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SPINNAKER File Nos. 33-69712/811-8052
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. _____ [ ]
Post-Effective Amendment No. 4 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [X]
(Check appropriate box or boxes.)
SAFECO SEPARATE ACCOUNT C
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(Exact Name of Registrant)
SAFECO Life Insurance Company
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(Name of Depositor)
15411 N.E. 51st Street, Redmond, Washington 98052
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(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (206) 867-8000
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Name and Address of Agent for Service
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WILLIAM E. CRAWFORD
15411 N.E. 51st Street
Redmond, Washington 98052
(206) 867-8257
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
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X on April 29, 1996 pursuant to paragraph (b) of Rule 485
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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
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If appropriate, check the following:
this post-effective amendment designates a new effective date
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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, 1995 on or about February 29, 1996.
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SAFECO SEPARATE ACCOUNT C
REGISTRATION STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. Location
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PART A
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Item 1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 2. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . Definitions
Item 3. Synopsis or Highlights . . . . . . . . . . . . . . . . . . . . . . Expense Table;
Highlights
Item 4. Condensed Financial Information . . . . . . . . . . . . . . . . . Schedule of
Accumulation
Unit Values &
Accumulation Units
Outstanding;
Performance
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies . . . . . . . . . . . . . . . . SAFECO; The
Separate Account;
SAFECO Resource
Series Trust;
Federated Insurance
Series;
Lexington Emerging
Markets Fund, Inc.;
Lexington Natural
Resources Trust; Scudder
Variable Life
Investment Fund
Item 6. Deductions and Expenses . . . . . . . . . . . . . . . . . . . . . Charges and
Deductions; Expense
Table
Item 7. General Description of Variable Annuity Contracts . . . . . . . . Cover Page; Rights under
the Contract; Purchasing
a Contract
Item 8. Annuity Period . . . . . . . . . . . . . . . . . . . . . . . . . . Annuity and Death
Benefit Provisions
Item 9. Distribution Requirements . . . . . . . . . . . . . . . . . . . . Annuity and Death
Benefit Provisions
Item 10. Purchases and Contract Value . . . . . . . . . . . . . . . . . . . Purchasing a Contract
Item 11. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . Withdrawals and
Transfers
Item 12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Status
Item 13. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
Item 14. Table of Contents of the Statement of Additional Information . . . Table of Contents of the
Statement of Additional
Information
</TABLE>
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<TABLE>
<CAPTION>
Item No. Location
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PART B
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Item 15. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
Item 16. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
Item 17. General Information and History . . . . . . . . . . . . . . . . . General Information
Item 18. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
Item 19. Purchase of Securities Being Offered . . . . . . . . . . . . . . . Not Applicable
Item 20. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . General Information/
Distributor
Item 21. Calculation of Performance Data . . . . . . . . . . . . . . . . . Additional 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.
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PART A
PROSPECTUS
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APRIL 29, 1996 SAFECO LIFE INSURANCE COMPANY
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INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
SAFECO SEPARATE ACCOUNT C
AND
SAFECO LIFE INSURANCE COMPANY
<TABLE>
<S> <C>
Home Office: Annuity Service Office:
SAFECO Life Insurance Company SAFECO Life Insurance Company
Retirement Services Department Retirement Services Department
15411 N.E. 51st Street P.O. Box 34690
Redmond, WA 98052 Seattle, WA 98124-1690
Telephone: 1-800-426-7649 Fax: 206-867-8793
</TABLE>
The Individual Flexible Purchase Payment Deferred Variable Annuity Contracts
(the Contracts) described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments on a fixed and variable
basis. The Contracts are designed for use by individuals in conjunction with
retirement plans on a Qualified or Non-Qualified basis. Some of the Portfolios
listed below may not be immediately available in states that have not yet
approved the corresponding Contract endorsements.
At the Owner's direction, Purchase Payments for the Contracts will be allocated
to a segregated investment account of SAFECO Life Insurance Company (SAFECO)
which has been designated SAFECO Separate Account C (the Separate Account) or to
SAFECO's Fixed Account. Under certain circumstances, however, Purchase Payments
may initially be allocated to the SAFECO Resource Money Market Sub-Account of
the Separate Account. (See "Highlights.") The Separate Account invests in shares
of SAFECO Resource Series Trust (see "SAFECO Resource Series Trust"), Federated
Insurance Series (see "Federated Insurance Series"), Lexington Emerging Markets
Fund, Inc. (see "Lexington Emerging Markets Fund, Inc."), Lexington Natural
Resources Trust (see "Lexington Natural Resources Trust"), and Scudder Variable
Life Investment Fund (see "Scudder Variable Life Investment Fund"). SAFECO
Resource Series Trust currently consists of the SAFECO Resource Equity, Growth,
Northwest, Bond and Money Market Portfolios. Federated Insurance Series consists
of seven Portfolios, three of which are offered hereunder; the Federated High
Income Bond Fund II ("Federated High Income Bond Portfolio"), the Federated
International Equity Fund II ("Federated International Equity Portfolio") and
the Federated Utility Fund II ("Federated Utility Portfolio"). Lexington
Emerging Markets Fund, Inc. ("Lexington Emerging Markets Fund") and Lexington
Natural Resources Trust each currently consist of only one Portfolio which are
offered hereunder; the Lexington Emerging Markets Portfolio and the Lexington
Natural Resources Portfolio, respectively. Scudder Variable Life Investment Fund
("Scudder Fund") consists of five Portfolios, two of which are offered
hereunder; the Scudder Balanced Portfolio and the Scudder International
Portfolio. See "Highlights" and "Tax Status - Diversification" for a discussion
of owner control of the underlying investments in a variable annuity contract.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information which is available at no
charge. The Table of Contents of the Statement of Additional Information can be
found on page 39 of this Prospectus. Some of the discussions contained in this
Prospectus will refer to the more detailed description contained in the
Statement of Additional Information which is incorporated by reference in this
Prospectus. For the Statement of Additional Information, call l-800-426-7649 or
write to the Annuity Service Office address above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SPINNAKER CONTRACTS ARE NOT INSURED BY THE FDIC. THEY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION THROUGH WHICH THEY
MAY BE SOLD. THE CONTRACTS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED
APRIL 29, 1996.
INQUIRIES: ANY INQUIRIES SHOULD BE MADE BY TELEPHONE TO THE NUMBER LISTED
ON THE COVER PAGE OF THE PROSPECTUS OR THE REPRESENTATIVE FROM WHOM THIS
PROSPECTUS WAS OBTAINED. ALL OTHER QUESTIONS SHOULD BE DIRECTED TO THE
ANNUITY SERVICE OFFICE, 1-800-426-7649 LISTED ON THE COVER PAGE OF THIS
PROSPECTUS.
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TABLE OF CONTENTS
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PAGE
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Definitions........................................................................... 5
Highlights............................................................................ 6
Expense Table......................................................................... 8
Schedule of Accumulation Unit Values and Accumulation Units Outstanding............... 14
Financial Statements.................................................................. 14
Performance Information............................................................... 15
All Sub-Accounts (Other than SAFECO Resource Money Market Sub-Account).............. 15
SAFECO Resource Money Market Sub-Account............................................ 15
Rankings............................................................................ 16
SAFECO................................................................................ 16
The Separate Account.................................................................. 16
SAFECO Resource Equity Sub-Account.................................................. 17
SAFECO Resource Growth Sub-Account.................................................. 17
SAFECO Resource Northwest Sub-Account............................................... 17
SAFECO Resource Bond Sub-Account.................................................... 17
SAFECO Resource Money Market Sub-Account............................................ 17
Federated High Income Bond Sub-Account.............................................. 18
Federated International Equity Sub-Account.......................................... 18
Federated Utility Sub-Account....................................................... 18
Lexington Emerging Markets Sub-Account.............................................. 18
Lexington Natural Resources Sub-Account............................................. 19
Scudder Balanced Sub-Account........................................................ 19
Scudder International Sub-Account................................................... 19
SAFECO Resource Series Trust.......................................................... 20
Federated Insurance Series............................................................ 20
Lexington Emerging Markets Fund, Inc.................................................. 20
Lexington Natural Resources Trust..................................................... 20
Scudder Variable Life Investment Fund................................................. 20
Voting Rights......................................................................... 21
Substitution of Securities............................................................ 21
Purchasing a Contract................................................................. 21
Purchase Payments................................................................... 21
Allocation of Purchase Payments..................................................... 21
Accumulation Unit................................................................... 22
Principal Underwriter............................................................... 22
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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Charges and Deductions................................................................ 23
Deduction for Premium and Other Taxes............................................... 23
Deduction for Mortality and Expense Risk Charge..................................... 23
Deduction for Contingent Deferred Sales Charge...................................... 23
Reduction or Elimination of the Contingent Deferred Sales Charge.................... 24
Deduction for Withdrawal Charge..................................................... 24
Deduction for Asset Related Administration Charge................................... 25
Deduction for Annual Administration Maintenance Charge.............................. 25
Deduction for Transfer Charge....................................................... 25
Other Expenses...................................................................... 25
Rights Under the Contract............................................................. 25
Owner, Annuitant and Beneficiary.................................................... 25
Misstatement of Age................................................................. 26
Evidence of Survival................................................................ 26
Contract Date....................................................................... 26
Contract Settlement................................................................. 27
Substitute Payee.................................................................... 27
Assignment.......................................................................... 27
Modification of the Contracts....................................................... 27
Termination of Contract............................................................. 27
Annuity and Death Benefit Provisions.................................................. 27
Selection and Change of Settlement Options.......................................... 27
Payment of Benefits................................................................. 28
Frequency and Amount of Annuity Payments............................................ 28
Death of Owner Prior to Annuity Date................................................ 28
Death of Annuitant.................................................................. 29
Death of Owner After Annuity Date................................................... 29
Settlement Options.................................................................. 29
Mortality and Expense Guarantee..................................................... 30
Withdrawals and Transfers............................................................. 30
Withdrawals......................................................................... 30
Transfers........................................................................... 31
Suspension of Payments or Transfers................................................. 32
Other Services........................................................................ 32
The Programs........................................................................ 32
Dollar Cost Averaging Program....................................................... 32
Automatic Transfer Program.......................................................... 33
Appreciation or Interest Sweep Program.............................................. 33
Sub-Account Rebalancing Program..................................................... 33
Systematic Investment Program....................................................... 34
Periodic Withdrawal Program......................................................... 34
Tax Status............................................................................ 34
Note................................................................................ 34
General............................................................................. 35
Diversification..................................................................... 35
Multiple Contracts.................................................................. 36
</TABLE>
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<TABLE>
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PAGE
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Tax Treatment of Assignments........................................................ 36
Income Tax Withholding.............................................................. 36
Tax Treatment of Withdrawals -- Non-Qualified Contracts............................. 36
Qualified Plans..................................................................... 37
Tax Treatment of Withdrawals -- Qualified Contracts................................. 38
Tax-Sheltered Annuities -- Withdrawal Limitations................................... 38
Contract Owned by Other than Natural Persons........................................ 39
Legal Proceedings..................................................................... 39
Table of Contents of the Statement of Additional Information.......................... 39
</TABLE>
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DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the value of
a Sub-Account prior to the Annuity Date.
ANNUITANT - The natural person on whose life Annuity payments are payable. The
Contract will not be issued if the Annuitant is 76 years of age or older on the
Contract Date.
ANNUITY - Any series of payments starting on the Annuity Date.
ANNUITY DATE - The date selected by the Owner for commencing Annuity payments
under the Contract. The day of the month on which the payments will be made will
be determined by SAFECO. The Annuity Date cannot be later than the date the
Annuitant attains age 85.
ANNUITY UNIT - An accounting unit of measure used to calculate Annuity payments
after the Annuity Date.
BENEFICIARY - The person or persons entitled to receive benefits under the
Contract upon the death of the Owner.
CONTRACT ANNIVERSARY - Any anniversary of the Contract Date.
CONTRACT DATE - For all Contracts issued prior to June 1, 1994, Contract Date
shall mean the earlier of the date on which the initial Purchase Payment is
allocated to the Separate Account or the Fixed Account. For Contracts issued on
or after June 1, 1994, see "Rights under the Contract - Contract Date."
CONTRACT VALUE - The sum of the Owner's interest in the Sub-Accounts of the
Separate Account and the Fixed Account.
CONTRACT YEAR - The twelve month period which commences on the Contract Date and
each succeeding twelve month period thereafter.
ELIGIBLE INVESTMENT(S) - An investment entity in which a Sub-Account invests as
an underlying investment of the Contract.
FIXED ACCOUNT - SAFECO's General Account, referred to in the Contract as the
"Fixed Account," consists of the total Purchase Payments received by SAFECO
under a fixed annuity rider to the Contract and not previously withdrawn, plus
interest on each such Purchase Payment, less any applicable charges and
deductions. Purchase Payments allocated to the Fixed Account will become part of
the general corporate fund of SAFECO to be so used and invested consistent with
state insurance laws and will not be segregated from SAFECO's other assets.
FUNDS - The funding vehicles for the Separate Account, other than the Trust:
Certain portfolios of Federated Insurance Series; Lexington Emerging Markets
Fund, Inc.; Lexington Natural Resources Trust; and Scudder Variable Life
Investment Fund.
NET PURCHASE PAYMENT - Purchase Payment less premium taxes.
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 403(b) or 408 of the Internal
Revenue Code.
OWNER - The person(s) or entity named in the Application who/which has all
rights under the Contract. Joint Owners are allowed only if the joint Owners are
spouses. Each joint Owner shall have equal ownership rights and must jointly
exercise those rights. On the date the Application is signed, the Owner must not
be older than age 75 (if joint Owners, neither may be older than 75).
PORTFOLIO - A segment of an Eligible Investment which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENTS - Payments made to purchase Accumulation Units or which are
allocated to the Fixed Account.
QUALIFIED CONTRACTS - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 403(b) or 408 of the Internal Revenue
Code.
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SAFECO - SAFECO Life Insurance Company at its Annuity Service Office shown on
the cover page of this Prospectus.
SEPARATE ACCOUNT - A separate investment account of SAFECO, designated as SAFECO
Separate Account C, into which Purchase Payments or Contract Values may be
allocated. The Separate Account is divided into Sub-Accounts.
TRUST - SAFECO Resource Series Trust, one of the Eligible Investments for the
Separate Account.
VALUATION DATE - Each day that the New York Stock Exchange is open for business,
which is Monday through Friday, except for New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
VALUATION PERIOD - The period commencing at the close of business on each
Valuation Date and ending at the close of business for the next succeeding
Valuation Date.
WITHDRAWAL - Any payment, including Contract charges and deductions, from the
Contracts.
HIGHLIGHTS
The Contracts described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments on a fixed and variable basis.
At the Owner's direction, Purchase Payments for the Contracts are allocated to a
segregated investment account of SAFECO, which account has been designated
SAFECO Separate Account C, or to the Fixed Account. (See "Definitions - Fixed
Account.") Under certain circumstances, however, Purchase Payments may initially
be allocated to the SAFECO Resource Money Market Sub-Account of the Separate
Account (see below). The assets of the Separate Account are the property of
SAFECO and obligations arising under the Contracts are SAFECO's general
corporate obligations.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one Portfolio of the Trust or the Funds. The Trust and
the Funds are open-end management investment companies. There are currently five
Portfolios available to the Separate Account under the Trust: the SAFECO
Resource Equity, Growth, Northwest, Bond and Money Market Portfolios. There are
currently three Portfolios available to the Separate Account under the Federated
Insurance Series: the Federated High Income Bond Portfolio, the Federated
International Equity Portfolio and the Federated Utility Portfolio. The
Lexington Emerging Markets Portfolio is currently the only Portfolio of the
Emerging Markets Fund available to the Separate Account. The Lexington Natural
Resources Portfolio is currently the only Portfolio of the Lexington Natural
Resources Trust available to the Separate Account. There are currently two
Portfolios available to the Separate Account under the Scudder Fund: the Scudder
Balanced Portfolio and the Scudder International Portfolio. Each Portfolio of
the Trust and the Funds has different investment objectives. Owners bear the
investment risk for all amounts allocated to the Separate Account. For more
information on the Trust and each of the Funds and their respective Portfolios,
please see "SAFECO Resource Series Trust," "Federated Insurance Series,"
"Lexington Emerging Markets Fund, Inc.," "Lexington Natural Resources Trust,"
and "Scudder Variable Life Investment Fund," and the Prospectuses for the Trust
and the Funds which accompany and should be read with this Prospectus.
Within ten (10) days of the date of receipt of the Contract by the Owner, or a
longer period as may be required by the state of issuance, it may be returned by
delivering or mailing it to SAFECO at its Annuity Service Office or to the agent
through whom it was purchased. When the Contract is received by SAFECO, it will
be voided as if it had never been in force and SAFECO will refund the Contract
Value (which may be more or less than the Purchase Payments) computed at the end
of the Valuation Period during which the Contract is received by SAFECO.
However, in states where required and in the case of Contracts purchased
pursuant to an Individual Retirement Annuity, SAFECO will refund the Purchase
Payments rather than the Contract Value. Initial Purchase Payments are allocated
to the appropriate Sub-Account(s) in accordance with the election made by the
Owner in the Application. SAFECO reserves the right, however, to allocate all
initial Purchase Payments to the SAFECO Resource Money Market SubAccount until
the expiration of
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fifteen (15) days from the date the first Purchase Payment is received (except
for any Purchase Payment to be allocated to the Fixed Account as elected by the
Owner). If SAFECO chooses to automatically allocate Purchase Payments to the
SAFECO Resource Money Market SubAccount, SAFECO will refund the greater of
Purchase Payments or the Contract Value. Upon the expiration of the fifteen day
period, the Sub-Account Value of the SAFECO Resource Money Market Sub-Account
will be allocated to the appropriate Sub-Account(s) in accordance with the
election made by the Owner in the Application. Various charges and deductions
from Purchase Payments and the Separate Account are described below.
A Contingent Deferred Sales Charge (sales load) may be deducted in the event of
a Withdrawal of all or a portion of the Contract Value. The Contingent Deferred
Sales Charge is imposed on Withdrawals made in the first eight (8) Contract
Years and is assessed as a percentage of the amount withdrawn. The maximum
Contingent Deferred Sales Charge is 8% of the amount withdrawn. An Owner may
make Withdrawals in any Contract Year of up to 10% of the Contract Value free
from the Contingent Deferred Sales Charge. There are certain other additional
instances (for example, like those described in the preceding paragraph) in
which this Charge is not applied. (See "Charges and Deductions -- Deduction for
Contingent Deferred Sales Charge.") SAFECO deducts a Withdrawal Charge which is
equal to the lesser of $25 or 2% of the amount withdrawn for each Withdrawal
after the first in any Contract Year. (See "Charges and Deductions -- Deduction
for Withdrawal Charge.")
There is a deduction made for the Mortality and Expense Risk Charge computed on
a daily basis which is equal, on an annual basis, to 1.25% of the average daily
net asset value of the Separate Account. This charge compensates SAFECO for
assuming the mortality and expense risks under the Contracts. (See "Charges and
Deductions -- Deduction for Mortality and Expense Risk Charge.")
There is an Asset Related Administration Charge computed on a daily basis which
is equal, on an annual basis, to .15% of the average daily net asset value of
the Separate Account. This Charge compensates SAFECO for costs associated with
the administration of the Contracts and the Separate Account. (See "Charges and
Deductions -- Deduction for Asset Related Administration Charge.")
SAFECO deducts an Annual Administration Maintenance Charge of $30 from the
Contract Value on the last day of each Contract Year and in the event of a
complete Withdrawal. This Charge is only deducted from Contracts where the
Contract Value is less than $50,000. (See "Charges and Deductions -- Deduction
for Annual Administration Maintenance Charge.")
Under certain circumstances, a Transfer Charge may be assessed when an Owner
transfers Contract Values from one Sub-Account to another Sub-Account or to or
from the Fixed Account. (See "Charges and Deductions -- Deduction for Transfer
Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values with respect to Non-Qualified
Contracts. SAFECO reserves the right to deduct these taxes from Contract Values
with respect to Qualified Contracts. (See "Charges and Deductions -- Deduction
for Premium and Other Taxes.")
There are deductions from and expenses paid out of the assets of the Trust and
the Funds. See the accompanying Trust and Funds Prospectuses.
There is a ten percent (10%) federal income tax penalty applied to the income
portion of any premature distribution from Non-Qualified Contracts. 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
Internal Revenue Code of 1986, as amended (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. For federal income tax purposes, withdrawals are deemed to be
on a last-in, first-out basis. Separate tax withdrawal penalties and
restrictions apply to Qualified Contracts. (See "Tax Status -- Tax Treatment of
Withdrawals -- Qualified Contracts.") For a further discussion of the taxation
of the Contracts see "Tax Status."
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Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Owner attains age 59 1/2, separates from service,
dies, becomes disabled (within the meaning of Section 72(m)(7) of the Code) or
in the case of hardship. 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: (1) salary reduction
contributions made after December 31, 1988; (2) income attributable to such
contributions; and (3) income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Tax penalties may also apply. (See "Tax
Status -- Tax Treatment of Withdrawals -- Qualified Contracts.") Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
(See "Tax Status -- Tax-Sheltered Annuities -- Withdrawal Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may require
SAFECO to impose limitations on an Owner's right to control the investment. It
is not known whether any such guidelines would have a retroactive effect (See
"Tax Status -- Diversification").
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Account are not registered under the Securities Act of 1933 and the Fixed
Account is not registered as an investment company under the Investment Company
Act of 1940, as amended. Accordingly, neither the Fixed Account nor any
interests therein are subject to the provisions of these Acts, and SAFECO has
been advised that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in the Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
EXPENSE TABLE
SAFECO SEPARATE ACCOUNT C
The non-SAFECO Fund information in this Expense Table set forth below with
respect to the Portfolios was provided to the Separate Account by the Portfolios
and such information was not independently verified by the Separate Account.
CONTRACT OWNER TRANSACTION EXPENSES:
DEFERRED SALES LOAD: Contingent Deferred Sales Charge (as a percentage of amount
withdrawn)*: This charge applies to Withdrawals in any
Contract Year which exceed 10% of the Owner's Contract
Value:
<TABLE>
<S> <C>
Contract Year 1 8% of amount withdrawn
Contract Year 2 7% of amount withdrawn
Contract Year 3 6% of amount withdrawn
Contract Year 4 5% of amount withdrawn
Contract Year 5 4% of amount withdrawn
Contract Year 6 3% of amount withdrawn
Contract Year 7 2% of amount withdrawn
Contract Year 8 1% of amount withdrawn
After Contract Year 8 0% of amount withdrawn
</TABLE>
*While the Contingent Deferred Sales Charge assesses a percentage of the amount
withdrawn according to the stated schedule, total Contingent Deferred Sales
Charges collected by SAFECO will not exceed 8.5% of the Purchase Payments made
under the Contract.
-8-
<PAGE> 13
WITHDRAWAL CHARGE: Equal to the lesser of $25 or 2% of the amount withdrawn for
each Withdrawal after the first in any Contract Year. Not
deducted where the Owner is participating in the Systematic
Withdrawal Income Plan(TM) or is exercising a Settlement
Option.
TRANSFER CHARGE: First 12 Transfers in a Contract Year are free.
Thereafter, SAFECO reserves the right to assess a
Transfer Charge which will be equal to the lesser of $10
or 2% of the amount transferred. The charge is not
imposed under the Programs, subject to certain
requirements. (See "The Programs".)
ANNUAL ADMINISTRATION CHARGE
$30 per Contract per Contract Year.* Waived if Contract Value is $50,000 or more
SEPARATE ACCOUNT ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees 1.25%
Asset Related Administration Charge .15%
Total Separate Account Annual Expenses 1.40%
-----
</TABLE>
SAFECO RESOURCE SERIES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
SAFECO Resource Equity Portfolio .72%
SAFECO Resource Growth Portfolio .72%
SAFECO Resource Northwest Portfolio .71%
SAFECO Resource Bond Portfolio .72%
SAFECO Resource Money Market Portfolio .62%
Other Expenses
SAFECO Resource Equity Portfolio .03%
SAFECO Resource Growth Portfolio** .07%
SAFECO Resource Northwest Portfolio** .00%
SAFECO Resource Bond Portfolio** .00%
SAFECO Resource Money Market Portfolio** .00%
Total Trust Annual Expenses (After Reimbursement, if applicable)
SAFECO Resource Equity Portfolio .75%
SAFECO Resource Growth Portfolio .79%
SAFECO Resource Northwest Portfolio .71%
SAFECO Resource Bond Portfolio .72%
SAFECO Resource Money Market Portfolio .62%
</TABLE>
-9-
<PAGE> 14
FEDERATED INSURANCE SERIES ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Federated High Income Bond Portfolio .00%
Federated International Equity Portfolio .00%
Federated Utility Portfolio .00%
Other Expenses***
Federated High Income Bond Portfolio .80%
Federated International Equity Portfolio 1.25%
Federated Utility Portfolio .85%
Total Fund Annual Expenses***(After Reimbursement, if applicable)
Federated High Income Bond Portfolio .80%
Federated International Equity Portfolio 1.25%
Federated Utility Portfolio .85%
</TABLE>
LEXINGTON EMERGING MARKETS FUND, INC. ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees .85%
Other Expenses**** .47%
Total Fund Annual Expenses**** (After Reimbursement, if applicable) 1.32%
</TABLE>
LEXINGTON NATURAL RESOURCES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees 1.00%
Other Expenses***** .47%
Total Fund Annual Expenses***** (After Reimbursement, if applicable) 1.47%
</TABLE>
SCUDDER VARIABLE LIFE INVESTMENT FUND ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Scudder Balanced Portfolio .475%
Scudder International Portfolio .875%
Other Expenses******
Scudder Balanced Portfolio .175%
Scudder International Portfolio .205%
Total Fund Annual Expenses****** (After Reimbursement, if applicable)
Scudder Balanced Portfolio .65%
Scudder International Portfolio 1.08%
</TABLE>
* For purposes of the Examples, the Annual Administration Maintenance
Charge is calculated as a ratio of total Annual Administration
Maintenance Charges collected during the year to the total average net
assets of all Sub-Accounts. The Annual Administration Maintenance Charge
percentage will change each year because of changes in total Annual
Administration Maintenance Charges collected during the year and the
total average net assets of all Sub-Accounts. This will result in
variations in the Expense Table each year.
-10-
<PAGE> 15
** SAFECO pays all Other Expenses of each Portfolio until a Portfolio's
assets reach $20 million. Once a Portfolio's assets exceed $20 million,
the Other Expenses of the Portfolio will be paid by such Portfolio.
The Growth Portfolio began paying Other Expenses in August 1995. During
the year ended December 31, 1995, SAFECO paid for or reimbursed a
portion of the Other Expenses of the Growth Portfolio and all of the
Other Expenses of the Northwest, Bond and Money Market Portfolios.
Expenses before such reimbursement as a percentage of net assets were as
follows:
<TABLE>
<S> <C>
SAFECO Resource Growth Portfolio .84%
SAFECO Resource Northwest Portfolio 1.18%
SAFECO Resource Bond Portfolio .94%
SAFECO Resource Money Market Portfolio .87%
</TABLE>
*** SAFECO has entered into a Participation Agreement with the Federated
Insurance Series in connection with the Separate Account's investment in
the shares of the Federated Insurance Series. Other Participating
Insurance Companies have entered into similar Participation Agreements
with the Federated Insurance Series. For the one year ended December 31,
1995, the adviser voluntarily waived or reimbursed expenses, as follows:
Federated High Income Bond Fund II $62,198, absent reimbursement
$325,185; Federated Utility Fund II $102,171, absent reimbursement
$369,765; Federated International Equity Fund II $15,171, absent
reimbursement $157,668.
**** SAFECO has entered into a Participation Agreement with the Lexington
Emerging Markets Fund in connection with the Separate Account's
investment in the shares of the Lexington Emerging Markets Fund. Other
Participating Insurance Companies have entered into similar Participation
Agreements with the Lexington Emerging Markets Fund. For 1995 the adviser
voluntarily waived management and operating expenses in excess of 1.30%.
In 1996 these expenses will be waived to the extent they exceed 1.75%.
For the one year ended December 31, 1995, the adviser voluntarily waived
or reimbursed expenses, as follows: Lexington Emerging Markets Fund
$173,670, absent reimbursement $255,918.
***** SAFECO has entered into a Participation Agreement with the Lexington
Natural Resources Trust in connection with the Separate Account's
investment in the shares of the Lexington Natural Resources Trust. Other
Participating Insurance Companies have entered into similar Participation
Agreements with the Lexington Natural Resources Trust.
****** SAFECO has entered into a Participation Agreement with the Scudder Fund
in connection with the Separate Account's investment in the shares of the
Scudder Fund. Other insurance companies (together, with SAFECO,
collectively referred to herein as "Participating Insurance Companies")
have entered into similar Participation Agreements with the Scudder Fund.
For a period of five years from the date of execution of a Participation
Agreement with the Scudder Fund, and from year to year thereafter if
agreed to by the Participating Insurance Company and the Fund, each
Participating Insurance Company (including SAFECO) has agreed to
reimburse the Scudder Fund to the extent that annual operating expenses
of the Scudder Balanced Portfolio of the Scudder Fund exceed 0.75% of
such Portfolio's average annual net assets and to the extent that the
annual operating expenses of the Scudder International Portfolio of the
Scudder Fund exceed 1.50% of such Portfolio's average annual net assets.
Under these arrangements, no reimbursement of expenses of either of these
Portfolios was required of SAFECO for the year ended December 31, 1995.
