<PAGE> 1
File Nos. 33-60331/811-8052
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
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Post-Effective Amendment No. 1 /X/
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 8 /X/
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(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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Cross Reference Sheet Showing Location in Prospectus of
Items Called for by Form N-4
<TABLE>
<CAPTION>
Form N-4 Item No. Caption in Prospectus
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<S> <C>
1.............................................. Cover Page
2.............................................. "Definitions"
3.............................................. "Summary of Contract Expenses";
"Summary"
4.............................................. Not Applicable
5.............................................. "The Insurance Company"; "SAFECO
Separate Account C"; "Sub-Accounts of
the Separate Account and the Available
Funds"; "Investment Objectives of the
Available Funds"; and "Voting
Privileges"
6.............................................. "Deductions under the Contracts"
7.............................................. "Contract Benefits"; "Transfers
between Sub-Accounts"; and "Other
Services"
8.............................................. "The Annuity Period"
9.............................................. "Payment on or after Death of Owner"
10.............................................. "Certain Minimum Amounts"; "The
Accumulation Period"
11.............................................. "Redemptions"
12.............................................. "Federal Tax Status"
13.............................................. "Legal Matters"
14.............................................. "Table of Contents
Statement of Additional Information"
</TABLE>
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<TABLE>
<CAPTION>
Form N-4 Item No. Caption in Statement of Additional
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Information
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<S> <C>
15.............................................. Cover Page
16.............................................. "Table of Contents"
17.............................................. "General Information"
18.............................................. Not Applicable
19.............................................. "Distribution of the Contracts"
20.............................................. "Distribution of the Contracts"
21.............................................. "Standardized Computation of Performance"
22.............................................. "Determination of Annuity Payments"
23.............................................. "Financial Statements"
</TABLE>
Part C - Information required in Part C is set forth under each appropriate
item, as numbered, in Part C to this Registration Statement.
<PAGE> 4
PROSPECTUS APRIL 29, 1996
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SAFECO SEPARATE ACCOUNT C
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
sold by
SAFECO LIFE INSURANCE COMPANY
15411 N.E. 51st Street
Redmond, Washington 98052
Telephone 1-800-426-7649
This Prospectus offers individual Variable Annuity contracts that are designed
(i) to fund benefits under individual retirement accounts and annuities
qualified for special tax treatment under Section 408 of the Internal Revenue
Code of 1986 and (ii) for sale to individuals where no special tax treatment is
available (the "Contract(s)"). The Contracts are offered on a flexible payment
basis.
Under the Contracts, annuity payments may commence on a preselected future date
(presumably at retirement) under one of the annuity options provided in the
Contracts. Prior to the time annuity payments begin, the Contracts are partially
or totally redeemable based on their current value and subject to applicable
Contingent Deferred Sales Charges.
SAFECO Life Insurance Company ("SAFECO") provides for variable accumulations and
variable benefits under the Contracts by crediting net Purchase Payments to one
or more Sub-Accounts ("Sub-Accounts") within SAFECO Separate Account C
("Separate Account") as directed by the owner of the Contract ("Owner"). Net
Purchase Payments to Contracts may be invested in any combination of the 12
Sub-Accounts available under the Contracts or in the Fixed Account. The
Sub-Accounts invest in corresponding investment portfolios of separate mutual
funds ("Available Funds"). Five of the Available Funds currently are investment
portfolios of the SAFECO Resource Series Trust: SAFECO Resource Bond Portfolio;
SAFECO Resource Equity Portfolio; SAFECO Resource Growth Portfolio; SAFECO
Resource Money Market Portfolio; and SAFECO Resource Northwest Portfolio (each a
"SAFECO Fund"). The Other Available Funds currently are: Federated Insurance
Series: Federated High Income Bond Fund II ("Federated High Income Bond Fund
II"); and Federated Utility Fund II ("Federated Utility Fund II"); Lexington
Emerging Markets Fund, Inc. ("Lexington Emerging Markets Fund"); Lexington
Natural Resources Trust ("Lexington Natural Resources Fund"); TCI Portfolios,
Inc.: TCI Balanced Fund ("TCI Balanced Fund"); and TCI International Fund ("TCI
International Fund"); and Wanger Advisors Trust: U.S. Small Cap Advisor ("Wanger
U.S. Small Cap Fund").
Generally, within ten (10) days after the Contract is received, an Owner may
cancel it by returning it to the Home Office or the representative that sold it.
Free look provisions may vary based on the state of issue. The state of issue is
based on the address of the Payor.
A prospectus for each of the Available Funds may be obtained from SAFECO, P.O.
Box 34690, Seattle, Washington 98124-1690. An investor should read those
prospectuses carefully before buying a Contract described in this Prospectus or
investing in any Sub-Account.
This Prospectus sets forth concisely the information about the Contracts and the
Separate Account that a prospective investor should know before investing and
should be retained for future reference. Additional information about the
Contracts and the Separate Account is contained in a Statement of Additional
Information dated April 29, 1996 which is incorporated herein by reference. The
Statement of Additional Information is available upon written or oral request
and without charge from SAFECO, P.O. Box 34690, Seattle, Washington 98124-1690,
Telephone Number (800) 426-7649. The table of contents for the Statement of
Additional Information is shown on page 31 of this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
MAINSAIL IS NOT INSURED BY THE FDIC. IT IS NOT A DEPOSIT OR OTHER OBLIGATION OF,
OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION THROUGH WHICH IT MAY BE SOLD.
MAINSAIL IS SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE
PRINCIPAL AMOUNT INVESTED.
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THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF EACH
OF THE FOLLOWING MUTUAL FUNDS: SAFECO Resource Bond Fund; SAFECO Resource Equity
Fund; SAFECO Resource Growth Fund; SAFECO Resource Money Market Fund; SAFECO
Resource Northwest Fund; Federated High Income Bond Fund II; Federated Utility
Fund II; Lexington Emerging Markets Fund, Inc.; Lexington Natural Resources
Trust; TCI Balanced Fund; TCI International Fund; and Wanger U.S. Small Cap
Fund.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions........................................................................... 4
Summary of Contract Expenses.......................................................... 6
Summary............................................................................... 9
The Insurance Company................................................................. 10
SAFECO Separate Account C............................................................. 11
Sub-Accounts of the Separate Account and the Available Funds.......................... 11
Investment Objectives of the Available Funds.......................................... 12
The SAFECO Funds................................................................. 12
The Other Available Funds........................................................ 13
Deductions Under the Contracts........................................................ 15
Contingent Deferred Sales Charge................................................. 15
Premium Tax...................................................................... 15
Contract Administration Charges.................................................. 15
Deduction for Assuming Mortality and Expense Risks............................... 16
Available Fund Expenses.......................................................... 16
Transfers Between Sub-Accounts........................................................ 17
Redemptions........................................................................... 17
Other Services........................................................................ 17
The Programs..................................................................... 17
Dollar Cost Averaging Program.................................................... 18
Automatic Transfer Program....................................................... 19
Appreciation or Interest Sweep Program........................................... 19
Sub-Account Rebalancing Program.................................................. 19
Systematic Investment Program.................................................... 19
Periodic Withdrawal Program...................................................... 19
Fixed Account......................................................................... 20
General Description.............................................................. 20
Fixed Account Contract Value..................................................... 21
Annual Administration Maintenance Charge......................................... 21
Fixed Account Transfers and Partial Withdrawals.................................. 21
Contract Benefits..................................................................... 21
General.......................................................................... 21
Certain Minimum Amounts............................................................... 22
The Accumulation Period............................................................... 22
The Contract Value and Accumulation Units........................................ 22
Accumulation Unit Values......................................................... 22
Valuation Date and Valuation Period.............................................. 23
Net Investment Factor............................................................ 23
Example of Calculation of Accumulation Unit Value................................ 23
The Annuity Period.................................................................... 23
Annuity Date..................................................................... 23
Payment Provisions............................................................... 23
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Settlement Options.................................................................... 24
Annuity Purchase Rates........................................................... 25
Annuity Unit Values.............................................................. 25
Number of Annuity Units.......................................................... 25
Time of Payment.................................................................. 25
Amount of Payment................................................................ 25
Payment on or After Death of Owner.................................................... 26
The Distribution of the Contracts..................................................... 27
Voting Privileges..................................................................... 27
Federal Tax Status.................................................................... 28
Federal Tax Status of the Separate Account....................................... 28
Federal Tax Status of Qualified Contracts........................................ 28
Federal Tax Status of Non-Qualified Contracts.................................... 29
Federal Tax Penalties and Withholding............................................ 29
Legal Matters......................................................................... 30
Special Considerations................................................................ 30
Restrictions Upon Transfer of Ownership and Assignment........................... 30
Available Information................................................................. 30
State Regulation...................................................................... 30
Experts............................................................................... 31
Financial Statements.................................................................. 31
Table of Contents -- Statement of Additional Information.............................. 31
</TABLE>
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DEFINITIONS
Some of the technical expressions and names frequently used in this Prospectus
are defined below for ready reference:
1. ACCUMULATION UNIT - the measure used to calculate the value of a Sub-Account
prior to the Annuity Date.
2. ANNUITANT - the natural person upon whose life annuity payments are payable
in accordance with the Contract. The Annuitant may not be older than age 80
on the Contract Date.
3. ANNUITY - any series of payments starting on the Annuity Date, payable in
accordance with the Contract, under the Settlement Options.
4. ANNUITY DATE - the date selected by the Owner for commencing annuity
payments under the Contract. The day of the month on which the payments are
made will be determined by SAFECO. The Annuity Date cannot be later than the
date the Annuitant attains age 90.
5. ANNUITY UNIT - the measure used to calculate annuity payments after the
Annuity Date.
6. AVAILABLE FUNDS - the SAFECO Funds and the Other Available Funds under the
Contract.
7. BENEFICIARY (OR BENEFICIARIES) - the person (or persons) entitled to receive
benefits under the Contract upon the death of the Owner.
8. CODE - the Internal Revenue Code of 1986, as amended.
9. CONTRACT - the Individual Variable Annuity Contract by and between SAFECO
and the Owner.
10. CONTRACT ANNIVERSARY - any anniversary of the Contract Date.
11. CONTRACT DATE - the earlier of the date on which the initial Net Purchase
Payment is allocated to the Separate Account or the initial Net Purchase
Payment is allocated to the Fixed Account.
12. CONTRACT VALUE - the sum of the Owner's interest in the Sub-Accounts and the
Fixed Account, including all Purchase Payments made, investment experience,
and less any previous withdrawals, and related Contingent Deferred Sales
Charges, and less all other applicable charges or fees.
13. CONTRACT YEAR - the twelve month period which commences on the Contract Date
and each succeeding twelve month period thereafter.
14. ELIGIBLE INVESTMENTS - an investment entity under the Contract, including
the Fixed Account pursuant to the Contract or any Fixed Account Rider to the
Contract.
15. FIXED ANNUITY - an annuity with payments which do not vary in accordance
with the net investment results of the Separate Account.
16. FIXED ACCOUNT - Contract Value allocated to SAFECO's General Account under
the Contract.
17. FUND SHARE - a share of the capital stock or a share of beneficial interest
in any of the Available Funds.
18. GENERAL ACCOUNT - the General Account of SAFECO in which are held all the
assets other than those held in the Separate Account or in any other
separate account established or maintained by SAFECO.
19. HOME OFFICE - the principal office of SAFECO at 15411 N.E. 51st Street,
Redmond, Washington.
20. NET INVESTMENT FACTOR - a factor which reflects the net investment
experience of each Sub-Account less certain charges for the mortality and
expense risk expenses, administrative charges and taxes, if applicable,
during a Valuation Period.
21. NET PURCHASE PAYMENT - Purchase Payment less any premium taxes.
22. 1940 ACT - the Investment Company Act of 1940, as amended.
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23. NON-QUALIFIED CONTRACT - a Contract which does not receive favorable tax
treatment under Sections 401, 403, and 408 of the Code.
24. OTHER AVAILABLE FUNDS - the underlying mutual funds or portfolios that are
available under a Contract, in addition to the SAFECO Funds: Federated High
Income Bond Fund II; Federated Utility Fund II; Lexington Emerging Markets
Fund; Lexington Natural Resources Fund; TCI Balanced Fund; TCI International
Fund; and Wanger U.S. Small Cap Fund.
25. OWNER- the person(s) (or entity) named in the Application for the Contract
who 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. The Owner may not be older than age
80 on the Contract Date.
26. PAYOR - the person(s) (or entity) that makes the initial Purchase Payment
and any subsequent payments under the Contract.
27. PROGRAM(S) - certain investment related services offered by SAFECO under the
Contract to allow for (a) automatic transfers of Contract Value among
Sub-Accounts and the Fixed Account, and/or (b) automatic investment in the
Separate Account, and/or (c) automatic periodic withdrawals of Contract
Value.
28. PURCHASE PAYMENTS - payments made to purchase Accumulation Units or
allocated to the Fixed Account.
29. QUALIFIED CONTRACT - a Variable Annuity Contract that has been issued to
fund benefits under an Individual Retirement Account or Annuity qualifying,
or intended to qualify, for tax deferment under Section 408 of the Code.
30. SAFECO FUNDS - the five separate portfolios of the SAFECO Resource Series
Trust which are available under a Contract: SAFECO Resource Bond Fund,
SAFECO Resource Equity Fund, SAFECO Resource Growth Fund, SAFECO Resource
Money Market Fund, and SAFECO Resource Northwest Fund.
31. SEPARATE ACCOUNT - the separate investment account designated as SAFECO
Separate Account C.
32. SUB-ACCOUNT(S) - a sub-account of the Separate Account investing in shares
of one of the Available Funds.
33. VALUATION DATE - each day the New York Stock Exchange is open for business,
as well as each day otherwise required.
34. VALUATION PERIOD - the period commencing at the close of business for the
Separate Account which is usually 4:00 p.m. (EST) on each Valuation Date and
ending at the close of business for the next succeeding Valuation Date.
35. VARIABLE ANNUITY - an annuity with payments varying in accordance with the
net investment results of the Separate Account.
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SUMMARY OF CONTRACT EXPENSES
OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Purchases.................................................... None
Contingent Deferred Sales Charge*.................................................... 7.00%
(as a percentage of the amount withdrawn at the time of surrender or partial
surrender)
Surrender Fees**..................................................................... $ 25
Transfer Fee***...................................................................... $ 10
</TABLE>
* The Contingent Deferred Sales Charge declines over time and is 0% beginning
in the seventh Contract Year. (See "Contingent Deferred Sales Charge".) In
each Contract Year, an Owner generally may withdraw up to 10% of the
Contract Value without payment of the Contingent Deferred Sales Charge.
** A maximum charge of $25 is assessed for each withdrawal (surrender) after
the first taken in any Contract Year, except under the Periodic Withdrawal
Program where the charge is $25 per year if withdrawals are in excess of
one per year. (See "Deductions under the Contracts" and "Periodic
Withdrawal Program".)
*** A charge of $10 per transfer between Sub-Accounts of the Separate Account
or the Fixed Account may be charged for transfers in excess of twelve (12)
transfers, which may be made each Contract Year without charge. (See
"Transfers Between Sub-Accounts".)
<TABLE>
<S> <C>
ANNUAL ADMINISTRATION MAINTENANCE CHARGE****......................................... $ 30
</TABLE>
**** The Annual Administration Maintenance Charge is assessed only if the
Contract Value is less than $100,000. (See "Annual Administration
Maintenance Charge".)
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net asset value)
<TABLE>
<S> <C>
Mortality and Expense Risk Fees...................................................... 1.25%
Asset Related Administration Charge.................................................. 0.15%
Account Fees and Expenses............................................................ None
Total Separate Account Annual Expenses..................................... 1.40%
</TABLE>
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AVAILABLE FUNDS ANNUAL EXPENSES
(as a percentage of average net assets of each)
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<TABLE>
<CAPTION>
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SAFECO Resource SAFECO Resource SAFECO Resource SAFECO Resource
Bond Fund Equity Fund Growth Fund Money Market Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management .72% .72% .72% .62%
Fees..........
------------------------------------------------------------------------------------------------
Other 0 .03% .07% 0
Expenses......
------------------------------------------------------------------------------------------------
Total Fund .72% .75% .79% .62%
Annual
Expenses*.....
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Fund Income Bond Fund II Fund II Market Fund
------------------------------------------------------------------------------------------------
Management .71% 0 0 .85%
Fees..........
------------------------------------------------------------------------------------------------
Other 0 .80% .85% .47%
Expenses......
------------------------------------------------------------------------------------------------
Total Fund .71% .80% .85% 1.32%
Annual
Expenses*.....
------------------------------------------------------------------------------------------------
Lexington Natural TCI Balanced Fund TCI International Wanger U.S. Small
Resources Trust Fund Cap Fund
------------------------------------------------------------------------------------------------
Management 1.00% 1.00% 1.50% 1.00%
Fees..........
------------------------------------------------------------------------------------------------
Other .47% 0 0 .35%
Expenses......
------------------------------------------------------------------------------------------------
Total Fund 1.47% 1.00% 1.50% 1.35%
Annual
Expenses*.....
------------------------------------------------------------------------------------------------
</TABLE>
*After reimbursement, if applicable. From time to time, the Available Funds'
investment advisers in their sole discretion may waive all or part of their
fees and/or voluntarily assume certain Available Fund expenses. 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: SAFECO Resource Growth Portfolio .84%, SAFECO
Resource Northwest Portfolio 1.18%, SAFECO Resource Bond Portfolio .94%,
SAFECO Resource Money Market Portfolio .87%. For the year ended December 31,
1995, the Funds 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; Lexington
Emerging Markets Fund $173,670, absent reimbursement $255,918. For 1995 the
adviser of the Lexington Emerging Markets Fund 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 period May 3, 1995 (commencement of
operations) through December 31, 1995, the investment adviser to Wanger U.S.
Small Cap Fund voluntarily waived or reimbursed expenses of $19,796; expenses
before reimbursement were $168,172. The adviser has agreed to reimburse
certain operating expenses exceeding 1.50% of average daily net assets. The
"Other Expenses" shown in the table for Wanger U.S. Small Cap Fund are
estimates for 1996. For a more complete description of the Available Funds'
fees and expenses, see the Available Funds' prospectuses.
