
Total Expenses and
Policy Benefits .... 172,064 391,242 444,329 215,150 2,483 1,225,268
-------- ----------- ----------- ---------- --------- ---------
Income (Loss) From
Insurance Operations ....... 7,983 52,550 42,261 (19,508) 68,739 152,025
Realized Investment Gain (Loss) 325 (1,031) (5,927) 295 1,655 (4,683)
-------- ----------- ----------- ---------- --------- ---------
Income (Loss) before Federal
Income Taxes ............... $ 8,308 $ 51,519 $ 36,334 $ (19,213) $ 70,394 $ 147,342
-------- ----------- ----------- ---------- --------- ---------
-------- ----------- ----------- ---------- --------- ---------
<CAPTION>
December 31, 1999
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ............ $ 1,946,604 $ 5,624,219 $ 5,879,843 $ 14,534 $ 873,904 $ 14,339,104
Assets Held in
Separate Accounts .......... 126,908 1,276,340 -- -- -- 1,403,248
Total Assets ................. 2,308,863 7,204,831 6,010,669 104,749 921,476 16,550,588
</TABLE>
23
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
---------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
----------- ----------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ..................... $ 50,563 $ 698 $ -- $ 203,149 $ -- $ 254,410
Net Investment Income ........ 69,267 411,661 449,313 2,695 72,525 1,005,461
Other Revenue ................ 3,509 24,483 77 -- -- 28,069
------------ ----------- ------------ ----------- ------------ -----------
Total Revenue ............. 123,339 436,842 449,390 205,844 72,525 1,287,940
Expenses
Policy Benefits .............. 84,004 349,834 399,130 161,113 -- 994,081
Commissions .................. 10,864 46,236 12,211 25,639 300 95,250
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ............ 8,438 30,576 -- 3,852 -- 42,866
Write-off of Deferred Policy
Acquisition Costs and
Other Write-offs ........... 11,500 32,300 -- -- 3,000 46,800
Deferral of Policy Acquisition
Costs ..................... (18,610) (42,788) -- (4,546) -- (65,944)
Other Expenses ............... 37,782 40,177 7,398 33,919 2,333 121,609
------------ ----------- ------------ ----------- ------------ -----------
Total Expenses and
Policy Benefits ........ 133,978 456,335 418,739 219,977 5,633 1,234,662
------------ ----------- ------------ ----------- ------------ -----------
Income (Loss) From
Insurance Operations ........... (10,639) (19,493) 30,651 (14,133) 66,892 53,278
Realized Investment Gain ......... 828 4,304 -- -- 8,480 13,612
------------ ----------- ------------ ----------- ------------ -----------
Income (Loss) before
Federal Income Taxes ........... $ (9,811) $ (15,189) $ 30,651 $ (14,133) $ 75,372 $ 66,890
------------ ----------- ------------ ----------- ------------ -----------
------------ ----------- ------------ ----------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ..................... $ 1,075,256 $ 5,761,722 $ 5,877,496 $ 39,918 $ 1,056,042 $ 13,810,434
Assets Held in
Separate Accounts ................... 98,715 1,102,420 -- -- -- 1,201,135
Total Assets .......................... 1,307,561 7,195,140 5,971,534 90,125 1,093,684 15,658,044
</TABLE>
24
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
Note 11 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums ..................... $ 46,873 $ -- $ -- $ 193,722 $ -- $ 240,595
Net Investment Income ........ 55,431 355,550 420,095 2,737 74,103 907,916
Other Revenue ................ 3,531 18,102 117 1 -- 21,751
---------- ----------- ---------- ------------ ------------- -------------
Total Revenue ............. 105,835 373,652 420,212 196,460 74,103 1,170,262
Expenses
Policy Benefits .............. 69,611 278,525 368,854 127,936 -- 844,926
Commissions .................. 9,979 38,337 20,060 24,855 450 93,681
Amortization of Deferred
Policy Acquisition Costs
and Present Value of
Future Profits ............ 6,615 26,613 -- 3,718 -- 36,946
Deferral of Policy Acquisition
Costs ..................... (15,275) (33,452) -- (4,341) -- (53,068)
Other Expenses ............... 32,494 36,677 5,803 31,985 -- 106,959
---------- ----------- ---------- ------------ ------------- -------------
Total Expenses and
Policy Benefits ........ 103,424 346,700 394,717 184,153 450 1,029,444
---------- ----------- ---------- ------------ ------------- -------------
Income From
Insurance Operations ........... 2,411 26,952 25,495 12,307 73,653 140,818
Realized Investment Gain (Loss) .. (472) 1,601 -- -- 5,678 6,807
---------- ----------- ---------- ------------ ------------- -------------
Income before Federal
Income Taxes ................... $ 1,939 $ 28,553 $ 25,495 $ 12,307 $ 79,331 $ 147,625
---------- ----------- ---------- ------------ ------------- -------------
---------- ----------- ---------- ------------ ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------
Retirement Settlement
Individual Services Annuities Group Corporate Total
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Total Investments ................. $ 903,487 $ 5,503,066 $ 5,516,799 $ 38,107 $ 935,967 $ 12,897,426
Assets Held in
Separate Accounts ............... 69,071 836,346 -- -- -- 905,417
Total Assets ...................... 1,110,541 6,833,146 5,610,901 83,293 984,576 14,622,457
</TABLE>
25
<PAGE>
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts in thousands, unless otherwise stated)
12. IMPACT OF YEAR 2000 (Unaudited)
The Companies believe that their program to address Year 2000 issues is
comprehensive and on schedule, and as of February 11, 2000, the Companies
have not experienced any material Year 2000 complications. The Companies,
like most other companies, have been concerned that some of their computer
programs have or had time sensitive logic that typically recognizes a date
using "00" as the year 1900 rather than the year 2000. The Companies are
highly dependent on automated systems and systems applications that use
computer programs to conduct ongoing operations. Such systems are used to
process claims, bill and collect premiums from customers, manage
investments and many other activities. If these systems were unable to
process data accurately because of Year 2000-related failures, these
activities would be interrupted and could have a material adverse effect on
the Companies' results of operations.
The Companies completed various assessments of Year 2000 issues in
connection with their computer systems and the technology embedded in the
equipment they use, prior to December 31, 1999. The Companies began
modifying and replacing portions of their systems in 1995 so that the
system modified or replaced would be suitable for use before, during and
after the year 2000 with no significant operational problems related to its
ability to process dates correctly ("Year 2000 ready"). In addition, the
Companies engaged in a regular program of testing and running the systems
once Year 2000 programming changes were made. This testing included trials
at the Companies' hot site, a location provided and maintained by a third
party separate from any of the Companies' facilities.
The total Year 2000 readiness cost for the Companies approximated $18
million, and as of February 11, 2000, the Companies had incurred all of
this amount. These amounts have included both modification costs, which
were expensed as incurred, and certain replacement systems costs, some of
which were capitalized and amortized. All of the Companies' existing
systems were internally verified as being Year 2000 ready as of December
31, 1999, and the program of testing and running the systems after Year
2000 programming changes have been made has been completed.
The Companies have worked with their third-party partners and vendors,
e.g., their independent insurance agents, local and long distance telephone
companies, banks and securities trading firms, to assure that they were on
schedule to detect and fix any Year 2000 problems which might affect the
Companies' systems or business processes. The Companies have assessed and
attempted to mitigate risks with respect to the failure of any mission
critical third-party partners and vendors to be Year 2000 ready. Where
applicable, this effort included physically testing their common
interfaces. Failure of such parties to be Year 2000 ready could have a
material adverse effect on the Companies' results of operations. As of
February 11, 2000, the Companies are not aware of any of their third party
partners or vendors experiencing any Year 2000 problems that would
materially impact the Companies' systems or business processes.
26
<PAGE>
SAFECO RESOURCE VARIABLE ACCOUNT B
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS The following audited financial statements of SAFECO
Resource Variable Account B and of SAFECO Life Insurance Company are
included in the Statement of Additional Information of this Registration
Statement:
REGISTRANT:
Statement of Assets and Liabilities as of December 31, 1999.
Statements of Operations and Changes in Net Assets for the Year or
Period Ended December 31, 1999 and December 31, 1998.
Notes to Financial Statements.
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES:
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Statements of Consolidated Income for the years ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Changes in Shareholder's Equity for the years
ended December 31, 1999, 1998 and 1997.
Statements of Consolidated Comprehensive Income (Loss) for the years
ended December 31, 1999, 1998 and 1997.
Statements of Consolidated Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
b. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Document
- -------------- -----------------------
<S> <C>
1. Resolution of Board of Directors of SAFECO
authorizing the establishment of the Separate
Account. 1/
2. Not Applicable.
3. (i) Form of Principal Underwriter's Agreement. 2/
(ii) Selling Agreement. 3/
4. (i) Individual Single Purchase Payment Deferred
Variable Annuity Contract.