<TABLE>
<S> <C> <C> <C> <C>
Examples for SAFECO Resource Equity Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 130 $ 164 $ 263
Assuming annuitization at end of period............... $ 23 $ 72 $ 123 $ 263
Assuming no withdrawal................................ $ 23 $ 72 $ 123 $ 263
</TABLE>
-11-
<PAGE> 16
<TABLE>
<S> <C> <C> <C> <C>
Examples for SAFECO Resource Growth Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 98 $ 131 $ 166 $ 267
Assuming annuitization at end of period............... $ 24 $ 73 $ 125 $ 267
Assuming no withdrawal................................ $ 24 $ 73 $ 125 $ 267
Examples for SAFECO Resource Money Market
Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 96 $ 126 $ 157 $ 250
Assuming annuitization at end of period .............. $ 22 $ 68 $ 116 $ 250
Assuming no withdrawal................................ $ 22 $ 68 $ 116 $ 250
Examples for SAFECO Resource Northwest
Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 129 $ 162 $ 259
Assuming annuitization at end of period .............. $ 23 $ 70 $ 121 $ 259
Assuming no withdrawal................................ $ 23 $ 70 $ 121 $ 259
Examples for SAFECO Resource Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 129 $ 162 $ 260
Assuming annuitization at end of period............... $ 23 $ 71 $ 121 $ 260
Assuming no withdrawal................................ $ 23 $ 71 $ 121 $ 260
Examples for Federated High Income
Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 98 $ 132 $ 166 $ 268
Assuming annuitization at end of period............... $ 24 $ 73 $ 125 $ 268
Assuming no withdrawal................................ $ 24 $ 73 $ 125 $ 268
Examples for Federated International
Equity Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 102 $ 144 $ 188 $ 312
Assuming annuitization at end of period............... $ 28 $ 87 $ 148 $ 312
Assuming no withdrawal................................ $ 28 $ 87 $ 148 $ 312
Examples for Federated Utility Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 98 $ 133 $ 169 $ 273
Assuming annuitization at end of period............... $ 24 $ 75 $ 128 $ 273
Assuming no withdrawal................................ $ 24 $ 75 $ 128 $ 273
</TABLE>
-12-
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Examples for Lexington Emerging Markets Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ------ ------ ------ -------
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 102 $ 146 $ 191 $ 319
Assuming annuitization at end of period............... $ 29 $ 89 $ 151 $ 319
Assuming no withdrawal................................ $ 29 $ 89 $ 151 $ 319
Examples for Lexington Natural Resources Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ------ ------ ------ -------
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 104 $ 150 $ 198 $ 333
Assuming annuitization at end of period............... $ 30 $ 93 $ 158 $ 333
Assuming no withdrawal................................ $ 30 $ 93 $ 158 $ 333
Examples for Scudder Balanced Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ------ ------ ------ -------
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 96 $ 127 $ 159 $ 253
Assuming annuitization at end of period............... $ 22 $ 69 $ 118 $ 253
Assuming no withdrawal................................ $ 22 $ 69 $ 118 $ 253
Examples for Scudder International Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ------ ------ ------ -------
Assuming a 5% return on assets, you would pay
the following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 100 $ 139 $ 180 $ 296
Assuming annuitization at end of period............... $ 27 $ 82 $ 139 $ 296
Assuming no withdrawal................................ $ 27 $ 82 $ 139 $ 296
</TABLE>
The information in the "Examples" is estimated and provided to assist the
potential Owner in understanding the various costs and expenses charged to an
Owner's Contract Value either directly or indirectly and reflects expenses of
the Separate Account, the Trust and the Funds. The Examples do not reflect
premium taxes which may be applicable. Contingent Deferred Sales Charges may be
waived in certain circumstances. For additional information, see "Charges and
Deductions" in this Prospectus for the Separate Account, "Management of the
Trust" in the Prospectus for the Trust, "Federated Insurance Series Information"
in the Prospectus for the Federated Insurance Series, "Management of the Fund"
in the Prospectus for the Lexington Emerging Markets Fund, and "Investment
Adviser, Sub-Adviser and Distributor" in the Prospectus for the Lexington
Natural Resources Trust, and "Investment Adviser" in the Prospectus for the
Scudder Fund.
THE INFORMATION ABOVE IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
-13-
<PAGE> 18
SCHEDULE OF ACCUMULATION UNIT VALUES
AND ACCUMULATION UNITS OUTSTANDING
SAFECO SEPARATE ACCOUNT C
The following selected financial data are derived from the financial statements
of SAFECO Separate Account C, which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and other financial information incorporated by
reference herein.
Such information is not included for the Federated High Income Bond Sub-Account,
Federated International Equity Sub-Account, Federated Utility Sub-Account,
Lexington Emerging Markets Sub-Account and Lexington Natural Resources
Sub-Account as these are new Sub-Accounts.
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
SAFECO RESOURCE EQUITY SUB-ACCOUNT
February 11 value (initial public offering).......... $ 24.528
December 31 value.................................... $ 32.209 $ 25.373
December 31 units.................................... 438,184 144,290
SAFECO RESOURCE BOND SUB-ACCOUNT
February 11 value (initial public offering).......... $ 16.217
December 31 value.................................... $ 18.045 $ 15.521
December 31 units.................................... 35,531 14,107
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
February 11 value (initial public offering).......... $ 13.526
December 31 value.................................... $ 14.370 $ 13.811
December 31 units.................................... 98,132 124,541
SAFECO RESOURCE GROWTH SUB-ACCOUNT
February 11 value (initial public offering).......... $ 13.910
December 31 value.................................... $ 20.668 $ 14.864
December 31 units.................................... 479,054 154,127
SAFECO RESOURCE NORTHWEST SUB-ACCOUNT
February 11 value (initial public offering).......... $ 10.073
December 31 value.................................... $ 10.737 $ 10.134
December 31 units.................................... 58,302 22,082
SCUDDER BALANCED SUB-ACCOUNT
February 11 value (initial public offering).......... $ 10.435
December 31 value.................................... $ 12.481 $ 9.988
December 31 units.................................... 134,772 49,575
SCUDDER INTERNATIONAL SUB-ACCOUNT
February 11 value (initial public offering).......... $ 10.948
December 31 value.................................... $ 11.504 $ 10.498
December 31 units.................................... 278,030 137,600
</TABLE>
FINANCIAL STATEMENTS
The financial statements for SAFECO are contained in the Statement of Additional
Information which is available at no charge by calling 1-800-426-7649 or writing
to the Annuity Service Office address on the cover.
-14-
<PAGE> 19
PERFORMANCE INFORMATION
In advertisements, the "yield," "effective yield," "total return" and "average
annual total return" of the Sub-Accounts may be quoted.
ALL SUB-ACCOUNTS (OTHER THAN SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT)
"Yield" is the annualization on a 360-day basis of net income per unit over a
30-day period divided by the accumulation unit value on the last day of the
period. Yield figures are calculated by determining the income generated by an
investment in the Sub-Account over a 30-day period. The income is then
annualized by assuming that the income generated during the 30-day period
continues to be generated each month for a 12-month period and is shown as a
percentage of the investment. Yield figures will reflect deduction of the Annual
Administration Maintenance Charge which is assessed on an annual basis to Owners
whose Contract Value is less than $50,000, but will not include any applicable
Contingent Deferred Sales Charge.
"Total return" is the total percentage change in the unit value of an investment
over a stated period of time. "Average annual total return" is the annual
percentage change in the unit value of an investment over a stated period of
time. Both total return and average annual total return assume the reinvestment
of dividend and capital gains distributions.
Standardized total return figures which appear in advertisements or sales
literature will be calculated for required time periods based on a set initial
investment amount and include the Annual Administration Maintenance Charge and
the Contingent Deferred Sales Charge. From time to time, non-standardized total
return figures may accompany the standardized figures. Although certain
Sub-Accounts may be new and therefore have no investment performance history in
the Separate Account, hypothetical performance may be calculated based on the
respective portfolios' historical performance prior to its availability in the
Separate Account. Non-standardized total return figures may be calculated in a
variety of ways including but not necessarily limited to different time periods,
different initial investment amounts, additions of periodic payments, use of
time weighted average annual returns which take into consideration the length of
time each investment has been on deposit, and without the Annual Administration
Maintenance Charge and/or with or without the Contingent Deferred Sales Charge.
Nonstandardized figures may cause the performance of the Sub-Accounts to appear
higher than performance calculated using standard parameters.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
"Yield" is the annualization on a 365-day basis of the SAFECO Resource Money
Market Sub-Account's net income over a 7-day period. Yield figures are
calculated by determining the income generated by an investment in the
Sub-Account over a 7-day period. The income is then annualized by assuming that
the income generated during the 7-day period continues to be generated each week
for a 52-week period and is shown as a percentage of the investment.
"Effective yield" is the annualization, on a 365-day basis, of the Sub-Account's
net income over a 7-day period with dividends reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
As explained above, yield figures will reflect deduction of the Annual
Administration Maintenance Charge which is assessed on an annual basis to Owners
whose Contract Value is less than $50,000, but will not include any applicable
Contingent Deferred Sales Charge.
For the SAFECO Resource Money Market Portfolio, total return and average annual
total return are nonstandardized performance figures which may accompany the
standardized yield and effective yield. "Total return" is the total percentage
change in the unit value of an investment over a stated period of time and
"average annual total return" is the annual percentage change in the unit value
of an investment over a stated period of time. Non-standardized total return and
average annual total return figures for the SAFECO Resource Money Market
Portfolio may be calculated in a variety of ways, as described above.
-15-
<PAGE> 20
RANKINGS
In addition to these performance figures, the Sub-Accounts may advertise
rankings as provided by the Lipper Variable Insurance Products Performance
Analysis Service published by Lipper Analytical Services, Inc. which monitors
separate account performance for variable annuity products such as the
Contracts, the VARDS Report which is a monthly variable annuity industry
analysis compiled by Variable Annuity Research & Data Service of Roswell,
Georgia and published by Financial Planning Resources, Inc. or the Variable
Annuity Performance Report published by Morningstar, Inc. which is also a
monthly analysis of variable annuity performance. Rankings provided by these
sources may or may not include all applicable charges.
Performance figures and quoted rankings are indicative only of past performance
and are not intended to represent future investment results.
SAFECO
SAFECO is a stock life insurance company which was organized under the laws of
the state of Washington on January 23, 1957. SAFECO writes individual and group
life, accident and health insurance and annuities. SAFECO is licensed to do
business in the District of Columbia and all states except New York. SAFECO is a
wholly-owned subsidiary of SAFECO Corporation which is a holding company whose
subsidiaries are engaged primarily in insurance and financial service
businesses. The home office of SAFECO is located at 15411 N.E. 51st Street,
Redmond, Washington 98052.
THE SEPARATE ACCOUNT
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on February 6, 1986. This
segregated asset account has been designated SAFECO Separate Account C. SAFECO
has caused the Separate Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. The Separate Account meets the definition of a
"separate account" under the federal securities laws.
The assets of the Separate Account are the property of SAFECO. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business SAFECO may conduct. Income, gains
and losses, whether or not realized, are in accordance with the Contracts
credited to or charged against the Separate Account without regard to other
income, gains or losses of SAFECO. SAFECO's obligations arising under the
Contracts are general corporate obligations. The 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 and the Separate Account
committee.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one of the Portfolio(s) of the Trust or the Funds.
Currently there are five SAFECO Resource Portfolios available under the Trust:
the SAFECO Resource Equity Portfolio, SAFECO Resource Growth Portfolio, SAFECO
Resource Northwest Portfolio, SAFECO Resource Bond Portfolio and SAFECO Resource
Money Market Portfolio. Currently there are three Portfolios available under the
Federated Insurance Series: the Federated High Income Bond Portfolio, the
Federated International Equity Portfolio and the Federated Utility Portfolio.
The Lexington Emerging Markets Portfolio is currently the only Portfolio of the
Emerging Markets Fund available to the Separate Account. The Lexington Natural
Resources Portfolio is currently the only Portfolio of the Lexington Natural
Resources Trust available to the Separate Account. There are two Portfolios
available under the Scudder Fund: the Scudder Balanced Portfolio and the Scudder
International Portfolio. There is no assurance that the investment objective of
any of the Portfolios will be met. Owners bear the complete investment risk for
Purchase Payments allocated to a Sub-Account. Contract Values will fluctuate in
accordance with the investment performance of the SubAccount(s) to which
Purchase Payments are allocated, and in accordance with the imposition of the
fees and charges assessed under the Contracts.
-16-
<PAGE> 21
SAFECO RESOURCE EQUITY SUB-ACCOUNT
The investment objective of the SAFECO Resource Equity Sub-Account is to seek
long-term growth of capital and reasonable current income.
The SAFECO Resource Equity Sub-Account invests in the SAFECO Resource Equity
Portfolio. To pursue its investment objective, the SAFECO Resource Equity
Portfolio ordinarily invests principally in common stocks or securities
convertible into common stocks. Fixed-Income securities may be purchased in
accordance with business and financial conditions.
SAFECO RESOURCE GROWTH SUB-ACCOUNT
The investment objective of the SAFECO Resource Growth Sub-Account is to seek
growth of capital and the increased income that ordinarily follows from such
growth.
The SAFECO Resource Growth Sub-Account invests in the SAFECO Resource Growth
Portfolio. To pursue its investment objective, the SAFECO Resource Growth
Portfolio will ordinarily invest a preponderance of its assets in common stocks
selected primarily for potential appreciation. To determine those common stocks
which have the potential for long-term growth, SAFECO Asset Management Company,
the Trust's investment adviser, will evaluate the issuer's financial strength,
quality of management and earnings power.
SAFECO RESOURCE NORTHWEST SUB-ACCOUNT
The investment objective of the SAFECO Resource Northwest Sub-Account is to seek
long-term growth of capital through investing primarily in Northwest companies.
The SAFECO Resource Northwest Sub-Account invests in the SAFECO Resource
Northwest Portfolio. To pursue its investment objective, the SAFECO Resource
Northwest Portfolio will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in
Washington, Alaska, Idaho, Oregon or Montana.
The SAFECO Resource Northwest Portfolio will ordinarily invest its assets in
shares of common stock selected primarily for potential long-term appreciation.
The SAFECO Resource Northwest Portfolio may also occasionally invest in
securities convertible into common stock.
SAFECO RESOURCE BOND SUB-ACCOUNT
The investment objective of the SAFECO Resource Bond Sub-Account is to seek as
high a level of current income as is consistent with the relative stability of
capital.
The SAFECO Resource Bond Sub-Account invests in the SAFECO Resource Bond
Portfolio. To pursue its investment objective, the SAFECO Resource Bond
Portfolio invests primarily in medium-term debt securities. Although the SAFECO
Resource Bond Portfolio does not intend to purchase below investment grade bonds
during the coming year, it may hold up to 20% of total assets in bonds which are
downgraded after purchase to below investment grade quality by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Below investment grade bonds are
commonly referred to as high-yield or "junk" bonds and have special risks
associated with them. See the Trust's Prospectus and Statement of Additional
Information for more information.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
The investment objective of the SAFECO Resource Money Market Sub-Account is to
seek as high a level of current income as is consistent with the preservation of
capital and liquidity through investments in high-quality money market
investments maturing in thirteen months or less.
The SAFECO Resource Money Market Sub-Account invests in the SAFECO Resource
Money Market Portfolio which seeks to maintain a net asset value per share of
$1.00. SHARES OF THE SAFECO RESOURCE MONEY MARKET PORTFOLIO ARE NEITHER INSURED,
NOR GUARANTEED, BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE
-17-
<PAGE> 22
THAT THE SAFECO RESOURCE MONEY MARKET PORTFOLIO WILL MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
FEDERATED HIGH INCOME BOND SUB-ACCOUNT
The investment objective of the Federated High Income Bond Sub-Account is to
seek high current income.
The Federated High Income Bond Sub-Account invests in the Federated High Income
Bond Portfolio. To pursue its investment objective, the Federated High Income
Bond Portfolio invests primarily in a diversified portfolio of professionally
managed fixed-income securities. The fixed-income securities in which the
Federated High Income Bond Portfolio intends to invest are lower-rated corporate
debt obligations, which are commonly referred to as "junk bonds." Some of these
fixed-income securities may involve equity features. Capital growth will be
considered, but only when consistent with the investment objective of high
current income.
FEDERATED INTERNATIONAL EQUITY SUB-ACCOUNT
The investment objective of the Federated International Equity Sub-Account is to
seek to obtain a total return on its assets.
The Federated International Equity Sub-Account invests in the Federated
International Equity Portfolio. To pursue its investment objective, the
Federated International Equity Portfolio invests in a diversified portfolio of
equity securities issued by non-U.S. issuers. The Federated International Equity
Portfolio will invest at least 65% of its total assets, and under normal market
conditions substantially all of its assets, in equity securities of issuers
located in at least three different countries outside of the United States. The
equity securities will be selected primarily for superior growth potential and
to reduce portfolio volatility. The Federated International Equity Portfolio may
purchase sponsored or unsponsored American Depository Receipts, Global
Depository Receipts, and European Depository Receipts; corporate and government
fixed income securities of issuers outside of the United States; convertible
securities; and options and financial futures contracts. While the Federated
International Equity Portfolio primarily invests in dividend-paying equity
securities of established companies that appear to have growth potential, it may
as a temporary defensive position, shift its emphasis to such other securities
if such investments appear to offer potential higher return.
FEDERATED UTILITY SUB-ACCOUNT
The investment objective of the Federated Utility Sub-Account is to seek high
current income and moderate capital appreciation.
The Federated Utility Sub-Account invests in the Federated Utility Portfolio. To
pursue its investment objective, the Federated Utility Portfolio invests
primarily in a professionally managed and diversified portfolio of equity and
debt securities of utility companies that produce, transmit, or distribute gas
and electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. Under normal market
conditions, the Federated Utility Portfolio invests at least 65% of its total
assets in securities of utility companies.
LEXINGTON EMERGING MARKETS SUB-ACCOUNT
The investment objective of the Lexington Emerging Markets Sub-Account is to
seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets.
The Lexington Emerging Markets Sub-Account invests in the Lexington Emerging
Markets Portfolio. To pursue its investment objective, the Lexington Emerging
Markets Portfolio invests primarily in emerging country and emerging market
equity securities of all types of common stocks and equivalents (the following
constitute equivalents: convertible debt securities and warrants), although the
Portfolio also may invest in preferred stocks, bonds, and money market
instruments of foreign and domestic companies, the U.S. government, and its
agencies. The Lexington Emerging Markets Portfolio, under normal conditions,
will invest
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<PAGE> 23
at least 65% of its total assets in emerging country and emerging market equity
securities in at least three countries outside of the U.S. and at all times will
invest in a minimum of three countries outside of the U.S. Investments in
emerging country equity securities are not subject to a maximum limit, and it is
the intention of the Lexington Emerging Markets Portfolio's adviser to invest
substantially all of the Portfolio's assets in such securities. For purposes of
its investment objective, the Lexington Emerging Markets Portfolio considers
emerging country equity securities to be any country whose economy and market
the World Bank or United Nations considers to be emerging or developing, and the
Portfolio also may invest in equity securities and equivalents, traded in any
market, of companies that derive 50% or more of their total revenue from either
goods or services produced in such emerging countries and emerging markets or
sales made in such countries.
LEXINGTON NATURAL RESOURCES SUB-ACCOUNT
The investment objective of the Lexington Natural Resources Sub-Account is to
seek long-term growth of capital through investing primarily in common stocks of
companies that own or develop natural resources and other basic commodities, or
supply goods and services to such companies.
The Lexington Natural Resources Sub-Account invests in the Lexington Natural
Resources Portfolio. To pursue its investment objective, the Lexington Natural
Resources Portfolio seeks to identify securities of companies that, in its
management's opinion, are undervalued relative to the value of natural resource
holdings of such companies in light of current and anticipated economic or
financial conditions. The Lexington Natural Resources Portfolio will consider a
company to have substantial natural resource assets when, in its management's
opinion, the company's holdings of the assets are of such magnitude, when
compared to the capitalization, revenues or operating profits of the company,
that changes in the economic value of the assets will affect the market price of
the equity securities of such company, which, generally, is when at least 50% of
the non-current assets, capitalization, gross revenues or operating profits of
the company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Up to 25%
of the Lexington Natural Resources Portfolio's total assets may be invested in
securities principally traded in markets outside the U.S.
SCUDDER BALANCED SUB-ACCOUNT
The investment objective of the Scudder Balanced Sub-Account is to seek a
balance of growth and income from a diversified portfolio of equity and fixed
income securities. The Scudder Balanced Sub-Account also seeks long-term
preservation of capital through a quality-oriented investment approach that is
designed to reduce risk.
The Scudder Balanced Sub-Account invests in the Scudder Balanced Portfolio. In
seeking its objectives of a balance of growth and income, as well as long-term
preservation of capital, the Scudder Balanced Portfolio invests in a diversified
portfolio of equity and fixed income securities. The Scudder Balanced Portfolio
invests, under normal circumstances, at least 50%, but no more than 75%, of its
net assets in common stocks and other equity investments. The Scudder Balanced
Portfolio's equity investments consist of common stocks, preferred stocks,
warrants and securities convertible into common stocks, of companies that, in
the investment adviser's judgment, are of above-average financial quality and
offer the prospect for above-average growth in earnings, cash flow, or assets
relative to the overall market as defined by the Standard and Poor's 500
Composite Stock Price Index. To enhance income and stability, the Scudder
Balanced Portfolio's remaining assets are allocated to bonds and other fixed
income securities, including cash reserves. The Scudder Balanced Portfolio will
normally invest 25% to 50% of its net assets in fixed income securities.
However, at least 25% of the Scudder Balanced Portfolio's net assets must always
be invested in fixed income securities.
SCUDDER INTERNATIONAL SUB-ACCOUNT
The investment objective of the Scudder International Sub-Account is to seek
long-term growth of capital primarily through diversified holdings of marketable
foreign equity investments.
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<PAGE> 24
The Scudder International Sub-Account invests in the Scudder International
Portfolio. The Scudder International Portfolio invests in companies, wherever
organized, which do business primarily outside the United States. The Scudder
International Portfolio intends to diversify investments among several countries
and to have represented in its holdings business activities in not less than
three different countries. The Scudder International Portfolio invests primarily
in equity securities of established companies listed on foreign exchanges. It
may also invest in fixed income securities of foreign governments and companies.
SAFECO RESOURCE SERIES TRUST
The Trust has been established to act as one of the funding vehicles for the
Contracts offered. The investment adviser to the Trust is SAFECO Asset
Management Company, SAFECO Plaza, Seattle, Washington. The Trust is an open-end,
diversified, management investment company.
FEDERATED INSURANCE SERIES
The Federated Insurance Series is one of the funding vehicles for the Contracts
offered. The investment adviser to the Federated Insurance Series is Federated
Advisers, Federated Investors Tower, Pittsburgh, Pennsylvania. The Federated
Insurance Series is an open-end, diversified management investment company.
LEXINGTON EMERGING MARKETS FUND, INC.
The Lexington Emerging Markets Fund is one of the funding vehicles for the
Contracts offered. The investment adviser to the Lexington Emerging Markets Fund
is Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey. The Lexington Emerging Markets Fund is an open-end,
diversified management investment company.
LEXINGTON NATURAL RESOURCES TRUST
The Lexington Natural Resources Trust is one of the funding vehicles for the
Contracts offered. The investment adviser to the Lexington Natural Resources
Trust is Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey. The Lexington Natural Resources Trust is an open-end,
non-diversified management investment company.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Fund is one of the funding vehicles for the Contracts offered. The
investment adviser to the Scudder Fund is Scudder, Stevens & Clark, Inc., Two
International Place, Boston, Massachusetts. The Scudder Fund is an open-end,
diversified management investment company.
WHILE A BRIEF SUMMARY OF THE INVESTMENT OBJECTIVES OF EACH PORTFOLIO IS SET
FORTH ABOVE, MORE COMPREHENSIVE INFORMATION IS FOUND IN THE CURRENT RESPECTIVE
TRUST OR FUND PROSPECTUS. THE TRUST AND FUNDS' PROSPECTUSES ARE ATTACHED AND
ACCOMPANY THIS PROSPECTUS. ALL DOCUMENTS SHOULD BE READ TOGETHER AND CAREFULLY
BEFORE INVESTING. AN ADDITIONAL PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION FOR THE TRUST AND ANY OF THE FUNDS CAN BE OBTAINED BY CALLING THE
NUMBER ON THE COVER PAGE OF THIS PROSPECTUS OR WRITING TO THE ADDRESS OF THE
ANNUITY SERVICE OFFICE LISTED THERE. ADDITIONAL PORTFOLIOS MAY BE ESTABLISHED BY
THE TRUST AND THE FUNDS FROM TIME TO TIME AND MAY BE MADE AVAILABLE TO OWNERS.
IN ADDITION, CERTAIN EXISTING PORTFOLIOS OF THE FUNDS, WHICH ARE NOT CURRENTLY
BEING MADE AVAILABLE, MAY BE MADE AVAILABLE TO OWNERS IN THE FUTURE. SOME OF THE
PORTFOLIOS LISTED BELOW MAY NOT BE IMMEDIATELY AVAILABLE IN STATES THAT HAVE NOT
YET APPROVED THE CORRESPONDING CONTRACT ENDORSEMENTS.
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<PAGE> 25
VOTING RIGHTS
In accordance with its view of present applicable law, SAFECO will vote the
shares of the Trust and the Funds held in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account. SAFECO will vote
shares it owns for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. Neither the Trust nor the Funds hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by SAFECO not more than sixty (60) days prior to the meeting
of the Trust or the Funds. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting with respect to
the Trust and at least ten (10) days prior to such meeting with respect to the
Funds.
The Funds are intended to be the funding vehicle for variable annuity contracts
and variable life insurance policies to be offered by the separate accounts of
certain life insurance companies which may or may not be affiliated and in
compliance with certain regulatory requirements. The Funds currently do not
foresee any disadvantages to the Owners arising from the fact that the interests
of the holders of the variable annuity contracts and the variable life insurance
policies may differ. Nevertheless, the Funds' Directors and Trustees intend to
monitor events in order to identify any material irreconcilable conflicts which
may possibly arise and to determine what action, if any, should be taken in
response thereto.
SUBSTITUTION OF SECURITIES
If the shares of the Trust or the Funds (or any Portfolio within the Trust or
the Funds) should no longer be available for investment by the Separate Account
or, if in the judgment of SAFECO, further investment in such shares should
become inappropriate in view of the purpose of the Contracts, SAFECO may
substitute shares of another mutual fund (or Portfolio within the Trust or the
Funds) for fund shares already purchased or to be purchased in the future by
Purchase Payments under the Contracts. No substitution of securities may take
place without prior approval of the Securities and Exchange Commission and under
such requirements as it may impose.
PURCHASING A CONTRACT
PURCHASE PAYMENTS
The Contracts are purchased under a flexible purchase payment plan. The initial
Purchase Payment is due on the Contract Date. The minimum initial Purchase
Payment for Non-Qualified Contracts is $2,000 and the minimum subsequent
Purchase Payment is $250. For Qualified Contracts, the minimum initial and
subsequent Purchase Payments must be at least $30 ($1,000 minimum initial
Purchase Payments required in Maine, South Carolina and Texas). Subject to these
minimums, the Owner may increase or decrease or change the frequency of
subsequent Purchase Payments. SAFECO reserves the right to reject any
Application or Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The allocation of the initial Purchase Payment is elected by the Owner in the
Application. Unless the Owner elects otherwise, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment. Allocation of the
Purchase Payments is subject to the terms and conditions imposed by SAFECO.
Under certain circumstances, Purchase Payments which have been designated by
prospective purchasers to be allocated to Sub-Accounts other than the SAFECO
Resource Money Market Sub-Account, may be initially allocated to the SAFECO
Resource Money Market Sub-Account. (See "Highlights.") For each Sub-Account,
Purchase Payments are converted into Accumulation Units. The number of
Accumulation Units in a Sub-Account credited to the Contract is determined by
dividing each Net Purchase Payment by the value of an Accumulation Unit for that
Sub-Account. Purchase Payments allocated to the Fixed Account are credited in
dollars.
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<PAGE> 26
If the Application for a Contract is in good order, SAFECO will apply the
Purchase Payment to the Separate Account and credit the Contract with
Accumulation Units and/or to the Fixed Account and credit the Contract with
dollars within two business days of receipt. If the Application for a Contract
is not in good order, SAFECO will attempt to get it in good order or SAFECO will
return the Application and the Purchase Payment within five (5) business days.
SAFECO will not retain a Purchase Payment for more than five (5) business days
while processing an incomplete Application unless it has been so authorized by
the purchaser. For subsequent Purchase Payments in good order, SAFECO will apply
the Net Purchase Payment to the Separate Account and credit the Owner's Contract
with Accumulation Units during the next Valuation Period after the Purchase
Payment was received.
ACCUMULATION UNIT
Purchase Payments allocated to the Separate Account and amounts transferred to
or within the Separate Account are converted into Accumulation Units. This is
done by dividing each Net Purchase Payment by the value of an Accumulation Unit
for the Valuation Period during which the Purchase Payment is allocated to the
Sub-Account or the transfer is made. Accumulation Units for each Sub-Account are
valued separately. The Accumulation Unit value is determined by multiplying the
Accumulation Unit value for the Sub-Account, as of the immediately preceding
Valuation Period, by the Net Investment Factor for the current Valuation Period.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) and (d) from the result,
where:
(a) is the net result of:
(i) The net asset value per share of the Portfolio, determined as of
the current Valuation Period, plus
(ii) The per share amount of any dividend or capital-gain distribution
made by the Portfolio if the "ex-dividend" date occurs during the
current Valuation Period, plus or minus
(iii) A per share credit or charge, which is determined by SAFECO, for
changes in tax reserves resulting from investment operations of
the Sub-Account.
(b) is the net result of:
(i) The net asset value per share of the Portfolio determined as of the
immediately preceding Valuation Period, plus or minus
(ii) The per share credit or charge for any changes in tax reserves for
the immediately preceding Valuation Period.