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<TABLE>
<CAPTION>
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EXAMPLES:
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If the Contract is surrendered, the following expenses on a $1,000 investment,
assuming 5% annual return on assets, would be incurred:
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
SAFECO Resource SAFECO Resource SAFECO Resource SAFECO Resource
Bond Sub-Account Equity Sub-Account Growth Sub-Account Money Market
Sub-Account
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year....... $ 88 $ 88 $ 88 $ 87
3 years...... $120 $120 $122 $117
5 years...... $152 $154 $155 $147
10 years...... $260 $263 $267 $250
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Income Bond Sub-Account Markets Sub-Account
Sub-Account Sub-Account
------------------------------------------------------------------------------------------------
1 year....... $ 88 $ 88 $ 89 $ 93
3 years...... $119 $122 $123 $137
5 years...... $152 $156 $158 $181
10 years...... $259 $268 $273 $319
------------------------------------------------------------------------------------------------
Lexington Natural TCI Balanced TCI International Wanger U.S. Small
Resources Sub-Account Sub-Account Cap Sub-Account
Sub-Account
------------------------------------------------------------------------------------------------
1 year....... $ 95 $ 90 $ 95 $ 94
3 years...... $141 $128 $142 $138
5 years...... $188 $166 $190 $182
10 years...... $333 $288 $336 $322
------------------------------------------------------------------------------------------------
If the Contract is not annuitized or surrendered, the following expenses on a
$1,000 investment, assuming 5% annual return on assets,
would be incurred:
------------------------------------------------------------------------------------------------
SAFECO Resource SAFECO Resource SAFECO Resource SAFECO Resource
Bond Sub-Account Equity Sub-Account Growth Sub-Account Money Market
Sub-Account
------------------------------------------------------------------------------------------------
1 year....... $ 23 $ 23 $ 24 $ 22
3 years...... $ 71 $ 72 $ 73 $ 68
5 years...... $121 $123 $125 $116
10 years...... $260 $263 $267 $250
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Income Bond Sub-Account Markets Sub-Account
Sub-Account Sub-Account
------------------------------------------------------------------------------------------------
1 year....... $ 23 $ 24 $ 24 $ 29
3 years...... $ 70 $ 73 $ 75 $ 88
5 years...... $121 $125 $128 $151
10 years...... $259 $268 $273 $319
------------------------------------------------------------------------------------------------
Lexington Natural TCI Balanced TCI International Wanger U.S. Small
Resources Sub-Account Sub-Account Cap Sub-Account
Sub-Account
------------------------------------------------------------------------------------------------
1 year....... $ 30 $ 26 $ 31 $ 29
3 years...... $ 93 $ 79 $ 94 $ 90
5 years...... $158 $135 $160 $152
10 years...... $333 $288 $336 $322
</TABLE>
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<PAGE> 12
The purpose of the preceding table is to assist an Owner or prospective Owner in
understanding the various costs and expenses an Owner will bear directly or
indirectly. The above table reflects expenses of the Separate Account as well as
the Available Funds. 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.
THE EXAMPLES SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE
SHOWN. The example assumes a 5% annual rate of return pursuant to requirements
of the Securities and Exchange Commission ("Commission"). This hypothetical rate
of return is not intended to be representative of past or future performance of
any Sub-Account. (See "Deductions under the Contracts".) The examples assume
that Purchase Payments are allocated to each Available Fund which may have
different expenses.
The Contingent Deferred Sales Charge shown in the table is the maximum sales
load. (See "Contingent Deferred Sales Charge" which describes the range of the
Contingent Deferred Sales Charge over time and limits on the Contingent Deferred
Sales Charge as a percentage of total gross Purchase Payments.) The table does
not reflect premium taxes which are levied by some states. (See "Premium Tax".)
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, the receipt by
SAFECO of Purchase Payments, or the commencement of annuity payments will be
deducted from the Contract. Currently, with respect to Qualified Contracts,
SAFECO intends to assume responsibility for all premium taxes, provided that
SAFECO reserves the right, in the future, to pass the responsibility for all
premium taxes to the Owner of the Contract and assess a charge for such taxes to
the Contract.
The table reflects Owner transaction expenses, administrative fees, and other
Separate Account charges during the Accumulation Period. The Annual
Administration Maintenance Charge and the Contingent Deferred Sales Charge are
not applicable during the Annuity Period; the other charges and expenses,
including those of the Available Funds, do apply during the Annuity Period. The
information in the Expense Table and Examples is based in part on information
provided by the Funds. SAFECO and the Separate Account do not assume
responsibility for the accuracy of such information. (See the prospectuses of
the Available Funds for a fuller description of their expenses.)
SUMMARY
The minimum initial Purchase Payment under the Contract is $2,000 for a
Qualified Contract and $5,000 for a Non-Qualified Contract. The minimum
additional Purchase Payment is $250 for both a Qualified Contract and a
Non-Qualified Contract, except for additional Purchase Payments made through a
Systematic Investing Program, described below, in which case the minimum for
both a Qualified Contract and Non-Qualified Contract is $100.
If the Contract Value available for annuity payments after the Annuity Date is
less than $5,000, the Contract Value may be distributed in one lump sum in lieu
of annuity payments. If any Annuity payment under the Contract would be 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. (See "The Annuity
Period".)
SAFECO does not deduct a sales charge from Purchase Payments. However, if any
part of the value of the Contracts is surrendered SAFECO will, with certain
exceptions, deduct from the value of the Contract, a Contingent Deferred Sales
Charge equal to the maximum of 7% of the amount withdrawn, but in no event more
than 9% of gross Purchase Payments. This charge is imposed to permit SAFECO
Securities, Inc. ("SAFECO Securities"), the distributor, or SAFECO to recover
sales expenses which they have advanced. (See "Contingent Deferred Sales
Charge".)
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<PAGE> 13
In addition, on the last day of each Contract Year or upon full surrender,
SAFECO currently will deduct an Annual Administration Maintenance Charge of $30
from the Contract Value of those Contracts with a Contract Value less than
$100,000. An Asset Related Administration Charge equivalent to an annual rate of
.15% of the average daily net asset value of the Separate Account is charged
both during the Accumulation Period and the Annuity Period and is guaranteed to
not increase for the duration of the Contract. These charges are to reimburse
SAFECO for administrative expenses related to the issue, maintenance and
administration of the Contracts. SAFECO does not expect to recover from these
charges an amount in excess of the actual costs associated with administering
the Contracts. (See "Contract Administrative Charges".)
SAFECO deducts a mortality and expense risk charge from the assets of the
Separate Account, as a daily asset charge equivalent to an annual rate of 1.25%
of the average daily net asset value of the Separate Account during the
Accumulation Period and the Annuity Period. SAFECO imposes the mortality and
expense risk charge as compensation for assuming several mortality risks and
expense risks for the duration of the Contract. SAFECO assumes a mortality risk
by its contractual obligation to pay (i) a death benefit free of the contingent
deferred sales charge to the Beneficiary if the Owner dies prior to the Annuity
Date, (ii) the minimum guaranteed death benefit, which reflects increases in
Contract Value; and (iii) annuity payments for a longer period than anticipated.
SAFECO assumes the expense risk that (i) the deductions for sales and
administration charges may prove to be insufficient to cover the actual expenses
incurred and (ii) no surrender or similar charge on the death benefit or upon
annuitization is imposed. (See "Deduction for Assuming Mortality and Expense
Risks".)
As set forth in the Contract, any premium taxes payable to any governmental
entity, which SAFECO determines to be properly chargeable against the Contract,
will be charged against the Contract. (See "Premium Tax".)
The Owner generally may, within ten (10) days after the date on which the
Contract is issued, revoke the Contract, in which event the Owner will be paid
the Contract Value, which may be more or less than the Purchase Payments. In
states where required, SAFECO will refund the Purchase Payments rather than the
Contract Value. SAFECO reserves the right to allocate all payments to the SAFECO
Resource Money Market Sub-Account until the expiration of fifteen (15) days from
the date the first Purchase Payment is received. If SAFECO so allocates
payments, SAFECO will refund the greater of Purchase Payments or the Contract
Value. Free look provisions may vary based on the Owner's state of residence.
An individual for whom a Contract is purchased under an individual retirement
account may revoke the Contract by giving written notice of revocation to the
Home Office at any time within seven (7) days after the later of the date on
which (i) the account is established, or (ii) the individual receives a
disclosure statement notifying him of his right of revocation. Upon such
revocation, SAFECO will refund the full initial Purchase Payment made.
This Prospectus describes how a Contract may be purchased and redeemed. (See
"Distribution of Contracts" and "Redemptions".)
Premature payments of benefits under a Contract may cause a penalty tax to be
incurred. (See "Federal Tax Status".)
THE INSURANCE COMPANY
SAFECO is a stock life insurance company organized under the insurance laws of
the state of Washington on January 23, 1957. SAFECO is primarily engaged in the
writing of individual and group life, accident and health insurance and annuity
policies. SAFECO is authorized to write insurance and annuities in the District
of Columbia and all states, except New York. Its Home Office is located at 15411
N.E. 51st Street, Redmond, Washington 98052. SAFECO is a wholly-owned subsidiary
of the SAFECO Corporation, which is a holding company whose subsidiaries are
engaged primarily in insurance and financial service businesses.
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SAFECO SEPARATE ACCOUNT C
The Separate Account was established pursuant to a resolution of the Board of
Directors of SAFECO dated February 6, 1986. The Separate Account was established
under the laws of the state of Washington and is registered as a unit investment
trust under the 1940 Act. Such registration does not involve supervision of the
investments or investment policies of the Separate Account and does not imply
that the Contract has been approved or disapproved by the Commission.
The income, gains or losses of the Separate Account are credited to or charged
against the assets of the Separate Account without regard to the other income,
gains or losses of SAFECO. These assets are held with relation to the Contracts
described in this Prospectus and such other Variable Annuity contracts as may be
issued by SAFECO and designated by it as participating in the Separate Account.
Although the assets maintained in the Separate Account will not be charged with
any liabilities arising out of any other business conducted by SAFECO, all
obligations arising under the Contracts, including the promise to make annuity
payments, are general corporate obligations of SAFECO. Accordingly, all of
SAFECO's assets are available to meet its contractual obligations and expenses
under the Contracts participating in the Separate Account.
SUB-ACCOUNTS OF THE SEPARATE ACCOUNT
AND THE AVAILABLE FUNDS
Twelve Sub-Accounts, each of which reflects the investment performance of a
specific underlying mutual fund in which the Sub-Account invests, are available
under the Contracts. Subject to certain limitations and any restrictions by an
applicable retirement plan, the Owner may elect to have Net Purchase Payments
credited to any of the available Sub-Accounts.
Five of the Sub-Accounts invest in shares of the corresponding portfolio of the
SAFECO Resource Series Trust, an open-end diversified management investment
company (the "SAFECO Funds"). Seven of the Sub-Accounts invest in shares of the
Other Available Funds.
The SAFECO Funds were formed specifically to serve as an investment medium for
the Separate Account or other segregated asset accounts established by SAFECO or
an affiliate of SAFECO ("Other Separate Accounts"). Only the Separate Account
and the Other Separate Accounts are eligible at this time to purchase shares of
the SAFECO Funds. The SAFECO Funds reserve the right to offer their shares to
Separate or other segregated asset accounts established by other insurance
companies. SAFECO Asset Management Company ("SAFECO Management"), SAFECO Plaza,
Seattle, Washington 98185, a wholly-owned subsidiary of SAFECO Corporation, is
the investment adviser to the SAFECO Funds and also performs certain
administrative functions for each SAFECO Fund. SAFECO provides certain personnel
and facilities utilized by SAFECO Management in performing its investment
advisory and administrative functions.
The Other Available Funds are open-end management investment companies. The
Other Available Funds are designed to serve as investment vehicles for variable
annuity and variable life insurance contracts of various insurance companies and
currently are available to the separate accounts of a number of insurance
companies including SAFECO. The investment adviser for each of the Other
Available Funds is: Federated Advisers; Lexington Management Corporation;
Investors Research Corporation; and Wanger Asset Management, L.P.
The Boards of Directors or Trustees of the Other Available Funds are responsible
for monitoring the Other Available Funds for the existence of any material
irreconcilable conflict between the interests of the owners of all separate
accounts investing in the Other Available Funds and determining what action, if
any, should be taken if a material irreconcilable conflict should occur. (See
the prospectuses of the Other Available Funds for further discussion of the
risks associated with the offering of Other Available Fund shares to the
Separate Account and the separate accounts of other insurance companies. Also
see the Statement of Additional Information regarding the terms of the
Participation Agreements relating to the Separate Account's investment in the
Other Available Funds.)
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INVESTMENT OBJECTIVES OF THE AVAILABLE FUNDS
Set forth below is a summary of the investment objectives of the Available
Funds. There can be no assurance that these objectives will be achieved. The
Available Funds' prospectuses accompany this Prospectus; investors should read
them carefully before investing.
THE SAFECO FUNDS
SAFECO RESOURCE BOND FUND (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 Fund. To
pursue its investment objective, the SAFECO Resource Bond Fund invests primarily
in medium-term debt securities. Although the SAFECO Resource Bond Fund 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 Services, Inc. Below investment grade bonds are commonly referred to
as high-yield or "junk" bonds and have special risks associated with them. (See
the SAFECO Funds' prospectus and statement of additional information for more
information.)
SAFECO RESOURCE EQUITY FUND (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 Fund. To pursue its investment objective,
the SAFECO Resource Equity Fund 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 FUND (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 Fund. To
pursue its investment objective, the SAFECO Resource Growth Fund ordinarily
invests 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 Management evaluates the issuer's
financial strength, quality of management and earning power. Because the SAFECO
Resource Growth Fund invests primarily in common stock selected for potential
appreciation, its share price may be more volatile than the other equity funds.
SAFECO RESOURCE MONEY MARKET FUND (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 investment maturing in thirteen months or less. The SAFECO Resource
Money Market Sub-Account invests in the SAFECO Resource Money Market Fund which
seeks to maintain a net asset value per share of $1.00. SHARES OF THE SAFECO
RESOURCE MONEY MARKET FUND ARE NEITHER INSURED, NOR GUARANTEED, BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THE SAFECO RESOURCE MONEY MARKET FUND
WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SAFECO RESOURCE NORTHWEST FUND (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 Fund. To pursue its investment objective, the SAFECO Resource
Northwest Fund invests 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 Fund ordinarily invests
its assets in shares of common stock selected primarily for potential long-term
appreciation. The SAFECO Resource Northwest Fund also may occasionally invest in
securities convertible into common stock.
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THE OTHER AVAILABLE FUNDS
FEDERATED HIGH INCOME BOND FUND II (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 Fund II. To pursue its investment objective, the
Federated High Income Bond Fund II invests primarily in a diversified portfolio
of professionally managed fixed-income securities. The fixed-income securities
in which the Federated High Income Bond Fund II 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 UTILITY FUND II (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 Fund II. To pursue its investment objective, the Federated
Utility Fund II 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 Fund II invests at least
65% of its total assets in securities of utility companies.
LEXINGTON EMERGING MARKETS FUND (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 Fund. To pursue its investment
objective, the Lexington Emerging Markets Fund 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 Fund 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 Fund, under normal conditions,
will invest 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 Fund's adviser
to invest substantially all of the Fund's assets in such securities. For
purposes of its investment objective, the Lexington Emerging Markets Fund
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 Fund 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 FUND (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 Fund. To pursue its
investment objective, the Lexington Natural Resources Fund 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 Fund 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 Fund's total assets may be invested in securities
principally traded in markets outside the U.S.
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<PAGE> 17
TCI BALANCED FUND (TCI BALANCED SUB-ACCOUNT) The investment objective of the TCI
Balanced Sub-Account is capital growth and current income. The TCI Balanced
Sub-Account invests in the TCI Balanced Fund. To pursue its investment objective
with regard to the equity portion of the portfolio, the TCI Balanced Fund
invests primarily in common stocks, including securities convertible into common
stocks and other equity equivalents and other securities that meet certain
standards, and have better-than-average potential for appreciation. Management
of the TCI Balanced Fund intends to maintain approximately 60% of its assets in
such securities, regardless of the movement of stock prices. Management intends
to maintain approximately 40% of its assets in fixed income securities, with a
minimum of 25% of that amount in fixed income senior securities. The fixed
income securities will be chosen based on their level of income production and
price stability.
The TCI Balanced Fund may invest in a diversified portfolio of debt and other
fixed-rate securities payable in U.S. currency. These may include obligations of
the U.S. Government (Treasury Bills, Treasury notes, and U.S. Government Bonds
supported by the full faith and credit of the United States, its agencies and
instrumentalities), corporate securities (bonds, notes, preferred and
convertible issues), and sovereign government, municipal, mortgage-related and
other asset-backed securities.
TCI INTERNATIONAL FUND (TCI INTERNATIONAL SUB-ACCOUNT). The investment objective
of the TCI International Sub-Account is capital growth. The TCI International
Sub-Account invests in the TCI International Fund. To pursue its investment
objective, the TCI International Fund invests primarily in securities of foreign
companies that meet certain standards that have potential for appreciation. The
TCI International Fund will invest primarily in common stocks of such companies,
including depositary receipts for common stocks and other equity equivalents.
The TCI International Fund tries to stay fully invested in such securities,
regardless of the movement of stock prices generally. Under normal conditions,
the TCI International Fund will invest at least 65% of its assets in common
stocks or other equity equivalents from at least three countries outside the
United States. When management believes that the total capital growth potential
or other securities equals or exceeds the potential return of common stocks, it
may invest up to 35% of its assets in such other securities.
In order to achieve maximum investment flexibility, the TCI International Fund
has not established geographic limits on asset distribution on either a
country-by-country or region-by-region basis. Management expects to invest both
in issuers whose principal place of business is located in countries with
developed economies and in countries with less developed economies. The
principal criterion for inclusion of a security in the fund's portfolio is its
ability to meet the fundamental and technical standards of selection and, in the
opinion of the fund's investment manager, to achieve better-than-average
appreciation.
The other securities in which the TCI International Fund may invest are
convertible securities, preferred stocks, bonds, notes and debt securities of
companies, obligations of domestic and foreign governments and their agencies.
