SAFECO SEPARATE ACCOUNT C, 485BPOS, 1997-05-01

SAFECO SEPARATE ACCOUNT C
485BPOS, 1997-05-01

Previous: SAFECO SEPARATE ACCOUNT C, 485BPOS, 1997-05-01

Next: VITAL IMAGES INC, 10-12G/A, 1997-05-01

<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. / /
-----
Post-Effective Amendment No. 2 /X/
-----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 10 /X/
------
(Check appropriate box or boxes.)

SAFECO SEPARATE ACCOUNT C
(Exact Name of Registrant)

SAFECO Life Insurance Company
(Name of Depositor)

15411 N.E. 51st Street, Redmond, Washington 98052
(Address of Depositor's Principal Executive Offices) (Zip Code)

Depositor's Telephone Number, including Area Code (206) 867-8000

Name and Address of Agent for Service
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
---
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
on (date) pursuant to paragraph (a)(1) of Rule 485
---
If appropriate, check the following:

____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has declared that it has registered an indefinite number or amount of
securities under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed a Rule 24f-2 Notice for the
fiscal year ending December 31, 1996 on or about March 24, 1997.
<PAGE> 2
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
- ----------------- ---------------------

<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>
<PAGE> 3
<TABLE>
<CAPTION>
Form N-4 Item No. Caption in Statement of Additional Information
- ----------------- ----------------------------------------------
<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 MAY 1, 1997
- --------------------------------------------------------------------------------

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"); American Century
Variable Portfolios, Inc.: American Century VP Balanced Fund ("American Century
VP Balanced Fund"); and American Century VP International Fund ("American
Century VP 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 May 1, 1997 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 32 of this Prospectus.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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; American Century VP Balanced Fund; American Century VP International
Fund; and Wanger U.S. Small Cap Fund.
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions........................................................................... 4
Summary of Contract Expenses.......................................................... 6
Schedule of Accumulation Unit Values and Accumulation Units Outstanding............... 10
Summary............................................................................... 11
The Insurance Company................................................................. 12
SAFECO Separate Account C............................................................. 12
Sub-Accounts of the Separate Account and the Available Funds.......................... 12
Investment Objectives of the Available Funds.......................................... 13
The SAFECO Funds................................................................. 13
The Other Available Funds........................................................ 14
Deductions Under the Contracts........................................................ 16
Contingent Deferred Sales Charge................................................. 16
Premium Tax...................................................................... 17
Contract Administration Charges.................................................. 17
Deduction for Assuming Mortality and Expense Risks............................... 17
Available Fund Expenses.......................................................... 18
Transfers Between Sub-Accounts........................................................ 18
Redemptions........................................................................... 18
Other Services........................................................................ 19
The Programs..................................................................... 19
Dollar Cost Averaging Program.................................................... 19
Automatic Transfer Program....................................................... 20
Appreciation or Interest Sweep................................................... 20
Sub-Account Rebalancing Program (also Portfolio Rebalancing Program)............. 20
Systematic Investment Program.................................................... 21
Periodic Withdrawal Program...................................................... 21
Fixed Account......................................................................... 21
General Description.............................................................. 22
Fixed Account Contract Value..................................................... 22
Annual Administration Maintenance Charge......................................... 22
Fixed Account Transfers and Partial Withdrawals.................................. 22
Contract Benefits..................................................................... 23
General.......................................................................... 23
Certain Minimum Amounts............................................................... 23
The Accumulation Period............................................................... 24
The Contract Value and Accumulation Units........................................ 24
Accumulation Unit Values......................................................... 24
Valuation Date and Valuation Period.............................................. 24
Net Investment Factor............................................................ 24
Example of Calculation of Accumulation Unit Value................................ 24
The Annuity Period.................................................................... 25
Annuity Date..................................................................... 25
Payment Provisions............................................................... 25
</TABLE>

-2-
<PAGE> 6

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Settlement Options.................................................................... 26
Annuity Purchase Rates........................................................... 26
Annuity Unit Values.............................................................. 26
Number of Annuity Units.......................................................... 27
Time of Payment.................................................................. 27
Amount of Payment................................................................ 27
Payment On or After Death of Owner.................................................... 27
The Distribution of the Contracts..................................................... 28
Voting Privileges..................................................................... 28
Federal Tax Status.................................................................... 29
Federal Tax Status of the Separate Account....................................... 29
Federal Tax Status of Qualified Contracts........................................ 30
Federal Tax Status of Non-Qualified Contracts.................................... 30
Federal Tax Penalties and Withholding............................................ 31
Legal Matters......................................................................... 31
Special Considerations................................................................ 31
Restrictions Upon Transfer of Ownership and Assignment........................... 31
Available Information................................................................. 31
State Regulation...................................................................... 32
Experts............................................................................... 32
Financial Statements.................................................................. 32
Table of Contents -- Statement of Additional Information.............................. 32
</TABLE>

-3-
<PAGE> 7

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.

-4-
<PAGE> 8

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; American Century VP Balanced Fund;
American Century VP 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.

-5-
<PAGE> 9

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>

-6-
<PAGE> 10

AVAILABLE FUNDS ANNUAL EXPENSES
(as a percentage of average net assets of each)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
SAFECO Resource SAFECO Resource SAFECO Resource SAFECO Resource
Bond Fund Equity Fund Growth Fund Money Market Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management .73% .70% .72% .62%
Fees..........
------------------------------------------------------------------------------------------------
Other 0 .02% .07% 0
Expenses......
------------------------------------------------------------------------------------------------
Total Fund .73% .72% .79% .62%
Annual
Expenses*.....
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Fund Income Bond Fund II Fund II Markets Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management .70% 0 .24% .85%
Fees..........
------------------------------------------------------------------------------------------------
Other 0 .80% .61% .79%
Expenses......
------------------------------------------------------------------------------------------------
Total Fund .70% .80% .85% 1.64%
Annual
Expenses*.....
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
Lexington Natural American Century VP American Century VP Wanger U.S. Small
Resources Trust Balanced Fund International Fund Cap Fund
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management 1.00% 1.00% 1.50% .99%
Fees..........
------------------------------------------------------------------------------------------------
Other .42% 0 0 .22%
Expenses......
------------------------------------------------------------------------------------------------
Total Fund 1.42% 1.00% 1.50% 1.21%
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. During the year ended December
31, 1996, SAFECO paid for or reimbursed 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
Northwest Portfolio 1.11%, SAFECO Resource Bond Portfolio .87%, SAFECO
Resource Money Market Portfolio .90%. For the year ended December 31, 1996,
the Funds voluntarily waived or reimbursed expenses, as follows: Federated
High Income Bond Fund II $322,073, absent reimbursement $557,490; Federated
Utility Fund II $412,159, absent reimbursement $660,217; Lexington Emerging
Markets Fund $101,886, absent reimbursement $384,200. For the period May 1,
1996 through April 30, 1997, the adviser of the Lexington Emerging Markets
Fund voluntarily limited management and operating expenses to a maximum of
1.75%. Beginning May 1, 1997, the adviser will no longer reimburse the Fund
to the extent that management and operating expenses exceed 1.75%. As
required by SEC rules, "Other Expenses" reflects gross custodian fees. Net of
custodian fees paid indirectly, Other Expenses would have been .20% for U.S.
Small Cap Advisor Portfolio and Total Fund Annual Expenses would have been
1.19%. For a more complete description of the Available Funds' fees and
expenses, see the Available Funds' prospectuses.
================================================================================

-7-
<PAGE> 11

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------

EXAMPLES:
------------------------------------------------------------------------------------------------
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....... $ 87 $ 87 $ 88 $ 86
3 years...... $118 $118 $120 $115
5 years...... $150 $150 $153 $145
10 years...... $256 $255 $262 $244
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Income Bond Sub-Account Markets Sub-Account
Sub-Account Sub-Account
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year....... $ 87 $ 88 $ 88 $ 96
3 years...... $117 $120 $122 $144
5 years...... $149 $153 $156 $194
10 years...... $253 $263 $268 $344
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
Lexington Natural American Century VP American Century VP Wanger U.S. Small
Resources Balanced International Cap Sub-Account
Sub-Account Sub-Account Sub-Account
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year....... $ 94 $ 90 $ 94 $ 92
3 years...... $138 $126 $140 $132
5 years...... $183 $163 $187 $173
10 years...... $323 $283 $331 $303
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year....... $ 23 $ 22 $ 23 $ 21
3 years...... $ 69 $ 69 $ 71 $ 66
5 years...... $119 $119 $122 $113
10 years...... $256 $255 $262 $244
------------------------------------------------------------------------------------------------

<CAPTION>
------------------------------------------------------------------------------------------------
SAFECO Resource Federated High Federated Utility Lexington Emerging
Northwest Income Bond Sub-Account Markets Sub-Account
Sub-Account Sub-Account
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 year....... $ 22 $ 23 $ 24 $ 32
3 years...... $ 69 $ 72 $ 73 $ 97
5 years...... $118 $123 $125 $164
10 years...... $253 $263 $268 $344
------------------------------------------------------------------------------------------------

================================================================================

-8-
<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.)

