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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
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Post-Effective Amendment No. 5 [X]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 9 [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
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X on May 1, 1997 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(1) of Rule 485
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on (date) pursuant to paragraph (a)(1) of Rule 485
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If appropriate, check the following:
___ this post-effective amendment designates a new effective date 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.
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SAFECO SEPARATE ACCOUNT C
REGISTRATION STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
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Item No. Location
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PART A
Item 1. Cover Page............................................................ Cover Page
Item 2. Definitions........................................................... Definitions
Item 3. Synopsis or Highlights................................................ Expense Table;
Highlights
Item 4. Condensed Financial Information....................................... Schedule of
Accumulation
Unit Values &
Accumulation Units
Outstanding;
Performance
Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies.................................... SAFECO; The
Separate Account;
SAFECO Resource
Series Trust;
Federated Insurance
Series;
Lexington Emerging
Markets Fund, Inc.;
Lexington Natural
Resources Trust; Scudder
Variable Life
Investment Fund;
American Century
Variable Portfolios, Inc.
Item 6. Deductions and Expenses............................................... Charges and
Deductions; Expense
Table
Item 7. General Description of Variable Annuity Contracts..................... Cover Page;
Rights under the Contract;
Purchasing a Contract
Item 8. Annuity Period........................................................ Annuity
and Death Benefit
Provisions
Item 9. Distribution Requirements............................................. Annuity and Death
Benefit Provisions
Item 10. Purchases and Contract Value.......................................... Purchasing a Contract
Item 11. Redemptions........................................................... Withdrawals and
Transfers
Item 12. Taxes................................................................. Tax Status
Item 13. Legal Proceedings..................................................... Legal Proceedings
Item 14. Table of Contents of the Statement of Additional Information.......... Table of Contents of the
Statement of Additional
Information
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PART B
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Item 15. Cover Page............................................................ Cover Page
Item 16. Table of Contents..................................................... Table of Contents
Item 17. General Information and History....................................... General Information
Item 18. Services.............................................................. Not Applicable
Item 19. Purchase of Securities Being Offered.................................. Not Applicable
Item 20. Underwriters.......................................................... General Information/
Distributor
Item 21. Calculation of Performance Data....................................... Additional Performance
Information
Item 22. Annuity Payments...................................................... Annuity Provisions
Item 23. Financial Statements.................................................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
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PART A
PROSPECTUS
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MAY 1, 1997 SAFECO LIFE INSURANCE COMPANY
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INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
issued by
SAFECO SEPARATE ACCOUNT C
AND
SAFECO LIFE INSURANCE COMPANY
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Home Office: Annuity Service Office:
SAFECO Life Insurance Company SAFECO Life Insurance Company
Retirement Services Department Retirement Services Department
15411 N.E. 51st Street P.O. Box 34690
Redmond, WA 98052 Seattle, WA 98124-1690
Telephone: 1-800-426-7649 Fax: 206-867-8793
</TABLE>
The Individual Flexible Purchase Payment Deferred Variable Annuity Contracts
(the Contracts) described in this Prospectus provide for accumulation of
Contract Values and payment of monthly annuity payments on a fixed and variable
basis. The Contracts are designed for use by individuals in conjunction with
retirement plans on a Qualified or Non-Qualified basis. Some of the Portfolios
listed below may not be immediately available in states that have not yet
approved the corresponding Contract endorsements.
At the Owner's direction, Purchase Payments for the Contracts will be allocated
to a segregated investment account of SAFECO Life Insurance Company (SAFECO)
which has been designated SAFECO Separate Account C (the Separate Account) or to
SAFECO's Fixed Account. Under certain circumstances, however, Purchase Payments
may initially be allocated to the SAFECO Resource Money Market Sub-Account of
the Separate Account. (See "Highlights.") The Separate Account invests in shares
of SAFECO Resource Series Trust (see "SAFECO Resource Series Trust"), Federated
Insurance Series (see "Federated Insurance Series"), Lexington Emerging Markets
Fund, Inc. (see "Lexington Emerging Markets Fund, Inc."), Lexington Natural
Resources Trust (see "Lexington Natural Resources Trust"), Scudder Variable Life
Investment Fund (see "Scudder Variable Life Investment Fund") and American
Century Variable Portfolios, Inc. (see "American Century Variable Portfolios,
Inc."). SAFECO Resource Series Trust currently consists of the SAFECO Resource
Equity, Growth, Northwest, Bond, Money Market and Small Company Stock
Portfolios. Federated Insurance Series consists of seven Portfolios, three of
which are offered hereunder; the Federated High Income Bond Fund II ("Federated
High Income Bond Portfolio"), the Federated International Equity Fund II
("Federated International Equity Portfolio") and the Federated Utility Fund II
("Federated Utility Portfolio"). Lexington Emerging Markets Fund, Inc.
("Lexington Emerging Markets Fund") and Lexington Natural Resources Trust each
currently consist of only one Portfolio which are offered hereunder; the
Lexington Emerging Markets Portfolio and the Lexington Natural Resources
Portfolio, respectively. American Century Variable Portfolios, Inc. consists of
four Portfolios, two of which are offered hereunder: the American Century VP
Balanced Fund ("American Century VP Balanced Portfolio") and the American
Century VP International Fund ("American Century VP International Portfolio").
Scudder Variable Life Investment Fund ("Scudder Fund") consists of five
Portfolios, two of which are offered hereunder; the Scudder Balanced Portfolio
and the Scudder International Portfolio. THE SCUDDER BALANCED PORTFOLIO AND
SCUDDER INTERNATIONAL PORTFOLIO ARE AVAILABLE FOR CONTRACTS INVESTED IN THE
RESPECTIVE PORTFOLIOS PRIOR TO MAY 1, 1997, AND REMAINING CONTINUOUSLY INVESTED
IN SUCH PORTFOLIOS THEREAFTER. NEW SHARES OF SCUDDER BALANCED PORTFOLIO AND
SCUDDER INTERNATIONAL PORTFOLIO ARE NOT AVAILABLE FOR CONTRACTS THAT HAVE NOT
BEEN CONTINUOUSLY INVESTED IN THE RESPECTIVE PORTFOLIOS SINCE APRIL 30, 1997.
See "Highlights" and "Tax Status -- Diversification" for a discussion of owner
control of the underlying investments in a variable annuity contract.
This Prospectus concisely sets forth the information a prospective investor
should know before investing. Additional information about the Contracts is
contained in the Statement of Additional Information which is available at no
charge. The Table of Contents of the Statement of Additional Information can be
found on page 42 of this Prospectus. Some of the discussions contained in this
Prospectus will refer to the more detailed description contained in the
Statement of Additional Information which is incorporated by reference in this
Prospectus. For the Statement of Additional Information, call l-800-426-7649 or
write to the Annuity Service Office address above.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SPINNAKER CONTRACTS ARE NOT INSURED BY THE FDIC. THEY ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR GUARANTEED BY, ANY DEPOSITORY INSTITUTION THROUGH WHICH THEY
MAY BE SOLD. THE CONTRACTS ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF THE PRINCIPAL AMOUNT INVESTED.
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THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION ARE DATED MAY
1, 1997.
INQUIRIES: ANY INQUIRIES SHOULD BE MADE BY TELEPHONE TO THE NUMBER LISTED
ON THE COVER PAGE OF THE PROSPECTUS OR THE REPRESENTATIVE FROM WHOM THIS
PROSPECTUS WAS OBTAINED. ALL OTHER QUESTIONS SHOULD BE DIRECTED TO THE
ANNUITY SERVICE OFFICE, 1-800-426-7649 LISTED ON THE COVER PAGE OF THIS
PROSPECTUS.
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TABLE OF CONTENTS
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PAGE
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Definitions........................................................................... 5
Highlights............................................................................ 6
Expense Table......................................................................... 9
Schedule of Accumulation Unit Values and Accumulation Units Outstanding............... 15
Financial Statements.................................................................. 16
Performance Information............................................................... 16
All Sub-Accounts (Other than SAFECO Resource Money Market Sub-Account).............. 16
SAFECO Resource Money Market Sub-Account............................................ 16
Rankings............................................................................ 17
SAFECO................................................................................ 17
The Separate Account.................................................................. 17
SAFECO Resource Equity Sub-Account.................................................. 18
SAFECO Resource Growth Sub-Account.................................................. 18
SAFECO Resource Northwest Sub-Account............................................... 18
SAFECO Resource Bond Sub-Account.................................................... 18
SAFECO Resource Money Market Sub-Account............................................ 19
SAFECO Resource Small Company Stock Sub-Account..................................... 19
Federated High Income Bond Sub-Account.............................................. 19
Federated International Equity Sub-Account.......................................... 19
Federated Utility Sub-Account....................................................... 19
Lexington Emerging Markets Sub-Account.............................................. 20
Lexington Natural Resources Sub-Account............................................. 20
Scudder Balanced Sub-Account........................................................ 20
Scudder International Sub-Account................................................... 21
American Century VP Balanced Sub-Account............................................ 21
American Century VP International Sub-Account....................................... 22
SAFECO Resource Series Trust.......................................................... 22
Federated Insurance Series............................................................ 22
Lexington Emerging Markets Fund, Inc.................................................. 22
Lexington Natural Resources Trust..................................................... 22
Scudder Variable Life Investment Fund................................................. 23
American Century Variable Portfolios, Inc............................................. 23
Voting Rights......................................................................... 23
Substitution of Securities............................................................ 23
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PAGE
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Purchasing a Contract................................................................. 24
Purchase Payments................................................................... 24
Allocation of Purchase Payments..................................................... 24
Accumulation Unit................................................................... 24
Principal Underwriter............................................................... 25
Charges and Deductions................................................................ 25
Deduction for Premium and Other Taxes............................................... 25
Deduction for Mortality and Expense Risk Charge..................................... 26
Deduction for Contingent Deferred Sales Charge...................................... 26
Reduction or Elimination of the Contingent Deferred Sales Charge.................... 27
Deduction for Withdrawal Charge..................................................... 27
Deduction for Asset Related Administration Charge................................... 27
Deduction for Annual Administration Maintenance Charge.............................. 27
Deduction for Transfer Charge....................................................... 28
Other Expenses...................................................................... 28
Rights Under the Contract............................................................. 28
Owner, Annuitant and Beneficiary.................................................... 28
Misstatement of Age................................................................. 28
Evidence of Survival................................................................ 29
Contract Date....................................................................... 29
Contract Settlement................................................................. 29
Substitute Payee.................................................................... 29
Assignment.......................................................................... 30
Modification of the Contracts....................................................... 30
Termination of Contract............................................................. 30
Annuity and Death Benefit Provisions.................................................. 30
Selection and Change of Settlement Options.......................................... 30
Payment of Benefits................................................................. 30
Frequency and Amount of Annuity Payments............................................ 30
Death of Owner Prior to Annuity Date................................................ 30
Death of Annuitant.................................................................. 32
Death of Owner After Annuity Date................................................... 32
Settlement Options.................................................................. 32
Mortality and Expense Guarantee..................................................... 32
Withdrawals and Transfers............................................................. 33
Withdrawals......................................................................... 33
Transfers........................................................................... 33
Suspension of Payments or Transfers................................................. 34
Other Services........................................................................ 35
The Programs........................................................................ 35
Dollar Cost Averaging Program....................................................... 35
Automatic Transfer Program.......................................................... 36
Appreciation or Interest Sweep Program.............................................. 36
Sub-Account Rebalancing Program (also Portfolio Rebalancing Program)................ 36
Systematic Investment Program....................................................... 36
Periodic Withdrawal Program......................................................... 37
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PAGE
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Tax Status............................................................................ 37
General............................................................................. 37
Diversification..................................................................... 38
Multiple Contracts.................................................................. 39
Tax Treatment of Assignments........................................................ 39
Income Tax Withholding.............................................................. 39
Tax Treatment of Withdrawals -- Non-Qualified Contracts............................. 39
Qualified Plans..................................................................... 40
Tax Treatment of Withdrawals -- Qualified Contracts................................. 41
Tax-Sheltered Annuities -- Withdrawal Limitations................................... 41
Contract Owned by Other than Natural Persons........................................ 41
Legal Proceedings..................................................................... 42
Table of Contents of the Statement of Additional Information.......................... 42
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DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the value of
a Sub-Account prior to the Annuity Date.
ANNUITANT - The natural person on whose life Annuity payments are payable. The
Contract will not be issued if the Annuitant is 76 years of age or older on the
Contract Date.
ANNUITY - Any series of payments starting on the Annuity Date.
ANNUITY DATE - The date selected by the Owner for commencing Annuity payments
under the Contract. The day of the month on which the payments will be made will
be determined by SAFECO. The Annuity Date cannot be later than the date the
Annuitant attains age 85.
ANNUITY UNIT - An accounting unit of measure used to calculate Annuity payments
after the Annuity Date.
BENEFICIARY - The person or persons entitled to receive benefits under the
Contract upon the death of the Owner.
CONTRACT ANNIVERSARY - Any anniversary of the Contract Date.
CONTRACT DATE - For all Contracts issued prior to June 1, 1994, Contract Date
shall mean the earlier of the date on which the initial Purchase Payment is
allocated to the Separate Account or the Fixed Account. For Contracts issued on
or after June 1, 1994, see "Rights under the Contract -- Contract Date."
CONTRACT VALUE - The sum of the Owner's interest in the Sub-Accounts of the
Separate Account and the Fixed Account.
CONTRACT YEAR - The twelve month period which commences on the Contract Date and
each succeeding twelve month period thereafter.
ELIGIBLE INVESTMENT(S) - An investment entity in which a Sub-Account invests as
an underlying investment of the Contract.
FIXED ACCOUNT - SAFECO's General Account, referred to in the Contract as the
"Fixed Account," consists of the total Purchase Payments received by SAFECO
under a fixed annuity rider to the Contract and not previously withdrawn, plus
interest on each such Purchase Payment, less any applicable charges and
deductions. Purchase Payments allocated to the Fixed Account will become part of
the general corporate fund of SAFECO to be so used and invested consistent with
state insurance laws and will not be segregated from SAFECO's other assets.
FUNDS - The funding vehicles for the Separate Account, other than the Trust:
Certain portfolios of Federated Insurance Series; Lexington Emerging Markets
Fund, Inc.; Lexington Natural Resources Trust; Scudder Variable Life Investment
Fund and American Century Variable Portfolios, Inc.
NET PURCHASE PAYMENT - Purchase Payment less premium taxes.
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans which do
not receive favorable tax treatment under Sections 403(b), 408 or 457 of the
Internal Revenue Code.
OWNER - The person(s) or entity named in the Application who/which has all
rights under the Contract. Joint Owners are allowed only if the joint Owners are
spouses. Each joint Owner shall have equal ownership rights and must jointly
exercise those rights. On the date the Application is signed, the Owner must not
be older than age 75 (if joint Owners, neither may be older than 75).
PORTFOLIO - A segment of an Eligible Investment which constitutes a separate and
distinct class of shares.
PURCHASE PAYMENTS - Payments made to purchase Accumulation Units or which are
allocated to the Fixed Account.
QUALIFIED CONTRACTS - Contracts issued under Qualified Plans which receive
favorable tax treatment under Sections 403(b), 408 or 457 of the Internal
Revenue Code.
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SAFECO - SAFECO Life Insurance Company at its Annuity Service Office shown on
the cover page of this Prospectus.
SEPARATE ACCOUNT - A separate investment account of SAFECO, designated as SAFECO
Separate Account C, into which Purchase Payments or Contract Values may be
allocated. The Separate Account is divided into Sub-Accounts.
TRUST - SAFECO Resource Series Trust, one of the Eligible Investments for the
Separate Account.
VALUATION DATE - Each day that the New York Stock Exchange is open for business,
which is Monday through Friday, except for New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
VALUATION PERIOD - The period commencing at the close of business on each
Valuation Date and ending at the close of business for the next succeeding
Valuation Date.
WITHDRAWAL - Any payment, including Contract charges and deductions, from the
Contracts.
HIGHLIGHTS
The Contracts described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments on a fixed and variable basis.
At the Owner's direction, Purchase Payments for the Contracts are allocated to a
segregated investment account of SAFECO, which account has been designated
SAFECO Separate Account C, or to the Fixed Account. (See "Definitions -- Fixed
Account.") Under certain circumstances, however, Purchase Payments may initially
be allocated to the SAFECO Resource Money Market Sub-Account of the Separate
Account (see below). The assets of the Separate Account are the property of
SAFECO and obligations arising under the Contracts are SAFECO's general
corporate obligations.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in a Portfolio of the Trust or the Funds. The Trust and the
Funds are open-end management investment companies. There are currently six
Portfolios available to the Separate Account under the Trust: the SAFECO
Resource Equity, Growth, Northwest, Bond, Money Market and Small Company Stock
Portfolios. There are currently three Portfolios available to the Separate
Account under the Federated Insurance Series: the Federated High Income Bond
Portfolio, the Federated International Equity Portfolio and the Federated
Utility Portfolio. The Lexington Emerging Markets Portfolio is currently the
only Portfolio of the Emerging Markets Fund available to the Separate Account.
The Lexington Natural Resources Portfolio is currently the only Portfolio of the
Lexington Natural Resources Trust available to the Separate Account. There are
currently two Portfolios available to the Separate Account under the Scudder
Fund: the Scudder Balanced Portfolio and the Scudder International Portfolio.
THE SCUDDER BALANCED PORTFOLIO AND SCUDDER INTERNATIONAL PORTFOLIO ARE AVAILABLE
FOR CONTRACTS INVESTED IN THE RESPECTIVE PORTFOLIOS PRIOR TO MAY 1, 1997, AND
REMAINING CONTINUOUSLY INVESTED IN SUCH PORTFOLIOS THEREAFTER. NEW SHARES OF
SCUDDER BALANCED PORTFOLIO AND SCUDDER INTERNATIONAL PORTFOLIO ARE NOT AVAILABLE
FOR CONTRACTS THAT HAVE NOT BEEN CONTINUOUSLY INVESTED IN THE RESPECTIVE
PORTFOLIOS SINCE APRIL 30, 1997. There are currently two Portfolios available to
the Separate Account under the American Century Variable Portfolios, Inc.: the
American Century VP Balanced Portfolio and the American Century VP International
Portfolio. Each Portfolio of the Trust and the Funds has different investment
objectives. Owners bear the investment risk for all amounts allocated to the
Separate Account. For more information on the Trust and each of the Funds and
their respective Portfolios, please see "SAFECO Resource Series Trust,"
"Federated Insurance Series," "Lexington Emerging Markets Fund, Inc.,"
"Lexington Natural Resources Trust," "Scudder Variable Life Investment Fund,"
"American Century Variable Portfolios, Inc." and the Prospectuses for the Trust
and the Funds which accompany and should be read with this Prospectus.