(c) is the percentage factor equal to the Mortality and Expense Risk
Charge. Such factor is equal on an annual basis to a percentage of the
average daily net asset value of the Sub-Account.
(d) is the percentage factor equal to the Asset Related Administration
Charge. Such factor is equal on an annual basis to a percentage of the
average daily net asset value of the Sub-Account.
The Net Investment Factor may be greater or less than one. Therefore, the
Accumulation Unit value may increase or decrease.
PRINCIPAL UNDERWRITER
Currently, SAFECO Securities, Inc. (SSI) acts as the principal underwriter of
the Contracts. SSI has its business address at SAFECO Plaza, Seattle, Washington
98185. Prior to April 29, 1994, PNMR Securities, Inc. (PNMR), SAFECO Plaza,
Seattle, Washington 98185, acted as the principal underwriter of the Contracts.
SSI and PNMR are wholly-owned subsidiaries of SAFECO Corporation and therefore
are affiliates of SAFECO. The Contracts are offered on a continuous basis.
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<PAGE> 27
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Purchase Payments, Contract Values,
the Separate Account and the Fixed Account. These charges and deductions are:
DEDUCTION FOR PREMIUM AND OTHER TAXES
Any premium taxes or other taxes levied by any governmental entity which SAFECO,
in its sole discretion, determines have resulted from the establishment or
maintenance of the Contract or any portion of the Contract, or from the
investment experience of the Separate Account, or from the receipt by SAFECO of
Purchase Payments or from the commencement of annuity payments will be deducted
from the Contract Value with respect to Non-Qualified Contracts. SAFECO reserves
the right to deduct these taxes from Contract Values with respect to Qualified
Contracts. Premium taxes currently imposed by certain states on the type of
Contracts offered hereby range from 0% to 4%. Some states assess their premium
taxes at the time Purchase Payments are made; others assess their premium taxes
at the time annuity payments commence. Premium taxes are subject to change or
amendment by state legislatures, administrative interpretations or judicial
acts. Such premium taxes will depend on, among other things, the classification
of the Contract by the states, the status of SAFECO within such state and the
insurance tax laws of such state. These taxes are deducted first from the SAFECO
Resource Money Market Sub-Account. In the event there are no Accumulation Units
in the SAFECO Resource Money Market Sub-Account or not enough in value to pay
for these taxes, the balance of deductions necessary is then taken from the
SAFECO Resource Bond Sub-Account, the Federated Utility Sub-Account, the
Federated High Income Bond Sub-Account, the Scudder Balanced Sub-Account, the
Lexington Natural Resources Sub-Account, the Scudder International Sub-Account,
the Federated International Equity Sub-Account, the Lexington Emerging Markets
Sub-Account, the SAFECO Resource Equity Sub-Account, the SAFECO Resource
Northwest Sub-Account, the SAFECO Resource Growth Sub-Account, and finally from
the Fixed Account.
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
SAFECO deducts on each Valuation Date a Mortality and Expense Risk Charge which
is equal on an annual basis to 1.25% of the average daily net asset value of the
Separate Account. The mortality risks assumed by SAFECO arise from its
contractual obligation to make annuity payments after the Annuity Date for the
life of the Owner, to waive Contingent Deferred Sales Charges in the event of
the death of the Owner and to guarantee the payment of the greater of the
Guaranteed Minimum Death Benefit or the Contract Value upon the death of the
Owner. The expense risk assumed by SAFECO is that the costs of administering the
Contracts and the Separate Account will exceed the amount received from the
Annual Administration Maintenance Charge and the Asset Related Administration
Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by SAFECO. Conversely, if the amount deducted
proves more than sufficient, the excess will be profit to SAFECO. SAFECO expects
a profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by SAFECO and cannot be
increased.
DEDUCTION FOR CONTINGENT DEFERRED SALES CHARGE
In certain situations that an Owner withdraws all or a portion of his or her
Contract Value, a Contingent Deferred Sales Charge (sales load) is deducted from
the Withdrawal. This charge reimburses SAFECO for expenses incurred in
connection with the promotion, sale and distribution of the Contracts. The
Contingent Deferred Sales Charge is imposed on Withdrawals made in the first
eight (8) Contract Years. The Contract describes the situations where the
Contingent Deferred Sales Charge does not apply. Some of these situations are:
(i) on Transfers between Sub-Accounts, (ii) on the sum of Withdrawals taken in
any Contact Year which does not exceed 10% of the Contract Value, (iii) on
Withdrawals made under a Settlement Option, (iv) on Systematic Withdrawals over
the life expectancy of the Owner or the joint life expectancy of the Owner and
Beneficiary under the Systematic Withdrawal Income Plan(TM), (v) on Withdrawals
made pursuant to the death of the Owner, (vi) on Withdrawals for payment of the
Annual Administration
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<PAGE> 28
Maintenance Charge, or (vii) on Transfers from a Sub-Account to the Fixed
Account or on certain Transfers from the Fixed Account to a Sub-Account. (See
"Withdrawals and Transfers" and "The Programs.")
The amount of the Contingent Deferred Sales Charge will be based on the
following:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Contract Year as a Percentage of Amount Withdrawn
- ------------- ------------------------------------
<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
Contract
Year 8 0% of amount withdrawn
</TABLE>
The Contingent Deferred Sales Charge assesses a percentage of the amount
withdrawn according to the stated schedule. However, total Contingent Deferred
Sales Charges collected by SAFECO will not exceed 8.5% of the Purchase Payments
made under a Contract.
The commissions paid to registered representatives on the sale of Contracts are
not more than 5.8% of the Purchase Payments. In addition, commissions, overrides
and bonuses may be paid to SSI's registered representatives and/or other
distributors of the Contracts. A bonus dependent upon persistency of funds on
deposit in the Contracts is one type of bonus that may be paid. Noncash
compensation may include accrual of conference travel credits and prizes. To the
extent that the Contingent Deferred Sales Charge is insufficient to cover the
actual cost of distribution, SAFECO may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Premium, to make up any difference.
REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals in a
manner that results in savings of sales expenses. The entitlement to reduction
of the Contingent Deferred Sales Charge will be determined by SAFECO after
examination of all the relevant factors such as:
1. The total amount of Purchase Payments to be received. Per Contract sales
expenses are likely to be less on larger Purchase Payments than on
smaller ones.
2. Any prior or existing relationship with SAFECO. Per Contract sales
expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with
fewer sales contacts.
3. There may be other circumstances, of which SAFECO is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, SAFECO determines that there
will be a reduction in sales expenses, SAFECO may provide for a reduction or
elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of SAFECO or any of its affiliates.
In no event will reductions or elimination of the Contingent Deferred Sales
Charge be permitted where reductions or elimination will be unfairly
discriminatory to any person.
DEDUCTION FOR WITHDRAWAL CHARGE
SAFECO deducts a Withdrawal Charge which is equal to the lesser of $25 or 2% of
the amount withdrawn for each Withdrawal (whether it be a partial Withdrawal or
a complete Withdrawal) after the first in any Contract Year. No Withdrawal
Charge is deducted where the Owner is participating in the Systematic
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<PAGE> 29
Withdrawal Income PlanTM or the Periodic Withdrawal Program subject to certain
limitations (see "The Program") or is exercising a Settlement Option.
DEDUCTION FOR ASSET RELATED ADMINISTRATION CHARGE
SAFECO deducts on each Valuation Date an amount which is equal on an annual
basis to .15% of the average daily net asset value of the Separate Account for
costs associated with the administration of the Sub-Accounts. Since this Charge
is an asset-based charge, the amount of the Charge attributable to a particular
Contract may have no relationship to the administrative costs actually incurred
by that Contract. SAFECO does not intend to profit from this Charge. This Charge
will be reduced to the extent that the amount of this Charge is in excess of
that necessary to reimburse SAFECO for its administrative expenses. Should this
Charge prove to be insufficient, SAFECO will not increase this Charge and will
incur the loss.
DEDUCTION FOR ANNUAL ADMINISTRATION MAINTENANCE CHARGE
SAFECO deducts an Annual Administration Maintenance Charge of $30 from the
Contract Value on the last day of each Contract Year and in the event of a
complete Withdrawal. This Charge is deducted from Contracts only if the Contract
Value is less than $50,000. This Charge, which is for general administrative
expenses, is deducted first from the SAFECO Resource Money Market Sub-Account.
In the event there are no Accumulation Units in the SAFECO Resource Money Market
Sub-Account or not enough in value to pay for this Charge, the balance of
deductions necessary is then taken from the SAFECO Resource Bond Sub-Account,
the Federated Utility Sub-Account, the Federated High Income Bond Sub-Account,
the Scudder Balanced Sub-Account, the Lexington Natural Resources Sub-Account,
the Scudder International Sub-Account, the Federated International Equity
Sub-Account, the Lexington Emerging Markets Sub-Account, the SAFECO Resource
Equity Sub-Account, the SAFECO Resource Northwest Sub-Account, the SAFECO
Resource Growth Sub-Account, and finally from the Fixed Account.
Prior to the Annuity Date, this Charge is not guaranteed and may be changed for
future years. However, this Charge may never exceed $35 per Contract Year.
SAFECO has set this Charge at a level so that, when considered in conjunction
with the Asset Related Administration Charge, it will not make a profit from the
charges assessed for administration. SAFECO may receive compensation from the
investment advisers or administrators of the Available Funds consistent with the
administrative services and cost savings rendered to such entities.
DEDUCTION FOR TRANSFER CHARGE
An Owner may make up to twelve (12) Transfers annually without the imposition of
any fee or charge. If more than twelve (12) Transfers have been made in a
Contract Year, SAFECO reserves the right to assess a Transfer Charge which will
be equal to the lesser of $10 or 2% of the amount transferred. Specific
requirements may apply to transfers under the Programs. (See "The Programs.")
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the Trust
and the Funds which are described in the accompanying Trust and Funds
Prospectuses. SAFECO may receive compensation from the investment advisers or
administrators of the Available Funds consistent with the administrative
services rendered to such entities.
RIGHTS UNDER THE CONTRACT
OWNER, ANNUITANT AND BENEFICIARY
The Owner has all rights and may receive all benefits under the Contract. Prior
to the Annuity Date, the Owner is the person designated in the Application,
unless changed. On and after the Annuity Date, the Annuitant is the Owner. The
Annuitant is the person on whose life Annuity payments are based and is the
person designated in the Application, unless changed.
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The Owner may designate a Beneficiary in the Application to receive any proceeds
payable due to the death of the Owner. Unless the Owner provides otherwise, the
death benefit will be paid in equal shares to all surviving primary
Beneficiaries. If the Owner has not provided otherwise and there are no
surviving primary Beneficiaries, the death benefit will be paid in equal shares
to all surviving contingent Beneficiaries. If the Owner has not provided
otherwise and there are no surviving primary or contingent Beneficiaries, the
death benefit will be paid to the estate of the Owner.
If the Owner has made an irrevocable Beneficiary designation, no change of
Beneficiary is permitted. If the Owner has not made an irrevocable Beneficiary
designation, the Owner may file a signed request with SAFECO to change the
Beneficiary designation. The change of Beneficiary will be effective upon
recording by SAFECO at its Home Office. SAFECO shall not be liable for any
payments made or other action taken by SAFECO before the change in Beneficiary
was recorded by SAFECO at its Home Office. A recorded change of Beneficiary will
revoke any prior Beneficiary designations. SAFECO will pay any death proceeds to
the most recently recorded Beneficiary.
MISSTATEMENT OF AGE
SAFECO may require proof of the age of the Annuitant before making any Life
Annuity payment provided for by the Contract. If the age of the Annuitant has
been misstated, the amount payable will be the amount that the Contract Value
would have provided at the correct age. Once Annuity payments have begun, any
underpayments will be made up in one sum with the next Annuity payment. Any
overpayment will be deducted from future Annuity payments until the total is
repaid.
EVIDENCE OF SURVIVAL
If any benefits under the Contracts are contingent upon the Annuitant being
alive on a given date, SAFECO may require evidence satisfactory to SAFECO that
such condition continues to be met.
CONTRACT DATE
For all Contracts issued on or after June 1, 1994, Contract Date is defined as
follows:
(a) The Contract Date with respect to transfers from a Contract qualified
under Section 401(a) to a Contract qualified under Section 408 of the
Code, shall be the earlier of the date on which the initial Purchase
Payment is invested and the second certificate anniversary of a SAFECO
Qualified Pension Annuity Series III, III Plus, IV, or Resource
Variable Account B certificate, from which funds are being transferred
to this Contract. If no funds are being transferred to this Contract
from Qualified Pension Annuity Series III, III Plus, IV, or Resource
Variable Account B certificate, the Contract Date shall be the earlier
of the date on which the initial Purchase Payment is invested and the
second contract anniversary of a SAFECO Qualified Pension Annuity
Series I or II contract, a Qualified Access Annuity contract, or a
SAFECO Resource Variable Account A contract, from which funds are being
transferred to this Contract. If funds are being transferred from
SafeFlex Annuity, the Contract Date shall be the earlier of the date on
which the initial Purchase Payment is invested and the certificate
issue date of an existing SAFECO SafeFlex Annuity certificate, if the
entire certificate value is being transferred to this Contract. The
Contract Issue Date shall be the earlier of the date on which the
initial Purchase Payment is allocated to the Separate Account or the
Fixed Account.
(b) The Contract Date with respect to transfers to a Contract qualified
under Section 408 of the Code, shall be the earlier of the date on
which the initial Purchase Payment is invested and the second
certificate anniversary of an existing SAFECO Qualified Pension Annuity
Series V or V Plus contract, if the entire contract value is being
transferred to this Contract. The Contract Issue Date shall be the
earlier of the date on which the initial Purchase Payment is allocated
to the Separate Account or the Fixed Account.
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<PAGE> 31
(c) The Contract Date with respect to transfers to a Contract qualified
under Section 403 of the Code, shall be the earlier of the date on
which the initial Purchase Payment is invested, and the second
certificate anniversary of an existing SAFECO Qualified Pension Annuity
Series III Plus certificate, if the entire certificate value is being
transferred to this Contract, or, the contract date of an existing
SAFECO Preference Annuity, if the entire contract value is being
transferred to this Contract. The Contract Issue Date shall be the
earlier of the date on which the initial Purchase Payment is allocated
to the Separate Account or the Fixed Account.
(d) The Contract Date with respect to all transfers to Non-qualified
Contracts, transfers to Contracts qualified under Section 408 of the
Code other than from SAFECO's Qualified Pension Annuity Series I, II,
III, III Plus, IV, V, V Plus, Resource Variable Account A, Resource
Variable Account B, or Qualified Access Annuity, and transfers to
Contracts qualified under Section 403 of the Code other than from
SAFECO's Qualified Pension Annuity Series III Plus or the Preference
Annuity, shall be the earlier of the date on which the initial Purchase
Payment is allocated to the Separate Account or the Fixed Account.
CONTRACT SETTLEMENT
Unless otherwise designated in writing by SAFECO, all sums payable under the
Contracts are payable at SAFECO's Home Office. The Contract must be returned to
SAFECO upon any settlement.
SUBSTITUTE PAYEE
If SAFECO determines that any person is incapable of personally receiving and
giving a valid receipt for any payment due under the Contracts and no claim has
been made by a duly appointed guardian, SAFECO may make such payment to any
person or institution that SAFECO determines has assumed the care and support of
such person. Such payment shall completely discharge the liability of SAFECO
with respect to the amount so paid.
ASSIGNMENT
To the extent permitted by law, the Contracts and the benefits or payments under
the Contracts are assignable or otherwise transferable.
MODIFICATION OF THE CONTRACTS
The terms and conditions of the Contracts may be amended by written agreement
between SAFECO and the Owner by written endorsement or amendment. All agreements
made by SAFECO will be signed by the President or one of the Vice Presidents. No
other person has power on behalf of SAFECO to amend or modify the Contract,
extend any due date, or waive any proof required by the Contract. SAFECO may
unilaterally amend the provisions of the Contract as required to conform to any
state or federal law which affects the Contract.
TERMINATION OF CONTRACT
All benefit provisions under the Contract continue in force until the Contract
Value is completely Withdrawn. Discontinuance of Purchase Payments will not
result in termination of the Contract.
ANNUITY AND DEATH BENEFIT PROVISIONS
SELECTION AND CHANGE OF SETTLEMENT OPTIONS
The Owner may select or change the Settlement Option or Annuity Date by written
notification to SAFECO at its Home Office. In order to be effective, the written
notification must be received by SAFECO prior to any Annuity Date previously
selected.
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PAYMENT OF BENEFITS
SAFECO will, upon the written direction of the Owner, issue an Annuity or make a
cash distribution to any person who is entitled to such benefits. SAFECO may
rely on the written direction of the Owner and shall not be liable because of
any failure to question or challenge such direction regarding the issuance of an
Annuity or payment of a cash distribution.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments, except as described
below. If the net amount available to apply under any Settlement Option is less
than $5,000, SAFECO shall have the right to pay such amount in a lump sum cash
distribution. If Annuity payments would be or become less than $250, SAFECO
shall have the right to change the frequency of payments to such intervals as
will result in payments of at least $250.
DEATH OF OWNER PRIOR TO ANNUITY DATE
The Contract provides for a minimum guaranteed death benefit, provided that
SAFECO receives due proof of death in a satisfactory form and election of a
Settlement Option prior to six months from the date of the Owner's death. If the
due proof of death or the election of a Settlement Option is received later than
six months after the date of death of the Owner, SAFECO provides a death benefit
that is subject to change based upon investment experience, as discussed below.
On the Valuation Date following receipt at the Home Office of the due proof of
death and election of a Settlement Option before the Annuity Date and while the
Contract was in force, SAFECO generally will pay to the designated Beneficiary a
minimum guaranteed death benefit that is the greater of: (i) the Contract Value
on the later of the date of receipt of due proof of death or the election of a
Settlement Option; or (ii) the last determined minimum guaranteed death benefit.
The initial minimum guaranteed death benefit is equal to the initial Net
Purchase Payment. In those states where approved, the minimum guaranteed death
benefit is reset at each eighth Contract Anniversary ("Eight Year Contract
Anniversary") to equal the greater of (i) the then current Contract Value or
(ii) the current minimum guaranteed death benefit. The greater of the two values
becomes the new minimum guaranteed death benefit. The minimum guaranteed death
benefit is fixed for the remaining duration of the Contract as of the last Eight
Year Contract Anniversary preceding the Owner's 72nd birthday.
If the Contract is owned by joint Owners, the minimum guaranteed death benefit,
or any other applicable death benefit, is payable only on the death of the elder
Owner. Moreover, following the death of the elder Owner, if the joint Owner
elects to continue the Contract, there is no further minimum guaranteed death
benefit. The death benefit will be the Contract Value, which reflects Net
Purchase Payments and withdrawals. Contract Value is subject to change as a
result of investment experience.
Each form of minimum guaranteed death benefit is adjusted to reflect Net
Purchase Payments and withdrawals. If an Owner makes withdrawals, the minimum
guaranteed death benefit is reset to equal the previous minimum guaranteed death
benefit multiplied by the ratio of the Contract Value after the withdrawal to
the Contract Value before the withdrawal. The recomputed minimum guaranteed
death benefit will be used in determining the new minimum guaranteed death
benefit at the next Eight Year Contract Anniversary. This method of adjusting
the guaranteed minimum death benefit will be applied if the Owner is
participating in the Systematic Withdrawal Income Plan(TM) at the time of death.
After the Owner's death, the minimum guaranteed death benefit will be reduced
dollar for dollar by any withdrawals by the Beneficiary. The Beneficiary may
only make withdrawals at the time of or prior to the election of a Settlement
Option.
If due proof of death or the election of a payment option (a Settlement Option
or lump sum payment) are made later than six months following the date of the
Owner's death, the value as of the six month anniversary of the date of death
will apply. Thus, for example, if notification of death is not received until
nine (9) months after the date of death, the death benefit under (i) will be
calculated as follows:
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Upon notification of death, SAFECO will determine what the Contract Value was on
the six-month anniversary of the date of death. Assuming that Contract Value was
$90,000 on that date and the last determined minimum guaranteed death benefit
was $100,000, SAFECO will contribute $10,000 to Contract Value as of that date
and will guarantee the portion of the Contract Value attributable to SAFECO's
contribution and pay interest thereon at the then prevailing money market rate
until the date of election of a payment option. SAFECO will then calculate the
effects of investment experience on the portion of the Contract Value existing
on the six-month anniversary of the date of death, and hence, the death benefit
will consist of the combined value of the guaranteed and nonguaranteed portions
of the Contract Value from that six-month anniversary date to the date of
election of a payment option. If on the six-month anniversary of the date of
death the Contract Value exceeds the last determined minimum guaranteed death
benefit, the entire Contract Value will be subject to market risk from that date
to the date of election of a payment option and no portion of the Contract Value
will be guaranteed. Any withdrawals made by the Beneficiary prior to electing a
payment option will be deducted from the death benefit. The Beneficiary bears
the risk and enjoys the rewards of negative or positive investment experience on
any nonguaranteed portion of the Contract Value during the period from the
six-month anniversary of the date of death and the date of election of a payment
option. Beneficiaries should be encouraged to promptly notify SAFECO of the
Owner's death.
In all cases, SAFECO will pay the Beneficiary a lump sum payment of the death
benefit if the election of the Settlement Option is not made within sixty (60)
days of the receipt of due proof of death.
With respect to non-qualified Contracts, if the Owner dies on or after the
Annuity Date and before the entire value of the Contract has been distributed,
any remaining value must be distributed at least as rapidly as the method of
distribution in effect at the time of the Owner's death. If the Owner dies
before the Annuity Date, generally the entire value under the Contract must be
distributed within five years after the date of the Owner's death or must be
distributed over the designated Beneficiary's life or over a period not
extending beyond the Beneficiary's life expectancy, in equal or substantially
equal payments, with payments beginning within one year of the Owner's death.
DEATH OF ANNUITANT
In the event of the Annuitant's death prior to the Annuity Date, the Owner must
designate a new Annuitant. If no designation is made within thirty (30) days of
notification to SAFECO of the death of the Annuitant, the Owner will become the
Annuitant. The election of a Settlement Option must be made by the Beneficiary
during the sixty (60) day period commencing with the date of SAFECO's receipt of
notice of the Owner's death. If no election is made within the sixty (60) day
period, then a single lump sum payment will be made to the Beneficiary. In the
event that the Beneficiary is a surviving spouse, the Contract can be continued.
Upon the death of a co-Owner, the surviving Owner becomes the designated
Beneficiary. Any other named Beneficiary will be a contingent Beneficiary. If
the Contract is owned by a non-natural person, the death of the Annuitant will
be treated as the death of the Owner.
DEATH OF OWNER AFTER ANNUITY DATE
If the Owner dies on or after a Settlement Option has commenced, payments must
continue at least as rapidly as under the method of distribution in effect prior
to the Owner's death.
SETTLEMENT OPTIONS
An Annuity may be issued in any of the forms described below, or such other
forms which SAFECO agrees to issue under the Contract. Options (a), (b), and (c)
are irrevocable once they have begun. Option (d) is irrevocable for the first
eight Contract Years, and then may be changed.
(a) Variable Life Annuity: Monthly payments are made to the Annuitant
commencing on the Annuity Date, if he or she is then living, and the
last payment is that payment due immediately on or before the
Annuitant's death. No death benefit is payable under this option.
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(b) Variable Life Annuity with 120 or 240 Monthly Payments Guaranteed:
Monthly payments are made to the Annuitant commencing on the Annuity
Date. If at the death of the Annuitant the guaranteed number of
payments has not been received by the Annuitant, payments will be made
to the Beneficiary for the remainder of the guarantee period. The
Beneficiary may elect to have the present value of the guaranteed
Annuity remaining as of the date the notice of death is received by
SAFECO commuted at the assumed investment rate of 4% and paid in a
single payment.
(c) Variable Joint and Survivor Life Annuity: Monthly payments are made to
the Annuitant commencing on the Annuity Date. After the death of the
Annuitant, payments will be continued to the co-annuitant for as long
as he or she lives. The written request for this option must specify
the percentage value of monthly payments to continue to the
coannuitant.
(d) Systematic Withdrawal Income Plan(TM): A specified number of whole or
partial Accumulation Units are liquidated for payment to the Annuitant
on a monthly, quarterly, or annual basis. The number to be liquidated
during a given year shall be a sufficient number so as to be expected
to deplete the Contract over the life expectancy of the Annuitant or
the joint life expectancy of the Annuitant and the Beneficiary, with at
least 50% of the payments expected to be made during the Annuitant's
life. Systematic Withdrawal Income Plan is a trademark of SAFECO Life
Insurance Company.
If, as of the Annuity Date, a Settlement Option has not been selected, SAFECO
will make payments under Option (b), with 120 monthly payments guaranteed.
Similar fixed annuity Settlement Options are available with respect to the
monies held in the Fixed Account.
MORTALITY AND EXPENSE GUARANTEE
SAFECO guarantees that the dollar amount of each Variable Annuity payment made
after the first payment will not be affected by variations in mortality
experience or expenses.
WITHDRAWALS AND TRANSFERS
WITHDRAWALS
SAFECO, upon written request to it by the Owner, will allow the Withdrawal of
all or a portion of the Contract Value. Withdrawals will result in the
cancellation of Accumulation Units from each applicable Sub-Account of the
Separate Account or a reduction in the Fixed Account Value in the ratio that the
Sub-Account Value and/or the Fixed Account Value bears to the total Contract
Value. The Owner must specify in writing in advance which units are to be
canceled or values are to be reduced if other than the above-mentioned method of
cancellation is desired. SAFECO will pay the amount of any Withdrawal from the
Separate Account within seven (7) days of receipt of a request, unless the
"Suspension of Payments or Transfers" provision is in effect (see "Suspension of
Payments or Transfers" below). SAFECO retains the right to defer the payment of
Withdrawals from the Fixed Account for a period of six (6) months after
receiving a Withdrawal request. (See also "The Programs.")
The minimum Withdrawal allowed is the lesser of $250 or the Contract Value. If
any Withdrawal reduces the remaining balance in a Sub-Account or the Fixed
Account to less than $500 ($1,000 in Maine, South Carolina and Texas), the
remaining balance will also be withdrawn.
Upon a Withdrawal, the number of Accumulation Units remaining under the Contract
will be reduced by the number of such units equal to the total of the
Withdrawal, including applicable charges and taxes, including income taxes
withheld.
Certain tax withdrawal penalties and restrictions may apply to withdrawals from
the Contracts. (See "Tax Status.") For Contracts purchased in connection with
403(b) plans, 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;
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(2) separates from service; (3) dies; (4) becomes disabled (within the meaning
of Section 72(m)(7) of the Code); or (5) in the case of hardship.
However, 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 Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
TRANSFERS
An Owner may transfer Contract Values among Sub-Accounts up to twelve (12) times
annually without the imposition of any fee or charge. If more than twelve (12)
Transfers have been made in a Contract Year, SAFECO reserves the right to assess
a Transfer Charge which will be equal to the lesser of $10 or 2% of the amount
transferred. The minimum Transfer from a Sub-Account must be at least $500,
except in the case of Automatic Transfers (described below). If the Sub-Account
from which the Transfer is being made contains less than $500, or is reduced to
less than $500 after a Transfer, the Owner's entire interest in the Sub-Account
will be transferred. The minimum Transfer into a Sub-Account must be at least
$50.
Upon a Transfer from a Sub-Account, the number of Accumulation Units remaining
under that Sub-Account will be reduced by the number of such units equal to the
total of the requested Transfer, including applicable charges and taxes.
Transfers will be effected during the Valuation Period next following receipt by
SAFECO of a written transfer request (or by telephone, if authorized) containing
all required information. (See "Transfers by Written Request" and "Transfers by
Telephone," below.)
Transfers also may be effected under certain of the Programs and certain
specific limitations on transfers may apply under the Programs.
TRANSFERS BY WRITTEN REQUEST
Contract Values may be transferred by writing SAFECO at the address on the cover
page of this Prospectus and specifying the Contract number, the amount to be
transferred, and the Sub-Accounts to be effected. The request must be signed by
the Owner or a third party to whom the Owner has given appropriate authority.
SAFECO must have a copy of the document granting such authority. Transfers will
be effected during the Valuation Period next following receipt by SAFECO of the
written transfer request.
TRANSFERS BY TELEPHONE
If the Owner has previously elected in writing the privilege of making transfers
by telephone, SAFECO will accept transfer instructions by telephone from the
Owner or a third party to whom the Owner has given appropriate authority. SAFECO
must have a copy of the document granting such authority. Withdrawals will not
be processed by telephone.
SAFECO will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, including tape recording all telephone
instructions, requiring some form of personal identification prior to acting
upon instructions received by telephone and confirming in writing all such
transactions. If SAFECO fails to take such reasonable procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions.
SAFECO reserves the right to refuse telephone transfers when it is unable to
confirm to its satisfaction that a caller is the Owner or a preauthorized third
party. SAFECO is not responsible for the authenticity of telephone instructions
or for acting on the telephone instructions of persons who falsely identify
themselves as Owners or preauthorized third parties.
To transfer by telephone, call 1-800-899-5280. Transfer directions must specify
the Contract number, the amount to be transferred and the Sub-Accounts which are
to be effected. (See also "The Programs," below.)
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SUSPENSION OF PAYMENTS OR TRANSFERS
SAFECO reserves the right to suspend or postpone payments with respect to the
Separate Account for a Withdrawal or Transfer for any period when:
(i) The New York Stock Exchange is closed (other than customary weekend
and holiday closings);
(ii) Trading on the New York Stock Exchange is restricted, as determined
by the rules and regulations of the Securities and Exchange
Commission;
(iii) An emergency exists as a result of which disposal of securities held
in the Separate Account is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate
Account's net assets, as determined by the rules and regulations of
the Securities and Exchange Commission; or
(iv) During any other period when the Securities and Exchange Commission,
by order, so permits for the protection of Owners provided that
applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in (ii)
and (iii) exist.