5. Application for Annuity Contract. 3/
6. (i) Copy of Articles of Incorporation of SAFECO. 1/
(ii) Copy of the Bylaws of SAFECO. 1/
7. Not Applicable.
8.a.(i) Fund Participation Agreement (Scudder). 3/
(ii) Reimbursement Agreement (Scudder). 3/
(iii) Participating Contract and Policy Agreement (Scudder). 3/
<PAGE>
(iv) Services Agreement (Scudder). 7/
8.b. Participation Agreement by and among SAFECO Life Insurance
Company, Federated Insurance Series, on behalf of the
Federated High Income Bond Fund II, Federated Securities
Corp. and Federated Advisers. 4/
8.c. Participation Agreement by and among SAFECO Life Insurance
Company, Federated Insurance Series, on
behalf of the Federated Utility Fund II, Federated Securities
Corp. and Federated Advisers. 4/
8.d. Participation Agreement by and among SAFECO Life Insurance
Company, Federated Insurance Series, on
behalf of the Federated International Equity Fund II, Federated
Securities Corp. and Federated Advisers. 4/
8.e. Participation Agreement by and among SAFECO Life Insurance
Company, Lexington Natural Resources Trust, and Lexington Management
Corporation. 4/
8.f. Participation Agreement by and among SAFECO Life Insurance
Company, Lexington Emerging Markets Fund, Inc., and Lexington
Management Corporation. 4/
8.g. Participation Agreement by and among SAFECO Life Insurance
Company, TCI Portfolios, Inc. and/or Adviser for TCI Balanced Fund and
TCI International Fund. (TCI has since changed its name to American Century). 6/
8.h. Form of Participation Agreement (Fidelity). 8/
8. i. Participation Agreement by and among INVESCO Variable Investment Funds, Inc.,
INVESCO Funds Group, Inc. and SAFECO Life Insurance Company. 7/
8.j. Form of Participation Agreement (AIM). 9/
8.k. Form of Participation Agreement (Dreyfus). 9/
8.l. Form of Participation Agreement (Franklin). 9/
8.m. Form of Participation Agreement (J.P. Morgan). 9/
9. Opinion and Consent of Counsel. 10/
10. Consent of Independent Auditors.
11. Not Applicable.
12. Agreement Governing Contribution. 5/
13. Calculation of Performance Information. 4/
14. Power of Attorney. 9/
15. Representation of Counsel.
<PAGE>
1/ Incorporated by reference to Registration Statement of
SAFECO Separate Account C filed with the SEC on June 16,
1995 (File No. 33-60331).
2/ Incorporated by reference to Registrant's Post-Effective
Amendment filed with the SEC on December 29, 1995.
3/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on December
29, 1995 (File No. 33-69712).
4/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on April 29,
1996 (File No. 33-69712).
5/ Incorporated by reference to Post-Effective Amendment of
SAFECO Resource Variable Account B filed with the SEC on
April 29, 1996 (File No. 33-06546 ).
6/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on April 29,
1996 (File No. 33-60331).
7/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on May 1,
1998 (File No. 33-69712).
8/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account SL filed with the SEC on April 30,
1997 (File No. 33-10248).
9/ Incorporated by reference to Post-Effective Amendment of
SAFECO Separate Account C filed with the SEC on or about
April 28, 2000 (File No. 33-69712).
10/ Incorporated by reference to Registrant's Post-Effective
Amendment filed with the SEC on April 30, 1999.
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Set forth below is a list of each director and officer of SAFECO Life Insurance
Company ("SAFECO") who is engaged in activities relating to SAFECO Resource
Variable Account B or the variable annuity contracts offered through SAFECO
Resource Variable Account B. Unless otherwise indicated the principal business
address of all officers or directors listed is 5069 154th Place N.E., Redmond,
Washington 98052.
<TABLE>
<CAPTION>
Name Position with SAFECO
- ---- --------------------
<S> <C>
*Roger H. Eigsti Director, Chairman of the Board
Randall H. Talbot Director, President
*Boh A. Dickey Director
Roger F. Harbin Executive Vice President, Actuary
*Rod A. Pierson Director, Senior Vice President, Secretary
*Donald S. Chapman Director
*James W. Ruddy Director
**Dale E. Lauer Director
*W. Randall Stoddard Director
Leslie J. Brandli Controller, Assistant Secretary
Michael J. Kinzer Vice President, Chief Actuary
***Ronald L. Spaulding Director, Vice President, Treasurer
Jean Liebmann Actuary
<PAGE>
George C. Pagos Associate General Counsel, Vice President, Assistant
Secretary
</TABLE>
* The principal business address of these officers and directors is SAFECO
Plaza, Seattle, WA 98185.
** The principal business address of Dale E. Lauer is 500 N. Meridian Street,
Indianapolis, IN 46204.
*** The principal business address of Ronald L. Spaulding is 601 Union Street,
Suite 2500, Seattle, WA 98101-4074.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
SAFECO Life Insurance Company ("SAFECO") established SAFECO Resource Variable
Account B ("Registrant") by resolution of its Board of Directors pursuant to
Washington law. SAFECO is a wholly-owned subsidiary of SAFECO Corporation, which
is a publicly-owned company. Both companies were organized under Washington law.
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, SAFECO Insurance Company of Illinois, an Illinois corporation,
SAFECO U.K. Limited, a corporation organized under the laws of the United
Kingdom, and American States Insurance Company, American Economy Insurance
Company, and American States Preferred Insurance Company, each an Indiana
corporation. General Insurance Company of America owns 100% of SAFECO Insurance
Company of Pennsylvania, a Pennsylvania corporation. SAFECO Insurance Company of
America owns 100% of SAFECO Surplus Lines Insurance Company, a Washington
corporation, and SAFECO Management Company, a New York Corporation. SAFECO Life
Insurance Company owns 100% of SAFECO National Life Insurance Company, a
Washington corporation, First SAFECO National Life Insurance Company of New
York, a New York corporation, American States Life Insurance Company, an Indiana
corporation, and D.W. Van Dyke & Co., Inc., a Delaware corporation. SAFECO Life
Insurance Company owns 15% of Medical Risk Managers, Inc., a Delaware
corporation. SAFECO Insurance Company of Illinois owns 100% of Insurance Company
of Illinois, an Illinois corporation. American Economy Insurance Company owns
100% of American States Insurance Company of Texas, a Texas corporation. SAFECO
Administrative Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin,
Inc. and Wisconsin Pension and Group Services, Inc., each a Wisconsin
corporation. General America Corporation owns 100% of SAFECO Investment
Services, Inc., F.B. Beattie & Co., Inc., and Talbot Financial Corporation, each
a Washington corporation, General America Corp. of Texas, a Texas corporation,
SAFECO Select Insurance Services, Inc., a California corporation and R.F. Bailey
Holdings Limited, a U.K. corporation. F.B. Beattie & Co., Inc. owns 100% of F.B.
Beattie Insurance Services, Inc., a California corporation. General America
Corp. of Texas is Attorney-in-fact for SAFECO Lloyds Insurance Company and
American States Lloyds Insurance Company, both Texas corporations. R.F. Bailey
Holdings Limited owns 100% of R.F. Bailey (Underwriting Agencies) Limited, a
U.K. corporation. Talbot Financial Corporation owns 100% of Talbot Agency, Inc.,
a New Mexico corporation. SAFECO Properties Inc. owns 100% of the following
corporations: SAFECARE Company, Inc. and Winmar Company, Inc. SAFECARE Company,
Inc. owns 100% of the following, each a Washington corporation: S.C. Bellevue,
Inc., S.C. Marysville, Inc. Winmar Company, Inc. owns 100% of the following:
Winmar Metro, Inc., Winmar Redmond, Inc. and Winmar of Kitsap, Inc., each a
Washington corporation, and Capitol Court Corp., a Wisconsin corporation, SCIT,
Inc., a Massachusetts corporation, Winmar Oregon, Inc., an Oregon corporation,
Winmar of Texas, Inc., a Texas corporation, and Winmar of the Desert, Inc., a
California corporation. Winmar Oregon, Inc. owns 100% of the following, each an
Oregon corporation: North Coast Management, Inc., Pacific Surfside Corp., Winmar
of Jantzen Beach, Inc. and W-P Development, Inc.
<PAGE>
No person is directly or indirectly controlled by Registrant.
All subsidiaries are included in consolidated financial statements. In addition
SAFECO Life Insurance Company files a separate financial statement in connection
with its issuance of products associated with its registration statement.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 2000, there were 2,515 Contract Owners and 10,318
Certificate-Holders of the Registrant.
ITEM 28. INDEMNIFICATION
Under its Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as is provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. In addition, the
Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful defense
of any such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Contracts issued by the Separate
Account, SAFECO will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in said Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
a. SAFECO Securities, Inc., the principal underwriter for the Contracts,
also acts as the principal underwriter for SAFECO's Individual Flexible
Premium Variable Life Insurance Policies and Group Variable Annuity
Contracts.
<PAGE>
b. The following information is provided for each principal officer and
director of the principal underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
---------------- --------------------
*Rod A. Pierson Director
**Ronald Spaulding Director
***David F. Hill Director, President and Secretary
***Neal A. Fuller Vice President, Controller, Treasurer,
Financial Principal and
Assistant Secretary
* The principal business address for Rod A. Pierson is SAFECO Plaza, Seattle,
WA 98185.
