<PAGE>
December 31, 1997
[SAFECO LOGO]
ANNUAL
REPORT
SAFECO SEPARATE ACCOUNT C
------
[SAFECO LIFE LOGO]
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES
SAFECO Separate Account C
As of December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------
SAFECO
(In Thousands, Except Per-Share and SAFECO SAFECO SAFECO SAFECO SAFECO SMALL
Per-Unit Amounts) EQUITY GROWTH NW BOND MMKT COMPANY
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 85,739 $ 77,523 $ 6,459 $ 3,171 $ 7,238 $ 3,271
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
SHARES OWNED 3,626 3,605 452 285 7,238 255
NET ASSET VALUE PER SHARE $ 25.18 $ 23.35 $ 15.20 $ 11.04 $ 1.00 $ 12.33
--------- --------- --------- --------- --------- ---------
Investments, at value 91,291 84,172 6,871 3,143 7,238 3,139
Cash 12 4 -- 3 1 --
--------- --------- --------- --------- --------- ---------
Total assets 91,303 84,176 6,871 3,146 7,239 3,139
LIABILITIES:
Mortality and expense risk charge
payable 100 91 7 3 8 3
Other 24 16 1 4 2 --
--------- --------- --------- --------- --------- ---------
Total liabilities 124 107 8 7 10 3
--------- --------- --------- --------- --------- ---------
NET ASSETS $ 91,179 $ 84,069 $ 6,863 $ 3,139 $ 7,229 $ 3,136
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
ACCUMULATION UNITS OUTSTANDING 1,868 2,189 446 164 469 246
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units oustanding) $ 48.808 $ 38.410 $ 15.388 $ 19.130 $ 15.413 $ 12.731
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
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</TABLE>
* The redemption price per unit is the accumulation unit value less any
applicable contingent deferred sales charge.
SEE NOTES TO FINANCIAL STATEMENTS
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<PAGE>
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<TABLE>
<CAPTION>
SUB-ACCOUNTS
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WANGER
LEX LEX FED US
SCUDDER SCUDDER NATURAL EMERGING FED HIGH FED SMALL AMC AMC
INT'L BALANCED RESOURCES MARKETS UTILITY INCOME INT'L CAP BALANCED INT'L
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments in underlying Portfolios:
Investments, at cost $ 7,667 $11,357 $ 4,468 $ 2,009 $ 3,412 $ 3,549 $ 1,481 $1,658 $ 3,108 $3,308
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
SHARES OWNED 592 996 306 188 279 337 125 87 383 482
NET ASSET VALUE PER SHARE $ 14.11 $ 13.30 $ 14.91 $ 8.91 $ 14.29 $ 10.95 $ 12.27 $21.46 $ 8.24 $ 6.84
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
Investments, at value 8,348 13,245 4,560 1,672 3,987 3,686 1,530 1,876 3,159 3,297
Cash 8 4 -- 1 1 1 -- -- -- --
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
Total assets 8,356 13,249 4,560 1,673 3,988 3,687 1,530 1,876 3,159 3,297
LIABILITIES:
Mortality and expense risk charge
payable 10 15 5 2 4 4 2 2 3 3
Other 9 6 1 1 2 1 -- 1 1 1
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
Total liabilities 19 21 6 3 6 5 2 3 4 4
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
NET ASSETS $ 8,337 $13,228 $ 4,554 $ 1,670 $ 3,982 $ 3,682 $ 1,528 $1,873 $ 3,155 $3,293
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
ACCUMULATION UNITS OUTSTANDING 595 784 305 193 263 301 127 88 350 468
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
ACCUMULATION UNIT VALUE*
(Net assets divided by accumulation
units oustanding) $14.008 $16.872 $ 14.952 $ 8.670 $15.135 $12.236 $12.003 $21.391 $ 9.008 $7.039
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
------- ------- --------- -------- ------- ------- ------- ------ -------- ------
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 3 -
<PAGE>
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STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
SAFECO Separate Account C
Year or Period Ended December 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------
SAFECO SAFECO SAFECO
EQUITY GROWTH NW
--------------------- --------------------- ---------------------
(In Thousands) 1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Dividend income $ 6,624 $ 3,918 $ 13,547 $ 2,724 $ 293 $ 12
Mortality and expense risk charge (828) (340) (703) (259) (44) (15)
Administrative charge (99) (41) (84) (31) (6) (2)
Net realized gain (loss) on
investments 3,277 504 4,618 667 145 34
Net change in unrealized appreciation 3,511 1,849 3,447 2,587 328 87
--------- --------- --------- --------- --------- ---------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 12,485 5,890 20,825 5,688 716 116
UNIT TRANSACTIONS:
Purchases 48,326 24,683 40,706 19,902 4,909 1,230
Redemptions (11,449) (2,869) (10,978) (1,975) (508) (226)
--------- --------- --------- --------- --------- ---------
NET UNIT TRANSACTIONS 36,877 21,814 29,728 17,927 4,401 1,004
--------- --------- --------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 49,362 27,704 50,553 23,615 5,117 1,120
NET ASSETS AT BEGINNING OF YEAR 41,817 14,113 33,516 9,901 1,746 626
--------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF YEAR $ 91,179 $ 41,817 $ 84,069 $ 33,516 $ 6,863 $ 1,746
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
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</TABLE>
* For the period from May 1, 1997 (inception date) to December 31, 1997.