Within ten (10) days of the date of receipt of the Contract by the Owner, or a
longer period as may be required by the state of issuance, it may be returned by
delivering or mailing it to SAFECO at its Annuity Service Office or to the agent
through whom it was purchased. When the Contract is received by SAFECO, it
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will be voided as if it had never been in force and SAFECO will refund the
Contract Value (which may be more or less than the Purchase Payments) computed
at the end of the Valuation Period during which the Contract is received by
SAFECO. However, in states where required and in the case of Contracts purchased
pursuant to an Individual Retirement Annuity, SAFECO will refund the Purchase
Payments rather than the Contract Value. Initial Purchase Payments are allocated
to the appropriate Sub-Account(s) in accordance with the election made by the
Owner in the Application. SAFECO reserves the right, however, to allocate all
initial Purchase Payments to the SAFECO Resource Money Market Sub-Account until
the expiration of fifteen (15) days from the date the first Purchase Payment is
received (except for any Purchase Payment to be allocated to the Fixed Account
as elected by the Owner). If SAFECO chooses to automatically allocate Purchase
Payments to the SAFECO Resource Money Market Sub-Account, SAFECO will refund the
greater of Purchase Payments or the Contract Value. Upon the expiration of the
fifteen day period, the Sub-Account Value of the SAFECO Resource Money Market
Sub-Account will be allocated to the appropriate Sub-Account(s) in accordance
with the election made by the Owner in the Application. Various charges and
deductions from Purchase Payments and the Separate Account are described below.
A Contingent Deferred Sales Charge may be deducted in the event of a Withdrawal
of all or a portion of the Contract Value. The Contingent Deferred Sales Charge
is imposed on Withdrawals made in the first eight (8) Contract Years and is
assessed as a percentage of the amount withdrawn. The maximum Contingent
Deferred Sales Charge is 8% of the amount withdrawn. An Owner may make
Withdrawals in any Contract Year of up to 10% of the Contract Value free from
the Contingent Deferred Sales Charge. There are certain other additional
instances (for example, like those described in the preceding paragraph) in
which this Charge is not applied. (See "Charges and Deductions -- Deduction for
Contingent Deferred Sales Charge.") SAFECO deducts a Withdrawal Charge which is
equal to the lesser of $25 or 2% of the amount withdrawn for each Withdrawal
after the first in any Contract Year. (See "Charges and Deductions -- Deduction
for Withdrawal Charge.")
There is a deduction made for the Mortality and Expense Risk Charge computed on
a daily basis which is equal, on an annual basis, to 1.25% of the average daily
net asset value of the Separate Account. This charge compensates SAFECO for
assuming the mortality and expense risks under the Contracts. (See "Charges and
Deductions -- Deduction for Mortality and Expense Risk Charge.")
There is an Asset Related Administration Charge computed on a daily basis which
is equal, on an annual basis, to .15% of the average daily net asset value of
the Separate Account. This Charge compensates SAFECO for costs associated with
the administration of the Contracts and the Separate Account. (See "Charges and
Deductions -- Deduction for Asset Related Administration Charge.")
SAFECO deducts an Annual Administration Maintenance Charge of $30 from the
Contract Value on the last day of each Contract Year and in the event of a
complete Withdrawal. This Charge is only deducted from Contracts where the
Contract Value is less than $50,000. (See "Charges and Deductions -- Deduction
for Annual Administration Maintenance Charge.")
Under certain circumstances, a Transfer Charge may be assessed when an Owner
transfers Contract Values from one Sub-Account to another Sub-Account or to or
from the Fixed Account. (See "Charges and Deductions -- Deduction for Transfer
Charge.")
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values with respect to Non-Qualified
Contracts. SAFECO reserves the right to deduct these taxes from Contract Values
with respect to Qualified Contracts. (See "Charges and Deductions -- Deduction
for Premium and Other Taxes.")
There are deductions from and expenses paid out of the assets of the Trust and
the Funds. See the accompanying Trust and Funds Prospectuses.
There is a ten percent (10%) federal income tax penalty applied to the income
portion of any premature distribution from Non-Qualified Contracts. However, the
penalty is not imposed on amounts received: (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Owner; (c) if the taxpayer is totally
disabled (for this purpose disability is as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986, as
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amended (the "Code")); (d) in a series of substantially equal periodic payments
made not less frequently than annually for the life (or life expectancy) of the
taxpayer or for the joint lives (or joint life expectancies) of the taxpayer and
his or her Beneficiary; (e) under an immediate annuity; or (f) which are
allocable to purchase payments made prior to August 14, 1982. For federal income
tax purposes, withdrawals are deemed to be on a last-in, first-out basis.
Separate tax withdrawal penalties and restrictions apply to Qualified Contracts.
(See "Tax Status -- Tax Treatment of Withdrawals -- Qualified Contracts.") For a
further discussion of the taxation of the Contracts see "Tax Status."
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) are limited
to circumstances only when the Owner attains age 59 1/2, separates from service,
dies, becomes disabled (within the meaning of Section 72(m)(7) of the Code) or
in the case of hardship. Withdrawals for hardship are restricted to the portion
of the Owner's Contract Value which represents contributions made by the Owner
and does not include any investment results. The limitations on withdrawals
became effective on January 1, 1989, and apply only to: (1) salary reduction
contributions made after December 31, 1988; (2) income attributable to such
contributions; and (3) income attributable to amounts held as of December 31,
1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Tax penalties may also apply. (See "Tax
Status -- Tax Treatment of Withdrawals -- Qualified Contracts.") Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
(See "Tax Status -- Tax-Sheltered Annuities -- Withdrawal Limitations.")
The Treasury Department has indicated that guidelines may be forthcoming under
which a variable annuity contract will not be treated as an annuity contract for
tax purposes if the owner of the contract has excessive control over the
investments underlying the contract. The issuance of such guidelines may require
SAFECO to impose limitations on an Owner's right to control the investment. It
is not known whether any such guidelines would have a retroactive effect (See
"Tax Status -- Diversification").
Because of certain exemptive and exclusionary provisions, interests in the Fixed
Account are not registered under the Securities Act of 1933 and the Fixed
Account is not registered as an investment company under the Investment Company
Act of 1940, as amended. Accordingly, neither the Fixed Account nor any
interests therein are subject to the provisions of these Acts, and SAFECO has
been advised that the staff of the Securities and Exchange Commission has not
reviewed the disclosures in the Prospectus relating to the Fixed Account.
Disclosures regarding the Fixed Account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
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EXPENSE TABLE
SAFECO SEPARATE ACCOUNT C
The non-SAFECO Fund information in this Expense Table set forth below with
respect to the Portfolios was provided to the Separate Account by the Portfolios
and such information was not independently verified by the Separate Account.
CONTRACT OWNER TRANSACTION EXPENSES:
DEFERRED SALES LOAD: Contingent Deferred Sales Charge (as a percentage of
amount withdrawn)*: This charge applies to Withdrawals in
any Contract Year which exceed 10% of the Owner's Contract
Value:
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Contract Year 1 8% of amount withdrawn
Contract Year 2 7% of amount withdrawn
Contract Year 3 6% of amount withdrawn
Contract Year 4 5% of amount withdrawn
Contract Year 5 4% of amount withdrawn
Contract Year 6 3% of amount withdrawn
Contract Year 7 2% of amount withdrawn
Contract Year 8 1% of amount withdrawn
After Contract Year 8 0% of amount withdrawn
</TABLE>
*While the Contingent Deferred Sales Charge assesses a percentage of the amount
withdrawn according to the stated schedule, total Contingent Deferred Sales
Charges collected by SAFECO will not exceed 8.5% of the Purchase Payments made
under the Contract.
WITHDRAWAL CHARGE: Equal to the lesser of $25 or 2% of the amount withdrawn for
each Withdrawal after the first in any Contract Year. Not
deducted where the Owner is participating in the Systematic
Withdrawal Income Plan(TM) or is exercising a Settlement
Option.
TRANSFER CHARGE: First 12 Transfers in a Contract Year are free. Thereafter,
SAFECO reserves the right to assess a Transfer Charge which
will be equal to the lesser of $10 or 2% of the amount
transferred. The charge is not imposed under the Programs,
subject to certain requirements. (See "The Programs".)
ANNUAL ADMINISTRATION CHARGE
$30 per Contract per Contract Year.* Waived if Contract Value is $50,000 or
more.
<TABLE>
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE ACCOUNT VALUE)
<S> <C>
Mortality and Expense Risk Fees 1.25%
Asset Related Administration Charge .15%
-----
Total Separate Account Annual Expenses 1.40%
</TABLE>
-9-
<PAGE> 14
SAFECO RESOURCE SERIES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
SAFECO Resource Equity Portfolio .70%
SAFECO Resource Growth Portfolio .72%
SAFECO Resource Northwest Portfolio .70%
SAFECO Resource Bond Portfolio .73%
SAFECO Resource Money Market Portfolio .62%
SAFECO Resource Small Company Stock Portfolio .85%
Other Expenses
SAFECO Resource Equity Portfolio .02%
SAFECO Resource Growth Portfolio .07%
SAFECO Resource Northwest Portfolio** .00%
SAFECO Resource Bond Portfolio** .00%
SAFECO Resource Money Market Portfolio** .00%
SAFECO Resource Small Company Stock Portfolio** .10%
Total Trust Annual Expenses (After Reimbursement, if applicable)
SAFECO Resource Equity Portfolio .72%
SAFECO Resource Growth Portfolio .79%
SAFECO Resource Northwest Portfolio .70%
SAFECO Resource Bond Portfolio .73%
SAFECO Resource Money Market Portfolio .62%
SAFECO Resource Small Company Stock Portfolio .95%
</TABLE>
FEDERATED INSURANCE SERIES ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Federated High Income Bond Portfolio .00%
Federated International Equity Portfolio .00%
Federated Utility Portfolio .24%
Other Expenses***
Federated High Income Bond Portfolio .80%
Federated International Equity Portfolio 1.25%
Federated Utility Portfolio .61%
Total Fund Annual Expenses*** (After Reimbursement, if applicable)
Federated High Income Bond Portfolio .80%
Federated International Equity Portfolio 1.25%
Federated Utility Portfolio .85%
</TABLE>
LEXINGTON EMERGING MARKETS FUND, INC. ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees .85%
Other Expenses**** .79%
Total Fund Annual Expenses**** (After Reimbursement, if applicable) 1.64%
</TABLE>
-10-
<PAGE> 15
LEXINGTON NATURAL RESOURCES TRUST ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees 1.00%
Other Expenses***** .42%
Total Fund Annual Expenses***** (After Reimbursement, if applicable) 1.42%
</TABLE>
SCUDDER VARIABLE LIFE INVESTMENT FUND ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
Scudder Balanced Portfolio .475%
Scudder International Portfolio .863%
Other Expenses******
Scudder Balanced Portfolio .125%
Scudder International Portfolio .187%
Total Fund Annual Expenses****** (After Reimbursement, if applicable)
Scudder Balanced Portfolio .60%
Scudder International Portfolio 1.05%
</TABLE>
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. ANNUAL EXPENSES:
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<S> <C>
Management Fees
American Century VP Balanced Portfolio 1.00%
American Century VP International Portfolio 1.50%
Other Expenses
American Century VP Balanced Portfolio 0.00%
American Century VP International Portfolio 0.00%
Total Fund Annual Expenses (After Reimbursement, if applicable)
American Century VP Balanced Portfolio 1.00%
American Century VP International Portfolio 1.50%
</TABLE>
* For purposes of the Examples, the Annual Administration Maintenance
Charge is calculated as a ratio of total Annual Administration
Maintenance Charges collected during the year to the total average net
assets of all Sub-Accounts. The Annual Administration Maintenance Charge
percentage will change each year because of changes in total Annual
Administration Maintenance Charges collected during the year and the
total average net assets of all Sub-Accounts. This will result in
variations in the Expense Table each year.
** SAFECO pays all Other Expenses of the Northwest, Bond and Money Market
Portfolios until the 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:
<TABLE>
<S> <C>
SAFECO Resource Northwest Portfolio 1.11%
SAFECO Resource Bond Portfolio .87%
SAFECO Resource Money Market Portfolio .90%
</TABLE>
-11-
<PAGE> 16
The amounts shown for the Small Company Portfolio are estimated expenses
based on the maximum management fee and estimated Other Expenses. SAFECO
Asset Management Company (SAM) will pay all Other Expenses of the Small
Company Portfolio in excess of .10% of the Portfolio's average annual
net assets until such time as the Portfolio's net assets exceed $20
million. Once the Portfolio's net assets exceed $20 million, all of the
Other Expenses will be paid by the Portfolio. For the fiscal year ending
December 31, 1997, the estimated Other Expenses for the Small Company
Portfolio are expected to total .35%.
*** SAFECO has entered into a Participation Agreement with the Federated
Insurance Series in connection with the Separate Account's investment in
the shares of the Federated Insurance Series. Other Participating
Insurance Companies have entered into similar Participation Agreements
with the Federated Insurance Series. For the one year ended December 31,
1996, the adviser 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; Federated International Equity Fund II $134,034, absent
reimbursement $459,841.
**** SAFECO has entered into a Participation Agreement with the Lexington
Emerging Markets Fund in connection with the Separate Account's
investment in the shares of the Lexington Emerging Markets Fund. Other
Participating Insurance Companies have entered into similar Participation
Agreements with the Lexington Emerging Markets Fund. For the period May
1, 1996 through April 30, 1997, the adviser 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%. For the one year ended
December 31, 1996, the adviser voluntarily waived or reimbursed expenses,
as follows: Lexington Emerging Markets Fund $101,886, absent
reimbursement $384,200.
***** SAFECO has entered into a Participation Agreement with the Lexington
Natural Resources Trust in connection with the Separate Account's
investment in the shares of the Lexington Natural Resources Trust. Other
Participating Insurance Companies have entered into similar Participation
Agreements with the Lexington Natural Resources Trust.
****** SAFECO has entered into a Participation Agreement with the Scudder Fund
in connection with the Separate Account's investment in the shares of the
Scudder Fund. Other insurance companies (together, with SAFECO,
collectively referred to herein as "Participating Insurance Companies")
have entered into similar Participation Agreements with the Scudder Fund.
For a period of five years from the date of execution of a Participation
Agreement with the Scudder Fund, and from year to year thereafter if
agreed to by the Participating Insurance Company and the Fund, each
Participating Insurance Company (including SAFECO) has agreed to
reimburse the Scudder Fund to the extent that annual operating expenses
of the Scudder Balanced Portfolio of the Scudder Fund exceed 0.75% of
such Portfolio's average annual net assets and to the extent that the
annual operating expenses of the Scudder International Portfolio of the
Scudder Fund exceed 1.50% of such Portfolio's average annual net assets.
Under these arrangements, no reimbursement of expenses of either of these
Portfolios was required of SAFECO for the year ended December 31, 1996.
<TABLE>
<S> <C> <C> <C> <C>
Examples for SAFECO Resource Equity Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 96 $ 128 $ 160 $ 255
Assuming annuitization at end of period............... $ 22 $ 69 $ 119 $ 255
Assuming no withdrawal................................ $ 22 $ 69 $ 119 $ 255
</TABLE>
-12-
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
Examples for SAFECO Resource Growth Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 130 $ 163 $ 262
Assuming annuitization at end of period............... $ 23 $ 71 $ 122 $ 262
Assuming no withdrawal................................ $ 23 $ 71 $ 122 $ 262
Examples for SAFECO Resource Money Market Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following
expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 96 $ 125 $ 155 $ 244
Assuming annuitization at end of period............... $ 21 $ 66 $ 113 $ 244
Assuming no withdrawal................................ $ 21 $ 66 $ 113 $ 244
Examples for SAFECO Resource Northwest Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 96 $ 127 $ 159 $ 253
Assuming annuitization at end of period............... $ 22 $ 69 $ 118 $ 253
Assuming no withdrawal................................ $ 22 $ 69 $ 118 $ 253
Examples for SAFECO Resource Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 128 $ 160 $ 256
Assuming annuitization at end of period............... $ 23 $ 69 $ 119 $ 256
Assuming no withdrawal................................ $ 23 $ 69 $ 119 $ 256
Examples for SAFECO Resource Small Company Stock
- ------------------------------------------------------
Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 99 $ 134 $ 171 $ 278
Assuming annuitization at end of period............... $ 25 $ 76 $ 130 $ 278
Assuming no withdrawal................................ $ 25 $ 76 $ 130 $ 278
Examples for Federated High Income Bond Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 97 $ 130 $ 164 $ 263
Assuming annuitization at end of period............... $ 23 $ 72 $ 123 $ 263
Assuming no withdrawal................................ $ 23 $ 72 $ 123 $ 263
Examples for Federated International Equity
Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 101 $ 143 $ 185 $ 307
Assuming annuitization at end of period............... $ 28 $ 85 $ 145 $ 307
Assuming no withdrawal................................ $ 28 $ 85 $ 145 $ 307
Examples for Federated Utility Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 98 $ 132 $ 166 $ 268
Assuming annuitization at end of period............... $ 24 $ 73 $ 125 $ 268
Assuming no withdrawal................................ $ 24 $ 73 $ 125 $ 268
</TABLE>
-13-
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Examples for Lexington Emerging Markets Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 105 $ 154 $ 204 $ 344
Assuming annuitization at end of period............... $ 32 $ 97 $ 164 $ 344
Assuming no withdrawal................................ $ 32 $ 97 $ 164 $ 344
Examples for Lexington Natural Resources Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 103 $ 148 $ 193 $ 323
Assuming annuitization at end of period............... $ 29 $ 90 $ 153 $ 323
Assuming no withdrawal................................ $ 29 $ 90 $ 153 $ 323
Examples for Scudder Balanced Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 95 $ 124 $ 154 $ 242
Assuming annuitization at end of period............... $ 21 $ 66 $ 112 $ 242
Assuming no withdrawal................................ $ 21 $ 66 $ 112 $ 242
Examples for Scudder International Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 100 $ 137 $ 176 $ 288
Assuming annuitization at end of period............... $ 26 $ 79 $ 135 $ 288
Assuming no withdrawal................................ $ 26 $ 79 $ 135 $ 288
Examples for American Century VP Balanced Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 104 $ 150 $ 197 $ 331
Assuming annuitization at end of period............... $ 30 $ 92 $ 157 $ 331
Assuming no withdrawal................................ $ 30 $ 92 $ 157 $ 331
Examples for American Century VP International
Sub-Account Year 1 Year 3 Year 5 Year 10
- ------------------------------------------------------ ---- ---- ---- ----
Assuming a 5% return on assets, you would pay the
following expenses on a $1,000 investment:
Assuming withdrawal at end of period.................. $ 99 $ 136 $ 173 $ 283
Assuming annuitization at end of period............... $ 25 $ 78 $ 133 $ 283
Assuming no withdrawal................................ $ 25 $ 78 $ 133 $ 283
</TABLE>
The information in the "Examples" is estimated and provided to assist the
potential Owner in understanding the various costs and expenses charged to an
Owner's Contract Value either directly or indirectly and reflects expenses of
the Separate Account, the Trust and the Funds. The Examples do not reflect
premium taxes which may be applicable. Contingent Deferred Sales Charges may be
waived in certain circumstances. For additional information, see "Charges and
Deductions" in this Prospectus for the Separate Account, "Management of the
Trust" in the Prospectus for the Trust, "Federated Insurance Series Information"
in the Prospectus for the Federated Insurance Series, "Management of the Fund"
in the Prospectus for the Lexington Emerging Markets Fund, "Investment Adviser,
Sub-Adviser and Distributor" in the Prospectus for the Lexington Natural
Resources Trust, "Investment Adviser" in the Prospectus for the Scudder Fund and
"Financial Highlights" in the Prospectus for the American Century Variable
Portfolios, Inc.