** The principal business address for Ronald Spaulding is 601 Union Street,
Suite 2500, Seattle, WA 98101-4074.
*** The principal business address for David F. Hill and Neal A. Fuller is
10865 Willows Road NE, Redmond, WA 98052.
c. During the fiscal year ended December 31, 1999, SAFECO Investment
Services, Inc., through SAFECO Securities, Inc., received $2,351,348 in
commissions for the distribution of certain annuity contracts sold in
connection with Registrant of which no payments were retained. SAFECO
Investment Services, Inc. did not receive any other compensation in
connection with the sale of Registrant's contracts.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
SAFECO Life Insurance Company at 5069 154th Place N.E., Redmond, Washington
98052 and/or SAFECO Asset Management Company at 10865 Willows Road N.E., E-2,
Redmond, Washington 98052, maintain physical possession of the accounts, books
or documents of the Separate Account required to be maintained by Section 31(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
1. Registrant hereby represents that it is relying upon a No-Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been
complied with:
a. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
b. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
c. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
d. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2) other
investment alternatives
<PAGE>
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value;
e. Pursuant to Section 26(e) of the Investment Company Act of 1940,
Depositor represents that the fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed
by the insurance company.
2. In connection with the offer of Registrant's Contracts to Participants in
the Texas Optional Retirement Program, Registrant represents it is relying
upon Rule 6c-7 under the Investment Company Act of 1940 and that
subparagraphs (a)-(d) of Rule 6c-7 have been complied with as of the
effective date of Registrant's Post-Effective Amendment No. 8.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Seattle, and
State of Washington on this 14th day of April, 2000.
SAFECO Resource Variable Account B
----------------------------------
Registrant
By: SAFECO Life Insurance Company
-----------------------------
By: /S/ RANDALL H. TALBOT
---------------------
Randall H. Talbot, President
SAFECO Life Insurance Company
-----------------------------
Depositor
By: /S/ RANDALL H. TALBOT
---------------------
Randall H. Talbot, President
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
Name Title Date
---- ----- ----
DONALD S. CHAPMAN* Director
- --------------------
Donald S. Chapman
/S/ BOH A. DICKEY Director
- ------------------
Boh A. Dickey
R. H. EIGSTI* Director and Chairman
- --------------
R. H. Eigsti
LESLIE J. BRANDLI* Controller and
- --------------------
Leslie J. Brandli Assistant Secretary (Principal
Accounting Officer)
<PAGE>
RONALD SPAULDING* Director, Vice
- -------------------- President and Treasurer
Ronald Spaulding
ROD A. PIERSON* Director, Senior Vice
- -------------------- President and Secretary
Rod Pierson
JAMES W. RUDDY* Director
- --------------------
James W. Ruddy
W. RANDALL STODDARD* Director
- --------------------
W. Randall Stoddard
DALE E. LAUER* Director
- --------------------
Dale E. Lauer
/S/RANDALL H. TALBOT Director and President (Principal
- -------------------- Executive Officer)
Randall H. Talbot
*By:/S/ BOH A. DICKEY
-----------------
Boh A. Dickey
Attorney-in-Fact
*By:/S/ RANDALL H. TALBOT
---------------------
Randall H. Talbot
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
99.4.(i) Individual Single Purchase Payment Deferred
Variable Annuity Contract.
99.10 Consent of Independent Auditors.
99.15 Representation of Counsel.
</TABLE>
<PAGE>
EXHIBIT 99.4.(i)
===============================================================================
SAFECO Life Insurance Company
5069 154th Place NE
Redmond, Washington 98052-9669
===============================================================================
This is a legal Contract between the Owner (referred to in this Contract as
"you" and "your") and SAFECO Life Insurance Company (referred to in this
Contract as "SAFECO Life", "our", "us", and "we"). SAFECO Life is a stock
company with its Home Office in Redmond, Washington.
This Contract is issued in consideration of the application and payment of the
initial Purchase Payment. SAFECO Life will make annuity payments to the payee
(you or someone you choose), beginning on the Annuity Date, or pay a death
benefit to your Beneficiary(ies), subject to the terms of this Contract. SAFECO
Life has executed and attested this Contract as of the contract date at our Home
Office in Redmond, Washington.
IF YOU HAVE QUESTIONS, COMMENTS, OR COMPLAINTS, PLEASE CONTACT SAFECO LIFE AT
1-877-4SAFECO (472-3326).
READ YOUR CONTRACT CAREFULLY
RIGHT TO EXAMINE THE CONTRACT: If for any reason you are not satisfied with this
Contract, you may return it within 10 days from the date you received it to
SAFECO Life or to the registered representative who sold you this Contract. When
we receive this Contract, we will refund your contract value, your Purchase
Payments, or the greater of the two, depending on your state's requirements. In
states where we are required to return Purchase Payments, we reserve the right
to allocate all Purchase Payments designated for the various Portfolios to the
SAFECO RST Money Market Portfolio until the Contract is 15 days old.
Signed for SAFECO Life Insurance Company by:
/s/ R. A. Pierson /s/ Randall H. Talbot
R. A. Pierson Randall H. Talbot
Sr. Vice President and Secretary President
INDIVIDUAL MODIFIED SINGLE PREMIUM DEFERRED VARIABLE ANNUITY
NON-PARTICIPATING
THIS IS A VARIABLE ANNUITY CONTRACT. WHEN YOUR CONTRACT VALUE AND ANNUITY
PAYMENTS ARE BASED ON THE INVESTMENT EXPERIENCE OF THE PORTFOLIOS, THE DOLLAR
AMOUNTS ARE NOT GUARANTEED AND WILL INCREASE OR DECREASE.
LPC-1181 4/00 -Registered Trademark-Registered Trademark of
SAFECO Corporation
<PAGE>
CONTRACT DATA PAGE
PRODUCT: SPINNAKER-Registered Trademark-
PLUS - [NON-QUALIFIED ANNUITY]
OWNER: JOHN DOE
1234 MAIN ST.
ANY CITY, WA 99999-9999
ANNUITANT: JOHN DOE
CONTRACT NUMBER: LP12345678
CONTRACT DATE: 1/01/2000
ANNUITANT'S AGE ON CONTRACT DATE: 35
ANNUITY DATE 5/20/2035
DELIVERED IN THE STATE OF WASHINGTON AND GOVERNED BY ITS LAWS.
MAXIMUM ISSUE AGE: 85
MAXIMUM ANNUITIZATION AGE: 90 (annuity payments must begin prior to the
Annuitant's 91st birthday)
MINIMUM INITIAL PURCHASE PAYMENT: $50,000
MINIMUM SUBSEQUENT PURCHASE PAYMENT: $250. Subsequent Purchase Payments are
only accepted within 6 months of the contract date.
GUARANTEED MINIMUM ANNUAL EFFECTIVE INTEREST RATE ON FIXED ACCOUNT: 3.00%
ADDITIONAL INTEREST ON FIXED ACCOUNT IN FIRST CONTRACT YEAR:
<TABLE>
<CAPTION>
TOTAL PURCHASE PAYMENTS ADDITIONAL INTEREST
<S> <C>
$50,000 - $99,999 1.20%
$100,000 and above 1.35%
</TABLE>
MINIMUM WITHDRAWAL: $250, or the contract value if less.
MORTALITY AND EXPENSE RISK CHARGE: Equal on an annual basis to 1.25% of the
average daily net asset value of each Portfolio.
CONTINGENT DEFERRED SALES CHARGE:
<TABLE>
<CAPTION>
CONTRACT YEAR CHARGE
<S> <C>
1 8% of amount withdrawn
2 7% of amount withdrawn
3 6% of amount withdrawn
4 5% of amount withdrawn
5 4% of amount withdrawn
6 3% of amount withdrawn
7 2% of amount withdrawn
8 1% of amount withdrawn
After 8 0% of amount withdrawn
</TABLE>
Total Contingent Deferred Sales Charges will not exceed 8.5% of the Purchase
Payments made under this Contract
LPC-1186/EF 4/00 Page 1 of 2
<PAGE>
CONTRACT DATA PAGE
PRODUCT: SPINNAKER-Registered Trademark- PLUS - [NON-QUALIFIED ANNUITY]
WITHDRAWAL CHARGE: $25 or 2% of the amount withdrawn, whichever is less, for
each withdrawal after the first withdrawal in a Contract Year.
TRANSFER CHARGE: $10 or 2% of amount transferred, whichever is less, for
each transfer after the 12th transfer in a Contract Year.
PREMIUM TAXES: Are not charged in your state.