-9-
<PAGE> 13

SCHEDULE OF ACCUMULATION UNIT VALUES AND
ACCUMULATION UNITS OUTSTANDING

SAFECO SEPARATE ACCOUNT C

The following selected financial data are derived from the financial statements
of SAFECO Separate Account C, which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and other financial information incorporated by
reference herein.

<TABLE>
<CAPTION>
1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
SAFECO RESOURCE EQUITY SUB-ACCOUNT
February 11 value (initial public offering)............ $ 24.528
December 31 value...................................... $ 39.633 $ 32.209 $ 25.373
December 31 units...................................... 1,055,113 438,184 144,290
SAFECO RESOURCE BOND SUB-ACCOUNT
February 11 value (initial public offering)............ $ 16.217
December 31 value...................................... $ 17.915 $ 18.045 $ 15.521
December 31 units...................................... 112,876 35,531 14,107
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
February 11 value (initial public offering)............ $ 13.526
December 31 value...................................... $ 14.874 $ 14.370 $ 13.811
December 31 units...................................... 251,704 98,132 124,541
SAFECO RESOURCE GROWTH SUB-ACCOUNT
February 11 value (initial public offering)............ $ 13.910
December 31 value...................................... $ 26.928 $ 20.668 $ 14.864
December 31 units...................................... 1,244,669 479,054 154,127
SAFECO RESOURCE NORTHWEST SUB-ACCOUNT
February 11 value (initial public offering)............ $ 10.073
December 31 value...................................... $ 11.905 $ 10.737 $ 10.134
December 31 units...................................... 146,690 58,302 22,082
LEXINGTON NATURAL RESOURCES SUB-ACCOUNT
January 25 value (initial public offering)............. $ 11.330
December 31 value...................................... $ 14.148
December 31 units...................................... 73,555
LEXINGTON EMERGING MARKETS SUB-ACCOUNT
January 25 value (initial public offering)............. $ 10.350
December 31 value...................................... $ 9.946
December 31 units...................................... 86,353
FEDERATED UTILITY SUB-ACCOUNT
January 25 value (initial public offering)............. $ 11.110
December 31 value...................................... $ 12.117
December 31 units...................................... 83,361
FEDERATED HIGH INCOME BOND SUB-ACCOUNT
January 25 value (initial public offering)............. $ 9.870
December 31 value...................................... $ 10.899
December 31 units...................................... 40,629
WANGER US SMALL CAP SUB-ACCOUNT
January 25 value (initial public offering)............. $ 11.650
December 31 value...................................... $ 16.754
December 31 units...................................... 25,110
AMERICAN CENTURY VP BALANCED SUB-ACCOUNT
January 25 value (initial public offering)............. $ 7.020
December 31 value...................................... $ 7.887
December 31 units...................................... 23,490
AMERICAN CENTURY VP INTERNATIONAL SUB-ACCOUNT
January 25 value (initial public offering)............. $ 5.330
December 31 value...................................... $ 6.016
December 31 units...................................... 24,432
</TABLE>

-10-
<PAGE> 14

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".)

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

-11-
<PAGE> 15

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.

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"). 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

-12-
<PAGE> 16

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;
American Century Investment Management, Inc.; 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.)

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.

-13-
<PAGE> 17

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.

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

-14-
<PAGE> 18

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.

AMERICAN CENTURY VP BALANCED FUND (AMERICAN CENTURY VP BALANCED
SUB-ACCOUNT). The investment objective of the American Century VP Balanced
Sub-Account is capital growth and current income. The American Century VP
Balanced Sub-Account invests in the American Century VP Balanced Fund. To pursue
its investment objective with regard to the equity portion of the portfolio, the
American Century VP 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 American Century VP 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 American Century VP 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.

AMERICAN CENTURY VP INTERNATIONAL FUND (AMERICAN CENTURY VP INTERNATIONAL
SUB-ACCOUNT). The investment objective of the American Century VP International
Sub-Account is capital growth. The American Century VP International Sub-Account
invests in the American Century VP International Fund. To pursue its investment
objective, the American Century VP International Fund invests primarily in
securities of foreign companies that meet certain standards that have potential
for appreciation. The American Century VP International Fund will invest
primarily in common stocks of such companies, including depositary receipts for
common stocks and other equity equivalents. The American Century VP
International Fund tries to stay fully invested in such securities, regardless
of the movement of stock prices generally. Under normal conditions, the American
Century VP 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 American Century VP
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

-15-
<PAGE> 19

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 American Century VP 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 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.

-16-
<PAGE> 20

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. This charge may be
eliminated when the Contracts are issued to an officer, director or employee of
SAFECO or any of its affiliates. In no event will reductions or elimination of
this charge be permitted where reductions or elimination will be unfairly
discriminatory to any person.

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 American Century VP Balanced Sub-Account;
the American Century VP 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, American Century VP 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 American Century VP Balanced Sub-Account, American
Century VP International Sub-Account and the Wanger U.S. Small Cap Sub-Account,
then the Annual Administration Maintenance Charge of $30 is deducted from the
American Century VP 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

-17-
<PAGE> 21

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 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

-18-
<PAGE> 22

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 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

-19-
<PAGE> 23

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.

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

-20-
<PAGE> 24

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. Since each sub-account invests in a corresponding underlying
portfolio, this Program may sometimes be referred to as "Portfolio Rebalancing
Program."

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.

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.

-21-
<PAGE> 25

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.

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".)

-22-
<PAGE> 26

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
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".)

-23-
<PAGE> 27

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 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) the daily equivalent of the
mortality and expense risk charge, and (d) 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>
<C> <S>
(b) + (c) - (d) - (1 x (h)) - (1 x (i)) = Net Investment Factor
- ----------------
(e) - (f)
</TABLE>

then,

-24-
<PAGE> 28

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. Although the example above shows unit values to two decimal
places, actual unit values are calculated to six.

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 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.

-25-
<PAGE> 29

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.

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

-26-
<PAGE> 30

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.

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

-27-
<PAGE> 31

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 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.

-28-
<PAGE> 32

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 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.

-29-
<PAGE> 33

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 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

-30-
<PAGE> 34

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, 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

-31-
<PAGE> 35

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.

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, 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 the authority of such firm 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.

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>

-32-
<PAGE> 36

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 May 1, 1997.

The Date of this Statement of Additional Information is May 1, 1997.

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>

-1-
<PAGE> 37

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 a male, adjusted
age 63, who has elected a life variable annuity payment plan with a

-2-
<PAGE> 38

guarantee period of 10 years with the assumed investment rate of 4%. (Option 2,
as described in the Prospectus).

<TABLE>
<C> <S> <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)

-3-
<PAGE> 39

over a particular seven (7) day period, less a hypothetical charge reflecting
deductions from values during the period (the base period), and stated as a
percentage of the investment at the start of the base period (the base period
return). The base period return is then annualized by multiplying by 365/7, with
the resulting yield figure carried to at least the nearest hundredth of one
percent. Effective yield assumes that all dividends received during an annual
period have been reinvested. This compounding effect causes effective yield to
be higher than current yield. Calculation of effective yield begins with the
same base period return used in the calculation of current yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:

Effective Yield = [(Base Period Return + 1)(365/7)] - 1

Yield for the SAFECO Resource Bond Sub-Account and Federated High Income
Bond Sub-Account is based on all investment income (including dividends and
interest) per accumulation unit earned during a particular thirty (30) day
period, less expenses accrued during the period (net investment income). Yield
is computed by dividing net investment income by the value of an accumulation
unit on the last day of the period, according to the following formula:

Yield = 2[((a-b)/cd + 1)(6) - 1]

where a = net investment income earned during the period by the
corresponding Available Fund portfolio, b = expenses accrued for the period (net
of any reimbursements), c = the average daily number of accumulation units
outstanding during the period, and d = the value (maximum offering price) per
accumulation unit on the last day of the period.

TOTAL RETURNS. Total return reflects all aspects of a Sub-Account's return,
including the automatic reinvestment by the Sub-Account of all distributions and
the deduction of all applicable charges to the Sub-Account on an annual basis,
including mortality and expense risk charges, the Annual Administration
Maintenance Charge, the Asset Related Administration Charge, and any other
charges against Contract Value. Quotations also will assume a termination
(surrender) at the end of the particular period and reflect the deduction of the
Contingent Deferred Sales Charge, if applicable. Additional quotations may be
given that do not assume a termination (surrender) and do not take into account
deduction of the Contingent Deferred Sales Charge, since the Contracts are
intended as long-term products.

From time to time, non-standardized total return figures may accompany the
standardized figures. Non-standardized total return figures may be calculated in
a variety of ways including but not necessarily limited to different time
periods, different initial investment amounts, additions of periodic payments,
use of time weighted average annual returns which take into consideration the
length of time each investment has been on deposit, and without the
Administration Charge and/or with or without the Contingent Deferred Sales
Charge. Non-standardized figures may cause the performance of the Sub-Accounts
to appear higher than performance calculated using standard parameters.

Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Sub-Account over certain
periods, including 1, 5, and 10 years (up to the life of the Sub-Account), and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. 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> 40

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> 41

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 the authority of such firm
as experts in accounting and auditing. The address of Ernst & Young LLP is 999
Third Avenue, Suite 3500, Seattle, Washington 98104.