WANGER U.S. SMALL CAP FUND (WANGER U.S. SMALL CAP SUB-ACCOUNT). The investment
objective of the Wanger U.S. Small Cap Sub-Account is to seek long-term capital
growth. The Wanger U.S. Small Cap Sub-Account invests in the Wanger U.S. Small
Cap Fund. To pursue its investment objective, the Wanger U.S. Small Cap Fund
invests mostly in stocks of small and medium-size companies, concentrating on
companies with a total market capitalization of less than $1 billion. The Wanger
U.S. Small Cap Fund invests mostly in U.S. companies, but also may invest up to
one-third of its total assets in foreign securities.
------------------------
The values of the investments held in the Available Funds fluctuate daily and
are subject to the risk of changing economic conditions as well as the risks
inherent in the ability of management to anticipate changes in such investments
necessary to meet changes in economic conditions. Additional information
concerning the Available Funds, including information as to the expenses paid by
the Available Funds, is given in the Available Funds' prospectuses which
accompany and should be read in conjunction with this Prospectus.
SUBSTITUTION OF OTHER SECURITIES OR AVAILABLE FUNDS. If the shares of any
Available Funds should no longer be available for investment by the Separate
Account or, if in the judgment of SAFECO further investment in such Funds'
shares should become inappropriate, SAFECO may substitute shares of some other
investment company for Fund shares already purchased or to be purchased in the
future under the Contract. Any
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<PAGE> 18
substitution will be made pursuant to any prior approval of the Commission and
compliance with all applicable rules and regulations. In the event of any
substitution or change, SAFECO will endorse the Contract if necessary to reflect
the substitution or change.
DEDUCTIONS UNDER THE CONTRACTS
CONTINGENT DEFERRED SALES CHARGE. SAFECO makes no deduction from Purchase
Payments for sales expenses, but does impose a Contingent Deferred Sales Charge.
SAFECO incurs sales expenses upon the issuance of the Contracts. Such expenses
include commissions, costs of advertising and sales promotion, costs associated
with this Prospectus allocable to new sales, and sales administration and
related costs. Because the Contracts are normally purchased for the long term,
SAFECO expects to recover these costs over time. If, however, a Contract is
totally or partially surrendered, a Contingent Deferred Sales Charge is imposed
at that time as a means for SAFECO to recover sales expenses.
The Contingent Deferred Sales Charge is assessed on withdrawals during the first
six Contract Years. The charge is 7% of the amount withdrawn during the first
Contract Year. The percentage scales downward by one percent each Contract Year
so that during the second Contract Year the charge is 6% and during the sixth
Contract Year is 2%. Beginning in the seventh Contract Year there will be no
charge.
Each Contract Year, an Owner generally may withdraw up to 10% of the Contract
Value without payment of the Contingent Deferred Sales Charge. Thus, if there is
more than one withdrawal per Contract Year, the free withdrawal amount will be
recalculated at the time of each withdrawal. Further, a maximum charge of $25 is
assessed for each withdrawal after the first taken in any Contract Year. SAFECO
has represented in documents filed with the SEC that this charge for withdrawals
in excess of one withdrawal per Contract Year is consistent with the expenses
assumed by SAFECO based on its review of its requirements and likely costs over
the duration of the Contracts.
No Contingent Deferred Sales Charge will be deducted from the Contract Value due
to: Transfers between Sub-Accounts (see "Transfers Between Sub-Accounts" and
"Other Services"); withdrawals made pursuant to a Settlement Option (see
"Settlement Options"); annual required minimum distributions; the death of the
Owner; or withdrawals for payment of the Annual Administration Maintenance
Charge.
PREMIUM TAX. Deduction for premium taxes will be made only in those instances
and at such time as the laws and regulations of the various states (or other
jurisdictions) assess such a tax and where SAFECO determines that such premium
taxes have resulted from the establishment or maintenance of the Contract or any
portion of the Contract, the receipt by SAFECO of Purchase Payments, or the
commencement of annuity payments. Premium tax assessments are based on the
address of record of the Payor at the time a premium tax may be payable. It is
SAFECO's current practice not to assess the applicable deduction for premium
taxes to Qualified Contracts, although SAFECO reserves the right to assess such
deduction to Qualified Contracts in the future. SAFECO currently assesses the
applicable deduction for premium taxes to Non-Qualified Contracts. Premium taxes
presently range from 0% to 3.5% of Purchase Payments or the amount applied to a
Settlement Option, as the case may be.
CONTRACT ADMINISTRATION CHARGES. SAFECO performs or delegates all administrative
functions relative to the Contracts. Except as noted below, deductions are made
under each Contract for the expenses associated with such functions. Such
expenses may include salaries, rent, office equipment, communications, postage,
legal, actuarial, and auditing fees. SAFECO may receive compensation from the
investment advisers or administrators of the Available Funds consistent with the
administrative services rendered to such entities.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE. If the Contract Value is below
$100,000 an Annual Administration Maintenance Charge of $30 will be deducted
from the Contract Value. There is no charge if the Contract Value is $100,000 or
above. SAFECO may change the amount of the Annual Administration Maintenance
Charge but in no event will the Annual Administration Maintenance Charge exceed
the lesser of $40 per Contract Year or the anticipated costs.
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The entire Annual Administration Maintenance Charge is deducted from the
Contract Value in one Sub-Account or the Fixed Account, which is determined
according to the following order: the SAFECO Resource Money Market Sub-Account;
SAFECO Resource Bond Sub-Account; the TCI Balanced Sub-Account; the TCI
International Sub-Account; the Wanger U.S. Small Cap Sub-Account; the Federated
Utility Sub-Account; the Federated High Income Bond Sub-Account; the Lexington
Natural Resources 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 the Fixed Account.
For example, if there is Contract Value only in the SAFECO Resource Money Market
Sub-Account, TCI Balanced Sub-Account and the Wanger U.S. Small Cap Sub-Account,
then the Annual Administration Maintenance Charge of $30 is deducted from the
SAFECO Resource Money Market Sub-Account, while if there is Contract Value only
in the TCI Balanced Sub-Account, TCI International Sub-Account and the Wanger
U.S. Small Cap Sub-Account, then the Annual Administration Maintenance Charge of
$30 is deducted from the TCI Balanced Sub-Account. The Annual Administration
Maintenance Charge is deducted by redeeming the number of Accumulation Units in
the applicable Sub-Account equal in value to the Annual Administration
Maintenance Charge or by deducting the amount of the Annual Administration
Maintenance Charge from the Fixed Account. (See "Fixed Account".) The deduction
is made on the last day of each Contract Year and upon a complete withdrawal of
all Contract Value from all Sub-Accounts and the Fixed Account.
ASSET RELATED ADMINISTRATION CHARGE. To further defray administrative costs,
SAFECO deducts a charge of .000411% of the average daily net asset value of the
Sub-Account(s) of the Separate Account per day, which is approximately equal to
an annual rate of .15% for a 365 day year. SAFECO guarantees that the Asset
Related Administration Charge will never be increased.
DEDUCTION FOR ASSUMING MORTALITY AND EXPENSE RISKS. SAFECO assumes a mortality
risk by its contractual obligation to pay a death benefit to the Beneficiary if
the Owner dies prior to the Annuity Date. Moreover, the minimum guaranteed death
benefit, which reflects increases in Contract Value, imparts a significant
mortality risk on SAFECO. SAFECO also assumes the risk that annuity payments
will continue for a longer period than anticipated. SAFECO assumes the expense
risk that the deductions for sales and administration charges may prove to be
insufficient to cover the actual expenses incurred. Further, SAFECO assumes an
expense risk from the fact that the Contract does not impose any surrender or
similar charge on the death benefit or upon election of a Settlement Option.
SAFECO assumes these risks for the duration of the Contract.
As compensation for assuming these risks, SAFECO imposes a charge based on
assets, during the Accumulation Period and the Annuity Period.
The charge is .002466% per day of the average daily net asset value of the
Sub-Accounts for assuming mortality risks, including the minimum guaranteed
death benefit, and .000959% for assuming expense risks. These charges, when
combined, are approximately equal to 1.25% on an annual basis for a 365 day
year. The charge, together with the Administrative charge, is applied at the end
of each Valuation Period through a factor used in the determination of the net
investment results of the Sub-Accounts. (See "Net Investment Factor".)
Revenue received from the mortality and expense risk and administrative charges
is added to the General Account of SAFECO and is not specifically earmarked for
any other purpose. SAFECO utilizes the assets in its General Account to meet
administration, mortality and general expenses, as well as any shortfall in the
recovery of distribution costs related to the Contracts. Charges under other
contracts SAFECO issues also provide a source of revenue to meet these expenses.
Based upon SAFECO's actuarial projections, it is possible that the Contingent
Deferred Sales Charge described above may, at least initially, be insufficient
to recover all of the distribution costs and related expenses incurred in
connection with the Contracts. In such event, some portion of the mortality and
expense risk charges (to the extent such charges comprise surplus in the General
Account) may be utilized by SAFECO to meet such excess sales expenses.
AVAILABLE FUND EXPENSES. There are deductions from and expenses paid out of the
assets of the Available Funds that are described in the prospectuses for those
Funds. These deductions and expenses and the
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investment performance of the Available Funds affect the value of Accumulation
Units. (See "The Accumulation Period".)
TRANSFERS BETWEEN SUB-ACCOUNTS
At any time, the Owner may elect by written notice to the Home Office or by
properly executed telephone instructions to transfer amounts between the
Sub-Accounts. The number of Accumulation Units equal to the amount to be
transferred from a Sub-Account will be deducted from that Sub-Account and the
number of Accumulation Units equal to the amount transferred will be credited to
the other Sub-Account(s). Each such transfer must involve a minimum of $500,
except for transfers made pursuant to certain Programs. (See "Other Services".)
If the remaining balance of any Sub-Account after a transfer would be less than
$500, the remaining balance also will be transferred. The minimum amount that
may be transferred into a Sub-Account is $50.
An Owner may make up to twelve transfers each Contract Year at no charge. A
charge of $10 per transfer may be charged for transfers in excess of these
limitations. Transfers effected pursuant to certain Programs will not be counted
towards these limitations. (See "Other Services".) However, unscheduled
transfers are limited by the terms of certain Programs. Further, there are
certain limitations upon an Owner's ability to transfer from and to the Fixed
Account. (See "Fixed Account".) Transfer requests may be deferred or suspended,
as permitted under the 1940 Act.
REDEMPTIONS
Subject to certain requirements in the Contracts, an Owner may, at or prior to
the Annuity Date, redeem all or part of the Contract Value, except that, if the
value of the Sub-Account being partially redeemed would be less than $500 after
such redemption, the remaining balance will also be redeemed (in Maine, South
Carolina and Texas, the minimum remaining balance to keep a Sub-Account open
after a redemption is $1,000). The minimum amount that may be redeemed is $500,
or the Contract Value, if less. The redemption will be effected by canceling the
number of Accumulation Units equal in value to the amount of the redemption
request. Accumulation Units will be canceled at the Accumulation Unit value as
of the end of the Valuation Period in which the request for redemption is
received at the Home Office.
Any applicable Contingent Deferred Sales Charge will be deducted from the
redemption value determined as described above and below. (See "Deductions Under
the Contracts".) The annuitant has no redemption right under the Contracts
subsequent to the commencement of annuity payments.
Payment of a redemption request will be made within seven (7) days of receipt of
such request in proper and complete form, except that payment of a redemption
request, like a transfer request, may be deferred as permitted under provisions
of the 1940 Act, for any period when: (i) the New York Stock Exchange
("Exchange") is closed (other than customary weekend and holiday closings); (ii)
trading on the Exchange is restricted as determined by the Commission or the
Exchange is closed for other than weekends and holidays; (iii) an emergency
exists as determined by the Commission as a result of which disposal by an
Available Fund of securities held by it is not reasonably practicable, or it is
not reasonably practicable for an Available Fund fairly to determine the value
of its net assets; or (iv) the Commission by order so permits for the protection
of security holders.
The tax consequences, including the tax withholding requirements, of a
redemption should be carefully considered. (See "Federal Tax Status".)
OTHER SERVICES
THE PROGRAMS. SAFECO offers several investment related programs which are
available only during the Accumulation Period: 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
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<PAGE> 21
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.
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. SAFECO will not be responsible
for the authenticity of telephone instructions nor for any loss, damage, cost or
expense arising out of any telephone instructions that SAFECO reasonably
believes to be authentic based on its verification procedures. Such procedures
may include requiring certain personal identification information prior to
acting on telephone instructions, tape recording telephone communications, and
providing written confirmation of instructions communicated by telephone. 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 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.
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<PAGE> 22
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
on 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 Sub-Account either quarterly,
semi-annually, 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 Fixed Account is not included
in this Program. 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. 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 "Federal 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 annually,
SAFECO will charge an annual fee of $25 to compensate it for the added
administrative costs.
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<PAGE> 23
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.
FIXED ACCOUNT
Owners may allocate Purchase Payments to the Fixed Account. In addition, Owners
may transfer amounts in or out of the Fixed Account. Such fixed amounts are held
in the General Account of SAFECO. Because of exemptive and exclusionary
provisions, amounts in the Fixed Account have not been registered under the
Securities Act of 1933 and the Fixed Account has not been registered as an
investment company under the 1940 Act. Accordingly, neither the Fixed Account
nor any interests therein are subject to the provisions of these acts and, as a
result, the staff of the Commission has not reviewed the disclosures in this
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. This Prospectus is generally intended to serve
as a disclosure document only for the aspects of the Contract involving the
Separate Account and contains only selected information regarding the Fixed
Account. More information regarding the Fixed Account may be obtained from the
Home Office or from the sales representative.
GENERAL DESCRIPTION. SAFECO's obligations with respect to the Fixed Account are
supported by SAFECO's General Account. Subject to applicable law, SAFECO has
sole discretion over the investment of the assets in the General Account.
SAFECO guarantees that Fixed Account Contract Value will accrue interest at an
annual effective rate of at least 3%, independent of the actual investment
experience of the General Account. SAFECO may, in its sole discretion, credit
higher rates of interest, although SAFECO is not obligated to credit interest in
excess of the guaranteed rate. SAFECO will credit interest to the amount
allocated to the Fixed Account at a rate determined according to SAFECO's
investment year method of assigning interest credits. Interest credits will be
based on the original period of receipt of amounts allocated to the Fixed
Account. Each amount allocated to the Fixed Account will be credited with the
Guaranteed Interest Rate determined for that period during which the allocation
to the Fixed Account is received by SAFECO.
SAFECO will credit the Guaranteed Interest Rate for a period of no less of than
twelve months (the "Interest Guarantee Period"). The Initial Interest Guarantee
Period begins with the date Purchase Payments are first allocated to the Fixed
Account. For the next subsequent Interest Guarantee Period, the Guaranteed
Interest Rate will be determined as soon as practicable prior to the end of the
current Interest Guarantee Period. Currently, SAFECO establishes subsequent
Guaranteed Interest Rates twice annually (April 1 and October 1). Under the
Contracts, SAFECO has reserved the right to establish subsequent Guaranteed
Interest Rates more frequently than twice annually, but in all cases the rates
will be guaranteed for no less than twelve months. Any higher rate of interest
will be quoted at an annual effective rate.
The Settlement Options that are available on a variable basis also are available
on a fixed basis through the Fixed Account. (See "Settlement Options".) If, as
of the Annuity Date, a Settlement Option has not been selected, SAFECO will make
annuity payments under Option 3.
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<PAGE> 24
FIXED ACCOUNT CONTRACT VALUE. The Fixed Account Contract Value on any Valuation
Date is the sum of the Purchase Payments allocated to the Fixed Account, plus
any transfers from a Sub-Account, plus interest credited to the Fixed Account,
less any previous withdrawals, related withdrawal charges, or Annual
Administration Maintenance Charge allocated to the Fixed Account, or transfers
to a Sub-Account or transfer charges allocated to the Fixed Account.
ANNUAL ADMINISTRATION MAINTENANCE CHARGE. The entire Annual Administration
Maintenance Charge may be deducted from the Contract Value in the Fixed Account,
according to the order described above under "Deductions under the Contract."
The Annual Administration Maintenance Charge is deducted from the Fixed Account
by deducting the amount of the Annual Administration Maintenance Charge from the
Contract Value in the Fixed Account. The deduction is made on the last day of
each Contract Year and upon a complete withdrawal of all Contract Value. (See
"Contract Administration Charges".)
Furthermore, if the Annual Administration Maintenance Charge is to be deducted
from the Fixed Account, the Annual Administration Maintenance Charge will be
reduced if (i) it is greater than the Purchase Payments received for the current
Contract Year and (ii) the excess charge over those Purchase Payments would
reduce the net interest on the Fixed Account to below the Guaranteed Interest
Rate on the Fixed Account. In that case, the Annual Administration Maintenance
Charge will be limited to the amount of Purchase Payments received during the
Contract Year plus the amount of interest credited in excess of the guaranteed
interest rate on the Fixed Account.
FIXED ACCOUNT TRANSFERS AND PARTIAL WITHDRAWALS. Amounts in the Fixed Account
are generally subject to the same rights and limitations and will be subject to
the same charges as are amounts allocated to the Sub-Accounts with respect to
total and partial withdrawals. (See "Transfers Between Sub-Accounts" and
"Redemptions".) Transfers out of the Fixed Account are limited to a minimum of
at least $500 (or, if less, the entire amount in the Fixed Account) and a
maximum of 10% of the Contract Value in the Fixed Account in each Contract Year.
Transfers into the Fixed Account must be at least $50. In the alternative, an
Owner may elect, once per Contract Year, to have pre-established automatic
monthly or quarterly transfers made from the Fixed Account. (See "Other
Services".)
CONTRACT BENEFITS
GENERAL. The objective of the Contracts is to provide Contract Value and
Settlement Options which will tend to reflect changes in the cost of living
subsequent to the date of issue of the Contract. There is no assurance that this
objective will be met. SAFECO seeks to accomplish this objective by allocating
Net Purchase Payments, as directed by the Owner, to one or more of the
Sub-Accounts.
Each Contract is issued to the Owner. If consistent with applicable tax laws, a
Contract may be owned jointly by spouses ("joint Owners"). Unless the Owner
names an Annuitant in the application for, or amendment to, the Contract, the
Owner will be considered the Annuitant. The Annuitant will become the Owner on
commencement of a Settlement Option. Unless joint Owners name an Annuitant in
the application for, or amendment to, the Contract, the older of the two joint
Owners will be considered the Annuitant, for purposes of determining the
limitations on selection of an Annuity Date. In addition, under Settlement
Option 3, joint Owners may become "joint Annuitants." (See "Settlement
Options".)