<TABLE>
<CAPTION>
ELIGIBLE INVESTMENTS:
<S> <C>
1. SAFECO RST Money Market Portfolio 15. Dreyfus IP Technology Growth Portfolio
2. SAFECO RST Bond Portfolio 16. Dreyfus Socially Responsible Growth Fund, Inc.
3. Franklin U.S. Government Fund - Class 2 17. Franklin Small Cap Fund - Class 2
4. Dreyfus VIF Quality Bond Portfolio 18. AIM V.I. Growth Fund
5. Federated High Income Bond Fund II 19. AIM V.I. Aggressive Growth Fund
6. Federated Utility Fund II 20. INVESCO VIF-Real Estate Opportunity Fund
7. Scudder VLIF Balanced Portfolio 21. Scudder VLIF International Portfolio
8. American Century VP Balanced 22. American Century VP International
9. J.P. Morgan U.S. Disciplined Equity Portfolio 23. Templeton Developing Markets Securities Fund - Class 2
10. Fidelity VIP III Growth Opportunities Portfolio 24. SAFECO RST Equity Portfolio
11. Fidelity VIP III Growth & Income Portfolio 25. SAFECO RST Northwest Portfolio
12. Fidelity VIP Growth Portfolio 26. SAFECO RST Growth Opportunities Portfolio
13. Dreyfus VIF Appreciation Portfolio 27. SAFECO RST Small Company Value Portfolio
14. Dreyfus IP MidCap Stock Portfolio 28. SAFECO Fixed Account
</TABLE>
SEPARATE ACCOUNT: SAFECO Resource Variable Account B
ANNUITY SERVICE OFFICE:
HOME OFFICE: MAILING ADDRESS:
SAFECO Life Insurance Company SAFECO Life Insurance Company
Retirement Services Retirement Services
5069 154th Place NE P.O. Box 34690
Redmond, WA 98052-9669 Seattle, WA 98124-1690
Telephone: 877-472-3326
Fax: 425-867-8793
- -Registered Trademark- Spinnaker is a registered trademark of SAFECO Life
Insurance Company
LPC-1186/EF 4/00 Page 2 of 2
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
TABLE OF CONTENTS
===============================================================================
<S> <C>
CONTRACT DATA PAGE.......................................................Insert
DEFINITIONS
Accumulation Phase......................................................1
Accumulation Unit.......................................................1
Annuitant...............................................................1
Annuity Date............................................................1
Annuity Purchase Date...................................................1
Annuity Unit............................................................1
Beneficiary.............................................................1
Contract................................................................1
Contract Year...........................................................1
Fixed Account...........................................................1
General Account.........................................................1
Income Phase............................................................1
IRC.....................................................................1
Owner...................................................................1
Portfolios..............................................................1
Purchase Payment........................................................1
Separate Account........................................................1
THE ANNUITY CONTRACT
ABOUT THE CONTRACT......................................................2
OWNER...................................................................2
ANNUITANT...............................................................2
BENEFICIARY.............................................................2
Change of Beneficiary...............................................2
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS.......................................................3
ALLOCATION OF PURCHASE PAYMENTS.........................................3
ACCUMULATION UNITS......................................................3
INVESTMENT OPTIONS
VARIABLE INVESTMENT OPTIONS.............................................4
Substitution of Shares..............................................4
FIXED ACCOUNT...........................................................4
Interest Crediting..................................................4
Interest Compounding................................................4
CONTRACT VALUE..........................................................5
TRANSFERS...............................................................5
CHARGES
INSURANCE CHARGE........................................................5
CONTINGENT DEFERRED SALES CHARGE........................................5
WITHDRAWAL CHARGE.......................................................6
TRANSFER CHARGE.........................................................6
PREMIUM TAXES...........................................................6
INCOME OR OTHER TAXES...................................................6
-i-
<PAGE>
WITHDRAWAL PROVISIONS
WITHDRAWALS.............................................................7
Free Withdrawal Amount..............................................7
Repetitive Withdrawals..............................................7
ANNUITY PAYMENT PROVISIONS
ANNUITY PAYMENTS........................................................7
Life Annuity........................................................8
Life Annuity with Guaranteed Period.................................8
Joint and Survivor Life Annuity.....................................8
Payments Based on a Number of Years.................................8
Automatic Option....................................................8
CALCULATION OF ANNUITY PAYMENTS.........................................8
Fixed Annuity Payments..............................................8
Variable Annuity Payments...........................................9
Changing Portfolio Elections after the Annuity Purchase Date.......10
DEATH BENEFIT PROVISIONS
DEATH OF ANNUITANT Prior to the Annuity Purchase Date..................10
DEATH OF OWNER Prior to the Annuity Purchase Date......................10
Calculation of Death Benefit.......................................10
Payment of Death Benefit...........................................11
DEATH OF ANNUITANT On or After the Annuity Purchase Date...............12
GENERAL PROVISIONS
ACCOUNT STATEMENTS.....................................................12
ASSIGNMENT OF BENEFITS.................................................12
COMMUNICATIONS.........................................................12
ESSENTIAL DATA.........................................................12
EVIDENCE OF SURVIVAL...................................................12
MISSTATEMENT OF AGE OR SEX.............................................12
NONPARTICIPATION.......................................................12
SEPARATE ACCOUNT.......................................................13
STATE REQUIRED BENEFITS................................................13
SUSPENSION OF ANNUITY PAYMENTS, WITHDRAWALS, OR TRANSFERS..............13
TERMINATION OF CONTRACT................................................13
THE CONTRACT...........................................................13
VOTING RIGHTS..........................................................13
ANNUITY PURCHASE RATE TABLES
VARIABLE ANNUITY PURCHASE RATE TABLE...................................14
FIXED ANNUITY PURCHASE RATE TABLE......................................15
</TABLE>
-ii-
<PAGE>
===============================================================================
DEFINITIONS
===============================================================================
ACCUMULATION PHASE The period between the date we allocate your
first Purchase Payment and the Annuity
Purchase Date.
ACCUMULATION UNIT A measurement used to calculate the
value of a Portfolio during the Accumulation
Phase and variable annuity payments made
under the Payments Based on a Number of
Years annuity option.
ANNUITANT The natural person(s) on whose life/lives
annuity payments are based. You are the
Annuitant unless you designate someone else
before the Annuity Purchase Date.
ANNUITY DATE The date annuity payments begin under an
annuity option.
ANNUITY PURCHASE DATE The date that your contract value is applied
to purchase annuity payments.
ANNUITY UNIT A measurement used to calculate
variable annuity payments during the Income
Phase, except for the Payments Based on a
Number of Years annuity option.
BENEFICIARY The person(s) entitled to receive any
benefits upon the death of the Owner or, if
applicable, the Annuitant.
CONTRACT This Modified Single Premium Deferred
Variable Annuity.
CONTRACT YEAR A 12-month period starting on the
contract date shown on your contract data
page and each anniversary of that date.
FIXED ACCOUNT An investment option of this
Contract that provides for guaranteed
interest. Purchase Payments allocated to the
Fixed Account become part of SAFECO Life's
General Account.
GENERAL ACCOUNT The assets of SAFECO Life other than those
attributable to Separate Accounts.
INCOME PHASE The period beginning on the Annuity
Purchase Date during which the payee
receives annuity payments.
IRC The Internal Revenue Code of 1986, as
amended.
OWNER The person(s) or entity(ies) named on the
contract application, unless changed. The
Owner has all ownership rights under this
Contract.
PORTFOLIOS The variable investment options available
under the Contract.
PURCHASE PAYMENT An amount paid to SAFECO Life for
allocation under this Contract, less any
premium tax due at the time this payment is
made.
SEPARATE ACCOUNT A segregated asset account established under
Washington law and shown on the contract
data page.
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===============================================================================
THE ANNUITY CONTRACT
===============================================================================
ABOUT THE CONTRACT This Contract is an agreement between SAFECO
Life and you, the Owner, where we promise to
pay the payee (you or someone you choose) an
income in the form of annuity payments,
beginning on the date you select, or a death
benefit to your Beneficiary(ies). When you
are investing money, your Contract is in the
Accumulation Phase. Once your contract value
is applied to purchase annuity payments,
your Contract switches to the Income Phase.
You purchased this Contract with the initial
Purchase Payment you paid, and the Contract
became effective on the contract date, shown
on your contract data page.
The Contract is called a variable annuity
because you can allocate Purchase Payments
among variable investment Portfolios
available within the Separate Account or to
the Fixed Account. The investment
performance of the Portfolio(s) you select
may be positive or negative and affects the
value of your Contract and the amount of any
variable annuity payments. Purchase Payments
allocated to the Fixed Account are credited
with guaranteed interest.
OWNER The Owner is shown on the contract
application, unless changed. On the contract
date, the Owner must not have been older
than the maximum issue age shown on the
contract data page. The Owner may exercise
all ownership rights under this Contract.
If this Contract is owned by joint Owners,
they must jointly exercise their ownership
rights, unless we are directed otherwise by
both joint Owners in writing. On the
contract date, each joint Owner must not
have been older than the maximum issue age
shown on the contract data page.
ANNUITANT The Annuitant is/are the person(s) on whose
life/lives annuity payments are based. You
are the Annuitant unless you designate
someone else before the Annuity Purchase
Date. If you designate someone else as
Annuitant, that person must not be older
than the maximum annuitization age shown on
the contract data page when annuity payments
begin.
Owners who are not treated as individuals
under IRC Section 72 (for example,
corporations or certain trusts) may not
change the Annuitant.
BENEFICIARY The Beneficiary receives any benefit payable
after you die or, if applicable, after the
Annuitant(s) dies. You initially name your
Beneficiaries on the contract application.