At March 15, 1997, SAFECO Life Insurance Company owned 76% 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 15, 1997, SAFECO Asset Management ("SAM"), which is
the RST investment advisor, owned 24% 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 $4,000 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 made nondeductible contributions. However, the deductible and
nondeductible contributions combined cannot exceed the $2,000 limit (or the
$4,000 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 purchase

-6-
<PAGE> 42

before 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> 43

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, 1996........................... 10
Statement of Operations for the periods ended December 31, 1996....................... 12
Statements of Changes in Net Assets for the periods ended December 31, 1996 and
the year ended December 31, 1995.................................................... 14
Notes to Financial Statements (including accumulation unit data)...................... 16
</TABLE>

-8-
<PAGE> 44

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 statements of assets and liabilities of certain
Sub-Accounts of SAFECO Separate Account C (comprising, respectively, the SAFECO
Resource Equity, SAFECO Resource Growth, SAFECO Resource Northwest, SAFECO
Resource Bond, SAFECO Resource Money Market, Lexington Natural Resources,
Lexington Emerging Markets, Federated Utility, Federated High Income Bond,
Wanger U.S. Small Cap, TCI Balanced and TCI International Sub-Accounts) as of
December 31, 1996, and the related statements of operations, the statements of
changes in net assets, and the accumulation unit data for each of the periods
indicated therein. 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 and accumulation unit data. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the SAFECO
Resource Series Trust, Lexington Emerging Markets Fund, Inc., Lexington Natural
Resources Trust, Federated Insurance Series, Wanger Advisors Trust and TCI
Portfolios, Inc. 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 of SAFECO Separate Account C as listed above at
December 31, 1996, the results of their operations, the changes in their net
assets, and the accumulation unit data for each of the periods indicated
therein, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
Seattle, Washington
January 31, 1997

-9-
<PAGE> 45

December 31, 1996
- --------------------------------------------------------------------------------

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------
SAFECO SAFECO SAFECO SAFECO SAFECO
AS OF DECEMBER 31, 1996 EQUITY GROWTH NW BOND MMKT
- ------------------------------------------------------------------------------------------------------------------
-- (In Thousands, Except Per-Unit and Per Share Amounts) --
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $39,827 $30,352 $ 1,665 $ 2,087 $ 3,749
======= ======= ======= ======= =======
Shares owned 1,925 1,742 144 188 3,749
Net asset value per share $ 21.75 $ 19.26 $ 12.12 $ 10.75 $ 1.00
------- ------- ------- ------- -------
Investments, at value 41,867 33,554 1,748 2,022 3,749
Cash 3 1 -- 1 --
------- ------- ------- ------- -------
Total assets 41,870 33,555 1,748 2,023 3,749
LIABILITIES:
Mortality and expense risk charge payable 45 34 2 1 4
Fees payable 8 5 -- -- 1
------- ------- ------- ------- -------
Total liabilities 53 39 2 1 5
------- ------- ------- ------- -------
NET ASSETS $41,817 $33,516 $ 1,746 $ 2,022 $ 3,744
======= ======= ======= ======= =======
ACCUMULATION UNITS OUTSTANDING 1,055 1,245 147 113 252
======= ======= ======= ======= =======
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $39.633 $26.928 $11.905 $17.915 $14.874
======= ======= ======= ======= =======
</TABLE>

*Redemption price per unit is the unit value less any applicable contingent
deferred sales charge.

See Notes to Financial Statements

-10-
<PAGE> 46

SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH
RESOURCES MRKTS UTILITY INCOME
----------------------------------------------------
-- (In Thousands, Except Per-Unit and Per Share Amounts) --
<S> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 960 $ 869 $ 963 $ 430
======= ======= ======= =======
Shares owned 73 85 86 43
Net asset value per share $ 14.29 $ 10.08 $ 11.81 $ 10.24
------- ------- ------- -------
Investments, at value 1,042 860 1,011 443
Cash 3 -- -- --
------- ------- ------- -------
Total assets 1,045 860 1,011 443
LIABILITIES:
Mortality and expense risk charge payable 1 1 1 --
Fees payable 3 -- -- --
------- ------- ------- -------
Total liabilities 4 1 1 --
------- ------- ------- -------
NET ASSETS $ 1,041 $ 859 $ 1,010 $ 443
======= ======= ======= =======
ACCUMULATION UNITS OUTSTANDING 73 86 83 41
======= ======= ======= =======
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $14.148 $ 9.946 $12.117 $10.899
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------
WANGER
US SMALL TCI TCI
CAP BAL INT'L
--------------------------------------
-- (In Thousands, Except Per-Unit and Per Share Amounts) --
<S> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 387 $ 177 $ 138
======= ======== ========
Shares owned 25 25 25
Net asset value per share $ 16.97 $ 7.54 $ 5.96
------- -------- --------
Investments, at value 421 185 147
Cash -- -- --
------- -------- --------
Total assets 421 185 147
LIABILITIES:
Mortality and expense risk charge payable -- -- --
Fees payable -- -- --
------- -------- --------
Total liabilities -- -- --
------- -------- --------
NET ASSETS $ 421 $ 185 $ 147
======= ======== ========
ACCUMULATION UNITS OUTSTANDING 25 23 24
======= ======== ========
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $16.754 $ 7.887 $ 6.016
======= ======== ========
</TABLE>

*Redemption price per unit is the unit value less any applicable contingent
deferred sales charge.

See Notes to Financial Statements

-11-

<PAGE> 47

December 31, 1996
- --------------------------------------------------------------------------------

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
SAFECO SAFECO SAFECO SAFECO SAFECO
EQUITY* GROWTH* NW* BOND* MMKT*
-------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain distributions $ 3,918 $ 2,724 $ 12 $ 111 $ 116
EXPENSES:
Mortality and expense risk charge 340 259 15 20 30
Administration charge 41 31 2 3 4
-------- --------- --------- --------- --------
Total expenses 381 290 17 23 34
-------- --------- --------- --------- --------
NET INVESTMENT INCOME (LOSS) 3,537 2,434 (5) 88 82
-------- --------- --------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 504 667 34 (19) --
Net change in unrealized appreciation 1,849 2,587 87 (70) --
-------- --------- --------- --------- --------
NET GAIN (LOSS) ON INVESTMENTS 2,353 3,254 121 (89) --
-------- --------- --------- --------- --------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,890 $ 5,688 $ 116 $ (1) $ 82
======== ========= ========= ========= ========
</TABLE>

* For the year ended December 31, 1996.
+ For the period January 25, 1996 (inception date) through December 31, 1996.

See Notes to Financial Statements

-12-
<PAGE> 48

SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH
RESOURCES+ MRKTS+ UTILITY+ INCOME+
-----------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain distributions $ 3 $ -- $ 15 $ 13
EXPENSES:
Mortality and expense risk charge 5 4 4 2
Administration charge -- 1 1 --
-------- -------- ------- -------
Total expenses 5 5 5 2
-------- -------- ------- -------
NET INVESTMENT INCOME (LOSS) (2) (5) 10 11
-------- -------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 8 (6) 4 --
Net change in unrealized appreciation 82 (9) 48 14
-------- -------- ------- -------
NET GAIN (LOSS) ON INVESTMENTS 90 (15) 52 14
-------- -------- ------- -------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 88 $ (20) $ 62 $ 25
======== ======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------
PERIOD ENDED DECEMBER 31, 1996
WANGER
US SMALL TCI TCI
CAP+ BAL+ INT'L
--------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain distributions $ -- $ 2 $ 1
EXPENSES:
Mortality and expense risk charge 2 1 1
Administration charge -- -- --
-------- -------- ---------
Total expenses 2 1 1
-------- -------- ---------
NET INVESTMENT INCOME (LOSS) (2) 1 --
-------- -------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 3 -- 3
Net change in unrealized appreciation 34 8 9
-------- -------- ---------
NET GAIN (LOSS) ON INVESTMENTS 37 8 12
-------- -------- ---------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 35 $ 9 $ 12
======== ======== =========
</TABLE>

* For the year ended December 31, 1996.
+ For the period January 25, 1996 (inception date) through December 31, 1996.