THE INFORMATION ABOVE IS NOT INTENDED TO BE REPRESENTATIVE OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
-14-
<PAGE> 19
SCHEDULE OF ACCUMULATION UNIT VALUES
AND ACCUMULATION UNITS OUTSTANDING
SAFECO SEPARATE ACCOUNT C
The following selected financial data are derived from the financial statements
of SAFECO Separate Account C, which have been audited by Ernst & Young LLP,
independent auditors. The data should be read in conjunction with the financial
statements, related notes, and other financial information incorporated by
reference herein.
Such information is not included for the SAFECO Resource Small Company Stock
Sub-Account as it is a new Sub-Account.
<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 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
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
SCUDDER INTERNATIONAL SUB-ACCOUNT
February 11 value (initial public offering)................... $ 10.948
December 31 value............................................. $ 13.022 $ 11.504 $ 10.498
December 31 units............................................. 545,285 278,030 137,600
SCUDDER BALANCED SUB-ACCOUNT
February 11 value (initial public offering)................... $ 10.435
December 31 value............................................. $ 13.771 $ 12.481 $ 9.988
December 31 units............................................. 660,227 134,772 49,575
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
FEDERATED INTERNATIONAL EQUITY SUB-ACCOUNT
January 25 value (initial public offering).................... $ 10.220
December 31 value............................................. $ 11.056
December 31 units............................................. 34,059
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>
-15-
<PAGE> 20
FINANCIAL STATEMENTS
The financial statements for SAFECO are contained in the Statement of Additional
Information which is available at no charge by calling 1-800-426-7649 or writing
to the Annuity Service Office address on the cover.
PERFORMANCE INFORMATION
In advertisements, the "yield," "effective yield," "total return" and "average
annual total return" of the Sub-Accounts may be quoted.
ALL SUB-ACCOUNTS (OTHER THAN SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT)
"Yield" is the annualization on a 360-day basis of net income per unit over a
30-day period divided by the accumulation unit value on the last day of the
period. Yield figures are calculated by determining the income generated by an
investment in the Sub-Account over a 30-day period. The income is then
annualized by assuming that the income generated during the 30-day period
continues to be generated each month for a 12-month period and is shown as a
percentage of the investment. Yield figures will reflect deduction of the Annual
Administration Maintenance Charge which is assessed on an annual basis to Owners
whose Contract Value is less than $50,000, but will not include any applicable
Contingent Deferred Sales Charge.
"Total return" is the total percentage change in the unit value of an investment
over a stated period of time. "Average annual total return" is the annual
percentage change in the unit value of an investment over a stated period of
time. Both total return and average annual total return assume the reinvestment
of dividend and capital gains distributions.
Standardized total return figures which appear in advertisements or sales
literature will be calculated for required time periods based on a set initial
investment amount and include the Annual Administration Maintenance Charge and
the Contingent Deferred Sales Charge. From time to time, non-standardized total
return figures may accompany the standardized figures. Although certain
Sub-Accounts may be new and therefore have no investment performance history in
the Separate Account, hypothetical performance may be calculated based on the
respective portfolios' historical performance prior to its availability in the
Separate Account. Non-standardized total return figures may be calculated in a
variety of ways including but not necessarily limited to different time periods,
different initial investment amounts, additions of periodic payments, use of
time weighted average annual returns which take into consideration the length of
time each investment has been on deposit, and without the Annual Administration
Maintenance Charge and/or with or without the Contingent Deferred Sales Charge.
Non-standardized figures may cause the performance of the Sub-Accounts to appear
higher than performance calculated using standard parameters.
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
"Yield" is the annualization on a 365-day basis of the SAFECO Resource Money
Market Sub-Account's net income over a 7-day period. Yield figures are
calculated by determining the income generated by an investment in the
Sub-Account over a 7-day period. The income is then annualized by assuming that
the income generated during the 7-day period continues to be generated each week
for a 52-week period and is shown as a percentage of the investment.
"Effective yield" is the annualization, on a 365-day basis, of the Sub-Account's
net income over a 7-day period with dividends reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
As explained above, yield figures will reflect deduction of the Annual
Administration Maintenance Charge which is assessed on an annual basis to Owners
whose Contract Value is less than $50,000, but will not include any applicable
Contingent Deferred Sales Charge.
For the SAFECO Resource Money Market Portfolio, total return and average annual
total return are non-standardized performance figures which may accompany the
standardized yield and effective yield. "Total return" is the total percentage
change in the unit value of an investment over a stated period of time and
-16-
<PAGE> 21
"average annual total return" is the annual percentage change in the unit value
of an investment over a stated period of time. Non-standardized total return and
average annual total return figures for the SAFECO Resource Money Market
Portfolio may be calculated in a variety of ways, as described above.
RANKINGS
In addition to these performance figures, the Sub-Accounts may advertise
rankings as provided by the Lipper Variable Insurance Products Performance
Analysis Service published by Lipper Analytical Services, Inc. which monitors
separate account performance for variable annuity products such as the
Contracts, the VARDS Report which is a monthly variable annuity industry
analysis compiled by Variable Annuity Research & Data Service of Roswell,
Georgia and published by Financial Planning Resources, Inc. or the Variable
Annuity Performance Report published by Morningstar, Inc. which is also a
monthly analysis of variable annuity performance. Rankings provided by these
sources may or may not include all applicable charges.
Performance figures and quoted rankings are indicative only of past performance
and are not intended to represent future investment results.
SAFECO
SAFECO is a stock life insurance company which was organized under the laws of
the state of Washington on January 23, 1957. SAFECO writes individual and group
life, accident and health insurance and annuities. SAFECO is licensed to do
business in the District of Columbia and all states except New York. SAFECO is a
wholly-owned subsidiary of SAFECO Corporation which is a holding company whose
subsidiaries are engaged primarily in insurance and financial service
businesses. The home office of SAFECO is located at 15411 N.E. 51st Street,
Redmond, Washington 98052.
THE SEPARATE ACCOUNT
The Board of Directors of SAFECO adopted a resolution to establish a segregated
asset account pursuant to Washington insurance law on February 6, 1986. This
segregated asset account has been designated SAFECO Separate Account C. SAFECO
has caused the Separate Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. The Separate Account meets the definition of a
"separate account" under the federal securities laws.
The assets of the Separate Account are the property of SAFECO. However, the
assets of the Separate Account, equal to the reserves and other contract
liabilities with respect to the Separate Account, are not chargeable with
liabilities arising out of any other business SAFECO may conduct. Income, gains
and losses, whether or not realized, are in accordance with the Contracts
credited to or charged against the Separate Account without regard to other
income, gains or losses of SAFECO. SAFECO's obligations arising under the
Contracts are general corporate obligations. The investments of the Separate
Account will be valued at their fair market value in accordance with the
procedures approved by the Board of Directors of SAFECO and the Separate Account
committee.
The Separate Account is divided into Sub-Accounts, with the assets of each
Sub-Account invested in one of the Portfolio(s) of the Trust or the Funds.
Currently there are six SAFECO Resource Portfolios available under the Trust:
the SAFECO Resource Equity Portfolio, SAFECO Resource Growth Portfolio, SAFECO
Resource Northwest Portfolio, SAFECO Resource Bond Portfolio, SAFECO Resource
Money Market and SAFECO Resource Small Company Stock Portfolio. Currently there
are three Portfolios available under the Federated Insurance Series: the
Federated High Income Bond Portfolio, the Federated International Equity
Portfolio and the Federated Utility Portfolio. The Lexington Emerging Markets
Portfolio is currently the only Portfolio of the Emerging Markets Fund available
to the Separate Account. The Lexington Natural Resources Portfolio is currently
the only Portfolio of the Lexington Natural Resources Trust available to the
Separate Account. There are two Portfolios available under the Scudder Fund: the
Scudder Balanced Portfolio and the Scudder International Portfolio. THE SCUDDER
BALANCED PORTFOLIO AND SCUDDER INTERNATIONAL PORTFOLIO ARE AVAILABLE FOR
CONTRACTS INVESTED IN THE RESPECTIVE PORTFOLIOS PRIOR TO MAY 1, 1997, AND
REMAINING CONTINUOUSLY
-17-
<PAGE> 22
INVESTED IN SUCH PORTFOLIOS THEREAFTER. NEW SHARES OF SCUDDER BALANCED PORTFOLIO
AND SCUDDER INTERNATIONAL PORTFOLIO ARE NOT AVAILABLE FOR CONTRACTS THAT HAVE
NOT BEEN CONTINUOUSLY INVESTED IN THE RESPECTIVE PORTFOLIOS SINCE APRIL 30,
1997. There are two Portfolios available under the American Century Variable
Portfolios, Inc.: the American Century VP Balanced Portfolio and the American
Century VP International Portfolio. There is no assurance that the investment
objective of any of the Portfolios will be met. Owners bear the complete
investment risk for Purchase Payments allocated to a Sub-Account. Contract
Values will fluctuate in accordance with the investment performance of the
Sub-Account(s) to which Purchase Payments are allocated, and in accordance with
the imposition of the fees and charges assessed under the Contracts.
SAFECO RESOURCE EQUITY SUB-ACCOUNT
The investment objective of the SAFECO Resource Equity Sub-Account is to seek
long-term growth of capital and reasonable current income.
The SAFECO Resource Equity Sub-Account invests in the SAFECO Resource Equity
Portfolio. To pursue its investment objective, the SAFECO Resource Equity
Portfolio ordinarily invests principally in common stocks or securities
convertible into common stocks. Fixed-Income securities may be purchased in
accordance with business and financial conditions.
SAFECO RESOURCE GROWTH SUB-ACCOUNT
The investment objective of the SAFECO Resource Growth Sub-Account is to seek
growth of capital and the increased income that ordinarily follows from such
growth.
The SAFECO Resource Growth Sub-Account invests in the SAFECO Resource Growth
Portfolio. To pursue its investment objective, the SAFECO Resource Growth
Portfolio will ordinarily invest a preponderance of its assets in common stocks
selected primarily for potential appreciation. To determine those common stocks
which have the potential for long-term growth, SAFECO Asset Management Company,
the Trust's investment adviser, will evaluate the issuer's financial strength,
quality of management and earnings power.
SAFECO RESOURCE NORTHWEST SUB-ACCOUNT
The investment objective of the SAFECO Resource Northwest Sub-Account is to seek
long-term growth of capital through investing primarily in Northwest companies.
The SAFECO Resource Northwest Sub-Account invests in the SAFECO Resource
Northwest Portfolio. To pursue its investment objective, the SAFECO Resource
Northwest Portfolio will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in
Washington, Alaska, Idaho, Oregon or Montana.
The SAFECO Resource Northwest Portfolio will ordinarily invest its assets in
shares of common stock selected primarily for potential long-term appreciation.
The SAFECO Resource Northwest Portfolio may also occasionally invest in
securities convertible into common stock.
SAFECO RESOURCE BOND SUB-ACCOUNT
The investment objective of the SAFECO Resource Bond Sub-Account is to seek as
high a level of current income as is consistent with the relative stability of
capital.
The SAFECO Resource Bond Sub-Account invests in the SAFECO Resource Bond
Portfolio. To pursue its investment objective, the SAFECO Resource Bond
Portfolio invests primarily in medium-term debt securities. Although the SAFECO
Resource Bond Portfolio does not intend to purchase below investment grade bonds
during the coming year, it may hold up to 20% of total assets in bonds which are
downgraded after purchase to below investment grade quality by Standard & Poor's
Corporation or Moody's Investors Service, Inc. Below investment grade bonds are
commonly referred to as high-yield or "junk" bonds and have special risks
associated with them. See the Trust's Prospectus and Statement of Additional
Information for more information.
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<PAGE> 23
SAFECO RESOURCE MONEY MARKET SUB-ACCOUNT
The investment objective of the SAFECO Resource Money Market Sub-Account is to
seek as high a level of current income as is consistent with the preservation of
capital and liquidity through investments in high-quality money market
investments maturing in thirteen months or less.
The SAFECO Resource Money Market Sub-Account invests in the SAFECO Resource
Money Market Portfolio which seeks to maintain a net asset value per share of
$1.00. SHARES OF THE SAFECO RESOURCE MONEY MARKET PORTFOLIO ARE NEITHER INSURED,
NOR GUARANTEED, BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THE SAFECO
RESOURCE MONEY MARKET PORTFOLIO WILL MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
SAFECO RESOURCE SMALL COMPANY STOCK SUB-ACCOUNT
The investment objective of the SAFECO Resource Small Company Stock Sub-Account
is to seek long-term growth of capital through investing primarily in
small-sized companies.
The SAFECO Resource Small Company Stock Sub-Account invests in the SAFECO
Resource Small Company Stock Portfolio. The Small Company Stock Portfolio will
pursue its investment objective by investing at least 65% of its total assets in
common stock and preferred stock of small-sized companies with total market
capitalization of less than $1 billion.
FEDERATED HIGH INCOME BOND SUB-ACCOUNT
The investment objective of the Federated High Income Bond Sub-Account is to
seek high current income.
The Federated High Income Bond Sub-Account invests in the Federated High Income
Bond Portfolio. To pursue its investment objective, the Federated High Income
Bond Portfolio invests primarily in a diversified portfolio of professionally
managed fixed-income securities. The fixed-income securities in which the
Federated High Income Bond Portfolio intends to invest are lower-rated corporate
debt obligations, which are commonly referred to as "junk bonds." Some of these
fixed-income securities may involve equity features. Capital growth will be
considered, but only when consistent with the investment objective of high
current income.
FEDERATED INTERNATIONAL EQUITY SUB-ACCOUNT
The investment objective of the Federated International Equity Sub-Account is to
seek to obtain a total return on its assets.
The Federated International Equity Sub-Account invests in the Federated
International Equity Portfolio. To pursue its investment objective, the
Federated International Equity Portfolio invests in a diversified portfolio of
equity securities issued by non-U.S. issuers. The Federated International Equity
Portfolio will invest at least 65% of its total assets, and under normal market
conditions substantially all of its assets, in equity securities of issuers
located in at least three different countries outside of the United States. The
equity securities will be selected primarily for superior growth potential and
to reduce portfolio volatility. The Federated International Equity Portfolio may
purchase sponsored or unsponsored American Depository Receipts, Global
Depository Receipts, and European Depository Receipts; corporate and government
fixed income securities of issuers outside of the United States; convertible
securities; and options and financial futures contracts. While the Federated
International Equity Portfolio primarily invests in dividend-paying equity
securities of established companies that appear to have growth potential, it may
as a temporary defensive position, shift its emphasis to such other securities
if such investments appear to offer potential higher return.
FEDERATED UTILITY SUB-ACCOUNT
The investment objective of the Federated Utility Sub-Account is to seek high
current income and moderate capital appreciation.
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<PAGE> 24
The Federated Utility Sub-Account invests in the Federated Utility Portfolio. To
pursue its investment objective, the Federated Utility Portfolio invests
primarily in a professionally managed and diversified portfolio of equity and
debt securities of utility companies that produce, transmit, or distribute gas
and electric energy as well as those companies that provide communications
facilities, such as telephone and telegraph companies. Under normal market
conditions, the Federated Utility Portfolio invests at least 65% of its total
assets in securities of utility companies.
LEXINGTON EMERGING MARKETS SUB-ACCOUNT
The investment objective of the Lexington Emerging Markets Sub-Account is to
seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets.
The Lexington Emerging Markets Sub-Account invests in the Lexington Emerging
Markets Portfolio. To pursue its investment objective, the Lexington Emerging
Markets Portfolio invests primarily in emerging country and emerging market
equity securities of all types of common stocks and equivalents (the following
constitute equivalents: convertible debt securities and warrants), although the
Portfolio also may invest in preferred stocks, bonds, and money market
instruments of foreign and domestic companies, the U.S. government, and its
agencies. The Lexington Emerging Markets Portfolio, under normal conditions,
will invest at least 65% of its total assets in emerging country and emerging
market equity securities in at least three countries outside of the U.S. and at
all times will invest in a minimum of three countries outside of the U.S.
Investments in emerging country equity securities are not subject to a maximum
limit, and it is the intention of the Lexington Emerging Markets Portfolio's
adviser to invest substantially all of the Portfolio's assets in such
securities. For purposes of its investment objective, the Lexington Emerging
Markets Portfolio considers emerging country equity securities to be any country
whose economy and market the World Bank or United Nations considers to be
emerging or developing, and the Portfolio also may invest in equity securities
and equivalents, traded in any market, of companies that derive 50% or more of
their total revenue from either goods or services produced in such emerging
countries and emerging markets or sales made in such countries.
LEXINGTON NATURAL RESOURCES SUB-ACCOUNT
The investment objective of the Lexington Natural Resources Sub-Account is to
seek long-term growth of capital through investing primarily in common stocks of
companies that own or develop natural resources and other basic commodities, or
supply goods and services to such companies.