OTHER SERVICES
THE PROGRAMS
SAFECO offers several investment related programs which are available only prior
to the Annuity Date: Dollar Cost Averaging; Automatic Transfers; Appreciation or
Interest Sweeps; Sub-Account Rebalancing; Systematic Investment; and Periodic
Withdrawal Programs. Certain of the Programs are alternatives with respect to
any one Sub-Account; other Programs may be combined. Thus, the Dollar Cost
Averaging Program, the Automatic Transfer Program and the Appreciation or
Interest Sweep Program are alternatives with respect to the selected
Sub-Account, and in all cases with respect to the Fixed Account. However, the
Sub-Account Rebalancing Program may be combined with each of the other Programs,
but it is not available with respect to the Fixed Account. Under each Program,
the related transfers between and among Sub-Accounts and the Fixed Account are
not counted as one of the twelve free transfers. However, if an Owner executes
an unrelated voluntary transfer from the Sub-Account participating in a Program,
other than the Sub-Account Rebalancing Program, the Program will be terminated
for the remainder of the Contract Year. In addition, if a Program is terminated
before six Program transfers have occurred, the six Program transfers are
counted as part of the twelve free transfers. If the balance in a Sub-Account
would be less than $500 as a result of a transfer pursuant to one of these
Programs, other than the Appreciation or Interest Sweep and Sub-Account
Rebalancing Programs, then the entire balance in that Sub-Account will also be
transferred. Each of the Programs has its own requirements, as discussed below.
Some of the Programs described herein may not be immediately available in states
that have not yet approved the corresponding Contract endorsements.
If the Owner has submitted the required telephone authorization form, certain
changes may be made by telephone. For those programs involving transfers, Owners
may change instructions by telephone with regard to which Sub-Accounts or the
Fixed Account Contract Value may be transferred. If SAFECO does not employ
reasonable verification procedures to confirm that instructions communicated by
telephone are genuine, it may be liable for any losses arising out of any action
on its part or any failure or omission to act as a result of its own negligence,
lack of good faith, or willful misconduct.
DOLLAR COST AVERAGING PROGRAM
SAFECO offers a Dollar Cost Averaging Program during the Accumulation Period
whereby an Owner may predesignate a portion of any Sub-Account's Contract Value
or the Fixed Account's Contract Value to be automatically transferred on a
monthly or quarterly basis to one or more of the other Sub-Accounts or to the
Fixed Account. The amount to be transferred may be expressed as a set dollar
amount or as a percentage of the Contract Value in the selected Sub-Account or
the Fixed Account. Transfers from the Fixed Account are subject to a maximum of
1.33% monthly or 4% quarterly of the Contract Value in the Fixed Account at the
time of the initial transfer. Upon election of the Dollar Cost Averaging Program
the limitations on transfers
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from the Fixed Account will be calculated. The resultant limitations will apply
for the entire duration of participation in this Program. Each Dollar Cost
Averaging transfer is subject to a minimum transfer of fifty dollars ($50).
The Dollar Cost Averaging Program is available for Purchase Payments and for
Contract Value transferred into any Sub-Account. An Owner may enroll in this
Program at the time the Contract is issued or anytime thereafter by properly
completing the Dollar Cost Averaging enrollment form and returning it to SAFECO
at its Home Office at least ten (10) business days prior to the first business
day of the month, which is the date that all Program transfers will be made
("Transfer Date"). This Program must be elected for at least a six (6) month
period.
If the Contract Value in the participating Sub-Account or the Fixed Account does
not equal or exceed the amount designated to be transferred on each Transfer
Date, Dollar Cost Averaging will cease automatically and the remaining amount
will be transferred.
Dollar Cost Averaging will terminate when (i) the designated monthly or
quarterly amounts of transfers have been completed, (ii) the Owner requests
termination in writing and such writing is received at the Home Office at least
ten (10) business days prior to the next Transfer Date in order to cancel the
transfer scheduled to take effect on such date, (iii) the Owner effects any
other transfer from the participating Sub-Account or the Fixed Account while the
Dollar Cost Averaging Program is in effect, or (iv) the Contract is surrendered.
In addition, if any transfer or withdrawal has been made from the Fixed Account
during the Contract Year, the Dollar Cost Averaging Program may not be
established through the Fixed Account for that Contract Year.
An Owner may initiate, reinstate or change the Dollar Cost Averaging terms by
properly completing a new enrollment form and returning it to the Home Office at
least ten (10) business days prior to the next Transfer Date such transfer is to
be made.
When utilizing Dollar Cost Averaging an Owner may be invested in either a
Sub-Account or the Fixed Account and may be invested in any other Sub-Accounts
or the Fixed Account at any given time.
AUTOMATIC TRANSFER PROGRAM
The Automatic Transfer Program is identical to the Dollar Cost Averaging Program
in all respects other than with regard to the limitations on transfers from the
Fixed Account. The limitations on transfers from the Fixed Account are
recalculated annually. Transfers from the Fixed Account are limited to 1.5%
monthly and 4.5% quarterly.
APPRECIATION OR INTEREST SWEEP PROGRAM
An Owner may enroll in the Appreciation or Interest Sweep Program through either
or both the SAFECO Resource Money Market Sub-Account or the Fixed Account.
Enrollment is limited to Owners whose total Contract Value is greater than
$10,000. Under the Program, if appreciation of Contract Value in the SAFECO
Resource Money Market Sub-Account or credited interest earned on Contract Value
in the Fixed Account ("Earnings") is greater than 10%, the Earnings up to 10% of
the Contract Value in the Fixed Account or the SAFECO Resource Money Market
Sub-Account, respectively, will be transferred to any of the Sub-Accounts, other
than the SAFECO Resource Money Market Sub-Account. Earnings in the SAFECO
Resource Money Market Sub-Account may not be transferred to the Fixed Account.
In no event may the total Contract Value transferred from the Fixed Account in
each Contract Year exceed a total of 10% of the Contract Value for each such
Contract Year in the Fixed Account computed at the time of the transfer.
Moreover, the Program may not be instituted for the Fixed Account in any
Contract Year during which transfers or withdrawals have been made from the
Fixed Account. Transfers under this Program will be processed monthly, quarterly
or annually on the Transfer Date.
SUB-ACCOUNT REBALANCING PROGRAM
In accordance with the Owner's election of the relative purchase payments
percentage allocations, SAFECO will automatically rebalance the Contract Value
of each variable Sub-Account either quarterly, semi-annually,
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or annually. SAFECO will automatically rebalance the Contract Value in each of
the Sub-Accounts to match the current purchase payments percentage allocations
as of the first Transfer Date during the period selected. Enrollment is limited
to Owners whose total Contract Value is greater than $10,000 at the time the
Program is selected. The Program may be terminated at any time and the
percentages may be altered by written authorization. The requested change must
be received at the Home Office ten (10) days prior to the Transfer Date. If the
Owner terminates the Program, a new Program may not be instituted until the next
Contract Year.
SYSTEMATIC INVESTMENT PROGRAM
Purchase Payments may be made by monthly draft against the bank account of any
Owner that has completed and returned to SAFECO a Systematic Investment Program
application and authorization form. The application and authorization form may
be obtained from SAFECO or from the sales representative. Each Systematic
Investment Program Purchase Payment is subject to a minimum of one hundred
dollars ($100).
PERIODIC WITHDRAWAL PROGRAM
SAFECO will make monthly, quarterly or annual distributions of a predetermined
dollar amount to an Owner that has enrolled in the Periodic Withdrawal Program.
The Periodic Withdrawal Program is to be distinguished from the Systematic
Withdrawal Income PlanTM. (See "Settlement Options.") Under the Program, all
distributions will be made directly to the Owner and will be treated for federal
tax purposes as any other withdrawal or distribution of Contract Value. (See
"Tax Status.") An Owner may specify the amount of each withdrawal, subject to a
minimum of $250. In each Contract Year, up to 10% of Contract Value may be
withdrawn without the imposition of any Contingent Deferred Sales Charge. If
withdrawals pursuant to the Program are greater than 10% of Contract Value in
any Contract Year, the amount of the withdrawals greater than 10% will be
subject to the applicable Contingent Deferred Sales Charge. Any ad hoc
withdrawals an Owner makes during a Contract Year will be aggregated with
withdrawals pursuant to the Program to determine the applicability of any
Contingent Deferred Sales Charge. If the frequency of withdrawals under the
Program is greater than annual, SAFECO will charge an annual fee of $25 to
compensate it for the added administrative costs.
Unless the Owner specifies the Sub-Account or Sub-Accounts or the Fixed Account
from which withdrawals of Contract Value shall be made or if the amount in a
specified Sub-Account is less than the predetermined amount, SAFECO will make
withdrawals under the Program from the Sub-Accounts and the Fixed Account in
amounts proportionate to the amounts in the Sub-Accounts and the Fixed Account.
Withdrawals are subject to the applicable minimum Sub-Account balances. All
withdrawals under the Program will be effected by canceling the number of
Accumulation Units equal in value to the amount to be distributed to the Owner
and any applicable Contingent Deferred Sales Charge.
The Program may be combined with all other Programs except those entailing
transfers or withdrawals from the Fixed Account. However, the Owner may
terminate such other program and may begin participation in the Program on the
first day of the next Contract Year.
It may not be advisable to participate in the Program and incur a Contingent
Deferred Sales Charge when making additional Purchase Payments under the
Contract.
TAX STATUS
NOTE: The following description is based upon SAFECO's understanding of current
federal income tax law applicable to annuities in general. SAFECO cannot predict
the probability that any changes in such laws will be made. Purchasers are
cautioned to seek competent tax advice regarding the possibility of such
changes. SAFECO does not guarantee the tax status of the Contracts. 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
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Prospectus may be applicable in certain situations. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
GENERAL
Section 72 of the Code governs taxation of annuities in general. An Owner is 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
Settlement Option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed at ordinary income tax rates on the
portion of the payment that exceeds the cost basis of the Contract. For
Non-Qualified Contracts, this cost basis is generally the Purchase Payments,
while for Qualified Contracts there may be no cost basis.
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 fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning of
Section 72 of the Code resulting in the annuity payments being fully includable
in taxable income. Owners, Annuitants and Beneficiaries under the Contracts
should seek competent financial advice about the tax consequences of any
distributions.
SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.
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 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 investment
portfolios underlying variable contracts such as the Contracts. 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."
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<PAGE> 40
SAFECO intends that all Portfolios of the Trust and the Funds 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 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 policy
owner was not the owner of the assets of separate account. It is unknown whether
these differences, such as the Owner's ability to transfer among investment
choices or the number and type of investment choices available, would cause the
Owner to be considered as the owner of the assets of the Separate Account
resulting in the imposition of federal income tax to the Owner 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 Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO 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
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
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.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
Federal income tax. The 20% withholding requirement does not apply to: a)
distributions for the life or life expectancy of the participant or joint and
last survivor expectancy of the participant and a designated beneficiary; or b)
distributions for a specified period of 10 years or more; or c) distributions
which are required minimum distributions. Participants should consult their own
tax counsel or other tax advisor regarding withholding.
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
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<PAGE> 41
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.)
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. 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 the types of
Qualified Plans with which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding Qualified Plans are very complex and will have differing applications
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued under a Qualified
Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (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 SAFECO in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity 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"
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.
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b. INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "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.) Under certain conditions, distributions from
other IRAs and other Qualified 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.
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 qualified retirement plans, including Contracts issued and
qualified under Code Sections 403(b) (Tax-Sheltered Annuities) and 408(b)
(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
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) if distribution is made on or after the date
on which the 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; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order. 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 Qualified Plan must commence no later than April
1 of the calendar year, following the year in which the employee attains age 70
1/2. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required maximum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year in the
case of periodic distributions and in excess of $750,000 in the case of lump sum
distributions may be subject to an additional 15% excise tax unless an exemption
applies.
TAX-SHELTERED 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; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
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 Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
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CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Generally, any gain in the Contract will be taxed currently to the Owner if the
Contract is not held for the benefit of a natural person. Such Contracts
generally will not be treated as annuities for federal income tax purposes.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account, SSI or PNMR is a
party. SAFECO is engaged in various kinds of litigation which, in the opinion of
SAFECO, is not of material importance in relation to the total capital and
surplus of SAFECO.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUITY PROVISIONS.................................................................... 3
General............................................................................. 3
Annuity Unit........................................................................ 3
Assumed Investment Factor........................................................... 3
Variable Annuity Payment Calculation................................................ 3
ADDITIONAL PERFORMANCE INFORMATION.................................................... 3
Performance Comparisons............................................................. 3
Performance Information............................................................. 3
Yields........................................................................... 3
Total Returns.................................................................... 4
EXPERTS............................................................................... 5
FINANCIAL STATEMENTS.................................................................. 5
SAFECO Separate Account C........................................................... 6
SAFECO Life Insurance Company and Subsidiaries...................................... 15
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
SAFECO LIFE INSURANCE COMPANY
GENERAL INFORMATION
SAFECO
SAFECO Life Insurance Company (SAFECO) is a wholly-owned subsidiary of SAFECO
Corporation which is a holding company whose subsidiaries are engaged primarily
in insurance and financial services businesses.
At March 31, 1996, SAFECO Life Insurance Company owned 68% of the outstanding
shares of the Resource Series Trust ("RST") Northwest Portfolio and 100% of the
outstanding shares of each of the RST Equity, Growth, Bond and Money Market
Portfolios. At March 31, 1996, SAFECO Asset Management ("SAM"), which is the RST
investment advisor, owned 32% of the outstanding shares of the RST Northwest
Portfolio. SAFECO Life Insurance Company and SAM are wholly-owned subsidiaries
of SAFECO Corporation.
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
SAFECO holds the assets of the Separate Account. The assets are kept segregated
and held separate and apart from the general account assets of SAFECO. SAFECO
maintains records of all Separate Account purchases and redemptions of the
shares of each Portfolio of SAFECO Resource Series Trust (Trust), Federated
Insurance Series, Lexington Emerging Markets Fund, Inc., Lexington Natural
Resources Trust, and Scudder Variable Life Investment Fund.
INDEPENDENT AUDITORS
Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, Washington 98104, is
the independent auditor of the financial statements of SAFECO Life Insurance
Company and Subsidiaries and SAFECO Separate Account C.
DISTRIBUTOR
Currently, SAFECO Securities, Inc. (SSI), acts as the principal underwriter for
the Contracts. The offering is on a continuous basis. Prior to April 29, 1994,
PNMR Securities, Inc. (PNMR) acted as the principal underwriter for the
Contracts. SSI and PNMR are both wholly-owned subsidiaries and affiliates of
SAFECO. For the years ended 1994 and 1995, PNMR, through SSI, received $663,188
and $1,178,617 in commissions for the distribution of the Contracts of which no
payments were retained.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus for the Individual Flexible Purchase Payment
Deferred Variable Annuity Contracts.
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus, call 1-800-426-7649
or write to SAFECO Life Insurance Company, Annuity Service Office, Retirement
Services Department, P.O. Box 34690, Seattle, Washington 98124-1690.
This Statement of Additional Information and the Prospectus are both dated April
29, 1996.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ANNUITY PROVISIONS.................................................................... 3
General............................................................................. 3
Annuity Unit........................................................................ 3
Assumed Investment Factor........................................................... 3
Variable Annuity Payment Calculation................................................ 3
ADDITIONAL PERFORMANCE INFORMATION.................................................... 3
Performance Comparisons............................................................. 3
Performance Information............................................................. 3
Yields........................................................................... 3
Total Returns.................................................................... 4
EXPERTS............................................................................... 5
FINANCIAL STATEMENTS.................................................................. 5
SAFECO Separate Account C........................................................... 6
SAFECO Life Insurance Company and Subsidiaries...................................... 15
</TABLE>
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ANNUITY PROVISIONS
GENERAL
The Settlement Options and related provisions are described in the Prospectus.
ANNUITY UNIT
The value of the Annuity Unit is determined by multiplying the value of the
Annuity Unit for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the value is being
calculated, and dividing the result by the Assumed Investment Factor for such
Valuation Period.
ASSUMED INVESTMENT FACTOR
The Assumed Investment Factor for a one day Valuation Period is 1.00010746. This
factor neutralizes the assumed investment return of 4% in the Variable Annuity
purchase rate table in the Contract.
VARIABLE ANNUITY PAYMENT CALCULATION
A Variable Annuity is an Annuity with payments which are not predetermined as to
dollar amount. Payments will vary in accordance with the net investment results
of the Separate Account. The dollar amount of the first monthly Variable Annuity
payment under Settlement Options (a), (b) or (c), will be 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 in
the Contract. The number of Annuity Units to be credited to the Annuitant will
be determined by dividing the first monthly payment by the Annuity Unit value
calculated as of the 15th day of the preceding month. This number of Annuity
Units remains fixed during the Annuity payment period. The dollar amount of each
Variable Annuity payment after the first shall be determined by multiplying the
number of Annuity Units credited to the Annuitant by the Annuity Unit value as
of the 15th day of the preceding month.
ADDITIONAL PERFORMANCE INFORMATION
STANDARDIZED COMPUTATION OF PERFORMANCE
PERFORMANCE COMPARISONS. Performance Information for a Sub-Account may be
compared, in reports and advertising, to: (i) Standard & Poor's Stock Index, Dow
Jones Industrial Averages, Donahue Money Market Institutional Averages, or other
unmanaged indices generally regarded as representative of the securities
markets; (ii) other Variable Annuity separate accounts or other investment
products traced by Lipper Analytical Services, Inc., the Variable Annuity
Research and Data Service, or Morningstar, Inc., which are widely used
independent research firms that rank mutual funds and other investment companies
by overall performance, investment objectives and assets; and (iii) the Consumer
Price Index (a measure of inflation) to assess the real rate of return from an
investment in a Contract. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for annuity charges,
investment management costs, brokerage costs and other transaction costs that
are normally paid when directly investing in securities.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising also may contain other information, including the ranking of any
Sub-Account derived from rankings of Variable Annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or by rating
services, companies, publications, or other persons which rank separate accounts
or other investment products on overall performance or other criteria.
PERFORMANCE INFORMATION.
YIELDS. Some Sub-Accounts may advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the Sub-Account over
a stated period of time, not taking in to account capital
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<PAGE> 47
gains or losses or the imposition of any Contingent Deferred Sales Charge.
Yields are annualized and stated as a percentage.
Current yield and effective yield are calculated for the SAFECO Resource Money
Market Sub-Account. Current Yield is based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular seven
(7) day period, less a hypothetical charge reflecting deductions from values
during the period (the base period), and stated as a percentage of the
investment at the start of the base period (the base period return). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent. Effective
yield assumes that all dividends received during an annual period have been
reinvested. This compounding effect causes effective yield to be higher than
current yield. Calculation of effective yield begins with the same base period
return used in the calculation of current yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365 /7)] - 1
Yield for the SAFECO Resource Bond Sub-Account and Federated High Income Bond
Sub-Account is based on all investment income (including dividends and interest)
per accumulation unit earned during a particular thirty (30) day period, less
expenses accrued during the period (net investment income). Yield is computed by
dividing net investment income by the value of an accumulation unit on the last
day of the period, according to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1]
where a = net investment income earned during the period by the corresponding
Available Fund portfolio, b = expenses accrued for the period (net of any
reimbursements), c = the average daily number of accumulation units outstanding
during the period, and d = the value (maximum offering price) per accumulation
unit on the last day of the period.
TOTAL RETURNS. Total return reflects all aspects of a Sub-Account's return,
including the automatic reinvestment by the Sub-Account of all distributions and
the deduction of all applicable charges to the Sub-Account on an annual basis,
including mortality and expense risk charges, the Annual Administration
Maintenance Charge, the Asset Related Administration Charge, and any other
charges against Contract Value. Quotations also will assume a termination
(surrender) at the end of the particular period and reflect the deduction of the
Contingent Deferred Sales Charge, if applicable. Additional quotations may be
given that do not assume a termination (surrender) and do not take into account
deduction of the Contingent Deferred Sales Charge, since the Contracts are
intended as long-term products.
From time to time, non-standardized total return figures may accompany the
standardized figures. Non-standardized total return figures may be calculated in
a variety of ways including but not necessarily limited to different time
periods, different initial investment amounts, additions of periodic payments,
use of time weighted average annual returns which take into consideration the
length of time each investment has been on deposit, and without the
Administration Charge and/or with or without the Contingent Deferred Sales
Charge. Non-standardized figures may cause the performance of the Sub-Accounts
to appear higher than performance calculated using standard parameters.
Average annual total returns are calculated by determining the growth or decline
in value of a hypothetical investment in the Sub-Account over certain periods,
including 1, 5, and 10 years (up to the life of the Sub-Account), and then
calculating the annually compounded percentage rate that would have produced the
same result if the rate of growth or decline in value had been constant over the
period. Investors should realize that the Sub-Account's experience is not
constant over time, but changes from year to year, and that the average annual
returns represent averaged figures as opposed to the year-to-year performance of
a Sub-Account. Average annual returns are calculated pursuant to the following
formula: P(1 + T)(n) = ERV, where P is a hypothetical initial payment of $1,000,
T is the average annual total return, n is the number of years, and ERV is the
withdrawal value at the end of the period.
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<PAGE> 48
Cumulative total returns are unaveraged and reflect the simple change in value
of a hypothetical investment in the Sub-Account over a stated period of time.
EXPERTS
The financial statements of SAFECO Separate Account C and SAFECO Life Insurance
Company and Subsidiaries appearing in the Statement of Additional Information
have been audited by Ernst & Young LLP, independent auditors, as set forth to
the extent indicated in their reports thereon also appearing in the Statement of
Additional Information. Such financial statements have been included therein in
reliance on their reports given on their authority as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The consolidated financial statements of SAFECO Life Insurance Company and
Subsidiaries and SAFECO Separate Account C included herein should be considered
only as bearing upon the ability of SAFECO to meet its obligations under the
Contracts.
5
<PAGE> 49
FINANCIAL STATEMENTS
SAFECO SEPARATE ACCOUNT C
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 7
Statement of Assets and Liabilities as of December 31, 1995........................... 8
Statement of Operations for the year ended December 31, 1995.......................... 9
Statements of Changes in Net Assets for the year or period ended December 31, 1995 and
December 31, 1994................................................................... 10
Notes to Financial Statements (including accumulation unit data)...................... 12
</TABLE>
6
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and
Participants of SAFECO Separate Account C
We have audited the accompanying statement of assets and liabilities of SAFECO
Separate Account C (comprising, respectively, the Equity, Growth, Northwest,
Bond, Money Market, International, and Balanced Sub-Accounts), as of December
31, 1995, the related statement of operations for the year then ended, and the
statement of changes in net assets and accumulation unit data for the year ended
December 31, 1995 and for the period from February 11, 1994 (commencement of
operations) to December 31, 1994. These financial statements and accumulation
unit data are the responsibility of the SAFECO Separate Account C's management.
Our responsibility is to express an opinion on these financial statements and
accumulation unit data based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and accumulation
unit data are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the SAFECO Resource Series Trust and
Scudder Variable Life Investment Fund. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and accumulation unit data referred to
above present fairly, in all material respects, the financial position of each
of the respective Sub-Accounts constituting the SAFECO Separate Account C at
December 31, 1995, the results of their operations, the changes in their net
assets, and the accumulation unit data for the period referred to above, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
January 26, 1996
7
<PAGE> 51
December 31, 1995
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------
AS OF DECEMBER 31, 1995 EQUITY GROWTH NW BOND MMKT INT'L BAL
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
-- (In Thousands, Except Per-Unit Amounts) --
ASSETS:
Investments, at value:
SAFECO Resource Series
Trust - Equity Portfolio
734,150 shares at net asset value
of $19.24 per share
(identified cost $13,937) $14,128
SAFECO Resource Series
Trust - Growth Portfolio
624,283 shares at net asset value
of $15.88 per share
(identified cost $9,296) $ 9,911
SAFECO Resource Series
Trust - Northwest Portfolio
57,748 shares at net asset value
of $10.85 per share
(identified cost $630) $ 626
SAFECO Resource Series
Trust - Bond Portfolio
56,749 shares at net asset value
of $11.31 per share
(identified cost $636) $ 642
SAFECO Resource Series
Trust - Money Market Portfolio
1,411,732 shares at net asset value
of $1.00 per share
(identified cost $1,412) $ 1,412
Scudder Variable Life Investment
Fund - International Portfolio
270,884 shares at net asset value
of $11.82 per share
(identified cost $2,991) $ 3,201
Scudder Variable Life Investment
Fund - Balanced Portfolio
153,755 shares at net asset value
of $10.95 per share
(identified cost $1,537) $ 1,684
Cash 3 - - 1 - 1 -
-------- -------- -------- -------- -------- -------- --------
Total assets 14,131 9,911 626 643 1,412 3,202 1,684
-------- -------- -------- -------- -------- -------- --------
LIABILITIES:
Mortality and expense risk charge payable 15 10 - 1 2 3 2
Fees payable 3 - - 1 - 1 -
-------- -------- -------- -------- -------- -------- --------
Total liabilities 18 10 - 2 2 4 2
-------- -------- -------- -------- -------- -------- --------
NET ASSETS $14,113 $ 9,901 $ 626 $ 641 $ 1,410 $ 3,198 $ 1,682
======== ======== ======== ======== ======== ======== ========
ACCUMULATION UNITS OUTSTANDING 438 479 58 35 98 278 135
======== ======== ======== ======== ======== ======== ========
ACCUMULATION UNIT VALUE AND REDEMPTION
PRICE PER UNIT
(Net assets divided by accumulation
units outstanding) $32.209 $20.668 $ 10.737 $ 18.045 $ 14.370 $ 11.504 $ 12.481
======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
8
<PAGE> 52
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
EQUITY GROWTH NW BOND MMKT INT'L BAL
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- ($ in Thousands) --
INVESTMENT INCOME:
Income dividends and capital
gain distributions $ 1,553 $ 1,295 $ 9 $ 36 $ 65 $ 8 $ 27
EXPENSES:
Mortality and expense risk
charge 104 67 5 4 15 29 11
Administration charge 13 11 1 1 2 4 1
-------- -------- -------- -------- -------- -------- --------
TOTAL EXPENSES 117 78 6 5 17 33 12
-------- -------- -------- -------- -------- -------- --------
NET INVESTMENT INCOME (LOSS) 1,436 1,217 3 31 48 (25) 15
-------- -------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on
investments 82 78 4 4 - 2 9
Net change in unrealized
appreciation 470 642 (3) 17 - 261 151
-------- -------- -------- -------- -------- -------- --------
NET GAIN ON INVESTMENTS 552 720 1 21 - 263 160
-------- -------- -------- -------- -------- -------- --------
NET CHANGE IN NET ASSETS
RESULTING
FROM OPERATIONS $ 1,988 $ 1,937 $ 4 $ 52 $ 48 $ 238 $ 175
======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
9
<PAGE> 53
December 31, 1995
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------------------------------------
EQUITY GROWTH NW
------------------------------------------------------------------------------------
FOR THE YEAR OR PERIOD ENDED DECEMBER 31
1995 1994* 1995 1994* 1995 1994*
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------
-- ($ in Thousands) --
OPERATIONS:
Net investment income (loss) $ 1,436 $ 321 $ 1,217 $ 97 $ 3 $ -
Net realized gain (loss) on
investments 82 7 78 3 4 1
Net change in unrealized
appreciation/depreciation 470 (279) 642 (27) (3) (1)
-------- -------- -------- -------- -------- --------
Net change in net assets
resulting from operations 1,988 49 1,937 73 4 -
NET ACCUMULATION UNIT
TRANSACTIONS 8,464 3,612 5,673 2,218 398 224
-------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 10,452 3,661 7,610 2,291 402 224
NET ASSETS AT BEGINNING OF YEAR 3,661 - 2,291 - 224 -
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ 14,113 $ 3,661 $ 9,901 $ 2,291 $ 626 $ 224
======== ======== ======== ======== ======== ========
OTHER INFORMATION
Increase (Decrease) in Units
and Amounts
UNITS:
Sales 312 146 339 156 38 22
Redemptions (18) (2) (14) (2) (2) -
-------- -------- -------- -------- -------- --------
Net change 294 144 325 154 36 22
======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $ 8,986 $ 3,674 $ 5,916 $ 2,247 $ 419 $ 225
Redemptions (522) (62) (243) (29) (21) (1)
-------- -------- -------- -------- -------- --------
Net change $ 8,464 $ 3,612 $ 5,673 $ 2,218 $ 398 $ 224
======== ======== ======== ======== ======== ========
DECEMBER 31, 1995:
Paid in capital $ 12,075 $ 7,891 $ 622
Par value per unit None None None
Accumulation units authorized Unlimited Unlimited Unlimited
</TABLE>
* For the period from February 11, 1994 (Commencement of operations) to December
31, 1994.