Subject to the minimum initial and subsequent Purchase Payment limitations, an
Owner may continue to make Purchase Payments prior to the commencement of
annuity payments. The Contracts provide for a variable monthly life annuity to
begin at some future selected date, called the Annuity Date, with a provision
that unless another Settlement Option is selected Variable Annuity payments will
be made pursuant to Settlement Option 3, unless the Beneficiary is a non-natural
person, in which case Variable Annuity payments will be made under Settlement
Option 1. The Owner may elect one of the other Settlement Options provided by
the Contracts. (See "Settlement Options".)
Each Contract contains a minimum guaranteed death benefit if the Owner dies
prior to the Annuity Date, generally equal to the greater of (i) the Contract
Value at the time of death or (ii) the last determined minimum guaranteed death
benefit. Different death benefits may apply under special circumstances. For
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<PAGE> 25
example, a different death benefit applies if the Beneficiary does not provide
due proof of death and elect a Settlement Option or lump sum payment within six
months of the Owner's death. The death benefits, surrender value, and Settlement
Options under the Contract will not be less than the minimum benefits required
by any statute of the state in which the Contract is delivered. (See "Payment on
or after Death of Owner".)
The Owner may select a different form of Variable Annuity (See "Settlement
Options") or change the Annuity Date (see "Payment Provisions"), by written
notice to SAFECO received prior to any previously selected Annuity Date, except
that any Annuity Date selected cannot be later than the date the Annuitant
attains age 90. Once a Settlement Option has begun it is irrevocable. The Owner
may elect that all or a portion of the Contract Value be applied to effect a
fixed annuity. (See "Settlement Options".) An Owner also may, subject to certain
restrictions, elect to redeem all or a portion of the Contract Value, less
applicable charges. (See "Redemptions".) However, certain tax consequences may
result from any such election. (See "Federal Tax Status".)
CERTAIN MINIMUM AMOUNTS
The minimum initial Purchase Payment under the Contract is $2,000 for a
Qualified Contract and $5,000 for a Non-Qualified Contract. The minimum
additional Purchase Payment is $250 under both a Qualified Contract and a
Non-Qualified Contract. If a Systematic Investing Program is utilized the
minimum additional Purchase Payment is $100.
If the amount available to be applied under a Settlement Option is $5,000, or
less, SAFECO reserves the right to pay such amount in a lump sum cash
distribution. If annuity payments would be or become less than $250, SAFECO has
the right to change the frequency of payments to such intervals as will result
in payment of at least $250. (See "The Annuity Period".)
Contracts may be redeemed in full or in part at any time prior to the Annuity
Date, except that a partial redemption of less than $500 from any Sub-Account is
not permitted, and the value of any Sub-Account after such partial redemption
must be at least $500 or the entire value of the Sub-Account will be redeemed.
(See "Redemptions".) The minimum amount that may be transferred from a
Sub-Account is $500 and the minimum amount that may be transferred to a
Sub-Account is $50. (See "Transfers".)
THE ACCUMULATION PERIOD
THE CONTRACT VALUE AND ACCUMULATION UNITS. During the period prior to the
commencement of annuity payments, referred to herein as the Accumulation Period,
a separate accumulation account is maintained under the Contracts for each
Sub-Account into which Purchase Payments are directed. Each Net Purchase Payment
is credited to each Sub-Account, or allocated among the Sub-Accounts, as
directed by the Owner, in the form of Accumulation Units. Accumulation Units are
credited separately to each Sub-Account. The number of Accumulation Units of
each type credited to the Contract is determined by dividing each Net Purchase
Payment by the value of an Accumulation Unit for that Sub-Account. The initial
Purchase Payment will be credited to the Contract not later than two (2)
business days following the date the properly completed application which
accompanies the Purchase Payment is received at the Home Office. If an
application is incomplete or incorrect, the applicant will be informed of the
reasons for the delay, and the Purchase Payment will be returned to the
applicant within five (5) business days of receipt unless the applicant
specifically authorizes SAFECO to retain the Purchase Payment until the
application is completed or corrected. Purchase Payments allocated to the
Sub-Accounts must be received by 1:00 p.m., Pacific Time, to receive that day's
Accumulation Unit value.
The value of any Sub-Account at any time is equal to the total number of
Accumulation Units credited to that Sub-Account multiplied by the then
applicable current value of an Accumulation Unit for that Sub-Account.
ACCUMULATION UNIT VALUES. The value of an Accumulation Unit, for each
Sub-Account, will vary depending upon the investment experience of, and the
charges and expenses deducted from, that Sub-Account. The
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<PAGE> 26
Accumulation Unit value for any Valuation Period 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 Accumulation Unit value for a Valuation Period is the value determined at
the end of such period.
VALUATION DATE AND VALUATION PERIOD. Each date on which the assets of the
Sub-Accounts are valued is a Valuation Date. The assets of the Sub-Accounts are
valued as of 4:00 p.m., Eastern Standard Time, on each Valuation Date. The
period from the time the Accumulation Unit value is determined as of one
Valuation Date to the time such value is determined as of the next Valuation
Date is called a Valuation Period.
NET INVESTMENT FACTOR. The net investment factor is a formula for measuring the
change in Accumulation Unit value over a Valuation Period. It is determined for
any Valuation Period: by dividing (a) the net asset value per share of the
Available Fund as of the current Valuation Period, plus the per share amount of
any dividend or capital-gains distributions made by the Available Fund, plus or
minus the charge for taxes, if any, by (b) the net asset value per share of the
Available Fund determined as of the end of the immediately preceding Valuation
Period, and then subtracting from this result, (c) a the daily equivalent of the
mortality and expense risk charge, and (d) a the daily equivalent of the Asset
Related Administration Charge.
EXAMPLE OF CALCULATION OF ACCUMULATION UNIT VALUE. Suppose (a) the accumulation
unit value for the preceding Valuation Period was $10.00; (b) the net asset
value of a Fund share as of the end of the current Valuation Period is $10.50;
(c) the per-share amount of a distribution from the Available Fund during such
Valuation Period was $.15; (d) the per-share amount of a tax liability was
$00.00; (e) the net asset value of a Fund share as of the end of the previous
Valuation Period as $10.40; (f) the per-share amount of a tax liability was
$00.00; (g) the number of days in the current Valuation Period is one; (h) the
daily deduction for assuming mortality and expense risks is .00003425; and (i)
the daily deduction for the Asset Related Administrative Charge is .00000411.
The net investment factor for the current Valuation Period is calculated as
follows:
<TABLE>
<S> <C>
(b) + (c) - (d) - (1 x (h)) - (1 x (i)) = Net Investment Factor
- ----------------
(e) - (f)
</TABLE>
then,
<TABLE>
<S> <C>
$10.50 + $.15 - $0.00 - (1 x .00003425) - (1 x .00000411) = 1.024
- ----------------------
$10.40 - $0.00
</TABLE>
The accumulation unit value for the preceding Valuation Period ($10.00) is then
multiplied by the net investment factor for the current Valuation Period
(1.024), which produces an accumulation unit value of $10.24 for the current
Valuation Period.
THE ANNUITY PERIOD
ANNUITY DATE. The Annuity Period begins after the Annuity Date chosen by the
Owner, which must be a date prior to the time the Annuitant reaches Age 90.
Annuity payments under one of the Settlement Options begin after the Annuity
Date. An Owner may choose to have either the variable portion of the Contract or
the fixed portion of the Contract or both annuitized on the Annuity Date. If an
Owner chooses to have Annuity payments begin only for the variable portion or
the fixed portion of the Contract, subsequent Net Purchase Payments will
continue to be credited only to the portion of the Contract not yet annuitized.
In addition if an Owner chooses to have only the variable portion or fixed
portion of the Contract annuitized, the Owner must chose a second Annuity Date
for the other portion of the Contract which is prior to the Annuitant's 90th
birthday.
PAYMENT PROVISIONS. The Variable Annuity payments under the Contracts will vary
in amount, either up or down, to reflect the investment performance of the
Available Funds, as elected by the Owner. Each of the Sub-Accounts and
corresponding Available Funds is available during the Annuity Period. The Owner
should carefully consider the volatility and general risk characteristics of
each Sub-Account. The Sub-Accounts that
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experience greater volatility and risks may be unsuitable for the Owner during
the Annuity Period, as they could entail a complete loss of Variable Annuity
payments.
Variable Annuity payments will commence on the Annuity Date selected by the
Owner. The Annuity Date may be changed provided written election to change is
received at the Home Office prior to any previous Annuity Date, the commencement
of any Settlement Option, and the Annuitant's 90th birthday. (See "Federal Tax
Status" for limitations of the Annuity Date under certain Qualified Contracts.)
SAFECO will determine the day of the month that Variable Annuity payments will
be made.
At the time of election, the Owner should consider the question of allocation of
Contract Value between the available Sub-Accounts or the Fixed Account for the
purchase of a fixed-dollar annuity. Allocation between the Fixed Account and the
Sub-Accounts may be altered by the Owner immediately prior to the Annuity Date.
If the Owner does not elect otherwise, Sub-Account Accumulation Units, after
reduction for any applicable premium tax, will be applied to provide annuity
payments that reflect the investment experience of such applicable Sub-Accounts.
The election of a Settlement Option must be made by the Beneficiary during the
sixty (60) day period commencing with the date SAFECO receives notification of
the Owner's death. If no election is made within the sixty (60) day period, then
a single sum payment will be made to the Beneficiary. Any one of the Settlement
Options described below may be elected by filing a written notice prior to the
Annuity Date. (See "Settlement Options" for limitations under Qualified
Contracts.) Once commenced the Settlement Options are irrevocable. If the
Annuitant dies before the Annuity Date, the Owner must designate a new Annuitant
within thirty (30) days of notice to SAFECO of the Annuitant's death or the
Owner becomes the new Annuitant.
Upon annuitization, the Contract Value may be allocated among the available
Sub-Accounts for the purchase of variable Settlement Options or fixed Settlement
Options. Transfers immediately prior to annuitization will not be subject to a
transfer charge. Moreover, assuming the Annuitant has not attained age 90, the
Owner may elect to commence annuitization of either the Sub-Account Contract
Value or the Fixed Account Contract Value and continue the Accumulation Period
for the portion of the Contract not annuitized. If the amount to be applied
under a Settlement Option is less than $5,000, SAFECO reserves the right to pay
such amount in one sum instead. Also, if the annuity payments would be or become
less than $250, SAFECO has the right to change the frequency of payments to such
intervals as will result in payment of at least $250.
During the Annuity Period, SAFECO continues to deduct the mortality and expense
risk charge (1.25%) and the Asset Related Administration Charge (0.15%), which
are assessed during the Accumulation Period. The Annual Administration
Maintenance Charge will not be deducted during the Annuity Period.
SETTLEMENT OPTIONS
OPTION 1 -- VARIABLE LIFE ANNUITY -- This is a Variable Annuity which provides
monthly payments during the lifetime of the Annuitant with no monthly payments
or other benefits payable after the date of his or her death. This Option offers
a slightly higher level of monthly payments than Options 2 or 3, because no
further payments are payable after the death of the Annuitant. It would be
possible under this Option for only one annuity payment to be made if the
Annuitant died before the due date of the second annuity payment, two if he or
she died before the third annuity payment, etc.
OPTION 2 -- VARIABLE LIFE ANNUITY WITH 120 OR 240 MONTHLY PAYMENTS
GUARANTEED -- This is a Variable Annuity which provides monthly payments during
the lifetime of the Annuitant and further provides that if, at the death of the
Annuitant, payments have been made for less than the elected period guaranteed,
which may be 120 or 240 months, the annuity payments will be continued during
the remainder of the guaranteed period to the named Beneficiary. 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 lump sum payment.
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<PAGE> 28
OPTION 3 -- VARIABLE JOINT AND SURVIVOR LIFE ANNUITY -- This is a Variable
Annuity that provides monthly payments during the joint lifetime of the
Annuitant and their spouse, and thereafter during the lifetime of the survivor
with no monthly payments or other benefits payable after the death of the
survivor. It would be possible under this Option for only one annuity payment to
be made if the Annuitant and their spouse died before the due date of the second
annuity payment, two if they died before the third annuity payment, etc.
If, as of the Annuity Date, a Settlement Option has not been selected, SAFECO
will make payments under Option 3, if the Beneficiary is a natural person. If,
as of the Annuity Date, a Settlement Option has not been selected, SAFECO will
make payments under Option 1, if the Beneficiary is a non-natural person.
In lieu of variable payments, an election may be made to apply a portion, or
all, of the proceeds of the Contract to purchase a fixed dollar Annuity. Fixed
dollar Annuities are not described in this Prospectus. Information concerning a
fixed dollar Annuity can be obtained from SAFECO or any of its sales
representatives.
Under Qualified Contracts, Option 2 with 240 monthly payments guaranteed, and
any other option that would impair the Qualified tax status of the Contract, may
not be available.
ANNUITY PURCHASE RATES. The Contracts contain a schedule of annuity rates based
upon an assumed investment return of 4% for the Settlement Options. The annuity
rates show how much the first monthly Variable Annuity payment will be for each
$1,000 applied to effect the annuity. Except as noted below, the rates vary with
the form of annuity, the date of birth and sex of the Annuitant, and the date on
which the annuity is effected.
The annuity rates for the Contracts are based on, among other things, an annual
interest rate, referred to as the assumed investment return of 4%. The assumed
investment return affects both the amount of the first annuity payment and the
pattern of subsequent payments. If the actual investment return should exceed
the assumed investment return, the Variable Annuity payments would increase and,
conversely, if the actual investment return should be less than the assumed
investment return the payments would decrease. A higher assumed investment
return would produce a higher initial payment but more slowly rising subsequent
payments (or more rapidly falling subsequent payments) than the selection of a
lower assumed investment return.
ANNUITY UNIT VALUES. The value of an Annuity Unit, for each Sub-Account, will
vary depending upon the investment experience of, and the charges and expenses
deducted from, that Sub-Account. For any Valuation Period the value of an
Annuity Unit is determined by multiplying the value of an Annuity Unit in each
Sub-Account, as of the immediately preceding Valuation Period by the Net
Investment Factor for the Value Period for which the value is being calculated,
and dividing the result by a factor to adjust for the assumed investment return
described under "Annuity Purchase Rates" above. (See "Net Investment Factor".)
NUMBER OF ANNUITY UNITS. The number of Annuity Units to be credited to the
Annuitant will be determined by dividing the first monthly payment due under the
selected Settlement Option by the value of the Annuity Unit calculated as of the
15th day of the preceding month, or the first subsequent Valuation Date if the
15th of the preceding month is not a Valuation Date. The resulting number of
Annuity Units remains fixed during the Annuity payment period and is used to
compute each Annuity payment.
TIME OF PAYMENT. The first Annuity payment is made on the Annuity Date.
AMOUNT OF PAYMENT. The dollar amount of the first monthly Variable Annuity
payment under the Settlement Options is 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 tables contained in the Contract
(which are guaranteed for the duration of the Contract). Thereafter, the dollar
amount of each Variable Annuity payment is determined by multiplying the number
of Annuity Units credited to the Annuitant by the value of the Annuity Unit,
computed as described above, as of the 15th day of the preceding month.
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<PAGE> 29
PAYMENT ON OR AFTER DEATH OF OWNER
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 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. The minimum guaranteed death benefit is reset at each sixth
Contract Anniversary ("Six 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 Six Year Contract Anniversary preceding
the Owner's 76th 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 Six Year Contract Anniversary. 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:
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
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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.
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.
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.
THE DISTRIBUTION OF THE CONTRACTS
Contracts will be sold through broker-dealers who have entered into selling
agreements with SAFECO Securities. Such broker-dealers are registered under the
Securities Exchange Act of 1934, as amended, and are members of the National
Association of Securities Dealers, Inc. and have representatives authorized by
applicable law to sell variable annuities. Such broker-dealers will be allowed a
maximum commission of 6% of Purchase Payments on the Contract. Under certain
circumstances, broker-dealers may elect a smaller commission based on Purchase
Payments with continuing payments based on Contract Value.
VOTING PRIVILEGES
SAFECO, as the sponsor of the Separate Account, will vote Trust or Fund shares
held in the Separate Account at regular and special meetings of shareholders of
the Trust or Available Funds, but will follow voting instructions received from
the person authorized to give such instruction.
The number of Trust or Fund shares for which a person is authorized to give
instructions will be determined as of a date to be chosen by SAFECO not more
than ninety (90) days prior to any meeting, and voting instructions will be
solicited by written communication at least ten (10) days prior to such meeting.
Except as specified below, the Owner may instruct the voting of Trust or Fund
shares prior to the Annuity Date. Under Contracts issued in connection with
plans qualified under Section 408 of the Code, the Annuitant may instruct the
voting of shares prior to the Annuity Date.
The number of shares attributable to a Contract prior to the Annuity Date is
determined by dividing the value of the Contract Value for such Contract by the
net asset value of one share of the respective Available Funds. The number of
shares attributable to a Contract on and after the Annuity Date is determined by
dividing the reserve (which generally will decrease) held by SAFECO in the
Separate Account for such Contract by the net asset value of one share.
All Trust and Available Fund proxy material, together with an appropriate form
to be used to give voting instructions, will be mailed to each person having
such voting instruction privileges. Neither the Trust, Available Funds or SAFECO
is under a duty to inquire as to the instructions received or the authority of
Owners or others to instruct the voting of shares. Shares for which no
instructions are received, including
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shares owned by SAFECO, will be voted in the same proportion as the shares for
which instructions are received from persons entitled to give such instructions
by reason of all contracts participating in the Separate Account.
FEDERAL TAX STATUS
It should be recognized that the rules governing the tax treatment of annuity
contracts are very complex, and cannot be easily summarized. The following
discussion is not intended to be exhaustive, and it does not cover numerous
special rules for annuities issued or contributions paid in past years if such
annuities are exchanged for the Contract. A qualified tax advisor should be
consulted for complete information.
FEDERAL TAX STATUS OF THE SEPARATE ACCOUNT. SAFECO is taxed as a life insurance
company under the Code. The operations of the Separate Account are part of the
total operations of SAFECO and are not taxed separately, although the operations
of the Separate Account are treated separately for accounting and financial
statement purposes and must be considered separately in computing SAFECO's tax
liability. No taxes are payable by the Separate Account on the investment income
and capital gains of the Separate Account. SAFECO reserves the right to deduct a
charge from Separate Account assets if such tax treatment should change.