The Lexington Natural Resources Sub-Account invests in the Lexington Natural
Resources Portfolio. To pursue its investment objective, the Lexington Natural
Resources Portfolio seeks to identify securities of companies that, in its
management's opinion, are undervalued relative to the value of natural resource
holdings of such companies in light of current and anticipated economic or
financial conditions. The Lexington Natural Resources Portfolio will consider a
company to have substantial natural resource assets when, in its management's
opinion, the company's holdings of the assets are of such magnitude, when
compared to the capitalization, revenues or operating profits of the company,
that changes in the economic value of the assets will affect the market price of
the equity securities of such company, which, generally, is when at least 50% of
the non-current assets, capitalization, gross revenues or operating profits of
the company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Up to 25%
of the Lexington Natural Resources Portfolio's total assets may be invested in
securities principally traded in markets outside the U.S.
SCUDDER BALANCED SUB-ACCOUNT
AVAILABLE ONLY FOR CONTRACTS CONTINUOUSLY INVESTED IN THE SUB-ACCOUNT SINCE
APRIL 30, 1997.
The investment objective of the Scudder Balanced Sub-Account is to seek a
balance of growth and income from a diversified portfolio of equity and fixed
income securities. The Scudder Balanced Sub-Account also
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<PAGE> 25
seeks long-term preservation of capital through a quality-oriented investment
approach that is designed to reduce risk.
The Scudder Balanced Sub-Account invests in the Scudder Balanced Portfolio. In
seeking its objectives of a balance of growth and income, as well as long-term
preservation of capital, the Scudder Balanced Portfolio invests in a diversified
portfolio of equity and fixed income securities. The Scudder Balanced Portfolio
invests, under normal circumstances, at least 50%, but no more than 75%, of its
net assets in common stocks and other equity investments. The Scudder Balanced
Portfolio's equity investments consist of common stocks, preferred stocks,
warrants and securities convertible into common stocks, of companies that, in
the investment adviser's judgment, are of above-average financial quality and
offer the prospect for above-average growth in earnings, cash flow, or assets
relative to the overall market as defined by the Standard and Poor's 500
Composite Price Index. At least 65% of the value of the Portfolio's common
stocks will be of issuers which qualify, at the time of purchase, for one of the
three highest equity earnings and dividends ranking categories (A+, A, or A-) of
S&P, or if not ranked by S&P, are judged to be of comparable quality by the
Adviser. S&P assigns earnings and dividends rankings to corporations based on a
number of factors, including stability and growth of earnings and dividends.
Rankings by S&P are not an appraisal of a company's creditworthiness, as is true
for S&P's debt security ratings, nor are these rankings intended as a forecast
of future stock market performances. In addition to using S&P rankings of
earnings and dividends of common stocks, the Adviser conducts its own analysis
of a company's history, current financial position, and earnings prospects. To
enhance income and stability, the Scudder Balanced Portfolio's remaining assets
are allocated to bonds and other fixed income securities, including cash
reserves. The Scudder Balanced Portfolio will normally invest 25% to 50% of its
net assets in fixed income securities. However, at least 25% of the Scudder
Balanced Portfolio's net assets will always be invested in fixed income
securities.
SCUDDER INTERNATIONAL SUB-ACCOUNT
AVAILABLE ONLY FOR CONTRACTS CONTINUOUSLY INVESTED IN THE SUB-ACCOUNT SINCE
APRIL 30, 1997.
The investment objective of the Scudder International Sub-Account is to seek
long-term growth of capital primarily through diversified holdings of marketable
foreign equity investments.
The Scudder International Sub-Account invests in the Scudder International
Portfolio. The Scudder International Portfolio invests in companies, wherever
organized, which do business primarily outside the United States. The Scudder
International Portfolio intends to diversify investments among several countries
and to have represented in its holdings business activities in not less than
three different countries. The Scudder International Portfolio invests primarily
in equity securities of established companies listed on foreign exchanges. It
may also invest in fixed income securities of foreign governments and companies.
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.
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<PAGE> 26
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 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.
SAFECO RESOURCE SERIES TRUST
The Trust has been established to act as one of the funding vehicles for the
Contracts offered. The investment adviser to the Trust is SAFECO Asset
Management Company, SAFECO Plaza, Seattle, Washington. The Trust is an open-end,
diversified, management investment company.
FEDERATED INSURANCE SERIES
The Federated Insurance Series is one of the funding vehicles for the Contracts
offered. The investment adviser to the Federated Insurance Series is Federated
Advisers, Federated Investors Tower, Pittsburgh, Pennsylvania. The Federated
Insurance Series is an open-end, diversified management investment company.
LEXINGTON EMERGING MARKETS FUND, INC.
The Lexington Emerging Markets Fund is one of the funding vehicles for the
Contracts offered. The investment adviser to the Lexington Emerging Markets Fund
is Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey. The Lexington Emerging Markets Fund is an open-end,
diversified management investment company.
LEXINGTON NATURAL RESOURCES TRUST
The Lexington Natural Resources Trust is one of the funding vehicles for the
Contracts offered. The investment adviser to the Lexington Natural Resources
Trust is Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey. The Lexington Natural Resources Trust is an open-end,
non-diversified management investment company.
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<PAGE> 27
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Fund is one of the funding vehicles for the Contracts offered. The
investment adviser to the Scudder Fund is Scudder, Stevens & Clark, Inc., Two
International Place, Boston, Massachusetts. The Scudder Fund is an open-end
management investment company.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
The American Century Variable Portfolios, Inc. is one of the funding vehicles
for the Contracts offered. The investment adviser to the American Century
Variable Portfolios, Inc. is American Century Investment Management, Inc., PO
Box 419385, Kansas City, Missouri. The American Century Variable Portfolios,
Inc. is an open-end management investment company.
WHILE A BRIEF SUMMARY OF THE INVESTMENT OBJECTIVES OF EACH PORTFOLIO IS SET
FORTH ABOVE, MORE COMPREHENSIVE INFORMATION IS FOUND IN THE CURRENT RESPECTIVE
TRUST OR FUND PROSPECTUS. THE TRUST AND FUNDS' PROSPECTUSES ARE ATTACHED AND
ACCOMPANY THIS PROSPECTUS. ALL DOCUMENTS SHOULD BE READ TOGETHER AND CAREFULLY
BEFORE INVESTING. AN ADDITIONAL PROSPECTUS AND THE STATEMENT OF ADDITIONAL
INFORMATION FOR THE TRUST AND ANY OF THE FUNDS CAN BE OBTAINED BY CALLING THE
NUMBER ON THE COVER PAGE OF THIS PROSPECTUS OR WRITING TO THE ADDRESS OF THE
ANNUITY SERVICE OFFICE LISTED THERE. ADDITIONAL PORTFOLIOS MAY BE ESTABLISHED BY
THE TRUST AND THE FUNDS FROM TIME TO TIME AND MAY BE MADE AVAILABLE TO OWNERS.
IN ADDITION, CERTAIN EXISTING PORTFOLIOS OF THE FUNDS, WHICH ARE NOT CURRENTLY
BEING MADE AVAILABLE, MAY BE MADE AVAILABLE TO OWNERS IN THE FUTURE. SOME OF THE
PORTFOLIOS LISTED BELOW MAY NOT BE IMMEDIATELY AVAILABLE IN STATES THAT HAVE NOT
YET APPROVED THE CORRESPONDING CONTRACT ENDORSEMENTS.
VOTING RIGHTS
In accordance with its view of present applicable law, SAFECO will vote the
shares of the Trust and the Funds held in the Separate Account at special
meetings of the shareholders in accordance with instructions received from
persons having the voting interest in the Separate Account. SAFECO will vote
shares it owns for which it has not received instructions, as well as shares
attributable to it, in the same proportion as it votes shares for which it has
received instructions. Neither the Trust nor the Funds hold regular meetings of
shareholders.
The number of shares which a person has a right to vote will be determined as of
a date to be chosen by SAFECO not more than sixty (60) days prior to the meeting
of the Trust or the Funds. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting with respect to
the Trust and at least ten (10) days prior to such meeting with respect to the
Funds.
The Trust and the Funds are intended to be the funding vehicles for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of certain life insurance companies which may or may not be
affiliated and in compliance with certain regulatory requirements. The Trust and
the Funds currently do not foresee any disadvantages to the Owners arising from
the fact that the interests of the holders of the variable annuity contracts and
the variable life insurance policies may differ. Nevertheless, the Trusts' and
the Funds' Directors and Trustees intend to monitor events in order to identify
any material irreconcilable conflicts which may possibly arise and to determine
what action, if any, should be taken in response thereto.
SUBSTITUTION OF SECURITIES
If the shares of the Trust or the Funds (or any Portfolio within the Trust or
the Funds) should no longer be available for investment by the Separate Account
or, if in the judgment of SAFECO, further investment in such shares should
become inappropriate in view of the purpose of the Contracts, SAFECO may
substitute shares of another mutual fund (or Portfolio within the Trust or the
Funds) for shares already purchased or to be purchased in the future by Purchase
Payments under the Contracts. No substitution of securities may take place
without prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.
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PURCHASING A CONTRACT
PURCHASE PAYMENTS
The Contracts are purchased under a flexible purchase payment plan. The initial
Purchase Payment is due on the Contract Date. The minimum initial Purchase
Payment for Non-Qualified Contracts is $2,000 and the minimum subsequent
Purchase Payment is $250. For Qualified Contracts, the minimum initial and
subsequent Purchase Payments must be at least $30 ($1,000 minimum initial
Purchase Payments required in Maine, South Carolina and Texas). Subject to these
minimums, the Owner may increase or decrease or change the frequency of
subsequent Purchase Payments. SAFECO reserves the right to reject any
Application or Purchase Payment.
ALLOCATION OF PURCHASE PAYMENTS
The allocation of the initial Purchase Payment is elected by the Owner in the
Application. Unless the Owner elects otherwise, subsequent Purchase Payments are
allocated in the same manner as the initial Purchase Payment. Allocation of the
Purchase Payments is subject to the terms and conditions imposed by SAFECO.
Under certain circumstances, Purchase Payments which have been designated by
prospective purchasers to be allocated to Sub-Accounts other than the SAFECO
Resource Money Market Sub-Account, may be initially allocated to the SAFECO
Resource Money Market Sub-Account. (See "Highlights.") For each Sub-Account,
Purchase Payments are converted into Accumulation Units. The number of
Accumulation Units in a Sub-Account credited to the Contract is determined by
dividing each Net Purchase Payment by the value of an Accumulation Unit for that
Sub-Account. Purchase Payments allocated to the Fixed Account are credited in
dollars.
If the Application for a Contract is in good order, SAFECO will apply the
Purchase Payment to the Separate Account and credit the Contract with
Accumulation Units and/or to the Fixed Account and credit the Contract with
dollars within two business days of receipt. If the Application for a Contract
is not in good order, SAFECO will attempt to get it in good order or SAFECO will
return the Application and the Purchase Payment within five (5) business days.
SAFECO will not retain a Purchase Payment for more than five (5) business days
while processing an incomplete Application unless it has been so authorized by
the purchaser. For subsequent Purchase Payments in good order, SAFECO will apply
the Net Purchase Payment to the Separate Account and credit the Owner's Contract
with Accumulation Units during the next Valuation Period after the Purchase
Payment was received.
ACCUMULATION UNIT
Purchase Payments allocated to the Separate Account and amounts transferred to
or within the Separate Account are converted into Accumulation Units. This is
done by dividing each Net Purchase Payment by the value of an Accumulation Unit
for the Valuation Period during which the Purchase Payment is allocated to the
Sub-Account or the transfer is made. Accumulation Units for each Sub-Account are
valued separately. The Accumulation Unit value is determined by multiplying the
Accumulation Unit value for the Sub-Account, as of the immediately preceding
Valuation Period, by the Net Investment Factor for the current Valuation Period.
The Net Investment Factor for any Sub-Account for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) and (d) from the result,
where:
(a) is the net result of:
(i) The net asset value per share of the Portfolio, determined as of
the current Valuation Period, plus
(ii) The per share amount of any dividend or capital-gain distribution
made by the Portfolio if the "ex-dividend" date occurs during the
current Valuation Period, plus or minus
(iii) A per share credit or charge, which is determined by SAFECO, for
changes in tax reserves resulting from investment operations of
the Sub-Account.
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<PAGE> 29
(b) is the net result of:
(i) The net asset value per share of the Portfolio determined as of the
immediately preceding Valuation Period, plus or minus
(ii) The per share credit or charge for any changes in tax reserves for
the immediately preceding Valuation Period.
(c) is the percentage factor equal to the Mortality and Expense Risk
Charge. Such factor is equal on an annual basis to a percentage of the
average daily net asset value of the Sub-Account.
(d) is the percentage factor equal to the Asset Related Administration
Charge. Such factor is equal on an annual basis to a percentage of the
average daily net asset value of the Sub-Account.
The Net Investment Factor may be greater or less than one. Therefore, the
Accumulation Unit value may increase or decrease.
PRINCIPAL UNDERWRITER
Currently, SAFECO Securities, Inc. (SSI) acts as the principal underwriter of
the Contracts. SSI has its business address at SAFECO Plaza, Seattle, Washington
98185. Prior to April 29, 1994, PNMR Securities, Inc. (PNMR), SAFECO Plaza,
Seattle, Washington 98185, acted as the principal underwriter of the Contracts.
SSI and PNMR are wholly-owned subsidiaries of SAFECO Corporation and therefore
are affiliates of SAFECO. The Contracts are offered on a continuous basis.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Purchase Payments, Contract Values,
the Separate Account and the Fixed Account. These charges and deductions are:
DEDUCTION FOR PREMIUM AND OTHER TAXES
Any premium taxes or other taxes levied by any governmental entity which SAFECO,
in its sole discretion, determines have resulted from the establishment or
maintenance of the Contract or any portion of the Contract, or from the
investment experience of the Separate Account, or from the receipt by SAFECO of
Purchase Payments or from the commencement of annuity payments will be deducted
from the Contract Value with respect to Non-Qualified Contracts. SAFECO reserves
the right to deduct these taxes from Contract Values with respect to Qualified
Contracts. Premium taxes currently imposed by certain states on the type of
Contracts offered hereby range from 0% to 4%. Some states assess their premium
taxes at the time Purchase Payments are made; others assess their premium taxes
at the time annuity payments commence. Premium taxes are subject to change or
amendment by state legislatures, administrative interpretations or judicial
acts. Such premium taxes will depend on, among other things, the classification
of the Contract by the states, the status of SAFECO within such state and the
insurance tax laws of such state. These taxes are deducted first from the SAFECO
Resource Money Market Sub-Account. In the event there are no Accumulation Units
in the SAFECO Resource Money Market Sub-Account or not enough in value to pay
for these taxes, the balance of deductions necessary is then taken from the
SAFECO Resource Bond Sub-Account, the Federated Utility Sub-Account, the
Federated High Income Bond Sub-Account, the Scudder Balanced Sub-Account, the
American Century VP Balanced Sub-Account, the Lexington Natural Resources
Sub-Account, the Scudder International Sub-Account, the American Century VP
International Sub-Account, the Federated International Equity Sub-Account, the
Lexington Emerging Markets Sub-Account, the SAFECO Resource Equity Sub-Account,
the SAFECO Resource Northwest Sub-Account, the SAFECO Resource Growth
Sub-Account, the SAFECO Resource Small Company Stock Sub-Account, and finally
from the Fixed Account.
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<PAGE> 30
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE
SAFECO deducts on each Valuation Date a Mortality and Expense Risk Charge which
is equal on an annual basis to 1.25% of the average daily net asset value of the
Separate Account. The mortality risks assumed by SAFECO arise from its
contractual obligation to make annuity payments after the Annuity Date for the
life of the Owner, to waive Contingent Deferred Sales Charges in the event of
the death of the Owner and to guarantee the payment of the greater of the
Guaranteed Minimum Death Benefit or the Contract Value upon the death of the
Owner. The expense risk assumed by SAFECO is that the costs of administering the
Contracts and the Separate Account will exceed the amount received from the
Annual Administration Maintenance Charge and the Asset Related Administration
Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by SAFECO. Conversely, if the amount deducted
proves more than sufficient, the excess will be profit to SAFECO. SAFECO expects
a profit from this charge.
The Mortality and Expense Risk Charge is guaranteed by SAFECO and cannot be
increased.
DEDUCTION FOR CONTINGENT DEFERRED SALES CHARGE
In certain situations that an Owner withdraws all or a portion of his or her
Contract Value, a Contingent Deferred Sales Charge is deducted from the
Withdrawal. This charge reimburses SAFECO for expenses incurred in connection
with the promotion, sale and distribution of the Contracts. The Contingent
Deferred Sales Charge is imposed on Withdrawals made in the first eight (8)
Contract Years. The Contract describes the situations where the Contingent
Deferred Sales Charge does not apply. Some of these situations are: (i) on
Transfers between Sub-Accounts, (ii) on the sum of Withdrawals taken in any
Contact Year which does not exceed 10% of the Contract Value, (iii) on
Withdrawals made under a Settlement Option, (iv) on Systematic Withdrawals over
the life expectancy of the Owner or the joint life expectancy of the Owner and
Beneficiary under the Systematic Withdrawal Income Plan(TM), (v) on Withdrawals
made pursuant to the death of the Owner, (vi) on Withdrawals for payment of the
Annual Administration Maintenance Charge, or (vii) on Transfers from a
Sub-Account to the Fixed Account or on certain Transfers from the Fixed Account
to a Sub-Account. (See "Withdrawals and Transfers" and "The Programs.")
The amount of the Contingent Deferred Sales Charge will be based on the
following:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Contract Year as a Percentage of Amount Withdrawn
- ------------- ------------------------------------
<S> <C>
1 8% of amount withdrawn
2 7% of amount withdrawn
3 6% of amount withdrawn
4 5% of amount withdrawn
5 4% of amount withdrawn
6 3% of amount withdrawn
7 2% of amount withdrawn
8 1% of amount withdrawn
After
Contract
Year 8 0% of amount withdrawn
</TABLE>
The Contingent Deferred Sales Charge assesses a percentage of the amount
withdrawn according to the stated schedule. However, total Contingent Deferred
Sales Charges collected by SAFECO will not exceed 8.5% of the Purchase Payments
made under a Contract.
The commissions paid to registered representatives on the sale of Contracts are
not more than 5.8% of the Purchase Payments. In addition, commissions, overrides
and bonuses may be paid to SSI's registered representatives and/or other
distributors of the Contracts. A bonus dependent upon persistency of funds on
deposit in the Contracts is one type of bonus that may be paid. Noncash
compensation may include accrual of conference travel credits and prizes. To the
extent that the Contingent Deferred Sales Charge is insufficient to cover the
actual cost of distribution, SAFECO may use any of its corporate assets,
including potential profit which may arise from the Mortality and Expense Risk
Premium, to make up any difference.