See Notes to Financial Statements
10
<PAGE> 54
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(Continued)
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
BOND MMKT INT'L BAL
---------------------------------------------------------------------------------------------
FOR THE YEAR OR PERIOD ENDED DECEMBER 31
1995 1994* 1995 1994* 1995 1994* 1995 1994*
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
-- ($ in Thousands) --
OPERATIONS:
Net investment income (loss) $ 31 $ 10 $ 48 $ 9 $ (25) $ (7) $ 15 $ 2
Net realized gain (loss) on
investments 4 - - - 2 1 9 -
Net change in unrealized
appreciation/depreciation 17 (11) - - 261 (51) 151 (4)
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net assets
resulting from operations 52 (1) 48 9 238 (57) 175 (2)
NET ACCUMULATION UNIT
TRANSACTIONS 370 220 (358) 1,711 1,516 1,501 1,012 497
-------- -------- -------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 422 219 (310) 1,720 1,754 1,444 1,187 495
NET ASSETS AT BEGINNING OF
YEAR 219 - 1,720 - 1,444 - 495 -
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ 641 $ 219 $ 1,410 $ 1,720 $ 3,198 $ 1,444 $ 1,682 $ 495
======== ======== ======== ======== ======== ======== ======== ========
OTHER INFORMATION
Increase (Decrease) in Units
and Amounts
UNITS:
Sales 29 14 618 452 168 140 92 50
Redemptions (8) - (645) (327) (28) (2) (7) -
-------- -------- -------- -------- -------- -------- -------- --------
Net change 21 14 (27) 125 140 138 85 50
======== ======== ======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $ 500 $ 223 $ 8,740 $ 6,195 $ 1,817 $ 1,525 $ 1,091 $ 497
Redemptions (130) (3) (9,098) (4,484) (301) (24) (79) -
-------- -------- -------- -------- -------- -------- -------- --------
Net change $ 370 $ 220 $ (358) $ 1,711 $ 1,516 $ 1,501 $ 1,012 $ 497
======== ======== ======== ======== ======== ======== ======== ========
DECEMBER 31, 1995:
Paid in capital $ 589 $ 1,353 $ 3,017 $ 1,509
Par value per unit None None None None
Accumulation units
authorized Unlimited Unlimited Unlimited Unlimited
</TABLE>
* For the period from February 11, 1994 (Commencement of operations) to
December 31, 1994.
See Notes to Financial Statements
11
<PAGE> 55
December 31, 1995
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Separate Account C is registered under the Investment Company Act of
1940, as amended, as a segregated unit investment account of SAFECO Life
Insurance Company (SAFECO), a wholly-owned subsidiary of SAFECO Corporation.
Purchasers of variable annuity products direct their investment to one of
seven sub-accounts of Separate Account C. Each sub-account invests in shares
of a designated portfolio of either the SAFECO Resource Series Trust or the
Scudder Variable Life Investment Fund. Separate Account C became available
to unitholders on February 11, 1994 (commencement of operations).
The five portfolios of SAFECO Resource Series Trust available to unitholders
are the Equity, Growth, Northwest (NW), Bond, and Money Market (MMKT)
portfolios. The two portfolios of Scudder Variable Life Investment Fund
available to unitholders are the International (INT'L) and Balanced (BAL)
portfolios.
The assets of Separate Account C are the property of SAFECO and are not
commingled with liabilities arising out of any other business of SAFECO.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION -- Investments in mutual fund shares are carried in the
statement of assets and liabilities at net asset value as reported by the
portfolio. Security transactions are recorded on the trade date. Realized
gains or losses on securities transactions are determined using the First-In
First-Out (FIFO) cost method.
DISTRIBUTIONS -- The net investment income and realized capital gains of
Separate Account C are not distributed, but are retained and reinvested for
the benefit of accumulation unit owners.
FEDERAL INCOME TAX -- Operations of Separate Account C are included in the
federal income tax return of SAFECO, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax
law, no income taxes are payable with respect to operations of Separate
Account C.
UNIT VALUE CALCULATION -- For financial reporting purposes, amounts have
been rounded to the nearest thousand dollars, except for per unit amounts,
which may result in minor rounding differences. Per unit amounts are
calculated based on precise amounts.
3. EXPENSES
A mortality and expense risk charge is deducted by SAFECO from Separate
Account C on a daily basis which is equal, on an annual basis, to 1.25% of
the average daily net assets. The mortality risks assumed by SAFECO arise
from its contractual obligation to make annuity payments after the annuity
date for the life of the participant and to waive withdrawal charges in the
event of the death of a participant. The expense risk assumed by SAFECO is
that the costs of administering the contracts and Separate Account C will
exceed the amount received from the administration charge.
Separate Account C also pays SAFECO an amount which is equal on an annual
basis to .15% of the average daily net assets of the Separate Account for
costs associated with the administration of the
12
<PAGE> 56
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. EXPENSES - CONTINUED
sub-accounts. Since this charge is an asset-based charge, the amount of the
charge attributable to a particular contract may have no relationship to the
administrative costs actually incurred by that contract. SAFECO does not
intend to profit from this charge. This charge will be reduced to the extent
that the amount of this charge is in excess of that necessary to reimburse
SAFECO for its administrative expenses.
The following expenses are deducted from a contractholder's contract value
by SAFECO and not directly from Separate Account C. As a fee for expenses
associated with the administration of the contract owner's contract value,
an annual charge of $30 is deducted by SAFECO from the accumulated value of
each contract value on the last day of each Contract Year and in the event
of a complete withdrawal, this charge is only deducted from contracts where
the contract value is less than $50,000. In the event that an owner
withdraws all or a portion of the contract value, a contingent deferred
sales charge is imposed on the amount withdrawn in the first eight
certificate years. Any premium tax levied by a state or government entity
with respect to the Separate Account C contract will be charged against the
contract.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------------------
EQUITY GROWTH NW BOND MMKT INT'L BAL
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
-- ($ in Thousands) --
PURCHASES for the year
ended
December 31, 1995 $10,766 $ 7,394 $ 443 $ 558 $ 9,386 $ 1,906 $ 1,120
======== ======== ======== ======== ======== ======== ========
SALES for the year ended
December 31, 1995 $ 855 $ 496 $ 42 $ 156 $ 9,695 $ 414 $ 92
======== ======== ======== ======== ======== ======== ========
</TABLE>
5. ACCUMULATION UNIT DATA
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------------------
EQUITY GROWTH NW BOND MMKT INT'L BAL
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
February 11, 1994
(Commencement of
Operations) $24.528 $13.910 $ 10.073 $ 16.217 $ 13.526 $ 10.948 $ 10.435
December 31, 1994 25.373 14.864 10.134 15.521 13.811 10.498 9.988
December 31, 1995 32.209 20.668 10.737 18.045 14.370 11.504 12.481
</TABLE>
13
<PAGE> 57
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors ........................................... 1
Consolidated Financial Statements
Consolidated Balance Sheet ................................. 2
Statement of Consolidated Income ........................... 4
Statement of Changes in Stockholder's Equity ............... 5
Statement of Consolidated Cash Flows ....................... 6
Notes to Consolidated Financial Statements ................. 8
</TABLE>
<PAGE> 58
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
SAFECO Life Insurance Company
We have audited the accompanying consolidated balance sheet of SAFECO Life
Insurance Company and subsidiaries as of December 31, 1995 and 1994, and the
related statements of consolidated income, changes in stockholder's equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAFECO Life
Insurance Company and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As described in Note 1 to the Consolidated Financial Statements, SAFECO Life
Insurance Company and subsidiaries adopted certain new accounting standards in
1995, 1994, and 1993 as required by the Financial Accounting Standards Board.
/s/ ERNST & YOUNG LLP
Seattle, Washington
February 9, 1996
1
<PAGE> 59
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1995-$7,195,332; 1994-$6,116,932) ................ $ 7,720,108 $5,915,662
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1995-$2,388,514; 1994-$1,948,309) .................. 2,044,517 2,053,132
Marketable Equity Securities, at Market Value
(Cost: 1995-$14,904; 1994-$15,846) ................................ 25,776 22,747
First Mortgage Loans on Real Estate:
Nonaffiliates (Less allowance for losses: 1995-$9,633; 1994-$9,511) 416,110 418,440
Affiliates ........................................................ 137,823 134,157
Real Estate (At cost, less accumulated depreciation:
1995-$398; 1994-$412) ............................................. 4,972 5,149
Policy Loans ......................................................... 55,925 53,329
Short-Term Investments (At cost which approximates market) ........... 68,614 62,789
Investment in Limited Partnerships ................................... 1,289 1,219
----------- ----------
Total Investments .............................................. 10,475,134 8,666,624
Cash ..................................................................... 34,886 26,710
Accrued Investment Income ................................................ 150,897 141,907
Accounts and Notes Receivable (Less allowance for doubtful accounts:
1995-$72; 1994-$160) ................................................. 27,971 21,189
Reinsurance Recoverables (Note 5) ........................................ 16,656 15,517
Deferred Policy Acquisition Costs (Less valuation allowance:
1995-$42,815; 1994-$0) ............................................... 210,491 247,190
Other Assets ............................................................. 5,739 6,494
Deferred Income Taxes Recoverable (Includes tax on unrealized
depreciation of investment securities: 1994-$68,028) (Note 9) ........ -- 30,229
Assets Held in Separate Accounts ......................................... 276,399 158,266
----------- ----------
Total Assets ................................................... $11,198,173 $9,314,126
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 60
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits ...................................... $ 154,090 $ 155,322
Policy and Contract Claims .................................. 26,407 29,050
Premiums Paid in Advance .................................... 8,209 8,783
Funds Held Under Deposit Contracts .......................... 8,756,384 7,988,456
Other Policyholders' Funds .................................. 323,302 74,308
----------- -----------
Total Policy and Contract Liabilities .................... 9,268,392 8,255,919
Other Liabilities .............................................. 112,008 89,239
Federal Income Taxes (Note 9):
Current ..................................................... 13,047 12,464
Deferred (Includes tax on unrealized appreciation of
investment securities: 1995 - $172,493) .................. 196,492 --
Liabilities Related to Separate Accounts ....................... 276,399 158,266
----------- -----------
Total Liabilities ........................................ 9,866,338 8,515,888
----------- -----------
Stockholder's Equity:
Common Stock, $250 Par Value;
20,000 Shares Authorized, Issued and Outstanding ............ 5,000 5,000
Additional Paid-In Capital ..................................... 85,000 85,000
Retained Earnings (Note 7) ..................................... 921,383 834,467
Unrealized Appreciation (Depreciation) of Investment Securities,
Net of Tax (Note 2) ......................................... 320,452 (126,229)
----------- -----------
Total Stockholder's Equity ............................... 1,331,835 798,238
----------- -----------
Total Liabilities and Stockholder's Equity ......... $11,198,173 $ 9,314,126
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 61
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---------- -------- ----------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums ........................................... $ 237,025 $252,929 $ 279,628
Investment Income:
Interest on Fixed Maturities .................... 716,510 648,296 612,805
Interest on Mortgage Loans ...................... 51,912 51,135 48,207
Interest on Short-Term Investments .............. 4,017 3,351 3,334
Dividends from Marketable Equity Securities ..... 1,387 1,446 1,817
Dividends from Redeemable Preferred Stock ....... 3,065 618 --
Other Investment Income ......................... 4,155 4,375 4,862
---------- -------- ----------
Total ..................................... 781,046 709,221 671,025
Less Investment Expenses ........................... 3,546 3,551 3,303
---------- -------- ----------
Net Investment Income .............................. 777,500 705,670 667,722
---------- -------- ----------
Other Revenue ...................................... 11,608 9,795 11,850
Realized Investment Gain ........................... 5,676 5,639 53,544
---------- -------- ----------
Total ..................................... 1,031,809 974,033 1,012,744
---------- -------- ----------
Benefits and Expenses:
Policy Benefits .................................... 723,466 674,215 675,479
Commissions ........................................ 79,163 84,760 82,262
Personnel Costs .................................... 42,314 42,439 43,244
Taxes Other Than Payroll and Income Taxes .......... 7,913 7,652 8,477
Other Operating Expenses ........................... 42,978 44,519 40,430
Amortization of Deferred Policy Acquisition Costs .. 32,376 29,407 26,350
Deferral of Policy Acquisition Costs ............... (35,347) (43,360) (38,925)
---------- -------- ----------
Total ..................................... 892,863 839,632 837,317
---------- -------- ----------
Income before Federal Income Taxes ..................... 138,946 134,401 175,427
---------- -------- ----------
Provision (Benefit) for Federal Income Taxes (Note 9):
Current ............................................ 61,830 57,365 91,597
Deferred ........................................... (13,800) (10,154) (26,135)
---------- -------- ----------
Total ..................................... 48,030 47,211 65,462
---------- -------- ----------
Income Before Cumulative Effect of Accounting Changes .. 90,916 87,190 109,965
Cumulative Effect of Accounting Changes (Notes 8 and 9):
Postretirement Benefits (Net of tax) ............... -- -- (2,493)
Income Taxes ....................................... -- -- 9,092
---------- -------- ----------
Net Income ............................................. $ 90,916 $ 87,190 $ 116,564
========== ======== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 62
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
----------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Common Stock .......................................... $ 5,000 $ 5,000 $ 5,000
----------- --------- ---------
Additional Paid-In Capital ............................ 85,000 85,000 85,000
----------- --------- ---------
Retained Earnings:
Balance at the Beginning of Year ............... 834,467 751,277 638,713
Net Income ..................................... 90,916 87,190 116,564
Dividends to Parent ............................ (4,000) (4,000) (4,000)
----------- --------- ---------
Balance at the End of Year ..................... 921,383 834,467 751,277
----------- --------- ---------
Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax (Note 2):
Balance at the Beginning of Year ............... (126,229) 6,828 5,968
Net Effect of Adoption of FASB Statement 115 ... -- 279,957 --
Change in Unrealized Appreciation (Depreciation) 474,511 (413,014) 860
Change in Deferred Policy Acquisition Costs
Valuation Allowance ......................... (27,830) -- --
----------- --------- ---------
Balance at the End of Year ..................... 320,452 (126,229) 6,828
----------- --------- ---------
Stockholder's Equity ..................... $ 1,331,835 $ 798,238 $ 848,105
=========== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 63
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received ......................... $ 216,269 $ 233,129 $ 264,254
Dividends and Interest Received ..................... 703,053 641,234 589,916
Other Operating Receipts ............................ 10,607 11,419 11,814
Insurance Claims and Policy Benefits Paid ........... (272,206) (242,523) (270,702)
Underwriting, Acquisition and Insurance
Operating Costs Paid ............................. (169,904) (177,188) (168,809)
Income Taxes Paid ................................... (61,247) (60,566) (94,169)
----------- ----------- -----------
Net Cash Provided by Operating Activities .. 426,572 405,505 332,304
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale .............. (1,424,510) (1,110,154) --
Fixed Maturities Held-to-Maturity ................ (291,965) (358,297) (2,106,558)
Marketable Equity Securities ..................... (260) (407) (132)
Other Investments ................................ (14) (24,381) (53)
Policy and Nonaffiliated Mortgage Loans .......... (55,302) (68,710) (62,156)
Affiliated Mortgage Loans ........................ (12,643) (54,000) --
Maturities of Fixed Maturities Available-for-Sale ... 375,291 476,410 --
Maturities of Fixed Maturities Held-to-Maturity ..... 17,878 54,564 644,532
Sales of:
Fixed Maturities Available-for-Sale .............. 327,160 250,227 --
Fixed Maturities Held-to-Maturity ................ -- -- 675,044
Marketable Equity Securities ..................... 2,172 65 6,323
Other Investments ................................ 180 23,992 --
Real Estate ...................................... 876 1,885 115
Policy and Nonaffiliated Mortgage Loans .......... 50,734 42,038 43,107
Affiliated Mortgage Loans ........................ 8,977 6,714 2,324
Net (Increase) Decrease in Short-Term Investments ... (5,811) 11,793 10,343
Other ............................................... (122) 947 (1,190)
----------- ----------- -----------
Net Cash Used in Investing Activities ...... (1,007,359) (747,314) (788,301)
----------- ----------- -----------
FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts .............. 1,304,665 1,012,164 1,001,880
Return of Funds Held Under Deposit Contracts ........ (720,845) (659,697) (555,429)
Dividends to Parent ................................. (4,000) (4,000) (4,000)
Net Proceeds from Short-Term Borrowings ............. 9,143 842 15,569
----------- ----------- -----------
Net Cash Provided by Financing Activities .. 588,963 349,309 458,020
----------- ----------- -----------
Net Increase in Cash .................................... 8,176 7,500 2,023
Cash at Beginning of Year ............................... 26,710 19,210 17,187
----------- ----------- -----------
Cash at End of Year ..................................... $ 34,886 $ 26,710 $ 19,210
=========== =========== ===========
</TABLE>
For purposes of reporting cash flows, cash consists of balances on hand and on
deposit in banks and financial institutions.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE> 64
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS -
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
Net Income ......................................... $ 90,916 $ 87,190 $ 116,564
--------- --------- ---------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain .................... (5,676) (5,639) (53,544)
Amortization of Fixed Maturity Investments .. (26,050) (12,247) (10,476)
Deferred Federal Income Tax Benefit ......... (13,800) (10,154) (26,135)
Interest Expense on Deposit Contracts ....... 432,327 405,536 400,122
Cumulative Effect of Accounting Changes ..... -- -- (6,599)
Other ....................................... 3,140 (440) 205
Changes in:
Future Policy Benefits ................... (1,232) 3,834 1,322
Policy and Contract Claims ............... (2,643) (4,136) (5,577)
Premiums Paid in Advance ................. (574) (1,174) (476)
Deferred Policy Acquisition Costs ........ (6,116) (12,990) (12,575)
Accrued Investment Income ................ (8,990) (13,695) (9,185)
Accrued Interest on Accrual Bonds ........ (36,908) (41,285) (56,712)
Other Receivables ........................ (2,353) 5,064 (3,937)
Current Federal Income Taxes ............. 583 (3,201) (2,572)
Other Assets and Liabilities ............. 449 1,820 7,397
Other Policyholders' Funds ............... 3,499 7,022 (5,518)
--------- --------- ---------
Total Adjustments ..................... 335,656 318,315 215,740
--------- --------- ---------
Net Cash Provided by Operating Activities .......... $ 426,572 $ 405,505 $ 332,304
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE> 65
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. SAFECO Life Insurance Company (the Company) is a
stock life insurance company organized under the laws of the state of
Washington. The Company offers individual and group insurance products,
pension plans and annuity products, marketed through professional
agents in all states and the District of Columbia. The Company owns two
subsidiaries, SAFECO National Life Insurance Company and First SAFECO
National Life Insurance Company of New York. The Company is a
wholly-owned subsidiary of SAFECO Corporation which is a Washington
corporation whose subsidiaries are engaged primarily in insurance and
financial service businesses.
BASIS OF REPORTING. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
appropriate in the circumstances and include amounts based on the best
estimates and judgments of management. The financial statements include
SAFECO Life Insurance Company and its subsidiaries.
All significant intercompany transactions have been eliminated in the
consolidated financial statements. Certain reclassifications have been
made to prior year financial information to conform to the 1995
classifications.
ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are
reported as income when collected for traditional individual life
policies and when earned for group policies. Funds received under
pension deposit contracts, annuities and universal life policies are
recorded as liabilities rather than premium income when received.
Revenues for universal life products consist of front-end loads,
mortality charges and expense charges assessed against individual
policyholder account balances. These loads and charges are recognized
as income when earned.
INVESTMENTS. The Company adopted Financial Accounting Standards Board
(FASB) Statement 115, "Accounting for Certain Investments in Debt and
Equity Securities," on January 1, 1994, applying the provisions of the
Statement to investments held as of, or acquired after that date. See
discussion of new accounting standards on page 10.
Fixed maturity investments (i.e., bonds and redeemable preferred
stocks) which the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity and carried at amortized
cost in the balance sheet. Fixed maturities classified as
available-for-sale are carried at market value, with changes in
unrealized gains and losses recorded directly to stockholder's equity,
net of applicable income taxes and deferred policy acquisition costs
valuation allowance. The Company has no fixed maturities classified as
trading.
All marketable equity securities are classified as available-for-sale
and carried at market value, with changes in unrealized gains and
losses recorded directly to stockholder's equity, net of applicable
income taxes.
When the collectibility of income on certain investments is considered
doubtful, they are placed on non-accrual status and thereafter interest
income is recognized only when payment is received. Investments that
have declined in market value below cost and for which the decline is
judged to be other than temporary are written down to fair value.
Writedowns are made directly on an individual security basis and reduce
realized investment gains in the Statement of Consolidated Income.
The cost of security investments sold is determined by the "identified
cost" method.
Mortgage loans are carried at outstanding principal balances, less an
allowance for loan losses.
8
<PAGE> 66
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
REAL ESTATE AND DEPRECIATION. Income-producing real estate is
classified as an investment. The Company provides straight-line
depreciation on its buildings based upon their estimated useful lives.
Investment real estate that has declined in market value below cost and
for which the decline is judged to be other than temporary is written
down to estimated realizable value. Writedowns reduce realized
investment gains in the Statement of Consolidated Income.
DEFERRED POLICY ACQUISITION COSTS. Acquisition costs, consisting of
commissions and certain other underwriting expenses, which vary with
and are primarily related to the production of new business, are
deferred.
Acquisition costs for deferred annuity and pension deposit contracts
and universal life policies are amortized over the lives of the
contracts or policies in proportion to the present value of estimated
future gross profits. To the extent actual experience differs from
assumptions, and to the extent estimates of future gross profits
require revision, the unamortized balance of deferred policy
acquisition costs is adjusted accordingly. There were no significant
revisions made in 1995, 1994 or 1993.
Acquisition costs for traditional individual life insurance policies
are amortized over the premium payment period of the related policies
using assumptions consistent with those used in computing policy
benefit liabilities.
FUTURE POLICY BENEFITS. Liabilities for universal life insurance
policies, deferred annuity and pension deposit contracts are equal to
the accumulated account value of such policies or contracts as of the
valuation date. Liabilities for structured settlement annuities are
based on interest rate assumptions using market rates at issue, graded
downward over 40 years to a range of 5.5% to 8.75%.
Liabilities for future policy benefits under traditional individual
life insurance policies have been computed on the level premium method
using interest, mortality and persistency assumptions based on actual
experience modified to provide for adverse deviation. Interest
assumptions range from 8.5% graded to 3.25%.
POLICY AND CONTRACT CLAIMS. The liability for policy and contract
claims is established on the basis of reported losses ("case basis"
method). Provision is also made for claims incurred but not reported,
based on historical experience. The estimates for claims incurred but
not reported are continually reviewed and any necessary adjustments are
reflected in current operations.
SEPARATE ACCOUNTS. The Company administers segregated asset accounts
for variable annuity and variable universal life clients. The assets of
these Separate Accounts, which consist of common stocks, are the
property of the Company. The liabilities of these Separate Accounts
represent reserves established to meet withdrawal and future benefit
payment provisions of contracts with these clients. The assets of the
Separate Accounts, equal to the reserves and other contract liabilities
of the Separate Accounts, are not chargeable with liabilities arising
out of any other business the Company may conduct. Investment risks
associated with market value changes are borne by the clients.
Deposits, withdrawals, net investment income and realized and
unrealized capital gains and losses on the assets of the Separate
Account are not reflected in the Statement of Consolidated Income.
Management fees and other charges assessed against the contracts are
included in other revenue.
FEDERAL INCOME TAXES. The Company and its subsidiaries file a
consolidated federal income tax return with SAFECO Corporation. Tax
payments (credits) are made to or received from SAFECO Corporation on a
separate tax return filing basis. The Company provides for federal
income taxes based on financial reporting income and deferred federal
income taxes on temporary differences between financial reporting and
taxable income.
9
<PAGE> 67
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 (continued)
NEW ACCOUNTING STANDARDS. The Company adopted Financial Accounting
Standards Board (FASB) Statements 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and 109, "Accounting for
Income Taxes," in the first quarter of 1993. See the Statement of
Consolidated Income for the effect on income of adoption of Statements
106 and 109. For additional disclosure relating to Statements 106 and
109, see Note 8 and Note 9, respectively.
The Company adopted FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1994. Adoption had no
effect on net income.
The Company adopted FASB Statement 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," in the
first quarter of 1993. Adoption had no effect on net income. See Note 5
for disclosures relating to reinsurance.
In 1993, the FASB adopted Statement 114, "Accounting by Creditors for
Impairment of a Loan," which provides guidance on valuing impaired
loans. The FASB also issued Statement 118, "Accounting by Creditors for
Impairment of a Loan Income Recognition and Disclosures," in 1994,
which amends Statement 114. Both statements are effective for 1995 and
were adopted by the Company on January 1, 1995. Adoption did not affect
net income. For additional disclosure relating to these two statements,
see Note 2.
In 1993, the FASB issued Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities," which expands the use of
fair value accounting for debt and equity securities. As of January 1,
1994, the Company adopted the provisions of this Statement for
investments held as of, or acquired after that date. Statement 115
requires that debt and equity securities be classified as trading,
available-for-sale, or held-to-maturity. Fixed maturity securities that
the Company has the positive intent and ability to hold to maturity (as
narrowly defined by Statement 115) are classified as held-to-maturity
and are reported at amortized cost. Fixed maturity securities
classified as available-for-sale are carried at market value, with
changes in unrealized gains and losses recorded directly to
stockholder's equity, net of applicable income taxes and any deferred
policy acquisition costs valuation allowance. All marketable equity
securities are classified as available-for-sale and continue to be
carried at market value, with changes in unrealized gains and losses
recorded directly to stockholder's equity, net of applicable income
taxes. Under Statement 115, trading securities are carried at market
value with immediate recognition in income of changes in market value.
Since the Company does not have any securities held for trading, the
adoption of this Statement had no effect on net income. As required by
Statement 115, no restatement of prior period amounts has been made.
See Note 2 for details of the effect on stockholder's equity of the
adoption of Statement 115.
The FASB issued an Implementation Guide on Statement 115 in November of
1995. In addition to providing guidance on Statement 115, the Guide
allows for a one-time-only reclassification of securities among the
three categories defined in Statement 115. Such reclassifications will
not call into question the original classifications. As allowed under
the Guide, the Company reclassified certain held-to-maturity securities
to the available-for-sale category on December 31, 1995. While the
Company's investment philosophy has not changed, this reclassification
will allow flexibility in responding to changes in market conditions.
See Note 2 for disclosures relating to this reclassification.
10
<PAGE> 68
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SUMMARY
A summary of fixed maturities and marketable equity securities
classified as available-for-sale at December 31, 1995 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............... $ 737,429 $ 73,770 $ (1,007) $ 72,763 $ 810,192
States, municipalities and political subdivisions ..... 141,085 20,879 -- 20,879 161,964
Foreign governments ................................... 67,873 7,248 -- 7,248 75,121
Public utilities ...................................... 1,452,490 137,913 (1,395) 136,518 1,589,008
All other corporate bonds ............................. 2,475,343 183,117 (7,690) 175,427 2,650,770
Mortgage-backed securities ............................ 2,321,112 116,938 (4,997) 111,941 2,433,053
---------- -------- -------- --------- ----------
Total fixed maturities classified as
available-for-sale ................................ 7,195,332 539,865 (15,089) 524,776 7,720,108
Marketable equity securities .......................... 14,904 11,172 (300) 10,872 25,776
---------- -------- -------- --------- ----------
Total investment securities classified as
available-for-sale ................................ $7,210,236 $551,037 $(15,389) 535,648 $7,745,884
========== ======== ======== ==========
Deferred policy acquisition costs valuation allowance . (42,815)
Applicable federal income tax ......................... (172,381)
---------
Unrealized appreciation of investment securities,
net of tax, included in stockholder's equity ...... $ 320,452
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at
December 31, 1995 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............ $ 210,894 $ 60,042 $ -- $ 60,042 $ 270,936
States, municipalities and political subdivisions .. 52,438 4,689 -- 4,689 57,127
Foreign governments ................................ 135,467 31,956 -- 31,956 167,423
Public utilities ................................... 456,938 83,571 -- 83,571 540,509
All other corporate bonds .......................... 896,899 140,673 (4,128) 136,545 1,033,444
Mortgage-backed securities ......................... 291,881 27,194 -- 27,194 319,075
---------- -------- ------- -------- ----------
Total fixed maturities classified as
held-to-maturity ............................... $2,044,517 $348,125 $(4,128) $343,997 $2,388,514
========== ======== ======= ======== ==========
</TABLE>
The Company reclassified certain fixed maturity securities from the
held-to-maturity category to the available-for-sale category on
December 31, 1995, as allowed by the FASB's Implementation Guide
discussed in Note 1. The securities reclassified had a net carrying
value (amortized cost) of $331,123,000 and a market value of
$358,630,000 at December 31, 1995. This reclassification had no effect
on net income. While the Company's investment philosophy has not
changed, this reclassification will allow flexibility in responding to
changes in market conditions.
11
<PAGE> 69
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
A summary of fixed maturities and marketable equity securities
classified as available-for-sale at December 31, 1994 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
----------- ---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ............ $ 664,805 $ 704 $ (28,980) $ (28,276) $ 636,529
States, municipalities and political subdivisions ... 139,415 4,392 (1,723) 2,669 142,084
Foreign governments ................................. 71,599 1,019 (2,522) (1,503) 70,096
Public utilities .................................... 1,347,080 21,223 (66,446) (45,223) 1,301,857
All other corporate bonds ........................... 2,148,606 26,235 (97,718) (71,483) 2,077,123
Mortgage-backed securities .......................... 1,745,427 30,508 (87,962) (57,454) 1,687,973
----------- ------- --------- --------- ----------
Total fixed maturities classified as
available-for-sale ............................. 6,116,932 84,081 (285,351) (201,270) 5,915,662
Marketable equity securities ........................ 15,846 7,577 (676) 6,901 22,747
----------- ------- --------- --------- ----------
Total investment securities classified as
available-for-sale ............................. $ 6,132,778 $91,658 $(286,027) (194,369) $5,938,409
=========== ======= ========= ==========
Deferred policy acquisition costs valuation allowance --
Applicable federal income tax ....................... 68,140
---------
Unrealized depreciation of investment securities,
net of tax, included in stockholder's equity ... $(126,229)
=========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at
December 31, 1994 follows:
<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain (Loss) Value
---------- ---------- ---------- ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
United States government and
government agencies and authorities ........ $ 124,266 $ 649 $ (10,953) $ (10,304) $ 113,962
States, municipalities and political subdivisions 36,517 2,260 (527) 1,733 38,250
Foreign governments ............................. 139,951 2,651 (2,434) 217 140,168
Public utilities ................................ 436,145 14,090 (19,454) (5,364) 430,781
All other corporate bonds ....................... 794,824 10,401 (56,808) (46,407) 748,417
Mortgage-backed securities ...................... 521,429 8,374 (53,072) (44,698) 476,731
---------- ------- --------- --------- ----------
Total fixed maturities classified as
held-to-maturity ........................... $2,053,132 $38,425 $(143,248) $(104,823) $1,948,309
========== ======= ========= ========= ==========
</TABLE>
As discussed in Note 1, the Company adopted the provisions of FASB
Statement 115 as of January 1, 1994. The net effect on stockholder's
equity of the adoption of Statement 115 was an increase of $279,957,000
as of January 1, 1994. The net increase was comprised of the following
amounts: aggregate market value in excess of amortized cost of fixed
maturities classified as available-for-sale of $458,471,000, less
deferred policy acquisition costs valuation allowance of $27,768,000
and deferred income taxes at 35% of $150,746,000.