See Notes to Financial Statements

-13-
<PAGE> 49

December 31, 1996
- --------------------------------------------------------------------------------

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------------------------------------------------------
SAFECO SAFECO SAFECO SAFECO SAFECO
EQUITY GROWTH NW BOND MMKT
--------------------- --------------------- --------------------- --------------------- ---------------------

FOR THE PERIOD ENDED DECEMBER 31
1996* 1995* 1996* 1995* 1996* 1995* 1996* 1995* 1996* 1995*
--------------------- --------------------- --------------------- --------------------- ---------------------

-- (In Thousands) --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net
investment
income
(loss) $ 3,537 $ 1,436 $ 2,434 $ 1,217 $ (5) $ 3 $ 88 $ 31 $ 82 $ 48
Net
realized
gain
(loss)
on
investments 504 82 667 78 34 4 (19) 4 -- --
Net change
in
unrealized
appreciation 1,849 470 2,587 642 87 (3) (70) 17 -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net change
in net
assets
resulting
from
operations 5,890 1,988 5,688 1,937 116 4 (1) 52 82 48
NET
ACCUMULATION
UNIT
TRANSACTIONS 21,814 8,464 17,927 5,673 1,004 398 1,382 370 2,252 (358)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
TOTAL
CHANGE IN
NET ASSETS 27,704 10,452 23,615 7,610 1,120 402 1,381 422 2,334 (310)

NET ASSETS
AT
BEGINNING
OF YEAR 14,113 3,661 9,901 2,291 626 224 641 219 1,410 1,720
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSETS
AT END OF
YEAR $ 41,817 $ 14,113 $ 33,516 $ 9,901 $ 1,746 $ 626 $ 2,022 $ 641 $ 3,744 $ 1,410
======== ======== ======== ======== ======== ======== ======== ======== ======== ========

OTHER
INFORMATION
Increase
(Decrease)
in Units
and
Amounts
UNITS:
Sales 697 312 850 339 108 38 125 29 2,092 618
Redemptions (80) (18) (84) (14) (19) (2) (47) (8) (1,938) (645)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net
change 617 294 766 325 89 36 78 21 154 (27)
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $ 24,683 $ 8,986 $ 19,902 $ 5,916 $ 1,230 $ 419 $ 2,212 $ 500 $ 30,613 $ 8,740
Redemptions (2,869) (522) (1,975) (243) (226) (21) (830) (130) (28,361) (9,098)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net
change $ 21,814 $ 8,464 $ 17,927 $ 5,673 $ 1,004 $ 398 $ 1,382 $ 370 $ 2,252 $ (358)
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
DECEMBER
31, 1996:
Paid in
capital $ 33,889 $ 25,818 $ 1,626 $ 1,970 $ 3,604
Par value
per unit None None None None None
Accumulation
units
authorized Unlimited Unlimited Unlimited Unlimited Unlimited
</TABLE>

* For the year ended December 31.
+ For the period January 25, 1996 (inception date) through December 31, 1996.

See Notes to Financial Statements

-14-
<PAGE> 50

SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH
RESOURCES MRKTS UTILITY INCOME
--------- --------- --------- ---------
FOR THE PERIOD ENDED DECEMBER 31
1996+ 1996+ 1996+ 1996+
--------- --------- --------- ---------
-- (In Thousands) --
<S> <C> <C> <C> <C>
OPERATIONS:
Net
investment
income
(loss) $ (2) $ (5) $ 10 $ 11
Net
realized
gain
(loss)
on
investments 8 (6) 4 --
Net change
in
unrealized
appreciation 82 (9) 48 14
-------- -------- -------- --------
Net change
in net
assets
resulting
from
operations 88 (20) 62 25
NET
ACCUMULATION
UNIT
TRANSACTIONS 953 879 948 418
-------- -------- -------- --------
TOTAL
CHANGE IN
NET ASSETS 1,041 859 1,010 443

NET ASSETS
AT
BEGINNING
OF YEAR -- -- -- --
-------- -------- -------- --------
NET ASSETS
AT END OF
YEAR $ 1,041 $ 859 $ 1,010 $ 443
======== ======== ======== ========

OTHER
INFORMATION
Increase
(Decrease)
in Units
and
Amounts
UNITS:
Sales 78 96 98 41
Redemptions (5) (10) (15) --
-------- -------- -------- --------
Net
change 73 86 83 41
======== ======== ======== ========
AMOUNTS:
Sales $ 1,019 $ 975 $ 1,117 $ 421
Redemptions (66) (96) (169) (3)
-------- -------- -------- --------
Net
change $ 953 $ 879 $ 948 $ 418
======== ======== ======== ========
DECEMBER
31, 1996:
Paid in
capital $ 953 $ 879 $ 948 $ 418
Par value
per unit None None None None
Accumulation
units
authorized Unlimited Unlimited Unlimited Unlimited
</TABLE>

<TABLE>
<CAPTION>
SUB-ACCOUNTS
-------------------------------------
WANGER US TCI TCI
SMALL CAP BAL INT'L
--------- --------- ---------
FOR THE PERIOD ENDED DECEMBER 31
1996+ 1996+ 1996+
--------- --------- ---------
-- (In Thousands) --
<S> <C> <C> <C>
OPERATIONS:
Net
investment
income
(loss) $ (2) $ 1 $ --
Net
realized
gain
(loss)
on
investments 3 -- 3
Net change
in
unrealized
appreciation 34 8 9
-------- -------- --------
Net change
in net
assets
resulting
from
operations 35 9 12
NET
ACCUMULATION
UNIT
TRANSACTIONS 386 176 135
-------- -------- --------
CHANGE IN
NET ASSETS 421 185 147

NET ASSETS
AT
BEGINNING
OF YEAR -- -- --
-------- -------- --------
NET ASSETS
AT END OF
YEAR $ 421 $ 185 $ 147
======== ======== ========

OTHER
INFORMATION
Increase
(Decrease)
in Units
and
Amounts
UNITS:
Sales 33 26 38
Redemptions (8) (3) (14)
-------- -------- --------
Net
change 25 23 24
======== ======== ========
AMOUNTS:
Sales $ 512 $ 196 $ 215
Redemptions (126) (20) (80)
-------- -------- --------
Net
change $ 386 $ 176 $ 135
======== ======== ========
DECEMBER
31, 1996:
Paid in
capital $ 386 $ 176 $ 135
Par value
per unit None None None
Accumulation
units
authorized Unlimited Unlimited Unlimited
</TABLE>

* For the year ended December 31.
+ For the period January 25, 1996 (inception date) through December 31, 1996.

See Notes to Financial Statements

-15-

<PAGE> 51

December 31, 1996
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

SAFECO Separate Account C (Separate Account C) is registered under the
Investment Company Act of 1940, as amended, as a segregated unit investment
trust of SAFECO Life Insurance Company (SAFECO), a wholly-owned subsidiary
of SAFECO Corporation. Separate Account C is comprised of fifteen
portfolios. The information contained in this financial statement relates to
the sub-accounts invested in shares of the twelve portfolios designated
below.

<TABLE>
<CAPTION>
SUB-ACCOUNTS UNDERLYING PORTFOLIO
------------------------------------------------------------------------------------------
<S> <C>
SAFECO Resource Series Trust --
SAFECO Resource Equity (SAFECO Equity) Equity Portfolio
SAFECO Resource Growth (SAFECO Growth) Growth Portfolio
SAFECO Resource Northwest (SAFECO NW) Northwest Portfolio
SAFECO Resource Bond (SAFECO Bond) Bond Portfolio
SAFECO Resource Money Market (SAFECO MMKT) Money Market Portfolio
Lexington Natural Resources Trust --
Lexington Natural Resources Natural Resources Portfolio
Lexington Emerging Markets Fund,
Lexington Emerging Markets (Lexington Emerging Inc. --
Mrkts) Emerging Markets Portfolio
Federated Insurance Series --
Federated Utility Utility Portfolio
Federated High Income Bond (Federated High Income) High Income Bond Portfolio
Wanger Advisors Trust --
Wanger U.S. Small Cap US Small Cap Advisor Portfolio
TCI Portfolios, Inc. --
TCI Balanced (TCI Bal) Balanced Investors Portfolio
TCI International (TCI Int'l) International Equity Portfolio
</TABLE>

2. SIGNIFICANT ACCOUNTING POLICIES

SECURITY VALUATION -- Investments in portfolio shares are carried in the
statement of assets and liabilities at net asset value as reported by the
respective 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.

-16-
<PAGE> 52

SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Continued)

3. EXPENSES

SAFECO deducts on each valuation date a mortality and expense risk premium
which is equal on an annual basis to 1.25% of the daily net asset value of
Separate Account C. The mortality risks assumed by SAFECO arise from its
contractual obligation to make annuity payments after the annuity date for
the life of the owner, to waive contingent deferred sales charges in the
event of the death of the owner and to guarantee the payment of the greater
of the guaranteed minimum death benefit or the contract value upon the
death of the owner. The expense risk assumed by SAFECO is that the costs of
administering the contracts and Separate Account C will exceed the amount
received from the administration charges.

SAFECO also deducts on each valuation date an amount which is equal on an
annual basis to .15% of the average daily net asset value of Separate
Account C. This charge is for costs associated with the administration of
the sub-accounts. Since this charge is an asset-based charge, the amount of
the charge attributable to a particular contract may have no relationship
to the administrative costs actually incurred by that contract. SAFECO does
not intend to profit from this charge. This charge will be reduced to the
extent that the amount of this charge is in excess of that necessary to
reimburse SAFECO for its administrative expenses.