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REDUCTION OR ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals in a
manner that results in savings of sales expenses. The entitlement to reduction
of the Contingent Deferred Sales Charge will be determined by SAFECO after
examination of all the relevant factors such as:
1. The total amount of Purchase Payments to be received. Per Contract sales
expenses are likely to be less on larger Purchase Payments than on
smaller ones.
2. Any prior or existing relationship with SAFECO. Per Contract sales
expenses are likely to be less when there is a prior existing
relationship because of the likelihood of implementing the Contract with
fewer sales contacts.
3. There may be other circumstances, of which SAFECO is not presently
aware, which could result in reduced sales expenses.
If, after consideration of the foregoing factors, SAFECO determines that there
will be a reduction in sales expenses, SAFECO may provide for a reduction or
elimination of the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts are
issued to an officer, director or employee of SAFECO or any of its affiliates.
In no event will reductions or elimination of the Contingent Deferred Sales
Charge be permitted where reductions or elimination will be unfairly
discriminatory to any person.
DEDUCTION FOR WITHDRAWAL CHARGE
SAFECO deducts a Withdrawal Charge which is equal to the lesser of $25 or 2% of
the amount withdrawn for each Withdrawal (whether it be a partial Withdrawal or
a complete Withdrawal) after the first in any Contract Year. No Withdrawal
Charge is deducted where the Owner is participating in the Systematic Withdrawal
Income Plan(TM) or the Periodic Withdrawal Program subject to certain
limitations (see "The Program") or is exercising a Settlement Option.
DEDUCTION FOR ASSET RELATED ADMINISTRATION CHARGE
SAFECO deducts on each Valuation Date an amount which is equal on an annual
basis to .15% of the average daily net asset value of the Separate Account for
costs associated with the administration of the Sub-Accounts. Since this Charge
is an asset-based charge, the amount of the Charge attributable to a particular
Contract may have no relationship to the administrative costs actually incurred
by that Contract. SAFECO does not intend to profit from this Charge. This Charge
will be reduced to the extent that the amount of this Charge is in excess of
that necessary to reimburse SAFECO for its administrative expenses. Should this
Charge prove to be insufficient, SAFECO will not increase this Charge and will
incur the loss.
DEDUCTION FOR ANNUAL ADMINISTRATION MAINTENANCE CHARGE
SAFECO deducts an Annual Administration Maintenance Charge of $30 from the
Contract Value on the last day of each Contract Year and in the event of a
complete Withdrawal. This Charge is deducted from Contracts only if the Contract
Value is less than $50,000. This Charge, which is for general administrative
expenses, is deducted first from the SAFECO Resource Money Market Sub-Account.
In the event there are no Accumulation Units in the SAFECO Resource Money Market
Sub-Account or not enough in value to pay for this Charge, the balance of
deductions necessary is then taken from the SAFECO Resource Bond Sub-Account,
the Federated Utility Sub-Account, the Federated High Income Bond Sub-Account,
the Scudder Balanced Sub-Account, the American Century VP Balanced Sub-Account,
the Lexington Natural Resources Sub-Account, the Scudder International
Sub-Account, the American Century VP International Sub-Account, the Federated
International Equity Sub-Account, the Lexington Emerging Markets Sub-Account,
the SAFECO Resource Equity Sub-Account, the SAFECO Resource Northwest
Sub-Account, the
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SAFECO Resource Growth Sub-Account, the SAFECO Resource Small Company Stock
Sub-Account, and finally from the Fixed Account.
Prior to the Annuity Date, this Charge is not guaranteed and may be changed for
future years. However, this Charge may never exceed $35 per Contract Year.
SAFECO has set this Charge at a level so that, when considered in conjunction
with the Asset Related Administration Charge, it will not make a profit from the
charges assessed for administration. 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. SAFECO may receive compensation from the investment advisers or
administrators of the Available Funds consistent with the administrative
services and cost savings rendered to such entities.
DEDUCTION FOR TRANSFER CHARGE
An Owner may make up to twelve (12) Transfers annually without the imposition of
any fee or charge. If more than twelve (12) Transfers have been made in a
Contract Year, SAFECO reserves the right to assess a Transfer Charge which will
be equal to the lesser of $10 or 2% of the amount transferred. Specific
requirements may apply to transfers under the Programs. (See "The Programs.")
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the Trust
and the Funds which are described in the accompanying Trust and Funds
Prospectuses. SAFECO may receive compensation from the investment advisers or
administrators of the Available Funds consistent with the administrative
services rendered to such entities.
RIGHTS UNDER THE CONTRACT
OWNER, ANNUITANT AND BENEFICIARY
The Owner has all rights and may receive all benefits under the Contract. Prior
to the Annuity Date, the Owner is the person designated in the Application,
unless changed. On and after the Annuity Date, the Annuitant is the Owner. The
Annuitant is the person on whose life Annuity payments are based and is the
person designated in the Application, unless changed.
The Owner may designate a Beneficiary in the Application to receive any proceeds
payable due to the death of the Owner. Unless the Owner provides otherwise, the
death benefit will be paid in equal shares to all surviving primary
Beneficiaries. If the Owner has not provided otherwise and there are no
surviving primary Beneficiaries, the death benefit will be paid in equal shares
to all surviving contingent Beneficiaries. If the Owner has not provided
otherwise and there are no surviving primary or contingent Beneficiaries, the
death benefit will be paid to the estate of the Owner.
If the Owner has made an irrevocable Beneficiary designation, no change of
Beneficiary is permitted. If the Owner has not made an irrevocable Beneficiary
designation, the Owner may file a signed request with SAFECO to change the
Beneficiary designation. The change of Beneficiary will be effective upon
recording by SAFECO at its Home Office. SAFECO shall not be liable for any
payments made or other action taken by SAFECO before the change in Beneficiary
was recorded by SAFECO at its Home Office. A recorded change of Beneficiary will
revoke any prior Beneficiary designations. SAFECO will pay any death proceeds to
the most recently recorded Beneficiary.
MISSTATEMENT OF AGE
SAFECO may require proof of the age of the Annuitant before making any Life
Annuity payment provided for by the Contract. If the age of the Annuitant has
been misstated, the amount payable will be the amount that the Contract Value
would have provided at the correct age. Once Annuity payments have begun, any
underpayments will be made up in one sum with the next Annuity payment. Any
overpayment will be deducted from future Annuity payments until the total is
repaid.
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EVIDENCE OF SURVIVAL
If any benefits under the Contracts are contingent upon the Annuitant being
alive on a given date, SAFECO may require evidence satisfactory to SAFECO that
such condition continues to be met.
CONTRACT DATE
For all Contracts issued on or after June 1, 1994, Contract Date is defined as
follows:
(a) The Contract Date with respect to transfers from a Contract qualified
under Section 401(a) to a Contract qualified under Section 408 of the
Code, shall be the earlier of the date on which the initial Purchase
Payment is invested and the second certificate anniversary of a SAFECO
Qualified Pension Annuity Series III, III Plus, IV, or Resource
Variable Account B certificate, from which funds are being transferred
to this Contract. If no funds are being transferred to this Contract
from Qualified Pension Annuity Series III, III Plus, IV, or Resource
Variable Account B certificate, the Contract Date shall be the earlier
of the date on which the initial Purchase Payment is invested and the
second contract anniversary of a SAFECO Qualified Pension Annuity
Series I or II contract, a Qualified Access Annuity contract, or a
SAFECO Resource Variable Account A contract, from which funds are being
transferred to this Contract. If funds are being transferred from
SafeFlex Annuity, the Contract Date shall be the earlier of the date on
which the initial Purchase Payment is invested and the certificate
issue date of an existing SAFECO SafeFlex Annuity certificate, if the
entire certificate value is being transferred to this Contract. The
Contract Issue Date shall be the earlier of the date on which the
initial Purchase Payment is allocated to the Separate Account or the
Fixed Account.
(b) The Contract Date with respect to transfers to a Contract qualified
under Section 408 of the Code, shall be the earlier of the date on
which the initial Purchase Payment is invested and the second
certificate anniversary of an existing SAFECO Qualified Pension Annuity
Series V or V Plus contract, if the entire contract value is being
transferred to this Contract. The Contract Issue Date shall be the
earlier of the date on which the initial Purchase Payment is allocated
to the Separate Account or the Fixed Account.
(c) The Contract Date with respect to transfers to a Contract qualified
under Section 403 or 457 of the Code, shall be the earlier of the date
on which the initial Purchase Payment is invested, and the second
certificate anniversary of an existing SAFECO Qualified Pension Annuity
Series III Plus certificate, if the entire certificate value is being
transferred to this Contract, or, the contract date of an existing
SAFECO Preference Annuity, if the entire contract value is being
transferred to this Contract. The Contract Issue Date shall be the
earlier of the date on which the initial Purchase Payment is allocated
to the Separate Account or the Fixed Account.
(d) The Contract Date with respect to all transfers to Non-qualified
Contracts, transfers to Contracts qualified under Section 408 of the
Code other than from SAFECO's Qualified Pension Annuity Series I, II,
III, III Plus, IV, V, V Plus, Resource Variable Account A, Resource
Variable Account B, or Qualified Access Annuity, and transfers to
Contracts qualified under Section 403 or 457 of the Code other than
from SAFECO's Qualified Pension Annuity Series III Plus or the
Preference Annuity, shall be the earlier of the date on which the
initial Purchase Payment is allocated to the Separate Account or the
Fixed Account.
CONTRACT SETTLEMENT
Unless otherwise designated in writing by SAFECO, all sums payable under the
Contracts are payable at SAFECO's Home Office. The Contract must be returned to
SAFECO upon any settlement.
SUBSTITUTE PAYEE
If SAFECO determines that any person is incapable of personally receiving and
giving a valid receipt for any payment due under the Contracts and no claim has
been made by a duly appointed guardian, SAFECO may
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make such payment to any person or institution that SAFECO determines has
assumed the care and support of such person. Such payment shall completely
discharge the liability of SAFECO with respect to the amount so paid.
ASSIGNMENT
To the extent permitted by law, the Contracts and the benefits or payments under
the Contracts are assignable or otherwise transferable.
MODIFICATION OF THE CONTRACTS
The terms and conditions of the Contracts may be amended by written agreement
between SAFECO and the Owner by written endorsement or amendment. All agreements
made by SAFECO will be signed by the President or one of the Vice Presidents. No
other person has power on behalf of SAFECO to amend or modify the Contract,
extend any due date, or waive any proof required by the Contract. SAFECO may
unilaterally amend the provisions of the Contract as required to conform to any
state or federal law which affects the Contract.
TERMINATION OF CONTRACT
All benefit provisions under the Contract continue in force until the Contract
Value is completely Withdrawn. Discontinuance of Purchase Payments will not
result in termination of the Contract.
ANNUITY AND DEATH BENEFIT PROVISIONS
SELECTION AND CHANGE OF SETTLEMENT OPTIONS
The Owner may select or change the Settlement Option or Annuity Date by written
notification to SAFECO at its Home Office. In order to be effective, the written
notification must be received by SAFECO prior to any Annuity Date previously
selected.
PAYMENT OF BENEFITS
SAFECO will, upon the written direction of the Owner, issue an Annuity or make a
cash distribution to any person who is entitled to such benefits. SAFECO may
rely on the written direction of the Owner and shall not be liable because of
any failure to question or challenge such direction regarding the issuance of an
Annuity or payment of a cash distribution.
FREQUENCY AND AMOUNT OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments, except as described
below. If the net amount available to apply under any Settlement Option is less
than $5,000, SAFECO shall have the right to pay such amount in a lump sum cash
distribution. If Annuity payments would be or become less than $250, SAFECO
shall have the right to change the frequency of payments to such intervals as
will result in payments of at least $250.
DEATH OF OWNER PRIOR TO ANNUITY DATE
The Contract provides for a minimum guaranteed death benefit, provided that
SAFECO receives due proof of death in a satisfactory form and election of a
Settlement Option prior to six months from the date of the Owner's death. If the
due proof of death or the election of a Settlement Option is received later than
six months after the date of death of the Owner, SAFECO provides a death benefit
that is subject to change based upon investment experience, as discussed below.
On the Valuation Date following receipt at the Home Office of the due proof of
death and election of a Settlement Option before the Annuity Date and while the
Contract was in force, SAFECO generally will pay to the designated Beneficiary a
minimum guaranteed death benefit that is the greater of: (i) the Contract
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Value on the later of the date of receipt of due proof of death or the election
of a Settlement Option; or (ii) the last determined minimum guaranteed death
benefit.
The initial minimum guaranteed death benefit is equal to the initial Net
Purchase Payment. In those states where approved, the minimum guaranteed death
benefit is reset at each eighth Contract Anniversary ("Eight Year Contract
Anniversary") to equal the greater of (i) the then current Contract Value or
(ii) the current minimum guaranteed death benefit. The greater of the two values
becomes the new minimum guaranteed death benefit. The minimum guaranteed death
benefit is fixed for the remaining duration of the Contract as of the last Eight
Year Contract Anniversary preceding the Owner's 72nd birthday.
If the Contract is owned by joint Owners, the minimum guaranteed death benefit,
or any other applicable death benefit, is payable only on the death of the elder
Owner. Moreover, following the death of the elder Owner, if the joint Owner
elects to continue the Contract, there is no further minimum guaranteed death
benefit. The death benefit will be the Contract Value, which reflects Net
Purchase Payments and withdrawals. Contract Value is subject to change as a
result of investment experience.
Each form of minimum guaranteed death benefit is adjusted to reflect Net
Purchase Payments and withdrawals. If an Owner makes withdrawals, the minimum
guaranteed death benefit is reset to equal the previous minimum guaranteed death
benefit multiplied by the ratio of the Contract Value after the withdrawal to
the Contract Value before the withdrawal. The recomputed minimum guaranteed
death benefit will be used in determining the new minimum guaranteed death
benefit at the next Eight Year Contract Anniversary. This method of adjusting
the guaranteed minimum death benefit will be applied if the Owner is
participating in the Systematic Withdrawal Income Plan(TM) at the time of death.
After the Owner's death, the minimum guaranteed death benefit will be reduced
dollar for dollar by any withdrawals by the Beneficiary. The Beneficiary may
only make withdrawals at the time of or prior to the election of a Settlement
Option.
If due proof of death or the election of a payment option (a Settlement Option
or lump sum payment) are made later than six months following the date of the
Owner's death, the value as of the six month anniversary of the date of death
will apply. Thus, for example, if notification of death is not received until
nine (9) months after the date of death, the death benefit under (i) will be
calculated as follows:
Upon notification of death, SAFECO will determine what the Contract Value was on
the six-month anniversary of the date of death. Assuming that Contract Value was
$90,000 on that date and the last determined minimum guaranteed death benefit
was $100,000, SAFECO will contribute $10,000 to Contract Value as of that date
and will guarantee the portion of the Contract Value attributable to SAFECO's
contribution and pay interest thereon at the then prevailing money market rate
until the date of election of a payment option. SAFECO will then calculate the
effects of investment experience on the portion of the Contract Value existing
on the six-month anniversary of the date of death, and hence, the death benefit
will consist of the combined value of the guaranteed and nonguaranteed portions
of the Contract Value from that six-month anniversary date to the date of
election of a payment option. If on the six-month anniversary of the date of
death the Contract Value exceeds the last determined minimum guaranteed death
benefit, the entire Contract Value will be subject to market risk from that date
to the date of election of a payment option and no portion of the Contract Value
will be guaranteed. Any withdrawals made by the Beneficiary prior to electing a
payment option will be deducted from the death benefit. The Beneficiary bears
the risk and enjoys the rewards of negative or positive investment experience on
any nonguaranteed portion of the Contract Value during the period from the
six-month anniversary of the date of death and the date of election of a payment
option. Beneficiaries should be encouraged to promptly notify SAFECO of the
Owner's death.
In all cases, SAFECO will pay the Beneficiary a lump sum payment of the death
benefit if the election of the Settlement Option is not made within sixty (60)
days of the receipt of due proof of death.
With respect to non-qualified Contracts, if the Owner dies on or after the
Annuity Date and before the entire value of the Contract has been distributed,
any remaining value must be distributed at least as rapidly as the method of
distribution in effect at the time of the Owner's death. If the Owner dies
before the Annuity Date, generally the entire value under the Contract must be
distributed within five years after the date of the Owner's death or must be
distributed over the designated Beneficiary's life or over a period not
extending
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beyond the Beneficiary's life expectancy, in equal or substantially equal
payments, with payments beginning within one year of the Owner's death.
DEATH OF ANNUITANT
In the event of the Annuitant's death prior to the Annuity Date, the Owner must
designate a new Annuitant. If no designation is made within thirty (30) days of
notification to SAFECO of the death of the Annuitant, the Owner will become the
Annuitant. The election of a Settlement Option must be made by the Beneficiary
during the sixty (60) day period commencing with the date of SAFECO's receipt of
notice of the Owner's death. If no election is made within the sixty (60) day
period, then a single lump sum payment will be made to the Beneficiary. In the
event that the Beneficiary is a surviving spouse, the Contract can be continued.
Upon the death of a co-Owner, the surviving Owner becomes the designated
Beneficiary. Any other named Beneficiary will be a contingent Beneficiary. If
the Contract is owned by a non-natural person, the death of the Annuitant will
be treated as the death of the Owner.
DEATH OF OWNER AFTER ANNUITY DATE
If the Owner dies on or after a Settlement Option has commenced, payments must
continue at least as rapidly as under the method of distribution in effect prior
to the Owner's death.
SETTLEMENT OPTIONS
An Annuity may be issued in any of the forms described below, or such other
forms which SAFECO agrees to issue under the Contract. Options (a), (b), and (c)
are irrevocable once they have begun. Option (d) is irrevocable for the first
eight Contract Years, and then may be changed.
(a) Variable Life Annuity: Monthly payments are made to the Annuitant
commencing on the Annuity Date, if he or she is then living, and the
last payment is that payment due immediately on or before the
Annuitant's death. No death benefit is payable under this option.
(b) Variable Life Annuity with 120 or 240 Monthly Payments Guaranteed:
Monthly payments are made to the Annuitant commencing on the Annuity
Date. If at the death of the Annuitant the guaranteed number of
payments has not been received by the Annuitant, payments will be made
to the Beneficiary for the remainder of the guarantee period. The
Beneficiary may elect to have the present value of the guaranteed
Annuity remaining as of the date the notice of death is received by
SAFECO commuted at the assumed investment rate of 4% and paid in a
single payment.
(c) Variable Joint and Survivor Life Annuity: Monthly payments are made to
the Annuitant commencing on the Annuity Date. After the death of the
Annuitant, payments will be continued to the co-annuitant for as long
as he or she lives. The written request for this option must specify
the percentage value of monthly payments to continue to the
co-annuitant.