CHANGE OF BENEFICIARY You may change your Beneficiary designation
at any time by sending us a signed and dated
request. However, if a Beneficiary
designation is irrevocable, that Beneficiary
must consent in writing to any change. A new
Beneficiary designation revokes any prior
designation and is not effective until we
record the change. We are not responsible
for the validity of any Beneficiary
designation nor for any actions we may take
prior to receiving and recording a
Beneficiary change.
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===============================================================================
PURCHASE PAYMENT PROVISIONS
===============================================================================
PURCHASE PAYMENTS You may be able to make additional
Purchase Payments within six months of the
contract date, subject to your state's
requirements. The minimum dollar amounts are
shown on the contract data page.
Purchase Payments must be in lawful currency
of the United States and submitted to our
Home Office at 5069 154th Place NE, Redmond,
WA 98052-9669, or P.O. Box 34690, Seattle,
WA 98124-1690, or in a manner agreed to by
SAFECO Life.
We reserve the right to refuse any Purchase
Payment. If we do not accept a Purchase
Payment, we will return it within five days.
ALLOCATION OF PURCHASE PAYMENTS Your initial Purchase Payment will be
allocated according to your instructions on
your contract application. Unless you tell
us otherwise, subsequent Purchase Payments
will be allocated in the same proportion as
your most recent Purchase Payment (unless
that was a Purchase Payment you directed us
to allocate on a one-time-only basis).
Once we receive your Purchase Payment, the
portion to be allocated to the Fixed Account
is credited as of the day it is received.
The portion to be allocated to the
Portfolios is effective and valued as of the
next close of the New York Stock Exchange
(NYSE). If for any reason the NYSE is closed
when we receive your Purchase Payment, it
will be valued as of the close of the NYSE
on its next regular business day.
When we are required to guarantee a return
of Purchase Payments during the Right to
Examine period, we reserve the right to
initially apply amounts designated for the
Portfolios to the SAFECO RST Money Market
Portfolio until the Contract is 15 days old.
These amounts will then be allocated in the
manner you selected, unless you have
canceled the Contract.
ACCUMULATION When you make Purchase Payments or transfers
UNITS into a Portfolio, we credit your Contract
with Accumulation Units. Conversely, when
you request a withdrawal or a transfer of
money from a Portfolio, Accumulation Units
are liquidated. In either case, the increase
or decrease in the number of your
Accumulation Units is determined by taking
the dollar amount of the Purchase Payment,
transfer, or withdrawal and dividing it by
the value of an Accumulation Unit on the
date the transaction occurs.
We calculate the value of an Accumulation
Unit for each Portfolio after the NYSE
closes each day by:
- determining the total value of the
particular Portfolio;
- subtracting from that amount the
mortality and expense risk charge and any
taxes SAFECO Life may incur on earnings
attributable to your Contract; and
- dividing this amount by the number of
outstanding Accumulation Units of the
particular Portfolio.
The value of an Accumulation Unit may go up
or down from day to day.
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===============================================================================
INVESTMENT OPTIONS
===============================================================================
VARIABLE INVESTMENT OPTIONS You may allocate money to the Portfolios
shown on the contract data page. We reserve
the right to add, combine, restrict, or
remove any Portfolio as an investment option
of this Contract. Portfolios have different
investment objectives. Investment
performance of a Portfolio may be positive
or negative.
SUBSTITUTION OF SHARES If any shares of the Portfolios are no
longer available, or if in our view no
longer meet the purpose of the Contract, it
may be necessary to substitute shares of
another Portfolio. We will seek prior
approval of the Securities and Exchange
Commission (SEC) and give you notice before
doing this.
FIXED ACCOUNT The Fixed Account is part of SAFECO
Life's General Account and provides for
guaranteed interest as follows.
INTEREST CREDITING We establish the annual effective
interest rates that apply to Purchase
Payments allocated to the Fixed Account. The
annual effective interest rate will be at
least 3.00%.
Each Purchase Payment allocated to the Fixed
Account will be credited with the interest
rate established for the date that we
receive the Purchase Payment. This rate will
apply to the Purchase Payment for an initial
period of at least 12 months from the date
we receive it.
We can adjust the interest rate after the
completion of that initial period. The
adjusted rate will apply to that Purchase
Payment and its credited interest for at
least 12 months, when the rate can again be
adjusted. From then on, we cannot adjust the
interest rate more often than every 12
months.
In the first Contract Year, additional
interest will be credited to Purchase
Payments allocated to the Fixed Account, as
shown on the contract data page.
Different interest rates may apply to each
of your Purchase Payments depending on the
interest rate established for the date that
we received the Purchase Payment and any
subsequent rate adjustments.
For the purpose of crediting interest, when
you take a withdrawal from the Fixed
Account, the Purchase Payment you last paid,
and the interest credited to it, is
considered to be withdrawn first.
When you stop making Purchase Payments to
the Fixed Account, we will continue to
credit your balance in the Fixed Account
with the applicable interest rate(s).
INTEREST COMPOUNDING SAFECO Life credits interest daily on each
Purchase Payment allocated to the Fixed
Account from the date we receive your
payment up to, but not including, the date
you withdraw the funds from the Fixed
Account.
Annual effective interest rates show the
effect of daily compounding of interest over
a 12-month period.
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CONTRACT VALUE Your contract value is the sum of the values
in the Portfolios and the Fixed Account
attributable to your Contract. We calculate
this by:
- adding all the Purchase Payments you
invested;
- subtracting the charges which have been
deducted;
- subtracting the withdrawals you have
made;
- adjusting for each Portfolio's gain or
loss;
- adding the interest we credit while any
of your contract value is in the Fixed
Account; and
- subtracting the amounts withdrawn for an
annuity option.
TRANSFERS During the Accumulation Phase, you can
transfer money among the Portfolios and the
Fixed Account. In each Contract Year you can
make 12 transfers free of charge. Each
additional transfer in a Contract Year may
have a transfer charge, as shown on the
contract data page.
The minimum amount you can transfer out of
any investment option at one time is $500,
or the entire value of the investment option
if less. In addition to this minimum,
transfers out of the Fixed Account are
limited to a maximum of 10% of the Fixed
Account value per Contract Year. You must
transfer the entire amount out of an
investment option if, after a transfer, the
remaining balance would be less than $500.
The minimum amount you can transfer into any
investment option is $50.
We reserve the right to modify, suspend, or
terminate transfer privileges at any time.
===============================================================================
CHARGES
===============================================================================
The following charges apply to your Contract:
INSURANCE CHARGE Each day we make a deduction for the
mortality and expense risk charge. We do
this as part of our calculation of the value
of Accumulation Units and Annuity Units.
This charge is equal, on an annual basis, to
a percentage of the average daily net asset
value of each Portfolio. The percentage is
shown on the contract data page.
CONTINGENT DEFERRED SALES CHARGE A contingent deferred sales charge may be
assessed on withdrawals from your Contract.
The charge is a percentage of the amount
withdrawn and is shown on the contract data
page. This charge and the withdrawal charge,
if applicable, will be added to the
requested withdrawal amount, and the total
amount will be withdrawn from the specified
investment options.
You can withdraw 10% of your contract value
each Contract Year without a contingent
deferred sales charge. The determination of
whether more than 10% of the contract value
has been withdrawn is made at the time of
withdrawal. If you take more than one
withdrawal in a Contract Year, the previous
withdrawals in the Contract Year are added
to the current contract value to determine
whether more than 10% of the contract value
has been withdrawn in that Contract Year.
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In addition, contingent deferred sales
charges will not be assessed on the
following:
- repetitive withdrawals, if the
withdrawals are equal or substantially
equal and are expected to deplete the
contract value over your life expectancy
or the joint life expectancy of you
and your Beneficiary;
- annuity payments;
- withdrawals taken on account of your
death; and
- withdrawals taken after you have been
confined to a hospital or nursing home
for 60 consecutive days if:
- the confinement begins after the
contract date; and
- the withdrawal is taken:
- during confinement; or
- within 60 days after confinement
ends.
We may require proof of confinement.
Hospital may be defined in one of two ways.
It may mean a lawfully operated institution
that is licensed as a hospital by the Joint
Commission of Accreditation of Hospitals. Or
it may mean a lawfully operated institution
that provides in-patient treatment under the
direction of a staff of physicians and has
24-hour per day nursing services.
Nursing home is defined as a facility
licensed by the state that provides
convalescent or chronic care for in-patients
who, by reason of illness or infirmity, are
unable to properly care for themselves.
WITHDRAWAL CHARGE The withdrawal charge, shown on the
contract data page, is deducted from your
Contract for each withdrawal after the first
withdrawal in a Contract Year. This charge
and the contingent deferred sales charge, if
applicable, will be added to the requested
withdrawal amount, and the total amount will
be withdrawn from the specified investment
options.
We will not deduct this charge for annuity
payments or repetitive withdrawals.
TRANSFER CHARGE The transfer charge, shown on the
contract data page, is deducted from your
Contract for each transfer after the 12th
transfer in a Contract Year. This charge
will be added to the requested transfer
amount, and the total amount will be
transferred from the specified investment
options.