SAFECO deducts an annual administration charge of $30 from the contract
value on the last day of each contract year and in the event of a complete
withdrawal. This charge, which is for general administrative expenses, is
deducted from contracts only if the contract value is less than $100,000.
In certain situations where an owner withdraws all or a portion of his or
her contract value, a contingent deferred sales charge is deducted from the
withdrawal. This charge is imposed on withdrawals made in the first six (6)
contract 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
------------------------------------------------------------
SAFECO SAFECO SAFECO SAFECO SAFECO
EQUITY* GROWTH* NW* BOND* MMKT*
-------------------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C> <C>
PURCHASES for the period ended December 31, 1996 $28,781 $22,813 $ 1,269 $ 2,425 $30,930
======= ======= ====== ====== =======
SALES for the period ended December 31, 1996 $ 3,395 $ 2,423 $ 269 $ 955 $28,593
======= ======= ====== ====== =======
* For the year ended December 31, 1996
</TABLE>

-17-
<PAGE> 53

December 31, 1996
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Continued)

4. INVESTMENT TRANSACTIONS (CONTINUED)

<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH
RESOURCES+ MRKTS+ UTILITY+ INCOME+
---------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
PURCHASES for the period ended
December 31, 1996 $ 1,029 $ 994 $ 1,178 $ 496
====== ==== ====== ====
SALES for the period ended
December 31, 1996 $ 77 $ 119 $ 219 $ 66
====== ==== ====== ====
+ For the period January 25, 1996 (inception date) through December 31, 1996.
</TABLE>

<TABLE>
<CAPTION>
SUB-ACCOUNTS
-------------------------------
WANGER
US SMALL TCI TCI
CAP+ BAL+ INT'L+
-----------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C>
PURCHASES for the period ended
December 31, 1996 $ 513 $ 198 $ 216
==== ==== ====
SALES for the period ended
December 31, 1996 $ 129 $ 21 $ 81
==== ==== ====
+ For the period January 25, 1996 (inception date) through December 31, 1996.
</TABLE>

5. ACCUMULATION UNIT DATA

<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------------
SAFECO SAFECO SAFECO SAFECO SAFECO
EQUITY GROWTH NW BOND MMKT
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 11, 1994 (inception date) $24.528 $13.910 $10.073 $16.217 $13.526
December 31, 1994 25.373 14.864 10.134 15.521 13.811
December 31, 1995 32.209 20.668 10.737 18.045 14.370
December 31, 1996 39.633 26.928 11.905 17.915 14.874
</TABLE>

-18-
<PAGE> 54

SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------

NOTES TO FINANCIAL STATEMENTS
(Continued)

5. ACCUMULATION UNIT DATA (CONTINUED)

<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------------
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH FEDERATED
RESOURCES MRKTS UTILITY INCOME INT'L
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1994 -- -- -- -- --
December 31, 1995 -- -- -- -- --
January 25, 1996 (inception date) $ 11.330 $10.350 $11.110 $ 9.870 $10.220
December 31, 1996 14.148 9.946 12.117 10.899 11.056
</TABLE>

<TABLE>
<CAPTION>
SUB-ACCOUNTS
-------------------------------
WANGER
US SMALL TCI TCI
CAP BAL INT'L
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1994 -- -- --
December 31, 1995 -- -- --
January 25, 1996 (inception date) $11.650 $ 7.020 $ 5.330
December 31, 1996 16.754 7.887 6.016
</TABLE>

-19-
<PAGE> 55
Audited Consolidated Financial Statements

SAFECO Life Insurance Company
and Subsidiaries

For the Years Ended December 31, 1996, 1995 and 1994
<PAGE> 56
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS

TABLE OF CONTENTS

PAGE

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
<PAGE> 57
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, 1996 and 1995, 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, 1996.
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.

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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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 and 1994 as required by the Financial Accounting Standards Board.

/s/ ERNST & YOUNG LLP

Seattle, Washington
February 14, 1997

1
<PAGE> 58
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands Except Share Amounts)

<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---- ----
<S> <C> <C>
ASSETS

Investments (Note 2):
Fixed Maturities Available-for-Sale, at Market Value
(Amortized Cost: 1996-$7,597,733; 1995-$7,195,332) .......... $ 7,853,553 $ 7,720,108
Fixed Maturities Held-to-Maturity, at Amortized Cost
(Market Value: 1996-$2,670,004; 1995-$2,388,514) ............ 2,488,324 2,044,517
Marketable Equity Securities, at Market Value
(Cost: 1996-$9,629; 1995-$14,904) ........................... 18,902 25,776
First Mortgage Loans on Real Estate:
Nonaffiliates (At cost, less allowance for losses:
1996-$10,943; 1995-$9,633) ................................. 447,596 416,110
Affiliates .................................................. 140,743 137,823
Real Estate (At cost, less accumulated depreciation:
1996-$180; 1995-$398) ....................................... 4,134 4,972
Policy Loans ................................................. 58,153 55,925
Short-Term Investments (At cost which approximates market) ... 69,878 68,614
Investment in Limited Partnerships ........................... 250 1,289
----------- -----------
Total Investments ....................................... 11,081,533 10,475,134
Cash .............................................................. 19,136 34,886
Accrued Investment Income ......................................... 159,790 150,897
Accounts and Notes Receivable (At cost, less allowance for doubtful
accounts: 1996-$85; 1995-$72) ................................ 23,582 27,971
Reinsurance Recoverables (Note 5) ................................. 25,204 16,656
Deferred Policy Acquisition Costs (Net of valuation allowance:
1996-$19,040; 1995-$42,815) .................................. 240,464 210,491
Other Assets ...................................................... 5,497 5,739
Current Income Taxes Recoverable (Note 9) ......................... 792 --
Assets Held in Separate Accounts .................................. 491,212 276,399
----------- -----------
Total Assets ............................................ $12,047,210 $11,198,173
=========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

2
<PAGE> 59
<TABLE>
<CAPTION>
December 31
-----------
1996 1995
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities:
Policy and Contract Liabilities (Note 5):
Future Policy Benefits ............................. $ 149,624 $ 154,090
Policy and Contract Claims ......................... 29,155 26,407
Premiums Paid in Advance ........................... 8,846 8,209
Funds Held Under Deposit Contracts ................. 9,792,730 8,756,384
Other Policyholders' Funds ......................... 134,422 323,302
----------- ----------
Total Policy and Contract Liabilities ............. 10,114,777 9,268,392
Other Liabilities .................................. 76,089 112,008
Federal Income Taxes (Note 9):
Current ............................................ -- 13,047
Deferred (Includes tax on unrealized appreciation of
investment securities: 1996-$86,120;
1995-$172,493) ..................................... 103,648 196,492
Liabilities Related to Separate Accounts ........... 491,212 276,399
----------- ----------
Total Liabilities .................................. 10,785,726 9,866,338
----------- ----------

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) ......................... 1,011,439 921,383
Unrealized Appreciation of Investment Securities,
Net of Tax (Note 2) ................................ 160,045 320,452
----------- ----------
Total Stockholder's Equity ......................... 1,261,484 1,331,835
----------- ----------

Total Liabilities and Stockholder's Equity ......... $12,047,210 $11,198,173
=========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

3
<PAGE> 60
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME

<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
(In Thousands)
Revenues:
Premiums ........................................ $ 240,100 $ 237,025 $ 252,929
Investment Income:
Interest on Fixed Maturities .................... 767,309 716,510 648,296
Interest on Mortgage Loans ...................... 52,127 51,912 51,135
Interest on Short-Term Investments .............. 2,935 4,017 3,351
Dividends from Marketable Equity Securities ..... 843 1,387 1,446
Dividends from Redeemable Preferred Stock ....... 12,654 3,065 618
Other Investment Income ......................... 3,879 4,155 4,375
----------- ----------- -----------
Total ...................................... 839,747 781,046 709,221
Less Investment Expenses ....................... 3,709 3,546 3,551
----------- ----------- -----------
Net Investment Income ........................... 836,038 777,500 705,670
----------- ----------- -----------
Other Revenue ................................... 12,933 11,608 9,795
Realized Investment Gain ........................ 10,439 5,676 5,639
----------- ----------- -----------
Total ...................................... 1,099,510 1,031,809 974,033
----------- ----------- -----------

Benefits and Expenses:
Policy Benefits ................................. 782,213 723,466 674,215
Commissions ..................................... 74,724 79,163 84,760
Personnel Costs ................................. 43,609 42,314 42,439
Taxes Other Than Payroll and Income Taxes ....... 15,512 7,913 7,652
Other Operating Expenses ........................ 45,224 42,978 44,519
Amortization of Deferred Policy
Acquisition Costs ............................. 35,652 32,376 29,407
Deferral of Policy Acquisition Costs ............ (42,426) (35,347) (43,360)
----------- ----------- -----------
Total ...................................... 954,508 892,863 839,632
----------- ----------- -----------

Income before Federal Income Taxes ................... 145,002 138,946 134,401
----------- ----------- -----------

Provision (Benefit) for Federal Income Taxes (Note 9):
Current ......................................... 57,417 61,830 57,365
Deferred ........................................ (6,471) (13,800) (10,154)
----------- ----------- -----------
Total ...................................... 50,946 48,030 47,211
----------- ----------- -----------

Net Income ........................................... $ 94,056 $ 90,916 $ 87,190
=========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

4
<PAGE> 61
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
(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 .......................................... 921,383 834,467 751,277
Net Income ................................................................ 94,056 90,916 87,190
Dividends to Parent ....................................................... (4,000) (4,000) (4,000)
----------- ----------- -----------
Balance at the End of Year ................................................ 1,011,439 921,383 834,467
----------- ----------- -----------

Unrealized Appreciation (Depreciation) of Investment
Securities, Net of Tax (Note 1 and 2):
Balance at the Beginning of Year ............................................. 320,452 (126,229) 6,828
Net Effect of Adoption of FASB Statement 115 ................................. -- -- 279,957
Change in Unrealized Appreciation or Depreciation ............................ (175,861) 474,511 (413,014)
Change in Deferred Policy Acquisition Costs
Valuation Allowance ......................................................... 15,454 (27,830) --
----------- ----------- -----------
Balance at the End of Year ..................................................... 160,045 320,452 (126,229)
----------- ----------- -----------