(d) Systematic Withdrawal Income Plan(TM): A specified number of whole or
partial Accumulation Units are liquidated for payment to the Annuitant
on a monthly, quarterly, or annual basis. The number to be liquidated
during a given year shall be a sufficient number so as to be expected
to deplete the Contract over the life expectancy of the Annuitant or
the joint life expectancy of the Annuitant and the Beneficiary, with at
least 50% of the payments expected to be made during the Annuitant's
life. Systematic Withdrawal Income Plan is a trademark of SAFECO Life
Insurance Company.
If, as of the Annuity Date, a Settlement Option has not been selected, SAFECO
will make payments under Option (b), with 120 monthly payments guaranteed.
Similar fixed annuity Settlement Options are available with respect to the
monies held in the Fixed Account.
MORTALITY AND EXPENSE GUARANTEE
SAFECO guarantees that the dollar amount of each Variable Annuity payment made
after the first payment will not be affected by variations in mortality
experience or expenses.
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WITHDRAWALS AND TRANSFERS
WITHDRAWALS
SAFECO, upon written request to it by the Owner, will allow the Withdrawal of
all or a portion of the Contract Value. Withdrawals will result in the
cancellation of Accumulation Units from each applicable Sub-Account of the
Separate Account or a reduction in the Fixed Account Value in the ratio that the
Sub-Account Value and/or the Fixed Account Value bears to the total Contract
Value. The Owner must specify in writing in advance which units are to be
canceled or values are to be reduced if other than the above-mentioned method of
cancellation is desired. SAFECO will pay the amount of any Withdrawal from the
Separate Account within seven (7) days of receipt of a request, unless the
"Suspension of Payments or Transfers" provision is in effect (see "Suspension of
Payments or Transfers" below). SAFECO retains the right to defer the payment of
Withdrawals from the Fixed Account for a period of six (6) months after
receiving a Withdrawal request. (See also "The Programs.")
The minimum Withdrawal allowed is the lesser of $250 or the Contract Value. If
any Withdrawal reduces the remaining balance in a Sub-Account or the Fixed
Account to less than $500 ($1,000 in Maine, South Carolina and Texas), the
remaining balance will also be withdrawn.
Upon a Withdrawal, the number of Accumulation Units remaining under the Contract
will be reduced by the number of such units equal to the total of the
Withdrawal, including applicable charges and taxes, including income taxes
withheld.
Certain tax withdrawal penalties and restrictions may apply to withdrawals from
the Contracts. (See "Tax Status.") For Contracts purchased in connection with
403(b) plans, the Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b)(11) of the Code) to circumstances only when the Owner: (1)
attains age 59 1/2; (2) separates from service; (3) dies; (4) becomes disabled
(within the meaning of Section 72(m)(7) of the Code); or (5) in the case of
hardship.
However, withdrawals for hardship are restricted to the portion of the Owner's
Contract Value which represents contributions made by the Owner and does not
include any investment results. The limitations on withdrawals became effective
on January 1, 1989 and apply only to salary reduction contributions made after
December 31, 1988, to income attributable to such contributions and to income
attributable to amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax adviser
regarding any distributions.
TRANSFERS
An Owner may transfer Contract Values among Sub-Accounts up to twelve (12) times
annually without the imposition of any fee or charge. If more than twelve (12)
Transfers have been made in a Contract Year, SAFECO reserves the right to assess
a Transfer Charge which will be equal to the lesser of $10 or 2% of the amount
transferred. The minimum Transfer from a Sub-Account must be at least $500,
except in the case of Automatic Transfers (described below). If the Sub-Account
from which the Transfer is being made contains less than $500, or is reduced to
less than $500 after a Transfer, the Owner's entire interest in the Sub-Account
will be transferred. The minimum Transfer into a Sub-Account must be at least
$50.
Upon a Transfer from a Sub-Account, the number of Accumulation Units remaining
under that Sub-Account will be reduced by the number of such units equal to the
total of the requested Transfer, including applicable charges and taxes.
Transfers will be effected during the Valuation Period next following receipt by
SAFECO of a written transfer request (or by telephone, if authorized) containing
all required information. (See "Transfers by Written Request" and "Transfers by
Telephone," below.)
Transfers 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
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Contract Year, to have pre-established automatic monthly or quarterly transfers
made from the Fixed Account. (See "Other Services".)
Transfers also may be effected under certain of the Programs and certain
specific limitations on transfers may apply under the Programs.
TRANSFERS BY WRITTEN REQUEST
Contract Values may be transferred by writing SAFECO at the address on the cover
page of this Prospectus and specifying the Contract number, the amount to be
transferred, and the Sub-Accounts to be effected. The request must be signed by
the Owner or a third party to whom the Owner has given appropriate authority.
SAFECO must have a copy of the document granting such authority. Transfers will
be effected during the Valuation Period next following receipt by SAFECO of the
written transfer request.
TRANSFERS BY TELEPHONE
If the Owner has previously elected in writing the privilege of making transfers
by telephone, SAFECO will accept transfer instructions by telephone from the
Owner or a third party to whom the Owner has given appropriate authority. SAFECO
must have a copy of the document granting such authority. Withdrawals will not
be processed by telephone.
SAFECO will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, including tape recording all telephone
instructions, requiring some form of personal identification prior to acting
upon instructions received by telephone and confirming in writing all such
transactions. If SAFECO fails to take such reasonable procedures, it may be
liable for any losses due to unauthorized or fraudulent instructions.
SAFECO reserves the right to refuse telephone transfers when it is unable to
confirm to its satisfaction that a caller is the Owner or a preauthorized third
party. SAFECO is not responsible for the authenticity of telephone instructions
or for acting on the telephone instructions of persons who falsely identify
themselves as Owners or preauthorized third parties.
To transfer by telephone, call 1-800-899-5280. Transfer directions must specify
the Contract number, the amount to be transferred and the Sub-Accounts which are
to be effected. (See also "The Programs," below.)
SUSPENSION OF PAYMENTS OR TRANSFERS
SAFECO reserves the right to suspend or postpone payments with respect to the
Separate Account for a Withdrawal or Transfer for any period when:
(i) The New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(ii) Trading on the New York Stock Exchange is restricted, as determined by the
rules and regulations of the Securities and Exchange Commission;
(iii) An emergency exists as a result of which disposal of securities held in
the Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets,
as determined by the rules and regulations of the Securities and Exchange
Commission; or
(iv) During any other period when the Securities and Exchange Commission, by
order, so permits for the protection of Owners provided that applicable
rules and regulations of the Securities and Exchange Commission will
govern as to whether the conditions described in (ii) and (iii) exist.
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OTHER SERVICES
THE PROGRAMS
SAFECO offers several investment related programs which are available only prior
to the Annuity Date: Dollar Cost Averaging; Automatic Transfers; Appreciation or
Interest Sweeps; Sub-Account Rebalancing; Systematic Investment; and Periodic
Withdrawal Programs. Certain of the Programs are alternatives with respect to
any one Sub-Account; other Programs may be combined. Thus, the Dollar Cost
Averaging Program, the Automatic Transfer Program and the Appreciation or
Interest Sweep Program are alternatives with respect to the selected
Sub-Account, and in all cases with respect to the Fixed Account. However, the
Sub-Account Rebalancing Program may be combined with each of the other Programs,
but it is not available with respect to the Fixed Account. Under each Program,
the related transfers between and among Sub-Accounts and the Fixed Account are
not counted as one of the twelve free transfers. However, if an Owner executes
an unrelated voluntary transfer from the Sub-Account participating in a Program,
other than the Sub-Account Rebalancing Program, the Program will be terminated
for the remainder of the Contract Year. In addition, if a Program is terminated
before six Program transfers have occurred, the six Program transfers are
counted as part of the twelve free transfers. If the balance in a Sub-Account
would be less than $500 as a result of a transfer pursuant to one of these
Programs, other than the Appreciation or Interest Sweep and Sub-Account
Rebalancing Programs, then the entire balance in that Sub-Account will also be
transferred. Each of the Programs has its own requirements, as discussed below.
Some of the Programs described herein may not be immediately available in states
that have not yet approved the corresponding Contract endorsements.
If the Owner has submitted the required telephone authorization form, certain
changes may be made by telephone. For those programs involving transfers, Owners
may change instructions by telephone with regard to which Sub-Accounts or the
Fixed Account Contract Value may be transferred. If SAFECO does not employ
reasonable verification procedures to confirm that instructions communicated by
telephone are genuine, it may be liable for any losses arising out of any action
on its part or any failure or omission to act as a result of its own negligence,
lack of good faith, or willful misconduct.
DOLLAR COST AVERAGING PROGRAM
SAFECO offers a Dollar Cost Averaging Program during the Accumulation Period
whereby an Owner may predesignate a portion of any Sub-Account's Contract Value
or the Fixed Account's Contract Value to be automatically transferred on a
monthly or quarterly basis to one or more of the other Sub-Accounts or to the
Fixed Account. The amount to be transferred may be expressed as a set dollar
amount or as a percentage of the Contract Value in the selected Sub-Account or
the Fixed Account. Transfers from the Fixed Account are subject to a maximum of
1.33% monthly or 4% quarterly of the Contract Value in the Fixed Account at the
time of the initial transfer. Upon election of the Dollar Cost Averaging Program
the limitations on transfers 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
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to take effect on such date, (iii) the Owner effects any other transfer from the
participating Sub-Account or the Fixed Account while the Dollar Cost Averaging
Program is in effect, or (iv) the Contract is surrendered. In addition, if any
transfer or withdrawal has been made from the Fixed Account during the Contract
Year, the Dollar Cost Averaging Program may not be established through the Fixed
Account for that Contract Year.
An Owner may initiate, reinstate or change the Dollar Cost Averaging terms by
properly completing a new enrollment form and returning it to the Home Office at
least ten (10) business days prior to the next Transfer Date such transfer is to
be made.
When utilizing Dollar Cost Averaging an Owner may be invested in either a
Sub-Account or the Fixed Account and may be invested in any other Sub-Accounts
or the Fixed Account at any given time.
AUTOMATIC TRANSFER PROGRAM
The Automatic Transfer Program is identical to the Dollar Cost Averaging Program
in all respects other than with regard to the limitations on transfers from the
Fixed Account. The limitations on transfers from the Fixed Account are
recalculated annually. Transfers from the Fixed Account are limited to 1.5%
monthly and 4.5% quarterly.
APPRECIATION OR INTEREST SWEEP PROGRAM
An Owner may enroll in the Appreciation or Interest Sweep Program through either
or both the SAFECO Resource Money Market Sub-Account or the Fixed Account.
Enrollment is limited to Owners whose total Contract Value is greater than
$10,000. Under the Program, if appreciation of Contract Value in the SAFECO
Resource Money Market Sub-Account or credited interest earned on Contract Value
in the Fixed Account ("Earnings") is greater than 10%, the Earnings up to 10% of
the Contract Value in the Fixed Account or the SAFECO Resource Money Market
Sub-Account, respectively, will be transferred to any of the Sub-Accounts, other
than the SAFECO Resource Money Market Sub-Account. Earnings in the SAFECO
Resource Money Market Sub-Account may not be transferred to the Fixed Account.
In no event may the total Contract Value transferred from the Fixed Account in
each Contract Year exceed a total of 10% of the Contract Value for each such
Contract Year in the Fixed Account computed at the time of the transfer.
Moreover, the Program may not be instituted for the Fixed Account in any
Contract Year during which transfers or withdrawals have been made from the
Fixed Account. Transfers under this Program will be processed monthly, quarterly
or annually on the Transfer Date.
SUB-ACCOUNT REBALANCING PROGRAM
In accordance with the Owner's election of the relative purchase payments
percentage allocations, SAFECO will automatically rebalance the Contract Value
of each variable Sub-Account either quarterly, semi-annually, or annually.
SAFECO will automatically rebalance the Contract Value in each of the
Sub-Accounts to match the current purchase payments percentage allocations as of
the first Transfer Date during the period selected. Enrollment is limited to
Owners whose total Contract Value is greater than $10,000 at the time the
Program is selected. The Program may be terminated at any time and the
percentages may be altered by written authorization. The requested change must
be received at the Home Office ten (10) days prior to the Transfer Date. If the
Owner terminates the Program, a new Program may not be instituted until the next
Contract Year. 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).
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PERIODIC WITHDRAWAL PROGRAM
SAFECO will make monthly, quarterly or annual distributions of a predetermined
dollar amount to an Owner that has enrolled in the Periodic Withdrawal Program.
The Periodic Withdrawal Program is to be distinguished from the Systematic
Withdrawal Income Plan(TM). (See "Settlement Options.") Under the Program, all
distributions will be made directly to the Owner and will be treated for federal
tax purposes as any other withdrawal or distribution of Contract Value. (See
"Tax Status.") An Owner may specify the amount of each withdrawal, subject to a
minimum of $250. In each Contract Year, up to 10% of Contract Value may be
withdrawn without the imposition of any Contingent Deferred Sales Charge. If
withdrawals pursuant to the Program are greater than 10% of Contract Value in
any Contract Year, the amount of the withdrawals greater than 10% will be
subject to the applicable Contingent Deferred Sales Charge. Any ad hoc
withdrawals an Owner makes during a Contract Year will be aggregated with
withdrawals pursuant to the Program to determine the applicability of any
Contingent Deferred Sales Charge. If the frequency of withdrawals under the
Program is greater than annual, SAFECO will charge an annual fee of the lesser
of 2% of the amount withdrawn or $25 to compensate it for the added
administrative costs.
Unless the Owner specifies the Sub-Account or Sub-Accounts or the Fixed Account
from which withdrawals of Contract Value shall be made or if the amount in a
specified Sub-Account is less than the predetermined amount, SAFECO will make
withdrawals under the Program from the Sub-Accounts and the Fixed Account in
amounts proportionate to the amounts in the Sub-Accounts and the Fixed Account.
Withdrawals are subject to the applicable minimum Sub-Account balances. All
withdrawals under the Program will be effected by canceling the number of
Accumulation Units equal in value to the amount to be distributed to the Owner
and any applicable Contingent Deferred Sales Charge.
The Program may be combined with all other Programs except those entailing
transfers or withdrawals from the Fixed Account. However, the Owner may
terminate such other program and may begin participation in the Program on the
first day of the next Contract Year.
It may not be advisable to participate in the Program and incur a Contingent
Deferred Sales Charge when making additional Purchase Payments under the
Contract.
TAX STATUS
The following description is based upon SAFECO's understanding of current
federal income tax law applicable to annuities in general. SAFECO cannot predict
the probability that any changes in such laws will be made. Purchasers are
cautioned to seek competent tax advice regarding the possibility of such
changes. SAFECO does not guarantee the tax status of the Contracts. Purchasers
bear the complete risk that the Contracts may not be treated as "annuity
contracts" under federal income tax laws. It should be further understood that
the following discussion is not exhaustive and that special rules not described
in this Prospectus may be applicable in certain situations. Moreover, no attempt
has been made to consider any applicable state or other tax laws.
GENERAL
Section 72 of the Code governs taxation of annuities in general. An Owner is not
taxed on increases in the value of a Contract until distribution occurs, either
in the form of a lump sum payment, a withdrawal or as annuity payments under the
Settlement Option elected. For a lump sum payment received as a total surrender
(total redemption), the recipient is taxed at ordinary income tax rates on the
portion of the payment that exceeds the cost basis of the Contract. For
NonQualified Contracts, this cost basis is generally the Purchase Payments,
while for Qualified Contracts there may be no cost basis.
For annuity payments, a portion of each payment in excess of an exclusion amount
is includable in taxable income. The exclusion amount for payments based on a
fixed annuity is determined by multiplying the payment by the ratio that the
cost basis of the Contract (adjusted for any period certain or refund feature)
bears to the expected return under the Contract. The exclusion amount for
payments based on a variable annuity is determined by dividing the cost basis of
the Contract (adjusted for any period certain or refund
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guarantee) by the number of years over which the annuity is expected to be paid.
Payments received after the investment in the Contract has been recovered (i.e.
when the total of the excludable amounts equals the investment in the Contract)
are fully taxable. The taxable portion is taxed at ordinary income tax rates.
For certain types of Qualified Plans there may be no cost basis in the Contract
within the meaning of Section 72 of the Code resulting in the annuity payments
being fully includable in taxable income. Owners, Annuitants and Beneficiaries
under the Contracts should seek competent financial advice about the tax
consequences of any distributions.
SAFECO is taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from SAFECO and its
operations form a part of SAFECO.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income tax
to the Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the end of each quarter, the underlying
assets meet the diversification standards for a regulated investment company and
no more than fifty-five percent (55%) of the total assets consist of cash, cash
items, U.S. Government securities and securities of other regulated investment
companies.
On March 2, 1989, the Treasury Department issued Regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The Regulations
amplify the diversification requirements for variable contracts set forth in the
Code and provide an alternative to the safe harbor provision described above.
Under the Regulations, an investment portfolio will be deemed adequately
diversified if: (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments.
The Code provides that, for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable contracts
by Section 817(h) of the Code have been met, "each United States government
agency or instrumentality shall be treated as a separate issuer."
SAFECO intends that all Portfolios of the Trust and the Funds underlying the
Contracts will be managed in such a manner as to comply with these
diversification requirements.
The Treasury Department has indicated that the diversification Regulations do
not provide guidance regarding the circumstances in which Owner control of the
investments of the Separate Account will cause the Owner to be treated as the
owner of the assets of the Separate Account, thereby resulting in the loss of
favorable tax treatment for the Contract. At this time it cannot be determined
whether additional guidance will be provided and what standards may be contained
in such guidance.
The amount of Owner control which may be exercised under the Contract is
different in some respects from the situations addressed in published rulings
issued by the Internal Revenue Service in which it was held that the policy
owner was not the owner of the assets of separate account. It is unknown whether
these differences, such as the Owner's ability to transfer among investment
choices or the number and type of investment choices available, would cause the
Owner to be considered as the owner of the assets of the Separate Account
resulting in the imposition of federal income tax to the Owner with respect to
earnings allocable to the Contract prior to receipt of payments under the
Contract.
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In the event any forthcoming guidance or ruling is considered to set forth a new
position, such guidance or ruling will generally be applied only prospectively.
However, if such ruling or guidance was not considered to set forth a new
position, it may be applied retroactively resulting in the Owner being
retroactively determined to be the owner of the assets of the Separate Account.
Due to the uncertainty in this area, SAFECO reserves the right to modify the
Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts which are issued
within a calendar year to the same contract owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Owners should
therefore consult competent tax advisers should they wish to assign or pledge
their Contracts.