The Contracts will be taxed as an annuity as long as the diversification
requirements of Section 817(h) of the Code and the Treasury Regulations
thereunder are complied with. SAFECO intends to comply with such requirements.
If the diversification requirements are not satisfied, there will be tax
consequences for Owners. The Secretary of the Treasury may issue a regulation or
a ruling which will prescribe the circumstances in which an Owner's control of
the investments of a segregated asset account may cause the Owner, rather than
the insurance company, to be treated as the owner of the assets of the account.
The regulation or ruling could impose requirements that are not reflected in the
Contract, relating, for example, to such elements of Owner control as Purchase
Payment allocation, investment selection, transfer privileges and investments in
a Sub-Account focusing on a particular investment sector. It has also been
suggested that, in certain circumstances, control over the investment adviser
might constitute prohibited Owner control. SAFECO believes that Owner control
will not exist under the Contract. Because failure to comply with any such
regulation or ruling presumably would cause earnings on an Owner's interest in
the Separate Account to be includible in the Owner's gross income in the year
earned, SAFECO has reserved certain rights to alter the Contract and investment
alternatives so as to comply with such regulation or ruling. SAFECO believes
that any such regulation or ruling would apply prospectively. Since the
regulation or ruling has not been issued, there can be no assurance as to the
content of such regulation or ruling or even whether application of the
regulation or ruling will be prospective.
FEDERAL TAX STATUS OF QUALIFIED CONTRACTS. The comments in this section apply
only to Contracts described in this Prospectus which are Qualified Contracts.
Qualified Contracts include Individual Retirement Annuities issued pursuant to
Section 408 of the Code, including rollovers from other Qualified Contracts and
simplified employee pensions.
Benefits received from a Qualified Contract will often be paid from
contributions that have never been included in the gross income of the
participant. Benefits received from such a plan will be taxable as ordinary
income whether received upon surrender, withdrawal, or death or disability of
the annuitant. If the participant made contributions to the Qualified Contract
with funds that have previously been included in gross income, special rules
provide for the return of the contributions over the period that payments are
received. Under certain circumstances, a 10 percent penalty tax may be imposed
on distributions. The rules governing the imposition of this penalty are
discussed in a later part of this section.
The rules governing the eligibility to participate, limitations on permissible
contributions, and the treatment of distributions from Qualified Contracts are
extremely complex. New Internal Revenue Service ("IRS") rules require that
Federal income taxes be withheld, at a 20% rate, from any "eligible rollover
distribution" which is not transferred directly to another qualified plan. All
qualified plans are required to notify participants of the IRS rules before an
"eligible rollover distribution" is made. The Separate Account has adopted
procedures
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that will enable it to make or receive trustee to trustee transfers, which will
exempt eligible distributions from the withholding requirements. Purchasers
should also be aware that the Code generally requires that certain minimum
distributions from Qualified Contracts be made in the year following the date
when the purchaser reaches age 70 1/2, or following the death of the purchaser
(a special rule applies for surviving spouses). The minimum distribution rules
generally require that the purchaser of a Qualified Contract receive
distributions at least annually over his or her life expectancy, or the joint
life expectancy of the purchaser and his or her spouse. Purchasers of Qualified
Contracts should seek competent tax advice on the tax rules governing their
eligibility to participate, the limitations on contributions, and the treatment
of distributions.
FEDERAL TAX STATUS OF NON-QUALIFIED CONTRACTS. The comments in this section
apply only to Non-Qualified Contracts. The Federal income tax treatment of the
Owner, Annuitant, or Beneficiary of a Variable Annuity contract is determined
under the rules of Section 72 of the Internal Revenue Code. Under the existing
provisions of the Code, an increase in the Accumulation Value is not taxable to
an individual Owner until received by him, either as a cash redemption or as
annuity payments. Under the rules explained below, any taxable gain on payments
or redemption from the Contract are taxable as ordinary income. No payments by
SAFECO under the Contracts are eligible for capital gains treatment.
In applying the rules explained below, an individual's investment in the
Contract is equal to the sum of the Purchase Payments made by the individual on
the Contract, reduced by that portion of any previous partial redemption(s) that
were not treated as taxable income.
The Federal income taxation of distributions or payments from annuity contracts
may vary depending upon the type of distribution received. If the distributions
are received as a series of substantially equal payments, the gain on the
Contract is spread out over the payment period. Under the "exclusion ratio" of
Section 72 of the Code, a portion of each payment is excluded from income as a
return of the investment in the Contract. The portion of each payment to be
excluded is determined by dividing the investment in the Contract by the
expected return in the case of fixed payments, and by the payment period in the
case of variable payments. The total excludable amount is limited to the
individual's investment in the Contract. Once the individual's investment in the
Contract is returned under the exclusion ratio, all subsequent payments will be
included in income. If payments end by reason of the death of the annuitant
before the investment in the Contract has been returned under the exclusion
ratio, the amount of the unrecovered investment in the Contract is a deduction
on the return of the last taxable year of the annuitant. In the event of a
complete redemption prior to the Annuity Date, any gain on the termination of
the Contract will be taxed as ordinary income and the Owner may be subject to
the 10 percent penalty tax provisions of the Code. The rules governing the
imposition of this penalty are explained in a later paragraph of this section.
If amounts are received from partial redemption of the Contract prior to the
annuity starting date, any partial redemption will be taxable to the Owner to
the extent that the Contract's value at the time of the redemption exceeds the
Owner's investment in the Contract and the Owner may be subject to the 10
percent penalty provisions of the Code. The rules governing the imposition of
this penalty are explained in a later section.
If the Owner dies on or after the Annuity Date, the remaining portion of the
Contract's value must be distributed at least as rapidly as under the method of
distribution in effect at the Owner's death. If the Owner dies prior to the
Annuity Date, the entire Contract Value must (a) be distributed within five
years of the Owner's death, or (b) be distributed as annuity payments that do
not extend beyond the life or life expectancy of the Owner's Beneficiary and
that begin within one year of the Owner's death. If the Owner's spouse is the
Beneficiary, the Contract may be continued in the name of the spouse as the
Owner.
In determining the amount of taxable income in a distribution from an annuity
contract, all annuity contracts issued by SAFECO to an individual during any
calendar year are treated as a single contract.
FEDERAL TAX PENALTIES AND WITHHOLDING. A 10 percent penalty tax may be imposed
on certain partial or complete redemptions of a Contract. The 10 percent penalty
tax will not be imposed in certain instances, including those in which the
redemption amount is received after the Annuitant reaches age 59 1/2, if the
redemption amount is one of a series of substantially equal periodic payments
made over the Annuitant's life,
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and is received following the death of the Owner, or is attributable to the
Owner becoming disabled. For distributions from Qualified Contracts, the penalty
does not apply for the reasons stated above.
Under a Qualified or Non-Qualified Contract SAFECO is required to withhold
Federal income taxes from any income payments to the Owner unless the owner
elects, for any reason, to have no withholding made from the payments. This
withholding requirement also applies to Qualified Contracts which are
hereinafter discussed. The Owner can change his election at any time by written
notice to the Home Office.
LEGAL MATTERS
Legal matters with respect to the organization of SAFECO, its authority to issue
annuity contracts and the validity of the Contract, have been passed upon by its
legal counsel.
There are no legal proceedings to which the Separate Account or SAFECO
Securities 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.
SPECIAL CONSIDERATIONS
The terms of any Contract may vary based upon the requirements of state
insurance law in the jurisdiction in which the Contract is sold. Moreover,
SAFECO reserves the right to amend the Contract to meet the requirements of any
applicable federal or state laws or regulations. SAFECO will notify the Owner in
writing of any such amendments.
RESTRICTIONS UPON TRANSFER OF OWNERSHIP AND ASSIGNMENT. An Owner's rights under
a Contract may not be assigned or transferred to the extent such restriction is
permitted by applicable law. A Contract, however, may be assigned for purposes
of an exchange pursuant to Section 1035 of the Code. Any permissible assignment
will not be binding upon SAFECO until it receives a written copy of the
assignment and has determined that such assignment is legally required.
Ownership of a Contract issued to qualify under Section 408 of the Code may not
be transferred, assigned or pledged.
AVAILABLE INFORMATION
SAFECO has filed a registration statement (the "Registration Statement") with
the Commission under the Securities Act of 1933 relating to the Contracts
offered by this Prospectus. This Prospectus has been filed as a part of the
Registration Statement and does not contain all of the information set forth in
the Registration Statement, and reference is hereby made to such Registration
Statement for further information relating to SAFECO and the Contracts. The
Registration Statement may be inspected and copied, and copies can be obtained
at prescribed rates from the Commission.
STATE REGULATION
SAFECO is subject to the laws of the State of Washington governing insurance
companies and to regulation by the Washington Commissioner of Insurance. An
annual statement in a prescribed form must be filed with that Commissioner on or
before March 1 in each year covering the operations of SAFECO for the preceding
year and its financial condition on December 31 of such year. Its books and
assets are subject to review or examination by the Commissioner or his agents at
all times, and a full examination of its operations is conducted by the National
Association of Insurance Commissioners at least once in every five years.
Washington law also prescribes permissible investments, but does not involve
supervision of the investment management or policy of SAFECO. The last such
examination was conducted for the five year period ended December 31, 1990.
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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
Financial statements for SAFECO Life Insurance Company and Subsidiaries (SAFECO)
and SAFECO Separate Account C (the Separate Account) may be found in the
Statement of Additional Information. The financial statements of SAFECO that are
included in the Statement of Additional Information should be considered
primarily as bearing on the ability of SAFECO to meet its obligations under the
Contracts. The Contracts are not entitled to participate in earnings, dividends
or surplus of SAFECO. As of December 31, 1995 no Contracts had yet been sold
through the Separate Account, therefore the financial statements for the
Separate Account only reflect other variable annuity contracts already issued
through the Separate Account.
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISTRIBUTION OF THE CONTRACTS......................................................... 2
DETERMINATION OF ANNUITY PAYMENTS..................................................... 2
STANDARDIZED COMPUTATION OF PERFORMANCE............................................... 3
PERFORMANCE INFORMATION............................................................... 3
TAX COMPARISON........................................................................ 5
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT........................................... 5
CONTINGENT DEFERRED SALES CHARGE...................................................... 5
PARTICIPATION AGREEMENTS.............................................................. 5
GENERAL INFORMATION................................................................... 6
TAX SUMMARY........................................................................... 6
FINANCIAL STATEMENTS.................................................................. 8
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
(for Tax-Qualified and Non-Qualified Plans)
SAFECO SEPARATE ACCOUNT C
(the "Separate Account"), a separate account of
SAFECO Life Insurance Company ("SAFECO")
This Statement of Additional Information is not a prospectus but supplements and
should be read in conjunction with the Prospectus for the Contracts. A copy of
the Prospectus may be obtained from SAFECO, P.O. Box 34690, Seattle, Washington
98124-1690, Telephone Number 1-800-426-7649.
The Date of the Prospectus to which this Statement of Additional Information
relates is April 29, 1996.
The Date of this Statement of Additional Information is April 29, 1996.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Distribution of the Contracts......................................................... 2
Determination of Annuity Payments..................................................... 2
Standardized Computation of Performance............................................... 3
Performance Information............................................................... 3
Tax Comparison........................................................................ 5
Valuation of Assets of the Separate Account........................................... 5
Contingent Deferred Sales Charge...................................................... 5
Participation Agreements.............................................................. 5
General Information................................................................... 6
Tax Summary........................................................................... 6
Financial Statements.................................................................. 8
</TABLE>
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<PAGE> 36
DISTRIBUTION OF THE CONTRACTS
The Contracts are offered on a continuous basis exclusively through
broker-dealers who have entered into selling agreements with SAFECO Securities,
Inc. ("SAFECO Securities"), a wholly-owned subsidiary of SAFECO Corporation, a
publicly-owned insurance holding company. SAFECO is a wholly-owned subsidiary of
SAFECO Corporation.
DETERMINATION OF ANNUITY PAYMENTS
The following discussion of the method for determining the amount of monthly
annuity payments under a variable payment plan is intended to be read in
conjunction with these sections of the Prospectus for the Contracts: "Deductions
under the Contracts"; "Divisions of the Separate Account and the Available
Funds"; "The Accumulation Period"; and "The Annuity Period". This discussion
assumes there is no Contingent Deferred Sales Charge or premium tax payable.
AMOUNT OF ANNUITY PAYMENTS. The amount of the first annuity payment under a
Contract will be determined on the basis of the Settlement Option selected, the
annuity purchase rate, the date of birth and sex of the annuitant, and the date
on which the Annuity is effected. The amount of the first payment is the sum of
the payments from each Sub-Account 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 tables contained in the Contract (which
are guaranteed for the duration of the Contract). The tables are based on the
1983a Mortality Table Projected 20 Years with Projection Scale G; 50% Male and
50% Female, and, for variable annuity options, assumed investment rate of 4.00%.
SAFECO guarantees these annuity tables for the duration of the Contracts.
The dollar amount of the Variable Annuity payments after the first payment will
vary from month to month and will depend upon the number and value of Annuity
Units credited to the Annuitant, which is dependent upon the Settlement Option
selected. A Contract will not share in the divisible surplus of SAFECO.
The number of Annuity Units in each Sub-Account to be credited to the Annuitant
is determined by dividing the amount of the first annuity payment from that
Sub-Account by the value of an Annuity Unit as of the 15th day of the month
preceding the Annuity Date. The number of Annuity Units thus credited each month
to the Annuitant in each Sub-Account remains constant throughout the Annuity
Period. However, the value of Annuity Units in each Sub-Account will fluctuate
with the investment experience of the Sub-Account.
The dollar amount of each Variable Annuity payment after the first is the sum of
the payments from each Sub-Account, which are determined by multiplying the
fixed number of Annuity Units per Sub-Account by the value of an Annuity Unit
(for that Sub-Account) as of the 15th day of the preceding month.
ANNUITY UNIT VALUE. The value of an Annuity Unit for each Sub-Account on any
date varies to reflect the investment experience of the Sub-Account, the assumed
investment rate of 4% on which the annuity tables are based, and the deduction
for charges assessed and imposed by SAFECO, including a mortality and expense
risk charge, Asset Related Administration Charge, and, if applicable, a charge
for premium taxes.
For any Valuation Period the value of an Annuity Unit is determined by
multiplying the value of an Annuity Unit in each Sub-Account, as of the
immediately preceding Valuation Period by the Net Investment Factor for the
Valuation Period for which the value is being calculated, and dividing the
result by a factor to adjust for the assumed investment return of 4% used in
calculating the annuity rate tables.
ILLUSTRATIONS OF VARIABLE ANNUITY PAYMENTS. To illustrate the manner in which
Variable Annuity payments are determined consider this example. Item (4) in the
example shows the applicable monthly payment rate for
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a male, adjusted age 63, who has elected a life variable annuity payment plan
with a guarantee period of 10 years with the assumed investment rate of 4%.
(Option 2, as described in the Prospectus).
<TABLE>
<S> <C> <C>
(1) Assumed number of accumulation units in a Sub-Account on maturity
date.................................................................... 25,000
(2) Assumed Value of an accumulation unit in a Sub-Account at maturity...... $ 12.5000
(3) Cash value of Contract at maturity, (1) X (2)........................... $ 312,500
(4) Consideration required to purchase $1 of monthly annuity from annuity
rate table.............................................................. $ 183.53
(5) Amount of first payment from a Sub-Account, (3) divided by (4).......... $1,702.72
(6) Assumed value of Annuity Unit in a Sub-Account at maturity.............. $ 13.0000
(7) Number of Annuity Units credited in a Sub-Account, (5) divided by (6)... 130.9785
</TABLE>
The $312,500 value at maturity provides a first payment from the Sub-Account of
$1,702.72, and payments thereafter of the varying dollar value of 130.9785
Annuity Units. The amount of subsequent payments from the Sub-Account is
determined by multiplying 130.9785 units by the value of an Annuity Unit in the
Sub-Account on the applicable valuation date. For example, if that unit value is
$13.25, the monthly payment from the Sub-Account will be 130.9785 multiplied by
$13.25, or $1,735.46.
However, the value of the Annuity Unit depends entirely on the investment
experience of the Sub-Account. Thus in the example above, if the net investment
rate for the following month was less than the assumed investment rate of 4%,
the Annuity Unit would decline in value. If the Annuity Unit value declined to
$12.75 the succeeding monthly payment would then be 130.9785 x $12.75, or
$1,669.98.
For the sake of simplicity the foregoing example assumes that all of the Annuity
Units are in one Sub-Account. If there are Annuity Units in two or more
Sub-Accounts, the annuity payment from each Sub-Account is calculated
separately, in the manner illustrated, and the total monthly payment is the sum
of the payments from the Sub-Accounts.
STANDARDIZED COMPUTATION OF PERFORMANCE
PERFORMANCE COMPARISONS. Performance Information for a Sub-Account may be
compared, in reports and advertising, to: (i) Standard & Poor's Stock Index, Dow
Jones Industrial Averages, Donahue Money Market Institutional Averages, or other
unmanaged indices generally regarded as representative of the securities
markets; (ii) other Variable Annuity separate accounts or other investment
products traced by Lipper Analytical Services, Inc., the Variable Annuity
Research and Data Service, or Morningstar, Inc., which are widely used
independent research firms that rank mutual funds and other investment companies
by overall performance, investment objectives and assets; and (iii) the Consumer
Price Index (a measure of inflation) to assess the real rate of return from an
investment in a Contract. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for annuity charges,
investment management costs, brokerage costs and other transaction costs that
are normally paid when directly investing in securities.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising also may contain other information, including the ranking of any
Sub-Account derived from rankings of Variable Annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or by rating
services, companies, publications, or other persons which rank separate accounts
or other investment products on overall performance or other criteria.
PERFORMANCE INFORMATION
YIELDS. Some Sub-Accounts may advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the Sub-Account over
a stated period of time, not taking in to account capital gains or losses or the
imposition of any Contingent Deferred Sales Charge. Yields are annualized and
stated as a percentage.