Scheduled transfers authorized by us as part
of an investment strategy such as dollar
cost averaging, appreciation or interest
sweep, or portfolio rebalancing do not count
against your 12 free transfers, provided
those transfers continue for at least 6
months.
PREMIUM TAXES The contract data page shows whether or not
premium tax is charged in your state.
INCOME OR OTHER TAXES Currently we do not pay income or other
taxes on earnings attributable to your
Contract. However, if we ever incur such
taxes, we reserve the right to deduct them
from your Contract.
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===============================================================================
WITHDRAWAL PROVISIONS
===============================================================================
WITHDRAWALS During the Accumulation Phase, you may
withdraw part or all of your contract value.
A withdrawal may have a contingent deferred
sales charge and a withdrawal charge.
Each withdrawal must be at least $250, or
the contract value if less. If a withdrawal
would reduce the value of any investment
option to less than $500, the remaining
amount will also be withdrawn. If a
withdrawal would reduce the contract value
to less than $500, the entire contract value
will be withdrawn and the Contract will be
terminated.
To make withdrawals, you must send a written
request to our Home Office. Unless you tell
us differently, partial withdrawals will be
made pro rata from each investment option.
Once we receive your request, withdrawals
from the Portfolios will be effective as of
the next close of the NYSE.
FREE WITHDRAWAL AMOUNT There will be no contingent deferred sales
charge on the first 10% of your contract
value withdrawn in a Contract Year. In
addition, there is no withdrawal charge on
the first withdrawal you make in a Contract
Year.
REPETITIVE WITHDRAWALS You may request repetitive withdrawals of a
predetermined amount on a monthly,
quarterly, or annual basis by completing the
appropriate form.
===============================================================================
ANNUITY PAYMENT PROVISIONS
===============================================================================
ANNUITY PAYMENTS You must choose a lump sum or start
the Income Phase no later than the maximum
annuitization age shown on the contract data
page, or an earlier date if required by law.
During the Income Phase, the payee (you or
someone you choose) receives regular annuity
payments beginning on the Annuity Date.
To start the Income Phase, you must notify
us in writing at least 30 days prior to the
date that you want annuity payments to
begin. You may choose annuity payments under
an annuity option described in this Contract
or another annuity option that you want and
that we agree to provide. If the amount
applied to an annuity option is less than
$5,000, we may pay you in a lump sum where
permitted by state law. We reserve the right
to change the payment frequency if payment
amounts would be less than $250.
Switching to the Income Phase is
irrevocable. After the Annuity Purchase
Date, you cannot switch back to the
Accumulation Phase. You cannot add Purchase
Payments, change or add an Annuitant, change
the annuity option, or change between fixed
and variable annuity payments.
LIFE ANNUITY The payee receives monthly annuity
payments as long as the Annuitant is living.
Annuity payments stop when the Annuitant
dies.
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LIFE ANNUITY WITH The payee receives monthly annuity payments
GUARANTEED PERIOD for the longer of the Annuitant's life or a
guaranteed period of five or more years as
selected by you and agreed to by us. If the
Annuitant dies before all guaranteed
payments have been made, the rest will be
made to the Beneficiary. Annuity payments
stop the later of the date the Annuitant
dies or the date the last guaranteed payment
is made.
As an alternative to monthly payments, the
Beneficiary may elect to have the present
value of the guaranteed variable annuity
payments remaining as of the date the notice
of death is received by us commuted at the
assumed investment rate of 4% and paid in a
single payment.
JOINT AND SURVIVOR The payee receives monthly annuity payments
LIFE ANNUITY as long as the Annuitant is living. After
the Annuitant dies, the payee receives a
specified percentage of each annuity payment
as long as the second Annuitant is living.
You name the second Annuitant and payment
percentage at the time you elect this
option. Annuity payments stop on the later
of the date the Annuitant dies or the date
the second Annuitant dies.
PAYMENTS BASED ON The payee receives substantially equal
A NUMBER OF YEARS annuity payments based on a number of years
as selected by you and agreed to by us. You
may select monthly, quarterly, or annual
annuity payments. Each annuity payment
reduces the number of Accumulation Units
and/or value of the Fixed Account in the
Contract. Annuity payments continue until
the entire value in the Portfolios and/or
the Fixed Account has been paid out. You can
stop these annuity payments and receive a
lump sum equal to the contract value less
any contingent deferred sales charge. This
option does not promise to make payments for
the Annuitant's life. If the Annuitant dies
before all annuity payments have been made,
there will be a death benefit payable to the
Beneficiary.
AUTOMATIC OPTION If you do not choose an annuity option at
least 30 days before the latest Annuity
Date allowed under this Contract, we will
make annuity payments under the Payments
Based on a Number of Years annuity
option. The number of years will be equal
to the Annuitant's life expectancy.
CALCULATION OF ANNUITY PAYMENTS You can choose whether annuity payments will
be made on a fixed basis, variable basis, or
both. If you don't tell us otherwise,
annuity payments will be based on the
investment allocations in place on the
Annuity Purchase Date. After the Annuity
Purchase Date, you may not switch between
fixed annuity payments and variable annuity
payments.
The calculation for annuity payments under
the Payments Based on a Number of Years
annuity option is described above in
"Annuity Payments - Payments Based on a
Number of Years". The following calculations
apply to all other annuity options.
FIXED ANNUITY PAYMENTS The dollar amount of each fixed annuity
payment will stay the same. This amount will
be calculated by applying your contract
value in the Fixed Account to the Fixed
Annuity Purchase Rate Table of this
Contract. If premium taxes are required by
state law, these taxes will be deducted from
the Fixed Account before the annuity
payments are calculated.
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<PAGE>
VARIABLE ANNUITY PAYMENTS The dollar amount of each variable annuity
payment will vary depending on the
investment performance of the Portfolios
that you selected.
FIRST VARIABLE ANNUITY PAYMENT: For each
Portfolio, the dollar amount of the first
variable annuity payment and the number of
Annuity Units will be calculated by applying
your contract value in that Portfolio, as of
the 15th day of the preceding month, to the
Variable Annuity Purchase Rate Table of this
Contract. If the NYSE is not open on that
date, the calculation will be made on the
next day that the NYSE is open. If premium
taxes are required by state law, these taxes
will be deducted from the Portfolio before
the annuity payment is calculated. The total
of the first variable annuity payment will
be sum of the amounts calculated for each
Portfolio.
SUBSEQUENT VARIABLE ANNUITY PAYMENTS: For
each Portfolio, the dollar amount of each
subsequent variable annuity payment is
determined by multiplying the number of
Annuity Units credited for that Portfolio by
the Annuity Unit value of that Portfolio as
of the 15th of the month preceding the
annuity payment. If the NYSE is not open on
that date, the calculation will be made on
the next day that the NYSE is open. The
total of each subsequent variable annuity
payment will be the sum of the amounts
calculated for each Portfolio.
NUMBER OF VARIABLE ANNUITY UNITS: The
number of Annuity Units credited for
each Portfolio is the amount of the
first annuity payment attributable to
that Portfolio divided by the value of
the applicable Annuity Unit for that
Portfolio as of the 15th day of the
month preceding the Annuity Date. The
number of Annuity Units used to
calculate the variable annuity payment
each month remains constant unless you
change Portfolio elections.
VALUE OF VARIABLE ANNUITY UNITS: The
value of an Annuity Unit may increase or
decrease from one month to the next. For
each month after the first month, the
value of an Annuity Unit of a particular
Portfolio is:
- the value of that Annuity Unit as of
the 15th day of the preceding month
(or the next day that the NYSE is
open);
- multiplied by the Net Investment
Factor for that Portfolio; and
- divided by the Assumed Investment
Factor for the period.
The Net Investment Factor is a number
that represents the change in the net
asset value of a Portfolio on successive
periods when the NYSE is open. The Net
Investment Factor for any Portfolio for
any valuation period is determined by
dividing the current Accumulation Unit
value by the prior period's Accumulation
Unit value. The Net Investment Factor
may be different than the Assumed
Investment Factor, and therefore the
Annuity Unit value may increase or
decrease.
The Assumed Investment Factor for a
one-day valuation period is 1.00010746.
This factor neutralizes the assumed
investment rate of 4% in the Variable
Annuity Purchase Rate Table.
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We guarantee that the dollar amount of each
variable annuity payment made after the
first payment will not be adversely affected
by variations in actual mortality experience
or actual expenses incurred in excess of the
expense deductions provided for in the
Contract.
CHANGING PORTFOLIO ELECTIONS After the Annuity Purchase Date, you may
AFTER THE ANNUITY PURCHASE request to change Portfolio elections once a
DATE month. Transfers are not allowed to or from
the Fixed Account. Changes will affect the
number of units used to calculate annuity
payments.
===============================================================================
DEATH BENEFIT PROVISIONS
===============================================================================
DEATH OF ANNUITANT If the Annuitant is not an Owner and the
PRIOR TO THE ANNUITY Annuitant dies before the Annuity Purchase
PURCHASE DATE Date, you must designate a new Annuitant.
If no designation is made within 30 days
after we are notified of the Annuitant's
death, you will become the Annuitant.