INCOME TAX WITHHOLDING
All distributions or any portion(s) thereof which are includable in the gross
income of the Owner are subject to Federal income tax withholding. Generally,
amounts are withheld from periodic payments at the same rate as wages and at the
rate of 10% from non-periodic payments. However, the Owner, in most cases, may
elect not to have taxes withheld or to have withholding done at a different
rate.
Effective January 1, 1993, certain distributions from retirement plans qualified
under Section 401 or Section 403(b) of the Code, which are not directly rolled
over to another eligible retirement plan or individual retirement account or
individual retirement annuity, are subject to a mandatory 20% withholding for
Federal income tax. The 20% withholding requirement does not apply to: a)
distributions for the life or life expectancy of the participant or joint and
last survivor expectancy of the participant and a designated beneficiary; or b)
distributions for a specified period of 10 years or more; or c) distributions
which are required minimum distributions. Participants should consult their own
tax counsel or other tax advisor regarding withholding.
TAX TREATMENT OF WITHDRAWALS -- NON-QUALIFIED CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn will be treated as coming first from the
earnings and then, only after the income portion is exhausted, as coming from
the principal. Withdrawn earnings are includable in gross income. It further
provides that a ten percent (10%) penalty will apply to the income portion of
any premature distribution. However, the penalty is not imposed on amounts
received: (a) after the taxpayer reaches age 59 1/2; (b) after the death of the
Owner; (c) if the taxpayer is totally disabled (for this purpose disability is
as defined in Section 72(m)(7) of the Code); (d) in a series of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the taxpayer or for the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary; (e) under an immediate
annuity; or (f) which are allocable to purchase payments made prior to August
14, 1982.
The above information does not apply to Qualified Contracts. However, separate
tax withdrawal penalties and restrictions may apply to such Qualified Contracts.
(See "Tax Treatment of Withdrawals -- Qualified Contracts" below.)
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QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of plan and terms and conditions of each
specific plan. Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the plan
regardless of the terms and conditions of the Contracts issued pursuant to the
plan. Some retirement plans are subject to distribution and other requirements
that are not incorporated into the Company's administrative procedures. Contract
Owners, participants and beneficiaries are responsible for determining that
contributions, distributions and other transactions with respect to the Contract
comply with applicable law. Following are general descriptions of the types of
Qualified Plans with which the Contracts may be used. Such descriptions are not
exhaustive and are for general informational purposes only. The tax rules
regarding Qualified Plans are very complex and will have differing applications
depending on individual facts and circumstances. Each purchaser should obtain
competent tax advice prior to purchasing a Contract issued under a Qualified
Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available as described in
this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are not
transferable except upon surrender or annuitization. Various penalty and excise
taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals -- Qualified Contracts", below.)
On July 6, 1983, the Supreme Court decided in Arizona Governing Committee v.
Norris that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by SAFECO in connection with
Qualified Plans will utilize annuity tables which do not differentiate on the
basis of sex. Such annuity tables will also be available for use in connection
with certain non-qualified deferred compensation plans.
a. TAX-SHELTERED ANNUITIES
Section 403(b) of the Code permits the purchase of "tax-sheltered annuities"
by public schools and certain charitable, educational and scientific
organizations described in Section 501(c)(3) of the Code. These qualifying
employers may make contributions to the Contracts for the benefit of their
employees. Such contributions are not includable in the gross income of the
employees until the employees receive distributions from the Contracts. The
amount of contributions to the tax-sheltered annuity is limited to certain
maximums imposed by the Code. Furthermore, the Code sets forth additional
restrictions governing such items as transferability, distributions,
nondiscrimination and withdrawals. (See "Tax Treatment of
Withdrawals -- Qualified Contracts" below.) Any employee should obtain
competent tax advice as to the tax treatment and suitability of such an
investment.
b. INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed to
an IRA which will be deductible from the individual's gross income. These
IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. (See "Tax Treatment of
Withdrawals -- Qualified Contracts" below.) Under certain conditions,
distributions from other IRAs and other Qualified Plans may be rolled over or
transferred on a tax-deferred basis into an IRA. Sales of Contracts for use
with IRAs are subject to special requirements imposed by the Code, including
the requirement that certain informational disclosure be given to persons
desiring to establish an IRA. Purchasers of Contracts to be qualified as
Individual Retirement Annuities should obtain competent tax advice as to the
tax treatment and suitability of such an investment.
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c. DEFERRED COMPENSATION PLANS
Section 457 of the Code permits governmental and certain other tax exempt
Employers to establish deferred compensation plans for the benefit of their
Employees. The Code establishes limitations and restrictions on eligibility,
contributions and distributions. Under these plans, contributions made for
the benefit of the Employees will not be includable in the Employees' gross
income until distributed from the plan.
TAX TREATMENT OF WITHDRAWALS -- QUALIFIED CONTRACTS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any distribution from qualified retirement plans, including Contracts issued and
qualified under Code Sections 403(b) (Tax-Sheltered Annuities) and 408(b)
(Individual Retirement Annuities). To the extent amounts are not includable in
gross income because they have been rolled over to an IRA or to another eligible
Qualified Plan, no tax penalty will be imposed. The tax penalty will not apply
to the following distributions: (a) if distribution is made on or after the date
on which the Owner or Annuitant (as applicable) reaches age 59 1/2; (b)
distributions following the death or disability of the Owner or Annuitant (as
applicable) (for this purpose disability is as defined in Section 72(m)(7) of
the Code); (c) after separation from service, distributions that are part of
substantially equal periodic payments made not less frequently than annually for
the life (or life expectancy) of the Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Owner or Annuitant (as
applicable) and his or her designated Beneficiary; (d) distributions to an Owner
or Annuitant (as applicable) who has separated from service after he has
attained age 55; (e) distributions made to the Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Owner or Annuitant (as applicable)
for amounts paid during the taxable year for medical care; and (f) distributions
made to an alternate payee pursuant to a qualified domestic relations order. The
exceptions stated in (d), (e) and (f) above do not apply in the case of an
Individual Retirement Annuity. The exception stated in (c) above applies to an
Individual Retirement Annuity without the requirement that there be a separation
from service.
Generally, distributions from a Qualified Plan must commence no later than April
1 of the calendar year, following the year in which the employee attains age
70 1/2. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required maximum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed. In addition, distributions in excess of $150,000 per year in the
case of periodic distributions and in excess of $750,000 in the case of lump sum
distributions may be subject to an additional 15% excise tax unless an exemption
applies.
TAX-SHELTERED ANNUITIES -- WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in Section 403(b)(11) of
the Code) to circumstances only when the Owner: (1) attains age 59 1/2; (2)
separates from service; (3) dies; (4) becomes disabled (within the meaning of
Section 72(m)(7) of the Code); or (5) in the case of hardship. However,
withdrawals for hardship are restricted to the portion of the Owner's Contract
Value which represents contributions made by the Owner and does not include any
investment results. The limitations on withdrawals became effective on January
1, 1989 and apply only to salary reduction contributions made after December 31,
1988, to income attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or transfers between certain Qualified Plans. Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Generally, any gain in the Contract will be taxed currently to the Owner if the
Contract is not held for the benefit of a natural person. Such Contracts
generally will not be treated as annuities for federal income tax purposes.
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LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account, SAFECO Securities
Inc. or PNMR Securities, Inc. is a party. SAFECO is engaged in various kinds of
litigation which, in the opinion of SAFECO, is not of material importance in
relation to the total capital and surplus of SAFECO.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ANNUITY PROVISIONS.................................................................... 3
General............................................................................. 3
Annuity Unit........................................................................ 3
Assumed Investment Factor........................................................... 3
Variable Annuity Payment Calculation................................................ 3
ADDITIONAL PERFORMANCE INFORMATION.................................................... 3
Performance Comparisons............................................................. 3
Performance Information............................................................. 4
Yields........................................................................... 4
Total Returns.................................................................... 4
EXPERTS............................................................................... 5
FINANCIAL STATEMENTS.................................................................. 5
</TABLE>
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PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION
SAFECO LIFE INSURANCE COMPANY
GENERAL INFORMATION
SAFECO
SAFECO Life Insurance Company (SAFECO) is a wholly-owned subsidiary of
SAFECO Corporation which is a holding company whose subsidiaries are engaged
primarily in insurance and financial services businesses.
At March 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.
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
SAFECO holds the assets of the Separate Account. The assets are kept
segregated and held separate and apart from the general account assets of
SAFECO. SAFECO maintains records of all Separate Account purchases and
redemptions of the shares of each Portfolio of SAFECO Resource Series Trust
(Trust), Federated Insurance Series, Lexington Emerging Markets Fund, Inc.,
Lexington Natural Resources Trust, Scudder Variable Life Investment Fund and
American Century Variable Portfolios, Inc.
INDEPENDENT AUDITORS
Ernst & Young LLP, 999 Third Avenue, Suite 3500, Seattle, Washington 98104,
is the independent auditor of the financial statements of SAFECO Life Insurance
Company and Subsidiaries and SAFECO Separate Account C.
DISTRIBUTOR
Currently, SAFECO Securities, Inc. (SSI), acts as the principal underwriter
for the Contracts. The offering is on a continuous basis. Prior to April 29,
1994, PNMR Securities, Inc. (PNMR) acted as the principal underwriter for the
Contracts. SSI and PNMR are both wholly-owned subsidiaries and affiliates of
SAFECO. For the years ended 1994, 1995 and 1996, PNMR, through SSI, received
$663,188, $1,178,617 and $3,226,968 in commissions for the distribution of the
Contracts of which no payments were retained.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus for the Individual Flexible Purchase
Payment Deferred Variable Annuity Contracts.
The Prospectus concisely sets forth information that a prospective investor
should know before investing. For a copy of the Prospectus, call 1-800-426-7649
or write to SAFECO Life Insurance Company, Annuity Service Office, Retirement
Services Department, P.O. Box 34690, Seattle, Washington 98124-1690.
This Statement of Additional Information and the Prospectus are both dated May
1, 1997.
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<PAGE> 49
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUITY PROVISIONS.................................................................... 3
General............................................................................. 3
Annuity Unit........................................................................ 3
Assumed Investment Factor........................................................... 3
Variable Annuity Payment Calculation................................................ 3
ADDITIONAL PERFORMANCE INFORMATION.................................................... 3
Performance Comparisons............................................................. 3
Performance Information............................................................. 4
Yields........................................................................... 4
Total Returns.................................................................... 4
EXPERTS............................................................................... 5
FINANCIAL STATEMENTS.................................................................. 5
</TABLE>
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<PAGE> 50
ANNUITY PROVISIONS
GENERAL
The Settlement Options and related provisions are described in the
Prospectus.
ANNUITY UNIT
The value of the Annuity Unit is determined by multiplying the value of the
Annuity Unit for the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the value is being
calculated, and dividing the result by the Assumed Investment Factor for such
Valuation Period.
ASSUMED INVESTMENT FACTOR
The Assumed Investment Factor for a one day Valuation Period is 1.00010746.
This factor neutralizes the assumed investment return of 4% in the Variable
Annuity purchase rate table in the Contract.
VARIABLE ANNUITY PAYMENT CALCULATION
A Variable Annuity is an Annuity with payments which are not predetermined
as to dollar amount. Payments will vary in accordance with the net investment
results of the Separate Account. The dollar amount of the first monthly Variable
Annuity payment under Settlement Options (a), (b) or (c), will be determined by
applying the Contract Value (after deduction for premium taxes, if applicable),
as of the 15th day of the preceding month, to the Variable Annuity purchase rate
table in the Contract. The number of Annuity Units to be credited to the
Annuitant will be determined by dividing the first monthly payment by the
Annuity Unit value calculated as of the 15th day of the preceding month. This
number of Annuity Units remains fixed during the Annuity payment period. The
dollar amount of each Variable Annuity payment after the first shall be
determined by multiplying the number of Annuity Units credited to the Annuitant
by the Annuity Unit value as of the 15th day of the preceding month.
ADDITIONAL PERFORMANCE INFORMATION
STANDARDIZED COMPUTATION OF PERFORMANCE
PERFORMANCE COMPARISONS. Performance Information for a Sub-Account may be
compared, in reports and advertising, to: (i) Standard & Poor's Stock Index, Dow
Jones Industrial Averages, Donahue Money Market Institutional Averages, or other
unmanaged indices generally regarded as representative of the securities
markets; (ii) other Variable Annuity separate accounts or other investment
products traced by Lipper Analytical Services, Inc., the Variable Annuity
Research and Data Service, or Morningstar, Inc., which are widely used
independent research firms that rank mutual funds and other investment companies
by overall performance, investment objectives and assets; and (iii) the Consumer
Price Index (a measure of inflation) to assess the real rate of return from an
investment in a Contract. Unmanaged indices may assume the reinvestment of
dividends but generally do not reflect deductions for annuity charges,
investment management costs, brokerage costs and other transaction costs that
are normally paid when directly investing in securities.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising also may contain other information, including the ranking of any
Sub-Account derived from rankings of Variable Annuity separate accounts or other
investment products traced by Lipper Analytical Services, Inc. or by rating
services, companies, publications, or other persons which rank separate accounts
or other investment products on overall performance or other criteria.
3
<PAGE> 51
PERFORMANCE INFORMATION.
YIELDS. Some Sub-Accounts may advertise yields. Yields quoted in
advertising reflect the change in value of a hypothetical investment in the
Sub-Account over a stated period of time, not taking in to account capital gains
or losses or the imposition of any Contingent Deferred Sales Charge. Yields are
annualized and stated as a percentage.
Current yield and effective yield are calculated for the SAFECO Resource
Money Market Sub-Account. Current Yield is based on the change in the value of a
hypothetical investment (exclusive of capital changes) over a particular seven
(7) day period, less a hypothetical charge reflecting deductions from values
during the period (the base period), and stated as a percentage of the
investment at the start of the base period (the base period return). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent. Effective
yield assumes that all dividends received during an annual period have been
reinvested. This compounding effect causes effective yield to be higher than
current yield. Calculation of effective yield begins with the same base period
return used in the calculation of current yield, which is then annualized to
reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
Yield for the SAFECO Resource Bond Sub-Account and Federated High Income
Bond Sub-Account is based on all investment income (including dividends and
interest) per accumulation unit earned during a particular thirty (30) day
period, less expenses accrued during the period (net investment income). Yield
is computed by dividing net investment income by the value of an accumulation
unit on the last day of the period, according to the following formula:
Yield = 2[((a-b)/cd + 1)(6) - 1]
where a = net investment income earned during the period by the
corresponding Available Fund portfolio, b = expenses accrued for the period (net
of any reimbursements), c = the average daily number of accumulation units
outstanding during the period, and d = the value (maximum offering price) per
accumulation unit on the last day of the period.
TOTAL RETURNS. Total return reflects all aspects of a Sub-Account's return,
including the automatic reinvestment by the Sub-Account of all distributions and
the deduction of all applicable charges to the Sub-Account on an annual basis,
including mortality and expense risk charges, the Annual Administration
Maintenance Charge, the Asset Related Administration Charge, and any other
charges against Contract Value. Quotations also will assume a termination
(surrender) at the end of the particular period and reflect the deduction of the
Contingent Deferred Sales Charge, if applicable. Additional quotations may be
given that do not assume a termination (surrender) and do not take into account
deduction of the Contingent Deferred Sales Charge, since the Contracts are
intended as long-term products.
From time to time, non-standardized total return figures may accompany the
standardized figures. Non-standardized total return figures may be calculated in
a variety of ways including but not necessarily limited to different time
periods, different initial investment amounts, additions of periodic payments,
use of time weighted average annual returns which take into consideration the
length of time each investment has been on deposit, and without the
Administration Charge and/or with or without the Contingent Deferred Sales
Charge. Non-standardized figures may cause the performance of the Sub-Accounts
to appear higher than performance calculated using standard parameters.
Average annual total returns are calculated by determining the growth or
decline in value of a hypothetical investment in the Sub-Account over certain
periods, including 1, 5, and 10 years (up to the life of the Sub-Account), and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. Investors should realize that the Sub-Account's
experience is not constant over time, but changes from year to year, and that
the average annual returns represent averaged figures as opposed to the
year-to-year performance of a Sub-Account. Average annual returns are calculated
pursuant to the following formula: P(1 + T)(n) = ERV, where
4
<PAGE> 52
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.
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 herein in
reliance on their reports given on the authority of such firm as experts in
accounting and auditing.
FINANCIAL STATEMENTS
The consolidated financial statements of SAFECO Life Insurance Company and
Subsidiaries included herein should be considered only as bearing upon the
ability of SAFECO to meet its obligations under the Contracts.
5
<PAGE> 53
FINANCIAL STATEMENTS
SAFECO SEPARATE ACCOUNT C
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 7
Statement of Assets and Liabilities as of December 31, 1996........................... 8
Statement of Operations for the periods ended December 31, 1996....................... 10
Statements of Changes in Net Assets for the periods ended December 31, 1996 and
the year ended December 31, 1995.................................................... 12
Notes to Financial Statements (including accumulation unit data)...................... 14
</TABLE>
6
<PAGE> 54
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, Scudder International, Scudder
Balanced, Lexington Natural Resources, Lexington Emerging Markets, Federated
Utility, Federated High Income Bond and Federated International Equity
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, Scudder Variable Life Investment Fund, Lexington Natural
Resources Trust, Lexington Emerging Markets Fund, Inc., and Federated Insurance
Series. 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
7
<PAGE> 55
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
8
<PAGE> 56
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUB-ACCOUNTS
------------------------------------------------
LEXINGTON LEXINGTON
SCUDDER SCUDDER NATURAL EMERGING
INT'L BAL RESOURCES MRKTS
------------------------------------------------
-- (In Thousands, Except Per-Unit and Per Share Amounts) --
<S> <C> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 6,338 $ 8,631 $ 960 $ 869
======== ======= ======= =======
Shares owned 537 784 73 85
Net asset value per share $ 13.25 $ 11.61 $ 14.29 $ 10.08
-------- ------- ------- -------
Investments, at value 7,109 9,103 1,042 860
Cash 4 1 3 --
-------- ------- ------- -------
Total assets 7,113 9,104 1,045 860
LIABILITIES:
Mortality and expense risk charge payable 7 10 1 1
Fees payable 5 2 3 --
-------- ------- ------- -------
Total liabilities 12 12 4 1
-------- ------- ------- -------
NET ASSETS $ 7,101 $ 9,092 $ 1,041 $ 859
======== ======= ======= =======
ACCUMULATION UNITS OUTSTANDING 545 660 73 86
======== ======= ======= =======
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $ 13.022 $13.771 $14.148 $ 9.946
======== ======= ======= =======
</TABLE>
*Redemption price per unit is the unit value less any applicable contingent
deferred sales charge.