Stockholder's Equity ......................................................... $ 1,261,484 $ 1,331,835 $ 798,238
=========== =========== ===========
</TABLE>

See Notes to Consolidated Financial Statements

5
<PAGE> 62
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995 1994
----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Insurance Premiums Received ............................................ $ 216,801 $ 216,269 $ 233,129
Dividends and Interest Received ........................................ 754,878 703,053 641,234
Other Operating Receipts ............................................... 12,948 10,607 11,419
Insurance Claims and Policy Benefits Paid .............................. (302,955) (272,206) (242,523)
Underwriting, Acquisition and Insurance
Operating Costs Paid ................................................. (172,251) (169,904) (177,188)
Income Taxes Paid ...................................................... (71,255) (61,247) (60,566)
----------- ----------- -----------
Net Cash Provided by Operating Activities ......................... 438,166 426,572 405,505
----------- ----------- -----------

INVESTING ACTIVITIES:
Purchases of:
Fixed Maturities Available-for-Sale .................................. (1,544,998) (1,424,510) (1,110,154)
Fixed Maturities Held-to-Maturity .................................... (473,206) (291,965) (358,297)
Marketable Equity Securities ......................................... (272) (260) (407)
Other Investments .................................................... (15) (14) (24,381)
Policy and Nonaffiliated Mortgage Loans .............................. (85,485) (55,302) (68,710)
Affiliated Mortgage Loans ............................................ (34,650) (12,643) (54,000)
Maturities of Fixed Maturities Available-for-Sale ...................... 466,509 375,291 476,410
Maturities of Fixed Maturities Held-to-Maturity ........................ 21,694 17,878 54,564
Sales of:
Fixed Maturities Available-for-Sale .................................. 721,229 327,160 250,227
Fixed Maturities Held-to-Maturity .................................... 13,316 -- --
Marketable Equity Securities ......................................... 10,394 2,172 65
Other Investments .................................................... 1,100 180 23,992
Real Estate .......................................................... 1,086 876 1,885
Policy and Nonaffiliated Mortgage Loans .............................. 48,341 50,734 42,038
Affiliated Mortgage Loans ............................................ 31,730 8,977 6,714
Net (Increase) Decrease in Short-Term Investments ...................... (1,250) (5,811) 11,793
Other .................................................................. (747) (122) 947
----------- ----------- -----------
Net Cash Used in Investing Activities ............................. (825,224) (1,007,359) (747,314)
----------- ----------- -----------

FINANCING ACTIVITIES:
Funds Received Under Deposit Contracts ................................. 1,148,590 1,304,665 1,012,164
Return of Funds Held Under Deposit Contracts ........................... (765,480) (720,845) (659,697)
Dividends to Parent .................................................... (4,000) (4,000) (4,000)
Net Proceeds from (Repayment of) Short-Term Borrowings ................. (7,802) 9,143 842
----------- ----------- -----------
Net Cash Provided by Financing Activities ......................... 371,308 588,963 349,309
----------- ----------- -----------

Net Increase (Decrease) in Cash ........................................ (15,750) 8,176 7,500
Cash at Beginning of Year .............................................. 34,886 26,710 19,210
----------- ----------- -----------

Cash at End of Year .................................................... $ 19,136 $ 34,886 $ 26,710
=========== =========== ===========
</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> 63
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
-------------------------------------
1996 1995 1994
--------- --------- ---------
(In Thousands)
<S> <C> <C> <C>

Net Income ............................................................... $ 94,056 $ 90,916 $ 87,190
--------- --------- ---------

Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Realized Investment Gain ................................................. (10,439) (5,676) (5,639)
Amortization of Fixed Maturity Investments ............................... (26,811) (26,050) (12,247)
Deferred Federal Income Tax Benefit ...................................... (6,471) (13,800) (10,154)
Interest Expense on Deposit Contracts .................................... 460,594 432,327 405,536
Other .................................................................... 574 3,140 (440)

Changes in:
Future Policy Benefits ................................................... (4,466) (1,232) 3,834
Policy and Contract Claims ............................................... 2,748 (2,643) (4,136)
Premiums Paid in Advance ................................................. 637 (574) (1,174)
Deferred Policy Acquisition Costs ........................................ (6,198) (6,116) (12,990)
Accrued Investment Income ................................................ (8,893) (8,990) (13,695)
Accrued Interest on Accrual Bonds ........................................ (44,015) (36,908) (41,285)
Other Receivables ........................................................ (8,639) (2,353) 5,064
Current Federal Income Taxes ............................................. (13,839) 583 (3,201)
Other Assets and Liabilities ............................................. 4,668 449 1,820
Other Policyholders' Funds ............................................... 4,660 3,499 7,022
--------- --------- ---------

Total Adjustments ........................................................ 344,110 335,656 318,315
--------- --------- ---------

Net Cash Provided by Operating Activities ................................ $ 438,166 $ 426,572 $ 405,505
========= ========= =========
</TABLE>

See Notes to Consolidated Financial Statements

7
<PAGE> 64
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
engage 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 1996 classifications.

ACCOUNTING FOR PREMIUMS. Life and health insurance premiums are reported as
income when collected for traditional individual life policies and when
earned for group life and health policies. Funds received under pension
deposit contracts, annuity contracts and universal life policies are
recorded as liabilities rather than premium income when received. Revenues
for universal life products consist of front-end loads, mortality charges
and expense charges assessed against individual policyholder account
balances. These loads and charges are recognized as income when earned.

INVESTMENTS. 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> 65
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. Life and health acquisition costs,
consisting of commissions and certain other underwriting expenses, which
vary with and are primarily related to the production of new business, are
deferred.

Acquisition costs for pension deposit contracts, deferred annuity contracts
and universal life policies are amortized over the lives of the contracts
or policies in proportion to the present value of estimated future gross
profits. To the extent actual experience differs from assumptions, and to
the extent estimates of future gross profits require revision, the
unamortized balance of deferred policy acquisition costs is adjusted
accordingly; such adjustments would be included in current operations.
There were no significant revisions made in 1996, 1995 or 1994.

Acquisition costs for traditional individual life insurance policies are
amortized over the premium payment period of the related policies using
assumptions consistent with those used in computing policy benefit
liabilities. Acquisition costs for group life and health policies are
amortized over the lives of the policies in proportion to premium received.

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.

9
<PAGE> 66
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 (continued)

FEDERAL INCOME TAXES. The Company and its subsidiaries are included in a
consolidated federal income tax return filed by SAFECO Corporation. Tax
payments (credits) are made to or received from SAFECO Corporation on a
separate tax return filing basis. The Company provides for federal income
taxes based on financial reporting income and deferred federal income taxes
on temporary differences between financial reporting and taxable income.

NEW ACCOUNTING STANDARDS. The Company adopted FASB Statement 112,
"Employers' Accounting for Postemployment Benefits," effective January 1,
1994. Adoption had no effect on net income.

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 were effective for 1995 and 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.

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.

The FASB issued an Implementation Guide on Statement 115 in November 1995.
In addition to providing guidance on Statement 115, the Guide allowed for a
one-time-only reclassification of securities among the three categories
defined in Statement 115. 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 Guide. 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.

10
<PAGE> 67
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, 1996 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 ........... $ 746,401 $ 38,689 $ (1,915) $ 36,774 $ 783,175
States, municipalities and political subdivisions 131,538 11,192 (1,009) 10,183 141,721
Foreign governments ............................. 74,427 4,575 (7) 4,568 78,995
Public utilities ................................ 1,428,912 72,384 (7,220) 65,164 1,494,076
All other corporate bonds ....................... 2,707,297 100,673 (15,464) 85,209 2,792,506
Mortgage-backed securities ...................... 2,509,158 72,485 (18,563) 53,922 2,563,080
---------- ---------- ---------- ---------- ----------
Total fixed maturities classified as
available-for-sale ............................ 7,597,733 299,998 (44,178) 255,820 7,853,553
Marketable equity securities .................... 9,629 9,518 (245) 9,273 18,902
---------- ---------- ---------- ---------- ----------
Total investment securities classified as
available-for-sale ............................ $7,607,362 $ 309,516 $ (44,423) 265,093 $7,872,455
========== ========== ========== ==========

Deferred policy acquisition costs valuation allowance ............................................ (19,040)
Applicable federal income tax ....................................................................
(86,008)
----------
Unrealized appreciation of investment securities,
net of tax, included in stockholder's equity ................................................... $ 160,045
==========
</TABLE>
A summary of fixed maturities classified as held-to-maturity at December
31, 1996 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 ........... $ 244,686 $ 29,559 $ (396) $ 29,163 $ 273,849
States, municipalities and political subdivisions 103,075 3,797 (664) 3,133 106,208
Foreign governments ............................. 148,300 24,403 -- 24,403 172,703
Public utilities ................................ 545,249 48,130 (4,279) 43,851 589,100
All other corporate bonds ....................... 1,155,146 82,922 (9,495) 73,427 1,228,573
Mortgage-backed securities ...................... 291,868 13,110 (5,407) 7,703 299,571
---------- ---------- ---------- ---------- ----------
Total fixed maturities classified as
held-to-maturity .............................. $2,488,324 $ 201,921 $ (20,241) $ 181,680 $2,670,004
========== ========== ========== ========== ==========
</TABLE>

11
<PAGE> 68
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, 1995 follows:

<TABLE>
<CAPTION>
Gross Gross Net Estimated
Amortized Unrealized Unrealized Unrealized Market
Cost Gains Losses Gain Value
---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C>
(In Thousands)
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>

12
<PAGE> 69
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, 1996, by contractual maturity, are presented below. Expected
maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations with or without
call or prepayment penalties.