If this Contract is owned by a non-natural
person (for example, a corporation or
trust), the death of the Annuitant will be
treated as the death of the Owner.
DEATH OF OWNER If any Owner dies before the Annuity
PRIOR TO THE ANNUITY Purchase Date, or if the Annuitant dies
PURCHASE DATE while annuity payments are being made under
the Payments Based on a Number of Years
annuity option, we will pay a death benefit
to the:
- surviving Owner or joint Owner; or if
none, then
- surviving primary Beneficiary(ies); or if
none, then
- surviving contingent Beneficiary(ies); or
if none, then
- the estate of the last Owner to die.
CALCULATION OF DEATH BENEFIT The death benefit is the higher of:
(1) the current contract value; or
(2) if the death benefit is payable upon
the sole Owner's or oldest joint
Owner's death, the minimum guaranteed
death benefit.
When determining the higher of (1) or (2)
above, the calculations are based on the
earlier of:
- the date we receive proof of death
and the Beneficiary's election of
how to receive payment; or
- six months from the date of death.
REQUIRED INFORMATION RECEIVED WITHIN 6
MONTHS OF THE DATE OF DEATH: If the
minimum guaranteed death benefit
exceeds the contract value, we will add
the difference to the contract value on
the date we receive the required
information so that the contract value
will equal the minimum guaranteed death
benefit. This additional amount will be
allocated to the investment options in
the same proportion that Purchase
Payments were last allocated.
Thereafter, the contract value will be
subject to investment performance and
applicable charges until the date the
death benefit is paid.
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<PAGE>
REQUIRED INFORMATION RECEIVED MORE THAN
6 MONTHS AFTER THE DATE OF DEATH: If
the minimum guaranteed death benefit
exceeds the contract value on the
6-month anniversary of the date of
death, we will credit the difference
with interest at the prevailing money
market rates from the 6-month
anniversary until the date we receive
the required information. At that time
we will allocate this additional
amount, with the credited interest, to
the investment options in the same
proportion that Purchase Payments were
last allocated. Thereafter, the
contract value will be subject to
investment performance and applicable
contract charges until the date payment
is made.
The initial minimum guaranteed death benefit
is equal to the first Purchase Payment. It
is reset on each 8-year contract anniversary
until the oldest Owner attains age 72. The
reset benefit is equal to the immediately
preceding minimum guaranteed death benefit
or the contract value on that date, if
higher.
The minimum guaranteed death benefit is
immediately increased by additional Purchase
Payments and adjusted for withdrawals and
annuity payments made under the Payments
Based on a Number of Years annuity option.
The adjustment will be calculated by
multiplying the withdrawal or annuity
payment by the ratio of the contract value
after the withdrawal or annuity payment to
the contract value before the withdrawal or
annuity payment.
PAYMENT OF DEATH BENEFIT To pay the death benefit, we need proof of
death, such as a certified copy of a death
certificate, plus written direction from the
Beneficiary regarding how he or she wants to
receive the money. If the death benefit is
payable to an Owner's estate, we will pay it
in a single payment.
The Beneficiary may elect to receive the
death benefit as:
- a lump sum payment or series of
withdrawals that are completed within five
years from the date of death; or
- annuity payments made over the
Beneficiary's life or life expectancy. To
receive annuity payments, the Beneficiary
must make this election within 60 days
from our receipt of proof of death.
Annuity payments must begin within one
year from the date of death. Once annuity
payments begin, they cannot be changed.
If the Beneficiary is the Owner's spouse,
the spouse may have the option to continue
the Contract and will then be the Owner of
the Contract. If this spouse is also the
oldest joint Owner, the minimum guaranteed
death benefit will apply on the death of
this spouse. Otherwise, the benefit on the
death of your spouse will be the contract
value.
If a Beneficiary entitled to receive a death
benefit dies before the death benefit is
distributed to the Beneficiary, we will pay
the death benefit to the Beneficiary's named
Beneficiary or, if none, to the
Beneficiary's estate.
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<PAGE>
DEATH OF ANNUITANT Any amounts paid after the death of the
ON OR AFTER THE ANNUITY Annuitant will depend on which annuity
PURCHASE DATE option was selected. If the Annuitant dies
while annuity payments are being paid under
the Payments Based on a Number of Years
annuity option, a death benefit will be paid
as described above. If the last Annuitant
dies while annuity payments are being paid
under another option, any remaining
guaranteed payments will be paid to the
Beneficiary. In both situations, all
remaining annuity payments will be
distributed to the Beneficiary at least as
rapidly as they would have been paid to the
payee.
===============================================================================
GENERAL PROVISIONS
===============================================================================
ACCOUNT STATEMENTS At least once each calendar year we will
furnish you with a statement showing your
contract value or, if applicable and
required by law, your Annuity Units and the
Annuity Unit values.
ASSIGNMENT OF BENEFITS You can assign or otherwise transfer this
Contract. To the extent allowed by law,
payments under this Contract are not subject
to legal process for the claims of
creditors.
COMMUNICATIONS All written communications to you will be
addressed to you at your last known address
on file with SAFECO Life.
All written communications to SAFECO Life
must be addressed to SAFECO Life at its Home
Office at 5069 154th Place NE, Redmond,
Washington 98052-9669 or P.O. Box 34690,
Seattle, Washington 98124-1690.
ESSENTIAL DATA You and each person entitled to receive
benefits under this Contract must provide us
with any information we need to administer
this Contract. We are entitled to rely
exclusively on the completeness and accuracy
of data furnished by you and we will not be
liable with respect to any omission or
inaccuracy.
EVIDENCE OF SURVIVAL When any payments under this Contract depend
upon any person being alive on a given date,
we may require satisfactory proof that the
person is living before making such
payments.
MISSTATEMENT OF AGE OR SEX We may require satisfactory proof of correct
age or sex at any time. If annuity payments
are based on life or life expectancy and the
age or sex of any Annuitant has been
misstated, annuity payments will be based on
the corrected information. Underpayments
will be made up in a lump sum with the next
scheduled payment. Overpayments will be
deducted from future payments until the
total is repaid.
NONPARTICIPATION This Contract is nonparticipating, which
means it will not share in any distribution
of profits, losses, or surplus of SAFECO
Life.
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<PAGE>
SEPARATE ACCOUNT The Separate Account holds the assets that
underlie the contract values invested in the
Portfolios. The assets in the Separate
Account are the property of SAFECO Life.
However, assets in the Separate Account that
are attributable to Contracts are not
chargeable with liabilities arising out of
any other business we may conduct. Income,
gains and losses (realized and unrealized),
resulting from assets in the Separate
Account are credited to or charged against
the Separate Account without regard to other
income, gains or losses of SAFECO Life.
STATE REQUIRED BENEFITS The benefits of this Contract will not be
less than the minimum benefits required by
any statute of any state in which this
Contract is delivered.
SUSPENSION OF ANNUITY PAYMENTS, We may be required to suspend or postpone
WITHDRAWALS, OR TRANSFERS payment of annuity payments, withdrawals, or
transfers from the Portfolios for any period
of time when:
- the NYSE is closed (other than customary
weekend or holiday closings);
- trading on the NYSE is restricted;
- an emergency exists such that disposal of
or determination of the value of the
Portfolio shares is not reasonably
practicable; or
- the SEC, by order, so permits for your
protection.
In addition, we retain the right to defer
payment of withdrawals or transfers from the
Fixed Account for a period of 6 months after
receiving the request. The interest rate
credited to the Fixed Account during this
period will not be less than the rate
required under state law.
TERMINATION OF CONTRACT This Contract will terminate when SAFECO
Life has completed all of its duties and
obligations under the Contract.
THE CONTRACT The Contract, contract data page, and
contract application, as may be amended, and
any endorsements are the entire Contract.
Only an authorized officer of SAFECO Life
may change this Contract. Any change must be
in writing. SAFECO Life reserves the right
to change the provisions of this Contract to
conform to any applicable law, regulation,
or ruling issued by a government agency.
VOTING RIGHTS SAFECO Life is the legal owner of the
Portfolios' shares. However, when a
Portfolio solicits proxies in connection
with a shareholder vote, we are required to
ask you for instructions as to how to vote
those shares. All shares are voted in the
same proportion as the instructions we
received. Should we determine that we are no
longer required to comply with the above, we
will vote the shares in our own right.
-13-
<PAGE>
===============================================================================
ANNUITY PURCHASE RATE TABLES
===============================================================================
VARIABLE ANNUITY PURCHASE RATE TABLE
MORTALITY TABLE USED: The rates in the Variable Annuity Purchase Rate Table are
based upon the Annuity 2000 Mortality Table projected 20 Years. An age setback
of 1 year will be used if the annuity payments begin in the year 2013-2022, 2
years if the annuity payments begin in the year 2023-2032, and an additional
1-year setback for each additional 10 years. The effective interest rate assumed
in the table is 4.00%.
Age is to be taken for the exact number of years and completed months. Values
for fractional ages are obtained by simple interpolation. Consideration for ages
or combination of lives not shown will be furnished by SAFECO Life upon request.