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------
FEDERATED
FEDERATED HIGH FEDERATED
UTILITY INCOME INT'L
-----------------------------------
-- (In Thousands, Except Per-Unit and Per Share Amounts) --
<S> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 963 $ 430 $ 367
======= ======= =======
Shares owned 86 43 34
Net asset value per share $ 11.81 $ 10.24 $ 11.16
------- ------- -------
Investments, at value 1,011 443 377
Cash -- -- --
------- ------- -------
Total assets 1,011 443 377
LIABILITIES:
Mortality and expense risk charge payable 1 -- --
Fees payable -- -- --
------- ------- -------
Total liabilities 1 -- --
------- ------- -------
NET ASSETS $ 1,010 $ 443 $ 377
======= ======= =======
ACCUMULATION UNITS OUTSTANDING 83 41 34
======= ======= =======
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units outstanding) $12.117 $10.899 $11.056
======= ======= =======
</TABLE>
See Notes to Financial Statements
9
<PAGE> 57
December 31, 1996
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
SAFECO SAFECO SAFECO SAFECO SAFECO
EQUITY* GROWTH* NW* BOND* MMKT*
-------------------------------------------------------------
-- ($ 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 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
10
<PAGE> 58
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------------------------
PERIOD ENDED DECEMBER 31, 1996
LEXINGTON LEXINGTON
SCUDDER SCUDDER NATURAL EMERGING
INT'L* BAL* RESOURCES+ MRKTS+
----------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain distributions $ 93 $ 213 $ 3 $ --
EXPENSES:
Mortality and expense risk charge 65 73 5 4
Administration charge 8 8 -- 1
-------- -------- -------- --------
Total expenses 73 81 5 5
-------- -------- -------- --------
NET INVESTMENT INCOME (LOSS) 20 132 (2) (5)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 64 137 8 (6)
Net change in unrealized appreciation 561 325 82 (9)
-------- -------- -------- --------
NET GAIN ON INVESTMENTS 625 462 90 (15)
-------- -------- -------- --------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 645 $ 594 $ 88 $ (20)
======== ======== ======== ========
</TABLE>
* For the year ended December 31, 1996.
+ For the period January 25, 1996 (inception date) through December 31, 1996.
<TABLE>
<CAPTION>
SUB-ACCOUNTS
----------------------------------------
PERIOD ENDED DECEMBER 31, 1996
FEDERATED
FEDERATED HIGH FEDERATED
UTILITY+ INCOME+ INT'L+
----------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Income dividends and capital gain distributions $ 15 $ 13 $ 13 $ --
EXPENSES:
Mortality and expense risk charge 4 2 2 2
Administration charge 1 -- -- --
-------- -------- -------- --------
Total expenses 5 2 2 2
-------- -------- -------- --------
NET INVESTMENT INCOME (LOSS) 10 11 11 (2)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain (loss) on investments 4 -- -- 1
Net change in unrealized appreciation 48 14 14 10
-------- -------- -------- --------
NET GAIN ON INVESTMENTS 52 14 14 11
-------- -------- -------- --------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 62 $ 25 $ 25 $ 9
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements
11
<PAGE> 59
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
12
<PAGE> 60
SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------------
LEXINGTON LEXINGTON
SCUDDER SCUDDER NATURAL EMERGING
INT'L BAL RESOURCES MRKTS
----------------------- ----------------------- ---------- ---------
FOR THE PERIOD ENDED DECEMBER 31
1996* 1995* 1996* 1995* 1996+ 1996+
----------------------- ----------------------- ---------- ---------
-- (In Thousands) --
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 20 $ (25) $ 132 $ 15 $ (2) $ (5)
Net realized gain (loss)
on investments 64 2 137 9 8 (6)
Net change in unrealized
appreciation 561 261 325 151 82 (9)
-------- -------- -------- -------- -------- --------
Net change in net assets
resulting from
operations 645 238 594 175 88 (20)
NET ACCUMULATION UNIT
TRANSACTIONS 3,258 1,516 6,816 1,012 953 879
-------- -------- -------- -------- -------- --------
TOTAL CHANGE IN NET ASSETS 3,903 1,754 7,410 1,187 1,041 859
NET ASSETS AT BEGINNING OF
YEAR 3,198 1,444 1,682 495 -- --
-------- -------- -------- -------- -------- --------
NET ASSETS AT END OF YEAR $ 7,101 $ 3,198 $ 9,092 $ 1,682 $ 1,041 $ 859
======== ======== ======== ======== ======== ========
OTHER INFORMATION
Increase (Decrease) in
Units and Amounts
UNITS:
Sales 307 168 569 92 78 96
Redemptions (40) (28) (44) (7) (5) (10)
-------- -------- -------- -------- -------- --------
Net change 267 140 525 85 73 86
======== ======== ======== ======== ======== ========
AMOUNTS:
Sales $ 3,744 $ 1,817 $ 7,394 $ 1,091 $ 1,019 $ 975
Redemptions (486) (301) (578) (79) (66) (96)
-------- -------- -------- -------- -------- --------
Net change $ 3,258 $ 1,516 $ 6,816 $ 1,012 $ 953 $ 879
======== ======== ======== ======== ======== ========
DECEMBER 31, 1996
Paid in capital $ 6,274 $ 8,325 $ 953 $ 879
Par value per unit None None None None
Accumulation units
authorized Unlimited Unlimited Unlimited Unlimited
</TABLE>
* For the year ended December 31.
+ For the period January 25, 1996 (inception date) through December 31, 1996.
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------
FEDERATED
FEDERATED HIGH FEDERATED
UTILITY INCOME INT'L
-------- -------- --------
FOR THE PERIOD ENDED DECEMBER 31
1996+ 1996+ 1996+
-------- -------- --------
-- (In Thousands) --
<S> <C> <C> <C>
OPERATIONS:
Net investment income
(loss) $ 10 $ 11 $ (2)
Net realized gain (loss)
on investments 4 -- 1
Net change in unrealized
appreciation 48 14 10
-------- -------- --------
Net change in net assets
resulting from
operations 62 25 9
NET ACCUMULATION UNIT
TRANSACTIONS 948 418 368
-------- -------- --------
TOTAL CHANGE IN NET ASSETS 1,010 443 377
NET ASSETS AT BEGINNING OF
YEAR -- -- --
-------- -------- --------
NET ASSETS AT END OF YEAR $ 1,010 $ 443 $ 377
======== ======== ========
OTHER INFORMATION
Increase (Decrease) in
Units and Amounts
UNITS:
Sales 98 41 35
Redemptions (15) -- (1)
-------- -------- --------
Net change 83 41 34
======== ======== ========
AMOUNTS:
Sales $ 1,117 $ 421 $ 380
Redemptions (169) (3) (12)
-------- -------- --------
Net change $ 948 $ 418 $ 368
======== ======== ========
DECEMBER 31, 1996
Paid in capital $ 948 $ 418 $ 368
Par value per unit None None None
Accumulation units
authorized Unlimited Unlimited Unlimited
</TABLE>
See Notes to Financial Statements
13
<PAGE> 61
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
Scudder Fund --
Scudder International (Scudder Int'l) Scudder International Portfolio
Scudder Balanced (Scudder Bal) Scudder Balanced Portfolio
Lexington Natural Resources Trust --
Lexington Natural Resources Natural Resources Portfolio
Lexington Emerging Markets (Lexington Lexington Emerging Markets Fund, Inc. --
Emerging Mrkts) Emerging Markets Portfolio
Federated Insurance Series --
Federated Utility Utility Portfolio
Federated High Income Bond (Federated
High Income) High Income Bond Portfolio
Federated International Equity (Federated 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.
14
<PAGE> 62
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 $50,000. In
certain situations where an owner withdraws all or a portion of his or her
contract value, a contingent deferred sales charge is deducted from the
withdrawal. This charge is imposed on withdrawals made in the first eight
(8) contract years. Any premium tax levied by a state or government entity
with respect to the Separate Account C contract will be charged against the
contract.
4. INVESTMENT TRANSACTIONS
<TABLE>
<CAPTION>
SUB-ACCOUNTS
--------------------------------------------------------------------------
SAFECO SAFECO SAFECO SAFECO SAFECO SCUDDER SCUDDER
EQUITY* GROWTH* NW* BOND* MMKT* INT'L* BAL*
------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C> <C> <C> <C>
PURCHASES for the
period ended
December 31, 1996 $28,781 $22,813 $ 1,269 $ 2,425 $30,930 $ 3,959 $ 7,741
======= ======= ====== ====== ======= ====== ======
SALES for the period
period ended
December 31, 1996 $ 3,395 $ 2,423 $ 269 $ 955 $28,593 $ 677 $ 785
======= ======= ====== ====== ======= ====== ======
* For the year ended December 31, 1996
</TABLE>
15
<PAGE> 63
December 31, 1996 SAFECO SEPARATE ACCOUNT C
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Continued)
4. INVESTMENT TRANSACTIONS -- CONTINUED
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------
LEXINGTON LEXINGTON FEDERATED
NATURAL EMERGING FEDERATED HIGH FEDERATED
RESOURCES+ MRKTS+ UTILITY+ INCOME+ INT'L+
------------------------------------------------------------------------------------------------
-- ($ in Thousands) --
<S> <C> <C> <C> <C> <C>
PURCHASES for the period ended
December 31, 1996 $ 1,029 $ 994 $ 1,178 $ 496 $ 405
======= ======= ======= ======= =======
SALES for the period ended
December 31, 1996 $ 77 $ 119 $ 219 $ 66 $ 39
======= ======= ======= ======= =======
+ 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 SCUDDER SCUDDER
EQUITY GROWTH NW BOND MMKT INT'L BAL
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
February 11, 1994
(Inception Date) $24.528 $13.910 $ 10.073 $16.217 $13.526 $10.948 $10.435
December 31, 1994 25.373 14.864 10.134 15.521 13.811 10.498 9.988
December 31, 1995 32.209 20.668 10.737 18.045 14.370 11.504 12.481
December 31, 1996 39.633 26.928 11.905 17.915 14.874 13.022 13.771
</TABLE>
<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>
16
<PAGE> 64
Audited Consolidated Financial Statements
SAFECO Life Insurance Company
and Subsidiaries
For the Years Ended December 31, 1996, 1995 and 1994
<PAGE> 65
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> 66
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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SAFECO Life
Insurance Company and subsidiaries at December 31, 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> 67
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> 68
<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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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
----------------------------
Fixed Maturities Fixed Maturities Marketable
Available-for-Sale Held-to-Maturity Equity Securities
------------------ ---------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Proceeds from sales ............................... $ 250,227 $ -- $ 65
========= ======== =========
Gross realized gains on sales ..................... $ 12,994 $ -- $ 115
Gross realized losses on sales .................... (1,533) -- (224)
--------- -------- ---------
Realized gains (losses) on sales ............. 11,461 -- (109)
Other (Including net gain on calls and redemptions) 2,475 -- --
Writedowns (Including writedowns on
securities subsequently sold) ................. (4,804) -- --
--------- -------- ---------
Total realized gain (loss) ........................ $ 9,132 $ -- $ (109)
========= ======== =========
</TABLE>
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> 81
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> 82
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.
17
<PAGE> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
SAFECO SEPARATE ACCOUNT C
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. FINANCIAL STATEMENTS The following audited financial statements of SAFECO
Life Insurance Company are included in the Statement of Additional
Information of this Registration Statement:
REGISTRANT:
Statement of Assets and Liabilities as of December 31, 1996.
Statement of Operations for the periods ended December 31, 1996.
Statements of 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 Sheets 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
<TABLE>
<CAPTION>
Exhibit Number Description of Document
-------------- -----------------------
<S> <C>
1. Resolution of Board of Directors of SAFECO authorizing the
establishment of the Separate Account. *
2. Not Applicable
3. (i) Form of Principal Underwriter's Agreement *
(ii) Selling Agreement **
4. (i) Individual Flexible Purchase Payment Deferred Variable **
Annuity Contracts
(ii) Riders and Endorsements **
5. Application for Annuity Contract **
6. (i) Copy of Articles of Incorporation of SAFECO *
(ii) Copy of the Bylaws of SAFECO *
7. Not Applicable
8.a. (i) Fund Participation Agreement **
(ii) Reimbursement Agreement **
(iii)Participating Contract and Policy Agreement **
8.b. Participation Agreement by and among SAFECO Life Insurance Company, ***
Federated Insurance Series, on behalf of the Federated High Income
Bond Fund II, Federated International Equity Fund II, Federated
Utility Fund II, Federated Securities Corp. and Federated Advisers.
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
<S> <C>
8.c. Participation Agreement by and among SAFECO Life Insurance Company, ***
Lexington Emerging Markets Fund, Inc., Lexington Natural Resources Trust,
and Lexington Management Corporation.
8.d Participation Agreement by and among SAFECO Life Insurance ****
Company, TCI Portfolios, Inc. and/or Adviser for TCI Balanced Fund and
TCI International Fund.
9. Opinion and Consent of Counsel
10. Consent of Independent Auditors
11. Not Applicable
12. Not Applicable
13. Calculation of Performance Information ***
14. Power of Attorney **
15. Representation of Counsel
* Incorporated by reference to SAFECO Separate Account C's
registration statement filed on Form N-4, filed with the
Securities and Exchange Commission on June 16, 1995. (Files
No. 33-60331 and 811- 8052).
** Incorporated by reference to Registrants Post-Effective
Amendment filed with the SEC on December 29, 1995 (File No.
33-69712).
*** Incorporated by reference to Registrants Post-Effective
Amendment 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 April 29, 1996
(File No. 33-60331).
</TABLE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Set forth below is a list of each director and officer of SAFECO Life Insurance
Company ("SAFECO") who is engaged in activities relating to SAFECO Separate
Account C or the variable annuity contracts offered through SAFECO Separate
Account C. Unless otherwise indicated the principal business address of all
officers or directors listed is 15411 N. E. 51st Street, Redmond, Washington
98052.
<TABLE>
<CAPTION>
Name Position with SAFECO
---- --------------------
<S> <C>
* Roger H. Eigsti Director, Chairman of the Board
Richard E. Zunker Director and President
* Boh A. Dickey Director
John P. Fenlason Senior Vice President
Roger F. Harbin Senior Vice President, Actuary
* Rod A. Pierson Director, Senior Vice President
and Secretary
</TABLE>
<PAGE> 93
* 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
* 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
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.
<PAGE> 94
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 Bylaws, SAFECO, to the full extent permitted by the Washington
Business Corporation Act, shall indemnify any person who was or is a party to
any proceeding (whether brought by or in the right of SAFECO or otherwise) by
reason of the fact that he or she is or was a director of SAFECO, or, while a
director of SAFECO, is or was serving at the request of SAFECO as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by him or her in connection with such proceeding.
SAFECO shall extend such indemnification as is provided to directors above to
any person, not a director of SAFECO, who is or was an officer of SAFECO or is
or was serving at the request of SAFECO as a director, officer, partner,
trustee, or agent of another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan. In addition, the
Board of Directors of SAFECO may, by resolution, extend such further
indemnification to an officer or such other person as may to it seem fair and
reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of SAFECO
pursuant to such provisions of the bylaws or statutes or otherwise, SAFECO has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by SAFECO of expenses incurred or paid
by a director, officer or controlling person of SAFECO in the successful defense
of any such action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Contracts issued by the Separate
Account, SAFECO will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in said Act and will be governed by the final adjudication of such
issue.
ITEM 29. PRINCIPAL UNDERWRITERS
a. SAFECO Securities, Inc., the principal underwriter for the
Contracts, also acts as the principal underwriter for SAFECO's
Individual Flexible Premium Variable Life Insurance Policies and
Group Variable Annuity Contracts.
<PAGE> 95
b. The following information is provided for each principal officer
and director of the principal underwriter:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with Underwriter
----------------- ----------------
<S> <C>
Rod A. Pierson Director
Ronald Spaulding Director
David F. Hill Director, President and Secretary
Neal A. Fuller Vice President, Controller, Treasurer,
Financial Principal and Assistant
Secretary
</TABLE>
*The business address for all individuals listed is SAFECO Plaza,
Seattle, Washington 98185.
c. During the fiscal year ended December 31, 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.
<PAGE> 96
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
SAFECO Life Insurance Company at 15411 N.E. 51st Street, Redmond, Washington
98052, and/or SAFECO Asset Management Company at SAFECO Plaza, Seattle,
Washington 98185 maintain physical possession of the accounts, books or
documents of the Separate Account required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
Not Applicable
ITEM 32. UNDERTAKINGS
Registrant hereby represents that it is relying upon a No-Action Letter issued
to the American Council of Life Insurance dated November 28, 1988 (Commission
ref. IP-6-88) and that the following provisions have been complied with:
a. Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in each
registration statement, including the prospectus, used in
connection with the offer of the contract;
b. Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403(b)(11) in any sales
literature used in connection with the offer of the contract;
c. Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption
restrictions imposed by Section 403(b)(11) to the attention of
the potential participants;
d. Obtain from each plan participant who purchases a Section
403(b) annuity contract, prior to or at the time of such
purchase, a signed statement acknowledging the participant's
understanding of (1) the restrictions on redemption imposed by
Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract
value;
e. 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.
<PAGE> 97
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)
</TABLE>
<PAGE> 98
RONALD SPAULDING* Director and Vice
- ----------------------------
Ronald Spaulding President
ROD A. PIERSON* Director, Senior Vice
- ----------------------------
Rod Pierson President and Secretary
JAMES W. RUDDY* Director
- ----------------------------
James W. Ruddy
ROBERT SWEGLE* Director
- ----------------------------
Robert Swegle
Director and President
/S/ RICHARD E. ZUNKER (Principal Executive
- ----------------------------
Richard E. Zunker Officer)
*By: /S/ BOH A. DICKEY
---------------------
Boh A. Dickey
Attorney-in-Fact
*By: /S/ RICHARD E. ZUNKER
-------------------------
Richard E. Zunker
Attorney-in-Fact
<PAGE> 99
EXHIBIT INDEX
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. 5 to the Registration
Statement (Form N-4, No. 33-69712) 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. 5, FORM N-4
FILE NOS. 33-69712 AND 811-8052
Commissioners:
SAFECO and its Separate Account believe that the filing of Post-Effective
Amendment No. 5, 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. 5, 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. 5, 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.
5, and it is his opinion that Post-Effective Amendment No. 5 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