12
<PAGE> 70
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The amortized cost and estimated market value of fixed maturities at
December 31, 1995, by contractual maturity, are presented below.
Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 138,616 $ 138,892 $ -- $ --
Due after one year through five years .... 1,245,334 1,309,291 5,000 5,250
Due after five years through ten years ... 1,533,974 1,644,618 25,124 29,513
Due after ten years ...................... 1,956,296 2,194,254 1,722,512 2,034,676
Mortgage-backed securities ............... 2,321,112 2,433,053 291,881 319,075
---------- ---------- ---------- ----------
Total ................................. $7,195,332 $7,720,108 $2,044,517 $2,388,514
========== ========== ========== ==========
</TABLE>
At December 31, 1995 and 1994, the Company held below investment grade
fixed maturities of $239 million and $174 million at amortized cost,
respectively. The respective market values of these investments were
approximately $240 million and $156 million. These holdings amounted to
2.4% and 2.0% of the Company's investments in fixed maturities at
market value at December 31, 1995 and 1994, respectively.
The carrying value of investments in fixed maturities and mortgage
loans that did not produce income during the year ended December 31,
1995 is less than one percent of the total of such investments.
Certain fixed maturity securities with an amortized cost of $4,578,000
and $4,161,000 at December 31, 1995 and 1994, respectively, were on
deposit with various regulatory authorities to meet requirements of
insurance and financial codes.
At December 31, 1995 and 1994, mortgage loans constituted approximately
4.9% and 5.9% of total assets, respectively, and are secured by first
mortgage liens on income-producing commercial real estate, primarily in
the retail, industrial and office building sectors. The majority of the
properties are located in the western United States, with 43% of the
total in California. Individual loans generally do not exceed $5
million. At December 31, 1995, less than 1% of the loans were
non-performing.
13
<PAGE> 71
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The proceeds from sales of investment securities and related gains and
losses for 1995 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ................................... $327,160 $-- $2,172
======== === ======
Gross realized gains on sales ......................... $ 16,366 $-- $1,253
Gross realized losses on sales ........................ (4,336) -- (282)
-------- --- ------
Realized gains on sales ............................ 12,030 -- 971
Other (Including net gain on calls and redemptions) ... 7,833 -- --
Writedowns (Including writedowns on
securities subsequently sold) ..................... (13,628) -- --
-------- --- ------
Total realized gain ................................... $ 6,235 $-- $ 971
======== === ======
</TABLE>
The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securiities
------------------ ---------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ................................... $250,227 $-- $ 65
======== === =====
Gross realized gains on sales ......................... $ 12,994 $-- $ 115
Gross realized losses on sales ........................ (1,533) -- (224)
-------- --- -----
Realized gains (losses) on sales ................... 11,461 -- (109)
Other (Including net gain on calls and redemptions) ... 2,475 -- --
Writedowns (Including writedowns on
securities subsequently sold) ..................... (4,804) -- --
-------- --- -----
Total realized gain (loss) ............................ $ 9,132 $-- $(109)
======== === =====
</TABLE>
14
<PAGE> 72
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The proceeds from sales of investments in fixed maturities and related
gains and losses for 1993 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
1993
----
(In Thousands)
<S> <C>
Proceeds from sales ................................................. $675,044
========
Gross realized gains on sales ....................................... $ 75,895
Gross realized losses on sales ...................................... (20,653)
--------
Realized gains on sales ......................................... 55,242
Other (Including net gain on calls and redemptions) ................. 12,749
Writedowns (Including writedowns on securities subsequently sold) ... (11,665)
--------
Total realized gain ................................................. $ 56,326
========
</TABLE>
The following summarizes the realized gains and losses, the changes in
unrealized gains and losses, and applicable income taxes on all
investments:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities ........................................ $ 6,235 $ 9,132 $56,326
Marketable equity securities ............................ 971 (109) 2,063
First mortgage loans on real estate ..................... (1,600) (3,000) (4,336)
Real estate ............................................. 70 (184) (509)
Short-term investments .................................. -- (200) --
--------- --------- -------
Realized gain before federal income taxes ......... $ 5,676 $ 5,639 $53,544
========= ========= =======
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale ....... $ 726,046 $(201,270) $ --
Marketable equity securities ............................ 3,971 (3,432) 1,291
Deferred policy acquisition costs valuation allowance ... (42,815) -- --
Applicable federal income tax (expense) benefit ......... (240,521) 71,645 (431)
--------- --------- -------
Net change in unrealized appreciation (depreciation) .... $ 446,681 $(133,057) $ 860
========= ========= =======
</TABLE>
15
<PAGE> 73
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 (continued)
The following table summarizes the Company's allowance for credit
losses on non-affiliated mortgage loans:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Allowance at beginning of year ............... $ 9,511 $ 7,000
Provision for credit losses .................. 1,600 3,000
Recoveries ................................... 15 --
Loans charged off as uncollectible ........... (1,493) (489)
------- -------
Allowance at end of year ..................... $ 9,633 $ 9,511
======= =======
</TABLE>
The 1995 allowance includes amounts determined under FAS 114 and FAS
118 (specific reserves), as well as general reserve amounts. The total
investment in impaired loans, as defined under FAS 114 and 118 and
before any reserve for losses, is $5.7 million at December 31, 1995. A
specific loan loss reserve has been established for each impaired loan,
the total of which is $2.1 and is included in the overall allowance of
$9.6 million at December 31, 1995.
3. COMMITMENTS AND CONTINGENCIES
The Company is obligated under a real estate lease with an affiliate,
General America Corporation, which expires in 2010. The minimum annual
rental commitments under this obligation are $2,274,000. At December
31, 1995, unfunded mortgage loan commitments approximated $19,047,000.
The Company had no other material commitments or contingencies at
December 31, 1995.
4. FINANCIAL INSTRUMENTS
ESTIMATED FAIR VALUES. Fair value amounts have been determined using
available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates
of fair value. Accordingly, these estimates are not necessarily
indicative of the amount that could be realized in a current market
exchange. The use of different market assumptions and/or estimating
methodologies may have a material effect on the estimated fair value
amounts.
Carrying value is a reasonable estimate of fair value for cash, policy
loans, short-term investments, accounts receivable and other
liabilities.
16
<PAGE> 74
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 (continued)
Fair value amounts for investments in fixed maturities and marketable
equity securities are the same as market value. Market value generally
represents quoted market prices for securities traded in the public
market place or analytically determined values for securities not
publicly traded.
The fair values of mortgage loans have been estimated by discounting
the projected cash flows using the current rate at which loans would be
made to borrowers with similar credit ratings and for the same
maturities.
The fair value of investment contracts with defined maturities is
estimated by discounting projected cash flows using rates that would be
offered for similar contracts with the same remaining maturities. For
investment contracts with no defined maturity, fair value is estimated
to be the present surrender value. These investment contracts are
included in Funds Held Under Deposit Contracts.
Estimated fair values of financial instruments at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale ... $7,720,108 $7,720,108 $5,915,662 $5,915,662
Fixed maturities held-to-maturity ..... 2,044,517 2,388,514 2,053,132 1,948,309
Marketable equity securities .......... 25,776 25,776 22,747 22,747
Mortgage loans ........................ 553,933 584,000 552,597 540,000
Financial liabilities:
Funds held under deposit contracts .... 8,756,384 9,282,000 7,988,456 7,678,000
</TABLE>
Other insurance-related financial instruments are exempt from fair
value disclosure requirements.
DERIVATIVE FINANCIAL INSTRUMENTS. The Company's investments in
mortgage-backed securities of $2.8 billion and $2.2 billion at market
at December 31, 1995 and 1994, respectively, are primarily residential
collateralized mortgage obligations and pass-throughs ("CMOs"). CMOs,
while technically defined as derivative instruments, are exempt from
derivative disclosure requirements. The Company's investment in CMOs
comprised of the riskier, highly-volatile type (e.g., interest only,
inverse floaters, etc.) has been intentionally limited to only a small
amount (i.e., less than 1% of total CMOs at both December 31, 1995 and
1994).
The Company does not enter into financial instruments for trading or
speculative purposes. The Company's involvement in other
investment-type derivatives is also, intentionally, of a very limited
nature. Such derivatives include currency-linked bonds and fixed-rate
loan commitments. Individually, and in the aggregate, these derivatives
are not material and thus no additional disclosures are warranted.
17
<PAGE> 75
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. POLICY AND CONTRACT LIABILITIES
REINSURANCE. The Company protects itself from excessive losses by
ceding reinsurance to other companies, using automatic and facultative
treaties. Reinsurance contracts do not relieve the Company of its
obligations to policyholders. A continuing liability exists in the
event a reinsurance company is unable to meet its obligations to the
Company. The financial condition of its reinsurers is evaluated by the
Company to minimize its exposure to losses from reinsurer insolvencies.
The balance sheet caption "Reinsurance Recoverables" is comprised of
the following amounts:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Unpaid losses and adjustment expense ........... $ 850 $ 646
Paid claims .................................... 658 506
Life policy liabilities ........................ 14,844 14,033
Other reinsurance recoverables ................. 304 332
------- -------
Total reinsurance recoverables .............. $16,656 $15,517
======= =======
</TABLE>
The effects of reinsurance on the premium and policy benefit amounts in
the Statement of Consolidated Income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Reinsurance Ceded:
Premiums ................... $(10,385) $(9,060) $(9,576)
======== ======= =======
Policy benefits ............ $ (6,344) $(5,588) $(7,441)
======== ======= =======
Reinsurance Assumed:
Premiums ................... $ (5,456) $ 327 $ 544
======== ======= =======
Policy benefits ............ $ (2,503) $ 3,421 $ 3,474
======== ======= =======
</TABLE>
In 1995, the Company sold a reinsurance assumed block of group disabled
lives, involving disability income coverage, back to the ceding
reinsurance pool. The ceding pool acquired the Company's $5.7 million
disabled life claim reserve for a return-of-premium payment of $5.7
million. The reinsurance assumed premiums and policy benefits shown
above reflect this transaction.
POLICY AND CONTRACT CLAIMS. Accident and health claim reserves, the
majority of which are incurred and paid in full within a one-year
period, amount to less than 1% of total policy and contract
liabilities. Therefore, no additional disclosures are warranted.
18
<PAGE> 76
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STATUTORY BASIS INFORMATION
The Company and its subsidiaries are required to file annual statements
with state regulatory authorities prepared on an accounting basis as
prescribed or permitted by such authorities (statutory basis).
Prescribed statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the National Association of Insurance Commissioners
(NAIC). Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
Statutory net income differs from income reported in accordance with
generally accepted accounting principles primarily because policy
acquisition costs are expensed when incurred, reserves are based on
different assumptions and income tax expense reflects only taxes paid
or currently payable.
Statutory net income and stockholder's equity, by company, are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company .............................. $101,456 $ 47,280 $ 17,724
SAFECO National Life Insurance Company ..................... 1,187 1,242 1,192
First SAFECO National Life Insurance Company of New York ... 404 108 225
-------- -------- --------
Total ................................................. $103,047 $ 48,630 $ 19,141
======== ======== ========
<CAPTION>
December 31
-----------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Statutory Stockholder's Equity:
SAFECO Life Insurance Company .............................. $479,152 $391,328 $357,081
SAFECO National Life Insurance Company ..................... 15,522 15,849 16,228
First SAFECO National Life Insurance Company of New York ... 10,009 9,644 9,569
-------- -------- --------
Total ................................................. $504,683 $416,821 $382,878
======== ======== ========
</TABLE>
The Company has received written approval from the Washington State
Insurance Department to treat certain loans (all made at market rates)
to related SAFECO Corporation subsidiaries as admitted assets. The
allowance of such loans has not materially enhanced surplus at December
31, 1995.
7. DIVIDEND RESTRICTIONS
Insurance companies are restricted by certain states as to the amount
of dividends they may pay within a given calendar year to their parent
without regulatory consent. That restriction is the greater of
statutory net gain from operations for the previous year or 10% of
policyholder surplus at the close of the previous year, subject to a
maximum limit equal to statutory earned surplus. The amount of retained
earnings available for the payment of dividends to SAFECO Corporation
without prior regulatory approval was $104,480,000 at December 31,
1995.
19
<PAGE> 77
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT PLANS
SAFECO Corporation and subsidiary companies (the Companies) administer
defined contribution, defined benefit and profit sharing bonus plans
covering substantially all employees. The defined contribution plans
include profit sharing retirement plans and a savings plan. Benefits
are earned under the defined benefit plan for each year of service
after 1988, based on the employee's compensation level plus a
stipulated rate of return on the benefit balance. It is SAFECO
Corporation's policy to fund the defined benefit plan on a current
basis to the full extent deductible under federal income tax
regulations. The cost of these plans to the Company was $7,599,000,
$6,329,000 and $7,962,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
The Companies also provide certain healthcare and life insurance
benefits ("other postretirement benefits") for retired employees.
Substantially all employees may become eligible for these benefits if
they reach retirement age while working for the Companies. The cost of
these benefits is shared with the retiree.
Effective January 1, 1993, the Company adopted FASB Statement 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." Under Statement 106, the Company accrues for other
postretirement benefits during the years that employees provide
services. Prior to adoption of Statement 106, other postretirement
benefits were accounted for on a pay-as-you-go (cash) basis. The
transition obligation (i.e., the accumulated postretirement benefit
obligation) of $3,777,000 was recorded as a cumulative effect
adjustment in the first quarter of 1993 which, net of tax, resulted in
a reduction of net income of $2,493,000.
Components of the net periodic other postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period .................. $114 $153 $151
Interest cost on accumulated postretirement benefit obligation .... 245 283 318
Actual return on plan assets ...................................... (16) 3 (4)
Net amortization and deferral ..................................... (61) (7) 4
---- ---- ----
Total $282 $432 $469
==== ==== ====
</TABLE>
20
<PAGE> 78
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 (continued)
The following table summarizes the funded status of the plan:
<TABLE>
<CAPTION>
December 31
---------------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees ......................................................... $1,761 $1,332
Fully eligible active plan participants .......................... 620 496
Other active plan participants ................................... 1,929 1,245
------ ------
Total APBO .................................................... 4,310 3,073
Less: plan assets at fair value .................................... 133 91
------ ------
Funded status ....................................................... 4,177 2,982
Unrecognized gain ................................................... 361 1,424
------ ------
Accrued postretirement benefit cost recorded on the balance sheet ... $4,538 $4,406
====== ======
</TABLE>
Other postretirement benefit cost is determined using actuarial
assumptions at the beginning of the year. The funded status is
determined using assumptions at the end of the year. The discount rate
used was 7.5%, 8.5% and 7.5% at December 31, 1995, 1994 and 1993,
respectively. The accumulated postretirement benefit obligation at
December 31, 1995 was determined using a healthcare cost trend rate of
11% for 1996, declining by 1% per year, starting in 1997, to 6% and
remaining at that level thereafter. The trend rate for the years 1997
to 2001 is 1% higher than the rate used for the prior year's valuation.
A one percentage point increase in the assumed healthcare cost trend
rate for each year would increase the accumulated other postretirement
benefit obligation as of December 31, 1995 by $540,000 and the annual
net periodic other postretirement benefit cost for the year then ended
by $50,000.
21
<PAGE> 79
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
As of January 1, 1993, the Company adopted the liability method of
accounting for income taxes pursuant to FASB Statement 109, "Accounting
for Income Taxes." This accounting change was implemented through a
cumulative effect adjustment which reduced the net deferred tax
liability (and increased net income in the first quarter of 1993) by
$9,092,000. Under the liability method, deferred tax assets and
liabilities are determined based on the differences between their
financial reporting and their tax bases and are measured using the
enacted tax rates.
Differences between income tax computed by applying the U.S. federal
income tax rate of 35% to income before income taxes and the provision
for federal income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense ........................... $48,631 $47,040 $61,399
Dividends received deduction .............................. (44) (64) (52)
Tax exempt interest ....................................... (7) (8) (9)
Provision for settlement of prior years' tax obligation ... 0 0 2,000
Federal tax rate change ................................... 0 0 2,040
Other ..................................................... (550) 243 84
------- ------- -------
Income tax expense ..................................... $48,030 $47,211 $65,462
======= ======= =======
Percent of income tax expense to income before tax ........ 34.6% 35.1% 37.3%
======= ======= =======
</TABLE>
The tax effect of temporary differences which give rise to the deferred
tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
-----------
1995 1994
---- ----
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves ............................ $ 1,990 $ 1,679
Unearned premium reserves .................................................. 2,011 2,012
Adjustment to life policy liabilities ...................................... 30,209 20,444
Capitalization of policy acquisition costs ................................. 21,860 18,263
Postretirement benefits .................................................... 1,588 1,542
Realized capital gains ..................................................... 9,348 5,422
Guarantee fund assessments ................................................. 3,680 3,250
Unrealized depreciation of investment securities ........................... -- 68,028
Other ...................................................................... 1,414 1,343
-------- ---------
Total deferred tax assets ............................................... 72,100 121,983
-------- ---------
Deferred tax liabilities:
Deferred policy acquisition costs .......................................... 88,657 86,798
Bond discount accrual ...................................................... 5,905 4,133
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1995-$14,985) .................. 172,493 --
Other ...................................................................... 1,537 823
-------- ---------
Total deferred tax liabilities .......................................... 268,592 91,754
-------- ---------
Net deferred tax liability (asset) ...................................... $196,492 $ (30,229)
======== =========
</TABLE>
22
<PAGE> 80
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 (continued)
The deferred federal income tax benefit of $13,800,000 for 1995
represents the increase in the net deferred tax liability of
$226,721,000 excluding the increase of $240,521,000 related to
unrealized appreciation of investment securities which includes
$14,985,000 related to the deferred policy acquisition costs valuation
allowance.
The deferred federal income tax benefit of $10,154,000 for 1994
represents the decrease in the net deferred tax liability of
$81,799,000 excluding a decrease of $71,645,000 related to unrealized
depreciation of investment securities.
The deferred federal income tax benefit of $26,135,000 for 1993
represents a decrease in the net deferred federal income tax liability
of $25,704,000 excluding an increase of $431,000 related to unrealized
appreciation of marketable equity securities. The tax related to the
increase in appreciation of marketable equity securities approximated
$543,000 during 1993. Of that amount, $112,000, which related to the 1%
increase in the federal income tax rate, was charged directly to income
with the remainder charged directly to stockholder's equity.
23
<PAGE> 81
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SEGMENT DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $29,029 of financial
services revenue received from affiliates) ........... $ 45,284 $ 203,349 $ 248,633
Identifiable Investment Income .......................... 450,655 256,570 707,225
Investment Income Allocated ............................. 44,043 26,232 70,275
Identifiable Realized Gain (Loss) from Investments ...... 16,020 (8,586) 7,434
Realized Loss from Investments Allocated ................ (1,112) (646) (1,758)
---------- ---------- -----------
Total Revenue ........................................ $ 554,890 $ 476,919 $ 1,031,809
========== ========== ===========
Income Before Income Taxes ................................. $ 84,956 $ 53,990 $ 138,946
========== ========== ===========
<CAPTION>
December 31, 1995
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 143,228 $ 67,263 $ 210,491
Policy Loans ............................................ 29,109 26,816 55,925
Invested Assets ......................................... 6,086,143 3,261,042 9,347,185
Other ................................................... 155,358 327,863 483,221
Invested Assets Allocated .................................. 671,864 400,160 1,072,024
Other Assets Allocated ..................................... 18,179 11,148 29,327
---------- ---------- -----------
Total Assets ......................................... $7,103,881 $4,094,292 $11,198,173
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 12,222 $ 20,154 $ 32,376
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
24
<PAGE> 82
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $27,955 of financial
services revenue received from affiliates) ........... $ 42,805 $ 219,919 $ 262,724
Identifiable Investment Income .......................... 395,127 245,909 641,036
Investment Income Allocated ............................. 39,909 24,725 64,634
Identifiable Realized Gain from Investments ............. 6,744 1,267 8,011
Realized Loss from Investments Allocated ................ (1,463) (909) (2,372)
---------- ---------- -----------
Total Revenue ........................................ $ 483,122 $ 490,911 $ 974,033
========== ========== ===========
Income Before Income Taxes ................................. $ 70,200 $ 64,201 $ 134,401
========== ========== ===========
<CAPTION>
December 31, 1994
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 151,614 $ 95,576 $ 247,190
Policy Loans ............................................ 28,467 24,862 53,329
Invested Assets ......................................... 4,859,921 2,874,141 7,734,062
Other ................................................... 153,120 248,641 401,761
Invested Assets Allocated .................................. 542,890 336,343 879,233
Other Assets Allocated ..................................... (880) (569) (1,449)
---------- ---------- -----------
Total Assets ......................................... $5,735,132 $3,578,994 $ 9,314,126
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 9,914 $ 19,493 $ 29,407
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
25
<PAGE> 83
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 (continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
----------------------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $23,195 of financial
services revenue received from affiliates) ........... $ 40,000 $ 251,478 $ 291,478
Identifiable Investment Income .......................... 352,076 251,740 603,816
Investment Income Allocated ............................. 38,408 25,498 63,906
Identifiable Realized Gain (Loss) from Investments ...... 64,442 (6,567) 57,875
Realized Loss from Investments Allocated ................ (2,956) (1,375) (4,331)
---------- ---------- -----------
Total Revenue ........................................ $ 491,970 $ 520,774 $ 1,012,744
========== ========== ===========
Income Before Income Taxes ................................. $ 117,287 $ 58,140 $ 175,427
========== ========== ===========
<CAPTION>
December 31, 1993
-----------------
Financial Employee
Services Benefits Total
-------- -------- -----
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:
Deferred Policy Acquisition Costs ....................... $ 137,479 $ 96,721 $ 234,200
Policy Loans ............................................ 26,181 24,307 50,488
Invested Assets ......................................... 4,253,688 2,906,514 7,160,202
Other ................................................... 98,972 159,396 258,368
Invested Assets Allocated .................................. 513,921 342,861 856,782
Other Assets Allocated ..................................... 21,160 13,185 34,345
---------- ---------- -----------
Total Assets ......................................... $5,051,401 $3,542,984 $ 8,594,385
========== ========== ===========
Amortization of Deferred Policy Acquisition Costs .......... $ 7,395 $ 18,955 $ 26,350
========== ========== ===========
</TABLE>
A major portion of investment income, realized gains or losses and
assets is specifically identifiable with an industry segment. The
remainder of these amounts has been allocated in proportion to the
investment income identified with each segment.
26
<PAGE> 84
SAFECO SEPARATE ACCOUNT C
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS The following audited financial statements 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, 1995.
Statement of Operations for the year ended December 31, 1995.
Statements of Changes in Net Assets for the year or period ended
December 31, 1995 and December 31, 1994.
Notes to Financial Statements (including accumulation unit data).
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES:
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Statement of Consolidated Income for the years ended December 31,
1995, 1994 and 1993.
Statement of Changes in Stockholder's Equity for the years ended
December 31, 1995, 1994 and 1993.
Statement of Consolidated Cash Flows for the years ended December
31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
b. EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C> <C> <C>
1. Resolution of Board of Directors of SAFECO authorizing the
establishment of the Separate Account. *
2. Not Applicable
3. (i) Form of Principal Underwriter's Agreement *
(ii) Selling Agreement **
4. (i) Individual Flexible Purchase Payment Deferred Variable **
Annuity Contracts
(ii) Riders and Endorsements **
5. Application for Annuity Contract **
6. (i) Copy of Articles of Incorporation of SAFECO *
(ii) Copy of the Bylaws of SAFECO *
7. Not Applicable
8.a. (i) Fund Participation Agreement **
(ii) Reimbursement Agreement **
(iii) Participating Contract and Policy Agreement **
</TABLE>
-1-
<PAGE> 85
<TABLE>
<S> <C>
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 International Equity Fund II, Federated Utility Fund II, Federated
Securities Corp. and Federated Advisers.
8.c. Participation Agreement by and among SAFECO Life Insurance Company, Lexington Emerging Markets Fund, Inc., Lexington
Natural Resources Trust, and Lexington Management Corporation.
9. Opinion and Consent of Counsel
10. Consent of Independent Auditors
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information
14. Power of Attorney **
15. Representation of Counsel
* Incorporated by reference to SAFECO Separate Account C's registration statement filed on Form N-4, filed with the
Securities and Exchange Commission on June 16, 1995. (Files No. 33-60331 and 811-8052).
** Incorporated by reference to Registrants Post-Effective Amendment filed with the SEC on December 29, 1995 (File No. 33-
69712).
</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 Separate
Account C or the variable annuity contracts offered through SAFECO Separate
Account C. Unless otherwise indicated the principal business address of all
officers or directors listed is 15411 N. E. 51st Street, Redmond, Washington
98052.
<TABLE>
<CAPTION>
Name Position with SAFECO
---- --------------------
<S> <C> <C>
* Roger H. Eigsti Director, Chairman of the Board
Richard E. Zunker Director and President
* Boh A. Dickey Director and Executive Vice President
John P. Fenlason Senior Vice President
</TABLE>
-2-
<PAGE> 86
<TABLE>
<S> <C> <C>
Roger F. Harbin Senior Vice President
* Rod A. Pierson Director, Senior Vice President
and Secretary
* Donald S. Chapman Director
* Dan D. McLean Director
* James W. Ruddy Director
* Robert W. Swegle Director
F. Gregory Clarke Vice President
James T. Flynn Vice President, Controller
and Assistant Secretary
Michael H. Kinzer Vice President and Chief Actuary
* Ron L. Spaulding Director, Vice President
* Michael C. Knebel Vice President and Treasurer
William C. Huff Actuary
George C. Pagos Associate General Counsel,
Vice President and Assistant
Secretary
</TABLE>
* The principal business address of these officers and directors is SAFECO
Plaza, Seattle, Washington 98185.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
SAFECO Life Insurance Company ("SAFECO") established SAFECO Separate Account C
("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 of America, 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, and SAFECO Insurance Company of Illinois, an
Illinois corporation. SAFECO Corporation owns 20% of Agena, Inc., a Washington
corporation. SAFECO Insurance Company of America owns 100% of SAFECO
Management Corp., a New York corporation, and SAFECO Surplus Lines Insurance
Company, a Washington corporation. SAFECO Life Insurance Company owns 100% of
SAFECO National Life Insurance Company, a Washington corporation, and First
SAFECO National Life Insurance Company of New York, a New York 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 COMAV
Managers, Inc., an Illinois corporation, F.B. Beattie & Co., Inc., a Washington
corporation, General America Corp. of Texas, a Texas corporation, Talbot
Financial Corporation, a Washington corporation and SAFECO Select Insurance
Services, Inc.., a California 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
-3-
<PAGE> 87
Company, a Texas corporation. Talbot Financial Corporation owns 100% of Talbot
Agency, Inc., a New Mexico corporation. Talbot Agency, Inc. owns 100% of PNMR
Securities, Inc., a Washington corporation. SAFECO Properties Inc. owns 100%
of the following, each a Washington corporation: RIA Development, Inc.,
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. Everett, Inc., S.C. Marysville, Inc., S.C. Simi Valley, Inc. and S.C.
Vancouver, Inc. SAFECARE Company, Inc. owns 50% of Lifeguard Ventures, Inc., a
California corporation. S.C. Simi Valley, Inc. owns 100% of Simi Valley
Hospital, Inc., a Washington corporation. Winmar Company, Inc. owns 50% of C-W
Properties, Inc., a Washington corporation. Winmar Company, Inc. owns 100% of
the following: Barton Street Corp., Gem State Investors, Inc., Kitsap Mall,
Inc. WNY Development, Inc., Winmar Cascade, Inc., Winmar Metro, Inc., Winmar
Northwest, Inc., Winmar Redmond, Inc. and Winmar of Kitsap, Inc., each a
Washington corporation, and Capitol Court Corp., a Wisconsin corporation,
SAFECO Properties of Boise, Inc., an Idaho corporation, SCIT, Inc., a
Massachusetts corporation, Valley Fair Shopping Centers, Inc., a Delaware
corporation, WDI Golf Club, Inc., a California corporation, Winmar Oregon,
Inc., an Oregon corporation, Winmar of Texas, Inc., a Texas corporation, Winmar
of Wisconsin, Inc., a Wisconsin 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., and 100% of the
following, each a Washington corporation: Washington Square, Inc. and Winmar
Pacific, Inc.
No person is directly or indirectly controlled by Registrant.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1996, there were 2,696 Contract Owners 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.
-4-
<PAGE> 88
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.
b. The following information is provided for each principal officer
and director of the principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter
------------------ ---------------------
<S> <C>
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
</TABLE>
* The business address for all individuals listed is SAFECO Plaza,
Seattle, Washington 98185.
c. During the fiscal year ended December 31, 1995, PNMR Securities,
Inc., through SAFECO Securities, Inc., received $1,178,617 in
commissions for the distribution of certain annuity contracts sold
in connection with Registrant of which no payment were retained.