<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
(In Thousands)

Due in one year or less .............. $ 193,009 $ 199,669 $ 5,000 $ 5,100
Due after one year through five years 1,582,958 1,639,786 -- --
Due after five years through ten years 1,233,599 1,264,009 28,570 32,934
Due after ten years .................. 2,079,009 2,187,009 2,162,886 2,332,399
Mortgage-backed securities ........... 2,509,158 2,563,080 291,868 299,571
---------- ---------- ---------- ----------

Total ...... $7,597,733 $7,853,553 $2,488,324 $2,670,004
========== ========== ========== ==========
</TABLE>

At December 31, 1996 and 1995, the Company held below investment grade
fixed maturities of $242 million and $239 million at amortized cost,
respectively. The respective market values of these investments were
approximately $239 million and $240 million. These holdings amounted to
2.3% and 2.4% of the Company's investments in fixed maturities at market
value at December 31, 1996 and 1995, respectively.

The carrying value of investments in fixed maturities and mortgage loans
that did not produce income during the year ended December 31, 1996 is
less than one percent of the total of such investments.

Certain fixed maturity securities with an amortized cost of $4,648,000 and
$4,578,000 at December 31, 1996 and 1995, respectively, were on deposit
with various regulatory authorities to meet requirements of insurance and
financial codes.

At both December 31, 1996 and 1995, mortgage loans constituted
approximately 4.9% of total assets 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 42% of the total in California.
Individual loans generally do not exceed $5 million. At December 31, 1996,
less than 1% of the loans were non-performing.

13
<PAGE> 70
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 1996 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------

Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securities
------------------ ---------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ....................................... $ 721,229 $ 13,316 10,394
========= ========= =========

Gross realized gains on sales ............................. $ 19,779 $ -- 4,847
Gross realized losses on sales ............................ (18,837) (1,328) --
--------- --------- ---------

Realized gains (losses) on sales ...................... 942 (1,328) 4,847

Other (Including net gain or loss on calls and redemptions) 13,687 (141) --
Writedowns (Including writedowns on
securities subsequently sold) ......................... (5,465) -- --
--------- --------- ---------

Total realized gain (loss) ............................... $ 9,164 $ (1,469) 4,847
========= ========= =========
</TABLE>

Two fixed maturities classified as held-to-maturity were sold during 1996
due to evidence of a significant deterioration in credit quality. The
amortized cost of these securities was $14,644,000, and the losses realized
on these sales were $1,328,000.

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 Securities
------------------ ---------------- -----------------
(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>

14
<PAGE> 71
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 (continued)

The proceeds from sales of investment securities and related gains and
losses for 1994 are as follows:

<TABLE>
<CAPTION>
Year Ended December 31, 1994
----------------------------

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>

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
----------------------
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities ........................................................ 7,695 6,235 9,132
Marketable equity securities ............................................ 4,847 971 (109)
First mortgage loans on real estate ..................................... (2,050) (1,600) (3,000)
Real estate ............................................................. (114) 70 (184)
Short-term investments .................................................. -- -- (200)
Investment in limited partnerships ...................................... 61 -- --
-------- ------- -------

Realized gain before federal income taxes .......................... 10,439 5,676 5,639
======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31
----------------------

1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Increase (decrease) in unrealized appreciation of:
Fixed maturities classified as available-for-sale ....................... $ (268,956) $ 726,046 $ (201,270)
Marketable equity securities ............................................ (1,599) 3,971 (3,432)
Deferred policy acquisition costs valuation allowance ................... 23,775 (42,815) --
Applicable federal income tax ........................................... 86,373 (240,521) 71,645
---------- ---------- -----------

Net change in unrealized appreciation or depreciation ................... $ (160,407) $ 446,681 $(133,057)
---------- ---------- -----------
</TABLE>

15
<PAGE> 72
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
----------------------

1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Allowance at beginning of year ................. $ 9,633 $ 9,511
Provision for credit losses .................... 2,050 1,600
Recoveries ..................................... -- 15
Loans charged off as uncollectible ............. (740) (1,493)
---------- ------------
Allowance at end of year ....................... $ 10,943 $ 9,633
=========== ============
</TABLE>

The 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 $3.2 and $5.7 million at December 31, 1996 and
1995, respectively. A specific loan loss reserve has been established for
each impaired loan, the total of which is $835,000 and $2.1 million and is
included in the overall allowance of $10.9 and $9.6 million at December
31, 1996 and 1995, respectively.

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 $2,336,000. At December 31,
1996, unfunded mortgage loan commitments approximated $9,375,000. The
Company had no other material commitments or contingencies at December 31,
1996.

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> 73
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>
1996 1995
---- ----

Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------

(In Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities available-for-sale $7,853,553 $7,853,553 $7,720,108 $7,720,108
Fixed maturities held-to-maturity . 2,488,324 2,670,004 2,044,517 2,388,514
Marketable equity securities ...... 18,902 18,902 25,776 25,776
Mortgage loans .................... 588,339 596,000 553,933 584,000

Financial liabilities:
Funds held under deposit contracts 9,792,730 9,935,000 8,756,384 9,282,000
</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 $2.9 billion and $2.8 billion at market at
December 31, 1996 and 1995, 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, more 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, 1996 and 1995).

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.

<PAGE> 74
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
---------------------------
1996 1995
------------ ------------
(In Thousands)

<S> <C> <C>
Unpaid losses and adjustment expense ........ $ 136 $ 850
Paid claims ................................. 957 658
Life policy liabilities ..................... 23,784 14,844
Other reinsurance recoverables .............. 327 304
----------- -----------

Total reinsurance recoverables ......... $ 25,204 $ 16,656
=========== ===========
</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
------------------------------------------
1996 1995 1994
------------- ------------- ------------
(In Thousands)
<S> <C> <C> <C>
Reinsurance Ceded:

Premiums .......... $(13,679) $(10,385) $(9,060)
======== ======== =======

Policy benefits ... $ (4,039) $ (6,344) $(5,588)
======== ======== =======

Reinsurance Assumed:

Premiums .......... $ 175 $ (5,456) $ 327
======== ======== =======

Policy benefits ... $ 2,500 $ (2,503) $ 3,421
======== ======== =======
</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> 75
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
----------------------------------------
1996 1995 1994
------------ ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Statutory Net Income:
SAFECO Life Insurance Company .......................... $95,676 $101,456 $47,280
SAFECO National Life Insurance Company ................. 1,249 1,187 1,242
First SAFECO National Life Insurance Company
of New York .......................................... 318 404 108
------- -------- -------

Total ............................................. $97,243 $103,047 $48,630
======= ======== =======
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1996 1995 1994
------------ ------------- -----------
(In Thousands)
<S> <C> <C> <C>
Statutory Stockholder's Equity:
SAFECO Life Insurance Company .......................... $562,100 $479,152 $391,328
SAFECO National Life Insurance Company ................. 15,263 15,522 15,849
First SAFECO National Life Insurance Company
of New York .......................................... 10,295 10,009 9,644
-------- -------- --------

Total ............................................. $587,658 $504,683 $416,821
======== ======== ========
</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, 1996.

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
$99,198,000 at December 31, 1996.

19
<PAGE> 76
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
$7,901,000, $7,599,000 and $6,329,000 for the years ended December 31,
1996, 1995 and 1994, 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. The Company accrues for these costs during the years that
employees provide services, under FASB Statement 106. Net periodic other
postretirement benefit costs for the Company were $474,000, $282,000 and
$432,000 in 1996, 1995 and 1994, respectively.

The following table summarizes the Company's funded status of the plan:
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995
----------- -----------
(In Thousands)
<S> <C> <C>
Total accumulated postretirement benefit obligation (APBO) .......... $3,765 $4,310

Less: plan assets at fair value .................................... 133 133
------ ------

APBO in excess of plan assets ....................................... 3,632 4,177

Unrecognized gain ................................................... 1,283 361
------ ------

Accrued postretirement benefit cost recorded on the balance sheet ... $4,915 $4,538
====== ======
</TABLE>

Discount rate assumptions of 7.75%, 7.5% and 8.5% were used at December 31,
1996, 1995 and 1994, respectively. The accumulated postretirement benefit
obligation at December 31, 1996 was determined using a healthcare cost
trend rate of 11% for 1997, declining by 1% per year, starting in 1998, to
6% and remaining at that level thereafter. 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, 1996
by $451,000 and the annual net periodic other postretirement benefit cost
for the year then ended by $76,000.