SEE NOTES TO FINANCIAL STATEMENTS
- 4 -
<PAGE>
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<TABLE>
<CAPTION>
SUB-ACCOUNTS
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SAFECO
SAFECO SAFECO SMALL SCUDDER
BOND MMKT COMPANY INT'L
- --------------------------------------------------------------- --------------------- --------- ---------------------
1997 1996 1997 1996 1997* 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Dividend income $ 165 $ 111 $ 337 $ 116 $ 124 $ 188 $ 93
Mortality and expense risk charge (30) (20) (85) (30) (6) (111) (65)
Administrative charge (3) (3) (10) (4) (1) (14) (8)
Net realized gain (loss) on
investments (1) (19) -- -- 10 681 64
Net change in unrealized appreciation 37 (70) -- -- (131) (90) 561
--------- --------- --------- --------- --------- --------- ---------
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 168 (1) 242 82 (4) 654 645
UNIT TRANSACTIONS:
Purchases 1,936 2,212 60,841 30,613 3,255 2,839 3,744
Redemptions (987) (830) (57,598) (28,361) (115) (2,257) (486)
--------- --------- --------- --------- --------- --------- ---------
NET UNIT TRANSACTIONS 949 1,382 3,243 2,252 3,140 582 3,258
--------- --------- --------- --------- --------- --------- ---------
TOTAL CHANGE IN NET ASSETS 1,117 1,381 3,485 2,334 3,136 1,236 3,903
NET ASSETS AT BEGINNING OF YEAR 2,022 641 3,744 1,410 -- 7,101 3,198
--------- --------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF YEAR $ 3,139 $ 2,022 $ 7,229 $ 3,744 $ 3,136 $ 8,337 $ 7,101
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 5 -
<PAGE>
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STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Year or Period Ended December 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
---------------------------------------------------------------------
LEX LEX
SCUDDER NATURAL EMERGING
BALANCED RESOURCES MARKETS
--------------------- --------------------- ---------------------
(In Thousands) 1997 1996 1997 1996# 1997 1996#
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Dividend income $ 862 $ 213 $ 109 $ 3 $ 1 $ --
Mortality and expense risk charge (148) (73) (39) (5) (20) (4)
Administrative charge (18) (8) (5) -- (3) (1)
Net realized gain (loss) on
investments 286 137 88 8 11 (6)
Net change in unrealized appreciation 1,416 325 10 82 (328) (9)
--------- --------- --------- --------- --------- ---
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 2,398 594 163 88 (339) (20)
UNIT TRANSACTIONS:
Purchases 4,018 7,394 3,782 1,019 1,625 975
Redemptions (2,280) (578) (432) (66) (475) (96)
--------- --------- --------- --------- --------- ---
NET UNIT TRANSACTIONS 1,738 6,816 3,350 953 1,150 879
--------- --------- --------- --------- --------- ---
TOTAL CHANGE IN NET ASSETS 4,136 7,410 3,513 1,041 811 859
NET ASSETS AT BEGINNING OF YEAR 9,092 1,682 1,041 -- 859 --
--------- --------- --------- --------- --------- ---
NET ASSETS AT END OF YEAR $ 13,228 $ 9,092 $ 4,554 $ 1,041 $ 1,670 $ 859
--------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- ---
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</TABLE>
# For the period from January 25, 1996 (inception date) to December 31, 1996
SEE NOTES TO FINANCIAL STATEMENTS
- 6 -
<PAGE>
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<TABLE>
<CAPTION>
SUB-ACCOUNTS
- -------------------------------------------------------------------------------------------------------------------------------
FED
FED HIGH FED WANGER US
UTILITY INCOME INT'L SMALL CAP
- ------------------------------------------------------------- ------------------- ------------------- -------------------
1997 1996# 1997 1996# 1997 1996# 1997 1996#
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Dividend income $ 69 $ 15 $ 70 $ 13 $ 1 $ -- $ 18 $ --
Mortality and expense risk charge (27) (4) (21) (2) (11) (2) (16) (2)
Administrative charge (3) (1) (3) -- (2) -- (2) --
Net realized gain (loss) on
investments 37 4 25 -- 19 1 105 3
Net change in unrealized appreciation 526 48 124 14 39 10 183 34
-------- -------- -------- --- -------- --- -------- ---
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 602 62 195 25 46 9 288 35
UNIT TRANSACTIONS:
Purchases 2,657 1,117 3,272 421 1,279 380 1,687 512
Redemptions (287) (169) (228) (3) (174) (12) (523) (126)
-------- -------- -------- --- -------- --- -------- ---