CONSIDERATION REQUIRED TO PURCHASE $1 OF MONTHLY VARIABLE ANNUITY*
<TABLE>
<CAPTION>
LIFE ANNUITY LIFE ANNUITY LIFE ANNUITY JOINT & SURVIVOR*
NO PERIOD CERTAIN 5 YEARS CERTAIN 10 YEARS CERTAIN 5 YEARS
LIFE CERTAIN
AGE MALE FEMALE MALE FEMALE MALE FEMALE ANNUITY AND LIFE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
60 $196.53 $211.16 $198.01 $212.37 $199.87 $213.40 $229.94 $231.55
61 192.64 207.52 194.19 208.77 196.25 209.91 226.76 228.37
62 188.65 203.77 190.26 205.06 192.56 206.33 223.45 225.06
63 184.55 199.90 186.24 201.24 188.81 202.66 220.03 221.64
64 180.35 195.93 182.13 197.32 185.01 198.89 216.48 218.09
65 176.06 191.84 177.94 193.29 181.17 195.04 212.81 214.42
66 171.68 187.65 173.69 189.16 177.31 191.11 209.02 210.62
67 167.23 183.34 169.39 184.91 173.43 187.10 205.09 206.69
68 162.72 178.91 165.04 180.56 169.55 183.02 201.05 202.65
69 158.18 174.37 160.68 176.11 165.69 178.88 196.88 198.48
70 153.60 169.71 156.31 171.55 161.85 174.69 192.59 194.19
71 149.02 164.94 151.94 166.91 158.05 170.45 188.18 189.78
72 144.44 160.07 147.58 162.18 154.30 166.20 183.66 185.26
73 139.86 155.11 143.24 157.39 150.61 161.93 179.03 180.64
74 135.27 150.08 138.91 152.55 146.98 157.68 174.30 175.92
75 130.68 144.99 134.60 147.69 143.41 153.47 169.48 171.12
76 126.09 139.88 130.31 142.82 139.93 149.30 164.58 166.23
77 121.51 134.74 126.07 137.96 136.55 145.21 159.59 161.28
78 116.95 129.59 121.87 133.11 133.26 141.21 154.55 156.26
79 112.42 124.44 117.74 128.28 130.09 137.32 149.44 151.20
80 107.93 119.28 113.67 123.49 127.05 133.56 144.29 146.11
81 103.49 114.13 109.69 118.76 124.16 129.96 139.10 140.99
82 99.10 109.01 105.80 114.10 121.41 126.53 133.89 135.87
83 94.78 103.94 102.01 109.54 118.83 123.31 128.67 130.77
84 90.53 98.92 98.32 105.10 116.42 120.29 123.46 125.70
85 86.36 93.99 94.76 100.80 114.17 117.49 118.27 120.68
86 82.26 89.15 91.32 96.67 112.08 114.90 113.12 115.75
87 78.24 84.43 88.03 92.74 110.15 112.52 108.02 110.92
88 74.30 79.83 84.89 89.01 108.36 110.33 102.99 106.21
89 70.50 75.43 81.91 85.52 106.72 108.34 98.07 101.67
90 66.84 71.24 79.10 82.26 105.24 106.56 93.29 97.30
</TABLE>
* The consideration shown refers to the net value of the Portfolios used to
purchase a variable annuity after premium taxes or other applicable charges
are deducted. For example, if the Annuitant is a 65-year old male, a Life
Annuity initially equivalent to a monthly income of $1,000 will cost
$176,060. However, because this is a variable annuity, the dollar amount of
this monthly income is not guaranteed and may increase or decrease.
** Annuitant and co-annuitant are assumed to be the same age.
-14-
<PAGE>
FIXED ANNUITY PURCHASE RATE TABLE
MORTALITY TABLE USED: The rates in the Fixed Annuity Purchase Rate Table are
based upon the 2000 Mortality Table projected 20 years. The effective interest
rate assumed in the table is 2.00%.
Age is to be taken for the exact number of years and completed months. Values
for fractional ages are obtained by simple interpolation. Consideration for ages
or combination of lives not shown will be furnished by SAFECO Life upon request.
CONSIDERATION REQUIRED TO PURCHASE $1 OF MONTHLY FIXED ANNUITY*
<TABLE>
<CAPTION>
LIFE ANNUITY LIFE ANNUITY LIFE ANNUITY JOINT & SURVIVOR*
NO PERIOD CERTAIN 5 YEARS CERTAIN 10 YEARS CERTAIN 5 YEARS
LIFE CERTAIN
AGE MALE FEMALE MALE FEMALE MALE FEMALE ANNUITY AND LIFE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
60 $254.94 $278.92 $256.55 $280.24 $258.80 $281.52 $310.12 $311.90
61 248.36 272.38 250.04 273.74 252.52 275.16 303.87 305.65
62 241.72 265.76 243.47 267.16 246.22 268.73 297.51 299.28
63 235.01 259.05 236.84 260.51 239.91 262.24 291.04 292.81
64 228.25 252.27 230.17 253.79 233.60 255.70 284.46 286.23
65 221.44 245.42 223.48 246.99 227.32 249.11 277.79 279.56
66 214.61 238.50 216.78 240.13 221.07 242.49 271.02 272.78
67 207.76 231.51 210.09 233.21 214.88 235.84 264.15 265.91
68 200.92 224.45 203.42 226.24 208.75 229.18 257.20 258.96
69 194.12 217.32 196.81 219.20 202.72 222.51 250.16 251.92
70 187.37 210.14 190.28 212.13 196.80 215.86 243.06 244.81
71 180.68 202.90 183.82 205.02 191.01 209.23 235.88 237.64
72 174.07 195.62 177.45 197.90 185.35 202.66 228.66 230.42
73 167.55 188.33 171.18 190.79 179.83 196.16 221.38 223.15
74 161.10 181.04 165.00 183.71 174.46 189.76 214.08 215.86
75 154.71 173.78 158.92 176.69 169.25 183.49 206.75 208.55
76 148.41 166.58 152.94 169.75 164.21 177.37 199.41 201.23
77 142.20 159.44 147.09 162.90 159.34 171.43 192.08 193.93
78 136.08 152.39 141.36 156.17 154.67 165.68 184.77 186.66
79 130.07 145.41 135.77 149.54 150.21 160.14 177.49 179.42
80 124.19 138.52 130.34 143.05 145.96 154.84 170.25 172.24
81 118.42 131.74 125.07 136.71 141.95 149.81 163.06 165.14
82 112.80 125.08 119.96 130.54 138.18 145.07 155.95 158.12
83 107.31 118.55 115.03 124.56 134.65 140.64 148.93 151.22
84 101.96 112.18 110.29 118.80 131.38 136.53 142.01 144.45
85 96.76 105.98 105.74 113.28 128.36 132.75 135.21 137.84
86 91.70 99.97 101.39 108.02 125.56 129.27 128.54 131.40
87 86.79 94.16 97.25 103.05 123.00 126.10 122.02 125.17
88 82.02 88.57 93.33 98.38 120.64 123.20 115.67 119.17
89 77.46 83.26 89.65 94.04 118.50 120.59 109.53 113.43
90 73.10 78.24 86.19 90.02 116.58 118.28 103.61 107.95
</TABLE>
* The consideration shown refers to the net value of the Fixed Account used
to purchase a fixed annuity after premium taxes or other applicable charges
are deducted. For example, if the Annuitant is a 65-year old male, a Life
Annuity which provides a guaranteed monthly income of $1,000 will cost
$221,440.
** Annuitant and co-annuitant are assumed to be the same age.
-15-
<PAGE>
EXHIBIT 99.10
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Statement of Additional Information and to the use of our report on the
financial statements of SAFECO Resource Variable Account B, dated February
22, 2000, and our report on the consolidated financial statements of SAFECO
Life Insurance Company and Subsidiaries, dated February 11, 2000, in
Post-Effective Amendment No. 8 to the Registration Statement (Form N-4, No.
33-69600) and related Prospectus of SAFECO Resource Variable Account B.
/s/ Ernst & Young LLP
Seattle, Washington
April 14, 2000
<PAGE>
EXHIBIT 99.15
April 14, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Representation of Counsel for SAFECO Life Insurance Company ("SAFECO Life")
and its SAFECO Resource Variable Account B ("Separate Account")
Post-Effective Amendment No. 8, Form N-4
FILE NOS. 33-69600 AND 811-4716
Commissioners:
SAFECO and its Separate Account believe that the filing of Post-Effective
Amendment No. 8 is consistent with the purposes and requirements for filing
under Rule 485(b) under the Securities Act of 1933 ("1933 Act"). This
representation is based on the fact that the changes included in this
Post-Effective Amendment No. 8 are consistent with the purposes and requirements
described in the adopting release for the changes to Rule 485 (IC-Rel. 20486).
Based on the above, the filing of Post-Effective Amendment No. 8 is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on
April 28, 2000. The undersigned has prepared and reviewed Post-Effective
Amendment No. 8, and it is his opinion that Post-Effective Amendment No. 8 does
not contain disclosures which would render it ineligible to become effective
pursuant to paragraph (b) of Rule 485.
Sincerely,
/s/ William E. Crawford
William E. Crawford
Counsel