Current yield and effective yield are calculated for the SAFECO Resource Money
Market Sub-Account. Current Yield is based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular seven
(7) day period, less a hypothetical charge reflecting deductions from values
during the
-3-
<PAGE> 38
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. 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. Investors should realize that
the Sub-Account's experience is not constant over time, but changes from year to
year, and that the average annual returns represent averaged figures as opposed
to the year-to-year performance of a Sub-Account. Average annual returns are
calculated pursuant to the following formula: P(1 + T)n = ERV, where P is a
hypothetical initial payment of $1,000, T is the average annual total return, n
is the number of years, and ERV is the withdrawal value at the end of the
period.
Cumulative total returns are unaveraged and reflect the simple change in value
of a hypothetical investment in the Sub-Account over a stated period of time.
-4-
<PAGE> 39
From time to time, additional quotations of total return based on the historical
performance of the Available Funds also may be presented.
TAX COMPARISON
Reports and advertising also may show the effect of tax deferred compounding on
a Sub-Account's investment returns, or returns in general, illustrated by
graphs, charts, or otherwise, which may include a comparison, at various points
in time, of the return from an investment in a Contract (giving effect to all
fees and charges), or returns in general, on a tax-deferred basis (assuming one
or more tax rates) with the return on a taxable basis, and which will disclose
the tax characteristics of the investments shown, including the impact of
withdrawals and surrenders.
VALUATION OF ASSETS OF THE SEPARATE ACCOUNT
The value of Trust or Fund shares held in each Sub-Account at the time of each
valuation is the redemption value of such shares at such time.
CONTINGENT DEFERRED SALES CHARGE
The charge is made as a percentage of the amount withdrawn. For example, if an
Owner subject to a 6% Contingent Deferred Sales Charge wishes to net $100 on the
partial redemption of a Contract, he must make a total withdrawal of $106.38, of
which $6.38 will be deducted as a Contingent Deferred Sales Charge. An Owner
need only indicate the net amount he wishes to net on a partial redemption and
SAFECO will determine the total or gross amount necessary to withdraw to net the
desired amount.
To the extent that the Contingent Deferred Sales Charge is insufficient to cover
all the distribution costs and related expenses, some portion of the proceeds
from the mortality and expense risk charge may be utilized by SAFECO to meet
such excess distribution expenses. SAFECO has represented in documents filed
with the Securities and Exchange Commission that the mortality and expense risk
charge is consistent with the mortality and expense risks assumed by SAFECO and
is within the range of industry practice, based on its review of its
requirements and industry practice. Moreover, SAFECO has represented that use of
any proceeds from such charge to defray distribution expenses has a reasonable
likelihood of benefiting the Separate Account and Owners.
PARTICIPATION AGREEMENTS
Shares of the Other Available Funds are made available to the Separate Account
under substantially similar Participation Agreements ("Participation
Agreements"). Each Participation Agreement is among the applicable Other
Available Fund, and its Distributor, which is the principal underwriter for
Other Available Fund shares, and SAFECO on behalf of the Separate Account. If
state or federal law precludes the sale of any Other Available Fund's shares to
the Separate Account, or in certain other circumstances, sales of shares to the
Separate Account may be suspended and/or the Participation Agreement may be
terminated as to the applicable Other Available Fund. Also, each Participation
Agreement may be terminated by any party thereto on proper written notice.
Notwithstanding termination of the Participation Agreement, the Other Available
Funds and their Distributors generally are obligated to continue to make such
Funds' shares available for Contracts outstanding on the date the Participation
Agreement terminates, unless the Participation Agreement was terminated due to
an irreconcilable conflict among contract owners of different separate accounts.
If for any reason the shares of any Other Available Fund are no longer available
for purchase by the Separate Account for outstanding Contracts, the parties to
each Participation Agreement have agreed to cooperate to comply with the
Investment Company Act of 1940, as amended, in arranging for the substitution of
another funding medium as soon as reasonably practicable and without disruption
of sales of shares to the Separate Account or any Sub-Account. Each of the
Participation Agreements has been filed as an exhibit to the registration
statement for the Contracts and differences between the terms of the various
Participation Agreements are reflected in such agreements.
-5-
<PAGE> 40
GENERAL INFORMATION
The financial statements of the SAFECO Separate Account C and of SAFECO Life
Insurance Company and Subsidiaries included in this 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 this
Statement of Additional Information. Such financial statements have been
included herein in reliance on their reports given on their authority as experts
in accounting and auditing. The address of Ernst & Young LLP is 999 Third
Avenue, Suite 3500, Seattle, Washington 98104.
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.
TAX SUMMARY
TRANSFERS BETWEEN NON-QUALIFIED ANNUITIES. Under section 1035 of the Internal
Revenue Code of 1986, as amended ("Code"), an Owner may exchange one annuity
contract for another annuity contract in a tax-free exchange. To avoid
recognizing income on the surrender of the annuity contract, the Owner must
absolutely assign the old contract to SAFECO. SAFECO will surrender the old
annuity contract and apply the proceeds to the Contract.
INDIVIDUAL RETIREMENT ANNUITIES (IRAS). The Code permits deductible and
non-deductible contributions to be made under a Contract that qualifies as an
IRA. The Contract (accompanied by the appropriate IRA rider) is designed to
qualify as an IRA. The Code also allows a tax-free transfer (rollover) of
certain distributions from qualified plans and Tax Sheltered Annuity
arrangements ("TSAs") which are used to purchase an IRA.
If the Owner and the Owner's spouse are not currently covered by a retirement
plan (including a Qualified Plan, TSA, or SEP-IRA), then each working spouse may
make a deductible contribution of 100% of compensation up to $2,000 regardless
of their adjusted gross income ("AGI"). In the case of spousal IRAs, an IRA
certificate is issued for each spouse and the working spouse may contribute a
total of $2,250 to both certificates (but no more than $2,000 to one
certificate). For these purposes, a working spouse can make an election to be
treated as having no compensation, thereby allowing the other working spouse to
make a contribution to a spousal IRS.
No contributions are allowed for the tax year in which an individual becomes age
70 1/2 or any tax year after that year. A working spouse age 70 1/2 or over,
however, can contribute 100% or compensation up to $2,000 to a spousal IRA until
the year the non-working spouse reaches age 70 1/2.
If either the Owner or, if married, the Owner's spouse is covered by another
retirement plan, the IRA deduction phases out between $25,000 and $35,000 of AGI
for a single person and $40,000 and $50,000 of AGI for married persons filing
jointly. If the Owner is married, filing separately and covered by a retirement
plan, the IRS deduction phases out between $0 to $10,000 of AGI.
If the Owner is not eligible to deduct part or all of the IRA contribution, he
may still make nondeductible contributions. However, the deductible and
nondeductible contributions combined cannot exceed the $2,000 limit (or the
$2,250 spousal limit).
Deductible and non-deductible IRA contributions in excess of the lesser of (i)
100% of compensation or earned income, or (ii) $2,000 are subject to a 6% excise
tax for the year in which made and for each year thereafter until withdrawn.
An individual may elect for each IRA certificate or account to make a tax-free
rollover once a year among individual retirement arrangements (including
rollovers from individual retirement bonds purchased before
-6-
<PAGE> 41
1983). An individual also may make a rollover contribution into an IRA with the
proceeds from a TSA or qualified plan.
Distributions from an IRA must commence by April 1 of the calendar year
following the calendar year in which the Owner reaches age 70 1/2. Distributions
must be made at least annually over the life or life expectancy of the Owner (or
the joint lives or life expectancies of the Owner and a Beneficiary). The amount
required to be distributed each year under this rule is referred to as the
minimum distribution amount.
An Owner who does not receive the minimum distribution amount will be subject to
a 50% excise tax on the difference between the minimum distribution amount and
the amount actually distributed.
An Owner can revoke a Contract issued as an IRA by following the directions on
the cover of the Contract. Because revocation may have adverse tax consequences,
the Owner should consult with a tax expert. If the Contract is revoked, an Owner
may contribute to a new IRA, provided that the eligibility requirements for IRA
contributions are met at that time.
SIMPLIFIED EMPLOYEE PENSION PROGRAM (SEP-IRA). An employer can establish a
SEP-IRA for its employees. Under an employer's SEP-IRA, contributions for each
eligible employee can be made under a Contract issued as an IRA.
INCOME TAX WITHHOLDING. An Owner receiving periodic payments which total $9,120
or more per year will generally be subject to wage-bracket type withholding (as
if such payments were payments of wages by an employer to an employee) unless
the Owner elects no withholding. When a Owner makes no withholding election
whatsoever, withholding will be made as if the Owner is married and claiming
three withholding exemptions.
An Owner receiving a non-periodic distribution (whether a total or partial
distribution) will generally be subject to withholding at a flat 10% rate. In
certain cases, if the distribution is a qualified total distribution (as defined
in the Code), a special withholding table will apply. In both cases the Owner
will be permitted to elect not to have tax withheld.
All Owners receiving periodic and non-periodic payments will be further notified
of the withholding requirements and of their right to make withholding elections
affecting such payments. Special withholding rules apply to United States
citizens residing outside the United States.
Recently enacted mandatory withholding provisions apply to distributions made
from qualified plans after December 31, 1992. Mandatory withholding of 20% will
apply to any distribution eligible for a tax-free rollover if the distribution
is not transferred directly to an IRA.
-7-
<PAGE> 42
FINANCIAL STATEMENTS
SAFECO SEPARATE ACCOUNT C
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 9
Statement of Assets and Liabilities as of December 31, 1995........................... 10
Statement of Operations for the year ended December 31, 1995.......................... 11
Statements of Changes in Net Assets for the year or period ended December 31, 1995 and
December 31, 1994................................................................... 12
Notes to Financial Statements (including accumulation unit data)...................... 14
</TABLE>
-8-
<PAGE> 43
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
-9-
<PAGE> 44
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
-10-
<PAGE> 45
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
-11-
<PAGE> 46
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
-12-
<PAGE> 47
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
-13-
<PAGE> 48
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
-14-
<PAGE> 49
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>
-15-
<PAGE> 50
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> 51
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> 52
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> 53
<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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 62
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> 63
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> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
Included in Part B of the Registration Statement:
REGISTRANT:
Statement of Assets and Liabilities as of December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement 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 Sheet 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:
* 1. Amended and Restated Resolution of the Board of Directors of
SAFECO Life Insurance Company authorizing the establishment
of SAFECO Separate Account C.
2. Not applicable.
* 3. Principal Underwriter's Agreement between SAFECO Life
Insurance Company and SAFECO Securities, Inc., dated April
29, 1994.
* 4.a. Form of Variable Annuity Contract.
* 4.c. Form of IRA Endorsement.
* 5. Form of application used with Variable Annuity Contract.
* 6.a. Articles of Incorporation of SAFECO Life Insurance Company.
* 6.b. By-Laws of SAFECO Life Insurance Company.
7. None.
** 8.a. Participation Agreement by and among SAFECO Life Insurance
Company, Federated Insurance Series, on behalf of the
Federated High Income Bond Fund II, Federated Utility Fund
II, Federated Securities Corp. and Federated Advisers.
<PAGE> 78
** 8.b. Participation Agreement by and among SAFECO Life Insurance
Company, Lexington Natural Resources Trust, Lexington
Emerging Markets Fund, Inc. and Lexington Management
Corporation.
8.c. Participation Agreement by and among SAFECO Life Insurance
Company, TCI Portfolios, Inc. and and/or Adviser for TCI
Balanced Fund and TCI International Fund.
8.d. Participation Agreement by and among SAFECO Life Insurance
Company, Wanger U.S. Small Cap Fund, and Adviser Wanger
Asset Management, L.P.
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 SEC on June 16, 1995 (File
No. 33-60331).
** Incorporated by reference to Post-Effective Amendment of SAFECO
Separate Account C filed with the SEC on April 29, 1996 (File No.
33-69712).
*** Incorporated by reference to Post-Effective Amendment of SAFECO
Separate Account C filed with the SEC on December 29, 1995 (File No.
33-69712).
ITEM 25. DIRECTORS AND OFFICERS OF SAFECO LIFE INSURANCE COMPANY
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>
* Roger H. Eigsti Director, Chairman of the Board
Richard E. Zunker Director and President
* Boh A. Dickey Director and Executive Vice
President
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
Name Position with SAFECO
---- --------------------
<S> <C>
John P. Fenlason Senior Vice President
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
<PAGE> 80
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
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 By-Laws, SAFECO Life Insurance Company ("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
<PAGE> 81
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 any liability arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of SAFECO Life Insurance Company ("SAFECO") or
SAFECO Separate Account C pursuant to the foregoing provisions, or
otherwise, SAFECO and SAFECO Separate Account C have been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that 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 or SAFECO Separate Account C in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in that Act
and will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) SAFECO Securities, Inc., the principal underwriter for the Registrant,
is also the principal underwriter of shares issued by the following
registered investment companies: SAFECO Common Stock Trust; SAFECO
Taxable Bond Trust; SAFECO Tax-Exempt Bond Trust; SAFECO Money Market
Trust; SAFECO Institutional Series Trust; SAFECO Resource Series Trust;
and SAFECO Advisor Series Trust. In addition, SAFECO Securities is the
principal underwriter for variable insurance products issued by SAFECO
Resource Variable Account B and SAFECO Separate Account SL.
(b)
<TABLE>
<CAPTION>
Name and Principal Business Address* Positions and Offices with Underwriter
- ------------------------------------ --------------------------------------
<S> <C>
David F. Hill Director, President and Secretary
Rod A. Pierson Director
Neal A. Fuller Vice President, Controller, Treasurer, Financial
Principal and Assistant Secretary
Ronald Spaulding Director
</TABLE>
<PAGE> 82
* The Principal Business Address of all officers or directors 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, as
amended, and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
None
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement as
frequently as is necessary to ensure that the audited financial
statements in this Registration Statement are never more than 16 months
old for so long as payments under the Contracts may be accepted;
(b) to include either (1) as part of any application to purchase a Contract
offered by the Prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a toll-free phone
number, postcard, or similar written communication affixed to or
included in the Prospectus that the applicant can call or remove to
send for a Statement of Additional Information;
(c) to deliver any Statement of Additional Information and any financial
statements required to be made available under this Form N-4 promptly
upon written or oral request.
Registrant hereby represents that a no-action letter issued by the Commission
staff to the American Council of Life Insurance, available November 22, 1988, is
being relied upon and the provisions of paragraphs numbered (1) - (4) of that
letter have been complied with.
<PAGE> 83
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)
RONALD SPAULDING* Director and Vice President
- ------------------------
Ronald Spaulding
ROD A. PIERSON* Director, Senior Vice President and Secretary
- ------------------------
Rod Pierson
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
JAMES W. RUDDY* Director
- ------------------------
James W. Ruddy
ROBERT SWEGLE* Director
- ------------------------
Robert Swegle
/S/ RICHARD E. ZUNKER Director and President
- ------------------------ (Principal Executive Officer)
Richard E. Zunker
</TABLE>
By: /S/ BOH A. DICKEY
---------------------
Boh A. Dickey
*Attorney-in-Fact
By: /S/ RICHARD E. ZUNKER
---------------------
Richard E. Zunker
*Attorney-in-Fact
<PAGE> 85
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
8.c. Participation Agreement by and among SAFECO Life
Insurance Company, TCI Portfolios, Inc. and Adviser
for TCI Balanced Fund and TCI International Fund
8.d. Participation Agreement by and among SAFECO Life
Insurance Company, Wanger U.S. Small Cap Fund, and
Adviser Wanger Asset Management, L.P.
9. Opinion and Consent of Counsel
10. Consent of Independent Auditors
15. Representation of Counsel
</TABLE>
<PAGE> 1
EXHIBIT 8c
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is made and entered into as of
November 14, 1995 by and between SAFECO LIFE INSURANCE COMPANY (the "Company")
TCI PORTFOLIOS, INC. (the "Issuer") and the investment adviser of the Issuer,
INVESTORS RESEARCH CORPORATION ("Investors Research").
WHEREAS, the Company offers to the public certain group and individual
variable annuity contracts (the "Contracts"); and
WHEREAS, the Company wishes to offer as investment options under the
Contracts, TCI Balanced and TCI International (the "Funds"), each of which is a
series of mutual fund shares registered under the Investment Company Act of
1940, as amended, and issued by the Issuer; and
WHEREAS, on the terms and conditions hereinafter set forth, Investors
Research and the Issuer desire to make shares of the Funds available as
investment options under the Contracts and to retain the Company to perform
certain administrative services on behalf of the Funds;
NOW, THEREFORE, the Company, the Issuer and Investors Research agree as
follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and conditions of
this Agreement, the Issuer will make shares of the Funds available to be
purchased, exchanged, or redeemed, by the Company on behalf of the Accounts
(defined in SECTION 6(A) below) through a single account per Fund at the net
asset value applicable to each order. The Funds' shares shall be purchased and
redeemed on a net basis in such quantity and at such time as determined by the
Company to satisfy the requirements of the Contracts for which the Funds serve
as underlying investment media. Dividends and capital gains distributions will
be automatically reinvested in full and fractional shares of the Funds.
2. ADMINISTRATIVE SERVICES. The Company shall be solely responsible
for providing all administrative services for the Contracts owners. The Company
agrees that it will maintain and preserve all records as required by law to be
maintained and preserved, and will otherwise comply with all laws, rules and
regulations applicable to the marketing of the Contracts and the provision of
administrative services to the Contract owners.
3. PROCESSING AND TIMING OF TRANSACTIONS.
(a) On each day the New York Stock Exchange (the "Exchange") is open
for business (each, a "Business Day"), the Company may receive instructions from
the Contract owners for the purchase or redemption of shares of the Funds
("Orders"). Orders transmitted to the Issuer by the Company prior to the close
of regular trading on the Exchange (the "Close of Trading") on any given
Business Day (currently, 3:00 p.m. Central time) will be executed by the Issuer
at the net asset value determined as of the Close of Trading on such Business
Day. Any Orders transmitted to the Issuer on such day but after the Close of
Trading will be executed by the Issuer at the net asset value determined as of
the Close of Trading on the next Business Day following the day of receipt of
such Order. The day as of which an Order is executed by the Issuer pursuant to
the provisions set forth above is referred to herein as the "Effective Trade
Date". Orders may be transmitted by facsimile or other electronic transmission
acceptable to Investors Research.