NET UNIT TRANSACTIONS 2,370 948 3,044 418 1,105 368 1,164 386
-------- -------- -------- --- -------- --- -------- ---
TOTAL CHANGE IN NET ASSETS 2,972 1,010 3,239 443 1,151 377 1,452 421
NET ASSETS AT BEGINNING OF YEAR 1,010 -- 443 -- 377 -- 421 --
-------- -------- -------- --- -------- --- -------- ---
NET ASSETS AT END OF YEAR $ 3,982 $ 1,010 $ 3,682 $ 443 $ 1,528 $ 377 $ 1,873 $ 421
-------- -------- -------- --- -------- --- -------- ---
-------- -------- -------- --- -------- --- -------- ---
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
- 7 -
<PAGE>
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STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Year or Period Ended December 31
<TABLE>
<CAPTION>
SUB-ACCOUNTS
-----------------------------------------
AMC AMC
BALANCED INT'L
------------------- -------------------
(In Thousands) 1997 1996# 1997 1996#
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Dividend income $ 14 $ 2 $ 8 $ 1
Mortality and expense risk charge (12) (1) (13) (1)
Administrative charge (1) -- (2) --
Net realized gain (loss) on
investments 15 -- 34 3
Net change in unrealized appreciation 42 8 (20) 9
-------- --- -------- ---
NET CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 58 9 7 12
UNIT TRANSACTIONS:
Purchases 3,004 196 3,285 215
Redemptions (92) (20) (146) (80)
-------- --- -------- ---
NET UNIT TRANSACTIONS 2,912 176 3,139 135
-------- --- -------- ---
TOTAL CHANGE IN NET ASSETS 2,970 185 3,146 147
NET ASSETS AT BEGINNING OF YEAR 185 -- 147 --
-------- --- -------- ---
NET ASSETS AT END OF YEAR $ 3,155 $ 185 $ 3,293 $ 147
-------- --- -------- ---
-------- --- -------- ---
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</TABLE>
# For the period from January 25, 1996 (inception date) to December 31, 1996
SEE NOTES TO FINANCIAL STATEMENTS
- 8 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
SAFECO Separate Account C (the Separate Account) is registered under the
Investment Company Act of 1940, as amended, as a segregated unit investment
trust of SAFECO Life Insurance Company (SAFECO), a wholly-owned subsidiary of
SAFECO Corporation. Purchasers of various SAFECO variable annuity products
direct their investment to one or more of the sub-accounts of the Separate
Account. Each sub-account invests in shares of a designated portfolio as
indicated below. Not all sub-accounts are available in all SAFECO variable
annuity products.
<TABLE>
<CAPTION>
SUB-ACCOUNTS UNDERLYING PORTFOLIOS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <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
SAFECO Resource Small Company Stock (SAFECO Small Company) Small Company Stock Portfolio
Scudder Variable Life Investment Fund
Scudder International (SCUDDER Int'l) International Portfolio
Scudder Balanced Balanced Portfolio
Lexington Natural Resources Trust
Lexington Natural Resources (LEX Natural Resources) Natural Resources Portfolio
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets (LEX Emerging Markets) Emerging Markets Portfolio
Federated Insurance Series
Federated Utility (FED Utility) Utility Fund II
Federated High Income Bond (FED High Income) High Income Bond Fund II
Federated International Equity (FED Int'l) International Equity Fund II
Wanger Advisors Trust
Wanger US Small Cap US Small Cap Portfolio
American Century Variable Portfolios, Inc.
American Century Balanced (AMC Balanced) VP Balanced Portfolio
American Century International (AMC Int'l) VP International Portfolio
</TABLE>
- 9 -
<PAGE>
- --------------------------------------------
- --------------------------------------------
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Separate Account in the preparation of its financial statements.
These policies are in conformity with generally accepted accounting principles,
which permit management to make certain estimates and assumptions at the date of
the financial statements.
SECURITY VALUATION. Investments in portfolio shares are carried in the
statement of assets and liabilities at net asset value as reported by the
underlying portfolio. Security transactions 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. Investment income and realized capital gains of the Separate
Account are not distributed, but are retained and reinvested for the benefit of
accumulation unit owners.