PNMR 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 15411 N.E. 51st Street, Redmond, Washington
98052, and/or SAFECO Asset Management Company at SAFECO Plaza, Seattle,
Washington 98185 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
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 available under the
employer's Section 403(b) arrangement to which the participant may
elect to transfer his contract value.
-5-
<PAGE> 89
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 29th day of April, 1996.
SAFECO Separate Account C
-------------------------
Registrant
By: SAFECO Life Insurance Company
----------------------------------
By: /S/ RICHARD E. ZUNKER
----------------------------------
Richard E. Zunker, President
SAFECO Life Insurance Company
-----------------------------
Depositor
By: /S/ RICHARD E. ZUNKER
----------------------------------
Richard E. Zunker, 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.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
DONALD S. CHAPMAN* Director
- -------------------------------
Donald S. Chapman
DAN D. McLEAN* Director
- -------------------------------
Dan D. McLean
/S/ BOH A. DICKEY Director and
- ------------------------------- Executive Vice President
Boh A. Dickey
R. H. EIGSTI* Director and Chairman
- -------------------------------
R. H. Eigsti
JAMES T. FLYNN* Vice President, Controller and
- ------------------------------- Assistant Secretary (Principal
James T. Flynn Accounting Officer)
</TABLE>
-6-
<PAGE> 90
<TABLE>
<S> <C>
RONALD SPAULDING* Director and Vice
- ------------------------------ President
Ronald Spaulding
ROD A. PIERSON* Director, Senior Vice
- ------------------------------ President and Secretary
Rod Pierson
JAMES W. RUDDY* Director
- ------------------------------
James W. Ruddy
ROBERT SWEGLE* Director
- ------------------------------
Robert Swegle
/S/ RICHARD E. ZUNKER Director and President
- ------------------------------ (Principal Executive
Richard E. Zunker Officer)
</TABLE>
*By: /S/ BOH A. DICKEY
--------------------------------
Boh A. Dickey
Attorney-in-Fact
*By: /S/ RICHARD E. ZUNKER
--------------------------------
Richard E. Zunker
Attorney-in-Fact
-7-
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
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 International Equity
Fund II, Federated Utility Fund II, Federated
Securities Corp, and Federated Advisers.
8.c. Participation Agreement by and among SAFECO
Life Insurance Company, Lexington Emerging
Markets Fund, Inc., Lexington Natural
Resources Trust, and Lexington Management
Corporation.
9 Opinion and Consent of Counsel
10 Consent of Independent Auditors
13 Calculation of Performance Information
15 Representation of Counsel
</TABLE>
-8-
<PAGE> 1
EXHIBIT 8b
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 19th day of December, 1995, by and between
SAFECO Life Insurance Company (the "Insurer"), a life insurance company
domiciled in Washington, on its behalf and on behalf of the segregated asset
accounts of the Insurer listed on Exhibit A to this Agreement (the "Separate
Accounts"); Insurance Management Series (the "Fund"), a Massachusetts business
trust; and Federated Securities Corp. (the "Distributor"), a Pennsylvania
corporation.
W I T N E S S E T H
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and the Fund is
authorized to issue separate classes of shares of beneficial interest
("shares"), each representing an interest in a separate portfolio of assets
known as a "portfolio" and each portfolio has its own investment objective,
policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement
("Participating Insurance Companies"), and the Fund will be made available in
the future to offer shares of one or more of its portfolios to separate
accounts of insurance companies that fund variable life insurance policies (at
which time such policies would also be "Variable Contracts" hereunder), and
WHEREAS, the Fund is currently comprised of seven separate portfolios,
and other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December
29, 1993 (File No. 812-8620), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Associated of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
-1-
<PAGE> 2
ARTICLE I. SALE OF FUND SHARES
1.1 The Distributor agrees to sell to the Insurer those shares of
the portfolios offered and made available by the Fund and identified on Exhibit
B ("Portfolios") that the Insurer orders on behalf of its Separate Accounts,
and agrees to execute such orders on each day on which the Fund calculates its
net asset value pursuant to rules of the SEC ("business day") at the net asset
value next computed after receipt and acceptance by the Fund or its agent of
the order for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares
of the Portfolios for purchase at the applicable net asset value per share by
the Insurer on behalf of its Separate Accounts; provided, however, that the
Board of Trustees of the Fund may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio, if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Trustees, acting in good faith and in
light of the Trustees' fiduciary duties under applicable law, necessary in the
best interests of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the
Portfolios of the Fund will be sold only to Participating Insurance Companies,
their separate accounts, and other persons consistent with each Portfolio being
adequately diversified pursuant to Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code"), and the regulations thereunder. No shares of any
Portfolio will be sold directly to the general public to the extent not
permitted by applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the
Portfolios to any insurance company or separate account unless an agreement
containing provisions substantially the same as the provisions in Article IV of
this Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from
the Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 The Insurer shall be the agent of the Fund only for the
limited purpose of receiving and accepting purchase and redemption orders from
each Separate Account and receipt of such orders by 4:00 p.m. Eastern time by
the Insurer shall be deemed to be receipt by the Fund for purposes of Rule
22c-1 of the 1940 Act; provided that the Fund receives notice of such orders on
the next following business day prior to 4:00 p.m. Eastern time on such day,
although the Insurer will use its best efforts to provide such notice by 12:00
noon Eastern time. The Insurer shall not be deemed or construed to be an agent
for the Fund other than as set forth in this Section 1.6.
1.7 The Insurer agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of the current prospectus for the
Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next
business day after it places an order to purchase shares of the Portfolio.
Payment shall be in federal funds transmitted by wire.
-2-
<PAGE> 3
1.9 Issuance and transfer of shares of the Portfolios will be by
book entry only unless otherwise agreed by the Fund. Stock certificates will
not be issued to the Insurer or the Separate Accounts unless otherwise agreed
by the Fund. Shares ordered from the Fund will be recorded in an appropriate
title for the Separate Accounts or the appropriate subaccounts of the Separate
Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurer of any income dividends or
capital gain distributions payable on the shares of the Portfolios. The Insurer
hereby elects to reinvest in the Portfolio all such dividends and distributions
as are payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of that Portfolio. The Insurer reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash. The Fund shall notify the Insurer of the number of
shares so issued as payment of such dividends and distributions.
1.11 The Fund shall instruct its recordkeeping agent to advise the
Insurer on each business day of the net asset value per share for each
Portfolio as soon as reasonably practical after the net asset value per share
is calculated and shall use its best efforts to make such net asset value per
share available by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Insurer represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it is
taxed as an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and
validly established each of the Separate Accounts as a segregated asset account
under the Washington Insurance Code, and that each of the Separate Accounts is
a validly existing segregated asset account under applicable federal and state
law.
2.3 The Insurer represents and warrants that the Variable
Contracts issued by the Insurer or interests in the Separate Accounts under
such Variable Contracts (1) are or, prior to issuance, will be registered as
securities under the Securities Act of 1933 ("1933 Act") or, alternatively, (2)
are not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly
exempt from registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively, (2) has not been registered
in proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that
the Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as
a business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
-3-
<PAGE> 4
2.7 The Fund represents and warrants that the shares of the
Portfolios are duly authorized for issuance in accordance with applicable law
and that the Fund is registered as an open-end management investment company
under the 1940 Act.
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. GENERAL DUTIES
3.1 The Fund, at its expense, shall take all such actions as are
necessary to permit the sale of the shares of each Portfolio to the Separate
Accounts, including maintaining its registration as an investment company under
the 1940 Act, and registering the shares of the Portfolios sold to the Separate
Accounts under the 1933 Act for so long as required by applicable law. The
Fund shall amend its Registration Statement filed with the SEC under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of the shares of the Portfolios. The Fund, at its expense,
shall register and qualify the shares for sale in accordance with the laws of
the various states to the extent deemed necessary by the Fund or the
Distributor.
3.2 The Fund represents and warrants that it is currently
qualified as a regulated investment company under Subchapter M of the Code and
that it shall make every effort to maintain such qualification of each
Portfolio under Subchapter M of the Code (or any successor or similar
provision) and that it will notify the Insurer immediately upon having a
reasonable basis for believing that a Portfolio has ceased to so qualify or
that it might not so qualify in the future. The Fund acknowledges that any
failure to qualify as a regulated investment company under Subchapter M of the
Code would constitute a breach of its general duties under this Agreement.
3.3 The Fund represents and warrants that each Portfolio will at
all times be adequately diversified within the meaning of Section 817(h) of the
Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity
contracts and any prospective amendments or other modifications to Section 817
or regulations thereunder, and shall notify the Insurer immediately upon having
a reasonable basis for believing that any Portfolio has ceased to comply. The
Fund further represents and warrants that, at all times while this Agreement is
in effect, all beneficial interests will be owned by one or more insurance
companies or by any other party permitted under Section 1.817-5(f)(3) of the
regulations promulgated under the Code.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all
necessary approvals to offer the Variable Contracts from state insurance
commissioners.
3.5 The Insurer shall make every effort to maintain the treatment
of the Variable Contracts issued by the Insurer as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of
the Code, and shall notify the Fund and the Distributor
-4-
<PAGE> 5
immediately upon having a reasonable basis for believing that such Variable
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued
by the Insurer in accordance with applicable provisions of the 1933 Act, the
1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law
respecting the offering of variable life insurance policies and variable
annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state
law.
3.8 During such time as the Fund engages in Mixed Funding or
Shared Funding, a majority of the Board of Trustees of the Fund shall consist
of persons who are not "interested persons" of the Fund ("disinterested
Trustees"), as defined by Section 2(a)(19) of the 1940 Act and the rules
thereunder, and as modified by any applicable orders of the SEC, except that if
this provision of this Section 3.8 is not met by reason of the death,
disqualification, or bona fide resignation of any Trustee or Trustees, then the
operation of this provision shall be suspended (a) for a period of 45 days if
the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies;
or (c) for such longer period as the SEC may prescribe by order upon
application.
3.9 The Insurer and its agents will not in any way recommend any
proposal or oppose or interfere with any proposal submitted by the Fund at a
meeting of owners of Variable Contracts or shareholders of the Fund, and will
in no way recommend, oppose, or interfere with the solicitation of proxies for
Fund shares held by Contract Owners, without the prior written consent of the
Fund, which consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities have jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. POTENTIAL CONFLICTS
4.1 During such time as the Fund engages in Mixed Funding or
Shared Funding, the parties hereto shall comply with the conditions in this
Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Life Insurance Companies that invest
in the Fund. A material irreconcilable conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
of the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
-5-
<PAGE> 6
4.3 The Insurer agrees that it shall report any potential or
existing conflicts of which it is aware to the Fund's Board of Trustees. The
Insurer will be responsible for assisting the Board of Trustees of the Fund in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, or, if the fund is engaged in Mixed Funding or Shared Funding in
reliance on Rule 6e-2, 6e-3(T), or any other regulation under the 1940 Act, the
Insurer will be responsible for assisting the Board of Trustees of the Fund in
carrying out its responsibilities under such regulation, by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Insurer to
inform the Board whenever Variable Contract Owner voting instructions are
disregarded. The Insurer shall carry out its responsibility under this Section
4.3 with a view only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by
a majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote, the Insurer
shall be required, at the Fund's election, to withdraw the Separate Accounts'
investment in the Fund, provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees, and no charge or penalty will be imposed as a result of such
withdrawal. These responsibilities shall be carried out with a view only to the
interests of the Variable Contract Owners. A majority of the disinterested
Trustees of the Fund shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Fund or its investment adviser or the Distributor be required to establish
a new funding medium for any Variable Contract. The Insurer shall not be
required by this Section 4.4 to establish a new funding medium for any Variable
Contact if any offer to do so has been declined by vote of a majority of
Variable Contract Owners materially adversely affected by the material
irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's
Board of Trustees such reports, materials, or data as the Board reasonably may
request so that the Trustees of the Fund may fully carry out the obligations
imposed upon the Board by the conditions contained in the application for the
Mixed and Shared Funding Exemptive Order and said reports, materials, and data
shall be submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the
Fund's Board of Trustees, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request.
-6-
<PAGE> 7
4.7 The Board of Trustees of the Fund shall promptly notify the
Insurer in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. PROSPECTUSES AND PROXY STATEMENTS; VOTING
5.1 The Insurer shall distribute such prospectuses, proxy
statements and periodic reports of the Fund to the owners of Variable Contracts
issued by the Insurer as required to be distributed to such Variable Contract
Owners under applicable federal or state law.
5.2 The Distributor shall provide the Insurer with as many copies
of the current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for the Insurer to either print a stand-alone document or print together
in one document the current prospectus for the Variable Contracts issued by the
Insurer and the current prospectus for the Fund, or a document combining the
Fund prospectus with prospectuses of other funds in which the Variable
Contracts may be invested. The Fund shall bear the expense of printing copies
of its current prospectus that will be distributed to existing Variable
Contract Owners, and the Insurer shall bear the expense of printing copies of
the Fund's prospectus that are used in connection with offering the Variable
Contracts issued by the Insurer. The expenses of printing prospectuses
combining the Fund prospectus with the Variable Contract prospectus or with
prospectuses of other funds in which the Variable Contracts may be invested
shall be apportioned between (a) the Insurer and (b) the Fund, in proportion to
the number of pages of the combined prospectus. The Fund will bear the cost of
printing the Funds' prospectus portion of such document for distribution to
owners of existing Variable Contracts invested in the Fund, and the Insurer
will bear the expense of printing the portion of such documents relating to the
Separate Accounts; provided, however, that the Insurer will bear all printing
expenses of such combined prospectuses where used for distribution to
prospective purchasers or to owners of existing Variable Contracts not invested
in the Fund.
5.3 The Fund and the Distributor shall provide, at the Fund's
expense, such copies of the Fund's current Statement of Additional Information
("SAI") as may reasonably be requested, to the Insurer and to any owner of a
Variable Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with
copies of its proxy materials, periodic reports to shareholders, and other
communications to shareholders in such quantity as the Insurer shall reasonably
require for purposes of distributing to owners of Variable Contracts issued by
the Insurer. The Fund, at the Insurer's expense, shall provide the Insurer with
copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Insurer shall reasonably request for use
in connection with offering the Variable Contracts issued by the Insurer. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's proxy materials, periodic
reports to shareholders, and other communications to shareholders, as set in
type or in camera-ready copy) and other assistance as reasonably necessary in
order for the Insurer to print such shareholder communications for distribution
to owners of Variable Contracts issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require
pass-through voting by Participating Insurance Companies whose Separate
Accounts are registered as investment companies under the 1940 Act, the Insurer
shall vote shares of each Portfolio of the Fund held in a Separate Account or a
subaccount thereof, whether or not registered under the 1940 Act, at
-7-
<PAGE> 8
regular and special meetings of the Fund in accordance with instructions timely
received by the Insurer (or its designated agent) from owners of Variable
Contracts funded by such Separate Account or subaccount thereof having a voting
interest in the Portfolio. The Insurer shall vote shares of a Portfolio of the
Fund held in a Separate Account or a subaccount thereof that are attributable
to the Variable Contracts as to which no timely instructions are received, as
well as shares held in such Separate Account or subaccount thereof that are not
attributable to the Variable Contracts and owned beneficially by the Insurer
(resulting from charges against the Variable Contracts or otherwise), in the
same proportion as the votes cast by owners of the Variable Contracts funded by
that Separate Account or subaccount thereof having a voting interest in the
Portfolio from whom instructions have been timely received. The Insurer shall
vote shares of each Portfolio of the Fund held in its general account, if any,
in the same proportion as the votes cast with respect to shares of the
Portfolio held in all Separate Accounts of the Insurer or subaccounts thereof,
in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or
Shared Funding, the Fund shall disclose in its prospectus that (1) the Fund is
intended to be a funding vehicle for variable annuity and variable life
insurance contracts offered by various insurance companies, (2) material
irreconcilable conflicts possibly may arise, and (3) the Board of Trustees of
the Fund will monitor events in order to identify the existence of any material
irreconcilable conflicts and to determine what action, if any, should be taken
in response to any such conflict. The Fund hereby notifies the Insurer that
prospectus disclosure may be appropriate regarding potential risks of offering
shares of the Fund to separate accounts funding both variable annuity contracts
and variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
ARTICLE VI. SALES MATERIAL AND INFORMATION
6.1 The Insurer shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Portfolio thereof) or its investment adviser
or the Distributor is named at least 15 days prior to the anticipated use of
such material, and no such sales literature or other promotional material shall
be used unless the Fund and the Distributor or the designee of either approve
the material or do not respond with comments on the material within 10 days
from receipt of the material.
6.2 The Insurer agrees that neither it nor any of its affiliates
or agents shall give any information or make any representations or statements
on behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or
its designee and by the Distributor or its designee, except with the permission
of the Fund or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall
furnish to the Insurer or its designee, each piece of sales literature or other
promotional material in which the Insurer or its Separate Accounts are named at
least 15 days prior to the anticipated use of such material, and no such
material shall be used unless the Insurer or its designee approves the material
or does not respond with comments on the material within 10 days from receipt
of the material.
6.4 The Fund and the Distributor agree that each and the
affiliates and agents of each shall not give any information or make any
representations on behalf of the Insurer or concerning
-8-
<PAGE> 9
the Insurer, the Separate Accounts, or the Variable Contracts issued by the
Insurer, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Separate Accounts or prepared for distribution
to owners of such Variable Contracts, or in sales literature or other
promotional material approved by the Insurer or its designee, except with the
permission of the Insurer.
6.5 The Fund will provide to the Insurer at least one complete
copy of the Mixed and Shared Funding Exemptive Application and any amendments
thereto, all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares,
promptly after the filing of such document with the SEC or other regulatory
authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which
shall include an offering memorandum if the Variable Contracts issued by the
Insurer or interests therein are not registered under the 1933 Act), Statements
of Additional Information, reports, solicitations for voting instructions
relating to the Fund, and all amendments or supplements to any of the above
that relate to the Variable Contracts issued by the Insurer or the Separate
Accounts which utilize the Fund as an underlying investment medium, promptly
after the filing of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature
or other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, computerized media, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees.
ARTICLE VII. INDEMNIFICATION
7.1 Indemnification by the Insurer
7.1(a) The Insurer agrees to indemnify and hold harmless the
Fund, each of its Trustees and officers, any affiliated person of the
Fund within the meaning of Section 2(a)(3) of the 1940 Act, and the
Distributor (collectively, the "Indemnified Parties" for purposes of
this Section 7.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of the Insurer) or litigation expenses (including legal and
other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or litigation expenses
are related to the sale or acquisition of the Fund's shares or the
Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus (which
shall include an offering memorandum) for the Variable
Contracts issued by the Insurer or sales literature for such
Variable Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
-9-
<PAGE> 10
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Insurer by or on behalf of the
Fund for use in the registration statement or prospectus for
the Variable Contracts issued by the Insurer or sales
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of such Variable Contracts or
Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Fund not supplied by the Insurer or persons
under its control) or wrongful conduct of the Insurer or any
of its affiliates, employees or agents with respect to the
sale or distribution of the Variable Contracts issued by the
Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of the
Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to
the Fund by or on behalf of the Insurer; or
(iv) arise out of or result from any material breach
of any representation and/or warranty made by the Insurer in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Insurer;
except to the extent provided in Section 7.1(b) and 7.1(c) hereof.
7.1(b) The Insurer shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of the Indemnified Party's duties
or by reason of the Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Party shall have notified the Insurer in
writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Party shall
have received notice of such service on any designated agent), but
failure to notify the Insurer of any such claim shall not relieve the
Insurer from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against
the Indemnified Parties, the Insurer shall be entitled to participate,
at its own expense, in the defense of such action. The Insurer also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Insurer to such party of the Insurer's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurer will not be liable
to such party under this
-10-
<PAGE> 11
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other
than reasonable costs of investigation.
7.1(d) The Indemnified Parties shall promptly notify the
Insurer of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund shares or the
Variable Contracts issued by the Insurer or the operation of the Fund.
7.2 Indemnification By the Distributor
7.2(a) The Distributor agrees to indemnify and hold harmless
the Insurer, its affiliated principal underwriter of the Variable
Contracts, and each of their directors and officers and any affiliated
person of the Insurer within the meaning of Section 2(a)(3) of the
1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Distributor) or litigation expenses (including legal and other
expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the
Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Distributor or the Fund or the
designee of either by or on behalf of the Insurer for use in
the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Variable Contracts issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Variable Contracts not supplied by the
Distributor or any employees or agents thereof) or wrongful
conduct of the Fund or Distributor, or the affiliates,
employees, or agents of the Fund or the Distributor with
respect to the sale or distribution of the Variable Contracts
issued by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the Variable Contracts issued by the Insurer, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Insurer by or on behalf of the Fund; or
-11-
<PAGE> 12
(iv) arise out of or result from any material breach
of any representation and/or warranty made by the Distributor
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b) The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance of the Indemnified Party's duties
or by reason of the Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.2(c) The Distributor shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Party shall have notified the
Distributor in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any
designated agent), but failure to notify the Distributor of any such
claim shall not relieve the Distributor from any liability which it
may have to the Indemnified Party against whom such action is brought
otherwise that on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in
the defense thereof. The Distributor also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Distributor to such party of the
Distributor's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party
under this Agreement for any legal or other expense subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of
its officers or directors in connection with the issuance or sale of
the Variable Contracts issued by the Insurer or the operation of the
Separate Accounts.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable
Contracts, and each of their directors and officers and any affiliated
person of the Insurer within the meaning of Section 2(a)(3) of the
1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Fund) or litigation expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the
sale or acquisition of the Fund's shares or the Variable Contracts
issued by the Insurer and:
-12-
<PAGE> 13
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Distributor or the Fund or the
designee of either by or on behalf of the Insurer for use in
the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Variable Contracts
issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Variable Contracts not supplied by the
Distributor or any employees or agents thereof) or wrongful
conduct of the Fund, or the affiliates, employees, or agents
of the Fund, with respect to the sale or distribution of the
Variable Contracts issued by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus or sales literature
covering the Variable Contracts issued by the Insurer, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Insurer by or on behalf of the Fund; or
(iv) arise out of or result from any material breach
of any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation expenses to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by
reason of the Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Insurer or the Separate
Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Party shall have received notice
of such service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve the Fund from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties,
the Fund will be entitled to
-13-
<PAGE> 14
participate, at its own expense, in the defense thereof. The Fund also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
7.3(d) The Insurer shall promptly notify the Fund of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Variable Contracts issued by the Insurer or the sale of the Fund's
shares.
ARTICLE VIII. APPLICABLE LAW
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and ruling thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding
Exemptive Order), and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE IX. TERMINATION
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written
notice to the other parties; or
(b) at the option of the Insurer if shares of the Portfolios
are not reasonably available to meet the requirements of the Variable
Contracts issued by the Insurer, as determined by the Insurer, and
upon prompt notice by the Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon
institution of formal proceedings against the Insurer or its agent by
the NASD, the SEC, or any state securities or insurance department or
any other regulatory body regarding the Insurer's duties under this
Agreement or related to the sale of the Variable Contracts issued by
the Insurer, the operation of the Separate Accounts, or the purchase
of the Fund shares; or
(d) at the option of the Insurer upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC,
or any state securities or insurance department or any other
regulatory body; or
(e) upon requisite vote of the Variable Contract Owners
having an interest in the Separate Accounts (or any subaccounts
thereof) to substitute the shares of another investment company for
the corresponding shares of the Fund or a Portfolio in accordance with
the terms of the Variable Contracts for which those shares had been
selected or serve as the underlying investment media; or
-14-
<PAGE> 15
(f) in the event any of the shares of a Portfolio are not
registered, issued or sold in accordance with applicable state and/or
federal law, or such law precludes the use of such shares as the
underlying investment media of the Variable Contracts issued or to be
issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a
majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, that an irreconcilable conflict, as described
in Article IV hereof, exists; or
(h) at the option of the Insurer if the Fund or a Portfolio
fails to meet the requirements under Subchapter M of the Code for
qualification as a Regulated Investment Company specified in Section
3.2 hereof or the diversification requirements specified in Section
3.3 hereof.
9.2 If the need for substitution of the shares of another
investment company, pursuant to Section 20(b) of the 1940 Act, arises out of
the Fund's failure to be registered, issued or sold in conformance with federal
law or such law precludes the use of the Funds as an underlying investment
medium of contracts issued or to be issued by the Insurer, the expenses of
obtaining such an order shall be reimbursed by the Distributor. The Distributor
and the Fund shall cooperate with the Insurer in connection with such an
application.
9.3 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 9.1(c) and (d) hereof. The insurer
shall give 60 days prior written notice to the Fund of the date of any proposed
vote of Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.4 Except as necessary to implement Variable Contract Owner
initiated transactions, or as required by state insurance laws or regulations,
the Insurer shall not redeem Fund shares attributable to the Variable Contracts
issued by the Insurer (as opposed to Fund shares attributable to the Insurer's
assets held in the Separate Accounts), and the Insurer shall not prevent
Variable Contract Owners from allocating payments to a Portfolio, until 30 days
after the Insurer shall have notified the Fund or Distributor of its intention
to do so.
9.5 Notwithstanding any termination of this Agreement, the Fund
and the Distributor shall at the option of the Insurer continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, based upon instructions from
the owners of the Existing Contracts, the Separate Accounts shall be permitted
to reallocate investments in the Portfolios of the Fund and redeem investments
in the Portfolios, and shall be permitted to invest in the Portfolios in the
event that owners of the Existing Contracts make additional purchase payments
under the Existing Contracts. If this Agreement terminates, the parties agree
that Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or
a portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
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<PAGE> 16
ARTICLE X. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Insurance Management Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
SAFECO Life Insurance Company
15411 N.E. 51st Street
Redmond, Washington 98052
Attn.: William E. Crawford
ARTICLE XI. MISCELLANEOUS
11.1 The Fund and the Insurer agree that if and to the extent Rule
6e-2 or Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted
in final form, to the extent applicable, the Fund and the Insurer shall each
take such steps as may be necessary to comply with the Rule as amended or
adopted in final form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on
file with the Secretary of the Commonwealth of Massachusetts and notice is
hereby given that any agreements that are executed on behalf of the Fund by any
Trustee or officer of the Fund are executed in his or her capacity as Trustee
or officer and not individually. The obligations of this Agreement shall only
be binding upon the assets and property of the Fund and shall not be binding
upon any Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
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<PAGE> 17
11.4 Administrative services to Variable Contract Owners shall be
the responsibility of Insurer. Insurer, on behalf of its separate accounts will
be the sole shareholder of record of Fund shares. Fund and Distributor
recognize that they will derive a substantial savings in administrative expense
by virtue of having a sole shareholder rather than multiple shareholders. In
consideration of the administrative savings resulting from having a sole
shareholder rather than multiple shareholders, Distributor agrees to pay to
Insurer an amount computed at an annual rate of .25 of 1% of the average daily
net asset value of shares held in subaccounts for which Insurer provides
administrative services. Such payments will be made monthly to Insurer.
Distributor's payments to Insurer are for administrative services only and do
not constitute payment in any manner for investment advisory services.
11.5 It is understood that the name "Federated" or any derivative
thereof or logo associated with that name is the valuable property of the
Distributor and its affiliates, and that the Insurer has the right to use such
name (or derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such
name (or derivative or logo).
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
11.9 This Agreement may not be assigned by any party to the
Agreement except with the written consent of the other parties to the
Agreement.
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
<TABLE>
<S> <C> <C>
INSURANCE MANAGEMENT SERIES
ATTEST: \S\S. Elliott Cohan BY: \S\Richard B. Fisher
-------------------------------------------- ---------------------------------------------------------
Name: S. Elliott Cohan Name: Richard B. Fisher
---------------------------------------------- -------------------------------------------------------
Title: Assistant Secretary Title: Vice President
--------------------------------------------- ------------------------------------------------------
FEDERATED SECURITIES CORP.
ATTEST: \S\Joseph M. Huber BY: \S\Byron F. Bowman
-------------------------------------------- ---------------------------------------------------------
Name: Joseph M. Huber Name: Byron F. Bowman
---------------------------------------------- -------------------------------------------------------
Title: Assistant Secretary Title: Vice President
--------------------------------------------- ------------------------------------------------------
SAFECO LIFE INSURANCE COMPANY
ATTEST: \S\Sheridan H. Hollender BY: \S\Gregory Clarke
-------------------------------------------- ---------------------------------------------------------
Name: Sheridan H. Hollender Name: Gregory Clarke
---------------------------------------------- -------------------------------------------------------
Title: Assistant General Counsel Title: Vice President
--------------------------------------------- ------------------------------------------------------
</TABLE>
-18-
<PAGE> 19
Exhibit A
<TABLE>
<S> <C>
Annuity Products Separate Accounts
---------------- -----------------
MainSail SAFECO Separate Account C
Spinnaker Q/NQ SAFECO Separate Account C
Spinnaker Group SAFECO Separate Account C
Spinnaker Plus SAFECO Resource Variable Account B
</TABLE>
-19-
<PAGE> 20
Exhibit B
Utility Fund
Corporate Bond Fund
International Stock Fund
-20-
<PAGE> 1
EXHIBIT 8c
FUND PARTICIPATION AGREEMENT
SAFECO Life Insurance Company (the "Company") and Lexington Emerging
Markets Fund, Inc. and Lexington Natural Resources Trust ("Lexington Funds or
the Funds") and its investment adviser, Lexington Management Corporation
("LMC") hereby agree to an arrangement whereby shares of the Funds shall be
made available to serve as underlying investment media for Variable Annuity
and/or Variable Life Contracts ("Contracts") to be issued by the Company,
subject to the following provisions:
1. Establishment of Accounts: Availability of Funds.
(a) The Company represents that it has established variable
annuity accounts and variable life account (the "Accounts"),
each of which is a separate account under Washington Insurance
law, and has registered each of the Accounts as a unit
investment trust under the Investment Company Act of 1940 (the
"1940") to serve as an investment vehicle for the Contracts.