(b) By 5:30 p.m. Central time on each Business Day following the
Effective Trade Date of an Order, Investors Research will provide to the Company
via facsimile or other method
<PAGE> 2
acceptable to the Company a confirmation of all purchase, redemption and/or
exchange Orders processed as of the Effective Trade Date.
(c) As used in this Agreement, the phrase "other electronic
transmission acceptable to Investors Research" includes the use of remote
computer terminals located at the premises of the Company, its agents or
affiliates, which terminals may be linked electronically to the computer system
of Investors Research, its agents or affiliates (hereinafter, "Remote Computer
Terminals").
(d) Payment for net purchase transactions shall be made by wire
transfer by the Company to the custodial account designated by the Fund by 5:00
p.m. Central time on the Effective Trade Date. If payment for a purchase Order
is not timely received, such Order will be executed at the net asset value next
computed following receipt of payment. Payments for net redemption transactions
shall be made by wire transfer by the Issuers to the account designated by the
Company within the time period set forth in the applicable Fund's then-current
prospectus; provided, however, Investors Research will use all reasonable
efforts to settle all redemptions on the Business Day next following the
Effective Trade Date. On any Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules will be suspended for
the settlement of Orders. Orders will be settled on the next Business Day on
which the Federal Reserve Wire Transfer System is open and the Effective Trade
Date will apply.
4. PROSPECTUS AND PROXY MATERIALS.
(a) Except as otherwise provided in this Agreement, all expenses
incident to the performance by the Issuer of its obligations under this
Agreement, including the cost of registration of Fund shares with the Securities
and Exchange Commission ("SEC") and in the states where required, shall be paid
by Investors Research or the Issuer.
(b) Investors Research shall provide to the Company copies of the
Issuer's proxy materials, periodic fund reports to shareholders and other
materials that are required by law to be sent to the Issuer's shareholders. In
addition, Investors Research shall provide the Company with a sufficient
quantity of prospectuses of the Funds to be used in conjunction with the
transactions contemplated by this Agreement, together with such additional
copies of the Issuer's prospectuses as may be reasonably requested by Company.
If the Company provides for pass-through voting by the Contract owners,
Investors Research will provide the Company with a sufficient quantity of proxy
materials for each Contract owner.
(c) The cost of preparing, printing and shipping of the prospectuses,
proxy materials, periodic fund reports and other materials of the Issuer to the
Company shall be paid by Investors Research or its agents or affiliates;
provided, however, that if at any time Investors Research or its agent
reasonably deems the usage by the Company of such items to be excessive, it may,
prior to the delivery of any quantity of materials in excess of what is deemed
reasonable, request that the Company demonstrate the reasonableness of such
usage. If the Investors Research believes the reasonableness of such usage has
not been adequately demonstrated, it may request that the Company pay the cost
of printing (including press time) and delivery of any excess copies of such
materials. Unless the Company agrees to make such payments, Investors Research
may refuse to supply such additional materials and this section shall not be
interpreted as requiring delivery by Investors Research or Issuer of any copies
in excess of the number of copies required by law.
(d) The cost of distribution, if any, of any prospectuses, proxy
materials, periodic fund reports and other materials of the Issuer to the
Contract owners shall be paid by the Company and shall not be the responsibility
of Investors Research or the Issuer.
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<PAGE> 3
5. COMPENSATION AND EXPENSES.
(a) The Accounts shall be the sole shareholder of Fund shares purchased
for the Contract owners pursuant to this Agreement (the "Record Owners"). The
Company and the Record Owners shall properly complete any applications or other
forms required by Investors Research or the Issuer from time to time.
(b) Investors Research acknowledges that it will derive a substantial
savings in administrative expenses, such as a reduction in expenses related to
postage, shareholder communications and recordkeeping, by virtue of having a
single shareholder account per Fund for the Accounts rather than having each
Contract owner as a shareholder. In consideration of the Administrative Services
and performance of all other obligations under this Agreement by the Company,
Investors Research will pay the Company a fee (the "Administrative Services
fee") equal to 15 basis points (0.15%) per annum of the average aggregate amount
invested by the Company under this Agreement.
(c) The parties understand that Investors Research customarily pays,
out of its management fee, another affiliated corporation for the type of
administrative services to be provided by the Company to the Contract owners.
The parties agree that the payments by Investors Research to the Company, like
Investors Research's payments to its affiliated corporation, are for
administrative services only and do not constitute payment in any manner for
investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company
contemplated by this SECTION 5, the average aggregate amount invested by the
Accounts in the Funds over a one month period shall be computed by totalling the
Company's aggregate investment (share net asset value multiplied by total number
of shares of the Funds held by the Company) on each Business Day during the
month and dividing by the total number of Business Days during such month.
(e) Investors Research will calculate the amount of the payment to be
made pursuant to this SECTION 5 at the end of each calendar quarter and will
make such payment to the Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the calculation of the
amounts being paid by Investors Research for the relevant months and such other
supporting data as may be reasonably requested by the Company.
(f) In the event Investors Research reduces its management fee with
respect to any Fund after the date hereof, Investors Research may amend the
Administrative Services fee payable with regard to such Fund by providing the
Company 30 days' advance written notice of any such adjustment. The revised
Administrative Services fee shall become effective as of the latter of 30 days
from the date of delivery of the notice or the date prescribed in the notice.
6. REPRESENTATIONS AND WARRANTIES.
(a) The Company represents and warrants that: (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established the
Separate Account C and the Resource Variable Account B (the "Accounts"), each of
which is a separate account under Washington State Insurance law, and has
registered each Account as a unit investment trust under the Investment Company
Act of 1940 (the"1940 Act") to serve as an investment vehicle for the Contracts;
(iii) each Contract provides for the allocation of net
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<PAGE> 4
amounts received by the Company to an Account for investment in the shares of
one of more specified investment companies selected among those companies
available through the Account to act as underlying investment media; (iv)
selection of a particular investment company is made by the Contract owner under
a particular Contract, who may change such selection from time to time in
accordance with the terms of the applicable Contract; and (v) the activities of
the Company contemplated by this Agreement comply with all provisions of federal
and state insurance, securities, and tax laws applicable to such activities.
(b) Investors Research represents that: (i) this Agreement has been
duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of Investors
Research and Issuer, enforceable in accordance with its terms; (ii) the Fund
currently qualifies as a regulated investment company under Subchapter M of the
Code and that it will make every reasonable effort to remain so qualified
(whether under Subchapter M or any successor provision) and that it will notify
the Company promptly upon having a reasonable basis for believing that the Fund
has ceased to so qualify or might not so qualify in the future; and (iii) 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 in each of the Funds
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.
7. ADDITIONAL COVENANTS AND AGREEMENTS.
(a) Each party shall comply with all provisions of federal and state
laws applicable to its respective activities under this Agreement.
(b) Each party shall promptly notify the other parties in the event
that it is, for any reason, unable to perform any of its obligations under this
Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners in
proper form prior to the Close of Trading of the Exchange on that Business Day.
(d) The Company covenants and agrees that all Orders transmitted to the
Issuer, whether by telephone, telecopy, or other electronic transmission
acceptable to Investors Research, shall be sent by or under the authority and
direction of a person designated by the Company as being duly authorized to act
on behalf of the owner of the Accounts. Absent actual knowledge to the contrary,
Investors Research shall be entitled to rely on the existence of such authority
and to assume that any person transmitting Orders for the purchase, redemption
or transfer of Fund shares on behalf of the Company is "an appropriate person"
as used in Sections 8-308 and 8-404 of the Uniform Commercial Code with respect
to the transmission of instructions regarding Fund shares on behalf of the owner
of such Fund shares. The Company shall maintain the confidentiality of all
passwords and security procedures issued, installed or otherwise put in place
with respect to the use of Remote Computer Terminals and assumes full
responsibility for the security therefor. The Company further agrees to be
solely responsible for the accuracy, propriety and consequences of all data
transmitted to Investors Research by the Company by telephone, telecopy or other
electronic transmission acceptable to Investors Research.
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<PAGE> 5
(e) The Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and promotion to
shares of the Funds as is given to other underlying investments of the Accounts.
(f) The Company shall not, without the written consent of Investors
Research, make representations concerning the Issuer or the shares of the Funds
except those contained in the then-current prospectus and in current printed
sales literature approved by Investors Research or the Issuer.
(g) Advertising and sales literature with respect to the Issuer or the
Funds prepared by the Company or its agents, if any, for use in marketing shares
of the Funds as underlying investment media to Contract owners shall be
submitted to Investors Research for review and approval before such material is
used.
(h) Investors Research will provide to the Company at least one copy of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements and all amendments or supplements of any of the above
that relate to the Fund promptly after such document becomes effective or
eligible for use by the Funds. In addition, Investors Research will provide the
Company with a copy of any no-action letters or orders granted or issued to the
Fund by the SEC or other regulatory authorities and Investors Research
reasonably believes will materially impact the offering of the Contracts.
(i) The Company will provide to Investors Research 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 include a description of
or information regarding the Funds promptly after the filing of such document
with the SEC or other regulatory authority.
8. USE OF NAMES. Except as otherwise expressly provided for in this
Agreement, neither Investors Research nor the Fund shall use any trademark,
trade name, service mark or logo of the Company, or any variation of any such
trademark, trade name, service mark or logo, without the Company's prior written
consent, the granting of which shall be at the Company's sole option. Except as
otherwise expressly provided for in this Agreement, the Company shall not use
any trademark, trade name, service mark or logo of the Issuer or Investors
Research, or any variation of any such trademarks, trade names, service marks,
or logos, without the prior written consent of either the Issuer or Investors
Research, as appropriate, the granting of which shall be at the sole option of
Investors Research and/or the Issuer.
9. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating Companies
(as defined in SECTION 11(A) below) participating in the Fund calculate voting
privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by Investors Research and will vote shares in accordance with
instructions received from such Contract owners. The Company 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
5
<PAGE> 6
agents shall not oppose or interfere with the solicitation of proxies for Fund
shares held for such Contract owners.
10. INDEMNITY.
(a) Investors Research agrees to indemnify and hold harmless the
Company and its officers, directors, employees, agents, affiliates and each
person, if any, who controls the Company within the meaning of the Securities
Act of 1933 (collectively, the "Indemnified Parties" for purposes of this
SECTION 10(A)) against any losses, claims, expenses, damages or liabilities
(including amounts paid in settlement thereof) or litigation expenses (including
legal and other expenses) (collectively, "Losses"), to which the Indemnified
Parties may become subject, insofar as such Losses result from a breach by
Investors Research of a material provision of this Agreement. Investors Research
will reimburse any legal or other expenses reasonably incurred by the
Indemnified Parties in connection with investigating or defending any such
Losses. Investors Research shall not be liable for indemnification hereunder to
the extent such Losses are attributable to the negligence or misconduct of the
Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless Investors
Research and the Issuer and their respective officers, directors, employees,
agents, affiliates and each person, if any, who controls the Issuer or Investors
Research within the meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this SECTION 10(B)) against any Losses to
which the Indemnified Parties may become subject, insofar as such Losses (i)
result from a breach by the Company of a material provision of this Agreement,
or (ii) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement or
prospectus of the Company regarding the Contracts, if any, or arise out of or
are based upon 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, or (iii) result from the use by any person of a Remote Computer
Terminal, The Company will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. The Company shall not be liable for indemnification
hereunder to the extent such Losses are attributable to the negligence or
misconduct of Investors Research or the Issuer in performing their obligations
under this Agreement.
(c) 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 10. 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 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action,
the indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgement in respect thereof, unless in connection with such settlement,
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<PAGE> 7
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
11. POTENTIAL CONFLICTS.
(a) The Company has received a copy of an application for exemptive
relief, as amended, filed by Investors Research on December 21, 1987, 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 the Issuer (the "Board") will monitor the
Issuer for the existence of any material irreconcilable conflict between the
interests of the contract owners of all separate accounts ("Participating
Companies") investing in funds of the Issuer. 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 owners and variable life
insurance contract owners; or (vi) a decision by an insurer to disregard the
voting instructions of contract owners. 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 owner voting instructions are
disregarded.
(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 owner investments in a Fund, 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
Accounts 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 owners 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 owners 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 owner voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contract owners having an interest in the Issuer, the
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<PAGE> 8
Company at its sole cost, may be required, at the Board's election, to withdraw
an Account's investment in the Issuer 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 11, 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 the Issuer
be required to establish a new funding medium for any Contract. The Company
shall not be required by this SECTION 11 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 materially adversely affected by the irreconcilable material
conflict.
12. TERMINATION. This agreement shall terminate as to the sale and
issuance of new Contracts:
(a) at the option of either the Company, Investors Research or the
Issuer upon six months' advance written notice to the other;
(b) at the option of the Company if the Funds' shares are not available
for any reason to meet the requirement of Contracts as determined by the
Company. Reasonable advance notice of election to terminate shall be furnished
by Company;
(c) at the option of either the Company, Investors Research or the
Issuer, upon institution of formal proceedings against the broker-dealer or
broker-dealers marketing the Contracts, the Accounts, the Company, or the Issuer
by the National Association of Securities Dealers, Inc. (the "NASD"), the SEC or
any other regulatory body;
(d) upon termination of the Management Agreement between the Issuer and
Investors Research. Notice of such termination shall be promptly furnished to
the Company. This SUBSECTION (D) shall not be deemed to apply if
contemporaneously with such termination a new contract of substantially similar
terms is entered into between the Issuer and Investors Research;
(e) upon the requisite vote of Contract owners having an interest in
the Issuer to substitute for the Issuer's shares the shares of another
investment company in accordance with the terms of Contracts for which the
Issuer's shares had been selected to serve as the underlying investment medium.
The Company will give 60 days' written notice to the Issuer and Investors
Research of any proposed vote to replace the Funds' shares;
(f) upon assignment of this Agreement unless made with the written
consent of all other parties hereto;
(g) if the Issuer's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of Fund shares as an
underlying investment medium of Contracts issued or to be issued by the Company.
Prompt notice shall be given by either party should such situation occur; or
(h) at the option of the Issuer, if the Issuer reasonably determines in
good faith that the Company is not offering shares of the Fund in conformity
with the terms of this Agreement or applicable law.
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<PAGE> 9
(i) at the option of any party hereto upon a determination that
continuing to perform under this Agreement would, in the reasonable opinion of
the terminating party's counsel, violate any applicable federal or state law,
rule, regulation or judicial order.
13. CONTINUATION OF AGREEMENT. Termination as the result of any cause
listed in SECTION 12 shall not affect the Issuer's obligation to furnish its
shares to Contracts then in force for which its shares serve or may serve as the
underlying medium (unless such further sale of Fund shares is proscribed by law
or the SEC or other regulatory body). Following termination, Investors Research
shall not have any Administrative Services payment obligation to the Company
(except for payment obligations accrued but not yet paid as of the termination
date).
14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
this Agreement and the arrangement described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
15. SURVIVAL. The provisions of SECTION 8 (use of names) and SECTION 10
(indemnity) of this Agreement shall survive termination of this Agreement.
16. AMENDMENT. 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 of the parties hereto.
17. NOTICES. All notices and other communications hereunder shall be
given or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery 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 N.E. 51st Street
Redmond, Washington 98052
Attention: Bill Crawford, Esq.
(206) 867-8257 (telephone number)
(206) 867-8793 (telecopy number)
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To the Issuer or Investors Research:
Twentieth Century Mutual Funds
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (telephone number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.
18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned without
the written consent of all parties to the Agreement at the time of such
assignment. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns.
19. 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.
20. 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.
21. ENTIRE AGREEMENT. This Agreement, including the Attachments hereto,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes all previous agreements, written or oral, with
respect to such matters.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the date set forth above.
INVESTORS RESEARCH CORPORATION SAFECO LIFE INSURANCE
COMPANY
By: /s/ William M. Lyons By:
-------------------------------- --------------------------
William M. Lyons Name: _________________________
Executive Vice President Title: _________________________
TCI PORTFOLIOS, INC.
By: /s/ William M. Lyons
--------------------------------
William M. Lyons
Executive Vice President
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<PAGE> 1
EXHIBIT 8d
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of September, 1995
by and between WANGER ADVISORS TRUST, an unincorporated business trust formed
under the laws of Massachusetts (the "Trust"), and SAFECO LIFE INSURANCE
COMPANY, a Washington life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle (i) separate accounts supporting variable annuity contracts
and variable life insurance policies to be offered by insurance companies, and
(ii) certain pension and retirement plans received favorable tax treatment under
the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" - each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" - each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" - the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" - the class or classes of variable annuity contracts
or variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" - the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" - the investment manager of the Trust.
1.7. "Participating Account" - a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" - any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
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1.9. "Products" - variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.10. "Product Owners" - owners of Products.
1.11. "Prospectus" - with respect to a class of Contracts, each version
of the definitive prospectus or supplement thereto filed with the SEC pursuant
to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" - A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified participant."
1.13. "Registration Statement" - with respect to the Trust Shares
("Trust Registration Statement") or a class of Contracts ("Contracts
Registration Statement"), the registration statement filed with the SEC to
register the securities issued thereby under the 1933 Act, or the most recently
filed amendment thereto, in either case in the form in which it was declared or
became effective. The Contracts Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust Registration Statement
was filed on Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" - with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" - with respect to the Trust
or a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" - the Securities and Exchange Commission.
1.17. "1933 Act" - the Securities Act of 1933, as amended.
1.18. "1940 Act" - the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3
to this Agreement available for purchase by the Company on behalf of the
Account, such purchases to be effected at net asset value in accordance with
Section 2.3 of this Agreement. Notwithstanding the foregoing,
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(i) Trust Series in existence now or that may be established in the
future and not listed on Schedule 3 will be made available to the Company only
as the Trust and the Company may agree pursuant to Article XI hereof, and (ii)
the Board of Trustees of the Trust (the "Trust Board") may suspend or terminate
the offering of Trust shares of any Series in any jurisdiction, if such action
is required by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Trust Board acting in good faith and in light of its
fiduciary duties under Federal and any applicable state laws, suspension or
termination is necessary or in the best interests of the shareholders of any
Series (it being understood that "shareholders" for this purpose shall mean
Product Owners and Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for
the limited purpose of receiving purchase and redemption requests from
the Account based on allocations of net amounts to the Account or
subaccounts thereof under the Contracts and other transactions relating
to the Contracts or the Account. Purchase and redemption requests shall
be processed by the Trust at the net asset value per share next
calculated after the Trust receives and accepts such request. The Trust
shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the
Trust Prospectus, and which as of the date of execution of this
Agreement is the time of the close of regular session trading on the
New York Stock Exchange, which is generally 4:00 p.m. Eastern Time).