20
<PAGE> 77
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. INCOME TAXES

The Company uses the liability method of accounting for income taxes
pursuant to FASB Statement 109, "Accounting for Income Taxes." 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
------------------------------------------
1996 1995 1994
------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense .................. $ 50,751 $ 48,631 $ 47,040

Dividends received deduction ..................... (24) (44) (64)

Tax exempt interest .............................. (6) (7) (8)

Other ............................................ 225 (550) 243
-------- -------- --------

Income tax expense .......................... $ 50,946 $ 48,030 $ 47,211
======== ======== ========

Percent of income tax expense to income before tax 35.1% 34.6% 35.1%
======== ======== ========
</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
---------------------------
1996 1995
------------ -------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Discounted loss and adjustment expense reserves ........................ $ 1,359 $ 1,990
Uncollected premium adjustment ......................................... 2,270 2,011

Adjustment to life policy liabilities .................................. 34,773 30,209

Capitalization of policy acquisition costs ............................. 33,393 21,860

Postretirement benefits ................................................ 1,720 1,588

Realized capital losses ................................................ 5,887 9,348

Guarantee fund assessments ............................................. 3,518 3,680

Other .................................................................. 1,630 1,414
-------- --------

Total deferred tax assets ....................................... 84,550 72,100
-------- --------

Deferred tax liabilities:
Deferred policy acquisition costs ...................................... 90,826 88,657
Bond discount accrual .................................................. 9,525 5,905
Unrealized appreciation of investment securities (Net of deferred policy
acquisition costs valuation allowance: 1996-$6,664; 1995-$14,985) ... 86,120 172,493
Other .................................................................. 1,727 1,537
-------- --------

Total deferred tax liabilities .................................. 188,198 268,592
-------- --------

Net deferred tax liability ...................................... $103,648 $196,492
======== ========
</TABLE>

21
<PAGE> 78
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 (continued)

The following table reconciles the deferred tax benefit in the Statement of
Income to the change in the deferred tax liability in the balance sheet at
December 31:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
(In Thousands)

<S> <C> <C> <C>
Deferred tax benefit......................................... $ (6,471) $ (13,800) $(10,154)

Deferred tax changes reported in stockholder's equity:
Increase (decrease) in liability related to unrealized
appreciation or depreciation of investment securities... (94,694) 255,506 (71,645)

Increase (decrease) in liability related to deferred
policy acquisition costs valuation allowance............ 8,321 (14,985) --
-------- --------- --------

Increase (decrease) in net deferred tax liability............ $(92,844) $ 226,721 $(81,799)
======== ========= ========
</TABLE>

22
<PAGE> 79
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. SEGMENT DATA

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.

<TABLE>
<CAPTION>
Year Ended December 31, 1996
--------------------------------------------
Financial Employee
Services Benefits Total
-------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Revenue:
Premiums and Other (Including $35,477 of financial
services revenue received from affiliates) ... $ 48,964 $204,069 $ 253,033
Identifiable Investment Income ..................... 506,628 256,939 763,567
Investment Income Allocated ........................ 48,157 24,314 72,471
Identifiable Realized Gain from Investments ........ 2,636 2,884 5,520
Realized Gain from Investments Allocated ........... 3,271 1,648 4,919
-------- -------- ----------

Total Revenue ................................ $609,656 $489,854 $1,099,510
======== ======== ==========

Income Before Income Taxes ......................... $ 81,849 $ 63,153 $ 145,002
======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------
Financial Employee
Services Benefits Total
-------------- -------------- ------------
(In Thousands)
<S> <C> <C> <C>
Identifiable Assets:

Deferred Policy Acquisition Costs ............. $ 163,802 $ 76,662 $ 240,464

Policy Loans .................................. 30,774 27,379 58,153

Invested Assets ............................... 6,660,938 3,298,105 9,959,043

Other ......................................... 163,855 533,823 697,678

Invested Assets Allocated ........................... 707,269 357,068 1,064,337

Other Assets Allocated .............................. 18,288 9,247 27,535

---------- ---------- -----------

Total Assets ............................ $7,744,926 $4,302,284 $12,047,210
========== ========== ===========

Amortization of Deferred Policy Acquisition Costs ... $ 13,756 $ 21,896 $ 35,652
========== ========== ===========
</TABLE>

23
<PAGE> 80
SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10 (continued)

<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
========= ========= ===========
</TABLE>

<TABLE>
<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>

24
<PAGE> 81
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 ............. 6,744 1,267 8,011
Investments

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
========= ========= =========
</TABLE>

<TABLE>
<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>

25
<PAGE> 82

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, 1996. Statement of Operations for the periods
ended December 31, 1996.
Statementof Changes in Net Assets for the periods
ended December 31, 1996 and the year ended
December 31, 1995.
Notes to Financial Statements (including accumulation
unit data).

SAFECO LIFE INSURANCE COMPANY AND SUBSIDIARIES:
Consolidated Balance Sheet as of December 31, 1996
and 1995 Statement of Consolidated Income for the
years ended December 31, 1996, 1995, and 1994
Statement of Changes in Stockholder's Equity for the
years ended December 31, 1996, 1995, and 1994
Statement of Consolidated Cash Flows for the years
ended December 31, 1996, 1995, and 1994
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> 83
** 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).

**** Incorporated by reference to Post-Effective Amendment of SAFECO
Separate Account C filed with the SEC on April 29, 1996 (File No.
33-60331).

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
</TABLE>
<PAGE> 84
<TABLE>
<CAPTION>
Name Position with SAFECO
---- --------------------

<S> <C>

John P. Fenlason Senior Vice President

Roger F. Harbin Senior Vice President, Actuary

* 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
Surplus Lines Insurance Company, a Washington corporation, and
Market Square Holding, Inc., a Minnesota corporation. SAFECO
Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, and First SAFECO
National Life
<PAGE> 85
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, 50% of Mission Oaks Hospital, Inc., a
California corporation, S.C. River Oaks, Inc., a Washington
corporation, Mississippi Health Services, Inc., a Louisiana
corporation, and Safecare Texas, Inc., a Texas corporation.
S.C. Simi Valley, Inc. owns 100% of Simi Valley Hospital,
Inc., a Washington corporation. Winmar Company, Inc. owns 100%
of the following: Barton Street Corp., C-W Properties, Inc.,
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, 1997, there were 7,583 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 enterprise, or employee benefit plan, against
judgments, penalties, fines, settlements and
<PAGE> 86
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>

* The Principal Business Address of all officers or directors listed is SAFECO
Plaza, Seattle, Washington 98185.
<PAGE> 87
(c) During the fiscal year ended December 31, 1996, PNMR Securities,
Inc., through SAFECO Securities, Inc., received $3,226,968 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;

(d) Pursuant to Section 26(e) of the Investment Company Act of
1940, Registrant represents that the fees and charges deducted
under the contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the insurance company.

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> 88
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 30th day of April, 1997.

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>
DONALD S. CHAPMAN* Director
- ---------------------------
Donald S. Chapman

DAN D. McLEAN* Director
- ---------------------------
Dan D. McLean

/S/ BOH A. DICKEY Director
- ---------------------------
Boh A. Dickey

R. H. EIGSTI* Director and Chairman
- ---------------------------
R. H. Eigsti

JAMES T. FLYNN* Vice President, Controller and
- ---------------------------
James T. Flynn Assistant Secretary (Principal
Accounting Officer)

RONALD SPAULDING* Director and Vice President
- ---------------------------
Ronald Spaulding

ROD A. PIERSON* Director, Senior Vice President and Secretary
- ---------------------------
Rod Pierson
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----

<S> <C>
JAMES W. RUDDY* Director
James W. Ruddy

ROBERT SWEGLE* Director
Robert Swegle

/S/ RICHARD E. ZUNKER Director and President
Richard E. Zunker (Principal Executive Officer)
</TABLE>

By: /S/ BOH A. DICKEY
------------------------
Boh A. Dickey
*Attorney-in-Fact

By: /S/ RICHARD E. ZUNKER
------------------------
Richard E. Zunker
*Attorney-in-Fact
<PAGE> 90
EXHIBIT LIST

Exhibit
Number Description
------ -----------

9. Opinion and Consent of Counsel

10. Consent of Independent Auditors

15. Representation of Counsel

<PAGE> 1
EXHIBIT 9

April 30, 1997

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 "Schedule of
Accumulation Unit Values and Accumulation Units Outstanding, " "Experts," and
"General Information" and to the use of our reports on the financial statements
of SAFECO Separate Account C, dated January 31, 1997, and on the consolidated
financial statements of SAFECO Life Insurance Company and Subsidiaries, dated
February 14, 1997, in Post-Effective Amendment No. 2 to the Registration
Statement (Form N-4, No. 33-60331) and related Prospectus of SAFECO Separate
Account C dated May 1, 1997.

/S/ ERNST & YOUNG LLP

Seattle, Washington
April 27, 1997

<PAGE> 1
EXHIBIT 15

April 30, 1997

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. 10, 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. 10, 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. 10, 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. 10, is made
pursuant to Rule 485(b) of the 1933 Act to become automatically effective on May
1, 1997. The undersigned has prepared and reviewed Post-Effective Amendment No.
10, and it is his opinion that Post-Effective Amendment No. 10 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