FEDERAL INCOME TAX. Operations of the Separate Account are included in the
federal income tax return of SAFECO, which is taxed as a "life insurance
company" under the Internal Revenue Code. Under current federal income tax law,
no income taxes are payable with respect to operations of the Separate Account.
3. EXPENSES
SAFECO assumes mortality and expense risks and incurs administrative expenses
related to the operations of the Separate Account. SAFECO deducts a daily charge
from the assets of the Separate Account related to these costs. This charge is,
on an annual basis, equal to a rate of 1.40% (1.25% for mortality and expense
risks and 0.15% for administrative charges) of the daily net assets of the
Separate Account.
There may be fees deducted by SAFECO from a contractholder's account and not
directly from the Separate Account. These fees may vary by product.
- 10 -
<PAGE>
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NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT TRANSACTIONS
Purchase and sales activity in underlying portfolio shares for the year ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
(In Thousands)
SUB-ACCOUNT PURCHASES SALES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
SAFECO Equity $ 55,899 $ 13,264
SAFECO Growth 55,436 12,883
SAFECO NW 5,319 669
SAFECO Bond 2,273 1,187
SAFECO MMKT 62,648 59,158
SAFECO Small Company 3,430* 169*
SCUDDER Int'l 3,527 2,879
SCUDDER Balanced 5,077 2,637
LEX Natural Resources 3,961 541
LEX Emerging Markets 1,698 568
FED Utility 2,765 353
FED High Income 3,458 364
FED Int'l 1,306 211
WANGER US Small Cap 1,727 560
AMC Balanced 3,030 114
AMC Int'l 3,367 231
- ---------------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1997 (inception date) to December 31, 1997.
5. HISTORICAL ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
DECEMBER 31 FEBRUARY 11
------------------------------------------ ------------
SUB-ACCOUNT 1997 1996 1995 1994 1994@
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SAFECO Equity $ 48.808 $ 39.633 $ 32.209 $ 25.373 $ 24.528
SAFECO Growth 38.410 26.928 20.668 14.864 13.910
SAFECO NW 15.388 11.905 10.737 10.134 10.073
SAFECO Bond 19.130 17.915 18.045 15.521 16.217
SAFECO MMKT 15.413 14.874 14.370 13.811 13.526
SAFECO Small Company* 12.731 -- -- -- --
SCUDDER Int'l 14.008 13.022 11.504 10.498 10.948
SCUDDER Balanced 16.872 13.771 12.481 9.988 10.435
LEX Natural Resources** 14.952 14.148 -- -- --
LEX Emerging Markets** 8.670 9.946 -- -- --
FED Utility** 15.135 12.117 -- -- --
FED High Income** 12.236 10.899 -- -- --
FED Int'l** 12.003 11.056 -- -- --
WANGER US Small Cap** 21.391 16.754 -- -- --
AMC Balanced** 9.008 7.887 -- -- --
AMC Int'l** 7.039 6.016 -- -- --
- ---------------------------------------------------------------------------------------------
</TABLE>
@ Inception date.
* Unit Value on the inception date (May 1, 1997) was $10.000.
** Unit value on the inception date (January 25, 1996) was $11.330, $10.350,
$11.110, $9.870, $10.220, $11.650, $7.020, and $5.330, for the LEX Natural
Resources, LEX Emerging Markets, FED Utility, FED High Income, FED Int'l,
WANGER US Small Cap, AMC Balanced, and AMC Int'l Sub-accounts respectively.
- 11 -
<PAGE>
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of SAFECO Life Insurance Company and
Participants of SAFECO Separate Account C
We have audited the accompanying statement of assets and liabilities of
SAFECO Separate Account C (comprising, respectively, the SAFECO Resource Equity,
SAFECO Resource Growth, SAFECO Resource Northwest, SAFECO Resource Bond, SAFECO
Resource Money Market, SAFECO Resource Small Company Stock, Scudder
International, Scudder Balanced, Lexington Natural Resources, Lexington Emerging
Markets, Federated Utility, Federated High Income Bond, Federated International
Equity, Wanger US Small Cap, American Century Balanced, and American Century
International Sub-Accounts) as of December 31, 1997, and the related statements
of operations and changes in net assets, and the historical accumulation unit
values for each of the periods indicated therein. These financial statements and
historical accumulation unit values are the responsibility of the SAFECO
Separate Account C's management. Our responsibility is to express an opinion on
these financial statements and historical accumulation unit values based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and historical
accumulation unit values are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of portfolio
shares owned as of December 31, 1997, by correspondence with the underlying
portfolio of each Sub-Account. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and historical accumulation unit
values referred to above present fairly, in all material respects, the financial
position of each of the Sub-Accounts constituting SAFECO Separate Account C at
December 31, 1997, the results of their operations, the changes in their net
assets, and the historical accumulation unit values for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Seattle, Washington
January 30, 1998
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