Receipt of any such request on any Business Day by the Company as
designee of the Trust prior to the Trust's close of business shall
constitute receipt by the Trust on that same Business Day, provided
that the Trust receives notice of such request by 10:30 a.m. Eastern
Time on the next following Business Day.
(b) The Company shall pay for shares of each Series on the
same day that it notifies the Trust of a purchase request for such
shares. Payment for Series shares shall be made in Federal funds
transmitted to the Trust by wire to be received by the Trust by 1:00
p.m. Eastern Time on the day the Trust is notified of the purchase
request for Series shares (unless the Trust determines and so advises
the Company that sufficient proceeds are available from redemption of
shares of other Series effected pursuant to redemption requests
tendered by the Company on behalf of the Account). If payment in
Federal funds for any purchase is not received, or is received by the
Trust after 3:00 p.m. Eastern Time on such Business Day, the Company
shall promptly, upon the Trust's request, reimburse the Trust for any
charges, costs, fees, interest or other expenses incurred by the Trust
in connection with any advances to, or borrowings or overdrafts by, the
Trust, or any similar expenses incurred by the Trust, as a result of
non-payment or late payment.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the
Company or any other designated person by 3:00 p.m. Eastern Time on the
next Business Day after the Trust is properly
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notified of the redemption order of Series shares (unless redemption
proceeds are to be applied to the purchase of Trust shares of other
Series in accordance with Section 2.3(b) of this Agreement), except
that (i) if payment of the redemption proceeds would require the Trust
to dispose of portfolio securities or otherwise incur additional costs,
proceeds shall be wired to the Company within seven days and the Trust
shall notify the Company of such delay by 3 p.m. Eastern Time on such
Business Day; and (ii) the Trust reserves the right to delay payment of
redemption proceeds to the extent permitted under Section 22(e) of the
1940 Act; and (iii) the Trust reserves the right to effect payment of
redemptions in kind, but only to the extent described in the Trust
Prospectus. The Trust shall not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds by the
Company; the Company alone shall be responsible for such action.
2.4. The Trust shall use reasonable efforts to make the net asset value
per share for each Series available to the Company by 6:00 p.m. Eastern Time
each Business Day and shall use its best efforts to make the net asset value
available to the Company by 7:00 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share for
such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company or any other
Participating Company to the Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Trust shall notify the Company promptly of the
number of Series shares so issued as payment of such dividends and
distributions. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment
under the Contracts in the Series of the Trust specified in Schedule 3
in accordance with allocation instructions received from Contract
Owners, it being understood that no changes shall be made to Schedule 3
without the prior written consent of the Trust and the Investment
Adviser. The Company may withdraw the Account's investment in the Trust
or a Series of the Trust only: (i) as necessary to facilitate Contract
Owner requests; (ii) upon a determination by a majority of the Trust
Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) some
or all Product Owners or (y) the interests of some or all of the
Participating Insurance Companies and/or Qualified Entities investing
in the Trust; or (iii) in the event that the shares of another
investment company are substituted for series shares in accordance with
the terms of the Contracts upon the (x) requisite vote of the Contract
Owners having an interest in the affected Series and the written
consent of the Trust (unless otherwise required by applicable law); (y)
upon issuance of an SEC exemptive order pursuant to
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Section 26(b) of the 1940 Act permitting such substitution; or (z) as
may otherwise be permitted under applicable law.
(b) The Company shall not, without the prior written consent
of the Trust (unless otherwise required by applicable law), take any
action to operate the Account as a management investment company under
the 1940 Act.
(c) The Trust shall not, without the prior written consent of
the Company (unless otherwise required by applicable law), take any
action to operate the Trust as a unit investment trust under the 1940
Act.
(d) The Company shall not, without the prior written consent
of the Trust (unless otherwise required by applicable law), solicit,
induce or encourage Contract Owners to change or modify the Trust or
change the Trust's investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be
sold to other insurance companies; and the cash value of the Contracts
may be invested in other investment companies, provided, however, that
(a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the
investment objectives and policies of the Trust; or (b) the Company
gives the Trust 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement
and the Company so informs the Trust prior to the execution of this
Agreement; or (d) the Trust consents to the use of such other
investment company, such consent not to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust shall
not sell Trust shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales.
2.9. The Trust shall provide to the Company within 5 business days
after the end of each month a monthly statement of account reflecting all
transactions by the Company during that month.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has
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been filed with the SEC in accordance with the provisions of the 1940 Act and
the Trust is duly registered as an open-end management investment company
thereunder; (iii) the Trust Registration Statement has been declared effective
by the SEC; (iv) Trust shares sold pursuant to this Agreement have been duly
authorized for issuance in accordance with applicable law; (v) the Trust
believes that it (x) currently qualifies as a "regulated investment company"
under Subchapter M of the Code and (y) currently complies with Section 817(h) of
the Code and regulations thereunder; and (vi) the Trust's investment policies
are in material compliance with any investment restrictions set forth on
Schedule 4 to this Agreement. The Trust, however, makes no representation as to
whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1.The Trust shall amend the Trust Registration Statement and the
Trust 1940 Act Registration Statement from time to time as required in order to
effect the continuous offering of Trust shares and to maintain the Trust's
registration under the 1940 Act for so long as Trust shares are sold.
4.2. The Company shall amend the Contracts Registration Statement and
the Account 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
4.3. The Trust shall provide the Company with as many copies of the
Trust Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Trust shall provide such documentation (including a
final copy of the Trust Prospectus as set in type at the Trust's expense) and
other assistance as is reasonably necessary in order for the Company once each
year (or more frequently if the Trust Prospectus is more frequently amended) to
have the Contracts Prospectus and Trust Prospectus printed together in one
document.
4.4. The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, as required by applicable federal securities laws.
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4.5. The Company shall:
(a) inform the Trust of any state in which the Trust is
required under such state's securities laws to register the offering of
its shares pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by
state insurance law that may become applicable to the Trust from time
to time as a result of the Account's investment therein (including, but
not limited to, restrictions with respect to fees and expenses and
investment policies), other than those set forth on Schedule 4 to this
Agreement.
4.6. Upon receipt of information from the Company pursuant to Section
4.5(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by the such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited
to, the costs of: registration and qualification of the Trust shares
under the federal securities laws; preparation and filing with the SEC
of the Trust Prospectus, Trust Registration Statement, Trust proxy
materials and shareholder reports; the printing and mailing of all
proxy statements and periodic reports; the preparation of Trust
Prospectuses and Statements of Additional Information required to be
provided by the Trust to its then-current shareholders; preparation of
all statements and notices required by any Federal or state securities
law; all taxes on the issuance or transfer of Trust shares; and any
expenses permitted to be paid or assumed by the Trust pursuant to a
plan, if any, under Rule 12b-1 under the 1940 Act. The Trust shall pay
no fee or other compensation to the Company under this Agreement, and
shall not be charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust
Statement of Additional Information, notices, proxy statements,
periodic reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not
limited to, the costs of: registration and qualification of the
Contracts under the federal securities laws; preparation and filing
with the SEC of the Contracts Prospectus, Contracts Registration
Statement, and Contract Owner reports; and the printing and mailing of
all periodic reports, Contracts Prospectuses, Statements of Additional
Information, and notices to current and prospective Contract Owners
required by any Federal or state insurance law other than those paid
for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust for
such consent prior to its use. The Trust shall respond to any
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request for written consent on a prompt and timely basis, but failure to respond
shall not relieve the Company of the obligation to obtain prior written consent
of the Trust. The Trust may at any time in its sole discretion revoke such
written consent, and upon notification of such revocation, the Company shall no
longer use the material subject to such revocation. The Trust may delegate its
rights and responsibilities under this provision to the Investment Adviser.
However, should the Trust or its delegate revoke such consent, it agrees to
reimburse the Company for all costs of producing, printing and filing of such
material incurred prior to notification that consent has been revoked.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in reports of the
Account which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy
of all Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations of voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities.
4.12. Each party shall provide to the other upon request copies of
draft versions of any Registration Statements, Prospectuses, Statements of
Additional Information, periodic and other shareholder or Contract Owner
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and 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. However, such access shall not extend to attorney-client
privileged information.
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4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.15. The Trust agrees to provide the Company within ten (10) days
after the end of each month (i) performance information consisting of (x) the
total return of each Series then listed in Schedule 3 hereto through the end of
that month, and (y) the average annual total return of each such Series for the
one-, five-, and ten-year periods ended as the most recent calendar quarter, or
the life of such Series, if shorter, in each case calculated in accordance with
the methods of calculation described in the Trust Prospectus; (ii) a listing of
the 10 portfolio companies in which each such Series had its largest investments
at the end of that month; and (iii) a summary of the allocation of each such
Series' investments among industry groups.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares
or Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which
Voting Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract
Owners in accordance with instructions or proxies timely received from
such Contract Owners;
(c) unless permitted under applicable law, vote Voting Shares of
each Series attributable to Contract Owners for which no instructions
have been received in the same proportion as Voting Shares of such
Series for which instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of
each Series held by the Company on its own behalf or on behalf of the
Account that are not attributable to Contract Owners in the same
proportion as Voting Shares of such Series for which instructions have
been timely received.
The Company shall be responsible for assuring that voting privileges
for the Account are calculated in a manner consistent with the provisions set
forth above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code,
and all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
6.3. The Company undertakes to maintain the treatment of the Contracts
as annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the
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Code and shall notify the Trust 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.
6.4. The Trust undertakes to provide the Company within fifteen (15)
days after the end of each calendar quarter a letter from an appropriate Trust
officer certifying to the continued accuracy of the Trust's representations in
sections 6.1 and 6.2 of this Agreement with respect to any Series then listed on
Schedule 3 to this Agreement, and providing a detailed listing of the individual
securities and other assets, if any, held by each such Series as of the end of
such calendar quarter.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (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 in light of the circumstances in
which they were made; provided that this obligation to indemnify shall
not apply if such statement or omission or such alleged statement or
alleged omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Trust for use in
the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts
(or any amendment or supplement to any of the foregoing) or otherwise
for use in connection with the sale of the Contracts or Trust shares;
or
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(b) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the
Trust (or any amendment or supplement to any of the foregoing), 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 in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Trust by or on behalf of
the Company; or
(c) arise out of or are based upon any wrongful conduct of the
Company or persons under its control (or subject to its authorization
or supervision) with respect to the sale or distribution of the
Contracts or Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply with the
undertaking specified in Article VI of this Agreement, unless such
failure is a result of the Trust's material breach of this Agreement);
or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Trust shares on a timely basis in
accordance with the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any officer, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust
Registration Statement, Trust Prospectus or sales literature or other
promotional material of the Trust (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 in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was made
in reliance upon and in conformity with information furnished in
writing by the Company to the Trust for use in the Trust Registration
Statement, Trust Prospectus or sales literature or promotional material
for the Trust (or any amendment or supplement to any of the foregoing);
or
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(b) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material
for the Contracts (or any amendment or supplement to any of the
foregoing), 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 in light of the circumstances in
which they were made, if such statement or omission was made in
reliance upon information furnished in writing by the Trust to the
Company; or
(c) arise out of or are based upon wrongful conduct of the Trust
with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply with the
undertakings specified in Article VI of this Agreement, unless such
failure is a result of the Company's material breach of this
Agreement); or
(e) arise out of any material breach by the Trust of this
Agreement.
This indemnification will be in addition to any liability that the Trust may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the failure to so notify the indemnifying party will not relieve
the indemnifying party from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent, or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
-12-
<PAGE> 13
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act, and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3.
10.2. The obligation of the Trust to sell shares to the Company pursuant
to Article II of this Agreement shall terminate at the option of the Trust:
(a) upon six months' notice to the Company;
(b) upon 30 days' notice to the Company:
(1) upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any
other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the operation
of the Account, the administration of the Contracts or the
purchase of Trust shares, or an expected or anticipated ruling,
judgment or outcome which would, in the Trust's reasonable
judgment, materially impair the Company's ability to meet and
perform the Company's obligations and duties hereunder;
(2) in the event any of the Contracts are not registered,
issued or sold in accordance with applicable Federal and/or state
law;
(3) if the Contracts cease to qualify as annuity contracts
under the Code, or if the Trust reasonably believes that the
Contracts may fail to so qualify;
(4) if the Trust shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall have
suffered a material adverse change in its business or financial
condition or (2) the Company shall have been the subject of
material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Trust;
(5) upon the Company's assignment of this Agreement
(including, without limitation, any transfer of the Contracts or
the Account to another
-13-
<PAGE> 14
insurance company pursuant to an assumption reinsurance agreement)
unless the Trust consents thereto; or
(6) upon termination pursuant to Section 10.1 or notice from
the Company pursuant to Section 10.3.
In exercising its option to terminate its obligation to sell Shares to
the Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3. The restrictions on the Company under Section 2.7 of this
Agreement shall terminate at the option of the Company:
(a) upon six months' notice to the Trust;
(b) upon 30 days' notice to the Trust:
(1) if shares of any Series are not reasonably available to
meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the
Company of such non-availability, fails to make available a
sufficient number of Trust shares to meet the requirements of the
Contracts within 5 days after receipt thereof;
(2) upon institution of formal proceedings against the Trust
by the NASD, the SEC or any state securities or insurance
commission or any other regulatory body;
(3) if the Trust ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably believes based on
an opinion of counsel satisfactory to the Trust that the Trust may
fail to so qualify, and the Trust, upon written request, fails to
provide reasonable assurance that it will take action to cure or
correct such failure;
(4) if the Trust fails to meet the diversification
requirements specified in Section 817(h) of the Code and any
regulations thereunder and the Trust, upon written request, fails
to provide reasonable assurance that it will take action to cure
or correct such failure; or
(5) if the Trust informs the Company pursuant to Section 4.6
that the Trust will not comply with investment restrictions as
requested by the Company and the Trust and the Company are unable
to agree upon any reasonable alternative accommodations.
-14-
<PAGE> 15
10.4. This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions of
this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of amendment of such Schedule,
unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the
assets of the Trust (or applicable Series thereof) and shall not be binding upon
any trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. 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 Trust:
Name: Merrillyn J. Kosier
Title: Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Name: Gregory Clarke
Title: Vice President
SAFECO Life Insurance Company
P.O. Box 34690
Seattle, Washington 98124-1690
ARTICLE XIV. MISCELLANEOUS
14.1. 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.
-15-
<PAGE> 16
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. 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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized officer on the date
specified below.
SAFECO LIFE INSURANCE COMPANY
(COMPANY)
Date: 09-30-95
--------
By: /s/ Gregory Clarke
----------------------------
Name: Gregory Clarke
Title: Vice President
WANGER ADVISORS TRUST
(TRUST)
Date: September 27, 1995
------------------
By: /s/ Ralph Wanger
----------------------------
Name: Ralph Wanger
Title: President
-16-
<PAGE> 17
SCHEDULE 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
<TABLE>
<CAPTION>
Name of Account and Date Established by Board SEC 1940 Act Registration Type of Product Supported
Subaccounts of Directors of the Company Number by Account
- ------------------- --------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
SAFECO Life Insurance
Company Separate Account C 9/14/93 811-8052 Variable Annuity
</TABLE>
Effective as of , the following separate accounts are hereby
added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
Name of Account and Date Established by Board SEC 1940 Act Registration Type of Product Supported
Subaccounts of Directors of the Company Number by Account
- ------------------- --------------------------- -------------------------- -------------------------
<S> <C> <C> <C>
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
/s/ Ralph Wanger /s/ Gregory Clarke
- ---------------- ------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE> 18
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
SEC 1933 Act
Contract Marketing Name Registration Number Name of Supporting Account
- ----------------------- ------------------- --------------------------
<S> <C> <C>
SAFECO Life Insurance
Company Separate
MainSail 33-60331 Account C
</TABLE>
Effective as of , the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
SEC 1933 Act
Contract Marketing Name Registration Number Name of Supporting Account
- ----------------------- ------------------- --------------------------
<S> <C> <C>
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
/s/ Ralph Wanger /s/ Gregory Clarke
- ---------------- ------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE> 19
SCHEDULE 3
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
<TABLE>
<CAPTION>
Contract Marketing Name Trust Series
----------------------- ------------
<S> <C>
MainSail Wanger U.S. Small Cap Advisor
</TABLE>
Effective as of , this Schedule 3 is hereby amended to reflect the
following changes in Trust Series:
<TABLE>
<CAPTION>
Contract Marketing Name Trust Series
----------------------- ------------
<S> <C>
MainSail Wanger U.S. Small Cap Advisor
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
/s/ Ralph Wanger /s/ Gregory Clarke
- ---------------- ------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE> 20
SCHEDULE 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
None.
Effective as of , 199 , this Schedule 4 is hereby
amended to reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
/s/ Ralph Wanger /s/ Gregory Clarke
- ---------------- -----------------------------
Wanger Advisors Trust SAFECO Life Insurance Company
<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
<PAGE> 1
EXHIBIT 10
Consent of Independent Auditors
We consent to the references to our firm under the captions "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. 1 to the Registration
Statement (Form N-4, No. 33-60331) and related Prospectus of SAFECO Separate
Account C dated April 29, 1996.
/S/ ERNST & YOUNG LLP
- ---------------------
Seattle, Washington
April 25, 1996
<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. 8, FORM N-4
FILE NOS. 33-60331 AND 811-8052
Commissioners:
SAFECO and its Separate Account believe that the filing of Post-Effective
Amendment No. 8, is consistent with the purposes and requirements for filing
under Rule 485(b) under the Securities Act of 1933 ("1933 Act"). This
representation is based on the fact that the changes included in this
Post-Effective Amendment No. 8, are consistent with the purposes and
requirements described in the adopting release for the changes to Rule 485
(IC-Rel. 20486).
Based on the above, the filing of Post-Effective Amendment No. 8, is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on
April 29, 1996. The undersigned has prepared and reviewed Post-Effective
Amendment No. 8, and it is his opinion that Post-Effective Amendment No. 8 does
not contain disclosures which would render it ineligible to become effective
pursuant to paragraph (b) of Rule 485.
Sincerely,
/s/ William E. Crawford
- -----------------------
William E. Crawford
Counsel