Each Contract provides for the allocation of net amounts
received by the Company to an Account for investment in the
shares of one or more specified open-end companies ("Funds")
available through that account as underlying investment media.
Selection of a particular Fund and changes therein from time
to time are made by the person covered under the Contract
("Participant") or Contract owner, as applicable under a
particular Contract.
(b) Lexington Funds and LMC represent and warrant that the
investments of the Funds will at all times be adequately
diversified within the meaning of Section 817(h) of the
Internal Revenue Service Code of 1986, as amended (the
"Code"), and the Regulations thereunder, and that at all times
while this agreement is in effect, all beneficial interests
will be owned by one or more insurance companies or by any
other party permitted under Section 1.817- 5(f)(3) of the
Regulations promulgated under the Code.
2. Marketing and Promotion.
The Company agrees to make every reasonable effort to market its
Contracts, whether directly or through its affiliates. It will use its
best efforts to cause equal emphasis and promotion to be given to
shares of the Funds relative to other Funds available through the
Accounts. In marketing and administering the Contracts, the Company
and its affiliates will comply with all applicable State and Federal
laws.
3. Pricing Information; Orders; Settlement.
(a) Lexington Funds will make shares available to be purchased by
the Company, and will accept redemption orders from the
Company, on behalf of each Account at the net asset value
applicable to each order. Fund shares shall be purchased and
redeemed in such quantity and at such time determined by the
Company to be necessary to meet the requirements of those
Contracts for which the Funds serve as underlying investment
media.
(b) Lexington Funds will provide to the Company closing net asset
value, dividend and capital gain information at the close of
trading each day that the New York Stock
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Exchange (the "Exchange") is open (each such day, a "business
day"). The Company will send via facsimile transmission to
Lexington Funds or its specified agent orders to purchase
and/or redeem Fund shares by 10:00 a.m., Eastern Time the
following business day. Payment for net purchases will be
wired by the Company to a custodial account designated by
Lexington Funds to coincide with the order for shares of the
Funds.
(c) Orders from Contract owners or Participants received by the
Company and sent by the Company prior to the close of the
Exchange on any given business day via facsimile transmission
to Lexington Funds or its specified agent by 10:00 a.m.,
Eastern Time, the following business day will be executed by
Lexington Funds at the net asset value determined as of the
close of the Exchange on such prior business day. Any orders
received by the Company after the close of the Exchange on
such prior business day (or not meeting the foregoing
sentence's requirements) will be executed by Lexington Funds
at the net asset value determined as of the close of the
Exchange on the next business day following the day of receipt
of such order.
(c) Payments for net redemptions of shares of the Funds will be
wired by Lexington Funds from the Lexington Funds custodial
account to an account designated by the Company.
(e) Each party has the right to rely on information or
confirmations provided by the other party (or by any affiliate
of the other party), and shall not be liable in the event that
an error is a result of any misinformation supplied by the
other party. If a mistake is caused in supplying such
information or confirmations, which results in a
reconciliation with incorrect information, the amount required
to make a Contract owner's or a Participant's account whole
shall be borne by the party providing the incorrect
information.
4. Expenses.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by Lexington Funds under this
Agreement shall be paid by Lexington Funds including the cost
of registration of Lexington Funds shares with the Securities
and Exchange Commission (the "SEC") and in states where
required.
(b) Lexington Funds shall distribute to the Company its proxy
material, periodic fund reports to shareholders and other
material that are required by law to be sent to Contract
owners. In addition, Lexington Funds shall provide the Company
with a sufficient quantity of its prospectuses to be used in
connection with the offerings and transactions contemplated by
this Agreement. Subject to subsection (c) below, the cost of
preparing and printing such materials shall be paid by
Lexington Funds, and the cost of distributing such materials
shall be paid by the Company.
(c) In lieu of Lexington Funds' providing printed copies of
prospectuses and periodic fund reports to shareholders, the
Company shall have the right to request that Lexington Funds
provide a copy of such materials in an electronic format,
which the Company may use to have such materials printed
together with similar materials of other Account funding media
that the Company or any distributor will distribute to
existing
2
<PAGE> 3
or prospective Contract owners or participants. In that event
Lexington Funds shall reimburse the Company for the same
proportion of the total printing expense for such materials as
the number of pages in each such printed document provided by
Lexington Funds bears to the total number of pages in such
printed document.
5. Representations.
(a) The Company agrees that it and its agents shall not, without
the written consent of Lexington Funds, make representations
concerning Lexington Funds or its shares except those
contained in the then current prospectuses and in current
printed sales literature of Lexington Funds.
(b) The Company represents and warrants that interests in certain
Contracts are or will be registered under the Securities Act
of 1933 ("1933 Act") or are exempt from registration
thereunder; that the Contracts will be issued and sold in
compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts
shall comply in all material respects with state insurance
suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale
thereof as a segregated asset account and that each Account is
or will be registered as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts or is exempt from
registration thereunder.
(c) The Company represents that the Contracts are currently
treated as annuity and/or life insurance contracts under
applicable provisions of the Code and that it will make every
effort to maintain such treatment and that it will notify
Lexington Fund and LMC immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(d) The Company represents and warrants that all of its directors,
officers, and employees dealing with the money and/or
securities of the Funds are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage
for the benefit of the Funds in an amount not less than $2
million. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding
company.
(e) LMC and Lexington Funds make no representation as to whether
any aspect of the Funds' operations (including, but not
limited to, fees and expenses and investment policies)
complies with the insurance laws or regulations of the various
states.
(f) The Lexington Funds represents that it will sell and
distribute Funds' shares in accordance with all applicable
federal and state securities laws, including without
limitation, the 1933 Act, the Securities Exchange Act of 1934,
and the 1940 Act.
(g) Lexington Funds represents it is currently qualified as a
regulated investment company under Subchapter M of the Code
and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar
3
<PAGE> 4
provision) and that it will notify the Company immediately
upon having a reasonable basis for believing that it ceased to
so qualify or might not so qualify in the future.
(h) LMC and Lexington Funds represent and warrant that the Fund's
shares sold pursuant to this Agreement shall be registered
under the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the State of Washington and all
applicable federal and state securities laws and that the
Funds are and shall remain registered under the 1940 Act. The
Funds shall amend the registration statement for its shares
under the 1933 Act and 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The
Funds shall also register and qualify its shares for sale in
accordance with the laws of the various states only if and to
the extent deemed advisable by the Funds or LMC.
(i) Lexington Funds represents that it is lawfully organized and
validly existing under the laws of its state of domicile and
that it is and will comply in all material respects with the
1940 Act.
(j) LMC and Lexington Funds represent and warrant that LMC is duly
organized under its state of domicile, and is and shall remain
duly registered in all material respects under all applicable
federal and state securities laws, and further that LMC shall
perform its obligations for the Funds in compliance in all
material respects with applicable federal and state securities
laws.
(k) LMC and Lexington Funds represent and warrant that all of
their respective directors, officers, and employees dealing
with the money and/or securities of the Funds are and shall
continue to be at all times covered by a blanket fidelity bond
or similar coverage for the benefit of the Funds in an amount
not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
6. Administration of Accounts.
(a) Administrative services to Contract owners and Participants
shall be the responsibility of the Company and shall not be
the responsibility of Lexington Funds or LMC. LMC recognizes
the Company as the sole shareholder of fund shares issues
under this Agreement. From time to time, LMC may pay amounts
from it past profits to the Company for providing certain
administrative services for the Funds or for providing
Contract owners with other services that relate to the Funds.
These services may include, among other things, sub-accounting
services, answering inquiries of Contract owners regarding the
Funds, transmitting, on behalf of the funds, proxy statements,
annual reports, updated prospectus and other communications to
Contract owners regarding the Funds and such other related
services as the Funds or a Contract holder may request. In
consideration of the savings resulting from such arrangement,
and to compensate the Company for its costs, LMC agrees to pay
to the Company an amount equal to 25 basis points (0.25%) per
annum of the average aggregate amount invested by the Company
in the Fund under this Agreement. Payment of such amounts by
LMC will not increase the fees paid by the Funds or its
shareholders.
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<PAGE> 5
(b) The parties agree that LMC's payments to the Company are for
administrative services only and do not constitute payment in
any manner for investment advisory services or for costs of
distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated by this Section 6, the average
aggregate amount invested by the Company over a one month
period shall be computed by totaling the Company's aggregate
investment (share net asset value multiplied by total number
of shares held by the Company) on each business day during the
month and dividing by the total number of business days during
each month.
(d) LMC will calculate the reimbursement of administrative
expenses at the end of each calendar quarter and will make
such reimbursement to the Company within 30 days thereafter.
The reimbursement check will be accompanied by a statement
showing the calculation of the monthly amounts payable by LMC
and such other supporting data as may be reasonably requested
by the Company.
7. Termination.
This agreement shall terminate as to the sale and issuance of new
Contracts:
(a) at the option of either the Company or Lexington Funds, upon
three months advance written notice to the other;
(b) at the option of the Company, upon one week advance written
notice to Lexington Funds if Lexington Fund shares are not
available for any reason to meet the requirement of Contracts
as determined by the Company.
(c) at the option of either the Company or Lexington Funds,
immediately upon institution of formal proceedings against the
broker-dealer or broker-dealers marketing the Contracts, the
Account, the Company, Lexington Funds, or LMC by the National
Association of Securities Dealers, Inc. (the "NASD"), the SEC
or any other regulatory body;
(d) upon the requisite vote of Contract owners or Participants
having an interest in the Funds, to substitute for the Funds'
shares the shares of another investment company in accordance
with the terms of the applicable Contracts. The Company will
give 60 days written notice to Lexington Funds of any proposed
vote to replace the Funds' shares;
(e) upon assignment of this Agreement, unless made with the
written consent of all other parties hereto;
(f) if the Funds' shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of
Funds' shares as an underlying investment medium for Contracts
issued or to be issued by the Company. Prompt notice shall be
given by either party should such situation occur.
5
<PAGE> 6
8. Continuation of Agreement.
Termination as the result of any cause listed in Section 7 shall not
affect Lexington Funds' obligation to furnish its shares to Contacts
then in force for which its share serve or may serve as the underlying
medium unless such further sale of Funds' shares is proscribed by law
or the SEC or other regulatory body.
9. Advertising Materials; Filed Documents.
(a) Advertising and sales literature with respect to the Funds
prepared by the Company or its agents for use in marketing its
Contracts will be submitted to Lexington Funds for review
before such material is submitted by any regulatory body for
review.
(b) Lexington Funds will provide to the Company at least one
complete copy of all registration statements, prospectuses,
statements of additional information, annual and semiannual
reports, proxy statements and all amendments or supplements to
any of the above that relate to the Funds promptly after the
filing of such document with the SEC or other regulatory
authorities. The Company will provide to Lexington Funds at
least one complete copy of all registration statements,
prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, and all amendments or
supplements to any of the above that relate to each Account
promptly after the filing of such document with the SEC or
other regulatory authority.
10. Proxy Voting.
(a) The Company shall provide pass-through voting privileges on
Funds' shares to all Contract owners and Participants to the
extent the SEC continues to interpret the 1940 Act as
requiring such privileges. If shares are held in any other
separate account not required to be registered under the 1940
Act, those shares will be voted in the Company's sole
discretion.
(b) The Company will distribute to Contract owners and
participants, as appropriate, all proxy material furnished by
Lexington Funds and will vote Funds' shares in accordance with
instructions received from Contract owners and participants.
The Company, with respect to each Contract and in each
Account, shall vote Fund shares for which no instructions have
been received in the same proportion as shares for which such
instructions have been received. The Company and its agents
shall not oppose or interfere with the solicitation of proxies
for Fund shares held for such Contract owners and
participants.
11. Indemnification.
(a) The Company agrees to indemnify and hold harmless Lexington
Funds, LMC, and each of its directors, officers, employees,
agents and each person, if any, who controls the Funds or its
investment adviser within the meaning of the Securities Act of
1933 (the "1933 Act") against any losses, claims, damages or
liabilities to which the Funds or any such director, officer,
employee, agent, or controlling person may become subject,
under the 1933 Act or otherwise, insofar as such losses,
claims,
6
<PAGE> 7
damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement, prospectus or sales literature of the
Company, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements or
representations (other than statement or representations
contained in the prospectuses or sales literature of the
Funds) of the Company or its agents, with respect to the sale
and distribution of Contracts for which Fund shares are the
underlying investment. The Company will reimburse any legal
or other expenses reasonably incurred by the Fund or any such
director, officer, employee, agent, investment adviser, or
controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such Registration
Statement or prospectus in conformity with written materials
furnished to the Company by the Fund specifically for use
therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Company shall not be liable under this Section 11. to
Lexington Funds, LMC or other parties covered under Section
11.(a) with respect to any losses, claims, damages or
liabilities (or actions in respect thereof) incurred or
assessed against any such party (including Lexington Funds and
LMC) as such may arise from such party's willful misfeasance,
bad faith, or gross negligence in the performance of such
party's duties or by reason of such party's reckless disregard
of obligations or duties under this Agreement.
(c) Lexington Fund and LMC agree to indemnify and hold harmless
the Company and its directors, officers, employees, agents and
each person, if any, who controls the Company within the
meaning of the 1933 Act against any losses, claims, damages or
liabilities to which the Company or any such director,
officer, employee, agent or controlling person may become
subject, under the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in
the Registration Statement, prospectuses or sales literature
of the Funds, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading. Lexington Funds will
reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, employee, agent, or
controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that LMC and Lexington Funds will not be
liable in any such case to the extent that any such loss,
claim, damage or liability rises out of or is based upon a
Registration Statement or prospectuses which are in conformity
with written materials furnished to Lexington Funds by the
Company specifically for use therein. This indemnity agreement
will be in addition to any liability which Lexington Funds of
LMC may otherwise have.
(d) Lexington Funds and LMC shall not be liable under this Section
11. to the Company or other parties covered under Section
11.(c) with respect to any losses, claims, damages or
liabilities (or actions in respect thereof) incurred or
assessed against any
7
<PAGE> 8
such party (including the Company) as such may arise from such
party's willful misfeasance, bad faith, or gross negligence in
the performance of such party's duties or by reason of such
party's reckless disregard of obligations or duties under this
Agreement.
(e) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify the indemnifying party of
the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than
under this Section 11. In case any such action is brought
against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein
and, to the extent that it may wish to, assume the defense
thereof, with counsel satisfactory to such indemnified party,
and after notice from the indemnifying party to such
indemnified party of its election to assume the defense
thereof, the indemnifying party will not be liable to such
indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation.
12. Potential Conflicts.
(a) The Company has received a copy of an application for
exemptive relief, as amended, filed by Lexington Funds on
March 21, 1994, with the SEC and the order issued by the SEC
in response thereto (the "Shared Funding Exemptive Order").
The Company has reviewed the conditions to the requested
relief set forth in such application for exemptive relief. As
set forth in such application, the Board of Directors of Funds
(the "Board") will monitor the Funds for the existence of any
material irreconcilable conflict between the interests of the
contract holders of all separate accounts ("Participating
Companies") investing in the Funds. An irreconcilable material
conflict may arise for a variety of reasons, including: (i) an
action by any state insurance regulatory authority; (ii) a
change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any
similar actions by insurance, tax or securities regulatory
authorities; (iii) an administrative or judicial decision in
any relevant proceeding, (iv) the manner in which the
investments of any portfolio are being managed; (v) a
difference in voting instructions given by variable annuity
contract holders and variable life insurance contract holders;
or (vi) a decision by an insurer to disregard the voting
instructions of contract holders. The Board shall promptly
inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the
Board in carrying out its responsibilities under the Shared
Funding Exemptive Order by providing the Board with all
information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever
contract holder voting instructions are disregarded.
8
<PAGE> 9
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable
conflict exists with regard to contract holder investments in
the Funds, the Board shall give prompt notice to all
Participating Companies. If the Board determines that the
Company is responsible for causing or creating said conflict,
the Company shall at its sole cost and expense, and to the
extent reasonably practicable (as determined by a majority of
the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include but shall not be
limited to:
(i) withdrawing the assets allocable to the Account from
the fund and reinvesting such assets in a different
investment medium or submitting the question of
whether such segregation should be implemented to a
vote of all affected contract holders and as
appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract
owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to
the affected contract holders the option of making
such a change; and/or
(ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contract holder
voting instructions and said decision represents a minority
position or would preclude a majority vote by all of its
contact holders having an interest in the Fund, the Company at
its sole cost, may be required, at the Board's election, to
withdraw an Account's investment in the Fund and terminate
this Agreement; provided, however, that such withdrawal and
termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the
disinterested Board members shall determine whether or not any
proposed action adequately remedies any irreconcilable
material conflict, but in no event will Lexington Funds be
required to establish a new funding medium for any Contract.
The Company shall not be required by this Section 12 to
establish a new funding medium for any Contract if an offer to
do so has been declined by vote of a majority of the Contract
owners or participants materially adversely affected by the
irreconcilable material conflict.
13. Miscellaneous.
(a) Amendment and Waiver. Neither this Agreement, nor any
provision hereof, may be amended, waived, discharged or
terminated orally, but only by an instrument in writing signed
by all parties hereto.
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<PAGE> 10
(b) Notices. All notices and other communications hereunder shall
be given or made in writing and shall be delivered personally,
or sent by telex, telecopier or registered or certified mail,
postage prepaid, return receipt requested, to the party or
parties to whom they are directed at the following addresses,
or at such other addresses as may be designated by notice from
such party to all other parties.
To the Company:
SAFECO Life Insurance Company
15411 NE 51st Street
Redmond, Washington 98052
Attention:
To Lexington Management Corporation:
Lexington Management Corporation
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Attention: Lisa Curcio, Vice President &
Secretary
Any notice, demand or other communication given in a manner
prescribed in this subsection (b) shall be deemed to have been
delivered on receipt.
(c) Successors and Assigns. This agreement shall be binding upon
and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
agreement, and any party hereto may execute this Agreement by
signing any such counterpart.
(e) Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein
shall not in any way be affected or impaired thereby.
(f) Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the parties hereto and
supersedes all prior agreement and understandings relating to
the subject matter hereof.
(g) Governing Law. This Agreement shall be governed and
interpreted in accordance with the laws of the State of New
Jersey.
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<PAGE> 11
14. Limitation on Liability of Trustees, etc.
This Agreement has been executed on behalf of the Funds by the
undersigned officer of the Funds in his/her capacity as an officer of
the Funds. The obligations of this Agreement that pertain to the Funds
shall only be binding upon the assets and property of the Funds and
shall not be binding upon any individual trustee, officer or
shareholder of the Funds. This provision shall not affect the
obligations or liabilities of LMC under this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by
their duly authorized officers as of this ___________ day of January 1995.
SAFECO LIFE INSURANCE COMPANY LEXINGTON MANAGEMENT CORPORATION
By: _______________________________ By: ____________________________________
Name Name: Lawrence Kantor
Title: Title: Managing Director
LEXINGTON NATURAL RESOURCES TRUST
LEXINGTON EMERGING MARKETS FUND, INC.
By: ____________________________________
Name: Lisa Curcio
Title: Vice President & Secretary
11
<PAGE> 1
EXHIBIT 9
April 29, 1996
Board of Directors
SAFECO Life Insurance Company
SAFECO Plaza
Seattle, WA 98185
Gentlemen:
I have acted as counsel to the Company in connection with the filing with the
Securities and Exchange Commission of the Registration Statement on Form N-4
for the Individual Flexible Purchase Payment Deferred Variable Annuity
Contracts (the "Contracts") to be issued by the Company and its separate
account, SAFECO Separate Account C. I have made such examination of the law
and have examined such records and documents as in my judgment are necessary or
appropriate to enable me to render the following opinion:
1. SAFECO Life Insurance Company is a validly existing stock life
insurance company of the state of Washington.
2. Separate Account C is a separate investment account of SAFECO Life
Insurance Company created and validly existing pursuant to the
Washington insurance laws and regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Contracts have been followed, and, when such Contracts are issued in
accordance with the prospectus contained in the Registration
Statement, all state requirements relating to such Contracts will have
been complied with.
4. Upon the acceptance of the purchase payments made by a prospective
Contract Owner pursuant to a Contract issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance
with applicable law, such Owner will have a legally-issued, fully
paid, non-assessable contractual interest in such Contract.
You may use this letter, or a copy hereof, as an exhibit to the Registration
Statement.
Very truly yours,
/s/ William E. Crawford
William E. Crawford
Counsel
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<PAGE> 1
EXHIBIT 10
Consent of Independent Auditors
We consent to the references to our firm under the captions "Schedule of
Accumulation Unit Values and Accumulation Units Outstanding", "Experts" and
"General Information" and to the use of our reports on the financial statements
of SAFECO Separate Account C, dated January 26, 1996, and on the consolidated
financial statements of SAFECO Life Insurance Company and Subsidiaries, dated
February 9, 1996 in Post-Effective Amendment No. 4 to the Registration
Statement (Form N-4, No. 33-69712) and related Prospectus of SAFECO Separate
Account C dated April 29, 1996.
/s/ Ernst & Young LLP
Seattle, Washington
April 25, 1996
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<PAGE> 1
EXHIBIT 13
EXHIBIT OF PERFORMANCE CALCULATIONS
This exhibit reflects the calculation of certain performance figures that appear
under "Performance" in the Statement of Additional Information.
A. TOTAL RETURN
1. Formula. The total return performance of the RST: Money Market,
Equity, Growth Northwest and Bond Sub-Accounts; Lexington: Emerging Markets and
Natural Resources Sub-Accounts; Scudder: Balanced and International
Sub-Accounts; Twentieth Century: Balanced and International Sub-Accounts;
Wanger: U.S. Small Cap Sub-Account; Federated: High Income Bond II,
International Equity and Utility Sub-Accounts for a specified period equals the
change in the value of a hypothetical initial purchase payment of $10,000
("Purchase Payment") from the beginning of the period to the end of the period.
The total return performance is calculated assuming the change in the value of
the Purchase Payment fully allocated to each subaccount and the deduction of all
expenses and fees, including a prorated portion of the $30 annual administration
charge. This proration is based on the total number of contract holders. No
withdrawals are assumed. Total Return may be expressed either as a dollar value
or as a percentage change. The percentage change in the value of the Purchase
Payment for the period is calculated by subtracting the initial Purchase Payment
from the ending value and dividing the remainder by the beginning value:
Percentage Change = EV - P
------
P
EV = Ending Value
P = Purchase Payment
The decimal return is converted to a percentage by multiplying by 100.
2. Performance Reflected. The representative total return calculation reflected
in this Section A is for a $10,000 Purchase Payment into the RST: Equity
Subaccount for the one-year period ended December 31, 1995.
3. Calculation. The Purchase Payment is divided by the beginning AUV to
calculate the beginning number of units.
P/AUV1 = 10,000.00/25.372803 = 394.123 units
The initial number of units are reduced at the end of the year by a prorated
portion of the annual administration charge, if any.
U1 - (M/AUV2) = U2, 394.123 - ($30.00 / $32.208944) = 393.192 units
The ending value is calculated by converting ending units to dollars.
U2 x AUV2 = EV, 393.192 units x $32.208944 = $12,664.30
The percentage change return is calculated by subtracting the initial Purchase
Payment from the ending value and dividing the remainder by the beginning value.
(EV - P)/P =R, ($12,664.30 - $10,000)/$10,000 = 0.26643
The decimal return is converted to a percentage by multiplying by 100.
R x 100 = Total Return % 0.26643 x 100.00 = 26.64%
<PAGE> 2
B. AVERAGE ANNUAL TOTAL RETURN
1. Formula. The average annual return (AATR) performance of the RST:
Money Market, Equity, Growth Northwest and Bond Sub-Accounts; Lexington:
Emerging Markets and Natural Resources Sub-Accounts; Scudder: Balanced and
International Sub-Accounts; Twentieth Century: Balanced and International
Sub-Accounts; Wanger: U.S. Small Cap Sub-Account; Federated: High Income Bond
II, International Equity and Utility Sub-Accounts for a specified period equals
the change in the value of a hypothetical initial purchase payment of $1,000
("Purchase Payment") from the beginning of the period to the end of the period.
The AATR performance is calculated assuming the change in the value of the
Purchase Payment fully allocated to each subaccount and the deduction of all
expenses and fees, including a prorated portion of the $30 annual administration
charge, if any. This proration is based on the total number of contract holders.
At the end of the specified period. it is assumed that a full surrender is
taken. The AATR for a specific period is found by taking a hypothetical $1,000
Purchase Payment and computing the redeemable value at the end of the period
after all fees and surrender charges. The Ending Redeemable Value (ERV) is then
divided by the Purchase Payment, and this quotient is taken to the Nth root (N
representing the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Thus, the following formula
applies:
Average Annual Total Return = ((EVR) to the power of 1/N) -1
-----
P
EVR = Ending Redeemable Value
P = Purchase Payment
N = Number of years
The decimal return is converted to a percentage by multiplying by 100.
2. Performance Reflected. The representative AATR calculation reflected in this
Section B is for a $1,000 Purchase Payment into the RST: Equity Subaccount for
the one-year period ended December 31, 1995.
3. Calculation. The Purchase Payment is divided by the beginning AUV to
calculate the beginning number of units.
P/AUV1 = U1, $1,000/$25.372803 = 39.412 units
The initial number of units are reduced at the end of the year by a prorated
portion of the annual administration charge, if any.
U1 - (M/AUV2) = U2, 39.412 - ($30.00/$32.208944) = 38.481 units
The ending value is calculated by converting ending units to dollars.
U2 x AUV2 = EV, 38.481 units x $32.208944 = $1,239.43
The ending redeemable value is calculated by subtracting the surrender change
from the ending value.
EV - (EV x SC) = ERV, $1,239.43 - ($1,239.43 x 8%) = $1,140.28
The percentage change quotient is calculated by dividing the ending redeemable
value by the beginning value.
(ERV/P) = R, $1,140.28 / $1,000 = 1.14028
The quotient is taken to the Nth root.
2
<PAGE> 3
The first root of 1.14028 is = 1.14028
One is subtracted from the result.
1.14028 - 1 = 0.14028
The decimal return is converted to a percentage by multiplying by 100.
0.14028 x 100 = 14.03% = Average Annual Total Return
C. YIELD CALCULATION
RST: Money Market Subaccount
1. Formula. The subaccount's current yield quotation is based on a seven-day
period and is calculated as follows. The first calculation is "base period
return before annual administration charge", which is the net change in the
Accumulation Unit Value ("AUV") during the period resulting from net investment
income divided by the AUV at the beginning of the period. Realized capital gains
or losses and unrealized appreciation or depreciation are not included in the
calculation. The next calculation is "base period annual administration charge",
which is the annual administration charge prorated for the seven-day period and
divided by the average contract size.
The "base period return" is then calculated by subtracting the base
period annual administration charge from the base period return before the
annual administration charge. The result is then divided by 7 and multiplied by
365 and the resulting yield figure is carried to the nearest one-hundredth of
one percent.
The Subaccount's effective yield is determined by taking the base
period return (calculated as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is:
(base period return +1) (to the power of 365/7) - 1.
2. Performance Reflected. The representative yield calculations reflected herein
are for the seven-day period ended December 29, 1995 for the Money Market
Subaccount.
3. Yield. First base period return before annual administration charge is
calculated. The following figures are provided for this purpose:
a. AUV at 12/22/95, beginning of seven-day period equals 14.360039.
b. AUV at 12/29/95, end of seven-day period equals 14.370429.
c. Change in AUV during the seven-day period ended 12/29/95 due to realized
capital gains or losses and unrealized appreciation or depreciation of
investments equals zero.
Base period return before annual administration charge for the seven-day period
ended 12/29/95 equals
12/29/95 AUV - 12/22/95 AUV - change in AUV due to capital gains or losses and
unrealized appreciation or depreciation divided by 12/22/95 AUV,
= 14.370429 - 14.360039 = 0.010390 = 0.000723013
---------------------- --------
14.370429 14.370429
Next, base period annual administration charge is calculated. The following
figures are provided for this purpose:
3
<PAGE> 4
d. Annual administration charge = $30 per contract.
e. Average contract size = $14,500
<TABLE>
<S> <C>
Base period annual administration charge = Annual administration charge x 7/365 days
-----------------------------------------
Average contract size
</TABLE>
= 30 x 7/365 = 0.575342466 = 0.000039679
---------- -----------
14,500 14,500
Then, base period return is calculated.
Base period return = Base period return before annual administration
charge - Base period annual administration charge = 0.000723013 - 0.000039679 =
0.000683334
Then, yield is calculated.
Yield = Base period return x 365/7 = 0.000683334 x 365/7 = 0.035631
The decimal return is converted to a percentage by multiplying by 100.
0.035631 x 100 = 3.56%
4. Effective Yield. The base period return for use in the formula for effective
yield set forth in Subsection 1 above is the same as calculated in Subsection 3
above.
Effective Yield = (Base period return +1) (to the power of 365/7) -1
= (.000683334 + 1) (to the power of 365/7) -1
=(1.000683334) (to the power of 365/7) -1
= 1.036261 -1 = .036261
The decimal return is converted to a percentage by multiplying by 100.
.036261 x 100 = 3.63%
4
<PAGE> 1
EXHIBIT 15
April 29, 1996
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 SEPARATE ACCOUNT C ("SEPARATE ACCOUNT") POST-EFFECTIVE
AMENDMENT NO. 4, FORM N-4
FILE NOS. 33-69712 AND 811-8052
Commissioners:
SAFECO and its Separate Account believe that the filing of Post-Effective
Amendment No. 4, 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. 4, 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. 4, is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on
April 29, 1996. The undersigned has prepared and reviewed Post-Effective
Amendment No. 4, and it is his opinion that Post-Effective Amendment No. 4
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
-11-
